Q4 2020 Reliant Bancorp Inc Earnings Call
Please proceed.
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Good morning, and welcome to reliant Bancorp's fourth quarter, 'twenty and 'twenty earnings Conference call.
Today's call is being recorded hosting the call today from reliant Bancorp has the ban our junior chairman and CEO. He is joined by Jerry Cooksey Reliant Bancorp's, Chief Financial Officer, John Wilson, Reliant Bancorp's, President and Alan Mims, Chief Credit Officer of reliant Bank.
Please note reliant Bancorp's press release and this morning's presentation slides are available on the Investor Relations page of the company's website at Ww Dot reliant bank Dot com at this time all participants have been placed in a listen only mode. The call will be opened for questions. After the presentation.
During this call members of reliant Bancorp's man and 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 uncertainties and other factors that may cause the actual results performed.
And that's or achievements of reliant bancorp to different material from any results performance or achievements expressed or implied by such forward looking statements.
Many of such risk 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 statements, which speak only as of the day. They are made certain of these risks uncertainties and other factors are discussed and reliant bancorp's public filings, but.
The Securities and Exchange Commission, including 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 refer you to page one of the presentation slides for safe Harbor statements regarding forward looking statements and non-GAAP financial measures and other information.
I would now like to turn the presentation over to Mr Art, reliant Bancorp's Chairman and CEO.
Yeah.
Thank you operator, and good morning, everybody. Thanks for joining us for our fourth quarter earnings call.
But given the challenges, resulting from the COVID-19 pandemic.
Particularly rewarding for me to announce that our team produced another outstanding quarter.
For many individuals and small businesses have been impacted by the COVID-19, pandemic and social unrest.
Fortunate that economic conditions, and our local markets have not deteriorated like many areas of the country I couldnt be prouder of our team and our customers who have adapted to overcome many challenges and contributed to our success.
And also extremely proud of the recognition we received in October.
And we were named as the best small bank and Tennessee by Newsweek and its first ranking.
Financial institutions that best serve their customers needs and to do.
Today's challenging times.
Whatever we face our goal is to continue serving each other our customers and the communities and which we live and work.
The results for the fourth quarter are summarized on page two of our presentation.
And the substantial synergies that we anticipate from the two mergers completed earlier this year for being proven out with revenue enhancements and cost savings realized as expected.
Throughout each quarter of 2020.
And we've been able to maintain strong asset quality metrics and demonstrate growth and many other key measures.
Earnings per share core deposit growth efficiency ratio and tangible book value appreciation for accretion.
And as you can see our earnings per share for the fourth quarter was 73 and that's up.
97% from the fourth quarter of 2019.
While our return on average assets of one 6% showed an increase of 84% from the fourth quarter of 2019 ROA of 87 basis points.
Comparability, he has increased and large part due to the improvements and our net interest margin and efficiency ratio.
Our adjusted net interest margin increased 11 basis points from the prior quarter the.
For point O, 9%, a measure, we're particularly proud of and a current interest rate environment.
Not only have our bankers maintained profitable loan pricing, but we've been able to attract and retain low cost deposits through various initiatives is reflected and our total cost of deposits, which declined 45 basis points for 64% from the fourth quarter of 2019 for the fourth quarter of 2020.
We're especially pleased for the growth and noninterest bearing deposits, which have grown from 16% of our deposits at the end of 2019% to 22% at the end of 2020.
While some of this increase is due to government government stimulus, we believe a substantial portion of the increase.
This is due to our team's focus on low cost deposit initiatives and our business customers increase liquidity.
For example, we opened almost <unk> hundred new checking savings and money market accounts and the fourth quarter.
And less than 1% from the same quarter in 2019, which was pre pandemic.
I think and outstanding achievement for our team.
Loans declined during the fourth quarter and.
Solid loan production was slightly outpaced by higher than normal repayments.
And we've seen borrowers sell properties and pay off loans sooner than anticipated to take advantage of perceived favorable individual tax rates.
And Additionally, PPP loans accounted for $18 million of the decrease in loans as these loans were either paid off or forgiven during the quarter.
We closed $170 million, however, and new loan commitments during the quarter at a weighted average rate of 439%.
One segment of our loan portfolio I'd like to highlight is our manufactured housing segment.
We've discussed this with you and the past, but I'd like to point out that it makes up almost 10% of our portfolio.
And at year end and had an average yield excluding any purchase accounting accretion of nine 1%.
The portfolio also grew 22% and 2020 and were anticipating similar growth in 2021.
We believe that products such as this differentiate us from our competitors will continue to look for similar differentiators and future acquisitions.
Another bright spot for the quarter was our efficiency ratio when evaluating our efficiency ratio. We believe the bank segment adjusted efficiency ratio and non-GAAP measure.
More closely aligns with how we monitor expenses its not skewed by our mortgage company.
And this measure has improved 25% over the prior year to 47, 2% for the fourth quarter of 2020.
Again, this demonstrates our expense management realization of planned merger synergies.
Before I and my initial comments, let me talk for a minute about asset quality.
Not seen significant credit deterioration and our loan portfolio, which is evidenced by continuing low levels of nonperforming assets and net charge offs.
However, we continue to modestly increase our allowance for loan losses due to the unprecedented.
And uncertain environment, we're operating in.
Alan Mims, our Chief Credit Officer, who will provide more detail about the loan portfolio and a few minutes.
But for now I'd like to turn the call over to Jerry Cooksey, Our Chief Financial Officer for a detailed look at our financial results Gary. Thank you Duane and good morning.
And thank God, we had another very solid quarter and Youll see that will take you through some additional figures.
As shown on page two of the earnings presentation for quarter 2020, net income was $12 $2 million for 73 per diluted share.
Net income included three items of note and I'll expand on for.
Purchase accounting accretion was $2 8 million for the quarter with 726000 of that attributable to early payoffs of acquired loans.
<unk> noted on previous calls for purchase accounting accretion from payoffs has declined over the last three quarters and anticipated.
Purchase accounting accretion contributed approximately 12 points net of taxes to earnings per share.
Provision expense was $950000 for the fourth quarter, we increased our allowance for loan losses to total loans your appointment and zero percent.
When including our remaining purchase loan discounts with our allowance this metric for us to $1, 62% at December 31 and 2020.
Lastly, we received approximately $1 $3 million and bowley proceeds recognized and noninterest income during the quarter.
These funds provided us the opportunity to restructure our investment portfolio payoffs and higher rate borrowings as well as to accelerate and expense projects into 2020, providing strong momentum into 2021.
The net impact of these transactions increased earnings per share by approximately <unk> 15.
And while Dwayne mentioned and our ROA at one 6%.
I would also like to point out our return on average equity was $15 four 8% for the quarter for significant 84, 4% improvement from the fourth quarter of 2019.
AE of seven three percentage.
And our return on average tangible common equity was even more impressive at 19, 38% for the fourth quarter of 2020 or 57, 4% improvement from the fourth quarter 2019 royalty fee of.
Of $12 three one percentage.
Moving on to page three I'll touch on some factors surrounding our margin.
This slide presents our adjusted net interest margin and non-GAAP measure.
Which and tax equivalent adjustments to net interest income and remaining purchase accounting for government.
Our adjusted margin and steadily increase was the fourth quarter of 2019 from 336% to for one 9% and the fourth quarter of 2020.
The 22% increase of the precedent for our team's efforts and a challenging interest rate environment.
Page four shows a consistent increasing performance of our bank segment and.
And efficiency ratio for our most recent acquisition and 47% for 51%.
On page five with different several measures of shareholder value.
One item I would like to highlight and the improvement of our tangible book value per share and the fourth quarter of 2020.
Following our key transactions earlier in that year, we ended the fourth quarter at $15, three 9% or 20% annualized increase from the linked quarter due to strong net income.
We are particularly proud of it and the last year, we've essentially earn back the entire dilution, which resulted from our 2020 acquisition.
We believe we can continue driving shareholder value through earnings and through building tangible book value.
Let's move to page six and look at our loan portfolio.
Loans held for investment totaled $2 3 billion at December 31, 2020.
Slight decrease of $57 million from September 30.
And while loan growth is expected to be tap and due to the current economic environment for our pipeline is promising and sets the stage for further expansion of our market share in the coming quarters.
Loan yields declined 10 basis points from the linked quarter, but the decline is primarily from 14 basis points of lower purchase accounting accretion.
The lower levels of purchase accounting accretion were anticipated as we move further away from the original acquisition date.
We recognized roughly $1 million from interest income and fees on PPP loans during the fourth quarter.
And of this $1 million.
Approximately $400000 resulted from payoffs for forgiveness.
Our loan coupons plus seats for the quarter with and without Pvp different volume of one basis points selling our core loan portfolio is the true driver of our yields.
Turning to page seven and our deposit portfolio continued to trend upward and the fourth quarter, our deposit portfolio totaled $2 $6 million at December 31, and 2020 and.
And has grown at a CAGR of 35, 5% in 2016.
Our deposit growth continued to decline from.
And 96 basis points and the fourth quarter of 2019 to 51 basis points for the fourth quarter of 2020 share.
And on the right side of the page. We've also had continued success and reducing our use of wholesale deposits.
While still maintaining access to cost effective funding.
On page eight our capital ratios continue to beat the definition of a well capitalized financial institution and available liquidity remains adequate to fund our company.
Our capital ratios continued to improve despite the economic uncertainty and we remain very comfortable with our capital liquidity and reserve levels and.
I'll now turn the presentation over to Alan <unk>, our Chief Credit officer for his perspective on our loan portfolio and credit metrics.
Thank you Jerry and good morning, I'll begin my comments on page nine of the presentation credit metrics continued to remain strong through 12 31.
Nonperforming assets and past dues continue to be minimal and well control like previous quarters. In 2020, we continued to strengthen our allowance position through our normal provisioning process and taking into accounts continuing concerns arising from the COVID-19 pandemic.
We reported limited net charge offs for the quarter of three basis points annualized the entire fourth quarter provision of $950000 is attributable to COVID-19 concerns as the loan portfolio remains a vigilant glad we're continue to compute our allowance level based on the incurred loss methodology.
While we have seen some improvement and national and local economic conditions concerns remain was spiking barrel basis and continued interruptions for full reopening of the economy.
We actively monitor market conditions and will respond and our allowance methodology is appropriate for.
For the fourth quarter provision allowance receipt reached 90 basis points of total loans held for investment.
It is important to note that purchase accounting rules require the acquired portfolios.
Valued at their fair value, which makes the allowance for loans ratio appear load. However, when earthquakes and other creative purchase discounts or consider total reserve for credit loss becomes 162%. The ratio further improved to 167 and net of PPP loans at quarter and we build out we are adequately provided.
And for possible losses.
And for promotional purposes. We continue to include slides on pages 10 through 13 for details on our construction and commercial real estate portfolios and segments and we view as having increased risk during the COVID-19 pandemic and included details of our hospitality and retail CRE portfolio to highlight the strength included.
While we realize those categories are general and generally presumed to be at higher risk of default and the current environment our in depth and continuing to review the borrowers have indicated very few issues and those categories.
And I would also like to provide and update on the loan modifications and the assistance we provided our customers throughout 2020 as you will note on page 13 of the presentation. We provided initial payment relief to over 20% of our portfolio, either and principal deferment or full payment deferrals for up to a 90 day period.
Those deferrals were granted.
Liberally for a federal regulatory guidance for a second modification requests would perform and much more detailed level of due diligence to confirm a valid business need for those requests and the second round of deferrals, we granted for fewer requests and generally generally with less concessions such as allowing the customer to go to interest only.
Payments rather than full deferrals are granting deferrals for only one month, rather than a preliminary day period for.
For the second round of modification request in particular, we've also been paying close attention to confirm theres not been a material decline and borrowers financial conditions and <unk>.
<unk> and conditions warrant relationships are downgraded and accordingly.
And for December 31, we have only had very few borrowers downgrade at quarter and modified loans made up only 1% of volume.
We continue to work with borrowers affected by the pandemic to ensure the best possible outcome for all parties for.
Finally, I would like to update our PPP loan program throughout both rounds of funding for the program and 2020, we were able to serve 890 for small businesses and our market with $83 million and funding would.
We began submission and forgiveness requests for the SBA generally for those loans greater than $150000 and <unk> 31, and so a reduction and PPP loans of $18 million, primarily from the forgiveness process.
The recently passed and.
Consolidated Appropriations act granted much needed clarity and simplicity for those borrowers with loans of $150000 of lift.
Those rules are finalized we expect an increase and forgiveness applications for those affected borrowers and importantly, the act also provides additional assistance to small businesses with another round of PPP funding.
Loans proved instrumental and supporting many small businesses during the early stages of the pandemic.
And as surge and cases of continues and in fact the economy. These funds will provide important capital to help sustain those impacted businesses. Thank you I'll now turn the presentation over to Dan for his final closing remarks.
Thanks Alan.
To conclude my comments this morning by reviewing our 2021 strategy.
Which is found on page 19, excuse me page 14 of our presentation.
As we continue to grow our talent acquisition and retention remain top priorities.
In June we were named the top workplace by the Tennessee and newspaper here in Nashville, one of only two local banks on the list, which we believe.
As a testament to the strong culture at our company.
Moving to adaptive during the COVID-19 pandemic, we recognize the need and strengthen our digital presence is customer behavior has changed.
One of our 2021 initiatives include building out and optimizing our digital channels to make banking easier for our customers, especially in a post pandemic society.
Whether through changes to online banking, our mobile App, we are excited about providing new technologies to our customers.
We also believe current economic conditions will create opportunities for strategic acquisitions.
Although due diligence will have to be even more comprehensive and credit focus.
We demonstrated our ability to identify execute and successfully integrate and value enhancing acquisitions and we remain on the lookout for potential partners.
With our size and in the geographies. We've targeted we think we can be a great partner for banks, we determine that it is time to pursue a sale.
As a way of creating value for their shareholders. We will continue to be disciplined about our approach to M&A and only look at deals and it'll be accretive to earnings.
Maintaining our track record of consistent organic earning asset growth is critical to our long term success.
And that comes from building lasting relationships with customers and our markets.
My volume loans are participating and syndicated credits.
We expect loan growth to be slower in 2021, but believe that the relationships our bankers and bill will continue to result from high quality balance sheet growth from 2021.
Our recent acquisitions of community Bank and Trust and Cheatham County, and first advantage Bank opened new markets for us, including the attractive Clarksville MSA.
And those markets have performed well for this challenging period.
And our legacy markets have also started to rebound and we're seeing an increase in loan demand.
And the PPP loan program.
We expect that demand to accelerate as the Nashville economy recovers.
We're currently reviewing our branch network for redundancies and exploring additional branch locations with complement our current market.
And then controlling expenses is a continual focus and 'twenty 'twenty, one will be no exception.
We continue to look for opportunities to leverage our infrastructure and operating and efficient manner.
So despite the challenges 2000 Twenty's has brought our communities are continuing to be very proud of how our employees have risen to the challenge of servicing our customers and building relationships and a very tough environment.
And our financial results are evidence of the exceptional team and the great customers, we get to serve here at <unk> Bank.
We're looking for the Mou and are excited about what the future holds.
Operator that concludes my remarks, this morning, and we're ready to take questions.
Thank you and at this.
Sadly, we will now begin the question and answer session.
I ask a question you May press Star then one and you touched too soon.
If youre using a speakerphone please pick up your handset before pressing the keys to withdraw your question. Please press Star then two.
And at this time, we will pause momentarily to assemble the roster.
Patrick.
Okay.
And a great question today will come from Brett <unk> with Heartbeat. Please go ahead.
Hi, good morning, and.
Good morning, everyone.
How are your demand driven.
And then final and thanks Brett.
I'm doing well. Thank you wanted to start off just talking about.
Expectations for loan growth and you said it would be a little slower. This year. Maybe can you talk about is that partly a function and I think expecting additional payoffs and.
How do you feel about the organic pipeline and maybe just a little color if you could.
And the growth outlook and how you're feeling about this year.
Sure. So we're kind of modeling growth right now Brett and mall.
5% to 6% range issue I think it's probably a function of.
A couple of different things.
Payoffs from our certainly hard to anticipate.
Especially when we look out a few months I think the the reasons for pay offs from this year, probably going to be a little bit different and we saw in 2020, where there were quite a few asset sales.
But we expect that to continue at some level I think.
For US more importantly is just still the uncertainty and the economic climate.
As we see how.
2021 unfolds.
Regulatory environment.
Tax policy that might come out of the administration and other many other initiatives and commodity administration, where we go on with the.
With the coronavirus and.
Is this spike we've seen and allow us to avoid losses are going to put a.
And what kind of a toll blanking on the economy or is it going to gradually go away. So I think those are all factors that probably impact loan growth.
Competition on good quality credits for.
For rates and <unk> is very strong again and it's.
It's amazing how quickly the banks in this area flipped the switch from.
We're just trying to get our hands around the impact of the pandemic, let's go out and.
And you'll get all the good new earning assets we can get.
Having said that.
Our current loan pipeline is still.
There is very strong very solid if you, especially if you look at historically, what we've had.
North of $100 million and.
And New Orleans, and the pipeline and the next 90 days.
Those are all deals that are priced fairly well.
We also have currently on our books.
And I'll talk about this a little bit before but if you look at our.
Top 10.
Closed deals that are that are closed and construction loans, you've got over $150 million and fundings that we anticipate over the next slide 12 to 18 months.
They just haven't hit the books yet. So these are deals that we close.
Where typically you're going to have a borrower who.
He is.
As a little bit uncertain about whether they are prolonged for a big project and.
And to go ahead and start planning world as the economy recovers and we do think Youll recall of our personal and think there'll be more of like a second and third quarter event.
Youll start seeing those fund up as well so.
I think all of those factors kind of weigh into our forecast, we do expect to see some organic growth. This year outside of M&A, but I think it's still a little bit murky.
Even in what I consider to be a good market and Nashville, certainly is at but.
Those are the <unk>.
Factors and I think that are kind of.
And our way and either positively or negatively on loan growth this year.
Okay. That's great color and then wanted to talk about expenses and you are improving the digital channels and you are also looking at the branch network and the core efficiency ratio and the banks, obviously gotten really solid.
Maybe just for the outlook on expenses, if you can and just thinking about the expense run rate and what you have to spend versus <unk>.
Central efficiency gains this year.
I'm going to I'm going to let Jerry cooksey.
I'll handle that one.
Yes.
We have we obviously just went through our price.
<unk> cycle for sure.
For the year and.
And as part of that.
A lot of time for taking incident.
And that structure.
We're predicting are.
Selling anyway, and our budget that we're going to end up with.
And first quarter and.
Noninterest expenses lower than we've had and in the fourth quarter 2021, and 2020 rather.
And partly because we had some onetime expenses.
We accelerated into 2020.
We had some only income and we renewed the analysts were not going to give us credit for onetime income. So we went ahead and offset that with some onetime expenses and.
And would reduce our future run rates for that.
And that totaled about $305000 and one time.
Noninterest expenses and the fourth quarter.
So Brad I'll, just add real quick.
And we start and our planning process and.
Our target is to.
Increased non interest expense.
And we kind of take into account, what we expect from a revenue standpoint, but we targeted originally about a 3% increase overall and I E. This year and 2021 versus 2020.
We.
I think we can I think we can obtain that that does not include.
Any savings that we expect to get from our branch transformation project and we will be unfolding that pretty quickly here and the first quarter, but we did have some opportunities to.
To look real closely and our branch network and.
Maybe pare back a few branches and.
And my idea was that to the extent and we can do that and we can get some savings out of that will and we will.
Basically use that.
And revenue to pay for.
Upgrades to our digital channel and so theres some already built into the budget, but.
We we realized coming through the pandemic that customers one of their business and a different way and we.
And the.
Experienced in the past so.
We're going to make some necessary investments, but and.
And basically use what we save and the branch transformation projects and pay for those.
Okay.
That's helpful. And then maybe just one last quick one on M&A, you mentioned that and obviously it would help if your stock price was.
Higher.
Maybe any color if you could just on markets demand and you want to look at and size ranges that you might be interested in and acquiring obviously did two last year.
Are you hopeful youll get one done this year.
Okay.
Yes, I am hopeful we will get one done and there is really no.
And.
Very active going on right now and are maintained contact with Ceos around the markets that we've kind of targeted.
Brett.
And would certainly hope to have something that we can announce.
Before we get into the fourth quarter, but.
We're basically targeting what we targeted in the past in terms of geography, its middle Tennessee.
Which kind of moves up a little bit into southern Kentucky, and down and the North Alabama.
And then the <unk>.
Area around Chattanooga, and we've got a.
Really nice operation and Chattanooga that Terry Todd runs for us.
And we've talked about Terry and what we've done and the path. So.
And the ability to deleverage that operation to get a little more scale and two it would be helpful that would be kind of a.
Chattanooga area may be down and the north Georgia.
Don't really want to focus too much on size and obviously as we get larger.
And we would prefer to do M&A with a little bit larger buying split.
Kind of substance to say that.
But there are a couple of dozen.
Candidates and the geographies that I just defined and.
And we know who they are.
Generally the size is going to be kind of five.
$5 billion and above.
But not always and CVT last year was smaller but it was a great fit for us and a contiguous market to Nashville. So.
That's kind of what the landscape looks like I continue to believe.
And that.
The fundamentals that drove.
Pretty robust M&A in 2019.
Still there.
Thats.
Lack of.
We will clear succession at the board level and at the <unk>.
Senior management level and a lot of these banks no liquidity and their shares and.
And.
As the economy gets a little bit more certainty to it I think youll see.
M&A activity pick up and.
And certainly.
And as you know I mean, a strong stock price helps M&A.
We've been running around 130% of tangible book value.
Think we deserve better than that but.
Relative to some of our peers that are and the M&A business and.
And Tennessee, I think we're still in pretty good shape, we can certainly coal.
For one off if we can get it to the table.
Okay, that's great color congrats on the quarter and the full year.
Thank you I appreciate it.
Yes.
And.
And our next question will come from Stephen Scouten with Piper Sandler. Please go ahead.
Good morning, everyone. Good morning.
Guys. A quick just follow up maybe for Jerry on the kind of non core and non recurring items I saw the 253000, and I guess FHL be charge called out, but I think you noted maybe 305000 and total so I'm wondering what else is in there and is that indeed inclusive of that $2 53.
No the 253 was.
And interest expense.
And a prepayment to federal home loan bank for $305 and noninterest expense.
Combination of for branch projects and 90 projects that we had scheduled for 'twenty, one that we werent accelerated into 'twenty.
And then there was one other items and and the $1 3 million was the bowl again.
And Thats, correct and $40 million worth of bowling game and the other one was the loss from security sales and Pittsburgh, almost 600000, Steve and notice that was kind of get it and.
Some low yielding securities and our portfolio.
Perfect, Okay, and virtually all federal home loan bank.
And our home loan bank advances that we paid off just had they were historic and.
The advantage that we have from.
A much higher rate environment, and we went and pay them and also.
If we need to go back and re borrow and to be.
More than 2% lower.
Right from the same maturity.
And when and where those paid off and will you have some incremental benefit into the core NIM that'll occur in <unk> 'twenty one.
The federal home loan bank advances for.
And in the fourth quarter I think.
Around the middle of November and if I recall correctly.
And.
So yes, we'll continue to.
Six and benefit from a significantly lower borrowing costs come forward.
Okay.
And how do you think about that core NIM I guess from here I mean, you had a really nice 11 basis point jump here this quarter nice move down and funding costs. What do you think you can see in terms of trends from.
From here on the on the core NIM.
Especially with I think new loan yields were and the 439 range versus $4 70 kind of average loan yields. So how should we think about the core NIM pressures and benefits.
Market primary let John Wilson to talk about where he sees the new loan funding on and the banks that and manufactured housing and gives us a nice benefit by virtue there now around 9%.
On an average.
And for that loan portfolio and.
And so we expect that portion of it contained and to grow at a pretty substantial pay.
And its rock solid credit and you can tell from our loss history.
On our funding side, we did see the exploration in December.
The time deposit premiums that we were <unk>.
Advertising for first advantage.
CVT.
Time deposit premiums expire in January this month.
Much much smaller dollar amount obviously.
So we got a little headwind on our funding cost from that side that we are continuing to look at.
Opportunities 16 have moved lower on our CD and money market rates primarily.
Two more than offset that so.
Household debt.
We'll see flat to falling on it and funding cost for the deposit side.
And non deposit funding cost.
Continuing to see.
For the total deposits or federal home loan bank advances similar.
Similar sources.
And those continue to come down and so we're seeing.
And the five to eight basis points.
For up to two years.
Duration, so pretty hard to argue with that and those types of funding costs.
Ladies and I would just say to the on the.
Deposit cost side and when we got.
We've got about $125 million and Cds.
And that are maturing and the first quarter that are all north of $1 70.
And related I think the average weighted average rates about 170 actually will.
If we experienced the same thing we did and the fourth quarter, where we had about an 84% retention rate.
We'll be able to retain a good bit of that.
It's that or at least for 100 basis points lower.
And.
What we.
What we've got them all and today.
And.
Offline for a tank if you look at our interest bearing deposit costs.
I think we've probably got another 10 basis points or so that we can.
And then out of that this quarter my goal is to get and interest bearing deposits down below 50 basis points I don't know that we'll get there and the first quarter, but.
That's kind of what we're shooting for.
Okay very helpful and then.
And here you mentioned.
And you factored housing and then you talked about kind of growth expectations and I think that was kind of north of 20%. This past year and could be even better. This year. So how do we think about that in terms of size for the portfolio around 10% today, how big would you be comfortable with that portfolio.
The percentage of the total loan book.
Yes.
Stephen It's a it's a question is kind of tough to answer I mean weighted.
We had started out.
When we first.
And started dancing with first advantage bank and net.
Manufactured housing portfolio, probably should be.
Limited to around 10% of the total portfolio and really.
No as much of that how that operation is run as we day to day.
And I think.
The group sitting around the table here, we've all gotten very comfortable with.
With the discipline, the rigor that they bring to their process for underwriting.
And <unk> and.
And you look at just about any credit metric.
We achieved Woodward and apply it to the consumer portfolio the size and we were.
We're in really good shape, it could be charge offs past dues.
And we've just got it and we've got a really good.
Solid organization with focus not only on growth, but on credit quality. So.
Flipping ahead from a year ago.
I feel good about the growth and the portfolio I don't know that I currently have a.
A specific target of whether it's 10 15 or 20% I think it just depends on what we see and the just the dynamics for that loan portfolio.
But certainly at a 20% growth this year, if we can do that.
And that gets assumed for $250 million to $275 million range.
And excuse me and.
And Thats, a little bit north of 10% based on what we're seeing for <unk>.
For the end of the year, but not by much so where we.
And we're comfortable with where we are especially with the team that we've got with Alex time zero and Jamie.
And run and net portfolio registered a terrific job with.
And with everybody and counted from soup to nuts.
Great Super helpful. And then maybe just last thing for me I'm curious and you talked about M&A, but also talk about how you think the stock price is a little low relative to your performance, which I would agree with and so I'm. Just wondering how you think about the share repurchase, especially given the capital build and you've had the last couple of quarters.
Yes. Thanks. Good question. So we are evaluating.
A mood.
Repurchase program.
And I remember, we had one and place for 'twenty two.
And that we suspended when the pandemic hit so we really didnt do anything last year and the board is.
As shown their willingness to consider a new plan this year.
And so I would expect us to put something in place.
Probably in the first quarter, Steven don't really know the amount right now we will have a kind of a targeted price.
Work off of but.
We do think that that is a good capital planning tool and have in place, whether we actually exercise it or not.
So we'll be looking at something and our guests, it's going to be somewhere in the $10 million $10 million to $15 million range.
Fantastic. Thanks for all the color and congrats on a great quarter and great year.
Thanks Eddie.
Okay.
And our next question will come from Kevin Fitzsimmons with D. A Davidson. Please go ahead.
Good morning, Kevin.
Hey, good morning day ban and everyone hope everyone's well.
I was wondering if we could walk through I think al and walk through some of the dollar numbers on PPP and I think Jerry you might have.
<unk> talked.
<unk> talked about.
And talking about the margin and maybe we can dovetail into that so.
If we can just kind of start what was the.
Dollar amounts of PPP loans, you guys had on the books how much has been for given how much you expect to be for given.
And then how you feel about.
The second round relative to.
That first round and then.
My next question is if we can dovetail into maybe Gerry can get into the margin and net 409 are there any PPP fee accretion in there.
And what do you expect that to.
And that PPP fee accretion to be in the next quarter or two thanks.
And so I'll, let Allen talk about the PPP.
Duration and in jewelry.
Right after that and good.
Good morning, Kevin.
Good morning, ladies.
Non 30, we were 83 million and <unk>.
For total <unk> sales.
Standings, and at the end of the year of 65, 31, and what about $18 million that was paid down or.
Forgive and most of that forgiveness process.
And really and the fourth quarter, we started that up.
Focusing more on the borrowers.
Above $150000.
Because of.
Yes.
A little bit of.
Craziness that went on political and deploying.
The forgiveness and how that was going to work out for those smaller borrowers and that was the largest portion of our number of customers.
And we focused on the larger ones.
A good number of those forgiven through that process and.
We know that there's some clarity will begin with a smaller borrowers and and anticipate those to run pretty quickly now that all they have to do is give us a certification rather than provide a bunch of documentation, which is what was required early on and so.
And so we think that'll pick up.
The new funding for PPP.
And because of our desire to see organic loan growth and the.
The way that the initial round of PPP tags for our staff.
Isolate we partnered with a third party for.
And production of those PPP loans.
Basically on this round, referring to that Portland, we will get a referral fee out of that that they will do all of the funding.
All of the Fabs.
And the application.
Our approvals and then they will be the forgiveness piece of it. So we won't have that on our books and we won't have to pay for our staff with that allowing us to really.
Focus on that.
Loan production pipeline.
I think.
To some degree.
And everywhere and into second place, while we were completely VP and the FERC Brown because of.
Because of the need of our staff too.
Work for the underwriting of those credit.
We need to get back to our normal business and.
And we did not want to for our staff away from that so we went with that.
Partnership and Bill is that we will.
Will allow us to do what we want to do and allow our customers access to both typically firms.
They made.
Is it.
Yeah and on the NIM.
About purchase accounting accretion purchase accounting accretion added about 28 basis points and the fourth quarter from standard accretion and then.
Payoffs added about 10 basis points.
And while that May sound, a little bit high and it was actually down quite a bit from for <unk>.
Fourth quarter for.
And that is due to payoffs.
We're looking at.
That's very small 14 basis points and the prior quarter.
For.
Purchase accounting accretion due to payoffs.
<unk>, we had $816000.
That was recognized in the period.
About half of that with day to forgiveness.
And we had an $18 million and.
PPP loans forgiven during the quarter.
I don't know if you had other questions for them.
More than happy to address them.
Okay. So the PPP fees is separate from the 28 bps right. That's just purchase accounting.
That's correct yes.
Okay.
So and.
As the remainder of forgiveness plays out over the next quarter or so I would expect we will see probably even more.
Ignition of PPP fees from first quarter, and maybe bleeding and the second quarter, but we won't have any of that.
For the second round.
And just being referred and is and on your books correct.
That's correct and we do have about $1 8 million remaining at the and as the year.
And on accretive PPP fees.
Got it okay.
Maybe if I could just ask one additional question about credit and it sounds like you all feel very good about credit and.
The metrics appear very strong and I think I heard you say you really haven't downgraded many of the.
Deferrals or form of deferrals, but what are you. What are you generally been seeing and criticized classifieds have you started to kind of pivot from deferrals to recognizing some of these more challenged credits is.
Being either on watch or putting in special mentioned.
And.
Yes.
Sorry about that day.
Yes.
Yes, and if you could just also talk about how you feel about the reserve.
Whether we're going to be and more of a holding the reserve at this point or slightly building it and.
And the next few quarters. Thanks.
Yes, I'll, let I'll, let al and take that.
Kevin.
As we work through the modification belief.
We asked and some downgrades.
And that had moved into criticized.
We have one that moved into criticized.
Asset we've had some others other loans that were non clarifier modification process that we've moved into.
Our criticized assets those are.
For a different than what we're talking about with modifications we've made some down.
And to pass watch.
And based on cares Act provision.
Primarily a couple of hotels and we think growth.
And we move to interest only but.
But we think theyre going to be once they come out of the pandemic for others.
We think those will be okay, they've got strong sponsors and they've got strong properties.
So we don't believe that those represent problems at this point.
We continue to field questions and requests for modifications and not all of those.
Get approved as we discussed.
Previously we look at those.
To ensure there is a real need for those.
And a lot of them.
And just ask.
The customers and continue making payments and they've been able to do so.
And our modifications have dropped and.
And stayed rather and one for sales.
From a reserve level.
We.
We'll continue to.
And look at that.
As the pandemic kind of plays out and the vaccines are taking hold and as that moves around we probably will be.
At this point I think we've been conservative.
And our building of the reserve I think we've got a good level, where and when you take away.
For the PPP loans wearable and 67%.
Which we think is really a strong.
Percentage of gross loans right now based on.
Our real credit metrics, which are non performers.
Not moving.
And significantly.
Rico.
For arm and then.
We've got very low charge offs and from the bank standpoint.
We had actual net.
Covers.
We had some charge offs and the MH division.
Overall, 1% for the year charge off level, and I think and this.
And if there was excellent.
Excellent results from that standpoint.
A further indicator of strong credit.
And these are not moving up we continue to see those.
And below our internal goals and.
So.
And.
Therefore, they hold and when they.
And see that start as a percentage of lone star for Corona.
As the economy comes back around and we continue to see strong results from our customers and our framework.
We've not just seeing a lot of problems that we for locker and indicative of.
And the need to build the reserve any further.
Would you.
Hey, Alan would you think would you view it as more you guys kind of growing into that reserve as I know it appears very strong, including the fair value discounts, but as those go away and get utilized and youre, putting on new loans that don't have those.
Do you think it's more maybe modest releasing but then kind of growing into that.
Reserve overtime.
So.
Kevin I would say.
The way I view that is where we're probably not going to be.
Looking at releasing reserves.
I would say that.
We'd probably grow into it.
This year.
And as Alan said, we're real comfortable with where we are right now but.
I, just can't see us getting to a point, where we're actually going to release reserves back so.
Will.
You'll probably see from us going forward is.
Provision expense that reflects.
A combination and charge offs and growth.
But not anything and the way of reserve releases.
Sure.
Great. Thanks very much.
And Keith.
And our next question will come from Catherine Mealor with <unk>. Please go ahead.
And good morning, Katherine Thanks, good morning.
And a lot of my questions were asked but just two.
Quick clarifications and the first is on expenses.
And you mentioned that youre targeting and about 3% expense growth pace this year.
There are a lot of moving parts, because they've got kind of partial year ends.
Okay, and then this quarter.
Hi, there because some of the onetime expense.
And what kind of brought forward and you've got the mortgage PUC and that's good.
I guess maybe that.
Is there a way to think about what that 3% growth rate is.
Based off of maybe.
Okay.
This quarter kind of taking out the one time annualized and kind of growth that 3%, maybe that's where we are.
Yes, that's a great follow up question I, probably should've been a little bit more.
And specific when I talked about NII and a little earlier.
When I was talking about 3%, we basically use the fourth quarter and a run rate.
And instead of the full year 2020, you're exactly right I realize that.
Especially for the first quarter anyway last year, we didn't have first advantage and our run rate. So what we typically do we build our budget.
Budget out is looking for where we are and the fourth quarter and a <unk>.
Factor out any.
One time events, and then just kind of use that as our platform for that growth. So basically for a 3% over the fourth quarter run rate.
Taken out for one time expenses and the onetime revenue excuse me the onetime expenses that we had in there.
We're not and would not included the portfolio restructuring or the federal home loan bank, but we did have some other ones.
We funded.
And against.
Unfunded loan commitments and the fourth quarter, we already mentioned a couple of other ones.
We had.
And increase and our incentive renew excuse me and our incentive accruals. So there were a number of factors that were involved and that was basically the fourth quarter run rate times.
100, <unk>, how we got there.
Okay. That's really helpful. Thank you.
And then accretive.
Accretable yield and what are your expectations for that level and accretively chemical and <unk>.
Sure.
And will take time.
Hi, Kenny and a little more color on the question I'm, sorry, the level of Accretable yield.
And in terms of what we have remaining to accrete.
Yes.
Is that what your question is Kathryn.
Yes, just trying to think about I mean, it feels like Accretable yield has been high the past couple of quarters, just try and think about where that this channel in 2021.
I follow.
In terms of the purchase accounting accretion the standard component it is slowing down.
Last quarter, we had 28 basis points per quarter, and about 42 basis points.
I would think this quarter, we're probably going to be and the low 20 basis point.
Our contribution from standard accretion for payoffs.
Antibody for gas.
They were 14 basis points third quarter, 10 basis points fourth quarter, and I'd say, we're probably be and the eight to 10 basis points.
The first quarter.
Yes.
Got it and just starting and <unk> just as a baseline and then you'll get some acceleration on top of that.
Right right.
Great.
Okay.
Thanks, Congrats on a great quarter.
Okay. Thank you.
Okay.
And once again, if you'd like to ask a question. Please press Star then one.
And our next question will come from fairly strict Glynn with Janney Montgomery Scott. Please go ahead.
Good morning, Hey, good morning, guys.
Okay.
So surprise and no one's asked this yet but what's your outlook on mortgage you guys had a great quarter again and mortgage and just kind of it looks like you've still got a lot of mortgage loans held for sale just wondering.
And what the outlook for that is.
The.
Mortgage businesses kind of notoriously hard.
To forecast because it's so dependent on the rate environment, a lot of factors that could change from.
Quarter to quarter, but we're expecting at least and the first quarter of 2021 another.
Really strong quarter from a revenue and bottom line standpoint.
The correspondent platform. We spent some time building out last year didn't really see the benefit we thought we would early in the year because.
And you probably remember when the pandemic hit capital market just froze up so.
A lot of momentum.
Coming out of.
Capital markets open back up a lot of demand for yield.
It's been driving mortgage loan sales for the last couple of quarters, and we see that continuing and the first quarter.
That's one piece of our business. The other one is just the normal retail mortgage business, which for us is kind of centered around middle, Tennessee, and Chattanooga and.
And.
We see a pretty good year ahead, Paddy I don't.
Don't know exactly how we're going to wind up with.
And with retail, but rates remain low and probably just as importantly homebuilding activity.
Especially here in Middle Tennessee is continued it basically at record levels.
Lot of SBA and driven by <unk>.
By mortgage rates.
Net.
I would also tell you that.
Nashville is really benefiting from a lot of and migration from other communities.
I don't know whether any gas solve this or not but.
Earlier this week U haul.
Published their survey for 2020, where they.
Comment on and look at one way moves and a one way move is basically somebody's easily from one city and moving to another city.
And for the first time.
Since I have been following any wide Nashville was number one on the list in 2020.
With a significant number of one way moves and from Los Angeles and Chicago.
People are moving here.
They want to live and a place that's got a business friendly environment, where the cost of living is modest.
Sure.
The tax rates are low.
And so I would expect that to continue and that's going to drive mortgage business as well.
So I'm pretty optimistic about the first quarter to two quarters in terms of the mortgage business.
And just.
Make sure I point out and I think everybody knows this but.
The.
Mortgage results, although they're part of some of our metrics IBM for example, I mean, there they are not additive to our earnings until we recapture the cumulative loss that we've got so.
And what you see from the standpoint of our return and our shareholders right. Now is just bank operations, but still feel real good about where mortgages today.
And now that's great and.
Yes, actually we saw company United Van lines up and similar to that you all reported very interesting thing.
Same observation and I guess my final question I know, we're getting 11 o'clock here, but was just wondering whether those kind of relative difference.
And economic activity across your footprint or are things better and the suburbs versus Nashville proper.
Is.
Or.
How does the outlying area around Chattanooga look or is it just kind of consistent across the footprint just wondering whether there's any kind of variation and.
And what Youre seeing.
Yes, I think there is patti and I do think Nashville.
Davidson County.
Yes.
The Metro Nashville market, if you want to call it that probably a little bit more restricted in terms of activity than some of the surrounding areas and.
So the counties that are contiguous to Davidson County.
One of which is Williamson county, where we operate in.
And Clarksville MSA, just for the kind of north.
Rest of us.
Chattanooga, all same day doing very well.
And I think the day.
Here's a those counties.
<unk> has taken a little bit more.
Circumspect approach too.
Put more restrictions on the economy.
So the economic activity stepping back.
Gatherings restaurant closings et cetera et cetera.
Having said that Nashville.
Is doing okay. I think we've been really fortunate to have a governor who is.
And not step in and try to do anything statewide he's led for local.
Market leadership, the political and.
And public health officials make their own decisions, so starting to see a little bit more activity.
Coming out of Nashville, as well and and.
And my Dad is Nashville.
Had a tough year, it's not only the pandemic, but.
Back to earlier last year, when we had the tornadoes that ripped through NAV.
Cash flow, we had the explosion on Christmas Eve and.
And if you hadn't seen pictures of that it's it's.
It looks like a war zone down on second Avenue.
But.
And those those camp.
Overcome the attractiveness of the Middle Tennessee area and.
And so whether it's Davidson county, or any of the other markets that we operate in.
I think there's a lot of optimism going into 2021.
We are starting to see you guys probably are too.
A significant drop off and.
Positive cases over the last four to five weeks and we will run and.
And at a high somewhere close to 8000.
A day for a while and now we're back down to that 30000 3500. So.
I would expect to see kind of a continued relaxing.
Restrictions on gatherings, and even in Davidson County, and.
Nashville.
National is going to come back and it may be second and third quarter, but.
I think we will definitely be back and.
And are things that.
And people here to Leo to play and whatever the case may be they are not going anywhere.
Okay.
Got you perfect I appreciate all the color and congrats on a great quarter guys.
Thank you Barry I appreciate it.
And this will conclude our question and answer session I would like to turn the conference beverage and <unk> for any closing remarks.
Thank you operator.
Just want to thank everybody for being with US This morning.
We are.
We're very proud of our team very proud of kind of the way our communities kind of thought through a lot of issues.
Over the last 12 months that are even that are non COVID-19 related and.
And.
I'm, just I'm very optimistic going forward about our company and our future.
And appreciate.
The way you guys follow us.
Feel free to give any of US call. If you have any follow up questions and.
With that operator, we'll we'll adjourn the meeting for the day.
The conference has now concluded. Thank you for attending today's presentation and at this time you may now disconnect.
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