FB Financial Corp
NYSE:FBK
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FB Financial Corp
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Good morning, and welcome to FB Financial Corporation's Second Quarter 2019 Earnings Conference Call. Hosting the call today from FB Financial is Chris Holmes, President and Chief Executive Officer. He is joined by James Gordon, Chief Financial Officer, and Wib Evans, President of FB Ventures, who will be available during the question-and-answer session.
Please note, FB Financial's earnings release, supplemental financial information, and this morning's presentation are available on the Investor Relations page of the company's Web site at www.firstbankonline.com and on the Securities and Exchange Commission's Web site at www.sec.gov. Today's call is being recorded and will be available for replay on FB Financial's website approximately an hour after the conclusion of the call. At this time, all participants have been placed in a listen-only mode. This call will be open for questions after the presentation.
During this presentation, FB Financial may make comments which constitute forward-looking statements under the federal security laws. All forward-looking statements are subject to risks and uncertainties and other facts that may cause actual results and performance or achievements of FB Financial to differ materially from any results expressed or implied by such forward-looking statements.
Many of such factors are beyond FB Financial's ability to control or predict, and listeners are cautioned to not put undue reliance on such forward-looking statements. A more detailed description of these and other risks is contained in FB Financial's periodic and current reports filed with the Securities and Exchange Commission, including FB Financial's most recent Form 10-K. Except as required by law, FB Financial disclaims any obligation to update or revise any forward-looking statements contained in this presentation whether as a result of new information, future events or otherwise.
In addition, these remarks may include certain non-Generally Accepted Accounting Principle financial measures as defined by Securities and Exchange Commission Regulation G. A presentation of the most directly comparable Generally Accepted Accounting Principle financial measures and a reconciliation of the non-GAAP measures to comparable GAAP measures is available in the FB Financial's earnings release, supplemental financial information, and this morning's presentation which are available on the Investor Relations page of the company's website at www.firstbankonline.com and on the Securities and Exchange Commission's website at www.sec.gov.
I would now like to turn the presentation over to Chris Holmes, FB Financial's President and CEO. Please go ahead sir.
Thank you, [Indiscernible]. Good morning and thank you for joining us on this call to review our results for the second quarter of 2019. We appreciate your interest in FB Financial. On today's call I'm going to review the highlights of our second quarter and then I'll turn the call over to James Gordon, our Chief Financial Officer who will provide additional analysis on our financial results followed by your questions.
The theme of the quarter and the first half of the year is consistent execution, and I'm proud of the results our team has delivered. This performance included a core net interest margin excluding accretion and non-accrual interest of 4.22%. Our return on average assets of 1.1%, return on average common equity of 17.0% and EPS of $0.70, all of those adjusted. The important deliverables during the quarter were first; the stellar financial results, which I just summarized.
Second, improved mortgage operation and repositioning of mortgage from the sales of the two wholesale origination channels. Third, the successful integration of our branch acquisition, and fourth, our continuing upgrades in systems and technology.
First, I'll explain on the banks financial performance this quarter. A 13.5% organic loan growth we delivered another quarter above our long-term outlook of 10% to 12%. We continue to see stronger demand from credit worthy customers and I'm proud of our relationship managers for this results.
Our Nashville and Jackson market led the way a loan growth this time, but we also saw a sound production at East Tennessee, Memphis and Huntsville. On a net basis we didn't grow our deposits organically this quarter as we indicated could be the case.
We utilized liquidity from the branch acquisition to reduce our dependence from higher cost deposits, which kept our deposit cost flat at 1.14%. With rate cuts expected in the near term, we did not push our relationship managers for interest bearing deposits as much as we might have otherwise.
We anticipate the growing funding over the second half of the year will be more profitable than it would have in the second quarter. We were encourage during the quarter that organic non-interest bearing deposits excluding mortgage escrow deposits grew 13.7% annualized from the first to the second quarter.
This growth was driven by our team focused on selling treasury management services following the implementation of a new treasury management platform earlier this year, a key investment in technology for us. The net interest margin excluding the impact of accretion and non-accrual recoveries came in at 4.22% this quarter holding firmly in the middle of our guidance range of 4.15% or 4.30%.
Depending on the number and magnitude of rate cuts in the third and fourth quarters, the margin could be challenged as our variable rate loans will reprice and we will have an immediate corresponding reduction in our cost of loans. Speaking briefly on credit, the environment remains benign and we continue to experience very good credit quality.
We don't see signs of softness in our portfolio yet, but we are very aware that at some point that will change. We continue to be vigilant about quality of the loans that we made and we will try to prune credit that we view as being weaker over the coming quarters to try to get ahead of any downturn. This pruning and some anticipated payoff will likely cause our loan growth to be towards the lower end of our long-term target over the next few quarters.
Moving to mortgage, profitability returned to a level closer to our expectation this quarter with lower interest rates driving increased volumes and improving margins. This improved profitability, included offsets of lower mortgage servicing revenues driven by the first quarter sale of a portion of our servicing rights and higher prepayments in our servicing portfolio.
The sale of our third-party origination channel closed on June 7th, and we intend to close the sale of our correspondent origination channel in earlier August. For the past few months we been restructuring our back office and we'll be able to move that to completion this quarter once the divestitures closed.
Our goal will now that we have simplify the business; is the best-in-class operators in retail mortgage originations both in traditional originations and online. We want to maximize both market penetration and efficiency of this segment while turning mortgage into a primary customer acquisition channel for the bank.
As part of that customer acquisition strategy we intend to hold servicing rights to retail originations to sell most others, maintaining the MSR asset near current levels in the future. Mortgage will always show seasonal swing between the second and third and the first and fourth quarters, but we're happy with how we repositioned ourselves and we hope to deliver consistent, repeatable results going forward.
As we complete our restructuring, I will personally thanks the mortgage team who been working diligently to serve our customers doing the sale of the TPO and correspondent origination channels. I also want to thank those former associates who have transitioned to other entities for their time and contributions here at FirstBank.
I'll now touch on the integration of our branch transaction. When I spoke to you in April, we had just closed the acquisition of our preliminary -- and our preliminary indications where the things were going well.
Having worked with the new team now for several months I cannot be more pleased with the quality of the people and the customers that we've added to our FirstBank family. Additionally, our competitor's merger activity and expense reduction have created turmoil across our footprint and good people and good customers are seeking out new banking relationships.
Our increased presence in East Tennessee and North Georgia has made FirstBank an attractive lending across the customers and associates. So, we're already realized in that strategic aspect of the transaction. We've also executed on the financial assumptions that we laid out when we announced the acquisition in November of last year. To touch on a few key items, the final loan marked was in line with a $9.9 million estimated at announcement.
Our after tax deal charges to date have been $3.6 million as compared to the $4 million estimated at announcement. We estimate that our tangible book value dilution was around 8% as opposed to 9% estimated at announcement. And run rate on non-interest expense which is harder to track which branches are consolidated, but we're in line to be slightly below the $10 million run rate of annual expenses excluding the core deposit intangible amortization that we announced on the call. I'm very proud of our team for their efforts on the transaction.
The outcomes of the branch transaction made me even more confident and ability to further execute on meaningful M&A that's accretive to our business and our shareholders. Fortunately, our position to capitalize on acquisitions comes as we are seeing more opportunities than ever before. Opportunities are being created primarily from course [ph] looking for solution to management success and issues, driving regulatory and technology cost and shareholders searching for liquidity.
Valuation expectations for these banks are mixed. High quality community banks which we generally define as banks with high quality deposit franchises, good credit quality and an absence of wholesale loans and deposits have a good recognition of their value and they are able to realize it.
Low quality community banks which are more powerful [ph] I think that they should be valued like the high quality peers in a finding that they can't sell the bank for what they think they were. We're actively speaking to a few of the aforementioned high quality community banks and hope that we can reach an agreement with one or more of those in the second half of the year.
With the competitive landscape and seller desire for cash, we may need to take some book dilution with the couple of years earned back to get a deal done, but we think our reputation as the acquirer of choice for banks in our geography will help us to price transactions in a manner that will be attractive to our shareholders.
To summarize, we delivered a fundamentally sound quarter that resulted in strong profitability. Between our mortgage divestitures and branch acquisition we feel that we have made strategic move to position the company where for many more such quarter to come.
With that overall, I want to turn the call over James to review our financial results in more detail.
Thanks, Chris and Good morning everyone. Our adjusted diluted earnings per share were $0.70 for the second quarter of 2019 within an adjusted return on average assets of 1.54% and then adjusted return on average tangible common equity of 17%.
Growth, improved mortgage results, expense management and benign credit environment were increased over our adjusted EPS of $0.66 last quarter. Slide four illustrates the underlying fundamental trends of the company's profitability and demonstrates our consistent performance.
Our increase in adjusted return on average assets over the years, as well as our performance this quarter served to demonstrate the strength, durability and earnings by our core franchise. This sustain level of profitability had been driven by balanced loan and deposit growth, the margin that remains one of the highest among our peers, expense control and fundamentally sound credit quality.
Next slide five presents the fundamental elements of our net interest margins specifically loan yields and fees as well as deposit cost trends. As Chris mentioned, we landed in the middle of our target range this quarter mostly due to control in our cost of funds and deployment of some of the excess liquidity that we received in the branch acquisition offset by lower loan fees of approximately $1 million as we lag some of the prepayment fees that bolstered our loan fees in the first quarter of 2018.
In the absence of rate cuts we anticipate being in the 4.15% to 4.30% range for the remainder of 2019 of each 25 basis points rate cut we anticipate the margin declining further 10 basis points for each full quarter in the near term as they will take time for liabilities to reprice downwards.
Roughly 50% of our loan portfolio is variable rate with approximately $1 billion tied to LIBOR and $1 billion tied to prime. We will see an immediate repricing at our variable rate loan portfolios down for rate cut announced next week, LIBOR has already decreased approximately 20 basis points or so at this point.
There are investment portfolio nearly 100% fixed rate, we made few basis points decline in the yield related to accelerated prepayments on mortgage backed securities. While the asset yields may decrease, we also have an opportunity to lower our liability cost over the next few quarters assuming rate decline.
We have approximately $140 million of CD priced around 2.55 coming due to this quarter with another $60 million coming due in the fourth quarter. We hope to be able to retain as much as possible at a lower rate.
We anticipate that our overall CD balance may decline in coming quarters as we allow some highly rate subsided money to lead the bank. Since quarter and we've also taken other actions to impact the margin by obtaining a $150 million at Federal Home Loan Bank borrowings with an average cost to 1.28% and extended stated maturities.
Those Federal Home Loan Bank borrowings are callable [ph] beginning next year but offer and buffer to following rates over the next year while providing additional liquidity. To summarize, we continue to feel good about the relative long-term strength of our margin. We're managing our overall funding cost with the excess funding from the branch deal and expect deposit rates to moderate as rates decline depending upon customer reactions in the comparative landscape.
Moving to slide six and as Chris mentioned previously, we produced another quarter of solid loan growth. Our objective remains consistent profitable in relationship growth not really focusing on hitting the quarterly target especially given higher deposit growth and cost considerations.
We have also stayed comfortably within the regulatory threshold and construction and development in CRE concentration ratios. Despite our use of capital in the branch transaction our C&D concentration stayed roughly flat due to decline in C&D outstanding as a percentage of our loan portfolio.
Next moving to slide seven, our customer deposits were up related to branch acquisitions but down slightly on our organic basis. We let some higher cost funding lead the bank and so our loan to deposit ratio increased slightly in order to gain immediate benefit of the excess liquidity for the branch deal.
In event that we do not retain as much and the term CD that is expected or if we struggled to have non-time customer deposits, we should be able to replace the fund that lower cost given the likelihood of a lower rate environment over the course of the second half of the year.
Next looking at mortgage on slide 8 in the second quarter, our total mortgage operation set an adjusted pretax contribution of $2.6 million when our retail footprint is included. For the quarter, our adjusted total mortgage contribution was approximately 8.7% with the company's adjusted pretax income which is down from 10.4% in the second quarter of 2018.
Our interest rate volume was up significantly over the first quarter at $1.8 billion and down from $2.0 billion in the second quarter of 2018. Lower rates driven higher volumes which improved our overall profitability, however some of that increased was offset by lower net servicing revenue of $2.6 million due to the sale of a portion of our servicing portfolio in the first quarter and higher payoffs from loan in our servicing portfolio.
The two wholesale channels that we are investing [ph] contributed approximately $5.8 million in mortgage banking revenue in the first half of the year with approximately 500,000 of pretax income before allocated costs.
With our cost reduction in exiting wholesale businesses we have not changed our goal of exceeding 2018 full year performance of $5 million in pretax contribution. The remainder of 2019's contribution will primarily come in the third quarter are likely being slightly above breakeven in the fourth quarter given normal seasonal patterns.
We expect banking segment non-interest expenses excluding mortgage related expenses to continue to grow in the mid single-digit range reflective of growth and additional investments and revenue producers and technology.
Excluding our mortgage footprint and estimated increase related to Atlantic Capital Bank, non-interest expenses increased approximately 5% in the second quarter reflecting normal compensation increases and continued investments in people and infrastructure.
Our effective tax rate was 25.3% for the second quarter. For the remainder of 2019, we expect our effective tax rate to be in 23.5% range due to projected equity compensation benefit in Q3 and Q4.
As shown on slide 10, our asset quality remains sound and provides a strong foundation for our company. Non-performing assets, the total assets increased slightly for the quarter but on the whole our loan portfolio remains in solid shape.
We are lower than expected provision expense this quarter on the back of that sound credit quality, but it would expect those costs to increase slightly over the remainder of the year as net charge-offs normalize.
Slide 11, shows our strong capital position and this quarter we estimate that our tangible book value per share was diluted approximately $1.48 by the branch acquisition. Just the first quarter following our tangible book value per share increased by $5.62 or 48.6% to $17.18
Our excess capital was utilized on the branch acquisition this quarter and 9.2% tangible common equity, 11.6% total capital was slightly above where we had forecast. We believe that we are well-positioned to continue grow organically, support our dividend and execute on future M&A.
With that overview, I want to turn the call back over to Chris for closing comments and then we'll open the call to your questions.
Thank you, James. And once again, we appreciate your interest and investment in FB Financial. Operator, that concludes our remarks on this morning's call. We'd now like to open the call up for questions.
Thank you. [Operator Instructions] We'll go first to Jennifer Demba at SunTrust.
Thank you. Can you hear me?
Good morning, Jennifer. We can hear you.
Good morning.
Great. You mentioned obviously credit quality still excellent, but you want to prune some weaker credits over the next few quarters. Any idea what amount of credits you're calling to pruned at this point? And will they be in any particular category? Thanks.
No. There's not anything specific there, but I'll explain it this way. We are undergoing right now on annual credit review process that we do annually. And it’s a process where we get there and we look at all of our credits over a certain balance and then we look at some others randomly and we do that by market. We do it with each market and we do it with our credit team and we challenge the quality of the credits and talk about the quality of the overall portfolio and that process is underway. One of the things that I have challenged that team to do is to look more critically at that portfolio than perhaps we have in the past to do exactly. We use the word prune, use the word prune. And for those credits that are weaker and could be even further negatively impact in a downturn to let's look at how we would take actions to either improve those or move those from the bank, because as we all know once you're in the throes of the downturn, you don't -- it's hard to move anything especially if it's not of high quality.
And so, that's a proactive process on our part, and it's going to be more rigorous than it's been in the past. In anticipation that at some point the economy is not as rosy as it is today. So that's what that's in reference to. And so -- and you would -- as you would expect in terms of what would be -- we're always going to continue to look at the hospitality segment at the multi-family segment, at the -- at some other smaller concentrations that we particularly monitor that are specific to either a market or a footprint or some niche that we have. And so they'll look at all of those, but not with any specific targets other than the internal targets that we already have.
Okay, great. Thank you.
Thanks, Jennifer.
We'll go next to Catherine Mealor at KBW.
Thanks. Good morning.
Good morning, Catherine.
With the follow-up on your expense guide, so you're saying that core bank level expenses from today should increase at a mid single digit growth rate. Is there anything in this past quarter -- I guess let me put it in that way. When we think about ACBI, is this a full quarter with ACBI? Or are there any savings that we should see from that run rate that we have in this quarter? Or so and so off that I guess the bank level expenses were a little higher, so just trying to figure out there's any kind of savings in there before we then grow it at that mid single digit rate?
Not a whole lot of savings allowed, because remember we closed and converted and closed all of the branches on the same day as closing the transaction, so not a lot of savings probably a little bit on the edge but nothing anything material on that front. I would say, a big contributor and I mentioned it in my comments this was quarter where we get the full effect of our normal annual may raises and equity grants and other things. So that should be at the same level. So it shouldn't go up in absolute dollars the same, but we will continue in particular we focus on hiring new revenue producers and making continued needs in the infrastructure and technology.
Okay. Got it. That's helpful.
We did close the branch transaction on April the 5th and so it is in for most of the quarter practically all.
Yes. Okay. Okay. Got it. And then on the mortgage side is there a way to think about mortgage expenses and once we see the full impact of the sale of the third-party and the correspondent?
Well, I think that there's obviously a big component that's variable that's based on the revenue produced like we saw this quarter. We did talk a little bit about the contributions of the two units that are have been sold or will be sold that have roughly $2 million in the first half of the year with $2.5 million of revenues for about $500,000 direct contribution. Then I would. Then we're continuing to cut on the back office size. I would say somewhere in the $500,000 to a $1 million of expense cuts that we're looking at over the coming months or so as we finalize to sell the correspondence that's not in those direct units.
Got it. Okay. And that's on a quarterly basis?
Annual basis.
$500 to $1 million annually.
Yes.
Got it. Okay.
And so Catherine you said is there a way for you to think of those expenses post those two dispositions. And I would just say, yes, lower.
I assume that. I assume that. But -- and then -- and just to make sure I'm on the same page, this $2.5 million revenue that is a first -- what is that time period?
The first half of the year.
Okay. So, those two units were $2.5 million in revenue and $500,000 direct -- bottom line contribution for the first half of 2019?
Yes.
Okay, great.
Actually, I think that maybe let me double check that. Yes. I say 95 million.
Yes. You have…
That $5 million -- half a million dollars of net direct contribution, I'm sorry, is $2.5 million a quarter.
Okay. Just say it again?
So it's about 5 million and five hundred [ph].
Got it. Five million in the first half and then 500,000 also in the first half.
Yes.
Got it. Okay, great. And then one other on the margins, so I mean I appreciate the 5 to 10 bps cut are guidance for lower margin per cut. And I mean -- and it feels high, but is that really just high because you're really not giving any benefit to lower funding costs and does that guide also include any kind of limited excess liquidity from what you've gained in the ACBI acquisition?
We deployed most of that this quarter that there are the little bit well and then we added the additional liquidity to the Federal Home Loan Bank advances that I've talked about. I would say bringing deposit costs down would get us at the five. If we're not able to do that it's closer to the 10. If you think about roughly half of our portfolio is variable rate, if you get a 25 basis point cut that's roughly 12 basis points on the yield just right off the top of the loan yield which is the majority of our earning assets. So that's where the 10 comes from and then the five would be if we're able to cut and control costs along with repositioning some of our wholesale liabilities like we've done since the quarter has ended.
Got it. That's very helpful. Thank you.
Thanks Catherine.
Next, we'll move to Peter Ruiz at Sandler O'Neill.
Hey, good morning guys.
Good morning, Peter.
Most of my questions have been answered, but maybe if you could just give a little color. I know you guys have been pretty transparent on the CD specials and whatnot that are going to be running off here in the coming quarters. But could you give maybe some color on what any potential specials running right now what they look like and maybe what competitors are doing on the deposit side?
Yes. We continue to see some deposit specials in the market and it's been sort of the competitors that are fairly consistent, those that are really having an organic growth pattern and are in constantly growing their loan portfolio, the funding and so we see specials from them. It's kind of a pattern. Some others that aren't growing, we don't know or are kind of quiet in the marketplace because they don't they don't need the funding. And it continues to be mostly driven by really two things time deposits and targeted on more -- little more targeted on money market type products.
Yes. I would say that that's all true. We've seen a little bit of abatement of that over the last several weeks as I think everyone's appreciative that there's likely a rate cut coming sometime when maybe unclear. So we're seeing some abatement in the competitive nature of that. Our current specials are really targeted at that money that is rolling out of that 2.55 [ph] on the 11-month product that we did in the third quarter of last year and we've spread out the maturity in the low twos that they can map over to replace their maturity money at this point.
Okay, great. Thanks.
Thanks Peter.
We'll go next to Tyler Stafford at Stephens.
Hey, good morning guys.
Hey, good morning, Tyler.
I wanted to go back to Catherine's earlier question, just make sure I'm clear on the mortgage expectation. So in the first half of the year, the TPO and correspondent channels were -- they contributed $5 million of revenue with I guess $4.5 million of expenses for the net a five pre-tax?
Yes.
Okay. Okay. Got it. So, with the exit of those two channels, can you frame up just, I guess the looking at a different way, the new, I guess expected gain on sale margin with the absence of those two channels?
It shouldn't move higher, but given the lack of that in both of those how higher margins. Historically it will it will move up but not dramatically from where it's been because the lack of the production from those two channels as we announced the shutdowns over the last quarter or two so. But it will move higher or so.
Okay. With rates where they're at backing up and just the added strength of the mortgage market, do you see upside to upside potential to the $5 million pre-tax I guess guide that you've given previously with lower rates and under the rate cut scenario. Is there is a potential for that to move higher in the back half of the year and on a run rate basis into 2020?
Tyler, there's a reluctant, yes, there could be some. We have as you know we stay away from trying to guide on mortgage. And I think I said last quarter we've given up on being good forecasters or predictors when it comes to rates and mortgage volumes which are closely tied together. We certainly didn't expect the -- we were talking in the first quarter we didn't expect volume to be where it was in the second quarter. And so as mortgage rates continue it's been good for volumes. It's been good for margins. We hope that that continues and that's the case and it leads to some outperformance there.
So we think it -- so that's what -- I don't know – I think that answers your question is that there's a reluctant yes there, but then I'll just throw this in. We try to run a balanced mortgage business. You also heard me say, you like consistent, we like repeatable. We like predictable. And so we saw some balancing of that with mortgage servicing rights, the decay in mortgage servicing rights that were a negative for the quarter that balanced the production. And so that that's a little bit hard to forecast as well. So, all things considered, sure, there's some upside there but we're reluctant to go out and say and rely on that. It really comes down to whether the rate environment canceled out the seasonally decline that you have heading into the fourth quarter and that's an unknown. That obviously has happened in the past, but it's not always an indicator of the future. But that would be the biggest opportunity.
Sure. Understood. And I may or I think I did miss some of the asset -- earning asset repricing details you gave in the prepared comments. Can you I guess go over again kind of the fixed first floating dynamics of a loan portfolio today, and if you guys have any flaws on the loan on the floating portfolio? And then just thinking about that $140 million of CDs that are maturing in the third and fourth quarter just I guess new kind of cost for CD rate right now if you could elaborate on that I'd appreciate it?
Okay. On the on the assets side, so all of our investments are 99% of them are fixed rates, so nothing much coming there, maybe a basis point or two from accelerated repayments on the mortgage backs. On the loan portfolio we have about a little over $2 billion that is variable rate to roughly half and that's pretty evenly split between about a billion in LIBOR and a billion in prime. So the LIBOR is obviously already kind of ahead of any cuts in the prime rate at this point. So that's pretty much the asset repricing side.
On the deposit side, we have one $140 million at 255 that is renewing this quarter in the third quarter. We would think that could come down in to the low the low twos based on the specials that we're running the target those customers and what they would rollover into. Then we have another roughly $60 million of that same product in the fourth quarter is not – we had started lowering those rates and it's about 240-ish [ph]. That's actually 2.43% and so we would hope that could even be lower bringing similar to what we do this quarter.
Now with that said, depending on competition and other things some of that money may leave, but we think we can replace that with short-term wholesale money and probably would take that route and continue to deploy some of the excess liquidity that should help us manage that cost somewhat immediately, but then over time to return the margin to where we're operating today. So it will -- I think the deposit pricing will lag some of that immediate asset repricing.
And Tyler our shortest term we intend in price at 2%, our longest term price about 230. So it's fairly tight there, that long term in 25 months or so.
Got it. Okay. All right. That's helpful. Thanks for that color. And just lastly…
And your deposit, if you're looking for a bark [ph].
I think you're barking up the wrong tree there. Hey just lastly for me just given your M&A comments earlier, is it fair to assume that the buyback activity will remain I guess absent at this point?
Yes. We haven't bought back any share to this point. We do have the authorization in place and we certainly could, but if it looks unlikely right now.
Okay. Thanks guys.
Thanks Tyler.
[Operator Instructions] We'll go next to Alex Lau at JP Morgan.
Hi. Good morning.
Good morning, Alex.
Hi. Can you touch on the organic balance sheet growth during the quarter which excludes the acquisition? Which loan segments or industry do you see drive the loan growth? And also on the deposit side, did you see anything seasonal like with public fund?
Yes. So, on the loan side it hasn't been driven by any particular segment or product type. It's pretty much been spread, and that's actually been pretty consistent over the last several quarters. And so it's come in all forms. C&Is, some CRE, some -- many even some slight bit of retail continue to have some growth in our specialty lending portfolio. So it's not specific to any product type. And we do -- we actually include a graph in there where we try to keep track of that and publicize where that -- where the growth is coming. And so it's been fairly consistent on the loan side.
And on the deposit side with public funds probably the more seasonality in the first quarter than the second quarter, and so to most that was out of the balances in terms of seasonality by the end of the second quarter.
Got it. And good to see non-interest bearing deposit growth in quarter, you mentioned the new treasury management platform. What does the pipeline or opportunity look like for this new platform for bringing on more non-interest bearing deposit?
Yes. So, we're actually excited about that opportunity. If you if you look over say, the last seven or eight quarters even go back further than that we've had good experiencing growing non-interest bearing and it's primarily been driven by treasury management. That was not nearly as robust in the last four to six quarters. And as I mentioned investments in technology and its part of what you get [Indiscernible] sometimes here your systems most others are tied to a pretty small world of vendors out there sometimes your systems can be sunset which took place with our treasury management systems, so we had to go through the process of conversion. And that's probably weighed on us just a little bit during say the last – say, I'll say four to six quarters we saw some growth this quarter because we have converted to the new system. Our folks are excited about it. And so we're hopeful about that moving forward. I said we had 13%, almost 14% growth in non-interest bearing this quarter on an organic basis when you take out the acquisition that's I think really strong.
And so that's something that is a point of emphasis for us. And I think that, Alex, I'm glad you picked up on it, that's something that we're excited about. And I'll add to that, with the disruption in the market between the merger between SunTrust and BB&T some other turmoil et cetera, turmoil are right word that some other movement in the market, we see opportunities there and we see opportunities for frankly some fairly large accounts that don't move very often like maybe once in my career. And so we're trying to zero in on some of those and we're hopeful that we'll be able to. We have gotten a shot at a few of them. We have won a few of those and we want to want to continue to focus on that.
Right. Thanks for that color. And then just the last point you on the technology and system upgrades there's a treasury management platform. Is there anything else that you want to highlight?
Yes. Are online on both retail and commercial is something that our areas that we have targeted or some upgrades and are doing some -- and we'll see some improvements there and some investment there on our part. It's going back to 2016, we did a course systems conversion and so when we did that we were taking a long term view of systematically continuing to rotate some enhancements on all of our customer facing technology. So that works in this treasury system first and you'll see those online systems come next. And then again it's a consistent process over the next. Actually we got a three-year plan there where that will consistently upgrade this.
Great. Thanks for taking my question.
All right. Thank you, Alex.
Thank you.
We'll move next to Brock Vandervliet with UBS.
Hi. Good morning.
Good morning, Brock.
Good morning. Just in terms of the balance sheet shape. Now with rates looking lower not higher anymore, would you consider raising the loan-to-deposit ratio closer to 100%? Or do you kind of like where it's running here?
Yes. We like we're running now. And again we we're not -- we don't consider ourselves great at predicting the future there. And so we want to stay less than 100. And we like where it is today. It's in the high 80s on a loan -- on a Telford investment portfolio and we like that. It could go a little higher than where it is today. But keep in mind we got that held for sale portfolios that will add another 5% or 6% on that. So we're running -- when you add the 100% you're running about 95% and that's where we'd like to be.
Got it. And you mentioned in the opening remarks looking to prune some loans keeping things tight, anticipating slowing at some point. How could you just kind of frame that out a little more how deep do you think you're going to cut there and what characteristics are you are you looking for?
Yes. So, we don't have any certain target that we're going -- we want to cut this much out. We do have a -- I guess I would make the Jack Welch analogy that they used to do gee they used to do in GE, they used to prune a certain amount of folks every year to try to always keep high performers. And we don't have a certain target. It's just as we review the portfolio it's -- think about those that are maybe struggling today. Everything's current, everything's working, but we know the customers that maybe had some challenge in keeping up in good times and when that's the case during bad times bring really bad consequence.
And so, I also will say if you look at the first half of the year, year to-date we're nearly 14% longer. Only 13% on an annualized basis loan growth and we like to grow in that 10% to 12% so we're over that. And so we're not talking about anything drastic in terms of reduction in our portfolio or in our growth rate. But we grow 10% to 12% on an annualized basis, we can already grow at 8% and still be in the middle of that range, right and so I think it's just a good opportunity to try to get ahead in any particular downturn.
And so, we don't have any -- we're not out there going, but we want to reduce by X dollar amount. We're just saying, let's take this opportunity while we continue to have strong growth opportunities to try to make sure our portfolio is as strong as it can possibly be in the face of any downturn.
Got it. Okay. Thank you.
Thanks, Brock.
Thanks Brock.
Next, we'll go to Daniel Cardenas at Raymond James.
Good morning guys.
Good morning, Dan.
So just quickly as it kind of goes to your comments on M&A, sounds like you're talking to a number of folks. But are there any specific markets that perhaps hold more interest for you than others? And then if you could remind us what kind of earned back period would you be looking for in a transaction?
Sure, Dan. So first on markets, we love in footprint for a number of reasons. One, operating leverage; we get some markets where we'd like to have more density to give us more operating leverage. Second, they tend to be lower risk because you tend to know the people and know the customers and know the markets, know the cultures and so we always like in market first. And then we are -- and then beyond that we like contiguous markets and people we know and things that we know and so. And then, I'd say those are where probably most of our more immediate opportunities --- there's enough opportunities.
We do have some ambitions that go beyond our current markets, but we probably have enough opportunities today that are in those first two categories that we wouldn't have to go to the third to be able to jump to markets like Birmingham or Atlanta or places like that today. And so those are the -- that's the geography and the types of opportunities we would really like. As I mentioned, we like banks with strong deposit portfolios. We like good credit quality. And then we like a good solid customer relationship banks and I contrast that with wholesale banks. We see in some banks that have a lot of wholesale loans and deposits and we can do that on our own. We don't need it. We don't pay a premium for that.
And then when we think of the financial metrics, of course we're looking to get some EPS accretion and then we're going to manage any dilution -- tangible book value dilution carefully. We don't like any. And depending on the type of deal we may not be willing to take it. There are some that are quite attractive banks could be quite attractive and could be meaningful to us Again specially if they're in certain markets where we need more than we already have and they'll know we would take some tangible book value dilution. That gets complicated also because today some sellers particularly if it's a privately owned company they may desire more cash. And so that can lead to little more tangible book value dilution. And so we may take some tangible book by dilution, but we watch that closely and we want to manage that earn back closely and we generally going to keep that under three years whenever we're looking at the earn, we generally going to try to keep that under that three-year mark on a transaction that's particularly important even on the transaction is particularly important to us.
All right. Great. That's all I have for right now. Thanks guys.
Thanks, Dan.
Thanks, Dan.
And that does conclude the question and answer session. At this time, I'll turn the conference back over to Chris Holmes for any closing remarks.
Okay. Thank you all very much for your time and thank you again for your interest and happy financial. We'll look forward to talking to you next quarter.
And that does conclude today's conference. Again thank you for your participation.