Trustmark Corporation (TRMK) Q4 2020 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen and welcome to the Trustmark Corporation Fourth Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. Following the presentation this morning, there will be question-and-answer session. [Operator Instructions] As a reminder, today's conference call is being recorded. It is now my pleasure to introduce Mr. Joey Rein, Director of Investor Relations at Trustmark.

Good morning. I'd like to remind everyone that a copy of our fourth quarter earnings release, as well as the slide presentation that will be discussed on our call this morning is available on the Investor Relations section of our website at trustmark.com. During the course of our call, management may make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We would like to caution you that these forward-looking statements may differ materially from actual results, due to a number of risks and uncertainties, which are outlined in our earnings release and our other filings with the Securities and Exchange Commission. At this time, I'd like to introduce Jerry Host, Executive Chairman of Trustmark Corporation.

Thank you, Joey. Good morning, everyone and thank you for joining us. This past year has been an extremely challenging time for everyone. COVID-19 and the effects of this pandemic significantly impacted the ways in which we live, work, and interact with each other. As an essential business in the communities we serve, our associates quickly adapted and found new ways to serve our customers and meet their financial needs during these unprecedented times. Customers embraced our digital banking platforms and many associates transitioned to a remote work environment. While not without challenges, our associates never missed a beat and we leveraged investments in technology and learn lessons that have strengthened our organization. During the course of the year, we participated in the government's Paycheck Protection Program, to help those struggling in our communities pay their employees and sustain their businesses. We provided nearly $1 billion in PPP funds through more than 9,000 loans. That's nearly two years of normal loan production in a period of less than two months. Our associates went above and beyond to ensure our customers and communities receive the assistance needed. I'm extremely proud of their tireless efforts. Last week, we began processing applications to provide additional support for those in need under the latest round of the SBA's Paycheck Protection Program. We also helped our communities in a number of ways, including programs to provide meals for first responders and members of the health care industry. Trustmark also provided funds for school and community-based food programs for students and families. And in our Sleigh Hunger Campaign contributing more than $0.25 million to food banks and pantries across our five-state franchise. As we begin 2021, Trustmark remains committed to providing solutions to the customers and communities we serve. Now, I will ask Duane Dewey, Trustmark's President and CEO to share with you our performance for the fourth quarter and 2020. Duane?

Thank you, Jerry. With us this morning are Louis Greer, our CFO; Barry Harvey, our Chief Credit Officer; and Tom Owens, our Bank Treasurer. We are pleased to announce net income of $51.2 million or $0.81 per share in the fourth quarter. For the year, Trustmark's net income totaled a record level of $160 million, representing diluted earnings per share of $2.51. Let's briefly review the financial results, which start on slide three of our presentation. Loans held for investment in 2020 increased $488.9 million, or 5.2% from prior year. As Jerry mentioned, we did participate in the SBA's Paycheck Protection Program and originated $970 million in loans. We also had a record level of mortgage production totaling $3 billion for the year, which produced non-interest income of $125.8 million. Total deposits increased $2.8 billion or 24.9% from the prior year, reflecting additional customer liquidity. Total revenue in 2020 was $701.1 million, a 14.3% increase from the previous year. Pretax pre-provision net revenue totaled $239.2 million, an increase of 29.6% from this time last year. These are very solid results, particularly in light of the operating environment. Adjusted non-interest expense for the year totaled $455.4 million and our efficiency ratio improved to 63.35%. Credit quality continues to remain solid for 2020 as non-performing assets declined 9.3% from the prior year and net charge-offs represented 0.02% of average loans. We maintain strong capital levels and provided consistent cash dividends. The Board declared a quarterly cash dividend of $0.23 per share payable March 15th to shareholders of record on March 1st. As you may recall, we suspended our share repurchase program during the first quarter of 2020, given the economic uncertainty related to the pandemic. We now expect to resume the share repurchase program through open market or private transactions depending on market conditions and management's discretion. We have authorization to repurchase up to $100 million of Trustmark's outstanding common shares through December 31 of 2021. At this time, I'd like to ask Barry Harvey to provide color on loan growth and credit quality.

Thank you, Duane. Looking on to slide four, as you can see our held for investments, excluding PPP loans totaled $9.8 billion as of December 31st, a slight decrease of 0.2% from the prior quarter, and an increase of $489 million or 5.2% year-over-year. CRE was the driver of the majority of our loan growth during 2020. The loan portfolio remains well diversified, based both on product type as well as geography. Moving on to slide five, Trustmark's CRE portfolio is 66% existing, 34% construction land development. It's important to note, that the construction land development is 80% construction. 87% of our total CRE book is vertical in nature. The bank's owner-occupied portfolio has a good mix between real estate types as well as industries. Looking on to slide six, the bank’s commercial loan portfolio is well diversified, across numerous industries. Typically these loans are well secured, governed by a formulated borrowing basis, and with covenants to protect both the income statement and the balance sheet. On slide seven, we have a minimum exposure, as you can see, the restaurants and energy. Trustmark has never been in the high-risk C&I lending business, and currently only has one customer with $11 million outstanding. The bank has always underwritten both hotel and retail CRE in a conservative manner and our exposure to these industries is being monitored carefully. Only 0.35% of our total loan book remains on some type of COVID concession plan, as of year-end. That's down from a peak of roughly 12% earlier in Q2 of this year -- of 2020. Looking at slide eight, we conducted a follow-up review during the fourth quarter of 2020 of our COVID-19 portfolio that had potentially been impacted by the economic environment, resulting from the virus that was approximately $1.8 billion worth of loans that we consider in this category. These are loans that have had one or more payment extensions or payment deferrals, as a result of the impact of COVID-19 on the business and/or those that have been -- that are in industries that are -- have been greatly impacted such as, hotels restaurants, et cetera. We reviewed roughly $970 million of that $1.8 billion book during Q4, which gave us a coverage of about 54%. We focused on the low-pas credits and the non-pass graded credits within that book. Approximately, 47% of the loans reviewed did have one or more concessions granted to them. We also got coverage in our hotel portfolio of about 93%. In our restaurant portfolio, we looked at about 44% of it. And then, of our retail CRE book, we looked at about 41% of that. So, out of all that, we reviewed $970 million worth of credits. We ended up downgrading to non-pass $32 million. So we felt good about the fact that we only moved $32 million into the criticized category during -- as part of this review. Looking on to slide nine, our allowance for credit losses decreased to $4.7 million from the prior quarter. Our reserve calculation included increases in the qualitative changes due to the efforts to fully address and recognize the impact of the COVID-19 pandemic. It also reflected decreases in our quantitative reserve, as a result of the fact that our economic forecast continues to improve as -- throughout the second half of 2020. At December 31, 2020, the allowance for credit losses, on loans held for investments totaled, $117.3 million. Looking on to slide 10, we continue to maintain solid asset quality metrics, the allowance for credit losses represents 1.9 -- excuse me, the allowance for credit losses represents 1.19% of loans held for investment. That's 573% of non-performing loans, excluding those that are individually evaluated. During Q4, net charge-offs totaled only $291,000 or 0.01% of average loans. Other real estate declined 28% linked quarter and 60% from this time last year. Looking at slide 11. As Jerry indicated earlier and Duane as well, the bank actively participated in the first couple of rounds of the Paycheck Protection Program and successfully assisted a significant number of local businesses that have been negatively impacted by the COVID-19 pandemic. Our PPP loans totaled $610 million at 12/31/2020 net of the deferred loan fees and cost of $12.9 billion. Duane?

Yes. Thank you, Barry. Turning now to the liability side of the balance sheet. I'd like to ask Tom Owens to discuss our deposit base and net interest margin.

Thanks Duane. So turning to Slide 12. Deposits totaled $14 billion at December 31 up $826 million or 6.2% from the prior quarter and up $2.8 billion or almost 25% year-over-year. Average balances were essentially unchanged linked quarter at $13.5 billion and up $2.2 billion year-over-year primarily reflecting additional customer liquidity associated with the PPP loan program and government stimulus payments. Our cost of interest-bearing deposits declined 4 basis points in the third quarter to total 27 basis points. We continue to maintain a favorable deposit mix at year-end with 31% in non-interest bearing deposits and 64% of deposits in checking accounts. Our liquidity remained strong with the loan-to-deposit ratio of 74% at year-end and reliance on wholesale funding at 3% of assets. Turning our attention to revenue on Page 13. Net interest income FTE totaled $114.3 million in the fourth quarter representing a linked-quarter increase of $5.1 million. Interest and fees on PPP loans totaled $14.9 million which was an increase of $8.1 million from the prior quarter driven by the accelerated recognition of previously deferred PPP loan origination fees as a portion of the PPP loan portfolio paid down. Core net interest income FTE was $99.4 million which was a decline of $3 million from the prior quarter as a reduction of $3.6 million in core interest income more than offset a decline of $600,000 in interest expense. About $2.6 million of the linked quarter decline in interest income was driven by a decline in securities yield to 1.65%, representing a linked-quarter decline of 40 basis points. The decline in securities yield was driven by higher residential mortgage prepayment speeds lower reinvestment yields and a reduction in yield in payment receipts. Net interest margin in the fourth quarter of 3.15% increased 12 basis points from the third quarter, driven by the accelerated recognition of PPP loan origination fees, while core NIM excluding PPP loans of 2.91% in the fourth quarter, declined by 14 basis points from the third quarter. Average other earning assets remained elevated during the quarter as the anticipated reversal in public fund, as well as certain other deposit balances have yet to begin in earnest. We continue to anticipate a reversal in 2021, but given the uncertainty around magnitude and timing we also expect to continue carrying significantly elevated excess Fed reserves for some period of time. And now Duane will continue with an update on non-interest income.

Thanks Tom. Looking at Slide 14. Non-interest income for the fourth quarter totaled $66.1 million, a decrease of $7.6 million from the prior quarter. The linked quarter change reflects increases in service charges on deposit accounts, bank card and other fees which were offset by seasonal decreases in mortgage banking and insurance revenue. The $87.5 million increase from 2019 to 2020 was mainly due to increased mortgage banking revenue. As noted, the mortgage banking group reported solid production for 2020 and we will discuss its results in more detail in a minute. Insurance revenue for 2020 totaled $45.2 million, a high watermark up $2.8 million from the prior year. Wealth management revenue for the year was $31.6 million a $946,000 increase over this time last year. For the year ended 2020 non-interest income totaled $274.6 million, an increase of $87.5 million from the prior year. For the fourth quarter non-interest income represented 37.3% of Trustmark's revenue and reflected a strong and diversified revenue stream. Turning to Slide 15. Our mortgage banking group had a record year in 2020 with loan production totaling $3 billion, an increase of 69.4% from the prior year. For the fourth quarter mortgage loan production had a seasonal decline of 11% from the prior quarter and an increase of 58.1% year-over-year. In the fourth quarter retail production represented 73.4% of the volume or $579 million, a very strong year for our mortgage group for sure. Louis will now cover non-interest expense and capital management.

Thank you, Duane. We can turn to slide 16 now. And as you can see, we have a detail of our non-interest expenses broken out between adjusted, which I'll call core other in total. So, core expenses for the quarter were $119.6 million, an increase of $5 million linked quarter. That increase can be attributable to three things; first, an increase in salary, benefits representing additional performance based incentives accrued in the quarter of about $2.5 million. Also increased service fee was about $1.3 million for technology. We continue to invest in technology, and professional services related to that. And third, the increase in other expenses of about $1.3 million. I think as Jerry mentioned earlier, we made significant contributions in the fourth quarter to non-profits of about $300,000 and then other expenses increased in addition to that. For 2020, as Duane mentioned, non-interest expenses totaled $455 million, an increase of $34 million in 2020 over 2019. For the year, salary employed benefits increased $20 million. It was due to several items, which -- of when its mortgage commissions were up $10 million, which is a positive because of the revenues generated as Duane mentioned. So, 50% was commissions on mortgage production. Other increases in salaries and benefits were $10.5 million and are loosen as explained on slide 16 as well. Services and fees increased $10.5 million for the year. And again, we continue to -- our continued investment in technology, as well as professional services. For 2020 credit loss expense related to off-balance sheet and credit exposures increased about $9 million as a result of our implementation of CECL in 2020, although real estate expenses declined about $2 million for the year as there were fewer write-downs on other real estate, and we had increased gains on the disposition of those properties. Also in 2020, Trustmark had a one-time charge of about $4.4 million as we have voluntary early retirement program that occurred during the first quarter. Now, guidance for the first quarter, we would expect that our non-interest expenses core are adjusted as we referred to on our sheet are going to be approximately $114 million to $116 million. There's a few dependence on that primarily related to the mortgage. It really depends on what that production would be in the first quarter. It seems to be relatively strong at this point in time. But, again the guidance for the first quarter was $114 million to $116 million and that's only for the first quarter of 2020. Now moving to capital. As you can see on slide 17, Trustmark remains well-positioned from a capital perspective. During the fourth quarter, Trustmark issued $125 million and a nice rate of 3.625% fixed-to-floating, a subordinated holding company yet enhancing Trustmark regulatory Tier 2 capital ratio. The proceeds from this issuance are intended for general operate purposes. As a result, Trustmark's capital ratios remain solid with common Tier 1 at 11.62% and total risk-based capital of 14.2%, up from 13.25% at the end of 2019. As Duane mentioned, the Board declared a quarterly dividend of $0.23 per share for March 15 to shareholders of record on March 1st. And also Duane mentioned, we listed our self-imposed suspension of our repurchase program and have authorized up to -- repurchase up to $100 million of common stock through 12/31/2021. And I'll mention that our share repurchase program may take place through open market or private transactions depending on what market conditions allow. And it's also management's attrition. So Duane with that, I'll turn it back over to you.

Okay. Thank you, Louis. I trust this discussion of our fourth quarter financial results; it's been insightful and helpful. At this time, we do open the floor for any questions that we may see.

And ladies and gentlemen, at this time we’ll begin the question-and-answer session. [Operator Instructions] Our first question today comes from Jennifer Demba from Truist Securities. Please go ahead with your question.

Thank you. Good morning.

Good morning, Jennifer.

So, just a question about what you're expecting in terms of loan growth this year? It would be my first question. And then secondly, can you talk about your interest in M&A? Right now, you have pretty robust capital levels. Thanks.

Barry, go ahead.

Glad to Duane. Jennifer, I think, what we're looking at this year is probably going to be low single-digit loan growth. I think as we had guided the Street last year or 2020 to mid single-digits and that's exactly where we ended up. I think for this year where we'd be expecting low single-digits at this point. Obviously, as the year goes along, we'll have a better feel for that. I think the biggest headwind we have for 2021 versus 2020, it's going to be – we have about $0.5 billion worth of CRE projects that are scheduled to move out. Now if any of those get delayed then obviously that would impact – that would positively impact our loan growth. And then we do anticipate as we plan out the year and anticipate – and then budget out our loan growth, we do anticipate a certain amount of unexpected payoffs coming from that CRE book and we've been pretty much in line with that. So we do plan for the unexpected. We do put it in our forecast and in our budget, but we do have scheduled that we believe will happen about an additional $0.5 million worth of payoffs that we've not had that headwind in previous years. It's kind of just something that cycles through. Most of these are about a 40-month, 48-month processes. And it just so happens, we have a larger number than normal that are slated to leave us during 2021. The production coming out of that CRE portfolio is extremely strong. It's good now as it's ever been. So it's not a matter of production there. It's just a matter of some payoffs that are kind of an aberration for 2021 versus what we experienced in 2020 and 2019 or maybe what we'll see in 2022. So for that reason we do – we have lowered our expectations to low single-digits as far as loan growth for 2021. Duane?

Jerry, do you want to answer the M&A?

Yes. And thank you for that question, Jennifer. As far as M&A as you mentioned, we're positioned well. We feel from a capital perspective. We also feel like over the last several years. We've done some things to strengthen and improve internal structure as it relates to compliance related and risk management issues. Some of the restructuring Duane did last year in the company in his role as Chief Operating Officer has allowed us to grow the company in a way that we think we could take kind of a sizable organization in terms of an acquisition. Our focus remains within the southeastern part of the United States. We'd like to do something that either complement our existing footprint and would allow for some improvement in our overall concentration level in certain markets or to enter some new markets in the southeast that we're not yet in. As you've heard from Barry in the past, we are doing business with some existing customers and some of the larger markets like Atlanta or Nashville or Dallas. We'd like to remain focused in markets that we've operated in. We entered the Birmingham market. As you know, we'd like to look at expanding further in the Houston market, if there's an opportunity there and certainly along the I-10 and I-20 before the work.

Our next question comes from Brad Milsaps from Piper Sandler. Please go ahead with your question.

Hey. Good morning.

Good morning, Brad.

Maybe I wanted to start with the balance sheet and the margin with Tom. Well, obviously, a lot of moving parts, particularly with some of the municipal inflows that you guys see at the end of the year. It looks like you finished during the quarter had just under $900 million of average liquidity. Total cash balances were closer to $2 billion. I'm not sure how much of that's actually interest-earning cash, but can you give us a sense of, kind of, how you're thinking about that liquidity? I know you mentioned you expect it to flow out kind of in the first part of the year, but kind of how that kind of dovetails with kind of how you're thinking about the margin NII in 2021?

Sure, Brad. This is Tom. So as you said, we ended the year in the neighborhood of $2 billion, which is primarily excess reserves at the Fed earning 10 basis points. I'll just say in very round numbers, there's about $1 billion of that that we think we've identified with large depositors. That is likely to attrit over the course of 2021. The other $1 billion is much more granular, much more widely distributed. It remains to be seen what the effective duration of those deposits is certainly we would like to deploy a portion of those to the extent that they do have any effective duration. I think, it's reasonable to assume that we will grow the securities portfolio somewhat. We've been running with a target of about $2.5 billion. I think we'll probably grow that by about 10% or so. But as I'm sure you've heard here during the earnings season, there's not a lot of great alternatives out there in the world in terms of securities growth. You do a total return analysis and it's just -- it's not very compelling. So, we may go slow on that. It obviously distorts the net interest margin, the only good news I suppose is it's not as if we're paying any meaningful rate on the deposits. So, in other words, it's kind of a push even with the large depositors or maybe a slight net positive to us as compared to a net negative.

Got it. That's helpful. And I guess, I mean that kind of accounts for the liquidity you have now. And then presumably you'll be giving more as the PPP loans forgive as well?

Yes. But again that liquidity is with us. It kind of goes out of one pocket and into the other, right? I mean effectively what you end up giving up is the run rate yield on it. So, that is a headwind to our total net interest income. And again, this is where it gets tricky, right? At what point to those balances -- you can think of the PPP program and the loans as being non-core, but if the loans pay down and are forgiven for the most part at what point do you start to consider the excess liquidity non-core versus core? So, it's challenging to talk about the way we used to talk about dynamics in net interest margin.

Totally understand. And then -- thank you. That's helpful though. Just -- and as my follow-up question. Louis, I appreciate the guidance around expenses in the first quarter. I know it's very tricky with kind of how mortgages can now fluctuate. But just kind of curious any bigger picture kind of expense plans or initiatives regarding branch closures? Anything else that might be on the table to kind of combat the tougher revenue environment?

Well, Brad, as you're aware I've announced my retirement as of March 1st. I'm turning that to Tom Owen who is sitting across me and Mr. Duane who's been turned over from Jerry as CEO. So, I'm going to let those two gentlemen comment about that.

I wanted to give you one more shot Louis.

Yes, I'll refer to these gentlemen.

Thank you for the question, Brad. We are very, very focused on expansions. Obviously, in a challenging revenue growth environment, it's a topline issue for us across the organization. We've challenged every executive in the company to rationalize and focus on expenses in their business units. In terms of -- you mentioned branch optimization. We did close six branches in 2020. We have another 10 to 13 identified for 2021. That's part of the branch optimization program that we've been in -- we've had in place for 10 years or more. So, we are very focused on our branch system and how we serve customers. We have a number of markets where we're doing two for ones where we are closing two opening one in a better location to better serve our customers. We're still getting our arms around adoption of digital platforms and how our customers are interacting with us. We have introduced a pretty significant number of ITMs throughout our system. And so we are very focused on branch optimization. Additionally we've challenged our executive team. We've got internal headcount management initiative, every open position, every midyear raise, every item in terms of salary and benefits is being analyzed and focused on for expense management purposes. And as Louis, I think mentioned in his comments we're utilizing technology. We are investing in technology, but we are utilizing that to become more efficient across the core company. And so I would say, Louis stated first quarter guidance, but I would say we're laser-focused on expenses for 2021 and beyond. Well Tom, any comments, any additions?

Nope.

Okay. Thank you, guys.

[Operator Instructions] Our next question comes from Catherine Mealor from KBW. Please go ahead with your question.

Thanks. Good morning.

Good morning.

Good morning.

I wanted to follow-up on the margin and see if you could talk a little bit about your outlook for loan yields and where new loan production is coming on today. And then on the other side of the balance sheet where you think deposit costs will end up bottoming out later this year? Thanks.

Sure Catherine. This is Tom. Thank you for the question. So, again, for the earlier discussion with Brad, it's tough to talk about the margin -- the net interest margin in aggregate, but certainly we can provide some guidance on the primary components of core net interest income and thereby a core net interest margin. So, I'd say we're currently modeling for full year 2021 compared to full year 2020. It's about a 60 basis point decline in the security yields; about a 40 basis point decline in loan yield; offset by about a 20 basis point decline in interest-bearing deposit costs. And so if you do the math on that, that would give you a headwind in terms of core net interest income year-over-year in 2021 of high single-digit percentage. But then on the other side you've got growth in earning assets, as we discussed earlier, when you consider the growth achieved in 2020 – when you consider the growth for 2021, that would provide mid-single digit left year-over-year to core net interest income. And so the net of the two, you wind up in the low- to mid-single-digit percentage decline in core net interest income year-over-year. And then with respect to PPP taking us to the total net interest income, we're looking at approximately – right now we're modeling about an $8 million decline year-over-year 2021 versus 2020. And so again that gets you to mid-single-digit ISH percentage-wise decline year-over-year in total net interest income.

Got it. And does that $8 million decline year-over-year include an assumption for the second round of PPP or just the first round?

Just the – so Catherine just the existing loans on the books from the first and second round, not for the current round. Again, it's very early days there. And maybe I'll ask Barry to weigh in with kind of the start that we're off to there and maybe any outlook on volume and economics associated with that.

I'll be glad to Tom. Catherine I think we've been very pleased with the volume thus far. It's been very steady through last Friday. Since then, it's begun to slow down a little bit. But as you can imagine, there's a lot of people who sit on ready and as it was in the previous two rounds that we had, if you consider when we ran out of money and then they replenished the money in the second round. So from our point of view, the volumes have been good and solid as you'd expect, it's a high, high, high percentage of second draws and that's good for Trustmark. So we know we're helping our first round customers. Our first trial customers come through again and get that second draw. I think that, overall we've been very pleased with the program. We would – we do expect for that to continue to be volume as the program continues to move along. But we did expect and we did see a heavy volume the first three to four days and then it's begun to taper off after that. As you know the fee program for this third round if you will is a little more attractive for the banks, especially when you get down into the smaller loans, it becomes more attractive than it was previously. We're averaging about $100,000 per loan and that's where we were in the prior two programs as well.

Okay. Great. Great. And then how about on the buyback. How aggressive do you think you – maybe how soon do you feel like you'll turn the buyback on? And is it your intention to try to repurchase the entire authorization, or do you look at this more as opportunistic, if there's more volatility in your stock price?

Hey, Catherine, this is Tom. So I'll take that one. So definitely in the camp of opportunistic as compared to programmatic, I would describe it. I would say that we're reactivating and there's no change in our practices. In other words, we have a pretty disciplined framework for comparing the returns available on deployment via share repurchase versus other forms of deployment. And I think as you've seen in the past that results in – that will result in a quarter or quarters, where there's no repurchase activity. And then it will result in a quarter where there's substantially more repurchase activity. And we feel good about the value that we've been able to add over the years by conducting it in that manner. So I would say that we'll continue with that practice. And there's not a target in terms of redeployment relative to the subnet issuance for example. It is more opportunistic. As we've said in the past, our regulatory capital ratios are above our operating targets. And so, we do have operating target ranges that we're trying to manage to win them. So you can expect that you will see repurchase activity, as soon as here in the first quarter depending on what type of opportunity the market presents us to do so.

Thank you so much for the help.

Thank you.

And our next question comes from Joe Yanchunis from Raymond. Please go ahead with your question.

I appreciate taking my question. I guess as a follow-up to the last question what are your operating target ranges for your capital ratios?

Well -- so this is Tom, Joe. We have not disclosed those in the past. As I said we're above the ranges. And when you look where our capital ratios are, I mean it's fair to infer that our target ranges are 100s of basis points above well capitalized. So we have -- we certainly have room to deploy via share repurchase.

Understood. Understood. And then what is your sense on how the mortgage business will perform in 2021? And how do you view the gain on sale margin? So what other fee businesses do you expect will be a partial offset? Thanks.

This is Duane. I'll take a stab. So the mortgage business it's very difficult to forecast. As stated multiple times, 2020 was a phenomenal year in many regards. There is seasonality. First quarter or fourth quarter are usually slower quarters. Fourth quarter was dramatically higher than what we experienced in the prior year. First quarter similar compared to 2019, albeit down from the fourth quarter in terms of volume. The industry is forecasting 30% or higher declines in volumes. But as you pointed out and as you know volume or production volume is one part of the equation. The other part is the gain on sale. We – the 2020 gain on sale margin was extremely strong virtually the entire year. We started to see some pullback in the fourth quarter in that margin, but it's really difficult to forecast and project what we're going to see in 2021 at this point. Tom do you have any further comments on the gain on sale margin? We do see it tightening. Maybe not to the norm loans, but we do see it tightening some in 2021. And then the other offset Louis mentioned it when he talked about expenses. But as mortgage production volume goes down commission expenses go down likewise. I think in 2020, we experienced about a $10 million increase in our commissions related to the mortgage production. And so if we see mortgage production normalize in 2021, there's an offset on the expense side as well so.

Got it. And then just one more quick housekeeping question. In the slide deck, it looks like there's about $12.9 million of fees left to be recognized under rounds one and two of the PPP program. Is that correct?

That's roughly correct.

Correct. Yes.

All right. Well, thank you very much.

And ladies and gentlemen that will conclude today's question-and-answer session. At this time I'd like to turn the conference call back over to Duane Dewey for any closing remarks.

We appreciate everybody participating on today's call. We had a very fantastic year under very challenging and difficult circumstances. We do appreciate you listening in and we appreciate your interest in our company and look forward to getting back together at the end of the first quarter. Thank you.

Ladies and gentlemen that does conclude today's conference call. We do thank you for attending. You may now disconnect your lines.