Allegiance Bancshares, Inc. (ABTX) Q1 2021 Earnings Call Transcript

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Allegiance Bancshares, Inc. (ABTX)
Q1 2021 Earnings Call
Apr 29, 2021, 10:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day, and thank you for standing by. Welcome to the Allegiance Bancshares First Quarter 2021 Earnings Conference Call. [Operator Instructions]

I would now like to hand the conference over to your speaker today, Courtney Theriot, Executive Vice President and Chief Accounting Officer. Please proceed.

Courtney Theriot -- Executive Vice President-Chief Accounting Officer

Thank you, operator, and thank you to all who have joined our call today. This morning's earnings call will be led by Steve Retzloff, Chief Executive Officer of the company; Ray Vitulli, President of the Company and Chief Executive Officer of Allegiance Bank; Paul Egge, Executive Vice President and Chief Financial Officer; Okan Akin, Executive Vice President and Chief Risk Officer of the company and President of Allegiance Bank; and Shanna Kuzdzal, Executive Vice President and General Counsel.

Before we begin today, I need to remind everyone that some of the remarks made today constitute forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995 as amended. We intend all such statements to be covered by the safe harbor provisions for forward-looking statements contained in the act. Also note that if we give guidance about future results, that guidance is only a reflection of management's beliefs at the time the statement is made, and such release are subject to change.

We disclaim any obligation to publicly update any forward-looking statements, except as may be required by law. Please see the last page of the text in this morning's earnings release, which is available on our website at allegiancebank.com for additional information about the risk factors associated with forward-looking statements. We also have provided an investor presentation on our website. Although it is not being used as a guide for today's comments, it is available for review at this time. At the conclusion of our remarks, we will open the line and allow time for questions. I now turn the call over to our Chief Executive Officer, Steve Retzloff.

Steven F. Retzloff -- Chairman

Thank you, Courtney. We welcome everyone to our conference call, and thank you for your attendance. The first quarter represented a very productive start for the year, highlighted by record earnings per share of $0.89, plus significant deposit growth of $386 million during the quarter, bringing our total deposit growth over the past 12 months to $1.42 billion or 30.9%. Assets increased to $6.43 billion as we have now funded over $1.04 billion of PPP loans, with over $332 million being funded during the last quarter.

All in, we remain in a strong position relating to capital and liquidity, and we increased our dividend to $0.12 per share of common stock in the first quarter. Our record earnings was aided by the accelerated recognition of PPP fees during the quarter and by the low provision number that came from having very little in the way of net charge-offs and an improving economy. That said, we absorbed added costs in the quarter due to assets writedowns as Paul will describe and incurred increased overtime and third-party staff augmentation expenses totaling approximately $400,000 in the quarter further to our PPP production.

Our stakeholders benefited from the continued extraordinary out forming of effort from our staff as we not only booked a large number of PPP loans, but also originated $325 million of core loans during the quarter for a total new loan production of $657 million in the quarter. With the PPP now moving into the file completion and forgiveness phase, our production staff will be able to redirect their entire focus to generating traditional core lending and depository relationships for which our pipelines are already solidly established and will be further enhanced as we use our proven relationship building muscle to deepen the connection through the approximately 4,000 new customers who we assisted with our PPP effort.

We are pleased with our overall asset quality, and we're able to significantly reduce our ORE. We continue to remain alert to the impact of the pandemic has had on our community and our customers, particularly those in the higher-risk sectors. But the streets of Houston are showing signs of broader economic activity as heavy traffic, which used to be curse is now and every day, welcome side. Although with a sense of steadily growing optimism, we remain cautious as to the timing of a full and complete rebound for all sectors.

Given our growing market penetration and size and while we continue to focus on high service levels to smaller commercial customers and the market differentiation of this strategy affords us, we are beginning to attract and retain larger lending relationships. That said, our average loan size is not expected to appreciably change. But we believe that a marginal well-managed step in this direction is not only warranted but provides incremental quality growth opportunities. From an operational perspective, we have acquired a more robust and more integrated loan origination system, which we deployed quite effectively as the platform and workflow for handling our PPC loans.

And we are now beginning to implement this new system for our entire lending platform. Finally, Allegiance has built and continues to add to the value of our brand and has evolved into an extraordinary franchise value by accelerating our penetration into the market with more and more customers, we have now had first-hand experience and depreciation of what our service level commitment can bring to their table.

Given how we responded to the needs of this community over the past year, I believe that we are the clear proven bank of choice in the Houston region, and we will be deepening our position even further over the coming year. Next, Ray will describe our loan and deposit production results as well as an outlook on credit, followed by Paul, who will cover our financial results. We will then open the call for questions.

Ramon A. Vitulli -- Chief Executive Officer

Thanks, Steve. The first quarter of 2021 saw our bankers back in the PPP origination business as we work with our customers, both existing and new through the second round of the program while assisting first-round borrowers with a forgiveness process. As mentioned last quarter, we designed the second round effort in a way for our bankers to meet PPP demand while allowing capacity to generate and expand customer relationships.

As a result, we are extremely pleased to report core loan originations of $325 million, the second highest level in the history of the bank. driven by improving economic conditions, market share gains and continued conversion of the nearly 4,000 new customers from our PPP effort. And in addition to our new customers from PPP, we also attracted 1,800 new non-PPP customers over the past 12 months, bringing total customer acquisition to 5,800, representing 19% growth over the past year.

We have also seen increased adoption and utilization of nearly every electric electronic banking service for mobile remote deposit capture to ACH originations to wire transfers. We continue to review our electronic banking product offerings to meet customer demands and expectations and also monitor our brick-and-mortar footprint to optimize how we deliver service and position ourselves to execute on what we believe to be an extraordinary market share growth opportunity.

With regards to PPP forgiveness, as of March 31, we received forgiveness applications for 4,103 loans totaling over $505 million or about half of the $1 billion in PPP loans originated. Of those, 3,320 have been submitted to the SBA, totaling over $433 million, with 2,973 loans having been approved and funds received of over $364 million. In early March, we incorporated into our platform, the new simple forgiveness application for loans up to $150,000, which was welcome news that the majority of our PPP borrowers are able to use this form.

In addition to helping our customers through the PPP process, we also provided assistance to eligible borrowers with payment deferrals on outstanding loan balances of $1.15 billion or 30% of core loans. Of this amount, approximately $62.1 million of core loans remain on deferral at March 31, 2021, further reduced to $54.9 million as of April 22. Moving now to our quarterly operating results. Total core loans, which excludes PPP loans, ended the first quarter at $3.93 billion, an increase of $8.9 million during the quarter.

During the first quarter, our staff and lending team booked $325 million of new core loans that funded to a level of $203 million by March 31 compared to the fourth quarter with $311 million of new core loans were generated, which funded to a level of $220 million by December 31. Paid off core loans were $180 million in the first quarter compared to $195 million in the fourth quarter of 2020. The $180 million of paid off core loans during the quarter had a weighted average rate of 5.15%.

Carried core loans experienced advances of $97 million at a weighted average rate of 4.93% and paydowns of $105 million, which were at a weighted average rate of 5.11%. We are pleased to report the weighted average interest rate charge on our new first quarter core loans of -- was 4.63%, which is just below the fourth quarter 2020 weighted average rate of 4.64% and equal to the third quarter 2020 weighted rate. All in, the overall period-end weighted average rate charge on our funded core loans decreased six basis points, ending the quarter at 5.02% compared to 5.08% as of December 31, 2020.

Over the past few quarters, we have provided information on several loan categories that could have heightened risk due to energy prices and/or the COVID pandemic. Those being our oil and gas portfolio, our hotel portfolio and our restaurant and bar portfolio. As of March 31, our oil and gas portfolio totaled $72 million or 1.6% of our funded loans, with an average LTV of 53.8% on the CRE portion. The hotel portfolio totaled $125 million or 2.78% of our funded loans with an average LTV of 60.8% on the CRE portion.

And the restaurant and bar portfolio totaled $116 million or 2.58% of total loans with an average LTV of 59.2% on the CRE portion. In aggregate, asset quality at quarter end continued to remain in a manageable position. Nonperforming assets, including both nonaccrual loans and ORE, ended the first quarter down from 63 to 55 basis points of total assets, primarily due to the sale of $8.6 million of other real estate owned during the quarter.

Nonaccrual loans increased a net of $6.2 million during the quarter from $28.9 million to $35.1 million, primarily due to $15.1 million in additions that were partially offset by $4.7 million of payoffs, $2.7 million in payments and $1.5 million in upgrades placed back on accrual. The largest addition was a $4.9 million hospitality property. The additional $10.2 million increase in nonaccrual accruals was from 13 relationships, two of which totaled $6.1 million and the remaining $4.1 million was from 11 smaller relationships.

ORE decreased to $576,000 during the quarter compared to $9.2 million for the fourth quarter, primarily due to the $8.6 million of ORE sales. Our ORE is now comprised of one residential property. Charge-offs for the quarter were minimal at an annualized rate of three basis points. In terms of our broader watch list, our classified loans as a percentage of total loans increased to 3.91% of total loans as of March 31 compared to 3.61% as of December 31. Criticized loans increased to 5.98% at March 31 from 5.95% at December 31. Specific reserves were individually evaluated loans ended the quarter at 14% compared to 12% at December 31.

On the deposit front, we saw an increase in total deposits in the first quarter by $385.7 million from the fourth quarter and up $1.42 billion over the year ago quarter. The increase during the first quarter was primarily in the noninterest-bearing deposit category, which increased $209.6 million over the fourth quarter and $696.6 million over the prior year as a result of new accounts associated with PPP customers as well as higher balances in our carried accounts. With that, our noninterest-bearing deposits to total deposit ratio was 35.6% from March 31 compared to 34.2% for December 31 and 30.8% for the year ago quarter.

As previously mentioned, we are seeing signs of economic recovery that is reflected in our level of new core loan originations and downward trend of loan deferrals and loan payment performance. Recent data from the Texas Workforce Commission shows the Houston area to have created 34,000 jobs in the month of March, well above historical monthly average of 13,100 jobs. And through March, Houston has recovered 168,400 jobs or 47% of the jobs lost last March and April.

With a healthy loan pipeline, customer acquisition and conversion opportunities in front of us, increased disruption in the banking industry for both business owners and bankers and an ever-strengthening market position in the Eastern region, we are poised to start referring to our organic loan growth prospects with the word that has been used to describe our PPP success. that being outsized. I now turn it over to our Chief Financial Officer, Paul.

Paul P. Egge -- Executive Vice President And Chief Financial Officer

Thanks, Ray. We are very proud to be posting record first quarter net income of $18 million or $0.89 per diluted share as compared to $15.9 million or $0.77 per diluted share in the fourth quarter and $3.5 million or $0.17 per diluted share in the first quarter of 2020. Our record earnings were despite elevated expenses in the quarter, the most significant of which were approximately $1.5 million in nonrecurring asset writedown expenses, most of which relating to a branch closure during the quarter.

Pretax preprovision income for the first quarter was $22.5 million as compared to $24.2 million in the fourth quarter and $15.3 million for the year ago quarter. Adding back $1.5 million in nonrecurring expenses on adjusted measure for pre-tax provision income would have been approximately $24 million. Net interest income was the key driver to our pre-tax provision earnings power during the quarter. Where we saw an increase of $796,000 or 1.4% to $55.7 million from $54.9 million in the fourth quarter, primarily due to lower interest expense in the quarter and higher revenue recognized on PPP loans, partially offset by lower core loan income.

Interest expense decreased by $1 million in the first quarter compared to the prior quarter. And total fee revenue related to PPP loans, which were recognized into interest income during the quarter was $6.9 million, an increase from $6 million in the fourth quarter. Yield on loans in the first quarter was 5.15% as compared to 5.09% for the fourth quarter and 5.59% for the year ago quarter. Excluding PPP loans and related revenue, yield on loans would have been 5.06% for the first quarter, 5.07% in the fourth quarter and 5.59% in the year ago quarter.

Total yield on interest-earning assets was 4.67% for the first quarter, down from 4.71% in the fourth quarter and 5.28% in the year ago quarter, reflecting a change in earning asset mix that includes a higher proportion of securities as well as significant PPP loans within the loan totals. Excluding PPP loans and related revenue, total yield on earning assets would have been 4.54% for the first quarter versus 4.67% in the fourth quarter. Before I move on, I should note that as of quarter end, we had approximately $22 million of net deferred fee income remaining relating to PPP loans.

With respect to interest expense, our cost of interest-bearing liabilities continued to decrease in the first quarter to 80 basis points from 93 basis points for the fourth quarter and 168 basis points for the year ago quarter. The overall cost of funds for the first quarter was 54 basis points versus 62 basis points in the fourth quarter. We expect to see continued improvement in our funding costs going forward, particularly as the CD book continues to reprice lower. So with the help of lower interest expense in Q1, PPP net fee income recognition offsetting a significant shift in the composition of our earning assets, our taxable equivalent net interest margin was 4.19% for the quarter as compared to 4.14% in the fourth quarter and 4.15% in the year ago quarter. Excluding PPP loan balances and related revenue, net interest margin would have been 3.95% for the first quarter.

Going forward, we feel well positioned to maintain a relatively strong core net interest margin through optimizing our funding mix and maintaining discipline on loan pricing. That said, excess liquidity and changes to our earning asset competition have potential to be a drag on NIMs depending on how our core loan growth story plays out. Noninterest income was lower quarter-over-quarter decreasing to $1.7 million for the first quarter from $2 million for the fourth quarter, primarily due to $176,000 loss on the sale of ORE assets. Total noninterest expense increased in the first quarter to $34.9 million compared to $32.7 million in the fourth quarter. The difference is primarily due to increases in the salary and benefits line and the other expenses line.

Other expenses include the aforementioned $1.5 million in nonrecurring asset writedowns. The efficiency ratio for the first quarter increased to 60.85% compared to the 57.53% from the fourth quarter, a decrease from the 68.13% for the prior year quarter. Excluding the asset writedowns, the efficiency ratio for the first quarter would have been 58.29%. The provision for credit losses was $639,000 for the first quarter. And our allowance for loan losses ended the quarter at $52.8 million, representing 113 basis points of total loans and 134 basis points on core or non-PPP loan balances.

Bottom line, our first quarter produced an RAA and ROATCE of 1.18% and 14.03%, respectively, both representing all-time highs. Quarter intangible book value per share was $25.75, which makes for an increase of approximately 13.5% since the year ago quarter, which is something we are proud of as well. All in all, we feel very well positioned to continue to drive franchise and shareholder value in 2021 and beyond.

To that end, the company declared another dividend of $0.12 per diluted share on common stock and reupped a one million share repurchase authorization to replace the authorization that expires at March 31, 2021. And on the topic of share repurchases, I should note that during the first quarter, we did repurchase 161,000 shares at a weighted average price of $35.11. Reflecting on over a year in a COVID-impacted operating environment, we are very proud to be bigger and better than ever at over $6.4 billion in assets and with capital reserves and liquidity levels at or near all-time highs. Thanks to tremendous PPP success driven by the amazing dedication of the Allegiance team, we've been successful in adding to our market share at largest regionally dedicated bank. I will now turn the call back over to Steve.

Steven F. Retzloff -- Chairman

Thanks, Paul. With that, I will now turn the call over to the operator to open the line for questions.

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from David Feaster with Raymond James.

David Feaster -- Raymond James -- Analyst

Hey, Good morning everybody. It sounds like originations were really strong despite distraction from the PPP. Just Just curious kind of how the pipeline is shaping up and maybe what you're hearing from customers, how much of the production is kind of coming from existing clients that are more confident and willing to invest versus new client acquisition from either new lender hires or the PPP program. And just, I guess, the pulse of your clients.

Ramon A. Vitulli -- Chief Executive Officer

Thanks, David. Morning. Yes. So it was strong in that first quarter. The -- I'd say that while we would really like to target maybe a 50-50 of that growth coming from new and versus existing. It's probably more -- a little bit more of existing as we work with our established customers. We're still doing this customer acquisition on the PPP side.

But the mood is very good and the pipeline is at levels pre-pandemic type pipeline levels. And that's when the pipeline grows, that's coming from our field saying these are the -- obviously, these are the requests that we have in place and the deals that we're talking about. So feel good about that and what the future prospects are for more originations.

David Feaster -- Raymond James -- Analyst

Okay. That's encouraging. And then just how are new hires turning? You guys have always done a great job picking up new lenders. Just I guess, with bonuses being paid and some disruption in the market, have you seen an increase in conversations? And maybe how is the pipeline for new liens?

Ramon A. Vitulli -- Chief Executive Officer

Yes. We have -- conversations have picked up. You're right. First quarter is usually a little light because of that because of the bonus. We did have one lender hire in the first quarter. And if you look back over the past four quarters in a COVID environment, we had six producer hires and one out of our homegrown, out of our analyst pools for a total of seven. So given the circumstances over the past four quarters, we feel pretty good about being -- making those additions.

But yes, the conversations are picking up, and we do see some disruption and And we'll -- there's kind of two forms of disruption. One is the -- what happens in the M&A world. The other one is as our -- in our space kind of in that business banking space as the competition continues to to change their rules of what business banking means. Those -- that's a disruption for customers and bankers, and we have those conversations and hanging around the hoop for that.

David Feaster -- Raymond James -- Analyst

Okay. That's correct. And then it's encouraging to hear the new loan yields in the originations. It sounds like pricing might be troughing a year. I guess Do you think that's a function of mix? Or just how has pricing trended more recently? Has the steepening of the curve allowed for better pricing at all? And do you think maybe the shift toward larger credits that you talked about may impact new loan yields? Or do you think you'll still be able to get these premium levels of rate despite going upstream a bit?

Ramon A. Vitulli -- Chief Executive Officer

Well, I mean we feel good about the past three quarters of that rate on the new production hanging around this 4.63, 4.64 but it's still very competitive. So I'm not sure about hitting the floor there, but we're really pleased with the last three quarters and where things landed.

Steven F. Retzloff -- Chairman

Yes. And this is Steven. In terms of the larger loans. It's really we're looking at larger loan relationships. There's We have a number -- a lot of customers that have multiple loans, multiple projects and if you restrict that to a certain maximum relationship size, then you're going to miss the next deal. So we're just kind of opening up that door a little bit. It's not appreciably larger loans so much to this more -- opening the door for bigger relationships.

Ramon A. Vitulli -- Chief Executive Officer

Okay that's great, Thanks everybody.

Operator

Thank you, Our next question comes from Brad Milsaps with Piper Stanley.

Brad Milsaps -- Piper Stanley -- Analyst

Hey, Good morning. Ray, I think I heard you correctly say you've added 5,800 customers over the last 12 months, which is a tremendous number. It looks like thus far, those have really translated into deposit balances. I know this is probably tough to handicap. But how much loan growth do you think you pull forward with your guys participation in the PPP program? Just trying to get a sense of kind of when some of this production you're seeing can actually translate into actual loans outstanding on the books?

Ramon A. Vitulli -- Chief Executive Officer

Yes. Great question. When you look at the 4,000 of the PPP, I mean, as we try to penetrate that and what we call convert those to full customers, I mean, we're seeing low maybe 1/4 of that at this moment has something other than the PPP loan. So I mean it's a process to work through and generate additional business, and we're working on that. So I mean I think it's -- we'll pick up gains every quarter.

And as we -- we have several touches with these customers, not only on the origination side but on the forgiven side and then a number of the second round were to some -- to the same to our existing customers from the first round. So we have a number of touch points plus an effort to convert these. So I think it's just going to be incremental over the next few quarters, but we have optimistic about what's ahead of us with that conversion opportunity.

Steven F. Retzloff -- Chairman

And PPP customers are getting liquidity through the PPP loan program, which stance recent has an impact on their loan demand and how they may be positioning. So when they're ready for their next loan, could be -- could involve some lag time being that there is a beneficiary of this PPP program in the near term and the recent past.

Ramon A. Vitulli -- Chief Executive Officer

We're in the middle one.

Brad Milsaps -- Piper Stanley -- Analyst

Sure. Sure. And so Ray, would you say that maybe grows kind of low single-digit type rate kind of in the near term? And then hopefully, maybe by next year, you can guys can start ramping back up closer to what you've done historically?

Ramon A. Vitulli -- Chief Executive Officer

Talking all in on the whole. Growth in the entire loan?

Brad Milsaps -- Piper Stanley -- Analyst

Yes, ex PPP.

Ramon A. Vitulli -- Chief Executive Officer

Yes. Yes Yes, core loads. Yes, I think that.

Brad Milsaps -- Piper Stanley -- Analyst

Okay. Okay. And then just curious kind of how you guys are thinking about resolution on some of the loans that are still having issues coming out of the pandemic, I think it sounds like kind of criticized classified had stabilized just under 6%. Just kind of wanted to get a sense of kind of how you guys are thinking about potential losses as you kind of get in the back half of the year and how that might relate to your -- how you're approaching the level of reserve and the provision going forward.

Steven F. Retzloff -- Chairman

Well, we obviously feel like we've got -- we have them all identified properly, and we assess them every quarter, we've experienced very good low charge-offs at this point. And we -- again, there's probably not a a way to extrapolate that out into a quarter-by-quarter projection, but we feel like we're in the right place with those that we're participating with deferrals and their underlying business model getting better over time, such as like local hotels and so forth. So I think we feel pretty pretty good that it shouldn't be outsized in terms of any kind of experience for problem assets getting worse. I really feel like it's actually more on getting better from here. Obviously, lot depends on the pandemic and so forth.

Ramon A. Vitulli -- Chief Executive Officer

And I might note that anything that merits individual valuation under our -- under CECL, we have evaluated and considered in our provision and allowance credit loss.

Okan I. Akin -- President And Chief Risk Officer

Yes. Yes. In addition to that, this is Okan. I'll add the fact that we're seeing a deceleration -- significant deceleration of downgrades in our portfolio and actually also experiencing in the number of instances, upgrades. And that's a very pronounced with our high-risk portfolio as well. Where the -- that portfolio is hanging on better-than-expected originally set.

Brad Milsaps -- Piper Stanley -- Analyst

Great. And just final question for Paul. Excluding the branch writedown, that $33 million or so of expenses this quarter, would you think that's a pretty good run rate? Or was there anything else that you may have benefited from maybe FAS 91 related from PPP in 1Q that might cause that to go up appreciably or is $33 million or so a decent run rate?

Paul P. Egge -- Executive Vice President And Chief Financial Officer

I think 33 handle is a decent run rate I might hedge just a 30 is where you'll see things. There's some level of noise in the second quarter, we'll still be paying for some of the staff augmentation that was used to kind of really put our shoulder into the PPP effort, and we'll now pivot a little bit more into the forgiveness effort. So there's still something singing out there, but nothing I think you're in the zone.

Ramon A. Vitulli -- Chief Executive Officer

Yes. And things like a record earnings bring, record bonus kind of profit sharing accruals and things of that nature as well.

Brad Milsaps -- Piper Stanley -- Analyst

Great, Thank you.

Operator

Our next question comes from Brady Gailey with KBW.

Brady Gailey -- KBW -- Analyst

Great, thank you. Good morning guys. So I know accretable yield has been a fairly small number for you guys recently. I think last quarter, it was only about $300,000. Did that remain fairly small immaterial this quarter?

Paul P. Egge -- Executive Vice President And Chief Financial Officer

Yes, getting more immaterial every quarter, which is really why we thought we might economize here in our first quarter of 2021. It's weaning off, weaning away toward dropping.

Brady Gailey -- KBW -- Analyst

Okay. Great. And then when you look at the back It's great to see you all active in the quarter. It looks like you bought stock at around 135 times tangible. If you look at the stock now, it's now 1.5 to 1.6 times tangible, so it's not as cheap. So do you still have a pretty good appetite to execute on the buyback despite the stock price being a little higher?

Ramon A. Vitulli -- Chief Executive Officer

Price is one of many considerations that we look into when we're evaluating the share repurchases, but more so than ever, our number one use of excess capital is core loan growth. Secondary to that, we want to maintain a high level of flexibility for potential M&A activity. And then, of course, there's pricing dynamics that drive a little bit of the volume-based appetite around the share repurchases. So a lot of moving parts. not intimidated too much by the current share price, but more focused on executing on the most accretive ways for us to put that capital to work.

Brady Gailey -- KBW -- Analyst

Okay. And then lastly for me is just on how Allegiance fits into the M&A landscape. It's been a little quieter in Texas than I would have thought. I know we saw Bancorp South in Cadence, which was a big deal in Mills backyard. But how do you think Allegiance fits in M&A. Is it you guys would consider acquiring some smaller, more downstream targets? Or Do you think it's more something either transformational like an MOE type of transaction?

Ramon A. Vitulli -- Chief Executive Officer

Well, it's good to see the larger transactions out there. And of course, inside the pandemic, it's probably been more appropriate to do a life-sized -- a transaction like that because of the kind of the risk profile of uncertainties. Coming out of the uncertainties though, I think it opens the door for smaller transactions.

You have better currency So I'd say that we're actively assertive right now in terms of an M&A profile or posture. We are probably still thinking -- we would think across the board, but acquisitions would be certainly welcomed around here, smaller, medium sized. I think they can make a difference We're working hard on the organic side, but we're also stay in touch with the community bankers around and probably know that community as well as anybody through all of our contacts.

Brady Gailey -- KBW -- Analyst

Great, Thank you.

Operator

[Operator Instructions] Our next question comes from Matt Olney with Stephens.

Matt Olney -- Stephens -- Analyst

Thank you, Good morning. The PPP, I want to circle back on that $22 million of amortized net fee still as of March 31. I'm curious kind of what the crystal ball says about how those will be recognized over the next few quarters.

Paul P. Egge -- Executive Vice President And Chief Financial Officer

As our wait, predicting in the future it is one of those things. We think the second round is going to go faster than the first, but we do recognize that there's potential for stragglers as it relates to the way that the forgiveness process is ultimately going to play out. So candidly, the way we mode for purposes is around 70% or so being forgiven by the end of the year. It could be higher, but we feel that it's probably right for us to think about it in that context.

Matt Olney -- Stephens -- Analyst

Okay. And then circling back on some commentary that that Steve made earlier, you mentioned a few times some larger loans. I'm curious, I mean, it's all relative, I guess, in terms of larger to Allegiance wouldn't be larger to other banks. But is that more of a -- would you call it a traditional middle market strategy? Or is it just a little bit larger on the small business loan side? Any numbers you can put behind that? Thanks.

Steven F. Retzloff -- Chairman

I'd say larger on the small business side is the kind of the right way to put that. We just don't have loan relationships that exceed $20 million, very few over $10 million. And given our asset size and loan footings, I mean it's time that we're willing to take a look at that more closely. A lot of opportunity there. Gradually, I think it just gives us a little bit more raw material to look at that number one use of capital and that's low growth, and we're really focused there.

Matt Olney -- Stephens -- Analyst

And to clarify on that, is it going to be new producers and new individuals that are doing this? Or is it just looking at the existing team and existing customers that you were willing to grow it larger than before?

Steven F. Retzloff -- Chairman

Well, our existing team has -- and you calculate different ways, but close to $800 million of capacity. And when you look at the loan the lenders that are below our kind of average norm. So we've got a lot of capacity in our current lending staff to build portfolio. We have a lot of growth continuing, though on those at 85-or-so percent of our lending staff that are at or above our our normal portfolio size, and they continue to grow their portfolios.

But when we tell them that -- we don't want larger loan relationships. Their customers go other places because they're continuing to do projects, and this is historic. So we're just kind of giving them an opportunity to go back to those customers that they can actually add another loan or taken on the loan back, that type of thing. So is still smaller loans, but we believe that it just gives the entire lending staff the opportunity to grow that book. It's not so much new for new lenders or certainly don't want to be interpreted as us going to the middle market.

Operator

Our next question comes from John Rodis with Janney.

John Rodis -- Janney -- Analyst

Good morning guys, Paul, maybe just -- I guess I missed this, but on the PPP loans, you said $22 million remaining. What was in the first quarter?

Paul P. Egge -- Executive Vice President And Chief Financial Officer

We recognized in fee income of approximately $6.9 million into yield during the first quarter, pardon me. That's net fee income. We've got a slide on PPP that detailed in the investor presentation. But yes, that $2.5 million.

Ramon A. Vitulli -- Chief Executive Officer

Total revenue was a little higher if you could the interest.

John Rodis -- Janney -- Analyst

Okay, that's it for me. Thank you guys.

Operator

And I'm currently showing no further questions. At this time, I'd like to turn the call back over to Steve Retzloff for closing remarks.

Steven F. Retzloff -- Chairman

Very good. Well, we're just again. Thank you, everybody. I appreciate your time and interest in the bank, and we look forward to speaking to you again next quarter, and thank you very much.

Operator

[Operator Closing Remarks]

Duration: 32 minutes

Call participants:

Courtney Theriot -- Executive Vice President-Chief Accounting Officer

Steven F. Retzloff -- Chairman

Ramon A. Vitulli -- Chief Executive Officer

Paul P. Egge -- Executive Vice President And Chief Financial Officer

Okan I. Akin -- President And Chief Risk Officer

David Feaster -- Raymond James -- Analyst

Brad Milsaps -- Piper Stanley -- Analyst

Brady Gailey -- KBW -- Analyst

Matt Olney -- Stephens -- Analyst

John Rodis -- Janney -- Analyst

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