Ameris Bancorp
NASDAQ:ABCB
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Ameris Bancorp
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Good morning, and welcome to the Ameris Bank First Quarter 2019 Financial Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded.
I would now like to turn the conference over to Nicole Stokes, Chief Financial Officer. Please go ahead.
Thank you, Gavi. And thank you to all who have joined our call today. During the call, we will be referencing the press release and the financial highlights that are available on the Investor Relations section of our website at amerisbank.com. I'm joined today by Dennis Zember, President and CEO of Ameris Bancorp; and Jon Edwards, our Chief Credit Officer. Dennis will begin with some opening general comments, and I will discuss the details of our financial results, before we open up for Q&A.
Before we begin, I'll remind you that our comments may include forward-looking statements. These statements are subject to risks and uncertainties. The actual results could vary materially. We list some of the factors that may cause results to differ in our press release and in our SEC filings, which are available on our website. We do not assume any obligation to update any forward-looking statement as a result of new information, early development or otherwise, except as required by law.
Also, during the call we will discuss certain non-GAAP financial measures in reference to the Company's performance. You can see our reconciliation of these measures and GAAP financial measures in the appendix to our presentation.
And with that, I'll turn it over to Dennis Zember for opening comments.
Thank you, Nicole, and thank you to everyone who has joined our call today. I want to share a few highlights about the quarter and why I'm excited about the rest of 2019, and I'll give you an update on our merger with Fidelity Bank.
For the quarter, we earned $0.90 per share on an adjusted basis, which is up 23% compared to this time last year. Since the end of the first quarter of last year, we've closed both the Atlantic Coast transaction and the Hamilton State transaction. And in those merger announcements, we said the two deals combined for about a 12% lift in earnings per share.
The economics on those deals call for us to get cost savings, balance sheet restructure and some modest growth in Atlanta and Orlando. We've hit all of those targets that we were looking for and we've delivered on the opportunity from those deals. The other half of the growth in our earnings per share, about 12%, resulted from organic growth, internal cost controls -- internal cost control strategies and growth in non-interest income lines of business.
Growing earnings at a double-digit pace in this rate environment, especially during the integration of those two deals, is a solid achievement by our staff and our bankers, and I'm very proud and thankful to be reporting these earnings.
Our margins, net of accretion, expanded this quarter to about 3.83%, resulting from several quarters of higher loan production yields and a move in overall loan yields. The move in the margin would have been nice to have reported on its own, but we accomplished this by having -- at the same time having more deposit growth than loan growth by a considerable amount, actually, over last year. We've moved our loan-to-deposit ratio back to 86% from 96% at this time in 2018 and done so without impacting our margins or our profitability.
Our other operating ratios were strong this quarter as well, with our adjusted return on assets coming in at 1.51% against 1.44% in the same quarter a year ago. Our efficiency ratio moved to 55.5% in the first quarter of this year against 60% the same time in 2018. And our return on tangible capital came in at almost 19% from 17% in the same quarter a year ago.
From an operating perspective, the first quarter is always, by far, a toughest quarter. And for us to have these ratios to start out the year speaks to the kind of momentum and energy we have for 2019. The softer parts of our quarter centered on two areas: operating expenses and softer than expected loan growth. On the expense side consensus, operating expenses was about $70 million -- were about $70 million. Nicole has a reconciliation of mostly one-time items or cost savings that lags, that's actually more than the difference from our reported results and she'll cover that shortly.
Growth in the quarter was a mixed result. We had outstanding growth in deposits with checking accounts remaining our main focus and our key success. Loan growth was slower than we hoped, both in average balances and those at the end of the quarter. I'm not worried about the flat loans for the quarter, because I know that's not a trend that we'll experience for the rest of the year. This month already, in fact right before Easter weekend, we were up about $110 million in loans from the end of the quarter.
Our production levels and our pipelines are higher by about 50% from this time last year. We have about $800 million of unfunded commitments compared to about $347 million at the same time in 2018, so more than a double there. Given all of that, I'm confident that we're going to have the growth we need, and that we're going to be able to find it very profitably.
Trend-wise, I feel like our markets are very strong and there is plenty of loan demand. I get lots of questions about when we will know that it's the right time to pull back or to slow down on our efforts, and so this quarter I kept a running tally of the 50 largest deals that we had a leading shot at doing, but for whatever reason we didn't book the loan.
Nicole's presentation shows we did about $613 million of loan production, which is really just in the bank, not the lines of business, with a yield of about 5.78%. The 50 largest deals that we did not do totaled just over $600 million in sales. And while this information is only anecdotal, really at best, I think it's informative. Of that lost production, 52% of the dollars dealt solely with sponsors wanting either complete non-recourse or some level of non-recourse that we just couldn't stomach. Only 6% of that lost production related to borrowers that wanted leverage that was outside of our policy limits, and only 14% related -- and only 14% of that production was lost, because we couldn't hit our profitability targets. The remaining 27% related to some structural issue or a product or collateral type that we just weren't comfortable offering.
I collected this data and I'm offering it, not because I'm trying to illustrate our discipline necessarily. I'm encouraged, and I think investors should be too, that such a small percentage of our deals are of the deals that we've missed, for us only 6% have sponsors with limited cash or investment in the deal.
I'm really encouraged that very few deals don't hit our profitability targets. We've always been pretty tight when it comes to recourse, to wanting borrowers to be on the hook. And we've been able to hit our growth goals in spite of that. Atlanta, Orlando and Tampa may be a little different kind of markets with respect to the level of recourse that you can find. And so we are looking at our policy, and of course, we're willing to make exceptions where we need to, but I'm pretty cautious stepping out too far at this stage of the cycle.
I like where we are in our growth goals, I like how conservative we are on our concentration limit -- level, and I like how diversified we are on the whole portfolio. Right now, I don't feel like I have to step any harder on the gas to get a higher level of growth only to hit a certain EPS or profitability target, and I think that's encouraging.
We saw a nice move in tangible book value to $19.73, which is higher by 17% against the same quarter in 2018. Our tangible common equity ratio increased to almost 8.5%, which is the highest level we've seen in almost two years. And looking forward and even with the small amount of dilution we expect from Fidelity, I expect our capital build will allow us to finish 2019 with growth in tangible book somewhere in the mid- double-digit range.
I'll let Nicole give you more color about the numbers in the quarter, while I give you an update on Fidelity. Right now, even with the protest out there, we expect that the deal will close sometime during the second quarter of 2019. The integration of the two companies is proceeding at a very fast pace. And once the legal merger is consummated, we will be very far down the road putting the two companies together financially and culturally.
On Page 25 of the investor presentation, we've listed six key areas that we are communicating about internally that we believe will -- that we believe summarizes what it takes to call this combination a success. And I'm putting this out there, because I have this much confidence that we're going to deliver. The first on the cost savings. We've identified every single penny of our announced cost savings already, and we'll have made every decision to realize those savings during 2019, such that we will start 2020 on a full run rate.
Secondly, our efforts to recruit additional bankers and invest behind the ones we already have is impressive, with us talking to about 20 commercial lenders about joining our team. The quality of these additions, their customer base, their experience level is impressive. Success on the recruiting front looks very promising and so I'm confident about being able to redeploy the proceeds from the order book as we get the paydowns we expect.
Our presence and our image in Atlanta is driving the inbound phone calls from customers and bankers that we hoped it would and we're working to still better refine and drive our image with branding and marketing efforts that will be blunt and will coincide with our legal close and conversion.
Fidelity and Ameris Bank both have solid and profitable mortgage teams. Fidelity's mortgage team is very recognizable in Atlanta and that's important to our future there.
We've made announcements internally about management structure and our background support and the result will be an integration of the two teams that achieves all of our cost savings, increases the product offering for the Fidelity Mortgage Banker and materially protects their comp and incentive plans.
Lastly, the conversion of the Fidelity customers onto the Ameris Bank platform. We're fine-tuning all of the expertise that we need in both companies, as well as our product and service offerings. This is the last item on the list, but it's the most important, or at least as important as the cost savings. Across our Company, everybody knows what this conversion means to our reputation, and we'll get it right and impress the new customer base.
Once we close this deal and execute on our six items, we'll be -- we'll have a $17 billion balance sheet with top quartile operating ratios and a franchise that cannot be replicated. Hitting these targets is going to create franchise for our Company and our investors at an impressive pace and position us exceptionally well for any economic environment, I'm pretty excited about that opportunity.
I will stop there with respect to results and Fidelity, I'll turn it over to Nicole to discuss more the financials.
Great. Thanks, Dennis. As he mentioned today, we're reporting adjusted earnings of $42.6 million or $0.90 per share for the first quarter. These adjusted results primarily exclude about $2 million of merger charges and $1 million of restructuring and loss on branch buildings. Including these items, we're reporting total GAAP earnings of $39.9 million or $0.84 per share. The $0.90 per share EPS represents a 23% increase over the $0.73 per share we earned in the first quarter last year.
And as Dennis mentioned, we projected the Atlantic Coast and our Hamilton acquisitions. Remember, we completed both of those in the second quarter of 2018 and we projected that those would be 12% accretive to EPS. That means that we almost doubled our result from our original expectations through both acquisitions combined with the organic changes.
Our history of outperforming initial deal expectations remain consistent. This exceptional result is because of our bankers and our lines of business are contributing beyond our modeling.
Our adjusted return on asset in the first quarter, which is normally a slower quarter for us, was 1.51%, which was an increase from the 1.44% reported first quarter last year. We stated for several quarters that we strive for a 1.50% ROA, and we believe that obtaining an ROA north of that in the first quarter is an excellent result, proving our core profitability, especially in a quarter that is a typically slower quarter for us.
Our adjusted return on tangible common equity was 18.82% in the first quarter of 2019 compared to 17.09% for the same period last year. Our current tangible book value per share was $19.73 at the end of the quarter, an increase of $0.90 per share during the quarter and an increase of $2.83 when compared to this time last year. That represents a 16.7% increase year-over-year in tangible book value, including the effects, or absorbing the effects of two acquisitions.
We had an impressive positive move in our net interest margin during the quarter, increasing 4 basis points from the fourth quarter of last year. GAAP margin came in at 3.95% compared to 3.91% last quarter, and margin excluding accretion increased even more, coming in at 3.83% compared with 3.75% last quarter. And accretion income continues to be a smaller percentage of total revenue.
For the first quarter, our yield on earning assets increased by 14 basis points, while our total funding costs increased 11 basis points. Excluding accretion, our yield on total loans increased 19 basis points from the fourth quarter of last year to the first quarter of this year. Our core bank production yields were 5.78% for the quarter against 5.19% in the same quarter a year ago and 5.74% last quarter.
On the deposit side, we were successful in growing noninterest-bearing deposits and improving our mix, such that noninterest-bearing deposits are now over 28% of our total deposits. Deposit production for the quarter was $478 million and noninterest-bearing production was over 38% of that total. We recognize the deposit betas are not always linear and since the Fed has appeared to have paused, we looked back on our deposit betas from inception of the Fed REIT raising in December of '15, and since that time frame forward, our deposit betas have had a remarkable 31% for total deposits. This has really allowed us to have a stable healthy margin throughout the cycle, and we believe that we can continue to see a stable margin going forward and the Fidelity deal only helps strengthen that.
Moving on to noninterest income, it was consistent with the fourth quarter of 2018 and our lines of business continue to provide significant financial results. Mortgage revenue, which is cyclical and usually slow in the first quarter, actually beat the third and fourth quarter of 2018 results. Mortgage production was flat relative to the first quarter of last year, but the net profitability quarter -- first quarter last year to first quarter this year increased by over 47%.
Production in the warehouse lending division increased over 25% during the first quarter of '19 when compared to first quarter last year. And net income there increased over 38% during the quarter, compared to last year. We believe the mortgage division, combined with the Fidelity mortgage group will continue to grow -- to provide strong financial results for us.
As Dennis mentioned, our adjusted efficiency ratio was 55.12% for the first quarter of 2019, compared to 59.95% in the first quarter of last year. However, compared to last quarter, the efficiency ratio increased by about 102 basis points. The seasonal payroll taxes that we incurred in the first quarter affected this ratio by approximately 92 of those 102 basis points. And we believe the efficiency ratio will decline throughout the rest of the year.
When looking at operating expenses, consensus was approximately $7 million -- $70 million of expense for the first quarter and our adjusted expenses came in higher at about $72.3 million. We have a little over $3 million of expenses in the first quarter that are not recurring in future quarters, such as operating expenses on the closed branches, which were opened part of the first quarter and some data processing charges left on the old contracts and termination fees on closed branches.
In addition, when you look at data processing, comparing first quarter of 2018, which was before the Atlantic Coast and Hamilton acquisitions, for this quarter, our data processing recurring run rate has increased only about 10% year-over-year. However, our number of accounts and volume and transactions have increased over 40%.
On the balance sheet side, organic loan growth was slower than we had planned, and Dennis already explained quite a bit of that. Production was strong in the first quarter, coming in at over $613 million for the quarter, but net loan growth was negatively impacted by early payoffs and delayed funding of that production. However, as Dennis mentioned, we do already see the momentum picking up in the second quarter so far.
There are several things that give us real confidence that our asset quality would remain strong. Our annualized net charge-off ratio was 17 basis points of total loans and 27 basis points of non-purchase loans. Our non-performing assets as a percent of total assets decreased to 54 basis points compared to 61 basis points at the same time last year. From the slides in our investor presentation, you can see our diversification across loan type and geography, and you can see how the Fidelity acquisition continues to help with diversification.
One of our biggest successes in the first quarter has been deposit growth. As Denis mentioned, our deposit growth was stronger than our loan growth. Moving our loan-to-deposit ratio from 96% in March of 2018 to 86% at March of '19, really is an accomplishment and assists us to be a stronger competitor going forward, especially with the disruption we expect in Atlanta with the recent acquisition activity there.
As I already mentioned, deposit production for the quarter was $478 million and noninterest-bearing production was over 38% of that. We are really proud of our ability to grow core deposits at a faster pace than loans and to fund our future growth through organic relationships rather than wholesale funding. We believe this safely grows our balance sheet and continues to increase shareholder value.
I'd like to again emphasize how excited we are about the rest of 2019, and what it means for our Company. We are proud of our first quarter results and we really look forward to the remainder of the year. We remain confident in our outlook and our ability to execute our plan to deliver top quartile results for our shareholders.
Dennis, with that, I'll turn it back over to you, or do you want to jump right to the…
First, right to the Q&A.
All right. Gavi, we're ready to go live for the Q&A.
Okay. We will now begin the question-and-answer session [Operator Instructions]. The first question comes from Tyler Stafford with Stephens Inc. Please go ahead.
Hey, Nicole, I want to just start on one of your last comments, just about that $3 million of expenses of the -- the $72.3 million in the first quarter that you said is not repeatable. Is it the $3 million of $72.3 million or $3 million annualized that's not repeatable going forward?
No, it's $3 million of the $72 million.
Okay.
That's not repeatable.
Perfect. Okay. Thanks for clarifying that and then just sticking with expenses. Obviously, there's a lot of moving pieces with Fidelity coming on board, and the associated cost savings there. But there is an, call it, $80 million delta or so between the high and the low 2020 expenses from the Street, so I was hoping you could just connect the dots for us on the pro forma expense base on the combined companies with the cost savings for 2020.
Yes, the 2020 cost savings are projected to be around -- between $440 million and $450 million of expense for the year.
And then -- thanks for clarifying that. And then just lastly, maybe for Dennis, Slide 25 mentions the efforts working on the 20 commercial bankers, getting those to the finish line. I don't think you've mentioned that in the deck, hiring kind of expectations in the past, like that. So can you just talk about, geographically where those bankers are based, and is it fair to say those are a result of recent larger MOEs within the market, any more context you can give us there?
I would -- some of it relates to us being a little more aggressive, knowing that we've got almost $2 billion of indirect auto and some mortgage pay-offs on the Fidelity balance sheet that we're going to have to reinvest. So some of it is feeling -- we feel like we need better loan production capacity. Some of it is from that and just us being more aggressive. I would say that some of the larger banks that are doing restructures and obviously SunTrust and BB&T with their pending merger, has definitely shaken loose some opportunities that we would not have been able to look at. All of the 20 that I mentioned are from banks larger than us. Thus I'll leave it at that.
Got it.
And they are mostly commercial oriented, mostly C&I oriented. Not -- there are -- I mean, some of them have maybe more of a generalist, where they could potentially do some CRE as well, but we're focusing more on C&I. 15 of those 20 are in Atlanta.
Great. Thanks for that detail. And maybe just one more if I can sneak it in. Slide 24, around the Fidelity Southern expected EPS accretion mentions high single digits. And then Slide 28 mentions mid-single digits. Can you guys just clarify the current expectations for the combined EPS accretion from that acquisition?
I think we came -- 6% to 7%.
Okay.
So, 7% -- I mean, we said --
So, that would be high-mid [multiple speakers]
Maybe, going forward, we're just going to say a percentage and not be coy.
The next question comes from Brady Gailey with KBW. Please go ahead.
So, we've seen -- we didn't see much loan growth this quarter. And your loan balances were kind of flat last quarter. It sounds like quarter-to-date it's picking up. But I think I have -- I think I remember you guys saying roughly $1 billion a year of annual loan growth. Is that -- do you think that is still achievable or do you think we're looking at something a little less than that for 2019?
It's probably something a little less than that. I mean, we did dial back on -- we had been doing some mortgage portfolio. We've dialed that back a little. A lot of that has mortgage rates or for the balance sheet, aren't as attractive as they were this time last year. And that was -- so that was probably a $100 million to $150 million of that.
So, I mean, when I say a little less, I don't mean $1 billion is going to $0.5 billion. We're probably more $800 million to $900 million, just given that mortgage portfolio -- portfolio banking from the mortgage side is not as attractive as it was. I think we're probably a little -- growth-wise, I'd say that premium finance, we feel a little better about that. I'd say, given where we finished the quarter on unfunded commitments with CRE, I think we feel a little better about that.
We will land these -- some of these bankers, so C&I growth is going to be a little better. But like I said, unless we're willing to give on -- unless we are willing to give on the recourse side, I just don't think we're going to get a lot of growth in CRE, I think, outside of what we've already closed. And -- I mean our production does look good, but to really put on the growth that we would love to have, we're going to have to do something different on recourse and I don't know that we're going to go there wholly.
All right, that makes sense. And then, I know last quarter you all had thought about the core NIM kind of being stable from here, but it was actually up -- what? About 8 basis points linked quarter, so it came a little better than you all had thought. Do you think at 3.83% the core NIM is stable from here or could it slip back to that kind of mid- 3.70% range that we saw kind in the back half of last year?
I would tell you that -- linking to your last question -- Yes -- if we think we're going to maybe be 10% lower on the kind of loan growth we were expecting, 10% on growth. So maybe instead of $1 billion, $900 million, we're going to be getting a little less in loan growth, we are going to be pushing a little harder on the profitability side. I would tell you that we -- at 86% loan-to-deposit ratios, loans are somewhere like around 81% or so of earning asset. I've built -- that number is going to tick up a little.
We had great growth in deposits this quarter, but for the year I still think loans will probably outpace deposit growth and you'll see a little more concentration of earning assets in loans, which are going to give us a little better NIM. I don't think the NIM is under pressure from here. I mean, especially given that we're sitting here with 86% loan-to-deposit ratio, when we've normally been a touch above 90%, I think that alone will sort of hold us where we are, or better.
And then lastly for me, Dennis. If you look at where the Company is now, I mean, you're -- with LION in there you're going to be $16 billion, $17 billion. I meant that's multiples ahead of where you all were, say, a decade ago. So you have the scale, clearly you have the profitability with what we see in this quarter. I know, near term, you're going to be focused on LION and getting that thing closed and integrated. But I mean longer term, do you think that M&A will still be as big of a piece of the Ameris strategy? Or do you feel like you've kind of hit the level where you have scale, you have profitability, and M&A really won't be as big of a strategy as it has been over the last decade?
I mean, I love M&A. And so, it's hard to say that it is not going to be as big a part. I mean, it will be different, for sure. Atlanta, it's the first time in Ameris' history that we got enough concentration in enough really top-tier markets that we can put up the earnings-per-share growth double-digit per -- earnings-per-share growth without having to do M&A, and the past decade has just been sort of messy.
M&A is kind of messy, especially -- culturally and financially. But we've been able to grow the Company and grow earnings and grow operating ratios through M&A. Right now, I will tell you, we are so squarely focused on integrating Fidelity culturally and financially, and hitting those targets on that page that -- I mean, we still have phone calls -- incoming phone calls and we still have all the conversations we've had in the past, but to move us off -- to move us off a -- started to say something my mom wouldn't appreciate, a near perfect execution on the Fidelity deal is going to be pretty hard.
Once we see our pathway clear on those six items, once I know for sure we're going to have the image in Atlanta it takes to move a lot of business off the other bank's balance sheet onto ours, same thing with their bankers. Once I see that the cash flows from the indirect auto are going into higher yielding commercial assets, got all the cost savings, once I see our pathway clear to that, I think we would be willing to look at M&A. I would -- I'm not going to be coy, I think M&A is still going to be part of our strategy. It's just not going to be part of our strategy until I know that we have executed near-perfectly on Fidelity.
The next question comes from Jennifer Demba with SunTrust. Please go ahead.
Dennis, you mentioned that things are a bit more competitive in the larger markets like Atlanta, Orlando, Tampa. How do you think your credit policies are going to have to evolve over the next couple of years as you are getting more meaningful in these markets, particularly Atlanta with the LION deal, and the hiring you're aiming to do here?
Probably we're going to have to -- getting to this point, we've not had to rely too heavily on C&I lending or middle-market type stuff. So we're going to fine-tune what we're doing there. I don't know if that's policy as much as that's just staffing up and getting a little more expertise in credit administration.
Recourse, until we sort of found our way into Atlanta, in Atlanta we're trying to bank $10 million, $20 million, $30 million commercial real estate deals, a lot of times they have tenants that may not be credit tenants -- credit rated and all that, but they do have -- they do have balance sheets and operating histories that are maybe a little better than what we've seen in some of our more legacy markets. And so that's kind of what we're wrestling with internally. Do we treat those CRE deals that won't have a little more non-recourse, do we treat them a little more like C&I loans with covenants in the search.
And we just -- right now we're just not there, we don't really feel like -- I don't feel like we've got to do much of that to be too creative to be -- like I said, step on the gas any harder, just sort of hit our EPS numbers and our profitability targets. I mean, we are going to be progressive and we're going to be creative where we need to be, but we're not going to alter. This is not the time, I don't think to do something to alter our risk profile. And I don't feel like we have to do that to redeploy the cash flows from Fidelity's auto book, or to get the growth that we're looking for.
Also, you said you're working on 20 new hires. What is budgeted for '19 and '20 in terms of hiring for Ameris?
We -- before the Fidelity deal, probably 10 bankers. With the Fidelity deal, and knowing that we've got to redeploy all of those proceeds, we're probably closer to 30 or 35 bankers. So, I mean, had we not done Fidelity, I think we would have -- we had about -- we have about 110, 115 bankers, commercial bankers in the Company now. I think we probably would have hired another 10 or so, mostly in Orlando and Atlanta. I think now with the Fidelity deal and all the new proceeds, I think we're probably 20 or 25 better than that.
And that's per year or over the next couple of years?
That's per -- over -- that's between now and middle of next year.
[Operator Instructions] The next question comes from Brett Rabatin with Piper Jaffray. Please go ahead.
Wanted to go back -- I joined a little bit late, but just want to make sure I -- I had a clear on the expenses and just you had the $3.1 million that you kind of take out. But I want to make sure I understood. So the $72.3 million, you're saying that -- and there's another $3 million that's kind of not ongoing, that was in 1Q?
That's right. There's about $3 million there. So you're exactly right. There is about $3 million excluded from GAAP expenses to operating expenses. And then included in that operating, there is about another $3 million. I think that were true operating expenses this quarter, but things that are not recurring, such as operating expenses for the one month that the branches were opened. Those payroll taxes that always hit the first quarter and then some other small lagging things and the cost saves that we didn't get a full quarter of and we put them all together, it's about $3 million.
Okay. Great. And then just wanted to ask on -- just thinking about growth and maybe more of the challenges today, is what you're seeing -- I'm just curious, does it change anything on your plan for LION? And just maybe I know some of that book was going to be run down. Do you change your plan on any of that related to auto or can you maybe just give us some color on -- updated thoughts on their loan book?
It doesn't change our opinion on the auto book. And I mean, I have a high opinion of the auto book from a credit perspective. I mean that auto book outperformed our balance sheet by -- credit losses by 20% or 30%. I mean it was -- it did really well in the recession. The problem is, right now, yields to us with Fidelity are barely 3%. It may not even be 3%. It's just -- it's hard to originate and sell that paper. I mean, if rates dropped so precipitously over the next three months or six months, such that there was a lot of gains and lot of excess spread there, I mean maybe we would look at it.
But the fact is it's -- that's not going to happen. We don't want to -- the auto book is sort of not core. We still like -- from our franchise value perspective, we have more franchise value, we have more yield, we have probably similar credit economics, if we went into, sort of, higher quality commercial assets. And I think really that's the goal here. We don't want to move to Atlanta in such a meaningful way and be doing indirect auto.
And I'm not saying that -- I'm not saying that really critically of the indirect auto book, I'm just saying that we believe the way to maximize our franchise value is to move that into that amazing book of deposits they have into local commercial assets in the City of Atlanta, and that is our goal.
Okay. Appreciate the color. Thanks.
All right.
Thanks, Brett. I was going to add real quick on something that I said earlier that maybe I can clarify, is when we look at 2020 run rate -- run rate of the expenses, including Fidelity, there is a lot of moving parts. And I think when I clarified kind of the run rate for 2020, maybe I wasn't clear that it's -- between four -- what we estimate to be our total run rate for 2020 operating expenses is closer to the $420 million, $430 million.
I think I've got tangled on my answer there to Tyler, possibly on cost saves versus spending. And so, we really anticipate the 2020 expense rate to be closer to the $420-ish million, $430 million and that includes -- I think we originally estimated $410 million to $420 million. But as we start putting in some of the growth opportunities for these commercial lenders that we can plan on hiring, so we've increased that just slightly.
This concludes the question-and-answer session. I would like to turn the conference back over to Dennis Zember for any closing remarks.
All right. Thank you, Gavi. Appreciate your attendance on the call today. Nicole and I are available all day, really all week, I guess, really any time for questions or answers. Text or email, whatever you want to, we will be willing to get on the call with you. Thank you again, and we'll see you soon.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.