Ladies and gentlemen, thank you for standing by, and welcome to the Almirall Bancorp Fourth Quarter 2020 Earnings Call. At this time, all participant lines are in a listen only mode. After the speaker presentation, there will be a question and answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference to your speaker today, Laura Rosi, Investor Relations Officer.
Please go ahead, ma'am.
Thank you, operator. Good morning to everyone on the call and thank you for joining us to review Amerant Bancorp's 4th quarter and full year 2020 results. With me this morning are Miller Wilson, Chief Executive Officer Carlos Yafiliola, Chief Financial Officer Miguel Palacios, Chief Business Officer and Tiel Fisher, Credit Risk Manager. Before we begin, note that the company's press release, Comments made on today's call and responses to your questions contain forward looking statements. The company's business and operations are subject to a variety of risks and uncertainties, many of which are beyond its control.
And consequently, actual results may differ materially from those expressed or implied. Please refer to the cautionary notices regarding forward looking statements in the company's press release. For a more complete description of these and other possible risks, please refer to the company's annual report on Form 10 ks For the year ended December 31, 2019, quarterly report on Form 10 Q for the quarter ended June 30, 2020, as well as to subsequent filings with the SEC. You can access these filings on the SEC's website. Please note that Amerant has no obligation and makes no commitment to update or publicly release any revisions to forward looking statements in order to reflect new information or subsequent events, circumstances or changes in expectations except as required by law.
You should also note that the company's press release, earnings presentation and today's call include references to certain adjusted financial measures, also known as non GAAP financial measures. Please refer to Appendix 1 of the company's earnings presentation for a reconciliation of each non GAAP financial measure to its most comparable GAAP financial measure. I will now turn the call over to Mr. Wilson.
Good morning, and thank you for joining Amerant's 4th quarter 2020 Earnings call. As I have done in the past few quarters, I'll begin by discussing how Amerant continues to navigate the current environment as well as our Q4 and full year highlights. Carlos will then review our financial performance in further detail. After our prepared remarks, Carlos, Miguel, Piel and I will address questions. Before I move into the results, I would like to acknowledge that while this past year was unlike any other, I am extraordinarily proud of how well we persisted through it together.
I am grateful for all those who worked to make this happen, particularly the Amarant team as well as our customers and communities. It is because of all of you that Amarant was able to achieve Several significant accomplishments that are even more impressive given the difficult operating environment. First, we focused on expanding our fee income opportunities and carefully managing expenses. We delivered on our cost efficiency initiatives by diligently streamlining and rightsizing our operations. 2nd, we had no provision for loan losses recorded in the 4th quarter.
This is a testament to the sound credit quality of our loan portfolio, diligent portfolio monitoring and excellent risk mitigation throughout the year. Finally, even in this unprecedented year, we successfully completed the sale of For the company's Class B common stock totaling $53,300,000 in December. This transaction boosted tangible book value per share by $0.75 However, the achievement I am most proud of was Amerant's ability to step up to the plate when our community needed us most, Providing critical banking services during a time of need. And we are honored and humbled that our community placed this trust in us. I would also like to recap the actions Amerant took throughout the year for our customers and communities in light of 1st, Amarin continued to offer payment deferrals and or forbearance option.
As we ended the quarter, the company has received a limited number of requests for additional payment extensions, which are being carefully evaluated. 2nd, participating in the SBA's Paycheck Protection Program. From the program start through its closing in August, Amerant provided over 2,600 PPP loans totaling $223,000,000 to small businesses. We held $199,000,000 in outstanding PPP loans At the end of the Q4, with approximately $95,000,000 in associated deposits. This quarter, we focused on processing PPP loan forgiveness requests and continue to do so through the beginning of 2020 We have also started to receive applications under the 3rd round of PPP, which went into effect during the month of January, and we continue to work to leverage these new relationships into future cross selling opportunities.
3rd, we originated loans to small and midsized businesses under the government's Main Street Lending Program in the 4th quarter. Amerant originated $56,000,000 of these loans, of which 95% of the balances Additionally, we continue to closely monitor credit and liquidity risks as well as credit underwriting practices to prudently manage our loan portfolio. This includes assessing forbearance status and general credit conditions for all portions of the portfolio on a daily basis, with an emphasis on loans in industry most vulnerable to the financial impact of the COVID pandemic. Finally, and most importantly, as we carried out these actions throughout this year, Amarin's top priority continues to be providing high quality and uninterrupted services to customers, while prioritizing the health and safety of employees, customers and local community. Before I report on our performance and hand over to Carlos, I would like to acknowledge the news that was announced last week.
I will be retiring from Amerant at the end of March, but it will continue to serve on Amerant's Board, where I look forward to assisting the new CEO in a smooth transition. It has been an honor to serve this organization for over 43 years. I am humbled by the trust placed in me to lead Amerant as its CEO over the past 12 years. Thank you to all my incredible teammates who have worked hard to drive this company forward And we'll continue to do so under our incoming CEO, Jerry Plush. The future of Amerant is bright, And I look forward to watching Jerry lead the company to the next level.
Turning now to our performance highlights in Slide 4. Of note, net income increased significantly quarter over quarter to 8,500,000 up from 1.7 in the 3rd quarter. This increase was largely driven by the absence of provisions for loan losses this period. Further supporting the increase was the higher net interest income, which was up 7.3% from the Q3 due to the lower overall deposit costs and higher interest income on our loan portfolio. Our NIM for the 4th quarter was 2.61 percent, an outstanding pickup of 22 basis points from 2.39% in the previous quarter.
Our 4th quarter non interest income decreased 43.3 percent quarter over quarter. This decrease was mainly driven by lower net gains on the sale of securities And a one time loss on the sale of the Beacon Operations Center, partially offset by derivative and other income. At the same time, we saw our expenses increase 13.5% quarter over quarter, largely due to the one time severance expenses we recorded this quarter as we implemented voluntary and involuntary plans, which we will touch on later. Finally, on the loan side, Amarant continued to purchase high yield consumer loans in the 4th And we are pleased that our consumer and residential loan portfolios increased both quarter over quarter And compared to December 31, 2019. On the deposit side, our deposits at the end of 2020 We're down slightly compared to the previous quarter and were essentially flat compared to the end of 2019.
Moving to Slide 5. As I just mentioned, our net income for the quarter was nearly 4 times the income of the 3rd quarter, but down year over year. Our return on assets was 0.42% in the 4th quarter or 0.56 percent on an adjusted basis and our diluted earnings per share was $0.20 per share or $0.27 on an adjusted basis, in line with market expectations. In addition, our credit quality remains strong and our commitment to monitoring credit risk ever even stronger. As I just mentioned, we recorded no provision for loan losses in the 4th quarter as we saw lower than initially estimated losses and improving economic conditions despite the ongoing pandemic.
And now I will turn the call over to Carlos, who will review our performance in more detail.
Thank you, Miller, and good morning, everyone. Before we move on to Slide 6, I would like to discuss some balance sheet highlights. On the asset side, as of December 2020, total loans increased 1.7% compared to December 2019, largely driven by the PPP loans as well as the purchase of higher yielding consumer loans, as Miller mentioned earlier. In the Q4, consumer loans increased 30% quarter over quarter and 180% compared to the end of 2019. At the same time, single family residential loans increased 4% quarter over quarter and 15% compared to the year ago.
On the funding side, as of December 2020, total deposits were down 2.5% quarter over quarter and down 0.4% compared to December 31, 2019. The quarter over quarter decline is primarily attributable to the 12% reduction in customer CDs as we continue to focus on increasing lower cost core deposits and also aggressively lower our CD rates. Our stockholders' equity decreased by $51,000,000 or 6.1% compared to the 2019, which is largely the result of the tender offer we completed during the Q4, which resulted in the repurchase of $53,300,000 in stocks, excluding fees and expenses or $4,200,000 of Class B shares. Moving on to Slide 6, I would like to review our investment portfolio. Our 4th quarter investment securities balance decreased slightly to $1,400,000,000 from $1,500,000,000 at the end of the 3rd quarter, Given prepayments received, compared to the Q4 of 2019, investment securities decreased from 1,700,000,000 primarily as a result of our timely execution on the sale of certain securities at a gain, which otherwise would have been dissipated with the recent steepening of the yield curve.
As we said in prior quarters, we successfully managed investment securities portfolio as an economic hedge against the declining net interest income. Given the challenging interest rate environment, we maintain a low percentage of our investment portfolio in floating rate securities. The average duration of the portfolio decreased from 3.8 years to the end during the end of 2019 to 2.4 years in December 2020, Due to the acceleration in prepayment speeds and the sale of hydration securities before the steepening of the yield curve took place. We continue to look for investment opportunities that offer attractive value while maintaining adequate duration and proactively managing credit risk exposures. Moving on to Slide 7, let's talk about our loan portfolio.
4th quarter loan production continued to be challenged Following the trend we saw for the most of 2020, loans totaled $5,800,000,000 as of the 4th quarter close, which were $82,000,000 lower compared to the Q3 of 2020 $98,000,000 higher compared to the end of 2019, which includes the origination of loans under PPP. The quarter over quarter decrease was driven by the low loan demand and high prepayments received in the CRE portfolio. To offset these factors, Ameren continued to build up Into high yielding consumer loans in the 4th quarter. Consumer loans totaled $247,000,000 at the end of the 2020 compared to 100 $90,000,000 in the Q3 of 2020 $88,000,000 during the end of 2019. The 2020 year end balance includes $68,000,000 $166,000,000 of indirect consumer loans purchased during the Q4 of 2020 and the full year 2020, respectively, through this program that we have with SoFi.
The weighted average FICO score on this portfolio of indirect consumer loans as of December 31 is 7.66. I would like to note that these indirect loans complement our organic loan portfolio, but are not mean to replace organic loans as we continue to pursue relationship driven strategy. In addition, Our single family residential loans increased quarter over quarter and year over year as low market rate drove a meaningful increase in refinancing We see residential loan market as a major opportunity going forward. In order to capitalize on growing demand in the residential space, In the Q4, Amerind partner with a highly specialized team of real estate executives and created Amerind Mortgage, where Amerind Bank is the majority owner. This new and exciting venture will allow us to increase and diversify our fee income via the origination and sale of residential mortgages on a larger scale.
In line with this venture, we will be closing our in house residential lending operations And our residential team will be joining Amarin Mortgage. We're in the early stages of this operation, but look forward to sharing relevant updates in the upcoming quarters. Moving on to Slide 8, I would like to spend some time discussing Amerind's continued strong credit quality. As a result of the diligent credit risk Monitoring throughout the year, we recorded no provision for loan losses in the 4th quarter, a particularly impressive accomplishment under the ongoing pandemic environment. This was due to lower than initially estimated credit deterioration and improved economic activity conditions within our footprint.
The percentage of non performing assets remain almost unchanged quarter over quarter, while the net charge off as a percentage of the average total loans was down approximately 100 basis points. In the Q4 and continuing to 2021, we saw the positive trend of loans coming out of forbearance economic activity steadily improves, in the most recent quarters, loans under deferral and forbearance decreased tremendously compared to the Q3. I'm excited to say that as of December 31, only 0.7% of Our total loan portfolio remain under deferral or forbearance. Almost the entirety of existing loans Under forbearance are collateralized by real estate and as a positive note, 99% of the loans out of forbearance have resumed regular payments. I would like to give you an idea of our risk perception on our main portfolios.
We remain cautious on CRE loans as our retail and office are still undergoing a paradigm shift and it's unclear as to where demand will shake out post pandemic. In this line, in the 4th quarter, our CRE to risk based capital decreased from 3.25 times from 3.46 times in the Q3 of 2020. We're optimistic on the CNI side due to the new vaccine, but we remain cautious as its rollout has been choppy and slow And virus cases are expected to increase as new COVID strains are identified. One macro driver that we expect to benefit is the continued permanent relocation of residents and businesses from the Northeast to South Florida. We see this Trend as a potential significant driver of customers' acquisition and fee income.
Barring any macroeconomic changes or headwinds, We believe Amerant's current level of estimated reserves is sufficient to cover probable losses across its loan portfolio. And while down rates may still occur in the upcoming quarters, we expect to see them slow down compared to early quarters of 2020. We also may see a higher charge off, but we believe current reserves already provide adequate coverage. Amarin's credit quality remains strong. Nevertheless, we remain committed to proactively monitor our risk Assessment practices, including examining and responding to pattern or trends that may arise across certain industries or regions in the quarters ahead.
Turning to Slide 9, you can see that our loan yield increased this quarter by 12 basis points compared to the prior quarter, but decreased by 71 basis points compared to the Q4 of 2019. The quarter over quarter increase was driven by of the implemented floor strategy on the C and I portfolio, prepayment penalties collected and higher average balances on indirect lending. The year over year decrease was driven by the lower interest rate environment and a decline in the economic activity due to the pandemic. On the investment securities yield, a decline of 3 basic points was recorded from the previous quarter and 37 basis points year over year due to the many factors that we discussed in previous quarters, including repricing of floating securities, prepayment acceleration and challenging Reinvestment due to lower market rates. Moving to Slide 10.
Total deposits at the end of the year were 5,700,000,000 down 2.5% compared to the Q3 of 2020 and down 0.4% compared to the close of 2019. The quarter over quarter decline in deposits is primarily attributable to the 12% reduction in customer CDs. This decrease in CDs Result from our strategy to continue focus on multi product relationships with our customers greater than a single product account based on a high cost CD. This proactive repricing of our CDs and relationship money market As well as the lower volumes on broker deposits, all contributed to lower cost of our interest bearing deposits. Of note, the cost of our interest bearing deposits was down 14 basis points compared to the previous quarter and 56 basis points compared to the year ago.
Regarding our geographic mix, domestic deposits were $3,200,000,000 in the Q4 of 2020, down 3.2% compared to the $3,300,000,000 in the Q3 of 2020 and up 2.6% compared to the $3,100,000,000 in the Q4 of 2019. While foreign deposits were $2,500,000,000 in the Q4 of 2020, down 1.5% compared to the $2,600,000,000 in the Q3 of 2020 and down 4% compared to the $2,600,000,000 in the Q4 of 2019. As discussed in previous quarters, we are focused on increasing our core domestic deposits, Deploying our relationship driven and customer centric strategy. Over the course of 2020, we saw the fruition of this strategy as it continues to support our On a final note, as economic activity in Venezuela partially resumed, we recorded a higher annualized Foreign deposit runoff rate of 6% versus 3.8% in the 3rd quarter. For the full year 2020, the foreign deposit decay rate was 4% compared to the 13% of 2019, driven by the company's sales efforts.
Going to Slide 11, the increased levels of liquidity allow us to decrease our utilization of wholesale funding compared to 2019 in approximately $290,000,000 As we continue to benefit from the modifications made to the fixed rate FHLB advances earlier this year, We were able to further drop our cost of funds during the quarter by changing the composition of broker deposits. In 2021, we will be opportunistic about the use of wholesale funding as a cost effective source of liquidity. Turning to Slide 12, I would like to provide some further detail In our net interest income and NIM, our 4th quarter net interest income was $48,700,000 compared to 45.4 in the Q3 of 2020. The 7.3% increase in the net interest income and the 22 basis points increase in additional NIM is attributable to: 1st, lower overall deposit cost and average balances on CDs and broker deposits 2nd, Higher average yield and volumes in loans and third, increased collection and prepayment penalty fees during the Q4 of 2020. Importantly, in the 4th quarter, we continue to take action to preserve margin, including leveraging opportunities within direct lending products, repricing customer time and relationship money market deposits at lower rates and running off higher cost maturing broker deposits.
Net interest income for the full year 2020 was $190,000,000 down 11% compared to the 213 for the full year 2018. Much like what we have said in the Q4 of 2020, the decrease in the net interest income in the full year was largely driven by the lower interest rate environment. NIM for the full year 2020 was 2.52%, down 33 basis points from the full year 2019. This can be attributed to lower average balances and yields on interest earning assets partially offset by lower cost of deposits and wholesale funding. During 2020, Amerant proactively managed its investment securities portfolio as an economic hedge against the declining net interest income.
This resulted in an annual increase in securities gains of $24,000,000 which exceeded the decline of $23,000,000 in the annual net interest income. Turning to Slide 13, non interest income in the 4th quarter was $11,500,000 down 43% quarter over quarter and down 28% year over year. The quarter over quarter decrease in non interest income was due to a 7 point $6,000,000 lower net gain on sale of securities. The $1,700,000 loss on the sale of Beacon Operations Center during the 4th quarter and the decrease in rental income due to lease terminations from the corporate building in the 3rd quarter. These factors were partially offset By a $700,000 increase in derivative income as customer activity increased in the 4th quarter, dollars 0.5000000 coming from the fee income related to Main Street Lending Program.
As we look to operate to a modern premises, We have decided to sell Beacon Operations Center, but we'll continue to operate at this location for approximately 2 years Under a leaseback until a new upgraded facility is ready. In the full year 2020, non interest income was 29% up compared to the full year 2019. The primary drivers for the year included higher net gains on the sale of securities and increased wealth management fees. This was partially offset by the one time loss of the sale of Beacon Center already mentioned and the absence of $2,800,000 gain on the sale of a vacant land that we recorded last year. Finally, our assets under management and custody Total $2,000,000,000 at the close of 2020, an increase of $157,000,000 or 9% from the $1,800,000,000 at the close of 2019.
From these increases in AUM, net new assets reached record levels by increasing by $105,000,000 at the close compared to the close of the last year or 6% As a result of the company client focused relationship centric strategy, over the past 4 quarters, we gained share of wallet of existing customers and Successfully acquired new customers by leveraging the company's full suite of capabilities and offerings. We remain focused on growing the company's domestic and international asset base in the quarters ahead. Moving on to next slide. 4th quarter non interest expenses was $52,000,000 up 14% from the 3rd quarter and relatively flat year over year. The quarter over quarter increase was a result of a higher severance expenses for the voluntary and involuntary plans approved in October, Higher salaries from lower deferred loans origination costs and increased expenses following branch closures.
This increase was partially offset by lower variable compensation and employee benefit expenses associated with the retirement plans. Also lower digital transformation expenses. Our digital transformation remains on track and we expect to continue to make related investments in the upcoming quarters. Non interest expenses for the full year 2020 were down 15% compared to the 2019, which was due to: 1st, lower salaries and employee benefit expenses following staff reductions second, Changes to variable and long term compensation programs and deferred PPP loan origination costs earlier this year and third, Lower marketing, legal and accounting fees compared to 2019. The lower full year non interest expenses was partially offset by higher FDAC assessments and insurance and other expenses related to branch closures.
Restructuring expenses in the Q4 2020 were 8,400,000 An increased 6.6 quarter over quarter largely due to severance and branch closures. Going to Slide number 15 about Interest rate sensitivity, you can see that Amerant remains asset sensitive as over half of our loan portfolio is floating rate or are slated to mature within the year. Given this dynamic as well as the low interest rate environment, our team continues to take to reduce our asset sensitivity and protect our need. Specifically, we have implemented the flow rate strategy in our loan portfolio and continue to take advantage of higher yield long duration opportunities. Now I want to take the presentation back to Miller for closing remarks.
Thank you, Carlos. Turning to our final slide, I'd like to close by covering our goals for the New Year. In 2020, we learned a lot about adapting to new technologies and ways of working, protecting the quality of our assets and much more. I expect our team to press forward into 2021, bearing in mind these important lessons. And accordingly, in 2021, we will continue to implement and utilize new technologies Deposit and loan mix, an exercise of dynamic capital management.
It was truly a team effort to close 2020 in a position of strength. And I couldn't be prouder of every member of the Amarin family for their perseverance and hard work. As I step aside, I am sure this excellent team led by Jerry Plush We'll execute on our transformation strategy and an even stronger year of value creation for our shareholders and service to our customers. With that, we will happy we will be happy to take any of your questions. Operator, please open the line for Q and A.
Our first question will come from the line of Will Jones from KBW. You may begin.
Hey, thanks. Good morning.
Good morning. Good morning.
Hey, So I just wanted to start on the net interest margin. It was up nicely linked quarter at 2.61 percent and a lot of this was due to Some of that attrition and the time deposit portfolio, which you guys have been talking about for a little while. And I believe you call out maybe another $500,000,000 $520,000,000 that will mature in the Q1. Where do you expect those will reprice? And how does this impact your thoughts about the Trajectory and forward, NIM?
Okay. Thank you for the question. We have Seeing this progression of events on the repricing of the time deposits and forward looking, we still have Approximately another $500,000,000 probably upcoming in the next 3 months that will come to reprice and more in the future. And speaking about the short term, we're probably going to have an additional drop of about 33 basic In the cost of the time deposit that will probably translate into 5 to 7 basic points extra reduction in the cost of funds. So based on that, we expect our NIM to be within the range of the 265 to 275 Going forward.
So, yes, we'll definitely see an improvement coming from the cost of funds.
Great. That's awesome to hear. And then could you just remind us how much PPP fees Ameren has yet to recognize?
So far, we have recognized just a fraction of it, because the We have probably received $30,000,000 or so in forgiveness.
Yes. As of today, 2 days ago, we have 30% of forgiven loans, which is around $67,000,000 So But that's for January. That's the most recent. When you talk about the quarter end, it's $30,000,000 it's $30,000,000 correct.
Okay, great. That's helpful. And then I just wanted to move on to Ameren Mortgage. It was really nice to see you guys launch this new division, I mean, I'll add some nice diversity to your fee businesses. Could you just give us a sense for the vision of Ameren Mortgage in terms of what you think The potential revenue contribution could be over time and should we expect some near term expense associated with the startup?
Yes. Hi, it's Miguel. This is one of the most exciting things that we have done during the last quarter. Definitely, we attract a very talented group From a competitor and we're going to be able to transform the business 180 degrees mainly before our focus was 90% relationship, 10% sales, we're going to turn it around completely. Our main focus will be improving our interest income and expanding from Florida nationwide.
We are still at the early stage. I believe that it will be great seeing starting application process in the month of April through May. And we would like to see how that progress. We will invest also in change of platform. The people That is with us, the group, and they are already working on that.
We're going to be already acquiring tickets for GSE, which didn't have before. So definitely it's a very, very exciting moment for the group as we roll in our Production, which increased almost 60% in 2020, we will definitely we We'll be changing the level of production through the end of the year. So far, we're still working On the process, and we believe in the next quarter, we'll be able to provide more certain Pat, on how we're seeing the production, but definitely it's going to be totally different than what you have seen up to date.
Okay, great. And then can you just foresee any one time costs coming out of that startup? Maybe that wouldn't happen in the first Q2?
There is we did a capital infusion to that entity For $10,000,000 and but again, the most of the costs will come The new systems that will come along, etcetera. And they we do not expect at this We're still in the process of gathering all the platforms that we're going to be using. And we had an initial estimate, but of course, We need to go through the implementation process that may take longer or short period of time. We're in particular in that process. So we but we do not anticipate that will be a significant cost to get The company up and running.
Got it. Great. That's great color. And then just last one for me. The consumer loan book has been a really nice source of growth for you guys.
As of recent, it has up nicely linked quarter. Could you just refresh us on your appetite to continue growing this book? And I think you previously targeted
Yes. We see this as a complement of our loan portfolio by any means. We were trying to convert A big percentage of the loan portfolio towards this asset class. As of now, as you said, we have around 3%, But we are not planning this to become an asset class that will occupy more than 10% of the loan portfolio. So It's something that will be very well contained and it's just it's a source to increase Profitability and keep all elements under control.
Okay, great. Well, that's it for me guys. Just wanted to say congratulations to Miller on your great Ameren career and wish you the best of luck in retirement.
Thank you very much. I appreciate that.
Our next question will come from the line of Michael Rose from Raymond James. You may begin.
Hey, good morning. How are you?
Morning, Mike.
First off, yes, I'd echo those sentiments. Miller, congratulations on a well deserved retirement. It's It's been nice to watch the progress at least the past couple of years. So congratulations. I wanted to start on the expense side.
Obviously, a lot of actions you guys have taken. And I'm sorry if I missed this, but $43,000,000 is that kind of the run rate we should Think about as we move forward, I would expect as we have a little bit of a ramp up in the PPP forgiveness as those fees Excuse me, as those expenses are recognized, there could be a little upward trajectory in the near term. But is there any other things on the expense side that we should be Cognizant of whether it's higher incentive comp this year. I know it was down last year. Just looking for a kind of a run rate to start the year.
Thanks.
No, that's a good So the run rate will be closer to the $45,000,000 approximately and that's something That we it's similar to the one that we provided on the last quarter and pretty much because it accounted for The prospective savings that we would have on the voluntary early retirement and the involuntary separation plans that we had on the last quarter. So that would be a good estimate of what would be the run rate. And that includes, of course, All the items and even include the resume of the payments of the long term incentive plans and And variable compensation that we decreased during 2020.
Okay. And I'm sorry if I missed this, but the costs related to the mortgage JV, how much Would those be and is that included in kind of that $45,000,000
No, it's not included. It's not included. But we do not expect this It will create a large deviation from this number.
Okay, that's helpful. And then maybe just switching To loans, obviously, we have PPP round 3 coming on, you'll have the forgiveness. You talked about the consumer loans At 3%, capacity up to 10%. I know you've obviously expanded into some other markets and those markets are probably beginning to Hopefully ramp a little bit. I guess the question is, I mean, do you actually think you can grow loan balances year over year?
Are you still going to have Pay downs and payoffs that will offset growth as we move forward. Thanks.
Hi, Michael. Definitely, it's going to be a it's going to continue being a challenging year and we do expect to continue having Payment, as we saw in the last quarter and if we take that as a base where we had a gross Production of $160,000,000 with payments of $200,000,000 Hopefully, we can Through all that, we have been very careful on competing on interest on the yields of the transaction and that is To continue. Based on that, on what we're seeing in our pipeline and the type of reduction that we will see In the next 3 months related to the PPP, we might be seeing on the first quarter A low single digit and increasing as the economy improve also the line of credit utilization should Increase, that had a reduction on almost 50% in the last Quarter of last year. So from there, we could pivot and start seeing a growth. And for the Q2, maybe on mid single digit depending on How much payoff on the commercial real estate?
The rates that we're seeing on that area Are not on our scope and we will continue to compete definitely. We have In our strategy to grow the balance sheet and we will monitor the economy how it grows because Nobody thought that at this stage of the year, we're still waiting for the solution on the vaccination process. Hopefully, that changed and we can continue our growth. We are also including a business banking strategy. We are focusing on a more granular transaction.
And as you know, as smaller the transactional relationship, it takes more time, but definitely the yields will be better. We might let go some loans that are not going to be part of our strategy. So it's going to be a recomposition with that focus of growth.
Okay. And maybe finally for me, just on the credit front, it looks like credit metrics, Even criticized classified were relatively stable, maybe a tick higher, yet there was no provision. You guys are under the incurred loss model. How should we think about kind of the reserve levels and future pace of provisioning going forward? I know there's a lot that goes into that, but Could we expect to see that reserve level come down from here?
Thanks.
Hi, Michael. This is Pierre. So As we have as you mentioned, the increase was very, very much I mean, The non performing loans were very stable. We expect that there may be some in the Q1 That's still coming down there, but the outlook on the economic conditions, it's improving
for
2nd quarter and on. And therefore, we expect that the reserves will be based on growth, What we do is increase in our portfolio. Other than that, we don't expect we relieve the reserve. We currently have sufficient tools Any potential losses that come our way. And if the And if the economy continues, there is a positive trend.
We may think of any releases or even It's in a possibility as well.
Okay. Thanks for taking my questions. And Miller, congrats again.
Thank you, Michael.
Thank you. All right. I'm not showing any further questions in the queue. I'd like to turn the call back over to Mr. Wilson for any closing remarks.
Thank you all for joining our Q4 fiscal year 2020 earnings conference call. As the world continues to adjust to the new normal, please know that at Amarant, we are doing the same and look forward to continuing to transform in 2021. Thank you all and be safe. Operator, you may now end the call. Thank you.
Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.