Ameris Bancorp (ABCB) Q2 2019 Earnings Report, Transcript and Summary

Good morning and welcome to the Ameris Bancorp Second Quarter 2019 Financial Results Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Ms. Nicole Stokes, Chief Financial Officer. Please go ahead.

Thank you, Nicole, and thank you to all who have joined our call today. During the call, we will be referencing the press release and the financial highlights that are available on the Investor Relations section of our website at amerisbank.com. I’m joined today by Palmer Proctor, our new CEO; and Jon Edwards, our Chief Credit Officer. Palmer will begin with some opening general comments and then I will discuss the details of our financial results before we open up for Q&A. Before we begin, I’ll remind you that our comments may include forward-looking statements. These statements are subject to risks and uncertainties. The actual results could vary materially. We list some of the factors that may cause results to differ in our press release and in our SEC filings, which are available on our website. We do not assume any obligation to update any forward-looking statements as a result of new information, early development or otherwise, except as required by law. Also during the call, we will discuss certain non-GAAP financial measures in reference to the company’s performance. You can see our reconciliation of these measures and GAAP financial measures in the appendix to our presentation. And with that, I’ll turn it over to Palmer for opening comments.

Thank you, Nicole, and thank you to everyone who’s joined our second quarter 2019 earnings call today. This is my first earnings call as CEO of Ameris and I’m excited to share not only my thoughts on earnings, but also my thoughts on strategy and integration as we go forward. Nicole is going to get into the financial details in a minute and I don’t want to steal her thunder, but I do want to hit some of the highlights for the quarter. We are in $45.2 million, or $0.96 per diluted share on an adjusted basis, which is up 30% compared to the second quarter last year. This represents a 1.56% return on average assets and an 18.79% return on tangible equity. Our efficiency ratio improved to under 54% in the second quarter compared to over 57% at the same time in 2018. We had strong loan growth in the quarter as well as organic deposit growth, which I know Nicole will elaborate on. And in summary, we’re very pleased with these operating ratios and I’m proud to be a part of the team to deliver these types of results in the future. In addition to the strong financial results in the second quarter, there’s a lot of activity at Ameris. During the quarter, both Ameris and Fidelity received all approvals, both shareholder and regulatory to complete our merger and we officially merged on July 1st. As you know on that same day, I became just the fourth CEO in the company’s history, but my Ameris story started well before July 1st. For the past six months, I’ve had the pleasure of working with the management teams on both the Fidelity and the Ameris side as we integrated our plans. And one of the things that that made this merger work so well was our similar cultures and our willingness to look at all the processes and to put the egos beside us and decide the best integration option for the combined company, which is exactly what we’re doing. And being so involved in those discussions makes it easy for me to say that that I remain 100% committed to our original plans as we’ve stated. On that note, I did want to speak briefly on our integration process. With the legal close behind us, we have definitely turned our attention to system conversions and data integration. Our primary focus is being mitigating the potential customer impact. I’ve been very impressed with how our operations teams are working together to be successful on that front. And we’re on track for our system conversion in the first weekend of November as we had originally planned. And that’s a great lead into the inevitable M&A question, so I may as well touch on that right now. We, as a management team, are fully focused on the Fidelity integration and also on our organic opportunities we have within our markets due to a lot of the disruption. That being said, we are out of the M&A market for at least four to six quarters. We have a plan for successful integration and realization of the cost saves identified by our combined management teams and we intend to maintain our focus on that opportunity, so that we can deliver consistent disciplined results for several quarters. There is a tremendous amount of work to be done to be successful and we don’t plan on getting distracted with any M&A opportunities that may be out there. Now I’ll stop there and turn it over to Nicole to discuss some of our financial results in more detail.

Great. Thank you, Palmer. As you mentioned, today we’re reporting adjusted earnings of $45.2 million or $0.96 per share for the second quarter. These adjusted results primarily exclude about $3.5 million of merger charges, $2.8 million of loss on branch buildings and a $1.5 million MSR impairment. Including these items, we’re reporting total GAAP earnings of $38.9 million or $0.82 per share. The $0.96 per share of operating or adjusted EPS represents a 30% increase over the $0.74 per share we earned in the second quarter last year. And as we stated previously, we projected that the Atlantic Coast and the Hamilton acquisition that we completed in second quarter of last year would be 12% accretive to EPS. This is similar to the first quarter we had better-than-expected results with that 30% increase, especially considering that we had Atlantic Coast part of the second quarter last year. Our adjusted return on assets in the second quarter was 1.56%, which was an increase from the 1.78% reported second quarter last year and above our goal of 1.50%. Our adjusted return on tangible common equity was 18.79% in the second quarter of this year compared to 17.26% for the same last year. And I was really pleased with our increase in intangible book value this quarter. We ended the quarter with tangible book value per share at $20.81. That’s an increase of $1.8 per share during this quarter and an increase of $3.59 when compared to the same time last year. That’s a 20% increase year-over-year in intangible book value, while absorbing the effects of two acquisitions last year and approximately $10 million of stock buyback during the most recent quarter. Our tangible common equity ratio increased 22 basis points to a total of 8.68% and even with the small amount of dilution we expect from Fidelity, we expect that our capital build will continue and that we will still plan on finishing 2019 with growth in tangible book value of somewhere in the mid-double-digit range. Our GAAP net interest margin declined by four basis points during the quarter, returning to the 3.91% that we reported in the fourth quarter of last year. Margin excluding accretion decreased the same four basis points coming in at 3.79% compared with 3.83% last quarter. During the second quarter, our yield on earning assets remained steady at 4.95%, while our funding costs increased five basis points during the quarter. We continue to remain focused on our deposit costs, but we do believe that we will seek some margin compression in the short term as we work to integrate Fidelity. When you look at our margin as we rose the rates up, our margin was stable. We had a few basis points increase here and there and then a decline, but we were consistently stable due to our balance sheet sensitivity being so close to neutral. Our core bank production yields declined to 5.49% for the quarter against 5.78% in the first quarter that increased from the same quarter last year. As we talked about last quarter, we became a little bit more competitive on pricing this quarter to offset some of the large payoffs we incurred in the first quarter, while maintaining our underwriting standard. On the deposit side, we continued the momentum on non-interest-bearing deposits and we improved our mix such that non deposits now represent almost 29%. I have to say 28.92%, but I would like to round that to 29% of our total deposits compared to just 28% at the end of the first quarter and less than 27% this time last year. Non-interest-bearing deposit production was 20% of our total deposit production this quarter. Non-interest income was strong as our lines of business continue to provide exceptional financial results. During the second quarter, mortgage revenue grew over 26% compared to the first quarter of this year and over 20% from the same period last year. Mortgage production actually hit an all-time high for us although we saw a small decline in the gain on sale percentage to 3.11% this quarter, down from 3.18% in the first quarter, but significantly better than the 2.94% seen at the same time last year. Our warehouse lending division continues to deliver top results as they increase production by over 39%. The production was at a slightly lower rate, but they still improve their profitability by over 12%. We believe these mortgage divisions combined with the Fidelity mortgage root groups can continue to provide strong financial results for us as they are in full swing of integration to become the mortgage leader in the southeast. Our adjusted efficiency ratio continued to see improvement and was 53.77% in the second quarter of 2019, compared with 57.53% in the second quarter of last year and 55.12% in the first quarter of this year. Total non-interest expense was $81.3 million for the quarter. However, when you were the merger and conversion charges and the loss on sale of branches adjusted non-interest expense with $74.9 million, up slightly about $2.6 million from the first quarter. The cyclical increase in mortgage salaries and commissions in the second quarter was $3.9 million of that difference and more than explains it. However, the company also did incur approximately $1.1 million of extra consulting fees during the quarter that related to CECL implementation, call center integration and other consulting services, which we do not anticipate to be recurring in the future. I feel the need to add some color here on the integration of Fidelity and the cost savings that we’ve identified. We’ve mentioned a 40% cost savings numerous times and I realized that’s a big number and can look unreasonable. However, I assure you that we’re fully aware of the task at hand and we have a plan. We are going into this with an integration state of mind and not a data conversion state of mind. This is a full integration of likeminded cultures with a repositioning of the balance sheet and operating processes to maintain our financial goals and efficiencies without affecting customer service. The 40% cost saves can be split into three general categories. Approximately 45% of the cost saves will be gained through administrative overlap and efficiency, constantly 25% of the cost saves are driven from retail overlap, which includes some branch closing as well as efficiencies within our branches from process changes. These process changes will not affect customer service or the Ameris approach a way of doing business. The remaining 30% of the cost saves are result of lines of business integration such as mortgage, indirect auto and SBA lending. There are some things that Fidelity does more efficiently than us and there were some things that we did more efficiently than with them. We are working together to ensure that we hit the target on the cost saving plan and these savings includes not only personnel changes, but also system and technology changes. Moving onto our tax rate, our effective tax rate increased to just over 23.5% this quarter, but that was really due to the non-deductible acquisition cost and we continue to expect that our tax rate will be in the 22.5%, 23.5% going forward. On the balance sheet side, we had exceptional loan growth this quarter as organic loan growth came in at $581 million or just over 28% annualized. The details of this production have been added to the slides in the investor presentation, but it was split among our bank segment and our lines of business. Net growth was divided across the bank with about 30% of it in the core bank and the remaining growth split between mortgage and warehouse, Premium Finance and our specialty lines or C&I. Credit quality remains strong although we continue to monitor it very closely. Our annualized net charge-off ratio was 7 basis points of total loans and 11 basis points of non-purchased loans. Our non-performing assets as a percent of total assets decreased 51 basis points, compared to 67 basis points at the same time last year. The diversification across loan type and geography as well as how the Fidelity acquisition continues to help with diversification can be seen in the loan size in our investor presentation. We continue to see strong deposit growth in the second quarter. We had approximately $310 million of brokered CDs matured the last two weeks of the quarter that we did not renew. Excluding those maturities, our core deposits increased $91.4 million during the quarter. Our year-to-date loan growth was $538 million and our year-to-date deposit growth was $254 million, including the outflow of seasonal deposits that will flow back in before year end up approximately $275 million. So I say all that to show how we continue to fund our growth organically through both loan and deposit growth. With that, I’ll turn the call back over to Palmer for closing comments.

Great. Thank you, Nicole. I have a few general closing comments that I’d like to make kind of the new CEO that I’d like to share with you this morning. And there are couple attributes that I’ve always admired about Ameris from a far over the years. And first and foremost is the strong established culture that this bank has had. Second is the, I’m honored to be working with this management team. I mean, when I look at the depth and the expertise that we have here, it’s incredible and it excites me. And of course, last but not least is their financial acumen. The kinds of results that we’re discussing today, they don’t come easy. That’s a result of a lot of planning, dedication and training. And it’s important to us that everybody in the company understand our financial results and how their decisions impact those results, from our bankers to our lines of business, to our operations and administrative support. This is the culture and the financial discipline that we intend to fiercely protect and while there’s a lot of change and integration at our company right now, the one thing that will not change is the Ameris drive for success as we remain dedicated to delivering solid results for our shareholders. I’d like to thank everyone again for listening to our second quarter earnings results and we look forward to the rest of 2019 and what it holds for us. I’ll now turn it back over to Nicole for any questions from the group.

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Tyler Stafford of Stephens. Please go ahead.

Hey, good morning guys.

Good morning, Tyler.

Hey, I wanted to start on Slide 23 with the net interest margin expectation in the third quarter with the impact of Fidelity. So low double-digit margin compression with the 25 basis point cut that includes the PAA impact. So that should be clear, so the GAAP margin of 3.91% in the second quarter you expect, call it, 10 to, I guess, 13 basis points, somewhere in that range step down, inclusive of the rate cut in the third quarter.

Sure. Tyler, that’s a great question. So I’ll touch a little bit more on the margin. So our GAAP margin was 3.91% in the second quarter and if you roll in second quarter Fidelity into that, our margin would have been 3.80%. So we have about 11 basis points compression there. We have some tailwinds coming in to the third quarter as well as some headwinds coming into the third quarter. Some of our tailwinds coming in is that we have our direct runoff, the indirect auto runoff that’s going to come into some higher yielding loan mix. We also have the increase in our non-rate their interest-bearing DDA – our non-rate bearing DDA, sorry. And then also our wholesale funding that I touched on. We had about $500 million of brokered CD that were out of 2.50% rate, $310 million of that decline paid off in the end of the second quarter and the remaining $190 million all matured already this year or this quarter so far in July. So that’s about $500 million that we’ve put into a short-term FHLB advanced with about a 20 to 25 basis point compression. And that will reprice almost immediately when if the Fed cut. So we’ve gotten some good tailwind coming in there. We also have when you think about the indirect auto there at 3.50% margin. If you think about basically a third of that portfolio is being funded by this 2.30% – say 2.30% FHLB advance. That’s only about a 100 and 120 basis points spread on that piece. So if we do not redeploy that into higher yielding assets, we can payoff those short-term FHLB advances and pick up a little bit on our spread and our margin there as well. So kind of two options, both are tailwinds. We do have some pullback or some headwind we do have in that, like you said, 25 basis points Fed cut included. So we do have the headwinds and the tailwinds. And then on the accretion side, so that was kind of a GAAP margin that you’re exactly right that would come into low double-digit in that 10 to 11 range. And then on the, kind of core margin excluding accretion, we do have some additional accretion coming in with Fidelity. It has slowed a little bit. We’re still, obviously, that we’re only 25 days into the acquisition and we’re still finalizing all of our day one purchase accounting with our third-party consultant that helps us on our fair value. But I will say that the indirect auto portfolio, when we first modeled this, we had a larger discount and there’s good and bad to that. The bad being is that will decrease our accretion going forward. The good being, we don’t have that mark upfront and it saves some tangible book value day one. You kind of – we get that back day one as opposed to over the course of those – that portfolio. That was probably a long-winded answer to your margin question.

Yes, that was great. I just want to clarify a couple things. So what would be the roughly ballpark kind of scheduled accretion that you’d expect to see in the third quarter?

Sure. We have penciled right now between, we were about $3.1 million in the second quarter and we have that penciled next quarter to be between $4 million, roughly $4 million to $4.5 million.

Okay. So similar, I guess 12 basis point the accretion impact of the overall GAAP margins similar to the second quarter, so then the – the core, just make sure I’m understanding this right. So the core margin would step down in tandem with the GAAP margin step down about 10 basis points to 11 basis points?

Yes. I think the GAAP tend to be the core margin x leading accretion might be 1 basis points or 2 basis points better than the GAAP margin that declined, I said in the slide low-double digit excluding purchase accounting. So that would be on the very low-end of double digit and then GAAP margin to be a little bit 11 basis points to 13 basis points.

Got it. Okay. And then just Nicole, how should we think about future rate cuts and the impact to the margin?

Yes. So future rate cuts, we use 50% deposit data for those rate cuts. It’s about 6 basis points to 7 basis points for every rate cut. But again, I want to caution that, that would be if the balance sheet was static going forward, when I look at fourth quarter and the first quarter, again, we have the indirect auto running off. We have some deposit growth. We always have deposits that coming in. The cyclical deposits are coming in the fourth quarter. So I would guide less than 6 basis points with those second rate cut.

Okay. That’s very helpful. Thank you. And then just going back to I guess one of the earlier slides, slide 4, just the headline of this slide as Confidence in 2020 financial expectations, I just want to – I guess, get kind of the frame of reference for that text, is that pointing to I guess consensus 2020 estimates that you guys have confidence in that number right now, if it gets around 4.50% is that what you’re alluding to or is it just more underlying fundamentals of the combined franchises?

It is both, but yes, that is showing that we still believe that we are able to obtain that.

Okay. Very helpful. Palmer, welcome onboard and we’ll talk to you guys soon. Thanks.

Thanks, Tyler.

Our next question comes from Casey Whitman of Sandler O’Neill. Please go ahead.

Good morning.

Good Morning Casey.

Nice quarter. Nicole, last quarter you gave an expense guide 2020, I think it was around $420 million, $430 million, has that moved up a bit just with new hires? Are you still comfortable in that range? And then another question, expenses just to be sort of what your outlook for the efficiency ratio is with the cost fixed fully in there?

Sure. So Casey, $420 million to $430 million that is still our guidance going forward, we did have baked in already about 10 – I think 10 bankers. Some of that is attrition and some of that is new bankers, but some of that attrition we might reallocate those resources from other markets into a more metropolitan, might be a little bit more expensive market. But all of that was built into that $420 million, $430 million. So we still support that. And then I think your question was efficiency ratio going forward. And we guided in the slides that we foresee obviously third and fourth quarter, we still have the overhanging, especially third quarter with the Fidelity acquisition. And we still have two loan operations, two accounting departments, two have a lot of functions and then the data conversion is set for November, 1. So keeping our efficiency ratio under 60% for this year and in next year 2020, 52% to 54% efficiency ratio fully baked in cost savings.

Got it. And then the 10 bankers or so you just referenced that, on top of the I think you guys in last quarter were talking about hiring maybe 20 or so or is that included in that?

That’s the same. That’s kind of a net 10.

Okay, understood.

So, talking to maybe 20 we know we have some that are retiring. We’ll have some natural attrition and so that would be a net 10.

Okay. Got it. And then just a question about growth here, can you remind us just how much you’re expecting from the auto runoff from LION and then, what you sort of expect going forward the split to be in growth between the bank segment versus the various lines of businesses?

Absolutely, so the indirect runoff is about, expected this year about $300 million for the rest of this year and then about $700 million for next year. That portfolio was at around 1.3, 1.4 at the end of June or beginning of July. And so we still – so that we’ll take a down about $1 billion by the end of 2020. So about two-thirds of it will be gone by 2020 and then as far as segment growth for the future, when you take the Fidelity, our mortgage area has run about 17%. Warehouse is about another 5% to 6%. So that’s about 20% to 22% mortgage and warehouse lines combined. When you put Fidelity in that bumps up to about 25% to 27%. We really are comfortable with that saying more in the 20% to 22%. So we do expect the bank to have additional to grow the bank further. We also add in – the Fidelity has a wealth department so that that will pick up about 1% of our earnings. Premium finance is about 5%. SBA is about 5%. And then, again, mortgage in the bank is the remaining about 70% – 70% to 75% bank, and then 20% to 25% – mortgage is about 20% and warehouse is about 5%.

All right, great, helpful. And then my last question for me, I’ll let someone else hop on. You guys repurchased some shares this quarter. Just maybe, can you talk about how aggressive you plan to be in using that X in the future?

Yes, Casey, I’ll answer this. This is Palmer. As we said last time, I wasn’t surprised if we did or didn’t show up with the additional purchases. We’ve got the authorization out there and clearly executed on some of that this past quarter. At the same time, we’re aware capital preservation as well. So we’ve got that as a trigger to pull if we feel it’s appropriate. But right now don’t anticipate any buybacks at the moment.

Thanks for taking my questions.

Thank you, Casey.

Our next question comes from Brady Gailey of KBW. Please go ahead.

Hey, good morning guys.

Good morning, Brady.

Good morning.

I just wanted to ask you about the loan growth in the quarter. We saw flat loan balances for the last couple of quarters and then almost 30% growth this quarter, which was great to see. Maybe just talk about the dynamics as far as what boosted loan growth so much this quarter. I think I heard you talk about how maybe you’re a little more competitive on the pricing side. What drove the outsize loan growth in 2Q versus kind of flat before that?

Sure. That’s a great question Brady. And I want to make sure everybody understands that 28% annualized loan growth that we had in the second quarter is not expected for the rest of the year. And we did add some color in our slides as well because I think that’s a great concern is that people might have that sounds like a really aggressive of loan growth and it really came from several segments. So we had the bank, we had quite a bit of production in the first quarter that did not fund until the second quarter. If you remember when we talked about first quarter, we had all those large payoffs that came in right at the end of the quarter and we had a great quarter of production, but some of that doesn’t fund. We fund about 68% of our production. And so we are working towards figuring out products that have a little bit higher production rate or funding rate from production. So a lot of that was just production from the first quarter. We also had an outstanding month of – quarter of production at the bank level. So that was about 30% of the production. Warehouse line was about $165 million of the production. And that’s really what warehouse and mortgage together just a really strong, which is very cyclical. Second and third quarter is always strongest for those. So we had that coming in. And then we also had C&I picked up and premium finance has picked up. We’ve kind of got some of the – we have a new sales manager, we have a new President. That’s really picked back up where we kind of had some – a little bit of runoff in that division prior. And they’ve really picked back up. So again, it’s diversified. It’s not all in one place. It’s not, I think Jon did a great job of adding some details in the slides about that production, loan size, credit quality of those loans and that it’s really diversified. It’s not one big bucket anywhere.

All right. That’s helpful. And then, I heard in your prepared remarks, your ROA target had been 1.50%, you are operating over that now and that’s going to go up as you integrate LION. You’re comfortable with 2020 numbers, which if you look at that 450 in 2020, I think that is roughly like a 1.75%, maybe even a little better ROA. So is that the right way to think about kind of the ROA going forward somewhere in that 1.75% range plus or minus a little bit?

Brady, it pains me to say this. That’s what the math works out and it’s almost goes back to that same thing that it’s hard for me to commit to an ROA that high, just like it’s hard for me to commit to an efficiency ratio below 50%. 1.30% ROA is good. 1.50% ROA makes our people uncomfortable. 1.60% is difficult, a 1.70% is painful and so I think there’s a happy medium somewhere between 1.50% and 1.65%. I don’t know that we would be at a 1.75%. There will be something that will come up. There will be some resource, some areas, some new compliance because there will be something that we need to dedicate resources.

Okay. Great. Thanks for the color.

Our next question comes from Jennifer Demba of SunTrust. Please go ahead.

Thank you. Good morning.

Good morning, Jennifer. A – Nicole Stokes: Good morning, Jennifer.

Looking at your slide deck, on one of your slides, it says did you purchase some loans during the second quarter as well?

Yes, we did Jennifer, about $130 million worth.

Okay. Can you give us some details on those ones? Just some color and your likelihood to purchase in the future?

Part of this and as well and I’m going to let Jon deliver some of this credit, but I did want to mention some of this was an opportunity that we had and knowing that that’s going to be about the run off of indirect in this next that we’ve got some of that. So some of this loan purchase was a little bit of starting of the balance sheet repositioning from the indirect into higher-yielding assets. And then Jon, I don’t need to interrupt you if you want to?

No, it’s quite right. And this purchase had been in the works for a while, Jennifer, so just materialized in the second quarter. It doesn’t mean necessarily that we’re out looking for portfolios to purchase every quarter, it just happened to be one that we had been working on for a little while. On Page – on Slide 20 though, Jennifer, at the bottom right hand corner, I’ll try to give a little color about what those loans were. Average loan size is less than $100,000. The rates are good. We didn’t buy any past dues or problem loans with those. And it fit into a risk profile that we’d – it looks a lot like loans that we make today organically. So we were okay with the purchase.

And were those from a former Georgia Bank?

Yes.

Okay, okay. Thank you so much.

Our next question comes from David Feaster of Raymond James. Please go ahead.

Hey, good morning guys. A – Nicole Stokes: Good morning, David.

Hello, David.

I just wanted to clarify the loan growth guidance. Is that mid-single digit growth guidance annualized and it’s on total loans, pro forma for Fidelity ex-warehouse? A – Nicole Stokes: No, it’s not ex-warehouse. It’s ex the loan held for sale. Is that what you mean by warehouse?

Yes. A – Nicole Stokes: Yes, yes. Sorry. Yes, that’s correct.

Okay. So its mid-single digit annually. Got it. Okay. And then – I’d like to, your non-interest bearing deposit growth has been really impressive. Could you just talk about your deposit growth strategy? What’s driving the non-interest bearing growth? And I guess as a follow-on, given the brokered CD, pay down and everything, do you think deposit costs had peaked here? And I guess just where do you think about – where do you think deposits – how do you think about deposit growth going forward and where are you comfortable with what that loan-to-deposit ratio?

Yes, David, I’ll take that one. This is Palmer. We’re encouraged by and part of the reason we’re encouraged by is when you look at a lot of the growth that we are experiencing and a lot of it’s coming in on the commercial side, which historically and traditionally for both our banks has brought in good core funding in terms of relationship deposits. And at the same time, we’ve been successful in rolling off a lot of our higher cost deposits. I do think with the anticipated Fed cuts that we’ll be able to make some adjustments there on our costs. So I do think deposit costs for us will continue to improve, as we move forward through the remainder of this year. Then in terms of the loan deposit ratio, it did increased this quarter, but we’re very comfortable with where we are.

Okay. Terrific. And then I guess just on asset quality, is there anything in your footprint that you’re seeing that you’re kind of slowing down? You’ve talked in the past about seeing some stretching on terms in underwriting standards. Is that – does that abate at all in the quarter or again, just kind of your general pulse on the market?

Well, I think you have to look at each market individually, but the two primary markets for us being Atlanta and obviously Jacksonville and parts of Florida. We are seeing a lot of competition out there in terms of structure. But in terms of underwriting and asset quality, we aren’t seeing many people compromise on that front. You are seeing extended terms and obviously aggressive pricing, but fortunately for most of our competitors out there, we’re not seeing people making loans that they shouldn’t be making, it’s just the structure of those is far more competitive in today’s market.

Okay. Thank you.

[Operator Instructions] Our next question comes from Christopher Marinac of Janney Montgomery Scott. Please go ahead.

Hey, thanks. Good morning. Nicole you’d mentioned in the ROA comment a few callers ago, just about the idea of resources. And I was curious if that is more systems-based than it is branches or would it be kind of all of the above?

No. We don’t see any really growth in our branch network. There may be some analysis, as far as if we have one branch in an area than in another branch possibility in a better area that we might have a mover branch potentially. I mean, that would be the closest that we would come to any new branches. And so, it really would be on the kind of resource side, the administrative compliance technology, any kind of resources that we need to allocate there to become more efficient.

Okay, great. And then Palmer, as you think about capital allocation in the future way beyond the next couple of quarters. To what extent did dividends play a role of decisions you may make? I’m just sort of wondering, it gets you to elaborate more on buybacks just well beyond the conversion time.

Yes. I mean to address the buybacks up front, that right now is certainly as I mentioned, we’ve got the availability to do so, but – and that’s a trigger we can always pull, but I don’t want to anticipate any buybacks in the near future right now. And in terms of our capital allocation moving forward, I think what you’ll see is, when you look at the balance sheet and that’s one of the most intriguing things about this opportunity here with the combined companies is the diversification in the balance sheet. But we’ll start channeling a lot of that capitalist as allocating it towards the commercial front, that’s where you’ll see the – probably the strongest allocation on a go forward basis.

And as that happens, that could be sort of margin friendly for you as you sort of right size various parts of the loan and owning asset mix, is that kind of a fair impression?

Yes. From both sides of the balance sheet, right, because unlike our indirect portfolio, which generated very little in the way of core funding, the commercial side certainly contributes to that and improve – helps improve the NIM.

Great. Thank you both. Appreciate it.

Thank you.

[Operator Instructions] This concludes our question-and-answer session, and concludes the conference call. Thank you for attending today’s presentation. You may now disconnect.