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Spirit of Texas Bancshares (NASDAQ:STXB)
Q2 2019 Earnings Call
Jul 25, 2019, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Greetings, and welcome to the Spirit of Texas Bancshares conference call. [Operator instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jerry Golemon, executive vice president and chief operating officer. Thank you.

Mr. Golemon, you may begin.

Jerry Golemon -- Executive Vice President and Chief Operating Officer

Thank you, operator, and good morning, everyone. We appreciate you joining us for the Spirit of Texas Bancshares conference call and webcast to review 2019 second-quarter results and our acquisition announcement, both of which were announced yesterday after the market close. With me today is Mr. Dean Bass, chairman and chief executive officer; Mr.

David McGuire, president and chief lending officer; and Mr. Jeff Powell, our chief financial officer. Following my opening remarks, we will provide a high-level review and commentary on the financial details of the second quarter and an overview of the Citizens State Bank acquisition before opening the call up for Q&A. I'd now like to cover a few housekeeping items.

There will be a replay of today's call and it will be available by webcast on our website at www.sotb.com. There will also be a telephonic replay available until August 1, 2019, and more information on how to access these replay features was included in yesterday's release. Please note that the information reported on this call speaks only as of today, July 25th, 2019, and therefore, you are advised that time-sensitive information may no longer be accurate as of the time of any replay, listening or transcript reading. In addition, the comments made by management during the conference call may contain certain forward-looking statements within the meaning of the United States Federal Securities Laws.

These forward-looking statements reflect the current views of management. However, various risks, uncertainties, contingencies could cause actual results, performance or achievements to differ materially from those expressed in the statements made by management. The listener or reader is encouraged to read the company's annual report, Form 10-K filed with the SEC for the year ended December 31, 2018, to understand certain of those risks, uncertainties and contingencies. The comments today will also include certain non-GAAP financial measures.

Additional details and reconciliations to the most directly comparable GAAP financial measures are included in yesterday's earnings release, which can be found on the Spirit of Texas website. Now I'd like to turn the call over to our chairman and CEO, Mr. Dean Bass. Mr.

Bass?

Dean Bass -- Chairman and Chief Executive Officer

Thank you, Mr. Golemon. Good morning. We are pleased to report record profitability in the second quarter of 2019, as well as acquiring additional assets in our target market region.

On April 2nd, we successfully completed the acquisition of First Beeville Financial Corporation and its subsidiary, the First National Bank of Beeville. This transaction added $465 million in assets in an attractive market that stretches from Corpus Christi up to San Antonio and Austin area.In June, Spirit announced the filing of a $150 million shelf registration that allows us to offer and sell additional stock as needed over the next three years. At the same time, Spirit authorized a stock buyback program, which allows the company to repurchase shares from time to time. And most importantly, we announced yesterday afternoon that we have entered into a definitive agreement to acquire Chandler Bancorp, Inc.

and its subsidiary bank, Citizens State Bank in Tyler, Texas. Mr. Greg Kidd, chairman of Chandler, will join our board of directors; and Mr. David Monk would join our bank as the president of our Northeast Texas region and will chair an advisory board made up of Citizens' current board of directors.

We are honored to be associated with Mr. Kidd, Mr. Monk and their board of directors and employees. They have served their communities in an exemplary manner, and we look forward to supporting the legacy that they have built over the last five decades.

As part of our acquisition strategy, we've been looking for productive ways to expand our footprint into East Texas. Citizens State Bank based in Tyler, Texas is a perfect fit for our culture and our future business plans in this region. It provides a great opportunity to leverage the strength of our combined organization. Once the Citizens transaction closes, we believe that combined banks will be very competitive in this great East Texas market.

This transaction will allow us to deepen Citizens' already solid relationship and increase business opportunity. We will also be better positioned to take advantage of additional strategic and organic growth opportunities that will enable us to better serve our customers and further enhance shareholder value. We look forward to welcoming Citizens' bankers, customers, shareholders and employees, as we continue to develop our presence throughout the East Texas region and the years ahead. Now I'd like to turn the call over to Mr.

Jeff Powell, our CFO, who'll provide more detail on these important topics. Mr. Powell?

Jeff Powell -- Chief Financial Officer

Thanks, Mr. Bass, and good morning to everyone. Wow, what a quarter. Many great things are occurring at Spirit of Texas, and we have six important things to talk about.

During the second quarter; one, we completed the acquisition of First Beeville Financial Corporation; two, we announced a $150 million shelf filing; three, we announced a stock repurchase program; and last night after the markets close, we filed three eight-Ks announcing that; four, we signed a definitive agreement with Citizens State Bank and its holding company, Chandler Bancorp, we have a $50 million takedown from our shelf filing; and six, of course, our quarterly earnings. Let's put some more detail around each of these topics. We completed the acquisition of First Beeville Financial Corporation and its subsidiary, First National Bank of Beeville, on April 2nd, 2019. The combined organization now has 336 employees, 29 locations, total assets of 1.9 billion as of June 30th, 2019.

We proudly welcome our new partners. On June 13, we announced the filing of a $150 million universal shelf registration statement. This permits us to offer and sell from time to time over the next three years in one or more offerings an indeterminate dollar amount of a variety of our securities. We can offer and sell common stock, preferred stock, debt securities, depository shares, warrants or units.

This is an advantageous tool intended to provide financial flexibility to access additional capital when and if needed in a very swift manner when market conditions are appropriate. Also on June 13th, 2019, we announced a stock repurchase program that authorizes our company to repurchase STXB stock from time to time. We can purchase up to $11.7 million of our outstanding shares. This is seen as our defensive tool that is used to help support the stock if needed.

Always better to have a plan in place when it's not needed instead of wishing you had one when it is needed. The program has a one year life and concludes on June 18th, 2020, subject to certain limitations and conditions. It's important to note that the program does not obligate the company to repurchase any shares of its common stock and there is no assurance that the company will do so. The extent to which the company repurchases its shares and the timing of such repurchases will depend upon a variety of factors including the performance of the company's stock price, general market and economic conditions, regulatory requirements, availability of funds and other relevant considerations as determined by the company.

The company may in its discretion begin or terminate repurchases at any time prior to the program's expiration without prior notice. Both the shelf registration statement and the stock repurchase program are described more fully in a press release dated June 13th, 2019, which can be located on our website. Yesterday, we announced the signing of a definitive agreement to acquire Citizens State and its holding company, Chandler Bancorp in a cash and stock transaction. The transaction is Spirit's 10th acquisition since 2008 and will be the third acquisition since our May 2018 IPO.

Man, that was just 14 months ago. As of June 30th, 2019, Chandler on a consolidated basis reported total assets of $349.1 million, total deposits of $265.7 million and total equity capital of $39 million. The transaction will add seven full-service branches to our existing 29 locations, bringing our total to 36 locations. It will increase our assets to approximately 2.2 billion with over 1.7 billion in total loans.

As consideration for the transaction, we will issue 2.1 million shares of our common stock and pay approximately $19.2 million in cash subject to certain adjustments for a total value of approximately 65.6 million based on our closing price of $22.10 per share on July 23, 2019. The transaction is expected to close in the fourth quarter of 2019, subject to the satisfaction of its customary closing conditions including regulatory approvals. Last night, we announced the raising of capital through a common stock offering. We intend to use the net proceeds of this offering to fund the 19.2 million cash portion of consideration for our merger with Chandler Bancorp and pay off $21 million outstanding on the line of credit with a third-party lender.

The paydown will lower interest expense approximately $323,000 per quarter. The remainder will be used for general corporate purposes. Now onto fourth quarter earnings. We provided detailed financial tables in yesterday's earnings release and highlighting some operational results.

First, let me look in the rearview mirror for a minute and see how we have transformed from first quarter last year when we started this adventure. Assets have grown to $1.9 billion, an 80% increase. Net income has increased from 2 million to 5.8 million, a 142% increase. ROAA has increased 47 basis points to 1.26 or a 47% increase.

NIM has expanded 18 basis points to 4.64%, one of the highest in Texas. Our efficiency ratio has improved 9 basis points, and we continue to target low 60s. We have right sized our deposit base through M&A with two quality partners. The loan-to-deposit ratio is now at 90%, down from the 105% in the first quarter.

Now moving on to our 2019 second quarter results for the period ended June 30th, 2019. During the quarter, we incurred $1 million of merger-rated expense, which was offset by a $1.1 million gain on the sale of investment securities. Excluding those one-time items, adjusted net income for the second quarter of 2019 was 5.8 million, up $1.7 million or 41% over the $4.1 million of adjusted net income in the first quarter of 2019. Adjusted EPS for 2Q '19 was $0.41, up $0.08 from 1Q '19 adjusted EPS of $0.33 or a 24% increase.

As a reminder, we issued 1.6 million shares in the second quarter for the Beeville transaction. I want to give some color about merger-related expense and the gain on sale of securities. Regarding the merger-related expense, we have modeled merger-related expense to be around 2% of the transaction value. An interesting point is that in purchase accounting, the treatment of prepaid expenses on the book of the bank being acquired is less straightforward than one would imagine.

It's been generally understood that when an acquiring organization as the acquired bank accrue various negotiated costs of the acquisition on its books prior to the merger, the expenses would flow through the balance sheet and not through the income statement of the newly combined entity. With changes in purchase accounting, this may no longer be the case. Even though the bank being acquired has accrued the expense prior to acquisition, it gets unwound and reduces the amount of goodwill recognized in the transaction. The expense then runs through the income statement of the acquiring bank.

This has caused our merger-related expense to be higher than originally estimated and it ends up being closer to 3% of the transaction value. Regarding the $1.1 million gain on sale of securities, we saw the extreme flattening of the yield curve during the quarter, which gave us a chance to reposition the portfolio and sell about $35 million in bonds and buy back short-term treasuries. This not only allowed for that gain, but it also shortened duration up by a year. Our tax equivalent margin in the second quarter came in at 4.64% against the first quarter margin of 4.69% or a 5 basis point decrease.

Key contributors to the 5 basis point swing is due to the timing of selling and buying securities in conjunction with the portfolio rebalancing and drawing $21 million on the line of credit with our third-party lender. As we have talked about, we are using the proceeds from the capital raised to repay this line, which will improve interest expense a little over $1.2 million a year. Our balance sheet continues to be slightly asset sensitive and any rate decreases should have minimal impact. Even with a 25 basis point cut, we anticipate seeing some benefit in the coming months as we reprice renewals along with payoff in lower yielding loans.

Good news in SBA is that we're seeing increased premiums on sales. We saw that our SBA gain on sale is back to its normal levels with contribution that we saw in 2018 of around 1 million to $1.3 million a quarter. When we announced the Comanche transaction, we said that there should be 25% or approximately $2 million in cost savings attached to the transaction. The 75% of those cost savings recognized in 2019.

We're seeing the cost savings and they're coming in since we completed the system conversion in February. Beeville should be the same type of success story. We again estimated 25% cost savings or approximately $2 million plus in expense. The systems conversion is scheduled in August.

So until then, the bank runs somewhat like a stand-alone using their systems and processes until conversion. We will not see substantial amount of cost savings until we get past conversion. Our average diluted share count increased to 14.2 million shares in the second quarter, primarily driven by the full quarter per shares issued in the Beeville merger. On April 2nd, we issued approximately 1.6 million shares with the Beeville transaction, so those are basically outstanding for the full quarter.

GAAP ROA was 1.26% compared to 1.05% in the linked quarter. This was a 21 basis point improvement. Adjusted ROA taking out the one-time items would be 1.24%. GAAP ROE was 10.79% compared to GAAP ROE of 7.65% in the first quarter of 2019.

The reported GAAP efficiency ratio was 67.3% when compared to 70.3% in the first quarter of 2018. Adjusted efficiency ratio excluding one-time items was 62.6% compared to the adjusted 62.5% in the first quarter of 2019. Book value continues to improve to $17.70 a share compared to $16.72 per share at March 31, 2019. Tangible book value at the end of the second quarter was $13.61 per share compared to $14.58 per share at March 31, 2019.

This reflects the goodwill put on the books due to the Beeville acquisition. I'd like to point out our trends in tangible book value. In the second quarter of 2018, tangible book value was $14.34. It moved up to $14.62 in the third quarter.

The fourth quarter, it dropped to $14.21 after we added Comanche. The first quarter, it improved to $14.58, and again dropped to 13.61 as we added Beeville. Beeville's consideration was 50% cash, would had a greater impact on tangible book value. We like those trends of improving tangible book value outside of transactions and plan to continue to improve our tangible book value.

I'd now like to turn the call over to Mr. David McGuire, our president, chief lending officer, to discuss some of our quarterly credit metrics. Mr. McGuire?

David McGuire -- President and Chief Lending Officer

Thank you, Mr. Powell. During the second quarter of 2019, the loan portfolio grew to $1.4 billion, an increase of 26.3% over March 31, 2019, and an increase of 53.6% over June 30th, 2018. The loan growth during the second quarter was driven primarily by the Beeville acquisition.

Organic growth for the second quarter was $6.4 million or 2.3% annualized. The yield on loans in the second quarter of 2019 was 6.28%, unchanged from the first quarter and up 46 basis points from the second quarter of 2018. Interest and fees on loans increased by $5.1 million or 29.7% over first quarter 2019 representing the growth in the portfolio, as well as continued improved yields. The provision for loan losses for the second quarter of 2019 was $332,000.

The allowance decreased to $6.3 million or 45 basis points of the 1.4 billion in loans outstanding as of June 30th, 2019, primarily due to improvements in assessed credit quality as represented by internal risk ratings. Nonperforming loans to loans held for investment ratio as of June 30th, 2019, decreased to 40 basis points from 52 basis points as of March 31, 2019, and 44 basis points at June 30th, 2018. Annualized net charge-offs were 18 basis points for the second quarter of 2019. Asset quality remains a key emphasis for our lending culture.

While the economics in all of our markets remained strong, we keep a close watch on our portfolio for any signs of deterioration through a very thorough and conservative loan underwriting process and a very comprehensive third-party loan review. With that, I'll turn the call back over to our chief operating officer, Mr. Jerry Golemon to provide a brief review of the funding side of the company.

Jerry Golemon -- Executive Vice President and Chief Operating Officer

Thank you, Mr. McGuire. Total deposits at the end of Q2 were $1.6 billion, an increase of 368 million or 31% over March 31st, 2019, and an increase of 86% over Q2 of 2018. This reflects the significance of our 2 merger transactions over the last three quarters.

Noninterest-bearing deposits represent 23.5% of total deposits, up from 21.7% in Q2 2018. The average cost of deposits was 1.01% for Q2, representing a 4 basis point decrease from Q1 2019 and a 9 basis point increase from Q2 2018. The Comanche and Beeville acquisitions strengthened our overall deposit mix, provided needed liquidity and provided us the ability to better control our cost of funds. The deposit book of Citizens further strengthens deposit mix with 36% in noninterest-bearing demand deposits and only 20% in CDs.

It will also assist in controlling our cost of deposits as their overall cost is running 25 basis points below Spirit's. On a pro forma basis, after combining with Citizens, our noninterest-bearing deposits would be just over 25% of total deposits. Borrowings including FHLB were $81 million or 4.3% of assets compared to 4.4% at Q1 2019 and 7.5% at the end of Q2 2018. I would now like to return the call to Mr.

Bass for concluding remarks. Mr. Bass?

Dean Bass -- Chairman and Chief Executive Officer

Thank you, Mr. Golemon. In closing, we reported record profits during the second quarter, and our focus continues to be on positioning ourselves, take advantage of opportunities in our markets while serving our strong and growing customer base. The Citizens acquisition just announced is consistent with our decision-making processes and value creation principles.

We will remain vigilant in seeking new areas for growth and strive for innovative, efficient ways to expand our scope of services on a regional and statewide scale. We are extremely proud of our past accomplishments, pleased with our current acquisition pipeline and are very optimistic about the future of Spirit of Texas Bank and the momentum we have built for all of the stakeholders of the company. We believe we are well positioned to change the banking landscape in Texas with one strategic merger partner at a time. I'd like to thank everyone involved with the Spirit of Texas Bancshares' success, especially the bank's directors, management, investors and employees.

This concludes our prepared remarks. I would now like to turn the call back to the operator to begin the question-and-answer session. Operator?

Jeff Powell -- Chief Financial Officer

This is Jeff Powell, CFO and EVP for the company. Before we go to the operator, we would like to give you some high-level information about this morning's announcement. This morning, Spirit announced the pricing of an underwritten public offering of 2 million shares of STXB common stock at a price of $21.50 per share. This will provide gross proceeds of approximately $43 million.

The net proceeds after the underwriting discounts, but before the company's estimated offering expenses, are expected to be approximately $40.9 million. Spirit has granted the underwriters a 30-day option to purchase up to an additional 30 -- I'm sorry, 300,000 shares of STXB's common stock at the public offering price less the underwriting discount. And now, we'll hand it back to the operator for Q&A.

Questions & Answers:


Operator

[Operator instructions] Our first question comes from the line of Matt Olney with Stephens. Please proceed with your question.

Matt Olney -- Stephens Inc. -- Analyst

Hey, thanks. Good morning, guys. I want to start on loan growth. I think previously we've talked about loan growth low- to mid-teens.

It seems like 2Q was a little bit slower. So can you kind of highlight what drove the slower growth in 2Q? And then as you look into 3Q and the pipeline for the fourth quarter, is low- to mid-teens still a good goal for 2019?

David McGuire -- President and Chief Lending Officer

Matt, this is David. We've been talking about that all week with a lot of the investors. But bottom line is this, is that our pipeline is as large as it has ever been. You've heard me say that many times before, but it -- with the addition of the teams from Beeville and Comanche, our pipelines have naturally grown from that, but we're seeing a real growth overall in the pipeline bankwide.

Just -- the second quarter still has some pretty large payoff activity that we saw in the first quarter. That looks like it's coming to an end. We feel really good still about the -- of reaching that prediction of low- to mid-teens by the end of the year.

Matt Olney -- Stephens Inc. -- Analyst

OK. And then as you layer into Citizens Bank deal at the end of the year and looking to 2020, is the loan growth outlook in a similar level, that low- to mid-teens, is that still realistic for next year or would it moderate somewhat as you become larger?

David McGuire -- President and Chief Lending Officer

I think that there's more opportunity. So we're sticking in and looking at that right now with a low to mid-teen outlook for 2020 as well.

Matt Olney -- Stephens Inc. -- Analyst

OK. And then in previous calls, we've talked about one of the opportunities you guys have is the earning asset remix, allowing securities to cash flow and help fund organic loan growth. Can you give us update of where we are on this strategy? How much more opportunity is there? And just remind us what the difference is of yield between -- what you're putting on, on organic loan growth and with cash flowing on the securities side?

Jeff Powell -- Chief Financial Officer

The securities side, you remember, in the first quarter, we did sell a big chunk out and we put it into cash. In the second quarter, what we did was we sold and bought back into the securities portfolio. And the reason we did that was, again, we wanted to shorten up duration. It was just a good opportunity to go ahead and remix the investment portfolio.

We still have over 100 million sitting on the balance sheet. We still have over $100 million in cash on the balance sheet. As David's loan growth picks up in the second and third quarters, that will be redeployed. Right now, our cash is yielding -- hold on for a second, cash is yielding right around 2 45.

I think, right around that area, 2 45, 2 35 and the investment portfolio was actually right around that area as well too. But David's loan yield is well over 6%, so we should see a pickup as we trade the coupon.

Dean Bass -- Chairman and Chief Executive Officer

One more thing, Matt. This is Dean. To back up just a second. Typically, the first and second quarter has been historically lower for us, and then we play for the second half so to speak.

The third and fourth quarters, we try to win. So I think you'll see that pick up. Also the partners that have joined us, the Comanche and Beeville and soon to be Citizens, they all are legacy banks that have -- they have fought different battles. Even if the economic turns, of course everything subject to economics being somewhat similar, but with that being said, that's why these are the banks so important.

They've fought many fights up and down the cycles economically as well and provided great support for the communities and their banks and will for us as well.

Jeff Powell -- Chief Financial Officer

Matt, one more thing. Looking at the yield tables, as far as our assets go from last quarter to this quarter, we gave up 1 basis point on the asset side and that was again the remix between cash and securities as stated at 6.28.

Matt Olney -- Stephens Inc. -- Analyst

OK. And then help us appreciate if the Fed does cut next week, what the impact would be on the margin?

Jeff Powell -- Chief Financial Officer

We've run some simulations through our ALCO model and a 25 basis point hit will have a very minimal impact to our margin.

Dean Bass -- Chairman and Chief Executive Officer

We're also able to -- Matt, we're at that point where we're getting regular renewals coming in on fixed rate loans and were -- a lot of these were originated in a lower rate environment. So they're going to see somewhere around 100 or so or more basis point increase in the fixed rate or they're going to pay. And then all of our -- then I would say most of our variable rate loans are going to have a floor in place that will protect us on the downside.

Jerry Golemon -- Executive Vice President and Chief Operating Officer

Matt, this is Jerry. On the deposit side, our -- we actually peaked in our cost of deposits in May and are trending downward. We started -- when the yield curve inverted, we started our -- negotiated right on CDs. We dropped it probably 35 basis points.

So our cost of loans has moderated and we -- and then with Tyler on the horizon, that cost of fund should go further down.

Matt Olney -- Stephens Inc. -- Analyst

OK. And then somebody mentioned the variable rate loans. Remind me what percent of your loans are variable? And when do those floors kick in that are -- that you mentioned?

Jeff Powell -- Chief Financial Officer

Right now, the book is pretty split. It's almost 50-50 between fixed and variable, but David can give more color as to the floors.

David McGuire -- President and Chief Lending Officer

Well, if a loan were originated today, for instance, if prime plus one, that would be 6.5%, and we would put in the floor at 6.5% normally.

Matt Olney -- Stephens Inc. -- Analyst

OK. That's been consistent for you over the last few years. You've been putting in floors as you've originated and renewed your loans.

David McGuire -- President and Chief Lending Officer

Absolutely.

Matt Olney -- Stephens Inc. -- Analyst

Got it. OK. I'll get back in the queue. Thank you.

Operator

Our next question comes from the line of Brady Gailey with KBW. Please proceed with your question.

Brady Gailey -- KBW -- Analyst

Hey, good morning guys. I noticed in fee income, if you look at SBA loans servicing fees, that number was a little light this quarter. I think I remember 90 days ago when we were talking about it on the call, that number was going to be around 250,000 to 0.5 million per quarter. How -- should we -- is that still the right way to think about that on a forward-looking basis?

Jeff Powell -- Chief Financial Officer

Brady, the servicing, we actually earn about $500,000 a quarter on servicing. But what gets layered on top of that is we have to have the servicing asset valued each quarter. And with rates changing this quarter, it drove the servicing asset, the value of the servicing asset down. And so like I said, the normal income is $500,000, but it's also subject to those valuations that come in.

Because if you look at -- in December of last year, it was actually $1 million. So we wrote it up by 500,000. So it's just the function of where the market is at.

Brady Gailey -- KBW -- Analyst

All right. And then from an overall --

Jeff Powell -- Chief Financial Officer

I know that's not helpful, but it's one of the things that drives us nuts on the table as well, too.

Brady Gailey -- KBW -- Analyst

Yes. How much was the MSR impairment in the second quarter?

Jeff Powell -- Chief Financial Officer

So it would be $498,000.

Brady Gailey -- KBW -- Analyst

All right. That's helpful. And then looking at the overall profitability of the company, as you all have continued to grow it via acquisition, ROA has continued to transition up. I remember even before last night's deal we were talking about an ROA in the 1.30% to 1.40% range kind of by the end of next year.

Is that still the right way to think about it? Or do you think with this acquisition, that ROA guide can go a little higher?

Jeff Powell -- Chief Financial Officer

Right now where we have a model, that's the right way to think about it, but we're always pressing to get that ROA up as much as we can and a lot of that will be driven by improved efficiencies.

Brady Gailey -- KBW -- Analyst

All right. Great. Thanks for the color and congrats on the deal.

Operator

[Operator instructions] Our next question comes from the line of Brett Rabatin with Piper Jaffray. Please proceed with your question.

Brett Rabatin -- Piper Jaffray -- Analyst

Hey, good morning everyone. Wanted to follow up on that and ask about efficiency. And just thinking about I know you have a conversion later of this year, but just can you talk about how you think about efficiency as you're getting bigger? And if you need to do any reinvesting that might slow down a notch down on the efficiency ratio over the next year for the platform?

Jeff Powell -- Chief Financial Officer

The reinvesting that we're doing is on the people side and it's on the production side. David, do you want to go ahead? As we -- we've been fortunate that we have seen lenders come to us and these are high-powered guys that are able to carry a book of anywhere between 50 million to $100 million. And we're willing to go ahead and invest in those guys. The way it usually works is for the first six months they cost us.

For the next six months, they pay us back. And for 12 months out, then they become revenue positive. So what we -- so far this quarter, we've hired eight different people that are either in treasury management or on the lending side that are going to be able to help us out. Yes, they're looked out opposed to --

Dean Bass -- Chairman and Chief Executive Officer

They were looked out as --

Jeff Powell -- Chief Financial Officer

Oh, yes. Yes. The run-off that we've seen as far as attrition goes, we've seen attrition in some of the lenders, but what we've been able to do is backfill with looked outs that are higher-powered people.

Brett Rabatin -- Piper Jaffray -- Analyst

OK. That's good color. And maybe just elaborate on how you think about the efficiency ratio. I know rates will play some role in that.

But thinking about 2020 and the ROA goals, is breaking 60% efficiency ratio kind of part of your dynamic for next year?

Jeff Powell -- Chief Financial Officer

It definitely is. We've got a projected go forward efficiency ratio in the sub-60s.

Brett Rabatin -- Piper Jaffray -- Analyst

OK. And then was wanting to talk about the -- what you're getting with this transaction. You're getting some nice core deposits. You're getting a loan mix that's primarily commercial real estate or real estate oriented.

Do you plan on adding on to their platform or bolting on lending products. Or can you give us maybe some color on how you're thinking about the positives of this deal as you look at it?

David McGuire -- President and Chief Lending Officer

Yes. Brett, this is David. What we're finding now is we're going into these banks in the periphery of the major metros is that they're already there and -- but their main issue is that they're limited to the size of loan that they can attract and because of legal lending limits, and we're bringing in this case a legal lending limit that will be eight to 10 times of what they're used to having at this point. And then along with that, we'll bring our whole played cash management products and other loan products they currently don't have into their markets.

And we believe there would be -- we can move them to see some outsized gains in their loan portfolios as far as growth once we get in and sync up with them.

Dean Bass -- Chairman and Chief Executive Officer

Right. I might add to -- one thought is that they're nice deposits, nice core deposits. But at the same time, it's not like metro deposits where it may be fast, I mean, in and out or moving, you've more movement. These bankers and these three bank groups have stabilized the deposits over an extended period of time of servicing these families and communities and these friends and relationships out and around in their market for countless number of years.

So they've nurtured and developed the right to service those particular customers in those particular markets. So they've done a very good job on the market share.

Brett Rabatin -- Piper Jaffray -- Analyst

OK, great congrats on the deal.

Operator

Our next question is a follow-up question from the line of Matt Olney with Stephens. Please proceed with your question.

Matt Olney -- Stephens Inc. -- Analyst

Yeah. Thanks for taking the follow up. Wanted to circle back on M&A and by raising, I guess, the capital, it sounds like you continue to see a big opportunity for M&A even beyond Citizens Bank. So can you talk about just the characteristics of these targets and the pipeline as you see it right now?

Dean Bass -- Chairman and Chief Executive Officer

I would have been surprised if you didn't ask that question. I had already made my notes waiting on you. So with that being said, you know what I'm going to say. We stayed focused on increasing shareholder value, and you know I'm going to say we're acquisitive, measured, and we're disciplined, and most importantly, we're disciplined and how we approach it.

Looking for the right partners, so the answer to your question is yes, yes and yes. And so yes, we are very interested in finding additional partnerships that can help build this franchise and continue to create the market share value. Because these are excellent banks -- excellent bankers and there are more out there, and we're very interested in that process.

Matt Olney -- Stephens Inc. -- Analyst

And Dean, it seems like all three of your deals you've announced since being public have been double digit EPS accretive on announcement. So can you talk about just the challenge of trying to maintain such accretion levels upon announcement as you guys get larger. In other words, are you looking at larger targets as you guys migrate to a large asset size or are you sticking in that same range as before?

Dean Bass -- Chairman and Chief Executive Officer

It's a natural movement to look for more movement, so to speak and to look for banks that are a little bit bigger. The good thing about Texas, we have a number of friends, partnerships and bank groups that are out there at the different sizes. When you have over 200 banks that are between 100 million and $500 million range and you've got another what 70 to 80 banks in the next year from 500 million to 1 billion and about that many at the next year. And we have relationships and contacts in each of those levels that we're nurturing and talking to.

Matt Olney -- Stephens Inc. -- Analyst

OK, great. Thanks for taking the follow up.

Operator

Our next question comes from the line of Brad Milsaps with Sandler O'Neill.

Brad Milsaps -- Sandler O'Neill + Partners, L.P. -- Analyst

Hey, good morning, guys. You guys have addressed almost everything, but just curious with the ROA and the efficiency goals, jeff, that you outlined, how many -- I know you said that the first 25 basis points wouldn't have a huge impact on the NIM, but if the Fed were to cut more, what impact would it have on some of those ROA and efficiency targets? Just curious how many rate cuts you guys are assuming on some of those goals.

Jeff Powell -- Chief Financial Officer

Actually, the simulation we ran was 100 basis point shock and it had a very minimal impact. So even if we had two or three rate decreases, I don't think it will have real nominal impact as far as our balance sheet goes. Part of it -- it's what David talked about as far as protection on the loan side and what Jerry talked about as far as already cutting rates in advance on the CD book as we move into this. One other thing.

I want to back up. When I was talking to Brady, and I think he said from 1 35 to 1 40 ROA, is we layer on the next acquisition. In 2020, our projected ROA targets are from 1 40 to 1 45 and in 2021, we're looking at 1 45 to 1 50. So I want to back up and make sure I got that right.

Brad Milsaps -- Sandler O'Neill + Partners, L.P. -- Analyst

Great. That's helpful. And then just kind of a couple of housekeeping things. With the Chandler deal, any major change to the tax rate going forward? And then secondly, was -- the borrowing that you're going to pay off the line of credit, was that outstanding for the entire second quarter? Or did you have it drawn on the line for the entire 90-day period or did that come at the end?

Jeff Powell -- Chief Financial Officer

It was in the middle. I think it was at the end of the first month of the quarter, right around there. So we'll see pickup on that and that will be a great thing. And actually that will help margin that will just help us all the way through as far as some of our numbers go.

Brad Milsaps -- Sandler O'Neill + Partners, L.P. -- Analyst

Tax rate?

Jeff Powell -- Chief Financial Officer

Oh, tax rate. No, we should be -- tax rate should be neutral with this transaction.

Operator

There are no further questions in the queue. I would like to hand the call back to management for closing comments.

Dean Bass -- Chairman and Chief Executive Officer

I just want to thank everyone for being a part of this discussion. And we look forward to further opportunities to discuss with you, and thank you very much for being a part of it.

Operator

[Operator signoff]

Duration: 46 minutes

Call participants:

Jerry Golemon -- Executive Vice President and Chief Operating Officer

Dean Bass -- Chairman and Chief Executive Officer

Jeff Powell -- Chief Financial Officer

David McGuire -- President and Chief Lending Officer

Matt Olney -- Stephens Inc. -- Analyst

Brady Gailey -- KBW -- Analyst

Brett Rabatin -- Piper Jaffray -- Analyst

Brad Milsaps -- Sandler O'Neill + Partners, L.P. -- Analyst

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