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Atlantic Capital Bancshares, Inc.  (NASDAQ:ACBI)
Q4 2018 Earnings Conference Call
Feb. 01, 2019, 10:00 a.m. ET

Contents:

Prepared Remarks:

Operator

Good morning. My name is James, and I will be your conference operator today. At this time, I would like to welcome everyone to the Fourth Quarter 2018 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. And after the speakers' remarks, there will be a question-and-answer session. (Operator Instructions) Thank you.

I'd now like to turn the call over to Executive Vice President of Corporate and Community Affairs, Ashley Carson. Please go ahead.

Ashley Carson -- Executive Vice President, Corporate & Community Affairs Executive

Thank you, James, and thank you all for joining us for Atlantic Capital's fourth quarter 2018 earnings call. With me today to discuss our results are Doug Williams, Chief Executive Officer; and Patrick Oakes, Chief Financial Officer; joined by Gray Fleming, Chief Risk Officer; Rich Oglesby, Head of our General Banking Group; and Kurt Shreiner, Head of Corporate Financial Services, who all will be available during the question-and-answer session of our call.

As a reminder, the Atlantic Capital earnings release is available on the Investor Relations section of our website. I wish to caution you that we'll be making forward-looking statements during this call, and that actual results may differ materially. We encourage you to review the disclaimer in the earnings release dealing with forward-looking information. This disclaimer applies equally to statements made in this call.

In addition, some discussions may include references to non-GAAP financial measures. Information about those measures, including reconciliation to GAAP measures, may be found in our SEC filings and in our earnings release.

And with that, I'll turn the call over to the CEO of Atlantic Capital, Doug Williams.

Douglas L. Williams -- President and Chief Executive Officer

Thank you, Ashley, and good morning all. Atlantic Capital reported net income of $8.8 million or $0.34 per diluted share for the fourth quarter of 2018 and $28.5 million or $1.09 per diluted share for all of 2018. Net income from continued operations was $7.5 million or $0.29 per diluted share for the quarter, and $28.1 million or $1.07 per diluted share for the full year. These record results reflect continued strength in our core Atlanta and national commercial businesses.

As you know, we announced an agreement to sell our Tennessee and northwest Georgia business to FirstBank last November. Accordingly, our financial reporting classifies the business to be divested as discontinued operations. My initial remarks this morning will address results from business and we will continue to manage after the divestiture closes in the second quarter. Pat Oakes will discuss the financial statements as presented and I'll return to discuss our priorities and expectations for 2019.

For the fourth quarter, total loans held for investment increased 16% annualized from the third quarter, and average deposits were up 31% annualized compared to the prior quarter. For the full year, loans held for investment increased 14%. Average deposits from continuing operations grew 11% in the fourth quarter compared to the fourth quarter of 2017.

Loans to our commercial and business banking clients grew 30% annualized since (ph) the third quarter and 20% for the full-year. Loans to commercial real state developers and investors decreased 2% for the quarter with accelerated repayment velocity and grew 8% year-over-year.

Average demand deposits from continuing operations were up 26% annualized from the third quarter and increased 17% compared to 2017's fourth quarter. Demand deposits were 34% of total deposits from continuing operations. Asset quality remains best-in-class. There were no net charge-offs during the quarter, and nonperforming assets from continuing operations were 14 basis points.

Pre-tax earnings from continuing operations in 2018 increased 81% over '17, and we exceeded our 1% return on average assets target for 2019 in 2018. The efficiency ratio from continuing operations was 58% for all of 2018.

Now Pat Oakes will discuss the financials.

Patrick Oakes -- Executive Vice President and Chief Financial Officer

Thanks, Doug. With the announcement of the branch divestiture in November, GAAP requires us to report this business as discontinued operations and to adjust prior period financials. This includes all income and expenses directly related to our Tennessee and northwest Georgia businesses, along with the impact of any support staff reductions as a result of the sale.

Discontinued operations does not account for the financial impact of selling approximately $200 million more of liabilities and assets. Net income from discontinued our operations in the fourth quarter includes a $3.1 million reduction in the allowance for loan losses, as a result of transferring the loans from held for investment, to held for sale, along with $825,000 in divestiture-related expenses.

Net income from continuing operations for the fourth quarter totaled $7.5 million or $0.29 per share, compared to $7 million or $0.27 per share in the third quarter. The fourth quarter included a $1.9 million loss on the sale of securities, along with a $996,000 tax benefit related to the branch divestiture. Excluding these items, net income from continuing operations was $7.9 million or $0.30 per share.

In the fourth quarter, our NIM from continuing operations expanded 18 basis points to 3.66% as loan yields benefited from increases in one month LIBOR during the third and fourth quarter. Loan yields for the fourth quarter were 5.31%, an increase of 27 basis points compared to the third quarter.

As expected, we saw more pressure on deposit pricing in the fourth quarter, as our cost of interest bearing deposits increased 24 basis points to 1.40%. We remain focused on growing core operating accounts with non-interest bearing deposits increasing the 34% of deposits in the fourth quarter. Some of this improvement in deposit mix is seasonal and helped to offset the impact of rising deposit costs in the fourth quarter. Our overall cost of deposits from continuing operations increased 17 basis points to 93 basis points in the fourth quarter.

After the close of the branch divestiture, we anticipate NIM in the range of 3.50% to 3.55%, partly as a result of the cash payment to FirstBank of approximately $170 million. This payment will be funded from a mix of selling investment securities and issuing broker deposits. This reduction in net interest income is not currently captured in continuing operations.

Noninterest income from continuing operations totaled $164,000 in the fourth quarter compared to $2.3 million in the third quarter. This decrease was primarily the result of a $1 million (sic-$1.9 million) loss on the sale of $63 million in investment securities to help fund the cash payment of FirstBank. We will most likely sell additional securities at a loss in the first or second quarter.

SBA income decreased $457,000 from the third quarter. This decrease was partly as a result of the impact in the government shutdown on our ability to sell SBA loans in December. Noninterest expense from continuing operations totaled $12.2 million in the fourth quarter, an increase of $336,000 from the third quarter, primarily from increases in our incentive expense.

By providing financials from discontinued operations in our earnings release, we can highlight that total expenses from discontinued operations in 2018 totaled $20 million, including $825,000 in divestiture-related expenses. This is in line with the estimated savings from the divestiture of $18 million to $19 million we provided in November.

Expenses for continued operations will be higher in the first quarter, primarily due to normal seasonality and benefit costs and expense from higher new bankers. Depending on the pace of new hiring and the addition of our new locations, expenses could approach $13.5 million by the third quarter of 2019. Income tax expense from continuing operations totaled $1 million for the fourth quarter and included a net benefit of $996,000 related to reduction of the valuation allowance on our federal DTA, offset by an increase in our Tennessee valuation allowance as a result of the divestiture. Excluding this net benefit, the effective tax rate for continuing operations was 23.9% for the fourth quarter and 21.2% for the full year of 2018. We expect a similar rate for 2019.

Finally, we anticipate to book a gain of approximately $32 million to $34 million on the brands divestiture in the second quarter, net of intangible impairments. After the close of divestiture, approximately $20 million of goodwill will remain in our balance sheet. These numbers will be finalized after the close of divestiture.

Now, I'll turn it back over to Doug.

Douglas L. Williams -- President and Chief Executive Officer

Thank you, Pat. Our priorities for 2019 are to: one, complete the divestiture of our Tennessee and northwest Georgia business; two, invest in growth capacity for our Atlanta and national commercial businesses; three, focus on deposit growth by building treasury management services based relationships; and four, maintain best-in-class asset quality. We also expect to continue our capital management initiatives including share repurchases.

Planning for the second quarter closing in conversion of our Tennessee and northwest Georgia business to FirstBank is proceeding efficiently and on schedule. There is good cooperation and collaboration between our respective teams, and I expect a smooth transition to our customers and employees.

Reported financial statements for the first two quarters of 2019 will include a gain on sale from the Tennessee and northwest Georgia business, various one-time transaction expenses and many of the pre-divestiture company operating expenses. Financial results in the third and fourth quarters should provide a clearer view of performance in our remaining businesses.

We're selling our Tennessee and northwest Georgia business to focus capital, expense dollars and management energy on our Atlanta and national commercial businesses. Accordingly, we plan to hire up to 15 new bankers in 2019. As mentioned to you in our November call, we plan to open a new private banking offices in Buckhead in Atlanta, convert our Athens LPO to a limited service branch and open a Cobb County loan production office this year.

Our mission is to build multi-dimensional banking relationships with our clients to include depository and treasury management services, commercial credit, private banking and where needed interest rate risk management in foreign exchange services. Depository and treasury management services are franchise builders at Atlantic Capital and are a matter of priority and focus for our bankers; 11 (ph) of the 15 bankers we hope to hire this year will be on banking teams where the focus is on adding deposits and treasury management clients. We expect them to be fruitful and help us balance loan and deposit growth to sustain strong revenue growth, maintain appropriate balance sheet liquidity and grow core client deposits.

Best-in-class asset quality has been in Atlantic Capital hallmark since inception. And as mentioned earlier, we again posted excellent asset quality metrics. Our loan portfolio is well diversified by industry sector and property type and is indicated by results, our borrowers are performing well.

On a continuing operations basis at 12/31/18, construction loans were 10% of loans held for investment and 52% of regulatory capital. Investor commercial real estate loans were 39% of loans held for investment and 206% of regulatory capital, and leverage loans were 4% of loans and approximately 22% of regulatory capital.

We expect the economic expansion to continue likely at a slower pace through 2019. Our clients and prospects were optimistic about the future and confident about their prospects for continued strong performance. We expect solid loan demand in our markets, tempered by late cycle competitive behavior, which will likely make us somewhat more selective. Our loans to commercial and business banking clients are growing in the mid-teens percentages over the last three years and we expect low to mid teens growth from those clients in 2019.

Loan balances in our commercial real estate business, including the amortizing TriNet portfolio will likely contract modestly during the year given greater late cycle selectivity and strong repayment headwinds.

According to our usual pattern, we expect deposit balances decline over the first quarter of the year before building strongly in the second half. As you saw in 2018, loan growth may vary considerably quarter-to-quarter and with heavy repayment volume in our commercial real estate business, so far this quarter, first quarter balances could be flat. Taken altogether for the full year, we expect balance (ph) loan and deposit growth in the high single digit percentages.

As we indicated in our November conference call, we expect a sustainable return on average assets of 120 basis points or better and efficiency ratios solidly in the mid 50's percentages or lower and a net interest margin in the 3.5% to 3.55% range, without rate increases in this year's fourth quarter.

Now, we'd be pleased to answer your questions.

Questions and Answers:

Operator

(Operator Instructions) And your first question comes from the line of Stephen Scouten from Sandler O'Neill. Go ahead please. Your line is open.

Stephen Scouten -- Sandler O'Neill -- Analyst

Thanks, good morning guys.

Douglas L. Williams -- President and Chief Executive Officer

Good morning, Stephen.

Patrick Oakes -- Executive Vice President and Chief Financial Officer

Good morning.

Stephen Scouten -- Sandler O'Neill -- Analyst

I'm curious just what you saw in the quarter, and maybe I guess, to Doug, your comment what you're seeing so far in 1Q as it pertains to payoffs and kind of the dynamic between production in fourth quarter and the paydowns that we saw?

Douglas L. Williams -- President and Chief Executive Officer

Yeah, I don't have those numbers in front of me but the paydowns in commercial real estate were a little bit softer in the third quarter of last year than they had been in prior quarters and they so ramped up to their normal level in the third quarter -- I'm sorry in the fourth quarter and that is continued in the first quarter of this year. January is always kind of slow and it has been this year as well and we have had some significant repayments already in our commercial real estate business and expect some more in the quarter.

Stephen Scouten -- Sandler O'Neill -- Analyst

Okay. And what kind of -- on the C&I growth that you saw in the quarter, were there any specific sectors that contributed to the strength that you saw in the C&I growth. And can you speak to kind of what you're seeing on the average loan size on the new production there?

Douglas L. Williams -- President and Chief Executive Officer

It was -- the strength was diversified across our different businesses and across industry sectors and so forth. It was broad based in every respect. In terms of average loan size, there was nothing out of the ordinary, I don't know exactly what those numbers were, but nothing out of the ordinary.

Stephen Scouten -- Sandler O'Neill -- Analyst

Okay. And then just one last one from me. If we're thinking about the capital returns from here and the pace of the buyback if we think about that $85 million number kind of talked about before, maybe $70 million plus left, with that -- is that plan still for that to be largely allocated to buybacks today, and if so, what do you think the pace of that might be?

Douglas L. Williams -- President and Chief Executive Officer

Our current plan is for that to continue to be allocated to buybacks. We bought a little over $14 million of stock back through 12/31. I think that number in the last few days has risen to $22 billion or something like that. This is all occurring in the context of a 10b5-1 plan and we expect to continue that. Obviously, as the share price rises and there is a large dilutive effect on tangible book value, we may moderate that a bit. It's difficult to estimate what the range of buybacks will be this year, but up to this point, I think we've been pretty aggressive. We've been as frankly as aggressive as we could be within the context of the limitations on that average daily trading volume.

Stephen Scouten -- Sandler O'Neill -- Analyst

Got it. Makes a lot of sense. Thanks for the color guys. I appreciate it.

Douglas L. Williams -- President and Chief Executive Officer

Yes, sure (ph).

Operator

Your next question comes from the line of Brady Gailey from KBW. Go ahead please. Your line is open.

Woody Lay -- KBW -- Analyst

Good morning guys. This is actually Woody Lay on for Brady.

Douglas L. Williams -- President and Chief Executive Officer

Hi, Woody.

Woody Lay -- KBW -- Analyst

So last quarter you all talked about an ROA target of between 115 basis points and 120 basis points, but that included the Tennessee and northwest Georgia franchises. From a continued operations perspective, do you have a new ROA target in mind?

Douglas L. Williams -- President and Chief Executive Officer

Our target has always been 120 basis points or has been 120 basis points without Tennessee. So I don't think we ever communicated a 115 basis points to 120 basis points with Tennessee and we've also talked about that we wouldn't -- we did not expect to see that until the fourth quarter of 2019 and we would expect that level or better in 2020 and beyond.

Woody Lay -- KBW -- Analyst

Okay. Got it. Sorry about that. And then, with SBA fees being dragged down by the government shutdown and with that -- with the timing of the shutdown, would you all expect the SBA fees to be lower again in the first quarter and then normalize in the second?

Patrick Oakes -- Executive Vice President and Chief Financial Officer

Well, I think hopefully comes back to a normalized level in the first quarter. Look, I think, if it's just (ph) down again, we're going to have some issues, obviously. But with an opening back up. I think the pipeline has opened back up. Kurt, I don't know if you want to add anything, but we're pretty optimistic. We can get back to the kind of the average production level that we had last year.

Woody Lay -- KBW -- Analyst

Got it. And then last from me, from the 3.62% reported margin, how many basis points did accretable yield benefit the margin?

Douglas L. Williams -- President and Chief Executive Officer

Very little bit. It was just a few basis points. Basically what -- we've had to move -- moving loans to held for sale were not accreting net income anymore. So you're not going to see as much benefit anymore and we just -- I think it was a few basis points.

Woody Lay -- KBW -- Analyst

Got it. Thanks guys.

Operator

Your next question comes from the line of Jennifer Demba from SunTrust. Go ahead please. Your line is open.

Jennifer Demba -- SunTrust -- Analyst

Thank you. Good morning. You indicated your net interest margin guidance for the second quarter I believe is without more rate hikes.

Douglas L. Williams -- President and Chief Executive Officer

Correct.

Jennifer Demba -- SunTrust -- Analyst

What will we be looking at if the Fed hiked one to two more times this year?

Patrick Oakes -- Executive Vice President and Chief Financial Officer

I think it's the same guides been given before. We continue to remain asset sensitive after the divestiture. We will have about 65% of our loans that are still floating rate, most of that tied to LIBOR. So we're going to remain about the same asset sensitivity. So it's a net 3 basis point to 5 basis point range that we anticipate depending on deposit costs.

Douglas L. Williams -- President and Chief Executive Officer

So you could see the higher end of that 3.5% to 3.55% range or perhaps a little above that. But our number doesn't include any rate increases.

Patrick Oakes -- Executive Vice President and Chief Financial Officer

Jennifer, I think the biggest concern for the next few quarters if we don't get any rate increases and we'll continue to see some pressure on a deposit pricing and we could see a little bit of pressure on our margin, in addition to the impact from the divestiture. That's why we gave that lower guidance.

Jennifer Demba -- SunTrust -- Analyst

Okay. And we've seen some issues in leverage lending last year. Just curious as to what your leverage lending balances are if any?

Douglas L. Williams -- President and Chief Executive Officer

Yeah, I anticipated your question about that. Having looked at -- well thinking about your question to me when we had lunch in December, and then some of the other transcripts. As I indicated, our leverage loans are 4% of total loans and 22% of regulatory capital. I think the balance is just under $70 million. It is diversified both by amount and industry sector, I mean, those loans are performing very well.

Jennifer Demba -- SunTrust -- Analyst

Okay. And one more question Pat, I missed. You gave tax rate guidance, I'm sorry, I couldn't understand it really well.

Patrick Oakes -- Executive Vice President and Chief Financial Officer

Yeah. So the tax rate for '18 full year was 21.2%. I expect something similar in 2019. There might be a little bit of noise in discontinued ops, but for continuing operations probably in that 21% to 22% range.

Jennifer Demba -- SunTrust -- Analyst

Okay. Thank you.

Operator

Your next question comes from the line of William Wallace from Raymond James. Go ahead please. Your line is open.

William Wallace -- Raymond James -- Analyst

Thank you. Good morning.

Douglas L. Williams -- President and Chief Executive Officer

Good morning.

William Wallace -- Raymond James -- Analyst

On the loan growth, you talked about mid teens expected growth from your existing customer base and then when you factor in the shrinking of the TriNet loans, you're talking about high-single for the year. That's what I heard.

Douglas L. Williams -- President and Chief Executive Officer

Right.

William Wallace -- Raymond James -- Analyst

I'm curious, if you hire 15 new bankers in the first half of the year. How would that impact your expected loan growth?

Patrick Oakes -- Executive Vice President and Chief Financial Officer

I don't think it has much impact on expected loan growth at all. It takes bankers a while to ramp up. So you have the initial expense and you don't see the benefit to say 12 to 18 months out. One of the things I noted in my remarks is that we expect these new bankers to be particularly focused on deposit growth, and we want loan and deposit growth to be relatively balanced over the course of the year and into next year. But it takes a while for loan growth in particular to show up from new hires.

William Wallace -- Raymond James -- Analyst

Okay. Do you feel the same is true that my follow-up was going to be, do you feel that the deposit growth would be more pushed, does that take a while as well to show up?

Douglas L. Williams -- President and Chief Executive Officer

It does take a while to show up as well, yes.

William Wallace -- Raymond James -- Analyst

Okay. And then on the goodwill, Pat, I think you said you were going to have $20 million in goodwill remaining on the balance sheet? I'm curious why there's going to be so much goodwill, because I thought that almost all the goodwill came from the Tennessee acquisition.

Patrick Oakes -- Executive Vice President and Chief Financial Officer

Yeah, unfortunately, accounting rules don't allow us to write all that off, because that goodwill now is related to the entire bank. So we have to do a relative fair value calculation to determine how much of the goodwill is related to this divestiture, we can only impair that much. So we're still working to do the math with that since we won't book that until it closes in the second quarter, but we'll be left with some goodwill. And right now, it looks like roughly about $20 million.

Douglas L. Williams -- President and Chief Executive Officer

You're right, Wallace, I mean it all -- essentially all did come through to us through the FSG acquisition, but the accounting rules aren't that straightforward though. We learned.

William Wallace -- Raymond James -- Analyst

You get to. You get to (Multiple Speakers) Exciting.

Patrick Oakes -- Executive Vice President and Chief Financial Officer

For tangible book you get those things spot, but we'll report a bigger game without as much intangible write-off.

William Wallace -- Raymond James -- Analyst

Okay. And then what about CDIs, that goes, doesn't it?

Patrick Oakes -- Executive Vice President and Chief Financial Officer

That goes away. Yes.

William Wallace -- Raymond James -- Analyst

How much is that anticipated to be?

Patrick Oakes -- Executive Vice President and Chief Financial Officer

So that balance is $1.5 million to $2 million right now. Yeah, $1.5 million.

William Wallace -- Raymond James -- Analyst

So there's about $7.5 million to $8 million in goodwill intangibles that will come off and that's about it.

Patrick Oakes -- Executive Vice President and Chief Financial Officer

Yes, the rough estimate right now.

William Wallace -- Raymond James -- Analyst

Okay. And then, I wanted to have a follow-up on the SBA. Yeah, you said you anticipate hopefully getting back to, I think, you said normal production levels in the first quarter. I'm curious and we've seen other banks across the country starting the balance sheet production given the drop in premiums in the sale market. What's the -- where do you guys stand on that presently?

Patrick Oakes -- Executive Vice President and Chief Financial Officer

So we talked about that last year, mid-year. And now with the divestiture and obviously selling quite a bit of deposits, we're going to go back to -- assuming pricing stage was somewhat reasonable to showing everything. That's more of a funding issue than anything else. But if premiums were to come down significantly, we changed that.

Douglas L. Williams -- President and Chief Executive Officer

Wallace, there are some construction loans in that SBA origination as well. And obviously, we retain those on the balance sheet until they're fully funded.

William Wallace -- Raymond James -- Analyst

Yeah, right. And so you guys, I assume, continued to take applications and process applications. So I just figured there would be a backlog, so that it could be kind of a pop in the first and/or second quarter depending on when the SBA can get to the backlog. Is that not really the case, it's just, kind of, you just sort of get the full quarter, there's no backlog to process?

Kurt Shreiner -- Executive Vice President, Head of Corporate Financial Services

This is Kurt. We just don't know. I mean, right now what we've been able to do is, we were underwriting and getting loans to the point that we could -- we're waiting for the government to open up. We're hopeful that it will normalize over the quarter, but there is still an element that we're just not sure what the backlog is going to do and how it's going to play out through the whole system.

William Wallace -- Raymond James -- Analyst

Okay. And last question on SBA. What is the anticipated annual level of production that you would expect, assuming the government is open and processing as usual.

Patrick Oakes -- Executive Vice President and Chief Financial Officer

Yes, I think last year, it was just under $100 million, $90 something million, right. We hope to build off of that. And if you want to talk about a specific guidance around that piece, but it should be better than that production number.

Douglas L. Williams -- President and Chief Executive Officer

Absolutely.

William Wallace -- Raymond James -- Analyst

Okay. And then, I said it was the last question, but lied. At what point to the premiums not become economical to sell and make the decision to balance sheet.

Patrick Oakes -- Executive Vice President and Chief Financial Officer

We're having that conversation all the time, probably depends on the loans.

William Wallace -- Raymond James -- Analyst

But where were the premiums when you started balance sheeting in 2018.

Patrick Oakes -- Executive Vice President and Chief Financial Officer

Part of that was a funding issue that we had excess deposits and part of that was the premiums did come down. The premiums are ranging between -- and we're still seeing aggressive premiums in somewhat longer real estate stuff. Some of the shorter stuff, it's in that 7% to 10% range probably.

Douglas L. Williams -- President and Chief Executive Officer

It is. They're still attractive.

Patrick Oakes -- Executive Vice President and Chief Financial Officer

Yeah.

William Wallace -- Raymond James -- Analyst

Okay, all right. And then, Doug, did you say you think you've got about $8 million in buybacks through January?

Douglas L. Williams -- President and Chief Executive Officer

That's right. Yes, since the year-end.

William Wallace -- Raymond James -- Analyst

Thank you.

Douglas L. Williams -- President and Chief Executive Officer

Correct. I think we're around $23 million as of earlier this week.

William Wallace -- Raymond James -- Analyst

Thanks gentlemen. I'll step out. I appreciate it.

Douglas L. Williams -- President and Chief Executive Officer

Thank you, Wallace.

Operator

(Operators Instructions) Your next question comes from the line of Nancy Bush from NAB Research. Go ahead please. Your line is open.

Nancy Bush -- NAB Research -- Analyst

Good morning, guys.

Douglas L. Williams -- President and Chief Executive Officer

Good morning.

Nancy Bush -- NAB Research -- Analyst

A couple of questions for you. Doug, you said that you referenced late cycle and a lot of pundits and everybody have been talking about that we're in the late cycle, but you're not producing late cycle numbers. I mean, your numbers are quite strong. So are we in a situation where Atlanta is in that position that sometimes that we're being out of cycle with the rest of the world?

Douglas L. Williams -- President and Chief Executive Officer

It may be Nancy. That's a really good question. And I was talking to one of our directors in the last couple of days and we were sort of saying Atlanta store is exhibiting extended cycle behavior. We were slow in recovering over the last 24 months or so, the local economy has really started expanding in a much more rapid pace and we think that could extend beyond the general turn down whenever that occurs. But we are seeing late cycle competitive behavior in terms of deterioration in lending standards, deterioration in pricing and our response to that is to become somewhat more selective.

So that tends to balance out some of the very robust growth numbers we've experienced over the last three years. And frankly, we expect we'll continue to see through 2019. But in real estate, we are certainly taking on a more defensive posture than we've had over the last couple of years, I would say.

Nancy Bush -- NAB Research -- Analyst

Okay. Secondly, your overhead target of mid-50s, now there is so much going on this quarter and I guess there will be so much going on through the first half of the year that it's difficult to see that in sight. So what is your timeframe for that goal?

Douglas L. Williams -- President and Chief Executive Officer

Well, I mean, you can look at continued operations right now and see the last three quarters, that's been in the mid to upper 50s efficiency ratio. So that will give you a good benchmark of where we're expected to be going forward.

Nancy Bush -- NAB Research -- Analyst

Okay, great. Okay. And third --

Douglas L. Williams -- President and Chief Executive Officer

Something we expect that cleanly until probably with the fourth quarter of this year.

Nancy Bush -- NAB Research -- Analyst

Yeah.

Douglas L. Williams -- President and Chief Executive Officer

2020 will be a lot -- I feel a lot better about telling you what 2020 is going to be like than 2019.

Nancy Bush -- NAB Research -- Analyst

Yeah. Hopefully you guys are at the end of your unusual years here. Yeah, and the third question for your Doug is this, I mean, I think last quarter you talked a little bit about the possibility of introducing a dividend and you're talking about repurchases this quarter. So at what point does the discussion of this dividend come back into play?

Douglas L. Williams -- President and Chief Executive Officer

I think it comes back into play after we complete the divestiture. And there are really -- there are three capital management actions that we have considered and we're continuing to consider. One of those will be share repurchase program which we implemented in late last year and we've got an authorization to buyback $85 million worth of our stock. As indicated, we probably purchased about $22 million of that so far. And our posture going forward will obviously be a function of where the share price is and the constraints and average daily trading volume.

The dividend is another one and we'll consider that after we have divestiture behind us and we have a better feel for what the best options are going forward. The third that we have in mind is the reduction of our $50 million in subordinated notes and the no call comes off of those in September 2020. So we want to maintain capacity given our capital ratio objectives to do that at that point in time.

Nancy Bush -- NAB Research -- Analyst

Okay, great. Thank you.

Douglas L. Williams -- President and Chief Executive Officer

You are welcome.

Operator

Your next question comes from the line of Steve Comery from G. Research. Go ahead please. Your line is open.

Steve Comery -- G. Research -- Analyst

Hey guys, good morning.

Douglas L. Williams -- President and Chief Executive Officer

Good morning.

Patrick Oakes -- Executive Vice President and Chief Financial Officer

Good morning.

Steve Comery -- G. Research -- Analyst

Most of my questions have been asked, but I wanted to ask a little bit about the deposit strategy. Looks like money market and broker were up kind of like in the recurring business categories. Maybe if you could tell us a little bit about kind of how the deposit strategy changes after the divestiture and anything different you guys are doing there?

Douglas L. Williams -- President and Chief Executive Officer

We believe we've built a strong core deposit franchise in our Atlanta national commercial businesses as evidenced by a very strong deposit growth, particularly in demand deposits over the last year and really beyond. And our strategy is really to continue to build on that. We've got highly competitive corporate treasury management capabilities both for mid-market corporations and for small businesses, that's our Atlantic Capital Exchange or ACE for Treasury and ACE for business product capabilities. And the real focus of our bankers is to continue to sell those capabilities and provide depository and treasury management services for our commercial clients.

With the loss of the Tennessee retail business, as that business develops -- as that commercial business continues to develop, we will have higher deposit funding costs on average, particularly for 2019. We think those will moderate into 2020 and beyond as we add more commercial treasury management business. But the focus is on building core client relationships with treasury management services this year and well into the future.

Steve Comery -- G. Research -- Analyst

Okay. Very good. Thanks. That's all I had.

Operator

And there are no further questions in queue at this time. I turn the call back over to our presenters.

Douglas L. Williams -- President and Chief Executive Officer

All right. Well, thank you all for dialing in. We think we had a terrific quarter and very strong results for the year. We're optimistic about 2019. We think the analysts have a difficult job in modeling 2019 given all the noise and the transition. It really will be a transition year, but we expect strong core deposit throughout the year and I think we're set up to have a very strong results in 2020 and beyond and they'll be much easier to model and we'll all appreciate that. So thank you for dialing in. We'll be look forward to talking to you again after the first quarter.

Operator

This concludes today's conference call. You may now disconnect.

Duration: 36 minutes

Call participants:

Ashley Carson -- Executive Vice President, Corporate & Community Affairs Executive

Douglas L. Williams -- President and Chief Executive Officer

Patrick Oakes -- Executive Vice President and Chief Financial Officer

Stephen Scouten -- Sandler O'Neill -- Analyst

Woody Lay -- KBW -- Analyst

Jennifer Demba -- SunTrust -- Analyst

William Wallace -- Raymond James -- Analyst

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