First Financial Bancorp (FFBC 0.48%)
Q4 2020 Earnings Call
Jan 29, 2021, 8:30 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Good day, and welcome to the Fourth Quarter and Full Year 2020 Earnings Call and Webcast. [Operator Instructions]. Please note, this event is being recorded.
I would now like to turn the conference over to Scott Crawley, Corporate Controller. Please go ahead.
Scott T. Crawley -- Corporate Controller and Principal Accounting Officer
Thank you, Sarah. Good morning, everyone, and thank you for joining us on today's conference call to discuss First Financial Bancorp's fourth quarter and full year 2020 financial results. Participating on today's call will be Archie Brown, President and Chief Executive Officer; Jamie Anderson, Chief Financial Officer; and Bill Harrod, Chief Credit Officer.
Both the press release we issued yesterday and the accompanying slide presentation are available on our website at www.bankatfirst.com under the Investor Relations section. We will make reference to the slides contained in the accompanying presentation during today's call.
Additionally, please refer to the forward-looking statement disclosure contained in the fourth quarter 2020 earnings release, as well as our SEC filings for a full discussion of the Company's risk factors. The information we will provide today is accurate as of December 31, 2020, and we will not be updating any forward-looking statements to reflect facts or circumstances after this call.
I'll now turn the call over to Archie Brown.
Archie M. Brown -- President and Chief Executive Officer
Thanks, Scott. Good morning, everyone, and thank you for joining us on today's call. Yesterday afternoon, we announced our financial results for the fourth quarter and full year 2020. Before I turn the call over to Jamie to discuss those results in greater detail, I want to reflect on this past year and then provide some highlights in the most recent quarter.
When considering a year in which we encountered a global pandemic, experienced widespread government mandated business shutdowns and stay-at-home orders, and a reduction in the Fed Funds rate of 150 basis points, I'm very pleased with our response to these challenges and our overall management of the Company.
Despite the challenging backdrop in 2020, we grew loans and deposit balances, achieved record C&I and mortgage loan production, assets under management, fee income and total revenues. On an adjusted basis, we earned $1.66 per diluted share, achieved a 1.05% return on average assets, strengthened Tier 1 Common Equity and Total Capital, significantly bolstered our allowance for credit losses from 0.63% of loans to 1.77%, and experienced low levels of charge-offs.
Business conditions remained difficult in the fourth quarter; however, our quarterly financial metrics were strong with adjusted earnings per share of $0.51, adjusted return on assets of 1.23%, and an adjusted efficiency ratio of 56.8%. An increase in interest income, which includes PPP loan forgiveness fees, strong mortgage banking and record foreign exchange income drove our solid quarterly results.
Loan origination activity rebounded to near record levels with record production in C&I and continued strong production in mortgage. Transactional deposit growth was again very strong with increases from the prior quarter of $534 million on average, or 22% annualized, with all client segments seeing growth. Our sub-60 efficiency -- 60% efficiency ratio reflected our diligent expense management despite adapting to a remote working environment, continued investment in processes and technologies that position the Company for long-term success.
Credit trends remain relatively stable; however, with COVID-19 cases in the Midwest remaining at peak levels, a slower than anticipated vaccine rollout and general economic uncertainty, we recorded $11.5 million of provision expense, resulting in an increase in our allowance for credit losses to 1.89% of total loans, excluding PPP. We believe the increase in our allowance has positioned us to absorb future losses anticipated by the pandemic or otherwise.
I am most pleased with the response of our associates and their commitment to our clients and communities. They demonstrated amazing flexibility and resilience in pivoting from normal business activities and processes to working remotely or with significant changes to their in-office routines. From the beginning of the pandemic, we prioritized keeping our associates safe and engaged, which enabled them to support our clients in one of the most stressful and uncertain periods in our history.
Our associates were constant stewards, embodying our organizational belief that banking is an essential function in the lives of consumers, businesses and our communities and were focused on ensuring that we remained faithful to our mission. Notably, our corporatewide effort in granting approximately 7,000 PPP loans totaling over $900 million in a matter of months was something to remember. I am very proud of the effort and commitment of our First Financial Team.
I'll now turn the call over to Jamie to discuss the details of our fourth quarter results. And then after Jamie's discussion, I'll wrap up with an update on CARES Act modifications, our hotel and franchise portfolios, and then provide some forward-looking commentary. Jamie?
James M. Anderson -- Executive Vice President and Chief Financial Officer
Thank you, Archie, and good morning, everyone. Slides 4 and 5 provide a summary of our fourth quarter and full year 2020 results. As Archie mentioned, we were very happy with our fourth quarter financial performance. Earnings continued their upward trajectory as loan fees led to an increase in the net interest margin and fee income remained particularly strong. In addition, our expense base remained relatively flat and provision expense declined from third quarter levels as asset quality remained relatively benign.
While our level of non-performing loans has remained stable, we recorded $11.5 million of provision expense during the quarter. We believe our current reserve levels have reached their peak and positioned us to absorb expected credit deterioration as the economic impact of the pandemic further materializes in 2021. Once again, our capital ratios improved during the quarter and remain in excess of both internal and regulatory targets.
We believe that our balance sheet is well positioned and our stress testing results continue to indicate that our core fundamentals provide us with the ability to maintain these levels for the foreseeable future. With this in mind, we will continue to evaluate any near-term capital deployment and share buyback opportunities to capitalize on the strength of our balance sheet.
Net interest margin increased 13 basis points compared to the prior quarter, driven by higher loan fees and disciplined deposit cost reduction. Given the low interest rate environment, we will continue to face pressure on asset yields; however, we believe that the fundamental pieces of the core net interest margin will remain relatively stable as we head into 2021.
Similar to recent trends, fee income was the highlight of the quarter and was the principal driver of our operating results. Mortgage banking exceeded expectations despite declining from record levels in the third quarter. In addition, Bannockburn had another record quarter of foreign exchange income and deposit service charges maintained their gradual ascent to pre-pandemic levels.
While not part of our operating results, it's also noteworthy that we recorded a non-operating gain related to our Class B Visa shares. During the quarter, we sold a portion of our shares to a third party and the remaining shares were recorded on the balance sheet at their current market value. We utilize the total gain of $13.4 million to fund the First Financial Foundation and pay off higher cost FHLB borrowings.
Fourth quarter results indicate that we remain well positioned from a regulatory capital standpoint as capital ratios improved across the board on a linked-quarter basis. Total capital increased 18 basis points and our tangible common equity ratio increased 22 basis points in the fourth quarter to 8.47%, or 8.83% excluding the impact of PPP. Additionally, our tangible book value per share grew by $0.37 to $12.93 at the end of the year.
Slide 6 reconciles our GAAP earnings to adjusted earnings, highlighting items that we believe are important to understanding our quarterly performance. Adjusted net income was $49.7 million, or $0.51 per share, for the quarter, which excludes the aforementioned Visa B gain, $7.3 million of debt extinguishment costs, a $5.1 million writedown of a tax credit investment, a $5 million contribution to the First Financial Foundation, and $2.9 million of COVID-related and other non-recurring items such as branch consolidation costs.
As depicted on Slide 7, these adjusted earnings equates to a return on average assets of 1.23% and a return on average tangible common equity of 15.9%. Our 56.8% adjusted efficiency ratio remains very strong despite elevated incentive compensation tied to our fee income.
Turning to Slide 8, net interest margin increased 13 basis points from the linked-quarter to 3.49%. This increase was primarily related to higher loan fees, which were driven by PPP forgiveness. Basic net interest margin declined slightly due to the negative impact from changes in our asset mix. In the first quarter, we expect some benefit to the margin as we prepaid $120 million of longer-term FHLB debt late in the fourth quarter. The full impact of which will be realized in 2021.
Slide 9 shows our yields and costs and average balance changes. Loan yields increased 18 basis points and the investment yield dropped 15 basis points. A higher mix of investment securities is putting pressure on total asset yields as we increased the balance in our investment portfolio due to the liquidity on the balance sheet.
On the funding side, we continue to aggressively lower our cost of deposits, which declined 7 basis points during the period to 20 basis points. These lower deposit costs reflect strategic rate adjustments, as well as a shift in funding mix from higher priced retail and brokered CDs to lower cost core deposits.
Slide 10 illustrates our current loan mix and balance changes compared to the linked quarter. Excluding the decline in PPP loans, end of period loan balances were flat, as increases in ICRE and C&I loans were offset by modest declines in all other loan types.
Slide 11 shows the mix of our deposit base, as well as a progression of average deposits from the third quarter. In total, average deposit balances grew $362 million during the fourth quarter, driven by increases in noninterest-bearing accounts, public funds and transactional deposits. We remain very pleased with the trajectory of deposit balances as average noninterest-bearing deposits grew $173 million during the quarter, with additional growth expected as the most recent round of stimulus checks are dispersed to our clients. Deposit pricing remains a near-term focus and we will continue to make any necessary adjustments based on market conditions and our funding needs.
Slide 12 highlights our noninterest income for the quarter. As I mentioned previously, fourth quarter fee income remained strong and was driven by record foreign exchange and elevated mortgage banking income. We were also pleased as service charges continue to rebound and wealth management fees were in line with expectations.
Noninterest expense for the quarter has outlined on Slide 13. Overall, expenses increased compared to the linked quarter; however, they were relatively flat on an operating basis. The increase was driven by $7.3 million of debt extinguishment costs, a $5.1 million writedown of a tax credit, and a $5 million contribution to the First Financial Foundation. Additionally, we incurred $2.9 million of COVID-19 related and other costs not expected to recur such as branch consolidation costs.
Turning your attention to Slide 14, our fourth quarter ACL model resulted in a total allowance, which includes both funded and unfunded reserves of $188 million and $11.5 million in total provision for credit losses. The model utilize the Moody's baseline economic forecast released at the end of December, which was slightly improved from the forecast utilized in the third quarter. Similar to the first three quarters of 2020, the majority of the fourth quarter's provision expense related to the expected economic impact from COVID. At this point in time, we believe we've captured the risks from future COVID-related credit stress and do not anticipate further reserve build in the near term.
As shown on Slide 15, asset quality remained stable as we had $6.6 million of net charge-offs for the period and only slight increases in nonperforming and classified asset levels. Net charge-offs were 26 basis points as a percentage of loans, which remains lower than historical levels despite the slight increase compared to the linked quarter. Our credit metrics don't reflect much stress at the current time, and our portfolio performed better than we might have anticipated at the beginning of 2020. We expect some deterioration in 2021 as the economic impact from COVID continues to materialize.
Finally, as shown on Slides 16 and 17, capital ratios remained strong and are in excess of regulatory minimums. Each of our capital ratios increased during the quarter and all ratios continue to exceed internal targets. Our tangible common equity ratio grew by 22 basis points during the period and our tangible book value increased to $12.93. Once again, we do not anticipate any near-term changes to the common dividend. However, we will continue to evaluate various capital actions as the economic impact of the COVID pandemic further materializes.
I'll now turn it back over to Archie for commentary related to specific areas of focus in the loan portfolio, our deferral program and our outlook going forward. Archie?
Archie M. Brown -- President and Chief Executive Officer
Thank you, Jamie. Due to the continued economic circumstances related to the COVID-19 pandemic, we've updated Slides 20 through 22 which cover CARES Act modifications and our hotel and franchise portfolios.
As can be seen on Slide 20, I'm very pleased with the substantial reduction in CARES Act modifications at year-end, only $29 million in loan balances are on full payment deferral. With another $291 million in loan balances making interest-only payments bring our total loan modifications to $320 million at year-end. Additionally, the loans that have exited deferral, we've not seen any material credit issues.
Slide 21 provides detail on our hotel portfolio, which will require additional time to stabilize, makes up $186 million, or 58%, of our total CARES Act modifications as of December 31. The overall health of the hotel portfolio was strong pre-COVID and we've seen limited deterioration in average LTVs and an -- in updated appraisals. Given time and additional stimulus measures, we believe this portfolio will eventually stabilize. But in the meantime, we'll continue to monitor the status of our borrowers and work with them to ensure the best possible outcome.
Our franchise portfolio, as seen on Slide 22, has also improved substantially with $44 million in CARES Act modifications remaining at year-end. Drive thru and delivery concepts have demonstrated strong performance, while buffet style concepts within our sit-down book continue to be impacted by pandemic-related headwinds. As the vaccine becomes more widely distributed, we expect the performance of this concept to improve.
Moving to our outlook, Slide 23 provides some forward-looking guidance, which will still be impacted by the ongoing pandemic and related government stimulus programs in 2021. Loan growth, excluding PPP, is expected to remain flat over the near-term as we've seen pressure in certain portfolios, but we expect improvement and continue to target mid single-digit growth for the year. Regarding deposit balances, we expect further increases given our current Round 3 PPP pipeline and potential for additional stimulus activity.
The net interest margin is expected to be positively impacted by further PPP forgiveness pay-offs and the associated accelerated fee recognition over the next several quarters. Excluding our more volatile variable, such as PPPPs [Phonetic], purchase accounting, loan fees, we expect the margin to be relatively stable.
Regarding credit, the full impact of the pandemic is yet to play out; however, we expect moderate declines in our provision expense going forward. We've added $130 million to our allowance for credit losses during 2020 to address future losses that may materialize. This brings our total ACL to greater than 3 times the balance at 12/31/2019. We do not anticipate any further increases to the reserve as a percentage of loans moving forward.
Specific to fee income, we expect continued strong mortgage originations in the first quarter; however, we expect sub-seasonal decline in volume and lower premiums. Foreign exchange income to remain strong, but below the peak level of our fourth quarter performance. Deposit service charges are expected to continue to move toward the pre-pandemic trend after seasonal lows in the first quarter.
With respect to expenses, we expect to be in the range of $88 million to $92 million per quarter, but this could fluctuate some with fee income. In light of accelerated changes in customer behavior observed during the pandemic, we continue to evaluate our distribution channel for opportunities to become more efficient. And this quarter, we'll consolidate three banking centers.
Lastly, given our strong earnings and capital position, we expect to resume share repurchases in the first quarter using our newly authorized share repurchase program, and we'll look to be active in the market in the first quarter.
2020 was a challenging year for many and I'm extremely proud how our associates came together to support the well-being of our customers and our -- and communities. I'm also very pleased with our strong financial performance this year, the overall safety and soundness of our Company and our ability to remain focused on growing long-term shareholder value, despite the challenging business conditions. As we move forward into 2021, we remain confident in our ability to navigate this difficult operating environment and believe we positioned the Company for even stronger financial performance when the health crisis subsides.
We'll now open up the call for questions.
Questions and Answers:
Operator
Thank you. [Operating Instructions] Our first question comes from Scott Siefers with Piper Sandler. Please go ahead.
Scott Siefers -- Piper Sandler -- Analyst
Good morning, guys. Thanks for taking the question.
Archie M. Brown -- President and Chief Executive Officer
Hey, Scott.
Scott Siefers -- Piper Sandler -- Analyst
Hey. Was just curious you've given a lot of good color on credit expectations and you certainly have a pretty substantial reserve right now. Just as you look through the course of the year, to the extent, you're comfortable. Was hoping you might give us a sense for where you would expect actual loss content to kind of peak out and sort of when that manifest itself? Is that a first half event or second half of the year, how are you thinking about those dynamics?
Archie M. Brown -- President and Chief Executive Officer
Yeah. Scott, so it's still going be dependent upon what happens with the pandemic and actually in distribution. But I would say, we were talking kind of mid-part of the year into third quarter probably is where I think we would see it peaking now. And, again, that's can be somewhat dependent upon what happens with some of those bigger issues in the economy. Bill, any other comments on that?
William R. Harrod -- Executive Vice President and Chief Credit Officer
No, that's accurate, Archie.
Scott Siefers -- Piper Sandler -- Analyst
Okay. And any sense for sort of order of magnitude of deterioration? The lots are so low now and you've got a very substantial reserve. What's under CECL is presumably there to pull expected lifetime losses or sort of have a bucket for lifetime losses, any sense for order of magnitude of deterioration?
Archie M. Brown -- President and Chief Executive Officer
Scott, I don't know that we have a sense for, yet we saw just a little bit more in Q4. For the year, losses were 14 basis points. For the quarter, 26 basis points. And it was primarily related to one buffet style concept in which some stores -- we've learned some stores in that -- with that one borrower, not going to reopen. They've closed permanently. And so we made a partial charge for that. We had limited deterioration outside of that. So, it's difficult to say. Right now, I'd say they're still going to be on the lower side. As we get further into the year, we may have a little more clarity. But it doesn't feel like a significant increase in charge-offs at this moment.
Scott Siefers -- Piper Sandler -- Analyst
All right. Perfect. Thank you. And then just in terms of overall loan growth, which presumably will snap back in the second half. Just curious when you're talking about mid single-digit growth number, is that for the full year on the ex-PPP basis or are you suggesting that we just sort of snap back to a mid single-digit annualized rate in the second half of the year? In other words, I guess I'm getting to order of magnitude of that snap back [Speech Overlap]
Archie M. Brown -- President and Chief Executive Officer
Yeah. We think it's still mid-year -- mid single-digit growth for the full year, Scott. What we're seeing is commercial C&I originations and production is strong. It's really strong in the fourth quarter, record levels. And that momentum, we believe, is going to continue and grow stronger through the year. Where we saw pressure was -- with all the mortgage production, we saw some pressure on the mortgage portfolio that the loans we keep on balance sheet getting refinanced down -- from equity pressure, got refinanced down. And franchise, which we are probably more intentionally running down, we had some additional pay-offs there. So that's where we saw pressure. But C&I production is strong. And we still feel like as we come out of the pandemic, there's going to be some good momentum.
Scott Siefers -- Piper Sandler -- Analyst
Okay. All right. Thank you very much.
Archie M. Brown -- President and Chief Executive Officer
Yeah.
Operator
Our next question comes from Jon Arfstrom with RBC Capital Markets. Please go ahead.
Jon Arfstrom -- RBC Capital Markets -- Analyst
Thanks. Good morning, guys.
Archie M. Brown -- President and Chief Executive Officer
Hey, Jon.
James M. Anderson -- Executive Vice President and Chief Financial Officer
Hey, Jon.
Jon Arfstrom -- RBC Capital Markets -- Analyst
Archie, it's good to hear on the C&I, that's a good sign. I guess, maybe Bill, maybe Archie, more of a theoretical question. But in a normal stable economy, what kind of reserve levels do you think you would need to hold? What would be more normal for your Company? I know it's a tough question, but just what are your thoughts on that?
Archie M. Brown -- President and Chief Executive Officer
Yeah. John, we -- I would say, somewhere probably in that $130 million-ish kind of range. I think where you think -- we were in the middle of the pandemic, and we were kind of in just normal business conditions, probably at that level.
James M. Anderson -- Executive Vice President and Chief Financial Officer
Yeah. So, John, this is Jamie. So if you look at where our day one seasonal number came out, it was about $119 million, which was 1.29% of loans. So, in theory, we'd say, we get down somewhere in that level, whether it's in that $125 million to $135 million range, but somewhere back to that level as things start to stabilize.
Jon Arfstrom -- RBC Capital Markets -- Analyst
Okay. Great. That's helpful. And then, Jamie, your -- one of your last comments was, you expect some deterioration in credit in '21. I think what you're saying is charge offs. Is that right?
James M. Anderson -- Executive Vice President and Chief Financial Officer
Charge-offs. Yeah. Absolutely. Yeah, we're talking about just on the back side of the pandemic, expecting some lift in charge-offs, which again, we've already baked that into the reserve, right. So, yeah, expecting that to flow through. And really it's kind of back to Scott's question that he had before is just with the order of magnitude of what those charge-offs are. But at this point, a little more optimistic than what we would have been in the spring of '20. But, yeah, that's what we're talking about. We're talking about lift in the level of charge-offs.
Jon Arfstrom -- RBC Capital Markets -- Analyst
Okay. So really the underlying message is -- not to put words in your mouth, but very little, at least in the near-term until growth picks up in terms of provisioning required. Is that fair? And the charge-offs would just come out of existing reserves?
James M. Anderson -- Executive Vice President and Chief Financial Officer
Correct. Yeah. Unless something would change from a macro level at this point, we would, in any given quarter -- it could be lumpy as well, right, how charge-offs work. So, but in any given quarter unless things would deteriorate from this point, at most, we would be providing for the charge-offs and probably releasing some reserves going forward.
Jon Arfstrom -- RBC Capital Markets -- Analyst
Yeah. Okay. And then last topic is just margin. I think it's nice -- I know you're fighting the good fight on this, but it's nice to see the words relative, stability. Can you help us understand some of the puts and takes and maybe the magnitude of the debt prepayment benefit to NIM?
James M. Anderson -- Executive Vice President and Chief Financial Officer
Yeah. So, obviously, we're going to see -- with rates stabilizing, we're still going to -- but at a lower level, we're going to see reinvestment rates on the securities portfolio putting pressure on yields, and then just overall some lagging repricing. On the loan side, putting pressure. We still have a little bit of room on the deposit side. Fourth quarter deposit costs were 20 basis points. We see those coming down into the low-teens in the middle of '21. And then, again, we like -- we did pay off those FHLB advances, which were $120 million at a cost of about $250 million. So that's going to save us in the ballpark of about $3 million -- a little bit less than $3 million, but close to $3 million a year.
Jon Arfstrom -- RBC Capital Markets -- Analyst
Good. Last editorial comment, but business conditions remain difficult is something you said a couple of times, Archie, and it's notable to me that you put up a 16% return on tangible equity in this environment. So, to say, nice job, guys.
Archie M. Brown -- President and Chief Executive Officer
Thank you, Jon.
Operator
Our next question comes from Chris McGratty with KBW. Please go ahead.
Christopher McGratty -- KBW -- Analyst
Hey. Good morning.
Archie M. Brown -- President and Chief Executive Officer
Hey, Chris.
James M. Anderson -- Executive Vice President and Chief Financial Officer
Hey, Chris.
Christopher McGratty -- KBW -- Analyst
Jamie, maybe just start with you on the margin. I think just want to make sure I got the jumping-off point. The stability that you're talking about is relative to that basic $291 million, plus the factors you identify, right?
James M. Anderson -- Executive Vice President and Chief Financial Officer
Yes. Yeah. So, we'll get some volatility and like we do in loan fees, obviously, with PPP that's going to bounce around. We have a little bit of volatility quarter-to-quarter in purchase accounting. But, yes, we're talking about that kind of core $291 million, excluding all those factors.
Christopher McGratty -- KBW -- Analyst
And what are the remaining revenues coming from PPP and the accretion that you have that we should model in?
James M. Anderson -- Executive Vice President and Chief Financial Officer
Yeah. So at year-end, our total PPP balances are right at -- we're right at $600 million and the remaining fees related to those is just under $14 million, $13.7 million.
Christopher McGratty -- KBW -- Analyst
And on the accretion?
James M. Anderson -- Executive Vice President and Chief Financial Officer
On the accretion? Help me out. What you're asking?
Christopher McGratty -- KBW -- Analyst
The -- just the -- what's left of the purchase accounting coming through?
James M. Anderson -- Executive Vice President and Chief Financial Officer
On the purchase accounting from the last deals, is that what you're asking?
Christopher McGratty -- KBW -- Analyst
Yeah, exactly. Sorry about that.
James M. Anderson -- Executive Vice President and Chief Financial Officer
Yeah. Hang on, let me get that. Yeah. So we still -- we had 12 basis points of purchase accounting accretion in the fourth quarter. And we should see roughly that and it trailing off here over the next year or so.
Christopher McGratty -- KBW -- Analyst
Okay. So is a message -- if we just take a step back and understand the challenges of predicting margin in this environment, is the message that mid single-digit loan growth and a little bit of -- have a lower NIM should allow for general stability in core NII, is that a right interpretation?
James M. Anderson -- Executive Vice President and Chief Financial Officer
Yeah. Excluding the PPP fees, correct. Yeah.
Christopher McGratty -- KBW -- Analyst
Yeah. Okay.
James M. Anderson -- Executive Vice President and Chief Financial Officer
Yeah.
Christopher McGratty -- KBW -- Analyst
Okay. And then just finally on the pace of capital return. How do I think about the $5 million, which I know is a two-year authorization, against -- some cautious optimism on the economy, how aggressive are you going to be with the buyback?
James M. Anderson -- Executive Vice President and Chief Financial Officer
Yeah. I think we're going to be methodical about it. And not -- we're not going to do $5 million in the first quarter by any stretch. But I think we will be in the market, but kind of that a consistent level and then kind of see how the pandemic materializes here and what credit looks like. And really constantly taking a look at credit and seeing what it looks like. But if we said we would do in that ballpark of $1 million shares a quarter that would be plus or minus where we would be.
Christopher McGratty -- KBW -- Analyst
Okay. Thanks for that. And then just lastly on the tax rate, obviously, there're a lot of moving parts this quarter. What's the right number we should be using going forward?
James M. Anderson -- Executive Vice President and Chief Financial Officer
18%.
Christopher McGratty -- KBW -- Analyst
And that's a GAAP number, right?
James M. Anderson -- Executive Vice President and Chief Financial Officer
Yes.
Christopher McGratty -- KBW -- Analyst
Perfect. Thanks for all the help.
Operator
[Operator Instructions] Our next question comes from David Long with Raymond James. Please go ahead.
David Long -- Raymond James -- Analyst
Good morning, everyone.
Archie M. Brown -- President and Chief Executive Officer
Hey, David
James M. Anderson -- Executive Vice President and Chief Financial Officer
Hey, David.
David Long -- Raymond James -- Analyst
It's encouraging to hear about the C&I growth pipeline in the numbers that you're talking about there. Just curious where the growth is coming from? Is it -- have you been taking market share? Have you hired? Or is this just the overall health of your client base at this point?
Archie M. Brown -- President and Chief Executive Officer
Yeah. David, I think it's a little of each. We are taking some share of clients from the Company [Phonetic]. That started probably more pronounced after the early round of PPP last year where we had some nice wins. It came because of some -- probably of some competition maybe not -- meeting some expectations of their borrowers. And we started to get some windfall there. And so this is a little bit. We have added bankers in kind of a larger middle market space throughout the latter part of 2020 and they are now starting to produce some nice new relationships force across our footprint. So, let's say, it's those two primary drivers. And overall, our client base is pretty strong and we're seeing that, obviously, with liquidity that our clients have and that's sitting in our bank, as well as just general -- again, low delinquency, just general better credit performance than then we were thinking a few months ago.
David Long -- Raymond James -- Analyst
Got it. And then just if you could comment on the spreads that you're seeing in the C&I business. It still seems to be pretty competitive in past cycles coming out, you've seen some widening of the spreads, but I haven't been hearing that this cycle. Just curious what you're seeing on commercial spreads at this point?
Archie M. Brown -- President and Chief Executive Officer
Yeah. I don't think they've improved at this point. So I'd say they're kind of similar, if anything, maybe slightly tighter than they were even a couple of months ago. So it's pretty competitive out there.
David Long -- Raymond James -- Analyst
Got it. Great. Thanks for taking my questions.
Archie M. Brown -- President and Chief Executive Officer
Yeah.
Operator
This concludes our question-and-answer session. I would like to turn the conference back over to Archie Brown for any closing remarks.
Archie M. Brown -- President and Chief Executive Officer
Thank you very much, Sarah. I want to thank all of you for joining today and learning more about our quarter. We look forward to talking to you little later in the year. Have a great day. Bye now
Operator
[Operator Closing Remarks]
Duration: 37 minutes
Call participants:
Scott T. Crawley -- Corporate Controller and Principal Accounting Officer
Archie M. Brown -- President and Chief Executive Officer
James M. Anderson -- Executive Vice President and Chief Financial Officer
William R. Harrod -- Executive Vice President and Chief Credit Officer
Scott Siefers -- Piper Sandler -- Analyst
Jon Arfstrom -- RBC Capital Markets -- Analyst
Christopher McGratty -- KBW -- Analyst
David Long -- Raymond James -- Analyst