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Reliant Bancorp, Inc. (RBNC) Q2 2019 Earnings Call Transcript

Motley Fool Transcribing, The Motley Fool
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Reliant Bancorp, Inc. (NASDAQ: RBNC)
Q2 2019 Earnings Call
Jul 24, 2019, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Good morning, and welcome to the Reliant Bancorp's second-quarter 2019 earnings conference call. Hosting today's call is DeVan Ard, Reliant's president and chief executive officer. He is joined by Dan Dellinger, chief financial officer; Louis Holloway, chief operating officer; and Alan Mims, chief credit officer, who will be available during the question-and-answer session. Please note, Reliant Bancorp's earnings release and this morning's presentation are available on the investor relations page of the company website at www.reliantbank.com.

Today's call is being recorded and will be available for replay on Reliant Bancorp's website approximately an hour after the conclusion of the call. [Operator instructions] During this call, Reliant Bancorp may make comments, which constitute forward-looking statements. All forward-looking statements are subject to risks and uncertainties and other facts that may cause actual results and performance or achievements of Reliant Bancorp to differ materially from any results expressed or implied by such forward-looking statements. Many of such factors are beyond Reliant Bancorp's ability to control or predict, and listeners are cautioned not to put undue reliance on such forward-looking statements.

Additional factors, which could affect the forward-looking statements can be found in Reliant Bancorp's annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K filed with the SEC. Reliant Bancorp disclaims any obligation to update or revise any forward-looking statements contained in this presentation whether as a result of new information, future events or otherwise. In addition, these remarks may include certain non-GAAP financial measures as defined by the SEC Regulation G. A presentation of the most directly comparable GAAP financial measures and a reconciliation of the non-GAAP measures to comparable GAAP measures is available on Reliant Bancorp's website at www.reliantbank.com.

I will now turn the presentation over to DeVan Ard, Reliant Bancorp's president and CEO. Please go ahead, sir

DeVan Ard -- President and Chief Executive Officer

Thank you, and good morning. Thanks for joining us for this morning's call to review our second-quarter results. We appreciate your continued interest in our company. Before I turn the call over to our chief financial officer, Dan Dellinger, to discuss our financial results in more detail, I want to touch on a few highlights from a very successful quarter.

I'm proud to report our company generated record net income attributable to common shareholders of $4.2 million and record earnings per share of $0.38 per diluted common share during the second quarter of 2019. Strong organic loan production coupled with our ability to improve our balance sheet mix grew interest income to $20 million for the quarter, which is a 5% quarter-over-quarter improvement and a 21% increase over the second quarter of 2018. Our bankers again delivered double-digit annualized loan growth, resulting in a 4% quarter-over-quarter increase, 16% annualized and 15% year over year. Loans have now grown for 16 consecutive quarters.

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second-quarter loan production totaled $150 million at a weighted average rate of 5.5%, and came from a broad range of loan categories with all markets contributing. Most impressive our loan growth continues to be 100% organic, derived from end markets relationships our bankers have built over many years. Our high credit standards made generating growth more challenging, but our team came through again this quarter. And speaking about credit culture, credit quality metrics were again superior as we reduced nonperforming assets by $1.2 million and ended with a net recovery for the second quarter in a row.

We believe our strong credit culture is one of the primary differentiating factors for Reliant Bank and we're extremely proud of our track record. Consistent loan growth has improved our asset mix over the past several quarters. We accelerated the this trend in the second quarter by rotating $26 million from our bond portfolio and investing the proceeds in new loans. Dan will discuss this in detail during his comments.

Core bank noninterest expense, which excludes the results from our joint venture mortgage subsidiary, decreased 3% quarter over quarter, The decrease can be attributed in part to investments we made in upgrading technology and adding experienced personnel in key areas driving operating leverage. Also want to credit our management team for their diligence in managing discretionary spending within their span of control. Net interest margin declined 6 basis points quarter over quarter. As with the past few quarters, margin contraction was primarily driven by rising cost of funds driven in large part to increases in the cost of wholesale clients.

We did receive some relief from this trend at the end of June as CD rates began to decline allowing us to rotate $59 million from higher cost wholesale funding sources into CDs. We were able to rapidly refine to the changing rate environment because we've maintained shorter durations in wholesale time deposits. We believe this strategy has positioned us to benefit should the Fed reduce interest rates at their July meeting. And finally, I want to mention our successful share repurchase program, which resulted in the repurchase of 335,973 shares or $7.6 million of our common stock during the second-quarter 2019.

Additionally, we declared a $0.09 dividend on June 26, that was paid to our shareholders on July 18. This marks the 17th consecutive quarter we declared a dividend. Now, I'd like to turn the call over to Dan Dellinger. Dan?

Dan Dellinger -- Chief Financial Officer

Thanks, DeVan, and good morning everyone. Before I get into my analysis of our financial results, I wanted to mention we are using a presentation deck for the first time in order to supplement our commentary. We believe this tool provides shareholders and other interested parties with useful information to help better understand our current financial results and our company in general which aligns up with our philosophy of being as transparent as possible. I want to begin on Page 2 of the presentation which summarizes second-quarter accomplishments and provides key financial metrics.

From our commentary, we'll cover many of these items. I do want to take a moment to welcome our two new directors, Connie McGee and Linda Rebrovick to the Reliant family. If you will please now turn to Page 5 where I want to discuss the impact on our deposit portfolio mix is having on our net interest margin, which declined 6 basis points quarter over quarter to 3.57%. The quarter-over-quarter decrease was again driven by an 8-basis-point increase in our cost of funds, which outpaced a 2-basis-point increase in yield on earning assets.

Much of our increase in cost of funds can be attributed to our wholesale deposit portfolio, which represented 30.3% of deposits as of June 30 of 2019. On the right side of Page 5, you will see five quarters of wholesale deposit portfolio trend, duration and cost information. We have purposely maintained shorter durations for our wholesale deposit portfolio, which permitted us to quickly react to a changing environment and transition $39 million of State of Tennessee CD at an weight average coupon of 2.35% and $20 million of wholesale money market deposits at a weighted average coupon of 2.67% into CDs at a weighted average coupon of 2.26%. The increase in the mix of CDs did result in a flat increase in weighted average duration for the portfolio from one and a half months to three months.

However, State of Tennessee portfolio, which is our largest wholesale component carries a weighted average duration of 15 days. So the near term, we expect wholesale rates to continue to decline, and we are well positioned to take advantage of opportunities to lower the cost structure of our deposit portfolio. On the asset side, we picked 270 basis points of incremental yield by rotating $26 million from the bond portfolio with a weighted average rate of 2.8% and to new lines at a weighted average rate of 5.5%. This transaction improved both sides of the balance sheet as we do not have to source incremental wholesale funds and accelerate our efforts -- accelerated our efforts to make loans held for investment at larger percentage by earning assets.

Over the past year, loans held for investment as a percentage of assets increased from 68.8% at June 30, 2018 to 73.2% at June 30 of 2019. While securities have decreased from 18.6% to 16.2% over the same period. We'll continue to proactively seek opportunities to optimize our funding mix and to position our balance sheet to grow both margin and revenue expansion while maintaining an adequate liquidity. Given the speculation that the FOMC may lower short-term rates at the July meeting, we will provide some color regarding our asset liability position.

While we strive to be neutral to interest rate movements, we are presently liability sensitive due to our decision to maintain shorter durations for our wholesale timed deposits. On the asset side, we maintain longer provisions as 59.6% of our loan portfolio rates were fixed. We believe our balance sheet is well positioned for the forecasted rate environment. Let's now turn to Page 6 and continue our discussion of loans held for investment.

Loan growth continued to be exceptionally strong during the second quarter as loans held for investment increased by $50.5 million quarter over quarter, 16% annualized and $170.2 million or 14.9% year over year pushing us across $1.3 billion. As DeVan mentioned, this is all organic growth generated by old fashioned relationship banking. To be clear, we've never supplemented our loan growth by purchasing syndicated national credits nor do we intend to do so in the future. Despite solely relying on organic growth and strategic M&A, our loan portfolio is growing at a compounded annual rate of 24% since 2015.

During the second quarter of 2019, new loan production totaled $150 million at 5.54% weighted average rate with 42% of the new production from CLD loans, 25% from C&I and 22% from construction loans. In contrast to the makeup of our portfolio, 73% of the new production carries a variable interest rate. Our loan growth story becomes even more impressive when you consider the credit culture that our board and leadership had instilled in our bankers. Our higher standards limit our bankers to pursuing only the strongest loan customers as we refuse to sacrifice credit quality to meet growth goals.

Those standards have translated into pristine asset quality metrics, which are detailed on Page 7 of the deck. During the second quarter, our team improved upon already excellent credit quality statistics as nonperforming assets end of the quarter at $4.9 million or 0.27% of total assets, a $1.2 million quarter-over-quarter decrease. For the second consecutive the quarter and the fourth time out of the last five quarters, we ended the second quarter in a net recovery position. The strength of our balance sheet permitted us to reduce the allowance for loan losses 1 basis point to 0.89% of totals loans at June 30, 2019.

When unamortized purchase loan discounts are added to the allowance for loan losses, our total reserve comes to 1.17%. Another element of our strong risk management practice is the diversification of our commercial real estate portfolio, which remains our largest single loan category. The chart on Page 8 breaks down our CRE portfolio by category and details concentration to capital metrics for five quarters. Our bankers' expertise in real estate lending allows us to source loans from multiple industries and categories that fall under the commercial real estate lending umbrella thus spreading inherent market risk across a very diversified portfolio.

Let's turn to Page 9 and talk about the financial performance of the core bank segments which excludes the financial results from our joint venture mortgage segment. Our team's ability to grow the loan portfolio while increasing yield has been a critical element for our success as interest and fee income from our loan portfolio continues to be the company's primary revenue engine. During the second quarter, loan interest and fee income reached $17 million, 4.9% increase from the first quarter of 2019 and 20.6% from the second quarter of 2018. Total loan yield increased by 4 basis points quarter over quarter to 5.43%.

The impact of the purchase accounting accretion in our Tennessee community investment loans, which provides tax credit to certain interest income increased slightly quarter over quarter. For your reference, we have provided the performance measure that breaks down loan yield by component on Page 6 of the presentation. The core bank segment continues to deliver strong revenue growth while aggressively managing operating expense, which decreased 3% to $10.1 million quarter over quarter. The largest contributor to the decline in core bank NIE was $110,000 quarter-over-quarter decrease in salary expense and $130,000 decrease in other noninterest expense.

The core bank efficiency ratio declined to 64.3% and NIE as a percentage of average assets declined to 2.3%. Core bank noninterest income increased by 7% to $1.5 million, primarily due to the increased fees generated on deposit accounts and a $44,000 incremental increase in gain on sale of investments from the first quarter of 2019. On a consolidated basis, noninterest income was up 39% quarter over quarter to $2.7 million, primarily due to $665,000 increase in gains on sale of mortgage loans from the first quarter of 2019. As I've mentioned in the prior quarters, revenues and expenses from the joint venture mortgage subsidiary are combined with the bank and a holding company and then netted out as noncontrolling interest of the subsidiary.

For the second quarter of 2019, the joint venture mortgage subsidiary generated a net loss of $1.6 million, which is in line with the first quarter of 2019. Our joint venture partners are responsible for funding losses in the mortgage operation in arrears and those losses do not impact the bottom line of the company. I want to conclude my presentation by discussing how our company's financial strength is building value for our shareholders. Financial strength is critical in our industry as it permits us to continue to grow both organically and hopefully to be viewed as an require of choice within our market.

The company's regulatory ratios are provided on Page 10 and Page 11 provides several measures of shareholder value creation. The financial strength of our company combined with a history of profitability have created value for our investors, evidenced by the steady growth of the tangible book value per share up 11.2% since the second quarter of '19 and 10 and a half percent return on tangible common equity. Additionally, we have declared dividends for 17 consecutive quarters. Given the strength and the size of our loan portfolio, our changing asset mix, our proactive actions we've taken to improve margin, we believe our company is well positioned to continue to create value for our shareholders in the coming quarters.

Now, I'd like to turn the call back over to DeVan.

DeVan Ard -- President and Chief Executive Officer

Thanks, Dan. Before I open the call for questions, I want to talk about the progress we've made in executing our growth strategy at the halfway point into 2019. Last quarter, I highlighted our updated strategic plan that focuses on growing our company by developing existing markets. Our new banking centers in Murfreesboro and Chattanooga were part of that plan and were strong contributors to our second-quarter growth.

On a combined basis, they reported a 22% increase in loans and a 30% increase in deposits in the second quarter alone. Given our position in the market and financial strength, we also have opportunities for M&A. Our ideal partner would have assets over $500 million, a stable core deposit base, the consistent track record of profitability and good asset quality and would not be a significant drag on our current growth targets. We would of course, consider smaller opportunities, particularly in counties contiguous to Nashville and Chattanooga, where additional scale is desirable and earnings accretion can be achieved.

As both Dan and I mentioned, our asset quality continues to be superior. The strength of the credit culture is evidenced in our credit metrics, and we believe that culture is one of the key differentiators for our company. As previously stated, we will not sacrifice credit quality nor rely on purchase loans to meet growth goals. Our credit team is led by Alan Mims.

He is on the call with us today and will be available to answer questions after the call. We're also continuing to expand our digital channels by making investments in new technology that will increase our wallet in market share and improve our customers' experience. A couple of examples, you choose rewards, our debit card rewards program was launched in the second quarter, and we're currently implementing tokenization to meet our customers' demand for secure, convenient mobile payments and set the foundation for Reliant's digital wallet. In closing, we're very optimistic about our future as we head into the third quarter of 2019.

Dan did a great job detailing the positive momentum we built during the first half of 2019 and the steps we've taken to position our company for continued success. We know we're fortunate to be located in one of the best markets in our country and the growth of Nashville is a big part of our story, The economy remains robust and continues to be fueled by new jobs. Among the large MSAs in the U.S.A., Nashville had the highest growth in employed workers over the past 12 months. But regardless of our economy, we couldn't continue to grow and succeed without our dedicated team of bankers.

And, I would like to thank my entire team for their work and contributions to our franchise success. Operator, that completes my remarks for this morning's call, and we'll now open the call for questions.

Questions & Answers:


Operator

[Operator instructions] We will take our next question from Kevin Fitzsimmons.

Kevin Fitzsimmons -- D.A. Davidson -- Analyst

Hey, guys good mornig.

DeVan Ard -- President and Chief Executive Officer

Good morning, Kevin.

Dan Dellinger -- Chief Financial Officer

Good morning.

Kevin Fitzsimmons -- D.A. Davidson -- Analyst

Appreciate the slide deck and the additional breakdown on the margin. I just wanted to use that as a starting point. So if I understand it correctly, the reported margin is $357 million. You guys are calling adjusted $339 million, which takes out tax credits, which really flows through the tax line any way, not through NII.

And I appreciate taking out accretion income, but I would assume that there will be some amount of accretion income going forward, but maybe not to the degree we had in second quarter. So just number one, I would like to know what that starting point is because if we take only the tax credits out, we're about $350 million, maybe if accretion income was a little heavy this quarter, maybe the starting point is something like $347 million, $348 million. And then building from there assuming we get a cut, it seems like you are signaling a more of a stabilization in funding cost and a little bit liability sensitive on the yield side. Would you expect some improvement from there.

I know that was a lot, but just if you can drill down on that topic? Thanks.

DeVan Ard -- President and Chief Executive Officer

Sure, Kevin, I mean, you just basically just answered your own question. I appreciate that. And I know margins are under a lot of scrutiny for everybody these days. So I'm going to let Dan talk a little bit about what we see going forward in the third quarter.

Dan Dellinger -- Chief Financial Officer

All right, Kevin, so I guess first thing, let's turn our attention back to Slide 5 and just if you recall it's a kind of an answer to probably a lot of people on the call. Recall that 30.3% of deposits are in wholesale funds and the duration of those is three months or less and that I also mentioned that $270 million of those deposits are in State of Tennessee CDs which have 15-day duration. So yes, as we move into the third quarter -- as we move toward the end of this month, we're forecasting two rate decreases: One at the end of this month and one at the end of September. And we do think that with those two rate decreases, that we will be neutral to slightly positive.

Part of that is driven by two factors. One is as I mentioned earlier too, we do have about 40% of our loan portfolio that is floating rate. About 74% of that can reprice in the third quarter if we get a rate decline. So between that reduction and then the reduction that we would expect to get on the wholesale funding portion of our portfolio, we do see some slight improvements like positive momentum in our margin for the third quarter and on into the fourth quarter.

Also we mentioned optimizing the balance sheet as we're looking at opportunities to continue to rotate investments that maybe providing lower yield into higher-yielding loans. So if we do all that, and we get the rate decreases, I think that we can see some definite positive momentum. Also, we'll talk about the margin as reported, the margin as adjusted. Those are both on a fully tax equivalent basis and as you mentioned, the tax credits represent about 7 basis points of that total.

So the accretion left in there will leave you about $347 million roughly, I believe, on a nominal basis. So that's what we're looking at as kind of the starting point for the third quarter and again hopefully with two rate decreases, we'll see some positive momentum.

Kevin Fitzsimmons -- D.A. Davidson -- Analyst

All right. Great. Appreciate that. And also, I appreciate the updated appetite on M&A.

I was just wondering DeVan, if you can speak about the environment in general, about potential targets out there. Whether M&A is going to be called off for a while or whether you suspect things are picking up just based on conversations. What's your best guess is? Thanks.

DeVan Ard -- President and Chief Executive Officer

Sure, so as we've talked about before the kind of target geography that we're looking at, Kevin, is where we do business today, it's Middle Tennessee, around Chattanooga. Our stock price has moved up a little bit in the last week or so I think. Overall, the industry seems to be reacting favorably to our earnings reports and to the extent you see a lift in stock prices, that always heats up the environment a little bit. In our markets, I think a number of different things drive that.

And really one of the keys is succession and aging boards and some of the opportunities that we've looked at over the last year or two, both of those have really been key parts of the decision to seek a strategic partnership. And that's not going to change. In fact in a lot of community banks in Tennessee, you're still seeing that out there. You're seeing boards that own a significant part of the company that are getting old and have no liquidity in their stock and the only succession and they're looking for other opportunities.

They're looking in a lot of cases for really a good partner with a good track record, strong earnings, good solid stock. And so, I think, you'll continue to see opportunities. We've seen quite a few over the last 12 months. I have talked about several of them to you guys and there are more on the horizon.

We have opportunities to take a look at deals on a fairly regular basis and when we do want, it will be one that fits the criteria that we laid out there. You probably won't see us going too far out of our market. We're not talking about Middle Tennessee, usually drag in Southern Kentucky and North Alabama into that. But those are all part of the geography that we think makes a lot of sense for our franchise and as long as we're focused on Middle Tennessee and Chattanooga, I think, we're going to be in really good shape from an M&A standpoint.

Kevin Fitzsimmons -- D.A. Davidson -- Analyst

OK, guys. Thanks very much.

Operator

[Operator instructions] We are taking our next question from Joe Fenech from the Hovde Group.

DeVan Ard -- President and Chief Executive Officer

Hi, Joe. Good morning.

Joe Fenech -- Hovde Group -- Analyst

Hi, DeVan. How are you doing?

DeVan Ard -- President and Chief Executive Officer

Good.

Joe Fenech -- Hovde Group -- Analyst

DeVan, mortgage was a big driver for you in the second quarter assuming that strong performance extends into the third quarter as well. And then maybe looking beyond that, if that's the case can you maybe just remind us about the typical seasonal patterns for mortgage banking in your markets if we kind of stay in this favorable rate environment?

DeVan Ard -- President and Chief Executive Officer

Yeah, Joe. I mean, typically just in the mortgage business in general if you set the rate environment aside and I don't think you can really do that right now. But if you do, it's going to be kind of a late first quarter, second quarter, third-quarter expansion in the mortgage business and then usually, production and closings in sales drop off in the fourth quarter. So I'm not real sure that's a specific reflection on our results even though we showed a loss in the mortgage company in the second quarter.

As you note, revenue was up significantly. We were up over 100% revenue in mortgage company. We have made a significant investment in the mortgage business over the last, let's say, six months and building out a correspondent banking platform, which will generate first mortgage HELOCs as well as jumbo loans and traditional mortgages for us and that's a part of what you are seeing in the expanse run rate. I think it has got -- look at over the next couple of quarters that really starts to pay off in terms of revenue in the fourth quarter this year.

So we are expecting to see just on the expense side anyway another loss in the mortgage company in the third quarter. Hopefully, we'll be in the black in the fourth quarter as production ramps up. Now the rate environment is I think is really key. Not only do we start to see a lift in refi activity, but just the construction, home building, home closings, resales, all driven by job growth in the Nashville area.

I think will keep the purchase money business pretty strong at least through the end of the year and the first part of next year. So the investments that we are making I think will start paying off in a much bigger way in the fourth quarter this year. I'd see good revenue growth in the third and the fourth quarter.

Joe Fenech -- Hovde Group -- Analyst

Got you. OK. And my question was more focused on the revenue side, but I appreciate the color on the investment and the profitability as a whole. DeVan, it looks like the average stock price year to date of the share repurchase is about $22.75, stock closed yesterday at $23.25, you accelerated the repurchase in the second quarter.

Are we still in a range where we feel like that's a good use of excess capital or more on pause here?

DeVan Ard -- President and Chief Executive Officer

I think we're on pause right now, Joe. With our ongoing growth and the organic growth that we've achieved in the second quarter is kind of continuing into the third quarter. When I look at the need for capital, when I look at where our stock price is today, I don't think it really makes any sense for us to do anything now. So we'll probably pause for at least a quarter.

Joe Fenech -- Hovde Group -- Analyst

OK. And then last one from me DeVan. Obviously, there have been some credit issues with some of your local peers. It doesn't seem as though you are seeing any similar type issues in your portfolio.

And it would seem to me that those issues experienced by others are mostly confined to SNC and/or out of market type credits or niche businesses. Just wanted to see if you share that opinion in the sense that you're just not seeing anything that's all that concerning to you on the ground and the markets you operate in?

DeVan Ard -- President and Chief Executive Officer

We are not going to comment on the competition because all I can talk about is what's been publicly filed. But Alan may have a comment or two that he wants to make. I don't usually get to listen to Alan talk, but he's our Chief Credit Officer and really is a big reason behind the consistent performance that we've had in credit. So Alan, are you seeing anything that would cause you to be concerned?

Alan Mims -- Chief Credit Officer

We're not seeing anything now and really most of that that has really been publically played recently has been related into shared national credits and we because of our strength in our growth just in our market and our ability to continue to get business from our existing customer base and relationships that we have developed. We have not had a need to reach into that market to provide a place to put our fund. So we continue to make our focus dealing with customers that we know well. Businesses that we understand, commercial real estate portfolio seeing some good growth over the quarter.

And we tend really to kind of stick to the things that we know more specifically the nose that we would be reaching out and getting into places that we would feel uncomfortable. So I don't think we'll be going in any of those directions. We'll just continue on doing what we feel like we do best and we don't really see any areas in our portfolio that are giving us any cause for concern at this point. Our market stays strong.

The overall growth in this market has been phenomenal over several years now and all of the information that we see shows that growth will continue on. So we monitor that very closely but we intend to continue doing what it is that we have done that's made us successful thus far.

DeVan Ard -- President and Chief Executive Officer

Joe, I don't -- I mean, looking ahead, I also just to comment on SNC. I mean, I have never seen a SNC relationship that where you are buying a loan that you get any deposits out of and usually when you get a phone call if there's a problem that is already something that's a real problem, just doesn't make any sense for us. I really don't know that it makes any sense for any community bank and we will avoid that. I would say, even if growth slowed for us that's not something we have any interest in.

Joe Fenech -- Hovde Group -- Analyst

Got it. Thank you, guys.

Operator

[Operator instructions] We are taking our next question from Christopher Marinac from the Janney Montgomery Scott.

DeVan Ard -- President and Chief Executive Officer

Good morning, Chris.

Christopher Marinac -- Janney Montgomery Scott -- Analyst

Hi, thanks. How are you? I wanted to delve into Slide 8 and particularly get into the C&D portfolio. So two questions, A, can you confirm that hotel is now zero. And I want to understand more about what's in the other category and then the final question related is just simply the concentration ratio around $120 million.

Does that sort of trend lower as the business plan develops in the next several quarters or give us sense of where you'd like to see that go?

DeVan Ard -- President and Chief Executive Officer

Chris, I'm going to let Alan answer that.

Alan Mims -- Chief Credit Officer

In the C&D portfolio the hotel is zero. At the end of the quarter, we have one project that was in construction last quarter, that finished up. We have the certificate of occupancy. They are actually open now, and so everything that we've got hotel wise is term and is in payments.

The level of the concentration rather is really is the mixture of two things. One, was we had a pretty strong increase, one that we expected because of the really improvement in weather we had in the fourth quarter and early in the first quarter, we had some record rainfall in Nashville that really slowed a lot of the building down. We felt like that would improve over the second quarter, and we saw a good bit of that improvement. And then the other part of that was our capital, our total capital that is measured against actually decreased over the quarter because of the share repurchase.

So as some of these are building out, we think that we will see these -- the level of that moderate somewhat. It was -- it's expected that we have the growth. We expected the concentrations to increase, and then you couple that along with the rate of reduction in capital and we had really a larger percentage growth than we really had in dollars.

Christopher Marinac -- Janney Montgomery Scott -- Analyst

OK. That's great background. Thanks for that. And then just another question.

I know you mentioned liquidity at the onset of the call. When we see the FHLB advances just ticked down this last quarter, does that sort of signal that you've got more liquidity and your liquidity ratio has incrementally improved, just want to delve into that a little bit more?

Dan Dellinger -- Chief Financial Officer

Chris, as I mentioned earlier, that was a concerted effort to move out more expensive funding sources into lower expenses -- lower expensive funding sources. We rotated out of the Federal Home Loan Bank advances into wholesale time deposits. And as I said in our comments early, we reduced our overall exposure on that.

Christopher Marinac -- Janney Montgomery Scott -- Analyst

So the new overall independency has improved and then you've got obviously more capacity as time evolved. So if anything it creates more flexibility for you, correct?

Dan Dellinger -- Chief Financial Officer

Yes. We do have -- that's correct, we have more capacity with Federal Home Loan Bank and yes our ratios should improve just a little bit.

Christopher Marinac -- Janney Montgomery Scott -- Analyst

OK. And then last question goes back to kind of more philosophical on sort of getting your core deposits. As you have success moving relationships on kind of non-CD money, does this rate environment we are running into make it easier for you. As rates come down is there little bit less pressure and therefore that core customer is a little bit easier to move, I know easy is a wrong word, but just kind of curious on your thoughts on how the environment is evolving for you?

DeVan Ard -- President and Chief Executive Officer

Yeah, I don't -- Chris this is DeVan. I don't really see the environment getting any easier just because of a movement in rates. We are, and I know you all notice but especially in the Nashville MSA, the earning asset growth that we have all experienced has kind of tinged out scrip deposit growth, especially what I would call relationship accounts, checking, savings and money market and that's what we really want. I don't think that environment is going to get any easier.

In fact, I think, one of the things that we are seeing, I think, everybody probably is there's some disintermediation with funds rolling into the stock market because it's there in as well as it is. So we got to stay really, really focused throughout our company on making sure that we have deposit relationships where we have loan relationships. I think we have done a good job with that, but I think, we can do better. We launched on July 1, a companywide deposit contest.

It's going to run probably through the end of year. We're going to measure at the end of the third quarter. But we've given goals for nontime deposits to all the branches, the commercial teams, the board members, back-office teams, and we are measuring everything, every week. And we're going to give away some nice prizes at the end of the contest.

Goal is to grow that non-time book of business by about $88 million in the third quarter. So it's something that we just got to stay really focused on and be smart about. And I think we'll have some success at it. I just don't -- I don't think the deposit environment in terms of generating new deposits is getting a lot easier in Nashville.

Now we have seen, and I mentioned little earlier, we have seen some really good growth in core deposits in Chattanooga and Murfreesboro. They are still relatively small given the size of the total bank. But Chattanooga's market and Murfreesboro's market both are strong in terms of deposits, and we've been able to run some specials in those markets kind of surrounding the openings of the branches. We may go back in and do that again.

And so I think there is a good bit of potential in those markets and we're just -- really just now starting to tap into.

Christopher Marinac -- Janney Montgomery Scott -- Analyst

Great, DeVan. Thanks very much for your comments.

Operator

[Operator instructions] We are taking our next question from Stuart Lotz from KBW.

DeVan Ard -- President and Chief Executive Officer

Morning, Stuart.

Dan Dellinger -- Chief Financial Officer

Good morning.

Stuart Lotz -- KBW -- Analyst

How is it going? Good morning. Most of my questions have been answered already, but I guess, DeVan, the core bank level expenses were a little bit lower this quarter. And I know you mentioned that was the ramping mortgage volumes. You expect some of the mortgage or I guess, some of the noncore bank expenses to pick up in the coming quarters.

Just curious if this run rate for the bank level, you expect to continue to the second half of the year or are there any further technology investments that you're planning that could come to little bit higher and cause this run rate to increase? Thanks.

DeVan Ard -- President and Chief Executive Officer

Yes, thanks Stuart. Good question. So core bank, we don't really anticipate anything significant that would add to our NIE run rate in the third and the fourth quarter. I would say within a pretty narrowband that 10.1% to 10.3% in terms of core bank NIE is where you would see us in the third and the fourth quarter.

No real pickup in our run rate between now and the end of the year.

Stuart Lotz -- KBW -- Analyst

OK. Got it. And then in terms of inefficiency target, I know you finally cracked the 65% level this quarter. With no further expense growth this year, how realistically do you think you can get the ratio if you do see revenue continue to pick up particularly on the mortgage side?

DeVan Ard -- President and Chief Executive Officer

Core bank efficiency ratio we might target sub 60%. I think we were in the second quarter, we were around 64%. It's probably going to be a challenge to get to 60% this year, but I do think we will continue to see some operating leverage that will push it now in some. If we get -- I mean, I've always said I would much rather improve our efficiency ratio with higher revenue than with lower expenses.

Yet if we can control our expenses kind of where they are today and we can get some expansion in our margin a little bit, we may get close to that. But 60% minus is or sub 60% is kind of our target.

Stuart Lotz -- KBW -- Analyst

Got it. Thanks there. And just again, any revenue or sorry, ROA or ROTC targets if you could just reiterate what those are?

DeVan Ard -- President and Chief Executive Officer

Yeah, sure. So ROAA target would be north of 1%. We came pretty close in the second quarter. And, I mean, my target for -- return on average tangible common equity, whatever that acronym is, is in the 12% to 15% range.

We were north of 10%, that's OK, but it's not where we want to be longer term. And so if you look at our strategic plan, our three- to five-year plan, it's in that 12% to 15% range for return on equity.

Stuart Lotz -- KBW -- Analyst

Awesome. Well, thanks for the color guys. And congrats on a nice quarter.

DeVan Ard -- President and Chief Executive Officer

Thanks.

Operator

[Operator instructions] It appears there are no further questions at this time. Mr. Ard, I would like to turn the conference back to you for any additional or closing remarks.

DeVan Ard -- President and Chief Executive Officer

OK. Thank you. Yes. I just wanted to say thanks for everybody for taking time out of your schedule to join us.

We would love to see in Nashville, it's a great place to live and do business. So come on down and we'll show you a good time. That concludes my remarks.

Operator

[Operator signoff]

Duration: 46 minutes

Call participants:

DeVan Ard -- President and Chief Executive Officer

Dan Dellinger -- Chief Financial Officer

Kevin Fitzsimmons -- D.A. Davidson -- Analyst

Joe Fenech -- Hovde Group -- Analyst

Alan Mims -- Chief Credit Officer

Christopher Marinac -- Janney Montgomery Scott -- Analyst

Stuart Lotz -- KBW -- Analyst

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