Q4 2020 Veritex Holdings Inc Earnings Call
Good day and welcome to the vertex holdings fourth quarter and year end 'twenty 'twenty earnings conference call and webcast all participants will be in a listen only mode. Please note. This event is being recorded I will now turn the conference over to MS. Susan Caudle Investor.
<unk> Officer, and Secretary of the board of vertex Holdings.
Thank you before we get started I would like to remind you that this presentation may include forward looking statements and those statements are subject to risks and uncertainties that could cause actual and anticipated results to differ the company undertakes no obligation to publicly revise any forward looking statement at the.
The time, if youre logged into our webcast. Please refer to our slide presentation, including our Safe Harbor statement beginning on slide two.
For those of you joining us by phone. Please note that the safe Harbor statement and presentation are available on our website the vertex bank Dot com.
All comments made during today's call are subject to the safe Harbor statement.
Some of the financial metrics discussed will be on a non-GAAP basis, which our management believes better reflects the underlying core operating performance of the business. Please.
Please see the reconciliation of all of the Scott non-GAAP measures in our filed 8-K earnings release.
Joining me today are Malcolm Holland, our chairman and CEO, Terry Earley, our Chief Financial Officer, and Clay Riebe, Our Chief Credit Officer, I will now turn the call over to Malcolm.
Good morning, everyone Hope you all remain safe and healthy as we continue to endure these crazy times, we have certainly seen our fair share of cases over the last year, even though several of our staff members have been sick for.
We've only had a small handful of hospitalized despite.
Despite COVID-19 number is still rising the leadership of the state of Texas, There's a lot of our business to remain open with some restrictions and we continue to operate at manageable levels with approximately 48 per cent of our staff currently working from home.
The fourth quarter was an outstanding quarter for vertex we recorded operating earnings of $29 7 million of <unk> 60 per share of 31% linked quarter increase pretax free provision continues to be of strong metric for us producing $38 4 million for 77.
<unk> per share producing a return on average assets of $1 75 per cent for the quarter.
Loan growth ex PPP mortgage warehouse continued its positive trend growing four 3% annualized for the quarter and 2% for the year ended 2020.
Mortgage warehouse continued its strong growth with 24% annualized increase for the quarter of.
For 215% growth year over year, yes.
Yet it still remains the only eight five per cent of our outstanding loans at year end 2020, and even lower from an average balance basis.
We are proud of our lending staff and support personnel, even with the challenges of 2020, we're still able to show positive loan growth.
Pipelines remained strong and we feel like we have a great deal of momentum going into 2021 in the fourth quarter, our C&I team onboarding more new relationships than any other quarter during the year.
We continue to see fallout from the M&A disruption in the Texas banking markets as well as clients relocating out of the national and Superregional institutions. These two scenarios boost our numerous growth opportunities.
<unk> has always been of core principle at vertex.
The other positive loan growth year.
Deposit growth continues to be incredibly strong with total deposits growing 18.7% linked quarter, but more impressive is the annual growth in noninterest bearing deposit growth of 35% year over year.
Our credit picture is becoming clear and is trending in a positive direction for the quarter. We did not provide a loan loss provision npa's decreased 12 basis points and our ACL was reduced from $2 one of loans to one 8% of loans.
We did have charge offs of $16 5 million during the quarter, almost all of which came from acquired loans.
Clay will give you some more color on that but I'll now turn the call over to Terry to discuss the financial results.
For your Malcolm on page five you will see multiple graphs I want to focus on three of these.
The first tangible book value per share increased to $15 70 in the fourth quarter, reflecting strong tangible capital generation of 25 million. This in the 11% increase on the linked quarter annualized basis.
Our operating return on average tangible common equity remained very strong in the fourth quarter at 16, 4%. This level remains well above our cost of capital for.
Finally, the operating efficiency ratio shows that we've now been below 50% over the last five quarters.
The efficiency ratio achieved through our branch light business model is the key to maintaining our strong pretax pre provision earnings on.
On to slide six net interest income increased approximately $1 million from Q3 the Q4.
The 67 million for the quarter. The expansion of net interest income was this was achieved despite $1 4 million and lower purchase accounting accretion and $1 3 million and interest expense from the sub debt raise the core NIM, excluding all purchase accounting accretion expanded five basis points to 3.15 per se.
The GAAP net interest margin contracted 30 basis points to three points to 9% in Q4 of the most significant items affecting the NIM work lower accretion income and the sub debt raise negatively impacted the NIM by 13 basis points combined.
This was offset by six basis points of NIM expansion from disciplined deposit re pricing the additional opportunities opportunities to continue to drop deposit rates lower.
Finally, the prepayment of the 200 million dollar S. H L. B advance positively impacted the NIM by three basis points.
The Q4 loan production was 384% in Q4 interest bearing deposit production was 26 basis points.
The two primary factors, which should help the NIM to improve in 'twenty and 'twenty. One first there's $900 million in CD maturities in 2021 of these mature at a rate of 105 basis points and should be renewed at a rate below 30 basis points second the forgiveness of PPP loans, and the redeployment of that 1% loans into higher yielding.
Asset classes for Q for the PPP portfolio represented a 12 basis point drag on the NIM.
On slide seven another strong noninterest income quarter with $9 3 million in revenue.
This result was led by deposit fees and interest rate swap income.
<unk> were up slightly in Q4 and very much in line with management expectations for full year 2020 efficiency ratio was below 48%.
Turning to slide eight in deposits.
The Mountains day, we had another strong quarter on the deposit front as transactional deposits grew $312 million for over 26% annualized the mix of the deposit portfolio of has improved significantly since the beginning of 2019 with noninterest bearing deposits exceeding 32% of total deposits and our reliance.
From time deposits has now dropped slightly over 22% the <unk>.
From the bottom left of the page shows the trend in quarterly deposit cost average cost of total deposits declined by eight basis points from Q4, and now sit at 38 basis points looking past the fourth quarter. The table in the bottom right corner shows the time deposit repricing opportunity for 2021 and beyond on.
On slide nine you see the details of our loan portfolio Malcolm's already mentioned our growth for the quarter for commercial real estate business remained strong the mortgage warehouse portfolio grew 33 million in the fourth quarter. When you would normally expect the seasonal contraction line utilization is certainly weighing on the C&I growth as you.
Can see on the page you're in the utilization levels are down 6% from 2019 and 11% from the peak levels in the second quarter.
Regarding the PPP portfolio, we had $50 million of <unk> 12 per cent per game in this during the quarter and we expect the pace of forgiveness to accelerate as we go through 2021.
On the slide 10, and the our allowance for credit losses, the slide lays out the impact from seasonal on each loan pool for Q3 and Q4 moving.
Moody's forecast of Texas, unemployment and GDP continuous the key economic inputs into the model.
Focusing on the column level of December 31, 2020, the improving economic outlook positively impacted our allowance for credit losses, one pool of loans to the tune of $18 $6 million, we reduced our specific reserves on non accrual loans of $16 9 million or of reserve level of approximately 21% Mr.
One is to resolve the charge offs during the quarter. Additionally, our reserves from P. C. D loans increased $4 1, million% to 17% of the outstanding balance driven by various impairments within the pools as we've said throughout the first three quarters of 2020, we were building the reserve in anticipation of future credit migration and net charge offs.
This approach coupled with an improving economic forecast allowed us to book zero provision for credit losses, this quarter and reduce our overall allowance.
As in prior quarters. In addition to the loss history in the economic forecast consistent qualitative factors for use in the model that increased our final of allowance of about 35 basis points. Additionally, we still have of $16 million from long interest rate marks on the balance sheet from the Green acquisition. This translates to the 27 basis points of additional cushion.
On that part of the acquired portfolio.
Finally during Q4, we increased the reserve for unfunded commitments of $902000 in the face of a favorable change in the economic forecast. This increase resulted from considerable commercial real estate production during the fourth quarter net has yet to find out.
On slide 11 capital ratios at the holding company of the bank started the year from a strong position and remain robust as we exit 2020, most ratio has declined modestly even though the absolute capital levels are higher the modest decline in the ratios or do the balance sheet growth and a notable increase in unfunded commitments that pushed risk weighted assets higher.
For the sub debt and the increase in the allowance for loan losses for the primary reasons for the increase from the total capital ratio.
Missing on the graph from the bottom right corner of the page, we declared a regular quarterly dividend of <unk> 17 per share or 28% payout ratio of operating EPS.
Also during the quarter, we repurchased 347000 shares at an average price of $22 90 day.
$23 million remaining on the buyback authorization and intend to remain opportunistic with that I'd like to turn the call over to clay for the disc.
Cash and on credit.
Thank you Terry and good morning, everyone on page 12 of the debt call at some of our asset quality metrics for the quarter. The top left chart on page 12 demonstrates that loans on deferral of dropped from a high of $1 2 billion as of late July to $36 million as of the ore.
0.6% of total loans as of January of 'twenty one.
This is particularly encouraging when combined with the fact that past due loans remained relatively flat year over year as you can see in the chart in the bottom left of the page.
Past dues in the 30 to 89 day category include of Buffalo for loan in the amount of $7 million on the hospitality property, that's well secure as well as of $2 million in administrative past dues that are now current NAV.
Net charge offs are reflected in the chart on the top of out of the page the charge offs for the quarter were concentrated in two credits for.
First was the C&I credit highlighted in last quarter's N. P. A review that was showing going concern issues.
The business was shut down and liquidated during the quarter, resulting in the subsequent charge offs of $12 million.
The second charge off was the loan secured by a Houston office building that was transferred to loans held for sale and Mark to market based upon the most recent offers we received to acquire our loan which resulted in a charge offs of $2 4 million.
The balance of the charge offs for the quarter were primarily the guaranteed portion of the acquired SBA loans that were liquidated and charged off.
Our book our reserve build over the first three quarters was done in anticipation of these charge offs and do not change our overall view of the.
The loss expectations in the portfolio.
You can see in the bottom right hand corner debt piece of the loans.
Reduced to 2% of the loan book over the last two years.
An overall reduction of 60%.
Page 13 highlights our hospitality portfolio. The fourth quarter is typically a down quarter for hospitality properties of that being said October was the best revenue generating month for our hospitality book since the pandemic began.
Hospitality loans on the deferment of dropped from 60% of the book and at the 724 of 26, 5% as of 12 31 of 20.
Criticized assets in the hospitality portfolio moved up slightly for the quarter from 38, 6% of the book to 46% as we get deeper into some of the smaller loans in the portfolio.
Moving on to page 14, you see a summary of the top 10 of hospitality loan balances, which make up 60% of our current outstandings.
Revenues for the top eight properties of increased by 35% over the five months of June through October.
On an annualized rate of 84%.
Average occupancy for the quarter declined by 4% to 51% for.
For the fourth quarter. This was not unexpected given the historical performance of the hospitality industry in the fourth quarter of most years, none of the properties of our own deferral of none were past due to the quarter in I continue to be encouraged with the performance of the hospitality book and the steps that we see our borrowers taking.
The manage through the travel restrictions that are in place.
Moving onto the retail Cree, which is on page 15 of our total retail deferrals of dropped to $0. This is meaningful given the net deferrals for 51, 7% of the book as of the second quarter.
There's only one nonperforming loan in the space and this loan of $3 $4 million of secured by 130000 square foot property in Marietta, Georgia, that's struggling from an occupancy standpoint that is more than sufficient value to secure the loan today I don't see any significant issues.
And out of this portfolio.
Page 16 highlights the restaurant portfolio.
The additional stimulus support provided by the U S government via the PPP program has and will continue to be instrumental in the ongoing performance of this portfolio.
Permits have been eliminated as we prepare for the SBA to begin making payments on SBA loans in the restaurant book.
The largest criticized relations relationship continues to perform F for 190 day payment of the Afirma.
Page 17 is a new slide to provide some additional color on our SBA portfolio, which we referenced frequently.
In late third quarter, we engaged in an external review of operations and process used by the vertex SBA team to originate good government guaranteed loans.
We received the results of that review and Q4 and.
And from a process and credit worthiness standpoint, the SBA department was deemed to be substantially compliant with minor corrective measures required.
67% of our current net book balance of government guaranteed loans are secured by real estate.
Having tangible real estate collateral as collateral on two thirds of our SBA exposure will help the limit losses and the SBA book of support stimulus support ends.
As you would expect the levels of criticized and past due assets are elevated given the impact of the impact of the pandemic. Our teams are working with these borrowers as encouraged by the SBA to try to keep these businesses open through the impact of the current pandemic.
I'll now turn it back over the mountains for closing remarks.
Thank you clay one.
One of the brightest spots and greatest opportunities for vertex is our ability to attract incredible talent in many areas of the bank.
As you can see on slide 18, the last six months have afforded us the ability to add additional meaningful talent to our team. The majority of these hires for revenue producers either directly or through our credit process and most have large bank experience.
I've said that vertex fields of important to invest in our future and Theres no weather better way than through the talent channel. We feel certain of these ads will make it the better and more productive company.
Turning to M&A, we feel 2021 will be an active year in our industry for numerous reasons and we hope to be an active participant for the right fit.
Continue to be encouraged by the direction, we are headed and the momentum that is building our talent is in place and our prospects for the future are bright our two major markets are arguably to the best Msas in the country for population and business growth.
We're already for this vaccine to do its work so we can get back to some level of normalcy.
Operator, I would now like to open the line for any questions.
To ask a question you will need to press star one on your telephone to withdraw your question press the pound or the hash key in place standby, while we compile the Q&A roster.
Your first question comes from Graham Dick from Piper Sandler.
Hey, guys good morning.
So I was just wondering a can you guys talk a little bit about what youre doing to defend the core loan yield in the current environment.
Maybe specifically what occurred in the fourth quarter.
To keep that yield essentially stable and then also where you see this kind of trending over the next few quarters.
We haven't seen a whole bunch of pricing pressure candidly.
For our folks have been.
Calling on then in People's offices, when allowed and making.
Contact the some of our markets are many in our markets are not even doing that and so our ability to get things done and execute is worth something.
So at this point, we haven't seen any real pricing pressure as you mentioned, it's been kind of consistent quarter over quarter.
I think as things get a little better I wouldn't be surprised if theres going to be.
Decent pressure provided from some for.
Folks that haven't been in the game.
But hopefully the buildup of some goodwill that it shows that our you know.
We're we're something.
But I don't see it changing a whole bunch of at least in the short term.
Yeah, and I would add to that it's Terry that I think our lending teams have done a very good job in using interest rate floors.
To help boost spreads during this period of zero interest rates, if you will and so I think youre seeing that pay off for us.
Okay, Great that's super helpful.
And then you guys also had pretty good loan growth this quarter.
How do you think this is going to play out in 2021 it.
It looks like line utilization of the bank is starting to.
Starting to pick back up a bit, but it's still pretty low relative to where it would be in a normal environment.
Yes. The line utilization is certainly down a little bit from where it was.
As Texas goes we go.
People continue to move their businesses move here I mean, you read the papers, we've had some large corporate reloads, but then there's a whole bunch of smaller reloads. It you don't have the read about and so we look for positive loan growth takeout mortgage warehouse and PPP, we still think that.
<unk> 'twenty and 'twenty, one is going to be well it'll be a positive loan growth year.
We still get some some pay offs a fair amount of pay offs and for me. That's just the sign of a healthy portfolio, but we've got to work a little bit harder to stay out of it but.
You know I think you know mid single digits, probably for 2021 ex PPP in mortgage warehouse is something that we're certainly going to aspire to.
Okay great.
Thanks for the color that's all for me guys congrats on the quarter.
Okay. Thank you.
Your next question comes from Matt Olney with Stephens, Inc.
Hey, Thanks, good morning, guys.
Hey, Matt the math.
I wanted to start on slide 18.
The good news flow out about the talent investment the last six months.
Taking advantage of some of the market disruptions I think that was an initiative, we talked about a year ago. So greatest few calls per day or.
The question is where do we go from here.
Lots of opportunity to add significant talent or could this initiative remain positive, but perhaps flow from.
Just trying to figure out kind of where we go from here.
Yes, I think.
Said.
Said quarters ago that we were going to invest in people and I just wanted to respond with Hey. This is this is what we've been doing.
You know these are several of these this group of our upgrades, but most of them are just additions.
And.
I think theres a lot of runway with this group right here specifically.
But we will never take our eye off the ball and continued investing in people.
In the people business the disruption is only going to get greater with one of the with the big P&C BBVA deal, we're already seeing that disruption and.
Yes, there as read this morning that the new bank holding companies moving to the Dallas from the.
Yes.
It's just going to get more disruptive and so people are what make the difference and we're talking to some right now that could continue to move the needle for us.
Okay. Thanks.
Thanks for that and then at the <unk>.
Follow up I, just want to go back the credit quality I think you mentioned in prepared remarks that the elevated charge offs in the fourth quarter doesn't really change your expectations of charge offs for the cycle.
Any other color you can add to your view of that charge offs from here. Thanks.
I'll just repeat what we said, yes, we don't expect the the.
Our estimates of charge offs to change meaningfully.
We've been looking at this for the last six months hard and.
We did not up our estimates.
For the loss exposure going forward based upon what happened in the fourth quarter released a couple of large credits.
I think just here I think this is the beauty of Stifel.
Exactly the accounting standard I was excited to see.
But I am having become a fan.
Because it allowed us to use the economic forecast the build reserves in anticipation of what might happen and I think you've seen over the course of bank releases this quarter.
No.
There are a lot of banks for really really including US were very conservative and we remain very conservative and with all of the government has done with the stimulus.
I mean, I just think that debt.
I think by and large most banks' loss expectations are coming down as have hours from Q2. The Q3 from Q3 Q4 of the yogurt.
All cycle losses and this is this is something you knew was going to happen. When you started down this path of the pandemic just didn't know when it was going to be or knew it was going to be and so I think the.
As you know we provided for we did what we should do and our losses.
We are in great shape, that's what we I mean, our portfolio of really I mean, yeah, we had charge offs, but we knew we were going to have charge offs in the cycle and the challenging I think internally is really not to overreact to that you do stuff was coming.
Get it behind Us and you know.
Keep focusing on the good things that are going home of the company.
Sure.
Got it okay. Thanks, guys.
Thanks, Matt.
Your next question comes from Michael Rose with Raymond James.
Hey, good morning, Thanks for taking my questions just a follow up on the unmatched question.
You just kind of laid out that your credit loss of expectations through the cycle really havent changed maybe improved over the past couple of quarters is there any reason to think that you guys couldn't get back to of reserve level that was.
Kind of where it was pre the.
Seasonal day, one adjustment as we move forward, assuming the economy continues to get better et cetera.
Yeah, I mean your question.
Can we get back the reserve levels prior to the.
Pandemic OS diesel and the annual day, one seasonal day, one and the answer is absolutely.
A lot of it is dependent on the economy.
But.
We actually sitting here today, we feel as good about our credit outlook.
Outlook as we've had since April one of last year.
And so yeah, I think that's very very reasonable.
Michael I think that's where we target where we think we're going I think getting I think we agree with getting there of what's hard is knowing how quick win right to get there.
I mean, there's just still of lot of unknown, but yeah. I think when you you know as we come out of this pandemic the.
The the allowance should be in line with somewhere in the range in vicinity of where we were on seasonal day, one and that was one 3%.
Very helpful.
The other question I wanted to ask the outlook seems relatively positive right. So kind of mid single digit loan growth maybe the warehouse comes off a.
The little bit you get some margin expansion deposit inflows have been good is there any reason to think with kind of that backdrop and outlook that you guys couldn't actually grow NII year over year, because I think if you did you clearly would be in the minority.
Yeah.
Yeah, I'm the only the Florida, I think I mean book and when you got $910 million of Cds repricing and the.
The repricing down, let's just call it 75 bps or so.
That's meaningful net interest income growth.
And then you couple that with with the the the loan growth we're talking about.
We believe we're going to see some we don't think it's going to.
We're very focused on that and.
So yes, we believe we will see we will see net interest income growth really led by the deposit repricing.
The growth.
On the loan side, and then whatever happens with PPP.
Very helpful. Maybe just one last one for me can you give US a reminder.
And kind of your M&A targets in terms of of what you would look at it just in terms of the complexion of size you're not you guys are about $8 8 billion in assets close to 10 billion I know PPP will run off but then we got round two I mean would you want a deal to the kind of take you and move us beyond the $10 billion 10 billion. The guideposts are or would you be.
Looking at something smaller tuck in cost save type deal.
Yeah, perfect World, We'd love to do something that would take us measurably over 10 billion for a lot of reasons the gene.
And everybody on this call know about.
The second part of your question would we be interested in smaller tuck in.
Acquisitions and the answer is maybe.
It's possible I mean, theres some of that actually make some really good sense for us.
Yes.
I've got a fairly long memory and I remember when the.
Funding and deposit pricing, we are really really important there.
We're just not today when you put three trillion dollars into the system. There is deposits everywhere, but this too shall pass and so always always thinking out how could we improve our deposit franchise being in a major metropolitan area, it's more difficult in the rural areas provide us a little bit more stability in some of <unk>.
Better funding and pricing. So those are those are options and we are looking at those as well as ones that would jump is over 10.
And one day.
Very helpful. Thanks for taking my question.
Thanks, Michael.
Your next question comes from Brady Gailey with K B W.
Hey, Thanks, good morning, guys.
Good morning Brady.
So so I heard the.
Guidance for kind of ex PPP ex warehouse loan growth of mid single digits.
Yes, the P. P P.
No.
Hard to know what's going to happen with brown to an hour how big that's going to be but but looking just at the warehouse. Some of you guys have had some great growth there.
But you know you're going to have some headwinds with mortgage likely.
With volumes coming down this year. So how do you think about your ability to continue to take market share versus your national mortgage volumes that are going to be offering do you think of it the warehouse will still grow from this level.
I do.
We've got an incredible team there and.
What you don't see is really the change out of the portfolio.
The portfolio, we acquired was not the credit quality that the current portfolio and so the real growth in that portfolio is much more than you see in the numbers because we changed out a fair amount and the quality of who we're dealing with now is measurably better.
And in the saying that Amy who runs our group there who is known nationally.
Is taking market share and so yes, the market itself will probably contract a bit.
But I believe we will get more than our fair share as people decide to do business with with vertex in that Amy So I do see some growth there I don't see the kind of growth we had in 'twenty at all.
We don't want to we don't want to the that dependent on that business.
<unk>, 5% as of.
Period end on an average basis were 70, 171% on the average loans for the quarter. So we still have some room there, but you won't see the growth you saw in 'twenty.
Thank goodness, it's been there because from a liquidity standpoint.
It's been a wonderful bridge from the start of the pandemic to where we might ultimately be and so we're very very thankful for.
The ability to soak up some of this liquidity cannot tell anything of that frequently.
Yeah. It was great great for 2020.
So how should we think the belt.
Buyback do you have some left on the authorization, but you know the stock is.
Done relatively well like all bank stocks have done well recently, but you know it's now at 175 of the tangible in the is it right to.
I think the.
Probably aren't as likely as you shift more towards a focus on M&A.
Yes, yes.
I've been very careful to use the word opportunistic and I think that's what we were in Q4 and intended to remain.
Brady our general view is.
To use capital the priority for capital as is for organic growth strategic growth dividends and buyback and so.
And the buyback world kind of what we're saying.
Happy and eager to be a buyer when the when the tangible book value earn back from the dilution is less than five years.
If it gets over that youre, not going to see us doing a lot. So.
The math is pretty simple, but that's kind of that's kind of our guideline.
Yes.
You can tell where we're going to be and so how much. We do in 2021 is going to be a function of valuation.
We're going to generate a fair amount of capital.
We're willing to use it there if the valuations market.
Alright, and then just looking at the 10 billion asset threshold of you're at eight eight today, you're back out P. P fees of about eight points for and then you still have some excess liquidity there.
It feels like for you to hop over.
The.
With maybe some of this asset shrinkage, that's coming off of it sounds like you're going to have to do.
The $2 billion to $3 billion deal if not more than that some of that.
Maybe to ask maybe ask it differently, how big of a bank M&A deal would you consider as far as the target asset size.
Oh gosh, that's a hard one to answer how big we would consider it because you know my history has been very opportunistic in the first.
For deals we did were just small deals and then we did it and then we did a really small deal and then we did another MLP and so.
I think to just be totally transparent we would look at everything from you know.
<unk> billion or close to it to the MLR of some sort of.
Obviously I think one thing we have definitely learned and this isn't new news as it scale is is hugely important in our business and we've got a buildup of asset base that we can spread these expenses over a wider and big try to become more efficient so everyone would ask so what's the.
What's the size, how big do you want to be and I think the answer for everybody is the same depending on what the ICU are where we want to be double.
The 3 billion you Wanna be six in the grew 61 of the 12.
851 of the 2017 so.
It's hard to say, but again remaining very opportunistic.
It is a core competency of ours, and we want to be in that space.
And we are already having conversations with big one of medium sized ones and little ones and we'll see.
Alright, that's helpful and then finally for me.
I'm just curious the the loan the clay mentioned in Marietta, Georgia, that's a suburb of here in Atlanta.
Seems pretty far out of your footprint, how the jobs get that loan.
Yes.
Good question that was the.
Existing relationship that we had with a local a local business.
And.
They had a location in Georgia, and that's how we got it it wasn't that we were go into GA define the customer we had of customer here in Dallas that we followed the out of state.
Got it Okay, alright, great. Thank you guys.
Thanks, Brian Thanks Brady.
Your next question comes from Gary sooner with D. A Davidson.
Thanks, Good morning, guys.
Hey, I wanted to ask about just your thoughts on kind of balance sheet management and liquidity in 2021 as you get.
But you know the P. P. P repayments coming in you talked about kind of core loan growth, but the.
On that.
You know in terms of the investment portfolio.
What are you thinking of about there in terms of reinvesting cash flows and how should we think about kind of the mix over the course of 'twenty one.
That's the that's a good question I mean, you've seen us the portfolio of the investment portfolio shrank.
On an average basis, we ran with a little more liquidity than I would've liked in the quarter, but that's that's driven really by what's going on on the deposit inflows side. I mean, you know youll see us play on both sides of the balance sheet I mean, obviously, we prepaid a pretty sizeable FHL advance.
Because of the economics, just made sense so.
In terms of the portfolio.
We're not crazy about getting out so far I mean, we positioned for this portfolio of well for falling rates, we have very black convexity. So we're not getting we have reasonably premium position. So we don't have a lot of premium risk that the negative convexity, if we had it in the portfolio and how it really impacts us so well.
Like for the portfolio is we will we're not we don't.
The growing earning assets for important I don't want to see the portfolio shrink a lot and so we're going to have to work hard to find the defined opportunities that debt.
Well close to reinvest those cash flows you kind of do a lot of hard work to find something you like or something you can stomach I don't think you find anything you like.
Okay.
We're not I mean, we have of muni portfolio, but I'm, just not going out in the double digits duration on those things to get.
<unk>, one yields and it's just I, just don't think Thats, the smart move right now, but so.
Just try to be opportunistic we will prepay stuff from we can and we'd much rather continuing to grow the mortgage warehouse business I mean, our kind of internal limits of 10% of average and Amy and her and the team not only thing we've done the great job that we brought in and strengthened that team behind or so I would much rather see is <unk>.
To use the excess liquidity over there versus trying to take long duration fixed income plays in the investment portfolio.
That's for it and then.
The core non interest expense this quarter of 37, and a half million dollars or so.
Keep us a sense of kind of at least early 'twenty one outlook there given all of the hires you've made and were some expense may settle out.
Well I mean I think.
We're we're so efficient you know again, the 2020 efficiency ratio was under 48% we ended the year with even with all of those hires.
Just under 50 for the quarter Hello, just not it's not really going to go down.
The discretionary spend for marketing and travel things like that is going to be higher in 'twenty one.
All of these people that we brought on in the last six months of the year, we will have full year expenses for.
For NIM next year, and we're all hoping that it's going to be.
We're all hoping that variable incentive comps going to be better too.
But.
You know it's.
They look we're very sensitive to the efficiency ratio, we know thats, the key to generating organic capital and.
So, we'll it'll it'll it'll be steady to up some.
But not going crazy.
Thank you.
Alright, Thanks, Gary Thanks, Gary.
I'm showing no further questions at this time I would like to turn the conference back to Ms. Susan Caudle.
This is now from Holland, Thanks, everybody and you'll have a great day.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
Yes.
Yes.
Yes.
Yes.
Yeah.
Yes.
Okay.
Yeah.
Yes.
Okay.
Sure.
[music].
Okay.
Yes.
Okay.
Okay.
Okay.
[music].
Okay.
Yeah.
Yes.
Okay.
[music].
And the.
Okay.
Yes.
Yeah.
Yeah.
Okay.
Okay.
Okay.
Sure.
[music].
Yes.
[music].