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United Community Banks Inc (NASDAQ:UCBI)
Q1 2021 Earnings Call
Apr 21, 2021, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to United Community Bank's First Quarter 2021 Earnings Call. Hosting the call today are Chairman and Chief Executive Officer, Lynn Harton; Chief Financial Officer, Jefferson Harralson; President and Chief Banking Officer, Rich Bradshaw; and Chief Risk Officer, Rob Edwards.

United's presentation today includes references to operating earnings, pre-tax, pre-credit earnings and other non-GAAP financial information. For these non-GAAP financial measures, United has provided a reconciliation to the corresponding GAAP financial measure in the financial highlights section of the earnings release, as well as at the end of the investor presentation. Both are included on the website at ucbi.com. Copies of the first quarter's earnings release and investor presentation were filed last night on Form 8-K with the SEC and a replay of this call will be available in the Investor Relations section of the Company's website at ucbi.com. Please be aware that during this call, forward-looking statements may be made by representatives of United. Any forward-looking statements should be considered in light of risks and uncertainties described on Pages 5 and 6 of the Company's 2020 Form 10-K as well as other information provided by the Company in its filings with the SEC and included on its website.

At this time, I'll turn the call over to Lynn Harton.

H. Lynn Harton -- President, Chief Executive Officer, Chairman of the Board

Good morning, and thank you all for joining our call today. Our first quarter results reflect the strength of both our markets and our teams. Economic conditions and forecasts also continue to improve. And our results include a $12 million release from our provision for credit losses. We also realized an additional $10 million in PPP fee income as we have now had over 10,000 of our first round PPP loans forgiven. Including these items, our EPS reached $0.82 per share, our return on assets was 1.62%, and our return on tangible common equity was 19.7%. Our PPP loan production and performance continues to be very strong with funding of over $500 million in the most recent round. Outside of PPP, loan growth for the quarter was 3% annualized. Lower than the previous two quarters, but we continue to be encouraged by our pipelines and activity.

Deposits continue to grow rapidly due both to our service culture and ongoing stimulus funding. Our core transaction deposits increased in the quarter by $950 million, or 33% on an annualized basis, and our cost of deposits dropped 3 basis points and now stand at only 14 basis points. Mortgage continues to outperform with record set for both closings and locks in the quarter. Credit remains a source of strength. This quarter, we had net recoveries of 1 basis point, and nonperforming assets declined from 55 basis points to 48 basis points of total loans.

Overall, I continue to be proud of how our teams have adjusted to the environment and how they delivered both great service to our customers and great results for our owners.

For more details on the quarter, I'm going to turn it over to the team here, and I'll start with Rob.

Robert A. Edwards -- Chief Risk Officer

Thank you, Lynn. I will start my comments on Page 7. We are pleased with our loan growth in the quarter. Overall loans increased by $308 million in the quarter with $518 million of new round three PPP loans that were netted down by significant forgiveness of first and second round PPP loans. Excluding PPP activity, we had $71 million in loan growth, which translates into 3% annualized growth in the quarter. The primary drivers of loan growth for the quarter were mortgage loans and real estate categories. Some of the growth for the quarter was muted by a strategic direction on shared national credits. In the bullets on Page 7, we highlight the granularity of our loan book in which our Top 25 relationships only comprise 5% of total loans, and we believe this is a demonstration of how we manage various levels of concentration.

On Page 8, we also feel encouraged about our credit quality and, in general, we are seeing stress decreasing in key areas. Our net charge-offs were essentially flat with 1 basis point of net recoveries, as we had the benefit of strong recoveries again this quarter. Navitas net charge-offs were also relatively low in the first quarter at just 70 basis points, which is the best number that unit has reported since the third quarter of 2019. We had a negative loan loss provision of $12.3 million for the quarter. The release came primarily due to our more optimistic economic forecast, which was consistent with the trend in recoveries and declining nonperforming balances. You may recall that we had about $80 million in loan loss provisions for the year of 2020, which was about $60 million above net charge-offs. So our first quarter releases were about 20% of our 2020 reserve build.

On Page 9, there is additional detail on credit. In the upper left corner of the slide, our loan deferrals continue to improve and now stand at $48 million. In the lower left, we highlight our special mention loans and our accruing substandard loans. Special mention loans are Grade 7 for us and substandard is Grade 8. We did direct $90 million in downgrades, primarily from our Senior Care portfolio, which drove the increase you see in special mention. We are actually seeing some improvement in the occupancy and leasing characteristics of the Senior Care portfolio. But we do put loans into special mention, if they are not cash flowing or not leasing up according to plan, regardless of their collateral value, the equity contribution or the guarantor support that may exist in the project. I will remind you that both our hotel and senior care books have significant equity, and we do provide greater detail on both portfolios in the appendix.

Our NPAs improved by $5.8 million and stand at 48 basis points of total loans, as borrowers successfully liquidated real estate on two of our larger non-accruing relationships. All said, we are encouraged as to the direction of our portfolio and where our reserve is, and the economic trends developing in our markets.

Page 10 shows the details as to the change in reserve. As I mentioned, we released $12.3 million into the reserve in the first quarter, mainly due to the change in our forward forecast. Excluding PPP loans, our reserve percentage is 1.26%, which we believe is conservative given the credit environment as we see it.

With that, I'll pass it to Jefferson.

Jefferson Harralson -- Chief Financial Officer

Thank you, Rob. I'm going to start my comments on Page 11 and talk about capital. Our capital ratios were relatively flat in the quarter, and remained significantly over peer levels. We were able to redeem $15.7 million in expensive sub-debt and TruPS in Q1 and we are currently planning on paying down $50 million of senior debt in Q2, and another $15 million of bank level sub-debt in the third quarter. We are optimistic we can put some capital to work via M&A. And if that does not happen, you should expect us to consider using our $50 million share repurchase authorization sometime this year.

Moving to Page 12, you can see our net interest income and net interest margin. Spread income was driven by 9.5% annualized average earning asset growth, and 7 basis points of contraction on the core net interest margin. We had expected the lion's share of our remaining first and second round PPP loans to be forgiven in Q1, and that that would generate $30 million [Phonetic] in PPP fees. That said, we ended up with $9.8 million of net PPP fees in the first quarter, with the other $3 million of fees from round one and two moving to Q2 most likely. We also had $1.8 million in less loan accretion in Q1, which hurt the margin by 5 basis points. The larger balance sheet and a mix change toward securities on the larger balance sheet drove the majority of the core margin pressure. Adjusting for the day count with two fewer days, we were able to grow core spread income versus Q4.

Page 13 shows the details of the strong deposit growth, I mentioned, in the quarter. Specifically, deposit growth was up 20% annualized and core transaction deposits were up $948 million, or 33% annualized. Ex-Seaside, we have grown core transaction deposits by $3.4 billion, or 44% year-over-year. We were also pleased that we made continued progress on our cost of deposits, moving down to 14 basis points from 17 basis points last quarter.

Moving ahead to Page 14. We had a very strong quarter in noninterest income. The main driver of the increase versus last quarter is mortgage that was well above our expectations at $22.6 million. We had continued strong volumes, strong gain on sale, and a positive $1.3 million MSR write-up as well. That said, with the long end of the curve moving higher, we are seeing volumes start to come in, and there is a mix change toward purchase activity, purchase business has lower associated margins, and we are expecting Q2 fees down closer to the range where we had expected them this quarter in the $30 million plus or minus area.

On Page 15, we talk about expenses. Excluding merger and other related costs, our expenses came in at $93.7 million. This is down 2% from Q4, which is good, but the much stronger than expected mortgage volume translated into higher mortgage commissions, which is a main driver of the expenses being above my forecast from our prior call. When thinking about second quarter and beyond expenses, there are a lot of moving parts. Merit increases occurred on April 1, that adds about $1 million in expenses to Q2. We completed our Seaside conversion in February, and realized significant cost savings starting in March after the conversion, and expect more in Q2 and later as technology contracts run off. Taken altogether, I expect the incremental cost savings to offset the merit increases in Q2. We were also doing some hiring, particularly in Florida that sometimes comes with the starting bonus. Mortgage commission should be down a bit, but we are still paying out on a pipeline that is running through, so the variable cost will be down more next quarter. Taking all of it together, I anticipate our Q2 run rate of operating expenses to be relatively flat or perhaps up slightly.

Moving on to Page 16, we put $518 million of round three PPP on the books in Q1, and we expect that to increase some in Q2. In all, we currently have $28 million of PPP fees left to recognize, which we expect to mostly come in this year. All said on the quarter as a whole, we had strong loan production, outstanding deposit growth, very strong mortgage which pushed revenue ahead of our expectations even with less PPP fees and loan accretion coming through this quarter.

I'll finish there and pass it back to Lynn for closing comments.

H. Lynn Harton -- President, Chief Executive Officer, Chairman of the Board

Thank you, Jefferson. We are proud to have kicked off 2021 with a strong quarter, and we have a high level of optimism about the remainder of the year. We've got great opportunities in front of us to improve and grow, thanks to an outstanding team throughout the Company. As one last shout out to them, earlier this quarter, Forbes recognized United on its 2021 list of the 100 Best Banks in America for the eighth consecutive year. I am very proud of our teams throughout the Company that make this possible year after year.

And I'd like to now open it up for questions.

Questions and Answers:

Operator

Thank you, speakers. [Operator Instructions] Speakers, our first question is from the line of Jennifer Demba of Truist Securities. Your line is now open.

Jennifer Demba -- Truist Securities -- Analyst

Can you hear me?

H. Lynn Harton -- President, Chief Executive Officer, Chairman of the Board

Yeah.

Jefferson Harralson -- Chief Financial Officer

Yeah, now we can. Good morning.

Jennifer Demba -- Truist Securities -- Analyst

Sorry, guys. Hi, good morning. Question for Rob, you mentioned [Phonetic] reducing some of your shared national credit exposure. Can you just kind of give us some detail on that and the rationale?

Robert A. Edwards -- Chief Risk Officer

Yes. So, this is Rob. Hey, Jennifer, we identified in the Seaside acquisition, probably 10 different shared national credits that were more nationally oriented than really locally oriented, something that Seaside had done really prior to our involvement in 2020. And so we were exiting those credits over time.

H. Lynn Harton -- President, Chief Executive Officer, Chairman of the Board

So, I might just add in there, and Rich, if you may want to join in. So that would equate to about $30 million of shrinkage in shared national credits.

Richard W. Bradshaw -- Chief Banking Officer

This quarter.

H. Lynn Harton -- President, Chief Executive Officer, Chairman of the Board

This quarter.

Richard W. Bradshaw -- Chief Banking Officer

Yeah.

H. Lynn Harton -- President, Chief Executive Officer, Chairman of the Board

So our -- the 2.7%...

Richard W. Bradshaw -- Chief Banking Officer

Sorry.

H. Lynn Harton -- President, Chief Executive Officer, Chairman of the Board

Yeah. And [Indecipherable] understates the true volume that we showed this quarter.

Richard W. Bradshaw -- Chief Banking Officer

Yeah. We were probably more at a 4% annualized growth rate, if you add back the shared national credit.

Jennifer Demba -- Truist Securities -- Analyst

And how much more inbound would you like to [Technical Issues] quarters?

Robert A. Edwards -- Chief Risk Officer

So we're going through an ongoing evaluation. But I would say it's likely that there is another $40 million.

Jennifer Demba -- Truist Securities -- Analyst

Okay. And question for Lynn on merger interest, acquisition interest. It sounds like there's a lot of discussions going on in the industry right now. Can you remind us kind of what kind of target you're looking for? And what you're not looking for also?

H. Lynn Harton -- President, Chief Executive Officer, Chairman of the Board

Yeah, sure. So there are a lot of conversations, lot of really exciting ones going on. We continue to be focused really on the smaller banks. Now that smaller definition has gotten a little larger, probably $3 billion, $3.5 billion or less. And the reason we like those is, there are couple of things, really on the cultural side. We found that their focus on service, their employee -- focus on the employee engagement side really mirrors ours. I think there's more upside because we can bring the product set and limits that they don't have, and typically a lower price. So that continues to be our focus. We continue to be focused in the five states that we're in today. And we're pretty optimistic that we'll be able to have some success there. So I'd say that the things we aren't looking for actively would be those outside of our markets, not to say that we wouldn't consider the right one. I'd say -- I would probably say we're not actively seeking any kind of large transformational kind of situation. Not that again we wouldn't be interested if the right one presented itself, but there is -- it needs to have certain criteria. You need to have pretty significant overlap to power through the changes that you need to make to put two companies together. You need to have real clarity of leadership because that's only where you have clarity of culture. And so, our focus continues to be on these ones were in markets either where we already are or attractive markets in our states that we want to enter. We can find like-minded bankers to join up with.

Jennifer Demba -- Truist Securities -- Analyst

Thanks, Lynn.

H. Lynn Harton -- President, Chief Executive Officer, Chairman of the Board

Thank you, Jennifer.

Operator

Next question is from the line of Brad Milsaps of Piper Sandler. Your line is now open, sir.

Brad Milsaps -- Piper Sandler -- Analyst

Hey, good morning.

H. Lynn Harton -- President, Chief Executive Officer, Chairman of the Board

Good morning.

Brad Milsaps -- Piper Sandler -- Analyst

Maybe Jefferson, just to start, it sounds like you'll be losing maybe $6 million or $7 million in mortgage revenue next quarter. Expenses will stay relatively flat. Can you talk about any other levers you might have maybe as it relates to the decision making around selling additional SBA or Navitas production is maybe just sort of offset some of that headwind?

Jefferson Harralson -- Chief Financial Officer

Yeah, thanks. Great question. We do think the expenses will come down some with specific to mortgage in Q2, and then you'll see it come down more in Q3. So there are variable expenses. You'll just see the full impact of that in Q3. We have been for a year or so holding back our gains from our SBA pipeline. We -- it's a great asset to keep on the balance sheet. We've been keeping those on the balance sheet. So you will see that start to increase. Keep in mind also the first quarter is our seasonally weakest SBA quarter. So look for a growth rate in that SBA activity. Navitas in the same way -- Navitas, we have had good originations. We've had outstanding credit. We're very happy with where we are there. This is also their slowest quarter generally. We are looking for sales at the right price there. I would expect to see some in the second half of the year. We are at 7% or just under 8% of Navitas loans to total loans. In a environment with a lot of cash, it's really nice to have these Navitas loans on the balance sheet. But they do get really nice premiums and look for us to begin selling Navitas loans in the second half of the year.

H. Lynn Harton -- President, Chief Executive Officer, Chairman of the Board

And you might add that even though we are looking at mortgage production, like you said, every time we look at mortgage production, they have -- that we have outperformed. And so there are some question about what that number actually might be next quarter.

Jefferson Harralson -- Chief Financial Officer

Yeah. Our crystal ball, we've been -- we've come up with our estimates and we've been beating our estimates, very consistently. And so we have seen, I think with the cash it's on bank balance sheets, you are seeing there's a lot of demand for that paper. We have seen some margins come in, we are seeing a mix change toward purchase. But we have been -- the -- you've seen this with the NBA too, where they've been increasing their expectations. And Rich may have a piece to add to that.

Richard W. Bradshaw -- Chief Banking Officer

One other variable is that is we continue to hire. So we just hired three MLOs down in Florida, and we're just starting to get some traction there. And I will tell you that there is ongoing discussions with other MLOs as well. So -- and as Lynn said, the market continues to outperform industry forecast.

Brad Milsaps -- Piper Sandler -- Analyst

That's great. And then just to follow up on that -- on the M&A discussion, I appreciate some of the color around kind of size and geography. Just kind of curious, deals that you are looking at how impactful do you think some of these deals can be from a -- from an EPS accretion standpoint? Or is pricing is such where you can really drive some high single-digit type EPS accretion, or is the market is such where it's more more singles, kind of single-digit type, low single-digit type EPS accretion? Just kind of curious, wanted to gauge kind of what the potential kind of opportunity is out there to lever some of your excess capital and push earnings higher.

Richard W. Bradshaw -- Chief Banking Officer

Yeah. So I mean I would say there'll be similar to our recent deals in terms of size and impact. I think the pricing is attractive. There is a big differential in our pricing versus others. So if you look at pay to trade kind of ratios, I think they will be good. And the -- in terms of -- you might have two singles, that look like a doubled in when you put them together, you could have two doubles, that look like a home run. But I don't think you're going to have one home run, if that makes sense.

Brad Milsaps -- Piper Sandler -- Analyst

No, that's helpful. I'll hop back in queue. Thank you.

Operator

Next question is from the line of Michael Rose of Raymond James. Sir, your line is now open.

Michael Rose -- Raymond James -- Analyst

Hey, good morning. Thanks for taking my question. Sorry if I missed this in the opening remarks. But can you just kind of walk through kind of your expectations for core NIM? And then maybe separately, how should we think about PPP fees this year? And what's the kind of the expectation for purchase accounting accretion? Jefferson, if you can just kind of walk through any sort of changes from last quarter. Thanks.

Jefferson Harralson -- Chief Financial Officer

Yeah, thanks. I'll start with the margin and hit the other two pieces. So core margin, what we're seeing here is, our securities to average earning asset ratio has been increasing as we've been getting this really strong deposit growth that's been ending up in the securities portfolio. To put some numbers behind it, we were at 17% two quarters ago. We're at 24% securities to average earning assets now. We had another really strong deposit growth quarter this quarter. On an average basis, we're up over $300 million in average deposits this quarter. And so some of that mix changes while you've been seeing, that said, I think you're going to start seeing this mix change start to even out. So I think core margin is flat going into next quarter, and then it should be, as you get into later in the year, should be starting to increase. On the purchase accounting, the loan accretion, I think what we have here, we have $30 million left to accrete through. We did $5 million this quarter. I think our base is in that $4 million range, and then you have that increase as you get prepayments. So kind of $4 million to $5 million there is what I'm expecting. On PPP fees, we have $28 million left to run through. In second quarter, I'm expecting the lion's share of the remaining fees from round one and round two, which is $3 million to come through. In the second half of the year, I would expect a good piece of that remaining $25 million from round three to start hitting in the second half. I think it will fall into 2022, but I do think you get a really good piece of that full $28 million this year.

Robert A. Edwards -- Chief Risk Officer

Yeah. There is an important change in the second wave, which is the 2021 PPP, which loans under $150,000 now have a one page sign off and forgiveness. So after the eight-week period, you're going to see that move much faster than we saw last year. And that's 85% of our loans.

Jefferson Harralson -- Chief Financial Officer

Yeah. And you'll finally start to see a little movement on the $2 million in over [Indecipherable].

Robert A. Edwards -- Chief Risk Officer

We have had one approved, and they're working on it. So, yeah. So we have seen one, yes.

Michael Rose -- Raymond James -- Analyst

That's great color. Maybe just to put a finer point on some of the capital actions you're going to take this quarter in terms of the redemption of debt and things like that, I just had to run the math, what's -- what the estimated impact just there in isolation from the planned actions?

Jefferson Harralson -- Chief Financial Officer

Yes. So you're looking at -- once there -- once you get a full and quarter -- once you get the full quarter impact of the actions that I'm thinking for Q2 and the full impact of Q1, the full impact of both of those is about 2 basis points, or a little more. Then you get another piece on top of that on the $15 million sub debt.

Michael Rose -- Raymond James -- Analyst

Got it. And I did see that you guys going to hire some folks down in -- at Seaside. I saw on the LinkedIn page, the announcement. Can you just talk about broader hiring efforts? I know you guys have been fairly active and opportunistic. I mean what that could mean for expenses this year i.e., what is -- what's kind of in the plans? And what would that mean from an expense standpoint? Thanks.

Richard W. Bradshaw -- Chief Banking Officer

Sure. And this is Rich. And I'd say it's really the opportunities more than the plans we continue to focus a lot on Florida, Gideon remind us that it's the 17th largest economy in the world. And so with a lot of good metro markets down there. I will tell you, we had not seen the benefit yet, but we did have a BMO Harris kind of lift out in March. And I was talking to the leader yesterday on that, and so we feel very good about where that is going. And I will tell you that we're talking to three other teams down there, of which some people have accepted. They haven't started yet. So we feel very optimistic about what's going on about both the opportunity, the customers and the talent in Florida and we plan to take full advantage of that.

Michael Rose -- Raymond James -- Analyst

Great. Thanks for taking my questions.

Operator

[Operating Instructions] Next question is from the line of Catherine Mealor of KBW. Ma'am, your line is now open.

Catherine Mealor -- KBW -- Analyst

Can you hear me?

H. Lynn Harton -- President, Chief Executive Officer, Chairman of the Board

You might be on mute Catherine. We didn't hear [Phonetic] for a second.

Catherine Mealor -- KBW -- Analyst

Can you hear me?

H. Lynn Harton -- President, Chief Executive Officer, Chairman of the Board

Yeah, you're back.

Catherine Mealor -- KBW -- Analyst

Great. Okay. Good morning. So I wanted to ask just a question on the ACL. You saw a big decline in the reserve this quarter. Could you -- would you say that the decline this quarter kind of fully reflects the better economic outlook? And so if kind of Moody's model effectively stays unchanged from here, are we kind of at a base for the ACL ratio? Or do you think you'll see further decline as we move through the rest of the year?

Robert A. Edwards -- Chief Risk Officer

Yeah. So the way that I'm thinking -- this is Rob, Catherine. The way that I'm thinking of it is, we provided $80 million last year and we charged off $18 million. So we built the reserve by $60 million in 2020. And then to your comment though about the economic forecast, I would say it this way. All of the benefit of the economic forecast has not been realized and we weren't comfortable taking all of that just because the increase in special mention loans that we had during the quarter. So it didn't feel like it was right to realize all of that.

H. Lynn Harton -- President, Chief Executive Officer, Chairman of the Board

And then your expectation in terms of when you might see...

Robert A. Edwards -- Chief Risk Officer

So -- but -- yeah, so just in terms of credit trends then, I would say, my expectation is that Q2 is kind of a flat quarter, right. So once you put a loan in special mention, you probably are going to wait a quarter or two before you have the ability to move it out. So I would say, right now based on what I'm seeing, it would be my expectation that the special mention loans would begin to decline in the third quarter and fourth quarter. And as that happens, then we could see more of the realization of the positive economic outlook.

Catherine Mealor -- KBW -- Analyst

Great. Okay, so then you really kind of not give Q4 [Phonetic] guidance, but kind of like a zero provision maybe next quarter, and then we do return to negative provision depending on what growth and charge-offs look like, as we move into the back half of the year?

Robert A. Edwards -- Chief Risk Officer

That's a good way to think about it.

Catherine Mealor -- KBW -- Analyst

Okay, all right, great. And then on the Senior Care downgrade, it feels like it's really just that they're not cash flowing and leasing up according to the original plan. Are there anything -- is there -- are there any projects within that category that you're really worried about that perhaps have a potential loss content, or is it really just kind of downgrading given the cash flow and the leasing?

Richard W. Bradshaw -- Chief Banking Officer

Yeah. So it's a good question. I would say, in September, I was kind of worried about where things were going to go and a much more optimistic now. We've seen a number of properties begin to demonstrate improvement in occupancies. And you're right -- you're exactly right. So a project comes into obtains a certificate of occupancy and they begin to lease up and they just -- it just doesn't go as fast as it was originally thought that it would go. So it takes a little longer and we're carrying those projects in special mention. But we are seeing the majority of our projects are in fact improving in their occupancy. And we're pleased -- I was pleased with the first quarter trends.

Catherine Mealor -- KBW -- Analyst

Okay. Great, that's helpful. Everything else was asked. Thank you.

Operator

Next question is from the line of Kevin Fitzsimmons of DA Davidson. Sir, your line is now open.

Kevin Fitzsimmons -- DA Davidson -- Analyst

Hey, good morning, everyone.

H. Lynn Harton -- President, Chief Executive Officer, Chairman of the Board

Good morning.

Robert A. Edwards -- Chief Risk Officer

Good morning.

Kevin Fitzsimmons -- DA Davidson -- Analyst

Just a quick follow-up question on -- it seems like a lot of the discussion on hiring and maybe it was just the examples given, but seemed like they were concentrated in Florida with -- Rich, I know that that's a tremendous market and the size of the market. I'm just wondering if -- is the focus on hiring more a byproduct that it's a good market and environment right now to take talent, or is it more a byproduct of the lack of M&A opportunities in that market just given the consolidation that's happened over the years. And you guys, obviously, got Seaside but there's just not all that many sizable banks left to consolidate. So I guess that's what I'm wondering, is Florida going to be -- the build out in Florida going to be much more of a team lift out type of effort as opposed to traditional acquisitions? Thanks.

Richard W. Bradshaw -- Chief Banking Officer

So, I'm going to answer that in two ways, and focus on Florida first, and then the rest of the footprint, because I don't want to leave that out. But certainly there are opportunities in Florida right now for ever reason, the timing of M&A kind of a noise that makes people and talent available, seems to be the perfect time in Florida right now, where it was in Atlanta, like 18 months ago. And so we're certainly taking advantage of those opportunities. I will tell you that we're certainly -- it's more onesie, twosie throughout the rest of the footprint. We're really looking for experienced lenders that have deep portfolios and relationships that they can bring over. And those conversations are going on all the time that is not as much on the lift outside that would be one person in a particular market that's the right person. And so that's kind of how we're looking at both opportunities.

Kevin Fitzsimmons -- DA Davidson -- Analyst

Okay, great. Thanks very much guys.

H. Lynn Harton -- President, Chief Executive Officer, Chairman of the Board

Thanks, Kevin.

Operator

Next question is from the line of Brody Preston of Stephens, Inc. Sir, your line is now open.

Brody Preston -- Stephens, Inc. -- Analyst

Hey, good morning, everyone.

H. Lynn Harton -- President, Chief Executive Officer, Chairman of the Board

Good morning, Brody.

Robert A. Edwards -- Chief Risk Officer

Hey, Brody.

Brody Preston -- Stephens, Inc. -- Analyst

Hey, I had just a follow-up question on the SNCs [Phonetic]. So there's about $30 million that you ran off and you said it was about another $40 million you're considering. What's the timing of when that $40 million will run off? Is it a 2Q event? Or is it throughout 2021?

Jefferson Harralson -- Chief Financial Officer

Yeah. It's a good question. I was actually thinking about that because I think it is a longer-term, right. Those loans have -- I mean, I guess, it's not longer, but it's not six months. So it will be over the next, I think, likely 18 months, would probably be a good window for that.

Brody Preston -- Stephens, Inc. -- Analyst

Okay. So this quarter was kind of anomalous, and just the $30 million kind of all maturing in this quarter. And so -- yeah, go ahead.

Jefferson Harralson -- Chief Financial Officer

Well, part of it depends too, how these credits work, right. They'll do refinances, they'll do acquisition. Just -- it's hard to predict those things. But probably -- 18 months is probably a conservative guess, but it just depends on the activity in those markets.

Brody Preston -- Stephens, Inc. -- Analyst

Got it. And so the SNC run off, that's about a third of the run -- a third of the lower balances that you saw on the core C&I portfolio. And so I wanted to ask what else was there that drove the reduction in the C&I loans this quarter?

Richard W. Bradshaw -- Chief Banking Officer

I'll go ahead. We had a conversion, so Seaside converted in March of this year. And you've got a lot of loans reclassified in that process. So there's just a lot of noise in that. And so we don't really think we saw any material changes in the overall portfolio. And we expect that to have a better view of all that Q2 going forward.

Brody Preston -- Stephens, Inc. -- Analyst

Understood. I appreciate that. And then, Rob, on the Senior Care loans, I understood that it's the lease-ups that's kind of caused the last couple of quarters, or you've migrated more of these to special mention, substandard. But I wanted to ask, is there a consistent theme that you're hearing from the sponsors on these projects that's causing the delay in the lease-ups relative to the, I guess, the original timeline?

Robert A. Edwards -- Chief Risk Officer

Well, in the fourth quarter, it was very much about COVID. It feels like -- and a lot of the markets were not open, and you couldn't go see a relative that was in a Senior Care facility. So you put mom in a Senior Care facility and you can never see her again. So, it just wasn't very appetizing. And then, of course, the fourth quarter is always a low season for these properties just because Christmas doesn't seem like the right time to do that, especially, if you're not going to be allowed to go visit in the facility. So early in January, we have started seeing some uptick in occupancies that we weren't seeing before, and we think that's largely due to -- and we are tracking vaccinations of employees and residents on the properties, and feel like properties are making good progress there.

H. Lynn Harton -- President, Chief Executive Officer, Chairman of the Board

And I would add, we have a very good relationship with a third-party underwriter portfolio manager. And I have a -- monthly call him just to check on the industry and where it's going, what the trends are. And what we're hearing is that the beds are starting to fill again, and we probably won't see that impact to the end of this quarter, but all the trends are positive. Everyone's feeling much better about the industry. And obviously, vaccinations have all picked up and they're in the priority list. So the workers have all got them as well. So the industry feels good. It's just moving slowly, but it's moving in the right direction.

Robert A. Edwards -- Chief Risk Officer

Yeah, I agree with that.

Brody Preston -- Stephens, Inc. -- Analyst

Got it, OK. And then just switching back to mortgage understand that it's going to be volatile, but just assuming that the lower kind of fees do come through, and I know that there is a lag. But Jefferson, I guess, what dollar amount, if it's down 6% to 7% [Phonetic], what's the dollar amount of variable expenses you would expect to kind of work the way -- work its way out of the run rate maybe in 3Q based on that?

Jefferson Harralson -- Chief Financial Officer

I'll give you some parameters on that. So in total, we had $6 million of mortgage commissions. This quarter, we expect that to be down. I see Rich talking kind of maybe in concert with volumes.

Richard W. Bradshaw -- Chief Banking Officer

Yeah. I mean, it's going to be down a -- certainly a couple of million if we're down accordingly in terms of what we're making in fee income. That's a good question. Though, I'm not sure, on this phone call, I have that answer. But we can look at that and get back to you.

Brody Preston -- Stephens, Inc. -- Analyst

Got it, OK. And on the SBA front, so the gain on sales, as you guys have been having over the last few quarters have been hovering, if you just do the simple math of the fee divided by the loan sales and that kind of 8.5% to 9% range. But the economy improving and with rate still low the premiums on that paper can get that a bit up pretty quickly. And so I wanted to ask what you guys are seeing in terms of gain on sale margins moving forward for that business?

Richard W. Bradshaw -- Chief Banking Officer

This is Rich. The answer to your question is right now, gains are at record highs. Now remember that it's based on the term of the loan and the pricing and the size of the loan. They do worry about concentrations of $5 million loan isn't going to sell as much as a $1 million loan. But to your point, they're up probably 15% quarter-over-quarter from last quarter. So very strong right now to your point.

Brody Preston -- Stephens, Inc. -- Analyst

Got it. And then I just had two last ones, real quick. Jefferson, what percent of the loan portfolio is floating rate at this point?

Jefferson Harralson -- Chief Financial Officer

53%.

Brody Preston -- Stephens, Inc. -- Analyst

Okay. And -- go ahead.

Jefferson Harralson -- Chief Financial Officer

And maybe your next -- this is your next question, but on that one slide, we have $1.1 billion of floating-rate loans priced at their floors. So we're behaving right now on the next rate hike, more like we're a 45% floating. And if you get two rate hikes, about half of that would be off the floor.

Brody Preston -- Stephens, Inc. -- Analyst

That was the next question. Thank you very much.

Jefferson Harralson -- Chief Financial Officer

All right.

Operator

Thank you for all the questions. I'll now hand the call back over to Lynn Harton for closing comments.

H. Lynn Harton -- President, Chief Executive Officer, Chairman of the Board

Great. Well, once again just thank you all for joining the call. Great questions. I appreciate the interest. If you have any follow-up issues, feel free to give any one of us a buzz, and we look forward to talking next quarter. Thank you so much.

Operator

[Operator Closing Remarks]

Duration: 41 minutes

Call participants:

H. Lynn Harton -- President, Chief Executive Officer, Chairman of the Board

Robert A. Edwards -- Chief Risk Officer

Jefferson Harralson -- Chief Financial Officer

Richard W. Bradshaw -- Chief Banking Officer

Jennifer Demba -- Truist Securities -- Analyst

Brad Milsaps -- Piper Sandler -- Analyst

Michael Rose -- Raymond James -- Analyst

Catherine Mealor -- KBW -- Analyst

Kevin Fitzsimmons -- DA Davidson -- Analyst

Brody Preston -- Stephens, Inc. -- Analyst

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