Q4 2020 Simmons First National Corp Earnings Call
Ladies and gentlemen, thank you for standing by and walked through the Simmons first National Corporation fourth quarter earnings call and broadcast at this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask the question during the session of the press.
Star one on gets all of the phone if you require any further assistance. Please press star Zero I would now like you do sales rate scrubbers comes to Steve mentioned, the only you may begin.
Good morning, and thank you for joining our fourth quarter earnings call. My name is Steve Mansonella and I serve as Chief administrative officer, and Investor Relations Officer of Simmons first National Corporation.
Joining me today are George Makris, Chairman and Chief Executive Officer, Bob Fehlman, Chief Financial Officer, and Chief operating Officer.
David Garner executive director of Finance, and accounting and Chief Accounting Officer, and net written Chief Banking Officer.
The purpose of this call is to discuss information and data provided by the company. Its quarterly earnings release issued this morning and to discuss the company's outlook for the future.
We will begin with prepared comments, followed by a Q&A session.
We have invited institutional investors and analysts from the equity firms that provide research on the company to participate in the Q&A session.
All other guests in this conference call are in listen only mode.
The recording of today's call, including our prepared remarks, and the Q&A session will be posted on our website Simmons bank Dot com under the Investor Relations page or at least 60 days.
During today's call, we will make forward looking statements about our future plans goals expectations estimates projections and outlook IRA.
I remind you that actual results could differ materially from those projected in or implied by the forward looking statements due to a variety of factors.
Additional information concerning some of these factors is contained in the company's SEC filings, including without limitation. The description of certain risk factors contained in the company's form 10-K for the year ended December 31, 2019, the form 10-Q for the quarter ended June 30.
2020, and the forward looking information section of the company's earnings press release issued this morning.
The company assumes no obligation to update or revise any forward looking statements or other information.
Lastly in this presentation, we will discuss certain non-GAAP financial metrics, we believe provide useful information to investors.
Please note that additional disclosures regarding non-GAAP metrics, including the reconciliation of these non-GAAP metrics to GAAP are contained in the company's earnings press release and fourth quarter Investor presentation, which are included as exhibit to the company's current report filed this morning with the SEC on form 8-K and of.
Favorable on the Investor Relations page of the company's website Simmons Bank Dot com.
I'll now turn the call over to George Makris.
Thanks, Steve and welcome watch game of our fourth quarter in your in the earnings call. All the begin by thanking the 40000 Simmons associates.
Persevere during an unprecedented time produced excellent results for our company.
But as importantly sustained service for our customers.
In our press release, we reported net income $255 million for 2020, and the increase of $17 million of seven 2% compared to 2019.
<unk> thousand 20 diluted earnings per share were $2.31.
Included in 2020 earnings were $9 million net after tax non core items excluding.
Excluding the impact of these items the company's core earnings were $264 million from 2020.
Diluted earnings per share for the year were $2 40 of shoes.
Our return on average assets was one 2%.
Turn on average common equity was eight 7%.
Our return on tangible common equity.
15000 per share.
And our efficiency ratio was 54, 7% from 22.
Fourth quarter 2020, net income was $53 million and diluted earnings per share for that period were 49% essentially flat from 2019.
Included in fourth quarter earnings were $9 million of net after tax non core items.
Excluding the impact of these items for the fourth quarter of 2020, the company's core earnings were $62 million.
Core diluted earnings per share was <unk> 57 sales.
As of December 31st 2020, total assets were $22 billion, our loan balance of $13 billion and our deposit balance of $17 billion.
Our capital remains very strong quarter in.
Our total risk based capital ratio was 17% or.
Our common equity tier one ratio was 13%.
While our tier one leverage ratio was nine pushing the day.
Each of them were 31 2020 ratio of stockholders' equity was 13% and the ratio of tangible common equity was $8 five pushing.
We have once again share of an extensive presentation on our website at www Dot Simmons buying dot com along with the press release from financial data, which gives much more detail regarding our quarterly results and the other important information about our company.
We clearly indicated the 2020 would be an adjustment period from Simmons.
However, no one anticipated the pandemic and its effect on all of those the.
Despite the challenges associated with the crisis, we were very proud of our accomplishments related to our objectives through 2020.
Simmons of diversified pool of relationship financial institution.
We have a great balance of small and large markets the diversification of financial services, which meet the customers' needs for a lifetime and beyond and the <unk>.
Much of commitment to the communities we serve.
During 2020, and culminating with the anticipated sale over our four Illinois branches in early 2021.
We exited markets in South, Texas, Colorado, and the Illinois in order to be able to focus even more on our core markets.
The reduced our branch network by 20%.
Branch sales and consolidation of share which locations.
Which has allowed us to decrease costs and more efficient way provider of products and services.
During 2020, we also identified transactional relationships, including our energy portfolio from certain large CRE loans.
Charge to help move out of the bonds.
Many of which will move because we prefer to lead our credits under our underwriting guidelines and to the extent we participated in the syndicated credit.
We want to make sure we have of core banking relationship with the ball.
Our airports created capacity in our commercial portfolio, we did not have the full.
We continued the evolution of our digital bank, which allows our customers to bank with US When my war, where the rules are.
Our customers, both consumer and commercial continue to conduct more and more of the voice of banking on our self serve platform.
Covid boost curve and I believe we'll hit it out of the call.
During the year, we mobilized over 15 hundreds of associates to work remotely.
We provided over 8000, PPP loans totaling almost $1 billion.
The support of 100000 jobs for our customers many of whom will move of Simmons.
We proactively provided loan modifications to many of our customers which for the.
Many of them from going deeper in debt during such uncertain economic conditions.
We had a record year of our mortgage group originated more than one $3 billion in home loans.
We successfully completed our full exam cycle, including our first CFPB engine.
When the integrated landmark bank into Simmons bank during the beginning of the crisis and just as the economy was put on pause.
That timing created unique challenges, but our folks up to the latest.
We repurchased over 6 million shares of our stock and we contributed $3 million to the Simmons first foundation to establish a fund the Bod grants for conservation projects throughout our servicer.
So where are we the does the.
The short answer is we're right, where we want to be card.
Our deposits and liquidity are of an all time high given the capacity we have not seen since 2014 our.
Our capital levels of at the top range for our industry.
Cash at quality, the stable and improving even in these economic terms our allowance for loan losses is at an unprecedented level.
Our loan concentration levels are well below regulatory guidelines.
Our regulatory compliance programs with validated during the year.
Our profitability is excellent and our.
Our loan pipeline was starting to rebuild.
The March of last year, we could not have written script of anticipated all of that we've seen with I believe today, we're in really good position.
While our core loans and deposits will be the basis for our growth and success of overtime.
The cause of our diverse business model, we were able to manage all areas of the bi.
Produced outstanding results in 2020.
We are certainly not a one trick pony.
So I'm very proud of our team and look forward to a very promising 2021.
And I'll now turn the line over to our operator and invite questions from our analysts and institutional investors.
Ladies and gentlemen, if you of a question of our comment at this time. Please press. The Star then the one key on your Touchtone telephone. If your question has been answered or you assume of yourself from the queue. Please press the pound key.
First question comes from Gary Tenner with D. A davidson.
Thanks, guys good morning.
Just a couple of.
Just couple of questions from me.
The commentary about.
Kind of working down some of the transactional relationships I'm, just wondering was that particularly impactful in the fourth quarter in terms of the downdraft in loan balances of construction and commercial real estate or was that more of of outgrowth of just the lack of production during the middle part of the year.
Hey, Dave This is Matt retina, yes, yes, we did experience as you would think just because of year end timing of some of our borrowers wanting to exit to the permanent market. We did have one of our largest borrowers in cash.
The city of the industrial developer to they sold the.
The entire self storage.
The unit plus they exited multiple industrial buildings to the part of market with rebates and.
The $80 million.
Total transaction, but we also saw multiple true.
<unk> out of Texas and St. Louis net.
That was we knew that really even heading into 2020 prior to the pandemic and the timing the hit at the end of the year.
Yes.
Let me, let me add a couple of things.
One is the most of the reduction was planned yes.
Think we've been pretty clear the relaunch bank in their portfolio and then some transactional loans in Texas. The thank you can see based on the.
Low Niels.
Quarter over quarter that many of the loans that we exited had very very low rate.
So it was it was planned but also in our presentation. We have a slide one of our loan pipeline because I think that also gives us the.
The true picture to what was out there to fill up.
Our loan portfolio as these loans were leaving the bank.
Usually we only reported.
The ready to close.
But we have three distinct buckets of opportunity proposal ready to close when we thought it was important to show all three of those buckets from last December until now because it really shows the lack of demand in the marketplace. After COVID-19 hit.
And we certainly the pay of no new originations to fill the bucket back of four.
All of those planned amortization and then when we have loans, we'd like to.
Move out of the bank.
We depend on new production.
I am happy to report that our pipeline starting to rebuild in May.
I think our.
Prove ready to close as of last week exceeded $230 million switches.
The healthy pipeline for us so.
I think it's a combination of both.
You asked if it was planned or just lack of new production combination.
We're starting to see light at the end of the term.
Alright, so I appreciate the color I'm just wondering based on.
What the pipeline looks like and any more planned run off sort of the degree there is.
Excluding PPP changes is 12 31 do you think the kind of low point here in terms of loan balances or.
Do you think it gets a little bit lighter before it starts to grow from here.
Yes, it's Matt again.
No question our pipeline is building our borrowers are relationship all of our active and so we're we're starting to do more and more projects are moving more and more business our way, but the first quarter Theres a little bit of unknown I think there will be some continued payoffs on what we would call plan transactional.
The non relationship customers that had not exited in 2020, that's still planned to does look to happen more in the first quarter of some could slide in the second quarter. So the question on the if it's the low.
I would say of known but I say, we're real close is how it's the phrase that you know there.
There are a couple of other categories like mortgage warehouse that were at all time highs at the end of the year, we really don't expect that loan balance to.
Sustained over 2021.
We still have some more energy credits that we expect to move out of the bank. During the first half of the year. So there will be certain pockets of business, but the core business net is what we're generating out of each one of our divisions, while we're expecting to have a good year. This year from an origination standpoint.
Okay, Great I appreciate the color of thanks for taking my question.
Sure.
Our next question comes from David Feaster with Raymond James.
Hey, good morning, everybody.
Morning, David.
I just wanted to kind of follow up on the the growth conversation could you just give us a sense of the composition of your loan pipeline, where youre seeing demand.
By segment, and geography, and just thoughts on new loan yields and interest.
Clarification question on your mid single digit loan growth guidance.
I will assume net ex PPP, but just wanted to clarify that.
Correct.
So I can give you a little deeper color on kind of the.
The loan portfolio, how many of the loan pipeline of work.
Very pleased kind of going into 2021, how diversified our pipeline is geographically and in product type. We spent a lot of time in 2020 free COVID-19, but we continue the investment in more commercial banking infrastructure on the web of call. The CNI side. So we now see our pipeline shown about 50 per.
<unk> true commercial clients not commercial real estate.
That's across categories of business of they're doing very well right now, but we do have some repeat CRE borrowers that relationships that we're one of their active again, so we will see that pipeline grow as well, but it's as we say stabilized growth a lot in our company as we integrated.
The banks and now we're in a position that we are in that stabilized growth.
And it's not just one.
Heavily weighted towards of certain category, where we're seeing opportunity.
We actually grew loans in the fourth quarter right here in the little rock Little rock had some success I think that just proves up just a flight to quality.
Our market share here, so we had a nice little growth.
In the fourth quarter I think that'll continue of a nice pipeline here northwest, Arkansas is is really didn't miss a beat as it relates to COVID-19 due to their economic.
Wherewithal DFW, they're out of it.
It's contained to do well plenty of opportunities our pipeline. There if you looked at our percentage of where the growth opportunities and even where our pipeline is it's in DFW. I think you will also see Kansas City continue to perform for US in 2021, I think St. Louis two years post the lot they statements that having some nice opportunities come our way.
And then I think Youll see Nashville for us rebound in 2021, So I would say overall health of the pipeline of where it's coming from it's very diversified.
Okay.
That's great color and then just could you give us some the thoughts on how the puts and takes regarding the margin I mean, we're going to see some loan growth and improving earning asset mix of appreciate the color on the.
The Securities book, but just.
As you start getting some of these together I mean do you think the margin has dropped here and we should see some expansion of just any color that you could give us on on the core NIM exclusive of PPP would be would be helpful.
Yeah. David This is Bob I would tell you first on the margin I think we are at the bottom of it.
Actually I had the improvement this quarter, what we'll see going into the first quarter is continued investment in the investment portfolio, we see possibly another up to another $1 billion going into the investment portfolio over the next couple of months maybe into the second quarter, so that mix and yield will be of pickup.
<unk>.
As Matt in Georgia of said loans, we believe are on the manned and coming back up so that's a positive.
And then cost of deposits, we think theres still some room in cost of deposits. We saw a seven basis point pickup on our cost of interest bearing deposits five on cost of deposits. So that's a positive and we again think that I think we'll have more in the first quarter as we continue to work.
On our cost of deposits.
Also you you know you add in the P. P P.
Side of that we will have a benefit from the PPP in Q.
One is we have more forgiveness, we had about 100 million and forgiveness in Q4.
And so we are still at about $875 million on what I call PPP. One so I would expect that to be forgiven or paid off in the first and second quarter. This.
Of this year's what we're planning for.
Okay. Okay. That's helpful. And then just last one from me could you just talk about capital priorities.
Good of community you guys were somewhat active in repurchasing, but just curious how you're balancing buybacks versus M&A, you're given where you're trading and maybe just some high level thoughts on M&A.
Your strategy has changed what kinds of transactions you'd be interested in by size in the region and just how conversations are going.
Well I'll start Bob can pipe in here shortly.
I think we used our capital very wisely in 2020, and our stock repurchase program, we bought over 6 million shares during the year.
The average price of less than $20 a share.
Wish we could repeat debt but.
Glad to see the price where it is being honest with you.
And because of price where it is of the multiples have come back nicely.
We are having some active M&A discussion right now.
Our strategy with regard to M&A has not changed our priorities still in market.
Range and opportunities.
If we found an opportunity in the contiguous market made long term strategic sales.
We would certainly be interested but our priority is in market.
So the.
David I would tell you the debt based on current circumstances today.
The M&A, you would probably be our top priority for capital deployment.
But we're not ruling out additional buybacks, we still have Bob what $50 million low.
Lift in our currently authorized plan so.
The both of those are still on the table M&A, but because of current conditions has moved to the top.
And David This is Bob I would point out a couple of things on our capital levels. You know historically, we all look at what's your TCE and what is your leverage ratio, but those in these days are what I would say somewhat understated because the the.
The amount of loans, we have in the PPP, which are not risk rated and also the liquidity levels. We have at about $3 5 billion. So the the ratios. We look at today that we focus on are the CET one ratio, which is at 13, 4% that was $10 nine last year a year ago.
Our total risk based capital of 16, 8%. So those of the ratios we focus on right now when it risk weights your balance sheet.
That's helpful and just so damn end market does that mean, you're focused on maybe the smaller end of the curve or how large of a transaction would you be interest to them.
Well, our general guideline of David as the bank of $1 billion of assets or more.
And that is primarily the calls of the makeup of their personnel.
True.
Our ready to go to work for a larger institution with more bullets.
To us in the marketplace.
We have had.
Some issues in the past or with smaller banks, who have lending staff's, who really just won't work at a small community bank.
You know our objective is when we merge with an organization we want their talent to come along with them.
And what we found is that volume.
Under our $1 billion generally spacing.
We don't have as much success in retaining the staff.
We do and banks over $1 billion. So I would just say that as a general guideline.
We'll use as we're trying to determine.
Who might be a good partner.
Okay. That's helpful. Thanks, everybody.
David.
Our next question comes from Brady Gailey with K B W.
Hey, Thanks, good morning, guys.
So I wanted to ask about not organic loan growth but.
The strategic exits of certain markets that you've done on your I heard you say the southern Illinois, what happened here in a couple of weeks I know you've gotten out of.
Denver, and South, Texas or are there any other.
The markets out there that you would think about exiting or are you pretty happy with where the franchise sits right now.
The Brady, we're really happy with where we sit there are no more market shown the.
Chopping block if you will.
In Illinois, we.
The full branches there we have about $160 million of.
We have $1 million of.
Total loans.
Those branches were established.
By our watch bank as the source of deposits and they did a great job.
We just don't have the infrastructure over there to support the Illinois side of St. Louis.
Have 20, some odd branches in St. Louis.
Debt, we're really focused on so it made sense for us.
So.
Nothing else on the chopping block, we really like what we have.
And we're committed to grow in all of those markets.
Okay.
You know George you guys have done a great job of taking expenses out of the franchise I mean, having your branch count down 20% of the year is a big number.
Is there more.
Work to be done there or do you feel like you know of.
A lot of those expense reductions of have really.
Laid out.
It should just be kind of a normal expense growth rate from here.
Well.
We have some more consolidation to do.
And I'll give you a couple of examples.
In Dallas were.
We're getting ready to move into a new Dallas headquarters.
And that will consolidate two branches.
That had just piecemeal pieces of our business. There. So we're going to be much more efficient in a single location in Dallas than we were in two separate locations, where we're getting ready to open a new corporate headquarters in downtown Nashville.
That will replace one location that we had it was just an adequate to handle the growth of we're experiencing in the national market.
In our Pine Bluff market we're building.
New branch.
Out of the Whitehall area, but we're going to consolidate three more branches and two in the Pine Bluff community. So it's the adjustment in existing markets, that's going to lead to fewer number of branches.
But not necessarily full cost saves.
We're going to upgrade some facilities into true banking centers. So it's just more of an adjustment now than it is.
Our pure closing of branches.
Okay.
And then finally from me I just wanted to follow up on the bank M&A conversation.
When youre looking at of transaction can you just remind us.
What are your targeted metrics like do you like a certain amount of EPS accretion.
Or.
Do you have the limit as far as tangible book value dilution and earn back just kind of talk to us about one of your pricing of the deal what are the metrics that you focus on.
Hey, Brady. This is Bob I would tell you we're very disciplined in our M&A pricing and have been as you know first off we start with reasonable assumptions on whether it's cost saves the the loan Mark.
Synergies on revenue all of that we're very.
Conservative on those I would say when we look at the final results will our target is to have EPS accretion.
It depends on the deal size. So we look at it two ways EPS accretion as we're going to see it and number two on a standalone basis, what kind of accretion is that the unit we're buying.
The providing an accretion.
We you'd want to meaningful what I would say anywhere from 4% to 8% accretion is what you would hope to have on these deals now again, the smaller deal youre not going to get that level of accretion overall. The next very important to US is what is the tangible book value dilution and more importantly, what is the earn back period, you know if you're going to have more cash of the deal.
Give me more dilutive, but you're probably going to earn it back quicker. So the earn back period, we have always targeted less than three years. Most of our deals we've announced have been two years or less and we've hit those numbers.
We also calculate our internal rate of return and we use the same assumption from one deal to the next deal. So it's more of a comparable nature and our target is to be 15% or higher and then after that we look at what does it do to our capital do we need additional capital or is are we able to utilize our excess capital and we look at each of the.
The different levels in there so those of the main focus and all of that obviously is after we've gone through the geographic footprint is at the right location is it the right culture fit for the company and as a threat of organization. We do all of that before we get to the financial piece of it.
Got it that's great color. Thanks, Bob.
Okay.
Our next question comes from Stephen Scouten with Piper Sandler.
Hey, good morning, everyone. Good morning, David.
I'm curious a little bit on your plans for additional liquidity, Bob I know you mentioned, maybe another $1 billion in securities, but just wondering if you can.
Give a little more color on how youre thinking about that obviously the liquidity remains really high but.
Securities yields are obviously very low and I'm, just kind of wondering how youre thinking about that what sort of duration you're locking into the.
Well, we gave some of <unk>.
Little color on it on page 17 of the slide deck, but of.
What we invested in the last three months and where we plan to go going forward and that's what I would call more of a barbell approach. We do have some munis that go a little longer term that are picking up a little better yield going shorter on the treasuries agencies of the mortgage backs.
What we're timing out there with the liquidity, we waited a couple of quarters without putting it to use.
The uncertainty of times and this quarter as you can see we basically went up 1 billion in liquidity almost of in cash and still invested $1 2 billion of our security portfolio.
You know we have P. P. P loans that will be paying off this net in the next three to four months, we will have PPP two coming on after that all of that to say, we believe we have plenty of liquidity and it was time to put some of that money to work now what we can do as time goes on is when the loan pipeline and in the loan back.
Ounces begin to increase.
We'll be able to we can slow down repurchases into the security portfolio next year as we get maturities rolling off and other liquidity. So we plan to balance it in there, but our target right. Now is we ended the quarter at about $3 8 billion.
We're targeting to be over 5 billion of around $5 billion or so in our security portfolio sometime in 2021.
Again, we'll invest in a bar Bell and R. You know yield.
We picked up about $2 15 in yield so that was coming from 10 of 11 basis points overnight money. We invested in we did we do have some extensions out their average in duration is about eight years when you put the whole portfolio together.
Got it Yep I see that now in slide 17, thanks for that and then I guess.
Within that what what.
What is kind of that churn of your existing securities portfolio of how much cash flows do you anticipate that could come in I don't know per quarter per year.
The growth does begin to materialize.
You know I don't have that right in front of me, but it's roughly I would guess the half billion of 750 million of year is ballpark of what we have and thats before putting these new balances on what you'd expected.
But and keep in mind. This last year, we had we sold of 1 billion five and securities and most of that was taken advantage of the gains knowing most of those were going to pay off through calls.
And so we've been pretty active we've kept our guys busy and the and the investment security group this year buying and sell and they've been very very active.
Got it Okay, and then maybe just one other one from me.
Your loan loss reserve remains.
Very high 190 day, I think ex PPP, so that seems sufficient to me. So I'm wondering kind of how you think about low Nox reserves. One but then also if you can talk a little bit about the charge offs. You had this quarter I think you've remained a bit higher than peers.
The net charge offs basis for the last couple of quarters. So just kind of thinking about credit a little bit there.
Yes, Stephen it's Matt I would say on the on the charge offs. We did in the in the fourth quarter, we had certain certain credits that we had been dealing with for a while that did come to a resolution that resulted in some charge offs. We actually I can think of one specific that.
You heard George talked about earlier, we are how we exited south Texas, we took a nice charge there on a non relationship out of market transaction that we dealt with in the in the fourth force I would say that was there was this a culmination of a lot of resolution.
In the fourth quarter, which is.
Overall of the positive.
On the on the reserve standpoint, George you might have comments on the overall.
What we're saying all of the reserve yeah. So.
Reserve as it of at an all time high.
And.
In our opinion there is still maybe some residual unknown.
In certain categories like office, and maybe some retail there will have a better handle.
One later this year, but we think we're properly reserved in those categories and you can see how much of our allowance is dedicated to those industry classes.
Going forward, we would expect just normal provisions based on loan growth I think I've said this before that we built this provision with the.
Of the expectation that it would absorb reasonable losses in the portfolio. So we've got to be disciplined as we go forward and where we have recognized the at risk and.
Made a provision for we're going to have to be willing to take that against our allowance and not be too quick to jump out there and just rebuild that allowance back up to a 2% range.
Really don't believe 2% is long term.
The.
The percentage for us and when you take a look at our funnel of our ACO you will notice that more than 50% of our total allowance is management adjustment factors.
So the calculations themselves only support of about 50% of what we have in our allowance the rest or based on industry specific or maybe specific reserves on certain.
The troubled credits.
So.
We feel very good about that I'll also say this steven the.
In addition to those charge offs of we recognized.
We've been very aggressive and conservative.
Our risk ratings are classified loans went up that is primarily because of some of the hotel loans that were in our modified state.
And you can see that what we consider to be.
Troubled modified loans has gone down tremendously and I think of lot of that has to do with the fact that we went out early in the process of didn't create additional risk for our borrowers. So we're very comfortable with our risk ratings.
All of the modified loans have been reviewed and appropriately rated so I think our accuracy in our.
The loan portfolio as far as risk goes is about as good as it's been in a low time.
Got it that's really helpful color and maybe just one kind of small follow up to that so.
If 2% is not the right number of long term and who knows when long term really is if the year end 2022, 2023, when we get to more normalized environment, but are we talking more like $1 50 in your mind or what's the right way to think about where that goes longer term.
Really the only thing I can point to is our original social calculation.
The came in on January 1st and that number was about if I recall one of <unk>. So you know based on normal conditions.
The low seasonal calculations it appears.
At that point in time, $1 50 was the appropriate zone.
Great very helpful. Thanks, guys appreciate the color.
Thanks, David.
Again, ladies and gentlemen, if you of a question of our common at this time. Please press. The Star then the one key on your Touchtone telephone.
Our next question comes from Matt Olney with Stephens, Inc.
Hey, Thanks, Good morning, I wanted to ask about core loan yield if I back out the PPP and the accretion looks like the core loan yields saw some nice expansion. This quarter any color you can provide on that any kind of miscellaneous fees are recognized from the fourth quarter just trying to appreciate if it could be.
Additional pressure from the 460 core level from here. Thanks.
Matt This is Bob I'll start it and I'd say first off you know as some of these loans that we talked about exiting the company were at low rates I mean, they were extremely low rates and these had been on the list pretty much all year to to move so that was part of it.
The other piece of it would also be.
The PPP loans in the fourth quarter, we did have $100 million. So you had the additional fee income that was.
Accreted that quarter.
Accretion level I think accretion income was almost the exact same $8 9 million on a linked quarter basis.
So it wasn't an accretion so.
Q4 was more of a.
Good trend line for me going forward, that's what we use when we used our budget process I.
I do think Q3 was a little lower but as you get into Q4, I think that was a better trend wise.
And.
Bob just to clarify im looking at that 460.
Core loan yield on your slide deck on slide 50, I think that does not include <unk>.
PPP or the Accretable am I interpreting that right.
<unk> would have PPP in it.
Well Kevin is.
I'd have to go back to that one flatter.
The slides.
Yeah.
So without PPP, okay that one day.
I'm, sorry, I was referring to an internal reported ahead, yeah. So that would that would all be just in the loan portfolio and again I'd say the bulk of that as of the mix of net loan portfolio. When you take the $1 billion of loans that are on a lower rate.
We did have some extraordinary fees owns from early pay offs, but not material. That's correct. So maybe Matt for $54 60 would be that appropriate range.
Considering those onetime early payment fees.
Okay.
Helpful and then what about any color on some of the the new and renewed loan production. This quarter, how does the compare to that 450, <unk> hundred 60 number well.
Our loan pipeline.
Glad we also give the.
Average rate of six and I believe.
Flipping over to the.
On that pipeline at the edge.
End of.
The fourth quarter, the average rate was for coil.
So still above 4%.
Okay.
Okay, and then I wanted to shift over on the operating expenses and you guys gave us some great color in some good outlooks there in some of your slide deck and I think the press release mentioned the.
The <unk> update.
<unk> now within all of the run rates in the fourth quarter of trying to figure out what's what's the incremental from in GB that's not in the <unk>.
I think it is and so in GB.
When it started a couple of years ago had to rule the <unk>.
State components, one was infrastructure the second was new products and services, particularly the digital bank there.
The infrastructure pretty much done.
So all of the expenses associated with outsourcing of our core processing upgrading our networks.
Didn't see in the branches those kinds of things are pretty much behind us sort of maintenance mode. There are digital bank a lot of that has been done, but we have a roadmap this year to enhance that digital bank.
We believe that long term, it's going to be a great opportunity for us we started the online.
<unk> origination pilot in the fourth quarter.
We will start rolling that out at the end of the first quarter of one division of its time, because we believe that the demand is going to be so great that we're going to have to make sure that we support that online account opening.
With the appropriate back office, if you will so we're going to take that.
Piece by piece, but by the end of the year, we will have that fully implemented.
We're going to last year, we integrated our credit card.
The product with our digital bank, we've got other enhancements like that for 2021. So our focus now is not as much on infrastructure. It really is on product enhancement.
Into the.
And we do have.
Some capital expense in this year's budget to support that but nothing like the $100 million, we set aside two or three years ago for the entire project.
Okay.
Sounds good and then.
Guys gave us a nice schedule of your expectations for Accretable income for 2021.
You guys have something similar or some commentary you can give us on expected income from PPP.
Over the next few quarters.
Well, what I can tell you on PPP is right now we have obviously were earned in the 1% on it but there is on the P. P. P. One theres roughly about $17 million or so that is still.
The fees that are accrued so those will come to income in I would assume right now first second quarter is what we budgeted that's what our SBA group is telling us that and that doesn't include PPP too. We don't have any idea where P. P. P. Two was b, but our modeling is estimating it could be what Matt.
Half of what we did last time.
And just for your information after one week. So we didn't get started until last Tuesday.
We've got over 2000 loan applications totaling $200 million.
In the pipeline right now so that's.
That's the production after one week, we don't really know where its all going to come out.
We have.
Several inquiries that haven't turned into applications, yet and of course, we're being proactive going out, but our customers to see if.
The current program would be beneficial to do.
Okay that sounds great. Thank you guys. Thanks.
Thanks, Matt Thank you Matt.
And I'm not showing any further questions at this time I would like to turn the call back over to Mr. Makris.
Well, thanks to each one of the view for joining us today.
Once again I'm very pleased with the way 2020 turned out.
We're very optimistic about 2021, and I think we're well positioned in all aspects of our banks organization to take advantage of an improving economy. Thanks.
Thanks again to each one of you and have a great day.
Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.
David.
Yeah.
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