Q4 2020 SB Financial Group Inc Earnings Call
Good day and welcome to the.
SB financial group fourth quarter, 'twenty, and 'twenty conference call.
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Good morning, everyone I would like to remind you that this conference call is being broadcast live over the Internet and will be archived and available on our website and I are that your state Bank dotcom.
Joining me today are Mark Klein Chairman.
Chairman President and CEO.
Tony Cosentino, Chief Financial Officer, and Jon Gathman Senior lending officer.
This call may contain forward looking statements regarding SB financial's performance anticipated plans operational results and objectives.
Forward looking statements are based on management's expectations and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those expressed or implied on our call today.
We have identified a number of different factors within the forward looking statements at the end of our earnings release, which you are encouraged to review.
SB financial undertakes no obligation to update any forward looking statement.
As required by law after the date of this call.
In addition to the financial results presented in accordance with GAAP. This call will also contain certain non-GAAP financial measures.
A reconciliation of GAAP to non-GAAP measures is included in our earnings release.
I'll now turn the call over to Mr. Klein.
Thank you Sarah and good morning, everyone and welcome to our fourth and final conference call and webcast for 'twenty and 'twenty at a high level I'm pleased to report and in the midst of this pandemic, we found a way to deliver our strongest performance ever.
For the quarter, we continued to see mortgage volume at the top end of our current capacity welcomed the beginnings of processing PPP forgiveness and witness greater flexibility by our entire staff to service clients.
And this new and different environment.
Briefly highlights for the quarter, which included a 611000 out of pretax mortgage servicing rights impairment and.
Include net income $5 4 million up $2 million or 60% over the prior year quarter.
And when adjusted for the non-GAAP impairment items net income would have been $5 8 million for 87% increase for the year GAAP net income of $14 9 million up $3 million for nearly 25 per cent.
Adjusted return on average assets was 1.8 and 9% up from the prior year quarter of 1.26 per cent.
Pre tax pre provision R O a for the quarter was two point for one up 74 basis points or 44% from the prior year.
Net interest income of $9 3 million was up seven 6% from the prior year as our five and a half per cent reduction and interest income.
It was more than offset by the 49% reduction and interest expense.
This coupled with controlled non interest expense delivered positive operating leverage of five times.
Loan balances from the linked quarter declined 13 million, which reduced our year over year growth for 47 million or five 7%. However included in those balances were P. P. P initiative loans and those loans acquired from the Eden acquisition in June.
Deposits increased $209 million or 25 per cent year over year again.
And balances and retention of PPP funding and business D D A's and overall consumer liquidity.
Drove that growth.
And so it's up a half a million and due to higher mortgage commissions and increase and our title and insurance business and eat and acquisition.
Mortgage origination volume increased to $169 million up $31 million or 23% year over year.
While asset quality metrics remained stable from the prior year and the linked quarter, we elected to set another 800000 and provision during the quarter all of which were related to the COVID-19 and future reserves.
And finally client.
Loan deferrals were down substantially from the linked quarter with the number and dollar of loans in forbearance status declining and excess of 50 per cent.
The five key initiatives, we've referenced in prior quarters and continue to consume us would be revenue diversity and be at organic <unk> M&A more scale broader footprint more scope.
And more services per household excellence and operation and more intimacy with current clients.
And asset quality.
First revenue diversity.
This quarter mortgage volume and loan sale gains were up from a prior year of 23% on volume and a 136 per cent on games.
Noninterest income increased to $8 9 million from the prior year quarter of $6 million.
The current quarter includes a mortgage and service impairment of 611000 and as I just mentioned.
Compared to a recovery of 303000 and the.
The fourth quarter of 2019.
Adjusting for those impacts non interest income was up from the prior year by $3 9 million or <unk> 68 per cent.
For the year non interest income to total revenue increased to 49% and was driven principally by a gain on sale and residential real estate lending volume.
Nearly 700 million, our largest and your production on record.
Peak title had another strong quarter with revenue up 33 per cent from the prior year quarter and for the year.
Over 700 per cent.
We are especially pleased with the progress made by peak and that entire team to double the revenue of the operation.
From the prior year run rate.
Before acquisition.
Our Indianapolis residential loan production office continued to gain market share during the year as we entered a bit closer to the original expectation and originated over 43 million and volume.
And we not only remain committed to this central Indiana region, but we will be building another production team and northeast, Indiana. This year.
We're looking to each of these robust, Indiana markets to make meaningful contribution to our production levels in 2021.
As with prior quarters wealth management assets under our care continued to rebound over the prior year and with an overall market improvement of $48 million and new sales of $21 million.
Which has led to total assets under management of $558 million at year end.
Or a net increase of $51 million, our bench is stronger than ever before and we expect to monetize these new resources to identify more opportunities across the entire footprint.
Secondly, more scale.
Loan growth continued to be under pressure and the quarter as market activity has been constrained, but has begun to slowly recover from the virus shutdown.
Our 47 million and growth from our prior year is elevated due to our PPP balances and the loans as I mentioned required from the Eden acquisition.
As we adjusted growth for these items year over year loan balances would decline on a core basis by $45 million.
We continue to see higher performing clients and their companies exit ownership and our loan balances on their way out however.
However, pipelines continue to steadily grow and most of our markets and we do we expect success in 2021, much along the lines of our historical loan growth and the middle single digits.
Our deposit base expanded to 1.15 billion up $209 million or 25 per cent.
Included in that growth for Eaton deposits and our estimate.
That approximately 50%.
Of the PPP loan funding.
And our clients operating accounts, we expect these funds however to gradually dissipate.
As a forgiveness process ramps up here early in 2021.
Third.
More scope more services per household.
The P. P. P initiative allowed us to demonstrate to not only existing clients, but also to prospects that we are both agile and understood and have the resources and capacity to service their needs and our team will again be tested as we began in earnest the loan forgiveness process around one.
And move on and around too.
To date roughly half of our.
Round, one clients have applied for forgiveness, and we expect that percentage again too.
Climb into the first quarter of 2021, we're prepared to handle a similar level of client applications and round two.
And the program and.
And we feel the lessons learned from round, one will make for an even more positive client experience at this time around.
In fact, they do more with the same we have acquired the street's share software to ensure that our capacity to process request matches, our appetite for balanced growth from existing clients and prospects alike.
Operational excellence.
The continued transition to a more normal residential purchase market was evident in the fourth quarter as we originated 47% of our volume from purchase transactions or $81 million.
Internal refinances were 28%.
Or $48 million with external refinances.
The remaining 24% for $24 million.
For the full year $291 million and 42% of our total volume was from new purchases.
Or construction activity.
$17 million or 31% from refinancing our own mortgages and internally and the remaining 27 per cent or $187 million from outside competitor refinancings.
As a result of these successes our servicing portfolio now stands at $1 3 billion and over 808005 hundred loans for.
For an increase of $101 million this year.
Expense levels for the quarter were up from the prior year, but as I mentioned, our operating leverage improved for the quarter due to our revenue growth.
This growth also provided the path to our best net non interest expense level in recent times.
Negative.
6%.
For the full year expenses and revenue were impacted by our servicing rights impairment and eat and merger costs.
And we adjust for these non-GAAP items, our operating leverage for the year improved from a reported.
One six to two five times.
To extend this trend we continue to examine all of the expense control initiatives that we put in place earlier this year, when COVID-19 and ride.
Fifth and final asset quality at.
At quarter, and we had 83 loans in forbearance for total dollar amount of nearly $40 million, which was down by 121 loans and $41 million from the linked quarter or 51%.
Remaining and these totals were $11 $7 million of sold mortgage loans, which reduces our on balance sheet exposure to just $28 million and was down $10 4 million or 27% from the second quarter.
Of the 28 million and balances remaining and forbearance 95 per cent.
Is it related to the hotel industry.
That said, we continue to feel strongly that our portfolio and in particular our <unk>.
<unk> to the hospitality industry will continue to weather the COVID-19 storm well due to our prudent underwriting process and the quality of the clients we've embraced over the past decade. However.
Sure the unexpected stress surface, we have made provisions to bolster our loss allocation fact, this quarter, we increased our provision as I mentioned to 800000 and for the year now for $5 million.
Our loan loss reserve is now $12 6 million and our reserve ratio was up 38 basis points from the prior year to one for 4%.
We adjust for PPP balances and increases to one five per cent.
Our coverage of nonperforming loans now stands at 174 per cent and remains above the median of our peer group.
Charge offs for the quarter were just 18000 and year to date, our loan charge off ratio of slightly above historical levels at just eight basis points or this year of 680000 from essentially two borrowers.
And we feel our approach to build our reserve and stay ahead of market stress will bode well for our performance in future quarters.
Finally, before I turn it over to our CFO, Tony Constantino for some more color on our year and quarter I do want to make a note of our dividend announcement. This past week of 10, and a half cents per share up 11% over the prior year.
We continue to review our capital allocation and not only fund balance sheet growth prudently, but also to return capital to our shareholders via dividends and our current stock buyback program.
Tony if you could give us some more details on our quarterly performance.
Thanks Mark.
And as Mark opened the call we delivered <unk> 71 per share this quarter up from 42 for the prior year quarter.
69% increase leading to a $1 96 and EPS for the full year of 2020.
And when we adjust 2020 full year EPS for the SAR and merger costs, which we have documented in our release, we're up 51% from 2019.
Operating revenue was up 24, 7% from the prior year and up 31, 7% when we adjust for the impairment.
Loan sales again were strong delivering gains of $7 3 million from mortgage small business and some agriculture loans up $4 million from the prior year.
Margin revenue up seven 6% as we continue to offset.
Interest income reductions with.
Further reductions and our funding costs.
Now, let me break down the fourth quarter income statement.
Starting with the margin net interest income was up from the prior year, but level to the linked quarter.
Average loan yield for the quarter of four point for 2% decreased by 60 basis points from the prior year.
And overall, earning asset yield was down a 114 basis points and the prior year.
Loan yields and the earning asset yield were obviously impacted by the 1% PPP portfolio.
And while as Mark mentioned close to 50% of our.
Phase one P. P. P portfolio has applied for full forgiveness, we've really yet to receive the bulk of those pay offs from the SBA.
As we get more detailed on the P. P. P phase one we had $83 million and funded loans with total fees expected of $3 2 million.
To date, we have realized one point for millions of those fees.
And booked an additional 565000 and interest income.
If we exclude the initiative from margin NIM would have risen by just one basis point for the entire year.
And the funding side as expected, we again reduced the cost of our interest bearing liabilities from the prior year.
For the quarter the rate on those liabilities was six 4%, which is down from the prior year by 78 basis points and down from the linked quarter by 11 basis points.
Net interest margin at $3. Two one was down 49 basis points from the prior year as the impact of P. P. P.
Excess cash and eat and were headwinds to our margin.
Interest expense costs are down by 49% from the prior year and down an additional 14% from the linked quarter.
We are certainly nearing the bottom on interest expense reductions, however, repricing on our loan and asset portfolio, we expect to continue on into 2021.
Total non interest income of $10 4 million was up $5 $1 million and 94% from the prior year.
Reflecting the mortgage origination volume, which overcame the servicing rights impairment.
As Mark indicated our title agency had a very strong quarter closing a large number of transactions and delivering revenue of 500000 up 31% from the prior year.
And our fourth quarter mortgage sales were 85% of our originated volume we achieved a record level of sales volume for 2020, with our sale percentage exceeding 86% of the $694 million and volume.
Yields also continued to be robust and the quarter, which supplemented that sales volume.
The shift to purchase volume from refinance continued in the fourth quarter.
Total gains on sale came in at $7 2 million, which was 5% on our sold volume of $143 million.
For all of 2020 as I indicated we sold close to 600 million or roughly 86% with total gains on sale, yielding for 2%, yielding $25 4 million and total gains after our hedge.
The focus and change we made several years ago to hedge our pipeline and be become more aggressive and secondary paved the way for these higher than expected gain numbers.
Our servicing portfolio provided revenue for the quarter of 857000 and for the full year, we realized $3 2 million and total servicing revenue.
Market value as we indicated for our servicing rights declined slightly this past quarter. The calculated fair value of 60 basis points was down 39 basis points from the prior year and down six basis points from the linked quarter, which resulted in the $611000 impairment.
At December 31, and 2020, our mortgage servicing rights were $7 8 million on the balance sheet, which is down 30% from the fourth quarter of 2019 and down 9% from the linked quarter.
Our total remaining impairment is for 9 million for potential future recapture.
Which if realized would increase tangible book value by approximately <unk> 53 per share or an increase of 3%.
Operating expense for the quarter.
$10 7 million.
Up 500000 or 4% from the prior year.
But down 700000, or five 7% compared to the linked quarter.
The higher level of mortgage volume drove compensation higher year over year, but contributed to the decline from the linked quarter.
For the year operating expenses up $5 7 million for 15%. However, if we would normalize for similar mortgage volume and the Eden and merger costs year to date growth is $2 2 million or 10%.
As we turn to the balance sheet loan Outstandings at December 31, 'twenty and 'twenty stood at $873 million.
$69 four per cent of the total assets of the company.
We had loan growth of $47 million deposit growth of $209 million and asset growth of $219 million from the prior year.
All of these growth levels were unlike those we have experienced and our recent history and.
They were impacted by the pandemic.
P P consumer liquidity and of course the merger.
As we look at our capital position, we finished the year and $142 9 million up $6 8 million or 5% from the prior year with our equity to assets ratio standing at 11, 4%, which increases to 12% when we exclude the P. P P balances.
On a per share basis book value was up $1 86 per share from the fourth quarter of 2019 or 10, 6%.
We continue to buyback our shares under our buyback authorization and during 2020, we repurchased 435000 shares at an average price of roughly 90% of book value.
Total nonperforming assets of $7 3 million or 58 basis points were up 60, 600000 and from the prior year and flat to the linked quarter.
Including in our numbers are 800000 and accruing restructured credits.
Elevate our nonperforming level by seven basis points and absent those restructured Ah.
Accruing credits, our total nonperforming assets ratio would reduce to 51 basis points.
We continue to monitor the at risk segments of our loan portfolio and the improvement and forbearance balances has a positive trend and our asset quality.
Finally, as Mark mentioned provision expense for the quarter was 800000 up from the prior year, but down $1 million from the linked quarter.
Our absolute level of loan loss allowance at $12 6 million was up from the prior year by $3 8 million or 44%.
I'll now turn the call back over to Mark.
Thank you Tony and summary, clearly delivering a record net income was a tremendous accomplishment for us this year, but it's all about the other milestones and achievements this past year that.
We're certainly equally proud we continued to embrace alternative communication channels to remain connected to our 30000, plus household and and still expand market share through the PPP program and clothes and M&A transaction with the Eden acquisition.
Additionally, this year we.
<unk> expanded the liquidity of our shareholder base dealt with significant forbearance requests that we have.
<unk> discussed for two quarters.
Proved and nearly 700 PPP applications and expanded our mortgage operations to provide record lending to over 3100 homeowners across our entire footprint 2020.
It was certainly a unique and in many ways and our team literally stepped up to meet those challenges and deliver one of our strongest earnings and history.
As we turn to page for 'twenty 'twenty one.
We certainly expect some challenges to subside yet others are unknown, we'll certainly emerge.
That said as our markets steadily opened we believe the pent up demand and liquidity will welcome the partnership of a community bank like ours with a diverse product base delivered through our seven key business lines.
Now I'll turn the call back over to Sarah for questions Sir Thank.
Thank you Mark we are now ready for our first question.
For additional.
I'm sorry.
While we're waiting for additional questions I would like to remind you that today's call will be accessible on our website and I are that your state bank dotcom.
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Our first question comes from Brian Martin with Janney Montgomery. Please go ahead.
Hey, good morning, guys.
Good morning, Brian and Brian welcome.
Happy new year well.
Just maybe if you could start just on kind of maybe just the mortgage outlook I appreciate the comments, Marc and just maybe getting a little bit.
Adding some new geography and the.
For Indiana markets, and just how we should be thinking about.
Are these the kind of production levels and then the pricing, which was obviously as Tony mentioned very robust this year.
How we should think about that as we go into the first half of this year.
Yeah. Thanks, Brian.
As we all know mortgage has become increasingly important to our operation.
As we've discussed before.
That success certainly.
<unk> has led to some good earnings per share and a.
Net income and we look to continue to drive those levels to a comparable.
Level as 2020 had in 'twenty and 'twenty, one we know we're gonna have to add some.
Some additional regions and some additional M L o's to make all that happen.
And particularly.
If rates move on us, but we're expecting some stability in that arena and we.
We expect a similar volume, but I know that our margins might not be as robust Fry and as they were before and I know Tony you might have some perspective on our hedging process and how we think that's going to keep us.
To have a pretty robust.
$150 million pipeline, yes.
I think Brian you know, we had a fairly weak first quarter of 2020.
You know, we look to be 30 ish plus percent from that quarter here and in 'twenty 'twenty one.
I would ask.
You know I would think we're we're on a fairly good pace through the first half of the year and and we'll see how things go.
Relative to that on the volume basis, Yeah on pricing you know yields were certainly at a premium throughout 'twenty and 'twenty.
Our expectation is that yields will constrict, a bit and 2021 I think a lot of banks that have looked at you know margin pressure have reached out and started to incur.
Increased their exposure to the mortgage business, we know the competitive nature of people coming after our employees and and high high producers. So I don't think they're just going to walk away from that and I think there's going to be some potentially some stretch on price to maintain volume two to manage that infrastructure, which I think will constrict.
Yields and pricing a bit in 'twenty one.
Okay, but I mean.
I guess, given where they were if you look back to 19, Tony versus and even what you saw and the second half of this year. I mean is it is it closer I guess is it higher and in the first half of the year and then I guess when did it kind of maybe go back to or does it ever go back to kind of the levels, we saw and the 19 on the on the premiums and then they were closer to that maybe sub 3% type.
The levels versus where we're at today.
North of five or at by it.
I mean, we've historically.
<unk> been kind of the.
Excluding 'twenty and 'twenty, we'd been from the 232 kind of day to weight range fairly consistently going back 16, and 17 to 19.
I would think we're probably trending towards that range, but the first half I think is still going to be above floors based upon what I'm seeing right now and and we'll see how long that lasts but I would think the first half of the year, probably for us and probably returns back to that.
$2 seven and five to three range for the second half of 'twenty, one would be my best guess as we sit today.
Yeah, Okay. No. That's helpful and just remind me mark the markets you intend to add staff and this year, you know I guess build out.
You mentioned and northeast, Indiana is there.
And what are the expectations to be adding folks.
This year.
Well clearly we've as we've gone on record and Brian.
Columbus.
Model that we've built certainly we think we can replicate our we've had a slower start than we anticipated and Indiana.
Indianapolis, but we finally caught stride of 50 million and this market.
And we know the northeast, Indiana is rich with a.
Lots of lakes and lots of our nice expensive property is up around those lakes and we're committed to getting in the northeast Indiana.
And we thought we had a strategy to lift the team out and build a team, but we're gonna have to retool a little bit here.
We've had a little of an aberration and so to speak of.
Who's going to lead that team, but we're committed to the market and we like the eastern side of Indiana, and lower Michigan, and we're going to continue to push it along and find the MLR was as well as the support team to to make that six to 700 million happen.
Got you Okay. Perfect. That's helpful. And then maybe just a little bit of thought.
On the and alone on the loan growth outlook I mean.
Given the liquidity and the market.
And how you're what's the pipeline look like today or just kind of what your customers are you expecting things to kind of unfold this year.
Yeah sure Yeah, we've we've been accustomed Brian as we've said a number of times and as you've witnessed a wheel.
We liked that median level of growth, we don't like to get out over our skis on loan growth, we'd like to be a median player in that world I want to be a top top decile player and asset quality as a result of that but.
But generally speaking, we know that and these times with the real high sensitivity of the clients and with regard to interest rates and.
No GDP or low GDP that we've got to be very competitive and so through John's leadership, we've developed.
Some fairly aggressive programs to hit some of our target markets with some.
Very very competitive interest rates, albeit with a little bit of duration risk.
But our goal is to get back to that.
The middle the upper range of single digit growth in the lending arena and John and know our pipelines have been fairly robust a recent yes, I think that's a fair assessment as Mark said, we've developed some programs and we've really begun thinking Brian as we enter 2021 as you said the pie is not getting any bigger with limited GDP growth and liquidity and the market. So.
We're really focused on our client acquisition from frankly other competitors P. P. P has been a nice boost for US we did a nice job running that program and and obtained some good prospects through there and the first round anticipate doing that and the second round and in addition, the programs Mark mentioned the pipeline I would say returned.
Two a more robust level and the fourth quarter and we're seeing that again here and the first quarter up significantly from the second and third quarter, probably like most banks, but yeah. We're very optimistic just talking with some of the lenders about some of the things that we're working on and that's primarily coming from client acquisition of other financial institutions business, but.
And trying to make sure we get our share of any economic growth that's out there as well.
Okay and then.
The headwind there and if the production and.
The pipelines are good just and the other payoffs continuing to be a little bit elevated.
And is that any trends youre seeing there is for cars is slowing.
I do see it slowing I think I said that last quarter. We continue to see we saw in December a borrower sell some properties to a REIT.
And I think and the first quarter, particularly here in January and and early into February we're going to see just a couple more but really.
And the pipeline of those because they request us sales so far in advance we kind of know today that we expect that to slow here for the remainder of the first quarter and throughout 'twenty and 'twenty one and.
As many of those companies have already taken advantage of those opportunities to sell real estate or their operation or whatever so no I expect that to slow considerably here.
Later in the first quarter and the remainder of 2021.
Okay, that's helpful and how.
How about maybe just for Tony.
If somebody else I guess just on the on the March and outlook and just.
And I guess, how youre kind of thinking about that given the levels of liquidity and you know the.
And the getting the loan growth to kind of deploy that or I guess when you look at doing some type of.
Yes, something with the proceeds if the loan growth doesn't materialize here and just kind of how to think about that.
Yeah, I think that that's that's well put in you know.
Liquidity has certainly been.
Significant this year and you know are all alternatives for for that liquidity has been somewhat limited.
I think we expect to do a decent level of PPP her and in phase two I think we've got some loan pipelines that debt, we feel fairly good about.
I think we've got you know kind of a window here that we're going to see what that looks like to to utilize that liquidity.
And then if that doesn't come together as we expect and I think we're you know we'll go into whatever investment market that we need to try to supplement margin a little bit.
We've been extremely aggressive on the on the funding cost side. You know we've moved a lot of people out of high cost deposits, we're going to continue to do that but you know zero is fast approaching so we understand where we're limited on how much we can reduce cost and we've got to do more on the asset side of the balance sheet and <unk>.
Brian just one comment and we know that the landscape out there is very competitive which is why we've developed.
Develop these are low rate.
And some money.
With the intent that margin might decrease, but we're always having that conversation that are for margins going down.
No we have to incrementally add organic growth to replace that margin all and the spirit of increasing total revenue. So our away might go down, but net income and EPS and ROE should increase.
The increase is a result of our approach to.
A client that is more sensitive to the low rate environment.
Yeah got you and.
And Tony just high level, and and kind of your thought on the margin. If you. If this loan growth takes a little bit of time to kind of come together.
And it kind of absent the PPP some acceleration there and the level you're at this quarter and Directionally. How do we think about I mean, I guess is it is it kind of flattish here I guess it sounded like from your prepared remarks. There was some like you said, there's not much room on the liability side, but there is still continued it sounds like there's still some continued pressure on me.
And the asset side, so I mean and.
As a margin percentage goes versus the bars and dollar as a percentage should drift lower absent forgiveness here or is that.
Is that not the case.
You know I think I think generally our R. R.
Our indication is we're gonna be and kind of our fourth quarter range moving forward absent the moves and shakes of P. P. P. I think are our core is gonna be and kind of this.
320 to $3 30 range for for most of 2021.
You know mortgage volume is always a big factor and that because of the fees that we deliver.
How much liquidity is going to go away is the consumer going to start to spend some of that money and and that's going to improve just by its very nature, because we really don't have anything to do with that liquidity right now and so theres a number of factors I think there. So I would think we're kind of at the bottom and but we'll see how this first quarter and go.
Yes.
Gotcha, Okay and.
Yes.
And as of the balance sheet.
With the with the PPP forgiveness and my guess is.
And I guess is this.
Forgiveness will just increase your liquidity further is that is that your expectation right. Now is this process begins.
Yeah, absolutely I mean, we've we've taken $10 million or so that we've that we've received a pay down of our original $83 million I'm. You know I would expect those balances will be sub $40 million by the time. We report here at Q1 absent what we do and phase two.
Thus far John we've done not only 16 or $17 million of applications on the second part so our expectation is going to be somewhere between 50 to potentially 75 per cent of the volume we did and the first phase because of the different requirements. So absent P. P. P. I do think the cash and liquidity will trend down.
And.
And our hope is that we're gonna put that and a lot of the loan categories.
You know we may look at it not.
And not necessarily securitizing, but keeping a bit more of our production on our books, whether that'd be SBA or maybe some form of our residential real estate that we've traditionally sold.
Because I think and the current environment debt using that liquidity is going to be a smarter play maybe a little depressing on earnings and the short term, but long term a better play and Brian and that said just to follow up comment.
Tony indicated and as John indicated we've received 50% of our round one applications for forgiveness, you've already received 25 per cent of the money and so as we feel day round to request a five days into it and we have 140 for request.
And on an average amount of $119000. So you know we're kind of back in and you know with the government's commitment for a minimum of 2500 per loan.
And we're in and.
We continue to expand not only with our clients, but with prospects and.
And we'll have some some good numbers and subsequent quarters here on the additional business. We've received from at least round one of those 260 prospects that we brought in and so we're using that as a lever and were turning lemons and eliminate on that thing.
Right I Gotcha, Okay, and then maybe just last last one or two here and just the the reserve levels are quite as high as they've been here you know given the ability to kind of put some aside for COVID-19, but with credit quality, yes.
Kind of holding up and.
And I guess, maybe just.
It sounds as though the outlook continues to be pretty strong and credit and the deferral trends were positive and you know how do we think about maybe I guess the post COVID-19.
<unk> reopening and type of reserve I mean is there.
Should that trend a bit lower as you get more visibility is that.
Fair.
Yeah, I think Brian well first of all you know a lot of for the money. We've put and reserve has really been a function of P. P. P. Revenue. So we made the strategic decision to set a lot of that money aside for what if scenario as you said our asset quality is really hung in there nicely and a fair amount of that is a function of liquidity that the government is pumped in whether it's P. P P or stimulus.
And you can see that and our forbearance numbers, but yeah. We we have a I think I counted five credits that we've.
Adversely.
Right and due to COVID-19 issues various levels early in the process special mentioned and and a little sub standard, but we're just keeping a close eye on them, but we feel pretty good about many of them and it's not all of them and I think you know its self ingratiating say, but our strict underwriting standards.
<unk> and having good secondary and tertiary sources of repayment and it really led us to a good place here that many of those borrowers were prepared particularly when we talk about hotels. Some pretty good borrowers are pretty good guarantors backing those things that have enabled them to weather the storm so to speak and with a little bit of luck and a return to normalcy. If there is such a thing and.
And the.
Second and third quarter of this year a lot of our borrowers are starting to see light at the end of the tunnel and.
We have weathered the storm so to speak and and we're starting to see some returns to some post or pre COVID-19 levels. So for example, and our hotels, we're starting to see some ADR has returned to levels.
And your breakeven if not a little bit better even in the middle of Covid, So with some return.
We're optimistic that we're going to be over reserved and later in the year.
Okay, and then I guess the thought would be if all that plays out your ear, hopefully beat and grow into that reserve with loan growth as opposed to seeing.
A negative provision for instance for our reserves I mean, that's the you know at least the way to think about it today.
But yeah, that's our preferred.
Method and thought process, because obviously that killed some positive things in terms of growth and and income and Brian just last part and comment on the loan growth as you know the variable is how hard we need to work it's not that we make the same number of calls and find credits that don't have the metrics. We want we've conveyed that to our staff.
Got to work twice as hard to get the same volume that we've done in prior years.
Absent this COVID-19 thing so.
The variables and number of calls and and how we get it quality remains constant.
Gotcha, Okay, and then just the last one or two the I guess from a capital deployment standpoint, you know the buyback is still intact.
And then I guess, just kind of your expectations on that and just what from.
From a.
M&A perspective, I guess.
How are the debt.
And I guess, how is activity and that and that area right now and make it says there has there been more dialogue given the conditions and the market or it's been.
And then pretty steady.
Well I'll talk a little bit about capital and you know mark and fill it in on the on the M&A side I think you know.
Yeah, we've been I think fairly aggressive and and the buyback are you know we we.
And we probably spent of our $15 million and earnings we spent about $10 million of it between dividend and buyback in in 'twenty and 'twenty are you know we would certainly would have preferred to grow $150 million on the loan side, but that wasn't there. So I think that was the best use of our earned capital.
We continue to think we've got plenty of liquidity and plenty of capital to manage the type of M&A transactions that we think are appropriate for us at this time.
And I think we're going to continue along the lines of the a buyback and and where we are and we'll see how that goes so and.
For.
Well go ahead bar for just a follow up Brian with regard to the M&A it might as well and get that on the table here.
We continue to.
Poke around on the entire landscape.
Absent organic growth, we think that organic growth is where we deliver.
And then some amount of value, but M&A is certainly on the platform and we continue to talk to some opportunities.
For the bench and we have.
Managerial bench for got products and we've got the business line.
Just working to make sure that we control, what we can which would be quarterly earnings and hopefully that'll give us a stronger currency some day.
Right, Yeah and.
And I guess, just as far as going back to the buyback Tony the remaining authorization out there what you haven't completed yet can you remind me what that was.
We originally approved 500000 and and we've got 210000, roughly left on that and I would.
Because as we go through that we're doing I don't know between 20 to 35000, a month based upon volume and net and availability.
And when that runs out likely mid 'twenty 'twenty. One I think we will look at that again and and see what the opportunities lie going forward.
Got you Okay, perfect and then look the expense the expenses were a bright spot this quarter with along with some of the other items you guys have called out, but just your thought I mean, given where and Ah.
And we're in and I guess is your.
And I guess kind of just expectations on expenses as you think about 'twenty one.
And I'll just at a high level right and we know that our margins are going to continue to compress and we certainly don't want to allow the mortgage the robust mortgage business line overshadow prudent operations and and the other arena. So we're continuing to look at all of the travel arrays.
Women's and meetings and offices and can we run them with dry vans.
And we need as many people.
And we're continuing to look at operating and new and different ways and you know a new world order. So we've got a keen eye on those because we know the job to be done and you're going to get more difficult that said.
Our broader balance sheet, albeit with thinner margins is where we're headed with the competitiveness and the landscape to define a more scale and we think we can continue to push profits higher bi.
Margin standing, but a bigger balance sheet.
Got you, Okay, and then just the classified and.
Criticized level, you talked a little bit about them earlier, but was there any notable change this quarter. It didn't sound like there was a whole lot of movement, one way or the other on on those line those those areas but.
Well, we're maintaining our solid criticized and classified at level. We did have some movement like I said and about well and five credits total but for and the quarter and.
And again many of those are just some preemptive kind of watch sort of things special mention and and one or two sub standard but.
Just keeping a close eye on a couple of credits all of those credits are performing and doing very well.
And we haven't had any delinquency or increases there just again, just more to keep an eye and see how the 'twenty and 'twenty financial shape up and how they hit the ground running here and the first and second quarter of.
And 'twenty 'twenty, one and are our expectation and Brian as you know, we've got six or seven commercial credits on forbearance as we sit here today.
We really expect to all but one of them will come off in Q1 based upon you know their current expectations and where we are so you know at worst case scenario as we sit here today, we potentially have one still on forbearance on the commercial side our hotel at the end of Q1. So we think it's going to continue to improve.
Okay, perfect and Tony that part of both expenses and I guess, if if if high level. If your expectation is that the mortgage volume is your hope is that it's similar to what it was this year, albeit with a little bit.
Different pricing with the expectation be that you like.
Expenses from Canada.
As you say the second half run rate and then kind of all in with with Eaton. This type of level, we saw and the second half of the year is how we should think about.
Going into next year.
I think this quarter was what $10 5 million or call. It $10 million to $11 million is that $11 million is that kind of a run rate to think about is as we go into next year given.
All the all the variables.
Yeah, I think I think in general.
And would have one caveat there I mean, we've certainly put forward and our calls and our conversations that were making some some investment and technology in 'twenty and 'twenty, one which will come on board a you know a new commercial loan origination system and the Encino platform were moving you know C. I P to.
And to sales force for all of our sales teams. So.
So we have some some higher level of kind of year, one as we transition which will be in 'twenty and 'twenty one on some technology spend and it'll you know in my mind inflate expenses a bit.
And I can get more color out on that but you know generally yeah mortgage is going to be the variable on how expenses are going to flow quarter by quarter.
Okay. No that's helpful. Tony I appreciate that so okay, well thanks for taking the questions guys I appreciate it nice quarter and nice year.
Thanks for take here Brian.
Yes.
And again, if you'd like to ask a question. Please press Star then one at this time.
And with no further questions. This concludes our question and answer session I would like to turn the conference back of it and Mark Klein for any closing remarks.
And once again, thanks, everyone for joining us.
Pleased with our year and we're looking forward to 'twenty or 'twenty, one, albeit the challenges that we know we're going to face, but we will look forward to joining up with you again in April as we report on our first quarter of 'twenty and 'twenty, one thanks, again and goodbye take care.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.