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#Sort of scary, isn't it.
Okay, I'll start with that and <UNK> and Bob may want to jump in.
I'll tell you that of all the numbers that we report in this quarter, we're a little disappointed in the non-interest expense and we're really to blame for that because as we did the acquisitions, we probably didn't press the pedal as hard as we could have.
Making sure that we didn't cut into any of the muscle in any of those locations and once again I want to remind you that both with Liberty and First State, we did not close any branch locations.
So we expected minimal cost saves to begin with.
We also had the severance payments for those folks at First State who were not retained in the third quarter.
So, that's a little bit of a tick up.
We also had a change to our incentive programs that you probably recall our shareholders had to accrue in June of this year and some of those accruals added about a [$1 million] to our expenses this quarter, sort of catch-ups.
So we've gone from a one-year incentive plan to a multi-year performance plan and some of the shares that were included in that plan were sort of a catch-up this quarter.
We have some room for improvement there and if you're asking what we expect going forward, I would tell you that probably $62 million to $63 million a quarter.
That's what we would consider to be normal as of today's operations.
Obviously, our budget process is underway and what our expenses will be in 2016 is going to be a prime focus for us.
I guess what I'm telling you is we're still trying to get our arms around all the integration pieces from quite honestly 11 bank conversions over the last two years and now that we're all under one umbrella, it's pretty clear to us where we have opportunities to improve and I think we'll target those in 2016.
It's Dave and let me clarify a couple of things.
First, the non-interest expense on the GAAP basis was [$67.9 million].
The non-core items were [$1.3 million, so our core non-interest expense was $66.6 million] and as <UNK> said a minute ago, we had several items that did come up during the quarter that were somewhat acquisition and timing related.
They were core items but some of them may not be recurring going forward.
We also ---+ the foreclosure expense was elevated for the quarter.
There were several properties that appraisals came in on an annual basis and those were updated.
So what would I give you as <UNK> said, there was [about $3 million of that $66 million] that is really non-recurring on a regular basis but it is core items.
So that $63 million range as <UNK> said is how we came back to that number.
That's correct.
I'd be glad to try to that.
Our legacy loans were up $228 million.
Of that number, $36 million migrated from acquired to legacy.
So we had a pretty good net legacy loan growth of $192 million.
We did have $151 million decrease in the acquired bucket.
Some of that was anticipated with the result maybe some pay downs in Liberty and First State customers, but we also had a considerable amount of impaired loans paid off this month, some $17 million which we like to see.
So we're still pleased with our legacy loan growth and the markets that are still driving that are the Little Rock MSA, Wichita, actually Pine Bluff in Southeast Arkansas, St.
Lewis & Jonesboro markets.
They're still very, very good for us and we see a lot of upside potential in those markets.
It's probably a little aggressive considering that I'm not real sure all of the play downs have happened yet.
So we still plan in the 7% to 10% range.
We think that is sustainable over the next couple of quarters [anyway].
Well, yes we were at our peak lending level in the third quarter.
It will start paying down in the fourth quarter and accelerate into the first quarter of next year.
It used to be a real significant issue, but based on our current size and the percentage of agri loans that we have in our portfolio today, while we'll see a little tick down, it won't have the same seasonal impact that most of you have been used to seeing over the last three or four years.
Our accretion for the quarter was $14.9 million.
What we did, on a run rate, there's about $7.5 million in normal accretion that's being amortized related to the purchase accounting for the quarter.
As <UNK> mentioned, we had significant pay down in some non-performing impaired loans that were acquired.
Those loans had substantial marks on them.
Those are non-accretable marks while you still have them on the books.
When they pay off, you accrete that to income.
So [about seven of that million] was related to those loans.
Yes, if you go back a couple of years, we used to talk about the excess accretion, but now that we no longer have the ---+ under the FDIC loss share agreements, it's all the same number.
So this quarter and going forward, all you'll see is the total accretion that's on the books and we back all of that out to get to the core NIM.
Well I can give you the quarter for the total.
We had $14.9 million total accretion in Q3.
In Q2 it was $10.1 million, and it was $10 million in Q1.
And I would say, the numbers change every quarter, but somewhere in that $7.5 million.
So going forward, we would expect $7.5 million, that will be decreasing over time but yet on the other side, we don't know what loans will pay-off especially in the non-performing.
We want those to pay-off and as they do, that number can increase.
So, that's one of those volatile numbers that ---+ it's hard to project.
No, <UNK>, this is <UNK>.
No, it really doesn't change.
That's where our projections going forward is that the accretion is going to be about $7.5 million.
What it will do is it will eliminate the indemnification asset amortization.
That's been running about $2 million in negative non-interest income on a quarterly basis.
So, no, you won't see any change in the NIM based on the exiting the loss share, but you will see a bump in our non-interest income of about $2 million a quarter by eliminating that amortization.
And <UNK>, under GAAP, the accretion is completely separate from loss share.
So whether you're in or not, the accretion is the exact same.
So there's nothing to do at all with the loss share.
Just as <UNK> said, just that loss share exit in the non-interest income.
Exactly.
Yes, the numbers I gave a minute ago <UNK>, total accretion was just FDIC and non-FDIC.
Well, what we're at 80 now.
That's a whole lot better than 70, which I think is about the number we were about a year ago.
85 to 90 would be the ideal spot for us.
We've had great shift in our balance sheet.
Our securities are shrinking a little bit.
Our loans are growing and we'd like to continue that trend.
I'm not sure we want to actually manage that through running off any more deposits.
I'm pretty comfortable with where we are.
Our cost of funds is reasonable.
We may have a little bit of an opportunity over in our Tennessee market where their costs of deposits were a little higher than ours, but we're pretty comfortable with our level of deposits right now and I wouldn't see us taking any proactive efforts to run-off anymore of those deposits.
And <UNK> what you're seeing on the liquidity is we did have a decrease in the security portfolio of about some $120 million, $130 million.
A lot of that was due to calls and as the 10-year dropped and rates dropped for a period of time, we're holding back reinvesting that.
Our intent is not to hold back for a long period time, but we're looking for the right opportunity to put it back in.
So you'll see our security portfolio go back up we would expect over the fourth quarter.
That will keep us at that 80% level.
We've said this several times, we don't intend to keep a $1.8 billion security portfolio.
We've let drop down to [about $1.6 billion].
If we had the loan growth there and the deposits held where they were, we'd be willing to let that security portfolio migrate down to [$1.3 billion, $1.2 billion] somewhere in that range.
Well, I would say yes it does.
I'm not sure we can quantify exactly what that is.
As you're probably aware, we have really beefed up our risk management team internally to prepare for that and as we're taking a look at DFAS expense and other compliance expenses.
In the first year of DFAS, we're probably going to expect $3 million of expense and past that point, probably $1 million of ongoing expense with regard to the additional staff validation and all those other expenses that deal with the DFAS process.
We've talked about the government amendment cost to us and we still expect the [by roughly $5 million] (multiple speakers).
So there are going to be some significant expenses once we hit that point, but all of the DFAS expenses will be prior to that $10 billion mark.
So I would expect over the next 12 to 18 months, a lot of that expense will be built in to our expense structure.
Well, they're probably ahead of our projections.
I'm not sure that ---+ we couldn't have done better as we mentioned earlier.
From an expense standpoint, we've been really pleased with our revenue generation and of course we're going to have a Trust Company.
Those are [due will be] on board with another $1 billion in managed assets.
So we expect that number to continue to rise as far as revenue goes.
Our target was below 60% for the fourth quarter.
I think I feel pretty comfortable that we're going to able to hit that.
As we're talking about internal goals for 2016, I'm going to really press for a 55% or lower efficiency ratio because I think that's very realistic now.
If you had asked me a year ago if that was realistic, I probably would have said no, but I think we've done a really good job of managing both sides of that equation with some obvious upside potential on the expense side.
I would tell you <UNK>, we're not aware of any other relationships that may have pay downs.
That usually comes early on in the process.
I hope we're not talking about pay downs going forward.
We usually build in 10% to 20% pay downs in both loans and deposit run-off.
So far we've not hit those numbers with any of the acquisitions.
We're not anywhere close with First State and we think we're stable up in Springfield and we're actually grown that portfolio.
We've hired a couple of lenders up in Springfield.
We think Tennessee has great upside potential.
So I'm not expecting any more, but my caution is that the run-off has not hit our model numbers.
So we still want to put that out there for consideration.
I would tell you that what we did this quarter is going to be pretty normal going forward assuming we don't have any unexpected problems.
One of the things that we need to realize with regard to our provision is that the loans that migrate from the acquired loan bucket to the legacy loan bucket and therefore the ones that are going to require an allowance are only the good loans.
So if we have acquired loans that are impaired that have a credit mark against them, they will stay in that acquired bucket for the life of the loan with that credit mark against them.
So, whereas a normal portfolio will have risk ratings across the entire gambit that will require allowance against them, what's migrating over are only the good loans out of the acquired portfolio.
So that percentage is likely to continue to shrink because we're only adding good loans to that legacy portfolio.
Well, they just figure into our normal loan loss calculations based on their rating.
But as <UNK> said, when they migrate over obviously the provision will need to go up, but it's going to be at the lower applicable rate because they're much ---+ the healthy loans.
The impaired loans don't move over.
They're not moving the needle much on the allowance.
So, as <UNK> said, I think what you saw in the third quarter plus it could be a little bit higher because of the migration, but not a lot of difference.
Yes, I think what you'll see, third quarter is going to be our highest of the year.
Fourth quarter will tick down a little bit with the seasonality, but I think we're still comfortable in that [380 to 390] range probably and Q4 going down closer on the [380] side.
Keep in mind, in Q1 it will drop.
That is our most seasonal quarter, while there's not as much of an impact as <UNK> said a little while ago on the ag piece, but when you take ag piece, the credit card piece, Q1 will drop and it will be below [380] and you'll notice the significant drop in Q1.
<UNK>, its <UNK> <UNK>.
The Trust Company Ozarks, our entire staff there are doing a great job.
They're all hanging in there with us.
We have just been looking for the closing.
They are just part of the regulatory process.
We will close this next week as we mentioned earlier.
All of the people are still in place, maintained all the customer relationships.
They're excited about joining our operation.
We're excited to have them.
We're making plans to do some relocation of actual facility to move them over to our largest concentration of banking associates and banking assets in Springfield.
Everything is going according to plan at this point.
<UNK>, I'll say this, we're probably 30 days behind where we anticipated closing in the first place.
We were a little bit late getting in our applications and getting the S4 filed and then the SEC had just a couple of minor questions related to the S4.
So, every time something like that happens, you can add a week or two to an expected timeline and that was the delay.
No real issues at all.
Well I would say that, it really hasn't changed our strategy much.
We're still trying to stay as shown in our investment portfolio on our reinvestments as we possibly can.
I think we mentioned a couple of years ago, we made some longer term tax-free municipal investments of sort of balance out our yield in our securities portfolio.
From a loan perspective, it's pretty competitive out there regarding pricing.
Right now, what we try to avoid are the long-term fixed rate commitments.
So we're trying to keep that maturity at a very short reasonable rate.
So the markets adjusted, at least the ones we compete in seem to be very similar.
So I would say we hadn't changed our philosophy a whole lot.
We like to see some certainty in market-driven rates instead of artificial rates but that's the environment we work under and I think we would have to fair well.
Well, that's a good question with regard to timing.
The earliest it would be over the next 12 to 18 months.
And quite honestly, nobody's asked about M&A yet, so I'll just go ahead and talk about that a little bit.
We continue to be pretty active in some discussions with what we think would be some very good merger partners across our footprint and even outside our footprint.
I have no timeline for any of that today except that we believe that is still a great strategy for our organization and just depending on what might develop over the next six to nine months.
We really might not have any choice as to the timing of spending that DFAS money.
I will tell you this.
We have spent a lot of time with advisors who have been through this DFAS model creation and it's an eye opener, at least it was for me to find out everything that's involved.
So what the timing is going to be, I can't tell you exactly.
If we're successful with some of these merger partners, it would be sooner rather than later, but organically, if that was going to be our growth strategy, you're right, we can delay that DFAS preparation for some period of time.
Well, I would tell you that I would expect expense savings to make up for any additional expense of DFAS to stay in that $62 million to $63 million range.
Yes, I would say that that's probably accurate.
If we're at [58 or so now to get to 55] would be an achievement that I would think would be very good for 2016.
We would be prepared at any time to announce a deal, if the right deal came alone.
I feel pretty good about where we are today.
All the integration is behind us.
We're sort of doing the post-mortem now to say okay, what did we do well, what can we do better, how do we manage the next acquisition.
So we're learning as we go along.
The timing is not always up to us.
Most of the time it's up to the merger partner and really what works for them.
So we continue our discussions and as that gets slotted appropriately, we would announce that.
We would be prepared any time to do that.
So I really can't tell whether to expect something in first quarter of 2016, second quarter or fourth quarter of 2015.
I mean, discussions are ongoing today.
Well I would say individual acquisitions would not be greater than what we've done in the past.
We just got through with a $1 billion and $2 billion acquisition at the same time.
So there aren't a whole lot of [lows] out there that we're looking at today, but cumulatively, we could over a 12 to 18 month period accumulate many more assets than what we've done recently.
Regulatory-wise, I will say this that it's my belief that our regulators expect us to continue to be active in the M&A arena and they expect us to get to the $10 billion level.
And this is my take, okay, nothing that they said obviously.
I think they expect us to be mature in our process instead of promising that we will do it at a later date.
So the way they're looking at our readiness is a little bit different than it has been in the past and I think that's a good thing because last thing we want to do is get into an acquisition, file an application, and all of a sudden say, well, you really need to have this done before we're prepared to give you approval.
So we're trying to avoid that pitfall.
I don't see that happening.
You just never know and I'll say this too.
We continue to hear that public comments and activist comments are becoming more and more prevalent.
Recently there have been some favorable rulings that have said, look, these comments really don't hold water.
So we're going to ignore them and let this transaction move on through.
We hope that's what's happening.
As you know, we had a six-month delay because of the public comment with both the Liberty and First State transaction.
So you never know when that's going to happen and what we would consider to be a normal approval process goes into overdrive and a whole new set of eyes come into the picture, if a public comment happens.
You never know when that that might occur.
Okay, well thank you all for your interest this afternoon.
We appreciate all you do for our Company and if you ever have any questions, feel free to call Bob <UNK>.
You all have a great day, thanks.
