Altabancorp's (ALTA) CEO Len Williams on Q1 2021 Results - Earnings Call Transcript

Altabancorp (ALTA) Q1 2021 Earnings Conference Call April 29, 2021 12:00 PM ET

Company Participants

Mark Olson - Executive Vice President and Chief Financial Officer

Len Williams - President and Chief Executive Officer

Conference Call Participants

David Feaster - Raymond James

Jeffrey Rulis - D.A. Davidson & Co.

Andrew Liesch - Piper Sandler

John Rodis - Janney Montgomery Scott

Operator

Good day and thank you for standing by. Welcome to the Altabancorp Q1 Earnings Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised, today's conference is being recorded. [Operator Instructions]

I would now like to hand the conference over to your speaker today, Mark Olson, Executive Vice President and Chief Financial Officer. Thank you and please go ahead, sir.

Mark Olson

Thank you and good morning. Thank you for joining us today to review our first quarter 2021 financial results. Joining me this morning on the call is Len Williams, President Chief Executive Officer of Altabancorp.

Our comments today will refer to the financial results included in our earnings announcement and investor presentation released last night. To obtain a copy of our earnings release or presentation, please visit our website at www.altabancorp.com. Our earnings release contains forward-looking statements. All statements other than statements of historical fact are forward-looking.

Such statements involve inherent risks and uncertainties, many of which are difficult to predict and beyond the control of the Company. We caution readers and listeners that a number of important factors could cause actual results to differ materially from those expressed in or implied or projected by such forward-looking statements.

These forward-looking statements are intended to be covered by the Safe Harbor for forward-looking statements provided by the Private Securities Litigation Reform Act of 1995. Forward-looking statements speak only as of the date they are made and we assume no duty to update such statements except as required by law.

I’ll turn the call over to Len. Len?

Len Williams

Thank you, Mark. Good morning and welcome to our call. We appreciate your interest, investment and feedback. After an incredibly interesting and challenging year in 2020 we're pleased to start off the year with solid results. All of our branch lobbies and drive-up windows have been s have been safely reopened, and we have started to bring our employees back from remote work to our operational facilities.

In 2020, we provided substantial financial relief to our clients through participation in government programs as well as our own payment relief programs. We continue to offer additional funding from the second round of the SBA PPP program. While our payment relief programs are substantially complete, we will continue to work with our clients to provide financial solutions to assist them on their path to recovery as we all work together to overcome the negative effects of the pandemic.

We continue to receive significant funds from our clients related to financial relief programs from us and government agencies, as well as normal organic growth. As a result, our deposits have grown by over $1 billion year-over-year, which represents a 49% increase from last year. This unusually high growth rate is reflected in our [indiscernible] deposit ratio decline in the 26% at the end of the first quarter.

While core deposits are natural resources that allow us to grow, it has been challenging to quickly and safely deploy this additional liquidity. Our loan yielding Investment Securities portfolio has grown over $920 million or 160% from the prior year, which has negatively impacted our overall net interest margins.

We are hopeful that the first quarter was the peak for our Investment Securities portfolio, and anticipate that we will start seeing the balance of the decline as our loan portfolio continues to grow in future quarters. Loans held for investment increased over $154 million or 9.4% in the first quarter compared with the prior year.

For the past couple of years we've been through we have completed several initiatives to improve the overall credit quality, including lowering our loan concentrations, both in terms of product type and asset class, tightening our overall underwriting standards, improving our sales and credit processes, and enhancing technology used in our commercial lending space. With these initiatives substantially complete, our existing and recently hired commercial lenders have the tools and processes in place to aggressively and safely grow our loan book.

The bank generated over $465 million in loan volume in the first quarter or over $1.8 billion on an annualized basis. Each of our divisions, retail banking, commercial banking, and mortgage banking, generated over $100 million in new volume in the first quarter. Our unfunded commitments grew by $176 million or 30% to $769 million at March 31, compared to a year ago. And our 90-day loan pipeline has grown by $200 million, or 61% to $530 million at March 31 compared with the same period a year earlier.

Our business verticals; homebuilder finance and investment real estate, are fully staffed and generating significant loan pipelines and volume. The Utah economy looks strong with unemployment at 2.9% at the end of the quarter compared with 6% for the nation. Utah experienced just under 1% year-over-year growth in total jobs, while total jobs declined by 4.4% nationwide. Utah was the fastest growing state in the nation over the past decade at 18.4% based on the U.S. Census Bureau. As a result of the substantial completion of our strategic initiatives, and the strong Utah economy, we anticipate achieving high single digit loan growth for all of 2021.

We reported net income of $9.4 million for the first quarter of 2021, compared with $10.8 million for the first quarter of 2020. Diluted earnings per common share were $0.50 for the first quarter of 2021 compared with $0.57 for the first quarter of 2020. Our return on average assets was 1.13 and return on average equity was 10.3% for the first quarter of 2021, compared with 1.8% and 13.05% for the first quarter of 2020.

As stated earlier, substantial client financial relief was provided to our clients in 2020 through participation in government programs, as well as through our own payment relief programs. We participate in and continue to participate in the two rounds of the SBA Paycheck Protection Program. Under round one of the program we funded 333 loans totaling $85 million.

Thus far, we have filed 241 forgiveness applications on balances, balances totaling $62 million of SBA. We received loan forgiveness on 228 loans, totaling $56.3 million or 67% of all SBA PPP loans funded. Today, we have not received a denial on any application submitted to the SBA for loan forgiveness. Under round two of the program we funded 172 loans totaling $29.5 million.

Altabank also offered temporary loan payment relief to borrowers impacted by the COVID-19 pandemic. We offered payment relief to 445 businesses and 118 individuals, totaling approximately $345 million to address borrowers potential cash flow challenges. To date, the deferral period has ended for 556 borrowers or 99% of the loans deferred totaling $329 million. Only three borrowers with balances totaling $135,000 have not made a loan payment for 30 days or greater after their deferment agreement expired.

We have entered in into further loan payment deferment agreements with five borrowers and balances totaling around $10 million, four of which are on hotel properties with owners who have extensive experience in managing hotels and a strong network and solid financial performance. Our overall asset quality trends have performed better than expected given the negative effects of the pandemic. Total delinquent loans were only $9.2 million or just 0.51% of total loans.

Non-performing assets were $7.3 million or 0.21% of total assets at the end of the first quarter. Total annualized net charge-offs were only five basis points, or $200,000 for the first quarter. Our allowance for credit losses was $41 million or 2.3% of total loans. While our allowance for credit losses is significantly higher than our peers, this is not because of underlying credit issues in our portfolio, but rather the intentionally conservative nature of our organization. If we exclude PPP loans and other government guaranteed balances from the loan totals, this percentage increases to 2.5%.

With total assets growing by over a $1 billion or 42% year-over-year to $3.52 billion at March 31 2021, we've become the 12 largest bank headquartered in the Intermountain West, which we define as Utah, Idaho, Colorado, Arizona, Wyoming and Montana. Salt Lake City is the center of this region with the Delta hub at the Salt Lake airport or Salt Lake City Intermodal Transportation Terminal. This state has six universities with over 25,000 students, which helps to build a well educated workforce.

We then recently analyzed the change of address for individuals who use their service and identified Salt Lake City as having -- as being the city with the biggest gain in net new arrivals, with a 12.3% increase during the pandemic. Lastly, 96% of all industrial banks are headquartered in Utah. This offers a great pool of financial professionals for us to tap as we continue to grow.

We have aggressively built a fortress balance sheet to weather economic uncertainty, and we believe our balance sheet strength is reflected in our level of allowance for credit losses, our strong liquidity and regulatory capital position. These results could not have been achieved without our adaptable client-centric associates. I'm proud of the financial performance of our strategic plan as shown to-date, and even more proud of our bright resilient bankers.

While maintaining a strong balance sheet, we have consistently achieved above peer returns. We believe in the combination of a fortress balance sheet, wealthy [ph] returns and strong stock price currency value places us in a unique position to aggressively and safely grow organically, and to be able to compete and posture well in the M&A business throughout the Intermountain West.

We have taken decisive steps over the last several years to put Altabancorp on a firm course for success and generate value for all of our stakeholders. We have significantly increased our commercial, retail, and mortgage banking capabilities by providing growth opportunities among our existing exceptional team and by attracting high performing outside talent. We have significantly invested in new information technology to allow us to scale our business operations.

I'm grateful for our talented -- our talented and dedicated directors who provide strong leadership and oversight while always keeping all stakeholders' interest front and center. The Board of Directors declared a quarterly dividend payment of $0.15 per common share. The dividend will be payable on May 17, 2021 to shareholders of record as of May 10, 2021. The dividend payout ratio for earnings for the first quarter of 2020 was 30%. This continues with the company's over 50-year trend of paying dividends.

I will now turn the call back over to Mark to discuss more specifically our financial performance for the three months ended March 31, 2021. Mark?

Mark Olson

Thank you, Len. Pre-tax, pre-provision income declined $2.4 million to $12.4 million for the first quarter of 2021 compared with $14.8 million for the same period a year earlier. The decline in pre-tax pre-provision income was primarily the result of a $3.6 million decline in net interest income due to the Federal Reserve reducing benchmark rates to almost zero, and an increase in the average amount of lower yielding cash and investment securities held by us. This decline was offset by $1.6 million increase in non-interest income resulting primarily from mortgage banking income.

The decline in net interest income is primarily the result of our net interest margins nearly 188 basis points to 2.91% for the same comparable periods offset by interest earning assets increasing $1 billion or 44% for the same respective periods. The yield on total loans declined 89 basis points to 5.32% for the first quarter of 2021, compared with 6.21% for the same period a year ago. Year-to-date average loans increased $59 million for 3.5% to $1.74 billion for the first quarter compared with the same period a year earlier.

The yield on investment securities declined 184 basis points to 0.67% for the first quarter compared with the same period a year ago. Year-to-date, average investment securities increased $882 million or 177% to $1.38 billion for the first quarter of 2021 compared with the same period a year ago.

Yields on investment securities were negatively impacted by a significant increase in prepayment rates on mortgage backed securities, due to borrowers refinancing their mortgages to lower interest rates. In particular, we experienced significantly higher prepayment rates than modeled in Ginnie Mae jumbo pools with coupons of 2.5%.

The higher prepayments on these securities caused us to earn negative yields on these Q sales [ph] as the amortization of premiums paid on these securities significantly increased due to the higher prepayments. To address some of the higher prepayment rates, we rebalanced our mortgage backed securities portfolio by selling $131 million insecurities with the highest prepayment rates at the end of the first quarter, and recording the gain on sale of $0.2 million. This sale was offset by the purchase of $150 million of mortgage-backed securities at par.

We expect the yield on our investment securities portfolio will be in excess of 1% in the second quarter of 2021. Had the yield on our investment securities portfolio remained at 1.15% as earned in the prior quarter, we would have recorded an additional $1.7 million in the interest income, which would have provided another $0.06 in net income for the quarter.

Our net interest margin would have been over 4%, even with the Federal Reserve reducing benchmark rates to almost zero and a significant reduction in yield on our investment securities portfolio due to higher prepayment rates, if we were only holding 15% of our interest earning assets in lower yielding cash and investment securities, which is our normal level of liquidity, and the rest of the excess liquidity was held in total loans at the lower interest rates we yielded in the first quarter.

This highlights that the most negative effect of our net interest margin is the significant excess liquidity we are currently holding. We believe that the net interest margin we earned in the first quarter is at the narrowest level we will experience in the foreseeable future.

Total cost of interest bearing liabilities declined 32 basis points to 0.32% for the first quarter compared with 0.64% for the same period of the year earlier. Our total cost of funds declined 21 basis points to 0.21% for the first quarter compared with 0.42% for the same period a year earlier. Acquisition accounting adjustments including the accretion of loan discounts and fair valuation on time deposits add 4 basis points to net interest margin for the first quarter.

Moving to provision for credit losses, we did not record provision for credit losses for the first quarter, compared with $0.7 million for the same period a year earlier. The decrease in provision for credit losses is due primarily to $9.3 million or 46% decline in loans individually evaluated to $10.8 million of the related allowance of $6.5 million. This was offset by a $160 million or 9.8% increase in loans collectively evaluated to $1.7 billion, and the related allowance of $34.5 million.

Incurred net charge offs of $0.2 million in the first quarter compared with net charge offs of $0.3 million for the same period a year ago. Our overall asset quality trends have improved throughout 2020 and into 2021. Our charge-offs across our portfolios have remained relatively low, with continued stimulus programs provided by the federal government as well as us. And in the Utah economy, we anticipate that the impact of the pandemic to our loan portfolio has been significantly mitigated.

We believe our allowance for credit losses is adequate to cover our current expected credit losses. However, we will continue to monitor closely macroeconomic conditions, the overall performance of the loan portfolio, and our loan growth to determine if we should adjust our expectations for credit losses.

Non-interest income increased $1.6 million or 44% to $5.4 million for the first quarter compared with $3.7 million for the same period a year earlier. The increase was primarily due to a $1.1 million or 63% increase in mortgage banking income to $2.8 million, the total of $1.7 million for the same period a year ago.

Total mortgage loan sold increased $68 million or 135% with $180 million for the first quarter compared with the same period a year ago. We also experienced wider margins on loans sold as we improved our loan pricing on such loans. We also retained some single family residential loans, generated the mortgage banking division on our balance sheet in the first quarter.

We continue to see improving non-interest income as we expand our mortgage banking operations both in Utah and the surrounding states and reap the benefits of significant investments in technology made in our mortgage operations, which has improved operational efficiency as well as enhanced our clients experience. In addition, we expect to see improved fee income from Treasury services, as we roll out our new commercial treasury management mobile application to our commercial clients in the second quarter.

Non-interest expense was $16.5 million for the first quarter, compared with $16.2 million for the same period a year earlier. Our efficiency ratio worsened to 57.5% for the first quarter, compared with 52.2% for the same period a year ago. The worsening of our efficiency ratio is primarily the result of lower net interest income.

The increase in non-interest expense for the three months ended March 31, 2021, was primarily the result of higher data processing expenses due to the investments made in new technologies for the mortgage banking division, best technology investments made in the commercial banking division, including costs for its cloud based commercial loan origination application Encino, and as well as automated processes for smaller ticket commercial loans titled Alta Express.

Costs for implementation of Salesforce CRM solutions, cost for new cloud based commercial client treasury management solution, and cost for new cloud based construction budget, drawn an inspection management solution for both commercial and consumer clients. We expect to continue to make significant investments in new technologies to enhance our clients experience and empower them to transact more business on the company's mobile platform to lower the overall cost of our operating platform and to become more scalable as the company continues to grow.

The increase in non-interest expense was also result of higher salaries employee benefits resulting from annual merit increases and higher incentive payments, particularly in the mortgage banking division. In addition, the company did not incur FDIC premium payments for the first quarter of 2020 due to the application of the small bank assessment credit from the FDIC.

Lastly, the company incurred approximately $0.2 million of one-time additional legal costs during the first quarter. We anticipate overall interest rates to remain near zero for the foreseeable future as the results we continue to review our overall operating costs to determined how we can better leverage our platform while retaining and improving our high touch client experience. We anticipate making changes over the next several quarters to improve our overall operating leverage.

Income tax expense was $3 million for the first quarter compared with $3.4 million for the same period a year earlier. The effective tax rate was 24.1% for the first quarter compared with 23.9% for the same period a year ago.

I’ll turn the call back over to Len.

Len Williams

Thank you, Mark. 2020 was a uniquely challenging year for all of us and I'm proud of our team and how we've started 2021 with strong earnings performance and significant growth, both in our deposit and loan portfolios. We put the right people in place, improved our processes and enhanced our systems, all of which will allow us to safely grow our balance sheet and expand our market share in one of the strongest economies in the nation. I believe we made good progress and that we are well positioned to succeed.

I appreciate everyone joining us and at this point, I'd like to like to turn it back to the moderator, Chris, for questions.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] The first question comes from David Feaster of Raymond James. Your line is open.

David Feaster

Hey, good morning, everybody.

Len Williams

Good morning, David. How are you?

Mark Olson

Hi, David.

David Feaster

Very well, very well. It was great to see the growth that you guys put up in the quarter. Quite frankly, it's a huge number. And you all are doing exactly what you said you guys were going to do. I just wanted to get a pulse of where some of this growth came from. I mean, it is broad based, but how much of it do you think is from an improved economic outlook, giving clients more competence to invest versus new client acquisition and just a more effective sales effort?

Len Williams

It's a combination of everything. But one of the interesting parts were, where this growth is coming from. As we've talked on prior calls, we've had a lot of success in hiring talent. A lot of that talent has brought pipelines with them and immediately began to be productive. So the mortgage in continues to grow and do well, but we also grew in our commercial banking and our branches and in our real estate verticals. A significant portion of it was real estate, but you don't even see that in the totals yet. As I mentioned in the dialogue that we have to increase our unutilized or at least our loans available, that have not been drawn up by -- drawn up yet by $175 million.

First quarter is usually low on that. So we anticipate continued growth just from those portfolios as well. So a good portion of it is the real estate stuff we've done historically, but we tiered up the game a little bit and we're working a little bit higher quality stuff.

Mark Olson

David, I think the other thing that I think has helped is, we're about a year now into Encino and the process itself, I think has just become much more efficient and effective. Whether it's the sales process or just from application to close, it's just much more efficient to get the loans completed and that certainly has helped us well.

David Feaster

Okay, that's helpful. And then, it sounds like, really the key here is getting the margin back and profitability is just excess liquidity weigh in on it in the short run, and just need to put on earning assets, and appreciate the guidance on the loan growth. I'd argue it seems pretty conservative, just given the strength in the first quarter and the pipelines that you guys have, which are pretty strong.

I guess, how do you think about the opportunity to put on earning assets? I think it makes all the sense in the world to attain some more of these mortgages. Do you think you're willing to compete more on price and rate in order to drive more growth or do you think you can hold the line there? Just any puts and takes on the margin, too, it sounds like this is a trough, but just any thoughts on those?

Len Williams

Yes, the margin, I mean, the loan yield was around 530.

Mark Olson

Yes, right.

Len Williams

Around 5.3 is the loan yield for the quarter. It is down a little bit from where it was a year ago, but it's holding there. So we don't necessarily compete on price. We are certainly fair and we take it into consideration, but that's not our driver. We've got a pretty talented group of bankers that provide value, speed and constant followup and a lot of those relationships have been enhanced and strengthened over the last year.

The other item that we brought in is a CRM process a new Salesforce. So it's a lot easier I believe for the bankers to identify, follow up that we just got better technology in place to stay on top of these things as well. So I appreciate your comments on the loan growth conservativism, but you've noticed long enough by now that no, we're not going to stretch.

David Feaster

Yes. And then I just wanted to kind of follow up on the technology and the hiring market. I guess, you've done a great job of attracting new talent, and you highlighted the opportunity to continue to grow the bench in your market. Just curious how conversations are going, whether you've seen an increase in conversations with the bonuses now paid out, some of the cool technology that you guys are putting in place, and just thoughts on hiring, and ultimately the impact of the technology that you've rolled out in building out that pipeline?

Len Williams

Yes, the technology piece is an important piece, because you know, first you've got to have the strong people that understand the business. And then you've got to be able to support that with your products, which are here and have been here. But from there, you've got to offer processes that allow them to be effective and efficient and that's where the technology comes in. And in today's world where so much pay is based on production or incentives, the ability to work through a process to get paid matters as well. And the great news is, is through bonus season, we didn't lose a person and the incentive plan stays in place to drive exactly what we're seeing now.

So it's been good. We still have a pipeline. We've identified the top bankers in every market and we have a pipeline we continue to feed as we have needs. Recently as [indiscernible] yesterday, we put an offer out to one that will be an add to staff just because the pipeline opportunities are so great, and this is another larger banker who has seeked us out. And we've seen a lot of that where we're feeling pretty good about where that sits today.

David Feaster

That's great. Thanks for the color.

Len Williams

You bet. Thank you.

Operator

Your next question comes from Jeff Rulis of D.A. Davidson & Co. Your line is open.

Jeffrey Rulis

Thanks. Good morning. I wanted to maybe dive into the loan growth guide a little more specific. I think year-to-date, you're already at five, kind of mid single digits. So could we talk about the expectations for the balance of the year? You mentioned conservative, but that would signal a pretty big deceleration in that growth for the balance of the year. What do you guys see in there that keeps the loan growth in a single digit number?

Len Williams

Yes, The unknown. We're not all the way through the pandemic, but yes, to be honest with you, we don't see anything backing that growth rate down at this point. We just don't know what happens in Q3 and Q4.

Jeffrey Rulis

Okay, pretty blunt. And then the -- on the margin, so a lot of puts and takes there, but 291, I guess, your take on direction of core margin then, I mean, that sounds like a bright outlook on growth, but where do you anticipate the 291 headed?

Len Williams

And Jeff, as I mentioned, if we had not seen higher prepayments in the quarter, and that's not just a function that we're seeing, all banks have experienced higher pre payments in -- and then based securities, what's with the rate? As I mentioned, if we were just back to 115 in the fourth quarter, like we were in the fourth quarter, our margins would have been over 3% this quarter. As we look forward, I would expect that that margin to be for the rest of the year, probably around over 3% and going to around 310, 315. It's difficult to take that, $1.5 [ph] in investment securities, and immediately change that out into loans.

But, the whole reason why we got into mortgage backed securities in the first place is because we wanted to buy amortizing securities. So, the cash was coming back every month, and we could redeploy that into loans, as we knew that the loan growth would be there now that we've finished our strategic initiatives. So, it's what we expected. We didn't expect to see as much liquidity come in.

But, I don't think anyone expected multiple stimulus programs from the Fed, but we will take and the securities portfolio right now, that's the highest we believe it will get. But having said that, right now we're getting back about $50 million in cash every single month from the portfolio and hopefully, we'll be able to take at least a portion of that and turn that into loans and grow that aggressively, but safely over the next several quarters.

Jeffrey Rulis

Sounds good, 310, 315 or 25 basis points expansion by the end of the year, that's great. The last one I've had, just the expenses. Just wanted to make sure, you talked about some of the investments you're making and in addition to kind of mindful of that expense rates here. So wanted to get the message here at 16.5, for the quarter, is that our, -- can you make investments and hold the line or what is the outlook for the expense growth or maybe keeping that flat?

Mark Olson

Yes, we think we can continue to grow in the technology. We think we've got it funding available for without increasing because we will continue to see more efficiencies for the technology we've put in place in the last couple years. We haven't maximized very efficiently yet on the commercial lending platform. So there are some opportunities there. So we would expect moderate growth or modest growth on expenses around probably your model. And we don't expect anything extraordinary that we can't fund out of the efficiencies that are already coming online.

Jeffrey Rulis

All right. Well, thank you for the answers. I'll step back. Thanks.

Len Williams

Thank you, Jeff.

Mark Olson

Thank you, Jeff.

Operator

Your next question comes from Andrew Liesch of PSC. Your line is open.

Andrew Liesch

Good morning, guys. Thanks for all the details surrounding margin growth outlook. It sounds like you guys have had some pretty good traction, hiring bankers and attracting inbound interest. So the organic growth should continue to be strong. But what's the chatter on the M&A front? I know in the past you guys have wanted to do deals and are hopeful to do deals, but you have such good organic growth capabilities. I guess, like what's kind of the cadence for prospective M&A if you have such good loan growth?

Len Williams

Yes, it is certainly on the radar, but we're also in a pretty good economy and in the smaller community banks in the market tend to be doing well in their own right. So we continue to carry dialogue, but there's nothing imminent as at this point. We'll continue to push the organic and we do think there will be other opportunities down the road.

Andrew Liesch

Got it. Nothing is [indiscernible] good organic trends, you don't have to integrate someone, integrate a bank and go through any disruption that might happen there, the organic trends could be pretty strong without the integration risk. And then just on the securities, look it sounds like that's going to pop out at this level, is that, did I hear you correctly not expecting any more build on that?

Len Williams

Yes, that's, that's correct. We would expect it to remain flat to down as the loan book grows. I mean, that -- we'd like to get that down as quick as we can and we will continue to purchase securities. As, as I mentioned, the cash flow coming back is significant and we want to make sure that we're getting some yield. But as the loan book grows we will allow that security book to decline.

One caveat, though Andrew, and that is, we've anticipated deposits going down for three quarters now. And programs keep coming into place and deposits continue to keep growing. We're in a conservative market. It's not just us, but we don't know what happens on the stimulus front going forward. And so far, we've been wrong three quarters in a row on one that goes down. So if things normalize, we think that, that securities portfolio will start to drop, but there is an unknown out there.

Andrew Liesch

Got it. Yes, [indiscernible] spoke around deposit growth has been stronger than I've been expecting. You guys have covered my other questions. I will step back. Thank you.

Len Williams

Thank you.

Mark Olson

Thanks, Andrew.

Operator

[Operator Instructions] Your next question comes from John Rodis of Janney. Your line is open.

John Rodis

Good morning, guys.

Mark Olson

Good morning, John.

Len Williams

Hi, John.

John Rodis

Hope you guys are doing well. Just real quick, just to clarify back to your loan guidance, does that include the impact of the runoff of the PPP loans?

Mark Olson

Yes, it does.

Len Williams

It does.

John Rodis

It does. Okay.

Len Williams

The PPP loan program declined from the fourth quarter to the first quarter. We're continuing to fund loans from round two. But our SBA team, they've been fantastic and they've filed significant amount of forgiveness applications and no, we haven't lost one yet. And so that portfolio continues to decline quickly, even as we continue to fund on round two.

John Rodis

Okay, so but I guess back to a prior question on your guidance for high single digit overall growth, and you can grow core loans in excess of 10% and then net of the runoff, you're going be high single digits, still?

Len Williams

Little bit more.

John Rodis

Okay. Just on the mortgage front, I guess given your various investments and so forth, I guess the NBA forecast has mortgage, -- mortgage value and is trending down from the first quarter. But it sounds like you still think given your new investments you can offset that and grow revenues going forward from the first quarter?

Len Williams

Yes, we do expect the mortgage business to slow down a little bit. As a matter of fact, we're seeing it forward. Now dropping off a little bit. That is offset a little bit just by the mortgage teams' aggressiveness and bringing on bankers and growing the opportunity and their self funding is they do that, but we do anticipate some kind of a decrease there.

And as you'll note, this quarter a portion of our loans, we rather than going out and buying mortgage backed securities, we kept our own to a degree the increased yields and opportunities. But the volume was so great this time that allowed it to happen. If we get down to normalize, then that growth will probably come predominantly from our commercial real estate portfolio and we'll continue to sell mortgages, because we don't want to, we don't want to lose that, that fee income base either. So yes, we've got, you heard the pipelines where we are, and we do have a little wiggle room in there for mortgage business backing down a bit.

Mark Olson

We also budgeted. When you look at the mortgage program there, we budgeted for an increase in mortgage loan officers for the year and we'll continue to see that, but we're doing it with incremental value every time and so we'll see some growth there as well. The other thing is, construction development here in Utah is really strong. And we've got a business vertical that is doing builder finance lending and we're getting more and more of that long term residential loans through those areas as our mortgage team continues to focus in that area as well.

John Rodis

Okay, so the combination of all that you think mortgage revenues can actually be up a little bit from the first quarter though, just to be clear?

Len Williams

Yes, we do.

John Rodis

Okay. And then you mentioned the treasury management product that you've got coming online, just any sort of idea, the magnitude of what sort of revenues, you could see from that?

Len Williams

I think that's going to be us, relatively stable growth mode. We brought on the function of treasury management a couple years ago, and it continues to gather steam as it goes with mediocre products, I guess I'll say. So they've been working for a good year and a half with the vendor to bring this new automated product into where all clients can manage, at least all business plans can manage cash and investments, and wires, and ACH all through their telephone app or online. And we actually were their first client.

We had the bank go on to where all of our ACH and wire approvals were done remotely via the authorized personnel. And until we got it to the point where we were comfortable that it would provide value, it was easy to work, we held back on the release. So we're thinking that should have a nice jump. And we also believe that some of the deposit retention that we're seeing more than we anticipated we would is due to the treasury management team already doing a good job. And we've had a half dozen clients, our best, some of our best clients testing the product for a period of time and we're getting pretty good reviews. So I'm not going to guesstimate the growth rate, but it should, over time, it should really make an impact on our fee income base.

John Rodis

Okay, sounds good. Thank you, guys.

Len Williams

Thank you.

Mark Olson

Thanks, John.

Operator

There are no further questions at this time. I will now return the call to Mr. Williams for closing remarks.

Len Williams

Very good. Thank you, Chris. And again, thank you all for joining us. We appreciate the interest and as we push forward to 2021, wishing you all the safety and health, and we look forward to our conversation next quarter. Thank you.

Operator

This concludes today's conference call. Thank you for your participation. You may now disconnect.