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Ameris Bancorp  (NASDAQ:ABCB)
Q3 2018 Earnings Conference Call
Oct. 19, 2018, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning and welcome to the Ameris Bancorp Third Quarter 2018 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.

Nicole Stokes -- Chief Financial Officer

Thank you, Chad. 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, I will discuss the details of our financial results, and Jon will make a few comments about credit quality to include the expected impact of Hurricane Michael on our portfolio before Dennis provides closing remarks.

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 might 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 statements 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 in our press release.

And with that, I'll turn it over to Dennis Zember for opening comments.

Dennis Zember -- President, Chief Executive Officer

Thank you, Nicole, and good morning, everyone. I appreciate you taking the time this morning to join us on our third quarter 2018 earnings call. We're really excited about our results this quarter and the momentum we have with earnings and in our operating ratios.

For the third quarter, we are reporting operating earnings of $0.91 a share or $43.3 million, which excludes about a $1.5 million of executive, retirement, merger and acquisition costs and some branch consolidation costs. Including those charges, we are reporting $41.4 million in net income and $0.87 per share. Besides the move in earnings this quarter, our operating ratios came in very strong, particularly given the momentum I know that we still have in the Q.

Our operating return on assets came in at 1.53% in the current quarter compared to 1.26% in the same quarter in 2017. Talking about the return on assets, I remember earlier in the year at a conference or in some meetings, the question was, how was the industry going to invest the Tax Cut. The fear I guess, was that margins would come down or the spending would go up and in the -- and really the industry would just punch out the same results with a little less going to Washington. That didn't happen here.

To test this, I grossed up our third quarter results from last year using this quarter's tax rate and when I do that, I see that our core apples-to-apples profitability ratios are higher now by 11.3%. In other words, we've managed the current rate environment with a stable margin, we've grown our balance sheet by almost 50% through organic and acquisition strategy and we've improved our overall operating performance by double digits. We didn't just rest on the fact that the tax law would make us more profitable.

Sitting here today, I know we still have a material amount of cost savings to realize on the Hamilton transaction and none of the cost savings we announced a few weeks ago are in our current numbers. Hopefully, you can hear how proud I'm of the earnings machine we have built with dedicated bankers that love our strategy and are excited about staying top of class.

Most of the improvement in our operating ratios comes from gains in the efficiency ratio, which moved this quarter to about 54% compared to just above 60% in the same quarter in 2017. Nicole was wagging her finger at me to not forecast a ratio for next quarter. So I won't, but with what we have yet to realize in cost savings, I do feel very confident that 2019s efficiency ratio will keep moving in the direction we have it right now.

If I could be master of the obvious for a second, this move in the efficiency ratio is important for earnings per share, but I see it is critical philosophically to our long-term success and being hyper competitive on the best customers without having to recalibrate our expectations for a return on assets.

I believe we can be top of class of quality with the best customers and still be hyper profitable. I don't think that these are mutually exclusive, especially for company that's willing to focus on efficiency and resources. Our margin in the third quarter, excluding accretion came in at 3.77% against a linked-quarter margin of 3.81%. The entire move in margin this quarter came only from higher levels of short-term assets as a percentage of earning assets, which negatively impacted the margin by about 4 basis points. Our yields and our costs on both sides of the balance sheet were managed exactly how we've been managing for the past couple of years, but we wanted extra cash and liquidity as we closed and integrated Hamilton.

Subsequent to the end of the third quarter, we've used that extra cash and pay off certain Federal Home Loan Bank bonds, so I expect that the negative influence we saw this quarter will be fully erased in the fourth quarter. This is a messy quarter when it comes to evaluating costs on the deposit side of the business. I know there's a lot of sensitivity to deposit betas and deposit costs, but I move this quarter related mostly to a full quarter with Atlantic Coast and Hamilton, which pushed our interest bearing costs higher. The fact is, both of these smaller banks were a little ahead of us on interest bearing costs, but will moderate those levels over the next couple of right moves, one of which we got this past quarter.

On loan growth, we had a slower quarter on loan growth this quarter than what we've experienced in the past. We had the same investor CRE payoffs that the industry is discussing mostly in commercial construction. We also have what I call the first quarter effect on the two acquisitions where we target and move out certain marginal customers that don't meet our credit standards. But don't have the pipelines in production to counter that negative move. These two acquisitions especially together were large enough that this was a noticeable effect, but going forward, I don't think we'll see -- I do expect that we'll see solid growth with these things in these really attractive markets.

Core deposit growth outside of M&A came in at about 17.5% annualized against balances in the second quarter of this year. We had a great quarter on core deposit growth. Across our Company right now, nothing is more important or top of mind than deposit growth. This attention has paid off, this has been going on for more than just this year and this attention has paid off, and I feel confident in saying that we'll beat last year's quarter deposit growth rate of 11%, as we closed out 2018.

This is no small feat, but the competition for deposits, especially the profitable account it's fierce as I can remember. So to be growing core deposits at a double-digit clip is one thing, but to do it in a manner that doesn't push your margin lower is an entirely different kind of result.

As I look forward, I don't see anything changing with respect to our growth rate. We still are looking for loan growth in double digits and for deposit growth rate to continue inching higher toward our expecting growth --expected growth in loans. We finished this quarter with a loan to deposit ratio of about 93% compared to 101% this time last year. So we have a lot more cushion to manage growth rate than we have had in the past.

I'll stop there on the results and let Nicole and Jon leg-in with some more facts. But first let me say something about M&A if I can. This quarter, especially, we've had a lot of questions about M&A with stock prices moving like they have and whether or not we'd still be in the game. A lot of these questions have come in kind of a pretty worry some time, particularly given how the markets reacted to some deals. We all have a lot to worry about. Having for me, I'm worried about raising two teenage son and I worry about our folks that were affected by the hurricane. But nobody on this call now or that listens to it later needs to be worried that Ameris will be doing a deal that does not reward our shareholders, period.

Our recipe for crafting a deal that the market rewards is not any different than it has ever been. That formula is something that's neutral, tangible book value, it has meaningful EPS accretion, there are strategies that we use to deliver the economics are simple, and reliable and something we've done in the past. And it needs to be in a market that would boost our long-term growth rate. Our stock price falling obviously impacts how aggressively we can go after a deal, but our story is good enough that it resonates with Boards and management teams and I'm not concerned that we can't find a good deal even with today's stock price.

Jon is going to give you some more color about the hurricane in his credit comment, but let me say that we were blessed with how well we came through the storm. We do have customers and employees that suffered tremendously and our Company and our employees are aggressively showing up to help and rebuild where we can. We had quite a few branches that we closed ahead of the storm, but today all but four are open for business and we are being creative in our efforts to deliver services where we have a branch that's closed. Please keep these markets and the affected people in your thoughts and prayers for a few months as they rebuild.

So with that Nicole, I'll turn it back to you for some more details.

Nicole Stokes -- Chief Financial Officer

Great, thank you, Dennis. As you mentioned, today we're reporting operating earnings of $43.3 million or $0.91 per share for the third quarter, which is approximately an 83% improvement over the same quarter in 2017. These operating results primarily exclude merger charges, executive early retirement benefits, and expenses related to the branch consolidation plan announced in September. Including all of these charges, we are reporting total earnings of $41.4 million or $0.87 per share.

You will notice that our effective tax rate increased over 24% in the third quarter. This was a result of the 162(m) calculation on the executive retirement expense from last quarter that will be not deductible this quarter. We correctly presented this impact in the adjusted net income table non-a, as an add-back. With this adjustment, our effective tax rate is 23% and inline with our expectations of an effective tax rate of 22.5% and 23.5%, going forward.

Our operating return on assets in the third quarter was 1.53%, which was an increase from the 1.26%, we reported in the third quarter of 2017, and the 1.38% reported last quarter. We're proud of this ROA and we believe an ROA north of 1.50% is an impressive representation of our core profitability. We've been able to grow the balance sheet, both through acquisitions inorganically, while keeping focused on key operating results such as margin and efficiency.

The yield curve continues to make the margin a challenge. Our margin excluding accretion, as Dennis mentioned, declined 4 basis points during the quarter from 3.81 basis points last quarter to 3.77 basis points this quarter. As Dennis mentioned, we had excess liquidity on our balance sheet during the third quarter, such that our short-term assets to earning assets ratio increased to over 4%. Excluding this approximate $200 million of excess liquidity, our margin would have been 3.84% and reflects the increase we were expecting from the Hamilton acquisition.

Subsequent to quarter end, we paid off certain FHLB advances as they mature, and we expect the margin to return north of 3.80% in the fourth quarter. For the third quarter, our yield on earning assets increased by 12 basis points, while our total funding cost increased 15 basis points. On the asset side, we saw increases in both loans and volume. Our core bank production yields were 5.51% for the quarter, against 4.74% in the same quarter a year ago.

On the deposit side, as Dennis mentioned, there were many moving parts with the acquisitions and conversion to our systems and products and pricing, as well as strong organic deposit growth. Our year-to-date deposit beta of 38 basis points is in line with our expectations, but something we continue to monitor.

Our incremental funding rate for the third quarter in the core bank was within our expectations, considering the growth in non-interest bearing deposits mixed with CD and money market growth, and repricing. With the cyclical deposit influx and organic deposit growth we forecast in the fourth quarter, offset by the yield curve pressure and despite the intense level of competition, we believe our funding costs will be stable in the fourth quarter, again allowing margin to return above 3.80% going forward.

Non-interest income totaled $30.2 million in the third quarter. Service charge income was up 20%, due to the full quarter of Atlantic and Hamilton acquisition. Mortgage revenue declined slightly when compared to the second quarter, but the pipeline remains strong. In fact, the mortgage pipeline is stronger now than it was the same time last year and production increased over 19%, when comparing the third quarter of this year to the third quarter of last year.

The gain on sale premium rebounded somewhat this quarter, but still remains below the premiums we saw this time last year. We continue to recruit producers that have steady sources of referrals or construction connection. Our markets are still strong with respect to new home building and the pace of home sales, and we believe continuing to focus on builders and realtors of our primary customer, we'll continue to drive above average growth and profitability in our mortgage group.

One of the things I'm most proud of this quarter is our operating efficiency ratio. For the quarter, it improved to 54.4% in the third quarter from 57.5% reported last quarter, and 61.1% reported in the third quarter of '17. We expect additional improvement in the efficiency ratio in the fourth quarter after Hamilton is fully integrated. This leverage combined with the cost-saving initiatives announced in September of this year, gives us confidence that our efficiency ratio will be in the very low 50s by the end of the year and throughout 2019.

Our ability to execute our strategy of improving the operating efficiency ratio as we have, while growing the balance sheet over 49% in the past year, is a mark of our dedication to execution of our strategies.

On the balance sheet side, total assets increased over $238 million or 8.5% annualized, materially all of which was in earning assets. Organic loan growth was slower this quarter and came in at 3.4%, which lowered our year-to-date organic loan growth rate to 11.5%. Production was strong, but net growth was negatively impacted by early pay-off including delivered pay-offs from the acquisition. In the third quarter, which was the first quarter after acquisition, we had closed to a $100 million of pay-offs in those markets, which reduced the net loan growth figure by over 4%.

Loan production in the core bank was actually 14% higher this quarter than the same time here last year, and more than 6% higher than the second quarter of this year. The strong loan production was offset by those early pay-off, and an increased level of unfunded commitment production, which we expect to fund in the next few quarters. Pipelines were strong at the end of the third quarter and we believe our forecast of double-digit loan growth 12% to 14% for the year is still attainable.

On the deposit side, our total deposit growth really picked up this quarter. Exclusive of the effects via acquisition, year-over-year deposit growth is over $524 million or almost 9%. Core non-interest bearing deposits grew faster than total deposits, with the year-over-year increase of just over 11%. Because of that growth, our mix of deposit excluding the acquisition has improved set the DDA account on 30% of total core deposits at the end of the third quarter, up from 29% this time last year.

We anticipate the usual cyclical deposits in the fourth quarter that will allow us to pay down some of the higher FHLB advances, keeping our funding cost relatively flat in the fourth quarter. We still see opportunity for continued strong deposit growth in newer markets, such as Atlanta, Orlando, and Tampa.

We continue to see really encouraging growth in our lines of business and believe this is important when considering the opportunity we have in the fourth quarter and throughout 2019. Production in our Retail Mortgage division increased by over 19%, when compared to the same quarter last year. Production in the Warehouse Lending division increased over 27%, when compared to the third quarter of '17, and loan production in the SBA division remains strong, and total production was over 180% higher this quarter than the third quarter last year.

We continue to believe that we can sustain double-digit annualized growth rates in these divisions for the next years.

In conclusion, we are really proud of our third quarter results, and we look forward to the fourth quarter and 2019. The two recent acquisitions and our successful integration, combined with the cost saving initiatives announced last month, continue to give us confidence in the 2019 outlook for top quartile financial results.

And with that, I will turn it over to Jon Edwards, our Chief Credit Officer for a few comments on credit quality and the potential impact on Hurricane Michael. Jon?

Jon Edwards -- Executive Vice President, Chief Credit Officer

Thank you, Nicole. Good morning, everyone. First, let me speak to our third quarter asset quality. Overall, most of our asset quality metrics improved in the third quarter versus second quarter. Nonperforming assets decreased 9% over second quarter and totaled 60 basis points of total assets. That improvement was primarily the result of payments and other collection activities, but also certain loans placed back on accrual, after having demonstrated sustained satisfactory performance.

Similarly, classified assets decreased during third quarter and totaled less than 15% of total bank capital. Past due loans remain nominal and concentrations in credit remain manageable and within the regulatory guidance. Our charge-offs were the one thing that was a little higher during the quarter and that was due primarily to certain premium finance loans that were really subject to the second quarter reserve bill and were charged off in the third quarter.

Overall, our primary markets remain robust and we are not seeing any segment of our portfolio, which currently experiencing any material deterioration. It was a good quarter overall.

Now let me say a few words about the impact of Hurricane Michael. First, as everyone knows that storm has had a devastating effect on many individuals and businesses. And Ameris Bank will do whatever is necessary to aid in their recovery. In reality, it's too early to know with full certainty what the real impact will be to those communities, or our customers, or our bank. But in response to Hurricanes Matthew in 2016 and Irma in 2017, we develop strategies to help our customers and will likely follow that template for this storm also.

Of note, when I speak about the primary impacted areas, I am primarily referencing those coastal communities between Pensacola to the West and St. George Island on the East side. Clearly other noncoastal communities in Florida and Georgia were impacted, but most not as severely as those along the Florida coast. Our overall exposure is really broken down into three parts, agriculture, real estate secured loans, and consumer installment loans really the latter of which is not material and I'm not going to really speak about. The bank's agriculture loan portfolio totals $239 million. including both production related loans as well as those that are primarily secured by farmland. Of that total about 75% or $180 million were located in markets that incurred some amount of impact from the storm. The primary crops affected were corn and peanuts -- sorry, cotton and corn as most of the peanuts had been harvested by the time the storm hit. Depending on where your farm was located within those affected areas, the impact may have been as low as 10% loss of yield up to a total loss.

Remedies available to our farmers include the crop insurance proceeds, which I think all of our farmers carry, low interest disaster loans through several government programs and potentially direct government payments. Clearly there will be the need for some type of restructure our many ag loans, most likely ranging from full bearing term loan payments to restructured operating loans. I believe, most of our farmers in ag related businesses have the capacity to restructure if needed and actual loan losses should not be material. Additionally, Ameris Bank is a preferred lender for FSA and we will utilize the guarantee program as needed. Now as it relates to real estate secured loans, our exposure to those primary impacted areas totaled approximately $127 million, including residential, commercial and construction loans.

Our customers and our lending staff are still on the process of inspecting properties and assessing damages, so the final impact is still a bit unclear. But to give you a small example specific to residential construction loans, we have approximately $35 million worth of commitments, $20 million outstanding in our Panama City and Tallahassee markets, subsequent to discussions with our builders and our visual inspections, we've determined less than 5% of the homes sustained any material damage or less than $1 million outstanding. I expect most of that damage will be covered by insurance for that entire segment of loans.

In summary, let me say, it's still a little early to measure the complete impact, but as our information becomes clear, we will make necessary adjustments to our watch list and the allowance for loan losses.

With that, I will turn the call back over to Dennis for closing comment.

Dennis Zember -- President, Chief Executive Officer

Well, I have no --. Okay, I'd like to thank everyone again for listening to our third quarter earnings results and want to turn it back to Chad, I guess to see if there are any questions.

Questions and Answers:

Operator

Thank you, sir. We will now begin the question-and-answer session. (Operator Instructions) The first question will come from Brady Gailey with KBW. Please go ahead.

KBW -- -- Analyst

Hey, guys, it's actually Woody (ph) on for Brady.

Dennis Zember -- President, Chief Executive Officer

Hi, Woody.

KBW -- -- Analyst

So first, I know you said, the rise in deposit costs was largely related to the two acquisitions, but I was wondering if you could give some color on how the legacy bank deposit costs performed over the quarter?

Nicole Stokes -- Chief Financial Officer

Sure, we were shuffling papers so quick. So there is quite a bit of noise for share because of everything coming on, but the core bank we did see increase and 11% of that increase was in non-interest bearing, which helped the overall cost. But we did see our money markets, which part of that was we feel like we were maybe a little bit behind the curve. And if you think back just second quarter, our deposit beta in the second quarter was pretty low. So we knew that we were going to have to kind of catch that up a little bit in the third quarter. So we did raise our money market accounts rate and then as well as CD rates. So we did have some increase in the core bank, but the majority of it did come from those acquisitions. And we believe that the fourth quarter is going to be consistent. If we didn't have a huge increase at the end of the quarter that's going to have a larger impact next quarter. We feel like that increase was throughout the entire third quarter.

Dennis Zember -- President, Chief Executive Officer

And I'll say it too just sort of adding on top of that. Like I said, the deposit costs that we inherited with the Atlantic Coast and Hamilton transactions, I think in the past when deposits were not as -- deposit competition was not as fierce, we would have taken those deposits and immediately had some rightsizing where we have sort of moved them to our levels. But given how fierce deposit competition is in Atlanta, and Orlando, and Tampa, we didn't want to do that. So we've kind of left those sort of where they are. So I think going forward, what you'd see on those deposits especially is almost the deposit beta of zero probably for -- probably for the next couple of moves as -- and ours we just keep continue, keep inching up as asset revenues coming in. I mean our strategy for 2 years has been to take whatever incremental revenues we get from a right move -- a higher rate move and kind of apply those back in a smart way into the deposit costs. So that we can remain competitive continue to grow core deposits, but do it in a manner that doesn't affect the margin. I mean, I know, the deposit costs and deposit betas are top of everybody's mind. But we are not managing just the deposit beta, we're managing deposit costs, so that in conjunction with our asset yields in our production levels, so that we keep the margin right there at 3.80%.

KBW -- -- Analyst

Okay, that's really helpful. And then looking at those asset yields, they also saw a pretty big jump this quarter, was that also driven from the two acquisitions?

Nicole Stokes -- Chief Financial Officer

Yes, it was some from the acquisition and that it was also just from the rising rates in our loan production. Our loan production yields increased and they have increased over the last year or so, but yes its both.

KBW -- -- Analyst

Got it, thanks. Those were both my questions. Thank you.

Nicole Stokes -- Chief Financial Officer

Great. Thank you.

Operator

The next question comes from Tyler Stafford with Stephens Inc. Please go ahead.

Tyler Stafford -- Stephens Inc. -- Analyst

Hi, good morning, guys.

Dennis Zember -- President, Chief Executive Officer

Good morning.

Nicole Stokes -- Chief Financial Officer

Good morning.

Tyler Stafford -- Stephens Inc. -- Analyst

Maybe just to start on credit. So last quarter obviously you had the US PF issues. So it was nice to see no issues this quarter. You've got a pure bank out this morning reporting some pretty sizable CRE issues. Just bigger picture across Ameris' balance sheet, how do you feel about the credit environment, anything in particular seeing that is worrisome? And then anything within the US PF specifically just as it relates to last quarter as well?

Dennis Zember -- President, Chief Executive Officer

I'll take the first part first, I mentioned that our primary markets, and you know we've get about seven or eight markets, it probably carry 80% or more of our production are still pretty vibrant. There's new investment going on. Property values are holding pretty good. We haven't seen any real deterioration across any of those markets. And so I'm still feeling really good about commercial real estate, right now. So I mean we're looking out for new construction projects and thinking about lease up terms in the next 18 months to 2 years and so on and so forth. But right now, there's not been any real change, we feel pretty good about it. On US PF side, now we are watching that segment really little more closely and feel pretty good about the down payments that they're getting the terms that we've got -- there's going to be some small things that will fall out, I'm sure toward the end of the year, but I feel pretty good about the fact that we really sort of encapsulated the issues very quickly in the third -- in the second quarter, primarily.

Tyler Stafford -- Stephens Inc. -- Analyst

Okay, very helpful. Thanks. Just on the remaining cost savings with Hamilton. How much is remaining in total and how much would you expect to realize in the fourth quarter?

Nicole Stokes -- Chief Financial Officer

So, we anticipate the fourth quarter earnings pre-tax -- sorry, after tax is about $2 million that will be incurred in the third quarter. We did our Hamilton acquisition last weekend actually and so that system integration is complete. So those will -- we have a few more expenses for a few weeks, but its about $2 million. And then the cost savings that we announced last September or that we announced in September, those will be fully implemented in the first quarter of next year.

Tyler Stafford -- Stephens Inc. -- Analyst

Okay, got it. On the loan repositioning that you talked about, can you just size up, how much of an impact that was to the third quarter loan growth?

Nicole Stokes -- Chief Financial Officer

Yes. I've got that right here. So our total pay-offs were right about

Dennis Zember -- President, Chief Executive Officer

It was about $100 million.

Nicole Stokes -- Chief Financial Officer

From the Atlantic and Hamilton acquisitions, it was about $100 million. Half of that was in construction and then the remaining we have multi-family, commercial real estate, and C&I that made up that $100 million.

Dennis Zember -- President, Chief Executive Officer

Impacted the -- Nicole and I are calculating that alone impacted the growth rate -- the annualized growth rate by about 4%, little more than 4%, just the -- just that repositioning.

Tyler Stafford -- Stephens Inc. -- Analyst

Okay, got it. And then just one more from me on the margins, just making sure I'm thinking about this correctly. So fourth quarter total deposit costs will move up modestly I guess or just pricing continues to be there. But overall cost to fund should be relatively flattish as you offset those deposit costs with lower overall FHLB balances and cost there, and then you get a lift on the asset side, is that basically what you're saying. And then so we're at 3.80% margin?

Dennis Zember -- President, Chief Executive Officer

Yes, yes exactly.

Tyler Stafford -- Stephens Inc. -- Analyst

Okay.

Dennis Zember -- President, Chief Executive Officer

We think the asset yields are going to continue move up with the last right move we just got. And deposit costs are going to keep inching like they have. We keep benefiting, I mean, we still have the mortgage portfolio, the purchase mortgage pools, those keep paying off. And yes, so there is -- every quarter there is probably a 300 basis point pickup on all of those renewals. Yes, I think, I didn't make a big deal about it, but we have a 93% loan to deposit ratio right now. And we pretty much have the exact same margin we had a year ago, when the loan to deposit ratio was about 100%. So even where we've sort of repositioned loans as a percentage of total earning assets, we still held the margin. So I think and -- I'm not sitting here worried that the margins go and fall apart on us, really at all. I hope I've sounded pretty confident there.

Tyler Stafford -- Stephens Inc. -- Analyst

Yes, I think that's coming across. Thanks, Dennis.

Dennis Zember -- President, Chief Executive Officer

All right.

Operator

The next question will be from Casey Whitman of Sandler O'Neill.

Casey Whitman -- Sandler O'Neill -- Analyst

Good morning.

Nicole Stokes -- Chief Financial Officer

Good morning.

Casey Whitman -- Sandler O'Neill -- Analyst

Appreciate the color on the core margin. Just so we can get a sense of where the reported marginal shake out. I mean how much can we assume you're going to get an accretion income next year? Just the best guess will be helpful.

Nicole Stokes -- Chief Financial Officer

So we're estimating, about $3 million a quarter. So about $12 million for the year.

Casey Whitman -- Sandler O'Neill -- Analyst

Okay, great. And then can you remind us how much of your loan portfolio is variable today and then how much of that is tied to LIBOR versus prime? If you have it.

Nicole Stokes -- Chief Financial Officer

Yes, sorry.

Dennis Zember -- President, Chief Executive Officer

We are going through. No, its found.

Nicole Stokes -- Chief Financial Officer

I'm sorry, it's right here. Fixed rate is about 65% and variable rate is 35%. And...

Dennis Zember -- President, Chief Executive Officer

The fixed rate includes one year, includes the $500 million, $600 million from premium finance, which are really one year credit. So I mean really it's probably -- really we're probably going to have half 50s on fixed rate. Probably the half 50s on fixed rate and then the rest variable. Yes, as far as that goes, the mix is probably, it's moved up quite a bit, it's probably 80% based of LIBOR and still, but 20% based of prime.

Casey Whitman -- Sandler O'Neill -- Analyst

Okay, great. And I apologize if you already kind of walked through this. But maybe just give us a little more help in terms of what's going on between -- the strategy between using broker deposits and FHLB borrowings this quarter, and then sort of what we might see next quarter?

Nicole Stokes -- Chief Financial Officer

Sure. So, at the very -- during the second quarter, we entered into broker deposits that have a shorter term maturity. They are less then a year or less. And so we entered into the broker deposit and then we also have the FHLB advances, but those are on a very, very short-term and knowing that we have cyclical deposits. And part of that was in the second quarter in preparing for Atlantic Coast and Hamilton. Unlike Dennis mentioned it, sometimes when we do those acquisitions, we'd like to have some excess liquidity just in case, and we haven't experienced that this time. And so we are paying off -- we already paid off a significant portion of that FHLB advances in October.

Dennis Zember -- President, Chief Executive Officer

We -- in case, we don't -- for broker deposits and home loan bank advances, we don't do long term -- long dated term deal. I mean, you may be on the call thinking that it would, it would have been smart a couple of years ago to have done some two-year CDs and maybe it would have been. But we're just -- again, we're not trying to play margin gains, we're not even trying to necessarily grow the margin. I think for a bank our size 3.80% is -- and for the kind of customers, we're hunting 3.80% is a solid margin. So all we're trying to do is use this as short-term funding that -- it helps us maintain that margin.

Casey Whitman -- Sandler O'Neill -- Analyst

Got it. Okay. So this in fourth quarter we should see a normal seasonal inflow of your core deposits and broker deposits will sort of start to come off, as those matures?

Nicole Stokes -- Chief Financial Officer

The broker deposits will stay for the fourth quarter, but the FHLB advances will paid down.

Casey Whitman -- Sandler O'Neill -- Analyst

Okay, got it, got it. All right, helpful. Just we are on the same page here, just can you remind us how you get to your calculation for organic loans, I mean just what categories of loans you include in there?

Nicole Stokes -- Chief Financial Officer

Sure. And It's difficult and for -- to calculate because we also -- what we do is we take the legacy -- what we call legacy loans and then we do have run the shift from either the cover category into PNC, the Purchase Non-Covered or the purchased loans into legacy, once they are refinanced under our credit standards, and so we exclude all of that. So then we are excluding the movement between buckets, so that we are really just saying what is our true new loan growth in the bank.

Dennis Zember -- President, Chief Executive Officer

So, if you're looking at the balance sheet in Nicole's financial tables, really we're including loans and purchased loans. So if you include, I guess for this quarter we're including a total $5.543 billion (ph) and $2.711 billion (ph), and really the only thing we're excluding is movement in the purchase mortgage pools, which this quarter was $22 million is all.

Casey Whitman -- Sandler O'Neill -- Analyst

Got it. Thanks so much.

Dennis Zember -- President, Chief Executive Officer

All right.

Operator

Our next question comes from Jennifer Demba with SunTrust Robinson and Humphrey.

Jennifer Demba -- SunTrust Robinson and Humphrey -- Analyst

Thank you. Good morning.

Dennis Zember -- President, Chief Executive Officer

Good morning.

Jennifer Demba -- SunTrust Robinson and Humphrey -- Analyst

Question on your loan growth outlook. You continue to believe double-digit makes sense and is achievable. Dennis, can you just talk about the competitive environment. Are you getting the quality credits you want in this environment and at this point in the economic cycle? And can you -- are you able to still produced double-digit loan growth with the kind of quality you're going to require?

Dennis Zember -- President, Chief Executive Officer

Right now, I think -- right now the answer is yes. The answer is yes. If we were having to -- had we not made, -- if we were 2 years ago still sitting here with a 70% efficiency ratio, I would tell you no. Because we couldn't compete and we could not compete for those best customers with the kind of yields they're demanding. But the fact that we've moved efficiency ratio down from kind of low 70s to mid 50s and going lower, and the fact that we've still been able to grow core deposits, which are probably 30%, 40%, 50% cheaper than home loan bank or broker. I think we're in a position to compete, I mean, I know we're in a position to compete on them. What we were doing 2 years ago was 20% loan growth. I mean, we can't do 20% anymore, because we're sitting here with close to $8.5 billion or approaching $8.5 billion of loans, and that just not prove it. But being able to do the same nominal amount of loan growth still gives us loan growth in the low double-digit, say 12%, 13%, where we used to be talking about 20%. We're not really talking about a different nominal amount of loan growth, it just shakes our percentage wise to something less. We don't, we are sitting here with really attractive concentration ratios. Jhn briefly touched on the fact that we're not concentrated in just one asset class. I'm not loaded up on commercial construction. I don't have investors CRE pushing me over 300%. So I've got room to do CRE, if we want to do that, we've got more room on premium finance, our mortgage warehouse, if that stays an option and an opportunity, municipal lending is still -- there still opportunities there. So even outside of our core bank, I'd tell you the core bank looks good, especially with Atlanta, and Tampa, and Orlando being new opportunities for us. Where really they weren't -- or weren't as big an opportunity a year ago. I still feel good that we can do some loan growth by there.

Jennifer Demba -- SunTrust Robinson and Humphrey -- Analyst

Thanks, Dennis. I appreciate it.

Operator

(Operator Instructions) The next question will be from Christopher Marinac with FIG Partners. Please go ahead.

Christopher Marinac -- FIG Partners -- Analyst

Thanks. Good morning. Dennis, I want to stay on the loan growth issue. As we get further along in the cycle. I mean what's the appropriate balance between growing strong, but not growing too much, I know that changes as we go along. I just kind of want to continue on that thought?

Dennis Zember -- President, Chief Executive Officer

I think if -- I think we'll know when I think back to Jennifer's question, I think I'm sitting here thinking more and more about that. I think we'll know when we start seeing deals come across -- when we start filling like our bankers and I love the way our bankers work. If our bankers starts sending -- trying the same deals through and we've got to get creative on loan structure, maybe do some things that we didn't -- that we wouldn't have wanted to do in the past. If on big commercial construction loans, we cannot talk a customer into getting it bonded anymore. Or they just refused to give us any kind of guarantee or things like that, Chris, I think we'll know that we're going to have start tailing back on what kind of loan growth we're looking for. I would tell you if that happens and I know the industry believes, the industry definitely believes that we're peaking on credit quality and you really -- you might think that if you look at what Jon's talking about where credit is and where net charge-offs are, if that's the case, I would tell you right now, I think we're ahead of the pack when it comes to evaluating cost structure, and resources, and managing costs, and efficiency. So that we hold -- so we can hold our growth rates -- our earnings growth rates. Our EPS growth rates are away at the same level. We will not -- maybe it's a little early to say, but we will not continue to push loan growth as high as we possibly can for the sake of quality. I mean, I was -- I'm only 49 years old, so I probably have to live through a couple economic cycles and in the next economic cycle, I want to be known for quality. And when we can get the loan growth and hold the quality, we will when we can't get the quality or we've got to sacrifice, we'll just start tailing back what we want on loan growth and we'll start looking for earnings growth in other places, where there is fee income, cost structure, does that make sense?

Christopher Marinac -- FIG Partners -- Analyst

No, it does and I appreciate the background. Just a quick follow-up, can you remind us on how deep into Florida, along the Central I-4 corridor that you're getting in terms of calling on customer, not as much of a branch question as it is a sort of the customer penetration as you get deeper into Florida?

Dennis Zember -- President, Chief Executive Officer

Yes, I know that I-4 was the end of the world, when Ed was here -- when Ed was here I-4 was really the end of the world. We just really did not go south of I-4. I mean, Sarasota, for instance, south of I-4, but kind of really still considered maybe part of Tampa, MSA or Tampa market at large really even that we didn't go there. So I would tell you, our concentration is very small. I mean there might not be anything, I guarantee there's -- I say guarantee, I am pretty confident there's no construction south of I-4. We may have a assisted living deal within eyesight of I-4, but construction wise there would be nothing.

Christopher Marinac -- FIG Partners -- Analyst

Okay, great. Thank you for the time this morning. I appreciate it.

Dennis Zember -- President, Chief Executive Officer

All right.

Operator

Ladies and gentlemen, this concludes our question-and-answer session. I would like to turn the conference back over to Dennis Zember for any closing remarks.

Dennis Zember -- President, Chief Executive Officer

Okay, thank you, again, for your participation and your willingness. I think the call has might have been a little longer than has been in the past. Nicole and I are available if you have any questions, Jon, as well. So if we didn't answer a question or you want more detail, feel free to reach out to us, email or phone call. All right, thank you and have a good weekend.

Operator

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

Duration: 48 minutes

Call participants:

Nicole Stokes -- Chief Financial Officer

Dennis Zember -- President, Chief Executive Officer

Jon Edwards -- Executive Vice President, Chief Credit Officer

KBW -- -- Analyst

Tyler Stafford -- Stephens Inc. -- Analyst

Casey Whitman -- Sandler O'Neill -- Analyst

Jennifer Demba -- SunTrust Robinson and Humphrey -- Analyst

Christopher Marinac -- FIG Partners -- Analyst

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