Q4 2020 Amerant Bancorp Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the AMRI Bancorp fourth quarter 2020 earnings call. At this time all participant lines are in a listen only mode. After the speaker presentation. There will be a question answer session.
Ask the question during the session you will need to press star one on your telephone. Please be advised that today's conference is being recorded and if you require any further assistance. Please press star zero I would now like to hand, the conference to speak of today.
The Rossi Investor Relations Officer. Please go ahead ma'am.
Thank you operator.
Good morning to everyone on the call and thank you for joining us to review or on Bank Corp's fourth quarter and full year 2020 results.
With me. This morning are Millar Wilson, Chief Executive Officer, Carlos your feeling on that Chief Financial Officer, Miguel Palacios, Chief business Officer, and P. L Fischer credit risk manager.
Before we begin note that the company's press release comments made on today's call and responses to your questions contain forward looking statements. The company's business on operations are subject to a variety of of risks and uncertainties many of which are beyond its control and consequently actual results may differ materially.
Really from those expressed or implied.
Please refer to the cautionary notices regarding forward looking statements in the company's press release.
For a more complete description of these and other possible risks. Please refer to the company's annual report on form 10-K for the year ended December 31, 2019 quarterly reported on form 10-Q for the quarter ended June 30th 'twenty 'twenty as well as the subsequent filings with the SEC.
You can access these filings on the SEC's website.
Please note that Ameren has no obligation and makes no commitment to update or publicly release any revisions to forward looking statements in order to reflect new information or subsequent events circumstances or changes in expectations, except as required by law.
You should also note that the company's press release earnings presentation and today's call include references to certain adjusted financial measures also known as non-GAAP financial measures.
Please refer to appendix one of the company's earnings presentation for a reconciliation of each non-GAAP financial measure to its most comparable GAAP financial measure.
I will now turn the call over to Mr. Wilson.
Good morning, and thank you for joining <unk> fourth quarter 2020 earnings call.
As I have done in the past few quarters I will begin by discussing how amarin continues to navigate the current environment as well as our fourth quarter on full year highlights.
Carlos will then review our financial performance in further detail.
After our prepared remarks, Carlos Miguel and I will address the question.
Before I move into the result at we'd like to acknowledge that while this past year was unlike any other I'm extraordinarily proud of how well we persisted through it together.
I am grateful for all of those who work to make this happen, particularly the amarin team as well as our customers and communities.
It is because of all of you. The ameren was able to achieve significant several significant accomplishments that are even more impressive given the difficult operating environment.
First we focused on expanding our fee income opportunities and carefully managing expenses.
We delivered on our cost efficiency initiatives.
Diligently streamlining and right sizing our operations.
Second we had no provision for loan losses recorded in the fourth quarter. This is a testament to the sound credit quality of our loan portfolio diligent portfolio monitoring the excellent risk mitigation throughout the year.
Finally, even in this unprecedented year, we successfully completed the sale of $60 million of senior notes in the second quarter in an oversubscribed modified Dutch auction tender offer for the company's B class B common stock totaling $53 3 million.
In December.
This transaction boosted tangible book value per share by 75 cents.
However, the achievement of I'm most proud of.
<unk> ability to step up to the plate when our community needed a smooth.
Providing critical banking services during the time of need and we are honored and humbled that our community place the trust in us.
Yes.
I would also like to recap of the actions Amarin took throughout the year for our customers and communities in light of the pandemic.
First amarin continued to offer payment deferrals and forbearance option.
We ended the quarter of the company has received the limited number of requests for additional payment extensions, which are being carefully evaluated.
Participating in the SBA Paycheck protection program.
From the program start through its closing in August Ameren provided over 2600, PPP loans totaling $223 million to small businesses, we held 199 million and notwithstanding the PPP loans at the end of the fourth quarter with.
The $95 million and associated deposits.
This quarter, we focused on processing PPP loan forgiveness requests and continues to do so through the beginning of 2021.
We have also started to receive applications on did the third round of PPP, which went into effect during the months of January and we continue to work to leverage these new relationships into the future cross selling opportunities.
Third we originated loans to small and midsized businesses under the government's main street lending program in the fourth quarter.
Ameren originated $56 million of these loans of which 95% of the balances were subsequently sold to the federal reserve generating approximately half of million in.
Related fee income.
Additionally, we continue to closely monitor credit and liquidity risks as well as credit underwriting practices to prudently manage our loan portfolio.
This includes assessing forbearance status of general credit conditions for all portions of the portfolio on a daily basis with an emphasis on loans in the industry most vulnerable to the financial impact of the Covid pandemic.
Finally, and most importantly, as we carried out these actions throughout this year.
<unk> top priority continues to be providing high quality of uninterrupted services to customers, while prioritizing the health and safety of employees customers and local communities.
Before I reported on our performance on hand over to Carlos I would like to acknowledge the news that was announced last week.
I will be retiring from amarin at the end of March but we will continue to serve on average the board, where I look forward to assisting the new CEO and a smooth transition.
It's been an honor to serve this organization for over 43 years.
I am humbled by the trust placed in me to lead them right.
Over the past 12 years.
Thank you to all of my incredible teammates who have worked hard to drive this company forward.
And we will continue to do so under our incoming CEO Jerry flush.
The future of Amaranth is bright and I look forward to watching Jerry lead the company to the next level.
Turning now to our performance highlights and slide four.
Of note net income increased significantly quarter over quarter to $8 5 million.
From one seven in the third quarter the.
This increase was largely driven by the absence of provisions for loan losses. This period.
Further supporting the increase with the higher net interest income, which was up seven 3% from the third quarter due to the lower overall deposit costs and higher interest income on our loan portfolio.
Our NIM for the fourth quarter was 261%.
Landing pickup of 22 basis points from two to three 9% in the previous quarter.
Our fourth quarter noninterest income decreased 43, 3% quarter over quarter.
This decrease was mainly driven by lower net gains on the sale of securities and.
And the onetime loss on the sale of the Beacon operations Center, partially offset by derivative of another income.
At the same time, we saw our expenses increased 13, 5% quarter over quarter largely due to the onetime severance expenses. We recorded this quarter as we implemented voluntary and involuntary.
<unk>, which we will touch on later.
Finally on the loan side <unk> continued to purchase high yield consumer loans in the fourth quarter and we are pleased that our consumer and residential loan portfolios increased both quarter over quarter and compared to December 31 2019.
On the deposit side of our deposits at the end of 2020 were down slightly compared to the previous quarter of were essentially flat compared to the end of 2019.
Moving to slide five as I just mentioned our net income for the quarter was nearly four times the income of the third quarter, but down year over year on.
Our return on assets with zero of four 2% in the fourth quarter or zero of five 6% on an adjusted basis and on.
Diluted earnings per share was <unk> 20 per share or 27 2007, so on an adjusted basis in line with market expectations.
In addition, our credit quality remains strong and our commitment to monitoring credit risk even stronger.
As I just mentioned, we recorded no provision for loan losses in the fourth quarter as we saw on lower than initially estimated losses and improving economic conditions. Despite the ongoing pandemic.
And now I will turn the call over to Carlos who will review our performance in more detail.
Thank you Miller and good morning, everyone before we move on to slide six I would like to discuss some balance sheet highlights.
On the asset side as of December 2020, total loans increased one 7% compared to December 2019, largely driven by the PPP loans as well as the purchase of higher yielding consumer loans as Millar mentioned <unk> in.
On the fourth quarter consumer loans increased 30% quarter over quarter on 180% compared to the end of 2019.
At the same time.
<unk> family of residential loans increased 4% quarter over quarter, and 15% compared to the year ago on.
On the funding side as of December 2020, total deposits were down two 5% quarter over quarter and down <unk>, 4% compared to December 31 2019 the.
The quarter over quarter decline is primarily attributable to the 12% reduction in customer of Cds as we continue to focus on increase in lower cost core deposits on also aggressively lowered our CD rates.
Our stock holders equity decreased by 51 million or six 1% compared to the 2019, which is largely the result of the tender offer we completed during the fourth quarter, which resulted in the repurchase of $53 $3 million in stocks, excluding fees and expenses or $4 2 million of class B shares.
<unk>.
Moving on to slide six I would like to review of our investment portfolio.
Our fourth quarter investment securities balance decreased slightly to $1 4 billion from one five at the end of the third quarter given prepayments received comp.
Compared to the fourth quarter of 2019 investment Securities decreased from $1 7 billion, primarily as a result of our timely execution on the sale of certain securities at the game, which otherwise would have been dissipated with the recent of Steepening of the yield curve as.
As we said in prior quarters, we successfully manage the investment securities portfolio as an economic hedge against the declining net interest income.
Given the challenging interest rate environment, we maintain a low percentage of our investment portfolio in floating rate securities. The average duration of the portfolio decreased from three point of years through the end of India. During the end of 2019 two to four years in the December 2020, due to the acceleration and prepayment speeds on the sale of hydration.
Securities before the Steepening of the yield curve took place.
We continue to look for investment opportunities that offer attractive value, while maintaining adequate duration and proactively managing credit risk exposures.
Moving on to slide seven let's talk about our loan portfolio.
Fourth quarter loan production continued to be challenged following the trend we saw for the most of 2020.
Loans totaled $5 8 billion as of the fourth quarter, close which were $82 million lower compared to the third quarter of 2020 on 98 million higher compared to the end of 2019, which includes the origination of loans on the PPP.
The quarter over quarter decrease was driven by the low loan demand and high prepayments received in the CRE portfolio.
To offset these factors amarin continues to build up into high yielding consumer loans in the four quarter consumer loans totaled $247 million at the end of the 2020 compared to $190 million in the third quarter of 2020 and $88 million during the end of two.
2019.
The 2020 year end balance includes $68 million and $166 million of indirect consumer loans purchased during the fourth quarter of 2020.
On the full year 2020, respectively.
Through the program that we have with sulfide.
The weighted average FICO score on this portfolio of indirect consumer loans as of December 31 is 766.
I would like to note that these indirect loans complement our organic loan portfolio, but are not mean to replace organic loans as we continue to pursue relationship driven strategy.
In addition, our single family residential loans increased quarter over quarter on a year over year as low market rate drove a meaningful increase in refinancing activity, we see residential loan market as EMEA opportunity going forward.
In order to capitalize on growing demand in the residential space in the four quarter Amarin and partner with a highly specialized team of real estate executives and created Ameren mortgage where amarin bank as the majority owner.
This new and exciting venture will allow us to increase and diversify our fee income be it the origination and sale of residential mortgages on a larger scale.
In line with this venture we will be closing our in house residential lending operations on our residential team will be joining amarin mortgage where on the early stages of this operation, but look forward to share and relevant updates in the upcoming quarters.
Moving on to slide eight I would like to spend some time discussing amarin continues strong credit quality.
As a result of the diligent credit risk monitoring throughout the year, we recorded non provision for loan losses in the fourth quarter, a particularly impressive accomplishment on the the ongoing pandemic environment.
This was due to lower than initially estimated credit deterioration on improved economic activity conditions within our footprint.
The percentage of nonperforming assets remained almost unchanged quarter over quarter, while the net charge off as of percentage of the average total loans was down approximately 100 basis points.
In the four quarter on continuing into 2021, we saw the positive trend of loans coming out of forbearance as economic activity steadily improves in the most recent quarters loans under deferrals and forbearance decreased tremendously compared to the third quarter I am excited to say debt as of December 31, only.
The 7% of our total loan portfolio remain on the deferral or forbearance on.
Almost the entirety of existing loans on their forbearance or collateralized by real estate and is a positive note net.
99% of the loans out of our brands have resumed regular payments.
I would like to give you an idea of our risk per section on our main portfolios. We remain cautious on CRE loans as a retail and office based sectors are still undergoing a paradigm shift and it's unclear as to where demand will shakeout post pandemic.
In this line in the fourth quarter, our CRE to risk based capital decreased from 325 times from 346 times in the third quarter of 2020.
We are optimistic on the C&I side due to the new vaccine, but we remain cautious as it rollout has been choppy on slow and buyers cases are expected to increase as new carpet strains are identified.
The macro drivers that we expect to benefit from is the continued permanent relocation of residents and businesses from the northeast to South Florida, We see this trend as the potential significant driver of customer acquisition and fee income.
Barring any macroeconomic changes or headwinds, we believe <unk> current level of estimated reserve is sufficient to call their probable losses across its loan portfolio.
And while downgrades may still occur in the upcoming quarters, we expect to see them slowdown compared to earlier quarters of 2020.
We also may see of hydro charge off but we believe current reserves already provide adequate coverage.
Credit quality remains strong Nevertheless, we remain committed to proactively monitor our risk assessment practices, including examinant on responding to pattern or trend that may arise across certain industries or regions in the quarters ahead.
Turning to slide nine you can see that our loan yield increased this quarter by 12 basis points compared to the prior quarter, but decreased by 71 basis points compared to the fourth quarter of 2019 the.
The quarter over quarter increase was driven by the contribution of the implemented Florida strategy on the C&I portfolio prepayment penalties collected on higher average balances on the indirect lending.
The year over year decrease was driven by the lower interest rate environment on a decline in the economic activity due to the pandemic.
On the investment securities yield a decline of three basic points, where third quarter from the previous quarter and 37 basis points year over year due to the many factors that we discussed on previous quarters, including the repricing of floating securities prepayment acceleration on challenging reimbursement due to lower market rates.
Moving to slide 10 total deposits at the end of the year were $5 7 billion down two 5% compared to the third quarter of 2020 and down <unk>, 4% compared to the close of 2019.
The quarter over quarter decline in deposits is primarily attributable to the 12% reduction in customer Cds. This decrease in Cds.
We sold for on our strategy.
To continue focus on on multi product relationships with our customers greater than a single product account based on the high cost CD.
These proactive repricing of our Cds and relationship money market as well as the lower volumes on broker deposits all contributed to lower cost of our interest bearing deposits of note. The cost of our interest bearing deposits was down 14 basis points compared to the previous quarter and 56 basis points compared to the year.
No.
Regarding our geographic mix domestic deposits were $3 2 billion in the fourth quarter of 2020 down three 2% compared to the $3 3 billion in the third quarter of 2020 and of two 6% compared to the $3 1 billion in the fourth quarter of 2019.
While foreign deposits were $2 5 billion in the fourth quarter of 2020 down one 5% compared to the $2 6 billion of the third quarter of 2020 on down 4% compared to the $2 6 billion in the fourth quarter of 2019 as discussed in previous quarters, we are focused on increasing our chordoma.
<unk> deposits deploying our relationship driven and customer centric strategy.
Over the course of 2020, we saw the fruition of this the strategy as it continues to support our profitability enhancement.
On a final note as economic activity in Venezuela, partially resume we recorded a higher annualized foreign deposit runoff rate of 6% versus three 8% in the third quarter for.
For the full year 2020, the foreign deposit decay rate was 4% compared to the 13% of 2019 driven by the economic of the company sales efforts.
Going to slide 11, the increased levels of liquidity allow us to decrease our utilization of wholesale funding compared to 2019 in approximately 200 million.
As we continue to benefit from the modifications made to the fixed rate <unk> advances earlier. This year, we were able to further drop our cost of funds during the quarter by changing the composition of broker deposits in 2021, we will be opportunistic about the use of wholesale funding.
The cost effective source of liquidity.
Turning to slide I would like to provide some further detail in our net interest income in need.
Our fourth quarter net interest income was $48 7 million compared to 45 four in the third quarter of 2020 the.
The seven 3% increase in the net interest income on the 22 basis points increase in additional lean is attributable to first lower overall deposit costs and average balances on Cds and brokered deposits second higher average yield on volumes in loans and third.
Increased collection of prepayment penalty fees during the fourth quarter of 2020.
Importantly in the fourth quarter, we continued to take action to preserve margin, including leveraging opportunities with indirect lending products repricing customer time on relationship money market deposits out of lower rates on running off higher cost maturing broker deposits.
Net interest income for the full year 2020 was $180 million down 11% compared to the 213 for the full year 2019.
Much like what we have said in the fourth quarter of 2020 of the decrease in the net interest income and the full year was largely driven by the lower interest rate environment.
Mean for the full year.
2020 was $2, 52% down 33 basis points from the full year 2019 day.
This can be attributed to lower average balances and yields on.
On interest, earning assets, partially offset by lower cost of deposits on wholesale funding.
During 2020 and proactively manage its investment securities portfolio as an economic hedge against the declining net interest income. This resulted in an annual increase in securities gains of $24 million, which exceeded the decline of $23 million, Indiana on net interest income.
Turning to slide 13, non interest income in the fourth quarter.
Was $11 5 million down 43% quarter over quarter and down 28% year over year the quarter over quarter decrease in non interest income was due to a $7 6 million lower net gain on sale of securities. The $1 7 million loss on the sale of Beacon operations Center during the fourth quarter.
On the decrease in rental income due to lease terminations from the corporate building in the third quarter.
These factors were partially offset by $1 7 million increase in derivative income as customer activity increase in the fourth quarter.
A half million dollars coming from the fee income related to main street lending program.
As we look to upgrade to a modern premises we have decided to sell the cone operations center, but we will continue to operate of dislocation for approximately two years on there a leaseback on until a new upgraded facilities already.
In the full year 2020, non interest income was 29% up compared to the full year 2019.
The primary drivers for the year included higher net gains on the sale of securities on increased wealth management fees.
These were partially offset by the onetime loss of the sale of become center I already mentioned.
On the absence of $2 8 million gain on the sale of our Bacon land that we recorded last year.
Finally, our assets under management and cost to the totaled $2 billion at the close of 2020 on increase of $157 million or 9% from the $1 8 billion at the close of 2019.
From these increases in the U N net.
Net new assets reached a record levels by increasing by 105 million of.
Our debt flow compared to the close of the last year or 6%.
As a result of the company client focused relationship centric strategy.
Over the past four quarters, we gained share of wallet of existing customers on successfully acquire new customers by leveraging the company's full suite of capabilities and offerings.
We remain focused on growing the company's domestic and international asset base in the quarters ahead.
Moving onto the next slide.
The fourth quarter non interest expenses with 52 million of 14% from the third quarter on a relatively flat year over year the.
Over the quarter increase was the result of our <unk> expenses for the voluntary and involuntary plants of proving October higher salaries from lower deferred loan origination costs on increased expenses following branch closures.
This increase was partially offset by lower variable compensation and employee benefit expenses associated with the retirement plans.
Also lowered digital transformation expenses.
Our digital transformation remains on track and we expect to continue to make related investments in the upcoming quarters.
Non interest expenses for the full year 2021.
We're down 15% compared to the 2019, which was due to first lower salaries and employee benefit expenses. Following the staff reductions taken changes to variable on long term compensation programs on differ PPP loan origination costs early this year on third lower marketing the <unk>.
On accounting fees compared to 2019.
The lower full year non interest expenses was partially offset by higher FDIC assessments on insurance and other expenses related to branch closures Reese.
The restructuring expenses in the fourth quarter 2020 were $8 4 million on increased six six quarter over quarter, largely due to severance and branch closures.
Going to slide number 15 about the interest rate sensitivity you can see that amarin remains asset sensitive as over half of our loan portfolio is floating rate or are slated to mature within the year.
Given this dynamic as well as the low interest rate environment. Our team continues to take action to reduce our asset sensitivity and protect our need specifically, we have implemented the flow rates of strategy on our loan portfolio and continue to take advantage of higher yields long duration of opportunities now.
Now I want to take the presentation back the Miller for closing remarks. Thank.
Thank you Carlos.
Turning to our final slide I'd like to close by covering our goals for the new year in.
In 2020, we learned a lot of by the adapting to new technologies and ways of working.
<unk> the quality of our assets and much more.
I expect our team to press forward into 2021 bearing in mind these important lessons.
And accordingly in 2021, we will continue to implement and utilize new technologies that allow us to simplify our operations for the benefit of our non interest expenses.
Serve the quality of our assets through proactive frequent monitoring and assessment.
Execute our relationship centric strategy to enhance our non interest income deposits and loan mix and exercise of dynamic capital management.
It was truly a team effort to close 2020, and the position of strength and I couldnt be prouder of every member of the Amarin family for their perseverance and hard work.
As I step aside I am sure. This excellent team led by Jerry Plush will execute on our transformation strategy and an even stronger year of value creation for our shareholders and service to our customers.
With that we will have.
We will be happy to take any of your questions. Operator. Please open the line for Q&A.
Thank you and as a reminder to ask the question you will need to press star one on your telephone.
Draw your question press the pound key once again Thats star one for questions.
Our first question will come from the line of will Jones from K B W.
Again.
Hey, Thanks, good morning.
Good morning.
Hey, guys. So I just wanted to start on the net interest margin. It was up nicely linked quarter at $2 six 1% on a lot of this is due to some of the attrition in the time deposit portfolio, which you guys have been talking about for a little while.
And I believe you call, maybe another 500 $520 million that will mature in the first quarter.
Where do you expect those will re price and how.
Does this impact your thoughts about the trajectory of Onboarding.
Okay. Thank you for the question.
We have we have.
<unk> does progression of events on the repricing of the time deposits and <unk>.
And forward looking we still have.
Approximately.
Another $500 million probably of common in the next.
Three months that will come to reprice on a more in the future.
And speaking about the short term, we're probably going to have on additional drop of about 30.
<unk> 33 basic points and the cost of the time deposits debt.
Will probably translate into the <unk>.
5% to seven basic points extra reduction in the cost of funds so based on debt we.
We expect our NIM to be within the range of the 265% to 75.
Going forward. So, yes, we will definitely see on improvement coming from the cost of funds.
Great.
Also on the here and then can you just remind us how much ptp's fees Ameren has gets recognized.
So far we have recognize Joseph fraction of it because the.
We have.
Probably receive $30 million or so in forgiveness.
As of today of two.
The ASR go we have 30% of forgiven loans, which is around $67 million. So.
That's for January doesn't most of the recent when you talk about the quarter and 30 minutes 30 million correct.
Okay, Great. That's helpful. And then I just wanted to move on Ameren mortgage it was really nice to see you guys launched this new division.
As you know a nice diversity.
The.
Could you just give us a sense of the vision of mortgage in terms of what you think.
The revenue contribution could be over time on should we expect some near term expense associated with the startup.
Yeah, Hi, It's me.
This is one of the most exciting thing is that we have done during the last quarter definitely we of track a very talented group from from a competitor on.
And we're going to be able to transform the business 180 degrees, mainly before our focus was 90% of relationship 10% sales with a net turn it around completely our main focus will be improving on interest income on expanding from Florida on nationwide. We are still on the early stage IV.
Of that it will be great scene, starting application processing the month of April through May and I would like to see how that progressed William beds also on any change of platform.
The people that he is with us of the group, but they are already working on that we're going to be on.
Already acquired and tickets per AA.
<unk>, which we didn't have before so definitely it's a very very exciting moment for the group as we roll in our system for the auction which increase.
Almost 60% in 2020, we will the.
Definitely we will be change in debt the level of production of through the end of the year.
So far we are still working on on on the process on the we believe in the next quarter would we be able to to provide more sort of thing.
<unk>.
Path on how we're seeing the production, but definitely is going to be thought.
Total of their friends on what you have seen up to the.
Okay, Great and then can you just foresee any onetime costs coming out of that startup maybe that happened in the first per second quarter.
There is debt we.
We did a capital infusion to the identity.
For $10 million, and but but again the.
The most of the costs will come from the.
The new systems that will come along etcetera in the.
We do not expect at this point, we're still in the in the process of gathering all of the the platforms that we're going to be using.
And we had on initial estimate but of course as.
We need to go through the implementation process that may take.
Longer of short period of time that we're in particular in the process.
So we but we do not anticipate that will be on.
The significant costs to get the.
The.
The company up on Brian.
Got it great Thats, great color on and then just last one for me.
The consumer loan book has been a really nice source of growth for you guys.
As of recent up nicely linked quarter can you just refresh us on your appetite to continue growing this book and I think you've previously targeted on.
Consumer loans around 3% of the whole portfolio.
Do you think this will be one of your biggest towards the growth moving forward.
Yes, we see the ASIC is a complement of our loan portfolio by any means we were trying to convert of a big percentage of the loan portfolio towards this asset class.
As of now as you said, we have around 3%, but we're not planning this to become an asset class that will occupy more than 10% of the of the loan portfolio. So it's something that will be very well contained.
On the is just.
It's a source to increase profitability on people.
Elements under control.
Okay great.
That's it for me guys just wanted to say congratulations to the Miller on your great Ameren career and wish you the best of luck on retirement.
Thank you very much I appreciate that.
And once again that sort of on for question Star one.
Our next question on comes from the line of Michael Rose from Raymond James May begin.
Hey, good morning, how are you.
Morning miner.
First off yeah, I Echo those.
Sentiments Miller congratulations on the.
On a well deserved retirement, it's been.
The nice too to watch the progress of at least the past couple of years. So congratulations.
Wanted to start on the on the expense side.
Obviously, a lot of actions you guys.
Have taken and I'm, sorry, if I missed this but.
The $43 million is that is that kind of of the run rate. We should we should think about.
As we as we move forward I would expect as we have a little bit of of ramp up in the PPP forgiveness as those fees are the excuse me. If those expenses are recognized the there could be a little upward trajectory in the near term, but is there any other.
On the expense side that we should be.
Cognizant of whether it's higher incentive comp this year I know it was down last year.
Just looking for a kind of a run rate to start the year.
That's a good question so the run rate will be.
Closer to the $45 million.
<unk> and that's something that the.
Net.
It's similar to the one day, we provided on the last quarter on them pretty much because it was accounted for.
The prospective savings that we would have on the on the volume towards the end of retirement and on the.
The involuntary separation plans that we had on the last quarter. So debt that would be a good estimate of what would be the the run rate and that includes of course.
On.
All of the items on even include the resume of the payments of the long term incentive plans and on.
Variable compensation that we.
The we decrease during 2020.
Okay, and I'm, sorry, if I missed this but.
The costs related to the to the more to the mortgage JV how much.
Would those be and is that included in kind of that $45 million.
No it's not included.
Is not included but we do not expect this to the are significant as mentally mainly <unk>.
Software subscription and several other items that we do not anticipate will create a large deviation from this number.
Okay. That's helpful and then maybe just switching.
The loans, obviously, we of PPP round three comment on Youll have the forgiveness, you talked about the share the consumer loans at 3% capacity up to 10, I know, you've obviously expanded into some some other markets and those markets are probably beginning to hopefully ramp a little bit.
I guess the question is I mean do you actually think you can grow loan balances year over year, you're still going to have.
Paydowns and payoffs that will offset.
Growth was in the move forward. Thanks.
Hi, Michael.
Definitely it is going to be is going to continue being a challenging year on we do expect to continue having.
The payment.
As we saw in the last quarter on if we take that as the base, where we have had gross production of Honda in the $60 million with the payment of $200 million hopefully we can we can control of that.
Being very careful on competing on interest on the yields of the transaction on that study that we want to continue based on that on on what we're seeing on the.
In our pipeline.
And the type of reduction that we will see in the next three months related to the PPP.
We might be seen on the first quarter.
The low single digits on.
The increase in the as the economy improves also the line of greater utilization shoot.
The increase.
And that that had a reduction on almost 50%.
In the last two quarter of last year. So from there we look on it.
<unk> seen our growth.
For the second quarter, maybe on mid single digit depending on how much of payoffs on the on the commercial real estate debt.
Rates that we're seeing on that on that area.
Our not on on our scope on.
We will continue to compete definitely we have out.
In our in our strategy to.
To grow the balance sheet.
Sure.
We will monitor the the economy, how it grows because.
Nobody thought that at the stage of the year was still waiting for the part of their solution on the vaccination of process hopefully that change and we can continue on growth. We are also including a business banking strategy we are.
Now focusing on a more granular of transaction and as you know what's the smaller the trial size of the relationship out of it takes more time, but definitely on the yields will be better.
My leg gold zone.
The loans debt.
One of be part of our strategy. So it is going to be a re composition with a focus of growth.
Okay, and maybe finally for me just on the credit front, it looks like credit metrics.
Even criticized classified were relatively stable, maybe maybe a tick higher yet there was no provision you guys are under the incurred loss model, how should we think about kind of the reserve levels and future pace of provisioning going forward I know, there's a lot that goes into that but I mean could we expect to see that reserve level.
Come down from here. Thanks.
Hi, Michael.
So.
As we as we have a day.
I mentioned the increase was.
Barry.
On the nonperforming loans were very stable.
We expect.
On that.
There may be some in the first quarter that still.
Coming coming down there but.
But the outlook on the economic conditions.
Improving.
The.
The second quarter in the on.
And therefore, we expect that the reserves will be based on growth.
What.
The increase in our portfolio other than that we don't ex that we believe that the reserve. We currently have sufficient to cover any of any potential losses that come our way.
And.
If they come end of the economic with the new the positive trend.
We may think of.
And if any.
Pieces of even.
And the possibility as well.
Okay. Thanks for taking my questions on Miller Congrats again.
Thank you Michael.
Thank you once again that sort of one for questions not one.
All of them on for questions.
Alright, I am not showing any further questions in the queue I'd like to turn the call back over to Mr. Wilson for any closing remarks.
Thank you all for joining our fourth quarter and fiscal year 2020 earnings conference call.
The World continues to adjust to the new normal. Please note that the amarin.
Doing the same and look forward to continuing to transform in 2021.
Thank you all of them be safe.
Operator, you May now end the call. Thank you.
Thank you ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect.
Yes.
Yes.
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