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FB Financial Corp
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Good morning, and welcome to FB Financial Corporation's Fourth Quarter 2018 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 website at www.firstbankonline.com and under SEC's website 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. The 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 securities laws. All forward-looking statements are subject to risk and uncertainties and other facts that may cause actual results and performances 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 not to 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 SEC 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-GAAP financial measures as defined by SEC Regulation G. A presentation of the most directly comparable GAAP financial measures and a reconciliation of the non-GAAP measures to comparable GAAP measures is available under 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 SEC's website at www.sec.gov.
I would now like to turn the presentation over to Chris Holmes, FB Financial’s President and CEO.
Thank you, Jane. Good morning, and thank you for joining us on this call to review our results for the fourth quarter of 2018. We appreciate your interest in FB Financial.
On today's call, I'll review the highlights of our fourth 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 and then that will be followed by your questions.
This quarter we continue to see strong balance sheet growth. Our team continues to deliver outstanding organic growth balanced with solid profitability while our returns on assets and tangible equity were less than recent quarter’s primarily due to our previously signaled mortgage results and also some margin compression that we experienced.
Well we're proud of the annual results and we have a great foundation heading into 2019 Last quarter, I covered four main themes for the company: First of those, loan growth deposit growth and margin; second, mortgage; third, credit; and fourth, capital. Those same themes hold true for this quarter and I'll address each of those, but I also want to add M&A as a fifth topic since we have the Atlantic Capital branch transaction pending, and I'll provide an update on that.
First, covering our balance sheet growth and margin, we once again showed robust loan growth with 14.5% annualized growth over the third quarter. For the year, we grew our loans held for investment about 15.8%. We're fortunate to be in markets with very vibrant economies resulting in strong companies with increasing loan demand and given the strength of our core markets, we expect to continue to see robust demand and a steady supply of good lending opportunities for the foreseeable future. We continue to target long-term loan growth of 10% to 12% and we intend to manage within that range as we tweak our management process to bring additional focus on deposit relationships and the margin.
On the liability side, customer deposit growth has been robust at 13.7% for 2018 and 5.1% annualized for the fourth quarter. However, low-cost customer deposit growth has become our biggest challenge in the year with most of the incremental growth over the last couple of quarters coming in the form of higher cost time deposits. Our execution has not been as focused on the deposit portion of the business over the last couple of years because it didn't have to be, and that's not a positive statement on our execution, but it’s a fact. So growing a relationship that result in core deposits is a high priority for most of our relationship managers. Success in deposit business comes slowly, but we expect results to show over future quarters.
In addition, to the focus on our organic deposit growth, we'll also look to continue to bolster our deposit portfolio and liquidity through acquisition activity. The deposit portfolio is one of the most important criteria for us in evaluating acquisition opportunities. We believe that M&A is a very viable avenue for growing high quality deposit relationships for us -- is more viable for us than it is for many of our competitors as demonstrated by the recent Atlantic Capital transaction. Since our community banking model is understood and embraced by many of the banks throughout our geography seeking to partner with another institution.
With that background of loan and deposit growth, our net interest margin excluding accretion and non accrual collections decreased to 4.33% this quarter. We're continuing to see solid loan growth opportunities with our customers which put pressure on our funding leading to lower incremental spreads.
We anticipate the core NIM to experience less pressure in the first quarter and to be in the 4.25% to 4.35% range. The margin decrease once we close the Atlantic Capital branch transaction -- I'm sorry the margin will decrease once we close the Atlantic Capital branch transaction because the yield on the loans we’re acquiring is less than our current loan yield, but the core deposits we are acquiring will decrease our cost of funds and the excess liquidity will give us flexibility to slow the growth in the higher cost deposits or to pay down the cost of borrowings in the short term as we deploy in the new loans over the long term.
Our total mortgage operations including our retail footprint contributed a $1.8 million pretax loss for the quarter and $5 million of income for the year. This compares to a $4.4 million contribution in the fourth quarter of 2017 and $18.1 million contribution for the full year of 2017. 2019 is currently shaping up to be a challenging year for the mortgage industry, similar to second half of 2018 in our view.
We like everybody else on the planet are not capable of predicting mortgage volumes with any degree of reliability, so we're going to stay away from that. Our evaluation of mortgage is ongoing with a focus on delivering better results than this quarter and we expect mortgage performance in 2019 to be similar to 2018.
Credit metrics continue to reflect the benign credit environment. We don't have signs in our portfolio of deteriorating credit. We're seeing continued strong employment in job growth, high confidence loan business owners and good loan demand in our markets.
Speaking briefly on capital, our capital levels remain in a position of strength as solid returns have continue to build our equity, and our Board of Directors have approved another quarterly dividend of $0.08 for this quarter, as we maintained our buyback authorization as a tool to manage our excess capital.
The one use of that excess capital and addressing M&A is our previously announced acquisition of the branches in East Tennessee and North Georgia from Atlantic Capital. Timelines, conversions and integrations are all scheduled.
We're pleased with everything about that transaction, but especially with the quality of the approach and the attitude that the Atlantic Capital people bring to the table. Both those that will be joining FirstBank with the transaction and those that are part of the Atlantic Capital's corporate teams that are assisting in the conversion.
To summarize, we delivered strong loan and deposit growth of solid margin and managed expenses. Our returns were less than we typically delivered in the mortgage results in the compressed margin, but even so our full year results outperformed most of our peers. We're proud of our team for delivering those results and between our Sydney branch deal and our organic growth prospect, we're excited about what 2019 has in store.
With that overview, I want to turn the call over to James to review our results in some more detail.
Thanks, Chris, and good morning everyone. First, I want to recap our operating results for the quarter as highlighted on Slide three. Our adjusted diluted earnings per share were $0.55 on an adjusted net income of $17.3 million, delivering an adjusted return on assets of 1.37% and an adjusted return on tangible common equity of 13.5% and we produced an adjusted return on assets of 1.69% and adjusted return on tangible common equity of 17.1% for the full year.
Our performance fourth quarter 2018 versus fourth quarter of last year was driven by outstanding organic growth offset by higher funding costs and provision for loan losses of $2.2 million, due primarily to our robust loan growth as well as the $1.8 million loss from our mortgage operations.
Our performance for the full year of 2018 versus 2017 was driven primarily by organic growth, seven more months of the Clayton Bank acquisition as well as the lower tax rate offset by the decline of mortgage overall.
Now on slide four. It illustrates the underlying fundamental trends of the company's profitability and demonstrates the consistent performance that we are targeting. Our adjusted return on average assets was 1.69% for 2018, demonstrating the strength and durability of our core franchises' earnings power, which enables consistent growth and profitability. The sustained level of profitability has been driven by a balanced loan growth, the margin that remains with the highest among our peers, expense control and fundamentally sound credit quality, while being slightly offset by a challenging mortgage environment and increasing deposit costs.
Slide five presents the fundamental elements of our net interest margin. In particular, our healthy loan yields, fees and core deposit portfolio. As Chris mentioned, our deposit cost increased this quarter, partially due to the full impact of the time deposits rate in the third quarter. But our net interest margin remains strong at 4.5% or 4.33% excluding accretion and nonaccrual interest collections. Accretion and nonaccrual interest collections along with the loan fees decreased $1.2 million from the last quarter.
Taking a minute to speak about of our margin, we felt the full impact of the customer time deposit balances that relates in the third quarter. However, our cumulative data since rate increases began December 2015 is approximately 31% and our net interest margin remained towards the upper end of our peers at 4.5%. One piece of the margin and interest income impact that I think is lost at times is the loss for sale balance. In the fourth quarter, we had $1 million left in interest income related to that portfolio than we had in the third quarter due to lower mortgage production.
As we go forward anticipating lower balances and mortgage, we've recently purchased additional securities increasing that portfolio to approximately $650 million at the end of the year. That shift in earnings asset mix contributes some of the decline in the margin. Another item that will impact the net interest margin is the Atlantic Capital acquisition. Right now, we estimate that that will be approximately five to 10 basis points diluted to our margin after closing and going forward without considering the inclusion of any accretion from the transaction.
We continue to feel good about the relative strength of our margin, but we anticipate ongoing headwinds from our cost of funds throughout 2019, particularly if the Feds continuing to raise the target rate for their beliefs through to customers across our markets seeking higher rates.
Moving onto slide six. As Chris mentioned previously, we produced another quarter of robust loan growth above our long-term 10% to 12% target range. We finished the year at 15.8% growth, but we believe that we will settle back in the 10% to 12% organic growth in 2019. Our objective remains consistent, profitable and relationship growth, not merely focusing on hitting quarterly targets, especially given our increased funding costs. We also stayed comfortably within the regulatory thresholds on construction and development in commercial real estate concentration ratios.
Overall, loan pricing has not expanded at levels similar to deposit costs. However, we have benefited from approximately 50% of our portfolio being variable primarily tied to LIBOR or prime REITs. On the fixed-rate side, we have not seen the same lift due to a flatter yield curve and overall competitive pressures.
Now moving to slide seven. Our customer deposits were $4.1 billion, up 13.7% from the fourth quarter of last year and up 5.1% on an annualized basis from the third quarter of 2018. We had decent growth this quarter that was partially impacted by a $24.6 million decline in noninterest bearing mortgage servicing escrow deposits. Without this impact customer deposit growth was more in the 8% range for the quarter. While we saw deposit costs move up this quarter, we believe that the magnitude of the increase was more a result of the catch-up from the deposit promotion that we ran during the second half of the third quarter. We will however continue to see deposit costs increase as we grew our deposit base to fund our loan growth. However, we have been able to deliver our promotional time deposit rates by 25 to 30 basis points since the end of the third quarter.
In the latter half of this year, we expect to see a little bit of relief as we bring home approximately $200 million of excess deposits from the pending branch deal as Chris mentioned.
Turning to slide 8. During the fourth quarter, our total mortgage operations had a pre-tax loss of $1.8 million when our retail footprint is included. For 2018, our total mortgage contribution equaled only approximately 4.6% of the company's adjusted pre-tax income which is down from 19.6% in 2017.
Our lock volume declined to $1.3 billion in the quarter compared to $1.7 billion last quarter and $1.8 billion during the fourth quarter of last year, competitive pricing pressures from the REIT environment are weighing on both volumes and margin. We took some serious strives towards expense reduction and rightsizing the channels during the quarter. We are hopeful that this should pay-off in 2019 but we continue to monitor to see if additional steps need to be taken, ideally mortgage which show modest improvement for the full year 2019 as compared to 2018.
On slide 9, our operating leverage declined slightly this quarter compared with prior quarter staying near 50% for the Banking segment of our target. The quarter-over-quarter movement from 52.4% to 52.9% in our Banking segment efficiency ratio is primarily explained by the decline of the market – margin while expenses were overall stable.
We expect Banking segment net interest expense excluding mortgage related expenses to grow in the mid single digit range relative of growth and additional investments in revenue producers and technology across 2019. Our effective tax rate was 24.9% for the fourth quarter. For 2009, we expect our effective tax rate to be 24.5% to 25.5% range.
As shown on Slide 10, our asset quality remains sound and provides a strong foundation for our company. Non-performing assets to assets picked up a bit for the quarter as we had a couple of the legacy loans downgraded with one credit going on non-accrual, but on the whole our own portfolio remains in solid shape.
As largely expected, our loan loss provision of $22 million for the quarter was driven by strong loan growth, renewals of previously acquired loans and net charge-offs of six basis points of average loans as compared to net charge-offs of six and five basis points for the linked-quarter and fourth quarter of 2017 respectively.
Our capital levels as shown on slide 11 remain strong enabling future growth both organically and through the Atlantic Capital transaction Our capital structure remains relatively simple giving us flexibility as needed to potentially add non-common equity sources. Since the first quarter after our IPO our tangible book value per share has increased by $5.46 or 4.72% this – during the quarter and year at $17.2, driven by our strong financial results and the accretive Clayton Banks merger.
We expect our tangible common equity ratio to settle into the 8% to 9% range immediately following the closing of the branch transaction in the second quarter. Additionally, in the first quarter, we are selling approximately $2 billion of servicing with $30 million of associated mortgage servicing rights to manage our overall regulatory capital levels. We expect to experience no material gain alone from that transaction.
Our board previously authorized a $50 million share repurchase program. However with the pending branch deal, we don't anticipate exercising much of that plan in the near future maybe $5 million to $10 million.
With that overview, let's turn the call back over to Chris for closing comments and then we'll open the call to your question.
All right, thank you very much, James. We appreciate your interest. We appreciate your investment in FB Financial and look forward to your questions and updating you on the next quarter of our expectations and our continued growth. Operator, this completes my remarks for the morning's call, and we would now like to open it up for questions.
Thank you. [Operator Instructions] We will take the first question from Catherine Mealor from KBW. Please go ahead.
Thanks, good morning.
Good morning
Good morning, Catherine. How are you?
Good. I wanted to start on the margin, and just [hold it up] [ph] the cost of deposits. It feels like before – [indiscernible] FBK before the ACBI branch deal comes online, it feels like -- what I'm hearing from your some of your forward-looking comments that you believe that the pressure of deposit cost should moderate in the beginning part of this year just given that maybe some of the either promotional rates on some of your CDs have come down since third quarter. Is that a fair assessment? And how does that -- and how do your expected rate hikes kind of factor into that guidance?
Yes, Catherine I think that's a fair assessment in that we do expect some moderation or even I guess seeing some moderation at the end of the quarter and end of this quarter. And we ran pretty hard on a promotional campaign and brought in approximately doing $50 million of funding at relatively high rate what we thought that was a good move for us. From a balance sheet management perspective, we knew there was going to be a cost associated with it and there was. And we continue to bring in some funding at a higher incremental cost because we continue to grow at a pretty high rate.
But we do think that that moderates some as we're into 2019. And partially what allows that to moderate so that you had said three ACBI branch acquisition, partially what allows that to moderate though is the fact that we -- and this was calculated when we did the transaction, and we bring in the ACBI branches, I mean that's over $200 million more in deposits than loans, and so that -- again that's something that's important to us and one of the reasons that we reached down to that transaction.
Yes, I think overall Catherine we've seen the rates seem to abate somewhat although at higher level. I think if the Fed continues to raise, what does that do to the customer mentality? I think for the most part there's a cumulative catch-up has been baked in by our customers in the rate environment. So I think we can better control that plus we have -- we raised the additional funding where we can take some pressure off on absolute funding growth as we continue to grow the balance sheet in that 10% to 12% range on the loan side.
Got it. And so as we think about your NIM guided range of 4.25% to 4.50%, it's a big range, so how are you thinking about that range with ACBI for the year?
Yes. So I think as we look at the next quarter first, we're thinking lower half of that range, so we were saying in that 4.25% to 4.35%. And then as we bring on ACBI probably immediately, if you remember we adjusted the range up when we did the Clayton acquisition. If you look at what's coming on from ACBI, their loan yields are actually less than our loan yield. Their deposit cost is less than our deposit cost, but their net spread is less than ours.
So it will decrease our margin immediately. We're estimating in the five basis points to 10 basis points range. That's our estimate today. Keep in mind, things can move around a little bit between announcement to close and that's not -- we don't know what that will ultimately look like. So we're saying five basis points to 10 basis points is our estimate today on what would happen when that came in.
And as I've said, we kind of plan to use that excess funding to give us some flexibility maybe immediately on lowering some cost on the funding side, and then again it get us some longer-term flexibility, so.
That's really helpful. Thank you.
About half of --
Go ahead.
I was going to say about half of that about 100 billion or so that CD production was in the 11 months, so we'll start some of the maturities early in the third quarter, start coming through with that flexibility we can probably have more flexibility to manage that cost of those renewals down in the latter half of the year.
Okay. That's great. And then you're still really low levels, but non-performers increased just a little bit, I think about $5 million linked quarter, anything any commentary there?
Yes. Yes. I'm glad you asked, plenty of commentary. Yes, we had one loan actually that we put on non-accrual, and so it's one loan about $5.7 million. Just some quick characteristics, been in our portfolio longer than have been in our portfolio, frankly, it has been around for a long time. And it has been a marginal performer; we went back and got some additional collateral on it a couple of years back.
So we feel actually quite good about not having any material loss positions if any. Frankly, we feel good about not having any loss position. But the entity sort of stopped operating and so we put them nonaccrual until we get worked through the disposition.
All right. Great. Thank you.
Thanks.
[Operator Instructions] We will take the next question from Peter Ruiz from Sandler O'Neill. Please go ahead.
Good morning, guys.
Good morning, Peter.
Good morning.
Most of my questions been answered, but just kind of wanted to hear your commentary, it still sounds like you're still bullish on the pipeline heading into 2019, but just any color or moving parts there? What you're seeing in the markets? How is competition shaking out? And are you seeing any kind of market-wide slowdown at all?
Yes. Peter, some commentary -- I guess a couple of key notes that pop to mind. We're actually continuing to see robust demand. We're actually continuing to see strong demand. And so, customers seem to be optimistic. Customers seem to have good liquidity. Customers seem to be positive. And so all that's good. And I'd say that's pretty much across our market. So I think that pretty much goes across our markets. One term I have used when I said -- when I was talking about 2019 was that we would be manage -- managed growth in that 10% to 12% range, notice last year we were almost 16% on the loan growth side, we were almost 14% on the deposit growth side. That 10% to 12% in the current environment with a lot of robust demand, we're not sure where we are in the cycle. We think 2019 looks to be a great year economically and hopefully 2020 as well. But we're certainly later in the cycle.
So there is more caution on our part [Indiscernible] everything is flashing green. But just trying to be wise about how we manage our balance sheet going forward, we think that 10% to 12% is probably a prudent range going forward. That's a strong -- still a strong growth rate, allows us to really focus on both sides of the balance sheet and margin. And so that's really how we feel as we go forward. So importantly, I'd say as I say that I want to reemphasize, we're not seeing any problems in our portfolio or problems in the market. And I'll make one last comment. We do see things get more and more competitive and we see some things that we wouldn't do and don't do and that's why I think the managed growth is appropriate as we head into 2019. We still think hit our targets with no problem, but we want to manage in that range.
Great. Thanks. And maybe just on mortgage, just assuming that there is another leg down, a material shift in leg down in terms of volume and anything like that. Are you guys mostly done with the restructuring efforts there? Are there any additional changes that maybe need to happen in this first quarter or you guy's kind of hoping to kind of keep things where they are?
Yeah. Couple of – a couple of things there, one, we're not happy with where we are from a profitably standpoint and so we never done – and I'd say we never done. And so we'll continue to look and challenge ourselves on the operations. And so we'll continue looking and challenging certainly into the fourth quarter – I'm sorry – into the first quarter. So we'll be – so we will continue looking, we will continue challenging. We are – mortgage appear for you for all of us it's difficult to predict volumes, because basically they’re going to be tad closer to interest rates and maybe heavily to interest rates, less so to the couple of other factors, but it's difficult to predict. And so we're staying away from making too bold of a prediction there. I will say, we certainly hope that this quarter when you look going forward, we don't expect $1.8 million losses in the mortgage business as we move into the full quarters of 2019.
Okay. Thanks. I will step back for now.
Thank you, Peter.
Thank you.
[Operator Instructions] We will now take the next question from Jennifer Demba from SunTrust. Please go ahead.
This is actually Steve on for Jennifer.
Good morning, Steve.
How are you guys? First off, I see the clarification the margin guide that you guys gave the 4.25% to 4.35% was that for the full year or the quarter?
Quarter
Okay. And your kind of commentary on the margin as we move forward does that include any rate hikes? Does that change how you guys think about the deposits through the year? Is there still a catch up we'll see?
We don't think the rate environments will drastically impact as we think the catch-up is in there. I mean, obviously there is some re-pricing, but we are 50% of our loans are also variable. So those should kind of weight out the unknown factor it was – what is – is it a cumulative does in the customer's mind we think we've seen some abatement of that offering rates brokerage CD rates some of those things that have somewhat abated even with the latest couple of rate hikes in the later half of the year. So we're pretty optimistic that the rate hikes will have a significant impact going forward on that, but again cautious because of the customer behavior. And I would say the competitor behavior as well.
Yeah. So practically speaking, I think we're probably close to neutral there. And our cumulative beta – our beta was very low. We've got – more recent quarters it's certainly been much higher, but our cumulative data is still quite reasonable and James has less catch-up constant in those rates that caught up with kind of customer expectation. And we've seen at least over the last few weeks a little – maybe abatement there in terms of customer expectations. So we are hopeful that that will carry on into the four and as rate hikes come, perhaps it's not quite as impactful from a beta standpoint.
Perfect. Thanks guys. Looking kind of at your competition practices, are you guys changing anything in 2019 targeting deposits more or any kind of certain types of deposits?
Yes. Our loan growth has been robust and it's -- and I will be careful how to say this because we've got all of our employees and everybody else on the line, but it hasn't been -- it's never easy and I want to say that it's ever easy, but at the same time, it's not required just the ultimate intensity over the last few quarters because we're in great markets. We've been -- we haven't had to take every deal to make our goals. And so we've been -- we thought we'd been prudent there. But we also haven't had as much intensity on the deposit side because we've had excess funding.
And so what we do, what we talk about everyday that’s what good operators and good executors do and so that’s what we will be doing and so if there is a change, it’s really around the intensity with how we manage deposit generation. And I’d say that’s not a transformational change. That’s an incremental or an evolutionary change. It’s not something that’s where we are having to totally change our model or anything like that.
Okay, perfect. And then just I guess one more question, you guys brought up M&A a little bit. Just wanted to see what’s kind of the time line you think for this? Would you have to wait for ACBI integration to be well underway or do you have capacity today to take on another acquisition?
Yeah, we -- if you look at our acquisition, so if you look at our acquisition history, we’re thoughtful and prudent about that. So we did one 20 -- like 2015. We did one in 2017. We did one in late 2018 and closed in 2019 and so we haven’t had a history of backing up deals. And I don’t really expect that to change for a couple of reasons. One, what we’re looking for is not just on every deal. Our reference is important as part of our criteria is this private side of the balance sheet that we bring on. And so we get contacted constantly or constantly taking a look at banks and so -- but frankly most of them don’t meet that criteria from a deposit standpoint.
And then secondly and we think of ourselves as operators at integrating those and then operating at a high levels is not easy And so we'll continue to look, we'll continue to do some things, but it will be in a measured and disciplined way. And the third part of that is I mean we see pricing that -- we see some pricing on some deals that is not valuable for shareholders. It dilutes as oppose to create value for the shareholders both in the short-term and the long-term and we just don’t do that. We get -- if you could see us in the conference room right here; we probably got close to 50% of our shares sitting around the table. And we don't go out and do bad deals because that over ego. And so that's a moderating factor for us as well.
And one other thing Steve I would just point out one of the branch deal, the closing and the conversion will be simultaneous, so the integration will be much farther along than a normal M&A transaction where you might close and not convert for three or four, five months for whatever happens to be. So once we close and shortly after that that one will be -- down to the more business integration, which our markets will handle. So it would free up that some of those resources that the deals were to come along. That made sense like Chris said.
Perfect. Thanks guys for the time.
All right. Thank you.
Thanks, Steve.
We'll now take the next question from Tyler Stafford from Stephens, Inc. Please go ahead.
Hey, good morning, guys.
Good morning, Tyler. How are you?
Hey, Tyler.
Great. Thanks for the question. Yes. Hey, I wanted to just to start on some of the loan growth commentary you made earlier and it's evident you guys have the growth engine that could produce kind of that mid-teens growth range from here. But I know you're talking about kind of managing that down back towards that 10% to 12% range. I understand if there's some competitive dynamics that's going to manage that down and prevent some of that stronger growth.
But I'm just trying to understand if there are certain portfolios you feel less comfortable, more rapidly growing at this point that you're going to be kind of deemphasizing? And then what portfolios as you kind of look out towards that 10% to 12% growth that you still at this point in the cycle feel comfortable growing?
Yes, Tyler. Yes, I think you described all that appropriately. We have shown ability to grow pretty relatively well. We certainly have the ability to grow at a very attractive rate. And when we think about those portfolios, yes, there are things that we're staying, we're measuring carefully before we go in.
I always like to remind everybody, we are community bank, so we operate as a community bank. And so we're not sort of red liners on products or asset types where we go, you know what we're getting out of this and we go out to our customers and say, hey, we need you to pay us off, because we're getting not your asset class. We don't do that.
We're relationship-based. We know people. That wasn't for a long time. And so if we get them in hospitality industry, we are accustomed to deal with them. We know what they do. They know us. And so we typically will continue to deal with them, the same way in other asset classes like multi-family or others.
That being said, construction, we are careful on constructions. These days that's not the same, we don't do it. We're just careful on it. Land, we've seen increasing opportunities to do larger and larger land deals. We're very careful on those. It's got to be folks that we know and land that we are familiar with every square inch of. Yes, multifamily is something that we've been careful on for a while now. Hospitality is something that we've been careful on for a while now. And so those would be the things that we have an extra measure of caution on.
And then the other thing that we do Tyler and we use to manage our portfolio is we -- given the size, we're capable of generating and holding some large credits. And so, we are careful to sell those down again just as a risk mitigation factor. And so we get into some interesting conversations around here with our star RMs who may be generating $50 million deal that is solid or solid to be, but we just don't want to hold that much of a single credit and so we'll end up selling that down. And so we consistently do that. And we've got frankly community bank partners out there that are clambering saying hey, do you have something for me? Can you sell me something? And so we have done that and will continue to do quite a bit of that, maybe even some more of that on these types of deals, just making sure that we're mitigating our risk there.
The one thing I didn't mention was our C&I. We continue to grow the C&I portfolio. We want to continue to grow the C&I portfolio because obviously that brings -- those are operating companies that bring deposits with them and we like those. They are always competitive, but we like those and we're going to be competitive with everybody else. In some cases, we're going to outcompete folks for those deals because we like both sides of the balance sheet that we are in.
That was very helpful. Chris. Thank you. And just last one for me on the mortgage, just want to be clear on what the expectation is. So with the structural and operational changes in the mortgage group that you guys kind of talked about or handed out in the press release. So those changes should produce slightly better pretax mortgage contribution in 2019 relative to 2018. Is that the expectation?
Yes. Yes and you indeed attest the tentative of the nature of my yes. That's -- we look at 2019. We think the year for mortgage is going to be similar last half of 2018 which was great. And if you look at our pretax last year mortgage about $5 million. And so we look out this year, we hope to beat that and whether that's $5 million in one or $10 million which is where we are backing off. Let's say where we're backing off. So we see the year is being similar to last year and that's really where we're holding in terms of given much additional color on mortgage at this point. I will say this and I'll just reemphasize this because while we got a lot of competitors that would absolutely kill for a 1.35 ROAA, we had a 1.35 ROAA in the quarter with a $1.8 million loss pretax and mortgage a decline in the margin. And you know it normalized provision. And so if you just take that pre-tax loss even if you just turned it into a breakeven in our quarters substantially better you can turn it into a profit then it's substantially better that much more. And so that's where we are optimistic and then we begin to add some of the funding things we've done to create some reposition of the balance sheet for us in terms of being looking into 2019 and trying to produce consistently improving results, we feel pretty good about some of the moves we've made in the last three or four months.
That's helpful and I can appreciate the difficulty forecasting the mortgage expectation. I just want to make sure that the 2019 commentary you're sharing was relative to the full year 2018 not the back half of the slight loss that you saw -- back half 2018's there was slight loss that you saw. So that's helpful. Thanks for clarifying that. That's it for.
Okay. Yes and that is right. You've got that right when you restated it.
Thanks, Tyler.
We will now take the next question from Alex Lau from JPMorgan. Please go ahead.
Hi. Good morning, guys.
Good morning, Alex.
Good morning, Alex.
So just a quick question on your CD campaign, want to get a sense of how much of it is new money versus are you seeing some of it come from existing balances like from interest checking accounts?
We obviously, it was targeted to either expand relationships or get new relationships of which the bulk of it was – based on our best guess somewhere around $50 million of it moved from other buckets probably more from money markets than anywhere else, but that was our best quantification of it, and that was during the third – during the third quarter part of the campaign. The campaign ended on September 30. We kept the products out there, but lowered the rates down by 25 to 30 basis points since that point.
Got it. That's helpful. And then just even on NIM, so you should you see a benefit on the loan yields in 1Q from the December rate hike? And you've also given the guide for 4.25% to 4.35% for the first quarter. Now assuming that pauses on rate hike from here on out where do you think margin will progress after the first quarter?
Yeah. I think the first thing after the first quarter you're going to have the impact of the Atlantic Capital. They'll probably bring it down as we said 5 to 10 basis points depending on how we ultimately deploy and take-off. I think once it steps down, I think that level it will remain relatively constant for the remainder of 2019 somewhat depending on slight benefits from rate hikes potentially later in the year.
But it's going to count level out and settle in – in that range. That range now is much tighter than it had been previously where we are we had 4.25% to 4.50% range. We tightened in that range believing it will stabilize within that range after we deploy the excess liquidity. And then it should start as we did turn some of that liquidity back into loans over future periods probably beyond 2019 that that could begin to grow again.
Great, thanks for the color.
Thank you, Alex.
Thank you.
We'll now take the next question from Christopher Marinac from FIG Partners. Please go ahead.
Hey guys, good morning. I wanted to ask a further question on deposits and as it relates to kind of the comparison of what it takes customers to move to you on interest checking versus the straight DDAs? How is that comparison today and how do you see it evolving?
Yes. And so when a customer is moving it -- when it takes a relationship today and so I would say that’s the test is most important and that's what we deploy. And so it's not easy to get folks to move their check in account. Second thing is we do have an attractive checking product with the savings combination. We’ve got rewards to try put interest rate on it and it is -- it does have some requirements attached to it and frankly just about all of our -- most of our customers qualify for today, it involves a debit card, it involves certain number of transactions.
And so it's -- it continues to be -- it's always been hard, continues to be hard. But when you look at our proposition in terms of attractiveness of the product, the convenience of the branch network, the mobile offerings in the brand which I think are all important things. Those are things which are actually quite good, all of those are quite good and a lot of our markets, the brand is not as developed as we liked it to be in some of our market because a little more reason and some banks that have been there for decades to decades, but those are things it takes to move. We've got those and so generally we’re calling on folks with relationships.
That sounds good Chris. Thank you for the background. Just a quick follow up on a separate topic of CECL. How do you see that playing out this year both for yourself internally, but also more poorly kind of how is it a catalyst for merger discussion as this year unfolds?
I don't think Chris that is going to be huge catalyst for M&A. I think it will be probably a large amount of work and a lot of discussion going on and around it. But I don't think it'll lead to changing the M&A. The credit will be credit the numbers. As you head into it, the debate will be how do you consider it if you’re announcing a deal late in the year. How do you consider that knowing that the traditional fair value versus the CECL additional impact and what that does to you to the initial day one dilution on a deal probably be the biggest play may impact from timing I think more or so than that absolute discussion as we move forward.
Sounds good, James. Thank you both, appreciate it.
Thanks Chris.
We will now take the next question from Daniel Cardenas with Raymond James. Please go ahead.
Good morning, Daniel
Good morning, guys.
Hi, Daniel.
Just a couple of quick questions. Just on the margin guidance you provided that was core margin correct?
That's right, that's right
Yes.
And then how should we be thinking about yield accretion impact in 2019?
Last year we had I think it was about $7.5 million in total accretion from the two prior acquisitions Clayton and Northwest Georgia. I think on those it's about $5 million to $6 million for next year coming through. And then we will likely have a fair amount of accretion coming from Atlantic Capital because the rate mark on that one with the rising rate environment that we're in will be fairly significant that will kind of influx until we close so that mark happens to close. But we'll be relative to that deal fairly significant going over the next couple of years.
Right, good. And then on the provision side, I mean, we saw a $2.2 million number this quarter and the numbers kind of bumped all over the place, but how should we be thinking about provision on a go-forward basis? Is it primarily just for growth in renewables? Or what do you guys see on the credit front? I think what's your outlook on the credit quality going forward? Are we at a tipping point or -- ?
The growth in renewables on the credit side, generally, on the quality of the credit and the portfolio, we're not seeing anything that causes us concern. So I think it's primarily going to be a growth in renewables. I would expect it kind of in that range. It can be a little plus or minus, but I kind of expect it in that range as we are pushing forward.
Okay.
Yes. A part of that renewable part as loans coming out of the purchase accounting model over into the regular provisioning model for that. It’s been a fairly large flow over the last year, as we got to the one -- past the one-year mark of the acquisition in July. So that is impacted certainly as Chris said, it should remain in that relative level somewhat dependent on loan growth and the other factors.
Right, great. And James I think I missed your comments on your expectations for operating expense growth in 2019?
Yes. I said in my comments that it would be kind of over 2019 with our investments and a new producer for the full year, we've added a 15 plus on the second half of the year throughout the full impact of that plus hopefully additional ones coming on board, plus new investments in technology and other things. They'll be in that mid single-digits throughout 2019.
Right. That's all I have. Thanks, guys.
All right. Thanks, Dan.
That concludes today's question-and-answer session. Mr. Holmes, I would like turn the conference back to you for any additional remarks.
All right. Thank you all very much for joining us this morning. We appreciate your interest. We appreciate your investments forward and we look forward to talking to many of you throughout the quarter and then joining us again next quarter. Thank you.
Thank you.
This concludes today's call. Thank you for your participation. You may now disconnect.