Q4 2020 Atlantic Union Bankshares Corp Earnings Call
Ladies and gentlemen, and thank you for standing by and welcome to the Atlantic Union Bankshares fourth quarter and fiscal year 2020 earnings call. At this time of all participant lines are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need the press star one.
And on your telephone please be advised that today's conference is being recorded if you require any further assistance. Please press star zero and I would now like day on the conference over to your Speaker today Bill for me now Investor Relations. Thank you. Please go ahead Sir.
Thank you Gigi and good morning, everyone.
Of Atlantic Union, Bankshares, President and CEO, John Asbury, and executive Vice President and CFO, Rob Gorman with me today.
Also of other members of our executive management team with us for mostly for the question and answer period.
Please note that today's earnings release, and accompanying slide presentation, and Youre going for on the webcast are available for download on our Investor website investors that Atlantic Union Bank and Dot com.
During today's call, we will comment on our financial performance using both GAAP metrics and non-GAAP financial measures and.
And information about these non-GAAP financial measures, including reconciliations to comparable GAAP measures is included in the earnings release for the fourth quarter and full year 2020.
Before I turn the call over to John and I would like to remind everyone that on today's call of school will make forward looking statements, which are not the statements of historical facts and are subject to risks and uncertainties.
And there can be no assurance that the actual performance will not differ materially from any future results expressed or implied by these for the future looked forward looking statements.
We undertake no obligation of publicly revise or update any forward looking statement. Please.
Please refer to our earnings release for the fourth quarter and full year 2020, and our other SEC filings for further discussion of the Companys risk factors and other important information regarding our forward looking statements, including factors that could cause actual results to differ from those expressed or implied and any forward looking statement.
All comments made during today's call are subject to that safe Harbor statement.
At the end of the call, we'll take questions from the research analyst community and with that I'll turn the call over to John Asbury.
Thank you Bill Thanks for all for joining us today, and I hope everyone listening is safe and well on this New York, We think consistent and our commentary that we are managing through two significant and distinct challenges first the continuing COVID-19, pandemic and everything associated with it and second of much lower than expected interest rate environment for years to come with all of its implications for the <unk>.
Companys profitability, our results for the quarter and for the full year of 2020 shows that the actions we've taken so far to address these two distinct challenges are having a positive impact and positioning Atlantic Union for future success.
We continue to believe that our strategic plan with the long term goal to become the Premier of mid Atlantic Bank is the right one and and we are of great opportunity before us to create something uniquely valuable for our shareholders and the communities, we serve and remain keenly focused on reaching the full potential of this powerful franchise. Despite the present challenges now more than ever our mantra of soundness.
The profitability and growth and that order of priority informs how we run our company and sound Bank is and will remain our highest priority of prudent and conservative credit culture of served our company well during the great recession, and it's serving us well through the economic shock of the pandemic.
Our loan modifications of helped our clients whether the storm having peaked at about 17% of the non PPP loan portfolio and may and dropped to a minimum of 1% at year end during the second quarter of 2020, we fortified our capital position with the preferred equity issuance.
Our second priority is profitability and while Q4 wasn't noisy quarter, you can see the impact of our actions to align our expense run rate to the new revenue reality of the lower rate environment and.
At year end, we closed one further branch that was primarily a commercial bank and our branch and our Herndon, Virginia location that was a part of the consolidation of the former Herndon and commercial office into our Reston, Virginia offices, and Rob will walk you through the and we see fourth quarter expenses and his comments, but I will note, we had approximately $7 4 million.
And the incremental performance based variable incentive compensation and profit sharing expenses, which included a $1 $2 million contribution to the company's E saw during the fourth quarter.
Incentive compensation plans are of variable cost and the pools funded based on achievement of corporate targets that align with our shareholders. The metrics for net income return on assets efficiency ratio and return on tangible common equity our team's hard work and agile response to the numerous challenges of 'twenty and 'twenty were outstanding and delivered on our 2020 targeted results.
And so we accrued per of the quantitative formula and order to reward the accomplishments <unk>.
Meaning aside the incentive and profit sharing accruals and the federal home loan bank advance prepayment costs, our expense run rate for Q4 was otherwise in line with prior guidance.
As for growth on the other side of the current economic challenges. We do believe we are of a long runway ahead of us to grow organically and through takeaway from our larger competitors that dominate market share and our home state of Virginia supplemented by our operations and Maryland, North Carolina, we are especially focused on and benefiting from the disruption occurring at two of our largest competitors.
We do believe the pressures of of long term neurosurgery low rate environment, coupled with the rising tide of customer expectations for digital product offerings is going to motivate further bank consolidation. We believe we are well positioned for this and we will continue to evaluate the opportunities to complement our organic growth strategy through M&A.
Let me provide a quick review of our pandemic response about 90% of our non branch personnel continue to work from home, we reopened branch lobbies the customer walk in traffic on October 14th corporate offices remain closed for all but essential personnel and will remain that way through at least the first half of the year, possibly longer work from home continues to go.
Well and we're not going to rush to bring people back given the safety and social distancing challenges involved.
And so we're seeing across the nation and the short term COVID-19 trends and our markets have not been good recently, and we want to be prudent and ensuring the safety of our teammates and customers.
We are hopeful this trend will approve and the coming months of vaccination rates rise with better distribution.
And I'll turn to the PPP forgiveness and round two of the program. The first round of the Paycheck Protection program was the brand builder for Atlantic Union and our results support that statement, we remain focused on converting as many as possible of the more than 3000, new the bank PTP clients from the first round of full relationships, it's clear to us that there's a great opportunity here from the.
Live experiences many of them had with larger banks that caused them to come our way and seeking health. We've taken our successful round one PPP plan and improved it for round. Two we started taking applications for round two as soon as the small business administration and opened the banks our size on January 19th and we received applications for approximately 2005 hundred loans.
Total of around $475 million so far it's.
It's difficult to project demand for round, two but the application flow certainly seems more spread out and what we saw last year. When it was more of a panic for us to apply.
Round, two PPP first and second draw of loans are important and that they'll help businesses through this phase of the pandemic. This is both the boost for our clients, which should help mitigate credit losses from the pandemic and its also on unplanned fee income opportunity for us.
We began to submit applications for round, one PPP loan forgiveness to the SBA during the fourth quarter and 3100 clients receive forgiveness totaling $429 million during the fourth quarter. We're pleased of the Congress passed the bipartisan proposal the streamline forgiveness of PPP loans under $150000. Since then.
Representing about 85% of our round one PPP loans by count this greatly simplifies the forgiveness process, both for our clients and for US and we're about the start processing under the streamlined requirements since year end through January 21 clients who've received a further amount of forgiveness totaling 882 mill.
Serving 999 loans.
As I've said before our customers have learned the bank differently.
While branch lobbies are now reopened we rolled out of the digital appointment scheduling option to customers and we've had more than 33000 appointments debt since June one.
We've seen usage of our digital channels increased substantially from the prior year. For example, digital logins are up 38% since the start of the year.
Mobile check deposit utilization was up 37% over the course of 2020 zelle utilization up 162% year over year and card control users are up about 180% since April and that was launched.
Our call Center volume has decreased from its peak and the fourth quarter was about 10% lower than the first quarter.
We continue to work on new projects and improve the omnichannel customer experience with quarterly releases and upgrades to our product offerings. During the fourth quarter of the year, we rolled out of zoom video chat option to our current branch appointment options, we launched the ability for our trust and private banking businesses. The digitally signed new account origination documentation the onboarding of.
Customers began to pilot and enhanced client relationship management platform using black Diamond technology within the wealth group.
<unk> completed the integration of the mortgage digital lending platform platform with blend software that will enable them and the and digital closing experience and Q1, and we implemented <unk> for Treasury management services documents greatly simplifying the on boarding process for Treasury management products.
Using these new solutions, such as the appointment scheduler Zoom Doctor you sign and branch access together with the bank's online account opening platform, we opened more than 1100 personal checking accounts and the fourth quarter to our solutions banking group and Thats Our bank at work program, we launched and the first quarter of 2020.
We also had a number of additional customer experience improvements coming in the first quarter of 2021 as I've said before we're not standing by waiting to return to the office, but we are making steady progress against our strategic plan our pivot to work from home has been smooth and it is one of the great success stories of 2020 for us turning to credit surprisingly.
The COVID-19 credit storm has not materialized as we initially forecast while the outlook is still murky. We are more confident on credit and we have them since the pandemic began and we don't expect credit issues to be nearly as severe as what we initially feared and having said that we are expecting of tough winter of COVID-19 infection and if there's one thing we learned last year.
And that's that anything can still happen.
I will say that the resiliency and diverse nature of our markets coupled with additional government stimulus and accommodate of federal reserve. These were all having a positive impact as we've seen the unemployment rate and our markets improve much faster than expected.
And our home state of Virginia November unemployment came in at four 9%, which was nearly 200 basis points better than the national average and by the way. That's typical for Virginia. The December numbers will be released at the top of the hour today.
Our loan book also helps as we don't have outsized exposure to the industries most directly impacted by the social distancing measures put in place such as hotels restaurants and retail.
Rob will talk you through the provision for credit losses, and our seasonal modeling the <unk> indications and metrics credit remains solid and charge offs and Q4 remained at very low levels and excluding PPP loans. They were six basis points of annualized vs four basis points annualized in Q3.
Our total modification balances as of Monday January 18th were approximately 430 loans under mods with balances totaling $132 million or nine tenths of 1% of our total portfolio. If you exclude the PPP loans. It would be approximately one percentage of our total portfolio. This is down from $1 9 billion.
And for thousand loans as of April 24th which was approximately 15% as the portfolio at that time and as I've mentioned earlier modifications peaked in may at around 17%.
Of the remaining loan modifications, 60% of them are $79 million of accounted for by 11 hotel loans.
Remaining modifications are tailored for each borrower and about 63% of them are currently interest only and we work through these modifications on the client by client basis to address their specific circumstances.
And our exposures to the most of and focused Covid sensitive industries are limited and are outlined on slides six and seven of our accompanying presentation. The.
<unk> loans under a modification and these segments decreased from 111 loans for $199 million on October 16 to 16 loans for $83 million as of January 18, the majority of which of course pertained to hotels.
As you May recall, our third party consumer portfolio has been winding down for some time the quarter and balance for our lending club exposure was about $52 million and continues to run off payment deferrals and the lending club portfolio declined approximately $1 million during the quarter pardon me declined to approximately $1 million during the quarter as accounts.
And went off modifications and became current and the remaining portfolio is performing in line with our expectations.
Overall, we continue to proactively work through this event with our clients, while mitigating credit risk wherever we can.
Moving on to expense reduction actions, we developed our initiatives to reduce the company's expense run rate to match lower revenue expectations due to COVID-19, and the lower for longer interest rate environment back in March we began to take action on them and the second quarter and into the third quarter, we took additional action and the fourth quarter with the decision to close an additional six branch.
<unk>, including the five that will be consolidated and February. After these branches closed will operate 129 branches across our footprint. That's a reduction of 20% from last year at this time, which is about a 13% reduction out of the branch network.
Our goal remains to achieve and maintain top tier financial performance, regardless of the operating environment, our financial outlook will ultimately depend in part on the continued success against the additional flare ups of COVID-19, and our main operating areas and the vaccine rollout.
And this will be one of the primary factors that determine the length of the disruption and our markets. We continue to face near term uncertainty, mostly the duration of COVID-19, but as I mentioned before the economic outlook has improved and our optimism and sort of rising we still expect some dips along the way to a full recovery, but we believe the overall trend should be upward and we think the <unk>.
Moving trend should accelerate from the back half of 2021, we still don't know when we may return to pre pandemic macroeconomic levels, but the data continues to demonstrate better economic performance and our footprint and would have seen the overall and the national economic model projections as.
And as we pointed out many times the Virginia economy is fairly unique with the broadly diverse set of regional economies and with about 20% of and anchored in some fashion by the federal government the changes underway and Washington should be a net positive for the federal government's contribution to the Virginia economy.
Our full year loan growth was about one 8%, excluding PPP loans and commercial loan categories of all types on a combined basis grew about 4% offset by declines in consumer categories of HELOC third party lending and residential mortgages held on balance sheet.
Although it increased by one eight percentage points and the fourth quarter commercial line utilization remains very low and about 26% well below our normal utilization of around 40%.
While it's anyone's guess, what exactly 2021 will bring at this point, we do believe that the second half of the year will be better than the first half and that we could see a return to high single digit loan growth and 2022 of our franchise and our market dynamics certainly support that opportunity.
As we continue to climb out of the systemic downturn of credit losses were minimal in 2020, and the real impact remains to be seen we still expect and eventual rise and credit losses, and we thought we would have already begun the transition towards that but it simply hasn't yet happened with the prospect of more stimulus and the second round of PPP underway and the rollout of the of.
<unk>, it's really hard to point to a specific time, where the increase and credit losses will start to materialize to what extent the additional stimulus PPP round, two and the vaccine mitigate credit losses remains to be seen but we believe these actions will have a positive impact on the ultimate level of credit losses, we incur staffing.
Stepping back we believe that we are well positioned and readily able to absorb any delayed credit losses from COVID-19, and looking ahead, we expect normalized levels of credit losses. After the impact of the pandemic works its way through the economy.
Moving to be on credit our goal remains creating a company that is able to consistently deliver differentiated performance will continue to work on ways to make the company more efficient and scalable while improving the customer experience and we could see further improvements to our expense base as a result.
As I've said before we continue to push the organization forward and not simply wait for things to happen.
We remain focused on credit risk mitigation and positioned for success, while we busily work to improve our company its efficiency and scalability and provide a better customer experience at the.
The same time, we always trying to think of few steps ahead, and we do see strategic opportunities on the horizon.
As I said last quarter I am convinced we will emerge from the crisis stronger better and more efficient and before which will give us opportunities both organic and inorganic.
We're leveraging our learnings and and granting our newfound capabilities agility and innovation and to the company's culture. So that we have the flexibility to adapt to the lower for longer rate environment and the coming next normal whatever that may be while delivering a differentiated customer experience we.
We continue to see opportunity and all of this chaos and we're weathering the storm better and that could have hoped taking care of our teammates and customers and protecting the bank.
Till 2020 was the most challenging year of my career I've never been more proud of our teammates and all of the accomplished while adjusting to a new way of working in the midst of all of this uncertainty.
I remain confident and what the future holds for us and the potential we have to deliver long term sustainable financial performance for our customers communities teammates and shareholders.
Despite all of that happened in 2020, or perhaps because of it as we enter 2021 I feel stronger than ever the Atlantic Union Bankshares remains of uniquely valuable franchise dense and compact in great markets with the story. Unlike any other in the region. We are scalable with the right capabilities for the REIT and markets and the right team to deliver high performance even in the most trying of times.
I'll now turn the call over to Rob to cover the financial results for the quarter Rob.
Thank you John and good morning, everyone. Thanks for joining us today.
Before I get into the details of the Atlantic Union's financial results for the fourth quarter and the full year 2020, and I think it's important to once again reinforce John's comments on the Atlantic Union's governing the governing from philosophy of soundness profitability and growth and that order of priority. This core philosophy of serving us well as we ended the company through the.
The current COVID-19, pandemic crisis and preparing us for what comes next.
<unk> Union continues to be and a strong financial position with a well fortified balance sheet ample liquidity and the strong capital base, which is allowing us to weather the current storm and come out stronger once this crisis has passed.
As a matter of <unk> enterprise risk management practice, we periodically conduct capital credit and liquidity stress tests for scenarios such as the operating environment. We now find ourselves and we're occasionally even worse scenarios results from these stress test test to help inform our decision, making as we manage through the current crisis and it gives us confidence of the company will remain.
Well capitalized and has the necessary liquidity and access to multiple funding sources to meet the challenges of the current economic environment.
Now, let's turn to the company's financial results.
Please note that for the most part of my commentary will focus on Atlantic Union's fourth quarter and full year financial results on a non-GAAP operating basis, which excludes and after tax debt extinguishment loss of $16 $4 million, resulting from the prepayment of long term federal home loan bank advances and the fourth quarter.
And it excludes $26 million and after tax debt extinguishment losses, and $9 7 million and after tax security gains for the full year of 2020.
For clarity I will specify which financial metrics around the reported versus non-GAAP operating basis.
And the fourth quarter reported net income available to common shareholders was $56 5 million and earnings per share for common share was <unk> 72.
The out approximately $1 $8 million were <unk> <unk> per common share from the third quarter.
For the full year 2020 reported net income available to common shareholders was $152 $6 million and.
And the earnings per common share was $1 93, compared to $193 $5 million or $2 41 becomes here in 2019.
The reported return on equity for the fourth quarter was $8, eight 2% and $6, one and 4% for the full year.
The reported non-GAAP return on tangible common equity was 15, 6% and the fourth quarter and was 11, 8% for the year.
Reported return on assets was $1, one 9% for the fourth quarter and was 83 basis points for the full year 2020.
Reported efficiency ratio was 68, 4% for the quarter and 60.
2% for the full year.
On a non-GAAP operating basis net adjusted operating earnings available to common shareholders and the fourth quarter was $72 9 million and earnings per common share were <unk> 93.
Which was up approximately $15 million or <unk> 19 per common share from the third quarter.
Non-GAAP pre tax pre provision adjusted earnings were $77 million compared.
Compared to $78 5 million and the third quarter.
For the year ended 2020, non-GAAP adjusted operating net income available to common shareholders was $168 8 million and adjusted operating earnings per share per common share was $2 and 14th.
And as compared to 200 to $127 8 million or $2 $2 84 per common share.
In the prior year.
Non-GAAP pre tax pre provision adjusted operating earnings for $294 million, and 2020 compared to $295 $2 million and 2019.
Non-GAAP adjusted operating return on tangible common equity was $19, 91% and the fourth quarter and was 12 two week since for the year. The non-GAAP adjusted operating return on assets was $1 five 2% and the fourth quarter and was 91 basis points for <unk>.
For the full year of 2020 non.
Non-GAAP adjusted operating for the switch.
This is the ratio was 53, 6% and the fourth quarter and was 53, 2% for the for the full year 2020.
Turning to credit loss reserves as of the end.
The fourth quarter and the total allowance for credit losses, once the $175 million.
Comprised of the allowance for loan and lease losses of $165 million.
And the reserve for unfunded commitments of $10 million.
And the fourth quarter, the total allowance for credit losses declined by $15 $6 million, primarily due to lower expected losses and previously estimated as a result of improvements in.
And Virginia's unemployment rate benign.
Benign critical of the metrics to date, and and and improved economic outlook over the forecast period due to the rollout of COVID-19 vaccines and additional government stimulus inclusive of more PPP loans funding.
The allowance for loan and lease losses as a percentage of the total loan portfolio was one one and 4% at December 31, which was down seven basis points from one point to 1% at the end of the third quarter and the total allowance for credit losses as a percentage of total loans was 122% at the end of December which is down from one.
Two 9% and the prior quarter.
Excluding the SBA guaranteed PPP loans, the allowance for loan and lease losses as a percentage of adjusted loans decreased 11 basis points to one 2% from the third quarter.
And the total allowance for credit losses, as a percentage of adjusted loans decreased 13 basis points to 133% from the prior quarter the cause.
Average ratio of the allowance for loan and lease losses to non accrual loans was three eight times.
At December 31, compared to four five times at September 30.
The $15 $6 million to clients of the company's total allowance for credit losses took into consideration of the COVID-19 pandemic impact on credit losses, both through the two year reasonable and supportable macroeconomic forecast utilizing the company's quantitative seasonal model and true management's qualitative adjustments.
Beyond the two year reasonable and sport of affordable forecast period, the cease of quantitative model estimates.
Expected credit losses using it.
The estimate.
From the expected credit losses, using a reversion to the mean.
Of companies to the company's historical loss rates on a straight line basis over two years.
And estimating the expected credit losses within the loan portfolio at quarter and the company utilized Moody's December baseline macroeconomic forecasts for the two year reasonable and supportable forecast period.
Moody's December economic forecast improved since September and as of now assumed the on a national level of GDP will recover to pre pandemic levels by the summer.
Too early 2022 in the September forecast.
Moody's forecast for Virginia, which covers the majority of our footprint had previously assumed that the unemployment rate and the state would average nearly six 5% during the two year forecast period, but the December forecast now assumes a two year average of 5%.
In addition to the quantitative modeling the company also made qualitative adjustments for certain industries viewed as being highly impacted by COVID-19, the discussed by John earlier.
Additional qualitative factors. We have included this quarter to take into consideration the on.
Certainties pertaining to the future path of the virus and concerns around vaccination distribution efforts.
Yes.
The provision for total credit losses for the fourth quarter declined by $24 million as compared to the third quarter due to the aforementioned reduction of credit loss reserves, which drove a negative provision for credit losses of approximately $14 million and the fourth quarter.
And the fourth quarter net charge offs were $1 $8 million of five basis points of total average loans on an annualized basis compared to $1 4 million.
Others were four basis points from the prior quarter.
And to $4 6 million of 15 basis points for the fourth quarter of last year.
As in previous quarters, the majority of net charge offs, approximately 63% and Q4 came from non relationship third party consumer loans, which are in runoff mode.
Now turning to the pretax pre provision components of the income statement for the fourth quarter tax equivalent net interest income was $148 $7 million, which was up $8 $4 million from the third quarter net.
The net accretion of purchase accounting adjustments added nine basis points to the net interest margin and the fourth quarter up from the eight basis point impact and the third quarter, primarily due to an increase in loan related accretion income of approximately $700000.
The fourth quarter's tax equivalent net interest margin was 332%, which was an increase of 18 basis points from the previous quarter due to a 10 basis point increase and of the yield on earning assets from the accelerated PPP fee income and an eight basis point decline and the cost of funds.
The quarter to quarter, earning asset yield increase was driven by the 15 basis point increase and the loan portfolio yield partially offset by the impact of lower yields on securities of 11 basis points.
The loan portfolio yield increased to $3, 99% from $3 eight 4% and the third quarter driven by the impact of higher levels of PPP loan fee accretion, resulting from the SBA forgiveness of approximately $430 million and PPP loans during the quarter.
The reduction in the securities portfolio yield yields of two 8% from 291% was the result of the deployment of excess liquidity during the past two quarters into new investments at yields lower than the existing portfolio yield.
In addition, cash proceeds from higher yielding securities that have matured or.
Were repaid or prepaid are being reinvested at todays lower market interest rates.
Quarterly eight basis point decrease and the cost of funds to 37 basis points was primarily driven by a nine basis point decline and the cost of deposits of 30 basis points interest bearing deposit cost declined by 13 basis points from the third quarter to 42 basis points for the fourth quarter due to the continued aggressive repricing of deposits.
As market interest rates declined.
Noninterest income declined by $2 2 million to $32 2 million from the prior quarter.
The decrease was driven by $1 $4 million and boldly death benefit of proceeds received in the in the third quarter low.
Low insurance related income of $530000 reduced levels of unrealized gains of $550000 related to the Companys spic's investments and.
And lower loan related interest rate swap fees of $460000.
These revenue declines were partially offset by an increase in service charges on deposit accounts of $661000, primarily due to the higher higher overdraft fees.
Non interest expense increased $28 $5 million to $121 $7 million for.
From $93 2 million and the prior quarter, primarily driven by the previously announced $20 8 million debt extinguishment loss, resulting from the prepayment of long term federal home loan bank advances and the fourth quarter.
And an increase of $7 $4 million and performance based variable incentive compensation and.
Profit sharing expenses, including a contribution of $1 $2 million for the company's employee stock ownership plan as John had noted.
Fourth quarter expenses also included approximately $790000 and costs related to the Companys decision to close five additional branches next months 716000 in the third party expenses incurred during the quarter. The process P. P. P loans for SBA forgiveness $447000 and costs.
Two the company's response to COVID-19.
Increased project related consulting and professional fees of $883000 and an increase of $582000 and FDIC premiums due to the impact of lower levels of PPP loans on the company's assessment rate.
The effective tax rate for the fourth quarter decreased slightly to 51% from 53% and the third quarter for the full year of the effective tax rate was 15, 1%.
For 2021, we expect the full year effective tax rate to be of the $16, 5% to 17% range.
Turning to the balance sheet parity on total assets stood at $19 6 billion at December 31 <unk>.
The decrease of $302 million from September 30, if the.
The levels, primarily due to the SBA forgiveness of PPP loans.
The period end loans held for investment of $14 billion.
The decline of $362 million of approximately 10% annualized from the prior quarter quarter, driven by the SBA forgiveness of approximately $430 million of.
The PPP loans.
Excluding PPP loans loan growth and the fourth quarter was one 8% annualized driven by increases in commercial loans of $102 million of approximately 4% annualized partially offset by reductions in consumer loan balances of $43 million or 8% on an annualized basis commercial loan.
Growth was primarily driven by growth in the equipment finance loan balances and an increase and revolving lines of credit Outstandings as the line you Lusatian rate ticked up one 8% from the prior quarter two of still historically low level of 25, 6% the.
Overall decline and consumer loan balances during the quarter was driven by continued pay downs and mortgage and HELOC balance.
And as well as the run off of third party consumer loan balances, which was partially offset by annualized growth and indirect auto balances of 14%.
As noted average loan yields increased 15 basis points during the quarter, primarily due to the increased PPP fee accretion income, resulting from the forgiveness of PPP loans during the quarter.
At the end of December total deposits third of $15 7 billion.
Which is the increase of $147 million or three 7% annualized from the prior quarter.
With the exception of money market deposits, which declined slightly while interest bearing deposit categories increased during the quarter demand deposit balances decline of approximately 5% annualized from the third quarter as a result of seasonal factors.
Low cost transaction accounts comprised 51% of total deposit balances at the end of the fourth quarter, which is in line with the third quarter levels as mentioned the average cost of deposits declined by nine basis points to 30 basis points, while interest bearing deposit cost declined by 13 basis points in the fourth quarter.
The company's liquidity position remains strong and both the bank and holding company and levels with multiple sources that can be tapped if needed.
From a shareholder stewardess stewardship and capital management perspective, we remain committed to managing our capital resources prudently as the deployment of capital for the enhancement of long term shareholder value remains one of our highest priorities from a capital perspective, the company continues to be well positioned to manage through the pandemic and its.
The impact on the company's financial results at the end of the fourth quarter Atlantic Union, Bankshares, and Atlantic Union Bank capital ratios were well above regulatory well capitalized levels.
During the fourth quarter of 2020 of the company's paid of common stock dividend of <unk> 25 per share and also paid a quarterly dividend.
$171 88 on each outstanding share of series a preferred stock.
In summary, the Atlantic Union delivered solid financial results and the fourth quarter and for the full year. Despite the ongoing business disruption associated with COVID-19, and the headwinds of the lower interest rate environment.
Also please note that while we are proactively managing through this unique and unpredictable pandemic and are taking the proper steps to weather the economic downturn to ensure the safety and soundness and profitability of the company. We also remain focused on leveraging the Atlantic Union franchise to generate sustainable profitable growth.
And we remain committed to building long term value for our shareholders.
And with that let me turn it back over to Bill <unk> to open it up for questions from the analyst community.
Thanks, Ralph and we are ready for our first caller. Please.
As a reminder to ask a question you will need the press star one on your telephone to withdraw your question press the pound key please standby, while we compile the Q&A roster of.
Our first question comes from the line of Casey Whitman from Piper Sandler Your line is now open.
Good morning, Casey Casey Hey, good morning.
And then.
And I would start on John you made the comment that in 2021, and we could see loan growth, maybe and returning to the high single digit range I. Just wanted to clarify is that how youre thinking about just the commercial book or the overall book and then I was thinking maybe you could walk us through what youre seeing for demand across the different areas of footprint and where.
And Youre seeing commercial line utilization pick up or maybe that's been put the line. Thanks, Yes and for the record I said that we could expect to we would expect the opportunity to return to high single digit loan growth and 2022 and debt for 2021, we think it will start slower and.
And then pick up.
Our expectation for 2021, all in overall is probably more in the mid single digit growth rate Rob yes.
If you exclude the third party loan run off of we expect to be and the 4% to 6% on a full year basis.
On the commercial side is probably.
At the higher level of 6% and consumers probably go on about three percentage of shell on average and so I think that Casey as you well know that the company does have a track record of.
Pretty consistently being able to deliver high single digit growth rate. We continue to believe as I said the the markets for the franchise the opportunity we have a bit of a tailwind with what's going on at some of our.
Larger competitors, who shall not be named.
There's a lot of disruption and we're benefiting from that so we're feeling pretty good at the moment, we still see commercial business borrowers awash in liquidity, we see it and deposits you see it and the low line utilization.
<unk> been cautious but activity is picking up we continue to fight headwinds of.
Refinances on the commercial real estate book into the long term institutional markets, but nevertheless, we continue to feel like we are positioned for overall high single digit loan growth, but thats, the 2022 opportunity, but I think that again youll see it kind of slow as this year began and that will pick up we do.
Dave Ring head of commercial banking on Dave on the asking you. If you can give us just some summary comments in terms of the areas of strength geographically across the franchise from a commercial standpoint.
Sure and John just to piggyback off of what you said loan demand is steady.
We continue to see the benefit from disruption at other banks and the goodwill that was created during PPP.
Like John said, we expect the second half.
To be better than the first half and we look for mid.
Mid single digit growth the regions that are on.
Doing well within commercial would be number one and equipment finance. If you recall, we just started that business at the end of December of last in 2019.
That business is doing very well serving our footprint.
The Central Virginia, Our home Court is all is the is continuing to grow and.
And the fourth quarter of double digit annualized pace.
The coastal region, which as you know.
Virginia Beach that whole area is next in line and greater Washington, and Baltimore had a lot of paydowns on the revolvers, but overall production is very strong there and in North Carolina, and all of our markets and North Carolina, we are doing very well, but and that order would be the gross.
Thank you Casey.
Casey did that answer your questions. It did thank you and thank you for clarifying the net 21 and 22 growth outlook makes sense.
I think I'll, just turn to maybe bigger picture. John you mentioned that you see strategic opportunities on the horizon, maybe can you elaborate on that a little bit and provide us with more color on your M&A thoughts, maybe with what sort of targets you might be interested in and then what.
Got it and please.
Sure I think the KC environmentally we're seeing what I believe is a perfect setup for further bank consolidation and clearly it's already begun so from from where we sit we continue to.
Like the the density of the franchise the contiguous nature of the franchise and the fact that we have clearly established us ourselves and not only the home team here and our home state of Virginia, but the clear alternative to the large competitors and Virginia.
And Theres no question that there are things that could make the financial and strategic sense for us and we wouldn't do anything and I <unk>.
We of the track record to prove it that didnt make financial and strategic sense for the company I think theyre going to be options.
We go about this very thoughtfully, there's nothing new about this conversation on the analysis that we do we're still on the disrupted environment and we're still first and foremost focused on taking care of the franchise and navigating through Covid credit management.
And just kind of going about our business, but we do feel like we are we are positioning for other opportunities.
We continue to look at the spectrum. It is true that one thing that feels perhaps different from a year or two ago is we we do think about things that are relatively larger than we used to think about that as just a math exercise in terms of the smaller scale acquisitions.
And we'll individually can be very accretive and make a lot of sense tuck ins et cetera. They don't actually move the needle as much. It doesn't mean, we would not do that to be clear. It simply means that we think about we are of consolidating market. We are of near zero interest rate pardon me of consolidating industry near zero interest rate environment for at least three years.
And in our opinion.
I think that the argument for scale is very real so we kind of look thoughtfully across the spectrum of opportunities. If we were able to continue to kind of double down.
And our home markets that would be our first choice and further strengthen our hand here, we do look around contiguous to us, we're not going to announce something and Montana.
So from from our standpoint, it's not a whole lot has changed in terms of our strategic intentionality I would also say to sort of anticipate the question of well when might this happen. The adult look for us to announce something next week, if we have our druthers or I'll be clear if I had my druthers it'll be later versus sooner. This year, we don't.
Always have the opportunity to control timing, but I would really like to see us get through the winter I'd like to see what goes on with Covid.
We are always busy inside the company and if you think about my comments I intentionally made several references to improving scalability and so there are some things going on and the organization debt a little more time would be very helpful. In terms of being able to plug something else into it and.
And that's how we think about it so that's I hope that at least relatively clear and and let me also say we may do nothing.
But im simply saying that we do see opportunity out there.
Understood. Thank you ill, let someone else jump on.
Casey Gigi we're ready for our next caller please.
Thank you. Our next question comes from the line of of Eugene Pointsman from Barclays. Your line is now open.
And Eugene and Digi.
Good morning.
Can you talk to the puts and takes of the net interest margin this quarter, what's the right starting point for the first quarter of 'twenty, one given the lift from debt prepayment and the impact of being be free given us on the when you originate loans as well as slowing accretion.
And.
Yes.
In terms of the margin for the first quarter, I think youre going to see.
A.
Fairly stable margin inclusive of accretion income.
And the PPP forgiveness.
No.
And we forgiven through at the end of December of about 400 million of above $1 7 million billion of debt.
The PPP loans, we have made.
So we're expecting to see that continue to come through and the first quarter exiting two through today.
We received another 100.
The 80, I guess about $85 million of additional forgiveness through the first.
Of portion of January and expect that will continue so the impact of PPP loan forgiveness on.
On the.
For.
The income from the <unk>, probably similar to what C and the fourth quarter accretion is going to be fairly similar big down.
And then on.
On the core basis, when you back out all of that.
Our core.
Net interest margin came in about $3 five this quarter, which is fairly consistent with what the Q.
Q3 was and we are expecting and with that we will stabilize and debt level.
Through the first quarter and actually throughout next year.
We feel good about debt.
Debt, we bottom of at least from the core side.
And we've got opportunities in terms of.
And we think the earning asset yields will continue to compress a bit.
But the cost of funds will also decline as well and.
We will offset that component of the asset yield compression that we expect so.
So I guess in the first quarter.
And kind of what you see and Q fours, what Youll see and Q1, and then as PPP declines and I am excluding any commentary around PPP too because we don't know exactly what that is but excluding that youll see.
The reported margin decline because PPP fee income will be exhausted.
For the second quarter of this year.
Got it and just wanted to follow up for but what levers do you have remaining to help support the GAAP NIM you mentioned.
The deposit repricing and liability management.
Yes, so we continue to see opportunity.
And in reducing our overall cost of funds primarily through.
The reducing our cost of deposits of.
And as you see we made significant progress over the last several quarters actually and.
Reducing our cost of deposits I think you've done the 30 basis point. If you looked at in December we were actually down to 27 basis points, we feel that thats been a 12 week.
Towards the second half of the year swap in the very low twenty's, if not 20 basis points.
Got a number.
And about $1 billion of high cost Cds that will be maturing over the next six months the.
The average.
The interest rate on those Cds is and the 150 range actually.
Over the next two months. So we've got some Cds that are maturing and the 170, so those of repricing down significantly.
Of our current CD offering is one year no penalty CD.
And is placed at 15 basis points. So we've been seeing a significant.
And our repricing of the CD book and that will continue which will continue to allow us to reduce our cost of funds the cost of deposits.
Yes.
Got it that's really helpful and I wanted to jump to a different topic.
On the capital management, what are your thoughts on restarting share repurchases given the relatively sluggish loan growth expectations for this year and the <unk>.
Improving credit outlook debt should hopefully drive more for leases yes.
Yes.
Yes, so in terms of how we look at.
Excess liquidity and deployment options.
The first and foremost.
We calculate excess capital.
Anything above and eight 5% tangible common equity ratio.
You'll see that we're reporting for.
For this quarter eight 3% now.
That's camp.
That's down a bit because of PPP loans over and the asset base and tangible asset base. If you exclude PPP loans will probably on the eight 8% range. So we are building excess liquidity.
And we expect that will continue.
Throughout the year knock on wood.
The credit.
Continuing to improve as we.
And we saw this quarter.
So we will be looking at all options.
She and deploy that excess.
Capital as we build it up throughout the year, so certainly share repurchase.
And would be on the table.
Previously had $150 million.
Share repurchase authorization from the board of which.
We had $20 million remaining debt was suspended in March of last year, when the pandemic hit.
We will continue to evaluate the increasing that authorization.
With the board.
We feel like because of that.
The arrow and the quiver.
The other thought is we will as John mentioned consider acquisitions.
And just deploy that excess capital as it builds up as well so.
So stay tuned on that.
But I would expect that youll see some.
The opportunities for deploying the excess capital.
Weather and repurchases of our acquisitions as we go throughout the year.
Thank you.
Thanks for your gene and Gigi, we're ready for our next caller. Please.
Thank you. Our next question comes from the line of Stuart Lotz from K B W. Your line is now open.
Hi, Stuart and good morning, and Stuart Hey, guys. Good morning, and you hear me Okay.
Awesome.
And Rob if we could.
Kind of Diamond and the expenses this quarter.
And I know there was a lot of noise for some of the onetime kind of year end accrual and I.
I think your guidance last quarter.
Was for your core operating run rate to be around 88 million. If we back out the seven for as well as some of the Covid related expenses I can get closer to 91, how are you guys thinking about that run rate.
And in the first quarter of this year.
Yes, Thanks, Stuart yes so.
The way I look at the.
Run rate, we have some as you mentioned some incremental.
Incentives for expenses for.
Paul and some.
Other.
Items, so I get close to kind of where you are 90% $91 million on a panel.
Kind of a normalized run rate this quarter.
And we've just completed.
For 2021 of financial plan.
And the fall looked at shelf.
And what the expense base looks like in terms of the overall.
The profitability of the company.
The project forward.
Our thoughts now are as we look into this year and looked at some of the investments we need to make and wants to make which should be beneficial of down the line.
And the world here in terms of efficiency scalability et cetera.
We're going to be guiding up a bit from what you mentioned you had mentioned about 80% to 90 was kind of a runway.
Run rate, we were looking for.
As we've gone through the planning process. It looks like it will be more and the $90 million to $92 million range on a quarterly basis, probably on the higher end of the first quarter is.
Seasonally they are a bit higher as.
Payroll taxes kick in again and et cetera. So.
That's how we're looking at and put that includes a number of.
The investments, we're making and digital cyber security.
And some projects that we feel will be beneficial for.
And efficiency point of view as we go through the year and into 2022, Rob I'll side and point out that presumes that we hit our financial goals for 2021 and half of fully funded incentive plan that's based on that.
And did that run rate I know Thats, one question that will likely come the other thing I'll point out.
It is true when we began the financial planning work, we were not contemplating there would be another round of PPP. So we do have some degree as yet undetermined amount of income that is a bit of.
A positive thing that we werent counting on and we think about that and the context of being able to slip a few projects and have it pay for it.
Net potentially would not have happened and the absence of that if it makes sense, we do have things going on and the company to improve efficiency to improve scalability technology oriented the way. They work they tend to have some front end loaded expenses it can be.
It could be consulting various other things. So you do need to make investment upfront in order to realize the return of expense save on the back end of it and so we feel like this is a pretty good setup to move a few of those things and the possibly wouldn't have been there otherwise.
Yes, there are other projects.
Such as looking at our flexible work.
Plans going forward and in a normalized environment, we are investing some money, but we do expect that debt could lead to.
Reductions and occupancy expenses as we go through the so theres some.
Some of those sorts of things going on and also investing in our businesses and our wealth management business, which should drive revenue and <unk> and our commercial business.
TNF and FX.
The opportunities and rights small business.
Lending opportunities that could help with the revenue side.
And on that front.
The continue the from the run rate point of view. We're also looking at non interest income kind of being in the 30% to $32 million.
Quarterly run rate as well, which is a bit higher than we had.
Anticipated coming and coming out of the third quarter.
Yes.
I appreciate all of that detail John and Rob.
And and Rob.
Turning to.
On the reserve release this quarter.
You guys do a great job on slide 10.
Kind of diving into some of the assumptions, but I was hoping you could provide a little bit more detail on.
On the qualitative adjustments you guys had mentioned according to the vaccination rollout and kind of how that impacts.
The reserve levels, and maybe just kind of any outlook.
For further reserve releases and <unk> given the the January forecast from Moody's.
And we should incrementally better than what we saw on December.
Thanks to the equity.
Yes. Thanks.
So in terms of where we are at the end of the fourth quarter.
And as we mentioned the.
Part of our loans.
Six of modeling is very sensitive to the Virginia unemployment rate and that improved quite a bit as well as two.
Our credit quality metrics, which continue to be.
And do very well, we haven't seen an uptick and that.
And then of course zone.
The screening.
The downgrades of seven which we had a bit of debt of now not materially this quarter, So and things look good from that point of view in terms of the.
So the modeling quantity of the modeling.
Adjusted.
It would bring the reserve down.
Offsetting the as we continue to add qualitative factors as mentioned to.
To give you a flavor for where we are at year end.
Of the.
$160 million.
<unk> of the allowance for loan losses.
<unk> 50, some odd million dollars really is inclusive of qualitative factors, so thinking about the quantitative model the <unk>.
Overlaid with qualitative factors.
So about a third of debt.
In terms of looking for yes.
And just received the January Moody's.
Outlook, and it's and again as you noted.
And.
So we were feeling like the continued.
Continued and improving the here, we still haven't seen any.
The metrics.
Deteriorate from the credit point of view charge offs continue to be.
Low.
So we could see some additional lease of reserves as we as we move forward. We will see you will see how things play out.
The.
But in terms of kind of our overall modeling with the <unk> charge offs of dams.
And just.
The.
50 basis points range for the full year, so, but we expect debt will start to see that more and the second and third quarters, peaking.
Of course, that's all and assumptions at this point, we haven't seen anything that's come through and the desktop that's when it model would say.
And then providing toward.
Yes could be some release.
And as those charge offs come through throughout the year. So we do expect debt.
Our reserves would all things.
Remaining.
And where they are today and what the outlook looks like debt you could see further releases going forward.
Okay.
I guess, just one follow up on that would you I mean do you expect to match charge offs with provision and then some kind of further level of release as as your consumer book branch to pull the off and and if we do see.
The credit outlook.
Really improved throughout the year.
Yes.
My view is that we won't be matching charge offs.
<unk> and charge offs were kind of already reserved for and we'd be providing for what's coming down the pike.
And based on the.
The the portfolio at the time so.
My expectation is that there will be net release and even though we may have charge offs are still to be net releases because provision went up.
Offset one for one on the charge off level, but again that depends on the.
Outcome the outlook continue to be.
The positive as we've seen so far.
Okay, great. Thanks for taking my questions guys.
Thank you Gigi we're ready for our next caller please.
Thank you. Our next question comes from the line of Laurie Hunsicker from Compass point. Your line is now open hi, Laurie and good morning, Hi.
Hi, Thanks, good morning.
And with credit and Rob can you give us an update on where we are with total credit size.
And I don't have the percentage right in front of me here, but it's in our and our release, but it's pretty low in terms of other.
And I will go back and look Brian Okay, Yes, and then on the on the Hood.
How about getting your your and your deferral for trying to payment terms are amazing and obviously the hotels there for standard.
And can you just give us a little bit more color around that thought that you may not have and my notes that it was primarily flag non resort hotels round numbers that of 60% LTV. Just wondering if you had more color and if you had more color in terms of what you can tell until seven just the 11 loans.
Moving on and for all first half of the $9 million, Yes, Laurie we have Doug Lee Chief Credit Officer on Doug do you want to give us your perspective on the hotel portfolio more on and Laurie.
Most of the hotels are spread around the Virginia footprint.
And as the slide deck says the <unk>.
Juruti of and two thirds are our interest the only thats part of our re stabilization.
<unk> and the support of our hoteliers.
And as you also see it's almost 90% of the hotels are off mall and resuming payments. So we feel very comfortable of that the overall hotel book has got it and average occupancy of 55%.
And of course, there is a bit of of standard deviation their budgets.
That's a pretty strong performance of the hoteliers as we know our operating under much lower breakeven operation per.
And <unk>.
So for.
And for the most part of that 55% shows them operating.
As comfortably as you can and.
Like most of most other banks are hotels that are.
Extended stay are almost completely full all the time, so we feel we feel comfortable with the hotel book right now and.
Laurie as you know just as a reminder, or I guess for those who aren't as familiar when you think about our hotel portfolio, Doug said, its footing and footprint.
What we don't do is we're not doing Big Convention Big Conference hotels, No Airport hotels, we have personal guarantees we deal with professional hoteliers tour, both the owners and operators and.
We've got our arms around this portfolio and we'll work with them as they get through this.
Okay, and then sorry, and just one more question and LTV do you do you have a tighter number on the approximately 60% or is that what I sort of be using.
Yes.
We don't re appraise hotels, we did not re appraise hotels.
Because of Covid.
No.
That numbers and as good as any number obviously hotel values of weekend.
But again as John was saying, we don't do non recourse hotel lending we have the guarantor support and the guarantors have supported to the extent they needed to property by property. So I think thats a comfortable ltvs of good equity buffer there yeah.
Okay, Alright, and Florida, Florida.
Just to get back to your earlier question of the past dues or about 39 basis points at the end of the fourth quarter.
Which is down from about 61 from last year's timeframe. So.
Okay. Yeah, I guess I was looking for your actual criticized I think your credit we answered the amount of $1 billion of scale at September.
We will detail that and the 10-K I can tell you thats true.
That's why debt that actually is not and the and the earnings release, but we have debt will be followed and the K the eight.
The increases and.
Special mention substandard had been modest that.
The <unk> seen some but nothing alarming.
Okay, Great and one last question, Rob for you and Jeff and Jeff.
And I wanted to make sure I have the December right on it.
P. P. P fees received that flowed into the net interest income this quarter were $15 million versus $9 9 million last quarter is that correct.
Yes, that's the fee the fee income component right.
Okay.
Thank you Peter and I.
I guess, if im looking at that then if I if I just take that off of your of $3 32 margin forget loan accretion and I am just looking at PPP, that's the 34 basis point impact to margin.
And we're down at 288 and I mean.
And then I get the net number will be noisy, but I guess, what I'm getting at is we fast forward to when we don't have prepay.
Great day of fees coming back thrill.
How should we be thinking about core margin.
The thing that esol and.
Something wrong and my math.
Yeah, what you need to do is you've got to back out the PPP loans from your denominator because those are going away as well so 1% that's how we get to the core NIM ex PPP is 305.
Loans net of PPP loans, we saw on average for the quarter.
We reported.
Earning assets of $17 eight PPP loans average was one four so.
The $16 for so.
Back out the.
Yes.
The income, but you're also going to backup and the denominator as well with it.
Okay. Okay, and then one last question on that and how much of the <unk> of people pull for.
Sure.
So again kind of host.
Morris and remaining on the PPP, how much how much actually remain.
The.
It's the slipped and we've got about $17 5 million left the correct. That's for round wanted to be clear that we're not just talking about that it's just one of them. We haven't got our hands around PPP, two yet, but there should be some fees deferred fees coming out of that as you can imagine.
Great.
And I'll leave it there thanks, Laurie and we're going to try to get into at least for more color here Gigi.
Our next question comes from the line of William Wallace from Raymond James Your line is now open.
While a good morning.
Good morning, Thanks for taking my call.
I would like to maybe dig into the expense question, a little bit more debt seven point I think of $7 4 million of incentive comp accrual was very high I mean, thats three or four times, what I think we have split we've seen in the past fourth quarters. When we have adjustments did you all did you all.
Reverse accruals through the year I mean, it's.
It's not like you had and a stellar loan growth year of something like that and I'm just kind of help me think about why that accrual so high.
Yes.
And what point Wally is.
We typically make a contribution to our east hub.
Employee stock option plan.
Each year and that is true for over four.
Quarters.
We.
We're choosing not to make that contribution this year due to the pandemic and as we went through the fourth quarter, we reassess that so.
So $1 $2 million as kind of a full year impact for that which would normally be crude over four quarters.
The other component is as we came out of third quarter.
We were accruing for a full year.
Instead of payout and profit share.
Debt was.
And then.
What we ended up doing and we.
And basically had a pickup and the fourth quarter two to make that whole. So think about it is.
Our projection was too low in terms of what we accrued for.
And.
In the first three quarters and as of the numbers came through and the fourth quarter, we had to adjust accordingly, and I think that I would point out debt is a variable expense variable and means variable.
May or may not be paid depending upon how we did and so in terms of what we were able to accomplish there for the course of the year.
Versus our targets, we ended up doing better than what we thought was going to happen and so we wanted to accrue according to our formulation.
So did you adjust the accruals then in March when the pandemic, sorry, because of I would imagine you're below your prior budget pre pandemic.
And we did reduce the accruals back and then as the year went on.
Things look better.
And Chris and add fourth quarter, yes.
Okay.
Even look better than what we had originally thought coming out of the third quarter. So we are the adjust and if we hadn't finished as well as we did it would have been lower for and Thats why there is no guarantee that's variable.
And I understand and then you guided 88 to 90 and then you ended up at 90 to 91, when you make adjustments related to stuff the kind of nonrecurring stuff and what caused the creep there and the quarter.
Yes, the various various things that came through.
Some of the.
We do relate to with the.
We've been investing and some of <unk>.
And <unk> some of the cultural thing fees were higher.
And we decided to move forward on it on a.
The number of projects LIBOR transition expenses came through.
And some external consulting help on that.
We are evaluating as I mentioned, one project is the flexible work force.
Project debt, we've got some outside help and helping us with and wheat.
The accretion for things like that so.
And just kind of a combination of the number of different things.
Wally on that front, okay. Okay.
And then and then obviously you're now guiding for a higher range. In 2021 is that to assume that you have decided to move forward with some other projects that we're kind of on the table and consideration yes, yes.
Yes, it's while the we've got again, we have several things here. We can talk we'll talk to you later in more detail, we have some technology enabled initiatives and things like the fraud unit.
The other operational functions of the bank debt do cost money upfront, but will result in savings have of return and again, we get a little bit of a tailwind admittedly as we now have this previously unexpected PPP income coming from round to wed like to invest to some degree that and the company.
And so youll see some things that don't necessarily add to the ongoing run rate of expenses, but we're going to incur of them be a little more front end loaded and the year versus back end loaded and then we actually think we will have savings later on we're very focused on improving scalability, we're very focused on implementing automation all of these things.
And are good investments with returns for the bank.
Okay, Alright, I appreciate all of that color I don't know if you if we have time, but if so any chance you could update us on any anecdotal or data and metrics that you're measuring as it relates to projects on down and you referenced multiple times throughout the Q&A.
Q&A and prepared remarks, and update yes, we've sort of broadened that in the sense that we don't just think about.
The truest merger, we also think about Wells Fargo, and I may ask Dave Ring, and where bank President Maria Tedesco to comment on this the truest has moved very slowly in terms of the rebranding we don't expect to see true of signs up until early 2022, although they are now moving along with branch consolidation.
<unk>.
<unk> customers of truest, Havent felt too much impact yet.
On the commercial side they absolutely have.
And because they are now largely integrated and they've made the changes that they've made they've let me ask you just in terms of commentary things that we see going on at.
These larger competitors.
What is your and your take I mean, we are built to take market share from these guys for small to midsized businesses. We have we're kind of quiet about our hiring the we've been hiring out of those organizations.
What do you have to say about that day bring.
Sure.
That's right John and we've really spent a lot of time focused on companies experienced banks experiencing some sort of disruption and our and using our PPP effort to.
The support those companies that those banks having disruption.
Or are not serving very well so as a result.
And we've been able to drive pipeline and business on companies really between $1 million and revenue to $250 million and revenue, we don't focus very much on.
Any companies larger than that and we also look at what they are.
Reorganizations, and how they impact people and those organizations and we've been able to grab top talent from.
Not only for West, but also wells Fargo and a few other banks, so we've been able to find.
Find pockets in our market, where theres, a lot of opportunity and hire into those markets and higher into specialties. We hired two strong very strong bankers of one from tourists and one from Wells Fargo and our Gulf Com.
For instance, and that really helps us as we move that strategy forward. We've also been able to hire and our equipment finance practice, but overall this year we've hired.
29 producers and.
And.
To bolster where we are but also to replace where we had kind of vacancies that we've managed and so we.
We think the.
Upgraded.
Producer group.
Plus.
Our strategy to focus on.
<unk> that are having disruption and.
And using our PPP customer acquisition as another lever, we're able to continue to show growth into 2021 and 2022.
Great. Thanks, Thanks for the time, the sufficient share thing while thanks, Paul and then they flip and one way or we have reported even more and more and that'll be it.
For any thank you.
Our next question comes from the line of Brody Preston from Stephens, Inc. Your line is now open.
Hey, good morning, everyone can you hear me we can.
Alright, great.
And so I just wanted to touch base on on the loan pipeline and sorry, if you already talked about it I just wanted to get a sense for how the compared to last year and more broadly and the middle of 2020 and the during the pandemic.
Dave Ring do you want to speak to that how the pipeline looks how we've seen it trend.
Sure.
That's the that's the layout of royalty. Thank you.
The the pipeline has been consistent all year.
Our throughput is better and our pipelines. So I guess you could say if you were to compare the pipeline going into 2021 with the pipeline going into 2020, it's roughly 10% lower.
However, the the <unk>.
Quality is better so our throughput is actually very good and we're spending less time with things that we don't ultimately close so.
We have a strong pipeline when it comes to equipment finance, our C&I pipeline is as strong.
The one area, where we have.
Focus to reduce our pipeline of little bit is the construction and development pipelines, just because we are being a little more careful and focusing on our existing clients and that than that.
Asset class per se and so overall pipeline is is what we expected it to be going into the year and.
I feel very optimistic about it.
Okay, great and.
So I guess it sounds like you still feel like the pipelines and then sort of the throughput of supportive of.
Maybe mid to high single digit kind of core ex PPP loan growth moving forward.
And we're at a high for this year.
Right, we're driving for middle single digit and we'd be very happy.
And to be at the end of the year again more towards the second half of the year than the first half of the year simply because it takes a while for these things to kind of matriculate their way through to closing.
And last one for me just on the margin the core margin was the.
And was down and was down just a little bit but the NII growth was the NII was nice to see and it looked like you had some some positive.
Yes, maybe from some stabilization really on the core loan yield.
So do we feel like we're kind of nearing.
The real stabilization point in that.
And that core loan yield and I guess I'm wondering new core one of the new loan originations coming on at per year for yield and then similarly on the on the opposite side for Cds and the roll on roll off and it looks like there for costs.
And.
Yes, the <unk> Rob yes.
Yes.
Think we're at a stable the stable level of core net of.
Margin, excluding the PPP impacts or accretion income, we think will stabilize in the at the.
And we came in about $3 five on the core.
Margin.
This quarter, we expect it to kind of stabilize and that level give or take a few basis.
Basis points.
In terms of.
And with pricing on loans loans.
Loans on the commercial book of new originations.
For the <unk>.
The average across.
Various flow.
Rice and variable and fixed.
We came in about 340.
Pricing of loans.
This quarter, that's down a bit from last quarter, which was of around 347.
It has declined a bit.
Our mix of new originations.
Between LIBOR and prime based and fix the LIBOR is about 38%, 20% on trailing and and the rest of 42% fixed so.
We haven't really seen too.
And two months of the decline here, but we do expect debt, we will continue to see.
Both loan yield compression although.
Stabilizing a bit as we go forward and the loans reprice on the new loans coming on but also we do expect the investment security portfolio.
Also have some compression in net.
And so.
As we invest cash proceeds.
And to lower than portfolio yields and the current two and market.
And in terms of the deposit side, though we think theres a good offset there.
Debt.
And our cost of funds and the cost of deposits will continue comes down.
Cost of deposits of about 30 basis points, we think will come and get that down to closer to the 20 basis points as we go through the year.
Big ticket item there in terms of continuing to bring that down as the.
As mentioned earlier, you may not have been on the call yet.
About $1 billion of Cds of running off over the next six months average cost is one 5%.
So those of repricing.
And so the extent debt retaining those balances, which has been pretty good action, but 70% is repricing down of 15 basis points on a one year no penalty CD product so.
That's it.
And I'll provide an offset to continue the earning asset yields and keep for margin and net debt stable three three.
Three of the three of five range going forward.
Okay, great well. Thank you for all the time this morning, everyone and for making time to taking my questions I really appreciate it.
Thank you Brian Thanks Brody.
Thanks, everyone for joining us today, we look forward to seeing and already seeing you all soon and talking to you again next quarter take care.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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