Q4 2020 Ameris Bancorp Earnings Call
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Hey, guys negative impacts.
We're all foundry.
Accretion of PPP fees due to the early forgiveness and again there were a lot of moving parts, but then you kind of of the three highlight it really net out to that to that stable margin.
During the fourth quarter, our yield on earning assets declined four basis 0.1 of our interest bearing deposit costs decreased by 13 basis points and our <unk>.
Total funding decreased by seven basis points, hence the improvement of the spread our core bank production yields declined slightly to 386, but on the deposit side, we continued to see success in growing noninterest bearing deposits.
Our total deposits grew $894 million and over 26 per cent of that was in noninterest bearing.
Our non interest bearing now represent 36 point to seven per cent of our total deposits.
Compared to about 29, 9%. This time last year. We do believe this is affected by the excess liquidity in the market and we believe this could return closer to the 30% of the long term horizon. However, we do remain diligent as we're taking these deposits through superior customer service product enhancements and the technology.
The improvements that we've got.
The cause of your year to date, our margin declined 18 basis points from 388 to $3 70, even with the large hundreds of 50 basis point fed cut in March I think its key to look at our yield on earning assets decreased by 67 basis points, while our funding costs decreased by 65 basis point, we feel that we were quick to cut costs or the cut.
Funding costs and our deposit costs.
Talking about provisions during the fourth quarter, we reversed $1 5 million of previously reported provision expense that decrease was primarily related to the improvement of our economic forecast, particularly levels of unemployment and GDP and that was offset by increased qualitative factors that we added in our commercial real estate and construction portfolios.
For the full year, we recorded $145 million of provisions for credit losses, and that was compared to just 20 million last year.
Our ending allowance for loan loss was $199 4 million compared to <unk> 31 of the end of the third quarter and just $38 million at the end of last year.
Including the unfunded commitment reserve, our total allowance of $233 million compared with 260 at September 30, and 39 million last year.
Noninterest income in the fourth quarter remained strong due to the continued elevated production in the mortgage division.
Mortgage production was right at 2.8 billion for the quarter and the gain on sale increased over 4% up from $3 92 last quarter.
We anticipate that gain on sale of the decrease back to normal levels more in the three of her three range going forward.
Net income in the retail mortgage division was $43 4 million compared to $61 million last quarter, but $11 6 million fourth quarter of last year.
While the pipelines remained strong and we continue to see the strong production in 2021, so far we do realize that this could return to normal levels at some point this year and we're fully prepared.
Total noninterest expense continued to decline this quarter from $153 7 million last quarter of two 151 this quarter.
Expenses in the retail mortgage division decreased $4 7 million, while expenses in the core bank and administrative functions increased $2 1 million and I wanted to talk about those two separately. So the increase in core bank and administrative functions is really attributable to three things of that was the $1 million donation that we made to the newly formed in the Aerospace Foundation.
<unk> of $765000 expense related to the early termination of the loss.
Of the Washington of agreements with the FDIC, and then $532000 of Oreo write down.
So despite the expense determinate of loss share agreements, we do believe that exiting them will enhance our operational efficiencies going forward both from a functional administrative perspective as well as the economic impact of claw back of accruals and recovery share in going forward.
Continually as usual, we prudently exam non interest expenses and we anticipate minimal increases in the core bank and now moving on to the the mortgage segment, we do anticipate decreases in the variable cost as production decreases back to normal level, although I want to remind everybody that theres always that cyclical first quarter volume such as payroll taxes.
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It didn't have a matter of efficiency ratio, we're pleased with our efficiency ratio this quarter and the overall progress we made here our adjusted efficiency ratio of 50 to 67 this quarter compared to 50 561 fourth quarter of last year and for the full year, our efficiency ratio improved to $52 17 down from 50 567 last year.
The additional mortgage revenue and the efficiency gains in the mortgage division significantly impact of this ratio during the second and third quarters. We believe the ratio will stabilize in the 52 to 55 range in future quarters as we do not anticipate the level of mortgage revenue and efficiency to be sustainable long term.
On the balance sheet side and this is really of focus we're excited to say that we ended the quarter with total assets of over 20 billion at $20 4 billion compared to $19 nine last quarter and $18 2 billion last year.
So as Paul mentioned on the balance sheet I want to get a little some details on that we did experience of cyclical run off and if you remember to the third quarter. We said that we were anticipating that so our total loans decreased a net $463 million during the quarter.
But I really want to break that down and explained that we had expected decreases of 735 million and that was offset by organic growth in the core of bank of just over $280 million or seven six per cent for the quarter.
I talked briefly about the decreases not to rattle off on the numbers, but I do want everybody to understand that that $735 million of decreases were intentional known and didn't really have it was not a surprise to us. So the decreases included the $238 million of P. P. P reduction of hub.
Third and $2 million of the continued indirect runoff.
$87 million from the hotel notes sale, an additional $87 million of some strategic run off in the homebuilder line $80 million of some cyclical mortgage warehouse lines as well as about $20 million in the cyclical add line, but its a typical fourth quarter event for us in.
In addition, we had $141 million of consumer.
Consumer loans that we transferred to the held for sale category.
So again, excluding that you take that 735 million of organic of of run off that leaves us with $280 million to $300 million of organic loan growth, which again with seven and a half per cent for the quarter, which we were pleased with.
For the full year, our net loan growth was one 7 billion or 13% that included P. P T.
Exclude the P. P. P activity net loan growth was 835 million or six 5%, which was in line with our expectations of mid single digit loan growth.
Additional information on the loan growth in the loan portfolios can be found in the investor presentation.
So to wrap up we are managing through this low rate environment and protecting our margin as much as possible. We continue to see strong noninterest income from the mortgage division and pipelines remain strong going into the first quarter. We as always are watching expenses and are finding ways to pay for new technology through a reallocation of resources and we remain committed to preserving capital.
With that I'll turn the call back over to grant for any questions from the group.
Yeah.
We will now begin the question answer session.
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At this time of a pause momentarily to assemble our roster.
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Our first question today will come from Casey Whitman with Piper Sandler. Please go ahead.
Hey, good morning, Mark.
Thanks.
Yes.
Maybe I'll just start by continuing where you just left off the call with can you maybe just give us some thoughts around how you're thinking about loan growth. In 2021, you know given all of the puts and takes with indirect auto still running off but the south East you know opening up and and all of the hires you've made how should we sort of.
Think about the range of growth of you guys could put up our interest.
The 21.
Yeah, I'll take the bookcases Palmer.
We feel very encouraged by that and when I look at the pipelines, which is really indicative of what the future production looks like it's it's more than encouraging as we look into first quarter, which is traditionally.
Seasonal quarter, where you havent really from the pullback, but theres certainly remain headwinds in the economy and in pay downs, but what we're seeing in terms of the pipeline and sustainability of what we've got whether it be the new commercial initiatives, where we've got 10 days of C&I lenders or whether it be on the mortgage front were able I'm look of the pipelines now and we've got.
Incredible volume still coming through those those pipelines I think that it's going to be a strong.
The first half of the year for us and like I mentioned in my comments too I think the benefit we have is obviously being well positioned in the markets. We're in and as a result of debt, we feel very confident of our ability to sort of continued to deliver on the growth side.
And if you look at the applications of locks just in mortgage alone.
We're still above where we were in November and December.
It's almost double of where we were in January of last year. So it's starting out pretty solid in terms of the activity, obviously refi activity should slow as rates go up but the purchase activity continues to be robust and I think we'll see a lot of opportunity there as it pertains more specifically to the mortgage.
Okay got it and.
Maybe I'll ask one more just can you give us an update of Palmer on how youre thinking about M&A. This year, you know as we come out of the pandemic. It's been sometime since line. So you know how should we think about your appetite at this point for additional M&A.
Tell you is we've been very consistent saying all along in terms of the discipline Here's the company. Our first and foremost focus is always on organic growth and our ability to generate strong top tier earnings, which we have proven over the last 18 months.
We've had very little noise in our earnings over that period of time, and it's really allowed us and the market to see the earnings power of the organization without M&A, but that being said I do think they're going to be some opportunities and we will remain opportunistic and I think some of the opportunities may present themselves have more of.
To do with with the where we're headed in terms of the economy and where we're headed in terms of needs for technology. So I think the the opportunity for M&A as we look out into 2021 will be robust for the industry.
What we want of does remain in the position of offence and be able to be nimble and.
Take advantage of it if necessary if we deemed appropriate for up for a potential target.
Makes sense. Thanks.
Thanks for the call and listen most of them.
Yeah.
My last question will come from Brady Gailey with K BW. Please go ahead.
Hey, Thank you good morning, guys.
The Brady.
So if you look at what the merits.
And mortgage last year.
Just amazing if you back out the MSR until that's what it was $414 million of.
Mortgage banking fees.
All right.
It's unlikely that's repeatable this year and we got the volumes going down and gain on sale come about.
Any idea how much of those fees.
Claim this year of what the magnitude could be.
Well I think that's gonna be specific to the mortgage operation of of each individual bank I would tell you. Our operation is very different the most and I think that's reflective obviously of the success. We've had this year relative to our peers I think you'll find the same thing to be true as we can afford because when you look at you look at the same numbers either in terms of the M. D M B a.
Estimates, but if you drill down into those estimates what you'll find is that the purchase activity will actually increase as the refi activity, which is the drop off so when you hear people, saying, it's kind of dropped 50% well. That's that's all from the most part due to the refi activity I would tell you our shop has never Friday of itself on the refi activities mainly.
The purchase activity and the relationships, we've got with builders and Realtors that we've established over many years. So I think what you'll find is a lot of the shops that of gorged on the refi activities.
To the detriment of the relationships of others will probably end up some of those one of that falling out and we'll be able to pick up some incremental volume and as I said when you look at our pipeline and the locked pipeline of more importantly for what we're seeing now in January it is equally as strong as what we saw in some of the third and fourth quarter. So I think the.
Half of the year from mortgage for our mortgage shocked the shops can be less impactful than many others, but that being said we will certainly just like other the see the pullback in the refi activity as rates increase but all of it all I think from a materiality standpoint, it is hard to predict what the the.
The market will look like after the first half of the year, but I can tell you the housing market is extremely vibrant.
The it both on the construction side and on the mortgage side and we will continue to capitalize on that and what really makes our story different too is when you look at the growth markets, we operate in with the.
And some of our mortgage activity. So I feel that ours will not be I think of lot of people are anticipating as cliff dive and I do not see that happening with our mortgage operation of the way, it's set up and.
And you can see the margin this quarter.
Robert item of his team the excellent job of maintaining the margin in fact, it improves so that's a big that's the big kudos to them and the efficiencies to that we have garnered through robotics and automation, that's really what's going to be the differentiator as we go forward with other mortgage shops is our ability to continue to generate volume with less expense.
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Because right now of the expenses are inflated because people are drinking through a fire hose, but as that slows down that's where you're going to see a lot of.
Disparity I think between mortgage shops does that answer your question breakdown as long winded answer, but I hope I gave you a little color.
Yeah, No. That's that's great partner I wanted to ask index about the sale of the hotel loans.
It looks like you just kind of took the allocated reserve.
Charge offs of it does not.
Much of the financial impact versus the reserves you had already delta against those odds.
So I'd sort of but still its a 18 per cent loss on those hotel a day.
The.
You know that the law.
Loss content was real.
And are you thinking about doing any other loan sales like that for any of the other kind of COVID-19 impact with the lending areas.
Yeah.
The answer that.
There's two parts of your question there number one if we didn't think it was really wouldn't have done it.
For starters in many of the folks on the phone the lived through the last downturn.
The good and well how that sector performed and the way we look at it we were able to do it very selectively go through and call the portfolio and identify hotels that were struggling and we looked at a lot of different factors everything from the MSA in which it operated to the operators themselves after the flag.
The the lot of these as you know where some of our nonperforming loans.
Where we did not see a whole lot of upside and when you look back seven of late with hotels and keep in mind back then the hotels are still open and operating today, there's still struggling and we see the hotel sector is continuing to be stressed and when you take into account the typical hotel and gosh forbid you'd have to foreclose on it just going through the foreclosure process.
Then you've also got on top of that you've got deferred maintenance you Gotta do the property taxes are past day, you've got to bring the current you've lost the flag because it's been dark the operator has probably gone by then and you look at the carry cost of debt and the cost of capital associated with that and then you know when we look back at the seven or eight.
The frame you look at the losses that were incurred on that particular asset type.
If I had told you back in those seven of eight that I could get 80 to 85 cents on the dollar for a hotel you would tell me the jump all over it and today, we feel like we have the called.
Called the portfolio of those that we felt were stressed extremely stressed and do not anticipate any more sales I think you'll find.
The that there'll be others that will be following suit because its a right now there are some sophisticated operators out there that have the ability to bad even pay a fair price for them instead of a distress price and as we looked out into the future I feel like these hotels in the economy in general I think it's gonna be much.
More of a gradual reopening just as it was.
Before where it was kind of a slow decline initially and we do not see debt the sector picking up dramatically in the near future and as the results of that.
We've clearly identified this as an opportunity to capitalize on so we are we did it.
Okay.
Then finally from me just looking at the expense base, you know what what sort of growth can we expect net expenses outside of mortgage banking of other that'll kind of depend on what you do on the mortgage side, but.
Maybe just talk about kind of core ex.
<unk> growth and then the other part of our U.
The hired.
A lot of talented people in 2020 will that continue in 'twenty and 'twenty one.
We've got well on the C&I front, we were probably going to look to hire of about seven or eight more C&I specific lenders.
But one of the things that <unk> and his team did an excellent job of last years is making sure that the existing talent. We do have is also pulling its weight and so we were able to reallocate some of those net overhead expense into new lenders will continue to be efficient with the process, but.
I do see us looking to hire another seven to eight more C&I lenders in the near future.
In the cold you can comment on any of the additional overhead expenses share Brady, we are very very cognizant of.
Non interest expense annually.
Close additional branches in the fourth quarter and we.
You know we did have the the three kind of evolved from the in the fourth quarter again that the.
Of course, we made the decision to make that the nation and we made the decision to exit loss share. So we.
We are trying to keep core bank expenses as flat as possible, especially.
With the potential margin squeeze and just everything and the uncertainty in the market. So we are very cognizant of.
Funding for those places that we do need to spend money in the needing to reinvest and finding a way to pay for it internally through a reallocation of resources.
We're still following that same strategy on the call day, and then we feel like the mortgage banking side of mortgage banking origination pulled back those variable costs will pull back as well.
Alright, great. Thanks for all of the color guys.
Thank you.
The next question will come from David Feaster with Raymond James. Please go ahead.
Hey, good morning, everybody.
Morning.
I just wanted to start on production I'm. Just curious you guys sort of a nice pool of new hires amounts of couple of months ago, just curious how much they're contributing at this point and then I guess as they continue to ramp up would you expect you know kind of production do accelerate in growth hopefully to accelerate.
Throughout the year, and then just kind of the pulse of the hiring market more broadly.
Where are you guys seeing new opportunity still.
Yeah, absolutely and.
To answer your question more specifically when you look at our pipeline from the kind of core bank, which typically we like to keep that and it's over $1 billion I would tell you that right now just about a third of that is specific to the C&I.
Initiatives that we have with the the 10, new lenders in and when you look at that particular line of business or asset class are going to look at it C&I by definition is a longer build so it does take longer unlike the CRE loans, where you get immediate growth. So there.
There is a ramp up period getting the individuals on board getting them to move over business and getting them up and running said we've been very pleased when you look at the breakdown of of that that.
The pipeline what we're seeing is about the 60 per cent of it is still coming out of Atlanta, and then you've got another 20% coming out of of Florida, and another 20% coming out of the Carolinas for the most part but I think we'll continue to see that grows because of lot of the hiring opportunities that we have seen as of recent have come out of the quite frankly the Caroline.
As of and Florida, So I think what you'll see is those areas will continue to grow and kind of catch up with Atlanta. So we're excited with that and in addition to that when you look at the seven or eight new lenders that we look to hire that will probably be adding those proportionately through those those three states.
But we're encouraged by what we see but then again you you need to be patient when you build in C&I because of you start seeing erratic growth there you're probably it should create pause for you, but they're focused on middle market established companies are these are these are relationships not transactions.
So I'm very encouraged by what we see and I'm glad we made the investment last year because.
To your earlier point it does take time for that investment to start ramping up but we're encouraged by the production of the productivity. We've seen so far and you know when does the economy opens up a little bit I think that it will.
Accelerate debt debt.
Net opportunity.
Okay, and then just again you guys called the great job using using hires and team lift outs two to do some geographic expansion through you know some new branching and in new markets just curious.
Where are you interested or is that still attractive to you and you're doing some market expansion is it more attractive to do with the novo with some hires versus potential M&A and just following up on the M&A commentary just.
Now what could you remind us some of your geographic priority sizes that you're interested in them.
Now our financial metrics and even if you know what kind of deals you'd be interested in.
Yeah, it's kind of of dual approach I mean, if you look at it from the organic standpoint, where the merits we're already operating in some of the top growth markets. The United States. So I would tell you what we need to focus there and do focus is capturing additional market share.
Then if you looked at the expansion beyond that of our core branch footprint, you look at where our loan production offices or we've got a meaningful office and the mid Atlantic I could see us expanding there and other types of loans and branching.
In terms of getting out of our existing footprint, but right now when you look at Florida, and you look at Georgia and look at the Carolinas in parts of Alabama.
We're in it and in the meaningful way.
There's plenty of opportunity there and so the phase two of that would be the look and some of the secondary markets and that's a secondary that's where we would have primarily L. P. O's.
The second strategy would be through M&A, where you would be and then entry.
Entry into a new market as a result of the of an acquisition, perhaps but I would tell you that's kind of the order of the priorities at this point.
Okay, and what kind of size range for a transaction would you be interested in.
Well I think we've said all along and been very consistent probably anything nothing smaller and about $3 billion.
Okay, and then just on the fee income front, just curious where are we where are we in the process of reinstating some of the waiver fees and I guess, how do you think about fees going forward I mean, the counter cyclicality of mortgages, obviously been a huge help just curious how you think about the other lines are there anything that you'd be interested in expanding into a new line.
Coming in or even the thoughts on expanding the E.
The premium from the answer and just the scalability of some of your other fee income lines.
Yeah premium finance of its been a homerun for us this year as the very stable steady source of income and if you do it right. It's got very low risk in terms of credit risk.
That is an area, we will continue to grow and we're focused primarily on a lot of the smaller agencies, there, which I think there's a lot of opportunity to go after that business and we've got a major focus on that for 2021.
The wealth group, which for US includes private banking Trust and investment management, that's where I see some additional opportunity and even along the lines of potential.
The acquisition type of of opportunities.
To develop that because that's good fee income it too is an investment and it takes time, but that maybe an area where there'll be opportunities as we go forward to look to expand upon that fee income.
From just the core service fee income when you look at the bank and fees related to accounts I think across the board you're reading a lot of the reports that I'm reading the show that Theres been an increase there and I think that will continue as the economy opens back up we all saw an experienced the pull back and we're obviously a lot more sensitive to fees.
I think you'll start seeing the service fee income for banks.
The increasing as we go forward and the economy opens back up.
Okay. That's helpful. Thanks, everybody.
Our next question will come from Jennifer of Jumbo what true of Securities. Please go ahead.
And I think most of my questions have been covered but.
The Palmer when you think about expense reduction opportunities.
How do you think about branch rationalization right now given you seem to be operating pretty well.
With the lobbies closed.
Yes, we are and I think as an industry. We've all benefited from being force quite frankly, the step back and look at debt that whole operation the retail delivery operation.
And the banks traditionally a very slow to move and adapt to change and I think it's more of a herd mentality.
Think of the herd is moving I think that'll help a lot of folks that have been reluctant to to make some of these changes.
But you know when we look at our numbers and we had a board meeting yesterday, and we're going through a lot of even the the teller transactions teller transactions are still.
About where they were before and what that tells you is as debt. The drive throughs are sufficiently servicing the customer base and you compound that and combine that with digital technology and the effect of new account opening process and the user experience. That's what we're all about here is investing in that heavily over the next.
The process next year or two because that's what it's kind of all come down to the because if you're if you're trying to divert traffic of customers to another line or a way to come into a company you need to make sure that that way is as equally as is appeasing the.
Appealing to them as the other of walking down the branch, but I think that what we've found just from you know we've been pretty proactive in our in our branching in terms of of branch closures and opening of the drive through but I think what you find as many branches will continue to keep the drive throughs open but the lobbies will remain closed.
And then you look at the the talent within those branches and a lot of that kind of it can be utilized for us as we've grown so quickly in other areas like the call Center, we've got a number of of those same branch folks the.
They are dedicated to our PPP program right now and will be dedicated the forgiveness for that so I think of lot of that talent can be utilized of the places without having to too.
To.
Higher talent elsewhere. So I think at the same time, you you can look through processes and efficiencies and allow you if you're growing to absorb a lot more of those those costs through efficiency, rather than just adding the additional overhead but the.
Branching into out of the South I'm still a believer in having branches, but I think it can be a much more efficient footprint and much more efficient use of we've touched on earlier the need for wealth management and mortgage and turn into more into a.
The destination center for an experience rather than just the transaction and that's kind of the approach we're taking to our whole branch network as we look through it.
Yeah.
Yeah.
Thank you.
Yeah.
Our next question will come from Kevin Fitzsimmons from D. A Davidson. Please go ahead.
Hey, good morning, everyone.
Yeah.
Nicole I I understand you know the that the margin did better than that prior guidance of low to mid single digit compression just wondering if we could ex.
You know pivot and look forward now so is that is that still the outlook from here and I know, there's a lot of different factors I'm, assuming that's just the core margin you were talking about ex accretion and ex P. P. P C.
The accretion as well so maybe if you can kind of start there on what youre thinking about the core margin what you're thinking about.
Accretion contribution I know came in this quarter I know, that's a tough thing to predict but just where you think that might be.
And then if you could touch on P. P. P fees in terms of what fees how much fees you have remaining and is it reasonable to assume the round one fees get mostly taken up Oh of recognized in the next two quarters. Thanks.
Sure sure if the only thing the last question first about actually lead right into the answer the first of all of that that's the case then we have about $41 million remaining of the original the peak of he kind of round one of about $21 million and I think that is we said that we expected you know while we are amortizing them in it.
Of the contractual maturity of two years for all of our internal modeling we were using the one year horizon. So that was really kind of be the end of the second quarter. So I think that is a very logical.
The logical assumption to assume that that 21 million or most of the 21 day, there will be some that extend out but the majority of that will come in in the next two to maybe two and a half quarters.
So knowing that we do have that coming in on the margin and that is what helps protect of the little bit in the fourth quarter and.
Kind of moving forward to the margin going forward. There are several things that are going to affect that and then the already started to affect it so low growth liquidity P. P. P forgiveness and deposit costs. So we just talked about the P. P. P forgiveness and the potential there low growth and we'll talk about that in connection with excess liquidity.
Quiddity.
We have about one $5 billion of excess liquidity on the balance sheet at the end of the year and we always have excess liquidity at the end of the year, we have cyclical deposits that come in two of them.
I'm looking at how do I, how do we use that debt liquidity or how do we put that to use. So we have about half a billion dollars 500 million of cyclical run off of deposits.
Ids had about $300 million of that run off in January we expect another 200 million in the first quarter of that kind of our again, we have a lot of public funds that come in right at the end of the year and that goes back out in the first quarter, but then the.
Our estimating.
We're kind of guiding to hundreds of stock I'm, sorry, 300 of 700 is our expectation for P. P round two of instead of assuming that comes in at a $500 million.
And then we've got about 300 million identified in the bank and through premiums in the air.
So that really leaves us about 200 million of what I would call excess liquidity and that is where we think we have some additional opportunities for some strategic runoff from the deposit side and it was either some rate reductions or run off on the deposit side.
Looking forward, our I think I was giving guidance before in our CD pricing, we still have some opportunity there.
We have about $500 million of Cds reprice of the first quarter. They're currently at a 112 of last quarter's production was about 30 basis points. So if we can keep our production of about 30 basis points, we've got some improvement there.
Current quarter, we've got another half of million that's at the 70 basis point and then we have about another 400 million into third quarter. So we do have some offensive play there on the deposit side and we are still looking at the half to what's at the point now of just some specific money market and now accounts that are outside of the norm.
I think our board rates are about as long as they can be.
So depending upon that debt.
Liquidity and how we are able to deploy that and the execution of that deposit costs and the <unk>.
First quarter margin compression, we're thinking to be in the stock price of seven basis point range I hope to beat that again.
But that's kind of where we anticipate it coming out.
That was the long end.
The detail, but I hope that the answers your question no thats the.
That's great and just to clarify so that includes.
P. P P fees that five to seven down or does not.
It does.
It doesn't say that instead of depending upon how much of that comes in the first quarter versus the second quarter that cause that to very low that could get us down debt. If more of it comes in you know maybe we hit in the three to four but it's less of it comes in maybe were in the seven.
Got it okay very helpful. Thank you very much of just one quick follow up question of the consumer portfolio. The 119 million of that was transferred to held for sale.
Is that portfolio of why why was it shifted over there.
Sure. So that is the kind of an ancillary.
We bought several years ago fundings of a third party.
We're getting out of that line of business and so we have gotten the bids on that instead of that type of.
The held for sale, we anticipate that potentially sooner than the fed.
First quarter.
And that was made from sort of pushing the price to sell that.
Great. Okay. Thank you very much.
Thank you Kevin.
Our next question will come from Brody Preston with Stephens, Inc. Please go ahead.
Hey, good morning, everyone.
Good morning.
Hey, I just wanted to ask Nicolas.
More specifically on expenses.
You know you all have done a good job sort of grow in the core bank.
Of course, C&I and CRE this quarter the growth was pretty strong.
Sort of excluding you know the foundation.
Contribution in the FDIC termination expenses.
Running pretty flat.
On core expenses and so it doesn't given all of the new hires and given the the growth trajectory moving forward I was wondering if you could speak to specific things, which you've done.
To help sort of offset some of the investments that you've made just because you know it.
Growing the core of bank, but the core expenses arent necessarily following suit.
Yeah. So we've done several of them several things there what we wanted to get the branch optimization. So we closed an additional branches of October 1st we had one additional branch that was closed so far in January.
So that's kind of the branch optimization at the city, certainly and we said when we get there, but we were going to use those resources to pay for some of the type of thing.
All of the new hires they really came in kind of in the third quarter and say fourth quarter are they are those expenses are in our fourth quarter run rate.
We also implemented some things on the technology side of the innovation side.
We started using some of the abdominal symptom.
And we started that in mortgage and we probably can the data better decision. There because we said that the first quarter of last year not knowing what was about the happened and so that certainly will help them drive the efficiency in the mortgage division not only do they have the the increase production, but they also had the improving the efficiency ratio because of bad technology that we started to deploy that.
The two other areas of the bank and then the I'll say, we've done some and I think every company has done this at some point in the history, where they you know just as it is from employees and take share.
But you know and we're gonna help the benefit or the kind of doing some cost initiatives. There were asking people if they're doing things that don't make sense to raise your hand and.
We'll find out why or if there's a better way to do things there'll be a fair to raise the question we've got a history of of.
The cost saves and I remember one of our efficiency ratio was in the seventies and that when we said we were going to get in the fixed fees in there with everything in the system and it's almost become part of our culture.
The word that we use a line of discipline and what do you need to spend money, let's figure out of way to pay for it.
I mean, I think as with all of them definitely have the message of if we're going to have margin compression and the uncertainty of the market now of the times of really really look at where we're spending from Isabel.
It's about it's just kind of the culture.
As well and just looking at inside of where are we going to spend on the dollar and where do we get the best return on that investment dollar.
And Brody Echo of some of the coldest comments there she's right on in terms of we've gone through and continue to go through and I think that's one of the the challenges all companies have as they need to continuously do it not periodically do it is look at your lines of business look obviously for inefficiencies that you can you can eliminate but.
Also look at the materiality of of what Youre doing there and could it ever get to scale and size of of Brian to provide a meaningful return of.
The held for sale portfolio of she mentioned that that's the final portfolio, but ended up itself, it's never going to move the needle, it's never going to be that material to what we do and you look at the resources that are associated with maintaining net portfolio relative to where we can make reinvestment and in other parts of the company with a higher return on invested capital of that.
Really what we're looking at as we go through of dissect each sector of the company. So I think you'll find more and more.
Given the like that and continued activity from them. There is as we kind of go through with the fine tooth kind of of each area of the company and that's that's how we kind of came up with the decision on the hotels, it's ever kind of precision on the held for sale. That's how we've come out of the robotics for the mortgage and you'll see the that that's kind of.
Mentality throughout the company as we go through through the remainder of the year.
Okay. Thank you and so just as I think about growth in that core expense are the core banking.
<unk> expense.
From here, assuming that you continue to make some tweaks, but would it be safe to assume kind of a mid single digit growth rates from here just given the loan growth trajectory.
Yes, very low single digits.
Okay. Okay. Thank you for that and then I guess, just one last one on expenses, assuming that we kind of get mortgage production. The to go back down more towards <unk> 19 of <unk> 19 levels. If at some point here in the back half of 'twenty, One and then the 'twenty two would it be safe to assume that the expenses are.
With that we'll add back towards the <unk> 19, and <unk> 2019 levels as well.
Yes.
It could even be a little bit better just based if you think DOCSIS three <unk> and <unk> of last year, we were still in the middle of the of Merit and fidelity integration, but we still have some build systems and we also didn't have the robotics in place, but they've done a tremendous job of improving their efficiency ratio. So.
That's definitely where we can we expect the variable cost, but the often go through the rest of from about efficiency.
Okay, Great and then I'm, sorry, if I missed it but you had a big ramp up in AR and cash this quarter, how long the no some of that transitory.
Or if it wasn't what you're planning to do with it just because when I look at the Securities book, It's it's running at 5% and I think it was at 9% sort of after the Lion deal close and so I wanted to ask do you envision building the spoke at all in the near term.
Well that's great.
Great point, so we do have the excess liquidity and just historical America, we have some excess deposits that typically come in through our municipalities and I'll go through some of our ads. So we have about $500 million of the excess liquidity that we anticipate will run out and just deposits the coming in the fourth quarter and can basically go back out in the fourth.
The quarter, we've already had about $300 million of that ran off in January we anticipate another 200.
Think about excess liquidity I see about 1.5 million of excess liquidity about $500 million of that will be those excess deposits run off we've got about 500 million of earmarked to fit the new P. P. P round about 300 million for the bank and premium to NAV growth and then about the only reasons about 200 million.
He neither had if we can have.
The additional loan growth would obviously be the the preferred methodology that we need to keep it safe and I'm looking at John is that message to make sure that it fits within our credit criteria. But then also we can have we have some opportunities from what we would call strategic run off of some some certain deposit accounts.
Again, we run off of just about all of our noncore for a day you know our.
The funding we're at 90, almost 97 per cent of our funding of core bank bring them deposits that we've run out of just about everything else of cans that we got about 200 million debt, we could potentially run off or just reduce the rate.
Okay understood. So it doesn't sound like you feel the need to build in the securities portfolio at all not necessarily right now.
Okay on the things that would be our last our last resort I guess.
We just don't Wanna, Okay, I'm actually surprised at this point, what's the rate environment right now and it's been it's an opportunity of calls too obviously, because we'd rather have it in and loans that's right.
Uh-huh.
Okay. Pardon me you mentioned just on the mortgage real quick you mentioned the the.
The mix of of the Maris, you know being traditionally stronger towards purchase and so I just wanted to ask what the what that mix was purchase versus refi in 2020.
They were running right around 58 per cent traditionally we have run into the 19th and <unk>.
And so I think that's what you'll see it migrate towards the end as I mentioned, we saw this during the last.
Mortgage wages, the anti as Refis pulled back in the.
Then that's when core mortgage companies like ours actually garnered market share because.
When people pull out of the business or close up shop and wait for the next wave to come that's where we ended up picking up incremental volume in terms of primarily purchasing if there is any refunds of this has left but right now we've got capacity in terms of the efficiencies that we've put in place in the robotics to the layer in additional production.
And right now I'd tell you to there's as fluid as the market is and is full of the pipelines are with a lot of these originators, there's still some movement out there and I think we've got opportunities in some select markets.
We'll be focused in on to bring in additional.
Talent and production.
Okay.
The offset some of that that's the wrong once again, our focus when we're looking for originators its people with the strong purchase background not of rethought background.
Okay understood.
On the hotel sale I wanted to ask it looks like it looks like you might not have had an existing mark on those just given the specific reserve for the quarter was $14 million, but were there any of us maybe.
Maybe out of small reserve are there any specific reserves set aside for any of those loans before you sold them.
Yes, there were because they were some T D ours in that mix of non accrual loans and that mix by the end of the third quarter. We had both the fast five and some one of 2014 reserves associated with that portfolio.
Okay.
And then now called the production yields of 386 of the core Bank you know you've seen the study sort of it's not surprising but the study decline here. The last couple of quarters and that production yield where do you see those going in in the first quarter.
You know.
I would anticipate and certainly hope that they stay stable at this point of.
And then again the best offense of that or do you sense of that as those deposit costs. The continues the Las Vegas as well.
But the trend so far.
It's fairly flat.
Okay.
Two left from me when you look at your customer base. You know you guys have done a pretty good job on niv.
Eric Lee, but I sort of like the core C&I.
Portfolio is not a relatively large portion of our of the loan book and so I wanted to ask when you look at your customer base, where does where does most of your noninterest bearing deposits come from.
From our believe it or not they come from our commercial base fees.
The albeit small of the core of that's where the majority of the the deposits come from.
Okay.
Which of that Alan or of the growth of of what we're investing in here and especially as it pertains to the Treasury management side and I think for all of them.
Hence the Treasury management feature that.
It helps accelerate the.
Tangible for additional deposits from.
Okay. Thank you and then Palmer I heard your response early on M&A, but I just wanted to ask again about the size of of.
Of potential targets and your thoughts around any potential mergers of equals.
Yeah, I would tell you the same answer I gave before the.
If we looked at the targeted with maybe smaller of the $3 billion in and anything.
Anything we do.
You've got a pretty good thing going here of the merits of as you can see within the wonderful year anything we do needs to be accretive.
The thing we do is meaningful and if he you.
You know go down the line of of M. O E type of discussion the one plus one would always need equal free to even consider something like that and.
Half to half of the because what we don't want to do is get the situation, where we're doing some of us pulling back on our financial performance. So we've always prided ourselves from being a top tier performer and so.
So we had to find somebody who are of equal mindset, but set all of the making sure that we retain those the same level of the performance but.
Right now, but the nice thing that we've been able to show the market.
And show ourselves to the.
Aside from M&A, we don't do M&A, we've got tremendous earnings power here of this company and if we do M&A. It would be just icing on the cake for us.
Understood. Thank you very much for taking my questions I appreciate the time this morning.
My last question today will come from Christopher Merrimack with Janney Montgomery Scott. Please go ahead.
Hey, polymer Nicole just to follow up on the mortgage margin I know the comments earlier I was just curious if the if the history of the marathon fidelity before that.
Bad margin really is not relevant in terms of history, but it's a new paradigm for you given the changes, you're making which means what perhaps the downside there is some but not as low as it had the historically.
Yeah like a lot of things I think it's the enhanced discipline I think that the.
Both of the merits of instability.
I've always.
The good mortgage shops, but I think the focus there the Robert Odom and his team have put in place to go.
And the margins are not going to hold as well as they have as we noted before but he's an excellent job of maintaining those margin I think as long as the volume is there that helps keeps those elevated when the volume pulls back office of you'll start seeing margin pull back, but if it is a new focus discipline that we have and where.
Seeing that throughout the company and so while there was of a.
Controls in place of our discipline in place. It's just more enhanced now and I think that's what delivers the net improved margin aimed at the efficiency and he is garnering throughout the throughout is operation.
Great Thanks for that and from.
Are there still opportunities to hire more producers on the more of a side.
Yeah, so as I touched on earlier, we've got a we've got opportunity there and we'll be there.
Making that happen in short order, we've got some upcoming opportunities. So you'll see continued growth and that of our new hires in the mortgage job.
Great. Thanks, very much for all of the uptime. This morning.
Thank you.
This will conclude our question and answer session I would like to turn the conference back over to Palmer Proctor of for any closing remarks.
Great. Thank you granted once again I want to thank everybody for listening into our fourth quarter and full year 2020 earnings call. As we look forward to 'twenty 'twenty, one merits is extremely well positioned for the future and we look forward to talking to you next quarter. Thank you.
Yeah.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.