Q1 2021 SB Financial Group Inc Earnings Call
Good day and welcome to the SB Financial Group first quarter 2021 conference call. All participants will be in a listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
After today's presentation there'll be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad to withdraw your question. Please press Star then two per.
Please note. This event is being recorded I would now like to turn the conference over to Sarah Amicus. Please go ahead.
Good morning, everyone I would like to remind you that this conference call is being broadcast broadcast live over the Internet and will be archived and available on our website and I are that your state bank Dot com.
Joining me today are Mark Klein, Chairman, President and CEO, Tony Cosentino, Chief Financial Officer and.
And I still Gayton, Chief Technology innovation, and operations 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.
And 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, except 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 will now turn the call over to Mr. Klein.
Thank you Sarah and good morning, everyone and welcome to our first quarter 2021 conference call and webcast. Let me start by pausing for a moment and are recognizing all of our 250 staff members, who contributed to delivering the largest quarterly earnings and our history.
While the growth was bolstered by the servicing rights recapture the adjusted net income.
And what we're still extremely strong reflecting higher mortgage gains accelerated P. P P forgiveness and controlled expenses.
Highlights for this quarter and what's your.
The $2 $7 million pretax mortgage servicing right recapture include net income of $7 1 million up $6 4 million or a large and 940% increase over the prior year quarter and when we adjust for the non-GAAP impact and both 'twenty, one and 'twenty and net income was $4 9 million was still up 2.5.
Milan.
404 per cent.
Adjusted return on assets was 1.54% up from the adjusted prior year quarter of just point and 92 per cent.
Pretax pre provision return on assets for the quarter was $3 one per cent.
Net interest income of $9 six and mill ends up 12, 6% from the prior year as the slight increase and interest income was supplemented by a large 48% reduction and interest expense.
Oh and balances from the linked quarter declined 25 million due to loan pay offs and accelerated PPP forgiveness.
You can go and $17 million from the prior year.
Well I was just continued their rise of 71 million from the linked quarter and up $256 million from the prior year.
Expenses were up $1 5 million or 16% and Dubai higher mortgage commissions, and our targeted investments and technology revenue growth of 92%.
The positive operating leverage of five seven times.
Mortgage origination volume increased to $156 million up over 54 million and were 54 per cent year over year.
Asset quality metrics improved from both the prior year and linked quarter and our level of 49 basis points of nonperforming assets remains strong.
We set aside and fits our 750000 and provision during the quarter all of which was related to potential long term impacts and unknowns and the pandemic.
Client loan deferrals were down substantially from the linked quarter with the dollar amounts of loans in forbearance status declining and excess up $18 million.
And now stand at just $4 9 million and <unk>.
We realized our first de Novo office expansion since 2015 into the edits and Ohio market.
And our recent annual meeting and all of our quarters before we've reiterated our future success lies and our ability to drive our five key strategic initiatives.
Revenue growth and diversity more scale through.
And she growth and organic growth more products and services and each household.
Better operational efficiency and enterprise C with our client communications and.
Asset quality.
First revenue diversity and this quarter mortgage volume and loan sale gains were up from the prior year of 54% on volume and 201% on game.
But down 8% on volume and 19% on gains to the linked quarter.
The lower gains are a result, and part of our origination volume of private client and mortgages were beginning to book and our portfolio that I'll discuss and just a moment.
Non interest income increased to $10 9 million from the prior year quarter of just $2 2 million.
The current quarter includes a mortgage servicing right recapture of 2.7 million compared to an impairment of $2.2 million and first quarter of 2020.
Non interest income to total revenue achieved a record level.
Oh, 53%.
Peak title continue to ride the mortgage volume momentum with another strong quarter.
Revenue was up 97% from the prior year and level to the linked quarter.
We started to see results from our efforts to expand <unk> presence into more of the commercial lending transaction arena.
Commercial title policy revenue was nearly 29000 and the quarter, which is all new business to our company.
For the last 12 months and we have delivered nearly $750 million and total mortgage origination volume, while we had solid contributions from all four of our mortgage reason during the quarter Columbus led the charge with over 60%.
Our newest region and Indianapolis.
And to gain traction with their volume of $8 1 million for the quarter.
21% from the prior year.
Our wealth management team expanded their calling efforts to clients and coupled with positive momentum and the market. We achieved another record high and total assets under management and a $577 million.
The 35% improvement from the prior year was elevated due to the pandemic impact, but the 750000 of revenue from the business line and the quarter up 11% and well certainly meaningful to our results.
We now have an expanded footprint to pursue with the Eaton acquisition, which we are supplementing and the Williams County market with another office expansion and address to Ohio.
Like Eden Edison is now significantly under bank and has significant deposit base agricultural lending that we know well and wealth management opportunities.
Second key initiative more scale.
Growth was challenging and the quarter as PPP activities consumed our calling officers, while client liquidity and led to some early payoffs are 17 million and growth from the prior year is elevated due to our PPP loans and the loans, we acquired from the Eden acquisition.
As we have adjusted growth for these items year over year, our loan balances would fall and a core basis by $52 million.
While our pipelines remain solid and most of our markets. We do expect loan demand and growth would be a bit constrained and the near term.
Due to our solid underwriting requirements.
Our deposit base expanded to 112 billion up $256 million or 30% as I mentioned year over year.
Our clients have value stability and safety over earning basis points.
As their liquidity continued to build.
And in fact over 60% of our deposit growth over the past 12 months has been and checking account balances.
Longer term these deposits well potentially decline, but and the interim.
And they certainly constraint our interest costs and help us to maintain our margins.
Loan production has been good but government stimulus funds.
Diversion low cap rates on investments and client liquidity have tempered our traditional high single digit.
Growth history.
Third is our strategy to develop deeper relationships.
We ended the quarter with $54 million and PPP loans outstanding with $32 million remaining from the $84 million, we originated and the first phase and $22 million from the recently initiated phase II.
Roughly 60% of our first round bars have also applied for assistance with us and the second round.
The second phase has consisted of lower dollar loans on an average loan size of approximately 83000.
Is less than 70 per cent of the average size of alone and 121000 from phase one.
In addition to the smaller average loan size and the second phase our customer mix has also been a bit different.
We have taken a significantly more applications from the agricultural sector and the smaller scheduled <unk> filers have been more active under the second phase as well.
Operational excellence and same for.
Mortgage refinance activity rebounded a bit and the quarter as yep chicken and rates prompted a number of customers to move from standby status to active applications.
For the quarter, 35% of our volume came from internal refinances and another 27% from external competitors refinancing transaction.
Our pipelines have remained strong and we think that the uptick and rates recently will not be a significant headwind and meeting our volume expectations.
That said, we are concerned that the lack of housing inventory could negatively impact our volume.
However to ensure we optimize our business line and operational capacity, we developed a new portfolio of products this quarter for a private client borrowers.
This portfolio of product requires higher credit quality and delivers a slightly higher LTV and fixes the rate for 15 years.
As a result, we have book were approved to claw it was nearly $13 million and portfolio balances so far this year and.
Interestingly to date average loan sizes and 704000.
Average credit Bureau is 769 and average LTV is 86, 5%.
More services and these covenant households will be the theme here.
Expense levels for the quarter were up from the prior year.
And I've been discussing for a number of quarters some of our focused investments and technology were realized in the quarter.
We acknowledge that our infrastructure and client origination systems needed to be upgraded and order to prepare us for the future of customized client communications and in fact.
Some of our competitors have viewed the digital space as a substitute for.
And for client interactions, whereas we are viewing it as a complement to our business line in order to deliver greater value to each of our clients.
As a result, our revenue growth over the past 18 to 24 months has allowed us to cover these and investments very effectively and fat.
The operating leverage as I mentioned for the quarter was five seven times and even when adjusting for the servicing rights impact it's still a very strong two four times.
Fifth and final asset quality.
Yeah.
At quarter, and we had loans in forbearance were the total dollar amount of $4 9 million and which is down by over $18 million from the linked quarter or 79% and.
In addition, we had $5 7 million and sold mortgage loans.
And I have availed themselves of the cares Act deferral program.
We are very encouraged by the resiliency of our client base and the improvement and operating metrics that had previously been under pressure from the pandemic.
We are over a year now and of the pandemic and we have maintained remarkably stable asset quality. Despite.
Despite that and due to the continued market uncertainties, we boosted reserve significantly over the past year, adding $4 4 million or an increase of 49%.
And our 157% reserve level or 1.68, and when you exclude pp balances is and the range that we certainly expect to maintain for the remainder of this year.
Now I'd like to turn it over to our CFO, Tony Constantino for some more details on our performance and Tony.
Thanks, Mark and good morning, everyone again for the quarter, we had GAAP net income of $7 1 million or.
Or <unk> 97 per diluted share similar highlights for the quarter include.
Total operating revenue up 91, 9% from the prior year and up 38, 1% when we adjusted for the illness, our impact in both years.
From the linked quarter adjusted operating revenue was down slightly due to lower gains on mortgage sales.
Loan sales delivered gains of $5 9 million from mortgage small business and agricultural loans up $3 8 million from the prior year.
Margin revenue was up due to the $1 million decline and funding costs.
And fee acceleration from PPP and forgiveness offset the remainder of the decline in interest income.
Now breaking down further the first quarter income statement, beginning with our margin.
Net interest income was up 12, 6% from the prior year and up 400000 to the linked quarter.
Our average loan yield for the quarter of $4, 62% decreased by 12 basis points from the prior year book was up 20 basis points from the linked quarter.
Overall, earning asset yields were down 76 basis points to the prior year due to the change and the mix of the balance sheet.
But we're up 10 basis points from the linked quarter.
Loan yields were impacted by the fees from the PPP portfolio, which were $1 2 million compared to 850000 from the linked quarter.
We still have 600000 and unamortized fees of the original $3 2 million from the first phase and.
Booked $1 2 million and future fees for the second phase.
We expect that the large majority of these fees will be realized within this fiscal year.
On the funding side, we again reduced the cost of our interest bearing liabilities from the prior year for the quarter the rate on our interest bearing liabilities was 50 basis points, which is down from the prior year by 62 basis points.
And down from the linked quarter by 14 basis points.
Net interest margin at three 1% was down 27 basis points from the prior year, but remained flat to the linked quarter.
Due to the negative impact of excess cash and restraints on our ability to increase loan growth.
Total interest expense costs were down by 49% from the prior year and down 19% from the linked quarter.
Total noninterest income was up $8 8 million or five 405% from the prior year, reflecting higher mortgage origination volume and the $4 9 million dollar swing and servicing rights.
Adjusting for the servicing rights recaptured this quarter, a $2 7 million and the servicing rights impairment of $2 2 million and the prior year.
Noninterest income would have been up $3 8 million or <unk>, 88%.
Our net noninterest expense to average assets or fee income less operating expense was at its lowest level ever with fees fully covering operating expense in the quarter.
Total gains on sale as I said came in at $5 9 million.
Which was four 3% on our sold volume of $137 million and mortgage.
We have expected that loan sale yields with tightened with increased competition for deals and higher coupon pricing.
Clearly the yields we experienced in 'twenty, and 'twenty, which averaged $4 two 4% will not be repeated in 2021.
And we believe that yields and this quarter will be the high watermark for the year.
Our servicing portfolio is now above $1 3 billion and provided revenue for the quarter of 859000.
The market value of our mortgage servicing rights improved significantly this quarter with a calculated fair value of the 86 basis points.
And this fair value was up 12 basis points and the prior year and up 20 basis points from the linked quarter.
We know the servicing rights balance and the balance sheet of $10 5 million and remaining temporary impairment of $2 2 million.
We are hopeful that a continued rise and the rate curve and a slowdown in prepayment speeds will allow us to recapture this remaining balance yet this year.
Total operating expenses this quarter were up 200000, or two 1% compared to the linked quarter.
Our expenses have been constrained due in part to the competitive landscape and demand for talent and and as a result has led to unfilled positions.
Expense levels are also closely tied to mortgage volume.
And we have increased the variability of mortgage compensation in 2021.
Back office compensation now more closely tied to the number of closed loans.
Outside of mortgage expenses had been largely controlled absent the technology investments that mark outlined earlier.
Now as we turn to the balance sheet loan Outstandings at March 31 stood at $848 2 million, which was 64% of the total assets of the company.
As we have discussed deposit levels are well beyond expectations and it certainly impacted total asset growth.
We continue to try to optimize our balance sheet as appropriate and are hopeful that economic conditions will drive higher loan growth in the coming quarters.
As we look at our loan production metrics for the quarter, we actually had a strong quarter of non mortgage production.
Which was up nearly $10 million exclusive of PPP or 17% from production and the first quarter of 2020.
That production, however is coming on at a lower coupon with average new loan rates down and 75 to 100 basis points from the level and the prior year.
And we look at our capital position, we finished the quarter at 144 million, which is up $8 1 million or five 9% from the prior year.
With our equity to asset ratio standing at 10, 9% or 11, 3% when we exclude the P. P P balances.
On a per share basis tangible book value was up $1 42 per share from the first quarter of 2020, 193%.
The buyback continued at a brisk pace and the quarter with 142000 shares repurchased at an average price slightly above tangible book value.
With our market price at a 109% of.
Tangible book value, our shares are well undervalued and our opinion and repurchasing aggressively at these prices is an effective strategy.
Total non performing assets of $6 4 million or 49 basis points are down 200000 and from the prior year and down 800000 from the linked quarter.
Included in our numbers are 800000 and accruing restructured credits.
These restructured loans elevate our nonperforming level by six basis points and absent. These restructured credits total nonperforming asset ratio would reduce to 43 basis points.
As Mark previously mentioned, our COVID-19 related loan deferrals are down significantly from the linked quarter.
Provision expense for the quarter was 750000 up from the prior year, but down 50000 and from the linked quarter.
Total delinquency levels fell to just 58 basis points and the quarter down from both the prior year and linked quarter with net recoveries and the quarter of 2000.
Our classified loans remain elevated on a historical basis at one one per cent of loans, however that balances down over 7% linked quarter.
I'll now turn the call back over to Mark.
Thank you Tony Good report I appreciate it.
We are proud to have delivered another great quarter as we continued to build on the momentum we carried from our record earnings performance and 2020.
We understand the challenges that lie ahead as PPP forgiveness goes away and mortgage volume potentially slows, but rest assured we remain committed to delivering on our expectations of high performance.
And I want to conclude with acknowledging the dividend announcement, we made last week of <unk> 11 per share, which equates to a 15% payout ratio and a dividend yield north of two 4% we continue.
And to identify opportunities to not only enhance shareholder value and one that includes dividends, but also a conscious and deliberate return of capital to our shareholders now I'll turn the call back to Sara for questions Sir.
Okay.
Okay.
We will now begin the question and answer session.
And to ask a question you May Press Star then one on your telephone keypad. If you are using a speakerphone. Please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then two at this time, we will pause momentarily to assemble our roster.
Our first question is from Brian Martin with Janney Montgomery. Please go ahead.
Hey, good morning, guys.
Hi, Brian and Brian.
Thanks for the update.
And maybe a couple of things you could touch on Mark maybe just on the mortgage and kind of the outlook and maybe Tony James and <unk>.
It sounded like the.
The uptick in rates within a real headwind, but the inventory it could be one just how youre thinking about.
Production for the remainder of the year, but just kind of and update on that and.
And this what do you think Tony I guess, how we think about where the.
Gain on sale margin settle and I heard your commentary about maybe the peak where we're at here for the year, but just as things begin to normalize kind of how we should think about that.
Yes, Thanks, Brian as you well know we've been and this mortgage.
I'll run for what going on 12, 13, 14 plus years.
And we certainly are looking forward to very similar volume that we had and in 2020 again absent maybe a bit of a drawback from reduced inventory, but that said, we do continue to have very robust pipelines and the construction arena, which has been good and it continues to fill our pipeline.
And as I mentioned, Brian and we also just created a <unk> product that.
We think theres going to shore up some of our.
Traditional commercial balance sheet growth that is more prevalent and a and a more rising yield curve environment versus a flat yield curve that we have now which speaks to mortgage volume so.
We're gaining some great traction and one that competes very effectively with the P&C and the fifth third's and the Huntington's the world and.
It was highly coveted PSEG households, so.
We're looking for similar volume.
And I believe are our actual gain on sale and it might be tested a bit because some of that volume was going to be put on our own books that.
<unk> will give us some good margin revenue overtime and breakeven pretty quickly.
Tony comment yeah, Thanks, Mark Yeah, Brian and I think specifically as we look at yield as you know we've seen them kind of consistently come down every.
Every month through the first four months of the year on that what we're selling.
Not big swings, but a little bit each months, they've come down as pricing has become a little bit more competitive.
We've got certainly got more players in the market and so as I said I think Q1 is going to be the high watermark on on gain on sale yields I think we'll see a little bit more in construction and the private client.
And that will potentially not only delay gains, but but put some on the balance sheet versus.
Selling to the secondary market.
And I think as we look out the pipeline.
As we sit here today, and we did $156 million and Q1 I would think we're in the range of.
170 to $1 80, and Q2, and we'll see how that goes in Q3, but I would suspect it's a similar type based upon pipelines that we see today, but again, it's all contingent upon inventory availability.
Got you Okay. That's helpful and maybe just.
Yes.
Jump over to the loan outlook and I guess that sounds.
And maybe a little bit more capex and the short run just given all the stimulus money and some of the other factors you outlined but just maybe this.
Putting a little bit more mortgage on the books and me I guess, how do we think about.
And the loan outlook ex PPP.
As you kind of look over the next couple of quarters.
Yeah, Brian This is mark John will give us certainly the details here, but safe to say.
We've stuck to our knitting, if you will on our general loan parameters. So.
The variable has been and what has met our standards.
And they've been pretty good apps and again the liquidity that the borrowers have found as a result of the stimulus and PPP and.
And competing with the government and there is no no small task.
And given their liquidity and as I mentioned cap rates are very very low which is and tie some of the borrowers true make other arrangements on some of their investments.
That said I think John we see a fair amount of interest and a fair amount of volume across our entire footprint. We do I would echo Mark's comments I think it's an interesting.
[noise] situation, we find ourselves and as Mark said the.
And precedent and liquidity and the government money that's available to borrowers has certainly driven down our line of credit balances and some financing need by companies that are flush with cash that said and we're still in a situation of unprecedented unprecedented rather low interest rates and production levels have held in nicely. So.
While we haven't necessarily seen the growth that we would like given some of the liquidity and line pay downs and things like that.
Production levels remain relatively strong and I think we'll be optimistic and the second and third quarter that we'll see some of that evidenced itself again with the headwinds of the additional liquidity is and as that continues to dry up I think that's where we will see additional loan volume.
Okay and are you seeing much and the way I guess is it the pay.
Hey, Downs and it sounds like they picked up a bit this quarter relative to last quarter, but maybe maybe day, just I know they've been high but just your outlook I guess is there any crystal ball on how those payoffs are what you see and maybe the next quarter.
And I don't know that we'd necessarily saw an acceleration of those just additional liquidity and the second round, certainly helped that and and we'll see how that shakes out here as people, presumably use that money. That's the principle of the P. P. P.
But no I don't know that I'd say, it's accelerated and we just see a continuance of that trend and until that money is exhausted I don't see for example, farmers and the AG community and some of those individuals' drawing at the level. They had in past years until that money is exhausted itself and.
Ryan just to comment I think we've seen some ownership changes potentially and companies that have.
Obviously, some aging management teams and have decided to do something else again, albeit with historically low cap rate. So we're fighting that battle as well.
But when we lose one there we pick up one somewhere else and the spirit of financing.
And equity changeover from new clients as we pick up some of the PPP exposure that we.
We have discovered and the last year or so.
Okay and can.
And I guess as far as just kind of the outlook I mean as far as do you expect to see some net positive growth and I guess just the other part of it was the mortgage kind of what youre doing there and the product change mark as far as what that.
And that contributes I guess is that a small contributor or is it I guess I couldnt.
Understand just from your commentary how much of an impact that could have if at all.
Well, we think Brian it could be a sizable impact. This year, we were looking for that 75 million plus or minus and growth, maybe a $100 million and.
Given the again the flatness.
And if the yield curve, we knew what we needed to do something to potentially bolster our balance sheet and get some of that margin growth and that's when we came up with these.
These lower risk higher covenant households, and the PSEG arena and we're looking for.
And again, I would say $40 million to $50 million kind of a thing and we have to be a bit careful because I've challenged Tony to make sure we manage the margin appropriately. So we don't.
Get to much of our liability sensitive balance sheet that we need to keep those and check and balance and that's the goal and delivering half of that anticipated.
I'll share growth I think is a fair a fair number.
Got you Okay. That's helpful.
Maybe just wondering a couple of one or two other things just on the margin.
And I guess can you just maybe Adam as Tony just give us a little thought on that I guess kind of looking outside of PPP and just whats.
What's the strategy and the.
Excess liquidity here I guess, if loan growth is and super robust I guess.
Contrary I guess, if you are seeing this new product pickup and needed, but how should we think about deploying that liquidity and then just be the margin impact here in the next couple of quarters.
Yeah, I think you know Brian and then obviously you know net of PPP for the quarter are our margins below 3%, which we had certainly have not seen that kind of level and you know.
Really ever and.
It's a constraint or you know our level of loans and total assets is 64% of our balance sheet. We've traditionally been high <unk> to low 80, so well we understand the challenge of getting that liquidity redeployed and in the loan side.
We're looking at a number of opportunities. We think we will get back in the bond market a little bit more strenuously.
You know, we've already increased that probably $50 million from where we were.
Fourth quarter so.
So we think there's some opportunities there, but again youre not going to make a big change and that margin on the asset side. It really is about.
Getting loan volume up and accelerating and that's what we're focused on.
Okay, and how about just yet.
Tony the cost of deposits kind of where that trends and it sounds like Theres still you had some good.
Improvement this quarter I guess is there still runway on that side.
Yeah, I think that's a great question I mean, we have the the level of cost of deposits on a year over year basis.
I don't think you can see that acceleration.
And the linked quarter going forward, but we are going to continue to reduced funding cost at least for the remainder of this year based upon where we are the clients are.
Very very happy well, not I, Wouldnt say happy, but theyre comfortable when their cd's rollover to putting that money and the money market and in a checking account and waiting to see when things happen and it's all about when that turns is when the real challenge will come so I do anticipate further reduction and liability costs, but not certainly at the pace that we've seen.
And the last call it two to three quarters.
Okay.
And as far as getting and I guess the.
Getting this liquidity and stuff deployed I guess I guess your expectation.
A decent amount and done in and.
This coming quarter or is it I guess is it can be pretty methodical. How you. How you put that to work force looking at kind of the loan demand thats out there.
Well, Brian this is mark.
And we obviously need and want that organic growth that we certainly seek.
But we're also not going to rule out potential M&A, which could give us more of that scale that we're looking for but.
No generally speaking.
We still have high expectations, but we're not going to lower the standards, it's going to take more work. The variable here is more work.
Lower standard.
Gotcha, Okay and to your point Mark.
The M&A outlook today, I guess it has picked up for the industry.
Have you noticed kind of a pickup and dialogue or I guess is there.
And anything more.
More interesting happening on that front with conversations.
Well, we still continue to pursue not only balance sheet accretion kind of opportunities, but also geographical footprint.
We continue to have great conversations with a number of individuals' and.
And my job is to make sure that on behalf of our board and our stockholders that we're out there having those right conversations and.
And we think that.
And this compressed environment absent our 50%.
Fee based machine and we have going we think those are potential as well.
Right sooner than later, no guarantees, but we're having and the rate conversation with the right people and the right place.
Okay, Perfect and then I guess assumption is that the buyback I guess expectations and you'll continue on that front.
Yes.
We have some left on our existing allocation and we've obviously talked extensively at the board level about our next steps and you know I think I think that's the appropriate use of our internally generated capital as we sit here today.
Okay, and and Tony you mentioned I didn't get all of it and.
<unk> side, what remains and then just how you're thinking about most it sounds as though most of that day.
What was coming back this year and just.
Big picture, how do we think about the forgiveness and and the timing of that.
Maybe one more.
Sure. So as we look at phase one.
And we originally booked $3 2 million of fees at the onset we've taken about $2 6 million of those million four and 2020 and $1 two and the first quarter here in 2021.
So 600000 remaining there and I would suspect the bulk of that will happen in Q2, we have a few a few large clients that may not get done but for the bulk of that will get done.
Phase II as we looked at it through the end of March we had about $1 2 million.
Our fees that we booked and based upon our projections, we think that number will get to one eight to 2 million potentially and I would suspect.
Most if not all of that forgiveness will happen in 2021, and probably Q3 and Q4 based upon what we're seeing from our clients.
Okay and as it is.
Is that a function of just being smaller and he talked about the smaller side it sounds like that yes.
And the larger credits are taking longer but just.
Is that what you and attributed to or is it just the customer the customer base and you guys have.
I think that's it's an interesting dynamic we.
We have some significantly large clients, we didn't do a whole lot of them and phase one that have yet to get forgiven.
Forgiveness, they've indicated they're going to it's just a matter of getting that paperwork in and getting that done I just attribute it to being a larger company and having more things to do but I think that'll get taken care of here and the short term.
But and the second phase absolutely its predominantly small schedule C filers and pretty much a one page just check the box and you get forgiven. So I think that'll just get done very quickly.
And quickly gotcha, Okay and.
How about just on the expenses I guess that kind of a good story there I guess, how should we think about.
Expenses.
And your outlook on and mortgage I know, they're tied closely it sounds like you've made some changes to.
The compensation of leased and the back office side.
Does that have a notable impact or is it just.
And is this kind of a base level. We're at today kind of a good way to think about it, especially if maybe production or volume and the second two quarters of the year, maybe is something similar a little bit more.
Brian This is mark.
And certainly.
Enjoy the mortgage business line, and we will take that trade every day of the volume and the lesson and 50% efficiency ratio that brings to the table, but as Tony mentioned earlier I think in his remarks.
The competitive landscape is.
Is tough and we have a number of open positions that we're working to fill but.
Positive part about that is that is certainly constrained some of our expenses, but we would expect those too.
Increased marginally as we fill up the ship so to speak and find the talent that we're looking for albeit environment that seems to be a bit elusive to us.
Yeah, I think that's a good point, Brian and I think.
Q1 was a little bit of a hub of some headwinds in our favor because of some of the open spots. We think we're going to fill a number of those.
But it is a much more competitive landscape and it's you know the expectations as higher compensation and higher compensation packages that will constrain expenses, but I think on a general basis.
Our revenue growth continues to outpace what we anticipate on expense growth for the remainder of 2021, and Brian a final comment and because of that.
And we continue to seek ways and Istar.
Establish goals and initiatives to make sure that we're.
And we're driving the client's willingness to pay a little higher all the time, because thats where that marginal revenue is going to come from so we look to continue to expand the margins, albeit with a.
Our staff that has done a great job on a number of business fronts and our expectations remain high on all fronts.
Got you and just on the back and liquidity for just one thing and the deposits.
And this flow are you still.
Seeing that.
And let's say that surge, but just have you started to see some leveling off on the deposit side.
You know we saw it in the in the second quarter of 2020, we had a very large increase when the first phase of P. P. P came to effect during the summer it it kind of moderated and what we've seen really since I'll call. It November to today has been the retail customer has.
Really really taken all of their stimulus money and just put it in the bank and that's what all the money is and it has shown no sign of slowing down and.
Brian and the other wildcard is we did have some pretty pretty strong success and.
Our calling of new prospects non PPP loans that we've begun to develop into a larger relationship and people sense that ability of a community bank to get the job done and to fund and to fuel their liquidity needs and we're finding traction and that and I.
We lay off some of that liquidity to stimulus, but certainly some of it has also been by the acquisition of potential new clients through the PPP program and it's almost an unintended consequence of the PPP program.
Got you, Okay, that's pretty much and just maybe a last one guys just on credit quality looks really really strong and built the reserve a little bit more.
Maybe just how to think about.
The reserve, it's obviously at a very high level, especially given that the quality of the portfolio and how it's holding up so just how do we think about that and and was there any change that might guess my assumptions maybe improvement on the.
Criticized and classified levels this quarter.
So just a reserved and those and that's it from.
From me.
Yeah, Brian just one comment, though like I say be careful what you ask for you may get and I've asked Tony forever to build that reserve when you're making money.
And this pandemic has allowed us to put an asterisk John and that the allowance for loan and lease losses and enabled us to look forward now and make pretty sizable contributions to our reserve for future profitability and stability.
And I think that will benefit us and the coming quarters, John additional comment no I think thats a fair statement.
Again as Tony alluded to in his remarks, I think we've built the reserve for the unknown, we're going to be looking at that here is the sky is clear and crystallize over the next.
A couple of quarters, our criticized and classified quarter over quarter were slightly up.
Not not a huge increase but as we saw a couple of credits and we got some yearend financials due.
And do the pandemic, we're keeping a close eye, but I feel pretty strongly that many of them are and.
Our good stead, and we're gonna be looking at them here later in the year potentially.
They continue to improve and some run rates for some of those companies have been nice here through the first quarter. So we're looking closely at those but yes, it's all about the unknown and with any luck is the again the sky is clear, we'll take some of that back.
Got you Okay perfect. That's all I had guys. Thank you for taking the questions.
Thanks, Brian Thanks, Brian and have a good day.
Again, if you have a question. Please press Star then one please standby as we poll for questions.
Showing no further questions. This concludes our question and answer session I would like to turn the conference back over to Mark Klein for any closing remarks.
Yes, once again, thanks for joining us. This morning, we look forward to reporting on our second quarter 2021, our results here in July and look.
And look forward to chatting with you then thanks again for joining us and Goodbye take care.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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