Earnings Call Transcript
Ameris Bancorp (ABCB)
Earnings Call Transcript - ABCB Q4 2020
Operator, Operator
Good morning, and welcome to the Ameris Bank Q4 Conference Call. All participants will be in listen-only mode. [Operator Instructions]. After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions]. Please note this event is being recorded. I would now like to turn the conference over to Nicole Stokes, Chief Financial Officer. Please go ahead.
Nicole Stokes, CFO
Thank you, Grant, and thank you to all who have joined our call today. During the call, we will be referencing the press release and the financial highlights that are available on the Investor Relations section of our website at amerisbank.com. I’m joined today by Palmer Proctor, our CEO; and Jon Edwards, our Chief Credit Officer. Palmer will begin with some opening general comments and then I will discuss the details of our financial results before we open it up for Q&A. Before we begin, I’ll remind you that our comments may include forward-looking statements. These statements are subject to risks and uncertainties. The actual results could vary materially. We list some of the factors that might cause results to differ in our press release and in our SEC filings, which are available on our website. We do not assume any obligation to update any forward-looking statements as a result of new information, early developments or otherwise, except as required by law. Also during the call, we will discuss certain non-GAAP financial measures in reference to the company’s performance. You can see our reconciliation of these measures and GAAP financial measures in the appendix to our presentation. And with that, I’ll turn it over to Palmer for opening comments.
Palmer Proctor, CEO
Thank you, Nicole, and good morning to everyone. 2020 certainly provided all of us a lesson in humility, and I'd like to begin by thanking all of my Ameris teammates, our customers, and our stakeholders for their continued commitment, loyalty, and the great flexibility they all demonstrated during this unprecedented year. What a year it’s been. While 2020 was not what we had anticipated, I'm proud of our team because they adapted quickly and remained disciplined and focused on the results. Nicole is going to update you on the detailed financials in a few minutes. But before we get there, I did want to share a few highlights about the quarter and the year, and then spend some time discussing the plan and opportunities we have going into 2021. For the quarter, we earned $102 million or $1.47 per diluted share on an adjusted basis, which is up over 53% compared to the fourth quarter last year. This represents a 2.04% return on average assets and a 25.04% return on tangible equity. As expected, our efficiency ratio increased slightly to 52.67%, which is right within the guidelines that we have given in terms of 52% to 55% in terms of our guidance earlier in the year. For the year 2020, we earned $300.5 million or $4.33 per diluted share on an adjusted basis, which is up 14% over the 2019 results. This represents a year-to-date ROA of 1.56 and the year-to-date return on average tangible equity of 19.77%. Our efficiency ratio improved during the year from over 55.67% last year to 52.17% this year. On the balance sheet side of things, I said last quarter that we anticipated some seasonal loan runoff in the fourth quarter that would bring our loan growth closer to our original estimates, as we've said throughout the year in terms of mid-single digits with full-year 2020, and that's exactly what happened. We ended the year with a solid 6.5% loan growth exclusive of the PPP growth. We continue to see strong deposit growth, and our total deposits are now almost $17 billion with non-interest bearing deposits now accounting for over 36% of total deposits. As for capital, we remain focused on capital preservation and growth in tangible common equity and tangible book value. During the fourth quarter, we grew tangible book value by over 5% and over 13% for the year-to-date period, which is very meaningful. As reported last quarter, we do have a share repurchase program in place that’s good until October 31 of this year. We don't anticipate buying any shares in the near future, nor did we buy any in the fourth quarter. But we do like having the option to repurchase if the right opportunity presents itself. As for the dividend, we remain comfortable with our dividends today and do not anticipate any reduction at this time. Moving on to credit, Jon Edwards, our Chief Credit Officer, is with us today and he's available to take any questions after our prepared remarks. But I did want to hit a few highlights in terms of credit. During the fourth quarter, we opportunistically and selectively sold approximately $87 million of hotel loans which greatly reduced our hospitality exposure. As a result, we incurred a $17.2 million net charge-off. As far as the remaining reserve, we continue to believe all the heavy lifting has been completed, barring any further economic downturn or deterioration in specific credits. This brings our allowance coverage ratio, excluding unfunded commitments, to 1.46% net of our PPP loans. Our annualized net charge-off ratio is 31 basis points of total loans compared to 10 basis points in 2019. Exclusive of the hotel loan sale, the year-to-date annualized net charge-off ratio was 18 basis points of total loans. Our non-performing assets as a percentage of total assets decreased to 48 basis points compared to 82 basis points last quarter, mostly due to the $24 million decrease in non-accrual hotel loans that I referenced earlier that were included in that note sale. $32 million of mortgage loans reported as non-accrual in the third quarter have now been placed on the new CARES Act deferral programs, and there was a net decrease in OREO of $6 million. Finally, the loans that remain on deferral at the end of the year were approximately 2.9% of total loans, down from approximately 19% of total loans at the end of the second quarter of 2020. A quick update on COVID and PPP. I've said on the last call that we had opened up about half our branches in the lobbies in the third quarter with minimal disruption. But unfortunately, with the rise in cases, we’ve closed those lobbies again before the end of the year and we really don't anticipate having them open until March or until we start seeing some positive swings in the cases. But we've done a wonderful job of continuing to be able to serve the customers through the drive-throughs and digital channels or in the branch by appointment. That being said, we are extremely pleased to be in the Southeast because I can tell you many businesses here are back open, restaurants and retail shopping, and certainly the traffic continues to pick up every day, so that's encouraging to see. But we all still need to remain diligent and careful. A quick update on PPP. During the fourth quarter, we started to see forgiveness, and our PPP loans decreased by about $238 million. Regarding the new round of PPP, our portal is open, and so far we've received about 2,000 applications for approximately $220 million. Just as an update, approximately 80% of that are second draw requests from customers who were also participants in the first round, and 20% of applications are from new applicants. Our average loan size request has been around $130,000 for the second request and $30,000 for the first request, which is obviously smaller than the first round as expected in terms of the loan amounts. Now, I'd like to talk briefly about the future and why our optimism is justified. When you look at the challenges we all faced in 2020 and then consider the success that Ameris had, it really makes me proud of the company and our teammates. This year was certainly not anticipated, and we were able to overcome the challenges and adapt and improvise our plans. More importantly, we successfully delivered on top financial results. As is typical in the first quarter, we spent time on our Board retreat, which is virtual this time, but that's always an energizing program and process for us, allowing us to reflect on our markets, our strategies, our talents, and our goals. As I mentioned earlier, we are fortunate to be in some of the highest growth markets throughout the Southeast. We've got incredible talent and good core strength in our more rural markets too, and this balance is really what has allowed us to continue to grow safely, securely, and most importantly, in a low-cost deposit environment concerning funding. We continue to look for cost-saving measures to fund the needs for technology and resources, which are imminent, and we're already reaping the benefits from a lot of the investments we made in 2020 from our reallocation of expenses. We remain focused on core deposit and loan growth, asset quality, operating efficiencies, and capital preservation. These are the strategies that you will see will continue to drive shareholder value. I'll stop there and turn it over to Nicole to discuss our financial results.
Nicole Stokes, CFO
Great. Thank you, Palmer. As we mentioned, for the fourth quarter, we're reporting net income of $94.3 million or $1.36 per diluted share. On an adjusted basis, we earned $102 million or $1.47 per diluted share and that's excluding things like the servicing asset impairment, COVID-19 expenses, certain legal fees, and a gain on the sale of bank premises. These financial results represent a 53% increase over the fourth quarter of 2019 earnings. Our adjusted ROA in the fourth quarter was 2.04. That was a decrease from the 2.35 last quarter, but it was an increase from the $1.47 reported in the fourth quarter of 2019. Our adjusted return on tangible common equity was 25.04 this quarter compared to 30.53 last quarter, again, an increase from the 18.45 reported in the fourth quarter of 2019. For the full year 2020, we're recording net income of $262 million or $3.70 per diluted share. On an adjusted basis, we earned $300.5 million or $4.33 per diluted share. That compared to $222.9 million and $3.80 last year. This brings our full-year ROA to 1.56 compared to 1.52 last year, and our full-year ROTCE to 19.77 compared to 18.74 last year. As we’ve stated, we've previously emphasized our focus on capital and tangible book value growth. For the quarter, we saw an increase in tangible book value of $1.23 to end the quarter at $23.69. For the full year, we had a 13% increase in tangible book value, about $2.88 from $20.81 last year to $23.69 this year. In addition, our tangible common equity ratio increased 20 basis points to 8.47 this quarter. Remember, the asset growth from our PPP loans negatively affected that ratio. This quarter, that was about a 38 basis point impact. Excluding those PPP loans from our total assets, our TCE ratio would have been approximately 8.85 at the end of the year, which is very close to our stated target of 9%. We continue to be well-capitalized and we feel comfortable with our capital level. Talking about margin, we previously guided that we expected low to mid-single-digit margin compression going forward. We were extremely pleased with the stable margin of 3.64 in the fourth quarter. That was consistent with what we had in the third quarter. While there were many moving parts in margin this quarter and a lot of hard work and effort from our bankers, our spread actually improved by 3 basis points this quarter. On the compression side, we reversed $2.3 million of interest income on loans that were sold in the hotel note sale. We also saw compression from the excess liquidity on the balance sheet of approximately 9 basis points. However, those negative impacts were offset by the accelerated accretion of PPP fees due to the early forgiveness. Again, there were a lot of moving parts, but those are the three highlights that really netted out to that stable margin. During the fourth quarter, our yield on earning assets declined by 4 basis points, while our interest-bearing deposit cost decreased by 13 basis points, and our total funding decreased by 7 basis points, hence the improvement in spread. Our core bank production yield declined slightly to 3.86. On the deposit side, we continue to see success in growing non-interest bearing deposits. Our total deposits grew $894 million, and over 26% of that was in non-interest bearing. Our non-interest bearing now represents 36.27% of our total deposits compared to about 29.9% this time last year. We believe this is affected by the excess liquidity in the market, and we believe this can return closer to 30% in the long-term horizon. However, we do remain diligent in protecting these deposits through superior customer service, product enhancements, and technology improvements. For the year-to-date, our margin declined 18 basis points from 3.88 to 3.70, even with the large 150 basis point Fed cut in March. It's key to look at our yield on earning assets, which decreased by 67 basis points, while our funding costs decreased by 65 basis points. We felt that we were quick to cut costs or to cut funding costs and our deposit costs. Talking about provisions, during the fourth quarter, we reversed $1.5 million of previously recorded provision expense. That decrease was primarily related to the improvement of our economic forecasts, particularly levels of unemployment and GDP, which was offset by increased qualitative factors that we added in our commercial real estate and construction portfolios. For the full year, we recorded $145 million of provision for credit losses, compared to just 20 million last year. Our ending allowance for loan loss was $199.4 million compared to $231 million at the end of the third quarter and just $38 million at the end of last year. Including the unfunded commitment reserve, our total allowance was $233 million compared with $260 million at September 30 and $39 million last year. Non-interest income in the fourth quarter remained strong due to continued elevated production in the mortgage division. Mortgage production was right at $2.8 billion for the quarter and gain on sale increased over 4%, up from 3.92% last quarter. We anticipate that gain on sale to decrease back to normal levels more in the 3% range going forward. Net income in the retail mortgage division was $43.4 million compared to $61 million last quarter, but 11.6 million in the fourth quarter of last year. While pipelines remain strong and we continue to see strong production in 2021 so far, we do realize that this could return to normal levels at some point this year, and we're prepared. Total non-interest expense continued to decline this quarter from $163.7 million last quarter to $151 million this quarter. Expenses in the retail mortgage division decreased by $4.7 million, while expenses in the core bank and administrative functions increased by $2.1 million. I want to talk about those two separately. The increase in core bank and administrative functions is really attributable to three things. There was a $1 million donation that we made to the newly formed Ameris Bank Foundation, a $765,000 expense related to the early termination of our loss-share agreements with the FDIC, and then $532,000 of OREO write down. Despite the expense to terminate these loss-share agreements, we do believe that exiting them will enhance our operational efficiencies going forward, both from a functional administrative perspective as well as the economic impact of call-back accruals and recovery sharing going forward. We continuously examine non-interest expense prudently, and we anticipate minimal increases in the core bank. Moving on to the mortgage segment, we anticipate decreases in the variable costs as production decreases back to normal levels, although I want to remind everybody that there's always that cyclical first quarter results, such as payroll taxes. To time our efficiency ratio, we're pleased with our efficiency ratio this quarter and the overall progress we made here. Our adjusted efficiency ratio was 52.67 this quarter compared to 55.61 in the fourth quarter of last year. For the full year, our efficiency ratio improved to 52.17, down from 55.67 last year. The additional mortgage revenue and the efficiency gain in the mortgage division significantly impacted this ratio during the second and third quarters. We believe the ratio will stabilize in the 52 to 55 range in future quarters, as we do not anticipate the level of mortgage revenue and efficiency to be sustainable long term. On the balance sheet side, and this is really a focus, we're excited to say that we ended the quarter with total assets of over $20 billion at $20.4 billion compared to $19.9 billion last quarter and $18.2 billion last year. So, as Palmer mentioned on the balance sheet, I want to give some details on that. We did experience a cyclical run-off. If you remember from the third quarter, we said that we were anticipating that. Our total loans decreased a net of $463 million during the quarter. I really want to break that down and explain that the $735 million of decreases were intentional and known, and it was not a surprise to us. Those decreases included the $238 million in PPP reduction, $102 million of the continued indirect runoff, $87 million in the hotel note sale, an additional $87 million in strategic runoff on the homebuilder line, $80 million of some cyclical mortgage warehouse lines, and about $20 million in the cyclical ag line that is typical for us in the fourth quarter. In addition, we had $141 million of consumer loans transferred to the held for sale category. Excluding that, you take the $735 million of runoff, that leaves us with $280 million to $300 million of organic loan growth, which again was 7.5% for the quarter, which we were pleased with. For the full year, our net loan growth was $1.7 billion or 13%. That included PPP. If you exclude the PPP activity, net loan growth was $835 million, or 6.5%, which was in line with our expectations of mid-single-digit loan growth. Additional information on the loan growth and the loan portfolio can be found in the investor presentation. To wrap up, we are managing through this low-rate environment and protecting our margin as much as possible. We continue to see strong non-interest income from the mortgage division and pipelines remain strong going into the first quarter. As always, we are watching expenses and finding ways to pay for new technology through reallocation of resources, and we remain committed to preserving capital. With that, I'll turn the call back over to Grant for any questions from the group.
Operator, Operator
We will now begin the question-and-answer session. [Operator Instructions]. Our first question today will come from Casey Whitman with Piper Sandler. Please go ahead.
Casey Whitman, Analyst
Hi. Good morning.
Palmer Proctor, CEO
Good morning, Casey.
Nicole Stokes, CFO
Good morning, Casey.
Casey Whitman, Analyst
Maybe I'll just start by continuing where you just left off the call with. Can you maybe just give us some thoughts around how you're thinking about loan growth in 2021? Given all the puts and takes with indirect auto still running off, but the Southeast opening up and all the hires you've made, how should we sort of think about the range of growth that you guys can put up in '21?
Palmer Proctor, CEO
Yes, I'll take that, Casey. This is Palmer. We feel very encouraged by that. When I look at the pipelines, which are indicative of future production, it's more than encouraging as we look into the first quarter, which is traditionally a seasonal quarter where you have a little pullback. There certainly remain headwinds in the economy and in paydowns, but what we're seeing in terms of the pipeline and sustainability of what we've got, whether it be the new commercial initiatives, we've got 10 new C&I lenders or whether it be on the mortgage front. When I’m looking at the pipelines now, we've got incredible volume still coming through them. I think it's going to be a strong first half of the year for us. Like I mentioned in my comments too, I think the benefit we have is being well-positioned in the markets we're in. As a result of that, we feel confident in our ability to continue to deliver on the growth side. If you look at applications and locks, just in mortgage alone, we're still above where we were in November and December, and it's almost double of what we were in January of last year. So it's starting out pretty solid in terms of the activity. Obviously, refi activity should slow as rates go up, but the purchase activity continues to be robust, and I think we'll see a lot of opportunity.
Casey Whitman, Analyst
Okay, got it. And maybe ask one more, just can you give us an update, Palmer, on how you're thinking about M&A this year as we come out of the pandemic? It's been some time since LION. So, how should we think about your appetite at this point for additional M&A?
Palmer Proctor, CEO
Well, I'll tell you as we've been very consistent in saying all along in terms of the discipline here at the company, our first and foremost focus is always on organic growth and our ability to generate strong top-tier earnings, which we have proven over the last 18 months. We've had very little noise in our earnings over that period of time, enabling us and the market to see the earnings power of this organization without M&A. That being said, I do think there are going to be some opportunities, and we will remain optimistic. I think some of the opportunities that may present themselves have more to do with the economy and technological ease. The opportunity for M&A as we look out into 2021 will be robust for the industry. We want to remain in position to be nimble and take advantage when we deem it appropriate for a potential target.
Casey Whitman, Analyst
Makes sense. Thanks for the call. I’ll let someone else jump on.
Palmer Proctor, CEO
Thank you.
Operator, Operator
Our next question will come from Brady Gailey with KBW. Please go ahead.
Brady Gailey, Analyst
Hi. Thank you. Good morning, guys.
Palmer Proctor, CEO
Good morning, Brady.
Nicole Stokes, CFO
Good morning, Brady.
Brady Gailey, Analyst
So if you look at what Ameris did in mortgage last year, it's just amazing. If you back out the MSR impairments, there are $414 million of mortgage banking fees. It's unlikely that's repeatable this year. We've got volumes going down and gain on sale coming down. Any idea how much those fees could decline this year? What the magnitude could be?
Palmer Proctor, CEO
Well, I think that's going to be specific to the mortgage operation of each individual bank. I would tell you our operation is very different than most, and I think that's reflected in the success we've had this year relative to our peers. You'll find the same thing as we look forward because when you look at the same numbers I do in terms of the MBA estimates. If you drill down into those estimates, you will find that the purchase activity will actually increase, while the refi activity drops off. When you hear people say it's going to drop 50%, that’s primarily due to the refi activity. I will tell you our shop has never prided itself on refi activity. It’s mainly purchase activity and relationships we've established with builders and realtors over many years. What you'll find is that a lot of the shops that have focused on refi activity to the detriment of relationships with others will probably end up being some of those that fall out, and we'll be able to pick up some incremental volume. As I said, when you look at our pipeline and the locked pipeline, it's equally as strong as what we saw in the third and fourth quarters. The first half of the year for our mortgage shops is going to be less impactful than many others. We will certainly see the pullback in refi as rates increase. But all in all, I think it's hard to predict the magnitude of the market after the first half of the year. I can tell you the housing market is extremely vibrant. We're seeing it both on the construction side and on the mortgage side, and we will continue to capitalize on that. Our growth markets are key to our mortgage activity, and we have the capacity to scale up.
Brady Gailey, Analyst
Okay, that makes sense. Then finally for me just looking at the expense space, what sort of growth can we expect in expenses outside of mortgage banking? I know that will kind of depend on what you do on the mortgage side. But maybe just talk about kind of core expense growth. And then I know, Palmer, you hired a lot of talented people in 2020. Will that continue in 2021?
Palmer Proctor, CEO
On the C&I front, we are probably going to look to hire about seven or eight more C&I specific lenders. One thing that Matt and his team did an excellent job of last year was ensuring that the existing talent we have is also pulling its weight. We were able to reallocate some of that overhead expense into new lenders, and we'll continue to be efficient with that process. I see us looking to hire another seven to eight C&I lenders in the near future. Nicole, you can comment on any additional overhead expenses.
Nicole Stokes, CFO
Sure. Brady, we are very confident about non-interest expense. We closed additional branches in the fourth quarter, and we didn't have those three events in the fourth quarter again that we probably – we made a decision to make that donation, and we made the decision to exit last year. We're trying to keep core bank expenses as flat as possible, especially with the potential margin squeeze and uncertainty in the market. We are very cognizant of planning for places that we need to spend money, and we may need to reinvest, finding a way to pay for it internally through a reallocation of resources. We are committed to that core bank strategy. On the mortgage banking side, we do anticipate decreases in variable costs as production decreases back to normal levels. I want to remind everybody that there's always that cyclical first-quarter effect, such as payroll taxes.
Brady Gailey, Analyst
All right. Great. Thanks for all the color, guys.
Nicole Stokes, CFO
Thank you.
Operator, Operator
The next question comes from David Feaster with Raymond James. Please go ahead.
David Feaster, Analyst
Hi. Good morning, everybody.
Nicole Stokes, CFO
Good morning.
David Feaster, Analyst
I just wanted to start on production. Just curious, you guys had a nice pool of new hires announced a couple of months ago. Just curious how much they're contributing at this point? And then I guess as they continue to ramp up, would you expect production to accelerate, hopefully to accelerate throughout the year? And then just kind of the pulse of the hiring market more broadly? Are you guys seeing any new opportunities still?
Palmer Proctor, CEO
Yes, absolutely. To answer your question more specifically, when you look at our pipeline for the core bank, we'd like to keep that over $1 billion. Currently, just about a third of that is specific to the C&I initiative we have with the 10 new lenders. C&I, by definition, has a longer build. It takes longer, unlike a CRE loan where you get immediate growth. There is a ramp-up period getting individuals on board, moving over business, and getting them up and running. We've been very pleased. When you look at the breakdown of that pipeline, about 60% is still coming out of Atlanta, 20% out of Florida, and another 20% from the Carolinas. As we continue to see hiring opportunities, they’ll typically come from the Carolinas and Florida. Those areas will continue to grow and catch up with Atlanta, so we're excited about that. When it comes to the seven or eight new lenders we look to hire, we will add them proportionately through those three states. We encourage patience in seeing the results as they ramp up, focusing on middle market established companies, not just transactions. I'm very encouraged by what we see. I’m glad we made the investment last year because it does take time for that investment to ramp up, but it’s looking promising. If this economy opens up a bit, I believe it will further accelerate these opportunities.
David Feaster, Analyst
Okay. And then just -- you guys did a great job using hires and team lift-outs to do some geographical expansion through some new branching and new markets. Just curious, where are you interested? Is that still attractive to you to do some market expansion? Is it more attractive to do it de novo with some hires versus potential M&A? Following up on the M&A commentary, could you remind us of some of your geographic priority sizes that you're interested in and financial metrics, and even if -- what kind of deals you'd be interested in?
Palmer Proctor, CEO
Yes, it's kind of a dual approach. If you look at it from the organic standpoint with Ameris, we are already operating in some of the top growth markets in the United States. What we need to focus on is capturing additional market share. If you look to expansion beyond that of our core branch footprint, where our loan production and offices are, we have a meaningful office in the mid-Atlantic. I could see us expanding there with other types of loans and branching, getting out of our existing footprint. Right now, in Florida and Georgia and the Carolinas and parts of Alabama that we’re in, we see plenty of opportunity there. The phase two would be looking at some of the secondary markets where we would primarily have LPOs. The second strategy would be M&A where you would enter a new market potentially through an acquisition. We've been consistent in saying we’re looking for anything larger than $3 billion.
David Feaster, Analyst
Okay. And what kind of size range for a transaction would you be interested in?
Palmer Proctor, CEO
As we've said all along and been very consistent, probably nothing smaller than $3 billion.
David Feaster, Analyst
Okay. And then just on the fee income front, just curious where we are in the process of reinstating some of the waived fees? And how do you think about these going forward? The counter-cyclicality of mortgage has obviously been a huge help. Are there any other lines that you'd be interested in expanding into?
Palmer Proctor, CEO
Premium finance has been a homerun for us this year. It's a very stable, steady source of income. If you do it right, it has very low credit risk. We will continue to grow in that area, targeting smaller agencies where there's a lot of opportunity. The wealth group, which includes private banking, trusts, and investment management, is another area where I see additional opportunity. There could be acquisition opportunities for that, increasing good fee income. It requires an investment and takes time, but we have a major focus on that for 2021. Regarding core service fee income related to accounts, I think there's been an increase across the board, and I think that will continue as the economy opens back up. We've all seen a pullback and are very sensitive to fees, but I believe service fee income for banks will be on the rise again as the economy reopens.
David Feaster, Analyst
Okay, that's helpful. Thanks.
Operator, Operator
The next question will come from Jennifer Demba with Truist Securities. Please go ahead.
Jennifer Demba, Analyst
Thanks. I think most of my questions have been covered, but Palmer when you think about expense reduction opportunities, how do you think about branch rationalization right now given you seem to be operating pretty well with the lobbies closed?
Palmer Proctor, CEO
Yes, we are. As an industry, we've all benefited from being forced to step back and look at that whole operation, our retail delivery operation. Banks traditionally move slowly to adapt and change. The herd mentality seems to prevail. We're being proactive, and I think you’ll find many banks continuing to close branches while maintaining drive-throughs. We still believe in having branches but can achieve a much more efficient footprint and much more efficient use of talent. Our focus is turning branches into more destination centers for an experience, rather than just transactions. We've touched on reviewing our branch network as we look through it.
Jennifer Demba, Analyst
Thank you.
Operator, Operator
The next question will come from Kevin Fitzsimmons with D.A. Davidson. Please go ahead.
Kevin Fitzsimmons, Analyst
Hi. Good morning, everyone.
Nicole Stokes, CFO
Good morning.
Kevin Fitzsimmons, Analyst
Nicole, I understand that the margin did better than that prior guidance of low to mid single-digit compression. I'm curious if we can pivot and look forward now. Is that still the outlook from here? I know there are many different factors. Assuming that's the core margin you're talking about x accretion and x PPP fee accretion as well. So maybe if you can kind of start there on what you're thinking about the core margin, what you're thinking about accretion contribution? I know it came in this quarter. I know that's a tough thing to predict, but just where you think that might be. Then if you could touch on PPP fees in terms of what fees -- how much fees you have remaining? Is it reasonable to assume the round one fees get mostly taken up or recognized in the next two quarters? Thanks.
Nicole Stokes, CFO
Sure. I’ll answer the last question first, as that actually leads into the answer of the first one. We had about $41 million remaining of the original PPP round one. We’ve got $21 million there, and we said that we expected to amortize demand as a contractual maturity within two years for our internal modeling. We were using a one-year horizon, so that would really be the end of the second quarter. It’s logical to assume that most of that $21 million will come in within the next two to maybe two and a half quarters. Knowing that, we have that coming in on the margin, and that is what helped protect it a little bit in the fourth quarter. Kind of moving forward, several factors will affect the margin. We’re looking at loan growth, liquidity, PPP forgiveness, and deposit costs. We already communicated that we expected low to mid single-digit margin compression in the first quarter, but we discussed the initiatives we foresee that could positively influence that number. A longer answer there, but I hope that helps.
Kevin Fitzsimmons, Analyst
No, that’s great. Just one quick follow-up question on the consumer portfolio, $119 million that’s transferred to help the sale. What is that portfolio and why was it shifted over there?
Nicole Stokes, CFO
Sure. That is kind of an ancillary product that we bought several years ago funding through a third-party source. We were getting out of that line of business. We have bids on that, and it’s held for sale. We anticipate that will essentially sell in the first quarter. That was an intentional decision for us to sell that.
Kevin Fitzsimmons, Analyst
Great. Okay. Thank you very much.
Nicole Stokes, CFO
Thank you, Kevin.
Operator, Operator
The next question will come from Brody Preston with Stephens Inc. Please go ahead.
Brody Preston, Analyst
Hi. Good morning, everyone.
Nicole Stokes, CFO
Good morning.
Brody Preston, Analyst
I just wanted to ask Nicole just more specifically on expenses. You all have done a good job sort of growing the core bank, core C&I and CRE. This quarter, the growth was pretty strong, but sort of excluding the Foundation contribution and the FDIC termination, the expense is running pretty flat on the core expenses. Given all the new hires and growth trajectory moving forward, could you speak to specific things you've done to help offset some of the investments you've made? You're growing the core bank, but the core expenses aren't necessarily following suit?
Nicole Stokes, CFO
Yes. So we've done several things there. First, we optimized branch processes and closed additional branches on October 1. There’s one additional branch that has closed so far in January. We’ve ensured resources saved will support other investments. All of the new hires came in the third quarter. Fourth quarter expenses are in our run rate. We’ve also implemented innovations on the technology side, including robotics and AI first in mortgage, now expanding that approach. The efficiency of these innovations is driving significant cost reductions. Employees have been empowered to challenge existing processes to improve efficiency. We prioritize a disciplined approach to spending, especially with potential margin squeezes and uncertainty. That's part of our culture and we strive for continued efficiency.
Palmer Proctor, CEO
Brody, I’ll echo some of Nicole’s comments. She's onto something important regarding continuity in operational efficiencies. The proactive approach helps us remain agile and responsive. Looking ahead, I expect to see opportunities for enhancing operational efficiency across departments. It’s how we maintain power without incurring excessive costs.
Brody Preston, Analyst
Okay. Thank you. So just as I think about growth in that core expense, the core banking expense from here, is it safe to assume kind of a mid-single-digit growth rate from here just given the longer trajectory?
Nicole Stokes, CFO
Yes, very low single digits.
Brody Preston, Analyst
Okay. Thank you for that. One last question on expenses. Assuming we get mortgage production to go back down more towards 3Q '19, 4Q '19 levels at some point here in the back half of '21 and into '22, would it be safe to assume that the expenses would head back towards 3Q '19 and 4Q '19 levels as well?
Nicole Stokes, CFO
Yes, it could even be a little better just based if you think back to 3Q and 4Q of last year. We were still in the middle of the Ameris and Fidelity integration. We still had some dual systems and also didn't have the robotics in place. So expenses could decline with improved efficiency.
Brody Preston, Analyst
Okay, great. I'm sorry if I missed it, but you had a big ramp-up in cash this quarter. I wanted to know if some of that is transitory or, if not, what you plan to do with it? The securities book is running at 5%. I think it was at 9% after the LION deal closed. Do you envision building this book at all in the near term?
Nicole Stokes, CFO
That's a great point. We do have excess liquidity, and typically, we have cyclical deposits that come in through municipalities and ag. We had about $500 million of excess liquidity that we anticipate running out in just deposits coming in the fourth quarter, going back out in the first quarter. We've already had about $300 million run off in January. I am estimating about 200 million to move out here in the first quarter. For excess liquidity, I'll consider that to remain at $1.5 billion. Earmark $500 million for new PPP, about 300 million growth for the bank and premium finance, leaving about $200 million for potential organic loan growth or strategic runoff. We would prefer not to resort to building up the securities portfolio right now.
Brody Preston, Analyst
Okay, understood. So it doesn't sound like you feel a need to build in the securities portfolio at all.
Nicole Stokes, CFO
Not necessarily right now.
Brody Preston, Analyst
Okay. Palmer, you mentioned just on the mortgage real quick, you mentioned the mix of Ameris being traditionally stronger towards purchase. What that mix was purchase versus refi in 2020?
Palmer Proctor, CEO
We're running right now at 58%. Traditionally, we had run in the high 90s. So I think that's what you’ll see it migrate towards. As I mentioned, we saw this during the last mortgage wave: as refi has pulled back, core mortgage companies like ours actually garner market share. When people pull out or shut down operations and wait for the next wave; we will develop incremental volume to capture. Right now, our focus is on the growth of markets in our geographical presence.
Brody Preston, Analyst
Okay. Palmer, you mentioned that on the hotel sale, it looks like you might not have had an existing mark on this, just given the specific reserve for the quarter was $14 million. Were there any specific reserves set aside for any of those loans before you sold them?
Palmer Proctor, CEO
Yes, there were, because they included both TDRs and non-accrual loans. As of the end of the third quarter, we had both FAS 5 and even more reserves associated with that portfolio.
Brody Preston, Analyst
Okay. And then, Nicole, the production yields at 3.86 at the core bank. It hasn't been surprising but has seen a steady decline here the last couple of quarters. Where do you see those going in the first quarter?
Nicole Stokes, CFO
I would anticipate, and hope they stay stable at this point. The best offense is deposit cost control. Hence, we’re actively observing those trends.
Brody Preston, Analyst
Okay. And just two left for me. When you look at your customer base, you guys have done a pretty good job on NIB historically, but like the core C&I portfolio is not a relatively large portion of the loan book. Where do most of your non-interest bearing deposits come from?
Palmer Proctor, CEO
They come from our commercial base, even if it's small, that's where the majority of the deposits come from. We're seeing considerable growth, especially in treasury management. There is a lot of additional business in the pipeline.
Brody Preston, Analyst
Okay. Thank you. Finally, Palmer, I heard your response earlier on M&A, but I wanted to ask again about the size of potential targets and your thoughts around any potential mergers with equals?
Palmer Proctor, CEO
Yes, I would tell you the same answer I gave before; we're looking to target within our size range of about $3 billion. However, we value our current market, and our top-tier performance remains critical. If we pursue any mergers, we'll need to ensure that we’re aligned to retain the same financial performance.
Brody Preston, Analyst
Understood. Thank you very much for taking my questions. I appreciate the time this morning.
Operator, Operator
The last question today will come from Christopher Marinac with Janney Montgomery Scott. Please go ahead.
Christopher Marinac, Analyst
Hi, Palmer, Nicole. Just to follow up on the mortgage margin. I note the comments earlier. Just curious at the history of Ameris and Fidelity before that. If that margin really is not relevant in terms of history, that it's a new paradigm for you given the changes you're making, which means that perhaps the downside is there some, but not as low as it had been historically?
Palmer Proctor, CEO
Yes, like a lot of things; I think it's an enhanced discipline. Both Ameris and Fidelity have always run good mortgage shops. The focus Robert Odom and his team have put in place has helped maintain margins. While margins won't hold as strongly, they've been effective in maintaining those margins; as long as the volume is present, it aids in keeping margins elevated. When volume pulls back, some decline will occur.
Christopher Marinac, Analyst
Great. Thanks for that. Are there still opportunities to hire more producers on the mortgage side?
Palmer Proctor, CEO
Yes. We've got opportunities and will hire in short order. We are continuously exploring avenues. There are some upcoming opportunities.
Christopher Marinac, Analyst
Great. Thanks very much for all the time this morning.
Palmer Proctor, CEO
Okay. Thank you.
Operator, Operator
This will conclude our question-and-answer session. I would like to turn the conference back over to Palmer Proctor for any closing remarks.
Palmer Proctor, CEO
Great. Thank you, Grant. I want to thank everybody for listening in to our fourth quarter and full year 2020 earnings call. As we look forward in 2021, Ameris is extremely well positioned for the future. Thank you, and we look forward to speaking with you next quarter.
Operator, Operator
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.