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spk00: Good morning and welcome to Reliant Bancorp's first quarter 2021 earnings conference call. Today's call is being recorded. Hosting the call today from Reliant Bancorp is Devan R. Jr., Chairman and CEO. He is joined by Jerry Cooksey, Reliant Bancorp's Chief Financial Officer, John Wilson, Reliant Bancorp's President, and Alan Mims, Chief Credit Officer of Reliant Bank. Please note Reliant Bank Corp's press release and 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 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 and uncertainties and other factors that may cause the actual results, performance, or achievements of Reliant Bancorp to differ materially 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 risk uncertainties and other factors are discussed in Reliant Bank Corp's public filings 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 Bancorp's Chairman and CEO.
spk08: 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's economy started showing signs of a sustained recovery late in the first quarter. And as a result, we saw a significant increase in loan demand. New COVID-19 cases have dropped dramatically in recent weeks and a slew of announcements by companies such as General Motors, Oracle, Handcooked Tire, and Microvast will bring more than 10,000 new jobs to Nashville and Clarksville over the next few years. Additionally, construction of new homes in the area continues to be a source of economic growth, making Nashville one of the hottest housing markets in the country, according to the latest RE-MAX National Housing Report. Strong net-end migration driven by low taxes, a 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, highlighted by strong earnings, superior asset quality, and an 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 are 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 1.64%, and our return on average tangible common equity was 18.84%. As in the last quarter, profitability has increased in large part due to improvements in our net interest margin and efficiency ratio. Our core net interest margin increased 15 basis points from the prior quarter to 4.24%, a measure we're especially proud of in the current low interest rate environment. And 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 63 basis points from the first quarter of 2020 to 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 a 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 in new loan commitments during the quarter at a weighted average rate of 4.21%. Additionally, we have a robust pipeline entering the second quarter, and we anticipate loan growth in 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, to 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. Jerry?
spk13: Thank you, Van, and good morning. As Devan said, we had another very solid quarter, as 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 73 cents per diluted share. Net income included a couple of items of note that I'll expand on. First, our purchase accounting accretion was $1.8 million for the quarter, down from $2.8 million in 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 were virtually flat. Our allowance for loan losses to total loans ended the period at 0.91% or 1.56% when including our remaining purchase loan discounts. I would also like to point out our return on average equity was 15.07% for the quarter and our return on average tangible common equity was even more impressive at 18.84%. Moving along to page four, 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 4.24% in the first quarter of 2021. This 26% increase is a testament to our team's efforts in a challenging interest rate environment. Page five shows the consistent increasing performance of our bank segment and efficiency ratio since our most recent acquisition of 47 to 51%. 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 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. Again, this demonstrates our expense management and realization of planned merger synergies. On page six, we present several measures of shareholder value. One item I'd 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 at $16. a 16% annualized increase from the linked quarter due to strong net income. We are particularly proud that in the past year, last year, we have more than earned back the dilution which resulted from our 2020 acquisitions. We believe we can continue driving shareholder value through earnings and through building tangible book value. Let's move to page seven and look at our loan portfolio. Loans held for investment total $2.3 billion at March 31st, 2021. a decrease of $23 million from December 31st. Loan yields remain consistent with the linked quarter at 5.63%, even with purchase accounting accretion declining $244,000 during the quarter. The lower levels of purchase accounting accretion are anticipated as we move farther away from the original acquisition dates. We recognize roughly $1 million in interest, income, and fees on PPP loans during the first quarter. Our loan yield for the quarter without PPP would have been 5.58%, only a five basis point decrease from our reported loan yield of 5.63%, showing our core loan portfolio is a 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 upward in the first quarter, Our deposit portfolio totaled $2.6 billion at March 31, 2021, and has grown at a compound annual growth rate of 33.6% since 2016. Our deposit costs continue to decline from 111 basis points in the first quarter of 2020 to 51 basis points in the first quarter of 2021. As shown on the right side of the page, we have also had continued success at reducing our cost of 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 improve despite the economic uncertainty, and we remain very comfortable with our capital, liquidity, and reserve levels. I will now turn the presentation over to Alan Mims, our Chief Credit Officer, for his perspective on our loan portfolio and credit metrics.
spk07: Thanks, Jerry, and good morning. I'll begin my comments on page 11 of the presentation. Credit metrics continue to remain strong through March 31, 2021, with little change from December 31, 2020. As such, you will see little change in our allowance for loan losses between the two periods. Non-performing assets and past dues continue to be minimal and well-controlled, and we reported net recoveries for the quarter, three basis points annualized. We continue to compute our allowance level based on the incurred loss methodology. Our management team actively monitors market conditions throughout our footprint, continued improvements in national and local economic data, further loosening of restrictions in our markets, and rising vaccination rates gives us comfort in our allowance level. At quarter end, the allowance represents 0.91% of total loans held for investment, and when unaccreted purchase discounts are considered, total reserves for credit loss becomes 1.56%. The ratio further improves to 1.59% net of Paycheck Protection Program loans. It's important to note that purchase accounting rules require acquired loan portfolios be valued at their fair value, which makes the allowance to loans ratio appear lower than normal. At quarter end, we feel that we've adequately provided for losses. One segment of our loan portfolio I'd like to highlight on slide 12 is our manufactured housing segment. We've discussed this segment with you in the past, but I'd like to point out that it makes up almost 10% of our portfolio at quarter end. The portfolio has an excellent average yield excluding any purchase accounting accretion of 8.52%. Net charge-offs for this segment have been below 40 basis points for over five years, and past views in 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 in future acquisitions. Thank you. I'll now turn the presentation over to Devan for his final comments.
spk08: Thanks, Alan. I want to conclude my comments this morning by reviewing our 2021 strategy, which is found on page 13 of our presentation. As we continue to grow, talent acquisition and retention remain top priorities for the company. In June of last year, we were named a top workplace by the Tennessean newspaper, one of only two local banks on the list. We believe that's a testament to the strong culture at our company. And providing opportunities for our team members to grow within the company and serve our communities is a top priority for us. During the COVID-19 pandemic, customers pursued alternatives to in-person financial transactions. While the move to digital banking channels was already underway, we saw it quickly accelerate. As a result, we experienced increased phone volume, heavy mobile adoption, and significant declines in branch transactions. Though we had already begun investing in our website and remote banking capabilities, we've renewed our strategic focus to strengthen our digital presence and improve our data mining capabilities. 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 a customer engagement center. Phase one of this project will provide our customers with real-time assistance through email, chat, and phone channels. In phase two, we'll add authenticated chat sessions within online banking secured through a tokenization process. The high adoption rate of new technologies during the pandemic is expected to carry over in 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, execute, and successfully integrate value-enhancing acquisitions, and we remain on the lookout for potential partners. With our size and in the geographies we've targeted, we think we can be a great partner for banks who determine that it's time to pursue a sale as a way of creating value for their shareholders. With 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 relatively modest in 2021, but believe that the relationships our bankers have built 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 in our markets strengthen. We've recently announced several branch closures that eliminate redundancies in 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 realize from the branch closures will be redeployed into various initiatives, such as building out our digital platform. And controlling expenses is an ongoing focus, and 2021 is no exception. We'll continue to look for opportunities to leverage our infrastructure and operate in an efficient manner. In closing, I'm very proud of the first quarter and results we've presented, and I'm excited about the momentum 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.
spk06: And we will now begin the question and answer session. To ask a question, you may press star, then one, and you touch the telephone. If you're using a speaker phone, please pick up your handset before pressing the key. To withdraw your question, please press star then two. And at this time, we'll pause momentarily to assemble the roster. And our first question today will come from Graham Dick with Piper Sandler. Please go ahead.
spk03: Morning, Graham. Morning. So, the NIM excluding PPP and accretion was up pretty nicely this quarter, I guess, on loan yields that held in pretty well. How are you thinking about potential for more expansion in this adjusted margin X PPP over the next few quarters? I mean, do you think further relief in deposit costs should probably outweigh any incremental loan pressure from those lower new loan yields?
spk08: Well, it's getting harder and harder to do, Graham. I tended to focus on our core NIM versus our reported NIM. So at 424, I think we came in a little bit stronger than I would have expected in the first quarter. I think we've got some room for improvement. I wouldn't think in the second quarter you'd be looking at more than a few basis points. We do have some room on the deposit side, and we've continued to push deposit rates down on our transaction accounts. We've still got some older CDs that will be maturing in the second quarter that we'll be able to price down. And where we've done that, generally, we've been getting somewhere around 100 basis points on renewals. And our retention rate's been high, too. It's been in the low 80% range on the CD renewals. So, you know, we'll continue to see some improvement there. The mix of deposits is also continuing to improve for us. And then when you look at the wholesale piece of our funding, you know, we kind of washed out some old high rate federal home loan bank advances. in the fourth quarter. So we saw some benefit from that in the first quarter, even though we don't really have anything with a home loan bank right now. Wholesale funding, whether it's, you know, internet or through the state of Tennessee is, you know, it's generally running in, what, Jerry, 10 to 12 basis point range right now or lower than that. We've had to use it.
spk13: Well, that's the issue. We really haven't had to use it much. Some of the funds have popped up a little bit. They're still under 20 basis points for guard.
spk08: And on the loan side, it's a real challenge right now, especially for good quality credits. The competition is pretty intense in the Nashville area. Fortunately, our mix, has been a lift for us. Construction lending is very profitable, whether it's commercial or single family residential. Having the manufactured housing portfolio of roughly $250 million at 8.5% is a big plus. We're not going to be chasing a lot of 3%, five to seven year fixed rate loans. Where we do that, it'll be for good customers that we have a full relationship with. But I just don't think it's really smart to be loading up the portfolio with a lot of low rate fixed rate loans. And I think the interest rate environment expectations for inflation that are on the horizon is probably a good enough reason not to do that. All that being said, I think the dynamics give us an opportunity for a few basis points in the second quarter in our core NIM somewhere in the maybe three to five basis point range. Is that?
spk13: Well, the one bogey that every bank's 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 in deposits for states and municipals. you know to the extent that that comes into our bank we have to find a way to leverage it now certainly we will look at running off wholesale deposits you know not renewing any of those look at off off boarding some of that those deposits through cedar swaps or things like that lowering rates but it's going to be a significant challenge for every bank in the country so absent those ARPA funds yes I think we that's a very reasonable assumption The unknown is the ARPA. All right.
spk03: Okay, good. That's really helpful. And then on the reserve, so while the actual dollar amount is, you know, a lot higher than it was pre-pandemic, the percent of loans isn't all that different from where it was, I guess, say, 1419. But then again, you've also got that cushion from the remaining acquired loan discounts. I mean, could we expect to see you all grow into this reserve with a few more quarters of minimal provisioning? Or do you think you'll probably try to manage it closer to these levels as loan growth returns?
spk07: You want to take that one, Adam? Sure. We feel like we're adequately reserved where we are. And using the discounts, we're at 156. And we think that's adequate. And we had no growth for the quarter here. At the time when we did the last merger, we were expecting the loan loss reserve to be 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 as the pandemic kind of wanes, I believe we'll see that we grow into the allowance. I'm not a fan of releases nor of excessive provisions on kind of a knee-jerk reaction. So I think that we'll grow into it, and we'll keep it based on our computations where we feel like we're conservative, but we're in the ballpark of where we need to be.
spk08: And I'd say, Graham, the other piece of that, the reserve level, is loan losses. And we were in a net recovery position in the first quarter. Second quarter started out strong as well. And we see our credit metrics, good credit metrics, continuing through the rest of the year.
spk03: OK, great. That's all from you guys. Congrats on another solid quarter.
spk06: Thank you.
spk08: Thanks, Graham.
spk06: And our next question will come from Brett Raddison with Hovde.
spk08: Go ahead.
spk12: Good morning, Brett. Hey, good morning, Devan. I wanted just to start just on that 6% to 8% loan growth guidance, Devan. I'm curious, you know, is there, as you're thinking about that number, is that a function of expecting some payoffs and just the competitive landscape is, is really tough because as you noted, you know, the, the landscape here has definitely gotten a lot more favorable economically. So it's, it seems like, uh, maybe it's still early, but it seems like it could be a great year for, for growth. And then I'm just curious on the manufactured housing piece. It seems like a lot of folks are really comfortable with, with that portfolio at this point, would there ever be any thoughts and maybe having that be taking the 10% kind of cap off of that and letting that grow to be a bigger piece of the portfolio?
spk08: Yeah, so let me address the organic loan growth piece first. I've kind of said, I guess since we got through the end of the year, that on an annual basis in 2021, we were looking at somewhere between 6% and 8% loan growth. And I really just haven't backed off on that. You know, the first quarter's flat. The first quarter typically for us is gonna be a little bit soft because of the seasonality and some of our business lines, single family residential construction being 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, that I would say we're back in 2019. A lot of the stuff that's come out that you've read about in Nashville in the last, say, month or two, Oracle bringing 8,500 jobs here is a good example. Those are still a ways off. Those are two, three, four years out. And so I still think that 6% to 8% for the full year is a reasonable number. There is a lot of cash coming into the market. We have customers every day, just like everybody does, that get, you know, 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, you know, done for cash. But, you know, having said that, the, you know, if you look at our new loans in the first quarter, about 250 million, You look at that number and you say, well, loans were flat, but you closed $250 million in new business. A lot of that is going to fund up over the balance of the year. To the extent it's single family, it'll probably fund up in a 12-month cycle. To the extent that it's commercial, it'll fund up over a good bit longer cycle, maybe 18 to 36 months. We think there's some wind behind us in terms of what we've already closed in the first quarter, and then April is starting out to be a really solid first month of the second quarter for us as well. I just don't know that I would forecast double-digit loan growth given all of 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%. I mean, 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. I still think that, you know, we've got – there's a little bit of drag left over from the pandemic that we're having to deal with. Oh, I'm sorry. Excuse me. I'm sorry, Brett. You asked about MH2. I'm sorry. Got off on regular loans. So on MH, we don't – I mean, we've talked about – a 10% cap on the MH portfolio. But that's just kind of been just a general kind of internal guideline. And I think my credit guys would probably tell you is we've gotten more and more comfortable with the process that our manufactured housing group goes through to originate loans and collect loans And you look at the credit metrics in that portfolio, whether it's charge-offs or past dues, and they're superior to the industry. So I don't know that we've got a hard and fast 10% cap. We've probably got some room to let that grow. Didn't see a lot of growth in the MH portfolio in the first quarter, mainly because of the weather. and the impact that it had on manufacturing. We had a really tough, cold, snowy first quarter. But we've got the same group in place, and we're starting to see a nice pickup in production in manufactured housing this quarter. So we think we'll hit our plan for manufactured housing. But I don't know that I would be too concerned if we pushed up a little bit above 10% at this point. OK.
spk12: Appreciate the color there. And then the other thing I just wanted to ask Devan is, you know, you got a little better multiple here today and, you know, M&A's obviously been a part of the strategy. I'm just curious if you're hearing talks pick up, if you're hearing more reception to, you know, having discussions. I guess I'm just curious to hear a few a little more color on, you know, how optimistic you might be about doing M&A this year and, you know, are there any markets in particular that you feel more optimistic about?
spk08: There's, in the area, I guess the kind of the area that we would be interested in, I'm not talking about geography as much as I am bank size. So, you know, $500 million and above and We think there are a couple of dozen banks that are in our geography, kind 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 in Tennessee this year. And there have been a few announcements, but not a lot. We do have regular conversations with a number of the banks that are kind of our target group of banks. But at this point, I'd say we're probably, I don't know, maybe a quarter, two quarters off from having the kind of interest that leads to a deal getting done. You're absolutely correct about our currency. And we're trading today right at 180% of tangible book, maybe a little bit less than that. That does give us the ability to do deals that You know, we might not have been able to pull off this time last year when the trading level was a good bit lower, but 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's probably a lot of people thinking about it, but are they willing to, you know, to really step in and say, you know, we're ready to have some serious negotiations just haven't seen as much of that. So we remain very interested, and Middle Tennessee is still our target market. There's certainly some opportunities that if you go just a little bit north of the state line, up into Kentucky, down south of the state line, down into north Alabama and around the Chattanooga area, and maybe even up into Knoxville. One of the things that we've kind of learned about Knoxville is, and we've done it through our manufactured housing division, is, you know, it's a potentially good market with some opportunities up there in that Knoxville all the way up in the Tri-Cities area. So there are some possibilities, but I'd say, you know, right now we're still probably looking a quarter or two out to, you know, to be at a point where we might announce something. Okay.
spk12: Great. Appreciate all the color and congrats on the start of the year. Thanks, Brett.
spk06: And our next question will come from Kevin Fitzsimmons with DA Davidson.
spk04: Please go ahead. Morning, Kevin. Hey, good morning, Devan. How are you? I'm doing well, thanks. Good, good. Let me just follow up very quickly on the prior question. So the lack of urgency, do you think it's just a fact that maybe the markets you operate in are quite healthy and getting better so there's maybe the smaller banks don't see an 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 bank isn't quite to the point where he wants to retire or kind of all the above like what what do you see is like is this just a normal lack of interest among sellers or do you think it's there's something more to it.
spk08: Yeah, Kevin, I don't think the fundamentals have changed at all. And those are 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, 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 all still in place. My guess is, Kevin, from just comments that I've heard, I think people are just still a little bit focused on making sure they've got their loan portfolio clean. We've seen a pretty good rebound here in Nashville. I'm not sure you can say that everywhere. So you've probably got a lot of CEOs that are still a little bit more internally focused on credit quality, credit cleanup, to the extent that's going on. And then just, I'm not real sure that a lot of target banks really understand that the currencies of the potential buyers are as strong as they are. I mean, it's a message you've just got to get out there and talk about. Because this time last year, we were around $14 a share somewhere in that range, and nobody wanted to sell it at one times tangible book or less. So you've just got to get out and hammer on the message. And that message is a 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've still got customers, I'm sure bankers are the same way, that are a little bit hesitant about getting face-to-face with a lot of people. Now, it's opened up, and especially around the Nashville area, you're seeing more and more people that are doing face-to-face calling. I mean, we're doing some of it, too. We're starting to see... a lot more optimism, but these are the things. I mean, you guys know this. You all have investor conferences, and these are the kind of things that when you're at an investor conference or in some other format where you can sit across the dinner table with somebody and talk to them and really find out about them, you get more interest. You can tell your story better than you can just by getting on the phone or sending your earnings release out. So I think it's a combination of a lot of things. The M&A environment, at least from what I've seen this year, has been fairly robust on the large side. The big MOEs get done. And I think they're done for a different reason than what we would be looking at as an acquirer. But those are kind of the dynamics that I see going on right now that are probably keeping smaller deals from getting done or at least getting the kind of traction that I would like to see.
spk04: That's great. Thank you. How about in the meantime, if those deals aren't happening, you kind of go out on the offensive and we've heard a lot about banks hiring away teams or hiring away producers and particularly if there's some disruptive deals happening and there's, you know, there's, there's a deal writing your home market, um, uh, in terms of, uh, synergy and, and first bank and, you know, are there real opportunities to take away talent and take away business that you guys are, uh, pursuing or those more kind of singles and doubles that don't necessarily get announced? Um,
spk08: Well, they're probably more singles and doubles, and we're recruiting heavily in all of our markets from Chattanooga to Clarksville to Nashville. The one you mentioned, though, Kevin, is certainly a good example of a disruption in the market that I think is going to pay dividends to us longer term, but it's on a couple of different fronts. One is the customer front. And anytime you have a merger, like we saw with First Bank and Franklin Synergy, I mean, 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 their relationship manager is. They may be customers that have big relationships with both banks that they're trying to kind of scale back the exposure to. So we've been pretty successful on the customer front. We've certainly got lines out and conversations going with people that are directly impacted by that merger. And nothing that I can talk about right now, but we're certainly very interested in some of them. The culture at Franklin Synergy was not what we would typically see in our bank, but they still do have some good people there. We're having some success this year, but just to answer your question more directly, I'd probably say more singles and doubles with us than doing what you see from time to time taking a big lift out that's out of market. 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. The Nashville MSA, Clarksville MSA, most people don't really understand Clarksville that well. The Clarksville MSA is a very strong market. almost no unemployment, a huge military base, a lot of retirees, a lot of industry moving into Clarksville. Chattanooga is strong as well. So we kind of positioned the company through M&A, and we started with Chattanooga with an LPO. We positioned our company to be in some of the best markets in the southeast, and I think you'll continue to see that bear fruit for us.
spk04: Okay, that's great. One last one from me, Devan. So you mentioned earlier the build-out of the digital channel and that you're 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, you know, there's a lot of – with all the M&A going on, there's a lot of talk about size and scale, how, you know, if the top line is soft, you need to spread these costs out over a bigger base. When you look at your current size, are you – you comfortable at this size level? Or when you look at these digital and technology investments, do you say, all right, when the deals come, they'll come. We're not in control of that, but I'd love to be $4 billion or 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 that way? Thanks.
spk08: Yeah, well, I mean, from a scale standpoint, I have been – pretty open about where I want to be. I mean, you know, that $5 to $10 billion and as close to $10 billion as you can get, I think today would be better. Valuations are better. Certainly, we can do more. We can spread costs around a little bit more at that size. But we don't have to be at $5 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 that we're spending money on technology that's going to generate revenue growth for us or allow us to save costs. And then we've got the additional, don't really want this to sound too bad, but I guess the millstone around our neck of having a processor that is, you know, it's one of the big three. I mean, we're a Fiserv Premier Bank, and Fiserv likes for you to use their products. And, you know, we're using a lot of their products. We don't, in every case, want to use their products. So we've, you know, we've got to work with our core provider to make sure we're getting the best we can out of them and still pushing on them to you know, to allow us to go out and find kind of the best-in-class technology solutions for us. So the branch consolidation that we're doing this year, I guess the way I view that is a couple of different things. One is, you know, we've done M&A. We basically had, you know, four banks going back to Commerce Union that we've done back in 2015 all the way through last year. And we just had a branch network that was not very intentional. And so, you know, 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 3,500, 4,000 square foot branches when what we really probably need is, you know, 2,500 square foot to say 2,000. And so we 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 three closures this year already. We hadn't completed all of them. Looking at a couple more. And then to the extent we've got opportunities in markets to do new branches, they'll just have a different look and feel. They'll be smaller. The staffing model will be different, and we'll have more and more traffic that we'll push through our customer engagement center. So that's kind of a long-winded way of saying, Kevin, I think we can take advantage of technology that's out there at our size today, but can we use it better at $5 to $10 billion? Absolutely.
spk04: Okay, great. Thanks, Devin.
spk06: Yep. And our next question will come from Amar Samo with Raymond James. Please go ahead. Hey, Amar. Hey, good morning.
spk02: Hey, Devin. Good morning, everyone. So I think we've asked kind of the key points here, maybe just a couple of follow-ups, you know, on the evolving role of technology and fintech. Just some more details on your strategy there, how Reliant can be a player in the space. I believe I saw the company on a recent community bank fintech investment fund. So any details you might have there as well? Thanks.
spk08: Sure, yeah, we did make an investment. I think we were one of 66 banks that invested. Jerry, you want to take that? I mean, you were a little bit closer to that than I was.
spk13: Yeah, so what we've heard consistently from our customers and from our board is that we need to be more adept at implementing financial technology. And part of that in doing our own research on different ways to improve our technology, which includes looking again for some relief from our core. But in going through some of that research, we tripped across actually an investment opportunity with Jam Fin Top, which I'm sure is what you're talking about, the Bank Tech Fund. And what we saw there is a methodology for reviewing investment opportunities. It was very methodical, very intentional. And it just seemed like a great way for us to learn more about the companies that they're underwriting and also at the same time take an equity position in those through this fund. So we're really pleased with that opportunity. The biggest thing with our core is just trying to identify ways to have better access to our data. And I think you'd say the same about any of the big three cores. They all have little... roadblocks built into their business models that tend to make it difficult. But, you know, we're looking through, currently going through some negotiations with FISA and also looking at some other options to see, you know, which one's going to be the best fit for our needs to be able to access our data and, you know, derive meaningful insights from it. Okay, great.
spk02: Thanks for that detail. maybe switching gears a bit on expenses. You mentioned phase one and phase two of your new customer experience build out. Will that ultimately increase the bank run rate expenses? And how do you expect expenses to trend in general with the branch closures and some of the other moving pieces there?
spk08: Amar, I don't think it's 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 cents a share for the, you know, once we get everything done on the branch closure side. And, you know, I kind of looked at that from an expense standpoint as, you know, taking it in tandem with the build out of the customer engagement center. You know, we'll be shifting some expenses around. I think it'll make us more efficient in the way we handle our customers. And also allow us to, you know, to really take a much closer, kind of harder look at how we staff our branches. And I think everybody's probably doing this right now, but it was a big... you know, eye-opener for me when the pandemic hit last year and we were limiting service. We were asking customers to make appointments, encouraging them to use their iPhone or whatever to do banking with us. And we didn't see a drop-off in deposits. New account activity, you know, flattened out for a good part of the year, probably a couple of quarters last year. It wasn't what you would have expected. So this whole idea about, I think, taking an ongoing look at what 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. I mentioned earlier, don't want to do anything that's not, from a technology standpoint anyway, that's going to add expenses to us but not either generate additional revenue or save us some money and that'll be the kind of the key you know hallmark for me is if we're spending this money you know what are we really going to get out of it there are a lot of ways to spend money on technology that you know when you you get through it and you step back and you look at it you say well that was kind of cool but what did it really do for us and we just don't want to do that so I would say The balance of the year, you'll probably see an NIE run rate for us that's not a whole lot different than what we saw in the first quarter. Does that sound about right, Jerry, or am I missing something? No, I think you're on.
spk02: Okay, very good. That should be it for me. Thanks for taking my questions, and congrats on a good quarter. Thank you.
spk06: Thanks, Lamar. And our next question will come from Matt Olney with Stevens. Go ahead. Morning, Matt.
spk10: Hey, thanks. Good morning. Most of my questions have been addressed, so appreciate that. Just one follow-up on the, just remind us of your strategy around PPP. I think you guys outsourced this latest round. Did you guys receive any kind of referral fees this quarter, or is that still on the come? Thanks.
spk08: We did outsource the second round, and I don't think we've gotten any referral fee in our run rate. We shouldn't have a whole lot.
spk07: It's not a whole lot from the referrals. We just get seven basis points on what we get closed through a referral source. If we've seen anything, it's not material and overall won't be material.
spk08: Matt, we've had some customers that we've referred through that have gotten funded And I may have talked to you about this on another occasion, but, you know, last year when we did round one, what did we do, 850 loans? We did 893 loans. And that was done, you know, right as the pandemic kind of settled in and, you know, normal organic loan demand kind of slowed for a quarter. I mean, nobody was really doing anything, you know, with their normal, you know, 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 for round two and end up giving poor service to our customers on, you know, normal loan requests. And we just feel like I think we made the right decision. Let's not do that. let's take care of our customers those are the ones those are the relationships that are going to last for several years you know PPP round one I think we're just about out of now we may have another quarter left to recognize some you know some fee income but but that's that's not something that lasts so we're thinking about this more you know, for the long term. And that was just what we felt like was the best decision for us.
spk10: Okay. And then just going back to the discussion around the core margin, I can't remember if it was Jerry or Devanna mentioned it, but I think there was a mention of three to five basis points. Can you just clarify kind of what that was, off what base and which direction? Sure.
spk08: That's three to five basis points increase off the core base, which is 424. Did that answer your question, Matt?
spk10: Yeah, that's right. Okay, just want to make sure I got that down correctly.
spk08: That was, as Jerry pointed out, that was subject to what's 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 got some big municipal deposits, and we've already started getting some inquiries about funds that are coming in. So not real sure exactly what that's going to look like or how we're going to react, but that certainly could influence your margin depending on how that unwinds this quarter.
spk10: Okay. All right. Thank you, guys.
spk06: Thanks, Matt. And our next question will come from Betty Strickland with Jenny Montgomery Scott. Please go ahead.
spk11: Hey, good morning, guys.
spk06: How are you?
spk11: I'm good. I'm good. It's a little, I don't know if it's gloomy there, but it's 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 starting to be a little bit of a headwind over at the mortgage company?
spk08: Well, the higher mortgage rates are definitely a headwind, and the mix on the retail side of our business anyway has changed in the last quarter from – I think we were probably running around 60% refi, and now we're down to around 45%, something like that. So the mix has changed. You know, we're still, Fetty, the construction business is really strong in Nashville. A lot of people move in here, so the purchase money business is staying in. relatively good for us. And then we've got the correspondent platform that we built out last year as well that's staying fairly strong. So I'd be surprised if the second quarter was as good a quarter from a revenue standpoint. But we've got some, I guess, some kind of fundamental business in the mortgage company that has really not been affected that much by the rate environment. I mean, people are still moving to Nashville in record numbers, and so you're seeing that in our retail production.
spk11: Gotcha. And it's seasonally better in the second quarter anyway, too, right, absent interest rate concerns?
spk08: Yeah, it is. Second and third quarter are going to be the best quarters for the mortgage business. Historically. Historically, yeah.
spk11: Gotcha. And then just one follow-up from me. What are you guys hearing just on customer sentiment? I'd imagine it's a little better versus last quarter, but just incrementally, do you have customers that are maybe looking to expand that weren't really sure what they were going to do last quarter, or has there been any change there?
spk08: John, you want to?
spk09: Well, last quarter production numbers were, really strong for the bank, and that's been kind of the theme ending up the year and going into Q1 as things open up in this Middle Tennessee area more and more. Van referenced their comment on the pipeline. We're very encouraged that Q2 pipeline is as strong as it is right now, and it's with new opportunities. I mean, we're seeing new business opportunities every day. So simple answer to your question is I think there is a great amount of optimism in the business market here of our customers and new customers for the bank.
spk11: Gotcha. And it sounds like Nashville still has some, Nashville proper still has some room to improve there too, right? You're kind of talking about Tennessee broadly.
spk09: Talking about middle Tennessee, I guess. Middle Tennessee. Yeah, for our market spot. And, you know, Nashville is, As Nashville expands, so does Middle Tennessee. It just grows outward until communities and counties connect all of a sudden. So the spillover, whether it's in our residential home construction market, real estate is always a challenge, at least affordable real estate is a challenge. And so we're finding the communities outside the Nashville proper area continue to benefit from those with these builders going in there and trying to tie up the land. And it's been very good for them, and that's where a lot of these relocations or moves to Nashville are ending up. It's not just Dayton County, it's all the counties surrounding it.
spk11: Gotcha. That's really helpful. Appreciate it, guys. Thanks again, and congratulations on a great quarter.
spk08: Thanks, Eddie.
spk06: And our next question will come from Catherine Miller with KBW.
spk08: Please go ahead.
spk06: Morning, Catherine.
spk01: Hey, good morning. All right, we're going to come in the rear here. All right, so I've got a couple of nitty questions. One is just a follow-up on PPP. Is it right that you've got about a million left in unamortized fees from round one to go?
spk13: Oh, can I do that again? Just say $905.00. Roughly the same amount that we recognized in the first quarter, if you want a round number. Great.
spk01: Okay, great. And then on the deposit mix, it's interesting that you've had actually pretty good retention on the deposits as you've brought rates down, but your mix has still improved so much over the past couple of quarters. Is there a way to think about where you think CD is as a percentage of deposit land as we kind of move to the back half of this year?
spk08: Well, my goal is, and I've been fairly consistent about this, is to see our non-interest-bearing deposits at 30% of our total. And we've moved it up. in the last year, I think from about 16% to 22%, Catherine. So I think it's attainable. I'm hoping we can get it done this year. We got an assist with our M&A last year, so both First Advantage and Community Bank had good non-inter-sparing deposits. And of course, what you get from that is not only just basically free money, but fees from deposit accounts. Those are generally commercial checking accounts. All that is very positive long term. I mean, you don't hear a lot of people getting concerned right now about low cost deposit accounts. But if I think ahead four, five, 10 years, The liability side of the balance sheet is, to me, is every bit as important as the asset side. So it's a consistent focus of our team. And I've got guys in here with me right now. John Wilson's a good example. Alan Mims sit on our credit committee. Nobody gets a loan approved if that question doesn't come up. And we expect to see what I call You know, relationship accounts, checking savings, and money markets continue to grow as a percentage of our total deposit mix.
spk01: And then on the buyback, you announced a buyback in January, but your valuation has obviously continued to move higher. How do you think about how active you may be on the buyback near term?
spk08: 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 in the stock price to be interested in doing something. Our capital levels are very adequate right now, but with where the stock is trading today, I'd rather keep it where it is and be ready for an M&A opportunity, for example. So I just don't think you'll see much from us, not around $28 a share.
spk01: Yep, that makes sense. And then my last one, if I may, I'm assuming I'm the last analyst, so I'm going to throw in four questions. And then my last question is just on M&A. You talked a lot about smaller deals, and you certainly have the currency for. What's your appetite or kind of thought around larger kind of MOE-type transactions? We've seen a lot of larger M&A recently. and certainly scale seemingly is much more important today. So just kind of how do you think about larger transactions?
spk08: So that may be two questions, but from an MOE standpoint, there are, I mean, y'all know the names. There are a few that would at least qualify from an MOE standpoint. I don't really, I'm not sure there's a good fit for us. Catherine? just based on what I can see. If your question is larger banks and are they interested in us, I think the answer to that is yes and probably has been for a number of years now. You know, Nashville is probably one of the most dynamic markets in the southeast. Our bank is is truly a Nashville-centric bank. We've got the Chattanooga office with $100 million in loans, but we are taking advantage of Nashville's growth in every direction from Davidson County. And so there's going to be interest in that. And I would expect that to continue. There are bigger banks that have something here they're not happy with. There are bigger banks that don't have anything here. I don't know of many of them that don't have Nashville on their radar screen. And I wouldn't expand the population too far outside of the southeast, but if you go around the southeastern states, anybody that doesn't have much in Nashville, I guarantee you they're thinking about it.
spk01: That's helpful, caller. I would imagine you have a lot of interest for sure, but It's just a balance of what can you do organically first before you would make that decision, I guess.
spk08: Right. And, you know, it's got to be a good one. I mean, organic growth, we think, is going to be sustainable here for quite some time.
spk01: Great. Well, thank you so much for the clarity and the color, and congrats on a great quarter.
spk08: Thanks, Catherine. I appreciate it. Thanks for joining us.
spk06: And this will conclude the question and answer session. I'd like to turn the conference back over to Devon Ard for an closing remark.
spk08: I don't really have anything to close with, Operator. I just want to thank the analysts that have been on the call with us today. It's always good to reconnect. I don't get to see them at investment conferences anymore or just have to talk on the phone, but it's good catching up with all y'all. Thank you for being with us. And with that, we'll end the meeting.
spk06: Ladies and gentlemen, the conference has now concluded. Thank you for attending today's presentation. And at this time, you may now disconnect your lines.
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