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spk00: Good morning and welcome to Reliant Bank Corp's fourth quarter 2020 earnings conference call. Today's call is being recorded. Hosting the call today from Reliant Bank Corp is Devan R. Jr., Chairman and CEO. He is joined by Jerry Cooksey, Reliant Bank Corp's Chief Financial Officer, John Wilson, Reliant Bank Corp's President, and Alan Mims, Chief Credit Officer of Reliant Bank. Please note Reliant Bank Corp's press release in this morning's presentation slides are available on the investor relations page of the company's website at www.reliantbank.com. At this time, all participants have been placed in a listen-only mode. The call will be open for questions after the presentation. During this call, members of Reliant Bank Corp's management may make comments which constitute forward-looking statements within the meaning of and subject to the protections afforded by the federal securities laws. All forward-looking statements are subject to risk, uncertainties, and other factors that may cause the actual results, performance, or achievements of Reliant Bancorp to differ 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 date they are made. Certain of these risks, uncertainties, and other factors are discussed in Reliant Bancorp's public filing with the Securities and Exchange Commission, including in 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. Ard, Reliant Bank Corp's chairman and CEO.
spk07: 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, it's particularly rewarding to me to announce that our team produced another outstanding quarter. While many individuals and small businesses have been impacted by the COVID-19 pandemic and social unrest, we're fortunate that economic conditions in our local markets have not deteriorated like many areas of the country. I couldn't be prouder of our team and our customers. who have adapted to overcome many challenges and contributed to our success. And I'm also extremely proud of the recognition we received in October when we were named as the best small bank in Tennessee by Newsweek in its first ranking of financial institutions that best serve their customers' needs in today's challenging times. Whatever we face, our goal is to continue serving each other, our customers, and the communities in which we live and work. The results of the fourth quarter are summarized on page two of our presentation. The substantial synergies that we anticipated from the two mergers completed earlier this year are being proven out, with revenue enhancements and cost savings realized as expected. Throughout each quarter of 2020, 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 accretion. And as you can see, our earnings per share for the fourth quarter was 73 cents, up 97% from the fourth quarter of 2019, while our return on average assets of 1.6% showed an increase of 84% from the fourth quarter of 2019 ROAA of 87 basis points. Profitability has increased in large part due to the improvements in our net interest margin and efficiency ratio. Our adjusted net interest margin increased 11 basis points from the prior quarter to 4.09%, a measure we're particularly proud of in 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 as reflected in our total cost of deposits, which declined 45 basis points, or 64% from the fourth quarter of 2019 to the fourth quarter of 2020. We're especially pleased with the growth in non-interest-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 stimulus, we believe a substantial portion of the increase is due to our team's focus on low-cost deposit initiatives and our business customers' increased liquidity. For example, we opened almost 1,700 new checking, savings, and money market accounts in the fourth quarter, down less than 1% from the same quarter in 2019, which was pre-pandemic. I think an outstanding achievement for our team. Loans declined during the fourth quarter as solid loan production was slightly outpaced by higher than normal repayments. We've seen borrowers sell properties and pay off loans sooner than anticipated to take advantage of perceived favorable individual tax rates. 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, in new loan commitments during the quarter at a weighted average rate of 4.39%. One segment of our loan portfolio I'd like to highlight is our manufactured housing segment. We've discussed this with you in the past, but I'd like to point out that it makes up almost 10% of our portfolio at year end and had an average yield excluding any purchase accounting accretion of 9.01%. The portfolio also grew 22% in 2020, and we're anticipating similar growth in 2021. We believe that products such as this differentiate us from our competitors and we'll continue to look for similar differentiators in 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, a non-gap measure, more closely aligns with how we monitor expenses that's not skewed by our mortgage company. This measure has improved 25% over the prior year to 47.2% for the fourth quarter of 2020. Again, this demonstrates our expense management and realization of planned merger synergies. Before I end my initial comments, let me talk for a minute about asset quality. We've not seen significant credit deterioration in our loan portfolio, which is evidenced by continuing low levels of non-performing 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, will provide more detail about the loan portfolio in 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.
spk06: Jerry? Thank you, Devan. Good morning. As Devan said, we had another very solid quarter, as you'll see as I take you through some additional figures. As shown on page two of the earnings presentation, fourth quarter 2020 net income was $12.2 million, or 73 cents per diluted share. Net income included three items of note that I'll expand on. First, purchase accounting increasing was $2.8 million for the quarter, with $726,000 of that attributable to early payoffs of acquired loans. As noted on previous calls, the purchase accounting accretion for payoffs has declined over the last three quarters as anticipated. Purchase accounting accretion contributed approximately 12 cents net of taxes to earnings per share. Second, provision expense was $950,000 for the fourth quarter as we increased our allowance for loan loss to total loans to 0.90%. When including our remaining purchase loan discounts with our allowance, this metric rises to 1.62% at December 31, 2020. Lastly, we received approximately $1.3 million in BOLI proceeds, recognized in an uninteresting time during the quarter. These funds provided us the opportunity to restructure our investment portfolio, pay off some higher rate borrowings, as well as to accelerate some expense projects into 2020, providing strong momentum into 2021. The net impact of these transactions increased earnings per share by approximately two cents. While Devan mentioned our ROAA at 1.6%, I would also like to point out our return on average equity was 15.48% for the quarter, a significant 84.4% improvement from the fourth quarter of 2019, ROAE of 7.43%. And our return on average tangible common equity was even more impressive at 19.38% for the fourth quarter of 2020, a 57.4% improvement from the fourth quarter 2019 ROATC of 12.31%. Moving along to page three, I'll touch on some factors surrounding our margin. Again, this slide presents our adjusted net interest margin, a 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 3.36% to 4.09% in the fourth quarter of 2020. This 22% increase is a testament to our team's efforts in a challenging interest rate environment. Page 4 shows the consistent increasing performance of our bank segment and efficiency ratio since our most recent acquisition at 47% to 51%. On page five, we present several measures of shareholder value. One item I'd like to highlight is the improvement of our tangible book value per share in the fourth quarter of 2020, following our two transactions earlier in that year. We ended the fourth quarter at 15.39%, a 20% annualized increase from the linked quarter due to strong net income. We're particularly proud that in the last year, we have essentially earned 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. Loan tail for investment totaled $2.3 billion at December 31, 2020, a slight decrease of $57 million from September 30th. While loan growth is expected to be tepid due to the current economic environment, our pipeline is promising and it 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 moved further away from the original acquisition date. We recognized roughly $1 million in interest income and fees on PPP loans during the fourth quarter. Of this $1 million, approximately $400,000 resulted from payoffs or forgiveness. Our loan coupon plus fees for the quarter with and without PPP differed by only one basis point, showing our core loan portfolio is the true driver of our yields. Turning to page seven, our deposit portfolio continued to trend upward in the fourth quarter. Our deposit portfolio totaled $2.6 million at December 31, 2020, and has grown at a CAGR of 35.5% since 2016. Our deposit costs continue to decline 96 basis points in the fourth quarter of 2019 to 51 basis points for the fourth quarter of 2020. As shown on the right side of the page, we've also had continued success at reducing our use of wholesale deposits while still maintaining access to cost-effective funding. On page 8, our capital ratios continue to be the definition of a well-capitalized financial institution and available liquidity remains adequate to fund our company. Our capital ratios continue to improve despite the economic uncertainty, and we remain very comfortable with our capital, liquidity, and reserve levels. I'll now turn the presentation over to Alan Mims, our Chief Credit Officer, for his perspective on our loan portfolios and credit metrics.
spk08: Alan Mims Thank you, Jerry, and good morning. I'll begin my comments on page 9 of the presentation. Credit metrics continue to remain strong through 1231. Non-performing assets and past use continue to be minimal and well-controlled. Like previous quarters in 2020, we continue to strengthen our allowance provision through our normal provisioning process, taking into account 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 $950,000 is attributable to COVID-19 concerns as the loan portfolio remained essentially flat. We continue to compute our allowance level based on the incurred loss methodology. While we have seen some improvements in national and local economic conditions, concerns remain with spiking virus cases and continued interruptions to full reopening of the economy. We actively monitor market conditions and will respond in our allowance methodology as appropriate. With a fourth quarter provision, the allowance receipt reached 90 basis points of total loans held for investment. It's important to note that purchase accounting rules require that acquired portfolios be valued at their fair value, which makes the allowance to loans ratio appear low. However, when unaccreted purchase discounts are considered, total reserve for credit loss becomes 1.62%. The ratio further improves the 1.67 net of PPP loans. At quarter end, we feel like we have adequately provided for possible losses. For informational purposes, we continue to include slides on pages 10 through 13 for details on our construction and commercial real estate portfolios and segments we view as having increased risk during the COVID-19 pandemic. We included details of our hospitality and retail CRE portfolios to highlight the strengths included in each. While we realize those categories are generally presumed to be at higher risk of default in the current environment, Our in-depth and continuing reviews of borrowers have indicated very few issues in those categories. I would also like to provide an update on the loan modifications and 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 in principal deferment or full payment deferrals for up to a 90-day period. Those deferrals were granted liberally per federal regulatory guidance. For second modification requests, we performed a much more detailed level of due diligence to confirm a valid business need for those requests. In the second round of deferrals, we granted far fewer requests and generally with less concessions, such as allowing the customer to go to interest-only payments rather than full deferrals, or granting deferrals for only one month rather than a full 90-day period. Through the second round of modification requests in particular, We've also been paying close attention to confirm there's not been a material decline in borrowers' financial conditions. As facts and conditions warrant, relationships are downgraded accordingly. Through December 31st, we've only had very few borrowers downgraded. At quarter end, modified loans made up only 1% of all loans. We continue to work with borrowers affected by the pandemic to ensure the best possible outcome for all parties. Finally, I'd like to update our PPP loan program. Throughout both rounds of funding for the program in 2020, we were able to serve 894 small businesses in our market with $83 million in funding. We began submission of forgiveness requests to the SBA, generally for those loans greater than $150,000, and 31231 saw a reduction in PPP loans of $18 million, primarily from the forgiveness process. The recently passed Consolidated Appropriations Act granted much needed clarity and simplicity for those borrowers with loans of $150,000 or less. As those rules are finalized, we expect an increase in forgiveness applications for those affected borrowers. Importantly, the Act also provides additional assistance to small businesses with another round of PPP funding. These loans proved instrumental in supporting many small businesses during the early stages of the pandemic. As surging cases have continued to impact the economy, These funds will provide important capital to help sustain those impacted businesses. Thank you. I'll now turn the presentation over to Devan for his final closing remarks. Devan.
spk07: Thanks, Alan. I want to conclude my comments this morning by reviewing our 2021 strategy, which is found on page 19 of, excuse me, page 14 of our presentation. As we continue to grow, talent acquisition and retention remain top priorities. In June, we were named the top workplace by the Tennessean newspaper here in Nashville, one of only two local banks on the list, which we believe is a testament to the strong culture at our company. As we've adapted during the COVID-19 pandemic, we've recognized the need to strengthen our digital presence as customer behavior has changed. One of our 2021 initiatives includes building out and optimizing our digital channels to make banking easier for our customers, in a post-pandemic society. Whether through changes to online banking or our mobile app, we're 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-focused. We've demonstrated our ability to identify, execute, and successfully integrate value-enhancing acquisitions, and we remain on the lookout for potential partners. With our size and the geographies we've targeted, we think we can be a great partner for banks who determine that it's 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 that will be accreted to our 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 in our markets. not buying loans or participating in syndicated credits. We expect loan growth to be slower in 2021, but believe that the relationships our bankers have built will continue to result in high-quality balance sheet growth in 2021. Our recent acquisitions of Community Bank and Trust in Cheatham County and First Advantage Bank opened new markets for us, including the attractive Clarksville MSA, and those markets have performed well through this challenging period. Our legacy markets have also started to rebound and we're seeing an increase in loan demand outside the PPP loan program. We expect that demand to accelerate as the national economy recovers. We're currently reviewing our branch network for redundancies and exploring additional branch locations that complement our current market. And then controlling expenses is a continual focus and 2021 will be no exception. We'll continue to look for opportunities to leverage our infrastructure and operate in an efficient manner. But despite the challenges 2020 has brought our communities, I continue to be very proud of how our employees have risen to the challenge of servicing our customers and building relationships in a very tough environment. Our financial results are evidence of the exceptional team and the great customers we get to serve here at Alliant Bank. We're looking forward to a new year and are excited about what the future holds. Operator, that concludes my remarks this morning, and we're ready to take questions.
spk11: Thank you. And at this time, we will now begin the question-and-answer session. To ask a question, you may press stars and 1 on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press stars and 2. And at this time, we will pause momentarily to assemble the roster.
spk10: That's right.
spk11: And our first question today will come from Brett Rabatib with Hovde. Please go ahead. Hi, Brett.
spk09: Hey, good morning, everyone. How are you, Devan? We're doing fine, thanks. How are you doing, Brett? I'm doing well, thank you. Wanted to start off just talking about expectations for long growth. Devan, you said it would be a little slower this year. Maybe can you talk about is that partly a function of expecting additional payoffs and How do you feel about the organic pipeline? Maybe just a little color, if you could, on the growth outlook and how you're feeling about this year.
spk07: Sure. So we're kind of modeling growth right now, Brett, in the 5% to 6% range this year. I think it's probably a function of a couple of different things. I mean, payoffs are certainly hard to anticipate. especially when we look out a few months. I think the reasons for payoffs that come this year are probably going to be a little bit different than 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, it's just still the uncertainty in the economic climate. as we see how 2021 unfolds with the regulatory environment, tax policy that might come out of the administration, other initiatives that come out of the administration. Where are we going with the coronavirus? And is this spike we've seen in the last two or three months, is it going to put a kind of a cold blanket on the economy, or is it going to gradually go away? I mean, I think those are all factors that probably impact loan growth. You know, competition on good quality credits for rates is very strong again, and it's amazing how quickly the banks in this area have flipped the switch from, you know, we're just trying to get our hands around the impact of the pandemic to let's go out and, you know, get all the good new earning assets we can get. Having said that, our current loan pipeline is still very strong, very solid, especially if you look at historically what we've had. We're north of $100 million in new loans in the pipeline in the next 90 days. Those are all deals that are priced fairly well. We also have currently on our books I talked about this a little bit before, but if you look at our top 10 closed deals that are closed in construction loans, you've got over $150 million in fundings that we anticipate over the next, say, 12 to 18 months that just haven't hit the books yet. So these are deals that we've closed where typically you're going to have a borrower who is... is a little bit uncertain about whether to launch a big project and to go ahead and start funding. Well, as the economy recovers, and we do think it'll recover, I personally think it'll be more like a second or third quarter event, you'll start seeing those fund up as well. I think all 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 that. But those are the factors I think that are kind of weighing either positively or negatively on loan growth this year, Brad.
spk09: Okay, that's great, Collar. And then I wanted to talk about expenses and you're improving the digital channels and you're also looking at the branch. network and the core efficiency ratio of the banks obviously gotten really solid. Maybe just an outlook on expenses if you can and just thinking about the expense run rate and what you have to spend versus potential efficiency gains this year.
spk07: I'm going to let Jerry Cooksey handle that one.
spk06: We obviously just went through our budget cycle for the year. And as part of that, spent a lot of time digging into the expense structure. We're predicting or showing anyway in our budget that we're gonna end up with first quarter non-interest expense lower than we've had in the fourth quarter of 2020. That's partly because we had some one-time expenses that we accelerated into 2020. because we had the bully income and we knew the analysts were not going to give us credit for one-time income, so we went ahead and offset that with some one-time expenses that would reduce our future run rates. So that totals about $305,000 in one-time non-interest expense in the fourth quarter.
spk07: So, Brett, I'll just add real quick, too. You know, we start in our planning process and our target is to... increase non-interest expense. We kind of take into account what we expect from a revenue standpoint, but we targeted originally about a 3% increase overall in NIE this year in 2021 versus 2020. I think we can attain that. That does not include any savings that we expect to get from our branch transformation project. And we'll be unfolding that pretty quickly here in the first quarter, but we do have some opportunities to look real closely at our branch network and maybe pare back a few branches. And my idea was that to the extent we can do that and we can get some savings out of that, we'll basically use that revenue to pay for upgrades to our digital channel. And so there's some already built into the budget, but we realized coming through the pandemic that customers want to do business in a different way than we've experienced in the past. So we're going to make some necessary investments, but basically use what we save in the branch transformation project to pay for those. Okay.
spk09: That's helpful. And then maybe just one last quick one on M&A. You mentioned it, and obviously it would help if your stock price was higher. Maybe any color, if you could, just on markets, demand you want to look at and size ranges that you might be interested in acquiring. You obviously did two last year. Are you hopeful you'll get one done this year?
spk07: Yeah. Yes, I am hopeful we'll get one done. There's really nothing very active going on right now. I mean, I maintain 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. We're basically targeting what we've targeted in the past in terms of geography. It's Middle Tennessee, which kind of moves up a little bit into southern Kentucky and down into north Alabama and then the area around Chattanooga. We've got a really nice operation in Chattanooga that Terry Todd runs for us. We talked about Terry and what he's done in the past. So having the ability to maybe leverage that operation to get a little more scale into it would be helpful. That would be kind of the Chattanooga area, maybe down in North Georgia. Don't really want to focus too much on size. I mean, obviously, as we get larger, we would prefer to do M&A with a little bit larger banks. But kind of suffice to say that there are a couple of dozen candidates in the geographies that I just defined and you know we know who they are you know generally the size is going to be kind of red half half billion and above but but not always when CBT last year was smaller but it was a great fit for us in a continuous market to Nashville so that's kind of what the landscape looks like I continue to believe that You know, the fundamentals that drove pretty robust M&A in 2019 are still there. That's, you know, lack of real clear succession at the board level and at the, you know, senior management level with a lot of these banks. No liquidity in their shares. And, you know, as the economy gets a little bit more certainty to it, I think you'll see M&A activity pick up. And certainly As you know, a strong stock price helps M&A. We've been running around 130% of tangible book value, and I think we deserve better than that. But relative to some of our peers that are in the M&A business in Tennessee, I think we're still in pretty good shape. We could certainly pull one off if we can get it to the table.
spk09: Okay. That's right, Keller. Congrats on the quarter and the full year. Thank you. I appreciate it.
spk11: And our next question will come from Stephen Scaldon with Piper Stanley. Please go ahead. Morning, Stephen.
spk01: Hey, guys, a quick just follow-up maybe for Jerry on the kind of non-core and non-recurring items. I saw the 253,000, I guess, FHLB numbers. charge called out, but I think you noted maybe $305,000 in total, so I'm wondering what else is in there and is that indeed inclusive of that $253,000?
spk06: No, the $253,000 was in interest expense because that was a prepayment to Federal Home Loan Bank. The $305,000 was in non-interest expense, a combination of branch projects and IT projects that we had scheduled for 21 that we went and accelerated into 20. And then there was one other item.
spk01: And then the 1.3 million was the BOLI gain? That's correct.
spk07: The 1.3 million was the BOLI gain. The other one was the loss on security sales.
spk06: That's correct.
spk07: Almost 600,000, Stephen. That was kind of getting some low-yielding securities out of the portfolio.
spk06: Perfect. And conversely, on the Federal Home Loan Bank, those Federal Home Loan Bank advances that we paid off just had, they were historic advances that we had from you know, much higher rate environment, and we wouldn't have paid those off. So, you know, if we need to go back and re-borrow, it would be more than 2% lower rate for the same maturity.
spk01: Okay. And when were those paid off, and will you have some incremental benefit into the core NIM that will occur in 1Q21?
spk06: The Federal Homeland Bank advances were paid off in the fourth quarter. I think around the middle of November, if I recall correctly. So I guess we'll continue to see some benefit from significantly lower borrowing costs going forward.
spk01: 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 in funding costs. What do you think you can see in terms of trends from here on the core NIM, especially with, I think, new loan yields were in the 439 range versus... 470 kind of average loan yields. So how should we think about that, the core NIM pressures and benefits?
spk06: Well, I could probably let John Wilson talk about where he sees the new loan funding on the bank side. Manufactured housing gives us a nice benefit by virtue of their around 9% rate on average for that loan portfolio. And as Devan said, we expect that portion to continue to grow at a pretty substantial pace. and it's rock solid credit, as you can tell from our loss history. On our funding side, we did see the expiration in December of the time deposit premiums that we were amortizing for First Advantage. CBT's time deposit premiums expire in January this month, but they're much, much smaller dollar amounts, obviously. We've got a little headwind on our funding costs from that side, but we are continuing to look at opportunities to continue to move lower on our CD and money market rates primarily to more than offset that. So still hopeful that we'll see flats falling on the funding costs for the deposit side. The non-deposit funding costs, we're continuing to see whether it's wholesale deposits or Federal Home Loan Bank advances, similar sources, those continue to come down and so we're seeing breaks in the five-day basis points for up to a year's duration, so pretty hard to argue with those types of funding costs.
spk07: Steven, I'll just say too, on the deposit cost side, we've got We've got about $125 million in CDs that are maturing in the first quarter that are all north of 170 in rate. I think the weighted average rate is about 170 actually. If we experience the same thing we did in the fourth quarter where we had about an 84% retention rate, we'll be able to retain a good bit of that at you know, rates that are at least 100 basis points lower than, you know, what we've got them on today. And I frankly think if you look at our interest bearing deposit costs, I think we've probably got another, you know, 10 basis points or so that we can ring out of that this quarter. You know, my goal is to get interest-bearing deposits down below 50 basis points. I don't know that we'll get there in the first quarter, but that's kind of what we're shooting for.
spk01: Okay, very helpful. And then, you know, Gary, you mentioned manufactured housing, and, man, 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 of the portfolio around 10% today? How big would you be comfortable with that portfolio getting as a percentage of the total loan book?
spk07: You know, Stephen, it's a question that's kind of tough to answer. I mean, we had started out when we first started dancing with First Advantage thinking that the manufactured housing portfolio probably should be you know, limited to around 10% of the total portfolio, didn't really know as much about how that operation is run as we do today. And I think, you know, with the group sitting around the table here, we've all gotten very comfortable with the discipline, you know, the rigor that they bring to their process for underwriting, collecting, and, you know, if you look at just about any credit metric, that you would want to apply to a consumer portfolio this size. We're in really good shape. It could be charge-offs, past dues. We've got a really good, solid organization that's focused not only on growth but on credit quality. Flipping ahead from a year ago, I feel good about the growth in 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 just the dynamics of that loan portfolio. But certainly, at a 20% growth clip this year, if we could do that, that gets us in the $250 to $275 million range. Excuse me. And that's a little bit north of 10% based on what we're seeing for the end of the year, but not by much. So we're comfortable with where we are, especially with the team that we've got with Alex Ponziot and Jamie Geen running that portfolio. They just do a terrific job with everything, kind of from soup to nuts. Great.
spk01: Super helpful. And then maybe just last thing for me, I'm curious, you talked about M&A. but also talk about how you think that 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 you've had the last couple quarters.
spk07: Yeah, thanks. Good question. So we are evaluating a new repurchase program. Y'all may remember we had one in place for 2020 that we suspended when the pandemic hit. So we really didn't do anything last year And the board has shown their willingness to consider a new plan this year. So I would expect us to put something in place probably in the first quarter, Stephen. I don't really know the amount right now. We'll have kind of a targeted price that we'll work off of. But we do think that it's a good capital planning tool to have in place, whether we actually exercise it or not. So we'll be looking at something. I would guess it's going to be somewhere in the $10 million, $10 to $15 million range.
spk01: Fantastic. Thanks for all the color, and congrats on a great quarter and a great year.
spk11: Thanks, buddy. And our next question will come from Kevin Fitzsimmons with DA Davidson. Please go ahead.
spk02: Morning, Kevin. Hey, good morning, Devan and everyone. Hope everyone's well. I was wondering if we could walk through I think Alan walked through some of the dollar numbers on PPP and I think Jerry might have talked about in talking about the margin 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 forgiven how much you expect to be forgiven 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 Jerry can get into the margin and that 409. Are there any PPP fee accretion in there? And what do you expect that PPP fee accretion to be in the next quarter or two? Thanks.
spk07: I'll let Alan talk about the PPP situation, and then Jerry can roll right after that into the mail.
spk08: Morning, Kevin. Morning. We had, at 930, we were at $83,290,000 for total PPP outstandings at the end of the year, 65, 531. We had about $18 million that was paid down or forgiven, most of that in our forgiveness process. And really, in the fourth quarter, we started that up, focusing more on the borrowers above $150,000 because of, I guess, a little bit of the craziness that went on politically between 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. So we focused on the larger ones, had a good number of those forgiven through that process. And now that there's some clarity, we'll begin with the smaller borrowers 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. So we think that'll pick up the new funding for PPP. Because of our desire to see organic loan growth and the way that the initial rounds of PPP taxed our staff, we actually partnered with a third party for production of those PPP loans. We are basically, on this round, referring to that partner. We'll get a referral fee out of that, but they will do all the funding, all of the application approvals and then they will do the forgiveness piece of it so we won't have that on our books and we won't have to tax our staff with that allowing us to really focus on that loan production pipeline that I think to some degree went maybe went into second place while we were working through PPP on the first round because of the just because of the need of our staff to work through the underwriting of those credits, and we need to get back to our normal business, and we did not want to pull our staff away from that, so we went with that partnership. I feel like that will allow us to do what we want to do and allow our customers access to those PPP funds as they need at this time.
spk06: Yeah, and on the MIM, you asked about the purchase accounting accretion. So, purchase accounting accretion added about 28 basis points in the fourth quarter from standard accretion, and then payoffs added about 10 basis points. And while that may sound a little bit high, that was actually down quite a bit from the fourth quarter portion that was due to payoffs. We're looking at 14 basis points in the prior quarter. for purchase accounting or recent due payoffs. PPP fees, we had $816,000 that was recognized in the period. About half of that was due to forgiveness. We had $18 million in PPP loans forgiven during the quarter. I don't know if you had other questions, but I'm more than happy to address them.
spk02: Okay, so the PPP fees is separate from the 28 BIPs, right? That's just purchase accounting. That's correct, yes. Okay. So as the remainder of forgiveness plays out over the next quarter or so, I would expect we'll see probably even more recognition of PPP fees in the first quarter and maybe bleeding in the second quarter, but we won't have any of that for the second round as that's just being referred and isn't on your books, correct?
spk06: That's correct. We do have about $1.8 million remaining at the end of the year in unaccredited PPP fees.
spk10: Got it. Okay.
spk02: Maybe if I could just ask one additional question about credit. 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, uh, the deferrals or form of deferrals, but what do you, what do you generally been seeing in criticized classifieds? Have you started to kind of pivot from deferrals to recognizing some of these more challenged credits as, um, being either on watch or putting in special mention and, uh,
spk10: Sorry about that.
spk02: Yes, and if you could just also talk about how you feel about the reserve, whether we're going to be in more of a holding the reserve at this point or slightly building it in the next few quarters. Thanks.
spk08: Yeah, I'll let Alan take that. Kevin, as we work through the modifications, We have seen some downgrades, but none that have moved into criticized. Previously, we had one that moved into criticized assets. We've had some other loans that were not part of our modification process that we've moved into criticized assets, but those are far different than what we were talking about with modifications. We've moved some down into past watch, based on CARES Act provisions, primarily a couple of hotels that we think will, that we move the interest only, but we think they're going to be, once they come out of the pandemic, travel starts back, we think those will be okay. They've got strong sponsors, 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's a real need for those. And a lot of times, we just ask the customer to continue making payments, and they've been able to do so. And our modifications have dropped and stayed at around 1%. From a reserve level, I think we will continue to. Look at that, you know, as the pandemic kind of plays out and the vaccines start taking hold and as that moves around, we probably will be. At this point, I think we've been conservative. In our building of the reserve, I think we've got a good level, whereas when you take away. PPP loans, we're at 1.67%, which we think is really a strong percentage against loans right now based on our real credit metrics, which our non-performers are not moving up significantly. In fact, they're actually declining. And we've got very low charge-offs. And from just a bank standpoint, we had actual net recoveries We had some charge-offs in the MH division, but overall, a 1% for the year charge-off level, and I think that in this pandemic year was some excellent results from that standpoint. That's just a further indicator of strong credit. Our past views are not moving up. We continue to see those remaining below our internal goals, and so I think at this point, At best, we'll be holding. We may even see that start as a percentage of loans start declining as the economy comes back around and we continue to see strong results from our customers and their payments. We've not just seen a lot of problems that we feel like are indicative of the need to build a reserve any further.
spk02: 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 you're 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 over time?
spk07: Kevin, I would say the way I view that is we're probably not going to be looking at releasing reserves. I would say that we probably grow into it this year. 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. We'll You know, what you'll probably see from us going forward is a provision expense that reflects, you know, a combination of charge ops and growth, but not anything in the way of reserve releases.
spk10: Great. Thanks very much. Thank you.
spk11: And our next question will come from Catherine Mueller with KBW. Please go ahead. Good morning. Good morning, Catherine.
spk04: Thanks. Good morning. Thanks. A lot of my questions were asked, but I have just two quick clarifications. And the first is on expenses. I think, Devan, you mentioned that you're targeting about 3% expense growth pace this year. There are a lot of moving parts because we've got kind of a partial year of FABK. And then this quarter was higher because some of the one-time expenses that were kind of brought forward. And then you've got the mortgage piece. So is I guess maybe is there a way to think about what that 3% growth rate is based off of? Maybe should we look at maybe this quarter kind of taking out the one time, annualize it and kind of grow it at 3% and maybe that's where we are?
spk07: Yeah, that's a great follow-up question. I probably should have been a little bit more specific when I talked about NIA a little earlier. When I was talking about 3%, we basically used the fourth quarter NIE run rate instead of the full year 2020. You're exactly right. I realize that we, you know, especially for the first quarter anyway last year, we didn't have first advantage in our run rate. So what we typically do, we build our NIE budget out, is look at where we are in the fourth quarter, you know, factor out any one-time events and then just kind of use that as our platform for that growth. So it would basically be 3% over the fourth quarter run rate, but, you know, taking out the one-time expenses and the one-time revenue, well, excuse me, the one-time expenses that we had in there. Would not include the portfolio restructuring or the federal home loan bank, but we did have some other ones. We funded against a unfunded loan commitments in the fourth quarter. We already mentioned a couple of other ones. We had an increase in our incentive renewal, excuse me, in our incentive accrual. So there were a number of factors that were involved in that. It was basically the fourth quarter run rate times, you know, 103 is how we got there.
spk04: Okay. That's really helpful. Thank you. And then on accretable yield, what are your expectations for the level of accretable yield we'll see this year?
spk10: You want to take that one? I think I need a little more color on the question. I'm sorry.
spk06: The level of accretable yield? In terms of what we have remaining to accrete?
spk04: Yes.
spk06: Is that what your question is, Katherine?
spk04: Yes. Just trying to think about, I mean, it feels like accretable yield has been high the past couple quarters. Just trying to think about where that moves to in 2021.
spk06: follow okay well in terms of the purchase accounting accretion you know the standard component it is slowing down last quarter we had 28 basis points for about 42 basis points I would think that this quarter we're probably going to be in the low 20 basis point a contribution from standard accretion the payoffs you know that's anybody's guess say we're 14 basis points third quarter, 10 basis points fourth quarter, I'd say we'll probably be in the 8 to 10 basis points first quarter.
spk04: Got it. So starting in the low 20s just as a baseline, and then you'll get some acceleration on top of that. Right. Great. Okay. That's all I got. Thanks. Congrats on a great quarter. Okay.
spk10: Thank you.
spk11: And once again, if you'd like to ask a question, please press farther than one. And our next question will come from Fetty Strickland with Jenny Montgomery Scott. Please go ahead. Good morning, Fetty.
spk05: Hey, good morning, guys. So, surprised no one's asked this yet, but what's your outlook on mortgage? You guys had a great quarter again in mortgage and just kind of looks like you've still got a lot of mortgage loans held for sale. Just wondering what the outlook for that is.
spk07: You know, the mortgage business is 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 in the first quarter of 2021, another really strong quarter from a revenue and bottom line standpoint. The correspondent platform that we spent some time building out last year didn't really see the benefit we thought we would early in the year because you probably remember when the pandemic hit, the capital market just froze up. So a lot of momentum coming out of the capital markets opening 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 in 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. We see a pretty good year ahead, Fetty. I don't I don't know exactly how we're gonna wind up with retail, but rates remain low, and probably just as importantly, home building activity, especially here in Middle Tennessee, has continued basically at record levels. A lot of that's being driven by mortgage rates, but I would also tell you that You know, Nashville is really benefiting from a lot of in-migration from other communities. I don't know whether any of you guys saw this or not, but earlier this week, U-Haul published their survey for 2020 where they, you know, comment on and look at one-way moves. And a one-way move is basically somebody who's leaving one city and moving to another city. And for the first time since I've been following any way, Nashville was number one on the list in 2020 with a significant number of one-way moves in from Los Angeles and Chicago. People are moving here. They want to live in a place that's got a business-friendly environment where the cost of living is modest. where 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. Just to make sure I point out, and I think everybody knows this, The mortgage results, although they're part of some of our metrics on them, for example, I mean, they're not additive to our earnings until we recapture the cumulative loss that we've got. So what you see from the standpoint of our return to our shareholders right now is just bank operations, but still feel real good about where mortgage is today.
spk05: No, that's great. And yeah, actually, I saw something United Van Line, something similar to the U-Haul report. Very interesting. Same observations. I guess my final question, I know we're getting to 11 o'clock here, but was just wondering whether there's kind of a relative difference in economic activity across your footprint or things better in the suburbs versus Nashville proper is You know, or, you know, 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 in what you're seeing.
spk07: Yeah, I think there is, Petty. I do think Nashville, Davidson County, you know, 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. So the counties that are contiguous to Davidson County, one of which is Williamson County where we operate in, Clarksville MSA just to the kind of northwest of us, Chattanooga, all seem to be doing very well. I think the mayors of those counties, the leadership has taken a little bit more circumspect approach to putting more restrictions on the economy, their 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 has not stepped in and tried to do anything statewide. He's let the local market leadership, the political and public health officials make their own decisions. So starting to see a little bit more activity coming out of Nashville as well. And my God, as Nashville had a tough year, it's not only the pandemic, but you can think back to earlier last year when we had the tornadoes that ripped through Nashville. We had the explosion on Christmas Eve. If you hadn't seen pictures of that, it looks like a war zone down on Second Avenue. Those can't overcome the attractiveness of the Middle Tennessee area. 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 in positive cases over the last four to five weeks. When we were running at a high of somewhere close to 8,000 a day, for a while, and now we're back down to about 3,000 or 3,500. So, you know, I would expect to see kind of a continued relaxing of restrictions on gatherings, even in Davidson County. And Nashville's going to come back. It may be second, third quarter, but I think we'll definitely be back. And the kind of things that, you know, bring people here to live, to play, or whatever the case may be, they're not going anywhere.
spk05: Gotcha. Perfect. Appreciate all the color and congrats on a great quarter, guys.
spk10: Thank you, buddy. Appreciate it.
spk11: And this will conclude our question and answer session. I'd like to turn the conference back over to Devan Ard for any closing remarks.
spk07: Thank you, Operator. I just want to thank everybody for being with us this morning. We are very proud of our team, very proud of kind of the way our communities kind of fought through a lot of issues over the last 12 months that are even that are non-COVID related. 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 a call if you have any follow-up questions. And with that, operator, we'll adjourn the meeting for the day.
spk11: The conference has now concluded. Thank you for attending today's presentation. And at this time, you may now disconnect.
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