CenterState Banks, Inc. (NASDAQ:CSFL)
Q4 2015 Earnings Conference Call
January 27, 2016 10:00 a.m. ET
Ernie Pinner - Chairman
John Corbett - President and CEO
Jim Antal - CFO of the Corporation
Jennifer Idell - CFO of the Bank
Steve Young - COO
Frank Barlow - KBW
Michael Rose - Raymond James
Ladies and gentlemen, please standby. Your conference call will begin momentarily. Once again, ladies and gentlemen, please standby. Your conference call will begin momentarily.
Good day ladies and gentlemen, and welcome to the CenterState Banks' Fourth Quarter 2015 Earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. [Operator Instructions] As a reminder, this conference may be recorded.
I would now like to introduce your host for today's conference, Mr. Ernie Pinner, Chairman. Sir, you may begin.
Thank you, ma'am. Good morning everyone. Thanks for calling in. We appreciate your interest. With me in the room today is John Corbett, the President and CEO of our Company; Jim Antal, who is the CFO of the Corporation; Jennifer Idell, who is CFO of the Bank; and Steve Young, who is our COO.
2015 was a good year for us, and this past quarter was also a great quarter. In fact when I think about it and look through 2015, there were several areas that we were good in. We had good growth, both in loans and deposits. We had good earnings per share, a good efficiency ratio. We were good in the fact that our NPAs and our past dues reduced, and we had good acquisitions for the two banks we made.
John Corbett will highlight those numbers in a much more detail for you momentarily, but I'd like to just make a couple of comments concerning when you think about our success. A lot of our success is directly related to the success of the state of Florida. And Florida had a great year when you think about the GDP of Florida and the growth in the sense of percentage change being positive. 2013, we had a positive increase in the GDP change. In '14, it was better than that. And in fact in '14, I think we were the 11th best in the country. In 2015, we've now increased to the sixth best. So the GDP continues to grow for us in a positive manner, and that impacts especially the bank.
Our unemployment number was at 5%. It's been pretty steady there for the last couple of quarters, which is kind of equal with the nation. We've been as high as 11% in the past. So that's going in the right direction.
The population is a piece that drives the engine for Florida, and that engine is basically real estate sales, and that's rightly proportioned to the population growth. Our population growth is back on track. In the good old days, we used to say in Florida we averaged about a thousand people per day who are relocating to Florida. That number got down to where it was negative back in the hard times. It's been steadily growing as the release of data shows that we are now back to a thousand people a day. And again, that population pushes home sales, which is the engine that keeps Florida moving.
Existing home sales peaked. I want to talk about existing sales on new homes, but resale homes that peaked in 2005, and in 2015, the numbers are just in [ph]. We now are at 113% of the peak we had in 2005.
The median price is the first time since 2008 of October. It is now only 8% below the national median price, and that's the first time in several number of years that median price is about $199,000 with the average price of $272,000.
I looked at the doc stamps, which of course is a reflection many times of home sales. And the doc stamps for '14 -- through '14 and '15 was 17% above the year of '13-'14, and that confirms the fact that the sales are growing.
An interesting note, 2015 brought the first wave [ph] of homeowners that have been affected by foreclosures and short sales that normally takes seven years let be repaired. This year we passed that seven-year mark. So lot of people that struggled back in the bad days are now back in the market buying, and we think we'll continue to see home sales grow up.
Interesting, the number of sales that are financed is now up to 47%. In 2014, it was 40%. So even though there is less cash bar from bank's standpoint, we would like to see sales that are financed. So that number is going up.
The number of homes that are underwater, it reached the half, 50%. In this past year, it dropped down to as low as 12%, and that continues to improve as the price of homes move up.
When I look at the general revenue for Florida, it's increased. In '13 and '14, it increased about 4.7%. In '14 and '15, the year we just came through, the revenue collections have past the high that we had in '05 and '06 for the first time. So again, some of those peaks in '05 and '06 are revenues that passed that for first time, and it was a growth of 5.7%.
When you look around the state, the gas price continues to help Florida in my opinion. We had a high of $4.07 on average. This past quarter or the past few weeks, it looks like that average in Florida is $1.85.
A company by the name of Global Insight works that number for the state, and they've said that the savings in the gas price over the next four quarters will save the average household $750. When you spread that over the number of the houses in Florida, that's $5.8 billion of spending that will take place because of the cheap price of gas. Assuming they bought $100 of items that were taxed by sales tax, that's $350 million extra revenue that the state of Florida will receive over the next year if gas prices stay down.
Inventory of homes continues to shrink -- to reduce. We've seen the inventory now in Florida -- the average supply is only about 4.4 months, that's down 19% from last year. And the number of days on average that your houses are listed before its sales is down to 46 days, which is a 20% drop from last year. Confirmation again that motor [ph] that's running Florida is home sales and real estate sales, and we're seeing that confirmed as more and more data flows in.
When I look at the glide path that Florida has experienced in the last two-three years, thinking about the good numbers in Florida, I personally think -- and I think as a bank we see that for at least in the next couple of years that that glide path will continue in the direction it's going, I mean we know that Florida has same history of cycles, and we recognize that that we feel pretty good to the next couple of years as I look out perhaps Florida is doing and already has done.
So at this point, I am going to turn this over to John Corbett, who is President and CEO of the Bank, and he will talk more about the real numbers. John?
Thank you, Ernie. I am pleased to report out on our fourth quarter results, and then afterwards, Jim and Steve will share some insights to help you refine your models for 2016.
As Ernie mentioned, it was a good quarter, and really in many respects it was a record year for CenterState. We finished the year 2015 with an operating return on assets of 1.01% on net income of $39 million, and those of you that have followed us have known that that's been a goal of ours to exceed 1% return on assets.
For the fourth quarter in particular, we reported an earnings per share of $0.23 on net income of $10.4 million that represents a 43% increase in net income from the same quarter of 2014.
Our operating return on assets for the quarter was 1.06%, and an efficiency ratio of 61%. Again, another goal of ours is to get below 65% in our efficiency ratio. If you exclude the corresponding segment, the efficiency ratio of the banking segment dropped below 60%, down to 59%.
Our top line revenue in the fourth quarter was up 12% from the fourth quarter of '14, and our core non-interest expenses were down 3% from the fourth quarter of '14. And Jim puts it in the press release; I think it's on Page 2, where he breaks out some of our non-interest expense tied to mergers, credit, and our corresponding banking segment. And if you look at that, our core non-interest expense, he defines it as other non-interest expense, I went back and every quarter for five consecutive quarters that non-interest expense number has declined.
Now on to the balance sheet, I'll give you some insight on loan growth, I would characterize our loan demand and our production as steady. We've been doing between $190 million and $200 million of production per quarter for the four consecutive quarters.
In the fourth quarter, we experienced a 9% annualized loan growth on production of $202 million. I know a number of people expressed that as a percent of loans excluding acquired loans, if you look at it that way, it was an 18% loan growth.
For the year 2015, we experienced 11% loan growth on production of almost $800 million, and again, if you look at excluding the acquired portfolio, that's a 26% growth in loans.
Currently, we have 50 commercial lenders in the bank, including our market presidents and as we prepare the budget and look forward to 2016, we would like to end 2016 with about 68 commercial lenders and market presidents inclusive of the two acquisitions that we're making in Dade County next month. If we're able to achieve that level of commercial relationship managers plus our branch managers and residential lenders, we are targeting a loan production in 2016 in the billion dollar range. We think that's a little bit of a stretch, but that is an internal goal that we set for ourselves.
On asset quality, we are continuing to see improvement. During the quarter, we saw a 12% decline in our non-performing assets, and if you look over the entire year, we saw a 35% decline in our non-performing assets. NPAs as a percentage of assets is now about a 0.5% or 1%, and an internal goal we had is to have our NPAs as a percent of loans and OREO below 1% by year end, and we achieved that. That ratio dropped down to 0.95%. Again, affirmation of the credit cycle and trends that Ernie earlier.
I think this goes without saying, but I must say it anyway, CenterState is not exposed to energy issues that many banks are dealing with right now. We are not an energy-producing state, but just for my own peace of mind, I asked our credit team to go back and search all of our loans by industry code just to make sure there wasn't something in there that we were missing, and we confirmed what we thought that really bank has no direct energy exposure, and we also looked at our municipal bond portfolio and any municipal bonds that we had tied to the state of Texas are the school board bonds that are backed by the entire state of Texas. So we feel very good about that.
So net-net, as it relates to energy, because that's top of everybody's mind these days, I would just ask you to keep this is mind; we live in a country with 325 million people, I think, as reported last year 100 million people visited Florida last year. And you got to ask yourself a question, question I have myself from a common sense standpoint is gas at -- I don't know what number you said earlier, $1.85, is that a positive or a negative for the 100 million people that are driving and flying to Florida? I'm like Ernie; I got to think it's a net positive, not a negative.
On the deposit side, we had a good growth in checking account balances during the fourth quarter of about 10%, again, partially attributed to the normal seasonal municipal deposit in-flow. But as a reminder, we ended the year with no wholesale funding, no Federal home loan bank advances, and only 13% of our deposits were in the form of time deposits, so very, very core funded bank, right about at an 80% loan to deposit ratio right now, and those deposits are coming in at 16 basis points. So we feel like if rates do start to go up, there is really a lot of room to run before the deposit pricing fees is going to be a factor.
I will touch on capital management. We ended the year with a tangible book value per share of $8.82, that's a growth, intangible book value per share of 11% for the year. We also ended with a tangible common equity ratio of 10.2%. Now, we are deploying some of that capital on these two acquisitions, we're going to close this quarter, and that will drop our TCE ratio down to 8.6% by the end of the first quarter.
As we look at our capital position, and we think about the credit environment in Florida, we do feel like we've got some excess capital, and you know, you deploy that through mergers, dividends, and buybacks, and with the pullback in stock price, we think maybe examining our dividend policy is a prudent thing right now, and also at these levels of the stock price perhaps the buyback is starting to make more sense particularly when you look at our price to earnings for 2017's earnings. I think that's around a 11 times or maybe even little bit less in that range. So that looks attractive to us, and something we're definitely going to look at.
On the M&A front, we anticipate that we will close both of our new acquisitions, Community Bank of South Florida and First National Bank of South Florida, both of them on March 1. We've received approval from the Federal Reserve and expect approval from the OCC within the next week. The shareholders of First National Bank have already held their shareholder meeting and they have approved the transaction, and the Community Bank shareholder vote is scheduled in late February.
And finally I will touch on the FDIC loss share buyout that we mentioned to you in the previous quarters. As you can imagine, working with the government, it is a process, and it takes time, but Steve will discuss this in more detail, but just mention that we continue to work with the FDIC on the loss share buyout, and at this point it feels like we're close to an agreement.
So all in all, we've had a very clean and stable 2015, but with two pending acquisitions this quarter and a possible loss share buyout, our numbers are going to get noisy for the first two quarters of 2016, but by making these strategic moves, it will deploy some of our excess capital, and really set the company up for a very nice earnings per share ramp in the back half of 2016 and on to 2017.
Well, Jim, now I will turn it over to you.
Thank you, John. Good morning everyone. John just gave you -- summarized our overall results for the quarter. I just have a few comments on a couple of topics.
First, our NIM, and I'm going to reference a table on Page 11 of our earnings release. We reported 4.37% for the quarter. That was a decrease of seven basis points from the prior quarter's 444. And you may recall that last quarter, I guided based on certain assumptions that would be likely that the fourth quarter's NIM would approximate 430 plus or minus a couple of basis points.
So again, looking at Page 11, if you take a look at the first line in the NIM table you will see that t yield on our non-PCI loans increased from 438 in the third quarter to 442 in the current quarter, yet the new loan production in the current quarter was average in the yield of 3.75%, so, why the increase?
Well, certain acquired loans, non-PC acquired loans paid off and we had an unamortized mark on them, effectively an unamortized net discount. Upon pay off, the discount is recognized as additional interest income in the current period. And that amount was approximately 742,000. So if you exclude the 742,000, the loan yield of 442 would have been 430, which is an eight basis point decrease from the 438 loan yield in the prior quarter, which make sense when you consider that we're adding the loans with an average yield of three and three quarters. And just to emphasize this pint a little bit, our non-PCI loans are by far the largest component in our interest earning asset portfolio. The average yield in this portfolio will continue to contract until the average yield approaches the average yields of our new loan production.
Okay, so back to our overall NIM for the quarter; if we didn't have that $742,000 acceleration in the non-PCI loans, our NIM would have been 4.29%, similar to our guidance from last quarter. Also, it feels like we always have to say something about our PCI loans. If the PCI loans were yielding the same as our non-PCI loans, then our NIM would have been approximately 361 for both the current quarter and the prior quarter.
Okay, for modeling purposes, I expect continued contraction in our NIM assuming the yield on our PCI loans stays about where it is during the fourth quarter at 16.8%, and again as I said in previous quarters, that's kind of a guess of what can happen there, and assuming the new loan production continues to be added in that 3.8% range and assuming that the asset liability mix remains approximately same, I think it's unlikely to see a NIM in the first quarter of '16 around the 422 range, again, plus or minus a couple of basis points, and that's about a seven basis points decrease from the 429 adjusted NIM I just discussed.
Also, this does not include any effect of our upcoming two Homestead acquisitions. These two banks are expected to have a marked incremental NIM of just shy of 4%, but because we expect them, you know, our numbers for only one month of the quarter and because of their smaller size and because they're expecting incremental NIMs are not far off from our projected NIM, their addition will likely only have a minimal effect on our estimated 422, maybe a basis point or two. And Steve is going to talk more about our longer term forecast when he discusses our ELCO [ph] projections in a little while.
I'd also like to mention here, I guess I might have skipped a little bit of this in the -- when we started it off, I want to remind everybody about our Safe Harbor line. It's on Page 19 of our earnings release. So just to be clear, any statements made by any of us this morning is subject to those Safe Harbor rules.
Okay, I also need to make a couple of comments about our ALLL, and there is -- I'm going to reference a table on Page 7 of our release. Looking at this table, you will notice that we did change the presentation style slightly. We separated the FAS-5 component, and this is the general allowance for loan losses between originated non-impaired loans and acquired non-impaired loans, and we're hoping to give you a little bit more transparency with this.
Originated loans means all non-impaired loans, except for the non-impaired loans we purchased from Gulfstream and First Southern. If you are looking at that table you will see that allowance as a percentage of the loans decreased slightly from a 1.06% at September 30 to 1.04% at 12/31/15. And that's consistent with our improving credit metrics.
Acquired loans means loans purchased from Gulfstream and First Southern that are not PCI loans. These are performing non-impaired loans. Looking at the table, you will see that there is an allowance of 2.7 million against loan balances of 589 million or about 46 basis points. At first blush, it may seem low, but when you consider that there is an additional unamortized acquisition date fair value mark of 9.4 million. The combined general allowance plus the unamortized fair value discount equates to approximately $12 million for about 2.05% of these loan balances. We feel that these loans are very adequate reserves.
So in terms of some guidance, what can we expect for the first quarter of 2016? First, it's unlikely any additional allowance will be added to the acquired loans anytime in the near-term. Second, it's more likely than not that the general allowance, and this is in terms of the ratio, on the originated loans may decrease a little more, but it appears we are getting close to an inflection point.
So for modeling purposes, probably a slight decrease in the 1.04% originated loans general allowance, we would not expect it to go below 1%. When you are estimating provision expense in your models, land on it, at least for the most part the provision expense will include the net loan growth plus charge-offs. The allowance released from this point I believe would likely be minimal at best. Also remember, that loans that we are acquiring from the Homestead transactions will not have any ALLL associated with them at least initially.
And to real quickly bring up one more item, that's our expected effective tax rate for 2016. This past December we set up a captive insurance subsidiary, and those of you who are familiar with this tax advantage that was set up pursuing to Section 831(b) of the U.S. Tax Code, and without getting too far into the weeds, what this is, it's a new subsidiary of the holding company set up as a captive insurance company for our bank subsidiary. The bank pays the insurance premium to the subsidiary, and then the sub recognizes premium income and the bank recognizes premium expense. So for GAAP income statement purposes, it's a wash. It's neutral.
However, under 831(b), assuming you follow very specific rules, which we are, the company gets a permanent tax deduction for annual premiums up to 1.2 million per year. At our statutory tax rate, that equates to a permanent tax reduction of up to 463,000 per year.
At our current pre-tax level, that equates to about 60 to 90 basis points reduction in our effective tax rate. So in 2015, our effective tax rate was 36.5%. This strategy is going to reduce it to about 35.6%, but as a planning tool we have a number of additional potential items occurring in 2016 including these two merger and related merger expenses, some tax deductibles, some non, and a potential FDIC loss share buyout, which would produce a significant one-time loss which could and will affect our tax rate. So for planning purposes, I think you can use a rate -- an effective tax rate of about 35% in your models for 2016 for now, and we expect to have this better defined by the end of the first quarter.
So, thank you for your time. And at this time, I'll turn the presentation over to Steve.
Thank you, Jim. Good morning everyone. I wanted to report out on the corresponding banking segment, other non-interest expense results in our forecast, also, relative to the FDIC loss share potential buyout metrics as well as the asset liability positioning.
First of all in the corresponding banking segment, revenue increased to 6.2 from 5.9 in the prior quarter, this increase in revenue from the prior quarters were largely driven by increase in fixed income revenue for the quarter. As a comparison to the same quarter of 2014, non-interest income increased 450,000 or 8% quarter-over-quarter.
Net income for the quarter of the segment was $0.03 per share fully allocated versus $0.03 in quarter three versus $0.02 in the fourth quarter of last year.
For 2016, we would continue to expect a run rate of all corresponding banking non-interest income, net income to approximate the last four quarters, reflecting less fixed income revenue, but more new capital market product revenue. I would look that to steady up at those levels.
As it relates to the second item, non-interest expense, as John mentioned, we're really pleased with the continued decline in our non-interest after the integration of last year's two acquisitions. Non-interest expense excluding credit merger and correspondent fell approximately $100,000 from the prior quarter of 800,000 or 3.3 million from the fourth quarter of the previous year.
Most of these savings are attributed to renegotiation or reengineering of all our data communication circuits, less branch lease expense from closed and merged branches as well as other data system savings within the corresponding banking area. You can see these details on page 17 of the earnings release.
As far as our forecast, as John mentioned, pending final regulatory approval, we are planning on a March 1 close date for our two acquisitions. The combined expense run rate for the two targets approximate $7 million per quarter. As we previously announced, we are expecting to achieve 40% cost cuts in total by the end of fourth quarter.
As far as the timing of the 40% cost saves, we would expect the savings to start out slowly in the second quarter, about 10% of the total savings as we have conversion taking place that quarter. So the first quarter will have no savings because we just integrated, second quarter of about 10% of the savings, and then, it should ramp up in the third quarter to be about two thirds of the total savings, and then fully phased in by the end of the fourth quarter. And just as a reminder as it relates to the acquisitions we previously mentioned on our merger call, we are expecting and are confirming approximately $12 million of pre-tax merger cost to the expense in the first quarter of this year for the SDLs.
Moving on to the FDIC loss share buyout, as John previously mentioned, we believe we may come to a resolution with the FDIC on potential termination of our loss share agreements. Our FDIC receivable on 12/31 in the earnings release is 25.8 million.
Based on our team's current estimates, and this is also located on pages 5 and 6 on the earnings release, we believe that 4.25 million represents the amount that we will receive directly from the FDIC in future payments. This difference of 21.5 million is expected to be written off over the life of the agreements.
Assuming that the FDIC paid us somewhere around our estimates in a buyout scenario, we would expect an approximately $20 million pre-tax onetime loss to write off this receivable and claw back liability of approximately of a 1.5 million.
If we do not buy out loss share, we expect to amortize approximately 10.2 million to non-interest income as an expense in 2016. If we are able to buy out loss share, we estimate this amortization minus the credit expense reimbursement, these items netted to together represent about $0.10 per share improvement in the earnings in 2016. Also, this eliminates the noise of unpredictable amortization that we and you and others dislike so much.
Covered loans would be converted to non-covered loans for financial statement purposes. We continue to have a $44 million discount or 20% of the unpaid balance on our FDIC loan and a $63 million discount or 23% on all PCI loans, which we will continue to evaluate quarterly and accreted end interest income as appropriate.
Lastly as a reminder just to sum up some of the onetime charge potentials. Our first quarter 2016 likely will have significant noise in it with onetime non-operating charges for merger expenses related to the two acquired banks of approximately 12 million along with a possible onetime charge for loss share buyout if we execute approximately $20 million.
However, core operating performance continue to remain strong and be strengthened as we acquired these two banks which have mid-teen accretion fully phased in 2017 as well as extinguished feature, i.e., amortization of the FDI receivable in our financial statement.
Lastly on asset liability positioning, I am pleased to report, as John mentioned, that our checking accounts increased 10% on annualized basis in the third quarter and 9% for the year, about approximately 3.2 billion in deposits, approximately a billion eight or 56% of them are in checking accounts, and we just believe this is a large portion of unlocked value in a higher rate environment.
Our investment security portfolio of tax equivalent yield approximately is 2.68% for the quarter, which improved nine basis points from the prior quarter as a result of the higher yield curve in the fourth quarter. The effective duration is 3.7 years.
Our loan portfolio duration is 3.5 years on 12/31. Our new loan production for the quarter had a duration of 2.3 years and average spread of 2.87% over the corresponding swap rate curve.
Strategic rationale of all of this is our floating rate loans have increased 16% to 22% during the full year of 2015, which is preparing us for rising rates.
From a forecast of net interest margin, Jim mentioned a few things about the first quarter. But as we think about in the long term as rates continue to stay low for our current balance sheet as well as integrating these two banks with lower net interest margins, we would expect our net interest margin to continue to contract from current levels and approach 4% in the back half of this year, which is the same guidance I believe we gave you in the third quarter.
In summary, we continue to position the balance sheet for higher rates by growing the amount and number checking accounts thing short on a due production of loans and investments. We believe these metrics compare favorably to peers and should result in higher net margin over time as the Fed continues to contemplate raising short-term rates.
With that, I will turn it back over to Ernie.
Thank you, Steve, and we will be glad to respond to any questions at this time.
[Operator Instructions] Our first question comes from Frank Barlow of KBW. Your line is now open.
Good morning, and great quarter.
Thank you, Frank.
My first question has to do with the commercial lenders that you'll expect to have by year end 2016, you mentioned 68 commercial lenders. You have 50 now. So, how many of that 18 are from those acquisitions?
About 10, Frank.
Okay. And as we look at your loan growth profile from here out, there is some acquired shrinkage going on. So how should we look at the net growth in 2016? What pace is reasonable to assume?
Yes, so I think that the way we think about it if you exclude just -- you just exclude PCI, we ended this past year with a 11% growth, and we think about that pace going into the next year. And I am looking at Jennifer; I think we are forecasting PCI runoff at about 34%. Is that right, Jennifer? Okay?
Roughly 8% net.
Okay. And then as you all look at your TCE, you mentioned looking at possible buybacks, increasing your dividend, can you remind us what level of TCE you manage your balance sheet here?
Yes. So I think it depends upon where we are in the real estate cycle in Florida, and as Ernie mentioned, we feel pretty confident in the next couple of years. So I think we'd be comfortable dropping that TCE into the mid sevens if we felt like we could get it back up to eight within a year or so with organic earnings, that's kind of where we're setting the floor right now.
Okay, great. Thank you.
Okay, Frank. Thanks.
Thank you, Frank.
Thank you. Our next question comes from Michael Rose of Raymond James. Your line is now open.
Hey, good morning, guys. How are you?
Good morning, Michael?
Hey, I just wanted to kind of balance the comments around the buyback and the dividend as to your capital return with the loan growth. At the outset, Ernie, it seems like you said the outlook for Florida still looks pretty good, maybe a couple of more years of runway, thousand people moving into the state, all very good things. Obviously, stocks come off a little bit, but I wouldn't say terribly relative to some of the energy exposed banks. How do you guys kind of balance capital return? How should we think about kind of the total level between dividends and buybacks versus organic growth, which can from your own admission seems -- the run rate seems relatively solid and you are adding some commercial lenders?
Yes. So let's think about that, Michael. We're still at a reasonably low longer deposit ratio at 80%. So I think we've got some room to grow the loan portfolio without growing the balance sheet a lot and using up much capital. So therefore I think we can grow organically, but still have some excess capital.
On a dividend payout ratio, I think our current payout ratio is about 8%. So clearly we are on the lower end there, and perhaps, we could see that increase and continue to accumulate capital.
On the buyback piece, I think the thing that we feel looks most attractive to us again is our current price to our 2017 earnings, and you know we've got a confidence level between the strategic things we are working on, but that looks pretty good versus 2017 earnings.
Go ahead. Sorry, John, I interrupted you. Go ahead.
Yes, and some extra capital to deploy. So we feel like that option is on the table, Michael.
Okay. I guess the follow-up to that is when we think about M&A, obviously you have these two transactions that are going to close this quarter, but just the comfort around increasing the dividend and potentially buying back some stock, kind of take away from what's up here on the M&A front and maybe if you can just discuss how the pipeline [indiscernible] conversations ramped up, or anything like that? Thanks.
Yes. I think we've got enough capital that we could pursue both strategies. We are not talking about anything heroic on raising the dividend or probably the buyback, it's just kind of opportunistic on the buyback.
On the M&A front, we're seeing less inbound books, where companies are being auctioned off. However, that's really never been our primary way to find partners. The number of conversations we're having is still pretty strong. I think there was probably -- I'm going to count six or seven banks that in the last 90 days we're having discussions with are more on a friendly-negotiated basis, but clearly the stock down, whatever it is, 14%-15%, it makes that harder to do, but that can turnaround in 45 or 60 days. So we're going to continue to have the M&A discussions, but we don't think that precludes us from looking at the dividend and buyback at the same time.
Okay, and that's helpful. And then just maybe one final one from me, hey, you guys have done a really good job, you know, improve the profitability. The efficiency ratio clearly has improved pretty meaningfully over the course of the past year. As you think about the next couple of years, and you mentioned the earnings ramped at the outset, I mean have you guys laid out any kind of mid to longer range targets for either efficiency or profitability ROA that you might be able to share with us?
Yes. So, a lot of it's impacted by whether we do loss share buyout or not. That makes a big difference. So I would hate to kind of give any forecast because it maybe misinterpreted with what might happen or might not happen with loss share buyout. But on the core run rate basis, on the efficiency side, I think it's reasonable to expect us to break the 60% efficiency ratio at the end of this coming year and possibly be in the high 50's, and that's a place that we'd love to be.
And that's with or without the loss share?
That's without the loss share buyout. And naturally if we bought the loss share out, that would even improve further.
Okay. So last question, what is the estimated impact -- I'm sure you run the analysis, but you know, assuming the resolution comes out to reasonable range of outcome that you modeled, what is the estimated impact?
Michael, this is Steve. So the estimated impact is around $0.10 a share for 2016. And in the press release and the earnings release, Jim details out the actual amortization that falls from there, but that's the impact of 2016.
Okay, thanks. Sorry if I missed that. I appreciate it.
Thank you. And at this I'm showing there are no further participants in the queue. Ladies and gentlemen, thank you for your participation in today's conference. This concludes your program. You may now disconnect. Everyone have a great day.
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