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spk00: Good morning and welcome to United Community Bank's first quarter 2021 earnings call. Hosting the call today are Chairman and Chief Executive Officer Lynn Harten, Chief Financial Officer Jefferson Harrelson, President and Chief Banking Officer Rich Bradshaw, and Chief Risk Officer Rob Edwards. United's presentation today includes references to operating earnings. pre-tax, pre-credit earnings, and other non-GAAP financial information. For these non-GAAP financial measures, United has provided a reconciliation to the corresponding GAAP financial measure in the financial highlights section of the earnings release, as well as at the end of the investor presentation. Both are included on the website at ucbi.com. Copies of the first quarter's earnings release and investor presentation were filed last night on Form 8K with the SEC, and a replay of this call will be available in the Investor Relations section of the company's website at ucbi.com. Please be aware that during this call, forward-looking statements may be made by representatives of United. Any forward-looking statements should be considered in light of risks and uncertainties described on pages 5 and 6 of the company's 2020 Form 10-K, as well as other information provided by the company in its filings with the SEC and included on its website. At this time, I'll turn the call over to Len Hartin. Good morning, and thank you all for joining our call today.
spk10: Our first quarter results reflect the strength of both our markets and our teams. Economic conditions and forecasts also continue to improve. and our results include a $12 million release from our provision for credit losses. We also realized an additional $10 million in PPP fee income, as we have now had over 10,000 of our first-round PPP loans forgiven. Including these items, our EPS reached 82 cents per share, our return on assets was 1.62%, and our return on tangible common equity was 19.7%. Our PPP loan production and performance continues to be very strong, with funding of over $500 million in the most recent round. Outside of PPP, loan growth for the quarter was 3% annualized, lower than the previous two quarters, but we continue to be encouraged by our pipelines and activity. Deposits continue to grow rapidly due both to our service culture and ongoing stimulus funding. Our core transaction deposits increased in the quarter by $950 million or 33% on an annualized basis and our cost of deposits dropped three basis points and now stand at only 14 basis points. Mortgage continues to outperform with records set for both closings and locks in the quarter. Credit remains a source of strength. This quarter we had net recoveries of one basis point and non-performing assets declined from 55 basis points to 48 basis points of total loans. Overall, I continue to be proud of how our teams have adjusted to the environment and how they deliver both great service to our customers and great results for our owners. For more details on the quarter, I'm going to turn it over to the team here, and I'll start with Rob.
spk06: Thank you, Lynn. I will start my comments on page 7. We are pleased with our loan growth in the quarter. Overall loans increased by $308 million in the quarter, with $518 million of new round three PPP loans that were netted down by significant forgiveness of first and second round PPP loans. Excluding PPP activity, we had $71 million in loan growth, which translates into 3% annualized growth in the quarter. The primary drivers of loan growth for the quarter were mortgage loans and real estate categories. Some of the growth for the quarter was muted by a strategic direction on shared national credits. In the bullets on page seven, we highlight the granularity of our loan book, in which our top 25 relationships only comprise 5% of total loans, and we believe this is a demonstration of how we manage various levels of concentration. On page 8, we also feel encouraged about our credit quality, and in general, we are seeing stress decreasing in key areas. Our net charge-offs were essentially flat, with one basis point of net recoveries, as we had the benefit of strong recoveries again this quarter. The VDIS net charge-offs were also relatively low in the first quarter at just 70 basis points. which is the best number that unit has reported since the third quarter of 2019. We had a negative loan loss provision of $12.3 million for the quarter. The release came primarily due to our more optimistic economic forecast, which was consistent with the trend in recoveries and declining non-performing balances. You may recall that we had about $80 million in loan loss provisions for the year of 2020. which was about $60 million above net charge-offs. So our first quarter releases were about 20% of our 2020 reserve build. On page nine, there's additional detail on credit. In the upper left corner of the slide, our loan deferrals continue to improve and now stand at $48 million. In the lower left, we highlight our special mention loans and our accruing substandard loans. Special mention loans are grade seven for us, and substandard is grade eight. We did direct $90 million in downgrades, primarily from our senior care portfolio, which drove the increase you see in special mention. We are actually seeing some improvement in the occupancy and leasing characteristics of the senior care portfolio. But we do put loans into special mention if they are not cash flowing or not leasing up according to plan, regardless of their collateral value, the equity contribution, or the guarantor support that may exist in the project. I will remind you that both our hotel and senior care books have significant equity, and we do provide greater detail on both portfolios in the appendix. Our NPA is improved by $5.8 million and stand at 48 basis points of total loans as borrowers successfully liquidated real estate on two of our larger non-accruing relationships. All said, we are encouraged as to the direction of our portfolio and where our reserve is and the economic trends developing in our markets. Page 10 shows the details as to the change in reserve. As I mentioned, we released $12.3 million into the reserve in the first quarter, mainly due to the change in our forward forecast. Excluding PPP loans, our reserve percentage is 1.26%, which we believe is conservative given the credit environment as we see it. With that, I'll pass it to Jefferson.
spk01: Thank you, Rob. I am going to start my comments on page 11 and talk about capital. Our capital ratios were relatively flat in the quarter and remained significantly over peer levels. We were able to redeem $15.7 million in expensive sub-debt and troughs in Q1, and we are currently planning on paying down $50 million of senior debt in Q2 and another $15 million of bank-level sub-debt in the third quarter. We are optimistic we can put some capital to work via M&A, and if that does not happen, you should expect us to consider using our $50 million share repurchase authorization sometime this year. Moving to page 12, you can see our net interest income and net interest margin. Spread income was driven by 9.5% annualized average earning asset growth and seven basis points of contraction on the core net interest margin. We had expected the lion's share of our remaining first and second round PPP loans to be forgiven in Q1, and that that would generate $13 million in PPP fees. That said, we ended up with $9.8 million of net PPP fees in the first quarter, with the other $3 million of fees from round one and two moving to Q2 most likely. We also had $1.8 million in less loan accretion in Q1, which hurt the margin by five basis points. The larger balance sheet, and a mixed change towards securities on the larger balance sheet drove the majority of the core margin pressure. Adjusting for the day count, with two fewer days, we were able to grow core spread income versus Q4. Page 13 shows the details of the strong deposit growth I mentioned in the quarter. Specifically, deposit growth was up 20% annualized, and core transaction deposits were up $948 million, or 33% annualized. XC side, we have grown core transaction deposits by $3.4 billion, or 44% year-over-year. We were also pleased that we've made continued progress on our cost of deposits, moving down to 14 basis points from 17 basis points last quarter. Moving ahead to page 14, we had a very strong quarter in non-interest income. The main driver of the increase versus last quarter is mortgage. that was well above our expectations at $22.6 million. We had continued strong volumes, strong gain on sale, and a positive $1.3 million MSR write-up as well. That said, with the long end of the curve moving higher, we are seeing volumes start to come in, and there is a mixed change towards purchase activity. Purchase business has lower associated margins, and we are expecting Q2 fees down closer to the range where we had expected them this quarter in the $13 million plus or minus area. On page 15, we talk about expenses. Excluding merger and other related costs, our expenses came in at $93.7 million. This is down 2% from Q4, which is good, but the much stronger than expected mortgage volume translated into higher mortgage commissions which is the main driver of the expenses being above my forecast from our prior call. When thinking about second quarter and beyond expenses, there are a lot of moving parts. Merit increases occurred on April 1st. That adds about $1 million in expenses to Q2. We completed our seaside conversion in February and realized significant cost savings starting in March after the conversion and expect more in Q2 and later as technology contracts run off. Taken all together, I expect the incremental cost savings to offset the merit increases in Q2. We are also doing some hiring, particularly in Florida, that sometimes comes with a starting bonus. Mortgage commissions should be down a bit, but we are still paying out on a pipeline that is running through, so the variable costs will be down more next quarter. Taking all of it together, I anticipate our Q2 run rate of operating expenses to be relatively flat or perhaps up slightly. Moving on to page 15, we put $518 million of Round 3 PPP on the books in Q1, and we expect that to increase some in Q2. In all, we currently have $28 million of PPP fees left to recognize, which we expect to mostly come in this year. All said, on the quarter as a whole, we had strong loan production, outstanding deposit Very strong mortgage, which pushed revenue ahead of our expectations, even with less PPP fees and loan accretion coming through this quarter. I'll finish there and pass it back to Lynn for closing comments.
spk10: Thank you, Jefferson. We are proud to have kicked off 2021 with a strong quarter, and we have a high level of optimism about the remainder of the year. We've got great opportunities in front of us to improve and grow, thanks to an outstanding team throughout the company. As one last shout-out to them, earlier this quarter, Forbes recognized United on its 2021 list of the 100 best banks in America for the eighth consecutive year. I am very proud of our teams throughout the company that make this possible year after year. And I'd like to now open it up for questions.
spk09: Thank you, speakers. Participants, we will now begin our session. To ask a question over the phone, you may press the star key followed by the number one. To withdraw your request, you may press the pound key. Again, that's star one to ask a question or the pound key to withdraw your request. Speakers, our first question is from the line of Jennifer Dunba of Truist Securities. Your line is now open.
spk03: Can you hear me?
spk10: Yes, now we can. Good morning.
spk03: Sorry about that. Hi, good morning. Question to Rob. You mentioned reducing some of your shared national credit exposure. Can you just kind of give us some detail on that and the rationale?
spk06: This is Rob. Hey, Jennifer. We identified in the Seaside acquisition probably 10 different shared national credits that were more nationally oriented than really locally oriented, something that Seaside had done, you know, really prior to our involvement in 2020. And so we were exiting those credits over time.
spk01: So I might just add in there, Rich may want to join in, so that would equate to about $30 million of shrinkage in shared national credits. Oh, this quarter. This quarter. Yeah. So the 2.7% in my mind understates the true volume that we showed this quarter.
spk11: Yeah, we were probably more at a 4% annualized growth rate if you add back the shared national credits.
spk03: And how much more in balance would you like to exit of course?
spk06: So we're going through an ongoing evaluation, but I would say it's likely that there's another $40 million.
spk03: Okay. And a question for Lynn on merger interest, acquisition interest. It sounds like there's a lot of discussions going on in the industry right now. Can you remind us kind of, what kind of target you're looking for and what you're not looking for also.
spk10: Yeah, sure. So there are a lot of conversations, a lot of really exciting ones going on. We continue to be focused really on the smaller banks. Now that smaller definition has gotten a little larger, probably, you know, $3, $3.5 billion or less. And the reason we like those is for a couple of things, really on the cultural side. We find that their focus on service, their focus on the employee engagement side really mirrors ours. I think there's more upside because we can bring the product set and limits that they don't have and typically a lower price. So that continues to be our focus. We continue to be focused in the five states that we're in today. And we're pretty optimistic that we'll be able to have some success there. So I'd say the you know, the things we aren't looking for actively would be, you know, those outside of our markets. Not to say that we wouldn't consider the right one. I would probably say we're not actively seeking, you know, any kind of large transformational kind of situation. Not that, again, we wouldn't be interested if the right one presented itself, but You know, it needs to have certain criteria. You need to have pretty significant overlap to power through the changes that you need to make to put two companies together. You need to have real clarity of leadership because that's the only way you have clarity of culture. And so our focus continues to be on these ones where in markets, either where we already are or attractive markets in our states that we want to enter, we can find like-minded bankers to join up with.
spk03: Thanks, Lynn.
spk10: Thank you, Jennifer.
spk09: Next question is from the line of Brad Millsaps of Piper Sandler. Your line is now open, sir.
spk07: Hey, good morning. Morning. Maybe, Jefferson, just to start, it sounds like you'll be losing maybe $6 or $7 million in mortgage revenue next quarter. Expenses will stay relatively flat. Can you talk about any other levers you might have maybe as it relates to the decision-making around selling additional SBA or Navitas production as maybe to sort of offset some of that headwind?
spk01: Yep, thanks. Great question. We do think the expenses will come down some specific to mortgage in Q2, and then you'll see it come down more in Q3. So there are variable expenses. You'll just see the full impact of that in Q3. We have been for a year or so holding back our gains from our SBA pipeline. It's a great asset to keep on a balance sheet. We've been keeping those on the balance sheet. So you will see that. start to increase. Keep in mind also the first quarter is our seasonally weakest SBA quarter, so look for a growth rate in that SBA activity. Navitas is the same way. Navitas, we've had good originations. We've had outstanding credit. We're very happy with where we are there. This is also their slowest quarter generally. We are looking for sales at the right price there. I would expect to see some in the second half of the year. We are at 7% or just under 8% of Navitas loans to total loans. In an environment with a lot of cash, it's really nice to have these Navitas loans on the balance sheet, but they do get really nice premiums and look for us to begin selling Navitas loans in the second half of the year.
spk10: You might add that even though we are looking at mortgage production. Like you said, every time we look at mortgage production, we have outperformed. And so there's some question about what that number actually might be next quarter.
spk01: Yeah, our crystal ball, we've come up with our estimates and we've been beating our estimates very consistently. And so we have seen, I think with the cash that's on bank balance sheets, You are seeing just a lot of demand for that paper. We have seen some margins come in. We are seeing a mixed change towards purchase. But we have been – you've seen this with the NBA, too, where they've been increasing their expectations, and Rich may have – piece to add to that?
spk11: One other variable to that is we continue to hire. So we just hired three MLOs down in Florida, and we're just starting to get some traction there. And I will tell you that there's ongoing discussions with other MLOs as well. And as Lynn said, the market continues to outperform industry forecasts.
spk07: That's great. And then just to follow up on the M&A discussion, I appreciate, you know, some of the color around, you know, kind of size and geography. Just kind of curious, you know, deals that you are looking at, how impactful do you think some of these deals can be from an EPS accretion standpoint? You know, is pricing as such where you can, you know, really, you know, drive some you know, high single-digit type EPS accretion, or is the market as such where, you know, it's more singles, you know, kind of, you know, single-digit, you know, type, low single-digit type EPS accretion? Just kind of curious, wanted to gauge kind of, you know, kind of what, you know, the potential, you know, kind of opportunity is out there to lever some of your excess capital and push earnings higher.
spk10: Yeah, so, I mean, I would say they'd be similar to our recent deals in terms of size and impact. I think the pricing is attractive. You know, there's a big differential in our pricing versus others. So if you look at, you know, pay-to-trade kind of ratios, I think they'll be good. And, you know, in terms of, you know, you might have, you know, two singles that look like a double. Then when you put them together, you could have two doubles that look like a home run. But I don't think you're going to have one home run, if that makes sense.
spk07: No, that's helpful. I'll hop back into you. Thank you.
spk09: Next question is from the line of Michael Rose of Raymond James. Sir, your line is now open.
spk08: Hey, good morning. Thanks for taking my question. Sorry if I missed this in the opening remarks, but can you just kind of walk through kind of your expectations for Core NIM and then maybe separately talk You know, how should we think about PPP fees this year and what's the kind of the expectation for purchase accounting accretion? Jefferson, if you can just kind of, you know, walk through any sort of changes from last quarter. Thanks.
spk01: Yep, thanks. I'll start with the margin, and I'll hit the other two pieces. So core margin, what we're seeing here is our securities to average earning asset ratio has been increasing significantly. as we've been getting this really strong deposit growth that's been ending up in the securities portfolio. To put some numbers behind it, we were at 17% two quarters ago. We're at 24% securities to average earning assets now. We had another really strong deposit growth quarter this quarter. On an average basis, we're up over $300 million in average deposits this quarter. And so some of that mixed change is what you've been seeing. That said, I think you're going to start seeing this mix change start to even out, so I think core margin is flat going into next quarter, and then it should be, as you get into later in the year, should be starting to increase. On the purchase accounting, the loan accretion, I think what we have here, we have $30 million left to accrete through. We did $5 million this quarter. I think our base is in that $4 million range, and then you have that increase as you get prepayments, so kind of $4 to $5 million there is what I'm expecting. On PPP fees, we have $28 million left to run through. In second quarter, I'm expecting the lion's share of the remaining fees from round one and round two, which is $3 million to come through. In the second half of the year, I would expect a good piece of that remaining $25 million from round three to start hitting in the second half. I think it will fold into 2022, but I do think you get a really good piece of that full $28 million this year.
spk11: There's an important change in the second wave, which is the 2021 PPP. which loans under $150,000 now have a one-page sign-off on forgiveness. So after the eight-week period, you're going to see that move much faster than we saw last year. And that's 85% of our loans.
spk10: And you finally start to see a little movement on the $2 million and over ones.
spk11: We have had one approved, and they're working on it. So we have seen one, yes.
spk10: All right.
spk08: That's great, Collar. Maybe just to put a finer point on some of the capital actions you're going to take this quarter in terms of the redemption of debt and things like that. I just haven't run the math. What's the estimated impact just there in isolation from the planned actions?
spk01: Yes, you're looking at once you get the full quarter impact of the actions that I'm thinking for Q2 and the full impact of Q1, The full impact of both of those is about two basis points, a little more. Then you get another piece on top of that on the $15 million sub-debt.
spk08: Got it. And I did see that you guys did hire some folks down at Seaside. I saw on the LinkedIn page the announcement. Can you just talk about broader hiring efforts? I know you guys have been fairly active and opportunistic in what that could mean for expenses this year, i.e., what's kind of in the plans and What would that mean from an expense standpoint? Thanks.
spk11: Sure, and this is Rich, and I'd say it's really the opportunities more than the plans. We continue to focus a lot on Florida. Gideon reminds us that it's the 17th largest economy in the world, and so a lot of good metro markets down there. I will tell you we have not seen the benefit yet, but we did have a BMO Harris kind of lift out in March. and I was talking to the leader yesterday on that. So I feel very good about where that is going, and I will tell you that we're talking to three other teams down there, of which some people have accepted but haven't started yet. So we feel very optimistic about what's going on about both the opportunity, the customers, and the talent in Florida, and we plan to take full advantage of that.
spk08: Great. Thanks for taking my questions.
spk09: Again, participants, as a reminder, it's star one to ask a question or to pound key to withdraw your request. Next question is from the line of Catherine Miller of KBW. Ma'am, your line's now open.
spk04: Can you hear me?
spk02: You might be on mute, Catherine. We heard her for a second.
spk04: Can you hear me?
spk02: Yeah, you're back.
spk04: Oh, great. Okay. Good morning. So I wanted to ask just a question on the ACL. You saw a big decline in the reserve this quarter. Would you say that the decline this quarter kind of fully reflects the better economic outlook? And so if kind of the Moody's model effectively stays unchanged from here, you know, are we kind of at a base for the ACL ratio, or do you think you'll see further declines as it moves for the rest of the year?
spk06: Yeah, so the way that I'm thinking, this is Rob, Catherine, the way that I'm thinking of it is we provided $80 million last year, and we charged off $18 million. So we built the reserve by $60 million in 2020. And then your comment, though, about The economic forecast, I would say it this way, all of the benefit of the economic forecast has not been realized, and we weren't comfortable taking all of that just because the increase in special mention loans that we had during the quarter. So it didn't feel like it was right to realize all of that.
spk10: in your expectation in terms of when you might see?
spk06: So just in terms of credit trends then, I would say my expectation is that Q2 is kind of a flat quarter, right? So once you put a loan in special mention, you probably are going to wait a quarter or two before you have the ability to move it out. So I would say right now, based on what I'm seeing, it would be my expectation that the special mention loans would begin to decline in the third quarter and fourth quarter. And as that happens, then we could see more of the realization of the positive economic outlook.
spk04: Great. Okay. So then maybe kind of not to give full guidance, but kind of like a zero provision maybe next quarter, and then we do a return to negative provision, depending on what growth and charge-offs look like as we move into the back half of the year.
spk06: That's a good way to think about it.
spk04: Okay. All right, great. And then on the senior care downgrade, it feels like it's really just that they're not cash flowing and leasing up according to the original plan. Are there any projects within that category that you're really worried about that perhaps have a potential loss content, or is it really just kind of downgrading given the cash flow and the leasing?
spk06: Yeah, so it's a good question. I would say in September, I was kind of worried about where things were going to go. And I'm much more optimistic now. We've seen a number of properties begin to demonstrate improvement in occupancies. And you're right. You're exactly right. So A project, you know, comes into, obtains a certificate of occupancy, and they begin to lease up, and it just doesn't go as fast as it was originally thought that it would go, so it takes a little longer, and we're carrying those projects in special mention. But we are seeing the majority of our projects are, in fact, improving in their occupancy, and we're pleased. I was pleased with the first quarter trends.
spk04: Okay. Great. That's helpful. Everything else was asked. Thank you.
spk09: Next question is from the line of Kevin Fitzsimmons of D.A. Davidson. Sir, your line is now open.
spk05: Hey, good morning, everyone. Good morning. Good morning. Just a quick follow-up question. It seems like a lot of the discussion on hiring, and maybe it was just the examples given, but it seemed like they were concentrated in Florida. Rich, I know that's a tremendous market and the size of the market. I'm just wondering, is the focus on hiring more – a byproduct that it's a good market and environment right now to take talent, or is it more a byproduct of the lack of M&A opportunities in that market, just given the consolidation that's happened over the years? And you guys obviously got Seaside, but there's just not all that many sizable banks left to consolidate. So I guess that's what I'm wondering. Is the build-out in Florida going to be much more of a, team lift-out type of effort as opposed to traditional acquisitions? Thanks.
spk11: So I'm going to answer that in two ways, and I'm going to focus on Florida first and then the rest of the footprint because I don't want to leave that out. But certainly there are opportunities in Florida right now. For whatever reason, the timing of M&A – kind of noise that makes people and talent available seems to be the perfect time in Florida right now where it was in Atlanta like 18 months ago. And so we're certainly taking advantage of those opportunities. I will tell you that we're certainly – it's more onesie-twosie throughout the rest of the footprint. We're really looking for – experienced lenders that have deep portfolios and relationships that they can bring over. And those conversations are going on all the time. They're just not as much on the lift outside. There would be one person in a particular market that's the right person. And so that's kind of how we're looking at both opportunities.
spk05: Okay, great. Thanks very much, guys. Thanks, Kevin.
spk09: Next question is from the line of Brody Preston of Stevens Inc. Sir, your line is now open.
spk12: Hey, good morning, everyone. Good morning, Brody. Hey, Brody. Hey, I have just a follow-up question on the SNCCs. So that was about $30 million that you ran off, and you said it was about another $40 you're considering. What's the timing of when that $40 million will run off? Is it a 2Q event, or is it throughout 2021?
spk06: Yeah, it's a good question. I was actually thinking about that because I think it is a longer term, right? Those loans have, I guess it's not longer, but it's not six months. So it'll be over the next, I think, likely 18 months would probably be a good window for that.
spk12: Okay. Okay, so this quarter was kind of anomalous in just the $30 million kind of all maturing this quarter. And so, yeah, go ahead.
spk06: Well, part of it depends, too, you know, how these credits work, right? They'll do refinances. They'll do acquisition. Just it's hard to predict those things, but probably 18 months is probably a conservative guess, but it just depends on the activity in those markets.
spk12: Got it. And so the SNCC runoff, that's about a third of the lower balances that you saw in the core CNI portfolio. And so I wanted to ask what else was there that drove the reduction in CNI loans this quarter?
spk11: I'll go ahead. You know, we had a conversion. So Seaside converted and March of this year, and you've got a lot of loans reclassified in that process, so there's just a lot of noise in that. And so we don't really think we saw any material changes in the overall portfolio, and we expect that to, you know, have a better view of all that Q2 going forward. Understood.
spk12: I appreciate that. And then, Rob, on the senior care loans, you know, I – understood that it's the lease-ups that's kind of caused the last couple quarters where you've migrated more of these to special mention, substandard. But I wanted to ask, is there a consistent theme that you're hearing from, you know, the sponsors on these projects that's causing the delay in the lease-ups relative to the, I guess, the original timeline?
spk06: Well, in the fourth quarter, it was very much about COVID-19. it feels like, you know, and a lot of the markets were not open and you couldn't go see a relative that was in a senior care facility. So you put mom in a senior care facility and you can never see her again. So it just wasn't very appetizing. And then, of course, the fourth quarter is always a low season for these properties just because Christmas doesn't seem like the right time to do that, especially if you're not going to be allowed to go visit in the facility. So early in January, we have started seeing some uptick in occupancies that we weren't seeing before, and we think that's largely due to, and we are tracking vaccinations of employees and residents on the properties and feel like properties are making good progress there.
spk11: I would add we have a very good relationship with a third-party underwriter, portfolio manager, and I have a monthly call with him just to check on the industry and where it's going, what the trends are. And what we're hearing is that The beds are starting to fill again, and, you know, we probably won't see that impact until the end of this quarter. But all the trends are positive. Everyone's feeling much better about the industry, and obviously vaccinations have all picked up. And, you know, they're in the priority list, so their workers have all got them as well. So the industry feels good. It's just moving slowly, but it's moving in the right direction.
spk06: Yeah, I agree with that.
spk12: Got it. Okay. And then just switching back to mortgage, you know, understand that it can be volatile, but just assuming that, you know, the lower kind of fees do come through. And I know that there's a lag, but, you know, Jefferson, I guess what dollar amount, if it's down six to seven, you know, what's the dollar amount of variable expenses you would expect to kind of work the way, work its way out of the run rate, maybe in 3Q based on that?
spk01: I'll give you some parameters on that. So in total, we had $6 million of mortgage commissions this quarter, and I would expect that to be down. I see Rich talk maybe in concert with volumes.
spk11: Yeah, I mean, it's going to be down certainly a couple million if we're down accordingly in terms of what we're making in fee income. That's a... It's a good question. I'm not sure on this phone call I have that answer, but we can look at that and get back to you.
spk12: Got it. Okay. And on the SBA front, so the gain on sales that you guys have been having over the last few quarters have been hovering, you know, if you just did the simple math of the fee divided by the loan sales and that kind of 8.5% to 9% range. But with the economy improving and with rates still low, the premiums on that paper can get bid up pretty quickly. And so I wanted to ask what you guys are seeing in terms of gain on sale margins moving forward for that business.
spk11: This is Rich. The answer to your question is right now gains are at record highs. Now remember that it's based on the term of the loan and the pricing and the size of the loan. They do worry about concentration. So a $5 million loan isn't going to sell as much as a $1 million loan. But to your point, they're up probably 15% quarter over quarter from last quarter. So very strong right now to your point.
spk12: Got it. And then I just had two last ones real quick. Jefferson, what percent of the loan portfolio is floating rate at this point? 53%.
spk01: Okay. Go ahead. And maybe this is your next question, but on that one slide we have $1.1 billion of floating rate loans per price of their floors. So we're behaving right now on the next rate hike more like we're a 45% floating. And if you get two rate hikes, about half of that would be off the floor.
spk12: That was the next question. Thank you very much.
spk01: All right.
spk09: Thank you for all the questions. I'll now hand the call back over to Lynn Hartin for closing comments.
spk10: Well, great. Well, once again, just thank you all for joining the call. Great questions. Appreciate the interest. If you have any follow-up issues, feel free to give any one of us a buzz, and we look forward to talking next quarter. Thank you so much.
spk09: And that concludes today's conference. Thank you all for participating. You may now disconnect.
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