Q1 2021 Ameris Bancorp Earnings Call
Okay.
[music].
Good morning, and welcome to the Amerisafe first quarter conference call, all participants will be in listen only and that she.
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I'd now like to turn the conference over to Nicole Stokes Chief Financial Officer. Please go ahead.
Great. Thank you Andrea and thank you to all who have joined our call today during the call we will be referencing the press release and the financial highlights that are available on the Investor Relations section of our website and Amir. Thank God I'm joined today by Tom and Procter, our CEO and Jon Edwards, our Chief Credit Officer.
And we'll begin with an open and general comments, and then I'm going to discuss the details of our financial results before we open it up for Q&A.
Before we begin I'll remind you that our comments may include forward looking statements.
These statements are subject to risks and uncertainties and the actual results could vary materially we list them and the factors that might cause results to differ in our press release and in our SEC filings, which are available on our website.
We do not assume any obligation to update any forward looking statement as a result of new information early developments or otherwise except as required by law.
Also during the call, we will discuss certain non-GAAP financial measures and reference to the company's performance you can see on a reconciliation of these measures and GAAP financial measures in the appendix to our presentation and with that I'll turn it over to you Palmer for opening comments. Thank you Nicole and good morning to everyone Who's joined our call today, it's hard to believe at this time last.
Year, we sat on this call with a lot of uncertainty about the pandemic and the economy, but the one thing I was certain about at that time was the ability of our team to survive really whatever the pandemic threw at us and here we sit a year later on and I'm proud to say not only did we survive and actually thrived.
We've said consistently that we are focused on tangible book value growth to grow shareholder value from the past year from March 2020 to March 2021, we increased our tangible book value by over 23, 6%.
We increased our TCE ratio of about 4% all assets grew over 17 and a half per cent.
Our allowance for loan losses of over 19%. In addition, we increased our diluted earnings per share 29% year over year from poor operating results and that's exclusive of provision noise. That's just pure core operating results and this.
And this type of success is due to the disciplined culture, we've cultivated you're at and mirrors bank and having said that and.
And I preview I'm really excited to share with you a few highlights of the quarter and an update on our outlook for the future for the quarter. We earned $115 7 million per $1 66 per diluted share on an adjusted basis, which is up almost 200% from this time last year. This represents a $2 26 return on average.
Assets and a 20, 766% return on tangible equity.
Our adjusted efficiency ratio improved from 50, 987% reported first quarter last year to 50, 462% this quarter due to improved economic conditions, we did reverse $28 6 million and provision for loan loss expense this quarter and we realized the recovery came from 6 million of free.
Our service asset impairment exclusive of these positive events, our adjusted diluted EPS still exceeded expectations at $1 34 per share for the quarter.
Coal is going to get into more of the financial details and just a few minutes on the balance sheet side of things I was really pleased with our loan growth for the first quarter. Our annualized net loan growth was just over 3% after and that's after the P. P P and our indirect runoff headwinds, we still expect to see mid to upper single digit loan growth.
For the year and so we look at our pipelines and opportunities within our markets and we continue to see strong deposit growth this quarter and our noninterest bearing deposits are now over 38% of total deposits.
And I already touched on capital from a year over year perspective, just for the quarter, we saw great growth and TCE and tangible book value. During the first quarter. We grew tangible book value by $1 58 per share or six 7%, which is very strong our TCE ratio increased to 862% which is getting very.
Close to our nine per cent goal, our capital position remains strong and it's going to continue to support our future growth and opportunistic transactions.
And while we do have a share repurchase program in place, we didn't buy anything back and the first quarter and we really don't anticipate executing on this and the near future, but certainly like having the option to repurchase our shares if the right opportunity presents itself.
On Edwards, our Chief Credit Officer is with US today, and he certainly available and take any credit questions. After our prepared remarks, but I did want to hit a few high points in terms of credit.
Our annualized net charge off ratio decreased to 12 basis points and total loans compared to 70 basis points last quarter, our nonperforming assets as a percentage of total assets improved 40 basis points compared to 48 basis points last quarter loans that remain on deferral at the end of quarter for approximately two.
2% and total loans and that's down from approximately 19% of total loans at the end of the second quarter of 2020.
As you know we have no exposure to oil and gas and we've included additional details on our hotel exposure and the loan slides and our investor presentation as well as the diversification diversification that you'll see across all our loan types and on the loan portfolio.
And our allowance coverage ratio, excluding unfunded commitments was 1.29% net of our P. P P loans and the quarter.
Just a quick update on COVID-19 and P. B P. During the first quarter, we opened all of our retail branches and lobbies and business and traffic I might add it is really picking up especially in the southeast our vaccines are available to everyone over the age of 16 and and they're easy to get most of the businesses that we're seeing are back open and we're even seeing new restaurants.
For instance, coming in and taking over locations that were shuttered last year and the pandemic. So things definitely seen incrementally moving back the business around the southeast and we're just really fortunate to have a strong presence and many of these top growth markets and.
As far as P. P. P. We receive payments and forgiveness from approximately 638 million on PPP round, one loans are leaving the outstanding balance of the 2020 rounds at 463 million and we had the new round three outstanding balance of $329 million, that's as of March 31 with them.
And another 42 million funded so far this month in April we anticipate opening the forgiveness portal for the new round three and the next few weeks. So far we've received over 5600 applications. Our average loan size request has been around $73000 with the second request average and are.
Around $103000 and new participants or first time request averaging around $21000. So this is a much smaller average comps and we saw on round one but it has helped increase the overall return.
And that's a great lead in and to the last thing I wanted to touch on and Thats ESG and during the PPP process.
Merits had a specific outreach to our certain underserved communities and it was a great success and that's just one example, and how we've been working diligently on our ESG initiatives.
And March of 2020, we established our first chief governance officer role and then shortly thereafter and announced our first diversity officer currently and Gordon.
You have a management level ESG committee and that meets regularly and we reported to the board and we're actually preparing our first corporate social responsibility report or CSR.
And we hope to have that out and.
Public and the near end of the second quarter. So we can share that with all our investors and show them everything we're doing on that front, but I'll stop there and then I'll turn it over and Nicole and discuss our financial results great. Thank you Palmer and used.
For the first quarter, we earned a record $125 million or $1 79 per diluted share, we reversed $28 $6 million and provision for credit loss expense during the quarter day to day's improving economic condition on an adjusted basis, we earned $115 7 million or $1 66 per diluted share.
Share when you actually the recovery on the servicing asset impairment and the gain on Bali and also the gain on sale and kind of.
And so because theres been so much volatility and the provision I thought I'd mentioned and pretax free provision adjusted numbers, where we earned 122 6 million for the quarter compared to $89 4 million first quarter of last year again, taking out that provision noise that represents a 37 per cent increase year over year from <unk>.
<unk> core operating performance and that's a direct result of the culture and discipline and focus that we've been talking about since the fidelity acquisition.
Our adjusted return on assets and the first quarter was 2.26, which is an increase from the two and four reported last quarter and 87 basis points reported this time last year. Our adjusted return on tangible common equity was 27 point and six six compared to 25 and four last quarter and 10 98 first quarter last year.
And those increases and these ratios our day to day reverse provision for credit loss expense described above however, excluding the reversal of provision and the MSR recovery on.
Core <unk> was still a very robust at a 183 for the quarter.
And Palmer mentioned tangible book value. We've remained focused on that increased $5 58 or $6 seven per cent for the quarter from $23 69 to 25 27.
The year over year, we increased that and $4.83 or 23, 6% from the 2044 and it was this time last year.
In addition, our tangible common equity ratio increased 15 basis points to eight <unk> from 847 at the end of the year. The P. P. P loans and approximately $2 billion of excess liquidity on our balance sheet negatively impacted this ratio by 129 basis points. So.
So excluding the P. P P loans and the excess cash from total assets, our TCE ratio would've been approximately nine point now and at quarter end, which is well above our stated target of 9%.
And you said that you can see that we continue to be well capitalized and we feel comfortable with our capital and are getting and levels.
Moving onto margin as expected our net interest margin declined by seven basis points from 364 to $3 57 during the quarter.
Our yield on earning assets declined by 13 basis points, while our total funding costs decreased six basis points, but our total interest bearing deposit costs decreased nine basis points.
The approximate $2 billion of excess liquidity on our balance sheet and negatively affected our margin by 24 basis points.
There's 24 basis points were offset by the increase in yield on loans held for sale and investment including P. P. P accretion for that and net decline of 13 basis points that I. Previously mentioned, we continue to stay focused on our deposit costs, but the real driver too and improving margin going forward and putting that excess liquidity to work, which we.
Anticipating occurring over the next three quarters.
We've already mentioned that we reversed the $28 6 million and provision expense for the quarter due to improvement in the economy, particularly our economic forecast related to unemployment and GDP and the CRE index.
We continue to carry qualitative factors on various segments of our coal portfolio to include commercial real estate mortgage and hotels.
Our ending allowance for loan losses was $178 6 million compared to 199.4 at the end of the year and $149 5 million at the end of the first quarter of last year, where the pandemic had just begun include.
Including the unfunded commitment reserve and allowance for credit losses, our total allowance for credit losses, and 202 million at quarter end compared to $2 $33. One at the end of the year over year and 167.3 at March of last year.
Non interest income remained strong this quarter due to the continued elevated production and the mortgage division kind of taking out the MSR noise of and impairment in prior quarters, and then recovery this quarter and and the nonrecurring gain on Bali. That's also and non interest income if you take out all that noise noninterest income increased 39% from first quarter last year.
The first quarter this year.
Mortgage production was right at $2 6 billion for the quarter compared to $2 8 million last quarter and the gain on sale decreased to $3 95, compared to 434 last quarter.
The open pipeline at the end of the quarter was 16% higher than at the end of the year, finishing at $2 3 billion compared to and even $2 billion at year end.
While we do see production slowing later in the year.
And I quote Palmer from last quarter, we really don't foresee a cliff Dodd there and when.
And do you continue to monitor it.
Moving on to expenses total noninterest expense continued to decline this quarter from 151 million last quarter to $148 eight almost 149 million this quarter.
Last quarter I guided that we would continue to prudently exam non interest expense and anticipated minimal increases and the core bank.
So I was really pleased with our efforts here this quarter and our determination to find ways to pay for new initiatives as a result expenses and the banking division declined $2 3 million during the quarter and our efficiency ratio and that division and praised by over 200 basis points.
We continue to watch efficiency efficiency ratio by division and very very closely.
Overall for the company, our adjusted efficiency ratio increased this quarter to $54 60 from the 52.6 and in last quarter, but declined from the 59.87 reported this time last year.
I previously guided for the efficiency ratio to stabilize and the 53 to 55 per cent range, because we really don't anticipate the previous level of mortgage revenue and efficiency to be sustainable. So we came in right in line with that guidance.
However, we do continue to monitor the variable costs and the mortgage division and we anticipate those reducing down and production declines and the second half of the year on.
On the balance sheet side, we ended the quarter with assets of $21 4 billion compared to $20 4 billion at year end, we were pleased with our organic loan growth of $118 9 million or three 3% annualized for the quarter and.
And you can see on slide 14, and our slide deck, we had about $294 million of headwind against significant growth and CRE residential and our new C&I Division. We believe the decline in C and D and warehouse lines to or could be cyclical and we could see further growth of and the remainder of the year. Although we are watching those warehouse on it.
Herman if that's truly cyclical or at the beginning of a trend.
We already discussed the excess liquidity that you can see and the other earning assets on the balance sheet due to the tremendous deposit growth this quarter.
Grew deposits and $918 million or 22% annualized and over 71 per cent of that deposit growth was in noninterest bearing deposits.
Well, we did have the expected seasonal run off we also had approximately $900 million and extra P. P. P funds and stimulus money come in.
And now the real question is how fast and we put that liquidity to work. We continue to anticipate that net loan growth and that is P. P. P activity for the year and the mid single digits kind of that five to seven per cent range, which is about $1 billion of growth.
So of that $2 billion and excess liquidity, we've got $1 billion going into loans and that leaves about $1 billion of excess cash to prepare for any deposit run off that we might see from that P. P. P funds being deployed or the stimulus money being used and also as we began to buy investments as rates become more appealing.
So to wrap up we're excited about the remainder of 2021 were and some of the best markets and the South East life is getting back to normal and business and they're starting to grab we're protecting our margin as much as possible and we're ready to utilize this excess liquidity to fund loan growth mortgage and fee income remains strong and expense control is.
As always part of our company DNA I appreciate everyone's time today and with that I'll turn the call back over to Andrea to open up the Q&A session. Thank you Andrea.
I will now begin the question and answer session.
You ask a question you May press Star then one on your telephone keypad.
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So let's start on your question. Please press Star then two.
At this time, we will pause momentarily I talked some on the roster.
Yeah.
And on my first question will come from Casey Whitman of Piper Sandler. Please go ahead.
Hi, good morning.
Sure and Casey.
Good morning, I guess I'll start off and Nicole Thanks for that low growth Guide you just gave a with regards to that I think you guys may have sold off some more on the consumer loans. This quarter and can you tell us how much that was and you know should we expect you to maybe continue to sell some of that off I guess on top of the the auto run off and on.
And assuming that that is part of the the 5% to 7% growth expectation you just gave.
Correct. It is included in that so we and the only portfolio that we sold this quarter. We had already moved to held for sale and the fourth quarter of last year. So it did not come out of the held for sale and or I'm, sorry out of the held for investment and this quarter and we do not anticipate any other loans sale. So on.
That was the same the same loans sale that we talked about last quarter transferring into held for sale and then it went out and held for sale this quarter.
Okay got it and so it's really just the indirect auto run off still happening.
Right and that has slowed our indirect runoff. If you think back to closer to July of 2019. When we first acquired fidelity that was running off at about $139 million to $140 million a quarter that had slowed to about $100 million a quarter and our portfolio, there and down to less than 500 million and so we do have that headwind flowing.
And e-commerce, and eventually going to get down to kind of just that little tail and others.
Okay got it makes sense and then maybe just kind of a housekeeping question on P. P. P. For you guys. The the new a $350 million or so in 2021, the originations and the latest round do you have the associated fees with with the new regimen originations.
Sure. So on the P. P. P round three we have on $17 million of deferred fees and $17 4 million of deferred fees on round well, we're gonna call round three and then on round, one and two which is both of the 2020 round and some people call. It one eight and Wendy we have about eight and a half.
Left there so total deferred fees are up just about $25 million to $26 million.
Yes.
Got it thank you guys.
Sure. Thank you.
The next question comes from Brady Gailey of <unk>. Please go ahead.
Hey, Thank you good morning, guys.
Good morning.
So I mean mortgage still remains low.
Very robust free all which is great to see and I keep thinking that it's got to slow down at some point, but yeah. It just and it still feels like it's pretty robust and any color just on what you're seeing within mortgage today and you know any sort of.
Idea of when you think mortgage could could start to normalize lower.
Good morning greatest Palmer I will tell you that.
And as we've said all along and and Niccolo mentioned in her comments with the way our mortgage shop and set up there was never going to be a cliff dive, which I think based on a lot of them or bankers Association numbers, you would expect but we didn't see that in order to the industry see that I can tell you that second quarter in terms of our pipeline and now we've had a strong April.
And things look positive there and the second half of the year is hard to predict at this point, but I think mortgage will continue to deliver into the second half, but one of the things. We're probably most encouraged with as of recent it's if you look at our current production 74 per cent now on our production was purchase business, which.
Which is really encourage and you know we've had so much refi business all of his head and industry. So it's nice to see that purchase coming back and with the demand for housing and especially and all the growth markets were in I think the housing sector will continue to deliver for banks are through the remainder of the year, albeit at a bit tempered pace as we move into the second half.
Half of the Oh 2021.
Alright, that's helpful. And then next I just wanted to ask about and the continued opportunity to take market share. We saw state sell the cadence now cadence has sold the Bancorp South you even saw its much smaller deal, but south graphs on the colony last night I mean, there there just continues to be a lot.
Out of.
You know dislocation and especially on the Atlanta market can you just talk about the opportunity to continue to hire away and steal market share versus the opportunity.
You know to do something more transformational via some sort of M&A transaction.
Yeah, and I think when people think of transformational they think and.
Mediately, a larger transaction and I think a transformational and something that takes place over time and I think that's more sustainable transformation and that's how we look and think that first and foremost we focus on our organic growth internally and our ability to generate that growth, which I think we have delivered to the market and I think what happens is when you have.
Disruption like we're seeing throughout the market says that's really music to our ears in terms of opportunity and we now have people positioned and place I couldn't be more.
Oh I was excited about the potential we have for the commercial growth to which we've been talking about and made some significant investment and and that's beginning to deliver for us and I think we'll see that accelerate as we get into the second half of the year, primarily due to two things number one and the disruption that you mentioned and then number two is the improving economy and you put on.
And as things together across our footprint and that's pretty meaningful and then you know on top of that if you layer and opportunities M&A opportunities I think that can further supplement our efforts there but disruption is good for us.
Primarily because we're positioned well to take advantage of it and we will continue to do that and we'll do that and from organic growth and then certainly explore M&A opportunities ourselves.
Alright, and then finally from me maybe just for Nicole. So you mentioned that you have 2 billion of excess liquidity.
Half of that will hopefully go into the loan book.
And another $1 billion, so maybe put on the bond book is.
I know a bond rates are up some but they're still pretty low you know what.
What are your thoughts on kind of when you pulled the trigger to deploy that cash and then the bond book because it now or do you wait for you know rates to go up a little more.
Hey, Brady, we're probably and we would like to wait a little bit longer and we would like rate to go up a little bit more and here's my logic therein, and while we do have $1 billion and again, the 2 billion minus 1 billion of loan growth and we've got about $1 billion left and what are we going to do with that and we do anticipate some deposit run off and things.
You know starting to get back to normal people start using that money. So we do anticipate some of that and we do are starting to look at at and purchases and some other investment.
The piece that we're holding back on us right now.
With the yield that you can get at that duration. When you don't win rate do you go up.
We would be sitting and we feel like we would be sitting and an unrealized loss position on all those.
Purchases and.
And that's going to come through OCI and that is going to be a negative to the tangible book value eventually and so for the the little incremental that we could get today on a bond purchase versus that longer term outlook on the effect that it could have on tangible book and a weak said repeatedly that we're focused on tangible book value growth. So I don't want to make a short term the short term.
And today for a very small increase and my margin and.
If there's other things that we can do you know we've continued to grow net interest income NII dollars mm. So we feel like as well with the mortgage portfolio and as we continue to have that and have that mortgage loans held for sale, you'll see that bubbled up a little bit more on this quarter, we did that on and on purpose.
And kind of let that grow a little bit because we can get a much better yield there then and what we could get and the bond portfolio. So as rates come down and we start that maybe the mortgage loans on held for sale come down at that same time rates are going up so a short.
Short answer is that we probably need another 25 to 50 basis points and.
And from what we could get today would be our preferred but we may start buying a little bit ahead of that.
Great. Thanks for the color guys.
Thank you.
And next question comes from Jennifer desktop of Truest. Please go ahead.
Yeah.
Thank you good morning.
Good morning.
Yeah listen on.
And on your scanner efforts Palmer and all that's going on versus our internal budget and.
And what opportunities you see on the future.
There are more hiring opportunities on or you're happy with the team you have now.
Jennifer I'm, sorry, I missed the first part of your question. It was kind of muffled can you repeat it for me. Please.
I'm, sorry could you give us on and update on your C&I lending.
Progress today, and and how that has panned out versus plan.
And if you're planning on making any more hires in that area. Thanks sure. Thank you know when you look at the C&I as I mentioned, and that's probably where I'm I'm really encouraged on our pipeline right. Now is at an all time high as we sit here today and and I know loan growth is key to everybody's future success going forward and I'm pleased to say that.
We are at an all time high on our pipeline.
We are certainly seeing a lot of activity and in several different sectors in terms of hiring we did hire another three C&I lenders in this quarter and those continue to be opportunistic for us throughout the footprint. We've got a couple of opportunities in Atlanta and now and then we also had another hour down and and the Jack.
And bill market and two and the Carolina. This past quarter. So we really feel good about that and the momentum that we're building there and I think we'll start you'll start seeing a lot more on that and keep in mind too as we've touched on and that's a slower growth model with the C&I initiative, but it's more meaningful in terms of relationships versus transactions and.
Same time, we certainly have a robust pipeline of them and the CRE initiative. So we're just fortunate that we are seeing all this activity and it's picking up considerably throughout the southeast and and we're going to take advantage of that.
Okay. Thanks, a lot.
You bet.
The next question comes from Brody Preston of Stephens. Please go ahead.
Hey, good morning, everyone.
Right.
And Nicolas and a quick question do you have any average P. P P and loan balances and.
And by any chance.
I do or average balances.
For round, one and two for the first quarter was 618 6 million.
And when I say, one and two that's kind of a 2021, a one day and then P. P. T round three was 146 million average and so our total average was $765 million.
Okay, alright, great and that compares.
Yes.
So I wanted to ask them and so when I back that out right you get to like Colorado, Florida, and 35 core loan yield.
When you back out P. P P and so I wanted to ask just on the new production yields and I think I've come down about 20 basis points or so since the third quarter of last year and now about 380 at least from the banking division and so I wanted to ask you know where do you see that core loan yields kind of trending as we head forward for the rest of the year.
You know just given that dynamic.
Sure. So there's a couple of things there we do our loan production yields on new production day did kind of come down this quarter, but a lot of that when you think about it and because of the pipeline and so the pipeline and that was already there funded in the first quarter. So what we're seeing kind of coming in the pipeline now is more stable and maybe even a little bump up and now we're starting.
And to see some competitive pressure on those yields coming in and you know we've had a couple of people on our markets and other players that have kind of been out and they're starting to come back in and so we're starting to see some competitive pressure, that's offsetting where we really think some of the yield would have what does production yields would have gone up so kind of having those stabilized on going forward.
And so on the on the debt loan portfolio, just straight line portfolio, taking out kind of the P. P. P. We could anticipate potentially four basis points and I shouldn't be that exact I should say three to five basis points of kind of compression from the loan portfolio, but we also feel like we have on the two to four basis points of additional.
And on deposit cost saving so there's almost offset.
So I guess ex P. P P and looking for the core margin to be flat to down slightly from here.
That's right ex P. P P M.
Probably one more quarter at least of some compression.
We have kind of P. P. We're saying kind of that same five to seven basis points.
And then I think you did.
And I'll say Theres two wildcards, there really Brody one is that use of excess liquidity and.
And how quickly loan growth comes in and the second quarter and then the other wildcard is P. P P and how quickly that paid off.
Got it thank you for that.
And then just on the growth that you had this quarter you know commercial growth and you kind of add up the commercial categories exited business lines was solid you know, but the bulk of that was obviously carried by CRE.
And went out and sort of look at the breakdown and you know office and it's it's retail and particularly office and specifically grew by about 20 per cent and the linked quarter and so I. Just wanted to ask you know where is this growth sort of coming from from a geographic perspective, and so what gives you comfort originating these loans just given all the work from home fears and then it would be.
Could provide some detail as to.
And what the office exposure it looks like you know like single tenant lawyers or and the bigger office building and just give us a sense though.
Okay, that's fine and so the.
Geographic dispersion is still very good and if you think through some of the hires that we have.
<unk> been able to bring in over the last a year and had been in Tampa, and Jacksonville, and Charlotte and been around and so you know we've been able to to get business and new new business and those marketplaces. So it's been on a pretty well.
Well diverse.
Market so.
The types of loans.
There have been from.
Really MLD medical office buildings to larger.
Larger offices.
Really but you know they've been.
We really are trying to stick to as essential businesses and.
You know and suburban mid rises as occasionally and okay product, but if we can stick to them are you know a long term lease with a.
A group of businesses that had been there for quite a while and and having a central and function and then.
Market and we feel better about it and that's kind of how we we've tried to stick to the underwriting on those.
Okay, Great and then could you provide some thoughts are on the growth outlook for some of your business line portfolios, particularly premium finance.
Yes, I think premium finance, what you'll find is it's been very consistent and I think it'll continue to be a steady <unk>.
For us the the so that asset classes and feel very comfortable with in terms of our ability to continue to generate sustainable revenue there.
And one that are oftentimes won't reflect a lot of growth and so it reflects a lot of productivity is the residential construction lending group and because as you well know our inventories being so low and how quickly things are attorney theres been tremendous income generated out of that division, but the growth won't be there and that's a sign of just overly healthy market.
And the housing market. So we continue to see that as a real plus Nicole mentioned the flexibility we've got with the mortgage portfolio and the held for sale on our ability to utilize that to our advantage.
C&I growth will continue.
As I mentioned, and that's where a lot of our focus is it does take longer but we're encouraged by what we're seeing there and a lot of that is due to some of the new hires that we brought on board and the last 12 months.
And then and we're fortunate to be and all of our markets and you know growth markets for the most part so the CRE that John touched on will still be a very viable product for us as well.
S. P. A is one that.
We want to ramp up I think they're going to be some additional very meaningful programs coming out of SBA and we want to make sure we get our fair share that we've not had the growth there that I'm on.
We've seen but I think you'll see a continued focus on that which ought to be meaningful as well as we go forward in terms of generating some good noninterest income.
I think that pretty much breaks down on all of our asset classes and for you.
Thank you for that and Nicole what was the dollar amount and the seasonal increases for expenses for both the core bank and the business lines and does that come out of the run rate and the second quarter.
Sure. So what we had in the mortgage and we had about $1 $3 million and payroll taxes that hit and the first quarter that will taper off as the year goes by and then and the core bank, we had about 1.82 million a bit and payroll taxes.
Okay, Great and then I just have one last one and I. Appreciate you taking all my questions Palmer just wanted to follow up on the M&A. So the bigger deals that we've seen the buyers and have lagged and I think you know the MLB types with higher execution risk and so I just wanted to ask you and your thoughts changed as you've seen all these deals kind of hit the tape or are you.
Thinking along the same lines kind of that smaller two and a ex three.
$4 billion kind of deal bolt on that would you know, maybe and enhanced and the hands of marriage and a little bit and if you could just provide some thoughts on you know the type of bank that you'd be looking to acquire and the current environment and I appreciate it.
Sure and and I think we've been pretty consistent on this we've kind of set our sweet spot is really between three and 10 billion.
I would tell you having said that regardless of whether it's a 10 billion on Omega three day and hold on.
Not going to do anything that would take on access and execution risk nor anything that wouldn't be accretive to our organization.
We were very strategic and the way, we look at M&A and so as I've said before if it helps us garner additional market share and some meaningful markets or we needed or if it provides and helps further a lot of business that we're interested in growing those are certainly some opportunities for us for.
For banks that are within that space are they're probably on some other non bank opportunities that maybe out there as well. So we're gonna have remained consistent and our approach there in terms of making sure whatever we do is strategic and that it fits into our overall plan and I do think there will be some meaningful opportunities out there, but it's going to have.
And to be the right and one that's going to need to be a cultural fit and its going to need to I'm, just going to need to be able to further our strategic initiatives.
Got it. Thank you very much taking on my questions about it and I appreciate it. Thank.
Thank you Rudy.
And next question comes from David <unk>.
Please go ahead.
Hey, good morning, everybody Hey, good morning, David.
I just wanted to start on loan production and kind of what you're seeing there obviously, it's a bit slower than we had and the fourth quarter still still trending below pre pandemic levels, but it's extremely encouraging to hear about the pipeline, especially on the C&I pipeline I'm, just curious how much and a slower production was a distraction from P. P. P.
And just whether you would expect that to reaccelerate back north of fourth quarter levels or even closer to pre pandemic levels, you know kind of north of $900 million.
Well I think the opportunity for all banks out there right now and you know first quarter is typically seasonally a slower quarter to begin with so we need to be mindful of that and then second you you parlay on top of that there's the whole issue with the pandemic and P. P. P and I would like to say that we were 100% Striked about P. P. P that is not the case we had.
Several people that were.
Obviously, wearing two hats and help them out with P. P. P. And addition to their day jobs and everybody pitched in to get that done and it was a meaningful effort and have come in the industry for stepping up and then and making it all happen.
But that being said well we've been able to do is kind of take advantage of this pandemic time to.
Bring in new talent and also to build up the the commercial opportunity. So we've been out actively calling I think for a lot of people have been focused more and really we were out calling and I think what we're starting to see as those pipelines and that had been built and it doesn't happen overnight. It takes as you will know 60 to 90 days to kind of get things go on.
And we're now and that 60 to 90 day periods and so that's the benefit and the lifts, we're seeing and the pipeline and then you compound that with what we all hope is gonna be and improving economy between now and the end of the year I think you'll see accelerated growth as we get into the second half of 2020, one, we'll probably preempt that a little bit and.
And second quarter, just given our current pipeline and we're probably about a quarter ahead of most but I think for everybody second half of the year it looks pretty opt.
Opportunistic for all of us.
Okay, that's great and and I guess, just where are we at kind of in the migration of the new P. P. P clients that you are.
And just where are we at and bringing those those over and then just how much of your pipeline that you think is that this growth is from either new clients coming over versus you know improved.
Sentiment and improved demand and and existing climb and clients.
You know being ready to invest.
Well like most banks you know we did a lot of outreach as I touched on with this round three but the majority of most banks production and ours included and 80% of it remains with existing customers and 20% was new customers and some of them meaningful customers. They're all meaningful any customer is but I think in terms of moving the <unk>.
Needle.
I have not witnessed the huge lift and I've heard others talk about and I don't know if I've seen it and others either in terms of a huge and migration of new customers. As a result, the P. P. T. We certainly have garner new customers and and value those customers, but it is not then I wouldn't I wouldn't hang our hat on the grow.
And coming from that 20%. So what we're doing is taking care of the P. P. P customers embracing the new ones that came in but more importantly, going out and hunting from new customers and I think that's the opportunity exist for our bank right now with all the disruption and our markets. So I.
And I'd tell you that we remain pretty much focused and and the way we've always been in terms of our outreach of maintaining and retaining existing customers, but more importantly, going out and trying to identify new opportunities.
Okay. That's great and then just just curious on one of the touch on asset quality and just maybe if you could give us some detail on what drove that increase and criticized balances and then just how you think about the reserve going forward. It sounds like there's still a decent amount of qualitative factors. There I guess would you expect from kind of maintain the reserve.
Ratio here are exclusive of the PPP, where do you see opportunity for maybe some additional reserve releases or are you just growing into the reserve.
Alan let me take that and reverse so the.
And the reserve and being built off of the primarily on and forecast models.
You know and as those continue to improve and and businesses get back to work.
We are we certainly are under pressure for release.
And <unk>.
We really don't want to do that and so we are looking at opportunities that are within the <unk>.
See some framework to hold on to the reserves, but the forecast models generally.
You know.
And kind of kind of drive the day on on a lot of that.
Hum.
The first part of them tell me give me the first part of the question.
And just the asset quality and transaction and then what what drove the increase and criticize yeah. Thank you. So the criticized increase and the first quarter was really just two relationships both of which were really single loans and one was an E. L. F. One was a hotel and there, but it's still impacted by.
COVID-19 restrictions.
Slow lease up and.
And so it was it was not anything that was systemic by any stretch it was I'm just kind of.
Extraordinary to those two properties and I will say as we look out and you know.
And most of all of the deferrals, we did on hotels.
And through the middle of this year, which is coming up on us very quickly. So I think we've got and as we approach that and we kind of finalize what these customers are going to be able to do going forward and whether or not they've reached sort of that.
And breakeven or back to profitability.
We'll see some opportunities and I believe for improvement and.
Our watch list just because we had so many hotels that comprised the watch list and and and we're really at that point, where we did on the.
The final deferrals.
On the so.
And we'll be watching that very very closely and on this next quarter.
Okay. Thank you.
Okay.
The next question comes from Christopher Meredith of Fig Partners. Please go ahead.
Hey, Thanks. Good morning, just wanted to follow up on the mortgage gain on sale on this quarter and going forward and some of the expense initiatives and the mortgage business and the efficiencies you're building into that does that help the gain on sale fall less than it otherwise would.
No not necessarily but that that's a great question as you talk as you think through that so the thing is with mortgage from our gain on sale did decline from 434 to $3 95.
About 39 basis point decline and.
And I don't know that that you know I don't anticipate another 39 basis point decline by any means but one thing that I did want to debt Ted that add on to that you touched on there with the expense side and our production was actually very stable and so even though the production was stable and the units per stapled you saw kind of base expenses remain.
And pretty stable and even absorbing the cyclical kind of first quarter payroll taxes, but that's really based on on production and so wouldn't the gain on sale and wind down our revenue went down but our expenses kind of stayed the same so <unk> seen that gain on sale move back up and will certainly help that and.
And our stabilize or move up and help that but then also as production comes down and we've worked really hard and the mortgage group, they're very cognizant cognizant of their variable costs, which are about <unk>.
75 to 80 per cent of total costs, so as that production and the production stop start following down.
Yeah.
And as the production starts going down back from you'll see the the shift and call.
And Chris if you look at last year's production of about 84% of last year's production was variable expense. So the key is Nicola touched on is being able to move very quickly with that and and we've got a pretty disciplined culture across the board and especially and mortgage says we'd see that tapering back expenses will adjust accordingly, because it is.
Is they've always townhouse scalable that business is but the reality of it is and how quickly can you move and it shouldn't you move and it'd be prudent and and not be hasty and what youre doing so.
I think we've got a good handle on that and as we see the production pullback youll see expenses move accordingly.
Sounds good I appreciate the color on that and then just a follow up on on and.
Sort of outreach from your customers that you talked about Palmer to what extent are you seeing the account openings that you want and wealth management and and new commercial business. It sounds like it is moving and the right direction I just wanted to get little more background there.
It is and you know, there's avoid and our market with that type of wealth initiatives and I see that as a big opportunity for for our bank as we go forward and in my opinion and it can't grow fast enough because.
Look at the client base that we have we've grown our price has done a wonderful job of doing that and we're starting to see the benefits of it in terms of the earnings.
And the contribution that you know the contribution and can make and so we've got to double.
Double down on our efforts there and charge a growing those assets under management and right now I think the market and do all the disruption and quite frankly due to a lot of the scarcity of these types of wealth groups within banks. There are a lot of that's out of banks and those may present opportunities for banks as we go forward, but that's certainly.
And area for us that it creates quite an annuity and if you can grow it and grow it and a meaningful way and we've done a good job of cross selling to existing customers and at the same time, bringing and some meaningful business over the last 90 days that I think we will continue to grow that area, but that is certainly an area of focus for us as well.
And for it and I'd like to see more growth out of it.
Great. Thanks again.
Okay. Thank you.
And next question is a follow up from Brody Preston of Stephens. Please go ahead.
Hey, guys, sorry to hop back on and I'm, just getting questions inbounds from some from some from some folks and so I wanted to ask just on the if you back out the MSR write up on mortgage you know each quarter. It was actually lower and this quarter and I wanted to ask is that due to lower hedge income on the locked pipeline.
When you say it is low or do you mean, our revenues yeah.
Yeah.
Yes, no. It's it's actually that gain on sale dropping and there's 39 basis points because our production was was fairly stable.
On production last quarter was $2 8 billion and production. This quarter was almost $2 six five day production was was fairly stable and it was at 39 basis points of gain on sale gain on sale is what kind of drove that.
Net revenue down.
Okay, and then the last one and I was just the P. P and are the of the banking Division. When you look at the segment and since you break out since since July and deal sort of went through I think he hasn't been bouncing around and the mid Forty's and 60 and now we're back down to 47 million herself and our core P. P and are on the banking division and so I wanted to.
Asked is what are you going to be some of the levers that you Paul to move that P. P and our for the banking division and higher just because it's going to become more important as mortgage kind of normalizes on the back half of the year and into 'twenty two.
Absolutely. So that's really where you see some of your initiatives on that we've talked about with the occupancy expense as far as leases and we've got some of it there and we've also got some efficiency.
And then going with really evaluating them everything that we do and how we do things you know asking you do that and a big acquisition like a fidelity and you kind of have your cost saves built out and you get your conversion and you go through those and then you really start looking at everything one other aspect and that banking division and our treasury.
We've done a really good job, we've got some efficiencies going on and treasury as well as some initiatives there to increase and treasury income. So that that has helped as well and then we've got a huge and technology benefit.
When we look at our technology costs.
About 25 per cent of that its really for future and what we think about it it has a future benefit as far as integration automation or delivery platform and then another 20% roughly of our I T. When I say I T. I include kind of our I T and our PMO project management office about another 20 per cent of that.
Is it related to efficiency and and <unk>.
<unk> and said this is really the kind of all of that coming to fruition and gaining that synergy that we have through those areas.
Got it. Thank you very much I really appreciate it.
Sure.
This concludes our question and answer session I would now.
Like to turn the conference back over to Palmer Proctor for any closing remarks.
Great. Thank you Andrea and once again I want to thank everybody for listening in on our first quarter of 2021 earnings results I did want to close just by its size and how energized we are over here and mirrors about our future. We were clearly and some of the best markets and South East and more importantly, we have the right bankers and markets take advantage and capture some.
Additional market share, where we are and so we've positioned ourselves well for the future.
Remain focused on producing top quartile results and strong asset quality and and continuing to focus on efficiencies and garnering a lot of those through our technology initiatives and we're really looking forward to the rest of 2021 and beyond and I want to thank you again for listening in today. Thank you.
The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.
Okay.
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