ABCB
#I would characterize M&A similar to the way I have for a while now.
There's a lot of activity, there's a lot of conversation, there's a lot of relationship building, among all sizes of banks.
And there's the timing issues that you typically deal with.
The way we approach it is, we are $6.1 billion or so, and we are in the sweet spot for profitability, from $6 billion to $10 billion, so we don't want to be in a position to motor through that too quick.
We want to have a lot of discipline around the way that we do that.
So, pricing is an issue, I don't think it's an issue for a deal that meets our criteria.
We have several banks that we are in talks with, that I don't think pricing is going to be the main hurdle.
Obviously, in some transactions it is.
But with our currency, and with the track record of our currency, I think we have a pretty significant advantage.
Geography, US geography ---+
I think geography ---+ we've said that we want to continue to leverage in our key growth markets, and that would be in Jacksonville and North Florida.
It would be in South Carolina.
It would be in Atlanta.
Well, let's see, I've covered them all.
Probably, still probably in the $500 million to $1.5 billion range.
Okay.
We had forecasted ---+ the cost savings we had forecasted do not include any branch closures, so all the cost savings we are going to get were going to be on the salaries and benefits side, core operating system, lower levels of professional fees and moderate levels of credit costs.
We are forecasting $3 million of JaxBank of incremental operating expenses in the second quarter for JaxBank.
That's down a little bit from where their core run rate was.
I think when it's all said and done we'll probably be somewhere closer to the $2 million range on operating expenses.
Probably, <UNK>, the majority of that's going to be salaries and benefits from consolidating their back-office.
An annualized number.
It was heavier this quarter.
We're paying some California state income tax as well as more South Carolina state income tax, whereas last year we didn't.
So last year we were probably running 32.5% on the effective rate, and this quarter is about 33.6%, I think.
I don't think it's going to go up, but I think probably what we reported this quarter is more in line with what will happen till we get some effective strategies.
Good morning, Casey.
Some of it was the ---+ we were almost 100% hedged; generally, we're not; we only hedge about probably 85% or 90%.
So we're almost 100% hedged.
The fall in the interest rate ---+ there was some gain that we picked up from that, as well.
We had been forecasting operating expenses probably in about the $48.5 million range.
We were probably a few hundred-thousand over that when you normalize what JaxBank added in the quarter.
I think what the ---+ closing the extra branches and some of the other strategies that we have in place are really designed to hold us steady at that level, let us still sort of reinvest.
And I think once we get JaxBank modeled in, probably we'll say at the $2 million range, we're probably looking at somewhere between $50.5 million and $51 million a quarter.
<UNK> is shaking his head, yes.
Yes.
We are ---+ I'm not sure about this.
Casey, we're trending down.
We were at 65% and change, we've got things in place that we expect to see, that continue incrementally to improve in the second quarter and third quarter and fourth quarter.
And what we think is the fourth quarter of the year we should be operating in that 60%, 61% range.
Thank you.
Maybe a tick higher.
Given, especially given that we're ---+ I'm looking at margin without accretion at 380.
We're modeling a higher margin for JaxBank than that, and some of that does come from fair value adjustments that we made on their deposit side.
If you look at JaxBank, standalone, say, third and fourth quarter of last year you'll see [costs have flown] significantly higher than what we're going to be showing.
We tone our fair value adjustment, we've got their cost of funds down to about our level.
Chris, I'm not quite sure how to answer that, except that it started on day one.
Clearly, the first place to look when you're trying to grow earning assets is more capacity for really good customers that they had, and we've already begun that.
How long it takes ---+ I mean, you start immediately, but clearly it takes more than six months for some and less for others.
But I expect ---+ and, of course, we didn't model any of that, but I expect it to be pretty significant additions for this year.
And, Chris, we've been calling, really, since we announced the deals last year, and knew we were going to have liquidity.
One of the things we had said, not indirectly highlighted it, lower ---+ us going out to the market with lower rate, expecting to get higher levels of volumes and all that's happened we've been calling on larger customers, really, for more than a year, and especially here in Jacksonville.
The 15-day, we've built the business ---+ we've built our business primarily by selling to realtors and builders, more so than just selling on rate.
So I would tell you our mortgage president calls as much on builders and realtors as he does mortgage bankers.
But the fact that we're able to close so reliably ---+ we say we're going to close 95% within 30 days, and the fact that we've got it back down to 15 days, which is really what we target, it is a real advantage.
Especially with higher-volume mortgage producers who are struggling in some of the bigger banks to get loans closed on time.
So, that is, given the way we run the business, that's a major advantage for us.
TRID probably costs us about $250,000 once it was all said and done and we sharpened the pencil on what the fourth quarter ---+ it probably cost us about $250,000 on where we might've missed the cost of an appraisal or something like that, and that cost has come down dramatically.
The time to close has come down dramatically, and I really credit the folks in the operations group, our mortgage team.
Chris, does that answer your question.
Let me answer the first one, and you can answer the second one.
Patrick, first let me clarify below 60%.
My goal is to get us to 60% operating efficiency before we go below that.
But, again, our goal has been to develop enough internal strategies ---+ some of them are only $25,000 a year strategies; some of them are $2 million strategies ---+ that will let us hold the line on operating expense and let us reap the rewards from growth and revenue.
And if you look back at the internal message, the internal message is that we are an industry leader on revenue growth.
I don't know exactly what the number is, but it's probably 20% annualized growth over the last five years in revenue, and that ---+ let's hold the line, let's figure out what resources we need to redeploy, as opposed to being incremental.
And so some of it is that.
Now there are ---+ <UNK>'s internal message is that we can actually go lower.
Hold the line is good, but we can actually go lower.
So I think the message I'd leave you with is: more redeploy the existing resources and see the revenue growth that we expect to have push the efficiency lower.
On the credit quality piece, I think the answer for us is better quality customers.
And with that comes lower margins, but the backside of that is much lower credit charges.
So that's what we've done in the last couple of years.
We've also added a lot more credit support staff.
So every loan is good when you book it, but then the follow-up is really, really important ---+ to see the yellow flags and the red flags and make adjustments.
And we've got more staff that will do that.
So, I think that is the key.
We are still working on credit, we took the charge in the second quarter last year and we gave guidance that we'd be seeing more stability in our credit cost, and that we got it, it would be $2.5 million a quarter.
And we've seen that three quarters in a row that it's been $2.5 million or slightly less, and we expect that to continue, and actually to get incrementally better as we go along.
We're still trending down in nonperforming assets, but we think we're in a pretty good place right now.
Patrick, one more thing ---+ we'll revise the investor supplement that's in the 8-K in the next week or so, and it will have probably three or four more pages on loan diversification and concentrations, and some credit quality metrics.
And I think you'll see, especially going back to 2007, a much more diversified portfolio ---+ to reinforce what <UNK> was saying.
It will support the target mix that we have, and the fact that the risk profile of the earning assets is dramatically better than it was five or six years ago.
<UNK>, I think the ---+ well, and I see those cash flows come in mostly out of the purchase mortgage pools, which are yielding at this quarter were a little better than what we had forecasted.
The cash flows were slower.
But the 3% ---+ I think those cash flows over time will yield about 3%.
And so even in a lower-for-longer environment, I think we'll probably be able to stay somewhere in the $425 million to $435 million or $440 million range on the commercial portfolio.
Now, that would be very ideal.
What we have struggled, as most banks have, with the pace of payoffs, especially in investor real estate, so it's really hard to keep some of these commercial assets on your books.
I don't think that's going to persist forever.
And so to the degree that we're able to see the growth and portfolio ---+ you asked how long, I think maybe a few basis points as we move through probably the next two years, a few basis points a quarter.
I would tell you that between the investment portfolio ---+ if I were to combine the investment portfolio and the purchased mortgage pools, which we kind of see as a hybrid between bonds and ---+ maybe I could see those hovering, staying somewhere, say, 25% of total earning assets.
And I don't know what the percentage is now, I know it probably would be higher than that.
So, probably coming down to 25%.
Again, we like the efficiency that we get from that concentration for the efficiency ratio standpoint, but that's not our true model.
Our true model is banking the local community and managing a normal commercial portfolio.
I don't know that we ever ---+ I mean, we've seen that for quite a while, and that's been a challenge to grow in the balance sheet is, you add $5 of production and you grow $1 in balances.
It's been ---+ and that's what <UNK> was alluding to.
It's been really a real headwind.
I can't see it increasing.
I think the probability is higher that it would diminish instead of grow, at least for us.
It's been pretty fast-paced.
Cap rates are so low, that virtually any real estate investor is probably wanting to take advantage of it if they could.
All right.
Thank you again for everybody that's joined the call.
If you have any follow-up questions or comments, please feel free to reach out to myself or <UNK>, and we'll do our best to answer your questions.
Thank you.
Have a good weekend.
