Wesbanco Inc (WSBC) Q4 2020 Earnings Call Transcript

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Wesbanco Inc (WSBC 1.58%)
Q4 2020 Earnings Call
Jan 27, 2021, 10:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to the WesBanco Fourth Quarter 2020 Earnings Conference Call. [Operator Instructions]

I would now like to turn the conference over to John Iannone, Senior Vice President, Investor Relations. Please go ahead.

John Iannone -- Senior Vice President of Investor Relations

Thank you, Ilee. Good morning, and welcome to WesBanco Inc's fourth quarter 2020 earnings conference call. Leading the call today are Todd Clossin, President and Chief Executive Officer; and Bob Young, Senior Executive Vice President and Chief Financial Officer.

Today's call, an archive of which will be available on our website for one year contains forward-looking information. Cautionary statements about this information and reconciliations of non-GAAP measures are included in our earnings-related materials issued yesterday afternoon, as well as our other SEC filings and investor materials. These materials are available on the Investor Relations' section of our website wesbanco.com. All statements speak only as of January 27, 2021, and WesBanco undertakes no obligation to update them.

I would now return the call over to Todd. Todd?

Todd F. Clossin -- President and Chief Executive Officer

Thanks, John, and good morning, everyone. Hope everyone is doing well and staying safe. On today's call, we're going to review our results for the fourth quarter of 2020 and provide an update on our operations and 2021 outlook. Key takeaways from the call today are, we delivered record pre-tax pre-provision earnings during 2020, driven by our diversified growth engines and a companywide commitment to expense management. We are focused on the continued successful execution of our long-term growth strategies, which have positioned us well for both the current operating environment and future opportunities. And WesBanco remains a well-capitalized financial institution with solid liquidity, a strong balance sheet, and solid credit quality.

We're pleased with our performance during the fourth quarter as we reported net income available to common shareholders of $50.6 million and diluted earnings per share of $0.76 when excluding merger and restructuring charges. On the same basis, pre-tax pre-provision income of $64.8 million, grew 14.2% year-over-year, driven by strong fee income growth and disciplined cost control. And we reported strong pre-tax pre-provision returns on average assets and average tangible equity of 1.56% and 17% respectively.

Reflecting our strong legacy of credit and risk management, our key credit quality ratios remained at low levels and our regulatory capital ratios remained well above the applicable well-capitalized standards. Furthermore, as could be seen on Slides 9 and 11 of our earnings presentation, our key ratios also remain favorable to peer bank averages.

In addition to being our 150th anniversary, 2020 was another successful year for our company. From a financial standpoint, we remain committed to returning value to our shareholders, solid execution of our well-defined strategies allowed us to generate record annual pre-tax pre-provision earnings of $263 million when excluding restructuring and merger-related costs. We expanded into the Mid-Atlantic region, through our merger with Old Line Bank, which we closed and converted just prior to the early stages of the pandemic. In fact, the conversion and integration went so well, we realized positive net checking account flow in our Mid-Atlantic market through the year.

Furthermore, we remain a well-capitalized financial institution. We completed a preferred stock offering during August of 2020 that was oversubscribed and we increased our allowance for credit losses, all of which position us well for 2021 whether defensively or offensively. We also continue to receive national accolades and I'm just going to highlight a few. Last January for the 10th time since the list's inception in 2010, WesBanco Bank was named to the Forbes list of the best banks in America, coming in as the 7th Best Bank. Next, during June, WesBanco Bank was again named to the second annual Forbes list of the world's Best Banks, which was based on customer satisfaction and consumer feedback with solid scores across the survey.

We received very high scores for customer services, financial advice, satisfaction, and digital services. Then during October, WesBanco Bank was named to Newsweek Magazine's inaugural rank in of America's Best Banks, which recognize those banks that best serve their customer needs as well as being named the best big bank in the state of West Virginia. The most importantly, the year was successful when measured from a community action standpoint. For many years, WesBanco has been a leader in its communities and we continue to look for ways to expand our outreach and involvement.

During 2020, we directly assisted more than 10,000 individuals, families, businesses, and non-profits as they navigated through the pandemic. I'm extremely proud of how our employees responded this past year from keeping our financial centers open throughout, working around the clock, closing PPP loans to our commercial customers, and providing charitable donations to support those in needs. These actions speak loudly to our community bank routes. As I mentioned this past summer to affect change we must lead by example. In addition to our existing women's symposium events, we have recently launched a diversity and inclusion initiative that is focused on building and growing a culture of inclusion and equality.

The committee has identified several initiatives for the coming year including community outreach, leadership development and career passing, and employee education. Our hope is that this not only helps us evolve and grow as a company, but it [phonetic] also spreads to all of our other community efforts. With regard to 2021, first and foremost, I want to reaffirm our commitment to expense control and the strength of our underlying operating fundamentals as we remain well-positioned for success in a variety of operating environments.

As I mentioned, our peer-leading capital and reserve levels provide both protection if the credit cycle worsens and shareholder enhancing opportunities when there is more economic certainty. We believe organic growth opportunities will occur during the second half of the year as more people are immunized and localities begin to fully reopen. We expect to rebound in areas more impacted by branch lobby limitations like small business lending and securities brokerage and anticipate commercial loan growth to return as businesses take advantage of revived economies.

During the past year, we diligently managed discretionary spending, implemented a hiring freeze, launched our core system conversion project, and accelerated our financial center optimization strategy. On January 22nd of this year, we completed the optimization strategy we announced this past August through the consolidation of 21 financial centers into nearby locations and continue to anticipate approximately half of the expected gross cost savings to be phased in during the first half of 2021. While we completed this main phase, we will continue to review our footprint for additional opportunities. These efforts have resulted in a more streamlined organization as evidenced by our year-to-date efficiency ratio of 56%.

I'd now like to turn the call over to Bob Young, our CFO for an update on our fourth-quarter financial results and a current outlook for 2021. Bob?

Robert H. Young -- Senior Executive Vice President, Chief Financial Officer

Thanks, Todd, and good morning, everyone. During the fourth quarter of 2020, we experienced the continuation of the low interest rate environment and concerns about the pace of rebounding economic growth which were mitigated somewhat by continued strong residential mortgage origination volumes, a robust stock market, strong expense control, and an improvement in the macroeconomic forecast utilized under the current expected credit losses accounting standard. As a result of higher net interest income and a lower provision for credit losses as compared to the prior year's fourth quarter, we reported improved GAAP net income available to common shareholders of $50.2 million and earnings per diluted share of $0.75 for the three months ended December 31, 2020. GAAP net income available to common shareholders for the 12-month period was $119.4 million and earnings per diluted share were $1.77, primarily reflecting the adoption of CECL as of January 1, 2020. And the effect of the pandemic induced recession upon macroeconomic forecasts used to calculate prior quarters' provisions for credit losses. Excluding restructuring and merger-related charges, results were $0.76 per share for the quarter as compared to $0.75 last year, and $1.88 per share year-to-date versus $3.06 last year.

As a result, fourth-quarter core returns on average assets and average tangible equity improved to 1.22% and 13.28% respectively. In order to provide better comparability to prior year periods, as well as to demonstrate the strength of our underlying financial performance, we believe it is important to evaluate pre-tax pre-provision income, excluding restructuring and merger-related costs. For the fourth quarter, we reported $64.8 million in pre-tax pre-provision income, which increased 14.2% compared to the prior-year period. In addition, on a similar basis, we reported strong pre-tax pre-provision returns on average assets and average tangible equity of 1.56% and 17% for the fourth quarter, and 1.60% and 18.28% on a year-to-date basis respectively.

We believe our strong balance sheet remains well-positioned for the near-term operating environment. Total assets of $16.4 billion and portfolio loans of $10.8 billion as of December 31st, increased 4.5% and 5.1% respectively when compared to the prior-year period, due primarily to participation in the SBA Payroll Protection Program. During the fourth quarter, approximately 331 customers applied for and received forgiveness on their SBA PPP loans, totaling some $113 million, leaving a balance remaining of $726.3 million at year-end. And subsequent to year-end, an additional 573 customers with SBA PPP loans totaling $75.3 million have applied for and received loan forgiveness.

We've also reshaped Second Draw funding requests as authorized under the recently enacted Economic Aid Act from 21,030 borrowers to date for approximately $264 million during the first few days of the program's availability for larger banks.

Strong deposit growth remains a key story for 2020, as total deposits increased 13% year-over-year to $12.4 billion, due primarily to CARES Act stimulus and SBA PPP loan funds received and deposited, increased personal savings, and lower personal discretionary spending. Total deposit growth excluding certificates of deposit increased 20.8% year-over-year driven by a 25.8% increase in total demand deposits, which now represent approximately 56% of our total deposits.

Furthermore, reflecting this strong growth and resulting available excess liquidity, we continue to strengthen our balance sheet by reducing higher cost certificates of deposit and Federal Home Loan Bank borrowings, which declined 5.2% and 30.9% quarter-over-quarter respectively and 21.3% and 61.2% year-over-year respectively.

Key credit quality metrics such as non-performing assets, past due loans, and net loan charge-offs as percentages of total portfolio loans remained at low levels and favorable to peer bank averages measured against banks with total assets between $10 billion and $25 billion for the prior four quarters, and consistent with prior years.

In addition, reflecting our strong loan underwriting and credit processes, annualized net loan charge-offs to average loans continue to remain very low for both the quarter and year-to-date periods at 2 basis points and 6 basis points respectively. During the fourth quarter, we reviewed all hospitality loans greater than $1 million or roughly 97% of such portfolio. As a result of this review, we recorded hospitality loan net downgrades of $133.3 million as a result of reduced occupancy and debt service coverage from the current pandemic-driven environment.

These net downgrades were the primary driver for the increase in criticized and classified loan balances by $138 million quarter-over-quarter to 4.59% of the total portfolio loans, which was comparable to the peer group average reported for the third quarter. We continue to stay in close contact with and closely monitor our hospitality borrowers. As we mentioned last quarter, we granted additional deferrals during the fourth quarter to select hotel operators after appropriate credit review and approval to assist in their recovery through 2021. As of December 31st, loan deferrals within our hospitality portfolio represented about 20% of total hotel loan outstandings which were completed under CARES Act loan deferral guidelines that excluded them from a TDR classification.

Further, the Economic Aid Act added Second Draw SBA PPP loans to provide additional assistance to certain eligible borrowers who previously received a PPP loan, including hotels which may be eligible for a forgivable loan up to 3 and 1.5 times their average monthly payroll. We do expect a number of our hotel operators to take advantage of this opportunity. Our hospitality portfolio with an average loan-to-value of approximately 67% based mostly on pre-pandemic appraisals, as well as strong guarantor support, and a reasonable level of loan deferrals, combined with the new PPP authorization provides us with relative confidence that most of our borrowers should be able to weather the remainder of the pandemic. However, we will await additional economic and operational clarity before beginning to release specific reserves assigned to this portion of the loan portfolio.

Reflecting improved macroeconomic factors in the CECL calculation, the allowance for credit losses, specific to total portfolio loans at December 31st, was $185.8 million or 1.72% of total loans, or when excluding SBA PPP loans, 1.85% of total portfolio loans. These metrics are relatively consistent with those from the third quarter and the provision for credit losses under CECL totaled a negative $0.2 million for the fourth quarter as compared to $16.3 million last quarter. Excluded from the allowance for credit losses and related coverage ratio, our fair market value adjustments on previously acquired loans representing a 37 basis points of total loans. The information and measures affecting this quarter's provision can be viewed on Slide 10 of the earnings presentation.

Reflecting the significantly lower interest rate environment, we aggressively reduced our deposit rates and overall funding costs throughout the year, partially offsetting lower earning asset yields, which reflect materially lower yields on new or repriced commercial loans. The effect of these efforts helped to lower our fourth quarter total deposit funding costs, 40 basis points year-over-year to 23 basis points, while our cost of borrowings dropped 29 basis points year-over-year as we reduced Federal Home Loan Bank borrowings by $866.6 million or 61.2% to $549 million.

Reflecting solid pricing management efforts, our reported net interest margin for the fourth quarter was 3.31%, the same as for the third quarter. This is further evident when excluding the purchase accounting accretion benefit of 16 basis points and 18 basis points respectively as our core net interest margin of 3.15% actually increased 2 basis points as compared to the 3.13% during the third quarter, primarily due to deferred fee recognition from PPP loan forgiveness as I discussed earlier. Also included in the purchase accounting accretion benefit was 2 basis point benefit from two paid off PCD loans from a prior acquisition.

Non-interest income for the quarter ended December 31, 2020, was $32.7 million, an increase of 6.1% year-over-year primarily due to mortgage banking fees, partially offset by lower service charges on deposits. Reflecting the current low-interest rate environment and organic growth, mortgage banking income increased 84% year-over-year to $5.4 million as one-to-four family residential mortgage origination dollar volume increased approximately 75%. Fourth quarter originations volume, half of which were related to home purchase or construction lending, totaled some $351 million. About 65% of total residential lending volume was sold into the secondary market, which compares to our historical range averaging between 40% and 50%. And gain on sale income, net of hedging gains or losses averaged approximately 3.6% per loan sold during 2020.

Total operating expenses continue to be well-controlled through companywide efforts to effectively manage discretionary costs, employee headcount, and marketing expenses. Excluding restructuring and merger-related expenses, total operating expenses for the fourth quarter increased 8.1% year-over-year to $87.6 million, primarily due to additional staffing and financial center locations from the Old Line acquisition, as well as the mid-year annual salary increases partially offset by discretionary cost control, and the planned cost savings from the Old Line merger.

Despite an approximate 25% increase in size due to the acquisition of Old Line, our companywide efforts are demonstrated by a 30 basis point year-over-year decline in our efficiency ratio of 56.38% for the 12-month period, ending December 31, 2020, and similar quarter-over-quarter total core expenses.

For 150 years, the bank's management is focused on being a strong and sound financial institution for our shareholders. As of December 31st, we reported a Tier 1 risk-based capital ratio of 14.72%, Tier 1 leverage of 10.51%, and a total tangible equity to tangible asset ratio of 10.52%. These ratios enhanced by the issuance of the $150 million of preferred stock on August 11th, continue to provide us significant capital strength, both for the remainder of the pandemic and for potential capital maximization opportunities in the future.

With an unprecedented operating environment that continues to evolve daily, let me now provide some limited thoughts on our current outlook for 2021. As an asset-sensitive bank remain subject to factors expected to affect industrywide net interest margins in the near term, including a relatively flat spread between the three-month and five-year treasury yields and a continued overall lower long-term rate environment, expected to last for at least the next couple of years. Our GAAP net interest margin may continue to decrease a few basis points throughout this year due to the lower purchase accounting accretion and lower-earning asset yields partially offset by the aggressive actions we have taken on our deposit and borrowing costs. We currently anticipate our net interest margin, excluding accretion from both purchase accounting and PPP loans to be down a few basis points during the fourth quarter is -- or from the fourth quarter is 3.15% on an expectation of lower total earning assets, net of the SBA PPP loan forgiveness that is expected to be greater than new loan originations and new PPP loans.

We anticipate margin accretion in the next two quarters from PPP loan forgiveness as net deferred fees are accreted into income with the new PPP loans that we're booking now expected to be slightly dilutive to the margin due to their longer contractual lives. In general, we can currently anticipate similar trends and non-interest revenue as we experienced during 2020. Residential mortgage generation and associated gains on sales remained strong albeit at somewhat lower levels than the record volumes realized during 2020. Reflecting the current interest rate environment, commercial loan swap fee income which totaled roughly $6 million during 2020, should continue to be relatively strong.

Electronic banking fees should continue to rebound and follow more normal quarterly patterns as economies reopen. Trust fees, which were influenced by trends in the equity and debt markets should benefit from organic growth as they did in the back half of 2020. Securities brokerage revenue will still be impacted in the near-term until we are able to loosen the access restrictions to the lobbies of our financial centers. Service charges on deposits will most likely remain weak due to the recent and potentially additional stimulus this year.

We will continue to maintain our diligent focus on expense management throughout 2021 while positioning ourselves for organic growth once the economy starts to pick back up. And as a reminder, our long-term efficiency ratio target[Phonetic] continues to be in the mid 50% range, which is also subject to the future shape of the yield curve. We are still planning for our annual mid-year merit increases and currently also anticipate somewhat higher marketing spend this year as a result of reduced brand and image campaign costs during 2020, particularly in our new Mid-Atlantic market. Regarding the benefits from our financial center optimization plan, we expect cost savings, net of employees filling open positions in other locations and expected digital and technology spending of approximately $3 million to be phased in during the first half of 2021 and to be fully realized by the third quarter. As Todd mentioned, we will also continue to review our footprint for additional optimization opportunities this year.

Relative to our provision for credit losses under CECL, the provision will depend upon changes to the macroeconomic forecast as well as various credit quality metrics, including potential charge-offs, criticized and classified loan increases, and other portfolio changes. In general, continued economic recovery should bode well for the director -- for the direction of future provisioning. Since our evaluation at December 31st, macroeconomic factors have continued to improve and absent charge-offs, we should experience reserve releases at some point during 2021, dependent upon continued improvement in the noted parameters.

Lastly, we continue to anticipate -- or we currently anticipate our effective full year tax rate to be between 17% and 19%, subject to any changes in tax policy, nationally, as well as certain taxable income strategies.

And with that, we're now ready to take your questions. Operator, would you please review the instructions.

Questions and Answers:

Operator

We will now begin the question-and-answer session. [Operator Instructions] Our first question today will come from Steven Duong with RBC Capital Markets.

Todd F. Clossin -- President and Chief Executive Officer

Good morning, Steven.

Steven Duong -- RBC Capital Markets -- Analyst

Hi. Good morning, guys. Couple of things. So just first on the margin. You have a decent amount of excess liquidity on your balance sheet, I guess, what are your plans for the next few quarters with that liquidity?

Todd F. Clossin -- President and Chief Executive Officer

Bob, you go ahead and take that.

Robert H. Young -- Senior Executive Vice President, Chief Financial Officer

So, excess liquidity on the balance sheet affected our margin by about 6 basis points for the year and about 10 basis points for the quarter. That's measured against a base of some $250 million to $300 million Steven. So indeed that -- for the industry as well as for us does have an impact. Our current projections are that we'll see somewhere between $80 million and $100 million of maturities and cash flows in the investment portfolio on a monthly basis depending upon prepayment speeds obviously and other factors. And so we'll be adding that back into the portfolio as well as recognizing we have additional liquidity that we received at the end of the year in the first part of January from the new stimulus in the Economic Aid Act and potentially more this year. So we'll be reinvesting that as well. Currently, we're targeting in the first quarter, an additional $300 million into the portfolio. Now, that will take 10 basis point yields and move them to around 1% or so.

Steven Duong -- RBC Capital Markets -- Analyst

Got it. So just to be clear, you're looking to move that $300 million in the first quarter to the securities portfolio, is that right?

Robert H. Young -- Senior Executive Vice President, Chief Financial Officer

Correct.

Steven Duong -- RBC Capital Markets -- Analyst

Okay, great. And then just on your FHLB borrowings, you brought that down pretty considerably this year. What are your intentions with the borrowings for the remainder of the year?

Robert H. Young -- Senior Executive Vice President, Chief Financial Officer

So about 2/3 of those will come due this year. In 2021, we've seen anywhere between $100 million and $200 million per quarter in the last three quarters, which we just paid off. We have it replaced. Steven, we will continue with that in 2021 until we get down to a level of liquidity that -- we're going to have more liquidity than in the past given the larger size to balance sheet, but we do intend to gravitate to a lower level as I mentioned earlier. And so about 2/3 of those -- that remaining $550 million at the end of the year will come due this year. And I would think at this point for the first half of the year at least that, we probably won't be replacing those as we continue to experience increases in deposits, back half of the year we'll see, but anything you're bringing on the balance sheets at 50 to 75 basis points the most. So significantly lower than where those are priced today between 2 and 2.25.

Steven Duong -- RBC Capital Markets -- Analyst

Hope so. So the 2/3 that's coming off, they're around 2, 2.25, is that right?

Todd F. Clossin -- President and Chief Executive Officer

That's correct.

Steven Duong -- RBC Capital Markets -- Analyst

Okay, great. And then just lastly, you talked about reserve of leasing. I guess, what is a normalized reserve level for you guys with now that you're doing CECL?

Todd F. Clossin -- President and Chief Executive Officer

Yeah. I think I'll start with that. Bob can add some color if he'd like. When we went through that process really during the first quarter of last year, obviously, that was all pre-pandemic everything. I think we brought the number up to 0.95% to 1% or so was the reserve level and again that excludes the mark on acquired portfolios. So that may be a decent proxy around the 1% range, but it will all depend on the shape of the recovery and how long it takes to get back down to that level, but I wouldn't expect banks getting back down 50 to 60 basis points again based upon the new CECL calculations. Bob, what would you add to that?

Robert H. Young -- Senior Executive Vice President, Chief Financial Officer

Yeah, I don't think we'll get there by the end of this year, Todd, and of course, it depends upon the pace of charge-offs and how the recovery goes. I would tend to agree that you're looking at a percentage with three digits, you're starting with 100. It's amazing even under the occurred methodology that was viewed as a pretty decent allowance 10-15 years ago. I think in the near term, you're probably going to see that in the mid-ones, 1.25 to 1.5 for the industry and for us and reflective of the fact that the pandemic impacted hospitality credits to a greater degree than some other portions of commercial real estate or C&I, and so I think versus our peers. You can see that, currently, we're a little bit higher than peers and as they come down and we come down, I would think that gap might remain for at least this year. Steven?

Steven Duong -- RBC Capital Markets -- Analyst

Got it. And if I could just squeeze one more in, I'm sorry if I missed this, but just on buyback, are you looking to jump back in this quarter?

Todd F. Clossin -- President and Chief Executive Officer

I think with regard to buybacks, we just want to make sure that we've got clarity on obviously credit and going forward, we feel good about where we're at cautiously optimistic about things with the hospitality portfolio. So we're not seeing anything there as terribly concerning or anything, but I think we just like to be cautious on that, so we just want to see more clarity.

My expectation would be that we will reenter the buyback plan that we had before, but I think it's a quarter or two away before we really get the kind of clarity that I would like to be able to see.

Steven Duong -- RBC Capital Markets -- Analyst

Got it. All right, appreciate it. Thank you.

Todd F. Clossin -- President and Chief Executive Officer

Sure.

Operator

And our next question comes from Casey Whitman with Piper Sandler.

Todd F. Clossin -- President and Chief Executive Officer

Hi, Casey.

Casey Whitman -- Piper Sandler -- Analyst

Hi, good morning. Guess we would just continue with the conversation around capital, and maybe just thinking about M&A. With vaccines as you get more comfortable with, with credit, maybe mid-year we come out of the pandemic, what is your appetite for additional M&A, are there particular markets that interest you more than others. I guess just kind of hoping for an update for how you guys are thinking about M&A earlier this year.

Todd F. Clossin -- President and Chief Executive Officer

Sure. Sure, we don't feel a compelling need to do anything. Obviously, if there are opportunities that present themselves, you want to be smart about what you're doing, but we had said even before the pandemic, after we completed the Old Line Bank merger that 2020 last year was going to be all about integrating Old Line Bank in 2021 of this year is really all about focusing on our own core conversion. We're upgrading from bank with IBS, same with FIS that we're upgrading the core and we're excited about that.

It's going well and it's going to provide a lot of additional advantages to our customers and make us more efficient and automated. So that's a big part of our effort this year is to focus on that and that's really where our energies are. And so, stayed very consistent, I think what we've said in the past quarters on that. Just so happens, we're in a pandemic now, so it's hard to get clarity on other people's balance sheets. But I think that is becoming clearer and clearer each quarter that goes by.

So we would not anticipate closing anything in 2021. That's -- again, the focus is on our core conversion. Could close something in 2022, but not actively looking at anything.

Casey Whitman -- Piper Sandler -- Analyst

Understood, thank you. And maybe just circling back to some of your commentary around loan growth potentially returning. Maybe if you think about the back half of the year, maybe can you help quantify what sort of a reasonable expectation might be for growth?

Todd F. Clossin -- President and Chief Executive Officer

Yeah. I think when you look at last -- start with the last year, obviously our loan growth...

Casey Whitman -- Piper Sandler -- Analyst

Marshall [Phonetic].

Todd F. Clossin -- President and Chief Executive Officer

...Was excluding...

Casey Whitman -- Piper Sandler -- Analyst

Yes.

Todd F. Clossin -- President and Chief Executive Officer

PPP, it was down about 2%, about half of that, maybe 0.7% of that 2% was related to an increase in the secondary market sales on the residential side, but net of that, we were still down about 1%. C&I was up 2% which was nice to see. So as we roll forward, there is -- I think the caution that's out there on the part of commercial borrowers starting to lift a little bit, but there is a lot of liquidity out there and you see it on our balance sheet and other balance sheets, our customer's balance sheet.

So I think they're going to work through that first for a quarter or two. We see the advance rates on the lines of credit are still mid-to-upper 30s and they were in mid-to-upper 40s I think before that. So I think we'll see the cash drawdown and maybe some usage on lines that will start. And then our expectation would be that we may start to see some more organic growth in the second half of the year. I'd like to see getting back to that low-to-mid and primarily mid-single-digit loan growth, but I think for this year, the next couple of quarters are going to be pretty flat and I think the growth will be toward the end of this year and into next year.

Casey Whitman -- Piper Sandler -- Analyst

Got it. And that -- maybe just lastly from me, just a couple of housekeeping questions on PPP, probably for you Bob, but can you -- just from round one, can you tell us how much in remaining PPP fees there are and then also what the average balance of PPP loans was in the fourth quarter? That'd be helpful. Thanks.

Robert H. Young -- Senior Executive Vice President, Chief Financial Officer

I don't know if I have the average balance. We ended the year at $726 million, net of the remainder of the fees, which are about $13.5 million. You have to recognize, I would say that from a modeling perspective, who are currently anticipating a greater amount of that will be recognized in the first two quarters of this year, then our last modeling exercise earlier in the fourth quarter. So a basis point or two of improvement here in the first quarter and probably the second before it wanes away if you will, toward the end of the year.

And we had previously anticipated there might have been a residual 15% of the original $850 million by the end of this year and now, thinking less than 10%. So we really didn't experience much in the way of forgiveness until the last two to three weeks of December and as I said, that was $113 million, the difference between $850 million and $726 million other than the $113 million is just net deferred fee.

So total net deferred fees as I recall, Casey, were about $28 million, $29 million originally. We've recognized about $17 million of that -- $16.5 million of that in 2020, and as I said, the rest of that $13 million to $13.5 million expected for the most part this year and mostly in the first half. Is that responsive?

Casey Whitman -- Piper Sandler -- Analyst

It is very helpful, thank you. I'll let someone else to hop on. Thanks.

Operator

And our next question comes from Stuart Lotz with KBW.

Todd F. Clossin -- President and Chief Executive Officer

Good morning, Stuart.

Stuart Lotz -- Keefe Bruyette & Woods -- Analyst

Hey, guys.

Robert H. Young -- Senior Executive Vice President, Chief Financial Officer

Good morning.

Stuart Lotz -- Keefe Bruyette & Woods -- Analyst

And congrats on surviving your 150th year. This is a tremendous milestone obviously. Last year was probably one of the most interesting years in your long history. But Bob, if we could just go back to the capital. So let me say, you stand with just under 15% in Tier 1, clawed to 18% in total risk base, and you've got a 2% ECL kind of ex [Phonetic] with PPP. What is -- if we use these reserved release throughout 2021, why that engaged kind of buyback, where you saw some release this quarter? I'm just curious what's kind of keeping you on the sidelines until the back half of the year on the buyback.

Todd F. Clossin -- President and Chief Executive Officer

Yeah. That's a good question. I think we're just being cautious, I mean, it's just our nature as a company. I think different banks have kind of different views, we're all looking at the same economics. But I think from our perspective, that's kind of been our reputation as to be conservative. But when we do see clarity, what I'll tell you is that we would be pretty aggressive with regard to the things that we need to do.

Obviously reserve releases are based upon CECL which is very formulaic driven model and it's got to be substantiated and everything. So those models will run as those models run. But as we get more clarity and as the -- let's just say, particularly the hospitality portfolio, which again we feel really good about where we're at right now. As you just get more clarity on that with the vaccine and other related industries, then I think at that point in time we would move pretty quickly.

And on -- same thing on the capital side as well too. We know we're carrying a lot of capital and my expectation would be is that would be returned if we don't see the kind of losses that CECL would be driving. And right now, I'm just -- I'm not expecting that, same as a lot of other banks' CEOs have said. But our position is to just to be -- wait another quarter or two until you really get the clarity behind it, make sure the vaccine is doing what it's supposed to be doing. And I think we're not too far from that. I think if we get the herd immunity and the death rates continue to drop, and the therapeutics and everything that are out there, they are all really good signs that are taking place. So I would be really surprised if we weren't in a position later this year to be really constructive on something like that.

Robert H. Young -- Senior Executive Vice President, Chief Financial Officer

I would also imagine...

Stuart Lotz -- Keefe Bruyette & Woods -- Analyst

Appreciate it, Tom.

Robert H. Young -- Senior Executive Vice President, Chief Financial Officer

Stuart that we have $60 million of self-debt that reprices this year. Started with -- in December repricing the YCB-inherited debt from a few years ago, so it reached its five-year time frame and we'll be looking at both of those issues. using our proceeds from preferred to be able to pay those down either this year or early next year. So would mention that as well.

Stuart Lotz -- Keefe Bruyette & Woods -- Analyst

Awesome. And then, Bob, maybe if we could turn to expenses. Appreciate all the detail on kind of what you expect this year given the puts and takes with the branch closures last or this week and then also with the core conversion. Where do you see that run rate shaking out in the first quarter? Or really kind of in the back half of the year given some of the planned technology investments offsetting the causes?

Robert H. Young -- Senior Executive Vice President, Chief Financial Officer

Todd, do you want to start that, and I'll jump in? Or do you want me to take it?

Todd F. Clossin -- President and Chief Executive Officer

Yeah. No, I'll be glad to start. I think the number that we saw in the fourth quarter, last quarter, was really the combination of a lot of work and a lot of effort, aided by the pandemic probably to some degree because of the travel and everything else that was restricted. As we head into 2021, the focus continues to be very much on expenses. We're looking to be on 2021 and to 2022 and 2023 and if we don't get a big improvement in yield curve shape, I mean, expenses really are the big thing that organizations really need to have already addressed quite frankly. So we're continuing to be proactive on that. We have a hiring freeze that's been in place. So, any new positions, there is a freeze there. Any replacement positions really need to get approved by my HR Director and me. So for our sales organization, that's a pretty big step, but it just shows you our level of focus on the expense side of things.

We continue to fact that we're going to be more efficient as we go forward. I think the course change in core upgrade is going to help a lot because it's going to be less people dependent, so to speak, and more, based upon the technology and automation. And we're going to continue to review the branch network across our footprint, there are parts of the footprint we didn't look at because they were newly acquired, but we're going to continue to address that as well too because I think even with the 212 or so branches that we have given our asset size, there are still opportunities there. So we're going to focus on all of that and we got the traditional merit increases and things like that going forward. But I don't see any huge tech investments or tech spends or anything like that, we've been doing that over the last number of years.

And then the marketing side, we did really suspend some of the marketing spend last year because of the pandemic. And we really do want to get out there, particularly with the branding side that Bob mentioned in the Mid-Atlantic markets. So the people know we're there, so they can see us and that we can really be on the offensive with regard to growth there. So that overall would tell you that as we kind of look at the expense plan for next year, we would expect in looking at consensus that's out there for the banks right now. And for us, in particular, we're not terribly uncomfortable with the consensus numbers that are out there may be puts or takes a couple of million each quarter here and there or one way or the other, but the overall we think that we will be consistent with what we've done in the fourth quarter. Bob?

Robert H. Young -- Senior Executive Vice President, Chief Financial Officer

Yeah. And we've really run $86 million, $87 million, $87.5 million throughout the year this year when our early and the year guidance as some of you may recall was for a higher pace. Yes, some of that was pandemic-induced, but a lot of it was also discretionary spend control, and indeed, we got our cost savings out of the Old Line acquisition as we had promised. About $1 million or $2 million of difference in terms of an increase between the third and fourth quarter. Most of that related to period-end incentive comp adjustments. Don't know that you want to call that one-time, but a true-up there for better performance and as well we did an employee appreciation bonus, if you will, at the end of the year. So that would have been one time in the fourth quarter. Some of you pick up the securities gains and I like to remind you that securities gains are offset in employee benefits. It's part of securities gains for deferred compensation, which also is offset in employee benefits. So that's really -- it doesn't affect the bottom line, but it does impact both fees as well as expenses.

So that was a little bit higher in the fourth quarter as the markets recovered as well. And some additional technology spend related to the core conversion, but otherwise kind of holding flat right around that $87 million, $87.5 million mark. Now, we started the year. You always say payroll tax increases with some other changes, Todd mentioned marketing. We were pleased that we saw on FDIC insurance reduction with some of our risk factors improved, not the least of which is because of the higher capital base that impacts that. So a couple of moving parts there but hopefully that's helpful.

Stuart Lotz -- Keefe Bruyette & Woods -- Analyst

Yeah. That's very helpful. And I guess just maybe one more on the hospitality book in terms of PPP round two, have you reached out to those clients, and are all of them -- they all, you kind of seeking to get the round two PPP and at a 60% -- 67% LTV if you -- is that pre-pandemic or and if you guys going to any new appraisals in recent quarters with regards to some of those credits?

Todd F. Clossin -- President and Chief Executive Officer

Yeah. And answer to you that is -- it is pre-pandemic. Yes. So to answer your questions on PPP, we did reach out to our hospitality cost, because they are already reaching out to us, it was more around timing. So we're able to put that in place for the great majority of what we've got. Just a couple of specifics, as of the end of last year, it's about $725 million in hotel loans and about $12 million in PPP loans, again that was in the first round, so there'll be a little bit more here in the second round. The LTV was 67% and that's on a pre-pandemic basis. One of the reasons why we had more migrate into the criticized -- primarily criticized category was, we're putting a heavier focus on debt service coverage. I think I'd mentioned you guys in the past, we did about a third debt service, a third liquidity, and a kind of the third flag in location. And we altered that during the fourth quarter to make it 50% debt service-related and 40% based upon the liquidity of the borrower and about 10% based upon the flag and location so more stringent requirement there. But we're only dealing with main flag seasoned operators InterContinental, Hilton, Marriott, Choice, Wyndham those types of organizations, 72% limited-service, 24% extended stay, 4% full service. The significant majority of them are located in suburban areas and near highways, so not things that would be terribly challenging. It should come back pretty quick.

About 41% of the portfolio is in Maryland and about 25% in Kentucky, Indiana, 20% in Ohio, 7% in Pennsylvanian, and about 7% West Virginia. And our occupancy rates, we get star reports on the portfolio every month and November was just under 47% occupancy compared to the prior months, I think October was 55%, September 55%, August 53%. So down a little bit in November as you would expect, but much above the numbers back in April and May, which were in the 20% and 30% range. So we're seeing some nice -- I guess, I would say trends prior to the winter months. We expected the winter months to slow down a little bit and as we set this up and structured this with these deferrals to the hospitality portfolio, they're Springer language in there that would return them to payment status or full payment status, a lot more interest only, but we turn to full payment status if they reach a certain occupancy level or if they've got a certain liquidity number, which is the PPP obviously have still liquidity. So I would expect those hospitality loans that are deferred for a period of time that they will be returning to payment steps well before the end of the deferral time period because of the language that we have in there. So the expectation would be is that that deferral number would come down through the spring, late spring, early summer months as things return to normal, but the LTV is pre-pandemic, make your guess as to what you think the values are today. You've seen some portfolio sold out there in different markets, but I haven't seen anything with too terrible of a haircut on it, but we feel pretty confident about our hotel customers and the actions they've taken and the steps that they've taken. Again, we'll see where clarity on this, I think by the time you get into the third quarter and late third quarter, but they're well-positioned good operators, they are pretty strong operators and we think the vast majority of them should be OK.

Stuart Lotz -- Keefe Bruyette & Woods -- Analyst

So you don't anticipate any further downgrades to criticize your classified from that book?

Todd F. Clossin -- President and Chief Executive Officer

I think we'll continue to keep the same ratios in place in terms of that how we grade with the debt service and liquidity and everything else. So I think the third and fourth quarters were the big quarters in movement so to speak. I'm not sure you're going to see a whole lot in the first quarter, out of the hospitality industry, because it's kind of a soft quarter anyway for hotels and a lot of the banks have these on deferral, right. So I just -- and I'm thinking you're going to see much going on with the occupancy on the star reports. And so I just -- and I can't anticipate a lot of change in the first quarter, one way or the other, but I think if you get in the second quarter, and definitely, the third quarter, I mean that's where you really start to see the clarity on it.

Stuart Lotz -- Keefe Bruyette & Woods -- Analyst

Awesome. Well, thanks for taking my questions.

Todd F. Clossin -- President and Chief Executive Officer

Sure.

Operator

Our next question comes from Russell Gunther with D.A. Davidson.

Todd F. Clossin -- President and Chief Executive Officer

Hey, Russ.

Russell Gunther -- D.A. Davidson -- Analyst

Good morning, guys. Hey, Todd. I just have two quick follow-ups from prior lines of discussion. The first on the organic growth outlook and hear you loud in terms of your near-term expectations, but looking back to the time of the Old Line announcement, I think the goal was to have that prove accretive to the growth rate. So trying to move from a low-to-mid to a mid-to-high single digits. Now, a lot has changed, but is that still the ultimate goal, and is that something that as you look to 2022 might be achievable?

Todd F. Clossin -- President and Chief Executive Officer

Yes. As we -- that -- you're right on the mark with the plan there. It wasn't just the Old Line bank acquisition, but your Community Bank acquisition a couple of years before that, and also the FFKT acquisition in Frankfurt, Lexington area, Northern Kentucky areas were all to get us into higher growth markets and then change the growth rate of the bank from historically low-to-mid single digit loan growth to mid-to-high single-digit loan growth.

So it's still very much the plan. That's why we went to those markets and I think we got a good lending team. So I think we've got the right positions in place, we did some pruning prior to the pandemic on some things. We pruned some hotels, we pruned the consumer portfolio, we pruned the multifamily. So we did a number of those type of things. That's behind us. So I really don't see a lot of loan growth headwind, so to speak, coming out of the pandemic. So we should be able to keep that story intact in terms of what we were trying to do. Whether that's 2022 or not, you'll have to see, I would hope so. Based upon the pace of the recovery, we should be through all this and back to more normal processes in 2022, but we'll have to wait and see.

Russell Gunther -- D.A. Davidson -- Analyst

Got it, OK. Thanks for your thoughts on that one, Todd.

Todd F. Clossin -- President and Chief Executive Officer

Sure.

Russell Gunther -- D.A. Davidson -- Analyst

And then just lastly if you guys are able to share, following up on the hospitality discussion, increased internal waiting on the debt service coverage. Can you share where that debt service coverage ratio shakes out today versus pre-pandemic within the hospitality loans that were reviewed?

Todd F. Clossin -- President and Chief Executive Officer

I don't have that in front of me, but I would think that I don't see anything different and anything in our portfolio that would be an outlier to maybe other -- others banks that have reported on the hospitality side, I think that the portfolios are pretty-well underwritten. I mean it was -- we were $1.5 million, $1.6 million, I think prior to the pandemic, and Old Line Bank was as well too.

Today though if you're running 50% occupancy, there'd be a lot of borrowers that wouldn't be at that level obviously. And that was really one of the things that we did earlier than the pandemic was. When you look back to last March, April, May, I mean people weren't allowed to go to hotels. They were told to stay in the house and not leave. So it is kind of hard to wait debt service coverage on businesses when they've been that disrupted. So we went to other means and actually we start to look more heavily at liquidity, and things like that, and flagging guarantor support.

But as we roll through in subsequent quarters after the pandemic started, you start to get a little more clarity on things and you did have a little bit of recovery last summer and late last summer and fall with regard to occupancy. So we just thought it was appropriate to shift more toward debt service coverage, which caused the portfolio to be downgraded a little bit. But I don't have a specific debt service coverage ratio on parts of the portfolio, I would imagine we'd be below 1 in a lot of cases but that's just based upon the current occupancy level,

Some banks have gone out and sold parts of that portfolio already and kind of taken haircuts on values. We've chosen not to do that at this point, just simply because we think there is value there. We think the great majority of these are going to return to paying status and there will be value there, but we're protected of an LTV perspective if there is a few that aren't that really gets challenged by that. But I would expect the majority of them will be back to cover in debt service and be over 1 back when you get into the late part of the second quarter and into the third quarter. I would expect that to be the case and seeing them return to payment status.

Russell Gunther -- D.A. Davidson -- Analyst

I appreciate your thoughts on that, Todd.

Robert H. Young -- Senior Executive Vice President, Chief Financial Officer

I will...

Russell Gunther -- D.A. Davidson -- Analyst

That's it for me, guys, thank you for my questions. Oh, yes, Bob, please.

Robert H. Young -- Senior Executive Vice President, Chief Financial Officer

Yes. For the ones that were downgraded, it was averaging between 0.6 and 0.7 through 9.30. Back at the end of June, what we had was really an estimate that took into account where they were in '19 and first quarter of 2020, and then estimated beyond that. So with that lower number, there were more classifications and a goodly amount -- the macroeconomic factors improved relative to unemployment, so you see that on Page 10 of the deck. So that would have caused the allowance to come down by a greater amount, but basically, we're adding that back into the hospitality reserve which went to between 7% and 7.5% on the whole hospitality portfolio here at the end of the quarter.

Todd F. Clossin -- President and Chief Executive Officer

Yes, thanks for the clarity. It was a great service.

Russell Gunther -- D.A. Davidson -- Analyst

Yes, I appreciate it from both of you guys. Thank you, very much.

Operator

And our next question comes from Steve Moss with B. Riley Securities.

Todd F. Clossin -- President and Chief Executive Officer

Hi, Steve.

Steve Moss -- B. Riley FBR, Inc. -- Analyst

Hey, good morning. Just following up on the hospitality for a moment, just with regard to the loan-to-value 67%. I believe in prior quarters, it was in the mid-50s. Just kind of curious as to what drove the increase in LTV.

Todd F. Clossin -- President and Chief Executive Officer

Yes. We've had the -- we've had some activity with regard to the hospitality portfolio. Some properties have sold, the property owners have decided to sell and have taken care, and have done -- they even had any credit impacts from any of that. But that had an impact to it as well too and I believe we're also including PPP loans so hotel operators are going in there as well too. So that may have impacted by a couple of percentage points.

Robert H. Young -- Senior Executive Vice President, Chief Financial Officer

Also we -- Todd, we looked at all loans down to $1 million. So the earlier estimate would have been on a smaller group. This includes 123 loans and comprises 96% of the total $750 million portfolio by looking at all loans, down to $1 million, Steve.

Steve Moss -- B. Riley FBR, Inc. -- Analyst

Okay, that's helpful. Thanks for that. And then one question for you Bob, housekeeping. Just kind of curious as to what you're thinking for purchased accounting accretion on a full-year '21 basis.

Robert H. Young -- Senior Executive Vice President, Chief Financial Officer

So what we have said in prior quarters and what I would continue to say is a couple of basis points a quarter will continue to come down. We're pretty much through the liability accretion, which was mostly CDs, a little bit of self-debt. And you noted that I said that there was a couple of basis points of additional accretion this quarter on two PCD loans that paid off from -- actually that was the old FFKT acquisition, so that took us up to 16 basis points for the quarter. You should anticipate that without that, it would have been 14 and so then drag it down from there as you move forward in 2021.

Steve Moss -- B. Riley FBR, Inc. -- Analyst

Okay. Perfect. Thank you very much, appreciate all the color.

Operator

Our next question comes from Brody Preston with Stephens Inc.

Todd F. Clossin -- President and Chief Executive Officer

Hey, Brody.

Brody Preston -- Stephens Inc. -- Analyst

Hey, good morning, everyone. Hey, Todd, I wanted to circle back on the hiring freeze that you mentioned, that's still in place. So there have been some disruption in the Baltimore, the D.C. corridor with Truist and Wells Fargo recently. Had a bunch of folks as well and so, I was thinking you're trying to be prudent on expenses, but do you think there's going to be any opportunities to make new hires in this market and kind of maybe help accelerate building the WesBanco brand within the legacy Old Line marketplace?

Todd F. Clossin -- President and Chief Executive Officer

Yes, definitely and I'm reviewing those so that I know what's going on. But we are hiring new people and open hiring new people, but it's got to be approved by me and my HR Director. So it just puts a tighter focus on it. We got some areas where we had some open positions, back-room staff type things that quite frankly, would be going away during the core conversion anyway. And I just wanted to make sure we had a real tight handle on that in some cases in our branch network, those branches that we have, it could be overstaffed, in some cases half a person or a person here or there. And we wanted to do is be able to take advantage of some of those savings and that replace certain people. So that's the whole idea behind is just to have a higher level of focus to it. I've seen some banks that have gone out and announced reductions in force of 5% to 10% and things like that and sometimes even put names on it. But I think from our perspective that we can get there through attrition, but also taking a close eye on where we are growing -- improved the couple of positions yesterday in some of the growth areas from a revenue production standpoint. So we're not going to be bullish about what we're doing on the expense side, because we are going to come out of this pretty quick this year, and we want to be positioned for growth, right. And there's going to be a growth story there, you can only save on expenses for so long. So we'll be judicious about it, but I just -- I want to make sure that I got a good handle on it because we don't want to miss on the expense side, but at the same time, we want to invest in the right areas, so that we hit the revenue side of things later in the year.

Brody Preston -- Stephens Inc. -- Analyst

Understood. And I guess maybe on the growth -- just sticking with the growth excluding PPP actually thought the commercial loan growth this quarter was pretty solid. And so I wanted to get a sense for what drove that, was it a tick up in line utilization, or was it something else?

Todd F. Clossin -- President and Chief Executive Officer

We continue to see really good usage on warehouse lines because that's obviously the residential mortgage, business is doing very, very well and growing. But I think just in general, we saw our customers getting more confident. I think I reported in the third quarter, end of the third quarter that our pipelines, our commercial banking pipelines in particular were up a little bit from the third quarter, but down from the prior year or pretty much in line with the prior year, but we're 25% bigger because of Old Line Bank. So I guess down, relatively speaking. But in the fourth quarter, pipelines firmed up and we were seeing more growth in the pipeline. And Jay Zatta, our Head of Commercial Banking, Chief Banking Officer mentioned a couple of weeks ago that the pipelines are really starting to grow, so not just residential but the commercial side. So we are seeing some nice trends there and I think that flowed through in terms of what you saw in the balance sheet in the fourth quarter.

Brody Preston -- Stephens Inc. -- Analyst

Okay, understood.

Robert H. Young -- Senior Executive Vice President, Chief Financial Officer

So I mentioned, funding of construction loans, the LCD book was down $25 million, $30 million all of that rolled into CRE as funded product. We still have a fair amount in construction loans and line utilization there as those projects complete. And the bulk of the run-off in the fourth quarter was as Todd indicated earlier related to the residential portfolio and the refi market, certainly, we participated in that to a great degree, but mostly it was gain on sale. So went to the secondary market, but that would be just a couple of other comments. Line utilization, Todd mentioned mortgage warehouse, but net-net line utilization around 34.5% to 35% for the three months ended in the fourth quarter. And it's down about 10%, 10.5% over the line utilization that we experienced in the fourth quarter of 2019.

Brody Preston -- Stephens Inc. -- Analyst

Okay. Thank you for that extra detail, Bob. Maybe just wanted to get a sense for what new loan yields looks like right now versus what's rolling off the book?

Robert H. Young -- Senior Executive Vice President, Chief Financial Officer

Yeah, we actually have -- Todd, I know what page is that on. We have that in the...

Todd F. Clossin -- President and Chief Executive Officer

Slide 4.

Robert H. Young -- Senior Executive Vice President, Chief Financial Officer

Thanks.

Todd F. Clossin -- President and Chief Executive Officer

Slide 4 of the deck.

Robert H. Young -- Senior Executive Vice President, Chief Financial Officer

Yeah.

Brody Preston -- Stephens Inc. -- Analyst

Okay, all right. You don't have to repeat us them, Bob. I can just go grab the deck.

Robert H. Young -- Senior Executive Vice President, Chief Financial Officer

Right there in the top of the deck in terms of waterfall, but we're trying to hold minimum rates, floor rates on new loans of 3%, and then depending upon the risk rate getting a little bit more than that in certain situations. In some cases below, but that's where you can see it. Again, I want to point out though that as compared to some other banks, our reduction in loan yield occurs over time because we have a higher average life portfolio. We have a lot of five year repricing loans that have floors in them. So even when they do reprice, they might not reprice below 3.5% to 4%, again depending upon where that floor level was set and we also inherited as I mentioned, relative to asset sensitivity, earlier this year inherited a fair amount of that longer-term book from Old Line, which at the time we thought would be a detriment to margin, but it turns out to be helpful. And again the 332, 331, 331 GAAP margin for the last three quarters, indicative of that book holding our overall margin flat as we continue to adjust cost of deposits and borrowings on the other side to offset investment in loan yields coming down at a reasonable pace.

Brody Preston -- Stephens Inc. -- Analyst

Okay. And then one last one from me, I just wanted to -- I understand that you're -- it looks like you're going to have the opportunity to work down borrowings throughout the year, which you've also had a nice mix shift on the CD side, on deposits as well. And so I wanted to get a sense for if we should expect to continue to see that run-off at a similar pace that we've seen throughout 2020 or if that would be different? And then what the new offering rates are on your CDs?

Todd F. Clossin -- President and Chief Executive Officer

Yes. We got about 2/3 of the CDs that are renewing -- our single service CDs that are renewing and staying with us obviously were -- we got a strategy in place there to run off those higher cost ones. So I don't anticipate that changing, at least not for the next couple of quarters as we've got quite a bit of liquidity and funding capacity with our loan to deposit ratio below 90%.

Robert H. Young -- Senior Executive Vice President, Chief Financial Officer

Yes. So I think particularly in the Mid-Atlantic market, we inherited a fair amount of higher cost CDs talked about that at the time of the acquisition that was a benefit. We weren't going to have to be as high priced on those CDs. Given our overall cost of funds advantage and lower loan to deposit ratio than many of the DC Banks including Old Line reign and of course the pandemic came along in the Fed reduced rate. So they're helping us. But basically, new CDs going on at 50 basis points, 60 basis points at the most, and would still expect the kind of run-off, maybe to a slightly lesser degree in 2021 that we saw this past year, but all of that will end up going back into -- it's not going to be a loss for the most part of just go back into interest-bearing transaction accounts.

Brody Preston -- Stephens Inc. -- Analyst

Got it. Thank you all for taking my questions. I appreciate the time this morning.

Operator

Our next question comes from Joe Plevelich with Boenning & Scattergood.

Joseph Plevelich -- Boenning & Scattergood Inc. -- Analyst

Good morning. Just a real quick one on the mortgage banking side. Any thoughts on how the first quarter might shape up relative to the fourth quarter and then overall for the year for mortgage banking versus 2020?

Todd F. Clossin -- President and Chief Executive Officer

Yeah, we're still seeing nice trends there. We're expecting -- we don't give guidance obviously, it depends on what going to happen with the rate. But right now as we kind of look at it, you would expect another strong year, next year, not as strong as obviously 2020, but it's just another really very, very good solid year for us. So hard to see which quarter is going to shake out where. But I think overall when you look throughout the course of the year is expected to be another very solid year for us.

Robert H. Young -- Senior Executive Vice President, Chief Financial Officer

Yeah. And I would mention that we ended up with a bit of a negative hedge adjustment on TBA hedges, which we used to hedge the commitment portfolio that was negative in the -- at the end of the quarter. So we would expect that to turn around and you'd see a little bit more visibility on the gain on sale and in the first quarter. Joe?

Joseph Plevelich -- Boenning & Scattergood Inc. -- Analyst

Do you have a number on how much that was in the fourth quarter?

Robert H. Young -- Senior Executive Vice President, Chief Financial Officer

$1.9 million.

Joseph Plevelich -- Boenning & Scattergood Inc. -- Analyst

Okay, thank you.

Operator

Our next question comes from William Wallace with Raymond James.

William J. Wallace -- Raymond James & Associates, Inc. -- Analyst

Hello. Thank you. I wonder if we could further the conversation. Just a little bit around loan growth. As you look at your pipelines and your return of loan demand markets. I'm wondering if you're seeing any variation of demand returning in your metro markets, your more growth markets? And then also if you're seeing pipelines rebound quicker and the more rural markets?

Todd F. Clossin -- President and Chief Executive Officer

No, I think it's across the board. Is it -- we're hearing similar things in our metro markets versus our non-metro markets. I think we expect it to be more growth opportunities in our metro markets because that's tends to be higher growth cities than maybe some of the rural markets. Just on the loan side, we benefit a lot on deposits in our rural markets that are important to us. But right now, we're really not seeing any differences between any of the markets, you read a very detailed synopsis each month of each of our markets that we have and they're all seen about the same thing, same tenor.

William J. Wallace -- Raymond James & Associates, Inc. -- Analyst

Okay, all right. Thank you. And then on the second round or third round I guess of PPP, what's the -- if you might have given us but I apologize, but what's the dollar amount of the application you all taken to date? And then, what do you think you might shake out for that program all in?

Robert H. Young -- Senior Executive Vice President, Chief Financial Officer

264 is what we have funded. There is more and applications, but that's what's been funded so far, Wally, on 2130 borrowers.

William J. Wallace -- Raymond James & Associates, Inc. -- Analyst

And has the pace of applications remained relatively similar or is starting to slow already?

Robert H. Young -- Senior Executive Vice President, Chief Financial Officer

Todd?

Todd F. Clossin -- President and Chief Executive Officer

Yeah, it's slowing a little bit, obviously had a big push at the beginning. I think right now, and this is just an estimate, but we did $853 million in the first round, and our thought is we might do have as much of that again in the second round here. So if you're in that $400 million-$450 million range would be my expectation when we're through it could be a little higher, could be a little low. But I guess, we've been kind of thinking about as we may end up about half. Primarily it's for existing customers, but as we typically would do once. We've taken care of existing customers then we're open to doing some things for prospective customers as well too. And that really benefited us in round one, because we picked up some new relationships as a result of that. We want to make sure we're supporting our current customer base first.

William J. Wallace -- Raymond James & Associates, Inc. -- Analyst

Okay, thank you very much for that. And Bob, you have -- the same problem understanding what you were saying, did you say earlier that you had been anticipating that 85% of the round one loans would it not being forgiven and now you think it's 90%, is that what I heard you say? It'll end up at 90% now?

Robert H. Young -- Senior Executive Vice President, Chief Financial Officer

I said that relative 12/31/21. We're not making a call on what would not be forgiven at all and would go to in the case of the first program, the end of the two-year timeframe. I think that will be very minimal Wally, but I don't have a number on that. I just was commenting about the pace of forgiveness in 2021 and what we expect to be left at the end of '21 that hasn't paid off from round one.

William J. Wallace -- Raymond James & Associates, Inc. -- Analyst

Okay, OK. That's helpful. Thank you. And then last question just housekeeping, what was the average loan balance of PPP in the fourth quarter?

Todd F. Clossin -- President and Chief Executive Officer

Well, I think that question was asked earlier. And...

William J. Wallace -- Raymond James & Associates, Inc. -- Analyst

Okay. I looked at.

Todd F. Clossin -- President and Chief Executive Officer

No, that's all right. I think I've got a jab on from my folks.

Robert H. Young -- Senior Executive Vice President, Chief Financial Officer

822, remember that the bulk of that forgiveness occurred as I said to I think Casey it within the last two to three weeks of the year.

William J. Wallace -- Raymond James & Associates, Inc. -- Analyst

Thanks, guys. I appreciate the time.

Operator

And our last question today is a follow-up from Steven Duong with RBC Capital Markets.

Steven Duong -- RBC Capital Markets -- Analyst

Hi. Just a quick one again on just the buybacks. I think you guys mentioned before that you're looking to catch up to your peers around 5% of the shares. Is that still the guide that you're looking at once you get back into it? And also, is there an overall payout philosophy that you adhere to so that we get a sense of the pace?

Todd F. Clossin -- President and Chief Executive Officer

Well, I would say, with regard to ultimate capital levels and where we kind of decided to be and target, that's obviously things we've got to decide at a Board level going forward. And we just know we've got -- we prepared for a really significant downturn, it's not materializing. So we know we've got some to return. I would tell you wanting to go back to 2019 that we started buying back in the fourth quarter and a lot of our peers started buying back about a year or so earlier than that. And they had bought back about 6.5% of their stock by the time the pandemic hit. We had bought back about 1.5%. So, there was about a 5% delta between us and our peer group in terms of the pace of buyback. My expectation would be is coming out of this pandemic, we would keep pace, probably with what you're going to see with our peer group for the plan wouldn't that we are laggard on that side, because we start with such a very high level of capital relative to our peer group but we advertised that being a conservative company, we want to carry a decent amount of capital and be well above the well capitalized levels, but we also realize there's a cost to keeping too much capital and we went to work on that balance and I think we were getting there prior to the pandemic hitting. I think we would have probably gotten up to that number and probably have used our authorization by now. But because of the delay, we just got to pick that back up again. But I would expect this to be able to get probably in line with our peers, if not slightly ahead of them.

Robert H. Young -- Senior Executive Vice President, Chief Financial Officer

And then just finer detail, we were buying between 200,000 and 250,000 shares a month during that three to four month time frame, Steven. And would remind you that we have 1.7 million shares remaining in our current authorization.

Steven Duong -- RBC Capital Markets -- Analyst

Got it. And I guess during that period, then you were generally below 100% payout, is that general guide that we can look at as well?

Todd F. Clossin -- President and Chief Executive Officer

In terms of a combination of dividends and capital?

Steven Duong -- RBC Capital Markets -- Analyst

Yeah, correct.

Todd F. Clossin -- President and Chief Executive Officer

Yeah, no, I would defer that our Board level discussions. I think you're in a pretty volatile environment right now, it's hard to peg what kind of percentage and ratios. I think if you go back and look at us on the four years or five years prior to the pandemic with regard to payout ratios, that's probably a good look going forward. Maybe a little bit higher because we're starting with the higher capital position this time, but that would be our expectation.

Steven Duong -- RBC Capital Markets -- Analyst

Understood. Appreciate it. Thank you.

Todd F. Clossin -- President and Chief Executive Officer

Sure.

Operator

This concludes the question-and-answer session. And I'd like to turn the call back to Todd Clossin for any closing remarks.

Todd F. Clossin -- President and Chief Executive Officer

Yeah, I'd just like to thank everybody for the thorough conversation and thorough discussion. If you get any additional questions, please follow up with me and Bob and John Iannone as well. I look forward to speaking with you at one of our upcoming Virtual Investor Events and well, thank you. Have a good day and please stay safe.

Operator

[Operator Closing Remarks]

Duration: 80 minutes

Call participants:

John Iannone -- Senior Vice President of Investor Relations

Todd F. Clossin -- President and Chief Executive Officer

Robert H. Young -- Senior Executive Vice President, Chief Financial Officer

Steven Duong -- RBC Capital Markets -- Analyst

Casey Whitman -- Piper Sandler -- Analyst

Stuart Lotz -- Keefe Bruyette & Woods -- Analyst

Russell Gunther -- D.A. Davidson -- Analyst

Steve Moss -- B. Riley FBR, Inc. -- Analyst

Brody Preston -- Stephens Inc. -- Analyst

Joseph Plevelich -- Boenning & Scattergood Inc. -- Analyst

William J. Wallace -- Raymond James & Associates, Inc. -- Analyst

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