RBNC - Reliant Bancorp Inc. Reports 2019 First Quarter Results

Reliant Bancorp, Inc. (“Reliant Bancorp” or the “Company”) (Nasdaq: RBNC), the parent company for Reliant Bank (“Reliant”), reported net income of $3.8 million, or $0.33 per diluted common share for the first quarter of 2019, a slight increase over the $3.7 million and $0.33 per diluted common share for the first quarter of 2018 and down from $4.1 million and $0.36 per diluted common share from the fourth quarter of 2018. Of particular note, fourth quarter 2018 results were positively impacted by the full realization of a $0.5 million community investment tax credit (CITC) and normalized quarterly net income would have been $3.7 million, or $0.32 per diluted common share.

“We are pleased to report strong first quarter earnings for our company, driven by robust loan growth and superior credit results,” stated DeVan Ard, Jr., Chairman, President and CEO. “Loans increased 2.5% during the quarter, or 10.1% annualized, with $116 million in new loan production. Loan demand has been strong in all of our core markets, and we are especially pleased to see a significant contribution from our new office in Chattanooga.”

Quarterly Highlights

Consistent, Sustainable Organic Loan Growth and a Diverse Funding Mix

Loans Held for Investment increased by $31 million from fourth quarter 2018, a 10.1% annualized rate and $156 million, or 14.2%, year-over-year. Loan production totaled $116 million at a 5.62% weighted average rate, with C&I loans comprising 32% of the new production. Adjusted loan yield (loan coupon + loan fee accretion) for first quarter 2019 was 5.18%, up 9 basis points from the fourth quarter of 2018 and up 31 basis points from first quarter of 2018. “We are especially proud that our loan growth reflects 100% core, high quality loans originated at attractive yields and that we do not rely on purchasing loans to supplement our growth,” Ard went on to say.

Deposits increased by $73 million from the fourth quarter of 2018, a 20.4% annualized growth rate, and by $162 million from the first quarter of 2018, a 12.0% year-over-year growth rate. The deposit growth rate was enhanced by $56 million of CDs from the State of Tennessee, which the Company used to pay down more expensive borrowings, generating a 20-basis points net benefit. The cost of deposits was 1.34% during the first quarter of 2019, up 16 basis from the fourth quarter of 2018 and 56 basis from the first quarter of 2018. “Competition for deposits remains keen, and while we showed growth in non-interest-bearing deposit balances during the quarter, overall deposit costs increased. To repay higher cost borrowings, we raised more in deposits than what was needed to fund loan growth. With the Fed pausing on additional rate hikes, we expect deposit costs to stabilize in the second quarter,” concluded Ard.

Profitability Driven by Pricing Discipline & Expense Management

Net interest margin was 3.63% for the first quarter of 2019, a 19-basis point drop from the fourth quarter of 2018 and a 16-basis point decrease from the first quarter of 2018. However, after adjusting loan yields for tax credits and purchased loan discount accretion, the adjusted net interest margin for the first quarter of 2019 only decreases 1-basis point to 3.47% versus 3.48% for the fourth quarter of 2018.

The subsidiary bank only (excluding mortgage segment) efficiency ratio (non-GAAP) for the first quarter of 2019 was 64.0%, compared to 59.7% in the fourth quarter of 2018 and 61.1% for the first quarter of 2018. Non-interest expense for the first quarter of 2019 totaled $12.7 million, an increase of $0.5 million or 4.5% from the fourth quarter of 2018 and $0.6 million or 4.8% from the first quarter of 2018. When adjusted to exclude mortgage company and merger expenses, the first quarter 2019 non-interest expense is $10.4 million, up $1 million or 8.9% from first quarter 2018 and $0.2 million, or 1.6% from fourth quarter of 2018. Expense growth in the first quarter of 2019 was driven by salary expense from investments made in revenue producing employees and occupancy expense from launching new branches in both Murfreesboro and Chattanooga.

Asset Quality Remains a Hallmark of The Franchise

Non-performing assets totaled $6.1 million, or 0.35% of total assets at March 31, 2019, an increase of 5 basis points from December 31, 2018. The increase was the result of a $1 million loan being placed on non-accrual status. Management believes that an adequate reserve has been established for this credit. Additionally, criticized and classified credits as a percentage of total loans saw a significant improvement from 1.15% at December 31, 2018, to 0.94% at March 31, 2019.

The loan loss reserve was 0.90% of Loans Held for Investment (1.23% when unamortized purchased loan discounts are included), up 2-basis points from December 31, 2018. No provision was needed during the first quarter of 2019 due to net recoveries of $0.5 million, compared to a provision of $0.1 million in the first quarter of 2018 and $0.3 million in the fourth quarter of 2018.

Financial Strength Positions Company for Growth

Stockholders’ equity increased by $6.7 million, an annualized growth rate of 12.9%, to $215.1 million. Both the Company and Reliant continue to meet the definition of “Well Capitalized” financial institutions. Ard added, “Our strong credit culture continues to be a core tenet of the franchise and the bank remains appropriately reserved and well capitalized to support not only our current business, but also our future growth.”

Creating Shareholder Value

Tangible Equity increased by $6.9 million, an annualized growth rate of 17.7%, from fourth quarter 2018 to $163.5 million. TBVPS increased $0.63, or 18.6% annualized, to $14.21 from the fourth quarter of 2018 and by $1.27, or 9.8% from the first quarter of 2018. ROATCE was 9.7% for the first quarter of 2019, down slightly from first quarter of 2018 and down 103 basis points from the fourth quarter of 2018.

The Company declared a $0.09 per share dividend payable to shareholders of record as of April 8, 2019, representing a 12.5% increase over the dividend declared for the first quarter of 2018.

Non-GAAP Financial Measures

This document contains non-GAAP financial measures. The non-GAAP measures in this release include “adjusted net interest margin,” “adjusted net income attributable to common shareholders and related impact,” and “efficiency ratio.” We believe these non-GAAP measures provide useful information to investors because these are among the measures used by our management team to evaluate our operating performance and make day-to-day operating decisions. In addition, we believe certain purchase accounting adjustments, income relating to the recoveries of purchased credit impaired loans, and merger expenses do not necessarily reflect the operational performance of the business in these periods; accordingly, it is useful to consider these line items with and without such adjustments. We believe this presentation also increases comparability of period-to-period results.

Other companies may use similarly titled non-GAAP financial measures that are calculated differently from the way we calculate such measures. Accordingly, our non-GAAP financial measures may not be comparable to similar measures used by other companies. We caution investors not to place undue reliance on such non-GAAP measures, but instead to consider them with the most directly comparable GAAP measure. Non-GAAP financial measures have limitations as analytical tools, and should not be considered in isolation, or as a substitute for our results as reported under generally accepted accounting principles.

About Reliant Bancorp, Inc. and Reliant Bank

Reliant Bancorp, Inc. is a Brentwood, Tennessee-based bank holding company which, through its wholly owned subsidiary Reliant Bank, operates banking centers in Davidson, Hamilton, Hickman, Maury, Robertson, Rutherford, Sumner, and Williamson counties, Tennessee. Reliant Bank is a full-service commercial bank that offers a variety of deposit, lending, and mortgage products and services to business and consumer customers. As of March 31, 2019, Reliant Bancorp had approximately $1.8 billion in total assets, approximately $1.3 billion in loans and approximately $1.5 billion in deposits. For additional information, locations and hours of operation, please visit their website at www.reliantbank.com.

Forward Looking Statements

All statements, other than statements of historical fact, included in this release are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The words “believe,” “anticipate,” “expect,” “may,” “will,” “assume,” “should,” “predict,” “could,” “would,” “intend,” “targets,” “estimates,” “projects,” “plans,” and “potential,” and other similar words and expressions of the future, are intended to identify such forward-looking statements, but other statements not based on historical information may also be considered forward-looking, including statements about the Company’s future financial and operating results and the Company’s plans, objectives, and intentions. All forward-looking statements are subject to risks, uncertainties, and other factors that may cause the actual results, performance, or achievements of the Company to differ materially from any results, performance, or achievements expressed or implied by such forward-looking statements. Such risks, uncertainties, and other factors include, among others: (1) the possibility that our asset quality could decline or that we experience greater loan losses than anticipated, (2) increased levels of other real estate, primarily as a result of foreclosures, (3) the impact of liquidity needs on our results of operations and financial condition, (4) competition from financial institutions and other financial service providers, (5) the effect of interest rate increases on the cost of deposits, (6) unanticipated weakness in loan demand or loan pricing, (7) lack of strategic growth opportunities or our failure to execute on those opportunities, (8) deterioration in the financial condition of borrowers resulting in significant increases in loan losses and provisions for those losses, (9) the ability to grow and retain low-cost core deposits and retain large, uninsured deposits, (10) our ability to effectively manage problem credits, (11) our ability to successfully implement efficiency initiatives on time and in amounts projected, (12) our ability to successfully develop and market new products and technology, (13) the impact of negative developments in the financial industry and U.S. and global capital and credit markets, (14) our ability to retain the services of key personnel, (15) our ability to adapt to technological changes, (16) risks associated with litigation, including the applicability of insurance coverage, (17) the vulnerability of Reliant Bank’s network and online banking portals, and the systems of parties with whom the Company and Reliant Bank contract, to unauthorized access, computer viruses, phishing schemes, spam attacks, human error, natural disasters, power loss, and other security breaches, (18) changes in state and federal laws, rules, regulations, or policies applicable to banks or bank or financial holding companies, including regulatory or legislative developments, (19) adverse results (including costs, fines, reputational harm, and/or other negative effects) from current or future litigation, regulatory examinations, or other legal and/or regulatory actions, and (20) general competitive, economic, political, and market conditions, including economic conditions in the local markets where we operate. Additional factors which could affect the forward-looking statements can be found in the Company’s annual report on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K filed with the Securities and Exchange Commission (the “SEC”) and available on the SEC’s website at http://www.sec.gov. The Company believes the forward-looking statements contained herein are reasonable; however, many of such risks, uncertainties, and other factors are beyond the Company’s ability to control or predict and undue reliance should not be placed on any forward-looking statements, which are based on current expectations and speak only as of the date that they are made. The Company disclaims any obligation to update or revise any forward-looking statements contained in this release, which speak only as of the date hereof, whether as a result of new information, future events, or otherwise.

The above financial information is presented, net of intercompany eliminations.

Yield Table Assumptions - Average loan balances are inclusive of nonperforming loans. Yields computed on tax-exempt instruments are on a tax equivalent basis including a state tax credit included in loan yields of $300, $868, and $25, respectively for the three months ended March 31, 2019, December 31, 2018, and March 31, 2018. Net interest spread is calculated as the yields realized on interest-bearing assets less the rates paid on interest-bearing liabilities. Net interest margin is the result of net interest income calculated on a tax-equivalent basis divided by average interest earning assets for the period. Changes in net interest income are attributed to either changes in average balances (volume change) or changes in average rates (rate change) for earning assets and sources of funds on which interest is received or paid. Volume change is calculated as change in volume times the previous rate while rate change is change in rate times the previous volume. Changes not due solely to volume or rate changes are allocated to volume change and rate change in proportion to the relationship of the absolute dollar amounts of the change in each category.

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