Glacier Bancorp Inc (GBCI) Q4 2020 Earnings Call Transcript

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Glacier Bancorp Inc (GBCI -1.42%)
Q4 2020 Earnings Call
Jan 29, 2021, 11:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good afternoon, ladies and gentlemen, and welcome to the Glacier Bancorp Fourth Quarter Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Mr. Randy Chesler President and CEO. Please go ahead.

Randall M. Chesler -- President & Chief Executive Officer

Alright. Thank you, Angela. Good morning and thank you for joining us today. With me here in Kalispell this morning is Ron Copher, our Chief Financial Officer; Angela Dose, our Chief Accounting Officer; Byron Pollan our Treasurer; Tom Dolan, our Chief Credit Administrator; and Don Chery, our Chief Administrative Officer.

Yesterday, we released our fourth quarter and full year 2020 earnings and today we're ready to review those results. The fourth quarter and full year results really demonstrate the quality of the Glacier team, the strong core of the company, and the attractiveness of our business model.

We are navigating through the ongoing pandemic extremely well and I'm really proud of the Glacier team, our senior staff at the holding company as well as our 16 Bank Presidents and their teams for their commitment, leadership, and service to their communities that they have demonstrated this year.

Despite the pandemic, most of our customers have adjusted to the circumstances very well and are carrying on with business. Our residential mortgage volume is at record levels with refinancing and new home purchases, and our commercial lending business continues to improve. The performance of our loan portfolio demonstrates the strengths of the markets in which we operate and the value of our conservative approach to credit.

Our markets were strong before the pandemic, driven by good quality of life, business friendly environments, and low cost of living and we are seeing signs that the natural social distancing that comes with our less urban markets will only add to the attractiveness of the West.

Once again, the fourth quarter and full year results highlighted the consistent strength of our exceptional people, customers, and markets. For the quarter, we reported earnings per share of $0.86, a 39% increase from the prior year fourth quarter. Net income was a record $81.9 million, which is an increase of $24.5 million or 43% from the prior year fourth quarter.

Highlighting the Company's core earnings strength, the pre-tax pre-provision net revenue for the quarter was $99.3 million, which was up 43% from the prior year fourth quarter. Core deposits increased $579 million or 4% over the prior quarter. Noninterest-bearing deposits was 37% of total core deposits at the end of this quarter compared to 34% at the end of the quarter a year ago.

The loan portfolio, excluding Payroll Protection Program or PPP loans, organically increased $43 million or 42 basis points in the quarter. Bank loan modifications related to COVID-19 decreased $371 million in the quarter to $94.9 million or 93 basis points of loans excluding PPP loans. Nonperforming assets as a percentage of assets was 19 basis points compared to 27 basis points a year ago.

The team was very busy submitting PPP loan forgiveness applications to the SBA, which resulted in a $539 million decrease or 37% in the PPP portfolio and $14 million of acceleration of net deferred fees due to the loan forgiveness. The efficiency ratio was 50.34% compared to 48.05% last quarter. If you take out the impact of the PPP loans this quarter, the efficiency ratio increased 106 basis points compared to the fourth quarter a year ago, primarily due to performance-based compensation.

We declared and paid a regular quarterly dividend of $0.30 per share. This represents our 143rd consecutive quarterly dividend and the 46th dividend increase. We also declared a special dividend for the year of $0.15 per share, our 17th special dividend.

On a full year basis, we earned a record $266 million of net income, an increase of 27% over the prior-year record net income of $211 million. Pre-tax pre-provision net revenue for the full year increased 42% to a record $368 million versus $259 million in 2019. Earnings per share were $2.81, which represents an 18% increase from the prior year earnings per share of $2.38.

The SBA's PPP loan program took a lot of our time during the year as we originated over 16,000 loans for almost $1.5 billion and we recently began the forgiveness process for customers and have received SBA forgiveness for $539 million in PPP loans for our customers with $909 million in PPP loans remaining, the bulk of which we expect to be waived in the first half of 2021.

We've started the PPP Phase 2 program, as we're calling it, and expect a fair amount of interest in that program, but not at levels we saw with the initial PPP program. Loan growth was 17% for the year, including organic growth, PPP loans, and our Arizona acquisition.

It was an unprecedented year for deposit growth primarily due to the record federal stimulus with deposits organically increasing $3.4 billion or 32% with non-interest deposit growth of $1.6 billion or 44%. The housing market and refinancings were at record levels across our footprint and resulted in a record gain on sale of loans of $99.5 million, which was an increase of $65.4 million or 192% over the prior year.

The regular and special dividend that we declared in a full -- resulted in a $1.33 per share dividend, an increase of 2% over the prior year. And early in the year, we closed the acquisition of State Bank of Arizona with assets of $745 million, materially adding to our Arizona community banking franchise. Deposits continue to flow onto the balance sheet as a result of customer's reduced spending and unprecedented government fiscal stimulus and monetary policy.

Core deposits now stands at $14.8 billion, which is an increase of $4 billion or 38% from the end of the prior year. We believe some of these deposits will be spent and invested by our customers later this year if we see the pandemic circumstances improve. Total debt securities increased $2.7 billion or 97% from the prior year. We continue to purchase debt securities with the excess liquidity from the increase in core deposits and the SBA forgiveness of PPP loans.

Debt securities represented 30% of total assets at year-end compared to 20% at year-end 2019. The return on our debt securities reflected the impact of lower-for-longer interest rates, ending at 2.29%, down from 3.15% at the end of the prior year. Debt security income was $99.6 million, which is an increase of 17% or $14.1 million over the prior year.

We are taking a cautious approach to new investments given low current rates and risk at some point of deposit outflows, and as a result we're targeting a short average life while maintaining higher levels of liquidity. Our loan portfolio ended the year at $11.1 billion, which was an increase of 17% over the prior year.

Pricing on the new and renewed loans was lower due to the interest rate environment and as a result, the yield on the portfolio ended the year at 5.04% compared to 5.23% at the end of 2019. Interest income was $627 million, which was an increase of $81 million or 15% over the full year 2019.

We recognized $38 million of interest income, including the 1% note rate and net deferred fees and cost from the PPP loans in 2020, which included $14 million of accelerated income from the SBA forgiveness of loans. Net deferred fees remaining on the balance of the PPP loans at the year-end was $17.6 million, the bulk of which we expect to recognize in the first half of 2021 as the remaining qualifying PPP loans from Phase 1 are forgiven.

With all the deposit growth, we're pleased to see our cost of core deposits decline 9 basis points -- to 9 basis points from 11 basis points in the prior quarter and 21 basis points at the end of 2019. Total cost of funding was 14 basis points, down 16 basis points from the prior year-end. Net margins continues to be difficult to hold due primarily to the interest rate environment as we saw margin drop from -- to 4.09% from 4.39% at the end of 2019.

The core net interest margin ended the year at 4.05% versus 4.30% last year. And while we were successful in reducing the total cost of funding, it wasn't enough to outpace the decrease in yields on loans and debt securities. Non-interest income was driven by a record mortgage production. We booked gain on sale of loans of $99.5 million, which was $65 million or 100% -- 192% over 2019.

Mortgage purchased and refinanced business continues to be very strong. In addition to local demand, throughout the year we saw an uptick in the number of out-of-state buyers which was the factor in our record originations. Credit performance was much better than expected during the year with net charge-offs at $7.7 million or 7 basis points of loans compared to $6.8 million or 7 basis points of loans last year.

Delinquent loans were 20 basis points of loans versus 24 basis points at the end of last year and nonperforming assets decreased to $35.4 million and were 19 basis points of assets, which was down from 27 basis points a year ago. During the year, we made over 3,000 loan modifications in response to COVID concerns on loans totaling over $1.5 billion, representing about 15% of the loan portfolio, excluding PPP loans.

It's important to note that all the loans that received the modification were performing as agreed before we gave them a modification and were all short term modifications. At year-end, modifications decreased by $1.4 billion to $95 million or 93 basis points of the portfolio, excluding PPP loans.

We continue our enhanced monitoring of industries that we think pose higher risk due to the pandemic. The total amount of loans under enhanced monitoring of $642 million or 6.29% of our loan portfolio, not including PPP loans. This includes loans to hotel/motels, restaurants, travel/tourism, gaming, oil and gas businesses.

We ended the year with only $23 million of these enhanced monitored loans in modification status or only 3.65% of the enhanced monitoring portfolio. Even with the steep reduction we saw on modifications at year-end, we will continue with our enhanced monitoring process of the higher risk industries for the foreseeable future. And we continue with our rigorous approach to managing and proactively addressing any credit issues across the total portfolio.

Credit loss expense was $40 million for the year, driven by the increased economic risk caused by the global pandemic. Our total allowance for credit loss stands at $158 million or 1.42% of loans, 1.55% of loans not including PPP loans, which are 100% guaranteed.

We believe this is a very adequate and prudent level, given the uncertain circumstances caused by the impact of COVID, and we expect to maintain these approximate levels until we see a more certain economic environment.

Total non-interest expense was $405 million, which increased $29.9 million or 8% over 2019. The increase was driven by compensation and benefit expense due to more employees mainly from our acquisitions as well as increased performance-related compensation as a result of our record year.

For the year, the efficiency ratio was 49.97%, an improvement compared to the prior year efficiency of 57.77%. Excluding the impact from PPP loans, any impact of the termination of the cash flow hedges in 2019, the efficiency ratio decreased 109 basis points versus the prior year.

Tangible book value per common share of $18.21 at year-end increased $2.60 or 17% versus prior year. Our access to liquidity remains robust with growth due to an increase in core deposits and borrowing capacity. At the end of the fourth quarter, the company had access to over $12 billion in liquidity.

This includes $5.1 billion of unused borrowing capacity, with $2.4 billion at the Federal Home Loan Bank, $2.1 billion in borrowing capacity at the Federal Reserve discount window and PPP liquidity facility, and $600 million of capacity at correspondent banks, in addition to $3.3 billion in unpledged marketable securities and cash of $633 million. An additional $3.2 billion in liquidity is available from other sources including broker deposits, over pledged securities and loans eligible for pledging at the Federal Home Loan Bank.

Overall, 2020 was another outstanding performance from the Glacier team and even more so given the extraordinarily difficult operating environment in 2020. The team, all 3,000 from Montana to Arizona, once again, demonstrated the commitment, strength, leadership and performance that sets them far apart from other bankers in their communities and in the industry. And underscoring this, just yesterday, Forbes announced America's Best Banks for 2021 and Glacier Bancorp was once again in the Top 10 moving up to Number 3.

So, those end my formal remarks and I'd now like Angela to open the line for any questions that you may have.

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from the line of Matthew Clark with Piper Sandler. Please go ahead.

Randall M. Chesler -- President & Chief Executive Officer

Good morning, Matthew.

Operator

And Matthew, your line is open.

Randall M. Chesler -- President & Chief Executive Officer

Yeah, go ahead. Angela?

Operator

Yes sir.

Randall M. Chesler -- President & Chief Executive Officer

We're not hearing Matthew, so maybe we can move on to another question.

Operator

And your next question is from the line of Jeff Rulis with D.A. Davidson. Please go ahead.

Jeffrey A. Rulis -- D.A. Davidson & Co. -- Analyst

Hi, good morning. Can you hear me OK?

Randall M. Chesler -- President & Chief Executive Officer

Good morning, Jeff. Yes, we can.

Jeffrey A. Rulis -- D.A. Davidson & Co. -- Analyst

Okay, Great. So Randy, just looking at -- nice to scratch out some organic growth in typically sort of quiet back half of the year or back -- last quarter, but interested in your thoughts of organic growth opportunity and may be narrowing that down to kind of areas of the footprint that you think might be leading the way in '21 and just frame up overall what you think your growth expectations for the year would be.

Randall M. Chesler -- President & Chief Executive Officer

Yeah. You know there are parts of the footprint that are having more organic growth than others. We think we will have low double-digit growth next year, somewhere around 4% to 5%. Some of the markets, particularly Arizona, just have an incredible inflow, migration, particularly from California. They're getting almost half of the out-migration in that state.

So they are extremely well position for some very solid growth as well as our business in Reno in Nevada continues to gain from the out-migration. So we expect to see some very, very strong growth. In the rest of our footprint, the growth looks very solid. And so, among all our eight states, we don't have a laggard other than a couple of states that we think will probably be a bit stronger as we move forward.

The other one is Colorado. As the COVID circumstances improves, that's a market with a lot of very, very attractive business circumstances that I think you'll see -- as companies want to start to move, you'll see Colorado and particularly Denver respond very well.

Rest of our markets are very solid too. Montana continues to do very well; Idaho continues to do very well; even Wyoming is perking along. So we're -- we feel good about all our markets and then a little axed-in [Phonetic] on those markets that I went through.

Jeffrey A. Rulis -- D.A. Davidson & Co. -- Analyst

Sure, appreciate it. And then just kind of broadening -- from organic to acquired -- more specifically on M&A and thoughts on, as we kind of crawl out of this eventually, do you think -- where do you think seller price expectations are and from a -- from a price discovery, I'm guessing you've had maybe sporadic check-in points with maybe some -- a few banks, but just thinking about -- you think that's going to be a big impediment as you look to -- look to M&A or is it a pretty rational group and you think once we open up, you could see some activity?

Randall M. Chesler -- President & Chief Executive Officer

Well, yeah, I think there is a number of factors in M&A. And yes, I do think there are rational groups that will respond to the market data. But I think we have to take a step back. M&A really, you know, was in hibernation for most of 2020 due to the pandemic. It's starting to come out of that. We are -- we've had -- we have a number of conversations. So I think we have some good real-time indication of where people are.

I think that we've reengaged with folks, so people have been so very focused on their business franchise with everything going on that I think now they've just recently taken a step back in over the last couple of months and reopened the door on M&A.

So we've got a lot of good discussions. I think there'll be a couple of factors in '21 and '22. Number one, I think we're going to see more people try to get into M&A and probably some banks that -- are less experienced in it. And so I expect it to be a little more crowded. I do expect there could be some price variability because of the inexperience of some of the people that I would expect will get into the market.

But in the end, I think the same things that have made us very successful in the past will be in play in '21 and going forward. Number one is the quality of our currency, extremely attractive to sellers. Number 2 is our business model where we offer extremely unique opportunity for a bank and maintain a lot of its identity in people, and as a result have a transaction where the community isn't disrupted and actually better served as a result of it.

So very unique that most other companies can't do. So I think it's going to start to heat up. We're going to maintain our very disciplined approach to M&A as we always have. And we're going to engage in a lot of new discussions, but probably a little period here initially where the price discovery has to occur, but part of that's the job of the investment banker to sit down with the seller and talk about valuation and I think with those discussions that will really help guide sellers to pricing that I think is really fair in the marketplace.

Jeffrey A. Rulis -- D.A. Davidson & Co. -- Analyst

Got it. Thanks Randy. I'll step back. Thanks.

Operator

[Operator Instructions] Our next question is from the line of Michael Young with Truist Securities, please go ahead.

Michael Young -- Truist Securities -- Analyst

Hey, good morning everyone.

Randall M. Chesler -- President & Chief Executive Officer

Good morning, Michael.

Michael Young -- Truist Securities -- Analyst

Wanted to maybe just ask on net interest income. I heard the comments about the NIM pressure. I think that's something we're seeing generally across the industry and it's incredibly difficult to predict with both PPP and purchase accounting accretion and kind of balance sheet movements that are going on.

But as we just think about sort of the NII dollar trajectory from here, maybe if it's easier to talk about on a core basis kind of ex-PPP. Do you have an outlook on kind of that and can we trend higher as some of the extra liquidity is deployed into securities or do you plan to just kind of hold that liquidity and wait for the growth to return?

Randall M. Chesler -- President & Chief Executive Officer

Yeah, I'm going to ask Ron to give you a little more detail there. We've had a lot of discussion about it. Obviously, net interest margin is going to be under pressure because of the rates. But net interest income is really what we're focused on because the margin can go down but net interest income is what drives EPS and growth in the company. So Ron, do you want to give a little color to that question?

Ron J. Copher -- Executive Vice President & Chief Financial Officer

Yeah, hi, Michael. So the upward trajectory will occur, you know to the extent that we can have the organic loan growth and I'm going to segue in a second to PPP. But if we can grow the organic loans and as we get yield say 4%, you'll see some trajectory going up there. But realistically, as the deposits continue to come in and whether that's 5% growth, 10%; that depends upon stimulus and a whole bunch of other factors.

We will continue to put that into the investment portfolio. And so that -- you've observed that the loans are certainly -- they're down as a percentage of our earning assets. Our investment securities are up but we'll put that money to work and so, our net interest income will expand.

Let me just talk to about some of the -- we've got the PPP round two -- round one. We had 37% of our loans forgiven. We got $910 million remaining. And so we think that forgiveness will occur primarily in this first half and that's a net positive. You know coupon is nice, but getting those processing fees and we're averaging 3.75%, that's a real positive.

And then, of course we're already under way with the second version of the PPP program. So that will -- that will help, but we think forgiveness on that program would occur likely more in the fourth quarter. And it could range from 40% to 60%. We don't know. We know it's going to be easier. We know there's more eligible expenses. So with that all in mind, yeah, there is definitely upwards trajectory of our net interest income.

Michael Young -- Truist Securities -- Analyst

Okay, that's helpful. And Randy, I guess then the flip side of that equation is kind of managing the company, the expense base, and kind of what you're talking to the various presidents about as a result of kind of the outlook for the year. So maybe, could you just talk about the messaging and maybe what the goals are maybe from an efficiency ratio standpoint, given all the moving pieces on revenue?

Randall M. Chesler -- President & Chief Executive Officer

Yeah, we think efficiency is going to be a very, very important measure. It is the most prominent part of our compensation plan. So I think I can answer part of the question about focus. And so, yeah, we think that that's an important lever. We still intend to be in the same range that we talked about last year 54%, 55% that gives us good opportunity to -- we think it's a good efficiency rate and also gives us an opportunity if we are able to overachieve that to invest back in the business. So, we're 2021 still targeting the range of 54%, 55%.

Michael Young -- Truist Securities -- Analyst

Okay. And maybe just last one from me, just on those investments, I know of the pandemic and kind, some of your footprint maybe being shut down but some of it not, have you kind of realized any areas of investment that are needed and what are the plans for 2021 there?

Randall M. Chesler -- President & Chief Executive Officer

So, Michael, we lost a little bit of your question, if you can reask it, I'd appreciate it.

Michael Young -- Truist Securities -- Analyst

Yeah, sure. Sorry about that. Can you hear me now?

Randall M. Chesler -- President & Chief Executive Officer

It's OK, yes.

Michael Young -- Truist Securities -- Analyst

Okay. So was just asking about kind of the areas of investment in 2021, if they're more technology focused, given maybe some things that were raised through the pandemic and some shutdowns or if there are going to be more people and lender hiring kind of focus?

Randall M. Chesler -- President & Chief Executive Officer

Yeah, the -- we continue to invest in technology across the entire Company in ways that we think we can improve either internal process and reduce expense and improve control and on the business side. So we had a number of investments, some are geared toward improving the customer experience in terms of opening accounts.

We've made that a lot easier and quicker and virtual so people, especially in this environment, can do it without coming into a branch and quickly. We've also invested in our mortgage business technology to set the stage for further growth and better control. We've invested in some enhancement to our payment services products.

So, those are just some of the examples, Michael. But we really -- when we think about investments, number one or any kind of control items where we feel we can reduce risk are high priority and then revenue enhancing investments are also prioritized.

So to the -- we have our Top 10 initiatives every year and we're going to stay focused on those, some of those I mentioned, in response to your question, but those are -- those are the areas that we like to make investments and, again, staying in that 54%, 55% range, we don't -- we don't really follow a big cliff investment strategy where we take a big dollar investment, we do these in bite-size pieces which we like because we can control the investment, we can see the result, we can make sure the things are working the way we like and we feel like and we've seen that we got a very good result as -- by following that process.

Michael Young -- Truist Securities -- Analyst

Okay, thanks.

Operator

Your next question is from the line of Jackie Bohlen with KBW. Please go ahead.

Jacquelynne Bohlen -- Keefe Bruyette & Woods Inc. -- Analyst

Hi, everyone. Good morning.

Randall M. Chesler -- President & Chief Executive Officer

Good Morning, Jackie.

Jacquelynne Bohlen -- Keefe Bruyette & Woods Inc. -- Analyst

Randy, I wanted to stick with expenses, but looking more at the run rate in the fourth quarter and kind of stripping out what may have been unique. Starting with that other expense line item, and I know that in the third quarter, you had a little over $2 million in unfunded commitment expense and that's now -- while it was small in the quarter but it's captured in the provisions.

So if I normalize for that and then I've also got my notes that you had about $2 million in third-party consulting fees, it looks like that line items was up quite a bit this quarter. So I'm just wondering if there was anything unique in there that won't be repeating next quarter.

Randall M. Chesler -- President & Chief Executive Officer

Yeah, there is what I would call a lot of clear the deck activities in there that we think we got some expenses incurred in there that won't be repeated, but we wanted to clear out. So there were some product expenses and legal expenses, a mishmash -- a combination of many items in there. But if I had to categorize them, I would say one-time expenses and kind of clear the decks, so we start '21 with as fresh a slate as we possibly can.

Jacquelynne Bohlen -- Keefe Bruyette & Woods Inc. -- Analyst

And do you have just a roundabout estimate as how much that might have amounted to in the quarter?

Randall M. Chesler -- President & Chief Executive Officer

Yeah, I think that I'm going to ask Ron to cover that, because I think your question gets at kind of our run rate expectation for '21. So I think he can answer both of those for you.

Jacquelynne Bohlen -- Keefe Bruyette & Woods Inc. -- Analyst

Okay, thank you. Hey Ron.

Ron J. Copher -- Executive Vice President & Chief Financial Officer

Hi Jackie. You know those items are roughly $3 million to $4 million, is my recall. I do want to comment though on the $2 million of third-party consulting expenses. Those were in the third quarter. I didn't know if you were putting it into...

Jacquelynne Bohlen -- Keefe Bruyette & Woods Inc. -- Analyst

Yeah, yeah. Yeah, I got them in the third.

Ron J. Copher -- Executive Vice President & Chief Financial Officer

Okay, great.

Jacquelynne Bohlen -- Keefe Bruyette & Woods Inc. -- Analyst

Okay, thank you. And then I guess also with -- leads into the more of the run rate question because yes, Randy, that's what -- I'm getting at it. Just thinking about compensation and I know there's been some push and pulls in terms of incentives, given the changing environment between early this year and later this year. So just want to see what a normalized run rate would be for compensation next year, understanding that we're going into the first quarter which will be seasonally high?

Randall M. Chesler -- President & Chief Executive Officer

So Jackie, your -- the connection blurred a little bit there, but I believe you were asking about the run rate of expenses and there was a question of our compensation, but maybe Ron, you want to just talk about general run rate and then we'll see, Jackie if you have any other questions.

Ron J. Copher -- Executive Vice President & Chief Financial Officer

Yeah. Jackie, so on the compensation, let's use $72 million for the comp because we're going to have some higher salaries, people etc. So that would be fair. But the important thing, really more important is that when we originate the PPP loans like we did in the second quarter particularly, we're going to have some compensation expense that's going to be pulled out of compensation, it then gets added to the loans and we then amortize that as part of the yield on the PPP loans.

And so just ballparking where we think, we're going to have less demand, we think, for the second round of PPP loans and that number could range anywhere from $4 million to $6 million that will come out of compensation. Again, just so you see it, but the run rate for the comp would be $72 million.

Jacquelynne Bohlen -- Keefe Bruyette & Woods Inc. -- Analyst

So -- just so I understand clearly, does that $72 million already include the reduction of $4 million to $6 million or would that $72 million temporarily decline to $66 million to $68 million?

Ron J. Copher -- Executive Vice President & Chief Financial Officer

Temporary decline, thank you. Good clarification.

Jacquelynne Bohlen -- Keefe Bruyette & Woods Inc. -- Analyst

Okay, great. Thank you.

Randall M. Chesler -- President & Chief Executive Officer

Thanks and you're welcome.

Operator

And your next question is from the line of Matthew Clark with Piper Sandler. Please go ahead.

Matthew T. Clark -- Piper Sandler & Co. -- Analyst

Hey Good morning.

Randall M. Chesler -- President & Chief Executive Officer

Hey Matthew.

Matthew T. Clark -- Piper Sandler & Co. -- Analyst

Hi. Do you have any cost saves left from your most recent deal to be realized?

Randall M. Chesler -- President & Chief Executive Officer

Cost saves on M&A?

Matthew T. Clark -- Piper Sandler & Co. -- Analyst

Yeah from the SBAZ deal.

Randall M. Chesler -- President & Chief Executive Officer

I don't know. I think that a lot of our -- certainly in Nevada and in Arizona, our combination of -- in Arizona the foothills with the State Bank of Arizona has been done. We've converted it as part of what we tried to recognize this year as to clear out any kind of acquisition expense.

Cost savings, they're going to be very efficient because they picked up a lot of scale, specifically in Arizona as they've gotten bigger, but the cost saves as a result of the acquisition, I would say that we recognize that and that business now is positioned well as a complete bank and configured in a way that we think it needs to be to go forward.

Matthew T. Clark -- Piper Sandler & Co. -- Analyst

Okay, great. I just had some additional savings in my numbers, so I'm going to take it out. Okay. And then, do you happen to have the weighted average rate on new loan production this quarter as well as kind of weighted average rate on new securities so you can get an incremental margin going forward?

Ron J. Copher -- Executive Vice President & Chief Financial Officer

Yeah, this is Ron here. So the incremental rate on the -- on the loan production at fourth quarter, 4% is really where it was. And again that, I say that because the bigger the loan, the tighter the quality; but the smaller loans, it would be higher than that. In fact, I would say, it really came in around 4.15% if I look at my notes here 4.15%, just to clarify.

And then on the, the investment securities, Sasha [Phonetic] wish it was higher. If we can get 90 basis points, we're celebrating up here, high-fiving everybody and that's just the market today. To Randy's point in his remarks, we're staying short and keeping the quality. Primarily we're investing in 10-year data maturity residential mortgage-backed security and we get good cash flow off of that and trying to catch -- be ready when rates rise.

Matthew T. Clark -- Piper Sandler & Co. -- Analyst

Okay, great. And then just any change in the way you're looking at tax credit investments with the change in the administration and whether or not that might cause your tax rate to go up a little bit going forward or not?

Ron J. Copher -- Executive Vice President & Chief Financial Officer

We are. So the nice thing is that the yields that we're getting on the low-income housing and especially the new markets has been really pretty good. And so we -- when we make an equity commitment, we haven't even necessarily booked all those credits. So you're going to see more credits coming on in the future, irrespective of what's going on with the current administration because we make these investments over a two or three-year time horizon.

So you're going to see those investments come on in like -- for instance you noticed that our tax rate for 2019 was 19%; then it was also 19% for 2020 because we significantly grew -- even though we significantly grew our income, I'm going to pay taxable income book-income, etc.

We picked up the munis, so we're going to get a lift there on the tax equivalent yield. We'll also get a lift because we've got more of these tax credit. So it bodes well for us. I think we're pretty tax efficient. I'll even go out and say that I think our tax rate for '21, maybe it will be 20% because of those things that we've made investments in. Again, the munis we put on in the first quarter of last year and then more so the continuing buildup of tax credits.

Matthew T. Clark -- Piper Sandler & Co. -- Analyst

Okay, great. I figured that was one of your favorite questions anyway. Figured I'd ask it. Thank you.

Operator

And your next question is from the last Michael Young with Truist Securities. Please go ahead.

Michael Young -- Truist Securities -- Analyst

Hey, thanks for the follow-up. Just wanted to follow up on kind of the fee income side and particularly the gain on loan sales, obviously the expectation is for volumes in the markets to be down a little bit next year with refi trending lower, but I would imagine the work from home move to your areas is a positive and you guys have been making a lot of investments in that business. So should we expect that to, I don't know track industry trends or with market share gains, should you do better than that? Any outlook on that would be helpful.

Randall M. Chesler -- President & Chief Executive Officer

Sure. Yeah. You know, we've -- so we think the mortgage business will probably be in line with the mortgage banker's forecast of around a 25% decline in business. We think our gains will probably be off a little more than that for a couple reasons. One, is our markets are stronger than the national market. Unfortunately, we don't have the inventory. So as they shift into purchase, in many of our markets, we just don't have the houses to sell and so that's probably going to hold us closer to the national forecast on business.

The other shift is, as the business shifts from less -- more purchase and less refi and the overall business declines a little bit in the marketplace, our ability to get a premium pricing may deteriorate a little bit. So we're expecting a little less gains on the mortgages. So that, the gain will be off, maybe a little bit more than what the NBA is calling for in mortgage originations.

Michael Young -- Truist Securities -- Analyst

Okay, perfect. Yeah, that's kind of what I was expecting. And then maybe just on the reserve or allowance from here, the day one kind of CECL reserve for you all, you were at kind of a 1.50% sort of rate, 1.5% of loans. So as PPP winds off and we kind of get beyond this pandemic impacted macro outlook etc., is that where we should still expect that reserve level to trend down toward or would it be lower than that due to some mix shift or any other indicators?

Randall M. Chesler -- President & Chief Executive Officer

Yeah, let me -- I'm going to ask Tom to give you some color on that. I just tell you that it's a -- right now where we're positioned and right now what we see as the economic forecast, we just don't expect a lot of change in that level until we get a lot more certainty in the look forward. But Tom, do you want to add some color to that?

Tom Dolan -- Chief Credit Administrator

Not too much more to add but you know -- we evaluate the economic forecast on a regular basis, and until there is a material change in the future, we just -- we don't see a lot of -- lot of reduction in the allowance. But certainly, as we saw this last year, a lot can change quarter over the quarter. But given what we know today, I don't foresee any significant changes.

Michael Young -- Truist Securities -- Analyst

Okay, thanks. Appreciate the follow ups.

Tom Dolan -- Chief Credit Administrator

You bet.

Operator

And I'm showing no more questions at this time. I would like to turn the call back to management for closing remarks.

Randall M. Chesler -- President & Chief Executive Officer

All right, thank you, Angela. Well, I want to thank everybody for dialing in today. For those of you not in the West, all of our ski resorts are open. Montana, Wyoming, Idaho, Utah, Colorado, Nevada, and even Arizona has ski resort with a lot of snow, so some with new snow and others with snow on the way. So it's a great time to come out and visit.

The other thing we'd like to say is, please keep your COVID guard up. We still have ways to go before this virus is behind us and we sure hope you all have a great day and a wonderful weekend. Thank you.

Operator

[Operator Closing Remarks]

Duration: 48 minutes

Call participants:

Randall M. Chesler -- President & Chief Executive Officer

Ron J. Copher -- Executive Vice President & Chief Financial Officer

Tom Dolan -- Chief Credit Administrator

Jeffrey A. Rulis -- D.A. Davidson & Co. -- Analyst

Michael Young -- Truist Securities -- Analyst

Jacquelynne Bohlen -- Keefe Bruyette & Woods Inc. -- Analyst

Matthew T. Clark -- Piper Sandler & Co. -- Analyst

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