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spk09: Good morning and welcome to the Great Western Bancorp first quarter fiscal year 2021 earnings announcement and call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero on your telephone keypad. After today's presentation, there will 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. Please note this event is being recorded. I would now like to turn the conference over to Seth Arts, Head of Investor Relations. Please go ahead.
spk06: Thank you, Andrew, and good morning. Joining us for today's presentation and discussion, we have Mark Barreco, President, Chief Executive Officer, Pete Chapman, Chief Financial Officer, Steve Yost, Chief Credit Officer, and Carlin Canarium, Chief Risk Officer. As usual, we have prepared a presentation for today's earnings review, which is available for webcast and also for download through our investor relations website at ir.greatwesternbank.com. We'd like to remind you that today's presentation may contain forward-looking statements that are subject to risks and uncertainty, which may cause actual future results to materially differ from those discussed. please refer to the forward-looking statement disclosures contained in the earnings materials on the website, along with periodic SEC filings for an outline of the company's risk factors. Additionally, any non-GAAP financial measures presented are provided to further assist you in understanding results and performance trends and should not be relied upon as a financial measure of actual results. Reconciliations for such non-GAAP measures are appropriately referenced and included within the presentation and SEC filings. I will now turn the call over to Mark Barreco. Mark, please go ahead.
spk03: Thank you, Seth, and good morning. Thank you for joining us, joining the call. I hope that you remain safe and healthy during these continued times. Before we share our results for the quarter, I want to first thank our employees for their continued efforts in supporting the Great Western Bank mission to make life great by strengthening our customers and enriching our communities. For the first quarter fiscal year 2021, we reported net income of $41.3 million. Pete will walk through the specifics on our financials shortly. I am pleased with our progress on our current financial performance, but I'm also excited about the progress on our priorities to better position Great Western for the future. With regard to our top priorities, after ensuring the safety of our employees and customers, credit risk management remains priority number one. We made progress with our asset quality this quarter, particularly as successful loan workouts and upgrades help support a 10% decrease in non-accrual loans and a 7% decrease in classified loans. We made progress in de-risking the bank's balance sheet by completing the sale of $209 million of hotel loans at a 12% discount. We made progress in working with our customers regarding COVID payment deferrals. We decreased our referrals to $113 million, or 1.29% of total loans, excluding PPP, as of January 13th. down from a peak of $1.69 billion that was on deferral in round one. Agriculture commodity prices, specifically soybean and corn, continue to improve, which will likely result in future upgrades over the next few quarters. From a measured actions perspective on slide two, we made progress managing our net interest margin, resulting in a seven basis point decrease in our deposit costs. In addition, our NIM benefited from recoveries resulting from focused loan workouts. We made progress in strengthening our capital position with 40 basis points of improvement through earnings. Since Great Western has a September fiscal year end, we adopted CECL this quarter. Our quarter end allowance for credit loss ratio was 3.5% of total loans, excluding PPP, and our comprehensive coverage is 3.84%, which Pete will expand on later. From an organizational standpoint, we continue to make progress attracting top talent for our senior roles, with the recent hire of Rick Robinson as our president of wealth management. Rick comes to Great Western Bank with extensive wealth experience, and it reinforces our commitment to growing revenue in this important non-interest income category. We are making progress in the implementation of our small business center, with our pilot launching in 20 markets this March. With this addition, we will improve the way that we originate, decision, and manage our smaller commercial relationships. This will significantly improve the client experience and allow us to capture more small business opportunities in our footprint. And lastly, this initiative will also free up our commercial banking team to allow them more time to pursue larger relationships in our underweight segments and market. I am now directly leading our business lines and I'm excited to get closer to our customers and to understand how our key business segments can leverage our bankers, technology, and processes to fuel future growth. Our company culture continues to evolve with a renewed focus on accountability, commitment, teamwork, service, and trustworthiness. Now for a review of our financial results, I will turn the call over to our Chief Financial Officer, Pete Chapman. Pete.
spk07: Thanks, Mark, and good morning, everybody. Just looking at slide three here, you'll see we had a strong quarter of earnings yesterday. with net income of $41 million, an increase from $11 million in the prior quarter, with pre-tax, pre-provision income of $66 million, an increase from $52 million in the prior quarter as well. Net interest income did benefit this quarter from net interest recoveries of $2.9 million driven by payoffs of non-accrual loans and from $1.7 million of accretion income of other loan payoffs. Strong mortgage revenues and swap fees help support non-interest income and expenses which tend to track lower in fiscal Q1 were further assisted by lower OREO, consulting, and travel spend. Turning to revenue on slide four, adjusted net interest income was $106 million, a $2 million increase from the prior quarter. Adjusted NIM of 3.52% increased 12 basis points from the prior quarter, and when excluding an 18 basis point lift from non-accrual interest recoveries and loan accretion, underlying NIM declined by 6 basis points for the quarter to 3.34%. Securities and loan yields declined by 11 basis points were offset by decreased funding costs, but excess liquidity reflected in the $630 million increase in cash assets to $1.1 billion contributed to seven basis points of additional NIM decline. On slide five, we show PPP total loan income was $5.5 million for the quarter, and there's approximately $12 million more of PPP fees remaining to be amortized as those loans are forgiven. We processed $28 million of loans for forgiveness out of the $727 million originated during the quarter. We're also participating in this current round of PPP lending and have been accepting applications since mid last week. Our loan portfolio yield continues to be supported by $4.2 billion of fixed rate loans yielding 4.34%, $1.9 billion of loans that have reached floors yielding 4.2%, and $1.2 billion of variable loans that repriced beyond 90 days yielding 4.45%. Together, these make up more than 80% of our loan portfolio, excluding PPP. Looking at slide six, total non-interest income was $14.1 million, an improvement from the $4 million loss in the prior quarter. Excluding the fair value adjustments that go through non-interest income, core income was $19.4 million, supported by another strong quarter of mortgage revenue of $4 million, slight increase in service charges to $9.6 million from increased customer transactions and $1.2 million increase in swapped sales revenue. On slide seven, non-interest expenses of $57 million were down significantly from the $75 million in the prior quarter, and were up only slightly from a year ago. The decrease was largely related to several one-off items occurred in the prior quarter, such as the FHLB prepayment expense, FDIC loss sharing expense on closeout of that agreement, REO provisioning and other severance and branch closure costs. First quarter expenses typically track lower and this quarter's result was further driven by lower than normal REO costs and by lower professional fees reflecting lower FDRC insurance and lower consulting spend. We'd expect expenses to pick back up in the March quarter as annual salary and merit increases kick in in that quarter and also consulting spend is expected to increase. Provision for credit loss on loans was $11.9 million for the quarter, a decrease of $5 million from the prior quarter, driven primarily by $7 million of losses on the hotel sales that Mark referred to earlier. Moving to slide eight, we have a summary showing the allowance impact from adopting CECL. The day one increase was $177 million, resulting in an ACL at $327 million to begin the quarter. At quarter end, the ACL decreased to $309 million, due to $30 million of net charge-offs and improved unemployment assumptions, partially offset by qualitative adjustments related to concentration risk in certain segments of the loan portfolio, such as hotels. In addition to the $309 million ACL, we have a $28 million fair value mark against our $612 million of long-term fixed-rate loans. We also have a $2.3 million unfunded commitment reserve, which all in aggregate puts our total... credit coverage to 3.84%, excluding our PPP loans. On slide 9, we see current capital ratios made well in excess of well-capitalized levels. Total capital increased by 100 basis points to 14.3%. Tier 1 capital increased 90 basis points to 12.7%. Common equity Tier 1 increased 100 basis points to 12%. Our tangible common equity ratio decreased to 8.3%, largely driven by the adoption of CECL. and excluding the PPP loans, that ratio is actually 8.8%. Thiesel also contributed to a net decrease in our tangible book value per share, which was $19.28 for the quarter, compared to just over $21 in the prior quarter. Positive earnings, reduced risk-weighted assets, and reduced dividends are helping support our capital levels, which we continue to believe is prudent to preserve capital, given our asset quality, combined with the current environment. Consequently, we once again have declared a dividend of $0.01 per share for the quarter ended December 31, 2020. We'll continue to evaluate capital management in close conjunction with the level of classified assets, which have shown good improvement for the quarter, but remain more elevated than we would like. Deposits increased $365 million for the quarter to $11.4 billion, while average balances were up $103 million in the prior quarter. A mix continued to improve as average time deposits decreased by $184 million. The average of the lower-cost interest-bearing deposits increased $200 million, and the average non-interest-bearing deposits increased $89 million. Total deposit costs of 21 basis points is down 7 basis points from the prior quarter and 75 basis points from 0.86% a year ago. Loans at period end were $9.5 billion, including $700 million of PPP loans. a decrease of $558 million, with 75% of this decrease coming from intentional and measured actions to improve our credit quality. This included the $209 million of hotel loan sales and the repayment of approximately $175 million of higher credit-rated and COVID-sensitive loans in the portfolio. In addition, 27 million of PPP loans were forgiven during the period. I'll now hand over the call to our Chief Credit Officer, Steve Yost, provide you an update on key credit metrics and asset quality metrics. Over to you, Steve.
spk02: Thank you, Pete, and good morning, everyone. We have been heavily focused on improving our asset quality the past few quarters, and we are showing progress on that commitment. Looking at slide 12, you'll see the three pillars of our focus fall into effective credit risk management, portfolio management, and specialized credit administrations. First, effective credit risk management. Our approach to identifying and managing risk in the portfolio is more consistent in spite of a challenging backdrop and is driven by the new risk rating system and by cultural alignment on risk-based decisioning. We saw improvements in our non-accrual and classified metrics with success in exiting problem loans along with a few upgrades. Second, portfolio management. As Mark and Pete touched on earlier, We've made significant progress in improving our portfolio risk by completing the sale of $209 million of hotel loans in three separate transactions. Loan deferrals are now 1.29% of total loans excluding PPP. And third, specialized credit administration. As Mark touched on earlier, the small business initiative will allow us to be much more efficient with administration of our smaller credits. Our commercial loan workout groups are making progress on work out of criticized loans and on assessing ways to further optimize our hotel concentration. I am pleased with our progress on asset quality and credit management, particularly in how much of what we are doing is strengthening our position long term. We have more work to do, but tactically and culturally, we are making headway. On slide 13, we have further details on the hotel loan sales completed in the quarter. The sales impacted $209 million of loans across 27 properties with proceeds of $183 million, reflecting a 12% discount. That discount led to a charge-off of $26 million for the quarter. The sales involved a combination of pass-rated and criticized loans, ultimately leading to a decrease in criticized loans of $131 million. The locations of the properties were spread out across the footprint, and help reduce market concentrations. The sales reduced the hotel excluding casino hotel segment by 20.2%, which ended the quarter at $823 million. Also on slide 13, you'll see updated information on loans on deferral, which are now down to $113 million, or 1.29% of total loans excluding PPP. Hotel loan deferrals decreased to $70 million, or 7%, and the remaining balance is spread across several other segments. We have given just five deferrals in the latest round for a total of $23 million, and we would expect a decline in requests going forward. On slide 14, we have a summary of our asset quality metrics. Net charge-offs excluding the $25.6 million charge-off from the hotel loan sales were just $4.8 million or 0.19% of total loans annualized. Classified loans were $717 million, a decrease of 7% from the prior quarter. Classified ag loans were $321 million, an 18% decrease from the prior quarter driven by pay downs and a few upgrades. Classified non-ag loans were $396 million, an increase of 4% mostly related to $54 million of hotel loans, moved to substandard in the quarter, partially offset by the hotel loan sales. Non-accrual loans decreased by 10% to $292 million, largely related to a number of payoffs in both ag and non-ag relationships, driven by our commercial workout group. On slide 15 and 16, we continue to provide an overview of key loan segments in our portfolio. On slide 15, you'll see our total accommodation book of $972 million consists of $823 million of hotels, excluding casino hotels, $118 million of casino hotels, and $31 million of PPP loans. 88% of the portfolio is in-footprint, with out-of-footprint loans generally associated with experienced in-footprint developers. The hotel properties are diversified across more than 100 cities, with most in small to mid-sized locations, and the largest concentrations still in Colorado Springs, Colorado, Rapid City, South Dakota, Des Moines, Iowa, Omaha, Nebraska, Denver, Colorado, and Sioux Falls, South Dakota. Following the loan sales, certain payoffs, and a number of downgrades, the combined hotel portfolio has $246 million of criticized loans, with $142 million of those as classified. $725 million are pass rated, including the casino hotels. On slide 16, you'll see we remain well diversified across various ag segments, and that the ag conditions are proving constructive for the near to medium term. High level, the latest estimates from the USDA indicate depleted inventories of both corn and soybeans. As a result, general farm price projections strengthened to $4.20 a bushel for corn, and $11.15 official for soybeans, which indicate potential for higher margins in the near term. Milk prices have leveled off at $15.72 per hundredweight in December, after a strong $23.34 in November and $21.61 in October, and 2021 futures are tracking 10% higher. The health care portfolio remains in stable condition with minimal movement in risk rating from the COVID cycles. The mix of the portfolio across senior care, assisted living and retirement communities, skilled nursing hospitals, and other health services and social assistance has us in a comfortable position and we remain highly engaged with our customers to stay on top of any early indicators. That wraps up my commentary. I'll now hand the call back to Mark.
spk03: Thanks, Steve. I am proud of our team's continued focus on improving performance, addressing asset quality concerns, and implementing our Win Big initiatives all the while dealing with emerging business needs such as PPP origination and forgiveness, stimulus payment processing, and branch lobby decisions as it relates to the pandemic. We made good progress in Q1, and I look forward to continued progress in the quarters to come. With that, I will turn the call back to the operator, and we will begin the question and answer session.
spk09: We will now begin the question and answer session. To ask a question, you may press star then 1, on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. The first question comes from Terry McEvoy of Stevens. Please go ahead. Hey, guys. Good morning.
spk10: Morning. Maybe, Steve, if we could start with you, could you just talk about the loan sale of the hotel loans, the level of interest from buyers? I'm just curious, how did pricing change, or could you comment on any pricing change before and maybe after the vaccine and when these transactions occurred? And then maybe the last part is, if you think about the quality spectrum of of your hotel portfolio? Were these more distressed type properties, middle of the road? Any color there would be helpful. Thank you.
spk02: Well, I would say in the last part of your question, we focused on those that were either criticized, classified, or declining trends. So we did focus on more They were not non-accrual, but they were more of our distressed properties. We also focused on in-market concentrations. So anywhere where we felt we had a higher concentration of hospitality loans, we focused on seeing if we could sell some of those. And the loan buyers that we went to were really focused on not distressed properties as much as performing loans. So they were not on non-accrual or performing loans. When we we've been pursuing this for well over 90 days to look at a hospital, you know, hotel loan sell to see if we have the potential and if we did not need to take too big of a discount. And I will say after the vaccine was announced, we found that things accelerated much more quickly as far as being able to consummate the sale. So I do think the vaccine announcement did help us. I don't know if it helps significantly on the pricing because the pricing discussion prior to the vaccine. wasn't any different really, but it did accelerate the sale, I believe, because of the interest in those particular properties.
spk10: Thanks for that, Steve. And then maybe a question for Mark or Pete. Just thinking about the operational alignment and how that relates to spending in 2021. The last couple of quarters, we've heard about some hires and some specialization and focus on things like small businesses. Is there more to come, and then how is that going to impact spending and expenses in 2021? Thanks.
spk07: Yeah, look, I think you'll see a little tick up there. Terry, as I said, we're usually a little slower in Q1, just as people finalize budgets and get spending lined up for the year. So, look, you know, I'd still expect a tick up, but I think previously we've sort of said low 60s, sort of 62 to 64 as sort of a run rate. So, you know, we feel the investment we've got to make is sort of manageable within that range. for the year. We've certainly got some projects up and running that will come on in the next couple of quarters, but we still feel it's a manageable run rate.
spk03: Yeah, and I think for me, Terry, the thing that comes back into focus is as we make some of these investments, as we improve the technology, as we rework some of our processes, I do feel comfortable that not only will we be able to improve the client experience, make it easier for our employees to do their jobs, but also improve we can start to do more with what we have. And so that will help fuel that future growth, and that will help us to do more with those investments without having us, again, see a massive increase in our overall spending.
spk09: Great. Thank you. The next question comes from Jeff Rulis of D.A. Davidson. Please go ahead.
spk08: Thanks. Good morning. Maybe a question for Pete on the – On the margin, it looks like if you X the recoveries and accretion down six basis points in the quarter, maybe speak to if more recoveries are anticipated in that figure and or just the core margin outlook.
spk07: Probably not, Jeff, sorry. In terms of recovery, recoveries are obviously hard to predict, so certainly hope we get some, but pretty hard to put in a forecast, I would think. And then just in terms of margin, I'd see just a general tick-down trend there. I think, once again, part of that will be driven by mix, just as this quarter, the assumption is we'll see more of those PPP loans forgiven. Just with the way the balance sheet's at at the moment, I'd expect sort of cash and investment levels to continue to tick up here in the next quarter, which I think will drive sort of a softer, a slightly softer margin in the next quarter as well.
spk08: Okay, great. And on the, switching gears on the, just interested in the reserve balance at this level, a pretty healthy number. And I guess as, you know, some It's a volatility here, but looking at for the balance of the fiscal year, kind of net charge-offs versus provision, do you think those track relatively in check? Do you start to release those reserves? Any thoughts there?
spk07: Thanks. Look, I'll get Steve to jump in and help with this one. But obviously, you know, we need to get MPAs down. Jeff, that'll be a big driver as well of provisioning levels over the course of the year, I think. But Steve?
spk02: Yeah, I believe what we looked at, as you look at our portfolio and our mix, is there still uncertainty of where we're at in the economy this part of the cycle. So we definitely looked at that in our qualitative factors within the Cecil Reserve. But to Pete's point, if you look at our level of non-accrual loans and our coverage of the allowance, as we are able to improve in those non-accrual loans, we will hopefully be able to look at where we go with the allowance.
spk06: All right, thanks. Thanks, Jeff.
spk09: The next question comes from John Armstrong of RBC Capital Markets. Please go ahead.
spk01: Thanks. Good morning. Good morning. Steve, I've got a question for you, maybe more an emotional, touchy-feely question to start, I guess, before we get into the meat of it. But how do you generally feel about credit? And this follows up on Jeff's question, but kind of the timing and magnitude of when we can see these non-performers come down. You know, I'm thinking about your ag comments and the loan sales and the deep dives that you guys have done, and it has to be better. But it's just kind of the one thing that I think still nags at your stock. So I'm just curious how you feel about all of it, you know, kind of off script, if you can.
spk02: Well, as the chief credit officer, it's always fun to get a touchy-feely question. I don't get those too often. But when it comes to, I believe one of the big things that I feel very comfortable with and positive is the cultural change we've had as an institution as to how we look at credit risk and how we look at risk-adjusted returns. And as we look at future growth, I always look at not just loan growth, but is it the right risk and are we putting the right loans on? So it's not just loan growth for loan growth's sake, but And we definitely are focusing on how we grow the book of business going forward to make sure that we continue to retain a consistent credit risk culture. So I feel we've made huge strides in the last six months culturally. I think also because of our mix of agribusiness, we do anticipate we've seen stable to improving trends. We saw improving asset quality in the ag book this quarter. We anticipate that in the next two quarters as well. So I'm very encouraged in our agribusiness book. As we look at our hotel portfolio, that is an area that, because of the vaccine and other things, I'm much more encouraged as we look at the next six months, and I feel very good about the loan sale and trying to de-risk our hotel portfolio, but we are really not looking at future portfolio sales. We're looking at more of strategic, focused, how can we, you know, right-size that portfolio over time rather than another big Portfolio select, we did this last quarter. We felt it was necessary to de-risk it, but that is not a strategy going forward. So at this point, I feel very comfortable and positive about our cultural change. Now we just need to continue to stay focused and improve quarter by quarter.
spk01: Okay. That helps. And then another maybe bigger picture question for you, longer term, What's an acceptable reserve and non-performing level for a bank like yours in your eyes? I know it's a difficult question and Cecil complicates it, but where would you like to be longer term?
spk02: Well, if you look at, I came from a similar sized mid-tier bank at my prior institution, and we moved non-accrual loans there down to 50 basis points. And I think that's a good non-accrual balance. So, I mean, we have a long ways to go to go there if you look at us close to 3% today. But if we can keep focused and the way we've looked at when we say risk-focused decisioning, we look at those by risk rating. We've changed our hold limits. We've done a lot of things so that going forward that we have a different risk in our portfolio. But I would like to see us consistently be Definitely less than 1% on non-accrual and long-term 50 basis points non-accrual. And I think I feel like we've arrived where we should on the asset quality. And then your questions will all be about loan growth after that.
spk01: I was just going to pivot to Mark. That's the other part of this, Mark, because I think expenses and Steve's work on credit and fees, they all kind of line up. But the one thing is growth, and I know you've done a lot to kind of change things. But when do you think we might see some resumption and growth? And are there any signs of life in your markets? Thanks.
spk03: Yeah, sure. I think from a, you know, I'll answer the second part first. So from a signs of life in our market, I would say that I feel good and every day getting better as it relates to the activity levels in our markets. We see the number of COVID cases coming down. We see in many ways, businesses getting back to kind of some sense of normalcy. That normalcy is different than obviously it was a year ago, but still things are resuming. I know that I'm having a chance to go to have dinner with a client tomorrow night here in Sioux Falls. And so from that standpoint, I am seeing and we are seeing activity levels start to come back to, I think, very reasonable levels. As far as loan growth, I would say that for the next two quarters, I would expect to see us to continue to have continued erosion in our overall loan balances as we continue to have focused workouts, as we continue to de-risk the balance sheet as it relates to our hotel portfolio. And so I would say for the next two quarters, I would expect those numbers to go down. And then I would expect after those two quarters for things to get back and to see us start to have the asset generation that we need to have to grow this organization. I see pipelines today. are improving. And so I'm encouraged by that. We've had an internal focus of back to business. We have been playing defense a bit over the last nine months, and that was a necessary evil given our asset quality, but that is now changing. And we are pivoting the organization to be more focused on asset generation. We have some, I think, very aggressive offers in the market, and we have a very focused set of commercial bankers. And so from that standpoint, I would think that we would see those pipelines grow and then that asset growth to follow two quarters from now.
spk01: Okay. Good. Thanks. And congrats on hopefully seeing some of this credit issues crest. Thank you. Thank you.
spk09: The next question comes from Andrew Leash of Piper Sandler. Please go ahead.
spk05: Hey, everyone. Good morning. Nice to see some of this de-risking here. Just want to kind of continue on the same theme here, just with the hotel and the casino loans, now down to about 10% of the portfolio. Where do you think is a good level, a good concentration, Nick, for that book as we move through the year?
spk02: So in the longer term, I would like to see that portfolio under $500 million. And that wouldn't be like overnight or over the next few quarters, but over a period of time, we would like to. long-term have that portfolio be under 500 million, basically.
spk05: Got it. And it sounds like might be masked by continued runoff of that book in the next couple of quarters, but it sounds like there's some good optimism in other loan types. Where should we see, what portfolios do you think we'll see growth here in the next couple of quarters?
spk02: Well, agribusiness is still a continued focus of Great Western Bank. And I wouldn't say we'd have a lot of growth there, but we've got continued focus in agribusiness. And we also anticipate improved asset quality in agribusiness. So I think that will be a place that we'll continue to focus. And then, of course, you know, with our initiatives on small business, we're hopeful that we will focus more on small business and other areas of the portfolio. But Mark might have some other views on growth as well.
spk03: Yeah, I think Steve mentioned the focus on ag, and I would expect that to be a focus and to see some moderate growth there, nothing to overwhelm, but, again, consistent growth. I look at the C&I sector, and I look at some of the initiatives that we have as it relates to growing the C&I book at Great Western, and so I would expect growth in that. And then overall, just more owner-occupied real estate as well. So that's where I want to see us continue to, again, get back to business and start to see those three sectors or those three segments grow help fuel our future growth.
spk05: Okay. That's helpful. And then I just, just going back to the reserve ratio, it's probably one of the highest in the industry right now. And I recognize that there's still some credit uncertainty out there and the level of non-performers need to be worked down, but you guys seem pretty well-reserved. I'm just, any commentary on why the provision would even need to stay near this $12 million level going forward?
spk07: Oh, as in the P&L charge, Andrew, you mean?
spk05: Yeah, it seems like there's opportunities for much smaller provisioning in the coming quarters.
spk07: Oh, look, too early to declare victory on that. You know, we'd certainly hope so, but, you know, I still think we're a few quarters away from the world getting back to normal, so a little early to declare that. You know, obviously we hope so, Andrew, but maybe a few quarters on we can revisit that one.
spk05: All right. Thanks for taking the questions. I'll step back. Thanks, Andrew.
spk09: The next question comes from Damon Del Monte of KBW. Please go ahead.
spk04: Hey, good morning, guys. Hope everybody's doing well today. So my first question, just kind of curious on your PPP loan forgiveness process. I think you guys noted like $28 million of loans were forgiven during the quarter, which kind of as a percentage of your overall PPP loans was a lot lower than what we're seeing with others. So just kind of curious on what some of your experiences were with that during the last quarter.
spk07: Yeah, look, just a little slow to get going. If you look at our loan balance in that category, though, Damon, about 80% is below $150,000. So the feedback we've got from a lot of customers is CPA firms and the like are advising just to hold off until the lower level of forgiveness documentation is was required. So I think that drove quite a lot of it, to be honest with you, Damon. So hopefully it picks up here a little bit this quarter.
spk04: Got it. Okay, that makes sense. Thanks. And then, Pete, can you just give a little bit of perspective on your expectations for fee income as we go through the next few quarters?
spk07: Look, I think it will hold up, Damon. Mortgage volumes are still unseasonably strong just due to lower rates. So maybe not the pickup We've seen the last couple of quarters, but I think that will at least hold in, as well as the other fee income line items. So look, I don't think you'll see huge growth there. Just seasonally, it gets a little bit slower here in this quarter. But certainly, I think it'll hold in pretty well.
spk04: All right, great. Thank you very much.
spk09: Thank you. The next question comes from Janet Lee of JP Morgan. Please go ahead.
spk00: Good morning. On reserves, I feel like I'm asking this question that other people have asked in a different way, so I apologize for that. But on reserves, it sounds like it might be several quarters away before we see reserve releases and that being accompanied with a steeper step down in MPAs in order for us to see that. What kind of MPA step down or levels Would that be in order for you to be more comfortable releasing reserves?
spk02: If you look at our non-accruals, our coverage of those is about 1.05. I think if we're successful in reducing those non-accrual loans, I think the reserve would go in concert with that. I mean, we'll look at other issues too, like, for example, some improvement in the economy in relationship to hotel loans and others will also impact that. But we just are taking a careful approach to just see what happens in the next two quarters. But I think it really is driven by those non-recruits. And the non-recruits we do have, we have you know, four or five that are larger non-accrual. So if we can make success on those loans, they are well secured. We have updated appraisals, so we are encouraged that we do not see a lot of loss exposure there. So our hope is that as we reduce those and show improvement in the hotel portfolio, that that's when we'll feel we've turned a corner.
spk00: Great, thanks. And also on loan growth, so it appears that the loan growth over the near term will be relatively modest with more upside over the intermediate term. Can you just provide more color around what's your plan around deployment of excess liquidity?
spk07: Yes, certainly. From a balance sheet perspective, Janet, I'd expect this to be elevated here for the next couple of quarters as well. We've got a little bit of term FHLB borrowings left, but it doesn't really make a lot of sense to prepay those. So look, really we'll carry more elevated levels of liquidity, certainly run off any higher cost deposits that we've got and really just carry that here for the next couple of quarters as loan volumes, as Mark said, are expected to be a little softer here before redeploying that in a couple of quarters, Tom.
spk00: Great, thanks. Just one follow-up for me. So given the improved outlook on credit for the industry and for you guys as well, can you just elaborate more on your capital deployment plans, including potential upping in dividend again or share repurchases? Thanks.
spk07: Yeah, look, no plans at this stage, Janet. As I said in my comments, NPAs are still more elevated than we'd like. and substandards, so probably consistent with the provisioning discussion. Let's see those metrics improve before we move forward on any sort of capital actions here. All right.
spk00: Thank you. Thank you.
spk09: This concludes our question and answer session. I would like to turn the conference back over to Mark Barreco for any closing remarks.
spk03: Thank you, Operator, and again, thank you, everyone, today for joining us. If you do have any follow-up questions, please do reach out to us. Stay safe and have a great week. Thank you.
spk09: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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