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Reliant Bancorp, Inc. (NASDAQ:RBNC)
Q4 2019 Earnings Call
Jan 24, 2020, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Good morning, and welcome to Reliant Bancorp's fourth-quarter and year-end 2019 earnings conference call. Hosting today's call is DeVan Ard, Reliance chairman, president, and chief executive officer. He is joined by these Reliant Bank executives: 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 supplemental financial information are available on the investor relations page of the company's website at www.reliantbank.com.

Today's call is being recorded and will be available for replay on Reliant Bancorp's website for 12 months. [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.

Please carefully read the forward-looking statement language on the fourth-quarter and year-end 2019 earnings presentation. 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 SEC Regulation G.

Regarding Reliant Bancorp's fourth-quarter and year-end 2019 earnings, a presentation of the most directly comparable GAAP financial measures and a reconciliation of 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 chairman, president, and CEO.

DeVan Ard -- Chairman, President, and Chief Executive Officer

Thank you, operator. Good morning, and thanks for joining us for our fourth-quarter earnings call. I will start this morning by welcoming the employees and shareholders of Community Bank & Trust to the Reliant family. We closed on our merger January 1st and completed a successful conversion last weekend.

We now have the leading market share in Cheatham County, contiguous to Nashville-Davidson County to the west, and they have enhanced our already strong presence in Robertson County. We're also looking forward to completing our merger with First Advantage Bank in the second quarter. First Advantage originally established in 1953, gives us an entrance into the attractive Clarksville-Montgomery County market just northwest of Nashville. We've received all required regulatory approvals to complete the merger, and shareholder meetings are scheduled for early March.

I also want to recognize and thank the Reliant team for a very successful quarter despite the distractions that working on two mergers can cause. Loan production exceeded $200 million in the fourth quarter, a 39% increase over the third quarter and 108% higher than the fourth quarter of 2018, and loans increased in all major categories. We ended the year with $1.4 billion in loans, a record for our company. I'm especially pleased with the progress we've made over the past six months in growing relationship deposits, a year-long focus for our team.

Checking, savings, and money market balances grew at a 19% annualized rate in the fourth quarter. And non-interest-bearing deposit balances increased at a 37% annualized rate. This continuing effort to shift our funding mix to lower-cost deposits will be critical to improving our net interest margin in 2020. Credit quality remains a core strength of our company, and our metrics remain superior for the fourth quarter.

Non-performing loans declined to 29 basis points of total loans held for investment. And we reduced ORE by over $1 million while reporting a net overall gain. The last parcel of ORE that we had was under contract at year-end and subsequently closed with no additional loss. We expect credit quality to remain strong in the first quarter of 2020, and our Chief Credit Officer Alan Mims will be available for questions after we conclude our remarks.

And finally, we declared a $0.10 dividend, which represents an 11% increase over last year's first-quarter dividend. This dividend, payable on February 14th, marks the 19th consecutive quarter we paid a dividend to our shareholders. I'd now like to turn the call over to Dan Dellinger to discuss our financial results in more detail. Dan?

Dan Dellinger -- Chief Financial Officer

Thanks, DeVan, and good morning, everyone. I will begin my comments on Page 2 of our earnings presentation, highlighting a few of our company's many accomplishments achieved during the transformational fourth quarter. GAAP net income for the fourth quarter was $4.1 million or $0.37 per diluted common share. Adjusted to $1.3 million of merger-related expense, net income of $5.3 million or $0.47 per diluted common share.

Net interest income was driven by strong loan and core deposit growth. For the year, the company generated net income of $16.2 million or $1.44 per diluted common share. We closed on a $60 million 10-year subordinated debt offering on December 13th and a coupon at 5.125%. The interest rate is fixed for five years and floats for the final five years at the secured overnight financing rate plus 376.5 basis points.

The sub-debt bolsters capital, both at the bank and the holding company, provides additional liquidity for our recent M&A activity and other general company uses. Finally, as DeVan noted, we announced a definitive agreement to acquire First Advantage Bank in October and closed the acquisition of Community Bank & Trust on January 1st, 2020. Let's turn to Page 3 and take a deeper look into the recent acquisitions and the strategic benefits each offer to our company. Community Bank & Trust is headquartered in Ashland City, Tennessee, and reported total assets of $257 million at December 31st.

The acquisition of CBT extends our footprint into Cheatham County and provides us with another source of quality, low-cost core deposits. At year-end, CBT reported total deposits of $210 million at a cost of 52 basis points. We are confident that our company's financial strength, our team's focus on delivering excellent customer service, and the range of products and solutions our bankers can offer our new clients will not only help retain the former CBT clients but also expand our presence in these new markets. The acquisition closed on January 1st of this year, and we completed the system conversion on January 21st.

First Advantage Bank is headquartered in Clarksville, Tennessee, and reported total consolidated assets of $738 million as of December 31st. The acquisition of FAB expands our footprint into the rapidly growing Montgomery County and brings us a team of bankers that specialize in manufactured housing lending. This niche lending offers strong returns and provides us with a potential new source of non-interest income. The benefit that brings to acquire First Advantage Bank was announced on October 23rd, 2019, and we expect to be able to close early in the second quarter of 2020.

We project both acquisitions will be accretive to earnings in 2020 and the full benefit realized in 2021. And our team is excited by the talented bankers that we will be adding to our company. We look forward to building upon the success of all three companies achieved in 2019. On Page 4, you will find some pro forma financial metrics for the three companies individually and what a combined entity would have looked like as of December 31st.

Our combined entity would have reported total assets of $2.9 billion, total loans held for investments of $2.2 billion and total deposits of $2.4 billion. Please note, CBC recognized $732,000 of merger expenses in the fourth quarter, and FAB recognized $4.3 million of merger expenses in the fourth quarter. Returning focus back to Reliant's fourth-quarter financial results, let's turn to Page 5 and talk about our deposit portfolio, which ended 2019 at $1.6 billion, representing a four-year compounded annual growth rate of 25.4%. The $27 million quarter-over-quarter decline reported in the performance measure on the left side of the page doesn't truly reflect the outstanding performance our bankers delivered during the fourth quarter of 2019, generating $73 million of customer deposits and reducing our cost of deposits by 14 basis points.

$37 million of the growth in customer deposits occurred in non-interest-bearing deposits and interest-bearing checking, savings, and money markets. The increase in customer deposits, coupled with the reduction of our investment portfolio, allowed us to reduce our wholesale deposits by $103 million or 21% during the quarter, taking our non-core funding dependency ratio to 25.2%. It's important to note that the success of our team achieved in the fourth quarter resulted from our bankers' year-long commitment to strengthen deposit relationships with current clients and emphasizing to all new relationships the importance of winning deposits. We are proud of our team and look forward to their continued success in this very important initiative.

On the loan front, our bankers capped off a successful 2019 by generating a franchise-record $217 million in new loan production at a weighted average rate of 4.7%. On Page 6 of our presentation, you should see -- you can see loans held for investment into 2019 at $1.4 billion, representing a full-year compounded annual growth rate of 22.9%. Our portfolio continues to carry considerable commercial real estate and construction loans, primarily due to the continued high volume of new construction in our Middle Tennessee and Chattanooga markets. Moving to the right side of Page 6.

Loan yield continues to be impacted by the Fed's recent rate cuts as our total loan yield was down to 11 basis points, and core loan yield was down 19 basis points from the third quarter. We expected loan yield will begin to stabilize in the first quarter of 2020, as no further rate cuts are expected in the immediate future. Moving to Page 7. A loan loss provision of $406,000 was taken during the fourth quarter, taking [Inaudible] loans to 0.89% of total loans held for investment at December 31st.

This becomes 1.1% when unamortized purchase loan discounts are added back. Our management team is comfortable that we are adequately reserved at December 31st. As always been the case, credit quality remains a top priority for our board and management. At December 31st, our credit quality measures remained pristine.

Non-performing loans accounted for just 29 basis points of total loans held for investment and non-performing assets accounted for just 26 basis points of total assets. Fourth-quarter 2019 charge-offs totaled $420,000, with the company ending the year in a net recovery position. During the quarter, we disposed two other real estate properties totaling $1.3 million, realizing a gain on disposal of $56,000 after including the writedown of the remaining property by $100,000. Remaining other real estate properties on December 31st was under contract and disposed at the end of first quarter of 2020 with no additional loss.

As I previously mentioned, commercial real estate and construction loans continue to increase as a percentage of our total capital. Both concentrations remain within board-approved limits. To appropriately manage the potential risks associated with this type of lending, our bank is focused on lending to the first five group of borrowers and industries within these loan segments, minimizing exposure to any one industry or borrower. Concentrations are geographically depicted on Page 8.

Construction, land, and land development loans were 124% of total capital, up 5.9% quarter over quarter, essentially flat with the third quarter. Management and the board of directors are confident that the appropriate risk management controls are in place and remain comfortable with these concentration levels at December 31st. Net interest margin for the fourth quarter of 2019 was 3.46%, down 5 basis points quarter over quarter. The primary factor impacting margin was the $60 million subject to issuance that closed on December 13th and increased fourth-quarter interest expense by $152,000, creating 4 basis points of margin contraction.

Margin was also affected by declining rate environment, which have slightly more impact on the asset side due to higher levels of variable rate instruments than on the liability side, where competition and time deposits issued during higher rate cycles [Inaudible] customer deposit rates a bit more elevated. Net interest income for the company for the fourth quarter of 2019 was $15.2 million, a $455,000 or 3.1% increase over the third quarter. The performance measure on the bottom left of Page 9 details net interest income for the core bank, which excludes interest on loans held for sale. Total interest income was $21.2 million for the fourth quarter of 2019, up $300,000 or 1.4% from the third quarter, generating a yield on earning assets of 4.82%, but still a 16 basis point quarter-over-quarter decline.

Loans held for investment decreased 11 basis points quarter over quarter. The taxable securities portfolio declined by 45 basis points quarter over quarter, and mortgage loans held for sale declined by almost 100 basis points. The decline in yield on taxable investments can be attributed to our ongoing effort to rotate funding from our bond portfolio to our loan portfolio. Over the course of the fourth quarter, the company reduced the investment portfolio by $37 million and rotated the proceeds into new lines, picking up between 110 and 120 basis points.

The quarter-over-quarter decline in yield on loans held for sale was due to the increased holdings of corresponding loans and changing market interest rates. Declining interest rates did provide some relief on the deposit side, where deposits quarter-over-quarter increased to $49.1 million in average interest-bearing liabilities. Interest expense on deposits declined by $216,000 -- $267,000 or 4.6% to $5.6 million. Our cost of deposits declined by 14 basis points quarter over quarter to 1.62%.

The decline was driven by the changing mix of our deposit portfolio as a quarterly average balances for interest-bearing checking, savings, and money market accounts increased a combined $32.6 million and noninterest-bearing deposits increased by $22.7 million. Our decision to maintain shorter durations for wholesale deposits continue to provide benefit as the weighted average rate for wholesale funding dropped 26 basis points to 1.85% by the end of the fourth quarter. Non-interest income for the company was $4.6 million for the fourth quarter, up $1.8 million from the third quarter. The primary factors driving the increase were $1.3 million gain realized on the securities portfolio, the recognition of a $190,000 incentive earned upon signing a new marketing agreement with MasterCard and a $350,000 quarter-over-quarter increase in the gains realized on the sale of mortgage loans.

Non-interest expense for the company was $15 million, up almost $2 million from the third quarter of 2019. However, the $1.3 million of merger expenses realized during the quarter is responsible for much of this increase. Other significant contributors to the quarter-over-quarter increase were $353,000 increase in FDIC insurance premiums, which returned to normal levels in the fourth quarter after taking -- a credit taken in September resulted in a negative expense for the third quarter. Additionally, as mentioned earlier, $100,000 valuation allowance was taken against the remaining other real estate properties, so the carrying value of the property reflected the agreed-upon sales price for the transaction, which closed in January of 2020.

The performance measure on the bottom line side of Page 9 details the fourth-quarter non-interest expense for the core bank, which core was up $800,000 or 8.2% to $10.5 million. This was impacted by the previously mentioned FDIC insurance premium and the evaluation adjustment -- and evaluation adjustment for the other real estate property. Additionally, salary expenses were up quarter over quarter due primarily to an initiative to bring IT support in-house. The net savings to the company for this initiative is expected to be approximately $360,000 annually for the combined company.

These savings will begin in the first quarter of 2020. Reliant Mortgage Ventures, our joint venture mortgage company, reported a net loss of $1.2 million on revenue of $1.9 million and non-interest expense of $3.2 million. Just a reminder, for the terms of our joint venture agreement, any losses by Reliant Mortgage Ventures are funded by a partner via a capital injection. So R&D losses do not impact the company's net income but do impact the reported efficiency ratio, which was 80.9% for the company, but adjusted 63.3% for the core bank.

I want to conclude my remarks this morning by discussing the shareholder value our team has created over the past quarter. Please turn to Page 11 of the presentation for a summary of key performance measures. I would like to specifically highlight tangible book value, which increased $0.37 or 9.8% annualized from the third quarter and return on tangible common equity, which increased 10 basis points, and reported 187 basis points from income as adjusted for market [Inaudible]. During the fourth quarter, we successfully completed the $60 million subordinated debt offering, which provides liquidity we need during this period of significant M&A activity and bolsters our capital of both the company and the bank.

This concludes my presentation. DeVan, back to you for closing comments.

DeVan Ard -- Chairman, President, and Chief Executive Officer

Thanks, Dan. As we wrap up 2019 and look ahead to 2020, I want to take a few minutes to talk about some of our key strategic initiatives. Sustained organic growth within our franchise footprint is at the top of the list. Our markets in Middle Tennessee, including Clarksville and Cheatham County, and Chattanooga continue to show healthy growth.

Low taxes, moderate living costs, and robust industries such as healthcare, tourism, and entertainment, auto manufacturing continue to generate new jobs and end migration. Chattanooga, where we now have over $90 million in loans, was recently listed by realtor.com at No. 4 in the country among the top housing markets for 2020. M&A will continue to be a key component of our strategy.

Much like the two transactions we announced in 2019, one of which we completed earlier this month, our focus will remain on banks located in the Middle Tennessee and Chattanooga areas, where we can gain scale and leverage our existing franchise. Those opportunities will generally be over $500 million in assets with attractive funding basis and strong profitability. The transaction must be immediately accretive to earnings with minimal tangible book value dilution. Credit quality remains outstanding with non-performing assets, past-due loans, criticized loans, and net charge-offs near cycle lows.

We are convinced that our practice of making loans to customers in our market, who we can build meaningful relationships with, will sustain superior asset quality even in a softer economy. I'd like to close by thanking our entire team for their hard work and many contributions to our success in 2019, and I'm excited to see what our company can do in 2020. Operator, that completes my remarks for this morning's call, and I'd like to open the line up for questions.

Questions & Answers:


Operator

[Operator instructions] And we'll go first to Kevin Fitzsimmons with D.A. Davidson.

DeVan Ard -- Chairman, President, and Chief Executive Officer

Good morning, Kevin.

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

Hey, good morning, guys. How are you?

DeVan Ard -- Chairman, President, and Chief Executive Officer

Good.

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

Hey, DeVan, I wanted to ask about, you know obviously, there's -- bank win in general, there's been a lot of large transactions going on, but in your core market in Middle Tennessee that was one just announced. And I wanted to get your feeling on what kind of opportunity there could be for you guys to take advantage of that, whether that be customers and/or talent? Or is that something just not as relevant on your radar screen?

DeVan Ard -- Chairman, President, and Chief Executive Officer

Well, I think it's very relevant. I mean, there have been two deals announced this week, one is probably not as important because it involved two banks that are kind of outside of our market area. The First Bank and Franklin Synergy deal is certainly a good opportunity. We're both -- Franklin Synergy and Reliant are both headquartered in Williamson County.

We've got a lot of market overlap just in Williamson County. They are also in Rutherford County, where Murfreesboro is, and we established a full-service office in Murfreesboro last year. So, I think whether it's customers or certainly opportunities for people, there are going to be plenty opportunities for us going forward. We like disruption in the market, and we plan to take advantage of it.

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

Great. And DeVan with the -- your comments on M&A with the next deal closing early second quarter, realistically, are you -- once that deal closes or maybe you don't even wait for that to close or when would you say the door is open to be looking to announce further deals? Is it -- or is it more realistic to think about that as more second half of the year?

DeVan Ard -- Chairman, President, and Chief Executive Officer

Probably second half of the year. You know -- I really wouldn't want to comment on any announcements, but there is -- we have conversations on a regular basis with many different banks and I suspect there will be other opportunities, and within the defined footprint that we've established this year. We certainly want to get the -- both the ones that we have behind us. We've successfully converted one.

Everything is looking really good with First Advantage, and as you've seen -- as we've all seen, M&A activity picked up in Tennessee in the last couple of years. I think there are reasons some of the community banks in our markets will want to look for a strategic partner, and we feel like we provide a really good opportunity for that.

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

OK. That's all I had. Thanks very much.

DeVan Ard -- Chairman, President, and Chief Executive Officer

Thanks, Kevin.

Operator

[Operator instructions] We'll take our next question from Stephen Scouten with Piper Sandler.

DeVan Ard -- Chairman, President, and Chief Executive Officer

Hey, Stephen. How are you this morning?

Stephen Scouten -- Piper Sandler -- Analyst

Hey, good morning. You know --

DeVan Ard -- Chairman, President, and Chief Executive Officer

Yeah. I like the new [Inaudible] 5%.

Stephen Scouten -- Piper Sandler -- Analyst

I'm still getting used to it, but we'll get there. I like it. So I'm curious, just on the growth front, had a really fantastic order here this quarter. And I know last quarter, you had spoken to -- the idea that growth may slow a little bit as you work to integrate First Advantage, in particular, I think.

So, how can we think about growth for the full year? And do you still expect that to kind of trail off a little bit just as the focus shifts?

DeVan Ard -- Chairman, President, and Chief Executive Officer

If you're talking about loans, Stephen, I'm still seeing a pretty robust economy in Middle Tennessee. And whether it's the Community Bank family or the First Advantage Bank family, both I think are showing some healthy growth benefit from being in the Nashville MSA. So, we're probably looking at a little bit stronger growth track for us this year than I had originally forecast. I think I originally said 10%, somewhere in that range.

There's a good possibility we might be slightly higher than that. The production that we had in the fourth quarter, which was really strong. It was 200 -- over $200 million and a lot of those loans didn't fund when they closed or funded very small amounts. So, we'll have funding up on those credits as we move through the year, and we finished 2019 with a very solid pipeline going into 2020.

So, I could easily see us -- absent some unexpected paydowns, I could easily see us moving a little bit north of 10% this year.

Stephen Scouten -- Piper Sandler -- Analyst

OK. Great. That's helpful. And then I'm curious around the NIM, just kind of what you think the forward trends will be kind of 1Q '20 with the CBT and the numbers, and then, kind of later in the year pro forma for First Advantage? And then within that, just curious if there's been any abatement of the competitive pressures on deposits in your markets yet?

DeVan Ard -- Chairman, President, and Chief Executive Officer

Yeah. I'll let Dan address the NIM, and then I'll talk about the competitive situation when he gets finished.

Dan Dellinger -- Chief Financial Officer

Yes, so Stephen. As you know, in the fourth quarter, the sub-debt had about a 4 basis point impact on our margin. We expect that to be around 16 basis points in Q1, and then, trailing off to about 11 basis points as we enter Q4. That will include, obviously, the FABK acquisition.

We see loan rates stabilizing pretty much now, and we're beginning to see continued -- we're not beginning to see, but we're seeing continued reductions in our cost -- the cost of funds, as a result of our lower dependency on wholesale funding. As you noted, in the fourth quarter, that dropped significantly, and we used -- we rotated out of CDT's loan portfolio -- excuse me, investment portfolio to $60 million, and it will be probably the same with FABK's portfolio. So, that's going to continue to have a positive effect on the wholesale funding front, and those costs, we're seeing a reduction to about 160 as it currently stands. So, I'm just going to say a lot of moving parts.

As we move forward, I think we'll see a slight contraction in Q1, mainly as a result of the sub-debt. The CBT acquisition will have a slightly positive effect. But again, it's such a small acquisition in relation to our bank's size -- total asset size. So, it's not going to be a big contributor.

FABK, on the other hand, should be a pretty good contributor, probably 12 basis points or so to our margin.

DeVan Ard -- Chairman, President, and Chief Executive Officer

And on the competitive front, Stephen, it's still competitive out there. I think the big change from, let's say, a year ago to where we are now is we're not really seeing these out-of-market solicitations for money market accounts at rates that in some cases we're in the 240 to 250 range. So, those have basically dried up. And if you kind of follow what some of those companies have done with their rates, they've really cut them back pretty substantially.

I think deposits are still going to be competitive in this market, mainly because the economy is strong and earning asset growth has been -- continued to be strong. So, you've got to fund it some way. But I do think that we'll see, as far as rate specials go anyway, we'll see some abatement there. Listen, we all want to make money and the best way to do that is to keep your margins stable.

And so, I think we'll see some -- probably some more rational pricing. The competition, I think, will be -- will still be strong, but maybe we'll see some -- a little bit more rational pricing. We've already started lowering our -- some of our money market rates and have seen no attrition -- no customer attrition from that. So I'm encouraged by it, but I don't think until the economy starts to weaken and loan growth in this area starts to slack, you're going to see much lower competition.

And frankly, that was the big benefit that we saw in -- certainly in Community Bank because the cost of funds was so low. As we think about M&A, that gets to be an important consideration. And so, that will be part of kind of the way we evaluate what we want to do and who we want to partner with going forward.

Stephen Scouten -- Piper Sandler -- Analyst

OK, great. Yeah, that's very helpful. Thanks. And then, maybe one just last clarifier there, Dan.

When you said the sub-debt will hit 16 basis points in one quarter, are you saying that 16 basis points of incremental NIM pressure, and that will kind of take the 3.46% to around 3.30% all else equal?

Dan Dellinger -- Chief Financial Officer

Yes.

Stephen Scouten -- Piper Sandler -- Analyst

OK, great. Well, thank you.

Operator

[Operator instructions] We'll go next to Feddie Strickland with Janney.

Feddie Strickland -- Janney, Montgomery, Scott -- Analyst

Hey, guys. Good morning.

DeVan Ard -- Chairman, President, and Chief Executive Officer

Hey, Feddie.

Feddie Strickland -- Janney, Montgomery, Scott -- Analyst

Just had a quick question. I was wondering whether you're actively using or discussing putting floors in the new loan production with the prospect of additional rate cuts down the road?

DeVan Ard -- Chairman, President, and Chief Executive Officer

We try to bid on every commercial loan we make. It was a little bit of a challenge kind of second half of last year because I think we all -- well, we got rate -- we got more rate cuts from the Fed than we thought we were going to get. And so especially on floating-rate loans, where we would put a floor in that was maybe 25 or 50 basis points below the note rate, we all of a sudden, and our customers, actually, all of a sudden saw their -- the rate on their loan was -- had a floor to it. So, it's something we try to do, and I think just -- fairly consistently we'll go in there with a floor of -- on a floating rate loan of 25 to 50 basis points lower than the note rate, that's about right now.

We can't do it every time, but we certainly try to.

Feddie Strickland -- Janney, Montgomery, Scott -- Analyst

Got it. And I guess just one more for me. Some mortgage was up a bit but compared with prior quarter, and I can't remember if you guys addressed this earlier, but do you expect to be able to kind of continue to grow that line? I know it's going to be volatile, but I was just wondering what your outlook was there?

DeVan Ard -- Chairman, President, and Chief Executive Officer

Yeah, we're expecting to see an increase. I think -- I don't know that we'll see much in the first quarter. There's some seasonality in this business, Feddie, and typically the fourth quarter and the first quarter are a little bit slower in terms of originations, but we think we'll see, as we -- especially as we get into the second quarter and third quarter this year, we'll see some increases in mortgage revenue. I mean, rates are still really low and we've got a lot of people out there working hard on it.

Refi activity is staying fairly good. But in our markets, we're really more dependent on purchase money type mortgages with an economy that sees a lot of new homes being built and sold.

Feddie Strickland -- Janney, Montgomery, Scott -- Analyst

Gotcha. Thank you, guys, so much for answering my questions. Have a great day.

DeVan Ard -- Chairman, President, and Chief Executive Officer

Sure. Absolutely. You too.

Operator

[Operator instructions] There are no further questions in queue at this time. I'd like to turn the conference back over to Mr. DeVan Ard for any additional or closing remarks.

DeVan Ard -- Chairman, President, and Chief Executive Officer

Thank you, operator. I don't have any additional remarks. I just want to thank everybody for joining us on the call today, and I hope you have a good weekend.

Operator

[Operator signoff]

Duration: 36 minutes

Call participants:

DeVan Ard -- Chairman, President, and Chief Executive Officer

Dan Dellinger -- Chief Financial Officer

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

Stephen Scouten -- Piper Sandler -- Analyst

Feddie Strickland -- Janney, Montgomery, Scott -- Analyst

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