SBSI
#One is a loan that we acquired in the merger.
The other loan is a loan that's been on nonaccrual for probably a year and a quarter.
Both of them matured during the quarter, and we have dealt with them basically through foreclosures, and we are in the process of selling the assets.
We have a contract on one of them, and we have a letter of intent on the other one ---+ the assets.
And we anticipate, assuming everything goes as planned that these will sell in August.
And this will take care of 62% of the nonperforming loans that were on the books at March, and there really aren't any other major credits that we see at this time, and that was basically the impetus behind the reserve that we had to put out there in the second quarter.
Yes, I think that's one of the reasons that we're positive about the second half of the year, <UNK>.
We felt like we've dealt with our problem children.
Right now, we see clear sailing.
We are anticipating that loan growth that we saw last year.
It's a little frustrating that it doesn't come exactly when we want it to, but we know that the fundings will come.
A lot of the loans that we've approved have a large equity portion that has to go in before they start to draw, and so we feel like that the second half offers some real potential for us.
I mean, we've already seen close to half of the decrease in the loans in the second quarter have already funded up in July.
And then we have a large loan that is supposed to fund on Monday that will put us back almost on track with where we were at 3/31.
They're both commercial loans.
They were not CRE loans.
They were both commercial loans, and one of them was an acquired loan, and the other one was a loan that we made several years ago.
They are not energy-related.
No, these were around $20 million if I'm ---+ is that correct, Julie.
<UNK> Speaker: Yes.
<UNK> Speaker: Yes, one of them was ---+
---+ was around $13 million, roughly, and the other one was around $7 million.
And we had reserves built up on them.
One of them ---+ the one we acquired had, you know, through purchase accounting, had charged down pretty heavily.
You know, with the Omni discount, I think it's up closer to 77, and, you know, we have a little over ---+ I think it's around $280 million, or $292 million of municipal loans out there that we keep a reserve of about 0.25%, because we've never had a loss on any of those.
So that brings that reserve down.
We have a fairly large one-to-four-family home loan portfolio.
That reserve is not sitting at 1%.
So when you look at the size of the types of loans that we have out there in the risk profile, it doesn't necessarily generate an overall 1% reserve.
But, yes, I mean, eventually, we'll ---+ the reserve will build back up some.
Right now, the reserve, we believe, is adequate.
It's tough to say exactly how much lower it's going to go, but there are more things that we're working on there, and some of it is going to happen through attrition, over time.
There's additional branch cost control that is going to occur.
There are a number of things that are rolling off over the balance of this year.
So I think there's room for, probably, another, at least, maybe $0.5 million a quarter if not maybe a little bit more.
I think one of the things that we had always said is that we really wanted to see our efficiency ratio maybe in the mid-50s.
Right.
And I think now we have brought it down to the lower 50s, and I think that that certainly is something we've attained and something we should be able to hold.
And who knows.
It might press even lower.
I mean, I don't think we've got anything radical on the line at this point but, again, there are still measures out there that I think will prove fruitful to our bottom line.
So ---+
And I'm forgetting the fact that we also had the professional fees associated with the consultants that we won't be paying at that level on a go-forward basis, either.
(multiple speakers).
So the expenses are going to continue to come down.
Basically, what happened was we started seeing a lot of additional losses in this quarter that he was having that were unusual in nature.
And so his projections just weren't coming to fruition, and the losses were significantly greater than what they had been in the past.
And so we just decided not to renew and to work out a friendly foreclosure with him and liquidate the assets and sell them.
We decided to do that before we ended up with virtually nothing.
What we see today is where we are.
There's really nothing to pursue.
He put in several million dollars himself.
I forget the exact amount, but he probably put in $7 million or $8 million himself, and there really wasn't anything to pursue.
We did have marketable securities, and we've liquidated those.
Fortunately, a biggest part of our mortgage-backed Securities portfolio were in the commercial mortgage-backed Securities and locked out of CMOs.
So our amortization expense isn't really going to be that volatile, going forward, because the CMBS portfolio is such a huge percentage of the mortgage-backed Securities portfolio.
It's probably two-thirds to maybe 75% of that mortgage-backed Securities portfolio.
So it's just locked in there, and it's not going to move, and that's what's driven the appreciation in the Securities portfolio and kept the duration where it is.
That is correct.
It's probably going to be near 20%.
We may buy some additional municipals, but I think probably near that 20%.
I don't think we're going to push it a whole lot lower.
We may get it down to 19%, but it's probably going to be close to that 20%.
The pace of conversations has definitely picked up.
We are definitely hearing from more folks that have an interest.
Pricing expectations, it's kind of all over the board.
Some people's pricing expectations are unrealistic, others are realistic.
Obviously, those that are more what we would consider realistic, the conversations we're more interested in.
And so where our currency is and the markets that some of these folks are in, you know, we are actively considering, and there's a possibility if everything makes sense.
That would be the main focus area, most definitely.
We did have ---+ there was about $130,000 that we had in fee income ---+ or it was a gain in the first quarter on one of our investments, CRA investments, that they came back and said that it really wasn't a gain late in the second quarter.
So we had to reverse that, so that would have come out of the first quarter, really, and it had to come out in the second quarter.
Other than that, it's just things that we had in the first quarter that didn't repeat in the second quarter.
Right now, we screen on construction at that level and just a hair above it.
I think we're at 105, 106 ---+ 105 on construction, but when we run our cash flows, by Christmas, if we didn't approve any more construction, we'd be way below it.
So we feel like we can continue to make construction commitments because they typically don't fund for quite some time.
The regulators have been in, they have looked under the hood, and as long as we're not planning on going to 150 or something like that, I think they're comfortable.
On CRE, we're well below the limits, so there's no issue there.
No.
We honestly don't know why that's occurring.
It just seems to have occurred.
Last year, it all happened in the last four months of the year.
It's not something we certainly planned.
Once again, it seems to be happening again this year.
Hopefully, it's not going to be the last four months.
We have had some good loan growth in July, and it looks like we're going to have some good loan growth in August.
So, hopefully, it's the last six months of the year this year.
But, no, it's not something we're anticipating is going to be a repeat every year, but I can't guarantee that.
Yes, we're not planning it that way, by the way.
It seems to occur that way, so we can't explain it.
And we don't like it much, either.
That's not our game plan.
(laughter)
We continue to hire lenders of all types that ---+ because we're not ---+ our buckets really aren't full anywhere except on the construction side, and the construction side, usually it converts pretty quickly to regular CRE.
So we're hiring loan officers that have good books of business that are seasoned, quality loan officers in all of our markets because they're all strong, you know, very healthy, vibrant markets.
So we're open for business and looking for strong quality loan officers in all the markets.
That was driven a lot by ---+ we have some public fund deposits, and there were some dropoffs in some of the public funds deposits, and their fiscal year-ends are usually September 30th.
And so it could be driven by their budgetary situations as they come to the close of the year.
And I do not know that.
It could be that also because we're not out there trying to bid up on different types of funds.
We don't see rates going up anytime soon.
I'll let Julie ---+
Are you talking about purchase accretions.
Actually, the one acquired from Omni was, I believe, it was in the outskirts of Dallas in Rockwall.
And the one ---+ the other one was in Houston.
It was a car dealer.
Our asset quality is strong, while loan growth has been late to the party, we still anticipate 7% to 9% loan portfolio growth for 2016.
We expect 2016 to be an exceptional year.
Thank you for joining us today.
