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Sandy Spring Bancorp Inc (NASDAQ:SASR)
Q4 2020 Earnings Call
Jan 21, 2021, 2:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day and welcome to the Sandy Spring Bancorp Earnings Conference Call and Webcast for the Fourth Quarter of 2020. [Operator Instructions] Please note that this event is being recorded. Now, I'd like to turn the conference over to Mr. Daniel Schrider, President and CEO. Please go ahead.

Daniel J. Schrider -- Vice Chairman, President and Chief Executive Officer

Thank you, and good afternoon, everyone. I appreciate you joining us for our conference call to discuss Sandy Spring Bancorp's performance for the fourth quarter of 2020. Today, we will also bring you up-to-date on our response to an impact from the COVID-19 pandemic.

This is Dan Schrider and I'm joined here by my colleagues, Phil Mantua, our Chief Financial Officer, and Aaron Kaslow, General Counsel for Sandy Spring Bancorp. Today's call is open to all investors, analysts and the media. There will be a live webcast of today's call and a replay will be available on our website later today. But before we get started covering highlights from the quarter and taking your questions, Aaron will give the customary safe harbor statement.

Aaron M. Kaslow -- Executive Vice President, General Counsel and Secretary

Thank you, Dan. Good afternoon, everyone. Sandy Spring Bancorp will make forward-looking statements in this webcast that are subject to risks and uncertainties. These forward-looking statements include statements of goals, intentions, earnings and other expectations, estimates of risks and future costs and benefits, assessments of expected credit losses, assessments of market risk and statements of the ability to achieve financial and other goals. These forward-looking statements are subject to significant uncertainties, because they are based upon or affected by management's estimates and projections of future interest rates, market behavior, other economic conditions, future laws and regulations, and a variety of other matters, including the impact of the COVID-19 pandemic, which by their very nature are subject to significant uncertainties. Because of these uncertainties, Sandy Spring Bancorp's actual future results may differ materially from those indicated. In addition, the Company's past results of operations do not necessarily indicate its future results.

Daniel J. Schrider -- Vice Chairman, President and Chief Executive Officer

Thank you, Aaron. Welcome, everyone, and Happy New Year to everyone on the line. We certainly hope that you're faring well and remaining healthy during this season of the time. I'm pleased to be here today to talk through our fourth quarter performance and our annual results.

While weathering the global pandemic was a challenge for everyone in 2020, our Company did so while completing the integrations of Revere Bank and Rembert Pendleton Jackson, as well as helping our clients through this unprecedented crisis. We demonstrated great resilience and it shows in the record quarter we announced this morning. We've built on our momentum from the third quarter and we finished the year strong.

Today, I will review the financials and our ongoing response to the COVID-19 pandemic, and I will recap some of the Company highlights from the year. Later in the call, Phil and I will also walk you through the supplemental materials we issued this morning and provide more color on our credit quality, our provision expense, and allowance.

As you read in the press release today, we reported record net income of $56.7 million or $1.19 per diluted common share for the fourth quarter of 2020. The current quarter's result compares to net income of $28.5 million or $0.80 per diluted common share for the fourth quarter of 2019 and net income of $44.6 million or $0.94 per diluted common share for the third quarter of 2020. Our operating earnings continued to improve, reporting $48.2 million or $1.02 per common share in the fourth quarter compared to $30.4 million or $0.85 per diluted common share in the fourth quarter of 2019 and $45.8 million or $0.97 per diluted common share for the third quarter of 2020. These numbers exclude the impact of the provision for credit losses, the effects of the Paycheck Protection Program, as well as M&A expenses.

The provision for credit losses this quarter was a credit of $4.5 million, compared to a charge of $7 million in the linked quarter. This change is primarily the result of a change in the most recent economic forecast, specifically the projections for business bankruptcies decreased due to the positive impact of governmental relief programs for individuals and small businesses. Phil will cover this in more detail when we review the supplemental materials.

Total assets grew by 48% to $12.8 billion, compared to $8.6 billion in the fourth quarter of 2019. This growth was primarily driven by the Revere Bank acquisition and our PPP participation. During the past year, loans and deposits grew by 55% and 56% respectively and we originated $1.1 billion in commercial business loans through the PPP program. Total loans at year-end were $10.4 billion, compared to $6.7 billion at the end of 2019, and excluding PPP loans, total loans grew by 39% to $9.3 billion at December 31, 2020, compared to the prior year quarter. As previously stated, the acquisition of Revere drove the majority of the increase in loans.

Commercial loans grew 52% or $2.6 billion, excluding PPP, and consumer loan growth during the year was 11%. While loans grew modestly compared to the third quarter of 2020, total commercial loans expanded by 2% on a linked quarter basis. New commercial production for the fourth quarter was very strong at over $500 million and new originations of 8%, compared to the pre-pandemic production in the fourth quarter of 2019. Over the past year, deposit growth was 56% as non-interest-bearing deposits experienced growth of 76% and interest-bearing deposits grew 47%. This growth, again, primarily driven by the Revere acquisition and to a lesser extent the PPP program.

Non-interest income for the current quarter increased by 68% or $13 million, compared to the prior year quarter as a result of a 248% increase in income from mortgage banking activities and growth of 28% in wealth management income. The growth of these two categories more than compensated for the decline in service fee income compared to the prior year quarter.

On the mortgage front, historically low lending rates drove mortgage origination activity and an increase in mortgage banking income of $10.3 million during the current quarter compared to the prior year quarter. Of note, mortgage originations for the year set a Company record and exceeded $2 billion. Within our mortgage production, 57% represented refinance activity, 33% were purchase money transactions, and the remaining 10% were construction firm originations, which by their very nature, are new home acquisitions. While we expect mortgage banking income to remain a significant part of our fee-based revenue in 2021, we don't expect mortgage production to remain at the current levels.

As a result of the first quarter acquisition of RPJ, wealth management income increased $1.8 million, compared to the same quarter of the previous year. We concluded the year with yet another Company milestone of wealth assets under management in excess of $5.2 billion.

On the margin side, the net interest margin was 3.38% for the fourth quarter of 2020, compared to the same 3.38% for that same quarter of 2019 and 3.24% for the third quarter of 2020. Excluding the impact of the amortization of fair value marks derived from acquisitions, the current quarter's net interest margin would have been 3.31% compared to 3.34% for the fourth quarter of 2019 and 3.18% for the third quarter of 2020. We're really pleased to see the current quarter expansion and broader stability in the core margin as we're actively managing down the cost of funds by allowing higher priced time deposits to run off, diligently pricing our local end market transaction products, and funding our remaining needs with the most cost-effective wholesale sources available. These actions have resulted in our cost of interest-bearing liabilities being reduced from 77 basis points to 63 basis points and the cost of interest-bearing deposits from 57 basis points to 39 basis points, all on a linked quarter basis. We also chose to eliminate the negative carry related to maintaining an excess cash position by repaying the remaining $254 million of PPPLF funds.

Non-interest expense for the fourth quarter of 2020 increased $15.6 million or 34% compared to the prior year quarter, primarily as a result of the operational cost of Revere and RPJ acquisitions, increased compensation expense related to staffing increases, and incentive compensation in addition to an increase in FDIC insurance and the amortization of intangible assets. Other expense in the current quarter contained one notable item related to the establishment of a contingent liability of $1.6 million to reserve against unfunded commitments as required by the Company's adoption of CECL.

The non-GAAP efficiency ratio was 45.09% for the current quarter, compared to 51.98% for the fourth quarter of 2019 and 45.27% for the third quarter of 2020. The decrease in the efficiency ratio, which reflects an increase in efficiency from the fourth quarter of last year to the current year, was a result of the $47.2 million growth in non-GAAP revenue outpacing the $15.4 million growth in non-GAAP non-interest expense. As we look ahead, we continue to manage this expense to revenue metric to a targeted range of 48% to 50% and anticipate 2021 efficiency levels to settle into this range as we expect mortgage revenues to eventually decline from current levels and operating expenses to be comparable to current levels, absent the notable other expense item I mentioned a moment ago. We will also look to invest in the people and technologies needed for future growth and success, while identifying opportunities for greater efficiency.

On the credit side, non-performing loans to total loans increased 111 basis points, compared to -- to 111 basis points compared to 62 basis points at December 31, 2019 and 72 basis points to the linked third quarter. Non-performing loans totaled $115.5 million compared to $41.3 million at December 31, 2019 and $74.7 million at September 30, 2020. The year-over-year growth in non-performers was driven by three major components: loans placed in non-accrual status; acquired Revere non-accrual loans; and loans previously accounted for as purchased credit impaired loans that have been designated as non-accrual loans as a result of the Company's adoption of the accounting standard for expected credit losses at the beginning of the year. Loans placed on non-accrual during the current quarter amounted to $54.7 million, compared to $5.4 million for the prior year quarter and $900,000 for the third quarter of 2020. These loans relate primarily to a limited number of large borrowing relationships within the hospitality sector. These large relationships are collateral dependent and required no individual reserves due to sufficient values of the underlying collateral.

The Company recorded net charge-offs of $0.5 million for the fourth quarter of 2020, compared to net charge-offs of $0.5 million and $200,000 for the fourth quarter of 2019 and the third quarter of 2020, respectively. The allowance for credit losses was $165.4 million or 1.59% of outstanding loans and 143% of non-performing loans, compared to $170.3 million or 1.65% of outstanding loans and 228% of non-performing loans at the linked quarter.

Tangible common equity increased to a $1 billion or 8.46% of tangible assets at December 31, compared to $782.3 million or 9.46% at December 31, 2019 as a result of the equity issuance in the Revere acquisition. The year-over-year change in tangible common equity also reflects the effects of the purchase -- repurchase of $50 million of common stock and the increase in intangible assets and goodwill associated with the two acquisitions we completed in 2020. Excluding the impact of PPP from tangible assets at December 31, the tangible common equity ratio would be 9.25%.

At December 31, 2020, the Company had a total risk-based capital ratio of 13.93%, a common equity tier 1 risk-based capital ratio of 10.58%, a tier 1 risk-based capital ratio of, again, 10.58%, and a tier 1 leverage ratio of 8.92%.

At this point, I'd like to turn to the supplemental information we issued this morning. On Slide 2, you can see that loans with payment accommodations or some folks refer to those as deferrals, as of December 31 totaled $217 million resulting in 2% of our loan portfolio receiving accommodations. On Slide 3, we have detailed specific industry information, which we've updated and shared in the past three quarters. Outstanding balances for each segment and the loans and payment accommodations are as of December 31.

And on Slide 4, we have included an update on our PPP efforts as of January 11. We began accepting forgiveness applications this quarter and 70% of loans, over $150,000 have been invited to apply for forgiveness. And all of the applications that have been submitted to the SBA have received 100% forgiveness. As we noted in our press release today, we temporarily paused invitations to our forgiveness portal, pending updates to the PPP program. We also took a pause in order to focus our efforts on preparing to accept applications for first and second draw loans once the program resumed. We expect to invite the remainder of our PPP borrowers, including those with loans of $150,000 or less to submit their forgiveness applications within the next few weeks. And on the origination side, we began accepting applications for the latest round of PPP loans, both first and second draw loans on Tuesday afternoon.

And now, I'll turn it over to Phil to talk through CECL and our capital position.

Philip J. Mantua -- Executive Vice President and Chief Financial Officer of Bancorp and Bank

Thank you, Dan. Good afternoon, everyone. I'm going to pick up on Slide Number 5 in the supplemental deck where we have a waterfall representation of our allowance build first for all of the year 2020, which is broken down into the components, but they reflect the build during the year. As you can see, the change over the course of the full year was primarily driven by two significant components; the change in economic forecast and the impact of our Revere acquisition on the required reserve. And although not illustrated here, you may recall that the majority of that Revere -- of both of those impacts was incurred during the second quarter of the year.

On the following slide, Slide 6, we have a similar presentation of the fourth quarter. On this chart, we can see the predominant factor driving reserve release and the provision credit for this particular quarter is the expected year-over-year change in business bankruptcies, which is one of our key economic factors. This change in the expected -- this change in expectation, which as Dan already mentioned earlier, was impacted primarily by the anticipation of the additional stimulus that we've now -- has now been announced at the time the forecast was developed, and which therefore was more than enough to overshadow our other changes in our qualitative factors and our other economic factors as well, including the projected unemployment rate.

So all of our key macroeconomic variables are outlined on the next slide, Number 7. Our CECL methodology continues to use Moody's baseline forecast, which for the fourth quarter was a version released by Moody's on December 21. This baseline forecast integrates the effects of COVID-19 and includes the projected levels of unemployment for our local market that in this forecast peaks at 6.6% during the year and then ultimately recovers to a level of 4.7% by the end of 2022, slightly higher than that that was projected in the prior third quarter forecast.

In determining our reasonable and supportable forecast period, we continue to use a two-year time horizon in the current quarter to reflect the less -- that there is less uncertainty in the long-term outlook here at this time. And similar to our approach taken throughout the year, we continue to not take into consideration any potential mitigating factors based on what could be perceived as a positive outcome or impact of government programs such as PPP, etc., and we continue to feel very comfortable with taking this conservative stance.

Slide 8 provides you some additional granularity related to our reserve from a portfolio view, where you can see the most significant amount of reserve by dollar amount is attributed to the commercial business portfolio, where the total reserve is $46.8 million or 2% of outstandings, but did decline significantly based on the previously mentioned change in the projection of business bankruptcies. We should note that that 2.06% of reserve reflected here includes PPP loans in the balance, although there was no reserve required on those loans. As illustrated in the footnote at the bottom of the slide, when adjusting the balance to exclude PPP loans outstanding, the reserve on our commercial business segment would be 3.87% and our total reserve would be 1.77% of total loans.

Finally, on Slide 9 is a trend of our pertinent capital ratios with some brief explanations regarding the treatment of certain items and their impact on the resulting ratios. Included in those comments is an adjusted tangible equity to tangible asset ratio to reflect the impact of PPP loans on the current measure as Dan mentioned earlier in his comments. We continue to feel confident about our capital position as all of our metrics either held steady or improved slightly as a result of the strength of our earnings during this quarter. We also recently updated our capital stress tests where we have constructed a baseline and severe forecast scenario, utilizing the same Moody's baseline forecast incorporated in our CECL calculations and a COVID-based S4 [Phonetic] economy in the severe case. Having done so, we continue to be confident that we have the capital to carry us through the remaining portion of this ongoing situation.

And with that, Dan, I'll turn it back over to you.

Daniel J. Schrider -- Vice Chairman, President and Chief Executive Officer

Thank, Phil. Before we move to take your questions, I'd like to cover a few other updates from the release and highlights from the year. As we also shared in the press release, we intend to close three branches in the second quarter of 2021. These branches include two in Northern Virginia and one in Montgomery County, Maryland. Client accounts will be consolidated into nearby locations and these closures are a result of our continued analysis of branch utilization, client needs in the proximity of our many locations.

As it relates to our ongoing response to COVID-19, the health and safety of our people and communities remain our priority and the majority of our workforce continues to work remotely. Clients are served at branches primarily through drive-through facilities, and we do have limited lobby access. And over the summer, Sandy Spring Bank Foundation donated $600,000 to support COVID-19 response efforts at a dozen local hospitals, serving the Greater Washington region. We're proud of all that we've done and continue to do to support our people and communities throughout these uncertain times. We hope that we'll be able to welcome back our people into our offices at some point in 2021, but for now, we remain in Phase 1 of our return to work plan. And as we've done all year, we'll continue to evaluate this ongoing situation and will adapt as needed and enabled.

Despite the many obstacles caused by the pandemic, also want to note that we continue to grow the Company and welcome new people to our team. Our efforts to recruit, hire, and on board new employees have remained steady, hiring more than 150 new employees since we transitioned to a remote environment in March. Well, I've had an opportunity to meet many of our new colleagues through virtual orientations. We're all eager to meet everyone face-to-face and personally welcome them to our Company.

And thanks to our remarkable employees, our Company also earned numerous recognitions throughout the year, including being named a Top Workplace by both the Washington Post in Baltimore Sun, earning a spot on American Banker's Best Banks to Work For list for the first time, ranking the Top Bank in Maryland in one of America's Best-In-State Banks by Forbes, being certified as a Great Place to Work by The Great Place to Work Institute, and ranking the Number 1 among mid-sized companies for employee volunteerism in the Washington Business Journal. We're especially honored by the workplace recognitions because they are a direct result of our employee feedback about our Company and our culture.

In closing, I cannot understate the dedication and resilience our employees have shown in the past year. While this remote and socially distanced environment as far from our ideal, our team continues to find new and creative ways to serve our clients and continue to move Sandy Spring Bank forward. So to all of our employees, a big thank you.

And operator, that concludes our general comments for today, and we'll now move to questions.

Questions and Answers:

Operator

We'll now begin the question-and-answer session. [Operator Instructions] First question is from Casey Whitman of Piper Sandler. Please go ahead.

Casey Whitman -- Piper Sandler -- Analyst

Hey, good afternoon.

Daniel J. Schrider -- Vice Chairman, President and Chief Executive Officer

Hi, Casey.

Philip J. Mantua -- Executive Vice President and Chief Financial Officer of Bancorp and Bank

Hi, Casey.

Casey Whitman -- Piper Sandler -- Analyst

Hey. So, appreciate the clarity on the other expense line. So I guess I'd ask the same question as I look at fees. Anything unusual going on in the other fee line this quarter that we should think about or is it a pretty good run rate?

Philip J. Mantua -- Executive Vice President and Chief Financial Officer of Bancorp and Bank

Yeah. Casey, this is Phil. There were a couple of areas where we have little bit heightened activity relative to extension or commitment fees, prepayment fees alike. But the biggest thing that was in this quarter was, we had pretty significant amount of swap fee income of about $900,000. Now, we think we will continue to have some activity in that area, but I don't know that we would continue to forecast that particular line item at that level quarter-in and quarter-out. But otherwise, I think by and large the fee levels -- or the other fee levels here are probably in a pretty reasonable place. We could probably take that swap fee income and maybe cut it in half or whatever and think about it that way on a quarter-by-quarter basis.

And then on the expense side, as Dan mentioned, absent one [Phonetic] notable item related to the kind of a contingent liability for the unfunded commitments, which by the way, we will look at every quarter and make determinations as to whether that reserve might need to move in one direction or the other. I think from a run rate standpoint and overall expense number in that $60 million range a quarter is something that would probably be a good way to look at it going forward.

Casey Whitman -- Piper Sandler -- Analyst

That makes sense. And I'm assuming that that run rate sort of factors in any sort of cost savings you might have for Revere, the branch closure that you already announced.

Philip J. Mantua -- Executive Vice President and Chief Financial Officer of Bancorp and Bank

Yeah. I mean I think it relates to everything that's to be recognized or absorbed relative to Revere transaction. I think we're pretty much here at this point from a cost save integration standpoint, as well as by the way anymore merger-related expenses, I think we'll pretty well shut that down by the end of the year. And so I think that that would be accreted.

On the cost save side related to the branch closures, they are not expected to happen until a little bit later in the year. So, in the current -- for '21, that savings might be, I don't know, $300,000, $400,000 more on a run rate basis. It's probably $1 million to $1.2 million full year.

Casey Whitman -- Piper Sandler -- Analyst

Understood. Thanks. I guess -- I appreciate also your comment -- or your commentary around the mortgage outlook. But maybe just some help as to what happened this quarter. Can you just give us a little more detail on the underlying trends this quarter? What was the split between purchase and refi? And how did the gain on sale margin fare? Certainly mortgage held up even better than I would have thought this quarter. So maybe just some help in terms of what you are seeing this quarter.

Daniel J. Schrider -- Vice Chairman, President and Chief Executive Officer

Yeah. Casey, I referred probably a little bit earlier in my comments in terms of the split between production -- once I pull my note that I got here again -- in terms of purchase money activity versus refi.

Philip J. Mantua -- Executive Vice President and Chief Financial Officer of Bancorp and Bank

Yeah. Casey, I have it here. On a production basis, it's about 60% of all production in the quarter were the refi, probably other 20%, probably about 30% -- other 30% of it was purchase, and then the remainder was construction-type lending that you know we do. Of that production, about 84% of it was some -- was then labelled to be sold or was sold during the quarter. And our overall net gain on that sale by margin was about 278 basis points, which is probably about 60 basis points to 70 basis points greater than it was in the prior quarter. Although that mix that I mentioned was comparable in the third quarter, that was just more of it here in the -- by about $50 million of total production in the fourth quarter as opposed to the third.

And I think the difference from probably how we viewed it when we talked about this in the third quarter was that, we didn't have the expectation that that level of business was going to be -- maintain much less grow into the fourth quarter, if nothing else, just by virtue of historic cycles and things along those lines, but obviously, it did. So, we'll probably -- [Indecipherable] I think we have alluded to in the earlier comments that we don't expect that to occur this quarter as well. And I would -- I think we still believe that that will be the case that it should drop down from what it was in the last two quarters, but I think time will tell.

Casey Whitman -- Piper Sandler -- Analyst

Understood. Thanks. I'll just ask [Technical Issues] hop off. Just a quick one on the hotel book and then migration on accruals. Maybe just some color in terms of were these -- were the non-accruals previously in a deferral period? Are they [Technical Issues] sort of happen? Thanks.

Daniel J. Schrider -- Vice Chairman, President and Chief Executive Officer

Yeah. Let me hit that, it might be helpful for obviously others on the call as well. Because the lion's share of our deferrals today are within that hotel book, $132 million of $200 million in the overall commercial portfolio is from that -- is from the hotel book. So let me break a couple of things down. So total hotel portfolio is of $416 million, $132 million are still in a deferral, $180 million, however, that had a deferral have resumed normal payments, and $104 million of that portfolio never requested or was granted a deferral.

The assets that moved into non-performing are certainly were part of a deferral, but in our assessment, through our portfolio review process, this really has settled into two relationships and the characteristics of those caused us to question the ability to perform long term, namely the financial wherewithal of the owners and sponsors to support their properties throughout this pandemic period, but at the same time under a stressed liquidation scenario, did not result in any meaningful reserves being assigned to those credits.

We've conducted the same type of portfolio review evaluation of the entire book and those that are continuing within the deferral period at this point, we feel like there is enough wherewithal to work through the -- not only the deferral period but beyond.

I'll give a little bit more color than maybe you're asking, but I think it's important because that is the bulk of our deferrals.

Of the total portfolio, we've got a pretty diverse mix of national flags as well as diversity in the locations throughout our market footprint, and there is no like submarket concentration there. Largest percentage of national brands is Marriott at 21%, followed by Hilton at 20%, and then it breaks down further from there. And about 81% of the book are -- will be considered limited service properties and those are the ones that have fared much better on a national level, given lower overhead and lower occupancy required to breakeven, and that's the lion's share of what we have in our hotel portfolio. Only 17% of the portfolio will be considered full-service hotels and 72% would be considered either mid-scale or economy properties. So all of that aims at a segment of kind of the hotel industry that is -- it is currently having a better result in terms of breakeven and better opportunity to emerge from the crisis with less unscathed.

So we'll continue to evaluate it. Fortunately, we feel like we're in a pretty good position with about a 59% weighted average loan to value on that portfolio as a whole. And so while we have -- obviously, likely have more credits from the overall book that a struggle through the pandemic season, we feel like we're in a good position to adequately reserved and a good position to successfully work through it.

Casey Whitman -- Piper Sandler -- Analyst

Understood. Thanks so much for the color and for the questions -- answers.

Operator

Thank you. The next question is from Catherine Mealor, KBW. Please go ahead.

Catherine Mealor -- KBW -- Analyst

Thanks, good afternoon.

Daniel J. Schrider -- Vice Chairman, President and Chief Executive Officer

Good afternoon.

Philip J. Mantua -- Executive Vice President and Chief Financial Officer of Bancorp and Bank

Hi, Catherine.

Catherine Mealor -- KBW -- Analyst

[Indecipherable] margin and your outlook for this year. It looks like you had some, I guess, maybe just kind of wonder how you're thinking about just the margin in terms of rates and where you're seeing loan yields and deposit pricing move. But then also on just the balance sheet restructuring, looks like you had a decline in CDs and some borrowings, and if we should expect any kind of further of balance sheet remix as we move through '21. Thanks.

Philip J. Mantua -- Executive Vice President and Chief Financial Officer of Bancorp and Bank

Yeah, Catherine, this is Phil. So I would start with kind of broad statement about the level of margin through the year. I'm anticipating that it's going to stay fairly steady to the kind of levels we finished the year with in that high 3.30% to 3.40%-ish range on a reported basis. We're starting to get away from, especially on the asset side, a lot of the fair value impact -- the fair value mark impacts to the yields, the accretive part of the yields. So I think that's starting to clear its way out of the equation and yet we still have the dilutive effect of PPP lending for the existing PPP loans that are there, and probably now have some either replacing it or in addition to it related to second round PPP lending, which we don't know what that is going to look like, per se, in terms of volumes yet at this point.

But nevertheless, putting those things aside, again, I think that because of the things we've already done on the liability side, which we'll talk about here in a second and our ability to continue to, I think, push that down a little bit further, I think that that kind of steady stable margin position is doable throughout all of the year.

On the cost side, we have continued to let high-bright [Phonetic] CDs continue to run off. I think that will contribute to what's going on here and therefore the mix of liability side should change accordingly, probably at a similar speed, although we had a pretty good block of intermediate type of special CDs that certainly have worked their way off the balance sheet or continuing to do so. We don't have anything that we're pricing in the market today, CDs or otherwise, that's exceeding 30 basis points. So when you think about where rates were 18 months ago or whatever more and what we would effectively replace them at, that's why I feel that that can continue to happen.

We've borrowed -- we've done some borrowings from time to time as necessary, especially on a very short-term basis, but I also think that we found that there are other ways within the deposit base through either brokered money markets or brokered CDs, which we used in the past, to be as less expensive or just as less expensive than doing anything through either fed funds or home loan bank type advances. And so, I think we'll just continue, as Dan said in his comments, to look for the best priced advantage to augmenting with wholesale, whatever we're doing in the current markets.

And then finally, I think you asked about the yields on the asset side. On the commercial loan side, just from a production standpoint here in the last quarter, last quarter's yields at the margin were probably only 15 basis points or 20 basis points of our rolling 12-month average, which was in the low 4% to 4.15% to 4.20% range. And yes, so that will certainly have the overall yields on the portfolio to continue to come down, but again, I think not any more so than to the degree, like I mentioned, when we started this to the point where we'll be able to keep the margin fairly constant even in the face of that.

Catherine Mealor -- KBW -- Analyst

Great. Really helpful color. Thank you. Maybe one follow-up is just on share buybacks. You have an authorization outstanding, when do you think you'll be ready to be more active in buybacks?

Daniel J. Schrider -- Vice Chairman, President and Chief Executive Officer

Yeah. Catherine, it's Dan. We always want to have the authorization in place, which is the essence of the timing there. So, there is no specific time frame that we would engage in share buybacks, probably more on times when we think there is opportunity based on weakness in shares.

Catherine Mealor -- KBW -- Analyst

[Indecipherable] stack, do you feel like either authorization is just more opportunistic, if the stock price pulls back from current levels versus a strategy to try to get the buybacks complete by year-end just as an use of capital?

Daniel J. Schrider -- Vice Chairman, President and Chief Executive Officer

Yeah. No, I think it's probably more of an opportunistic approach.

Catherine Mealor -- KBW -- Analyst

Okay. Great. And then [Technical Issues] and what that may look like this year?

Daniel J. Schrider -- Vice Chairman, President and Chief Executive Officer

I'm sorry, we lost you there for a second, Catherine. Do you mind repeating that one?

Catherine Mealor -- KBW -- Analyst

Yeah. So I was just going to sneak in one more just because we're talking about capital. Just in terms of M&A, now that we've got Revere closed, how are you thinking about your activity in acquisitions in the near term?

Daniel J. Schrider -- Vice Chairman, President and Chief Executive Officer

Yeah. No, good question. Yeah, we're having some issue with the line cutting out in a little bit, so thanks for repeating that. As it relates to our longer-term growth strategy, M&A will continue to be a part of what we do both bank and non-bank fee-based businesses. But there is -- yeah, at this point, there is nothing to report at this time and unlikely that there would be anything in 2021.

Catherine Mealor -- KBW -- Analyst

Great. Thanks so much.

Daniel J. Schrider -- Vice Chairman, President and Chief Executive Officer

Thank you.

Operator

Thank you. Our next question is from Steve Comery of G. Research. Please go ahead.

Steve Comery -- G. Research -- Analyst

Hey, guys. Happy New Year.

Daniel J. Schrider -- Vice Chairman, President and Chief Executive Officer

Happy New Year, Steve.

Philip J. Mantua -- Executive Vice President and Chief Financial Officer of Bancorp and Bank

Happy New Year, Steve.

Steve Comery -- G. Research -- Analyst

I'm wondering if you could go back to the hotel book for a second, I don't want to belabor this too much, but I'm wondering if you guys could give us any color on sort of these two credits that were moved to non-accrual and how like cash flows and occupancy have trended and if you guys have seen any improvement or declination there?

Daniel J. Schrider -- Vice Chairman, President and Chief Executive Officer

Yeah. Actually, I don't have the details to sharing those specific credit relationships, but what I will say is that I guess the unique aspects that drove them into the non-performing category, as many of our hotel relationships, even those that have moved into some form of accommodation have been on the heels of the sponsors or the guarantors stepping up and providing some type of enhancement to the credit through other resources that that they may have. In this particular case, these situations were unique relative to the other in terms of the ability of sponsors to kind of step in and support during a time when occupancy was not sufficient to breakeven.

And so, in the different -- other aspects of the remaining portfolio, we're seeing where most of our limited service hotels are -- their breakeven can be achieved in the 30% to 50% occupancy range at the loan to values that were worsening and most are close to achieving that if not having achieved that.

So really -- not that we're not going to continue to manage that book and assess each relationship with, but these couple of relationships had characteristics that were clearly weaker, not necessarily based upon the brand or the submarket, but the individual operator itself.

Steve Comery -- G. Research -- Analyst

Okay. That's definitely helpful. Maybe moving on to wealth management, another good fee quarter. Is this a good run rate to look at for 2021, absent big market moves?

Daniel J. Schrider -- Vice Chairman, President and Chief Executive Officer

Yeah. In terms of revenue from the wealth management space, yeah, I would think so. Those are -- all three of our legs of that stool, which is two RIAs as well as the trust division of the bank are kind of contributing equally to the overall assets under management pretty close and they're all operating very well. So I would expect that's a good run rate.

Steve Comery -- G. Research -- Analyst

Okay, very good. Maybe one more for me. With regard to the branch closures, I was wondering if you guys could give maybe a little more color around the decision process on the new specific branches and whether or not COVID or the shutdown changed the thinking on these branches and kind of put that in context of the rest of Sandy Springs' branch network. Thanks.

Daniel J. Schrider -- Vice Chairman, President and Chief Executive Officer

Yeah. Steve, that's a good question. We have an ongoing kind of branch rationalization or optimization kind of effort ongoing. And I would say in these cases, we've also like a lot of banks have learned a good a bit about client behavior through 2020 in the pandemic season. But that clearly, in our case marries up with our evaluation of when leases come due and when those opportunities based on client behavior and proximity to other locations would allow us to downsize, and that's what -- those were the kind of the two drivers here in these branches.

And that will -- we'll continue to have those evaluations as we go forward. It may not always result in declining number of branches, but it will open up the opportunity for us to put resources and maybe parts of our market, where we don't have a location. And so, it's not just about reducing branches but making sure we're in the right places.

Steve Comery -- G. Research -- Analyst

Okay, thank you. That's it from me.

Daniel J. Schrider -- Vice Chairman, President and Chief Executive Officer

Thanks.

Philip J. Mantua -- Executive Vice President and Chief Financial Officer of Bancorp and Bank

Thanks, Steve.

Operator

Thank you. Next question is from Mark Hughes from Lafayette Investments. Please go ahead.

Mark Hughes -- Lafayette Investments -- Analyst

Good afternoon. I hope you all are well.

Daniel J. Schrider -- Vice Chairman, President and Chief Executive Officer

Thanks, Mark. Good afternoon.

Philip J. Mantua -- Executive Vice President and Chief Financial Officer of Bancorp and Bank

Hey, Mark.

Mark Hughes -- Lafayette Investments -- Analyst

I had a short-term question, but I think it's just -- it was covered pretty well by a couple of the previous people. But I thought it might ask a long-term question that you might think is kind of a tough question, but I think it's a fair question. And that is, I was recently looking at the 2002 annual report for you all. And the reason I pick that year was, that's the first year that your stock traded at the price it's currently trading at today. And I look at what happened since then and you've made a number of acquisitions, the Bank's about 5 times or 6 times the size it was back then, you've added some fee-based businesses, your geographic expansion seems sensible, you haven't gone and opened branches in Ohio or Tennessee or something. In short, it seems like you've executed the small bank playbook pretty well, and yet, at the end of the day, we sit here as shareholders, and you all are large shareholders in the same place we were way back then.

So my question to you all is, and I realize you're not -- your share price is similar to many other smaller banks and this is not to put anything anew. So my question as a shareholder is, what changes going forward, what would make Sandy Spring and small banks in general more attractive or lead to better returns going forward than what we've seen for almost two decades now? And I realize part of it is, banks traded at higher valuations back then versus now and maybe where we trade today is just where we're always going to be. But could you just give some big picture long-term thoughts around what changes the equation in terms of how shareholders get rewarded and what the investment community might look at banks in a different light than they've been looking at for quite some time now?

Daniel J. Schrider -- Vice Chairman, President and Chief Executive Officer

That is a -- that's a good question, Mark. This is Dan, and perhaps, Phil may have some thoughts to offer in addition to mine. I think probably more than ever given the competitive nature of banking and client behavior in terms of what's important to them in a banking relationship, scale and operating leverage are going to be of critical importance going forward. You probably remember, for us, a kind of a inflection point was probably the third quarter of 2016, when we finally moved away from kind of always being in that low-60% efficiency ratio on a non-GAAP basis to beginning a process of having that move south. And I think that's -- and so it's a combination of having scale, which also provides for a little better operating leverage and the ability to invest in future technologies that would have us compete favorably with some of the larger institutions.

But the multiples seem to be what the multiples are, and so, our long-term focus which will, like I said earlier, will likely includes concluded additional growth is not for growth sake, but the ability to drive earnings on an EPS basis, double-digit over the course of time, which we think is going to be the driver for shareholder value. That's going to be important for it to play out for us over the course of time.

Phil, I don't know if you have anything.

Philip J. Mantua -- Executive Vice President and Chief Financial Officer of Bancorp and Bank

No, I don't have a whole -- really a whole lot of anything to add to it other than to just recognize I think as Mark you did. That is a really tough question to try to respond to for a lot of reasons. And I mean I think we try to focus predominantly on where we sit within the industry we are in and try to evaluate just how well we are performing against those that we compete with or peers of ours on a relative basis. But would makes it hard is your question about how -- on an absolute basis, you look over a period of time and the absolute numbers for us and maybe for the industry as a large have not changed dramatically. And I don't know how to -- I don't know how to address that aspect of it, because I guess that's in the realm of how the broader market just views banking in general and I just don't know how to address that aspect of it.

Mark Hughes -- Lafayette Investments -- Analyst

Well, just a follow-up then, is there anything completely out of the box that you're thinking about maybe that isn't in the traditional small bank playbook? I'm not violating the lawyers' code of never asking a question you don't know the answer to, because I don't have the answer to this one. Is there some direction you can go that may be is non-traditional that you're thinking about or -- and these are hard questions, that too in the middle of the pandemic, I get that, because you're doing everything you can to maintain your current book. It's good a shape as you can. So this may not be the time to be thinking outside the box, but is there anything in the industry that people are thinking about in terms of non-traditional businesses to get into or fee businesses, maybe that -- and the increase that you aren't doing right now?

Daniel J. Schrider -- Vice Chairman, President and Chief Executive Officer

Mark, I would tell you that when we think about our focus, I'm not going to answer your question directly, because I think we're always evaluating ways in which we can complement our business to serve our clients, whether that be in traditional ways or non-traditional fee-based ways, our -- when we look at ourselves today sitting here in one of the best markets in the country, we've got a Company that's got the scale and sophistication to move up market and where we can handle commercial enterprises, whether it's in lending, in treasury management, in wealth management, and that's really where we're putting our resources is to do more of what we do better than our competition now that we have greater scale and the ability to do that. And we believe and I think our people do and that we are really one of a kind in this marketplace and we just want to focus on taking advantage of that and creating, building franchise value over time.

But to your, I guess, your point around share price, it's about driving earnings growth, and for us, it's about growing organically and then adding in ways that it makes sense for us to do just that over time.

Philip J. Mantua -- Executive Vice President and Chief Financial Officer of Bancorp and Bank

Yeah, Mark, only thing I would add to it is -- and not so much for the -- the part of your question about what we could do that would be unique or whatever, but I think our outlook toward -- our strategic view toward having is much of a diversified stream of revenue as we can potentially have is a part of that -- the answer to that, which is to continue to strive for that to be a -- to have our revenues be as diversified as they can and part of that would most likely ultimately come from something that might be different or unique from what we've been doing for 150 years or whatever it might be.

So I think some of it lies in that, but I couldn't point you to something specific that would pop out, that would lead the way on that as much as just striving for having that revenue stream, be as diverse as possible.

Mark Hughes -- Lafayette Investments -- Analyst

Well, the part of it that makes it tough for me is that I think you're doing things well. You talked about your efficiency ratio coming down and it's been remarkable what you've done there. This is -- I don't ask the question because I think you're doing something wrong. I ask it because I think you're doing mostly what is right and it's kind of beside myself is trying to think of what's going to change this when there aren't obvious areas that need improvement.

Philip J. Mantua -- Executive Vice President and Chief Financial Officer of Bancorp and Bank

Well, we appreciate that.

Daniel J. Schrider -- Vice Chairman, President and Chief Executive Officer

Yeah.

Philip J. Mantua -- Executive Vice President and Chief Financial Officer of Bancorp and Bank

Because we feel the same way a lot of times too.

Mark Hughes -- Lafayette Investments -- Analyst

Well, thank you very much. I wish you luck for the current year.

Philip J. Mantua -- Executive Vice President and Chief Financial Officer of Bancorp and Bank

Thank you, Mark.

Daniel J. Schrider -- Vice Chairman, President and Chief Executive Officer

Thanks, Mark.

Operator

Thank you. Next question is from Brody Preston of Stephens, Inc. Please go ahead.

Brody Preston -- Stephens Inc. -- Analyst

Good afternoon, everyone.

Daniel J. Schrider -- Vice Chairman, President and Chief Executive Officer

Hey, Brody.

Philip J. Mantua -- Executive Vice President and Chief Financial Officer of Bancorp and Bank

Hey, Brody.

Brody Preston -- Stephens Inc. -- Analyst

I just want to follow-up on the mortgage with the 60-40 refi. Is that similar to your historical mix previously or was it more purchase heavy in the past?

Daniel J. Schrider -- Vice Chairman, President and Chief Executive Officer

Yeah. Brody, we transitioned over the course of the last couple of years from being more of a boutique shop that did a lot more construction firm as a percentage of overall production and we take advantage of kind of the refi waves as they came, but probably not nearly as effective on the purchase transaction piece. And so, we put a lot of effort and resources in terms of originators that have done just a tremendous job of driving the percentage of our production from purchase money up. And I think it's going to help us as the expectation of perhaps rates moving in the opposite direction and slowing down that mortgage production will still capture a good piece of that purchase money business. But that's -- so it's, we are definitely making inroads on the purchase money percentage.

Operator

Thank you. [Operator Instructions] Next question is from Erik Zwick, Boenning & Scattergood. Please go ahead.

Erik Zwick -- Boenning & Scattergood, Inc. -- Analyst

Good afternoon, guys.

Daniel J. Schrider -- Vice Chairman, President and Chief Executive Officer

Hey, Erik.

Philip J. Mantua -- Executive Vice President and Chief Financial Officer of Bancorp and Bank

Hey, Erik.

Erik Zwick -- Boenning & Scattergood, Inc. -- Analyst

I got a couple of questions, just trying to think about how average earning assets might kind of shape up throughout the year. And I guess, first, I'll start on the PPP loans and I appreciate all the commentary you've given in terms of -- the updates on the size and reopening the portal at this point and inviting customers to apply for forgiveness. I guess at this point, there is a little less than $1.1 billion of those outstanding. What are your expectations for what percentage of those will be forgiven, and then, just the timing, I guess, how many quarters does that potentially take, is kind of the first part of my question.

Philip J. Mantua -- Executive Vice President and Chief Financial Officer of Bancorp and Bank

Hey, Erik. This is Phil. So I think that we've been running our estimates assuming about 80% of the existing $1.1 billion in PPP outstandings would give -- would be given forgiveness. And we're probably now having pushed back, given the things that Dan mentioned earlier about the forgiveness portal, etc. and some of the client behavior on trying to accomplish forgiveness thinking that that's going to be end of this quarter into the early part of the second quarter. So, probably the months of February, March, April as opposed to as much of it in the first quarter here having or already have more than halfway through the month of January and having very little activity in that regard. So, I think that's the way we're evaluating the current book of PPP loans and the way would leave the balance sheet.

Erik Zwick -- Boenning & Scattergood, Inc. -- Analyst

That's helpful. Thank you. And then I guess in terms of the recent kind of reauthorization and opening that up again for funding, I guess, are you seeing much demand there and how do you potentially think about the size of a new round of PPP entering the balance sheet?

Daniel J. Schrider -- Vice Chairman, President and Chief Executive Officer

Yeah. Erik, it's tough to predict the amount of activity, but I'll give your experience, in less than 48 hours since we opened the portal, we've had over 1,000 applications. So there is clearly demand but the average size of those requests heretofore has been on the smaller side relative to the first wave. And well, it could likely get smaller as additional applications come in, but tough to predict exactly what this second round is going to yield in terms of overall outstandings. It's tough to estimate at this point.

I mean, we clearly do not expect it to come near what we did the first time, but could it be half of that much, it's possible, but we just don't know at this point. It's too early.

Erik Zwick -- Boenning & Scattergood, Inc. -- Analyst

That's helpful. I appreciate the early commentary there. And then I guess switching toward away from that that will certainly be a headwind to the net growth or and net balances for the year. Thinking on the organic side, just any commentary you've got from -- I was just thinking about commercial loans, where the pipeline stands today and how you would think about organic growth in the commercial portfolio in 2021?

Daniel J. Schrider -- Vice Chairman, President and Chief Executive Officer

Yeah. Good question. With -- it is tough to adequately articulate the lift that the PPP process requires on the team and that's both -- those that are helping clients as relationship managers and all the way through the system. So, it is really right now all hands on deck for these next few weeks as we work through this next round of originations. So what -- I say that because I think it's going to dampen first quarter organic production just due to the PPP program. But our outlook for the year is kind of mid-single digit commercial growth as we think forward. We may outperform that, but that's kind of the way we are thinking, and that's really based upon the heavy lift of both originations and the forgiveness process on PPP as well as just the economic demand.

Erik Zwick -- Boenning & Scattergood, Inc. -- Analyst

That's helpful again, and then, I guess just in terms of the pipeline, have you seen any material change in the pipeline, given the kind of success we had in late fourth quarter with vaccines coming online and some improvement in economic forecast or still kind of steady as she goes there?

Daniel J. Schrider -- Vice Chairman, President and Chief Executive Officer

Yeah. I would not say there has been a significant lift in pipeline since vaccine. I mean, we are very encouraged with the $0.5 billion of commercial production in the fourth quarter. Fourth quarter is normally very strong, but when you consider that level during the pandemic, I think it's as much an indication of the attractiveness of doing business with Sandy Spring Bank from borrowers that are with other organizations or particularly larger institutions.

And I think despite a slower economic environment, I think we'll win our fair share of opportunities folks that want a real relationship with a local player. And -- but going into the first quarter, I think pipeline is probably a little softer, which is typical from a seasonal standpoint.

Erik Zwick -- Boenning & Scattergood, Inc. -- Analyst

Got it. And then just last one from me is kind of a housekeeping item. Just in terms of modeling, probably for Phil, is 24% still a good rate to use for the effective tax rate looking into 2021?

Philip J. Mantua -- Executive Vice President and Chief Financial Officer of Bancorp and Bank

Yeah. Certainly, absent of anything that Mr. Biden might do to us during the course of the year. But -- and anything they decide in that regard, obviously, beyond the President would probably not hit us during '21. So we are using the 24% to 24.5% effective rate is probably a good one to go with at this point.

Erik Zwick -- Boenning & Scattergood, Inc. -- Analyst

Excellent. Well, thanks guys so much for taking my questions today.

Daniel J. Schrider -- Vice Chairman, President and Chief Executive Officer

Thank you.

Philip J. Mantua -- Executive Vice President and Chief Financial Officer of Bancorp and Bank

Yeah. No problem. Thank you.

Operator

This concludes our question-and-answer session. Now, I'd like to turn the conference back over to Mr. Daniel Schrider. Please go ahead.

Daniel J. Schrider -- Vice Chairman, President and Chief Executive Officer

Thank you and thanks everyone for your questions and the discussion. Very helpful and hopefully helpful for you. We welcome your feedback on these calls. So please email your comments to IR at sandyspringbank.com. Thanks again for participating and have a great afternoon.

Operator

[Operator Closing Remarks]

Duration: 62 minutes

Call participants:

Daniel J. Schrider -- Vice Chairman, President and Chief Executive Officer

Aaron M. Kaslow -- Executive Vice President, General Counsel and Secretary

Philip J. Mantua -- Executive Vice President and Chief Financial Officer of Bancorp and Bank

Casey Whitman -- Piper Sandler -- Analyst

Catherine Mealor -- KBW -- Analyst

Steve Comery -- G. Research -- Analyst

Mark Hughes -- Lafayette Investments -- Analyst

Brody Preston -- Stephens Inc. -- Analyst

Erik Zwick -- Boenning & Scattergood, Inc. -- Analyst

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