1st United Bancorp Inc. (Florida) (FUBC) CEO Discusses Q3 2013 Results - Earnings Call Transcript

Oct.22.13 | About: 1st United (FUBC)

1st United Bancorp Inc. (Florida) (NASDAQ:FUBC)

Q3 2013 Earnings Conference Call

October 22, 2013 11.00 AM ET

Executives

Warren S. Orlando – Chairman

Rudy E. Schupp – President and Chief Executive Officer

John Marino – Chief Financial Officer and Chief Operating Officer

Analysts

Brady Gailey – KBW

John Rodis - FIG Partners

David Bishop - MLV & Co

Kyle Oliver - Raymond James & Associates, Inc.

Operator

Welcome and thank you for standing by. As this time, all participants are in a listen-only mode. (Operator Instructions) This call is being recorded. If you have any objections, you may disconnect at this time.

And now I am turning the meeting over to your host Mr. Warren Orlando. Sir, you may begin.

Warren Orlando

Well, thank you Alan and good morning. I am Warren Orlando, Chairman of 1st United. And I want to welcome you to our conference call this morning. I’m joined here by Rudy Schupp, our Chief Executive Officer, and John Marino, our President and Chief Financial Officer. At the conclusion of our remarks this morning, as usual we will ask the operator to set up a queue for your questions. And we will try to conclude the meeting by no later than 12 PM.

Today’s conference call is to review our third quarter earnings results and to update you on the status of the company. As you are aware, we need to disclose that we will be offering you more than just a historical perspective on 1st United today, and what we will discuss will include forward-looking statements, including statements about future results.

These statements are subject to uncertainties and risks. Actual results may differ materially from projections and could be affected by a variety of factors, including factors beyond our control. For a discussion of some of these factors, we refer you specifically to our SEC Form 10-K for the fiscal year ended December 31, 2012, and Form 10-Q for the period end September 30, 2013. Forward-looking statements discuss today speak only as of today and we assume no obligation to update forward-looking statements or the reasons why actual results could differ. You can find a copy of our Form 10-K and 10-Q on the Investor Relations section of our website, 1stunitedbankfl.com.

So with that done let's start with a general overview of the quarter. On, July 1 of this year we successfully closed on our acquisition of Enterprise Bancorp, Inc., and it's wholly owned subsidiary Enterprise Bank. We’re very excited about how this accretive transaction leverages our balance sheet and increases the earning assets of the company. Rudy and John will provide more details on this important transaction and its integration.

1st United is currently a $1.7 billion asset enterprise. And subsequent to the integration of the enterprise, it operates through a strategically placed 22-office networks, stretching from Downtown Miami to Vero Beach and then from the Gulf Coast to the key Central Florida markets of Tampa and Orlando. The merger with Enterprise is an in-market acquisition and will expand our footprint in the Palm Beach County market.

In addition to discussing Enterprise, we look forward to telling you about a number of important developments at 1st United during the third quarter of fiscal 2013, and those will include our strong top line earnings for the quarter, our evaluation and subsequent closing at two banking centers, our improving classified assets, the announcement of our third quarter dividend and our continued sense of improving banking conditions in Florida.

So let me turn it over now to Rudy Schupp, our Chief Executive Officer to make some additional overview remarks. Rudy?

Rudy Schupp

Thanks, Warren, I look forward to talking a little bit about third quarter and our operations here first on the third quarter ending September 30, the third quarter. We reported net income of $880,000 or $0.03 a share. Our pretax earnings for the quarter were approximately $1.4 million, but this included almost $1.8 million in merger reorganization expense cost related to the disposition of the New Port Richey Banking Center. We also recorded approximately $336,000 related ORE write downs a loss on the sale of one OREO property during the quarter. Excluding these expenses we would have had a record quarter John maybe sift through all that.

John Marino

Sure yes I think if you exclude all that and keep the provision and the pretax would have been about $3.5 million which would have translated into about $0.07 a share for the quarter.

Rudy Schupp

That would be a record quarter for us so we're excited…

John Marino

Pro forma basis.

Rudy Schupp

Right excited about run rate stuff, reminding you that we did not integrate the Enterprise Bank until the end of September so we continue to be very optimistic about this accretive transaction and of course future quarters and John will review all of this in just a moment.

Let me take a minute and talk about the Enterprise acquisition which on July 01, 2013 we acquired the Enterprise Bank. We added approximately $159.2 million of performing loans with the pre-purchase accounting yield of just over 5% which is important to realize. Because of this unique structure we did not acquire any non-performing or substandard loans or any other real estate.

Total deposits acquired were approximately $177 million with a pre-purchase accounting cost to fund of 53 basis points. Of the deposits acquired approximately 15% are non interest bearing and only 21% were time deposits and John among the transactions we've accomplished in recent years this has to be among the more interest efficient transaction.

John Marino

That’s correct our low cost to funds on this transaction and probably just as important as we expect the deposits to be sticky to stay with us, be with us as we go, as we move forward.

Rudy Schupp

From an overall cost structure perspective on the Enterprise transaction we will add only one net new banking center and 14 employees from the former Enterprise including in that 14 person count two seasoned loan officers. As of the acquisition date and through the integration in late September Enterprise had three banking centers and 44 employees so what we did is closed one of ours, one of theirs and we merged those offices into net one former Enterprise branch therefore picking up one net office which happens to be in the market called Jupiter, Florida.

This transaction was immediately accretive to earnings excluding the one time reorganization charges associated with the anticipated conversion and the closure of two branches again one of theirs, one of ours, we close the New Port Richey office as well and we’ll get to a signal we've made about further class containment.

We don’t anticipate any significant additional reorganization charges in future quarters. Let me take a minute and talk about fundamentals, our deposit portfolio mix inflows first. Our core deposit story continues to remain among the finest in Florida and the nation. Of our $1.399 billion deposit portfolio at September 30, 2013 approximately 33% is comprised of non-interest bearing deposits.

Total deposits increased by $107 million since June 30, 2013 and so lot of puts and takes here so to describe it $377 million coming in from the Enterprise acquisition which was offset by the reduction in higher cost deposits of approximately $38 million and $32 million and routine customer activity during the quarter. We're doing a lot of work as you know the rationalize grant system and always price rationalize our deposit book which gives rise to our extremely high manages to deposit book and low cost of money along that line our cost of funds are just 25 basis points for the quarter ended September 30, 2013 compares to 27 basis points for the quarter ending June 30, 201, so we've produced yet again and our low cost of deposits or funds helps drive our current and historically very strong margin above the 4%.

Let me talk a moment about components of operating expense because that’s a big area of strategic initiative for us. We made the decision to close yet another banking center during the third quarter. We determined that our Coral Ridge office whose lease expires in September of 2014 could be closed effective early January 2014. And we would be able to service to customers and approximately 30 million in deposits from our remaining Brevard County locations.

We do not anticipate losing any significant deposits plus annual operating expense savings including occupancy and personnel as approximately $400,000 per year. We took a charge in the third quarter of approximately $228,000 related to lease termination severance and fixed assets right also associated with this decision to close the Coral Ridge office. As a reminder, we closed our New Port Richey Banking Center located in Pasco County in the Gulf Coast on October 7, 2013. We determined that this location was not profitable enough and made the decision to take a charge of approximately $404,000 during the second quarter for lease termination, fixed asset write off. We anticipate annualized cost saving of approximately $400,000 from this branch closure as well. So together about $800,000 per year of savings.

As to loan production and loan portfolio, this is a big story to tell. Since December 31, 2012, our total loan portfolio increased by over $208.5 million including $159.2 million in Enterprise loans and net loan origination of $49.3 million. Since December 31, 2012, we've originated and funded advances of $246 million offset by payoff resolutions and principal payment of $196.8 million.

Now for the quarter. For the quarter, gross loans grew about $187.2 million, our third consecutive quarter with net loan growth overcoming loss share loan and legacy loan, payoffs, pay downs and resolutions.

During the second quarter, we closed and funded $97.3 million in new loans and extended advances on existing loan which is a bit of record for us in recent periods. Our new loan production was partially offset by resolutions, payoffs, principal reductions and transfers to OREO of non -performing loans, all in of approximately $69.2 million comprised of $36.7 million in covered loans and $32.5 million in uncovered loans during the quarter. The best part of the story per asset that the total pipeline of loans as of September 30, 2013 was $113.4 million, which compared to $113.7 million as of June 30, 2013. So John I mean for us how great is that that we had a record loan production quarter and the pipeline held up.

John Marino

But we have talked about in prior quarters and really the end of last year and middle last year about some of new hiring's, some of our new lenders we brought on board. And I think we are bearing a fruit of it as we get into 2013. So it is exciting I agree.

Rudy Schupp

And for more color including -- included in that $113.4 million in loans and the pipeline are $65.6 million of loans that we have been approved and has pending closing already. Of the pipeline of $113.7 million as of June 30 to contrast as 2013, there were $43.7 million of loans that we approve impending closing. So that's up as well. Loan production has been increasing as John said really due to our improving markets, expansion to Central Florida, the addition of new loan officers and business banker really throughout footprint. I'll spend just a moment if I could on loan quality which we think is a positive story. We're pleased that our problem asset ratio is continue to be below Florida bank averages, we also see continued improvements in all of our loan classifications. We still believe that slight ups and downs and NPA statistics can occur between quarters with overall expectations that 1st United will maintain low legacy NPA and enjoy extra strong credit safety to last year's being that's for several years to come. We emphasis that approximately 24% of our entire loan portfolio represents covered assets under loss shared agreement with the FDIC that's 24% of the portfolio.

So John will give you now more details on a merger, on our quarterly earnings and of course key financial statistics. John?

John Marino

Thank you, Rudy. And really just backing up to Enterprise again, we ended up working this quarter about $5.7 million in goodwill related to the Enterprise transaction. And as we indicated before we expect in less than three years to earn back that goodwill. Our total one-time integration cost for the nine months was at $1.7 million, with a majority of that happening in our third quarter. And really as Rudy indicated we don't expect any additional charges related to the integration in a current and the fourth quarter and beyond.

Now to the quarter. For the quarter ended September 30, we did report net income of about $880,000 or $0.03 per share. And when we look at the quarter and back out some of the one timer that the charges related to the integration of sales and securities, the disposal related to the branches as we talked about we see a pretax number of about $3.5 million. That $3.5 million is one of the strongest cores pretax we had as a company. So we are excited as we look at future quarter based on the third quarter. Our net interest margin for the quarter ended September 30 was the strong 4.88%, and that compares to 5.7% for the quarter ended June 30. But excluding the $2.8 million of accretion during the quarter and in September 30, related to changes and cash flows, disposition of assets acquired in the FDIC assisted transaction above the discounted purchase price what we call super accretion. Our margin was 4.15% during September quarter which compares to 4.2% for the June quarter when we back out that super accretion number as well. We have net gains and sales are the real estate during the quarter of approximately $179,000, an asset with the current value of $2.9 million substantially all virtual covered assets. The gain was substantially offset by a charge to the loss share receivables of about $263,000 related directly to the assets.

As a result of the increased in estimated cash flows received on loss shared assets during the quarter and that's about $2.8 million of income, we also recorded an approximately $2.9 million charge or an offset which include the $263,000 I just talked about to other income for reduction in the FDIC receivable for the quarter.

During the quarter ended September 30, we sold about $3 million in securities and had realized gains of about 93,000. There are no purchases for the quarter however we did acquire approximately $4 million in securities from the Enterprise transaction. And we continue to see pay downs in maturities in our investment portfolio, we get about $13.5 million for the quarter.

As we indicated in previous quarters we continue to work on expense reductions, we continue to evaluate areas to improve our efficiency, efficiencies in operations and have expanded our evaluation to various operational processes. The closing of the two branches -- branch banking center is an examples, and as Rudy indicated we are looking forward to about little over $800,000 of annualized expense or operating expense savings from the closure of just those two branches.

Total other real estate at September 30 was $16.5 million or down about $1.6 million from June 30. The $16.5 million includes $9.4 million in covered, are assets covered by the loss share agreement. We had about $1.1 million in other real estate that we have contracts to sell and we expect that to happen in the fourth quarter with no additional losses on those assets.

Total non-performing assets decreased about $1.5 million from $39.7 million at June 31 to $38.2 million at September 30. Our NPA ratio is about 2.23% at September compared to about 2.6% at June. Our uncovered NPA ratio was 1.1% at September 30th and that's compares to 1.22% at June 30th. And we still see those averages well below Florida at this time. At September 30th, our performing troubled debt restructures were $19.2 million as compared to $19.5 million at June 30, modifications are evaluated on a loan-by-loan basis, and we expect that the balance TDRs will move up and down between quarters, as quarter continue to achieve the full economic recovery.

Our overall yield though on our TDRs is about 4.4% for the quarter. We took a loan provisioning in the quarter of about $745,000, primarily related to charge-offs, changes in appraisals and changes in cash flows on loans. We did record about $901,000 in net charge offs during the quarter.

Our loans as a percentage of non-covered loans were 1.16% at September 30 excluding the newly acquired Enterprise loans; this ratio would have been about 1.4%. As this increase slightly to $25.7 million at September 30, from $24.5 million at June 30, with that slight increase happening in the 30 day- 89 bucket.

Total classified assets were consistent from September to June at about $64.7 million, now this compares to $73.4 million at March a $91.3 million at December 31, 2012. Our total special mention loans were $24.9 million with substandard loans at $39.8 million. We continue do not see classified assets being back filled as the result. Indemnification assets at the end of September were about 11% of our covered assets at September 30. We saw again about $3 million - $4 million cash received on the indemnification assets for the quarter which is the total of about $15 million - $16 million since the beginning of the year, so we continue to see the indemnification assets work as way down. We believe this ratio compares favorably to other banks with similar loss share agreements.

Consistent with past practices we do evaluate that indemnification asset each quarter to ensure it's properly valued on our balance sheet. At September 30, Ist United had a leverage ratio of about 9.8% with total risk -based capital of about 16% and Tier 1 capital of 15%. Our consolidated leverage ratio of 9.8% this is after the Enterprise transaction is generous and is important as it becomes the key regulatory capital ratio tested for adequacy in future proposed transactions. We continue to believe there has to be a buffer about well capitalized levels given the regulatory and other risks that still exist.

Our book value and tangible book value were $6.82 and $4.83 respectively at September 30. And this morning you probably saw the company declared their third quarterly dividend -- the third quarterly dividend I think that's right of $0.01 per share which is anticipated to be paid in November.

With that, Rudy, I will turn it back over to you.

Rudy Schupp

Okay, thanks John. There are some takeaways we want to leave you with today as to our accomplishments and our outcome for Q3, 2013. They relate to really the Enterprise transaction, margin, lending, expense control and the like. So first the closing of the Enterprise acquisition provide again a $160 million in performing loans in a low cost funding source, we had a just one more occasion, 14 employees in a post integration basis. As seen in the third quarter excluding the one time charge as well as the impact of saving due to the integration and closing of two or three branches at the end of last September, we expect the Enterprise transaction to immediately accretive. As to margin, our net interest margin of 4.9% or 4.15% exclude the impact of resolution of purchase loans above the discounted join value that we refer to as super accretion. For the quarter ended September 30, 2013, continues to remain strong. So strong margin in our view. As for lending, we were successful during the quarter on producing net organic growth within our loan portfolio, originating and funding loans of $97 million and $246 million for the three months and nine months ended September 30, 2013, respectively. That growth generated net loans of approximately $ 28 million during the quarter and for the last nine months of over $49 million. Our pipeline continues to be strong as $113.4 million of pipeline at September 30, 2013, with over $65.6 million approved and pending closing as we speak. Extra expenses, we previously mentioned even the period of persistent low interest rates we have an ongoing project to reduce operating expenses and enhanced earnings power to ensure we are positioned for the future. We continue to reap the benefits of these initiatives and anticipate continued and steady improvement throughout 2013.

Our priorities for fiscal 2013 remains include the following: Prudent but strong net growth and loan portfolio; leveraging our excess capital in cash, reducing operating expenses and loan loss provisioning as appropriate. So as we see it we believe that the state of banking in Florida as Warren said is improving and that Ist United occupies the position of strength among the small handful of $1 billion plus Florida headquarter publicly held banks. With that said operator I think we can go to some questions. Warren?

Warren Orlando

Yeah I just closing, I want to thank you all to -- for coming on listening to our story today and I think we summarized our position fairly well and we’ll hear back from you with some questions so we’re ready to do that EL, are you on?

Question-and-Answer Session

Operator

(Operator instructions) We have a question here coming from Brady Gailey from KBW. Your line is now open sir.

Brady Gailey – KBW

So a question on the expense base if you exclude some of the non-recurring stuff that happened in the third quarter it looks like our expenses totaled around $13.5 million. And you have the $800,000 that’s coming out from the two branch closures. But when you look out in 2014 what do you think the kind of average quarterly run rate the expense base would be when you think if you could get down the $12 million -$12.5 million per quarter.

John Marino

Brady, its John Marino it’s good to hear from you. A couple of things so one we probably, we don’t necessarily give that guidance but there is one thing I would add to what you said as you look at the quarter and we talk about the one time charges and they are pretty well identified down the merger or rework the disposal and that the other real estate. The thing I think you also got to look at or remember is that in the Enterprise transaction we have the three branches and the operating expenses, the occupancy expenses from the three locations through the end of September. And we're not going to see that fourth quarter and next year.

Rudy commented on the 44 employees that we had 30, September and when it's all set and done is the net 14 employee increase. That gets realized in the fourth quarter and next year as well. So I apologize for not giving you very, very real clear and saying that we will get to that 12.5 number but we're trying to in our disclosures on our public disclosures give you as much information as we can to get to there.

Rudy Schupp

Just to follow-up to that Brady we've been very diligent in our expense reductions over the last year or so but just to let you know we continue that diligence on going into for 2014 beyond. So we are very helpful that we're going to be able to make some continued progress in that area.

John Marino

And I guess one other comment we are, we've seen some one-off right in classified assets or problem loans or NPAs are coming down, we like to say that as result of that, that other real estate expense, the loan expense which are pretty robust numbers every quarter for us. We’d like to believe that they’re going to start coming down as well.

Brady Gailey – KBW

Okay.

John Marino

I guess our point is there is opportunity still.

Brady Gailey – KBW

Okay and then moving on to loan growth, you had a phenomenal loan growth quarter. Can you just talk a little bit about maybe the composition of where you are getting this loan growth from?

Rudy Schupp

Yes. I could make a contribution to that Brady, it is largely business purpose loans though we had a modicum of residential purchase oriented not refi-ed oriented loans. And it was interesting but I would tell you that commercial real estate, secured loan is not necessary purpose to use of proceeds were dominant but we also had a fairly strong component of that that was owner occupied. And then we found that our business purpose lending both through export import bank and if you will in market throughout our footprint lending strong up is an important component during the quarter. So in our balance sheet you would see moment in those three categories and on resi it's not a power L.A. as you know for us, most of what we have, we actually acquired through the failed bank experience although we're beginning to add to those balances with some arms in a few longer term arms if you could argue our fixed rate intermediate term. So really as a business purpose lending proposition the pipeline we have now reflects about the same mix that $113.4 million which show you a similar mix going forward. On the CRE front there is a modicum of lease versus purchased decisions still being made because some tenants nearly professionals are finding that they view that they can have another return on asset and that purchases prices and frankly loan structures are attractive enough to make that decision for them, that is to purchase versus lease. And I would tell you that there is a fair amount of refinance activity of former non 1st United customers that we tend to be prevailing on in competition let me say that’s largely with the larger regional and money center banks they seem to be our stiffest competition across the footprint so it is a business banking story.

Brady Gailey – KBW

Okay. On then so Enterprise is now you're closed in the books it sounds like most of the integration is done with. And you guys still have excess capital, are you all still actively looking to deploy some of that excess capital via another smaller acquisition or two?

Rudy Schupp

I’ll start with that answer, yes is the answer, we keep screening and pre screening and one invited diligence we tried to do one-off transactions although we noticed that so many are well represented and it can go to a multiple party transaction maybe not necessarily called auction. But something similar to that and we feel that we’ll have to get over what we feel was a great transaction in Enterprise because we noticed that the expectation of buyers on average in the 140 to 150 price to tangible book level expressed that way. That’s a little bit of leak for us when we think about the Enterprise pricing and the fact that we bought a good bank if you will with none of the problem assets. So we’ll have to get over that because the expectation we're noticing for good banks is in the 140, 150 price to tangible. We are still on the hunt; we are --whenever there is a marketing effort on behalf of good investment bankers we seem to always be invited to the effort. So yes we're active in that sense what we have done I just want to say it again is we put a ton of emphasis of course on organic growth because our view is we want that as our steady guide for deploying excess capital though we realized that it's a slower proposition.

Operator

Another question comes from Mr. Scott [indiscernible]. Your line is now open.

Unidentified Analyst

Good morning thanks for taking my question. Just with regard to margin you pointed out the core margin was down I think about five basis points from the second quarter, third quarter still very strong at 4.5 but given your cost to funds as well and may be some comments on the directions of margins you’re going forward and also maybe you did allude to competition I guess from the regional, the money centers which is what we're seeing in terms of pricing if may be the recent increase in rates surprising all.

Rudy Schupp

Sure, John and I’ll put it up and Warren will jump in, I think on the pricing front Scott of course you’ve heard this from all the bankers. I would say is a result of -- I won’t call it desperation but everyone's need for earnings assets and noticing that this is a partial recovery because we're really not seeing business expansion at a high level, new business formation and so on at any high level, we're seeing a lot of commercial refinance activity we're seeing line activity improve among existing customers and of course some new lines extended. All which is positive got a partial kind of recovery so I think what we see here that I think was see that every bank is hungry for long growth and as a result of that of course it puts downward pressure on nominal interest rate and upward pressure on extending the fixed rate period because the core customers are saying, look, I don't know why rates got to go up at some points and I want to lock in. So what we have been doing here is we met reasonably competition, we haven't lost too many deals on price. But the 10 year fixed structure with a 3% handle that we see from some of the regional is not a place we go, we are at least 4% handle on our interest rate and we look more towards three, five occasionally seven year rate reset in our structure. I hope that gives you insight.

John Marino

Yes, and directly as it relates to margin I guess a couple comments. One is we still have we think quite a bit room in our loan and deposit ratio so we do expect and it will run about 80% after is unopposed Enterprise basis because of our -- the strength of our deposits and the stickiness of our deposits, that number can run into the 90% plus kind of mark which will of course help margin. The other thing I comment on is the Enterprise deposits themselves as we go through and reprise those deposits and there are certainly some positive impacts that we can see there. And on the off side we do have normal accretion that we are making up as we continue to make loans and put loans on the books. So we had a little bit of downturn on the quarter-over-quarter, a lot of that driven by the Enterprise assets that we put on the books. We have some opportunity anyhow, I want to be the last one that's going to judge whether interest rates are going to go up or down anytime in the very near future. So we are trying to manage around it.

Warren Orlando

And I think one other point and history shows we have been pretty successful over the years in maintaining a very high performance margin, our expectations to the future similar to that.

Unidentified Analyst

Okay, that was helpful. And then just a follow up like earlier you just said the expense issue and I don't think you could jot down going exact number but may be in terms of efficiency ratio, where do you see the company is trending kind of over time out to guess depose you kind of look at.

John Marino

Yes, we are not going to be a company because of who we are. We are not going to be those that 50% or 55% efficiency ratio but we like to see in the mid 60s and really one you sticking away I mean that's where we like to see it as a company.

Rudy Schupp

We first benchmark ourselves to the higher performing $1 million to $3 million company nationally. We took a look at them and when we say higher performing and saying an ROA terms which probably banker to you over a point ROA. And we found that we in our last measure had achieved a median of that group. Our goal now which took couple of years of extracting millions from our expense basis and so on. So our goal now is to improve it from there. So in a way guidepost we try to measure ourselves against that higher performing group on a national basis.

Operator

We feel you have a question here sir coming from Mr. John Rodis from FIG Partners.

John Rodis - FIG Partners

Good morning, guys, nice quarter.

Rudy Schupp

Thank you.

John Rodis - FIG Partners

Just another question I guess on the loan growth. Since it was so stronger in the quarter. Just curious was the growth fairly granular this quarter or whether any or two bigger loans that may be drove the production this quarter.

Rudy Schupp

We did not have any whales in that loan pipeline for the quarter. I don’t possess, I did not commit to memory an average loan amount but really no whales, it's understanding that we are mix of business that we mentioned before also include a strong business unit that deals with home owner and property owner associations so whether it’s horizontal, single family home developments or more commonly you know mid-rise and high-rise condominium developments of which there are many of course in Florida. We become bankers to significant property management companies that serve those customers and therefore indirect for us and as well a direct component. Those loans tend to be a little bigger than average but I would say even the rest of our practice area were really a sub, certainly sub $4 million average loan amount. I would suggest our average loan amount is much lower than that.

John Marino

I think this expansion portfolio has really been system wide. We’ve had an opportunity to benefit both from our expansion to M&A activities but also expanding our lender base. And we’ve been very successful in recruiting some excellent commercial lenders who are adding to this opportunity for us at the present time.

John Rodis - FIG Partners

Okay and just sort of a follow up. The $150 million or $159 million in loans you've got from Enterprise would you -- do you expect really any significant run off of those loans or do you expect to keep the vast majority?

Rudy Schupp

We do a -- the answer to that is we don’t expect any significant run off. We do expect retention; it was an interesting company as we looked at it. I would probably a curious way to describe it but there had been a fair amount of turnover in bankers over many years because this is a long lived company in its market. And it was in roughly the same markets from beginning to the merger. And so we thought, well gosh who owns this portfolio and we discovered that from an inheritance perspective the team that we acquired very much is close to the customer base. We found in maybe an odd kind of comfort in thinking that despite that turnover in bankers over the decades that the customers had remained there, and were being serviced to their satisfaction it seems by the team that's in place. What we do is probably on that are we looking at all the relationships first that after we do our work quite frankly to contribute to the purchased accounting work and confirmed classifications. We then do work to identify which of those relationships is expandable versus those that are not. The ones that are not expandable we move over to portfolio managers on a maintenance basis though we insist that they have a point of contact in customer contact. But the expandable relationships which most were deemed expandable we put that; we put those lines in the camp of a diverse number of bankers in that part of our market to work. So now we stay close to the customer and we try not to re-map the existing customer base. The long story short we had recruited two key lenders from that company well before in a competitive sense, well before the merger took place so in a sense we have of the most recent bankers back in place against that portfolio. So I hope that makes sense.

John Rodis - FIG Partners

No it does, I appreciate the color. May be just two other quick questions, one, one is sort of back on the margin, it sort of sounds like from your prior comments that it sounds like maybe the margin, the core margin stays around the 4.10 the 4.15, 4.20 level. But even at that level either way doesn’t that interest income continue to grow on a quarterly basis?

John Marino

As we continue to grow the earnings base absolutely yes. So the dollar is actually well increased of course yes.

John Rodis - FIG Partners

Okay, okay and then just sort of the tax rate, the effective tax rate tick down a little bit 35.6% in the quarter, John, what sort of a good rate to use going forward there?

John Marino

It is that 36% to 36.5%, we have some earnings in there and some other non-taxable interest coming through which dries it down a little bit, that’s about the number.

Operator

Sir, we have a question here coming from Mr. David Bishop from MLV. Your line is now open sir.

David Bishop - MLV

I am sort of following up on a question before now that you’re getting bigger in size there, getting some seasoned lenders on there, are you looking at doing perhaps bigger may be more complicated loans to take up the average loan size over time, you still try to take the small and average loan that has been your bread and butter in the past.

John Marino

I’d say it started there David I think our perspective is a good loan is a good loan. In other words we don't really have these measurements in house where we restricted to dollar amount. If it's a good credit it make sense for us we will take a strong look at it and we will make the loans. So I don't think that we are marginalizing ourselves to any particular limit.

Rudy Schupp

And just to augment that David we have been actually recently presented with some larger loans in the 8, 10, 14 and even $18 million level that made some sense to us on the surface. And I know we entertain those loans. It's just in the third quarter we didn't happen to book any outsized so to speak outsized loans. We have plenty of capacities from loan to one borrower perspective. And while we are always conscious about concentration risk at all levels as Warren said we really look at it from a perspective of how solid and sound the cash flow underwriting for a particular opportunity.

David Bishop - MLV & Co

And something on back to capital. Is there a view how much excess capital do you have now to deploy in terms of looking at potential acquisitions and what size of deal you could absorb right now?

John Marino

We work probably still in the $200 million to $300 million kind of range that we can do a deal without -- such that we know -- no we believe we could get it approved and we move forward. So similar deal to enterprise we certainly think we can handle with our capital base now.

Operator

We have our last question here coming from Kyle Oliver from Raymond James. Your line is open.

Kyle Oliver - Raymond James & Associates, Inc.

And most of my questions have been answered but just you are talking about recruiting. Did you guys recruit any new vendors in the quarter or have plans to over the next few months?

Rudy Schupp

We did and you we have what we talk about internally as continuous recruiting because our view is if we can come across a seasoned banker that likes our brand of banking, our pricing, our trust and so on and frankly culturally is a fit too, we are all over that and so we did recruit in the last quarter in addition to of course absorbing some wonderful enterprise (inaudible), we recruited in the Tampa Bay market as a matter of fact in the quarter. And so that just happened to be a region where very talented -- some very talented people were presented to us. We found that as the franchise grows and as our brand grows certainly within the banker community that we have more and more bites at the apple of seasoned bankers. We have kind of an [APBI] to use the phrase throughout the footprint to add bankers. So in a way we are little agnostic as to where and what market the bankers might be placed. We have noticed that the Central Florida markets have been offering arguably few more candidates that we are seeing and some of the Southeast corridor markets because it tends to be a quite a number of independent banks for example in those markets while all the regional of course the majors are there as well. But just seems to be for whatever reasons offering up few more candidates for us.

Kyle Oliver - Raymond James & Associates, Inc.

Okay, great, just looking at Florida, is there any markets left that you guys aren't in that you would be interested in, you are going in De Nova or acquiring into.

Rudy Schupp

I think from De Nova perspective we are pretty satisfied with where we are. I think exquisitely right bank in another good market, we would always consider. We have positioned ourselves deliberately in that strong power corridor of Southeast Florida and power (inaudible) corridor with lot of in field opportunity. Fortunately and frankly our deposit growth has been strong and of good quality so we haven't had to think about De Nova branching for example. So we focused more on maintaining our capabilities in the deposit front while recruiting lenders on the margin that side of the business. And so I would tell you that some of the contiguous markets, some markets that we are already in are of interest to us particularly in Central Florida, but we have so much opportunity on the margin it seems to us to grow inside market so that would be our first order of business.

Warren Orlando

And I suspect you probably won't find us up in the Pan Am as well.

Kyle Oliver - Raymond James & Associates, Inc.

Great and then just kind of switching gears a little bit on the fee income side, is there any interest in either acquiring or getting into wealth management and insurance or anything to diversify away from just --

Rudy Schupp

Yes, not so much insurance although we don’t have a closed mind to it, we have been down that road analytically before and [formalize] and determine that. It wasn't a business we were interested investing in the margin even though it can be done well. And the wealth management business, let us put it this way both predecessor banks were acquired or formed current fee businesses in the investment area. So, we have experience there, but we felt that we haven't been in an appropriate position to bleed forming that kind of a business. We have been more interested in acquiring our way into that business and then growing it from there. To date, the banks that we have succeeded with have not had wealth management businesses. So I think the answer is we remain interested in the wealth business. We would like to acquire our way into it.

Operator

Yes, sir, and this time we don't have any questions on the queue.

Warren Orlando

Well, we thank you all very much for participating with us. Have a great day.

Operator

Thank you. That concludes today's conference and thank you for joining. You may now disconnect.

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