Thanks, Terry. Good morning, everybody. Many of my slides I have shown for quite some time.
So I'm going to hit the high points. We're pleased with our first quarter loan growth.
Excluding PPP, average loans were up 7.2% between the first quarter and fourth quarter.
Excluding PPP, inter-period loans at March 31 compared to December 31 were up 4.6% annualized.
So call it a mid-single digit growth quarter.
As the loan yields in spite of the steep in the yield curve and as we mentioned last time loan yields will be to fight in 2021.
We will lean into our relationships even harder to maintain our yields. There's a lot of equity out there. It sure feels like it's a borrowers market right now.
Our problem based credits only saw a slight decrease in yields while LIBOR was down 4 basis points and fixed rates down 7 basis points. Overall loan rates were down 9 basis points with PPP loans being down 13% and the biggest contributor to overall loan yield decline and likely to be the most difficult to model over the next few quarters but more on that in a second.
So where to from here.
Our market leaders continue to believe that our in the period loan growth forecast excluding PPP in the high single digits for 2021 is a reasonable number for our firm. We built that estimate from the ground up based on continual dialog with our frontline lenders.
As always we will lean on our new hires to take it - to give us an advantage on loan growth, coupled with our markets which we believe to be the best making markets with the best bankers in the Southeast, we're optimistic about our loan growth goals for 2021.
As to yields, we still have about 60% of our floating variable rate loan book on in the money floor so that will help shield some of the financial long rates continue to be under pressure. Hopefully we can get some traction from a steep in yield curve over time.
Speaking of PPP and in the tons of work that's been accomplished here, we've funded around $3.4 billion between the two 2020 programs and the 2021 program. We're just over $900 million in 2021 fundings, about where we thought we'd end up.
New application volume is slowing, so we don't anticipate a great deal more.
Here's what we're hearing and I'm definitely not on the frontline, but it seems to rain through. The 2021 program hit the mark and was primarily used to help smaller businesses at least from our perspective. The process has improved since last year and this has made life somewhat easier for us and our clients. The FDA continues to move around, change the rules, but all in all it's in a better spot. No one is casting stones, as we can't imagine what the SBA has had to deal with over the last year to get these programs up and running.
As to forgiveness, smaller clients are getting done, say loans less than $150,000 while loans say greater than $2 million appear to be on the SBA [indiscernible] and have been for quite some time.
During the quarter, a slow for some technical issues that the SBA was dealing with and then we ran into tax season with a lot of class working with their CBA.
Our thoughts are that eventually substantially all of our clients, who have not repaid their loans will seek forgiveness. Not sure whether another round of PPP will come around, but if it does we will dive in and believe the appetite will be there but it will be limited. After our PPP results for the same quarter, we are modeling decrease in total revenues somewhat consistent to the decrease between the fourth and first quarter. It all depends on the pace of forgiveness. Eventually the SBA will get at the greater than $2 million also that is coming to us. We just don't know when.
We have about $360 million in loans awaiting forgiveness with the SBA currently and approximately $200 million where we are working with clients together necessary data to submit to the SBA for approval.
Now on to deposits, we had another big deposit. Core deposits were up almost $1.5 billion in the first quarter. We've experienced significant growth in non-interest-bearing deposits ending up at $8.1 billion at quarter end up 63% since last year. Obviously, we believe a significant part of that is government stimulus.
Our average loans to average deposit ratio was down only 11 basis points to 82.7%.
So we consider that a small victory.
Our average deposits were - our average deposit rates were 26 basis points while EOP deposit rates were at 22 basis points.
So we continue to see downward momentum for 2021 and look to be around 50 basis points by the fourth quarter of 2021 assuming our short-term rate forecast remained consistent for the remainder of this year. Liquidity bills for nearly all banks that are gain more attention. The steepening of the yield curve has gotten our attention, but we remain neutral on any sort of big bond deployment strategy at present.
Our securities to assets ratio has been 13% to 14% for a long time.
Our estimates are that peers are ran slightly more than that in the 15% to 20% range. We may deploy a modest amount of liquidity into bonds over the next few quarters, but it will be months.
We also allocated about $450 million late in the first quarter into a repo instrument which is secured by the counter parties investment securities portfolio. This is a floating rate instrument that yields around 40 basis points currently.
So it'll be more impactful in the second quarter. We're looking at a somewhat similar product Carly, but it won't be as large. I mentioned all of this to let you know, we are actively looking at prudent investments, where we can minimize or eliminate credit risk, while creating some earnings momentum.
As a top charged in the case, we will again have an opportunity to reduce our wholesale funding book in the second quarter, which we fully anticipate. This almost $1 billion reduction is in our broker deposit books which we acquired as part of our intentional liquidity bill last year at the onset of the pandemic. This reduction should help reduce deposit costs and help our name slightly on the go-forward.
Additionally we have about $900 million in federal home loan bank borrowings with the prepayment penalty remains such that the payback period on those is still four years to five years.
So we will hold tight for now, but monitor those borrowings continue. We believe our name after PPP and liquidity was approximately 3.29% in the same quarter, which compares to a similar calculation last quarter 3.27%. That's our adjusted NIM is now up four quarters in a row, also our GAAP NIM is now up three quarters in a row. We anticipate flat to up slightly for the rest of the year PPP forgiveness, we'll have a lot to do with that.
Now to fee income, I'll be brief these were $927 million for the quarter, for the quarter the revenues were more than 44% over the first quarter number of last year. Wealth management had a great quarter in comparison to last year.
We continue to be very active on the hiring front across our franchise, particularly as we continue to build wealth management in the Carolinas and Atlanta. Mortgage beat expectations by a mile posting revenues of $13.7 million for the quarter up $1.3 million from last quarter.
Second quarter is looking strong as well.
As we sit here today we are much more optimistic about mortgage origination in 2021 than we were three months ago as the right market does not appear to be moving away from us as quickly as we anticipated it might.
Our markets remain strong and we have hired several key originators and several of our markets over the last few quarters. I'll talk more about BHG in a minute. But BHG continues to issue a great report cards quarter-after-quarter.
As per expenses specifically incentives, I think everyone is familiar with the impact of the incentive cost to our expense base and if our earnings are hitting our cards and soon as costs go up if not they go down. 2020 was very much a downer at least in terms of incentives for our associates. But we fully anticipate based on the current operating environment that 2021 will come back strong and hopefully our associates will recoup some of that lost incentive from 2020.
We have provided that opportunity this year to our associates to earn an outsized incentive that says there's no free lunch, increase incentives only occur if our earnings growth supports the incentive. Last year provision expense and CECL required an outside reserve bill which directly impacted our incentive plans probably more so than most. It only stands to reason that if we're able to recoup some of that prior year reserve bill this year there's some of that ship on its way to our associates. This year our annual cash incentive is tied to the usual status and earnings growth numbers.
We also maintain the PPNR component which we added during the middle of 2020.
Additionally our board has also changed the way equity compensation works for the leadership of the firm. Rather than achieving absolute goals for our performance based equity awards our ultimate goal more investing advice on how we rank within a peer group.
Specifically targeting ROTCE and tangible book value growth over a three year period along with a modified based on total shareholder return. That change we believe is more show shareholder friendly over the long term. I probably have spent too much time on this. But those of you that have been around for a while you know our unique incentive culture, incentive structure is cultural. And it is definitely part of what drives the heartbeat of our firm for both the annual cash and equity incentive plans, the first quarter would indicate we're trending in the right direction.
As per expense run rate, we're anticipating personnel expense with all of our new hires coming off more with an inclusive of our increased incentives personnel expense should increase between 22% to 23% each quarter for the remainder of the year. Conversely, all of our other non-personnel costs which amounted to slightly more than $242 million last year should see a high single digit percentage decrease. That's right, a decrease in 2021.
As I stated before, the leadership of our firm is determined to not let a trend develop with the less than target paid out to our associates. That's a trend we will work hard to avoid in 2021. But to accomplish that we all are looking forward to meeting and exceeding our financial objectives this year. Quickly some comments on capital, I'll be brief. We raise our dividend of $0.18 a share last quarter with the share price where it is. We've not acquired any shares and we don't anticipate buying any in the near term. We've been working to redeem a couple of subject issuances this year. And as I mentioned previously, we've intensified our focus on tangible book value growth by adding a component for it in our leadership's equity compensation points.
As to our outlook, I’ll go on to the slide in depth as we've covered most of this previously.
So this is really a summary for the model builders out there of what we think. Obviously, we realize that we appear more optimistic than most. That said, we have great confidence in our piquing, our markets, and our clients and renewed optimism about where the Pinnacle is headed.
Now BHG. This is a slide that we've shown for several hours. The blue bars on the try to originate - on the chart are originations and we have ramped up with more loans being funded with records being set nearly every quarter for the past three quarters.
First quarter was a record for both originations and place. The green bar represents loans on which gain-on-sale has been recorded as these loans are sold in downstream banks. This is the traditional BHG model with gain-on-sale revenues being generated. Coupons have fluctuated somewhat over the last three years ending at 13.6% for the first quarter.
As to bank buy rate, they fell to 4% in the first quarter so net spreads remain in the mid-9s which over time is up from previous years. The bottom right chart now over 1,200 banks in BHG’s network and almost 700 individual banks acquired BHG loans last year. This has to be one of the strongest funding platforms for a gain-on-sale model in the country. This slide is probably the best slide that demonstrates growth potential of the BHG's model. [indiscernible] have improved significantly over the last few years and it is resulting in better hit rates and more loans meeting their fair standards.
As to credit, we've updated the BHG’s charge-offs and reserve bill chart. These are for loans that BHG has sold to their network of community banks. The green bar shows that currently they have just under $3.9 billion in credit with banks who have acquired the BHG loan. The orange line details the annual loss rate, while the blue line on the chart details the recourse accrual as a percentage of outstanding loans with these other banks. Trailing 12 first quarter 2021 losses landed at 4.5% basically consistent with the last few years and during the year where who knew how COVID would impact loss rates. The risk - the recourse obligation reserve is used to reserve for future losses for the loans sold to other banks. obligation reserve is used to reserve for future losses for the loans sold to other banks. With COVID, they increased the reserves by approximately $50 million in the first quarter. But as a percentage of loans, it was down slightly. The top left chart we've shown on several occasions. The quality of BHG’s borrowers has improved steadily in the past and over the last few years, BHG continues to refine their scorecards and increased the quality of its borrowing base. Again the right chart and as I’ve said before may be the most powerful chart I have to offer related to BHG steadily improving credit quality.
Looking at losses by vintage, losses continue to level out in earlier month since originations thus pointing toward a lower loss percentage over the life of the underlying loans. Pandemic related events may cause these losses to move upward but the quality of the borrowing base in our opinion is very impressive and is much better than just from a few years ago.
Lastly, we said in last quarter and we’ll say it again 2020 was a big year for BHG and we anticipate big place in 2021. Last year BHG executing on the first $160 million securitization. This allowed BHG to continue to diversify its revenues and its funding sources. We're expecting another similar securitization at the BHG in the near future here in the second quarter of 2021. BHG’s earnings continue to ramp up. BHG had a great operating quarter in the first quarter very much exceeded everyone expectations even there. We've upped our expectations for 2021 quarterly now expecting 2021 to produce outsized growth in relation to 2020 of 20% to 25% or more before we had anticipated high single digit growth.
So wrapping up, loan growth and loan pricing for Pinnacle in 2021, we'll take work but we are optimistic. Deposit growth has been remarkable. Deposit pricing is headed down. NIM should be flat to up. BHG had another great quarter and we continue to believe in them. Personnel costs will go up but correlated to increased earnings credit for both Pinnacle and BHG we believe is in very much great shape.
So with that I'll turn it over to Tim to talk more about growth.