Q4 2020 Western Alliance Bancorp Earnings Call
Sure.
Good day, everyone and welcome to the earnings call for Western Alliance Bancorporation for the fourth quarter 2020 of our speakers today are Ken Vecchione, President and Chief Executive Officer, and Dale Gibbons Chief Financial Officer, You May also view the presentation today via webcast through the company's website at.
W Dot Western Alliance Bancorporation, Dotcom and the call will be recorded and made available for replay after three P. M. Eastern time January 22nd 'twenty 'twenty one through February 22nd 2021 out of 11 P. M. Eastern time by dialing one 800 585.
H 367, using conference I D 99 zero to six seven.
The discussion during this call may contain forward looking statements that relate to the expectations beliefs projections and future plans and strategies anticipated events or trends and similar expressions concerning matters that are not historical facts.
The forward looking statements contained herein reflect our current views about future events and financial performance and are subject to risks uncertainties assumptions and changes in circumstances that may cause our actual results to differ significantly from historical results and those expressed and any forward looking statement.
Or is that could cause actual results to differ materially from historical where expected results are included in this presentation.
And the related earnings release, and our filings with the Securities and Exchange Commission, except as required by law. The company does not undertake any obligation to update any forward looking statements.
Now for the opening remarks, I would like to turn the call over to Ken Vecchione. Please go ahead.
Good afternoon, and welcome to Western Alliance's fourth quarter earnings call. Joining me joining me on the call today is given to the Tim Bruckner, Our Chief Financial Officer, and Chief Credit Officer, I will first provide an overview of our quarterly results and how we are managing the business in this current.
Economic environment, and then the Dale will walk you through the bank and financial performance. Afterwards, we will open the line and take your questions and and <unk>.
2020, Western Alliance broke many of our own records from balance sheet growth net interest income and earnings all the while fortifying our balance sheet position.
Our strategy to align the company with strong borrowers nationwide provided us the strength and flexibility to navigate the economic volatility as we grew our balance sheet and income while simultaneously managing asset quality.
Despite external challenges financially 2020 was the strong year and was our 11th consecutive of rising earnings for the year. We produced record net revenues of $1 2 billion net income of $506 $6 billion and the EPS of five levels and the <unk>.
4% greater than 2019, despite increasing the provision expense on it.
124 million of golf.
Our focus continues to be on PPE, and our growth, which rose approximately 20% to $746000 and net interest income increased $126 five billions of dollars from 12%, while total expenses increased the modest $9 $6 million.
Putting the two perspective 2020 revenue expanded 113 times the rate of expenses and a difficult uneven and complex operating.
And given all of these actions tangible book value per share grew 16, 4% year over year of $30.09.
And the fourth quarter results, we achieved a record of $193 $6 million and net income and EPS of $1 three four and increase of 54% from prior year. These results benefited from a $34 2 million reversal of credit loss position consistent with our strong asset quality and.
Results and improved cost of award consensus economic outlook on <unk>.
The quarterly enrollment of deposit growth of $1 billion.
The $1 billion respectively.
Total assets of $36 $5 billion, which was driven by broad based from the throughout our business lines and geographies as clients begin to plan their investments for future opportunities. Additionally, several of our internal business initiatives gain traction on.
The full year loans increased $4 $5 billion, excluding triple T.
Program on 21% and deposits grew a record shattering nine $1 billion, which we believe creates a strong foundation for ongoing momentum and earnings growth as the economy.
From the Covid shutdowns.
Balance sheet growth propelled net interest income decline of $315 million from the quarter or 16% on a year over year basis quarterly NIM was $3 eight 4% up 13 basis points of the third quarter has tripled the income improved and cost the cost.
The income increased to $23 $8 million from the quarter aided by $6 $4 billion of vaccine.
Equity and warrant income on a full year basis fee income grew a healthy eight 8% $78 million.
Full year operating noninterest expense grew $9 $6 million $491 $6 million, producing and efficiency ratio of 38, 8% and the fourth quarter on efficiency ratio improved to 38, 2% as revenue growth was four times non interest expense growth and continued.
And to provide incremental flexibility growth PPE and all.
Asset quality and continue to improve this quarter as our COVID-19.
And <unk> aviation strategy produce increasingly positive results for our clients total classified assets declined to $102 million and Q4, the 61 basis points of total assets, which is lower and Q1 'twenty levels on both the relative and absolute dollar amount and just as the pandemic impacts of.
And Phil.
At quarter, and total deferrals and fallen to 190 million from 70 basis points on total loans, including $77 million from low LTV and residential loans.
As of today, there are less than $10 million of deferrals, excluding the residents of oil and all of our hotel franchise finance loans are paid and St.
The noticeably positive credit trends improved consensus economic value and loan.
Loan growth of the low risk asset classes drove on $34 $2 billion of release of loan loss reserves and support.
And in more detail specific drivers on our provision on our total loans ACL to funded loans ratio, excluding triple T loans now stands at 121 and $2 four per cent or $316 million.
And the total loans the ACL to total classified assets is the 142% charge offs were $3 9 million and Q4 and full year of charge offs from six basis points of loans.
On a robust PPE and our generation continues to drive strong capital levels with the CET, one ratio of nine 9% supporting 28% year over year loans.
Return on average assets return on return on average tangible common equity were 161 basis points of 17, 8% risk.
We remain one of the most profitable bank industry as we demonstrated throughout 2020, we will continue to support our clients and are encouraged by their participation Triple C program and it's the second round is rolling out we have begun processing application and are seeing steady steady volumes and given the size.
And all the time.
Factors and we don't expect the total amount to rise to the levels, we saw the groundwater.
Finally, and most of the pool all of our accomplishments cannot be achieved without the efforts made by the people of course of the line to success and we'll look to excuse.
Excuse me to successfully respond to the challenging COVID-19, and parts, which have strongly positioned and prepared the company whatever may come our way as we enter 2021, we take pride in our peer leading performance and good times from the bundle during the challenging moments Dale will now take the smart finance.
And <unk>.
Thanks, Ken for the quarter Western Alliance generated net income of $193 $6 million per dollar of 93, EPS each up more than 40% on the linked quarter basis as mentioned net income benefited from the release of provision expense of $34 2 million, primarily driven by improvement and the economic outlook during the quarter the loan growth and.
Lower risk asset classes.
Net interest income grew $30 $1 million during the quarter to $314 eight and increase of 10, 6% quarter over quarter and significantly above Q twos performance.
Which we guided.
Noninterest income increased $3 $2 million of $23 eight and weighted for the from the prior quarter supported by $5 1 million of warrant gains related to our technology lending.
Noninterest expense increased $8 1 million, mainly driven by an increase in incentive of tools as our fourth quarter performance exceeded the original bunch of targets, which were established pre pandemic.
Continued balance sheet growth generating superior net interest income growth pre provision net revenue of $206 4 million of 34% and year over year and up substantially from the first and third quarters of 2020, and second quarter benefited from onetime items of Triple B loans lumpy recognition and.
Bank on life insurance restructuring.
For the year Western Alliance generated record net income of $506 6 million from fiber for per share and increase over full year 2019, EBIT when considering elevated provision expense of $124 million per the year net.
The net interest income grew $126 $5 million during the year, the $1 2 billion and increase of 12, 2% year over year, mainly attributable to increased loan balances and triple B loan fees, and the 49% reduction and interest expense.
Noninterest income increased $5 $7 million of $70 8 million from the prior year, we recognized the one time benefit of a fully restructuring during Q2 of $5 6 million.
Finally, non interest expense increased nine $6 million of just 2% year over year as increases in short term instead of accruals and technology costs were offset by lower deposit costs.
Turning now to our net interest drivers investment yields decreased 18 basis points from the prior quarter, the $2 61, and fell 35 basis points from the prior year due to a lower rate environment.
On a linked quarter basis loan yields rose 20 basis points following increase yields across most loan types and mainly driven by of changing loan mix and higher PPP yields related to prepayment assumptions on forgivable amounts.
<unk> yield for the quarter was 367% compared to $1, 76% for the third quarter interest bearing deposit costs were reduced by six basis points and Q4 to 25 with an end of the quarter spot rate of 23 basis points as higher cost Cds roll off.
The spot rate per total deposits, which includes noninterest bearing deposits was 13 basis points, we expect funding costs of essentially stabilized at these levels. However, there could be marginal benefits as higher cost Cds continued to mature and are replaced at lower rates.
The current spot rates indicate a relatively stable margin as we enter 2021 some decline in loan yield is expected as the mix has changed because of lower risk segments.
With regards to our asset sensitivity our rate risk profile and has declined notably since the beginning of 2019 with 82% of our loans now behaving as fixed due to the floors for variable rate loans and.
And mix shift towards fixed rate residential loans, we continue to be asymmetrically position to benefit from any future rate increases with the <unk>.
Estimated increase and net interest income of five 7% from of 100 basis point rate increase and in parallel shock scenario versus the 0.9% contraction in net interest income.
If rates fell and Flatlined at zero.
As Ken mentioned this year, we demonstrated our ability to grow net interest income by 15, 7% year over year, despite the transition to a substantially lower rate environment.
Net interest income increased $31 million of 10, 6% during the quarter as net interest margin increased to three eight and 4% March and benefited from both the true up related to treat triple P recognition fees.
For both the deposit mix shift and improved deposit rates.
As mentioned earlier during the fourth quarter, our extraordinary deposit growth and build the liquidity continues to weigh on the margin and had a negative impact of nine basis points this quarter and <unk>.
And with this the margin would have been slightly above the three 9% guidance. We gave during the last quarterly call.
<unk> loans increased our NIM.
During Q4 by 11 basis points as we true up from the changes to prepayment assumptions made during Q3.
<unk> will yield of 367%.
Notice of the gold line on the Bar chart, showing NIM, excluding the volatility related to three P. NIM was three 8% for Q4 and essentially flat from the third quarter.
Average excess liquidity relative to the loans increased $467 million and the quarter. The majority of which is held at the FRB, earning minimal returns, which reduced NIM by approximately nine basis points and aggregate.
Given our healthy loan pipeline and the ability to deploy these funds to higher yielding earning assets, we expect margin drag to dissipate in coming quarters.
Referring to the chart on the lower left section of the page of the $43 million and total triple B loan fees net of origination cost and.
$11 million was recognized in the fourth quarter we.
And we recognized the reversal of <unk> loan fees and the third quarter of $6 4 million and expect fee recognition to be approximately $6 6 million and Q1 and taper off as prepayments and forgiveness are realized.
It's the second round of <unk> is just underway these fee accretion assumptions only apply to the initial round of funding.
Turning now to efficiency of our efficiency ratio improved to 38, 2% and Q4 is the increase in expenses was outweighed by revenue growth and the only rose 2% from the fourth quarter of 2019.
Excluding PPP net loan fees and interest the efficiency ratio for the quarter would've been 39, 9% and as we indicated last quarter should be returning to historical levels and the low forties.
Pre provision net revenue increased $25 $2 million of 13, 9% from the prior quarter and 34% from the same period last year. This resulted in pre provision net revenue ROA of $2 37 per the quarter and increase of 15 basis points from Q3 and equal to the year ago period.
Good.
This strong performance and capital generation provides us significant flexibility to fund ongoing balance sheet growth capital management actions or meet credit demands from our clients.
Our strong balance sheet momentum continued during the quarter as loans increased 1 billion net of $271 million of Triple P loan payoffs to $27 1 billion and deposit growth of $3 1 billion of a broader and deposit balance of $31 9 billion at year end.
Inclusive of <unk> loans grew 28% year over year on deposits grew approximately 40% year over year with a focus on our focus on LOE.
Thus loan segments and DVA loan to deposit ratio decreased 84, 7% from 92% and Q3 is our strong liquidity position continues to provide us with balance sheet capacity to meet funding needs.
As deposit growth continues to outpace loan origination and our cash position remains elevated at $2 7 billion at year end.
However, we believe it provides us inventory per selecting credit growth as demand resumes and.
And finally tangible book value per share increase of $1 87, and over the prior quarter to $3.90 was and.
<unk> of $4 36, or 16, 4% over the prior year.
Our strong loan growth is a direct result of our flexible business model, which combine international and commercial banking relationships with our regional footprint and enables thoughtful growth throughout economic cycles.
The vast majority of the $1 billion and growth was driven by increases and C&I loans of $655 million supplemented by CRE non owner occupied loans $248 million.
Residential and consumer loans now comprise nine 2% of our loan portfolio book.
Construction of the loan concentration increased modestly to 9% of total loans.
Within the C&I growth for the quarter and highlighting our focus on low risk assets capital call lines grew $408 million mortgage warehouse lines grew $413 million and corporate finance loans decreased to 122 million and this quarter.
This initial loan originations added $56 million of balances by quarter and net of refinance activity.
We continue to believe our ability to profitably grow deposits is both the key differentiator and a core value driver to our firm's long term value creation.
Notably year over year deposit growth of $9 $1 billion is more than double the annual deposit growth of in the previous calendar year.
Deposits grew $3 $1 billion per 10, 7% from the fourth quarter, driven by increases and savings and money market of $1 8 billion interest bearing DDA of $842 million and noninterest bearing DDA of $150 million, which comprises 42% of our deposit base.
Robust activity and tech and innovation and market share gains and mortgage warehouse continues to be significant drivers of deposit growth during the quarter.
Additionally, one of our board of deposit one of our deposit initiatives that is fully on line contributed over $1 billion and deposit growth and 2020.
Looking at asset quality total classified assets decreased to $102 million and Q4 due to credit upgrades and payoffs and refinance activity away from work.
Our nonperforming loans and the <unk> ratio decreased to 32 basis points of total assets and total classified assets fell to 61 basis points of total assets at year end, which was below the ratio at the.
And from 2019.
Special mentioned loans decreased $26 million during the quarter to 167% of funded loans.
As we've discussed before special mention loans of result of our credit and mitigation strategy to early identify elevate and apply heightened monitor into loans or segments impacted by the current COVID-19 environment and fluctuate as credit migrate migrates in and out we do not see the risk of material losses coming from these credits.
Regarding loan deferrals as Ken mentioned as of today, we have less and 10 million of deferrals and excluding approximately $77 million and low LTV residential loans with the weighted average loans of value under 67%.
All of our hotel franchise finance loans are paying as agreed and our sophisticated hotel sponsors continue to confirm the support for their projects.
Net credit losses of $3 9 million of our six basis points of average loans of recognized during the quarter compared to $8 2 million and Q3 on.
And allowance for credit losses decreased $39 million from the prior quarter to $316 million due to the improvement in economic forecasts and loan growth and portfolio of segments with low expected loss ratio.
And all of the total ACL to funded loans declined 20 basis points to one seven.
The 7% of 124% when excluding triple P loans on.
On a more granular level, our loan loss of classes accounts for approximately 40% of our portfolio and include the mortgage warehouse residential and HOA lending capital call lines public finance the resort Linda.
And when excluding these components of the ACL to funded loans on the remainder of the portfolio was one seven per cent.
We continue to generate significant capital and maintain strong regulatory capital ratios with cash.
The common equity and tangible assets of eight 6% and the common equity tier one ratio of nine nine a decrease of 10 basis points during the quarter due to our strong loan growth.
Inclusive of our quarterly cash dividend payment of 25 per share our tangible book value per share rose to $1 87 in the quarter to 30, 90, and the increase of 16% and the past year.
We continue to grow our tangible book value per share rapidly and it increased at three times net of the peer group over the past six years on that.
On the call back over and again.
Thanks Dale.
We believe the our fourth quarter performance was the baseline for future balance sheet and earnings growth that moving off the robust growth, we've had and the fourth quarter on our pipelines are strong and we expect loan and deposit growth of six to 800 million.
But the next several quarters, both loans and deposits each have their own cyclical and seasonal behavior that are not the lines on a quarterly basis.
And the Al mentioned, given our deposit growth and liquidity build we expect there to be some downward pressure on NIM and related to mix changes and the deployment of liquidity into attractive asset classes and.
Additionally, we will continue to see NIM influence on a quarterly basis by the wave of Triple T loans, the forgiven and the second round of Triple T loans coming on line.
<unk> <unk> and our growth will continue and.
And <unk> sheath momentum will drive higher net interest income, which more than offset the planned increase in noninterest expense. Looking ahead, we will continue to invest and new product offerings and infrastructure to maintain operational efficiency, which will eventually push our efficiency ratio back to sustain.
<unk> levels, and Momo and <unk>.
On a long term asset quality and loan loss reserves are informed by the economics of Kevin.
Forecast, which is consistent calling forward could imply any reserve ratio.
On the timing and pace of the recovery there could be some multi accretion into the special mention category and we do not expect material migration into substandard, we believe that the provisions in excess of charge of since the pandemic began on more than sufficient to cover charge offs through the cycle as we do not see any indicators.
And then apply and material losses are on the horizon.
And finally walls on the most prolific capital of generators and the industry are strong capital base and access to ample liquidity will allow us to take advantage of any market dislocations and pain.
The risk adjusted return and to address and future credit and that's all while maintaining flexibility to improve shareholder returns at this time now Tim and I are asking and care.
Questions.
Ladies and gentlemen to ask a question. Please press Star then the number one on your telephone keypad.
Pause for just a moment and compile the Q&A roster.
Your first question comes from Brad Milsap with Piper Sandler Your line is open.
Yes.
Hey, guys how are you doing.
And the current.
Dale just wanted to maybe kind of focus and on the margin of the balance sheet. It sounds like youre going to be able to mostly fund the.
The growth that you expect this year with continued deposit growth.
Would you anticipate with the.
The liquidity that you have continuing to add to the bond portfolio and and and just as a follow up to that it did look like.
The loan fees ex PPP, where maybe higher than normal this quarter could you address that if you found a new loan category that might generate more fees or is that something that might be considered abnormal.
Yes, so as you probably saw we did increased bond purchases in the fourth quarter I think that that is going to continue.
We're under 85% on a loan to deposit ratio, we're certainly comfortable with that timing.
Not sure if thats going to happen as the deposit pipeline continues continues to look fairly strong to us certainly so if that's the case I think the do you want to deploy some of this capital we've been sitting on a large chunk of cash and hasnt been all negative although the returns we're getting are quite nominal.
The ultra of has back up a little bit so I would rather start extending now in terms of investments rather than maybe last fall when and it was difficult even reach 1% on a on the residential mortgage backed securities from the GSE.
And in terms of the the loan fees. Yes, you are right Brad that number even excluding triple P was elevated in the fourth quarter and I'm going to call that essentially essentially but non recurring we just had the sort of things that paid off the help that number you can kind of see that if you look at the note rate versus the average rate for the for the low.
On the book and then it's a little bit lower at the end of the year than it was for the fourth quarter.
Selected and their that the yield was a little bit higher so that will it be a little bit lower loan fees kind of going forward, excluding triple peaks that chegg triple B could be up here as you know as we're just getting started on on round two.
Great that's helpful and then the.
The final question me and I'll hop back into queue just.
Around the hotel portfolio I think you both said that it's paying as agreed don't have any deferrals and that category.
Is it should we understand.
And that is it's paying as agreed under the terms of your six plus six or three plus three program.
Or are all of these operators all of your institutional borrowers actually making new P&I payments that they didn't put up the desk CRO initially.
Brad.
On the deferral programs are completed so these guys are paying as agreed on the original terms.
We're seeing good sponsorship and commitment to these properties and as Tim Bruckner always tells me our sponsors at least feel they can see the end of this issue coming with the.
<unk> seen the release that being implemented so.
It's their impression and ours as well that this won't be going on for too much longer and that's what makes them feel comfortable to continue to support the properties plus as you know we've got a very good loans to value here and Theres a lot of equity sit and be sitting in front of us.
Would you be able to say kind of what percentage of the properties are.
Supported and sales with their own cash flow without the.
The sponsor support can.
Can you define it that way.
And I'll tell you all of the fine.
Overall.
R.
Of course Tober November occupancy was about.
For the 2%.
And I would say that.
And.
And tried to think of the best way and each of that answer.
I would say about two thirds of our hotel book had Occupancies all of our operating expenses. So when you think about it if you go back a year to breakeven point was of 39% occupancy level today, the third of the <unk>.
39% still holds on what's changed is the Revpar has come down dramatically, but operators have been able to cut out their expenses in order to keep.
Keep their cash flow.
Generating to generate the cash flow to offset their operating expenses, they haven't fully yet gotten to the point, where they can cover debt service coverage.
Great very helpful. Thank you guys very much.
Your next question comes from Michael Young with the Trust Securities. Your line is open.
Hey, Thanks for the question I.
Wanted to follow up real quick on on Brad's question on kind of the hotel book and maybe even back on the.
The casino book as well and just kind of.
Date in light of the second round of PPP I assume most of those the operators will be eligible and so that will give them a nice capital and cash infusion as well the won't be as dependent on the sponsors is that fair.
Well the first time around.
Probably put out between 32% and $36 million of Triple P loans, a lot of these all of the hotels don't get the cash flow from Triple P. Because they've got separate management companies away from the wholesale debt management.
So I wouldn't expect that the amount of the triple T and funding Thats going to go to the hotel group will be less debt round. One and also there is a cap on the amount of dollars that's being distributed no greater than 2 million 71 add on.
And I would add.
And it will.
We'll follow with gaming.
And we underwrite sponsorship as much as we underwrite the hotel.
And we underwrite our hotel book so.
And Theyre not as Kevin mentioned, the 36 on the first drop not a big big taker of Pvp for two reasons, one the because of the strength of the sponsorship and two because the.
Of the PPD.
Payroll on the and the structure of the hotel.
Loans, usually have that management.
So we don't expect the big tanker.
Also our again.
Such frequent and ongoing dialogue that we don't see the.
The inability of sponsorship to carry.
And we're very confident.
And that ongoing sponsorship and the relationship that we have there.
With respect to gaming, our gaming again, and it's off strips.
Most of our gaming won't.
Qualify for PPP, because they've got revenue gains non revenue reduction so the.
And the gaming portfolio of has really moved.
Out of the spotlight in terms of concern.
Because of the strong performance that we've seen yes I would.
I would categorize it as Tim said of 100% small strip of 100% of the casinos are open for business the portfolio of demonstrated the ability of the operated at breakeven the cash flow of work better on in these times of the majority of outperforming.
And our pre Covid pre COVID-19 revenue and cash flow of plants and when you think about that statement why would they be doing that there's no place else where people would go and these casinos are open and close.
And they've received funds from the government that they have a little excess cash or they haven't spent a lot of of their cash and so it represents a form of entertainment and just to reemphasize what chipset. This portfolio of does not represent and outsize risk or concern for us at this time.
Okay. That's really helpful color and maybe just touching on the growth side, the 600 $800 million you called out.
Can you maybe peel back the onion on that a bit and just give us a little color on what youre seeing today, and particular with mortgage warehouse potentially being of pressure on a year over year basis was that guidance kind of on held for investment loans or does that include the warehouse et cetera.
Yes, So first thing I'll say six to 800 is a little bit higher than what we said in the previous quarters, which was $5 million to $800 million of I would I would note that.
I would tell you during the course of the year for 'twenty and 'twenty, we had a lot of growth comment on our capital call business and that was over $800 million.
<unk> lending.
The traditional warehouse lending year over year grew by $1 7 billion.
Of note financing grew by $400 million all of the bank regions collectively grew by 500 plus million and resi grew by $300 million, followed by tech and innovation growing $125 million and even our resort lending grew year over year on 180 <unk>.
And $2 million as we think that's sort of.
Prospective backwards as we think about forward for 'twenty and 'twenty one in that number we have.
Little to no growth coming out of traditional warehouse lending.
We're assuming that it just holds its position at year and predominantly.
And if we're surprised we want to be surprised on the upside, but we didn't build a lot of that opportunity and where I. Just went through the full year results for 2020, you can see that a lot of that would go forward coming forward into 'twenty and 'twenty, one and as Dale lifestyle always remind folks on pressure about is around residential loans.
And we can always turn that knob up a little bit and bringing more residential loans.
We need to the we've got a lot of runway ahead of us to be anywhere close to one of traditional bank would have in terms of of percentage of residential loans to total loans.
Okay. That's helpful I'll step back.
Your next question comes from Chris Mcgratty with <unk>. Your line is open.
Hey, good morning, Thanks for the question.
Dale the the.
40% bogey that you are talking about our efficiency ratio I'm interested in kind of the details on that.
And Youre looking at this year as a result of expense growth was quite remarkably low given the growth of 4% is this.
The kind of Telegraphing that expenses are going to reaccelerate a bit next year or.
Yes.
Is there more of a revenue component and just trying to get a sense of that 40% on line in the sense.
Well I'm certainly optimistic about revenues I think theyre going to be strong I think we're going to have strong loan and loan growth again.
Discussed a minute ago.
Perhaps some more deployment into into securities and that will pick up the yield from what's and what's the cash right now, but the expense side. There is going to be some catch up element. So just a couple of things that held the held back 2020 expenses, our travel expenses were down by more than two thirds.
We think there is a benefit to actually getting on the road meeting with clients and as we get past this and I think that's going to pick up maybe in the second and third quarter and probably no later than that Theres other costs related to that cash we didn't have we didn't.
And we didn't have our management conference this year.
That's something that will come into play and 2021 as well. So there is cost related to the pandemic were suppressed and.
In 2000 and 2020, we also have.
Once that we continue the need to make and risk management and infra.
Infrastructure we.
We expect to continue to do that those were the.
They did put on a slower path of growth for 2020, we expect those are probably going to reaccelerate to some degree so so yes.
Do think our numbers are going to be it's going to be going on the floor. Instead of a three is going to be of low parties, certainly and and the revenue is going to be right. There with it. So we're going to be seeing significant increase in earnings per share revenue growth and dollars will be.
More than doubled certainly of what we're doing in terms of.
Expense growth and Chris I was just wanted to add.
We're sitting at $36 $5 billion now has total assets and when.
And when we hit 50, Urs <unk>, our risk management practices have to continue to evolve. So we need to start spending money today on our growth rate has been far.
Greater than I think we even thought and so we need to hire some folks to maintain that growth rate on the operational side as well and I and as Dale said, it's artificially depressed at 38% that's just not a sustainable level to continue the invested.
The infrastructure and technology needed to grow and of course, there's always some new business development in terms of new business lines that we like that are always embedded in that line as well. So again, we've got the revenue coverage to exceed the expense growth and and.
And next year and you can look for us to be back and.
And the loan footings.
Okay, and if I could just one more on on the margin just want to make sure I got the the messaging so.
We look through and the deposit and liquidity build but a lot of your peers are experiencing that's kind of put pressure.
And then you talked about the loans.
This is the right way to think about.
Just core margin excluding triple.
I think.
Modest pressure or did you I can't remember you sort of stability and I think of it to her two different things.
So yes, it's really the triple play I think theres modest pressure because I think even in the fourth quarter, we've had loan mix into these lower risk and hence lower yielding categories and so that's put a little pressure on it on the loan fees and we have and the fourth quarter, excluding away from Triple B, we're a little bit elevated from some some payoffs that we.
And as the once you have of loan pay off early.
If you all of the loan fees that had been deferred and brought back in and so that added a little bit to the fourth quarter number as well, which I don't necessarily anticipate continuing so I'm not going to call that a big number but it's got to have a little a little pressure in terms of the number itself again and we're focused on is net interest income and PPA and our growth I mean, hey.
Hey, we kind of pushed away some of this deposit growth that we had on the fourth quarter, but because of what of that average obviously damages. Our NIM, we think thats a good problem to have I like to be able to take those dollars and I know there's liquidity of abundance within the industry today.
And our view is that isn't always going to be the case and and.
We want to be able to have the resources have the inventory that we can lend out and sustain a superior growth trajectory over the years, Chris I just wanted to give you the incremental perspective, everyone talks about NIM and the sort of divorce, sometimes from our credit quality and I think what's important to note is that we've got a number of business line.
Paul Warehouse line no financing MSR line residential loans resort and financing Muni and nonprofit when you look at what our fourth quarter balances of ours.
Are you to add all of the collective some of those.
Those areas, we have $11 $5 billion of balances that of.
<unk> never had a loss of attached growth sorry, let me correct myself and they've had one loss of 400 thousands of dollars several years ago, but basically I've never had a loss of attached to them and that's 42% of our total loan base. So when you think about NIM I think it's also important to think about risk adjusted NIM. That's the way I think about it.
That yeah, the shrinks a little bit that's okay, and the sense that we're going to still be getting good strong growth, which is kind of go to sales net interest income common but also we're not going to see.
The increased and provisioning based upon the growth and these subsectors that I just mentioned.
Great I appreciate all the color, but it's one of the real.
And that's why we only had $4 million.
Net losses this quarter.
Awesome, Thanks, a lot.
And then to ask a question. Please press star and the number one on the telephone keypad. Your next question comes from Timur <unk> with Wells Fargo. Your line is open.
Hey, good morning, everyone.
Good morning.
Looking at the addition of golf and <unk>.
Just wondering what that contribution was in the fourth quarter and and your comments about just maintaining warehouse balances as those new relationships come on how should we be thinking about just kind of building out those existing relationships not necessarily taken market share.
And in context with your with your flat guide for next year.
And it's kind of funding as I was talking to the head of that area and the other day to day, Let's review on the.
Case, I got a question about it.
Shortly that there would be no question about call and because it's not big enough and I've said, hey, everyone is going to be the interest itself. Let me just tell you what's going on there and the integration is calling well alright.
Had to sign up their existing customers onto our platform and we had to go through that the Eagle and <unk>.
The formal process. The other thing we have to do is roll out our pre qualified approach, which means we had the rollout a pricing engine and rollout of credit attention and a lot of that is going to be fully completed by the end of the quarter. As we go into Q2, so have we gotten some volume from the call yes.
Gotten the volume that we expect no not yet we see the pipeline and building and I think it's going to have more of an impact in Q and we will have more of an impact in Q2, and it will have and Q1.
And remember they cover the 100 different clients and there is only a 30%.
Crossover or overlapping with our existing base.
Okay understood. Thank you and then.
I'm not sure how easy this would be to answer but.
The warrant gains obviously very strong this quarter I know, they're kind of spotty. When you look historically, but as youre looking at the strength Youre seeing and the capital call line business and just and the tech.
Ecosystem generally speaking is there a gauge for what the pipeline looks on some of the income from the equity investments or is that still going to be up and down and every single quarter.
It's going to be up and down it's very hard for us to determine that what I can tell you is with the increase in liquidity of the tech and innovation space. Some of that has come for us and in terms of loans.
Paul and but the offset of the loans falling on the fact that we're getting these equity gains. So we're happy that we always have the built into our loan docs.
Don't get any equity gains around the capital call lines and.
As I've said very hard for us to forecast those those gains.
And from a lending standpoint, and that business. Obviously, there's many new competitors that are also seeing.
Great growth and success and that line and is there enough for everybody or are you starting to see some of the better.
On credits and relationships get more competitive.
More of a lender step into the space.
There is a little more competition, because there are more competitors, but.
Many of them like to go either into we're at the stage two and if you will our stage one early development stage, two and you have some maturity, yes, you've seen the revenues growing the product has been proven to all of the service has been proven.
They're still spending a lot more money in marketing and all of the drive up revenue and drive up the brand recognition of name recognition and then stage III as they're getting ready to do some type of exit either an IPO or some type of strategic sale. So some of the players that are in stage III and don't really compete with us because we're not in stage III and theyre looking at it and.
Terms of exit fees and those would be the larger banks, we don't play there.
Some of the banks, playing and the early stage and that's not where we have our skill set so we're in the middle stage and yes, there is a little more competition, but it's.
<unk>.
I would say and we're not we're not losing a lot of business from we're going after it and where we're winning that business and we're winning and on.
On service.
Thank you for the color guys.
Your next question comes from Jon <unk> with RBC capital markets. Your line is open.
Thanks, Good morning, guys.
Good morning.
Couple of quick questions.
Okay.
Can you just touch on the change in the segment reporting I know, it's not a big deal but.
Kind of help us understand what what's different and what changes and why you did that and the reporting lines or anything else change.
Yeah, So a couple of things so.
Our segments, we're a bit unique relative to other institutions and I think maybe it perhaps it conveyed.
To some degree that we were and the <unk>.
Emulation of of commercial business lives put together and I think that may be.
And did not appropriately conveys that actually we have a lot of the interdependencies. Among these among these enterprises. Among these businesses that we focus on debt, we think have kind of superior growth and and asset quality metrics and so some of them are consumers of of liquidity, others are certainly providers of liquidity and and I think the new structure.
<unk> reflects that and better it's more of a holistic and holistic enterprise in terms of what we're being able to accomplish with the with the business lines that we've selected out to have expertise in.
The other.
And the thing is if you look at where the industry is this much more closely aligns with it.
We had almost the most number of segments of any institution out there now we're going to three that's pretty much in line and even I think JP Morgan has four or five so I think it looks better like that and the other thing as well is.
We have consumer.
Consumer related segment, and I think historically I think people have thought about us as really primarily just the commercial enterprise, but we do have a lot of consumer dependencies, and our balance sheet and what we're doing I think this highlights that better as well, it's how we're really managing the company and how we think about it more consumer adjacent alright, Okay and this is.
Just one other I have a different question, but one other thing on the what else is and consumer loan balances and I'm, assuming mortgages, there, but what else would be captured in there.
So.
Yeah of mortgages are in there.
Balances related to our our our HOA AR balances related to our.
The resort resort finance.
Warehouse line mortgage warehouse the awards.
Okay. Okay. Good.
Tim maybe one for you on reserves and I hear the message on.
You, probably set and we're not gonna see more reserve releases from here, but can you talk a little bit about some of your economic forecast when you cut it off and whether you expect to see some improvement over the next couple of quarters and some of the qualitative pieces of your reserve building.
Sure.
Okay.
We look at.
Reserves is kind of really the convergence of.
Portfolio composition of our behaviors and Remediated and and what's happening in the income so with the.
With the economy and we've seen the.
And the Prognosticators.
And we're really come a lot closer together.
Over and over the last quarter so.
And we talk about consensus of consensus view of aligning generally to a consensus view.
And that's become easier and easier.
Easier to do as we've progressed we have.
A consensus outlook are we shape too.
And one of the consensus outlook when we look at our reserves and then we get into the composition of our portfolio and.
And and and really separate into the near term and and longer term risk and so the things and this.
The economy right now and then.
Pressed with near term risk, we just don't have that much of it.
And the small business lending the point of.
Retail and restaurant.
Small small business line and it's not much that we do and then when we look at our behaviors and we look at the stuff that is.
Potentially under secure things that are cash flow dependent and.
And looking at what we remain we start remediated and that in February So we brought that balance down.
From.
126 million of.
Of what was substandard the $29 million and Youre at so and we look at it we look at it and say what what is going to be impacted and then we test that against our LGD. The macro drivers of very favorable based on our portfolio composition.
Yes.
I want to take the chance.
And just go on.
Sure.
A little off your question, but but drive the call back to the.
On the provisioning and really kind of talk about how we see next year for a moment and then I'll wrap the provision and so so Q4, we earned $1 93.
As we think about going forward into 'twenty and 'twenty. One if you take out the reversal of $34 million and you look towards the third quarter. When we added about $15 million and you normalize for that going forward and taken on and after tax basis, and then normalize.
On the increase and Triple T income for Q4, it gets you to about $1 47 run rate and.
And if you do your dollar of 47 times four.
And that gets you to just a little under $5.90 and we kind of came of that same math last quarter. When we earned $1 36, and we annualized it and we got to $5 46 assets.
So that's how we're moving the business forward based upon that with the viewpoint that we will be increasing our provisions next year, but as Tim said, if the economic forecast improves or as we said and our prepared remarks at the economic forecast improves or if we can.
And you to grow.
And our growth is.
Stronger and those low to no risk segments of loss segments, you can see that provision coming down and that would add to the EPS numbers I just mentioned so I wanted to pay debt provision going forward to what we think is our baseline set.
The numbers as we come out of 2020 into 2021, So I hope that's a little more all of you guys and gives you a sense of where the company is going.
That's helpful. I mean kind of stunned because those of the questions, we dance around and try to not ask directly because we never get the answer.
So that's the that's very helpful. Although I did a terrible job I won't give you that answer again.
Appreciate it.
Thanks for everything guys I appreciate it okay.
Your next question comes from Michael Young with true Securities. Your line is open.
Hey, Thanks for taking the quick followup, just just big picture kind of question on the hotel franchise book, given kind of what we've gone through and I guess, we're not quite on the back end of this yet, but it's looking like it may perform well you probably broaden your relationships et cetera is this going to be of growth portfolio.
And coming out of the pandemic or do you need to keep it at a certain size of the institution go forward et cetera, et cetera, and just kind of updated thoughts.
Well, it's not going to be growth corn, while and the hotel book I'll say since the early part of the 2021 of the pandemic took hold and we've only done by maybe six hotel loans.
Both hotel and purchases were done by our borrowers away from us they purchased more distressed properties.
Probably at discount discounted prices of up to 30% and then we've structured in such a way that our ltvs are no greater than 50% so of 30% up to a 30% reduction we've lowered our ltvs and we strengthened the terms of the.
Conditions and we've always.
And to get the state and pricing. So if we see deals like that those are very very strong deals and if they're in the top primary MSA primary or sorry, I should say top msas and primary and secondary locations that we like and we'll continue to do that but right now the <unk>.
<unk> sponsors and operators there.
They're waiting they're a little cautious and.
They have and put their foot down on the pedal yet they want to see their volume come back before the extend themselves and they are also waiting to see if they can pick up any distressed deals.
And we Havent sold any of our notes or anything like that our clients haven't sold any of their properties that were financing as distressed but.
And I guess I'll tell you, it's still a little on for us the handicap, but we are financing.
<unk> when they meet the criteria of being bought at a discount and we can do it at a lower LTV.
Oh and I should also the coming out of lower LTV and Theyre, putting up a year's worth of operating reserves and a year's worth of.
The principal and interest and so we're getting those programs play out front and because of that.
And we like we like still doing the financing very strong in terms of underwriting.
Okay. That's helpful. I appreciate the updated thoughts.
Your next question comes from Tim Coffey with Janney. Your line is open.
Thank you good morning, gentlemen.
Ken I wanted to follow up on the discussion about the bridge bank subsidiary because the.
The company isn't a unique part of that ecosystem the.
And the industry out there is booming right now and so from a deposit growth standpoint, how much are you counting on that the companies are of the business for deposit growth. This next year.
So.
The tech and innovation side generates usually two and a half of three times.
On growth, so, yes, workout and first of all we're counting on all our areas to generate both deposit and loan growth and don't want.
Two of budget process with us for that.
And there.
Working on their balance sheet.
But.
Last year.
On the Tech and innovation did.
One $1 billion of of deposit growth and there was a lot of cash that was flushed into that business I don't think we're going to see as much come in this year. So I wouldn't expect as much on the tech and innovation, but tech and innovation life Science and I expect.
And for them to contribute in terms of next year is deposit growth.
And also some of our our new business initiatives.
And deposit initiatives still continue.
We had a great quarter.
And from all of our new business initiatives and support.
Alright, and then my other question was on capital management.
Are you looking at managing capital levels right now.
Well on.
Our growth is really strong and so our capital generation is supporting our.
Our balance sheet growth.
So that's the that's the first of the simple as the answer.
We are theres been a lot more.
Deal conversation.
And that we're seeing that come across our desk.
We're a little more interested and the deal conversation that is around possibly new products or new initiatives, new products for us or do ditches.
Some of that.
And we could somehow enhance and grow so we do see some of those opportunities none of them have fit our model. So as I've said the capital generation has been used to support our balance sheet growth.
Okay.
Those of my questions. Thank you for your time.
Thanks.
And there are no further questions queued up at this time I'll turn the call back over to Ken the Kenny for closing remarks.
Yes, thanks, everyone for joining we feel very good about the quarter, we had and on.
Onto 2021, and we'll talk to you.
And 90 days so again, thank you all.
This concludes today's conference call you may now disconnect.
And we are.
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