Q2 2020 Reliant Bancorp Inc Earnings Call
[music].
Van or junior reliant Bancorp's, Chairman and CEO. He has joined by Jerry Cooksey Reliant Bancorp's, Chief Financial Officer, John Wilson, well, I think what president and Allied Ma'am, Chief Credit Officer, Reliant Bank and we'll all be available during the question and answer session.
Please note reliant Bancorp's press release and this mornings presentation flight.
Our available on the Investor Relations page of the company's website at Www Dot reliant bank dotcom at this time, all participants had been placed and I'll listen only mode. The call will be open for questions. After the presentation.
During this call membership reliant Bancorp's management may make comments, which constitute forward looking statements within the meaning of and subject to the protections afforded by the federal Securities laws.
All forward looking statements are subject to risks and uncertainties and other factors that may cause actual results and the performance or achievements of reliant Bank corp to differ materially from any results performance or achievements expressed or implied by such forward looking statements.
Many of such risks uncertainties and other factors are beyond reliant bancorp's ability to control or predict and listeners are cautioned not to place undue reliance on such forward looking statement because such statements speak only as a as of date of the date they are made.
More detailed description of these risks uncertainties and other factors are contained in reliant bancorp's <unk> public filings with the Securities and Exchange Commission included and its most recent annual report on form 10-K, its quarterly reports on form 10-Q, and its current reports on form 8-K.
Except as otherwise required by applicable law reliant bancorp disclaims any obligation to update or revise any forward looking statements made during this call whether as a result of new information future events or otherwise.
I would also referred to you to page one of the presentation slides for disclaimers regarding forward looking statements non-GAAP financial measures and other information.
I would like to now turn the call over to Mr., ARD reliant Bancorp's chairman and CEO.
Good morning, Boeing for joining me for a second quarter earnings call.
I want to begin today bugs than me my best wishes and Hawesville, hopefully a quick recovery.
All those impacted by the code with 19 pandemic.
The public Hilton economic crises created by the spread it as roasted Turkey every aspect of our society.
The financial assurance about coal for me and the tail and dedication of our team. However have enabled us to help those in the mid to effectively prepare for the system. It will probably overall economy.
We also believe in Nashville resilient fundamentals are made Nashville, the middle Tennessee, All the countries Best places to live in World, We're still employees.
And we'll be a driving force for growth in the months ahead.
This was a challenging backdrop our team produced outstanding second quarter results, which are summarized on page five of our presentation.
We started to realize significant synergies from the two mergers. We completed this you both of which closed in converting as anticipated.
Net interest income for the quarter was $30 million, 75% employees over the first quarter this year.
Driven by show driven by sharply lower funding costs.
Usable shifting our deposit mix to lower cost relationship deposits.
And the addition of the relatively high yielding loan portfolio first Dan is buying.
We also realized software $2 million, a purchase accounting accretion during the quarter.
The result was a 97 basis point expansion in our net interest margin.
Excluding purchase accounting accretion and the impact of tax credits, our net interest margin increased by 26 basis points to 3.7% in the second quarter.
I'm proud to say that our team stayed focused on their customers during the quarter.
Although loan demand softened as the economy flow, we generated over $270 million, a new loans, including $83 million in paycheck protection program loans.
At a weighted average rate of 3.65%.
Excluding the PPP loans, the weighted average rate of our second quarter production was 4.83%.
Deposit growth, especially in relationship accounts, such as checking savings and money market deposits was strong.
Noninterest bearing deposits as a percentage of total deposits exceeded 20%.
Contributing significantly to a 39 basis point reduction in our cost of funds.
Finally asset quality is remain sound, we had no net charge offs in the second quarter and loans past due 30 days or more were <unk> 0.14 pursuing a poll loans held for investment.
Our 3 million dollar loan loss provision reflects the ongoing uncertainty surrounding risk factors related to cope with my team pandemic.
We continue to work with our customers in new payment relief and you'll hear more detail on loan modifications from our Chief Credit Officer, Alan Nims later in the call.
I'd now like turn the call over to Jericho too.
A detailed look at our financial results.
And I once again like to welcome into his new role is realize chief financial Officer Jerry.
Thank you to van and good morning, and Vance said, we had a really solid quarter as you'll see if I take you through the numbers.
Moving to the financial results table on page five earnings presentation.
Second quarter 2020, net income was $7.9 million.48 per diluted common share.
Over net income was impacted by four large noncore items that had a material effect on an overall excellent second quarter.
First purchase accounting accretion was $5.2 million for the quarter with $2.5 million attributable to early payoff of acquired loan.
Purchase accounting accretion will continue impacting interest income for several quarters into the future. We expect the amount to stabilize in the third quarter.
Purchase accounting accretion net of taxes increased second quarter reported he asked about 20%.
Second merger expenses were $2.6 million during the quarter, including an accrual for all known remaining merger related expenses.
Merger expenses net of taxes reduced second quarter easier for them.
Third provision expense was $3.3 million for the second quarter.
What the entire amount attributable to increased risk factors related to the totaled 19 pandemic.
Loan loss provision net of taxes.
The second quarter EPS by 13 cents.
For the company took an 811000 dollar charge for restructuring and other miscellaneous nonrecurring items during the quarter that reduced second Corey yes by force them.
On a pretax pre provision basis second quarter, if one was $12.1 million.
Our calculation a pretax pre provision net income for the bank segment that comparison to prior period is provided on page six of the earnings presentation.
Let's move to pay seven or look at the performance of our Bank segment, Pennsylvania noted in his opening comments the second quarter adjusted net interest margin with 3.7% up 26 basis points from going to quarter.
The margin expansion as a result of two fundamental balance sheet changes that have been implemented over the past few quarters.
First our focused on optimizing the earning asset mix I.
I think retire yielding average loans held for investment.
84.2% or total average earning assets at June 30, 2020, a marked change from June 30, 20, I came when average loans held for investments comprised just 78.1% of average earning assets.
The year over year improvement in earning asset mix resulted from $165 million on the organic loan growth $783 million of acquired loan and rotation of $41 million from the secure securities portfolio to fund loan growth and pay down wholesale deposits.
Second our organization wide commitment to gathering and retaining core deposits.
Enabled us to reduce our wholesale deposit portfolio to 14% of total deposits at June 32020, compared with 30% on deposits at June 32019.
Total deposits grew by $149 million organically year over year and were increased by $831 million of acquired deposit.
Recent growth has been concentrated in low cost core deposit.
Which increased by $1 billion from June 32019 from both acquisition and organic growth.
Thanks segment, non interest expense, which excludes both R&D results and merger expense increased $4 million from the linked quarter.
The addition of first advantage personnel and branches accounted for approximately $3 million of the agree.
And onetime restructuring and other miscellaneous charges added another $811000.
On page eight would provide a status update for our two recent transactions one specifically highlight a few those items.
First we've exceeded forecast the cost savings of $2.7 million or 35% for the community Bank and Trust acquisition.
While we have begun to realize cost savings on the first advantage acquisition, we anticipate further savings in third quarter.
Second our acquired deposit retention has been strong for both transaction.
The community Bank and trust deposit portfolio totaled $210.1 million on January one 2020, and those acquired deposit accounts have increased to 223.3.
Million dollars at June Thirtyth 2020.
The first advantage deposit portfolio.
Totaled $610.9 million on April 120, 20.
And those acquired deposit accounts totaling 607.6 million at June 32020.
Finally, tangible book value dilution was better than forecasted as we experienced just a 3.3% dilution from the first quarter.
Turning to page nine our deposit portfolio contains trend upward aided by $831 million of acquired deposit.
Our deposit portfolio totaled $2.6 billion at June 32020, and has grown at a CAGR of 40.8% since 2016.
Moving to the right side of the page, we continue driving down both our youth and cost of wholesale deposits.
Let's move to page 10, and look at our loan portfolio, which totaled $2.3 billion at June 30, 2020, aided by $793.3 million on acquired loans.
Please note the significant linked quarter growth in the consumer another category was due to the addition of $177 million of main sector healthy chat alone, which are not secured by real estate now and are therefore reported as consumer loans.
The remaining $28 million of manufactured housing portfolio is held under the one four family real estate category.
Moving to the right side of the page the yield on loans held for investments increased to 5.98% for the second quarter on most of this increase can be attributed to purchase accounting accretion.
Core yield increased by five basis points from the linked quarter.
Turning to page 11.
Capital ratios continue to meet the definition of well capitalized financial institution and available liquidity remains adequate to fund our company.
We're very comfortable with our capital liquidity on reserve levels as we faced these uncertain times.
Finally on page 12, we present several measures and shareholder value.
As mentioned earlier in my comments.
Tangible book value is held up well because we've closed on two transactions in 2020.
We ended the second quarter or $13.96, a 3.3% decline from the first quarter.
Second quarter tangible book value benefited from strong net income and a linked quarter AOCI, an increase of $2.1 million.
We fully intend to 50 driving shareholder value creation through earnings answer building tangible book value.
That concludes my remarks. This morning, I will now turn the presentation over to our Chief Credit Officer on me on his perspective on our loan portfolio in credit metrics heading into the third quarter.
Thanks, Jerry and good morning.
Begin my comments on page 13 of the presentation.
We continue to report strong credit metrics, we reported an increase in nonperforming assets, which was primarily brought about through the first advantage acquisition and the retirement of excess bank facilities. The acquired nonperforming assets were marked aggressively to fair values and one of the retired banking facilities is under contract for sale we.
Continue to aggressively monitor our portfolio through past the management and address problems as identified similar to the first quarter. We continued to strengthen our allowance position through our normal provisioning process and with an eye to advance the rising with the pandemic, we reported net recoveries for the quarter and limited growth outside of PC fee.
Therefore entire provision of $3 million is attributable to covert 19 concerns we continue to compute our allowance level based on the incurred loss methodology as we're not required to adopt seasonal until 2023, while we've seen some improvement in national and local economic conditions concerns remain with beautiful.
The opening plans and recent spikes in the virus, we continue to monitor market conditions and will respond and our allowance methodology as appropriate with this provision level. The allowance reached 7.79% of total loans held for investment and 0.82% excluding PPP loans, it's important to note that purchase accounting rule.
As require that acquired loan portfolios the value that their fair value with no allowance recorded which makes the allowance to loans ratio appear low however, when unaccreted purchase discounts are considered total reserves for credit losses increased to 1.73% and excluding CPP loans that level increase was further to 1.8 per se.
As previously mentioned, we approached essay BK purchase loan discounts aggressively consider incurred economic conditions, we've modeled total discounts at 2.3%.
Our final discounts reached 3.36% at quarter end, we feel that was adequately provided for possible losses.
For informational purposes. We've included slide 16 to 18 for segments, we view as having increased risk during the pandemic. We included details of our hospitality restaurant and retail theory portfolios to highlight the strengths included an age.
I would also like to update our continuing efforts to provide much needed assistance to our customers. During this unprecedented time as you will note on page 19 of the presentation, we provided payment related to over 20% of our portfolio either in principal to principal deferment or full payment deferrals for up to a 90 day period for.
Our initial modification request those barrels were subject to final approval by either our chief lending officer or must sales to ensure compliance with recently issued regulatory and accounting guidance also in keeping with regulatory regulatory encouragement, we granted modification requests liberally.
Through July 17th of this year. However, just over 80% of those initial modifications that expired for second modification request, we are performing a higher level of due diligence with respect to establishing a business needs for the requests as shown in the second calendar page 19, we've seen much less volume thus far.
The second request, we continue to receive modification request and expect the level to increase however, based on discussions with customers and various big business segments and seeing a number of customers returned to their normal payment structure. We are projecting a reduction of at least 50% for the level notified in our initial requests.
Thus far second modification request or generally including interest payments rather than full deferrals and several of them for a shorter duration than the full 90 day period.
Finally, I'd like to update our PPP loan program for both rounds of funding for the program. We were able to serve 894 small businesses in our market with $83 million and fundings.
We have developed to process for the forgiveness requested have our portal ready subject to the ever changing rules for that portion of the program. We're hopeful that Congress will further assist our small businesses with forgiveness of all loans less than $150000 with limited application and promotion.
Past that will further as is 86% of our PPP customers with full forgiveness. So they can concentrate on returning their businesses to full potential.
Thank you I'll now turn the presentation back over to demand for his closing comments.
Thanks, Alan I want to conclude my comments. This morning, now reviewing our 2020 strategy, which is found on page 20 of our presentation.
As the most companies it's been adapted to manage through challenges presented by the Cobot 19 pandemic.
First our board of directors and management team are firmly committed to making the right decisions to protect our employees our customers our communities and our shareholders.
That also includes supporting our customers with loans based on sound underwriting protecting our capital and being proactive in reducing discretionary spending.
Second we believe current economic conditions will create opportunities for strategic acquisitions, although due diligence will likely be more comprehensive and credit focused.
We demonstrated our ability to identify execute and successfully integrate value enhancing acquisitions.
And we remain on the look out for potential partners.
With our size in the new geographies. We've targeted we think we can be a great partner for banks to determine its time to pursue sale as a way of creating value for their shareholders.
Third maintaining our track record of consistent organic earning asset growth is critical to our long term success.
That comes from building lasting relationships with customers in our markets not buying loans are participating in syndicated credits.
We expect loan growth to be slower in 2020 than our prior forecast that believes the relationships. Our bankers have built will continue to result in high quality balance sheet growth.
Our successful acquisitions of community Bank and trust in first advantage Bank also give us access to new markets and new potential customers, we intend to fully capitalize on this opportunity to expand our market footprint and profitably grow our company.
We will also higher selectively to prepare for future growth, we have the scale geographic reach and culture to attract the talent that will drive our success going forward.
And finally, one of the key lessons learned from the past pandemic disruption is the need to understand how you customers want to do business with the.
Page four of our presentation illustrates the growth in our digital channel usage through the early stages with a pandemic.
Building out our digital platform to be more efficient and broaden the ways our customers combined with US is critical for our long term success.
And this process will also include reassessing our branch strategy.
Now I want to conclude my remarks today by emphasizing how proud I am about team and their commitment dedication to each other and our customers during the time of extreme uncertainty.
Our relationship banking model is ideally suited to assisting our customers and navigating the current economic environment and our commitment to superior asset quality and strong capital and liquidity levels will enable us to continue leading the financial needs of our customers.
Operator that concludes my remarks for today, and we're ready to take questions.
Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone, if you're using a speakerphone. Please pick up your handset before addressing the keys Swift. All your question. Please press Star then to at this time, we'll pause momentarily to assemble our roster.
And our first question will come from Kevin Fitzsimmons with D.A. Davidson. Please go ahead.
Good morning, Jordan.
Hey, good morning, Divan How're you.
Well thank you.
Good.
I appreciate all the detail on deferrals. One question I had was are you give.
What the initial mods were at the end of May and then it's I guess and then were.
In mid July what the seconds or what.
Can you say, what today or as of mid July.
Those.
Initial mods went too so there were 23.5% of loans then.
I would think they went down between then and now but.
Based on your comments, but just want to know if you could quantify that.
Yes. They are what we'll do the best we can it's as you know it's a it's a fluid situation those mobs, we're doing over a period of maybe 60 days from the time the pandemic here I'm, a let Alan try to.
Give you a little bit better look at what we look at where we are today because it is one thing the changes on a daily basis.
Yes, Kevin we had.
The modifications of initial what we call our first round.
We kind of cut that off in may but the majority of what we saw was in March and April well, we saw very very high volume of those coming through at that time periods due out into may.
But we would just kind of had to cut them off at some point say this is kind of where we're done for around warrant.
As we started back up with rail to like I said, we have started taking a harder look at them. So we're.
Where we're looking more for.
Guarantor sponsors to be.
Evolved in these as well putting in some of their funding. So we're really kind of cut that back and so far.
We reported on the day that we've got 24 million that we've looked at does for there's still come in and I know of a few that are still going to become an end, but the volume that we're getting on the second round is much reduced from where we were at this time during the first round. So we're thinking.
It is.
Really going to fall a good bit shorter we've we've had some encouraging news with some of our hospitality customers, which is one of the areas that I have some concern with just from.
The muted re openings in the slowness in those getting back to occupancy levels that they need to attain but over a larger customers or.
The showing some improvement and we think the modifications even in that segment will be.
Lower than they were in the first round so it.
It's encouraging to us at this point just with the reduced level of.
Modifications that we are.
Really that were even looking at at this point versus where we were a few months ago.
And I think if I heard you you right earlier, you said that 80% of those models had expired as of today and I'm not sure if that was 80% of customers or balances, but if it's balances I I mean, if we wanted to get it back at the envelope estimate on this.
The 530 plus million.
80% of that.
He is no longer in first deferral period, but then of that.
Some are in have moved into second right and then the remainder about 80% we could assume have moved out and back into full payment status is that a rough way to think of it.
The sort of.
We really had 80% and that was 80% of $1 not of number of customers.
So you know 80% of those markets have of.
We have expired.
Some of those were.
We either will be or are currently considering for a second round.
I don't know what that level is because those are coming from various offered officers throughout our system, but.
We expect again to see some more of that but.
I really can't quantify that at this point that goes I'm I'm not sure. We just got some encouragement with some of our hospitality our restaurants I feel like we're going to see a good bit less than that.
Segment as well.
So.
Some of our customers have returned to full payments already so I've got a modification and paid through the modification period, which.
That was somewhat surprising to me when I looked at it so.
I think we've got a fair number of them that have returned to their.
Regular payment structure.
But I can't quantify right now what we feel like we're going to.
The for almost like around of modifications, but I do think that is going to be.
Significantly less than it was in the first round.
Okay healthcare.
We would kind of think we're going to wind up in with about half.
The dollar volume a modified that we had the first round so from say 20 plus percent to maybe 10% to 12%.
Then when everything gets kind of flush through the system in the second round.
Gotcha, Okay, Yeah, and that's what makes it fluid I guess right is that so you're you're still.
Assessing whose whose migrating over to a second round who's not okay.
And then just a follow up on Kobe exposure I appreciate the deep dives.
You gave on a hospitality in restaurants, and retail Cree I would assume that that's reflective of the level of concern or that the questions are getting but can you remind us just more of the broad base of what you view as youre.
Spectrum of.
Cobot sensitive portfolios. So total as a percent of loans, especially with now with first advantage baked in and recognizing that some companies have.
Refine this right some companies have expanded the number sector some have pulled back.
So I see hospitality is like 5.8% restaurants 5.2.
Maybe you can remind us what retail Cree is as a total and should we what other sectors should we be looking out is manufacturing is it fair to consider manufactured housing.
But sensitive sector that you're looking at more closely or are there others like health care and things like that thanks.
Those are Kevin those are the three that we felt like deserves some.
Some special attention.
In our presentation.
We had a a slot on manufactured housing.
At the end of the first quarter when we did our first quarter earnings review and.
You know honestly from our experience now all over the last couple of quarters.
And the watching that portfolio, it's performing very well, we don't think theres any real sensitivity coded 19 in that portfolio.
And so the three.
We got out there that we gave some detail to are the ones that we really feel like we got the most exposure we begun.
Some questions about our construction portfolio Allen may want to comment on that but.
The one four family construction, which is a good chunk of what we do is performing very well right now.
Are bigger builders are you know, we're telling us that their sales and closings or higher.
This quarter than they were the same quarter last year. So that's a that's a factor of the a couple of things I think.
Interest rates continuing to be lower in resulting in a low mortgage rates is one of them.
You know the other one is people are just not putting their homes up for sale. So there's not a lot of resale activity in the market.
And when you want to buy houses on by one that's that's moved one is under construction so.
You know depending on where are you all in the country that see LD piece of the portfolio may or may not be considered scratched their code that impacted but we don't think it is for US you have anything you want to add to that.
Most of our builders or or seeing increases in sales and they're not saying a lot of people.
Oh walking away from a pretty sales there they're closing out their move in that.
So a lot of a lot of houses turning a lot of closings that are or actually happening rather than just get front end sales.
They are building in price points that people won't.
Lower interest rates have made the price points as I have more affordable and.
Lack of any kind of a resale market because of Covidien people not will not wanting to show not wanting to walk in someone else's house as a really.
Help that market so.
We feel very good about that they're.
The builders are they were surprised.
At how will that we're doing.
As as this kind of took off with everything that everybody was concerned with from a encoded.
Kevin I'll I'll, just say to I mean, we've continued to.
To highlight the the restaurant portfolio and.
Just you know anecdotally and we mentioned this last quarter too but the.
The portfolio that we have is very heavily.
Focused on the QSR ended the of the sex of the sector.
And.
Those those guys are most of them are doing really well right now in fact, I know we've had a couple of our larger customers.
You know returned to a full payment this quarter.
And what I'm hearing from.
The Taco Bell.
KFC type.
Franchise operators is that their sales are actually up in the second quarter over the same quarter last year, one of our larger customers told me their sales were up 3% as probably on a lower expense base since a lot of there.
In store dining is just you know now started to come back so.
We'll continue to probably talk about and highlight the restaurant segment for us.
Just because it is one where we've got a lot of exposure but.
Given the weighting in the QSR in.
We feel pretty good about the performance or that piece of the portfolio.
Okay, and the retail Cree I guess.
Your slicing it up which is very helpful, but like total it looks like its little 200 Ah.
10, or so million right is the way to look at it out about the total loan book, but then sliced into different.
Parts of a retail and construction right.
Yes, that's correct.
And then part of the broken down by.
Some major segments with anchor tenants or.
Single credit tenants.
Got it okay, alright, great. Thanks, guys.
Thanks, Kevin.
Our next question will come from Catherine Mealor, what KBW. Please go ahead.
Hi, Katharine good morning, Hi, good morning, good morning.
Talking about the margin for a minute.
Some maybe an outlook for how you're thinking accretable yield will will flow into the rest of the earnings is it really didn't quite or for that to me.
To that level continue and then also how you're thinking about the core margin fell even nice.
Dancing in the core margin this quarter, how much of that you think a sustainable or do you can't pick up down flat from here. Thanks.
Sure I'll call it a I'll, let Jerry take a swing at it and I may have some additional comments when he.
Yes. Thank you for the question Katherine so.
Wow look at our our accretion will start with that is we had.
37 basis points.
Worth of margin.
Contribution coming from early payoff, so we wouldn't expect that to.
The as meaningful in the third quarter.
Standard accretion of course will still apply that was about 39 basis points during the quarter.
And then we had tax credits and added about 11 basis points for the quarter.
Going forward I think we still have some room for margin improvement from the funding side.
We have a rather large portion of our time deposit portfolio that will mature or reprice. During this quarter and Oh, we think that it's only that were to be adjusted.
These kind of our standard rice at the moment that alone would be able to contribute.
Meaningfully to our margins for this quarter.
What we don't know of course is what would happen on the loan side with perhaps some loans going on non accrual, we don't anticipate that would be.
A meaningful detracted from our from our yield but.
Never say never.
I don't know side.
Really answered your question, but I think we're seeing some really good opportunities we have made some pretty aggressive.
Changes in our deposit pricing.
The second quarter, and we had some commitments from the first advantage merger the maintain rights through June Thirtyth. Those obviously now expired and we repriced those lower as well on the.
On the money market side, So I think all those do present, some real opportunities repriced lower.
And on the cats are happening, it's probably because then you get it maybe just real quick Fovista I'm on the Cds is there anyway to quantify what Cds only show this quarter and it and it went right.
We had a little over $220 million to Cds maturing this quarter.
Quantified that if we've broken down to our our has five years CD right, which is not the likely scenario, but even at that.
Our other scenario was still say four basis points on our cost of funds bank wide.
Not just on that portfolio and bank wide so that.
Rather meaningful and I think the you know that.
If they were more to reprice down to our one year right that would be about six basis points NIM contribution for the quarter.
Great. So we have after missed this this time last year we were.
We're running a and this just in legacy rely but we were running the promotion.
On a 12 month CD and I make the average rate was around two in a quarter.
On that that block a Sunday so we've got about 125 million of that it is maturing in the second in the scheme in the third quarter.
At an average weighted rate of about 222.
So were you know we're expecting.
I would expect to see somewhere between another five and 10 basis point expansion in our core margin. If you want to think about our core net interest margin that threeseventy.
You know probably in the 375 to 380 range this quarter.
Right.
And then [laughter] your new production millennial.
I haven't changed all that dramatically either sensors I cant your loan yields on new regulations are holding and that's your statement.
Yeah, we from we're just trying to hold the line on pricing and I think we've done a pretty good job that it we haven't really talked.
A lot you out of that what's in our loan pipeline.
We started the third quarter with a pretty healthy pipeline.
It's.
Probably something you'll just see with a lot of banks deals that you know we saw we're going to get closed in June hit kind of migrated into July and they are now migrating into August so good pipelines, a little bit you know squishy its little hard to get our hands around when a lot of this is going to close but we.
We're seeing pricing hold up you know above the 4% range remains.
Especially on construction loans, where we you know we're going to average you know prime plus a half the prime plus one we got floors in just about every one of those would get a half point the.
And so that's you know that's what we've talked about this in the past, but thats. Good good yielding production for us and we'll continue to see that the other good.
No news and we just to kind of alluded manufactured housing.
Portfolio. They are they are continuing to book.
Pretty strong production.
I'm at a rate bitch somewhere between eight in the quarter in 8.5%.
And so even though you know in general rates have fallen off pretty dramatically this year.
We just got a very productive unit up there and they were continuing to put new loans on at the same rates. They were putting them on you know when the in the first quarter this year.
And so you know that portfolio for us it probably doesn't sound like a lot it grew from.
We were at 205 million I believe at the end of the quarter. So we had growth of maybe $10 million in that portfolio in this in the second quarter.
They're continuing to put a good results up to that that yields that are you know there's still very strong.
Thank you.
Dollar amount at PPPC that came to me this quarter.
There were four can you talk about the fee income from PPP loans.
Yes.
Yeah, we're forecasting for the third quarter about 415000.
And that's that's assuming nothing is for given that we just keep the loans on the books for the whole quarter and it was just under 300 that couldn't remember what it was in the second goal is little bit lower than that and second quarter in that range.
Okay great.
I had a super helpful. Thank you.
Thanks, Catherine look forward to see you next week.
And our next question will come from Graham Dick What Piper Sandler. Please go ahead.
Hi, guys good morning.
Conversely, even today alright. So you guys just grab the on ambitious goal of building out a bigger bank gives you great markets.
I think we'll definitely I can't make that possible long term.
But you know near term as borrowers.
A little less confidence in them more uncertainty in the economy, what's kind of your outlook for for loan balances here in the back half of the year and then theoretically if the economy is looking a little better 69 months are now what do you all think your target for loan growth to be and how are you hired comparing strategically for that kind of situation.
Now I'm not sure I heard all the questions you asked so I'll I'll take the one I did hear which was kind of only in the bat expectations for for loan growth.
And you know a big driver that I think is gonna be I'm.
Just how.
The pace of this recovery kinda unwinds in.
I'd say I'm, probably a little less optimistic today than I was 30.
45 days ago.
National is kind of started a little bit in terms of its reopening a lot of our businesses and middle Tennessee. So you know, we're seeing a a better economy than we saw in the first quarter, but.
I don't like anybody really knows what the pace of this recovery is going to look like over the balance of the year. So.
We're you know I'm I'm guessing that.
That loan growth is probably still going to be relatively flat and the third quarter and probably the fourth quarter as well what kind of looking at a zero to 5% growth.
Our current pipeline would support better growth in that but again a lot of our customers I think are being very cautious as well and they're just not launching into the new projects.
Having investors Paul by the Wayside, a new projects whatever the case may be there they just kind of.
Faltering a little bit on you know commitments to spend money on new projects right. Now. So you know until that really picks back up I think it's going to be something we're just can say kind of flat loan growth.
And probably the one exception to that that I can see would be in what we talked about the you mentioned on construction lending.
Because there's so much churn in that it's very profitable for us we don't really expect to see that growth in terms of outstandings at much but our home builders are continuing to do very well in this market, we do have quite a bit of and.
As yet unfunded construction closed in construction loans, it's continuing to fund up we'll get some growth from that too, but Ali and I'd say zero to 5% for the balance of the year would probably reasonable for us to look at for loan growth.
Yes.
Alright, great that's super helpful.
So kind of little solid so that's what do you guys thinking I know you commit to be sent to M&A and long term.
But you just integrate you deals and I'm thinking are you guys going to be look to be optimistic on the back half of a of this environment I'm looking maybe for some stress banks or anything like that that might want to partner up.
I am optimistic about M&A longer term.
I don't think we'll see much between now and the end of the year.
We're certainly ready.
We've gotten both deals that we closed this year fully integrated and.
Really have met our expectations for both of them exceeded a especially with first advantage.
So we've got a good team that's ready to get engaged if we need to I think a lot of banks are still very internally focused that doesn't mean, we're not continuing to have conversations are you on a regular basis trading earnings releases are making phone calls things like that.
Your comment about you know a stress scenario.
I'm not real sure we want to stress bank unless its a.
You know in assisted deal, but there's still a lot of you know really solid banks around middle Tennessee and.
Around the Chattanooga, North Georgia area. So.
We're ready I just feel like the.
The other side is got to be has got to be some willingness there too.
As a practical matter.
If you're a potential seller you got to get a.
Comfortable with selling your from your buying for basically tangible book or even less than that and I'm just not real sure.
A lot of bank boards, and Ceos are ready to do that at this point.
But it is a cornerstone of our strategy going forward I'd say you know if we if that if I had to.
Look in my Crystal ball, probably the first half of next year before something really gets a live.
And and that's going to depend on.
The course of the recovery.
Okay, great. It makes sense in a very helpful. Thanks, guys and congrats on great color. That's all for me.
Thanks Graham.
Our next question will come from Freddie Stricklin with Janney Montgomery Scott. Please go ahead.
Hi, good morning, guys.
Morning.
I'm just wondering if there's any common theme onto the hospitality borrowers comprised smoker second deferral classes, it geography or service level just anything in that.
Common characteristics.
We'll take them.
There's not really.
At least in the first round. The we don't have many full service most of ours are limited service.
Most of them or outside of of downtown area. Here. We've got you know a number of different geography, the number of different flags.
I think it's just the lifting of advance for travel and then folk are getting a current with travel again is really where it's we're going to see that.
I think that we're we've seen some improvement in occupancy levels. Some of those have then.
At the expense of 80 or.
But we still seen occupancy come up 30 of up to 30, or 40% I'm getting close to where they can break even and cover all their debt but.
For us, it's been pretty well across the board with all of our.
Operators that are that they've seen a need for some assistance at least in.
The first round, but with some of the.
Some of the travel picking up we've seen some of those not meeting that assistance at this point I'm. So we're encouraged with some improvement in cash flows just overall.
Does that that remain kind of mirrored the downtown area. We've got a couple of properties down that way.
They're still having some trouble because.
Really nothing in lighted downtown Nashville is really open back up yet.
And and so tourism and travel along those lines is still a somewhat slow to recover but we think that overall, we'll see a.
A meaningful reduction in the second level requests for modification in the hospitality.
Got it thanks Alan.
And then I just had a quick follow up on the merger questionnaire.
I heard Dan mentioned, something about potentially north, Georgia, I know your longer term not Tony maybe first half next year, but.
As you're kind of strategic outlook on geography or size really changed.
We're filling in the footprint or would you consider a deal and you know, Georgia, Alabama in North Carolina.
Just metrics right.
Yeah, I, probably should have said far north West, Georgia, If you think of north, Georgia, including Atlanta that really wouldn't be in our our target. So target geography steady is really not changed.
We've done a I think you've done a terrific job building our franchise in Chattanooga and getting some additional scale around that would make sense. So you know take.
So I go out maybe 50 miles or so you know when a circle around Chattanooga picks up Bradley County.
We're Cleveland is down in the northwest, Georgia, where you've got Dalton.
Some of those markets have some potential for us and then outside of that it's really stayed the same in middle Tennessee, We think whether its middle Tennessee kind of southern part of Kentucky, Northern Alabama, There's some good opportunities there that longer term we got a.
I think we've got some real potential we developed some partnerships with.
But but we havent changed that much in terms of the geography is I'm not not really interested in a and going too far away from.
You know our home, we kind of proven that we can do M&A in the geographies, we've defined and make it work I mean listen the fact that we were able to get first advantage.
Overdid on time, when we basically couldn't be any face to face training with anybody I think was was terrific and don't know that we could have done that as well if we.
You know had somebody in Birmingham, Alabama for example, and I Love Birmingham, but.
It's just it's not.
We have not expanded the geography, we're looking at size wise.
I'd say.
Given where we are today, a $3 billion it would probably be a little bit more of a challenge to look at something under the half billion.
Community Bank as you remember was about 270 million when we took them in but it was just the right fit it was a contiguous county to Davidson County, and you know all the metrics made sense to us.
There may be some like that but are still left but it would have to be a really good deal the.
To get serious about it under say under half billion dollars.
Gotcha, that's super helpful. Thanks Man, that's it for me guys congrats on great quarter.
By steady.
Again, if you have a question. Please press Star then one our next question will come from Joe Fenech, What do you have the group. Please go ahead.
Hi, Joe Good morning, guys.
Good morning.
I'm doing well.
Most of my question Fred just two more quick ones here I guess just back to Catherine's question on the margin appreciate the near term commentary, but looking out past all the noise the purchase accounting TPP excess liquidity all that stuff. How do you think about the longer term run rate.
The margin of the business you're running now the dam with the acquisitions, you know basically where does the NIM settle out longer term in your opinion.
At M&A and accounting.
Wow.
Got a tough to say longer term I mean, again, I'd say I guess, if if you want to make the assumption that the rate environment that we're in right now is going to be with us for say the next 12 to 18 months.
I would see.
Like I said, maybe another five to 10 basis points. This quarter and then I think it probably flattens out after that we don't have the.
The big CD maturities going into the fourth quarter at higher rates than that we that we have this this quarter.
And.
I think we've done a good job with keeping our loan yields are fairly stable.
But I don't see that Theres, a lot of potential for that to expand unless we wanted the double the size of manufactured housing portfolio, which were probably not going to do that was a joke that away.
So.
Probably safe 375 to 380.
This quarter and then I think it just settles out at that level for maybe the next two or three quarters after that.
It sounds about right yeah, I agree I don't think long term.
We're going to see a significant change in our ability to lower deposit right.
Passes the next couple of quarters, just because we're kind of hitting.
Hitting the low end, what we can do there and there there's still pretty competitive market here for deposits that we would be.
You can't go below market or risk runoff there.
Loan side again is advancing I don't see the way of a lot about the gas price on our our portfolio. So could be some downside risk again as you know if we had an uptick in non accruals, but we don't see anything meaningful.
On the horizon yet.
Okay.
Fair enough and then I know first advantage present as a full quarter you closed it right sorry, the second quarter, but just confirming guys that you see this level of expenses.
19, and a half billion or so it was a good run rate thinking about as we move forward I heard Jerry say earlier that you guys expect some additional cost saves in the third quarter. Just wondering if those will fall to the bottom line or there'll be some offsets.
I think most of them the will will fall to the bottom line remember we had.
We did have for about a half of this second quarter Joe.
Since we did the conversion first advantage in mid May we had some expense related to.
Run into core systems, we had some personnel expense that went away. After the conversion was finished.
Hadn't really talk that that much we did.
We include the information in our presentation, we had some.
What about 800000 restructuring charges it was basically basically settlements.
That won't be with us in the third quarter. So.
Our run rate for the third quarter, probably about like it was in the second quarter and then we'll we'll have some.
Well, let some additional expenses but.
I don't see it expanding.
From there we were in the second quarter, you'll also have summer LIFO not repeating the merger expenses. We think we had all of those pretty well recognized at the end of the second quarter. So we shouldn't have anything meaningful.
Corner.
Okay. Thank you guys.
This concludes our question and answer session I would like to turn the conference back over to the van or for any closing remarks. Please go ahead.
Thank you I don't really have anything else I. Appreciate everybodys time. This morning, and you know all in all its a it's been very encouraging to have a.
A really solid quarter.
For us produced by.
What I think is you know the senior best bankers around.
And ER and to be able to do that while we basically got 40% of our.
Our workforce working from home limited service in our branches.
And an economy that so yeah, that's really having a tough time right now so I want to thank our team again.
Thank you for joining us and we look forward to catching up at the end in third quarter.
Thank you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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