Q2 2022 First Bancshares Inc (Mississippi) Earnings Call
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Yeah.
Good afternoon, everyone.
Okay.
Right.
Yeah.
Good day, and thank you for standing by and welcome to the first Bancshares incorporated review of the second quarter 2022 financial results Conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During this session. Please press star one on your telephone please be advised that today's conference is being recorded.
I would now like to hand, the conference over to your host today, Mr. Hoppe coal please begin.
Well again, welcome and good afternoon, everyone I'm hopping Cole president and CEO of Forest Bankshares Gosh, we've got an awful lot of exciting news to talk about the direct through an awful lot out yesterday was a culmination of a lot of work on behalf of our team members are we've got a group today I'd like to introduce who else will be joining us ideally lowery our CFO .
Sure.
JJ pleasure, our chief lending Officer, George <unk>, our Chief Credit Officer, Lynn or more on the CEO of Heritage Southeast Bank.
He had served chief banking Officer Heritage Southeast Bank, and Chip Reeves CEO Beach by.
The agenda today I thought that we would start with an overview of the transaction announced yesterday after close of business between the first Bancshares and heritage Southeast Power Corporation of a potential merger in refining and executing a definitive agreement and so we entered I will give our thoughts at a high level overview of the transact.
And what that means for both groups of shareholders in really all our stakeholders.
We would transition to the quarterly results in detail give us financial highlights J.
<unk> will provide some color on loan production and pipelines.
George Nunavut.
Some information on the credit trends.
Chip Reeves will give an update on the beach banks quarter, and where we stand in terms of integration.
In the transaction.
We're getting ready to close tomorrow.
After close of business with Beach Bank.
And then finally learn more of update us on heritage southeast quarter. So we've.
We've got a lot to talk about and what's going to jump right in.
We are absolutely thrilled about the.
The transaction that was announced again after close of business yesterday between first bancshares and hair to southeast Bank and.
Some of you know her to southeast of headquartered in Jonesboro, Georgia, which is just south of Atlanta, but it's in the Atlanta MSA and they currently have $1 7 billion in assets and 23 branches and some of the most dynamic robust growing market not only in the southeast, but in the country and that the Atlanta MSA Savannah.
Uh huh.
Georgia coastal Georgia down at <unk>, South Eastern Georgia.
That complements our southern Georgia footprint, very well and then finally Jacksonville, Florida.
And so really it's this thing this transaction and my mind started.
Really about.
I guess almost a year in January of 2021.
Moreland, who is the CEO and are met for an afternoon call.
Casually.
No pending transaction.
Beginning to get to know each other and talk about our current lease and talk about our strategic visions and I think both of US came away and whether you can opine that in your comments, but I think both of US came away feeling that our company's share an awful lot.
In terms of being culturally aligned how we approach business the.
The values of our company, how we approach the communities that we serve.
And our business models.
And so we felt that we were credit culture. We felt we were very much culturally aligned.
Then a transaction came up where.
Southeast entered into a definitive agreement with <unk>.
Credit Union and so.
We were very disappointed that we were not able to continue our talks but we stayed in touch.
Over the last year and over the last 15 months or so and so.
We were very excited when we heard that.
That transaction.
Was too was terminated in fact there'll be a process put together to explore their strategic options and that they'd like us to participate so.
Really.
Really this.
The heavy lifting started I guess, a few months ago, but really a lot of important part of getting to know each other started.
Well over 15 months ago.
We're thrilled about that I'd like to talk briefly about the strategic rationale we feel strongly that this is consistent with our strategy of building a high performing community Bank franchise.
In the southeast.
Again.
A variety of things to our expansion strategy has been to seek markets, where the overriding demographics were positive and.
Income growth were positive. So this franchise is accretive to our composite.
Build out in terms of population growth and income growth.
They have a strong management team and as you know we've been.
Fairly disciplined about growing our company geographically geographically contingent and so that we don't jump very far in terms of markets that we don't know we like to link them together geographically, we think it drives synergy. We also like to have strong management teams in place that understand those markets with a demonstrated ability not only at <unk>.
But also it risk management, because as you know we've been a high growth bank and having folks that understand their markets.
And know what to do but no what not to do is critically important.
Achieving that growth strategy and a safe sound manner, and then again they are true community bankers just like we are they are heavily invested.
In the communities they serve they understand that the health of those that our company will reflect the health of those communities to the extent there are communities that lag.
And everyone's familiar with our CFR mission in the market some of the markets. They serve will be complementary to that mission and so to the extent, we can raise the standard of living in those markets. It only reflects positively on the value of our company. So they are very invested in those markets.
Very invested in that strategy.
From a management standpoint.
We're very pleased that we attract a very strong management team in Georgia.
On a composite basis pro forma the largest segment of our company will be in Georgia over 30% of our loans and deposits will be in the state of Georgia.
And in 2007, or 28% I think it will be a Mississippi and about that same number in Florida, Georgia would be our largest part and with that amount of market share. Obviously, we need a strong management infrastructure littered Moreland Brad serve.
Paul hearing those guys bring.
Kathy XE bring exceptional executive leadership and management.
They bring a strong infrastructure for us to not own.
As we integrate this transaction, which will be critically important retain the talent.
I understand the synergies that this combination brings together and they've got the ability to lever that and continue to grow the organization on a combined basis.
Okay.
One other strategic item that we are very pleased and they have some platform. So lending platforms that we don't have.
We talked about beaches SBA platform Beach bikes, SBA platform last quarter and that in Tampa, They have an SBA lending group.
To southeast also has an SBA lending group.
And so we're excited about the synergies of putting those two groups together the ability to generate SBA loans not only in those metropolitan centers, but.
Being able to roll that out and leverage our market share across our footprint.
They've also got a unique line of business, which was very interesting to us.
In terms of the cat and if you look at our deck, there's a slide in there about the cash surrender value life insurance business, and we think strongly and believe strongly that thats a line of business that we can generate.
Acceptable very can be very profitable.
And generate high returns, but with very little risk associated with it. In addition to that it's a diversification away from traditional CRE real estate oriented lending. So it gives us a little bit of a of a diversification not only in terms of product line, but also at target.
Geographic set.
These loans are really it's a national platform. So we're excited about those opportunities.
Again, they have a wealth management business, which we've talked a great deal about our wealth management rollout in our private banking area. So those are lines of business again that we'll be able to not only achieve scale in order to generate non spread related income in our wealth management business, but then lever that wealth management sector.
Banking format that we have.
As a product set that HSBC.
HSBC are paired to southeast has not had a serving markets that generate a lot of opportunities for that so again very complementary.
Not only in terms of culture in terms of the markets that we serve the management team a strong management team that we will get.
But then also.
We believe and we feel strongly that it creates.
A unique southeastern franchise it creates a sub $10 billion community bank.
In the south Eastern U S with eight, especially eight plus billion.
In asset.
Pro forma we are.
Extremely high performing company and again, if you take the two transactions together.
They're very complementary of each other and the resulting company has we believe of an ROA north of one 3%.
<unk> tangible common of greater than 18%.
The company remains and is it remains well capitalized so.
Capital ratios.
TCE approximately pro forma 7%, 9% leverage a 17% total capital so.
Exposure to great markets, Great management teams that can grow the franchise.
Fresh off a unique franchise with that create significant.
Firstly, Chris we're really not familiar with any other franchise in the southeast.
Those metrics touches those markets.
But yet has the sort of growth prospects.
As well capital so we have plenty of capital to deploy and the resulting loan deposit ratio is still 60% or less so substantial liquidity again to support the capacity liquidity and capital to support organic growth opportunities that we think.
This franchise create.
This also was the most impactful transaction we've ever done in terms of earnings.
Particularly EPS accretion and we think about <unk>.
Earnings impact our balance sheet impact and really interpret two ways. We look at it on a GAAP basis. We would also look at it on a core basis and so.
Everyone knows right now.
Tangible book value multiple multiples fair value accounting.
Other comprehensive income marks are kind of <unk>.
All over the place it's a very turbulent time, given how quickly the interest rates have increased in the level to which they've increased and so.
And thinking about that if you look at the GAAP analysis it at a high teens EPS accretion.
Less than three year earn back and has less than 8% day, one tangible book value dilution.
But as a shareholder and.
Our board our management team has significant.
Positioning the company in terms of ownership, we really think about it.
In terms of core analysis, and so if you strip away the chair.
The fair value marks and sort of accounting.
<unk> I'll call it gymnastics.
On a core basis, the dilution is really 45% day, one tangible book value dilution, but still a 10 plus percent EPS accretion if you remove the recovery of the fair value marks into earnings over time.
<unk> stays roughly the same still sub three.
So historically that had those had been metrics that we've acquired and been a disciplined acquirer around those metrics still work and we think in this transaction are certainly very acceptable, particularly given.
The scarcity of the assets that we've acquired.
The markets that they touch.
And the management team that help supports future organic growth.
Based on those metrics in a very reasonable set of assumptions.
We think there is a clear path.
Very achievable path to a $4 plus EPS once we get all our cost saves in.
That's a significant increase in terms of where we are today.
So we think that the resulting company on some very reasonable multiples that theres a significant amount of upside.
Our stock.
So if you think about individually the transaction with HSV <unk> is attractive to the franchise.
Boy, if you take HFC are paired to southeast and Beach Bank together.
What we have accomplished this year. We're just we're extremely excited about so we will.
Accumulated $2 $3 billion of assets.
Centered in the Panhandle of Florida.
Building density in a market and a fast growing market that we already have significant market share.
We'll open up the central Florida market with an experienced management team that has great market knowledge have great contacts.
The Tampa St. Pete area, and then really all in Central Florida.
And then the culmination of this we open up.
Atlanta Savannah Jacksonville.
Again, another extremely strong management team.
So $2 $3 billion of assets.
And those markets at what we think are reasonable prices with good financial metrics.
We're really really excited about all of this means for our company.
So those are my thoughts sort of high level on the franchise, let me turn it over to you and get your insight. Thank you happy and Im Leonard Moreland. The CEO of Heritage Southeast Bank Corporation inherited southeast Bank. So pleased to be with you. This afternoon.
I'll give you a little bit of history of heritage Southeast Bank for those of you that may not be.
Familiar with US our bank came together three community banks in the state of Georgia, and North Florida.
In the third quarter of 2019, Brad serve Brian Smith, and myself or the 30 CEO of those banks and we came together for really one primary purpose and that was to create better opportunities better opportunities for our shareholders better opportunities for our employees and better opportunities for our customers.
That was.
A huge success for US we were able to create a balance sheet that was that allowed us to move up in priority list with our larger customers and to offer a broader array of services to our medium and smaller customers.
As we continued with the consolidation of our organization.
We always kept an eye out for where are the opportunities to enhance shareholder value increase create opportunities for the other two constituents our customers and employees. So like <unk> said, we met in January and I can remember that day very well after I left the meeting immediately call our chairman Ken lay them out on us.
I found the right person for us too.
To really boost our franchise and two to accelerate the process that we were looking to accomplish.
We did get sidetracked, most of 2021 and earlier into this year with the credit Union transaction, but but it was great.
To have hapi willing to come back to the table and talk with us and to put this deal together because this is who we are where community bankers serving people in our communities and serving our employees and that this just gives us an opportunity to continue that mission.
Why why do we really like the transaction.
It increases the balance sheet for us it gives us better opportunity now we can shift in the highly competitive high growth markets of Atlanta, Savannah, Jacksonville from that number two or number three player in many of the larger customers portfolios to number one and number two so thats a real opportunity for our bankers to expand.
And to grow deeper relationships with an existing very very good strong customer base.
It also gives us an opportunity to expand our consumer line, we have a very large consumer base, and south South, Georgia and North Florida.
Some 50000 plus customers in that market and with the array of products. The first brings to us.
We will be able to penetrate those households, much better and to make them even more profitable for our company.
It's.
It is important to us as bankers to be able to.
<unk> on the mission that we call our careers and the philosophy the operating philosophy.
Servant attitude of the first combines extremely well with our operating philosophy and the attitude that we approach our business with so.
We feel like it is a great cultural fit and very little disruption to our bank and the mission that we've been on for our entire careers.
For our shareholders, it's a great opportunity.
One of our goals with combining our three banks was to increase liquidity on the stock many of our shareholders who've been investors for for decades.
As you know community Bank stock is somewhat illiquid and this gives some of our shareholders the opportunity as they move through life.
They have the opportunity to add or subtract from their withholdings from their holdings.
That's something that a shareholder deserves and you combine that along with the dividend. The first provides that is something we have not been able to provide our shareholder base because of our growth rate and the other <unk>.
<unk> that we have focused on the last few years.
And then again for our employees, it's great because there is no overlap of markets. So employee retention will be maxed here and that's that's great for us because these are loyal long term relationships that we've had with those employees and we want to reward them with the same opportunities that our customers.
First of all receiving so it is just a win win win all the ways that you look at it.
From top to bottom and our organization.
And we just think that this is going to be.
Great organizations that time that we will be able to put together and continue to grow at a very rapid pace.
And I'd like to touch a little bit on what we feel like we bring to the table Hap you mentioned a couple of things like the SBA and cash value of life insurance programs. We do have a vertically integrated SBA program the carriers.
All the way from that.
The hunt in the booking all the way through the maintenance and performance of the portfolio.
We have a great relationship with the SBA and USDA and we feel like we'll be able to offer something to the combined company to help support those activities across the entire footprint.
We also have the growth markets that I've mentioned in the Hopper as mentioned.
Our loan pipeline consistently exceeds $100 million so.
So far this year through June we've grown outstandings net $70 million and that just does not appear to be slowing even though we hear in the national economy.
Of weakness is starting to appear.
We have a very large core funding base.
About 36% of our deposits are noninterest bearing.
That has always provided us a lot of stability in the changing rate environments and it also produces a very high level of noninterest income. Thanks to those many consumer households, and large commercial base that we have.
So most of all we think we bring to the table.
A group of very strong seasoned bankers that know their markets that have worked in our environment and our culture.
For a long time and since those cultures align so well we feel like they will thrive and the first environment as well. So just excited to be here and be a part of this transaction.
And I see just great things ahead for our company. Thank you Harvey.
Thank you later again real quick in summary, we're.
We're thrilled about the transaction, we think what this creates is a southeastern franchise with real scarcity value.
Eight plus billion dollar franchise with exposure to to not only the best markets in the southeast, but but some of the best markets.
In the country.
As you know most.
Most of you know we're shareholders first and so when we think about strategic moves we think about strategic moves that only enhance our optionality. That's been that's been part of the strategy. Since we started it continues to be part of the strategy to date. So if you look at this franchise.
Be it.
Getting the attention of potential upstream partners, we think it creates more value in that regard just about what I talked about in terms of.
<unk> construction of the of the franchise and the opportunity for continued organic growth that.
That we have with <unk>.
Establishing community banking teams across again some of the most dynamic robust fastest growing markets in the country.
And then finally, a company that has superior return in terms of profitability.
In terms of efficiency ratio in terms of return on.
Capital to its shareholders.
Terms of dividend capacity and that we continue to increase our dividend. This only create some more capacity to do that as we think about how we demonstrate how we return.
We provide returns to our shareholders.
We're off we're really excited about it again.
We look forward to getting after it and.
And look forward to joining forces with all of the team at Heritage Southeast.
And then really with all their stakeholders so.
With that I'd like to transition to the quarterly results.
Hey, I'll I'll be brief in my quarterly review Hello, everybody.
But a strong quarter.
Great improvement in terms of core profitability.
Outstanding loan growth.
Pretty good expense management.
So.
Really excited about the results for the quarter and Didi, if you'd like to give us a little more insight into that in terms of the financial highlights share. It's a hobby. Thank you.
A couple of things.
It provided it really several of our onetime items, we had this quarter just to kind of start off and get that out of way.
And the biggest piece of that was acquisition.
<unk> related charges and our charter change charges related to that.
We kind of like to take those out and look at just core like Hap you mentioned, we like to focus on our operating income and what can we do core basis and so.
Several members and again really core and.
Net income operating core net income for the quarter increased 10% at this time.
$15 million up to $16 5 million.
So $1 5 million or 10% and our core net income or <unk>.
Operating return on assets increased for the quarter as a way of 11 basis points to one eight so very happy about excited about several things this quarter on improving numbers for the quarter.
One of the things you noticed in the last couple of times he talked over the past I guess two years now as all of the excess liquidity.
We actually had a decrease in our excess liquidity this quarter. So that's very exciting.
We actually were down about 400 million on average that was put into work in the loan portfolio.
And the securities portfolio.
And then we had a slight decrease in.
And average deposits.
For the quarter, but.
Sure.
One of the things that when I talk about Tijuana Mara.
Margin.
We did have great improvement in our margin and 31 basis points that was that to $3 nine for the quarter and one of the things that we did have loan growth ex PPP loans of 167 million, but if you look on our average balance table, we only recorded on.
Average $67 million of that.
<unk> showed up on average for the quarter so when.
When you look at our net interest income growth.
I think $3 9 million when you exclude the PPP fee.
With a 10% increase as well a large portion of that was from the securities.
Portfolio.
Does that got booked largely in the first quarter that it really kind of showed up.
<unk> in the second quarter, so which is going to be the impact of these loans in the next quarter.
On average we only had 67 million so I think we'll stay strong.
Strong net interest income from that into the next quarter.
The excess liquidity that we still have.
It's about $230 million this quarter and Thats, probably about what's about 13 basis points to the margin.
Understood.
The depressing the margin by 13 basis points there.
On another note the improvement is our operating efficiency ratio, we improved that.
71 basis points to $57 66 for the quarter.
And then our average interest bearing cost on deposits we.
We improved by three basis points.
To 15 so.
Improvement in all of those areas for the quarter one of the things I did want to mention as well as our deposit balances. We did show a decrease in deposit balances of 131 million.
Do have a large public fund portfolio and we mentioned this a lot about the seasonality of that and.
We get a large increase in public funds at the beginning of the year typically mostly in the first quarter.
Then they start.
Sometimes they start decreasing over the course of the year so.
Deposit balances were down 130 million.
About $70 million of that was related to the seasonality of the public funds.
We did time deposits were down for the quarter of about 36 million.
On.
But half of that was really related to.
The cadence portfolio that we acquired in December and then some public fund Cds as well so.
But the positive on our deposit balances is that our net our noninterest bearing deposits deposits actually increased about $10 million.
We're excited about that as well.
And I believe that wraps up all my comments happy for this quarter for the financials. Thanks D D.
I appreciate it.
I'd like to give us a little color on loan production for the quarter and also what youre seeing in terms of pipeline.
Thank you Avi.
To these comments June of <unk>.
Quarter was a huge month for originations, we had about $220 million, but not until June so the quarter is kind of back end.
Loaded so.
I think the other thing that contributed to the net was our payoffs and pay downs, we've been looking for those to subside and they were down about $60 million in the second quarter over the first quarter. So I think those two things together.
Really combined for the.
The net growth.
Blended commitments on trailing 12 month originations $341 million that's in line with consistent with.
Previous quarters.
Pipelines are good.
In line with historical averages are really looking forward to beach Bank acquisition.
Pending the presence in northwest, Florida, and then Tampa as well and I think chip is going to talk about that some two opposite great quarter.
A lot of them.
I think things led to that we had a renewed focus on business development start in January had some organizational changes and I think we're seeing results of that too.
Great great quarter, great job.
George would you like to ask a little bit what you see in our credit trends.
<unk>.
Generally we're seeing continued.
<unk> positive trends.
A rebound of credit quality coming out of the pandemic years.
If you will where there was some slight upticks during that time, leading that charge really is what we're seeing in our hospitality and leisure and food and beverage segment a lot of them.
Those businesses were obviously impacted with some disruptions during the pandemic, but both in our tourism destination markets and we have a number of those along the particularly the Gulf coast.
As well as our business travel markets.
We're seeing some real improvements there.
And we're able to get very timely reports in that segment.
<unk> reports that give you month to month update improvements in ADR and Revpar occupancy trends have all been very favorable.
In the last really over the last couple of quarters.
In terms of delinquency trends continued improvement there.
We've been trending in the second quarter under 25 basis points.
In our delinquency trends, so which has certainly been a favorable improvement over prior years.
As oil in terms of overall credit quality in our criticized and classified loan segment.
We've seen.
Nine months of continued improvement coming out of the pandemic.
<unk> quarters in.
A lot of this improvement.
Has really been attributable to.
Grades that we were able to do in the hospitality and leisure segments.
<unk> properties other tourism related tourism transportation related businesses, so some nice recovery there.
And we think we're likely position to see that.
And here for the balance of the year as.
As well.
Nonperforming.
We have good improvement there with our Npa's.
And non accruals Oreo and other assets continued improvement below the 100 basis point more.
As we hit the mid year point, and we think that will continue to improve.
As well we have some relationships that.
Once we get year end financials Ian.
Some of these additional accounts that are in some of those sectors we've talked about.
We think we can see some likely.
Continued improvement there and.
Loan related net charge offs.
We're continuing to be.
Negative position, which is positive.
We've got.
A nice net recovery for the year and we think.
Sometimes you kind of eat away at that over the course of the year, but has been maintaining pretty well.
So.
I think we're positioned well.
We know with inflationary trends out there in.
That likely will be a major point of focus for us.
For us as well as all of our peer banks as well.
<unk>.
In the year in the next two quarters, but we believe like.
I think our emphasis.
Kind of approach it as a four legged stool, if you will we've got.
Good debt service coverage.
And our loan base, we've got a good primary secondary source of repayment culture, and how we underwrite good collateral positions.
Liquidity.
Liquidity and gig into support.
All those things kind of combined.
I think give us the general notion that we're positioned pretty well too.
Whether any recessionary headwinds that we might encounter alone employee. So I think we're in a good place good deal. Thank you George.
Well.
As everyone I know, we talked about a little earlier, but.
We will be closing the beach transaction tomorrow after close of business, where we're really.
Very pleased that from <unk>.
Continued our trend from the time, we announced the pending transaction with beach in late April until closing.
What will be August 1st will be in that 90 day time period.
In this environment we were.
Very pleased with our efforts on both sides there to get this.
Transaction.
Approved through the regulatory requirement. So chip would you update us on beaches quarter end then.
Where we stand in terms of integration.
Sure thing, Thanks, Op, Ed So one everybody well.
The call into Leonard and Brad and the team coming together one outstanding transaction.
Hobby first for everyone on the phone call I do a hobbyist steak dinner because when he said we could get this done in 90 to 120 days I wasn't quite surgeon, but a huge congratulations to all of the teams to close this transaction an accelerated timeline it's been outstanding.
Our quarter results truly begin to show the strategic rationale for our combination with the first and I'll be brief but go through a couple of these loan growth for Beach bank in the second quarter continued to expand.
We're at $29 million of net growth for the quarter, which is a 26% annualized.
As a percentage and as we enter the third quarter, our pipelines that frankly are more robust than they were going into the second quarter of the year.
Noninterest bearing demand deposit account growth with raw number of $12 million increase which is 37% annualized and many of you know this was beach bank was a recapitalization story from July 2018 at that point noninterest bearing demand was about 9% or 10% of the overall.
<unk> deposit balance sheet that now is at 29%. So the investment that we've had in our treasury management initiatives that will be carrying through to the first as well are beginning to show.
Kris velocity.
And then as we look at our asset sensitive balance sheet and as we began to lean into the first liquidity position.
Our net interest income growth just on a linked quarter basis increased 19% or annualized at 76%. The quarterly NIM average moved 44 basis points to $3 49, and just in the month of June that was actually $3 69. So you see the combination that.
We spoke of in April's earnings call merging these balance sheets together and we're already taking advantage of that of the first liquidity position and size of balance sheet credit quality Npls were only 171000 or three basis points 30 to 89 day past dues remained subdued.
Chat only 19 basis points and then the story of Beach again, and the recapitalization and turnaround.
There is a significant amount of owari assets those are now down to only $9 million with.
With 675 of that under contract to close here in the third quarter. So the job is almost effectively done there as well and then hop in terms of the integration.
I can't tell you what our teams have been extremely excited and so have our client base.
As we begin to.
Move and take advantage frankly of the additional products as well as the size of the balance sheet of the first two specific examples one an expansion of one of our larger clients.
We were able to work together with J D Fletcher George noon and in the first team and we were able to move to.
Overall credit relationship.
Just north of $20 million and even more importantly with that expansion.
The operating entity moved their entire primary business to us, which is about $6 million of that noninterest bearing deposits and full treasury management relationship and then another success story frankly tomorrow.
It needs to <unk> CRE.
Company, we closed on a 20 million dollar Central Florida acquisition loan and again both of these would not have been possible without our combination with <unk> and we look forward.
So frankly being the first on Monday morning, and continuing some of the success, we just spoke of.
Thanks Chip.
In addition.
Obviously, the spread related income generated by the loan growth, we were able to make use of.
Of your swaps derivative business in one of those transactions for a pretty significant swap fee. So we're excited obviously working together the synergies the opportunities for growth in terms of loan production, but then also in terms of increasing our fee income so.
Great job for the quarter appreciate it.
We will shift over to Leonard down later, if you would update us on Hs beyond quarter. Thank.
Thank you hobby.
Chip I'm, a little scared if you if you.
I am a steak dinner for 90 days I've been 15 months of regulatory limbo. So.
No telling what all OEM, if we get close to 90 days, but I hope that's the case.
As Phil <unk>, our CFO and I, often say each quarter.
Theres just a lot of noise in the numbers as you can imagine going through 15 months of a pending transaction.
Hard to identify what what core is.
On the outside looking in so we try to tell you from the outside looking out for the quarter. We earned $3 3 million, which was <unk> 46, a share and that did have noise in it we had two executive retirements.
We accrued.
Retirement benefits fourth quarter and.
Also transaction related expenses, so earnings per share excluding.
Excluding those items was 61.
As.
In line with.
The prior quarter of 59.
And 57.
One year earlier, so we basically feel our core run rate is in that low 60 range net interest margin.
Did increase exclusive of PPP and all periods incur.
Increased to $3 31.
<unk>.
That compared to $3 20 in the prior quarter and $3 26, and the <unk>.
Prior year.
Second quarter noninterest income increased to $4 3 million, that's up from $4 1 million in the first quarter of 'twenty two.
Noninterest that was noninterest income excuse me noninterest expense increased $1 4 million and that was related to the.
The retirement and separation packages for those those two individuals.
The current for the current quarter reflected that was $1 $2 million charge that we took in 315000 of transaction related expenses.
Excluding those items, our efficiency ratio for the quarter was 65, 3%.
Total deposits increased.
Increased to 149 billion.
And that was up slightly from the prior quarter and noninterest bearing deposits continue to make up just shy of 36% of total deposits.
Classified assets, which include nonperforming assets and accruing classified loans is $3 2 million.
Nonperforming assets, which exclude those accruing classified loans totaled $2 9 million or 17 basis points of assets.
The loan loss allowance for loan loss reserves is $15 3 million represents 138% of total loans and we still carry some merger marks from our consolidation.
A very consistent solid quarter for HSBC.
And still have plenty of liquidity to expand on that.
Thanks for great quarter.
Great quarter, Great performance, everyone all around.
<unk>.
So we've talked about the transactions we've talked about how complementary these transactions we've talked about the strategic impact we've talked about the financial impact one thing.
These transactions are complementary.
I don't want lose sight of the fact that because of the beach transaction.
We were able to be more competitive.
In the process for her to southeast.
If you guys remember beach was over <unk>.
Capital Okay. So we view this when we were doing our model we were looking at this transaction as an immediate deployment of their excess capital.
And so if you think about it.
That allowed us or pricing basis to be more competitive.
When these assets so to speak.
Cause of what we hit structured with beach. So we think it's a natural extension of our strategy and we also think.
It creates significant value for our shareholders. One final highlight in the prepared comments before we move to questions.
You may have also seen today, an 8-K announcing that Jon Levy would be joining the board of directors.
First bancshares, we're thrilled to have John excited about him coming on board.
John is a native of Youngstown, Ohio.
How he has been in the real estate business for 30 plus years.
Allstate developer in the construction industry.
He currently lives in Tampa, Florida, I think he has been in Tampa. Some 20 plus years. So you're very connected he gives us representation in central Florida and really.
Throughout the country and throughout the southeast in terms of his business acumen and his relationships and interaction.
He also served on the Huntington Bancshares shares board for 11 years and so he has served on the Executive Committee. He served on the risk oversight Committee and so we're excited to have John join our board as we approach $10 billion, we're going to lead harder lean hard on him about his experiences.
He saw serving on our board much larger organization. In addition to that I think you all know that chip Reeves has a background in larger organizations. He served as president.
A company that was north of 10 billion comes from a background of fifth third. In addition to there are a number of folks and lenders organization that have experience at larger banks and so we talk about strategic we're talking about financial we're talking about the management impact, but we also talk about accretive to management talent.
With that I think we'll open it up for questions.
Ladies and gentlemen.
Ask the question at this time, please press star one on your telephone.
Now, while we compile the Q&A roster.
Oh man.
Yes.
Our first question comes from Kevin Fitzsimmons.
With D. A Davidson your line is open.
Hey, good afternoon, everyone hope everyone's doing well.
Good afternoon, Kevin.
Can I maybe just.
You've kind of touched on it right at the end there and I was just going to ask.
And you can answer it any way you'd like but I guess Im wondering your intentions with the $10 billion Mark on the one hand you are.
Going to be right on the doorstep and I know the regulators start treat you differently.
When you are approaching that doorstep.
On the other hand, you mentioned.
At some point during the presentation about still having.
Optionality and still being able to.
I forget your back working.
Being attractive too.
Upscale partners I thought it was the wording.
So.
Just curious what your thoughts are on that front and then depending on when this closes say of closes in early two.
2023 can you or would you.
Managed the balance sheet in such a way that maybe you don't cross it until early 2024.
Got it.
The first part of it is.
It really doesn't change our thinking in those terms Kevin of what you are used to and I know, we're getting closer to it but we've talked about maintaining and enhancing our optionality and so if you remember we've talked over the last couple of years as we approach $5 billion. We begin to think about okay, what is going to be excess.
What areas of our company do we need to upgrade as we approach 10, and so we leaned on a regular and you saw a number of strategic moves not the least of which was training regulator.
Quite frankly, the state of Mississippi based upon where we were previously the district and our former regulator we were regulated in there not any banks like us. They are certainly not at $10 billion banks, but there are no other banks even of our size. If you think about state banking part of Mississippi, They supervise single largest.
<unk> bikes in the southeast and so leaning on them in terms of best practices. When we were talking about what is the expectation.
And how do we get ready for $10 billion there'll be an integral part of that as well as the federal reserve because historically when we approached by the Federal Reserve was the first to come out and say Hey look we love. What you guys are doing but here are some things as you get the team that we're going to be.
We want to see improve.
Function.
No.
Improve that in terms of process procedure platform and then the leader of that division.
<unk> came from a larger bank.
So she has that perspective of how the audit function of a $10 billion plus banks should look we upgrade our BSA software platform and the leadership of the BSA Department, we hired a young Lady from first Interstate.
And so thats, a $15 billion plus.
She was in a management role there over the last two and a half years. She has revamped our BSA department.
<unk>.
Not only process procedure, but also software platform, we've installed a new software platform.
Which is <unk>, which is used by a number of banks, particularly by.
$10 billion, we've upgraded our enterprise risk system.
We hired a young.
Matt in terms of model management from the.
The Federal Reserve Bank of Dallas, and he's been a great addition to our risk management risk management Department, we've upgraded our enterprise risk system.
Call it risk connect again, which is a $10 billion solution and we've upgraded our MIF systems internally, particularly in terms of the loan portfolio and loan production to do away with some manual processes to improve data integrity and have more automated efficient processes. So we've got all of that on the board.
Look in terms of integrating this is like this transaction announced yesterday with <unk> III community banks at once really so it's not different in terms of business model and integration risk. We don't think because the business models align so much but it is larger and so we'll be very disciplined and we will take our time, making sure we've got the integration right.
So.
That's how we think about and again, we talked about are talking about here and you know us well and know how we think about the value of our company and how we maximize that value for shareholders.
<unk>.
Continuing to look for opportunities to grow.
Profitability return metrics.
<unk>.
To increase our dividends those are all forms of shareholder return management looking at who might be our upstream partners and when it's time.
To join a larger organization and when that makes sense for our shareholders. We continuously evaluate that we do that at least twice a year.
If not if not more often.
So we're always Cogs that were always looking for that and we think that these two transactions. This year or you just think about where we started the year.
At a roughly $6 billion company.
Still the majority of our business in Mississippi.
And the assets that we will have accumulated this year and what that means in terms of franchise scarcity in what we think is long term franchise value and quite frankly, we think that that gets on the radar screen of what might have been a handful of potential upstream partners at $5 6 billion.
We approach $8 billion to $10 billion with that sort of market share with that sort of structure.
Structure across the South East, we think it just makes it more valuable to someone.
So again, we continue the same thought process, where shareholders first we look upstream we look downstream, we look for opportunities to grow our business all with a right thing of how do we improve our shareholder return.
That's great. Thank you.
I wanted to just follow on.
With this deal you enter Atlanta Savannah Jacksonville.
So those are bigger markets and they've got a nice growth profile, but can you talk about.
That positioning in those markets is and what your intention there. So in other words do you need to.
Do you need more scale and do you need it soon to be able to really grow and do we want in those markets or do you feel it will be more gradual.
Good running start with HSBC spring.
Later would you like to address that sure hi.
Hi, Kevin This is Leonard Moreland.
When Europe $1 $7 billion Bank, and you have Atlanta, Savannah, and Jacksonville, you would have to give a lot of thought to where youre, putting your resources and to the organic growth.
It has been our belief that north Atlanta area, the Brad surface, so familiar with and where his bank was headquartered.
It gives the greatest bang for the Buck.
We love the suburbs of Savannah.
And of course, we love Jacksonville.
Having having a balance sheet and capital position of the first it gives us an opportunity to do more and more places than we could do.
As an independent bank so.
We do plan to continue the organic push in the Georgia market.
But also with our connections and relationships that we have with other banks in Georgia, the Brad not especially half. We know there are a lot of other banks in Georgia that are looking for alternatives and.
Because they approached us as <unk> to ask what the opportunities were joining forces with us. So I think Georgia will continue to be a very fertile target rich environment and we're excited to be able to continue on the heart.
Just just a quick follow up to that so.
Linda you mentioned the potential for expanding further in Georgia and.
I know a deal deals changed the overall direction, but it seem like when the beach deal was announced it was there was a lot of excitement about Florida and make some Florida, a much bigger part of the company and what it was going to do for the growth profile how.
How do you balance that.
Further scale, whether it's at.
Community Bank coming in Georgia, coming to you and getting cost savings versus.
Having that.
Having.
More Florida and maybe in term getting.
That attention of the larger upscale partners that you're talking about hobbies.
Yeah.
Yeah.
Well.
Georgia, and Florida, both have demographics that are accretive to the franchise. So.
There are high growth markets in both of those.
And so optically people are moving there as we've talked about Kevin So I.
I guess, we've got.
A lot more reason, we've got a company that pro forma is a loan deposit ratio less than 60% of the 17% total capital. So when Linda talked about allocating resources those can be allocated to those larger growth markets in Florida, and Georgia, but you don't have to we're not sacrificing growing market share and additional opportunities in Florida, We've got.
<unk>.
Given the capital that we currently have given the earnings that the earnings ramp that we'll see from these two transactions given our relatively.
No if modest is the right word, but we have a conservative payout policy will continue to increase that but as a percentage of earnings it's below peers in terms of our dividend payout ratio.
<unk>.
There's a lot of excess capital a lot of resources liquidity or capital.
Be invested so I don't I don't think we sacrifice one for the other I think that that debt as lennar has talked about the opportunities for him to grow and expand his management team.
<unk> leadership in Georgia, It's the very same scenario in Florida that we talked about last quarter with chip. He's got a team of folks that know the Florida markets. They know bankers in Florida.
We've talked about the lift out strategies organically of hiring teams.
Really I guess in both these market, but particularly in the Florida market, where beach with such a smaller bank at $600 million it was difficult.
To attract folks from larger institutions, when you had resource of $600 million Bank.
I feel strongly this will bear some fruit.
In the near term.
Terms of team lift outs and additional additional management and lending talent in Florida, but I don't think we have to sacrifice though.
So kind of it.
Todd into your $10 billion question.
We have to manage and we've talked about this we manage our company we make the decisions about our company.
And we do it through the lens of shareholders because we are.
We and the board and the management team with Us.
We think about what we have to make the decisions that we're going to run our company independently forever and so we can't hold back on well, let's not do this because we might.
Crossed 10 billion or less don't take this opportunity it's not that we don't consider it and what it might entail in terms of a different structure or different support levels, but we really have to manage at least in our view like we're going to be independent forever now.
As we do that we think the Tet.
Obviously supportive of creating value.
For up for potential upstream partnership so when we exercise that when that gets exercise we can't know.
But we feel if we if we continue to create value franchise scarcity scarcity.
Top performing returns that.
Whether we do that as a as a.
$10 billion $15 billion bank.
Or somebody recognize that is willing to.
Realize the value for our shareholders and that we can accomplish something together that we couldnt do stand alone.
That's always part of our plan, but day to day, we look at it we've got to operate we've got to manage like we're going to be independent.
In order to create the value that could be recognized from the upstream partnership.
That's how we think about it.
Not exactly.
Alright that makes perfect sense. Thank you very much.
Thank you Kevin.
Our next question.
Okay.
Sure.
And our next question will come from Catherine Mealor with <unk>. Your line is open.
Thanks, Good afternoon.
Good afternoon Catherine.
Chip.
So.
At the first do you have a lot of excess liquidity, which you deployed.
$8 million that this quarter DTC, congrats on that but still have a lot sitting our balance sheet and it looks like if I look at here.
Southeast you've got another 17% of your balance sheet.
Sitting in cash.
Okay.
That's not even part of your your 10% accretion numbers. So maybe just kind of big picture. How do you think I think we've got our arms around beach.
Ryan loan growth, how do we kind of think about what youre expecting for heritage loan growth and how quickly we should be able to deploy this excess liquidity.
So Catherine in our modeling we use we believe given their markets.
<unk> diligence.
Looking at our loan portfolio and their lending platforms and the quality of their lenders, what we thought was a very reasonable growth.
Budget about I believe 87% loan growth and order in our modeling assumptions and so given Atlanta Savannah.
Jackson deal, we think thats.
Very conservative so to your point I think there is a lot of upside now.
I'm sitting up here.
In my model look at Mako, it's only 7%.
Alright.
Bob.
Under promise over deliver.
Yes.
Yes.
Anyway, yes.
Managing expectations.
So, but you had a great point and that for modeling purposes and pricing purposes.
There are some revenue synergies here and the growth assumptions that we think are.
Very reasonable and we hope to overachieve. So when we talk about high teens on a GAAP basis, EPS accretion or low teens on a core basis that's under those.
Determined to be fairly.
Conservative assumptions.
And I'll just.
Ill talk about this and then you talked about this a lot of comps, but if you look at this company pro forma what it creates in terms of return metrics and I know, we've talked about but you've got a company.
That will have a what we believe to be in DD is pretty good at making our numbers I know shocking.
She is pretty good at making them in.
So this pro forma company will have a greater than 130 ROA at greater than 18% return on tangible common but to your point about the liquidity.
We include that in any of those metrics and so the ability to deploy that is again, just and now youre getting almost found money. We talk about the found money all the time trying to keep that bandwidth now she's bringing out the final part of our model.
So and we've told the World. This is why you don't have a cost while you have just one on one.
Yes.
Yes.
Yeah.
Exposing our final money, but.
Additional additional revenue can be generated from deploying that excess cash which is not in this modeling and the markets that they serve.
Not only I mean beach as well and I think about the beach markets in Tampa, St. Pete Central Florida, I mean, those are high growth markets again, where that excess liquidity can be deployed so we talked about in our thinking.
How these transactions are complementary what it creates.
The ability to take beach as excess capital immediately deploy that would be more competitive in this process. When the bid and then secondarily to take not only our excess liquidity, but some of the excess liquidity that HSBC has.
And be able to deploy that across the whole footprint I'm, leaving out some other we've talked an awful lot about Georgia, Florida, but we've got some very nice markets in other areas as well.
Again, which is really not in our modeling, we think thats an ability to to your point overachieve.
And then how to think about that so much of the margin expansion that you can dial in to your model is just this deployment of excess liquidity, but as we look at here.
Heritage.
How are they positioned from an asset sensitivity perspective, just excess liquidity aside how how.
Kind of a dip there.
<unk> of loans that are variable versus fixed in and just.
Putting the balance sheets together does this make you more asset sensitive or less again excess liquidity aside.
So this is leonard.
We're very asset sensitive.
Have about $280 million.
Overnight funds, which greatly contributes to that our portfolio mix was $51 49, 51 fixed 49 floating.
And overall asset sensitive in all periods. So.
We are benefiting from the increasing rate environment.
But.
We just have a lot of liquidity to deploy as you mentioned then picking up on <unk> comments.
We grow loans.
10% plus a year typically but we have had extraordinary deposit growth over the last couple of years as well, which.
It does not allow the loan to deposit ratio to increase as much whether it's through.
Any of the government stimulus programs or just the health of our customers just average deposits across the board both commercial and personal throughout our footprint are much higher today than they were two years ago I don't think thats, a different story and youre hearing from any other bank right now, but but even with good solid loan growth.
It's still just doesn't allow that loan to deposit ratio to creep up as quickly as we'd like for it to.
So Katherine I guess.
I'll talk about a couple of other things since we're bearing our solo file money here.
Yes.
In the modeling and I know we.
We may have touched on it briefly in the beach transaction, but repositioning their balance sheet is something we didn't model as well and they I believe it was chip is it close to $100 million or so of high cost Cds over the next couple of years I mean things that are like in the 4%.
Is that right.
Okay, what's that kind of that right.
Two two and a half my point being with the excess liquidity repositioning that because they were at a 90% loan to deposit ratio that's not something we modeled either so I think chip tough touched on a little bit, but I did want to emphasize.
There is an opportunity there to.
Generate additional revenues that additional income.
Not modeled in and then if you look at.
Southeast balance sheet, they've got about 40 million $35 million in holding company lines of credit and debt.
440 million that I believe the pricing is prime base there that is so.
Of course.
Have a wonderful problem.
So.
Somewhere around 5% money Catherine that we did not model paying off but will pay off we wont need that.
Given our capital position and our liquidity position so.
There is another.
For money, but just handle it all.
You may to add to that since you are telling me that well I guess.
Let's just.
So Ed did that where are we paying up as well so.
And how much relief.
Thank you Dan.
Maintenance might weigh on home loan bank advances.
But clearly.
Sure.
One of the things we take into consideration when we're thinking about it.
But we we don't model that in the numbers that we present to the market per se.
Well it gives you a lot about fidelity, which is important right now.
It's really great.
And then on <unk>.
I know you had a couple of.
And temporary items this quarter and heritage what what is your cost saving number.
Based off of.
Hello.
Im actually go ahead go ahead.
I was going to say.
Dig in here for the number but we did back out <unk>.
30%, but we did back out those one time.
<unk> Bank was about $5 million on a run rate.
Thanks, Amit.
Catherine, but yes, I believe it's net of that and then we took 30%.
Okay, Yes.
<unk>.
Monthly expense run rates about four months.
And then the modeling that you say, 50% realized.
23, and 100% thereafter.
Do you like typically you all are pretty quick on realizing cost savings or are you being conservative there or is there a second.
Version date or something that.
Pushing some of those cost savings back.
Yes, we're looking at.
I think it will be a little conservative there but.
The conversion date, we have right now, Pennsylvania is that.
End of March.
So typically we will.
Have some of the staff.
We will stay on about 60 days post conversion. So you don't really realize complete staffing until 60.
60 days post so that would be end of <unk>.
May.
That's why we did use the 50%, but it could be a little more than that next year.
Great.
A question and then I'll get off is just on buybacks I mean, your stock is down today.
Really happens when deals are announced.
How active we are ready with GP willing to step in and buy back shares just given where your stock is trading.
Well the board was that we just had a little social gathering for literally Brad here.
Here with us today at Hasbro with our board and the very first question. They work at our Beaver, Hey, where can we buy shares when can we buy share it seems like.
Petrol blackout, because we seem to always have something going.
I think if you looked at our trading policy.
Company in <unk>.
And other people.
We would we would have announced earnings I think its three business days post that however, with the shareholder vote coming up for the announced transaction.
<unk> is.
Pretty pretty adamant about the company not being in there influencing the share price before their shareholder votes.
So.
We may have.
Ways to go therefore, we can actively.
But as you know historically that has been again, we've wrapped up earnings which has supported capital.
That's been one of the methods.
We've used to improve shareholder return.
And we will use it when we can.
Great So wait for the shareholders.
Trading and go from there.
You saw we had we will have a have to have a vote as well on this transaction due to the SaaS. So.
Both companies will have to happen.
Great well congrats on the transaction in the quarter then what are you seeing everybody soon.
Thanks, Katherine Thanks Catherine.
One moment.
And our next question will come from Brett Robinson.
Group Your line is open.
Hey, good afternoon, everyone.
Hi, Brad how are you.
I'm good.
Wanted to.
I guess first just stay on the topic of expense savings and maybe get just given that it's new market, it's kind of get.
A better flavor for it if you can.
Where are the what's the expense savings are coming from and.
Wanted to talk about the conversion and what systems.
The various banks Ron can see how all of that flying up here in the next year.
Sure.
Pages.
Hi, Jamie.
<unk> turned them down before the meeting now I can't find it.
<unk>.
Thank you Sir.
Okay.
So, yes, we had projected or modeled 30% cost saves.
Yes.
And we were using here is my number what we were running a five cap.
Catherine if you're still listening.
Im showing 23 projected expenses at 48.
500, and so really the big piece of that would be on salary.
Salary and benefits.
Would be about $5 5 million of that and then.
Basically other the other probably 5 million and thats going to come in here.
Core conversion data processing piece is always your largest facing you'll have a lot of small.
All our things, but that's the thing.
We'll drive that number up.
And what systems are all these banks all I'm just kind of.
Seeing what what youre going through in terms of conversion processes.
They are both on <unk> and of the 13 transactions we've done.
Over the years I'm going to guess that probably 10 of those are nine or 10 or <unk>.
Well, let me take that back maybe a little short because couple of Jack Henry but we have done a number of in fact, it's the majority of the conversions. We've done have been from Fas to Jack Henry So the folks at Jack Henry to FIS and Us know each other well.
Okay.
And then wanted to go back to early in the call.
There was discussion about the excitement around the SBA businesses for the banks that are being added here.
And we've seen this quarter, some volatility with SBA gain on sale spreads being compressed.
Considerably so wanted to just to make sure I understood the opportunity in SBA and maybe any thoughts on.
What's your thinking about the gain on sale margins of that business.
From a strategic standpoint, one thing that we may not have highlighted or emphasize as much as we should.
And you are aware of our CFR status.
There is part of that mission is.
Creating again, improving standard of living and underserved markets part of that is increasing homeownership and we've talked a lot about that and the things we're doing around that and how and probably need to visit them in a minute about how complementary that but second also about small business creation and so we have at our company culturally trial.
To do SBA loans since we.
As I've been here.
We cannot.
A different.
Operating segment it takes a focused team to do it.
Take your general lenders given.
<unk> uniqueness.
And the administrative focus that it takes in SBA lending to be successful at it. So so as we talked about and beaches call. They have a services.
Platform that they were scaling up but her to southeast is already there to include an administrative support function, which beach.
Did not have which uses a third party administrator.
Southeast has that support function in place so we think again.
Catherine put Springer more found money.
The ability, which we've not model in but essentially have that administrative support in place, but will be able to lever the volumes coming out of beach over that and what we generate across the footprint.
Over that administrative function, so SBA not only from a profitability standpoint as a line of business.
But also as furthers our CFO mission.
Making sure we stay attuned to that and small business lending so.
Kind of how what I fail they have thought about it but later if you talk some more about the specifics of the business.
We saw 2021, especially late third quarter.
A lot of demand in the SBA arena because of the payment assistance program from SBA.
In the 90% guarantee which made it even more attractive for the lender. So we feel like some of the demand from early 2022 was pulled into 2021, so that the customers can take advantage of those payment assistance and and of course, it did balloon up a little bit and I think we had $3 million of premium.
Income in 2021 compared to $2 million in 2020, and this year appears to be more in line with the two to $2 $5 million range halfway through the year or so.
We are seeing.
Our full pipeline at this point some are.
SBA can be construction type projects and so sometimes premiums are a little lumpy from quarter to quarter, but overall on a pretty consistent basis.
We see the originations at.
Certainly 2020, and most of 2021 levels with the exception of that third and fourth quarter when everything got squeezed. So.
The yield curve shift.
The earlier earlier this year had an effect on premiums as well.
But but we've seen premiums come back now more in line with the 10% to 12% range.
Last year, we saw premiums in some cases above 15%. So there is there is influences to the program, but a lot of good folks out there hunting deals and have quite a large network.
They work every every day, so we don't see the volume remaining steady sometimes the influences outside of the company affect the premium dollars year to year.
Okay. That's great I appreciate all the color.
Thanks, Brett.
Our next one.
Our next question will come from Matt Olney of Stephens. Your line is open.
Mr. <unk> your line is open.
Your line is muted please on mute your line.
There is no response from that line.
Moving forward.
Our next question will come from Christopher Maranatha Janney Montgomery Scott Your line is open.
Hey, good afternoon.
Copy and team I wanted to ask about the price paid for Covid southeast, it's higher than the original <unk> deal a year and a half ago.
And I guess I wanted to see if I can't tie back that theres been an increase of equity, particularly if you exclude out the Sci and heritage Southeast. So should we simply look at that difference in price high kind of related to the build up of equity that letter and his group have had the past 15 to 16 months.
Well, it's that Chris.
Right.
No.
The company has grown.
Again, a modestly OCI marks which is kind of got tangible book values. Both here that are all over the board.
But also the early strength improve our call.
Core earnings stream and Thats, what we really focused on.
When we thought about pricing.
Was in in order to get the metrics that we liked in the metrics that we think are very acceptable.
Company was in a different position today.
Particularly.
Pro forma basis.
Then it was 15 18 months ago.
Linear am I hitting up by about right. There when we think about US I know you have had a lot of conversation about pro forma run rates.
I think coming out of 2020, the real hard pandemic year.
We built reserves significantly in 2020, which.
Significantly impacted earnings per share I think the credit union saw through that and saw.
The potential of the earnings machine and then as we move into 2021, we started to prove the existence of that machine. So I. Just think there was a lot less risk today and what the future earnings look like compared to where we were 18 months ago. So I think I think we're just being pay.
Good for Port for what we've produced and what our potential is.
Okay, great. Thanks for that and <unk> can you remind us as you close beach.
<unk>.
Happens with the OCI marks I know theres, a small loss position that they had last quarter.
Maybe it's better at the end of June , but just curious kind of how that gets washed out because I guess it gets also gets applied when heritage Southeast is closed here in a few months.
Right.
What now.
Just watch the capital but.
In your modeling technically you picked that back up because that's just the <unk>.
Paper loss because.
Not selling them, we mark to market.
We will have on our books.
At current market value and there is no.
Chris.
That return.
Of that Mark in that stream of income, there's really no risk, particularly if you look at it and where the mark heavier in the southeast.
Transaction.
There is no risk to us coming back that's locked in when we fair value that it closed and so getting that back over and I think we modeled some of the years digits over about.
Five years, which is about the average life of the bond portfolio.
Again, we're back to that core versus GAAP, we could either do at gap and look at it as kind of a same numbers although optically.
8% dilution.
17th.
Plus percent EPS accretion.
GAAP basis, but if you back it out of court, it's kind of.
Optically or are at least at the other day Youre kind of same place in terms of the earn back so.
We also think about hedging that position to be sure. There is no additional or we're not thinking about we will hedge that that markdown in terms of their bond portfolio from now till close so that we don't take an additional mark on that we've seen some other transactions that.
And that significantly impact the day, one dilution in terms of movement.
The bond portfolio.
Got it but back to your earlier point pop at the very beginning of the call today.
Just headed here a second ago.
The price to book it skewed by virtue of this ASC market does it does complicate the just the pay to trade ratio as well as state to.
The traditional metrics people again, the earn back is what it is your point's well taken.
That's absolutely true Chris one other thing and you and I've talked about this multitude of times over the years.
No.
But Tom you've had to study the deck, but when we're thinking about it.
I'll talk about these transactions as being complementary to each other and the fact that beach put us in a very good position to win this transaction.
Page 19 in the deck.
We talked about and I hope this represents kind of what we think about the tangible book value.
What it shows is even if you think about at the end of where we are at the end of second quarter, our tangible books 18 30 to $18.32.
And look you go across what the.
Financial impact will be from both of these transactions, what we think the financial impact will be both of these transactions our tangible book value. We ended up at 18 O nine.
I'm not going to say I don't understand I at least we could think about it in terms of me as a shareholder reward.
Really as the impact of these two transactions together on my tangible book well, it's not I mean, the practicality of the entries on the page.
You could argue that's one 5%.
Taken together.
Now a follow on I thought slide 19 was very helpful. So thank you for doing that.
We always appreciate that having that update to teach a corner. So it's a good good look back.
Thanks, Chris.
Thank you very much.
And I'm showing no further questions I would now like to turn the conference back over to your speaker for closing remarks.
Well.
Thanks.
Everyone.
Again, very exciting times for our company, we are absolutely thrilled with the transactions that we've been able.
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Transactions that we have upcoming the closing of beach. This weekend and then our upcoming transaction with heritage Southeast also the strong performance for the quarter great job around everybody's quarter was extremely good and we're just absolutely thrilled of the opportunities to continue to grow our company and create value for our shareholders.
With that I appreciate everybody's attendance today and have a great weekend.
And this concludes today's conference. Thank you for participating you may now disconnect.
The conference will begin shortly to raise your hand during Q&A you can dial one one.
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Yeah.