Ladies and gentlemen, thank you for standing by, and welcome to the Bank OZK Fourth Quarter 2020 Earnings Conference Call. At this time, all participants’ lines are in a listen-only mode. After the speakers presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded.

[Operator Instructions] I’ll now handle the conference over to your speaker today, Mr. Tim Hicks. Sir, you may begin..

Good morning. I'm Tim Hicks, Chief Credit and Administrative Officer for Bank OZK. Thank you for joining our call this morning and participating in our question-and-answer session. In today's Q&A session, we may make forward-looking statements about our expectations, estimates and outlook for the future.

Please refer to our earnings release, management comments, and other public filings for more information on the various factors and risks that may cause actual results or outcomes to vary from those projected in or implied by such forward-looking statements.

Joining me on the call to take your questions are George Gleason, Chairman and CEO; Greg McKinney, Chief Financial Officer; and Brannon Hamblen, President and COO of our Real Estate Specialties Group.

To make the most efficient use of the time we have for this call, we’d ask that you please limit your questions to one or two at a time and then re-enter the queue for any follow-up questions if needed. We will now open up the lines for your questions. Let me ask our operator, Crystal to remind our listeners how to queue in for questions.

Thank you. [Operator Instructions] And our first question comes from Ken Zerbe from Morgan Stanley. Your line is open..

First question, you obviously had fantastic NIM this quarter. So congratulations on that. But it -- did from your prepared remarks it is seem that both the purchase and non-purchase yields may have some unusual positive items this quarter. Can you just talk about how much of that NIM is sustainable on a go forward basis? Thanks..

Ken, you're correct and we wanted to be clear in our remarks that there was a bit of left on both pieces of that -- particularly on the purchase loans, I think Tim mentioned that was about $1.7 million more than what we would consider a normal run right now. Those numbers tend to bounce around quarter to quarter.

So what's normal is it's hard to determine. But our special assets guys did a great job in collecting some loans that were previously charged off in special assets and collecting loans on -- or interest on some loans or previous non-accrual status that really reflected their good work.

That helped lift that number up to an unusually good number and you can see on the chart, the figure in the management comments that was one of our highest net interest margin numbers in that purchase portfolio on quite a while. So there was $1.7 million, $2 million whatever the number is a little bit of a lift player.

And then we did have probably a bit higher level than normal and again normal -- it’s hard to define what is normal.

But we did have a bit higher level a couple of million dollars -- $2 million or $3 million maybe more and again normal it’s hard to define what is normal but we did have that higher level you know couple of million dollars, $2 million to $3 million maybe more and you know short-term extension fees and minimum interest paid on -- earned on loans in the non-purchase portfolio.

So that was a contributor but there was a healthy trend in the NIM and the core spread even with those factors out. So we were we were pleased with the results..

Perfect yeah that was very good and then the other question I had in terms of loan growth.

At what point do we get past the headwinds of the elevated payoffs, I know that COVID obviously delayed some projects and I read your comments in the release it just feels like these payoffs have been a headwind for probably far longer than they should have been? Thanks..

Well of course 2016 and 2017 were really large origination years which you know created a lot of pay-off headwinds in 2019 sort of you know two to three years after a lot of those big time originations and then we had you know got it last year that we expect that a lot of payouts in 2020, the slowing of completion of construction projects because of shelter-in-place orders and the slowing of the transition sort of financing, the bridge financing, permanent financing that takes us out clearly reduced payoffs and in the second quarters and third quarters of last year and pushed those out, we began to see quite a bit of that come back to the table in Q4 and will very likely have a record level of payoffs in 2021 in part because a bunch of payoffs pushed from 2020 to 2021.

And we still have normal volume that would normally payoff in 2021 as well. So we know that's a -- that's the challenge for the year. We've got to work hard to find good quality, good yielding loans that meet our high standards and without sacrificing quality or pricing.

So we can continue to keep our pipelines full and originate enough to offset the payoffs and hopefully rich not enough to achieve some growth in the portfolio as well.

So it will -- this will be an unusually challenging year from a payoff perspective in 2021 because we'll not only get what we would normally get in 2021, but we'll get some, some overflow from 2020. That's pandemic related delight overflow payoff. So we know it's a challenge.

But the encouraging thing was RESG originations ended the year at a really good level. And even with all the noise from the pandemic in 2020, our RESG originations were a little bit better in 2020 than they were in 2019. And we have good pipelines going into the end of the New Year.

So it's we've got to go produce every week, every month, every quarter and that hasn't changed..

All right perfect. Thank you very much..

Thank you. [Operator Instructions] And our next question comes from Timur Braziler from Wells Fargo. Your line is open..

Maybe looking at the other side of the equation and looking at the good growth, you've seen in unfunded commitments over the past couple of quarters, is that indicative of sponsors getting more comfortable and re-engaging and I guess what segments within RESG, are you seeing growth come through?.

Brannon you want to take that? That's a RESG question for sure..

Sure, Timur. Thank you for the question.

Yes in part there is as we've come through COVID, the initial shock was strong and affect a lot of people's thinking, but as we've enumerated historically, the sponsors that we deal with and in the markets that we -- that we deal in, that the level of sophistication there is, is such that they're not going to throw the plans aside forever.

COVID notwithstanding and we're starting to see gradually and I don't want to overstate that there are still -- there are still projects out there that are on the sideline. But we've continued to see really in the Southeast I think is -- and we'll call it South -- Southwest is where we've seen a lot of activity.

We've talked a lot about some of the major demographic trends and migration from you know the north east in particular to the south, Southern Florida those trends continue, continue to see some migration out of California into the Phoenix and Texas markets and other markets as well.

So there's a demand - underlying demand there that is - that is still justify a lot of new development and I'm not going to - I'm not going to say that everybody's full bore they're not, there's still a number that are waiting to see how things play out.

But I think some of the success that we've had and the growth that we've been able to achieve and in a year that you wouldn't necessarily expect it is again tied to the fact that we're playing the long game here, we are put together -- we operate for the long haul and are structuring our loans and doing deals with sponsors that you know support the asset quality that we feel like is coming through in our comments here and so we were always lending, we never stopped lending when COVID struck and we continue to do that and I think that reliability, the relationships involved there really undergird our ability to continue to have a strong pipeline.

So I talked about geographically the southeast, south southwest has been strong but you know I don't want to leave out even in the Northeast you know we haven't been doing a lot in our New York market as we - as we've discussed but the guys up there have done gone a great job in working in two other markets in the northeast like the Boston, Cambridge Market the D.C.

market, the Baltimore market and trying to press into some secondary markets in that world as well So they’ve had good success there, we’ve done some honestly some good industrial winning up there.

I know you probably noticed we broke out for the first time our life sciences lending a lot of that has been as you can imagine in the northeast and the Boston Cambridge market. Very proud of what the guys have done up there on some really nice deals and in a product type.

It's obviously in high demand given that the pandemic we're in today and others that may come in the future. So we're pushing hard into a great product type there. And we've got other opportunities in other markets for that product type as well. So that gives you some idea of the sectors geographically and for a property type perspective.

Multifamily continues to be strong, but we're trying to be very careful as we originate in that space. It's it has probably the most highest number of developments. And in addition, competition pursuing this development.

So we'll probably continue to see strong origination there, but we're being careful to make sure it's in the right place at the right time with the right people..

Okay. Thank you..

And then you can see that in a lot of what Brannon was talking about in figure 34, which is the kind of summary recap of the distribution of loans. New York has been coming down for a number of quarters just because it's hard to find new things that make sense there. And certainly, that is a very significantly impacted COVID market.

So we’re probably down a $1.3 billion or so from what we were at one New York.

But if you look over out of the six, seventh and eighth, most active geographies all at $800 million to $900 million range of Boston Philly in DC, which the New York office services, those markets and it's had a growing presence in those markets for the last several years and particularly the last year, year-and-a-half, and then Miami Tampa are three and nine on the list and Phoenix is 10.

So you can sort of see the emergence of these new geographies and our largest markets, as migration trends and business opportunity trends were shifting. So I think our guys are doing a great job of seeing where the opportunities are and where deals are that make sense in getting there..

Okay. Thank you. And then as a follow up question, looking at the liquidity bill, cash provisions about a $1 billion higher year-over-year, loan growth, it seems it's going to be pressured with some other headwinds from continued pay down. I guess what do you guys with that liquidity, how quickly can that be deployed and in time that back with margin.

Can the margin be sustainable with a level of liquidity, especially given some of the tailwinds that it got from these and other more or less one-time items in the fourth quarter?.

Well, I would, I would kind of turn that question around and say we were very pleased with the margin results that we’ve achieved the last couple of quarters and particularly in the quarter just ended last couple of quarters and particularly in the quarter just ended where we had very nice margin expansion even holding more cash and more securities than we’ve probably ever held or at least among the highest volumes of cash and securities we've ever held.

So you mentioned the cash position being much higher than it was a year-ago. The securities portfolio is also much higher than it was and the amount of securities pledged is much lower than it was. So in all respects, our liquidity position is very - very good very strong. And that's - that's a positive.

Obviously when you've got money in Fed funds that 10 basis points more or less and you're buying short-term high-quality securities that are a year or 18 months or 6 months in duration and you're getting 20 basis points, 25 basis points, 30 basis points may be on those if you're - if you work really hard and are lucky.

That doesn't help the margin very much. So the liquidity position has weighed and will continue to weigh on our margin. We want to keep a strong liquidity position and that's a source of strength for a Bank. I don't know that we need quite as much liquidity as we have but we're not - we're not complaining about that.

So it's just - it's money that you need to keep and with strength you need to have to manage your balance sheet. So it's a good question. I wish the curve would stay open. And there were things that you could be excited about investing them.

But at this absolutely low level of interest rates and the curve is relatively flat as it is there’s just not much incentive in our view to do anything other than stay super short and ride out this time and keep the liquidity you need to keep are in the [indiscernible] little yield you can earn on it and deal with it..

Understood. Thank you very much..

Thank you..

Thank you. [Operator Instructions] Our next question comes from Matt Olney from Stephens. Your line is open..

Great thanks for taking my question.

I want to circle back on the organic loan growth discussion and the management commentary walk through some of the major segments whether it's RV Marine, Community Bank and RESG, each segment seems to have its own drivers that have some level of headwinds in them, but when you take a step back it seems like the moving parts point to total non-purchase loan growth ex-PPP that could be relatively flattish in 2021 versus 2020.

I just want to make sure I'm thinking about this right..

Well I don't know that we’re giving specific guidance on whether that's flattish or up a little or what.

But you know I'll give you a little more color Matt that may be helpful to you, the community bank segment is very challenging right now because you got a bunch of small banks out there that are desperate for loans and they're getting and have been really for quarters now, very aggressive on credit and very aggressive on rate.

And we're going to hold our credit standards and our equity down payment standards and not give on those and we're going to hold our minimum pricing standards not give on that.

So we always have and certainly have in the last year, lost business in the community bank sector to other competitor banks that were just doing things a lot cheaper and a lot more aggressive on credit than we would ever be. And that's why that category of lending shrunk a little bit last year.

Likewise we retooled our business model far and direct unit last year and really we're on the sidelines for the most part for about six months or so more or less there. And I think that was a great decision.

I feel really good about that because we used the data and the analytical capability, we've gotten the strong capabilities of that excellent team to build a better business model, which we started kind of rolling back out in Q4, when you shut the engines off, it takes a little while to re-lap the engines and then once you get the engines relate it takes a little while to get forward momentum built up.

So we're in the process of building momentum in the Marine momentum built up.

So we’re in process of building momentum in the Marine and RV Group and I think you'll see there overtime, it may take a while for us to get the kind of momentum we want, but what I think you will see is that growing at a less rapid pace than it did and in sort of the 2018-2019 timeframe. But I think you'll see it resume positive growth.

And hopefully that'll be in the back half of 2021. And what we will be booking there, what we are booking there now has lower premiums and higher spread. And I think is every bit as good quality-wise and pandemics pretty much revealed the - by high-quality of what we've been doing there.

But I think what we will be originating is going to be every bit as good quality-wise as what we were originating. And yet we're going to be getting better spreads and paying lower premiums for that. So it's going to be much more profitable business going forward.

That unit will probably continue to have net pay downs for the next we’ll let's just say the first half of 2021 more or less.

And then I think somewhere around the middle of the year plus or minus a month or two we get to a point where originations probably equal pay offs and then hopefully we'll have some net growth from that unit in the back half of the year. And then we've talked a lot about ESG, it was the big source of our growth in 2020.

It was essentially all of our growth in 2020 and we’ll be the biggest growth engine for us possibly in 2021 it’s our best shot to have a lot of growth and that’s just simply a game of can our guys go find the deals and get the deals closed in large enough volume to you know cover the payoffs and achieve good positive growth and our team there has had history of coming through for us certainly we’ve got a big wave of payoffs to deal with.

But at the same time you know I'm not - I'm not willing to accept the idea that those guys can achieve the volume that we need to get some decent positive growth numbers. Now they've got to work hard and market conditions and sponsors have got to cooperate with us in achieving that but those guys have you know had a history of doing really good work.

So I'm not going to sell them short and say they can't do that, so we could have a year where we you know because of just you know an exceptionally high level of payoffs, we have zero loan growth.

But I'm certainly not willing at this point to concede that that is the case and we're going to work really hard to achieve the best margins we can while maintaining our quality and achieve the best growth we can.

So you know we’re in a business where you got to produce every day and if you don't produce then you're going to you're going to go backwards and we don't want to go backwards. So we're working real hard to go forward..

Okay that's great. Thank you for the commentary and then I guess as a follow-up also I want to ask about excess capital and overall capital levels still remain excellent.

The bank if asset growth is call it just less material in 2021 versus previous years, I’m curious what your [ph] thoughts around a potential share buyback program that could allow the bank to deploy a portion of excess capital.

That's a great question and certainly an item that is getting more and more discussion internally here. And the one - one of the reasons that we've articulated to hold significant amounts of excess capital as we have the last couple of years is to be ready for a situation where economic turbulence created opportunities.

We've certainly had the economic turbulence that has resulted in some opportunities. We had a very short window of time to make some very capitalize on some very opportunistic purchases of securities.

But the Fed's very aggressive action close that window shortly And we've had the opportunity to improve pricing which was reflected in our improving margin and core spread margin in the most recent quarter of course spread in the last couple of quarters. And gain market share in RESG.

But you know the big time opportunities that would allow us to utilize a lot of our surplus capital have not yet materialized and may not materialize because of the extremely rapid and aggressive monetary and fiscal policy responses to the economic downturn resulting from the pandemic.

I’m not sure that we won't find some good opportunities to capitalize on but the prospects for those seem to be less and one would have expected you know I have been very outset of the pandemic and [indiscernible] of those capital uses to materialize certainly will suggest that we need to look at - better ways to use some of that capital..

Thank you. [Operator Instructions] Our next question comes from Catherine Mealor from KBW. Your line is open..

I really love your bubble charts I think they really help tell the picture of the diversity in your loan portfolio and wondering if we could turn to figure 40 at the RESG office portfolio and what -- if you can just give us a little bit of detail on a couple of a few really large New York office properties of course really low leverage at only 30% but they're kind of larger with earlier vintages and then that really large looks like a Los Angeles office property in the blue.

So I guess one, just wondering if you could give us any kind of anecdotal color on the larger exposures and then also it looks like there was a new office property in Dallas that was originated this year which has a higher LTV than that average portfolio I was just curious, as you think this is going to be a trend and some of the new originations needing to kind of move up on your leverage, or if that's just credit specific? Thanks..

Let me, talk about the Dallas bubble and then Brad and I'm going to throw the New York and LA pies to you and you might want to add some color on the Dallas base. The newly originated loan in Dallas is a loan that we made to a party that was a mass lender on a office building loan that we had in Dallas.

And the sponsorship surrendered that building to the mass lender. So the mass lender has taken that over. So our loan to the mass lender on that is about a 70% or a little higher of new appraised value on my property. It is cash flowing but the sponsor decided to not defend their position in that bill and surrender it to the mass.

So that really speaks to the, you know the quality of the structure of our transactions. I know of some of you that are not in commercial real estate and wondered wow, you know do this having mass lenders and the transaction enhance the bank's risk or increase the banks risk. And it actually lowers our risk and that's a great example.

They are the sponsor. I don't think this like the asset and they sometimes sponsors have to choose what assets they're going to defend and they surrender that to the mass lender. It was coming up for renewal and our world.

And we were expecting substantial curtailments and pay downs because of changes in the tenancy buyer and how we expected that would and how we expect that that would impact the appraised values it deed.

So when [indiscernible] took over the property we originated a net loan to the mass lender first to acquire the node and then very, very quickly moved into the ownership position on the property and - so our loan is now secured by a mortgage on the property and all the all the same collateral as our original loan to the sponsor, we did get about $16 million curtailment I think on that about $5 million of actual cash pay down and about $10 million or $11 million - $9 million, $10 million or $11 million something like out of future funding went away as part of that and I think we've got to improve our pricing or at least hold it the same and get fees associated with that new loan.

So it's a - it's a full market right loan and full standard credit terms that we would do a new loan it is the only difference is it's higher leverage than what we would normally do a loan at but even with that our exposure was reduced sizably in connection with the transfer of ownership.

So Brannon you might want to add a little more color to that, that's probably enough on that but you might want to address the office in New York and LA and elsewhere..

Sure, sure, no you did good job of covering that George and on our New York office exposures that you mentioned, we've got four office loans in that CBSA and we actually on one of those had it was already very well leased with 95%.

We had a panic that was about 25,000 square foot tenant actually expanded their lease by another 26,000 or 27,000 feet during the quarter. So that particular of our building is in very good shape from an occupancy point of view.

We've got another that is working on a lease that is not signed yet, but very far advanced that would occupy about 40% of that one. So, and those are our two largest office buildings there. We've got another one that's leased in the 80% range I believe.

So we're -- those are our largest New York and older vintage New York bubbles that you're seeing there on that bubble chart. And then in L.A. that the big one that sticks out there is, it was originated for early in 2020. It's a transitional execution. So right now they're really deep in the middle of that. It'll be awhile before it's fully complete.

And you know obviously with COVID being what it is, we're happy for that time for them to work through that and then begin to lease up process. But that's the big as a $433 million bubble that you're seeing there on your chart..

And that's really helpful color.

And then I'll question -- as one of the discussion earlier, I know this quarter is elevated, but typically don't we see elevated loan fees in periods of time where you have elevated pay down and so would it be fair to say that we should still see a fairly high level of loan fees this year, given that we expect pay downs to be so high in 2021?.

That's a great question Catherine and it's a -- kind of a complicated scenario, a lot of what generates the loan fees on payoffs is, if the loan was done for 36 months and it paid off at 24 months and you'll recall a year or two ago we were complaining a lot about the fact that our loans were getting paid off faster and faster and faster than you have unamortized loan fees if they're paid off well in advance of maturity that they kick in and, give you a little boost in yield that the payoff of those loans, as the pandemic is delayed construction on projects, you know three six months whatever the number is and as permanent financing has been delayed a few months on projects as well.

You end up in a situation, where those loan fees that you originated in deferred and amortized over the life the loan, you get close to the original maturity or even do a 90 day or 180 day extension because it takes a little more time to get the guys to their permanent execution.

And you don't have the fees that are unamortized because they've been amortized into income over the last, the loan -- loans gone full term. So to the extent that the payoffs get extend, you lose some that extra boost at the end, now, on a lot of these loans what we’re doing 90-day or a 180-day extensions, we do get extra fees for that.

And that is contributed some extra income as well. We are, in a lot of cases, able to collect some minimum interest on loans, that varies quite a bit from quarter-to-quarter and month-to-month and so forth.

So I don't know that it would be fair to assume that in 2021 because we expect a lot of payoffs that that's going to result in a lot of extra juice to our net interest margin from accelerated recognition of previously deferred fees, because most of those loans are going closer to full term than in the past. So there's less of that bump at the end.

To the extent that we do get to do some extra term on some of those loans where we -- they're in the process of finishing up or in the process going to permanent market and we get to do a 90-day or a 180-day extension on them that could generate some extra fees and help us with the income situation.

So the answer to your question is, it's complicated and we're going to have to see how it plays out. I don't think it's a negative for us. I don't know that it's going to be a significant positive either..

Thank you. Our next question comes from Brian Martin from Janney Montgomery Scott. Your line is open..

Yeah. I just wanted to find out just a little bit more on the margins. George, I think you called out some of the guests, modest listing you got from some of these onetime items this quarter. The Mark kike you said the margin still saw a nice improvement with the cost of deposits going lower and all the work you guys have done on the deposit side.

Just kind of wondering once we reset that a touch lower for some of these items you called out. If you can just talk a little bit about the puts and takes of the margin going forward especially as you continue to expect some funding costs to go lower just kind of whether with a loan yields and what you're seeing there and how that may play out..

Tim, you want to take that one or you want me to take that one..

Yeah. George, I'll start and you can follow up if you have any follow up to it. Brian, thanks for the question. We gave you certainly a couple of figures there to look through on our core spread until you're 16. And then our time deposit maturity schedule on a figure 17.

Obviously, we're very pleased with the level of increase in costs of interest rate deposits. We've had the last couple of quarters 18 basis points of decrease. This quarter was very good. We still have room to go there. I think we've got room certainly in the next few quarters.

If you look at that figure 17, both of those quarters have over 100 basis points of weighted average rate, or weighted average rate of new and renewed time deposits in the fourth quarter was 56 basis points.

So a lot of room to move -- moved down certainly in the next couple of quarters and still in quarters two and three, not maybe not as much as you want Q1 and Q2. So I think that's a positive trend certainly as we look at margin in core spread.

We do as George mentioned earlier in the call our reinvestment rate on our securities is obviously is putting some headwind to our yield on our investment securities book so that goes the other way a little bit and then as you mentioned our purchase bond yield was the highest it’s been in a number of years, the difference there is - there is what we had previously, in previous years prior to CECL some recovery income on purchase loans that vary from quarter-to-quarter that with the adoption of CECL go into the yield.

So that that can bounce up and down from quarter-to-quarter and we had a good amount of that certainly in this past quarter, so a lot of moving parts there but I do think that costs of interest bearing deposit decrease the opportunity that we've got, in the next few next few quarters does provide us opportunity to continue to improve the core spread which will certainly help from a overall net interest margin standpoint.

The level cash and securities we have and the reinvestment of those is probably the main contributor to offsetting that to some degree and then of course our purchase loans are paying down know 12% to 13% each quarter and they're yielding favorable levels as well, so anyway I hope those comments will help and George I don't know if you have anything else to add..

I think you covered it, unless Brian as a follow-up question..

Yeah, yeah maybe just follow-up it’s just the new loan origination on the non-purchase side, where are those coming in today, I guess just on the RESG side maybe more so than the other components because you talked about it George.

I would tell you that our spread on new originations I would tell you that are spread on new originations that we're booking and working on now is - is not quite as good as it was in 2Q of 2020 right after the pandemic started. We obviously -- we are the only guys out there in the space so we were getting better spread then and we had in a long time.

But the spreads are better than what we were getting in 2Q of 2019. So it's not as good as it was last year. And we'll start seeing the benefits of that spread from last year and in 2021 and 2022.

And the new stuff originating today is better than it was a couple of years ago but not as good as -- as what we were getting 10 months ago or nine months ago.

Brannon, are you agree with that?.

Yeah. No that's all spot on, George..

Okay, perfect. And just one other one for me and I’ll come back with the can the level of criticizing classified, I guess my assumption is there was not much movement in the quarter.

Or can you just give any color and directionally how you're with trends you're seeing there?.

Yeah. We have….

Go ahead Tim..

Yeah. Thanks, Brian. Obviously very strong quarter from a credit quality standpoint. We did have a charge off a 14 basis points which still is very, very good in the quarter, our non-performing assets, non-performing loans are still very good.

They kicked up, non-performing assets ticked up really just slightly in the quarter but very low levels due to a couple of loans that came off of a their deferral.

And we move to non-performing one of which was a purchase loan that we got from a previous acquisition Purchase loan that we got from a previous acquisition that had lowered into our non-purchase category. It was just under $10 million senior living facility that -- that struggled obviously during the pandemic to keep occupancy and keep levels up.

But very strong levels or substandard really didn’t move as you saw in our chart but we’ve got there very stable substandard level, and you saw our deferrals come down to under 1% and as you look at our special mention which we didn’t give you that -- we don't have a chart on special mention that -- special mention is still very favorable levels.

I think it was up just little bit from Q3 that did not much sell and still very low, low levels..

[Operator Instructions]. And our next question comes from Stephen Scouten from Piper Sandler. Your line is open..

Hey. Thanks everyone. I guess if I could start maybe thinking about expenses a little bit. You know you previously talked about some additional professional fees or other hires and they're consultants and other things that might be able to come out over time. It really good expense results here in this quarter. I'm wondering what you're thinking.

The direction could be in 2021 if there's any large scale investments that need to come or we could expect just kind of normal 3% to 5% growth something like that..

Hey Greg you want to take that one..

Yeah George I'll take that one. Yeah. Thanks for the question Stephen.

You know and we have been talking about a number of quarters about the use of consultants and getting some projects completed and some of that continued through the earlier part -- middle part of this year, but you did see that that reduction in those expenses in Q4, as we've got some of that stuff wrapped up, we've been talking about the desire to really use internal resources to do a lot of those projects and that worked for us.

So we're constantly looking to move that work you internally get those consultants out of the bank, it’s certainly a lot cheaper to do it with our people. We certainly saw that the benefits of that this quarter, there is a little bit of seasonality in our occupancy expense in the summer months but that's not really overly significant.

And then certainly from a salary and benefits standpoint we've talked about continued to focus on -- you’re making sure that we've got the right people in the right places doing the right jobs and we're continuing to do that.

We've made a number of changes from a staffing standpoint over the course of 2020 as we've looked to identify excess resources that we can either use elsewhere or replace those with -- with or consolidate those functions into other groups or with other resources and then -- we're always going to be adding new headcount as we continue to grow, expand bring on new talent, specific talent that we need as we continue to grow and expand our bank and become a bigger bank, more efficient bank, more -- have more capabilities and all so, all that say that I would say that our expense rate right in Q4 that we were certainly pleased with that.

I don't know that there's -- a significant ability to move that downwards although I don’t expect to see that really ramp-up significantly you know as we look into 2021 as well although I’ll you know say that you typically Q1 is where we typically see a little bit more of a bump in expenses just from the normal thing from a standpoint of salary, pay raises, health insurance although we worked really hard this year to try to minimize the impact of that so I would say that it's a pretty good - a pretty good starting point for purposes of you guys thinking about 2021..

Super thanks Greg appreciate that and then I guess my other questions maybe more high level around RESG structure and George you touched on it the Dallas credit where you were able to work with the mezz lender and kind of get protection there and then there was some chatter in the quarter around the project in Union Square property in New York and I don't know if you can speak directly to that project and some of the protections you have there.

But it seems like it's an underappreciated positive for the bank just the intensity of your loan structure, the minimum interest levels, the interest reserves I don't know if you can give any more color, the amount of loans that have those sort of protections, the length of interest things like that that might give you more comfort around additional you know temporary issues along the way..

Brannon you want to - you want to comment on that..

Sure.

I appreciate the -- you appreciate the structure and the strength of the structure and what it does for us and I do think it’s an element that we need to continue to emphasize but I would say that you know we focus a lot on these calls on growth and I appreciate George’s confidence in RESG and our ability to continue strong origination but you know asset quality is always job number one, we’re not going to originate in a way that sacrifices asset quality and we’ve got a great team internally that is how we focused on that, and we’re expanding that team to give us the best shot we have about achieving the growth, and achieving it in a way that maintains the quality that we've, we've become known for.

But yeah, no I mean the groups that we do business with and the way we structure our loans are absolutely key to maintain that asset quality. And we do a good bit of business with the group that was part of the Dallas execution, that George talked about earlier.

We've done a good bit of business with a number of groups that have become accustomed to our the requirements of our deals -- our structures, but are okay with that because they appreciate the execution that we provide alongside that. And in terms of our Union Square project that, that one is George, am I safe to….

Yeah. Go ahead..

Yeah, we yesterday had that loan that was actually sold. We actually had someone that we've done a lot of business with has been after us for quite some time actually to purchase that note. And we were successful in selling that that note yesterday actually.

So the structures of the leverage obviously we were at a great leverage point on that transaction and it provided the opportunity for another party that was interested in the project to come along obviously we were at a great leverage point on that transaction and it provided the opportunity for another party that was interested in the project to come along and pay us at par.

And in the process, we made some really good interest on that project while we had it. So again the low leverage doing business with great parties and very strong structures is as time and time again allowed us as set the floor to continue to land in good times and bad..

Yeah, and I am going to step out here and provide a little more color on that, for those that don't know and I don't want to get into too much detail but that loan we got a little attention because the borrower sponsor on that is a public entity, so they issued a communication piece as part of their public company filings that noted that we had extended the loan at 17.5% interest rate.

And our strategy there was very simple. We had communicated that we were not pleased with progress on the project and would like to be paid off but they needed time to accomplish that.

So in lieu of a fee, on the renewal we raised the interest rate with their agreement and concurrence and understanding that at the higher rate that note would be readily salable and hence we turned around and sold it and got approval for -- part pay off.

So they'll probably proceed with their business plan and might pay that loan off or might work out a deal with the lender that purchased that loan from, so it was -- it was an agreeable execution for all parties but it was a transaction we were just not pleased with the progress on and that was a full - pay off all principal -- all interest all of these everything.

So we didn't leave a penny on the table and we’re never at risk and even at the loan deposit we would have had no loss on it because there was sizable equity and so forth but it was a well executed exit of the transaction that that led the sponsor have the additional time they needed but also put the note in the form that we could readily - readily sell it at I partake out.

Interestingly you know there was a loan a year or so ago in New York that was a condo project that we had that had lower level retail on it and the parties ran into some national delays and problems getting - getting progress on projects started as quickly as they should. They made some adjustments.

We got a large pay down and we set the timeline all our loan to let them kind of restart after they got their bearings and act together on the execution required that they pay our loan down Brannon was at $30 million or there was $20 million sizable pay down and reset everything on that to a new timeline to let them kind of restart because they had wasted some of their time not getting traction initially.

And that loan paid off after the first of the year in the last two weeks as well at full par pay off. And they ended up executing well on that and got the ground floor leased and the tenant and I think the tenants finishing out their space on all the ground floor space buyer.

So that lease worked like it was supposed to and they were taken out by another lender on that at a much higher loan amount than - than our loan amount on the project.

So our knowledge and understanding of these transactions, our expertise in the area combined with our structures and our low leverage gives us a lot of room to exit these projects in very constructive ways and the vast majority of cases. And we've we're getting a lot of pay downs in New York because we're not seeing a lot of new business.

And that you know in addition to those two deals we had I think $40 million or so land loan in New York pay-off and several smaller New York credits that were community bank credits that were required as part of our [Indiscernible] acquisition is paid off.

So we've had a bit of a run of New York City pay-offs probably a couple hundred million in total since the first of the - first of the year..

Got it. Thank you so much for the color. That's all very helpful. I appreciate you both given that color and congrats on the quarter..

All right. Thanks, Stephen..

Thank you. [Operator Instructions] And our next question comes from Arren Cyganovich from Citi. Your line is open..

Thanks. In the prepared commentary that you put out last night there was a comment about bridge and permanent lenders starting to return to the market later in the year in 2020.

Are you seeing any kind of risk taking there that might be an impediment to you -- your originations, clearly had a pretty strong origination quarter in the fourth quarter, I'm just curious what you're seeing from the non-bank lenders?.

Can I take that George?.

Yes please..

So look I think generally you can say that you know the commercial real estate, the transit then that is more capital invading the market, the more risk there is, that the additional risk is taken and yields are pressured and things of that nature. There continues to be additional velocity there.

Although I will say that we're not in the world that we play and not seeing as much pressure at the moment.

Now, it will come and there are certain project types that are getting more attention but, there are a lot of that bridge, bridge capital is going to focus on higher risk existing projects, that we wouldn’t normally -- not normally be a large part of our business.

But we’re also seeing some more standard life company and bank participants, become more active currently, so look there’s -- there is a lot of capital out there and we spoken to that consistently over the several quarters that is waiting to try to advantage of the stress.

The world has held up from an asset quality point of view, I guess, I’ll view that term depending on where and who, but better I think than a lot had expected in terms of distress trades have not materialized to quite the level one might have thought. I think they're still waiting for that to happen.

And as I said a lot of that bridge that we'll be focused on some of those aspects of the real estate world that we might not be extremely active in. But, yeah, the capital at some level will be part of the challenge George has alluded to in terms of our growth this year.

But we've got a great team that's had a pretty good track record of pushing through those obstacles and originating good volume of well-structured loans with great sponsors and in good markets. So we'll keep after this year and see if we can overcome those obstacles again..

Thank you. And I am showing no further questions from our phone lines. And I'd like to turn the conference back over to George Gleason for any closing remarks..

Thank you guys all for joining the call today and for the good questions. We appreciate your interest in our company and the great questions. I look forward to being with you again about 90 days. Thank you. That concludes our call..

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. And you may now disconnect. Everyone have a wonderful day..