Q1 2021 Reliant Bancorp Inc Earnings Call
[music].
Hosting the call today from reliant Bancorp is the ban our junior Chairman and CEO. He is joined by Jerry Cooksey Reliant Bancorp's, Chief Financial Officer, John Wilson, and 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 Www Dot reliant bank Dot com at this time all participants have been placed in a listen only mode. The call will open for questions. After the presentation.
During this call members of 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 and subject to risks and uncertainties and other factors that may cause the actual results performance or.
The achievement of reliant bancorp 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 and courts 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 with 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 it's the 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.
<unk>, <unk> and non-GAAP financial measures and other information.
I would now like to turn the presentation over to Mr. ARD reliant Bancorp's chairman and CEO.
Good morning, and thanks for joining us for our first quarter earnings call.
I'd like to open the call with a few comments about our markets Nashville is the economy.
Already showing signs of a sustained recovery late in the first quarter.
And as a result, we saw a significant increase in loan demand and.
New COVID-19 cases have dropped dramatically in recent weeks and the.
Flow of announcements of our company such as General Motors, Oracle and cooked R and micro buy assets will bring more than 10000, new jobs to Nashville, and parks will over the next few years.
Additionally, construction of new homes and the area continues to be a source of the economic growth.
Mike and Nashville, one of the hottest housing markets and the country. According to the latest Remax National housing report.
Strong net in migration driven by low taxes of relatively low cost of living and a business oriented political environment is generating record levels of residential and commercial construction.
The reliant team produced another outstanding quarter.
Delighted by strong earnings and superior asset quality and and improved net interest margin.
We're also continuing to capitalize on the synergies from our two mergers in 2020, both in terms of enhancing revenue and realizing cost savings.
The results of the first quarter of summarized on page two of our presentation.
As you can see our earnings per share for the first quarter was 73 cents.
While our return on average assets was 164% and our return on average tangible common equity was $18 eight 4%.
And in the last quarter profitability has increased and large part due to improvements and our net interest margin and efficiency ratio.
Our core net interest margin increased 15 basis points from the prior quarter to $4 two 4% of.
A measure, we're especially proud of and the current low interest rate environment.
And not only of 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 63 basis points from the first quarter of 2022 of the first quarter of 2021.
Non time deposits checking savings and money market balances.
Grew 33% on an annualized basis during the first quarter.
We believe the substantial portion of the increase is due to our team's consistent focus on low cost deposit initiatives and our business customers increased liquidity.
Our tangible book value per share is another bright spot for the quarter growing at 16% annualized and ending the period at $16 per share.
We were also proud to be able to increase our dividend 20% during the quarter.
Loans declined 1% during the first quarter. However, when you exclude PPP loan forgiveness and repayments.
Our loans held for investment were virtually flat from the end of the year.
However, we closed $254 million and new loan commitments during the quarter at a weighted average rate of $4 two 1%.
Additionally, we have a robust pipeline entering the second quarter.
And we anticipate loan growth and the range of 6% to 8% during the balance of 2021.
Directing your attention to page three we provided information on our markets, primarily the Nashville MSA. The highlight the strong business environment, we operate in.
Now I'd like to turn the call over to Jerry Cooksey for a detailed look at our financial results Gary.
And and good morning, and advanced said, we had another very solid quarter and you'll see as I take you through additional figures as shown on page two of the earnings presentation first quarter 2021, net income was $12 1 million or <unk> 73 per diluted share net.
Net income included a couple of items of note that I will expand on.
First our purchase accounting accretion was $1 $8 million for the quarter down from $2 8 million and the prior quarter as noted on previous calls the purchase accounting accretion from payoffs has declined over the last four quarters as anticipated.
Second there was no provision expense for the first quarter as loans held for investment and were virtually flat.
Our allowance for loan losses to total loans ended the period of 0.91% or 1.56% when including our remaining purchase loan discounts.
I would also like to point out of our return on average equity was $15 seven per cent for the quarter and our return on average tangible common equity was even more impressive at $18 eight 4%.
Moving along the page four I'll touch on some factors surrounding our margin again. This slide presents our adjusted net interest margin and non-GAAP measure, which adds tax equivalent adjustments to net interest income and removes purchase accounting adjustments.
Our adjusted margin has steadily increased since the fourth quarter of 2019 from 336% to $4, two 4% and the first quarter of 2021.
This 26% increase is a testament to our team's efforts and a challenging interest rate environment.
Page five shows the consistent increasing performance of our bank segment and efficiency ratio of since our most recent acquisition of 47% to 51%.
When evaluating our efficiency ratio, we believe the bank segment adjusted efficiency ratio of non-GAAP measure more closely aligns with how we monitor expenses as it is not skewed by our mortgage company. This measure has improved 22% over the prior year to 51% for the first quarter of 2021 and again this demonstrates our.
The expense management and realization of planned merger synergies.
On page six we present several measures of shareholder value.
One item I would like to highlight again is the improvement of our tangible book value per share following our merger transactions last year.
We ended the fourth quarter of $16, a 16% annualized increase from the linked quarter due to strong net income.
We're particularly proud that in the past the year last year, we have more than earned back the dilution, which resulted from our 2020 acquisitions.
We believe we can continue and driving shareholder value through earnings and sort of building tangible book value.
Let's move to page seven and look at our loan portfolio.
The loans held for investment totaled $2 3 billion at March 31, 2021, a decrease of $23 million from December 31.
Loan yields remained consistent with the linked quarter at 563%, even with purchase accounting accretion declining $244000 during the quarter the.
The lower levels of the purchase accounting accretion are anticipated as we move farther away from the original acquisition date.
We recognize roughly $1 million of interest income and fees on PPP loans during the first quarter.
Our loan yield for the quarter without PPP would've been 558% only of five basis point decrease from our reported loan yield of 563%.
Showing our core loan portfolio is the true driver of our yields.
On page eight we've provided a breakdown of our loan portfolio and the weighted average rate or coupon prior to any fees for each segment.
Turning to page nine our deposit portfolio continued to drive.
Drive upward in the first quarter, our deposit portfolio totaled $2 6 million.
At March 31, 'twenty one.
2021, and has grown at a compound annual growth rate of 33, 6% since 2016.
Our deposit cost continue to decline from 111 basis points and the first quarter of 2020 to 51 basis points and the first quarter of 2021.
And as shown on the right side of the page. We have also had continued success and reducing our cost of of excuse me our use of wholesale deposits, while still maintaining access to cost effective funding.
On page 10 capital ratios continue to meet the definition of a well capitalized financial institution.
And available liquidity remains adequate to fund our company.
Our capital ratios continue to continue to improve despite the economic uncertainty and.
And we remain very comfortable with our capital liquidity and reserve levels.
I will now turn the presentation over to Alan <unk>, Our Chief credit officer for his perspective on our loan portfolio and credit metrics.
Thanks, Gerry and good morning, I'll begin my comments on page 11 of the presentation and credit metrics continue to remain strong through March 31, 2021 with little change from December 31, 2020, as such you will see little change and our allowance for loan losses of between the two periods non.
Nonperforming assets and past due and past dues continue to be minimal and well controlled and we reported net recoveries for the quarter 30 basis points of annualized we continue the compute our allowance level based on the incurred loss methodology, our management team actively monitors market conditions throughout our footprint continued to improve.
And national and local economic data further loosening of restrictions and our markets and rising vaccination rates gives us comfort and our allowance level at quarter end of the allowance represents 91% of total loans held for investment and went on the creative purchase discounts are considered total reserves for credit loss becomes 156%.
The ratio further improved the 159% net of Paycheck protection program loans.
It's important to note that purchase accounting rules require acquired loan portfolios and the value of that their fair value, which makes the allowance to loans ratio of appear lower than normal at quarter end and we feel that we've adequately provided for losses.
One segment of our loan portfolio I would like to highlight on slide 12 is our manufactured housing segment. We've discussed the segment with you and the past the.
The point out that it makes up almost 10% of our portfolio at quarter end of the portfolio has an excellent average yield excluding any purchase accounting accretion of eight 5% to 2% net charge offs for this segment have been below 40 basis points for over five years and past dues and the portfolio are consistently well below national averages.
We believe that well managed products such as this differentiate us from our competitors and we will continue to look for similar differentiators and future acquisitions. Thank you I'll now turn the presentation over to <unk> for his final comments.
Thanks Alan.
I want to conclude my comments this morning by.
And while reviewing our 2021 strategy, which is found on page 13 of our presentation.
And as we continue to grow talent acquisition and retention.
The top priorities for the company and June of last year.
We were named the top workplace by the Tennessee and newspaper.
One of only two local banks on the list we.
We believe that's a testament to the strong culture of our company.
And providing opportunities for our team members to grow within the company and serve our communities as a top priority for us.
During the COVID-19 pandemic customers pursued alternatives to in person and financial transactions.
And while the move to digital banking channels was already underway, we saw it quickly accelerate.
And as a result, we experienced increased bone volume heavy mobile adoption and significant declines and branch transactions.
So we had already begun investing and our website and remote banking capabilities.
We've renewed our strategic focus to strengthen our digital presence and improve our data mining capabilities. The.
And the intent is to better serve our customers and position us for growth post pandemic.
As part of a broader branch transformation project. Our 2021 initiatives will include the launch of of customer engagement Center.
Phase one of this project will provide our customers with real time assistance through email and chat and phone channels.
And phase two will add authenticated chat sessions within online banking.
Secured through a <unk> process.
The high adoption rate of new technologies during the pandemic is expected to carryover and a post pandemic environment.
And provide future opportunities to leverage our investments as we add new customers through both organic growth and acquisitions.
On the M&A front.
We believe current economic conditions will create opportunities for strategic acquisitions.
Although due diligence will have to be even more comprehensive and credit focused.
We've demonstrated our ability to identify and execute and successfully integrate value enhancing acquisitions.
And we remain on the lookout for potential partners.
With our size and and the geographies. We've targeted we think we can be of great partner for banks.
And we've determined that it's time to pursue of sale as a way of creating value for their shareholders.
But 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 not buying loans are participating and syndicated credits.
We expect loan growth to be relatively modest in 2021.
So I believe that the relationships our bankers of Bill will continue to result in high quality balance sheet growth.
Our recent acquisitions of community Bank and Trust and first advantage Bank opened new markets for us.
Including the attractive Clarksville, MSA and those markets have performed well through the pandemic.
Our legacy markets have also started to rebound and we're seeing a significant increase in loan demand as a result.
We expect that demand to accelerate over the balance of the year as key industry segments and our markets strengthen.
We've recently announced several branch closures that eliminate redundancies and our system.
And we continue to explore additional branch locations that complement our existing network.
Although new branches will have a different look and feel.
Savings that we realized from the branch closures will be redeployed into various initiatives such as building out our digital platform.
And controlling expenses and ongoing focus and 2021 is no exception we.
And we'll continue to look for opportunities to leverage our infrastructure and operate and efficient manner.
In closing I'm very proud of the first quarter and results were presented mix and I'm excited about the momentum of it gives us for the rest of 2021.
Our financial results are evidence of the exceptional team and the great customers, we get to serve here at reliant.
Operator that concludes my remarks, this morning, and we're ready to take questions.
Certainly and we will now begin the question and answer session.
I asked the question you May Press Star, then one and you touched and bad if you.
We're using a speakerphone please pick up your handset before pressing the key to.
To withdraw your question. Please press Star then two.
At this time, and we will pause momentarily to assemble the roster.
And our first question today will come from Graham <expletive> with Piper Sandler. Please go ahead.
Oh and grammar.
One of them.
So the NIM, the NIM, excluding pvp and accretion.
It was up pretty nicely this quarter I guess on line.
And yes, the held in pretty well.
Are you thinking about about potential for more expansion and this adjusted margin ex PPP over the next few quarters.
Thank you.
During the relief and deposit costs should probably outweigh any any incremental loan pressure on the from those lower new loan yields.
Well, it's getting harder and harder to day Graham.
And we think.
And <unk>.
<unk> tended to focus on our core NIM.
Versus our reported NIM so.
At $4 24, I think we came in a little bit stronger than I would've expected and the first quarter.
I think we've got some room for improvement.
And I wouldn't think and the second quarter you'd be looking at more than a few basis points.
We do have some some room on the deposit side and we've continued to push deposit rates down on our transaction accounts.
We've got still got some older Cds of it'll be maturing and the second quarter that we'll be able the price down and where we've done that generally we've been getting.
And somewhere around 100 basis points on renewals.
And our retention rate has been high to its been and the low 80% range on the.
CD renewals so.
We'll continue to see some some improvement there.
And the mix of deposits as is also continuing to improve for us.
And then when you look at.
At the wholesale piece of our funding.
We kind of washed out some old high rate federal home loan bank advances and the fourth quarter.
So we saw some benefit from that and the first quarter, even though we don't really have anything with the home loan bank right now.
Wholesale funding.
Other its internet or through the state of Tennessee is.
Its generally run in and the.
And what Jerry <unk>.
<unk> basis point range right now the.
The lower than that.
And we've had to use it.
Well, that's the issue, we really haven't had to use it much some of the funds of popped up a little bit there.
Still under 20 basis points regard.
And on the loan side.
It's a real challenge right now, especially for good quality credits.
The competition is pretty intense and the and the Nashville area.
Fortunately our mix has been a has been a lift force construction lending is very profitable, whether it's commercial or single family residential.
Having the manufactured housing.
Portfolio of.
Roughly $250 million at eight 5%.
As a big plus.
We're not going to we're not going to be chasing a lot of <unk>.
And 3% five to seven year fixed rate loans.
Where we do that it'll be for good customers that we have of full relationship with but.
I just don't think it's it's really smart.
And the load and up the portfolio with a lot of low rate fixed rate loans and.
And I think the interest rate environment expectations for inflation that are on the horizon.
It's probably a good enough reason not to do that so.
All of that being said I think the dynamics gives us an opportunity for <unk>.
Basis points and the second quarter.
And our core NIM somewhere and the maybe three to five basis point range is that.
Well the one the one bogey.
Every bank is going to have to deal with and we don't quite yet know precisely how it's going to wash out yet is the American rescue plan Act is going to fund billions of dollars and deposits for.
The state and municipal.
To the.
And that comes into our bank, we have to find a way to leverage it now.
Certainly we will look at run off wholesale deposits not renewing any of those look at of.
Offsetting some of that the though.
Deposits through Cedar swaps or things like that lowering rates, but it's going to be a significant challenge for every bank and the country. So absent.
And those ARPA signs, yet and I think we and that's a very reasonable assumption the.
Unknown is the ARPA.
Okay, Great that's really helpful.
And then.
On the reserve so one of the actual dollar amount is a lot higher than it was pre pandemic the percent of loans.
Isn't all that different from where it was I guess say for 2019.
By then the bidding and you've also got that cushion from the remaining acquired loan discount I.
I mean can we expect the CEO growing mid this reserve with a few more quarters of minimal provisioning.
Or do you think youll, probably tried to try and manage it closer to these levels as loan growth returns.
And I'll take the I'll now share.
We.
We feel like we are adequately reserved where we are and.
And using the discounts were at 156, and we think Thats adequate and we had no growth for the quarter here.
And.
And just pre.
At the time when we when we did the last merger we were expecting the loan loss reserve debate somewhere around 74 basis points, which would have been.
Prior to those.
Discounts. So we feel like we're fairly high on the reserve right now I think as we continue to see loan growth.
And and of the pandemic kind of wanes I believe we will see that we grow into the allowance I am not.
The fan of.
Releases.
Sure.
<unk>.
The excess of provisions and kind of a knee jerk.
The reaction so I think that.
We will grow into it.
And we'll we'll keep it.
Based on our computations ware.
We feel like we're conservative, but we're in the ballpark of where we need to be.
And I would say grand and the other the other piece of that the reserve level as loan losses and.
We were in a net recovery position and the first quarter second quarter started out strong as well and.
We see.
Our credit metrics good credit metrics.
<unk> through the rest of the year.
Yes.
Okay, Great. That's all from me guys congrats on another solid quarter.
Thanks Graham.
And our next question will come from Brett did with the Heartbeat. Please go ahead.
Good morning, Brett.
Hey, Good morning day van.
One of just to start just on that 6% to 8% loan growth.
Guidance and I'm curious.
Is there as youre thinking about that number is that of function.
We're expecting some payoffs and just the competitive landscape is isn't really tough because as you noted the.
The landscape here has definitely gotten a lot more favorable economically so it seems like.
It's still early but it seems like it could be of great year for for growth and then I'm just curious on the manufactured housing.
It seems like a lot of folks are really comfortable with that portfolio of at this point would there ever be any thoughts and maybe having that be taking the 10% kind of cap off of that in line and that ground to be a bigger piece of the portfolio.
Yes, So let me address the organic loan growth piece first.
And I've kind of said.
I guess since we got through the end of the year that on an annual basis and 2021, we were looking at somewhere between 6% and 8% loan growth.
And I really just havent backed off on that.
The first quarter's flat and the first quarter typically for us is going to be a little bit soft because of the seasonality and some of our business lines.
Single family residential construction being B and a big one.
The economy here is doing very well.
It's starting to kind of emerge I don't really know at this point, Brett I would say we are.
We're back in 2019.
A lot of the stuff that's come out of that you've read about and.
And Nashville.
And the last say month or two Oracle.
Bringing the 8500 jobs Here's a good example, and when those are those are still a ways off those are 234 years out.
And so I still think that 6% to 8% for the full year is a reasonable number.
There is there's a lot of cash coming into the market.
We have customers every day, just like everybody does that get those kind of offers they can't refuse.
And they sell a business or they sell a piece of real estate and a lot of those transactions are just done per cash.
But having said that.
The.
If you look at our our new loans and the first quarter of about $250 million.
You look at that number and so while loans were flat, but you closed $250 million and new business and.
And a lot of that is going to fund up over the balance of the year to the extent of its single family It will probably fund up and Ah.
And of a 12 month cycle to the extent that it's commercial it will fund up over a good bit longer cycle.
And maybe 18 to 36 months. So we think there is some.
And behind US in terms of what we've already closed and the first quarter and then April is as <unk>.
Art and out to be a.
A really solid first month of the second quarter force as well.
I just don't I don't know that I would forecast.
<unk> digit loan growth given all of the.
And the dynamics that I just mentioned to you I think it's it's still reasonable for the year for us to look at 6% to 8%.
We could push that a little bit higher but.
I'm comfortable with where we are given the current state of the economy I do think Nashville still has some recovering to do.
And although we're getting stronger every day people are moving into Nashville at the same pace they were two or three years ago.
And I still think that we've got there.
And there's a little bit of drag leftover from the pandemic that we're having to deal with.
And thank you.
Oh, I'm, sorry, three out of our own.
I'm, sorry, Brett Yes, you asked about the MH to I'm sorry.
Got off on the regular loans and.
So.
On the MH.
And we've talked about.
10%.
Cap on the MH portfolio.
But that's just kind of been a just the general kind of internal guideline and.
Thank my credit guys.
Would probably tell you as we've gotten more and more comfortable with the the <unk>.
Process debt are manufactured housing group goes through to originate loans and collect loans.
And you look at the credit metrics and net portfolio, whether it's charge offs or per.
Past dues and their superior to the industry. So.
And I don't know that we've got a hard and fast 10% cap, we probably got some room to let that grow.
Didn't see a lot of growth and the MH portfolio and the first quarter, mainly because of the weather and the impact that it had on manufacturing.
A really tough cold and snowy first quarter.
But we've got the same group in place and we're starting to see a nice pick up in production and.
Manufactured housing this quarter. So we think we will hit our plan for manufactured housing, but I I don't know that I would be too concerned if we pushed up a little bit above 10% at this point.
Okay.
And I appreciate the color there and then the other thing I just wanted to ask the van is you've got a little better multiple here today and M&A has obviously been a part of the strategy.
I'm just curious if youre hearing.
Tox pick up if you are hearing more and reception.
And having discussions I guess I'm, just curious to hear a few.
A little more color on how optimistic you might be about doing M&A this year and and.
Are there any markets in particular, the mid <unk>.
Feel more optimistic about.
There is.
And the and the area I guess, the kind of the area that we would be interested in not not I'm not talking about geography as much as I am by size, so $500 million and above and.
We think there are couple of dozen banks that are and our geography kind of of our defined geography that would meet that test, but on the small bank side. There just has not been a lot of activity going on and Tennessee. This year.
And there've been a few announcements, but not a lot we do have.
Regular conversations with the number of the banks that are that are kind of our target.
Group of banks, but.
At this point.
Say, we are probably I don't know it might be of quarter two quarters off.
From having the kind of interest that leads to two of deal getting done.
You're absolutely correct about.
Our currency and we're trading today right at a 180% of tangible book, maybe a little bit less and that that does give us the ability to do.
The deals debt.
We might not have been able to pull off this time last year when the trading level.
The level was a good bit lower but.
And it just seems like on the small bank side, there's just not as much urgency right now and.
I'll just tell you there is probably a lot of people thinking about it but are they willing to.
And to really step in and say, we're ready to have some serious negotiation.
Just haven't seen as much of that so we remain.
Remain very interested and middle Tennessee is still our target market.
There is some certainly some opportunities that if you go just a little bit north of the state line up and the Kentucky down South of the state line down and the North, Alabama and around the Chattanooga area and might be even up and the Knoxville one of the.
The one of the things that we've.
It would kind of learned about Knoxville is and we've done it through our manufactured housing division is.
And.
It's a potentially good market with some opportunities up there and that Knoxville, all the way up and the Tri cities area. So.
There are some possibilities, but I'd say right now, we're still probably look and a quarter or two out of.
To be at a point, where we might announce something.
Okay, Great appreciate all of the color and congrats on the start of the year.
Thanks, Brett.
And our next question will come from Kevin Fitzsimmons.
And with D. A Davidson. Please go ahead.
And Kevin.
Hey, good morning, Dave and how are you.
Im doing well thanks.
Good good.
Just follow up very quickly on the on the prior question. So the the lack of urgency do you think it's just a.
The fact that maybe the markets you operate in and are quite healthy and getting better. So there is and maybe the smaller banks don't see and urgency to.
To sell or is it.
Still uncertainty about coming out of the pandemic or possibly just the same traditional reasons that.
The CEO of the selling bankers and quite to the point, where he wants and retire or kind of all of the above like what do you. What do you see is like is this just a normal.
Lack of interest among sellers or do you think there's something more to it.
Yeah, Kevin and I don't think the fundamentals of changed at all and those are.
The management succession or lack thereof.
Aging boards illiquid stocks.
I think when you layer in.
Some of the issues that we've talked about today.
Especially the operating environment low interest rate.
And a lot of banks, especially as you get further outside of.
The core part of our company, which is Nashville.
They've got low loan to deposit ratios and not a whole lot. They can do with their excess funding or their excess liquidity. So.
Those are those are all still in place.
And my guess is Kevin from just comments that I've heard and I think people are just still a little bit focused on making sure they've got.
The loan portfolio clean.
We've seen we've seen a pretty good rebound here in Nashville, I'm not sure you can say that everywhere and.
So you probably got a lot of Ceos that are still a little bit more internally focused on.
Credit quality credit clean up to the extent that's going on.
And.
And then just.
I'm not I'm not real sure of that.
Debt.
The.
A lot of target banks.
Really understand that the the.
The currencies.
Of the potential buyers are as strong as they are I mean, it's the message you've just got to get out there and talk about.
Because.
And this time last year, we were we were around $14 a share somewhere in that range.
And.
Nobody wanted to sell it.
And of one times tangible book or less so you've just got it and you've just got to get out and.
And the <unk>.
Hammer on the message.
And that messages of little bit more difficult to deliver.
When you can't get out physically and meet with people.
And I will tell you that even though I think the economy has gotten a lot stronger we still got customers.
I'm sure bankers of the same way that are a little bit has done of that getting face to face with a lot of people.
Now, it's opened up and especially around the Nashville area Youre seeing more and more people that are that are doing face to face calling them and we're doing some of it to where we're starting to see.
A lot more optimism but.
These are the things I mean, you guys know this shall have investor conferences and.
And these are the kinds of things that when you are at an investor conference or and some other format where you can.
Sit across the dinner table with somebody and talk to them and really find out about it and you get more interest.
And you can tell your story better than you can just buy.
Getting on the phone or.
And your earnings release out so I think it's a combination of a lot of things.
And the M&A environment from what the at least from what I've seen this year has been.
The fairly robust on the large side the big Moab's get done.
And there I think theyre done per a different reason and what we would we'd be looking at us and acquire.
But those are kind of the the dynamics of obviously going on right now that are.
Probably keep and smaller deals from getting done.
Or at least getting the kind of traction that I would like to see.
That's great. Thank you.
In the meantime, if those deals arent happening.
You kind of go out and on the offensive and we've heard a lot about banks hiring away teams or hiring hiring and the way producers and particularly if there's.
Sort of disruptive deals happening and theirs.
The deal right in your home market.
And in terms of synergy and the first bank and.
Are there real opportunities to takeaway talent and takeaway business that you guys are.
And pursuing or are those more of kind of singles and doubles that don't.
Necessarily get announced.
Well, there are probably more singles and doubles and we're I mean, we're recruiting heavily and all of our markets from Chattanooga the.
And out of Clark's fold of Nashville.
The one you mentioned, though Kevin is certainly a good example of of.
Of the disruption in the market.
<unk> is going to pay dividends.
The us longer term, but it's on a couple of different fronts.
One is the customer front.
And anytime you have of merger.
We saw with first bank and Franklin synergy.
There are a lot of customers that are just getting kind of jerked around a little bit they don't know who their loan officer is.
Who the relationship manager is they May day.
The.
And customers that have big relationships with both banks that they are trying to kind of scale back the exposure to so we've been we've been pretty successful on the customer front.
And we got.
We've certainly got lines out.
And conversations going with the.
And with people that are directly impacted by that.
That merger and.
And nothing that I can talk about right now, but we're certainly very interested in and some of them.
The the culture at Franklin synergy was was not what we would typically see and our bank but.
But they still do have some some good people there so.
We're having.
And having some success this year, but I'll, probably just to answer your question more directly I would probably say more singles and doubles with us and what you see from time to time taken a big lift out that's out of market and.
We've just believed and I continue to believe that if we stay close to home and work on building relationships with our customers that are long term.
We can grow organically at a pace that is going to be better than most banks I mean the.
The Nashville, MSA Clarksville MSA, most people don't really understand Clarksville debt well the Clarksville MSA is has a very strong market.
Almost no unemployment.
Huge military base of lot of retirees of lot of industry moving in the Clarksville Chattanooga is strong as well so we kind of position the company through.
M&A and.
And.
We started with Chattanooga with and LPR, we positioned our company to be and some of the best markets and the southeast and.
And I think you'll continue to see that bear fruit for us.
Okay. That's great one last one from me the band. So you mentioned earlier, the Buildout of the digital channel and that Youre going to work to kind of offset that with some initiatives like branch closures as you take a step back and look at your current size. There's a lot of with all the M&A going on and there's a lot of talk about <unk>.
And scale.
The top line of soft you need the spread these costs out over a bigger base. When you look at your current size or are you comfortable at the size level or when you look at these digital and technology investments do you say alright, when the deals come and they'll come we're not in control of that but I'd love the b.
4 billion and I'd love to be $5 billion to really ideally spread these costs out that I know are coming how do you view your kind of ideal size of that way. Thanks.
Yeah, well I mean from a.
The scale standpoint, I have been.
Pretty open about where I want to be.
The $5 billion to $10 billion and is close to $10 billion as you can get.
I think today would be would be better.
Valuations are better and certainly we can we can do more we can spread costs around a little bit more of that size.
But.
We don't have to be at five or $10 billion I don't think to take advantage of technology. That's out there what I do think we need to do is be very careful debt, we're spending money on technology, that's going to generate.
Revenue growth force or allow us to save cost.
And.
And then we've got the additional.
Don't really want more of the sound too bad, but the I guess, the millstone around our neck of having a processor that is.
Okay.
One of the Big three I mean, we are a facet of Premier Bank and.
And <unk> serve likes for you to use their products and.
And we're using a lot of their products we don't.
And every case want to use their products so.
We got to work with our core provider to make sure. We're getting the best we can out of them and still pushing all of them to.
To allow us to go out and find kind of the best in class technology.
And solutions for us so the.
And the branch consolidation that will do and this year.
I guess the way I view that as a couple of different things one is.
And we.
We've done M&A.
Basically had.
The four banks going back to Commerce Union that we've done back in 2015, all the way through last year and.
And we just had a branch network that was not very intentional.
And.
So.
And when the when the pandemic hit it just kind of highlighted to us not only do we have branches, where we don't really need them, but we've got.
<unk> 3500, 4000 square foot branches, and what we really probably need is 2500 square foot site 2000.
And so.
We started actually started about a year ago, looking very closely where we have brick and mortar and trying to make sense of it and we've announced the three closures this year.
Already we hadn't completed all of them.
Looking at a couple of more.
And then to the extent we've got.
The opportunities and markets.
The new branches and they'll just have a different look and feel there'll be smaller the <unk>.
<unk> model will be different and will have more and more traffic that will push through our customer engagement center.
So.
And that's kind of a long winded way of saying, Kevin and I think.
We can take advantage of.
Of technology, that's out there at our size today, but can we use it better at $5 $10 billion absolutely.
Yeah.
Okay, great. Thanks, Dan.
And our next question will come from Marci <unk> with Raymond James. Please go ahead.
Hey, good morning, Hey, and morning, everyone.
So I think we've had kind of the key points here and maybe just a couple of follow ups on the evolving role of technology and in fact, just just the more details on your strategy there out of the line can be a player and the space.
I believe I saw the company on a recent community Bank and Tech investment fund.
And any details you might have there as well thanks.
Sure, Yes, we did make an investment and I think what Youre one of 66 banks and invested Jerry you want to take that and when you were a little bit closer to.
And I was yes, so what we've heard consistently from our customers and from our board is that we need to be more adapted implementing the financial technology and.
Part of that and doing our own research on different ways to improve our technology, which includes the.
Looking again.
For some relief from our core.
But in going through some of that research we tripped.
And trip to cross the actually.
And the investment opportunity with jam and top of it which ensures what youre talking about the bank tech timed and.
And.
What we saw there is a.
Methodology for reviewing investment opportunities it was very methodical very.
And <unk>.
The intentional.
And.
It just seemed like.
Great way for us to learn.
And more about the company's the thorough underwriting and also at the same time take of things and equity position and in those through this finds and so we're really pleased with that opportunity.
And the biggest thing with our core is just trying to.
And if I wait to have better access to our data and I think you'd say the same about any of the big three cores that day.
I'll have a little line.
Roadblocks built into their business models.
Tend to make it difficult debt.
We're looking through.
Currently going through some negotiations with the.
Faster and also looking at some other options.
To see which one is going to be the best fit for our needs to be able to access our data and <unk>.
And.
Derive meaningful insights from it.
Okay, great. Thanks, Thanks for the detail.
Switching gears a bit on expenses.
Mentioned phase one and phase two of your new customer experience build out well that ultimately increase of the bank run rate expenses and and how do you expect expenses to trend in general with the.
The branch closures and some of the other moving pieces of their.
More of I don't think its going to increase our run rate.
We kind of calculated.
With the.
Branch closures and that's just the ones that we've already identified and.
Again, we're looking at some other opportunities but.
We were looking at somewhere around three to five a share for the once we get everything done on the the branch closure side.
And I kind of looked at that from an expense standpoint has taken it in tandem with the build out of the customer engagement centers. So.
We will be shipped and some expenses around I think it will make us more efficient and the way we handle our customers.
And also allow us to.
To really take a much closer and kind of harder look at how we staff our branches.
And I think everybody is probably doing this right now, but it was it was a big.
I'll open it up for me when and when the pandemic hit last year, and we were limiting service.
Mike and <unk>.
Asking customers to make appointments.
Encouraging and we use their telephone and their iphones or whatever to do banking with us and.
And we didn't see a drop off and deposits new account activity.
Flattened out for a good part of the year, probably a couple of quarters last year, but.
And what you would've expected so.
This whole idea of that I think taken and ongoing look at and what's your branch network looks like.
Size of branches staffing models I think it's something that we're going to have to do on a fairly regular and rigorous basis going forward.
And I mentioned earlier don't want to do anything that's not from a technology standpoint anyway thats going to.
And expenses to us, but not either generate additional revenue or save of some money and that'll be the kind of the key hallmark for me is if we're spending this money what are we really going to get out of it there are a lot of ways to spend money on technology.
And when you get through it and you step back and you look at it you say well that was kind of cool, but what does it really do for us.
And we just don't want to do that so.
I would say the balance of the year, Youll, probably see and NII run rate for us, it's not a whole lot different from what we saw and the and the first quarter.
That sounds about right, Jerry and I mentioned and I think.
Okay very good.
And that should be it from me thanks for taking my questions and congrats on a good quarter.
Thanks and Mark.
And.
And our next question will come from Matt.
Matt Olney with Stephens.
Good morning, Matt Hey, Thanks, good morning.
Most of my questions have been addressed so I appreciate that just one <unk>.
Follow up on the just from.
Remind us of your strategy around PPP I think you guys outsource. This latest round did you guys receive any kind of referral fees this quarter or is that still on the come. Thanks.
We did outsource the second round and I don't think we've gotten any.
<unk>, the and our run rate and <unk>.
We shouldnt have a whole lot of it's not a whole lot of.
From the referrals windows.
And seven basis points on what we get close per over hurdle.
Source and.
So if.
If we've seen anything is not material and the overall won't be material.
And that we've had we've had some customers that we've referred through that of <unk>.
Got and funded.
And I may have talked to you about this.
Another occasion, but.
Last year, when we did round one.
What do we do 850 loans 800.
893 loans.
And that was done right.
Right as the pandemic kind of settled in and.
And.
And our normal organic loan demand kind of slowed for a quarter and nobody was really doing anything.
With the normal.
Commercial consumer book of business, but that is not the case now and we looked at.
Do we really want to bring that in house again per round two and.
And and.
And given poor service to our customers on normal loan requests.
And we just feel like and I think we made the right decision, let's not do that.
Let's take care of our customers those are the ones those of the relationships that are going to last.
For several years.
<unk>.
Round, one and I think we're just about out of now we might have another quarter left to recognize some.
And some fee income.
That's not something that lasts so we're thinking about this more.
For the long term and and that was just what we felt like was the best decision for us.
Okay.
And then just going back to the discussion around the core margin I can't believe I can't remember if it was.
Jerry your demand and mentioned it I think there was the mention of three to five basis points can you just clarify kind of what that was.
Off of what base and which direction.
Yes.
That's true.
Three to five basis points increase.
All of the core base, which was $4 24.
Does that answer your question matter, Yeah, that's right, Okay, and just want to make sure I got that down correct and that that was debt was as Jerry pointed out that was subject to.
What's the ARPA the ARPA funding and I think there are a lot of banks still trying to get their hands around what to do with that.
And we've already we've got some some big municipal deposits and we've already started getting some inquiries about the funds that are coming in and so.
Not real sure exactly what thats going to look like or how we're going to react.
But.
That certainly could influence your margin depending on how that that unwind this quarter.
Okay.
Alright, Thank you guys.
Thanks, Matt.
And our next question will come from steady sticking with Janney Montgomery Scott. Please go ahead.
Hey, good morning, guys.
How are you.
Good I'm, good sort of little I don't know, if it's going to be there, but as gloomy here in Atlanta, but anyway.
Another really strong quarter on mortgage from you guys. Do you think you can post what you did this quarter again or are the higher mortgage rates are starting to be a little bit of a headwind over the mortgage company.
Well the higher mortgage rates are definitely a headwind and.
The mix on the retail side of our business anyway has changed and the last quarter from.
I think we were probably running around 60%.
The refi.
And now we're down to around 45, something like that is it.
For it and the last yeah.
So the mix has changed.
We're still 30.
And the construction business is really strong and Nashville, a lot of people moving here so.
The purchase money business is staying.
Relatively good for US and then we've got the correspondent platform that we built out last year as well.
The stay and fairly strong so I would be I'd be surprised if the second quarter was.
And as good of quarter from a revenue standpoint.
But.
And we've got some.
I guess from kind of fundamental business and.
And the the mortgage company that it.
That is really not been affected that much and by the rate environment. I mean people are still moving the Nashville and record numbers and.
And so youre seeing that and our retail production.
Gotcha and seasonally better in the second quarter any way to right absent and interest rate concerns.
Yes, it is the second and third quarter and going to be the best quarters for free.
The mortgage business.
Story historically, yes.
Yeah.
Got you and then just one follow up from me.
What are you what are you guys hearing just on customer sentiment and I'd imagine that's a little better.
Versus last quarter, but just incrementally.
Yes.
And do you have customers that are maybe looking to expand and werent really sure what they were going to do last quarter or just.
Has there been any change there.
John you want to per.
Well last quarter production numbers were.
Really strong for the bank and that's been kind of the theme of ending of the year and going into Q1 as things open up and this is the area of more and more of them.
Ian referenced sales comment on the pipeline.
We're very encouraged the Q2 the pipeline is.
And as strong as it is right now and it with new opportunities and we're seeing new business opportunities every day. So simple answer to your question is I think there is a great amount of optimism and.
And the business.
Market here of our customers and new customer for the bank.
Got you and it sounds like.
And Nashville is still have some natural proper still have some room to improve there to right youre kind of talking about Tennessee broadly.
Talking about.
Middle, Tennessee, I guess.
Alright.
Yes for our market spot and.
Nashville.
And as Nashville expands so those middle Tennessee is.
And it just grows outward and until communities and counties to net all of a sudden and so the spillover whether it's in our residential home construction and real estate is always a challenge.
And at least the affordable real estate is the challenge and so we're finding the.
Communities outside of the.
And the Nashville proper area.
<unk> to be of benefit from those with the builders going in there and trying to tap the land.
And it's it's been very good for Lam, and that's where a lot of the relocations of our moves the Nashville are ending up.
It's not just a dollar.
And the talents around the world.
Got it that's really helpful. I appreciate it guys. Thanks, Thanks, again and congratulations on a great quarter.
Thanks Eddie.
Okay.
And our next question will come from Catherine Mealor with <unk>. Please go ahead.
Good morning Catherine.
Hey, good morning.
Alright.
And we didn't area here and I've got a couple of is the nitty questions and why don't you.
Flow up on PPP is it is it right that you have got about $1 million last and and amortized fees from from round one to do.
904009, and $13 28.
Oh, Thank you and then again.
And then just say manner.
Roughly.
And we recognized and in the first quarter, if you want a.
The round number okay.
Okay, Okay, great and then on the.
And the next yes. It was interesting that you've had actually pretty good retention on the deposit side, you've gotten great gallon that your mix is still interest so much over the past couple of quarters is there is there a way to think about where you think CD that the percentage of deposit.
And yes, the kind of missed that.
Half of this year.
Sure.
My goal is and.
<unk> been fairly consistent about this is to see our noninterest bearing deposits at 30% of our total.
And.
And we've moved it up and the last year I think from about 16% to 22% Catherine.
So.
I think it's attainable.
And I'm, hoping we can get it done this year, we got some we got and assist with our M&A last year. So both first advantage and community Bank had good noninterest bearing deposits and of course, what you get from that is not only.
And just basically free money, but these from deposit accounts.
Those are generally commercial checking accounts all of that.
As very positive long term I mean, you don't hear a lot of people getting and.
And right now of that.
And our low cost deposit accounts, but if I think ahead four of 510 years.
The liability side of the balance sheet is to me is every bit as important as the as the asset side. So.
And it's.
It's the could.
Consistent focus of our team.
And I have got guys and here with me right now John Wilson is a good example, Alan Mims sit on a credit committee nobody gets the.
The loan approved if that question doesn't come up and we expect to see.
What I call.
And our relationship accounts checking savings and money markets.
We continue to grow.
As a percentage of our total deposit mix.
Okay.
And then on the <unk>.
Back to you announced the buyback in January.
Valuation is obviously and the.
Higher how do you think about how active you may be on the buyback near term.
And near term I don't think we're going to be active in it.
I think we'd have to see.
A.
Pretty significant decline and the stock price to be interested in doing something.
And our capital levels are very adequate right now but.
And with where the stock is trading today, I'd, rather I'd rather keep it.
Where it is and the.
And it'll be ready for an M&A opportunity for example.
And so I just don't I don't think you'll see much from us not around $28 of share.
Yeah, and makes sense and then my last one if I may probably and the.
The last thing on Saturday throw and for questions and then all of that question is just on M&A, you talked a lot about smaller deals and and you certainly have the currency for them.
Sure the appetite or kind of thought around larger kind of and that type of transaction fees and a lot of larger M&A recently and certainly scale.
The scenery and much more important today, so just kind of how do you think about larger transactions.
So the.
Maybe two questions, but from a and moh standpoint.
There are.
And then you all know the names there are a few that would at least qualify from and Moh standpoint.
I don't really I'm not sure there's a good fit for us Kathryn.
Just based on what I can see if you are.
If your question is larger banks and are they interested and us.
I think the answer to that is yes, and probably has been for a number of years now.
Nashville is.
One of the most dynamic markets in the southeast.
Our bank is.
Is truly of Nashville centric bank I mean, we've got we've got the Chattanooga office, where the $100 million and loans, but we are taking advantage of nashville's growth in every direction from Davidson County and.
And so there's going to be interest and that and and I would.
Debt to continue.
They are bigger banks that have something here they are not happy with that.
The bigger banks that don't have anything here and I don't know of many of them that don't have Nashville on there the.
The radar screen.
And I wouldn't I wouldn't expand the the population too far outside of the southeast but.
If you go around the southeastern states anybody that doesn't have much of national I guarantee you there thinking about it.
Yes.
It's helpful color and I would imagine you have a lot of interest for sure of it. It's just the balance of what can you do organically first before you would make that the essentials.
Right and.
And.
It's got to be a good one M&A and organic growth, we think is going to be.
Sustainable here for quite some time.
Great well. Thank you so much for the.
The clarity and the color and congrats on a great quarter.
Thanks, Kathryn and I appreciate it thanks for joining us.
And this will conclude the question and answer session I'd like to turn the conference back over to keep the Bernard for any closing remark.
I don't really have anything to close with operator, I just want to thank the.
The analysts that have been on the call with US today, it's always good to reconnect I don't get the same at investment conferences anymore, and just have to talk on the phone, but it's good catching up with all of the all thank you for being with us and with that we will be well and the meeting.
And ladies and gentlemen, and the conference has now concluded. Thank you for attending today's presentation and at the time you may now disconnect your lines.
[music].
Okay.