Thank you, Chuck. Good morning, everyone. Directing your attention to first quarter results, let’s start with slide 5. Net income was a record $33.7 million for the first quarter on a GAAP basis, increasing 15% quarter-over-quarter. On an adjusted basis, which excludes M&A and isolated branch consolidation charges, net income was $35.5 million, an increase of 16% quarter-over-quarter. Earnings per share on a GAAP basis were $0.60 compared to $0.53 in the prior quarter. On an adjusted basis, earnings per share increased to $0.63 from $0.55. On a GAAP basis, we reported 1.70% return on tangible assets and 15.62% return on tangible common equity. On an adjusted basis, first quarter ROTA was 1.75% and ROTCE was 16.01%.
As we continue to grow our capital base, it’s worth mentioning that if the first quarter’s tangible common equity to tangible asset ratio was adjusted to an illustrative target of 8%, our adjusted return on tangible common equity would be 21.8%, increasing from 18.8% in the fourth quarter. Tangible book value per share increased to $16.62, up from $16.16 last quarter, and increased 15% year-over-year. The cost of deposits declined to 13 basis points from last quarter’s 19 basis points. Loan pipelines increased 44% from prior quarter end as Florida’s economic recovery begins to drive increased demand. The wealth management team continues AUM growth with an impressive increase of $156 million in assets under management this quarter to surpass a milestone $1 billion in total AUM. Strong mortgage banking and interchange revenue further bolstered results. We originated $232 million in new PPP loans under the renewed program and saw the pace of forgiveness of loans under the original program increase.
This quarter’s new originations of $232 million resulted in fees earned totaling $9.4 million, which will be recognized over the life of the loan. In March, we announced the upcoming acquisition of Legacy Bank of Florida, which has a deep presence in Broward and Palm Beach counties, offering us exciting opportunities in the fast-growing South Florida market.
We’re also pleased to announce that our Board of Directors approved a $0.13 cash dividend, which will be payable on June 30th to shareholders of record on June 15th.
Turning to slide 6. Net interest income on a fully tax equivalent basis decreased 3% sequentially to $66.7 million, and the net interest margin declined 8 basis points to 3.51%. The decline was largely the result of growth in our cash position. We’ve kept more liquidity on the balance sheet during this period of low long-term rates and expect to deploy the cash prudently over time with the expectation of increasing rates. Again, we’re patient and will be responsive to changes in the outlook, but expect that in the second quarter, we will make net additions of approximately $200 million to the securities portfolio. We estimate the impact on net interest margin of excess liquidity at approximately 8 basis points.
So, removing the growth in excess liquidity during the quarter, the net interest margin would have been approximately 3.59%, flat to the prior quarter. The yield on securities declined 8 basis points to 1.65%, resulting from elevated prepayments and lower yields on new purchases. In loans, we reported lower accretion of purchase discount at $2.9 million in the first quarter compared to $4.4 million in the fourth quarter, the result of lower payoffs in the first quarter. The impact of accretion on net interest margin was 15 basis points in the first quarter compared to 23 basis points in the fourth quarter. This was partially offset by higher PPP fees with the combination of the new PPP programs and forgiveness on loans in the original program.
Excluding the effects of PPP and accretion and purchase discounts, loan yields decreased 8 basis points to 4.15% due to the impact of the overall low rate environment. The cost of deposits decreased 6 basis points from 19 basis points in the fourth quarter to 13 basis points in the first quarter, reflecting our continued repricing down of interest-bearing deposits and time deposits. The net interest margin, excluding PPP and accretion of purchase discounts, decreased by 12 basis points from 3.37% to 3.25%.
Looking ahead to the second quarter, we expect the cost of deposits to continue to decline to the upper single digits. Also, consistent with the guidance we gave last quarter, we expect net interest margin, excluding PPP and purchase loan accretion, will continue to decline modestly in the second quarter, given the effect of excess liquidity, though we expect to continue to see the offsetting effect of lower funding rates during that period. We believe the margin will reach its lower bound in the second quarter, assuming the forward curve materializes and the growth in excess liquidity moderates.
Moving to slide 7. Adjusted noninterest income, which excludes securities gains and losses, was $17.8 million, an increase of $2.8 million or 19% from the previous quarter and an increase of $3.1 million or 21% from the prior year quarter.
Our mortgage banking business continues to capitalize on low interest rates and on the strong Florida housing market, exceeding our expectations with revenues of $4.2 million in the first quarter. Despite recent increases in mortgage rates and low inventories, our team continues to deliver outstanding results. At the end of the first quarter, approximately 60% of loans in the pipeline were refinancings and 40% were home purchases compared to a ratio closer to 70-30 refinancings to purchases at the end of the fourth quarter. Interchange revenue, again, reached a new record level of $3.8 million in the first quarter, with higher transaction volume and higher per card spend.
We’re especially proud this quarter of our wealth management team, who passed an incredible milestone with $1 billion in assets under management. With a determined and consistent relationship-based approach, this team grew AUM by 18% in the first quarter. And when compared to year-end 2019, AUM has grown by a remarkable 57%.
First quarter other income includes $1.7 million in collections on loans that were acquired in 2017, and at the time of acquisition, were assigned zero value. These were resolved through the diligence of our credit collection team, and we expect no similar activity in future periods.
Looking ahead, we believe the mortgage activity is likely to moderate, and we expect overall non-interest income to be in a range during the second quarter of approximately $15.5 million to $16.5 million.
Moving to slide 8. Adjusted noninterest expense totaled $43.9 million, an increase of $2 million from the prior quarter and in line with prior quarter guidance, addressing all changes on an adjusted basis. Salaries and benefits increased by $1.2 million compared to the fourth quarter. The increase reflects seasonally higher payroll taxes and increased 401(k) contributions. Legal and professional fees increased $1.5 million compared to the fourth quarter. The fourth quarter included the benefit of a recovery of litigation expenses incurred during 2020. Within other expense, write-downs on REO properties in the fourth quarter and none in the first quarter drove the positive comparison.
Looking ahead, we expect to maintain our expense discipline, as we always do.
We expect second quarter expenses, excluding the amortization of intangible assets, to remain in the range of $43.5 million to $44.5 million.
Moving to slide 9. Adjusted efficiency ratio in the first quarter increased to 52%, reflecting higher noninterest expenses and the seasonal impact of employee benefits. Maintaining the guidance we provided last quarter, we expect the full year 2021 efficiency ratio to be in the low-50s.
Turning to slide 10. Loans outstanding increased 6% year-over-year to $5.7 billion.
Excluding PPP loans, total outstandings decreased this quarter by $89 million or just under 2%.
As you know, Florida’s economic recovery is now well-established, and it appears that the demand for loans has increased. At March 31st, loan pipelines were 44% higher than the prior quarter, including an increase in commercial pipelines of 44% to $241 million, an increase in consumer pipelines of 54% to $28 million and an increase in residential pipeline for the portfolio from $25 million last quarter to $72 million at March 31st.
With the increase in the residential portfolio pipeline, we’re beginning to see the results of a Florida-focused correspondent program, where we’re generating opportunities for portfolio growth and also adding relationships and generating cross-sell opportunities. Across our markets and products, we’re seeing increased loan demand in line with Florida’s strong economic recovery.
Looking forward, we are reiterating our prior guidance and continue to expect loan growth to return to pre-pandemic levels in the second half of 2021. In this guidance, we’re assuming our C&I borrowers return to making real estate equipment and inventory purchases, investing in their businesses into an expanding economy. To date, they’ve been slow to make these investments and have been holding a significant amount of cash on their balance sheet. The yield on loans, excluding PPP and accretion of purchase discounts, decreased to 4.15% with the overall lower rate environment.
As we said last quarter, we expect loan yields to further modestly decline in the second quarter with lower add-on yields, assuming no change in the rate environment and increased originations.
Turning to slide 11.
As you know, the PPP program opened again in January, accommodating both first-time borrowers and second draws for borrowers, who had participated in the first round of the program. PPP loans outstanding at March 31st were $581.7 million, net of deferred fees, with an average loan size of $99,000, median loan size of $37,500 and with 85% of all our PPP loans under $150,000. Most of our PPP borrowers in the renewed program, 83% by count, are second draw borrowers. We originated $232 million in new PPP loans this quarter, and the renewed program is still open, so we’ll continue to originate PPP loans into the second quarter as well. Borrowers from the original program are seeking forgiveness, and we processed $214 million in forgiveness during the quarter. Overall, since the start of the original program, we’ve collected $26.7 million in SBA fees. Of that, we’ve thus far recognized $13.2 million and have $13.5 million in fees remaining to be recognized in future periods.
Turning to slide 12, highlighting the diversity of our exposure and concentration levels well below regulatory guidance.
Our portfolio is broadly distributed across various asset classes. Stabilized income-producing commercial real estate represents 25% of loans outstanding. Owner-occupied commercial real estate represents 21% of the portfolio, and residential real estate comprises 22% of the portfolio. Approximately 75% of our commercial portfolio, excluding PPP, is secured by real estate with borrowers that have meaningful equity in their investments and lower loan to values.
For years, we have consistently managed our portfolio to keep construction and land development loans and commercial real estate loans well below regulatory guidance. At March 31st, that represented 21% and 155% of risk-based capital, respectively. Those levels have continued to decline and are lower than most in our peer group. Performance on loans previously provided with payment accommodations has remained strong, and we have only $27 million in loans with active payment accommodations.
Our loan portfolio is diverse and broadly distributed across categories with an average commercial loan size, excluding PPP, of just over $400,000.
Turning to slide 13 for the securities portfolio. Faster prepayments and lower-yielding portfolio purchases in the first quarter resulted in a decline in yield of 8 basis points. The net unrealized gain in the portfolio decreased during the quarter, largely due to the steepening of the yield curve.
During the first quarter, we reclassified $212 million from the available for sale classification to held to maturity, which included U.S. government agency bonds that had longer-duration profiles and reasonable yields.
We’re carefully making new investments in bonds that have lower extension risk with shorter durations.
Looking forward to the second quarter, we’re being prudent on how much cash we will put back to work in this portfolio, given the prospect of higher rates and expect net additions of $200 million.
Turning to slide 14. Deposits outstandings were $7.4 billion, an increase of $453 million quarter-over-quarter and an increase of $1.5 billion or 25% year-over-year. Transaction accounts represent 59% of total deposits and have grown 47% year-over-year, largely driven by PPP and other stimulus funds, driving higher customer balances. At quarter-end, deposits per banking center were $154 million compared to $118 million one year ago, the combination of higher deposits and two fewer branches. And on slide 15, compared to the fourth quarter, the cost of deposits was lower by 6 basis points to 13 basis points.
Looking ahead, we expect the cost of deposits to continue to decline in the second quarter, reaching the high single digits.
Moving to slide 16. The allowance for credit losses under CECL reflects our estimate of lifetime expected credit losses, which includes our expectation that some loans will migrate into loss through the cycle. Coverage on loans, excluding PPP, is 1.71%, down from 1.79% in the prior quarter, a reflection of improvement in economic conditions.
In addition to what we feel is a prudent level of allowance, note that we also have $27.3 million in purchase discount that will be earned over the life of those loans as an adjustment to yield.
Turning to slide 17. On asset quality, credit measures are strong. Net charge-offs in the first quarter were only $370,000, and the level of non-performing loans decreased by $0.8 million to $35.3 million, representing 0.62% of total loans. Criticized loans were flat at 16% of total risk-based capital at March 31st. And as I said earlier, performance on loans previously provided with payment accommodations has remained strong, and we have only $27 million in loans with active payment accommodations. The overall allowance for credit losses at March 31st is $86.6 million, and allowance coverage, excluding PPP loans, decreased 8 basis points to 1.71%. We maintain a prudent level of allowance, and we’ll continue to revisit this estimate throughout 2021.
Turning to slide 18.
Our capital position continues to be very strong. Tangible book value per share is $16.62, an increase of 15% year-over-year. The tangible common equity to tangible asset ratio was 10.7% at the end of the first quarter and has consistently been among the highest in our peer group. The Tier 1 capital ratio was 18.2%, and the total risk-based capital ratio was 19.2% at March 31, each increasing over the prior quarter. Return on tangible common equity increased to 16% on an adjusted basis. And finally, on slide 19, looking back from the beginning of 2017 to today, we’ve achieved a compounded annual growth rate in tangible book value per share of 12%, driving shareholder value creation. We’ve positioned this franchise with a foundation of strong liquidity and capital, from which we will execute on our strategic growth initiatives and optimize the opportunities of this strong Florida economy. We look forward to your questions today. I’ll turn the call back over to Chuck.