United Community Banks Inc (UCBIO) 2015 Q4 法說會逐字稿

Good morning, and welcome to United Community Bank's fourth-quarter earnings call. Hosting the call today are Chairman and Chief Executive Officer Jimmy Tallent; President and Chief Operating Officer Lynn Harton; Chief Financial Officer Rex Schuette; and Chief Credit Officer Rob Edwards.

United's presentation today includes references to operating earnings, core pretax, pre-credit earnings, and other non-GAAP financial information. For these non-GAAP financial measures, United has provided a reconciliation to the corresponding GAAP financial measures in the financial highlights section of the earnings release, as well as the end of the investor presentation. Both are included on the website at UCBI.com.

Copies of the fourth quarter's earnings release and investor presentation were filed this morning on Form 8-K with the SEC, and a replay of this call will be available in the Company's Investor Relations section of United's website at UCBI.com.

Please be aware that during this call, forward-looking statements may be made by representatives of United. Any forward-looking statement should be considered in light of risks and uncertainties described on page 4 of the Company's 2014 Form 10-K, as well as other information provided by the Company in its filings with the SEC and included on its website.

At this time, I'll turn the call over to Jimmy Tallent.

Good morning, and thank you for joining us for our fourth-quarter earnings call. Our fourth-quarter performance caps a year of significant accomplishments, and I'm very pleased with our results and momentum as we enter 2016.

Let me mention some of the fourth-quarter highlights. Reported net income, including merger-related and other charges, was $18.2 million or $0.25 per diluted share. The rest of this call will focus on operating performance that excludes the impact of merger-related and other charges.

Net operating income was $23.8 million or $0.33 per share. That is up 10% from the fourth quarter of 2014 on a per share basis. Our operating return on assets was 99 basis points, up from 96 basis points a year ago.

Our operating return on tangible common equity was 10.9% compared to 10.3% in the third quarter and 9.7% a year ago. Our margin was 3.34%, up 8 basis points from the third quarter and three basis points from the fourth quarter of 2014. Net loan growth, excluding the sale of our $190 million healthcare lending business, was $162 million from the third quarter and 11% annualized.

Solid fourth-quarter loan production of $590 million brought our full-year production to just under $2 billion. We entered the Charleston, South Carolina market through a new loan production office that's already producing impressive results.

Our provision for credit losses was $300,000, down from $700,000 in the third quarter and $1.8 million a year ago. Among other factors, the declining trend in the provision for credit losses continues to be favorably impacted by the high recovery levels of loans that had previously been charged off. Net loan charge-offs for the quarter were $1.3 million, that compares to $1.4 million for the third quarter and $2.5 million for the fourth quarter of 2014.

Our allowance to loans ratio, excluding acquired loans, was 1.35%, that is down from 1.37% in the third quarter. The addition of the First National and Palmetto loans, which have a purchase discount rather than allowance for loan losses, lowered this ratio by 21 basis points to our reported allowance ratio of 1.14%. Our nonperforming assets to total assets ratio was 29 basis points.

Fee revenue was up $3 million from the third quarter, reflecting the full-quarter contribution of Palmetto's fee revenue and the results of our growing SBA lending business. And all of our capital ratios remain very strong.

Now I'll share some details from the quarter. As you can see on page 5 of the investor presentation, core pretax, pre-credit earnings were $38.3 million, up $2.9 million from the third quarter, and up $7.5 million from a year ago. Our net interest margin was up 8 basis points from the third quarter, and up 3 basis points from a year ago. Compared with the third quarter, we saw increases in our loan and security shields, as well as a 2-basis point decrease in the average rate on interest-bearing liabilities. You could say that rates on both side of the balance sheet moved favorably.

A number of factors increased to the margin increase. Let me take just a moment to talk about some of those. I'll begin with the loan yield.

The 6-basis point increase in our loan yield is mostly due to the sale of our lower-yielding healthcare loans and the full-quarter impact of the discount accretion on the acquired loan portfolio. Although the Fed's mid-December rate hike also contributed to the higher loan yield, the late timing minimized the impact. The impact was greater on the securities yield.

Most of our $700 million in floating rate securities are indexed to LIBOR, which begin to increase earlier in the quarter in anticipation of the Fed move. That had a modest positive impact on our overall securities yield. We also saw less premium amortization as a benefit of the slowing prepayments in our mortgage-backed securities and we had the restructuring of a corporate bond as well. Both of these added to the higher securities yield.

Moving to funding costs, Palmetto's low-cost deposits were the primary driver of the 2-basis point decrease in the average rate on interest-bearing liabilities. To summarize the 8-basis point increase in margin this quarter, the 6-basis point increase in the average loan yield added about 3 basis points. The 16-basis point increase in the securities yield added 4 basis points and the 2-basis point decrease in the average rate on interest-bearing liabilities added about 1 basis point.

Now turning to loan growth and production, we grew loans by $162 million during the fourth quarter, excluding the sale of the $190 million in healthcare loans. We mentioned this sale during our third quarter, and executed it during the fourth quarter. This fourth-quarter loan growth represents an annualized growth rate of 11%.

For the year, loan growth was $444 million or 10%, excluding loans resulting from the two mergers and the sale of the healthcare loans. That puts us slightly above our targeted growth range of mid- to high-single-digits. Loan production remains strong at $590 million, as shown on page 7 of the investor presentation. Approximately $360 million was produced by community banks and $157 million by specialized lending.

Looking at fourth-quarter loan production by categories, more than half was in our C&I and CRE portfolios. That proportion is similar to prior quarters.

Commercial loans accounted for $361 million of total production, and increased outstanding loan balances by approximately $130 million. This excludes the effect of the sale of healthcare loans.

I mentioned earlier that we opened a new loan production office in Charleston, South Carolina that is already showing strong results. [Dixon Lidword], who has a long and distinguished career as President of the entire Coastal South Carolina region for a much larger bank, joined United towards the end of the third quarter. He currently has a team of five to lead our expansion in the Coastal South Carolina market.

We expect this team to grow in 2016. I'm thrilled to have Dixon and his team onboard, and I'm especially pleased with the $28 million in new loans they produced in the fourth quarter. Our opportunity to grow in the Coastal South Carolina market is tremendous, and we have recruited a great and experienced team to lead that growth.

Moving on to interest sensitivity, with half of our loans and a quarter of our securities at floating rates, our balance sheet at the year-end remains well-positioned for rising interest rates.

Before discussing fee revenue, I want to speak briefly about our provision for credit losses. We had a year of declining provisions for credit losses as a result of abnormally low charge-offs and high recoveries of previously charged-off loans. Given our favorable credit-quality outlook, we expect provisioning to remain low in 2016, though higher than in the past two quarters.

You'll find the trends on core fee revenue on page 5 of the presentation. Fourth-quarter core fee revenue was $20.8 million, up $2.3 million from the third quarter. There were increases in all categories except our mortgage and advisory services businesses.

Total service charges and fees on deposit accounts were up $2.2 million from the third quarter, with increases in each of the three subcategories. The increase mostly reflects the full-quarter impact of Palmetto's fee revenue.

Mortgage fees were down $550,000 from the third quarter, primarily seasonable, but up $1.2 million from a year ago due to higher volume. We closed $138 million in mortgage loans in the fourth quarter, down slightly from the $141 million in the third quarter, but up from the $77.4 million a year ago. 58% of the fourth-quarter production represented home purchases, and 42% was refinancing.

Turning to our SBA business, in the fourth quarter we closed $34 million of SBA loan commitments, funded $24.1 million and sold $25.1 million of guaranteed loans. The sales produced $2 million in fee revenue, up 21% from the third quarter. By comparison, during the third quarter we closed $41 million of SBA loan commitments, funded $26.5 million, and sold $17.8 million, which produced $1.6 million in fee revenue. Growing fee revenue-generating businesses continues to be a strategic focus as we broaden our business mix, and I'm very pleased with the progress that we continue to make in this area.

Core operating expenses are on page 5 of the investor presentation. As a reminder, our presentation of core operating expenses excludes non-core items for market value adjustments to our deferred compensation, planned liability, severance charges and foreclosed property costs. It also excludes an after-tax merger-related charge of $2 million during the fourth quarter, and an after-tax $3.8 million charge in the third quarter.

These merger-related acquisition costs are primarily for severance, advisory fees, systems and conversion costs, and professional fees. In the fourth quarter, we also incurred an after-tax charge of $3.6 million to write down certain properties to their appraised values. The properties were purchased years ago as future branch sites.

We're currently re-evaluating all of our different delivery channels, including future branch sites. Some of these properties will be retained for future branches, while others will be sold. These decisions will be made over the next 12 to 24 months as we continue to execute on our growth strategies.

However, because we've held these properties for a long period of time, we evaluated them for impairment and wrote down the properties accordingly. We have included a reconciliation of both core operating expenses and core fee revenue on page 17 of the investor presentation.

To continue, core operating expenses were $56.5 million, up $7.7 million from the third quarter. Palmetto's operating expenses accounted for approximately $5.6 million of this increase, leaving about $2.1 million increase on a linked-quarter basis. I'll talk more about that in just a moment.

Core salaries and employee benefit expense of $36.6 million was up $3 million from the third quarter. Palmetto's salaries and benefits accounted for approximately $2.3 million, or more than three-quarters, of the increase. The other $700,000 primarily reflects end-of-year true-ups for production and performance incentives.

At quarter-end, we had 1,932 employees, up 5 from the third quarter. We continue to invest in our future by bringing on new revenue producers in attractive markets. Our Charleston loan production office is an example of our execution of this strategy.

Fourth-quarter expenses were also elevated by decisions we made in the quarter to review critical components within the compliance area of our Company. We all know the regulatory scrutiny and expectations that compliance receives today. Specifically, we've taken a deep dive in our CRE, DSE, fair lending, and model risk management processes.

We engaged a number of firms to assist us with independent reviews and enhancements to our compliance areas. Some of these projects and their related costs could have been delayed until 2016. However, we made the decision to accelerate the process in the fourth quarter, which leaves us better prepared for growth and expansion in 2016.

These costs were high, which were primarily one-time items that totaled approximately $1 million, but were necessary investments as we continue to grow. Most of the costs were in the professional fees category. As a result of these special projects and year-end incentives, our operating efficiency ratio climbed to 59.4% in the fourth quarter. We expect this ratio to decline to the prior quarter's levels by the second quarter of 2016, after the conversion of Palmetto.

Now I want to take a moment to talk about our acquisition of Palmetto. We closed the merger late in the third quarter, and are making good progress in combining our two Companies. Our conversion teams meet regularly to make sure we stay on task and avoid any disruption for customers.

We only get one shot at getting this right. And to that end, our teams are fully engaged. After-systems conversion, which, we're scheduled for late February, Palmetto branches will begin operating under the United brand. Most of the expected $2 million a quarter in additional expense savings will be realized by the second quarter, after the conversions are complete.

In recapping 2015, I'm proud of the achievements our bankers made during a busy and very productive year. For the year, operating earnings per share were up 14% to $1.27 per share. Return on assets was 98 basis points and hit our target of 1% during two of the four quarters.

Operating return on tangible common equity was 10.9% in the fourth quarter, up 113 basis points from a year ago. We produced $2 billion in new loans. Loan growth slightly exceeded our goal of mid- to high-single-digits, and we've further diversified our portfolio. W

e re-entered the M&A business with two of the largest acquisitions in our history, and I couldn't be more pleased with the banks we have chosen as our partners. And once again, our bankers earn national recognition for high customer satisfaction scores.

Now for a brief update on our outlook for 2016. Overall, we continue to be optimistic about our earnings growth. We expect growth in loans and deposits to continue in the mid- to high-single-digit range. We also look for continued growth in fee revenue from our mortgage and our SBA lending businesses.

Margin outlook is more difficult. Given what we know today and assuming no further rate increases by the Fed, we anticipate that our margin will hold steady at the fourth-quarter level going into 2016. There are many uncertainties around the next Fed increase and its impact on deposit pricing, margin, and the level of core transaction deposits.

Like most other banks, we're benefiting in the near term from the Fed increase, while not having to raise deposit rates. But we're unsure how long that will last, even without another rate increase. That is why we evaluate multiple scenarios and why we conservatively see our margin holding steady in 2016.

As I noted earlier, expense savings from the Palmetto acquisition will be fully realized starting in the second quarter. Excluding Palmetto, we expect core operating expenses to increase as we add revenue producers, but at a slower pace than revenue growth.

And importantly, as I noted earlier, we expect our efficiency ratio to return to the sub-58% range in the second quarter of 2016. Also, we expect to obtain our ROA goal of 1.1% in the fourth quarter of 2016.

So we ended the new year with momentum, built on a strong foundation. Our core deposit base is among the best, with core transaction deposits making up 70% of customer deposits. Keep in mind that we exclude time deposits under $100,000 from our core transaction deposits. If they were included, our core deposits would be 81% of customer deposits.

Also, 70% of our footprint is in high-growth metropolitan markets, where they can contribute to and benefit from ongoing economic growth and development. And our bankers continue to do what they always do -- provide the highest level of customer service, while at the same time integrating new banks and delivering outstanding financial performance. Our results are a testimony to their perseverance, their dedication and their character. And I'm extremely proud to be a member of their team.

Now we'll be glad to answer any questions that you may have.

(Operator instructions)

Our first question is from Jennifer Demba with SunTrust.

Hi, good morning. Two questions. First, Jimmy, could you talk about your M&A interest at this point, during 2016? And secondly, the independent reviews of the various areas that are compliance-related -- was that just a proactive choice, or was this encouraged by the regulators? Can you just give us some color behind the decision to do that?

Sure. Let me answer the second question first, Jennifer. Yes, proactive was the basis of that. We just felt that with the heightened scrutiny that compliance gets today, we just want to make sure we have it right. We look at it as investment, obviously, as our Company continues to grow, but we just felt that it was a smart thing to do.

In regards to M&A, certainly there's ongoing conversations with a number of banks, which is not unusual. Certainly where bank stock prices are today, certainly will make that probably more challenging. Our view of the geography that we have said we would like to be in or expand within, has not changed. We have purposely over the last few years been able to grow and direct the overall footprint of the Company into some of the higher-growth MSA areas -- the Atlanta, the Greenville, Savannah, Knoxville and so forth.

So yes, we do have interest; yes, there are ongoing conversations. But more importantly, assuming something does come about, the financial pricing of those are very critical, and the future of growth within those markets are equally as important.

Thanks a lot.

Thank you. Our next question is from Michael Rose with Raymond James.

Good morning, guys, how are you?

Hey, Michael. Good morning.

Just wanted to get a little color on the asset growth this quarter. It looks like you added some securities. The balance sheet was bigger, bottom line, than what I forecasted. Do you think you'll get to $10 billion this year on an organic basis? Or are you going to try to stay under by the end of the year? And if you do, can you just remind us what the costs are in doing so, both on the revenue-hit side and the incremental expenses? Thanks.

Michael, let me answer part of that, and then I'll have Rex, of course, answer the other piece. In regards to the $10 billion, certainly organic growth that we have planned for 2016 will push us close to the $10 billion. We do have flexibility within our securities portfolio to manage that. If the opportunities in M&A do come about, certainly those would be taken advantage of. But also, too, keep in mind the cost of that -- assuming we do go over at the end of the 2016 -- the cost of that begins Q3 of 2017. So you have basically half of that cost. So we're continuing to look at the cost, how to either reduce internal costs, how to increase revenue in legacy UCBI to absorb that.

The costs that we have put out has been somewhere in that $8 million to $10 million a year range, once Palmetto became part of United. Because certainly the debit card fees seem to have a greater impact on banks that's got large core retail customers, and that's one of the components that we have. We're very proud of that. But the other side of that obviously is the costs associated with that. So we do believe we have the ability to manage that. It's hard to predict what opportunities may surface over the next 12 months. But we're totally cognizant of the costs, as well as how to absorb that. Rex, do you want to talk about the securities?

Yes, I'll talk about the securities. We mentioned on the last call, Michael, with respect to the sale of the healthcare business, $190 million, that in the interim we would replace that on the interim with adding securities. We added about $170 million of securities related to that transaction, with that running off by the end of the fourth quarter. On a linked-quarter basis, you'll see us up about $200 million, which is primarily the replacement for the healthcare in that interim period. And again, if you look at the prior quarter, the increase there was about $120 million, primarily related to the Palmetto acquisition, on a linked-quarter basis. Did you have another question on other costs too, Michael, just to clarify?

Yes, I think you said the Durbin hit -- which you said before is $8 million to $10 million. But is there anything on the expense side from crossing $10 billion that's kind of identifiable at this point?

All right, very good.

Thank you. Our next question is from Brad Milsaps with Sandler O'Neill.

Good morning, guys.

Good morning.

Jimmy, appreciate all the guidance for 2016. I just wanted to maybe square a couple things. You mentioned the efficiency ratio getting back to 57% or so in the second quarter. As you look in the back half of the year, in order to hit your 1.10% ROA guidance, would it be your expectation that you've got to push that number even lower? And do you think that comes from absolute expense reductions, or more on the revenue side?

Well, let me just give you the high level, then I'm going to ask Rex to give you the components of that. But basically, if you take some of -- or, take the 2016 outlook, given the loan growth and margin expectations and so forth, and also too, the cost that we believe for 2016 -- the cost that I'm referring to is coming out of the Palmetto. When you bake all that together, we believe that the 1.10% ROA is achievable by Q4 of 2016.

Let me maybe comment more specific, because I know we've had questions in the past on core expenses. Jimmy commented this quarter with our core expenses of $56.5 million increasing about $2.1 million. If we back up first just on the Palmetto transaction, to recap it, their run rate at Q2 of last year was approximately $9.6 million.

In the third quarter, we have one month of Palmetto, we have $2.7 million, which would equate to about an $8.1 million run rate, with respect to Palmetto, when it came onboard. So that right there, we have pre-closing cost savings of about $1.5 million before we closed Palmetto, for our targeted expense savings. The other piece we mentioned previously, too, is that we expected to get about a $3.5 million-a-quarter or $14 million run rate benefit out of Palmetto. So that means another $2 million of cost savings.

So if you come back to our core expenses of the $56.5 million for the quarter -- as Jimmy noted, we had some true-ups, there is some run rate items with respect to incentives in the quarter, $700,000. Another $1 million on special projects, so $1.7 million in total. And if you back that out of the $56.5 million, you come roughly to $48 million -- $54.8 million run rate. And then, if you take the $54 million run rate, reduce that by another $2 million, that brings you down to roughly a $52.8 million run rate, or roughly about $53 million.

That's what we have in our base case, without the growth Jimmy is talking about. So our core for next year does reflect that $2 million of additional savings by the second quarter of next year. So to get the benefit of ROA, and with respect to efficiency with that expenses coming out, that gives you the benefit going into Q2 of a lower expense base coming in.

Keep in mind that, as Jimmy indicated, we have growth built into the budget. So this does not include merit increases. This would not include adding revenue producers, which we're doing and continue to do. So that our expense numbers layer in additional growth numbers for revenue producers that we're doing. So our expense numbers and our budget are going to be higher than that base case, but that base case is the foundation of our budget.

So we have the savings built into our numbers, and we expect to have those by the second quarter. Of the $2 million that's left to come, we'll see that come primarily -- two-thirds of it will come out of the staff line yet. We have 59 people coming out in total by the second quarter. And the other part of that two-thirds of the $2 million is related to software and equipment expense that's coming out in the balance [sheet] spread in other categories. So we feel very confident in our targets and what we're looking at.

That's really helpful, Rex. So bottom line, starting the second quarter, it's just under $53 million, plus whatever natural growth you were going to have anyway. Is that fair?

That's fair, correct. That would give us, looking at the second quarter, positive operating leverage. It would also, again, put our efficiency ratio, as Jimmy noted, below 58%.

Perfect. Thank you, guys. I appreciate it.

Our next question is from Kevin Fitzsimmons with Hovde Group.

Good morning, guys.

Good morning, Kevin.

Jimmy, thanks for all the detailed outlook. One thing I wanted to ask about was the loan growth range. How do you view what could drive that toward the high end or toward the low end of that range? You mentioned how you came -- on a core basis, came in slightly above that in this most recent quarter. So given that performance, just wondering, are you being conservative relative to what you see out there? Or are you just seeing some slowdown or some underrating from competitors that you're not comfortable with? Just how you're feeling about that?

Let me ask Lynn to address that. Lynn?

Sure, thanks. Kevin, in terms of what could drive it to the high end, we feel very good about what's going on in Charleston. We mentioned hiring the team there, very solid team we've known for a long time. So certainly that is a positive. In terms of underwriting, the only thing that we've tightened our underwriting on significantly would be multifamily. We just think that market is getting a little overheated.

But we are seeing great opportunities in credit tenant office, credit tenant retail, and credit tenant industrials on the real estate side. We feel pretty good about that. We don't expect the same kind of growth in our indirect auto portfolio going forward that we've had to this point, because we're about where we'd like to be. So that will moderate. So again, we feel like this quarter was higher than we would see going forward. But we feel very confident in that upper-single-digit range.

Great, thanks, Lynn. Just one quick follow-up, Jimmy. Can you update us where Corsair's position is today, and what your understanding is about their intentions going forward? I know they peeled back some of their position in the fourth quarter, and the shares seemed to hold up relatively well in the immediate term when that happened. And just what you're thinking about their plan for the future is? Thanks.

Sure, Kevin. When they sold down a position of about -- I believe it was 3 million shares, currently they would own about 10% of shares outstanding. This is something that I'm sure they've looked at over the last couple of years, hitting certain thresholds on the evaluation growth. I think they've been very pleased with their investment. And certainly going forward -- I can't speak for them, but certainly with the pullback, the share price today, I'm sure they would probably want to hesitate before they [sell] down later. But that's just part of the normal and natural process. But anyway, their current ownership is approximately 10%.

Okay, all right, thank you.

Our next question is from Christopher Marinac with FIG Partners.

Thanks, good morning. Jimmy, I was wondering if you or Lynn or Rex could talk about any signs of any slowdown throughout the footprint, whether that's in Tennessee or North Georgia or elsewhere? Just curious on if you had any signs of change in the last one to two months?

Lynn?

So we have not seen anything. Our credit approvals coming through committee are up. Credit requests are up -- not dramatically, but good, solid same kind of activity we saw in 2015. Visiting with clients, we're not hearing anything that concerns us. Obviously everybody is concerned about what's going on with the market, but we don't see any of that flowing into any of the numbers at this point. So if you look at our production, for example, in the fourth quarter, it was strong across the board. Every market but two were up, both linked quarter and over, and every market but one was up over the previous year. So we feel like the momentum is good, the credit side still looks good. So we're not seeing it yet, not seeing anything yet.

Okay, great. And then the progress you continue to see on the classified assets again this quarter, is there additional improvement that lies ahead? Or would you be reaching a trough at those figures?

Yes, this is Rob. Hey, Christopher. I think there's continued room for improvement. We're seeing some of our larger classified assets accruing, particularly the accruing substandard on the commercial side, continue to come down and find legs. So I think there's room for some continued moderate improvement.

Okay, great. Thanks for the color there. One last question for Rex. If you cross the $10 billion mark during 2017 -- that's still several quarters from now -- does that technically push that higher-fee change or the fee change into 2018? Just curious if you have any room to defer that another couple quarters beyond Q3?

Right. That requirement is by Durbin, so that is a year-end-only calculation, when you cross $10 billion for that, Chris. So if we don't cross at year-end 2016, then it goes to year-end 2017. So if it crosses in 2017, as Jimmy indicated, then it would be in the third quarter of 2018, the impact on it. It does give us another year out, crossing over 12/31/2016.

Okay, great. Thank you, Rex. Appreciate it.

Our last question is from Nancy Bush with NAB Research LLC.

Good morning, Jimmy. How are you?

Fine, Nancy. I hope you are.

Thank you. Could you guys go back and just talk about that after-tax charge to write down real estate? I just want to make sure I've gotten this written down correctly.

Sure. The thesis behind that, Nancy, is, if we go back into the 2004, 2005, 2006, 2007 era, we historically looked forward in our expansion during that time, with future branches, and of course, branch size. We have always, through that strategy, once we identify the people and hire them, then we would be able to put the brick and mortar around them. Sometimes those sites would not be used for a year or two or three, but all of those sites are what I would define -- are just key locations. Then, obviously 2008, 2009, 2010 and 2011 came. Certainly there were no branch expansions. As a matter of fact, there were branch closures.

So now we've reached a time where, as we look at our distribution throughout our Company and the advancement of technology during that time, the re-calibration of the brick and mortar -- they're fewer and they're smaller. And also to a number of inbound calls that we've been receiving really over the last year because, I think, of their marquee location, of folks interested in buying. All that said was, as we step back, revisit our delivery channels, we will not be building on all of those locations. Therefore, due to the time we bought them, and the values or the price then versus the appraised values today and the differential we basically wrote down, we will decide over the next year or two those that we'll be selling, as well as those that we possibly will retain for future branch sites.

This was $3.6 million after-tax, is that correct?

That's correct.

And that was in the fourth quarter?

Yes.

Where would that have been contained on the income statement?

That's -- Nancy, this is Rex. It's in the merger and other charge line on the income statement. It's roughly $6 million of that total of just over $9 million.

Can you give us any idea, Jimmy, how many sites you're talking about? And is there any sort of geographic concentration of them?

There's about, I believe, 18 sites, Nancy. They're really spread over our general markets, with the exception of South Carolina. For example, in Cleveland, Tennessee, when we expanded there a few years back, we actually acquired four locations -- four sites. We've built on two. We are just in the process of disposing on the other two. So there's not any one set location. It's pretty dispersed throughout our footprint, with the exception of South Carolina.

Okay. And if I could ask one final question, the 1.10% ROA target that you foresee in the fourth quarter, do you think the progression toward that is going to be sort of a smooth upward progression? Or are we going to have a plateau up into a new ROA territory?

I think it will be a progression. Certainly after Q1, we have the integration of Palmetto, the remaining expense comes out at that point in time. And with our revenue growth as we move throughout the year, it won't be perfect on a one-fourth improvement each quarter. But the trajectory will be in such a fashion that we believe that, that goal is attainable.

Nancy, this is Rex. I'm going to add to Jimmy's comments. As I indicated, with the $2 million of additional savings that are coming out of our base run rate by Q2, Q2 is where you're going to see the jump, when you look compared to Q4. So Q4 and Q1 will be fairly consistent with your estimates out there, to be fairly consistent when you run your model. But with the savings coming out by Q2, you'll see us probably pick up 4 or 5 basis points by the second quarter. And the run rate then -- as Jimmy indicated, it will progress fairly steadily from there, as our targets look at for the 1.10% for fourth quarter.

Okay, all right. Thank you very much.

Thank you. I'm not showing any further questions at this time.

Okay, thank you, operator. And first of all, let me say thank you to all of you on the call today. Sincerely appreciate your interest, and certainly encourage you to reach out to any of us if you have further questions. I do want to recognize our team of over 1,900 employees that make up this great Company, and want to once again thank them for their continued hard work, dedication, competitive nature, and just a great group of human beings. So thank you for being on the call, and we look forward to talking with you again soon.

Ladies and gentlemen, thank you for your participating in today's conference. This concludes the program, and you may all disconnect. Everyone have a great day.