Q4 2020 Origin Bancorp Inc Earnings Call
Good day and welcome to the origin Bancorp, Inc, fourth quarter and.
2020 full year earnings conference call and.
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I would now like to turn the conference over to Christopher Coleman head of Investor Relations. Please go ahead.
Good morning, and thank you for joining US today, we issued our earnings press release yesterday afternoon, a copy of which is available on our website along with the slide presentation that we were referred to during this presentation.
Please refer to slide two of our slide presentation, which includes our safe Harbor statements regarding forward looking statements and use of non-GAAP financial measures for those joining by phone. Please note. The slide presentation is available on our website at Www Dot Award and Dot Bank.
Please also note that our safe Harbor statements are available on page six of our earnings release filed with the SEC yesterday.
All comments made during today's call are subject to the safe Harbor statements and our slide presentation.
And the earnings release.
I'm joined this morning by origin, Bancorp's, Chairman, President and CEO Drake Mills, our Chief Financial Officer, Steve Brolly, President and CEO of origin Bank Lance Hall our.
Chief Risk officer, Jim Crotwell, and our Chief credit and banking Officer Preston Moore. After the presentation, we'll be happy to address any questions you may have.
Now I'll turn the call over to your drink.
Thank you, Chris and good morning, one of our call last year at this time my closing comments spoke to bid the cycles changing.
And our team was focused on adapting to those changes while always being mindful of the commitment to our culture, our people and driving shareholder value.
Those words foreshadowed what we experienced in 'twenty and 'twenty for me. The highlight of this past year has been the performance and quality of the origin team. This was not accidental we've made purposeful strategic decisions that put us in a position to be successful. Despite the challenges the same mentality of what guides us as we move forward.
While I'm proud of the financial results for the quarter and the full year I'm. Most proud of the resiliency of our employees during the pandemic and the focus they have on serving our customers and communities.
Being able to adapt and being committed to our culture is what is the stunning to us in 'twenty and 'twenty and puts us in a position to take advantage of future opportunities and we ended December was $7 6 billion and total assets of $5 7 billion, and total loans and $5.8 million and deposits.
Net income for the quarter was 17 $6 million and increase of $4 $5 million from the third quarter of 'twenty and 'twenty and 75 cents diluted earnings per share, which is an all time quarterly high for the company. Our net interest margin for the quarter was 3.07% on the tax equivalent basis and our efficiency ratio was just under 58 per cent.
For the full year, we had net income of $36 4 million and diluted EPS of a dollar of 55 cents a pretax pre provision revenue was $104.3 million up 37% over 2019, our efficiency ratio was just under 60 per cent for the year, which was an improvement of over 2019.
Before I turn it over and Lance I want to speak to something that I think gets overlooked and the origin story and that's the success, we have experienced and our Texas market, We entered Texas de Novo and 2008 during an economic downturn. Our strategy was the Grove and the DFW market one relationship at the time that we have meaningful presence and two of the largest growth markets and the.
The country, our strategy has always revolved around relationships, having the right people with the right leadership and earn the trust and loyalty of our customers every day when I look at the incredible teams of seasoned bankers, we have in place today I think it's a testament to the origin culture and our way of doing business. We have executed on our strategy over the last 12 years.
The allowing us not only to increase our presence and DSW, but also experienced tremendous growth and Houston starting in 2013.
And you can see on slide seven and our franchise and Texas has experienced compound annual growth rates on both loans and deposits exceeding 20% from 2016 through 'twenty and 'twenty I believe we are well positioned to continue to capitalize on and investment in people and infrastructure, while increasing our franchise value for the company now I'll turn it over the lines.
Thanks, Greg I'll start on slide eight and so.
We've talked about through the pandemic, our bankers were extremely proactive working with our clients to support their needs from a high of over 21% at June 30th down the less than 2%. The December 31st of loans under forbearance have declined more than 90% over the last six months of 'twenty and 'twenty as.
As we look at P. P P loans and the progress on forgiveness efforts and the fourth quarter, we have processed over $200 million and forgiveness requests as of January 20th of 'twenty and 'twenty, one which is over 35 per cent of balances funded under the program.
We're actively working with our customers to process applications for the second round of PPP funding.
And that's what is the case during the first round of PPP a.
Our bankers are extremely focused and are being proactive and delivering for our clients.
On slide nine and I'll highlight some of the things that we're currently working on to support our customers.
The vision statement, we and clearly laid out is to combine the power of trusted advisors with the innovative technology to build unwavering loyalty by connecting people to their dreams.
With the rapid changes and consumer behavior and the effects of the Covid pandemic. We believe it is imperative to execute on our value proposition of combining high touch and personalized service and the.
The partner with the appropriate technology partners to deliver innovative mobile and online solutions.
Or did the mission around our tech strategy is to continue to evolve and execute our technology plan.
To enable us to deliver a customer experience value proposition and create significant efficiency and capacity and costs.
As you can see on the slide our investment and technology has allowed our customers deeper utilization of our digital channels, particularly in our mobile delivery, which has grown significantly across the platform during 2000 and twin.
You can also see the mobile feature adoption rates are better than industry benchmarks.
We have also built strategies around consumer behavior trends and opportunities to better use data and analytics opportunities to begin using robotics to eliminate manual processes and the other five key mobile digital and technology partners, such as the Max and seen of precision lender work day.
And the others to improve the customer and employee experience and this will continue to be a focus of ours and 'twenty 'twenty one.
On slide 10, you can see and overview of deposit trends for the year.
Our average deposits for the quarter, one of $5 $9 billion and increase of $1 $7 billion over the fourth quarter of 2019.
Of that increase more than $500 million was noninterest bearing deposits.
Our strategic focus of ours has been the lower deposit costs and our bankers have done an outstanding job.
Our total cost of deposits was 31 basis points, and Q4, 'twenty and 'twenty and 11 basis point decrease from Q3 2020 and of 73 basis point decrease from Q4 of last year.
On slide 11, you can see how the loan competition.
And the bottom left of the slide we show the trend of our loan portfolio over the past four quarters.
You can see our loans held for investment and have grown by approximately $1.6 billion. During the year due primarily to $800 million of growth and our mortgage warehouse portfolio and $547 million of growth and PPP loans.
And the mortgage warehouse team has done a tremendous job of capitalizing of market conditions and expanding our client base during the year.
I want to point out that while growth in these two categories was significant.
Our bankers did a great job of growing relationships, which has led to a $5 eight per cent increase and loan growth outside of these categories and seven 5% increase and new loan production.
The licensure of banking has and will remain at the center of who we are and what we do.
It is proven effective again this past year, the bankers have met the needs of our clients the impressive growth, while staying focused on the sound and stable credit culture.
Now I'll turn it over to Jim to take you through our credit trends and selected sector updates.
Thanks Lance as.
And as we have previously reported over the past several quarters, we continue to closely monitor those industry sectors. They could experience of more protracted recovery as the result of the Covid pandemic, specifically the sectors of hotels energy nonessential retail and restaurants and assisted living.
As you can see and on slide 12, the sectors total $539 million down from $551 million and the third quarter and represented approximately 10, 4% of total loans held for investment.
Since the beginning of the pandemic, we have conducted focus reviews of these particular sectors. The monitor the impact of the economic downturn and to ensure the appropriateness of assigned risk ratings.
We are pleased with the stability demonstrated by our portfolio and the sectors and as Lance mentioned, we are pleased with the trends, we were seeing and the reduction and COVID-19 related modifications across our portfolio.
On slides 13 through 17, and we provide the information on the specific sectors, including sector balances and levels of past dues classified loans and nonperforming loans or.
Over the past year, we saw balance reductions and all of the sectors with the exception of non essential retail, which actually increased $25 million during the quarter.
This increase was driven by the expansion of two existing relationships one of which is supported by guarantor strength of over $150 million and the other supported by strong credit tenant lease.
And these sectors continued to hold up well from a credit perspective, as evidenced by past dues of one point of 3% classified loans of 1.93% and nonperforming loans of one 1% of these sectors combined.
While we are pleased with the performance of the sectors, we will continue to monitor them closely.
Slide 18 provides a recap of our asset quality trends, which again this demonstrate portfolio of stability.
And that's through loans held for investment net of PPP. We're of 0.5 O per sand at year end, while total levels of classified loans remained stable at $2 one per se.
I would like to point out that we've experienced a nice decrease and our ratio of nonperforming loans to total loans net of P. P. P decreasing from <unk>, seven and 5% as of 12 31 2019 to the current level of 0.58%.
Net charge offs, the average loans and the PPP for the quarter remained stable at an annualized rate of 0.1, and 4% for the quarter and two 4% for the year again, we're pleased and the resiliency and stability of our loan portfolio.
Lastly, we increased our allowance of credit losses to 1.51% from 1.4 of five per cent of loans held for investment and the prior quarter and to 2.1 per set of loans held for investment net of PPP and mortgage warehouse loans.
While we have experienced the ability and our portfolio as noted above and have seen some improvement and economic forecast data.
We felt that increase and our reserve walk to a lesser extent than in previous quarters was prudent given the recent laws and COVID-19 cases across the country and the continued uncertainty surrounding the deployment of the vaccine over the next several months we.
We will continue to closely monitor the impact of the pandemic and feel that our reserve build is behind us.
I'll turn it over to Steve now.
Thanks, Jim and <unk>.
Slide 19, you can see our yields and costs and loans held for investment portfolio.
As Lance covered previously our cost of deposits continued to decline.
Partially offsetting declines in loan yields during the quarter, our fixed to floating profile continues to remain at approximately 40% 60 per cent split as in prior periods.
On slide 20 of walk through our net interest income and NIM trends.
Net interest income for the fourth quarter was $51 $8 million, which was up $1 $2 million from the prior quarter.
Our NIM declined 11 basis points of three point of 7% of which five basis points was directly related to our $80 million sub debt issuance and the fourth quarter.
Slide 21 shows our net revenue distribution and his.
Historically, our revenue would typically be about 80% net interest income and 20% noninterest income.
And the fourth quarter of approximately 23% of our net revenue was generated from noninterest income.
Although a lower percentage of on Q2, and Q3 of 2020, our percentage of noninterest income was higher than our historical levels.
Finished a strong year and mortgage with revenue, increasing $17 $3 million to $29 $6 million for the year.
Mortgage revenue for the fourth quarter was $6 $6 million, which was $3 $2 million higher than Q4 2019.
On slide 22, you see our trend of noninterest expense composition.
Our total noninterest expense was $38 $9 million, just slightly higher than Q3, 'twenty and 'twenty.
You can see on this slide that our operating leverage continues to improve as revenue growth outpaces expense growth.
As Lance mentioned previously we will be focusing on technology enhancements in 'twenty and 'twenty one.
Now us to efficiently serve our customers and support the future growth to further enhance this operating leverage.
Now I'll turn it back the Drake.
Thanks, Steve on Slide 23, you see our capital of transfer both of the bank and the holding company and the bottom right. We show the changes and our total capital ratio at the holding company. We completed a sub debt offering in October which increased our total capital ratio by 130 basis points. The last sub debt offering was in addition to the bank level of sub debt.
Raised in February 2020, which brought our total subordinated debt raised in 2000 $20 million to $150 million.
And this thing has pointed out we had an incredible year and successfully navigated through an unprecedented time.
You know as I think back on 'twenty and 'twenty for this company instead of thinking about the pandemic I would think about how our bankers showed unwavering loyalty to our customers and our communities. When we were needed most and we accomplished a lot from record mortgage production and revenue significant increases in fee income year over year record mortgage warehouse volumes and balances.
As raising $150 million of capital to further strengthen our balance sheet and so much more.
Now, it's time to focus on efficiency, managing capital and enhance shareholder value, while continuing strong organic growth.
And I am thankful to our employees, our customers our communities and our shareholders and I look forward of what we will accomplish in 'twenty and 'twenty one thank.
Thank you and we'll now open up the call for questions.
Thank you we will now begin the question and answer session.
To ask a question you May Press Star then one on your Touchtone phone.
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At this time, and we will pause momentarily to assemble our roster.
Our first question comes from Matt Olney with Stephens. Please go ahead.
Great. Thanks, Good morning, guys.
Good morning, Matt.
I wanted to start on credit.
And the four key trends look strong and charge offs were contained and non accruals went down and Ah.
The allowance levels are still well above 2% and once we back out the PPP.
Which I guess will give you room for any surprises you guys see this year I'm curious about how you guys are the thinking about 2021 with respect to provision expense.
And charge offs I think the consensus forecasts are assuming around 20.
$25 million for both provision and charge offs I'm curious with what you see today and how that lines up with your expectations.
Yeah, Matt.
At this point.
And then to go back to 2020 per cent and proud of where we ended up but I will remind you that we decided to get very aggressive and clean up some things that traditionally we would work through had it not been for the pandemic and the unknown.
So as you look for 'twenty and 'twenty one.
And I feel very.
And I think about half felt in March.
And of 2020 and half the other day I'd, just like we're in and unbelievable position, but theres still some unknown for US I mean, we've got a new administration, we have a number of factors and.
Making calls and want to be conservative and the process. So as I say <unk> 'twenty 'twenty one for me.
Net charge off perspective, I think it's.
Yes.
It's difficult to say I mean, if I sat here and said Okay. This is where I believe we are it would be somewhere of a.
And the increase for maybe 2020 based on.
What we're seeing the day, but pause and I'm not trying to be vague here, it's just very difficult because of the lack of clarity around 2021.
Our portfolio of quality today is I feel better about it and I have and then in a long time I mean, we've done so much work around the portfolio. When you look at our energy migration and you look at the sectors that will pay endemic of Imp.
Impacted.
We just don't see losses, but again I'm going to be extremely conservative.
Through 'twenty and 'twenty, one and I'm going to make sure that were and are positioned to be able to manage whatever comes of them.
The pipe from this pandemic. So it's difficult to say I think I think you are in line with expectations at this point and and we'll see how things go.
Okay perfect. Thanks for that and then switching over to the the operating expenses and the prepared remarks, I think you and Lance talked about carefully managing expenses. This year, but also investing in technology.
Any more color you can provide and I guess ultimately what type of growth do you think we will see from the fourth quarter of 2020 throughout the year.
We have a.
Tremendous strategy right now of length of the same and ran and might have to talk a little bit about this and I'll take them out.
We are committed to building things and reinvest in the dollars and the state and I think that's the key terms.
And in.
And everything from robotics, and other things we're focusing on.
A long haul perspective technology from the wall of the multiple effect, but every technology of dollar that would utilize the day going to create cost savings and so at this point waves of yesterday, we opened up.
The new office and talked about medical and then.
Authorized and colleagues who've been out of it I believe as we have.
So many paths of growth in the day of 7400 employees and at par and that isn't it true.
And as well due to the knobs and Houston, but at this point, even investing heavily and technology can do and if they could do and based on the fourth quarter.
<unk> sales profile 2021.
Got it.
Okay I'll hop back in the queue. Thank you guys.
Thank you Matt.
Our next.
Question comes from Brady Gailey with <unk>. Please go ahead.
Hey, Thanks, good morning, guys.
Good morning Brady.
So I know the period and the warehouse balances were pretty flat, but the average balances continue to go up pretty nicely.
You know looking at average balances the warehouses now 16% of total loans and some of you guys have had a lot of great success, there and.
And maybe just talk about the outlook for that as we head into 'twenty, one and I know the nationally the mortgage market is going to slow down a little bit but it feels like you all are still taking market share and then.
16% of average loans of the big number of how how you know what.
What's the limit on how big this thing could get.
Well, it's as big of a set of gear that the I believe a day and we were shooting to run and we want to make sure that is great.
<unk>.
It runs about eight to 10 per cent of ounce day Luke.
And the normalized environment, we believe that we might do that.
By the end of the.
The 2021.
We still are taking the clients look and project out based on the mortgage projections of what we think mortgage werent metals.
Paul.
It it come in and of exactly where we're planning to be the arrangement and 3%, 18% number that I don't mind running at slightly over 2%, but this is our strategy and we've been very fortunate and be able to take advantage of the market dislocation and be able to attract and bills and relationships and I think that's the key the mortgage workings.
The read some of the thoughts around that being the cyclical business and everything else, but what we're being able to do the significant.
Client acquisitions and Telemundo the relationship both on the parts of the investment side, So we're being able to get the non Japan deposits at and that'll be the license yet that are really driving the and so with.
It's a business throughout the day.
And and again.
And I'm, not and we're not gonna be weighted much more in terms of them.
Okay.
Alright.
And then I was little surprised to not see any share repurchases and the fourth quarter of your stock is.
And that's still pretty cheap at around one times tangible I mean that makes the bank M&A game hard, but you know it makes the buyback game pretty easy why why did we not.
The buybacks and the fourth quarter, and maybe talk about your appetite for buybacks and 2021.
Yes.
And most effectively from the activity and the first quarter and the.
Technical reasons that we didn't get all and the fourth quarter, but I.
I think the exactly right and if you look at our capital.
And one and what our seafood and looks like at the end of the year.
I would tell the capital that we will you will see the mechanism.
Alright, and then finally for me other than the past.
Guys have talked about.
Kind of low to mid single digit.
Loan growth I think if you ex out the warehouse and PPP all read about.
5% this quarter of 6% last quarter. So it seems like you are kind of the kind of rate. There is that still the right way to think about loan growth in 'twenty and 'twenty one.
Yeah, where we're at.
The strategy through 'twenty, 'twenty, one and to really focus on loan yields and to the.
The relationship that we bring out I think the important thing.
But when we when we bring all the licenses is not just about loan and we're able to expand the wall and have significant returns and lead the life of that if look at our underwriting criteria and the strategy that we have their advice and flat in the criteria. We see about mid single digit growth through 'twenty and 'twenty one at this point and that.
And again, that's pulling back of mortgage.
And that process alright during the year.
Great. Thanks, guys.
Thank you.
Our next question comes from Brad Millsaps of Piper Sandler. Please go ahead.
Hey, good morning.
Good morning, Brad.
Just wanted to follow up on Brady's question regarding the warehouse I think you said last quarter.
He thought it might settle out between five and 600 million, but just curious if you had picked up even more clients. Thank you alluded to a little bit you're still adding folks and maybe in the fourth quarter of that in your mind might make it run.
A little bit higher than and then kind of what you talked about last quarter.
We have picked up I think we went from 21 of the beginning of year to now 44, a couple of more in the queue.
Our folks that mortgage warehouse and their projections of showing that.
Closer to 605 hundred of outstanding at the end of the year and we've been surprised at the January pipelines on the arrogant and and so that's a market wide and so that could run slightly higher but I still think the 600 numbers of pretty good number.
Great. That's helpful and then in terms of the new loans that you're putting on.
And you know away from warehouse and and the P. P. P. Just kind of curious where where those rates are coming on the books and.
And kind of what that means for sort of your NIM outlook as you move the as you move through the year.
Yeah, I will turn it over to Lance is there a and C and doing a lot of work with chase the right.
And on me and him and the outlook and price and that's the as I said the strategy of ours going into 'twenty and 'twenty, one Lance yes, great and good morning, and thanks to rate.
We're very confident and unfortunate and we think that.
Rates are stabilizing and the thing Steve Steve would tell you that we're gonna have you know a few basis points of NIM compression throughout the year as we continue to see some refinances the the lowers from rates, but we're actively working on the deposit side to offset that from alone.
The yield perspective, clearly for us it depends on market.
And the Louisiana, where we actually have a really nice pipeline for 'twenty, one we're still able to get rights and the fours, Texas is more mid to high threes.
For the mix for us, we'll see a little bit of compression.
But the coupon rate, even though we've seen in Q3 and Q4 has been very very stable so very optimistic about it.
Great. Thanks, and just the final follow up for me.
The numbers are correct. It looks like Youre P. P. P loans were fairly flat linked quarter and many of your peers of maybe seen more of a decline just with forgiveness.
Is that by design from you guys or just.
Just haven't gotten as many through that forgiveness process. You had just trying to get a sense of kind of how youre thinking about those running off and and recognizing those remaining fees.
Yeah, I, just think it's sort of the automation through our and say you know platform and that's that's coming.
I would say that.
And we see a lot of that here and the next 60 days on the forgiveness side and.
So just part of the process.
Understood. Thank you guys I appreciate it.
Thank you.
Our next question comes from Kevin Fitzsimmons with D. A Davidson. Please go ahead.
Hey, good morning, everyone.
Hey, good morning.
In the past you've talked about.
Wanting to or.
On the lookout for the right acquisition candidate merger candidate and obviously over the past year or so that's the there's been less activity on that front, we're starting to see in the industry a little more activity a little more Congress in terms of conversation going on.
What are your observations on that front, obviously, it would be easier if you had more currency and the stock.
But just just curious what you are sensing from would be sellers and what you're viewing as opportunities. Thanks.
Yes, certainly certainly there is there seems to be more opportunity up and up and I'm really ignore and our valuations at this point to continue to build relationships because.
The opportunities that we have to talk about are really about building partnerships as they continue to determine what theyre going to do and we think that we're in a position that.
Where we're strong organic growth story, and we're going to continue to focus on organic growth and as well.
One of the strategies that drives my office is to build these partner relationships and so.
We we are going to be able to put capital work from an organic growth strength standpoint, but I do think that.
You will see us active and discussions and hopefully we've talked to.
And our.
Bankers and a number of different folks to keep the on the look out but we do have a handful of ongoing discussions and relationships that we think hopefully will be productive at some point.
Great. Thank you and.
Just on PPP I would you know.
It's tough to project this but is it.
You guys did given the slide deck the remaining fees.
And that are out there to be recognized is it reasonable to assume this forgiveness process takes place.
The course of the next two quarters for the most part about evenly or do you do you see of being more back ended loaded into the second quarter and then separately.
How you guys are feeling about PPP round to a number of banks are saying they they think the demand for round two and will be only something in the neighborhood of maybe 30 or 40% of what you did in round, one and I'm curious what you guys are thinking.
Yes, some of some of the forgiveness and dependent on the 150000 and less loan so and I think we would say we were.
Probably going to get about 65 per cent of the forgiveness and Q1.
We're seeing a little better demand and that on the P. P round, two I would say that.
Our number of.
Notes and I can say the the balances obviously because of the balances of different because youre not youre capped the 2 million versus 10 million, but the number of notes for the clients that were supporting it will probably be about 55 per cent of what we did the first round.
Surprisingly seen.
And clients that didn't take it the first time that are that we're doing and a second for the second round, which was a little interesting.
But our bankers are on it and where.
And the first time around was a huge success for us our bankers worked themselves of the death of a manual process, we've got automated and now with Encino and the process is going well and again I think for a bank our size and so community focused this will be a nice win again.
Okay, Great and one last one on the subject of PPP and the margin is good news you're getting the.
The accelerated.
PPP fee accretion of Bad news, you get another slug of excess liquidity coming and you know theoretically from the SBA.
Do you guys do you all ex.
Specced youll have the opportunity or willingness to build of the securities portfolio with that or or will you just take be taking a little temporary.
Hit on the core margin from that excess liquidity.
Okay.
And I think our strategy has been through this is to from a balance sheet management standpoint is to use low cost funding temporarily as you've been able to detail we had a almost a 27% growth in the interest bearing deposits.
She and the core deposits and the year.
You know over and above what we have done from like the.
Wholesale standpoint, so if we see if we see that type of a influx of liquidity and we would certainly start to reduce our borrowings with that with that because I think where we are at $1 billion with our investment portfolio, you'll see that pretty much remain there a little bit flat.
Great. Thanks very much.
Thanks.
Are we still connected to the <unk>.
And all.
Sarah are you still with us for the next question.
And while they are you available.
Pardon me and this is the conference operator, it looks like we are experiencing some technical difficulties that can announce the next speak.
Questioner.
The next one is William Wallace from Raymond James. Please go ahead.
Thanks, Good morning, guys and that was weird.
And more of a wallet.
Hey, good morning, Hey, drank one point of clarification, just make sure I heard it right did you say you said your loan growth thoughts with the focus on yield would be mid single digits. Instead of talking about warehouse that ex warehouse right. You don't think you can grow the whole portfolio.
Mid single with warehouse coming down some or all of that.
The ex warehouse.
Okay, Alright, that's what I figured.
All of my my kind of modeling questions have been answered and I wanted to ask maybe of.
Bigger picture strategic type question.
And your prepared remarks, you mentioned that you feel one part of the story that might be.
Missed it.
Is the the expansion and in Texas, and the attractiveness of those markets and the past you've talked about the profitability of those those markets I'm wondering if you could just talk a little bit about how profitable those markets are today.
If you continue to grow at an annualized rate of around 20% plus or so over the medium term does that profitability expand in other words can you continue to leverage whatever you have there.
Two of point, where that's even additive to the franchise profitability.
And then how do you think about the.
The cost transfer of.
Having lower cost operations and your Louisiana markets, just wanted to kind of think bigger picture about what.
The Texas expansion means for profitability at Orange co and origin of or the kind of medium term.
Yes.
So we have to look at where and core profitability and profitability as and the core markets and.
You're running at $2 40 to 50 per employee.
ROA.
And and Houston, we're sitting here and one of the three pretty poorly at this point with the with what I think was the significant.
The significant buildup to that did back up a little bit and 29, two from 2019, but I would say it was because about energy migration.
We went from basically $128 million of Emilio groups of $30 million to $40 million and energy.
And which was which was the big move for US and it was it was a strategic that we went through the process. We feel very good about where we are but that backed up the significant piece of the profitability of the Houston. So one of the three recently significant opportunity there to ramp it up and strategy wise, we're looking at Texas as a whole right now.
Two.
Great great.
We have plans to continue the push that.
You look at just to look similar to what we do and Louisiana, but I really want to talk about sex and for a second the bids in 2020, 13% loan growth of $980 million and new loan production.
But the real story of moving for Us.
And Texas, the deposit growth, 38% deposit growth, we had $8 $7 million and the loan fees. So we're starting to see some some really buildup of opportunities and profitability standpoint and to be able to push rate, where we are a day and we won't get the due to that.
And that upper mid level two assets.
And that's where we have to risk.
And Fortunately for us because of the right infrastructure in place and start with them.
<unk>.
But we will continue to let the team, especially from the granularity of standpoint so.
And I'm bullish on Texas, and this is really starting to be of Texas for you as well.
So if we if we look at the.
Profitability of the overall organization and.
Maybe looking at it from a return on tangible common perspective, do you feel you're at a point, let's let's assume that we have and economic recovery and we're not having.
Elevated charge offs that can't be covered by reserve do you think youre at a point and now where we could transition and and really see that return on equity start to expand and and expand.
Expand up to and and perhaps surpass what you might see at a group of peer banks or.
Or do we still have investment needed to drive that kind of final leg of the equation.
We do not need investment we have everything in place 2021 strategically for us as a focus on driving efficiency.
For us it's around loan yields and the number of different things, but absolutely what where I thought we were in 2020 with where we are right today and unfortunately, this pandemic got and the way, but it's.
And our teams have tremendous capacity.
We have the infrastructure, we have the support with the exception of maybe some a few credit support folks.
And the unbelievable position of being able to continue to grow and if we can add the rate of growth that we have since 2016, then we're going to get there pretty quickly.
And can you tell us what that looks like from an ROE perspective, or ROA and efficiency perspective.
Well.
And could.
Yes.
I would say this from an overall efficiency, we have where we are today.
If you look at <unk>.
Some of the factors that are impacting the efficiency.
Especially from a PPP fee and a number of those things that kind of go away. We have some work to do to get us into the mid fifties, where we think we can get by the end of 2022.
And certainly think that we could be similar to where we are at the end of 2021 of the day, but from a Texas perspective.
And we think that from an ROI perspective, which should drive significant and ROA and we should see some and.
And I got to try to say this do not back as and the whole, but we can we can see some pretty.
20% <unk>.
Growth there in 2021 and put us and are positioned to really start piling on to that but that's that's a little difficult to say when we're going into a period of time that we still have some of unknowns that are face and as from the pandemic and impact of of.
Potential losses, I don't we don't see it today, but certainly we're being the Uber conservative, but lance and his teams are I mean, they are focused on what we're talking about right here, we have to be successful here going through the end of 2021 with good ramp up through 2022.
And I know it didn't answer your question, but.
And that helps that's helpful.
Helpful.
I appreciate that kind of bigger picture commentary Jay. Thank you and we'll look forward to hopefully seeing.
Seen losses come in lower than we've all expected.
Yeah and.
And I hope, so that's what where and that's what we filled a day.
I'll start.
Well, we'd like to ask.
Thank you and again, if you'd like to ask a question. Please press Star then one.
Our next question is a follow up from Matt Olney with Stephens Inc. Please go ahead.
Yes.
Thanks for taking the follow up I wanted to dig more into fees and.
And typically on the mortgage front and the mortgage fees were $6 6 million.
I know a lot goes into that number from originations to the the MSR to the hedge.
And any details you can provide that we would see in the Q and I'm looking I guess, specifically for the origination of gain on sale.
And the fourth quarter I think the comparable number last quarter was around $7 4 million.
Yes, and that the comparable number of gain on sale of six three for Q4.
Perfect. Okay. Thanks.
Thanks for that Steve and then.
I guess sort of went back to the discussion around the margin and kind of the puts and takes there I think you mentioned that.
On the deposit side, there is still room to bring that down.
And.
And 44 basis points right now on interest bearing.
I'm curious kind of where you think that could ultimately land.
Down the road once you kind of re price finish repricing the deposits over the next few quarters.
And we think next few quarters, it'll be mid Thirty's and with the.
The needs coming off after the fourth quarter, it could be and the low.
The evidence.
Okay, perfect and I guess just to clarify the commentary on the margin Steve.
And there's some room there to bring that down on the deposit side, but even with that it still feels like there are some.
Some some pressure on the margin.
Because of the pressure on the core loan yields and I get that right.
That's correct we have.
Definitely have more pressure on the loan yields and deposits deposits or if you're at 40, you can only go down to 31 yields you could possibly go down a little bit more based on competition, but.
Our goal is the only have if we can one or two basis points compression each quarter and.
And that's that's the low part hopefully we could we could sustain it but the conservative we're going to say one to two basis points per quarter and hopefully that's the.
We can keep them flat.
Okay perfect. Thank you guys.
Thank you Matt.
Yeah.
This concludes our question and answer session I would like to turn the conference back over the Drake Mills for any closing remarks.
Well. Thank you very much for the time and opportunity and I'll tell you that this is the franchise that has significant upside we have but our sales in the position where I think our balance sheet has been significantly strengthened liquidity.
Liquidity is and a very strong fourth.
Place capital.
And really we'll see some capital buildup of the balance sheet normalizes through 2021.
I think we have as real upside from an earnings perspective, we will continue to drive significant shareholder value I. Appreciate your interest your investment in the partnership and an overall your support so thank you for the call and thank you for your time.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.