UCBI (2020 - Q4)

Good afternoon, and welcome to Reliant Bancorp's Fourth Quarter 2020 Earnings Conference Call. Today's call is being recorded. Hosting the call today from Reliant Bancorp is DeVan Ard, 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 Banc. Please note, Reliant Bancorp's press release and this afternoon'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 the Reliant Bancorp management may make comments which constitute forward-looking statements within the meaning of and subject to the protections afforded by the federal securities laws. All forward-looking statements are subject to risks and uncertainties and other factors that may cause the actual results and the 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 risks, uncertainties and other factors are beyond Reliant Bancorp's ability to control or predict, and listeners are cautioned not to place undue reliance on such forward-looking statements which speak only as of the date they are made. Certain of these risks, uncertainties and factors are discussed in Reliant Bancorp'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 Pages 1 of the presentation slides for Safe Harbor Statement regarding forward-looking statements and non-GAAP financial measures and other information. I would like to now turn the presentation over to Mr. Ard, Reliant Bancorp's Chairman and CEO. DeVan Ar

Thank you, operator and good morning everybody. Thanks for joining us for our fourth quarter earnings call. Given the challenges resulting from the COVID-19 pandemic its particularly rewarding to me to announce that our team produced another outstanding quarter. For many individuals and small businesses have been impacted by the COVID-19 pandemic and social unrest, 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 are also extremely proud of the recognition we received in October when we were named as the best small bank in Tennessee by Newsweek and its first ranking the financial institutions that best serve their customers' needs in today's challenging times. And 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 $0.73 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 ROA of 87 basis points. Profitability has increased in large part due to 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 and a current interest rate environment. Not only of our bankers maintain 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 for the growth of non-interest bearing deposits, which have grown from 16% of our deposits at the end of 2019 to 22% at the end of 2020. Some of this increases 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 increase liquidity. For example, we opened almost 1700 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, an outstanding achievement for our team. Loans declined during the fourth quarter, as solid loan production was slightly outpaced by higher the 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, 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 differentiated from our competitors will 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 and non GAAP measure more closely aligns with how we monitor expenses. It's not skewed by our mortgage company. This measure is employed 25% over the prior year to 47.2% for the fourth quarter of 2020. Again, this demonstrates our expense management realization of planned merger synergies. Before I end my initial comments, let me talk for a minute about asset quality. We've not seen significant credit deterioration on 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 detailed look at our financial results. Jerry?

Thank you, DeVan and good morning. As DeVan said we had another very solid quarter. As you'll see as I take you through some additional features. As shown on Page 2 of the earnings presentation. Fourth quarter 2020 net income was $12.2 million or $0.73 per diluted share. Net income included three items of note that I'll expand on. First purchase accounting accretion was $2.8 million for the quarter with 726,000 of that attributable to early pay offs of acquired loans. As noted on previous calls, the purchase accounting accretion for payouts has declined over the last three quarters as anticipated. Purchase accounting accretion contributed approximately $0.12 net of taxes to earnings per share. Second provision expense was $950,000 for the fourth quarter, if we increase our allowance for loan loss to total loan 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 wholly proceeds recognizing non-interest income during the quarter. These funds provided us the opportunity to restructure our investment portfolio, pay off some higher rate borrowing, 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 $0.02. While demand mentioned our ROA 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, ROITC 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 ROITC of 12.31%. Moving on to Page 3, I'll touch on some factors surrounding a 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 account assessments. Our adjusted margin is steadily increases the fourth quarter of 2019 from 3.36% to 4.09%, in the fourth quarter of 2020. The 22% increase is a testament to our team's efforts in a challenging interest rate environment. Page 4 shows a consistent increase in performance of our bank segments and efficiency ratio since our most recent acquisition of 47% to 51%. From Page 5, 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 fourth quarter of 2020. Following our two transactions earlier in that year, we ended the fourth quarter at 15.39% of 20% annualized increase from the link quarter due to strong net income. We're particularly proud that in the last year, we've essentially earned back the entire 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 6 and look at our loan portfolio. Loans held for investment totaled $2.3 billion at December 31, 2020 a slight decrease of $57 million from September 30. While loan growth is expected to be tepid due to the current economic environment, our pipeline is promising and investment stage for further expansion of our market share in the coming quarters. Loan yields declined 10 basis points from the link quarter but the decline is primarily from 14 basis points of lower purchase accounting increasing, the lower levels of purchase accounting increasing were anticipated as we move 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 pay off or forgiveness. Our loan coupon plus fees for the quarter with and without PPP differ by only one basis point showing our core loan portfolio is the true driver of our yields. Turning to Page 7, our deposit portfolio continues 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.

Thanks, Jerry and good morning. I'll begin my comments on Page 9 of the presentation. Credit metrics continued to remain strong through 12/31. Non-performing assets and past views continue to be minimal and well controlled by 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 off 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've seen some improvement in national local economic conditions, concerns remain was 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. For the fourth quarter provision, the allowance received rates 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 unaccredited purchase discounts are considered total reserved for credit loss becomes 1.62%; the lower sales further improves the 1.67%, net of PPP loans. At quarter-end we build, we have adequately provided for possible offers. 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, including details of our hospitality and retail CRE portfolio the highlight the strengths included and while we realized 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 modification and assistance we provided our customers throughout 2020. As you will note on page 13 of the presentation, we provided initial payment relief over 20% of our portfolio, either in principle deferment or full payment deferral for up to the 90 day period. Those referrals were granted liberally for federal regulatory guidance. For a second modification request, 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 receive interest only payments rather than full deferral, or granting deferrals for only one month rather than a full 90 day period. For 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 borrower's financial conditions; as facts and conditions were in, relationships are downgraded accordingly. For December 31, we've only had very few borrowers downgrade, 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. Through our 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 request to the SBA, generally for those loans greater than $150,000 and 34 of 31 saw a reduction in PPP loan, so the 18 million primarily from the forgiveness process. The recently passed can consolidated appropriation's 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 and forgiveness applications for those affected borrowers. Importantly, the Act also provides additional assistance to small businesses with another round of PPP funding. These loans instrumental in supporting many small businesses during the early stages of the pandemic as certain 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 the DeVan Ard for his final closing remarks.

Thanks, Alan. I want to conclude my comments this morning by reviewing our 2021 strategy, which is found on Page 14 of our presentation. As we continue to grow, talent, acquisition and retention remained top priorities. In June, we renamed a top workplace by the Tennessee and 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 recognize the need to strengthen our digital presence as customer behaviors change. One of our 2021 initiatives include building out and optimizing our digital channels to make banking easier for our customers, especially in a post pandemic society, whether through changes to online banking, or a mobile app are excited about providing new technologies to our customers. We also believe current economic conditions will create opportunities for strategic acquisitions. Of our 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 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. We will continue to be disciplined about our approach to M&A and only look at deals that will be accretive 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 credit we expect loan growth to be slower in 2021. But believe it 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 open new markets for us including the attractive Clarksville MSA and those markets have performed well through this challenging period. Now, 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. Currently reviewing our branch network redundancies, and exploring additional branch locations to complement our current market. And controlling expenses with the continual focus in 2021 will be no exception. We'll continue to look for opportunities to leverage our infrastructure and operating in efficient manner. So despite the challenges 2020 has brought our communities 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 Reliant 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. Thank you.

[Operator Instructions] And our first question today will come from Brett Rabatin with Hovde. Please go ahead.

Hey, good morning, everyone. I wanted to start off just talking about expectations for loan growth. The way you said it would be a little slower this year, maybe can you talk about is that part 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?

Sure. So we're kind of modeling growth right now in the 5% to 6% range issue, 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 probably going to be a little bit different than we saw in 2020, where there were quite a few assets 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 the administration, where are we going with the Coronavirus and is this spike we've seen in the last two to three months; is it going to put up kind of a cold blanket on the economy or is it going to gradually go away? So, now I think those are all factors that probably impact loan growth, competition on good quality credits, for rates is very strong again, and it's amazing how quickly, the banks in this area flip switch from, we're just trying to get our hands around the impact of the pandemic, let's go out and get all the good new learning assets we can get. You know, having said that, our current loan pipeline is still very, very strong, very solid. If you especially look at historically what we have, we're north of $100 million in new loans in the pipeline in the next 90 days. Those are all deals that apply 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 close deals that are closed in construction loans, you got over $150 million in funding that we anticipate over the next say 12 to 18 months. They just haven't hit the books yet. So these are deals that we've closed with typically, you're going to have a borrower who is a little bit uncertain about whether to launch a big project. And to go ahead and start firming well, as the economy recovers, and we do think it will recover, I personally think it'll be more like a second or third quarter of it, you'll start seeing those funds up as well. So, I think all those factors kind of weigh into our forecasts, 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 national certainly is that, but those are the factors, I think, that are kind of, weigh in either positively or negatively on loan growth issue.

Okay, that's great color, and then 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, 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 do you have to spend versus potential efficiency gains this year.

I'm going to let Jerry Cooksey handle that.

So we have, we obviously just went through our budget cycle for the year. And as part of that, spend a lot of time digging into the structure. We're predicting or showing anyway, in our budget that we're going to end up with first quarter non-interest expense lower than we've had in the fourth quarter of 2020 rather, that's partly because we had some onetime expenses that we accelerated into 2020. Because we had the [indiscernible] income and we knew the analysts not going to give us credit for one time income. So we went ahead and offset that with some onetime expenses that would reduce our feature run rates. So that totals about $305,000 in onetime, non-interest expense in the fourth quarter.

So Brett, I'll just add real quick to 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 that we targeted, originally about a 3% increase overall, and IE this year, 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 did have some opportunities to look real closely at our branch network and might be pared back a few branches. And, my deal 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 wanted their business in a different way than we 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.

That's helpful. And then maybe just one last quick one on how M&A you mentioned it and obviously it would help if your stock price was higher. You know, maybe any color if you could just on markets DeVan, you want to look at and size ranges that you might be interested and acquiring obviously did to last year. Are you hopeful you'll get one done this year?

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, but we're basically targeting what we targeted in the past in terms of geography, it's Middle Tennessee, which kind of leaves up a little bit into southern Kentucky and down in the North Alabama and then the area around Chattanooga and 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 the Chattanooga area, maybe down in North Georgia. Don't really want to focus too much on size and then 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's a couple of dozen candidates in the geographies that I just defined. And we know who they are; generally the size is going to be kind of a $0.5 billion and above but not always. And then CBP, last year was smaller, but it was a great fit for us in a contiguous market to Nashville. So that's kind of what the landscape looks like, I continue to believe that, the fundamentals that drove a pretty robust M&A in 2019 are still there. That's, lack of real clear succession at the board level, and at the senior management level with a lot of these banks, no liquidity and their shares. And, as the economy gets a little bit more certainty period, I think you'll see M&A activity pick up and certainly, as you know, I mean, a strong stock price helps M&A. We've been running around 130% of tangible book value, and thankfully, we deserve better than that. But, relative to some of our peers that are in the M&A business and 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.

Okay, that's right color, congrats on the quarter and the full year.

Thank you. Appreciate it.

Our next question will come from Stephen Scouten with Piper Sandler. Please go ahead.

Hey, guys, quick, just follow up maybe for Jerry on the kind of noncore and non-recurring items. I saw the 253,000 I guess FHLB 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.

Now the 253,000 [ph] was in interest expense, because that was a prepayment to Federal Home Loan Bank. The 305 was a non-interest expense, combination of branch projects and IT projects that we had scheduled for '21 that we weren't accelerated into '20. And then there was one other items.

The $1.3 million was the bowl gain [ph]?

That's correct.

$40 million was the gain here, the other one was while some security sales; that's almost $600,000, Steven. That was kind of getting some low yielding securities out of our portfolio.

Perfect.

I think actually on the Federal Home Loan Bank [ph] that paid off just had, there were historic advances that we have from much higher right environment and we want to pay this off. So you know, if we need to go back and re borrow it to be more than 2% lower, right for the same maturity.

Okay, and when were those paid off? And will you have some incremental benefit into the codename that'll occur in one key [ph]?

The Federal Home Loan Bank advances were paid off in the fourth quarter, I think, around the middle of November, if I recall correctly. So yes, we'll continue to see some benefit you know, significantly lower borrowing costs come forward.

Okay. And how do you think about that Core NIM? I guess from here? I mean, you had a really nice 11 base 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 new loan yields were in the 439 range versus 470 kind of average loan yield. So how should we think about that the Core NIM pressures and benefits?

Probably let John Wilson talk about, where he sees new loan funding on the bank side, main factor housing gives us a nice benefit by virtue there, around 9% right on average for that loan portfolio and the demands that we expect that portion to continue to grow. I have a pretty substantial pay and it's rock solid credit as you can tell from our last 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. They're much, much smaller dollar amounts, obviously. So, we 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. So still hopeful that, that we'll see flights falling on funding costs for the deposit side, the non-deposit funding costs, we're continuing to see the wholesale deposits, or Federal Home Loan Bank advances, similar sources, those details to come down. And so we're seeing right from the five basis points for up to two years duration, so pretty hard to argue with those types of funding cost.

Steven, I just say on the deposit cost side, we got about $125 million in CDs, that are maturing in the first quarter that are all north of 170. And right I think the average weighted average rates about 170 actually will, if we experienced 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 rates that leads to 100 basis points lower than 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 10 basis points or so that we can bring out of that this quarter, my goal was 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.

Okay, very helpful. And then, you know, Jerry you mentioned manufactured housing, and then you talked about the 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, the portfolio around 10% today? How big would you be comfortable with that portfolio? Getting it as a percentage of the total loan book?

You know, Steven, it's a question kind of tough to answer. I mean, we've started out, when we first started dancing [ph] with first advantage thinking that the manufactured housing portfolio probably shouldn't be 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, the group sitting around the table here, we've all gotten very comfortable with the discipline, the rigor that they bring to their process for underwriting, collecting, and if you look at just about any credit metric that you would want to apply to a consumer portfolio that size, we're in really good shape, it could be charge offs, passed through. We just got up, we've got a really good solid organization that's focused not only on growth, but on credit quality. So, looking ahead from a year ago, I feel good about the growth in the portfolio, I don't know that I currently have a specific target of whether it's 10%, 15% or 20%, I think it just depends on what we see just the dynamics of that loan portfolio. But certainly, at a 20% growth this year, if we can do that, that gets us in the $250 million to $375 million range. 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 Ponzio and Jamie [ph] running that portfolio; they just did a terrific job with everything [indiscernible].

Great. Super helpful. And then, maybe just last thing for me. I'm curious, I know you talked about M&A but also talked about how you think the stock price is a little low relative to your performance, which I would agree with. And so, I'm just wondering, how you think about the share repurchase, especially given the capital build you've had the last couple quarters?

Thanks. Good question. So we are evaluating a repurchase program, y'all may remember, we had one in place for 2020, that we suspended when the pandemic hit us; so we really didn't do anything last year. And the board is -- 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, Steven, don't really know the amount right now, we'll have kind of a targeted price. That will work off 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 -- our guess, it's going to be somewhere in the $10 million -- $10 million to $15 million.

Fantastic. Thanks for all the color, and congrats on a great quarter and great year.

Thanks.

And our next question will come from Kevin Fitzsimmons with D.A. Davidson. Please go ahead.

Hey, good morning, DeVan and everyone; I hope everyone is 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 with -- and talking about the margin, maybe we can dovetail into that. So, if we can just kind of start, what was the dollar amount 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.

So, I'll let Alan talk about the PPP situation, and Jerry can go right after that.

Good morning, Kevin. We had -- at 9:30, we were at $83 million [indiscernible] for total PPP outstandings, at the end of the year $65,531; that's about $18 million that was paid down or forgiven most of that, you know, forgiveness process. And really, in the fourth quarter, we've started that focusing more on the borrowers above $150,000 because of the -- I guess, a little bit of 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 we -- now that there is some clarity, up again, 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 will pick up the new funding for PPP because of our desire to see organic lung growth, and the way that the initial rounds of PPP thanks to our staff, we actually partnered with a third-party for the 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 that will be 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 tag our staff with that, allowing us to really focus on that non-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 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. And so like that we'll -- it will allow us to do what we want to do and allow our customers access to both, PPP funds, as they may at this time.

And on the NIM, you asked about the purchase accounting accretion; so purchase accounting [indiscernible] about 28 basis points in the fourth quarter from standard accretion, and then pay-off rate is 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 is due to pay-offs. We're looking at 14 basis points in the prior quarter for purchase accounting equation to pay-off. PPP fees; we had $816,000 that was recognized in the period, about half of that was due to forgiveness. But we had $18 million in PPP loans forgiven in the quarter. I don't know if you had other questions, but I'm more than happy to address them.

Okay. So the PPP fees is separate from the 28 bips, right, that's just purchase accounting?

That's correct, yes.

Okay. So, and -- as the remainder of forgiveness plays out over the next quarter or so I would expect we'll see probably even more recognition of PPP fees in 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?

That's correct. We do have about $1.8 million remaining at the end of the year in unaccredited PPP fees.

Got it. Okay. 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 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 being either on watch or putting in special mention? And -- sorry about that. 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.

Yes, I'll let Alan take that.

As we work through the modifications, we have seen some downgrades but none that moved into criticize. Previously, we have one that moved into criticized assets; we've had some others -- other loans that were not modification process that we've moved into a criticized assets. But those are far different than what we were talking about with modifications, we've moved some down into [indiscernible]; primarily a couple of hotels that we think will -- that removed the interest only. But we think they're going to be -- once that comes out of the pandemic, we'll have our resource back, we think those will be okay to get 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 if not all of those get approved. As we discussed previously, we look at those -- to ensure there is a real need for those, and a lot of times we've just asked the customer to continue making payments and they've been able to do so, and our modifications have dropped and stay down around 1%. From a reserve level, I think we will continue to look at that as the pandemic kind of plays out and vaccines start taking hold. And as that moves around, we probably would 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 were at 1.67%, which we think is really a strong percentage against loans right now, based on our real credit metrics which are non-performers or not moving significantly. In fact, they're actually declining and got very low charge-offs. And from just the bank standpoint, we had actually done that recovery, we had charge-offs in the MH division, but overall at 1% for the year, charge-off level, and I think that in this pandemic year was excellent results from that standpoint, that's further indicator of strong credit. Capacity are not moving up, we continue to see those remaining below our internal goals; and -- so I think, 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 seeing a lot of problems that we would go out there indicative of the need to build a reserve any further.

Would you -- hey, Alan, would you think -- would you view it as more you guys kind of growing into that reserve as -- I know, it appears very strong, including the fair value discounts, but as those go away and get utilized, and 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 overtime?

So Kevin, I would say the way I view that is, we're probably not going to be looking at replacing reserves. I would say that we've got to grow into it, this year we'll -- as Alan said, we're really comfortable with where we are right now but I just can't see us getting to the point where we're actually going to release reserves back. So, we'll -- you know, what you'll probably see from us going forward is a provision expense that reflects combination of charge-offs and growth, but not anything in the way of reserve releases.

Great, thanks very much.

And our next question will come from Katherine Miller with KBW. Please go ahead.

Thanks. Good morning, thanks. A lot of more 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 but there is -- there are a lot of moving parts because we've got kind of partial year of FABK and then this quarter was higher because some of the one-time expense; does that what kind of brought forward? And then you've got the mortgage PECs [ph], so it was -- I guess, maybe that -- 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 take another one-time, annualized and kind of grow it at 3%; maybe that's where we are?

Yes, that's a great follow-up question; I probably should have been a little bit more specific when I talked about it a little earlier. When I was talking about 3%, we basically use the fourth quarter NIM run rate. And instead of the full year 2020, you're exactly right, I've realized that we -- especially for the first quarter, anyway, the last year we didn't have first advantage in our run rate. So what we typically do is, we build our NIM budget out as we look at where we are in the fourth quarter, factor out any one-time events and then just kind of use that as our platform for that growth. So it's basically be 3% over the fourth quarter run rate but taken out the one-time expenses and the one-time revenue, excuse me, the one-time expenses that we had in there would not have not included the portfolio restructuring or the Federal Home Loan Bank, but we did have some other ones. We funded against unfunded loan commitments in the fourth quarter, we already mentioned a couple of other ones; we had an increase in our incentive accrual. So there were a number of factors that were involved, and that was basically the fourth quarter run rate times, 103 is how we look we got there.

Okay, that's really helpful. Thank you. And then, on critical yield, what are your expectations for the level of credible yield we'll see this year?

You want to take that one?

I think I'll need a little more color on the question. I'm sorry.

The level of credible yield.

In terms of what we have remaining to accrete [ph]?

Yes.

That was your question, Katherine?

Yes. Just trying to think about -- I mean, I feel like a credible yield has been high the past couple of quarters, just trying to think about where that moves to in 2021?

I'll follow-up. 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 contribution from standard accretion. The payoff, that's anybody's guess. They were 14 basis points third quarter, 10 basis points fourth quarter; I'd say we'll probably be in the 8 basis points to 10 basis points first quarter.

Got it. Just starting in the low 20s, just as a baseline, and then what you'll get some acceleration on top of that and fluctuate?

Yes.

Great. Okay, that's all I've got. Thanks. Congrats on a great quarter.

Thank you.

[Operator Instructions] And our next question will come from Feddie Strickland with Janney Montgomery Scott. Please go ahead.

Hey, good morning, guys. I'm 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. I was just wondering what the outlook for that is?

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've 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, capital market just froze up. So a lot of momentum coming out of the capital markets opened 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 normal retail mortgage business, which for us it's kind of centered around Middle Tennessee and Chattanooga. And, you know, we see a pretty good year ahead, Feddie. I don't -- I don't know exactly how we're going to wind up with retail, but rates remain low and probably just as importantly, homebuilding activity, especially here in Middle Tennessee is continued basically at record levels; and a lot of that's been driven by mortgage rates. But I would also tell you that Nashville is really benefiting from a lot of migration from other communities. I don't know whether any guest saw this or not, but earlier this week, U-Haul [ph] published their survey for 2020 where they 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 anyway, 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 mortgage business, just make sure I'll point out -- I think everybody knows this but the mortgage results, although they're part of some of our metrics, 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 a standpoint of our return to our shareholders right now is just bank operations. But still feel real good about where mortgage is today.

No, that's great. And yes, actually, we -- I saw something, not a van line, something similar to the U-Haul report, it's kind of very interesting thing. Same observations; I guess my final question, I know we're getting to 11 o'clock here. But was just wondering whether there is kind of relative difference in economic activity across your footprint or are things better in the suburbs versus Nashville proper? Is -- or how does the outlying area around Chattanooga look or is it just kind of consistent across the footbridge? Just wondering whether there is any kind of variation in what you're seeing?

Yes, I think there is, Feddie. I do think Nashville, Davidson County, the -- the Metro Nashville market, if you want to call it that, probably a little bit more restricted in terms of activity than some of the surrounding areas. And so the counties that are contiguous to Davidson County, one of which is Williamson County, where we operate in Clarksville, MSA, just to the kind of Northwest of us, Chattanooga, all seem to be doing very well. Think of the mayors of those counties, the leadership has taken a little bit more circumspect approach to putting more restrictions on the economy, or economic activity stepping back, gatherings, restaurant closings, etcetera, etcetera. 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 state-wide, he has left 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 think back to earlier last year, when we had the tornadoes that ripped through Nashville, we had the explosion on Christmas Eve, and if you hadn't seen pictures of that, it's -- it looks like a warzone down on Second Avenue. But those can't overcome the attractiveness of the Middle Tennessee area. And -- so whether it's Davidson County or any of the other markets that we operate in, I think that there is a lot of optimism going into 2021, we are starting to see -- you guys probably are to a significant drop-off in positive cases over the last four to five weeks. 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 to 3,500. So, I would expect to see kind of a continued relaxing of restrictions on gatherings, even in Davidson County. And Nashville – Nashville is going to come back, it may be second or third quarter, but I think it will definitely be back and the kind of things that bring people here to wield, to play, whatever the case might be, they're not going anywhere.

Got you. Perfect. I appreciate all the color. And congrats on a great quarter, guys.

Thank you, Feddie. Appreciate it.

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.

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 community has 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 I 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.

The conference has now concluded. Thank you for attending today's presentation. And at this time, you may now disconnect.