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FB Financial Corporation (NYSE:FBK)
Q2 2019 Earnings Call
Jul 23, 2019, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to FB Financial Corporation's Second Quarter 2019 Earnings Conference Call. Hosting the call today from FB Financial is Chris Holmes, President and Chief Executive Officer. He is joined by James Gordon, Chief Financial Officer; and Wib Evans, President of FB Ventures, who will be available during the question-and-answer session.

Please note, FB Financial's earnings release, supplemental financial information and this morning's presentation are available on the Investor Relations page of the Company's website at www.firstbankonline.com, and on the Securities and Exchange Commission's website at www.sec.gov. [Operator Instructions].

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 risks and uncertainties, and other facts that may cause actual results and performance or achievements of FB Financial to differ materially from any results expressed or implied by such forward-looking statements. Many of such factors are beyond FB Financial's ability to control or predict, and listeners are cautioned 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 Securities and Exchange Commission, including FB Financial's most recent Form 10-K. Except as required by law, FB Financial disclaims any obligation to update or revise any forward-looking statements contained in this presentation, whether as a result of new information, future events or otherwise.

In addition, these remarks may include certain Non-Generally Accepted Accounting Principles financial measures as defined by Securities and Exchange Commission Regulation G. A presentation of the most directly comparable Generally Accepted Accounting Principles financial measures and a reconciliation of the non-GAAP measures to comparable GAAP measures is available in FB Financial's earnings release. Supplemental financial information and this morning's presentation which are available on the Investor Relations page of the Company's website at www.firstbankonline.com and on the Securities and Exchange Commission's website at www.sec.gov.

I would now like to turn the presentation over to Chris Holmes, FB Financial's President and CEO. Please go ahead, sir.

Christopher T. Holmes -- President and Chief Executive Officer

Thank you, Audra. Good morning and thank you for joining us on this call to review our results for the second quarter of 2019. We appreciate your interest in FB Financial. On today's call, I'm going to review the highlights of our second quarter and then I'll turn the call over to James Gordon, our Chief Financial Officer, who will provide additional analysis on our financial results, followed by your questions.

The theme of the quarter and the first half of the year is consistent execution and I'm proud of the results our team has delivered. This performance included a core north net interest margin, excluding accretion and nonaccrual interest, of 4.22%, a return on average assets of 1.54%, return on average common equity of 17% and EPS of $0.70, all of those adjusted.

The important deliverables during the quarter were first stellar financial results which I just summarized. Second, the improved mortgage operations and repositioning of the mortgage from the sale of the two wholesale origination channels. Third, the successful integration of our branch acquisition and four, our continuing upgrades in systems and technology. First, I will expand on the bank's financial performance this quarter. At 13.5% organic loan growth, we delivered another quarter above our long term outlook of 10% to 12%. We continue to see strong demand from credit worthy customers and I'm proud of our relationship managers for this result. Our Nashville and Jackson markets led the way on loan growth this time, but we also saw sound production out of East Tennessee, Memphis and Huntsville.

On a net basis, we didn't grow our deposits organically this quarter, as we indicated, could be the case. We utilized liquidity from the branch acquisition to reduce our dependence on higher cost deposits, which kept our deposit costs flat at 1.14%. With rate cuts expected in the near time -- in the near term, we did not push our relationship manager for interest-bearing deposits as much as we might have otherwise. We anticipate the growing funding[Phonetic] over the second half of the year will be more profitable than it would have been in the second quarter. We were encouraged during the quarter that organic non-interest bearing deposits, excluding mortgage escrow deposits grew 13.7% annualized from the first to the second quarter. This growth was driven by our team's focus on selling treasury management services following the implementation of a new treasury management platform earlier this year, a key investment in technology for us.

The net interest margin, excluding the impact of accretion and nonaccrual recoveries came in at 4.22% this quarter, holding firmly in the middle of our guidance range of 4.15% to 4.30%. Depending on the number and magnitude of rate cuts in the third and fourth quarters, the margin could be challenged as our variable rate loans will reprice and we won't have an immediate corresponding reduction in our cost of funds. Speaking briefly on credit, the environment remains benign and we continued to experience very good credit quality. We don't see signs of softness in our portfolio yet, but we are very aware that at some point that will change. We continue to be vigilant about the quality of the loans that we make and we will try to prune credit that we view as being weaker over the coming quarters to try to get ahead of any downturn. This pruning and some anticipated payoff will likely cause our loan growth to be toward the lower end of our long term target over the next few quarters.

Moving to mortgage, profitability returned to a level closer to our expectation this quarter, with lower interest rates driving increased volumes and improving margins. This improved profitability included offsets of lower mortgage servicing revenues driven by the first quarter sale of a portion of our servicing rights and higher prepayments in our servicing portfolio. The sale of our third party origination channel closed on June 7 and we intend to close the sale of our correspondent origination channel in early August.

For the past few months, we've been restructuring our back office and we will be able to move that to completion this quarter once the divestitures closed. Our goal now that we have simplified the business, is to be best-in-class operators in retail mortgage originations both in traditional originations and online. We want to maximize both market penetration and efficiency of this segment while returning mortgage into a primary customer acquisition channel for the bank. It's part of that customer acquisition strategy we intend to hold servicing rights to retail originations but sell among others maintaining the MSR asset near current levels in the future.

Mortgage will always show seasonal swings between the second and third in the first and fourth quarters, but we're happy with how we reposition ourselves and we hope to deliver consistent, repeatable results going forward. As we complete our restructuring, I will personally thank the mortgage team who have been working diligently to serve our customers during the sale of the TPO and correspondent origination channels. I also want to thank those former associates who have transitioned to other entities for their time and contributions here at FirstBank.

I'll now touch on the integration of our branch transaction. When I spoke to you in April, we had just closed the acquisition of our preliminary -- in our preliminary indications were the things were going well. Having worked with the new team now for several months, I could not be more pleased with the quality of the people and the customers that we've added to our FirstBank family. Additionally, our competitor's merger activity and expense reductions have created turmoil across our footprint and good people and good customers are seeking out new banking relationships. Our increased presence in East Tennessee and North Georgia has made FirstBank an attractive landing spot for these customers and associates. So we're already realizing the strategic -- that strategic aspect of the transaction.

We've also executed on the financial assumptions that we laid out when we announced the acquisition in November of last year. To touch on a few key items, the final loan mark was in line with the $9.9 million estimated at announcement. Our after-tax deal charges to-date have been $3.6 million as compared to the $4 million estimated at announcement. We estimate that our tangible book value dilution was around 8% as opposed to 9% estimated at announcement. And run rate on non-interest expense, which is harder to track which branches are consolidated but we're in line to be slightly below the $10 million run rate of annual expenses, excluding the core deposit intangible amortization that we announced on the call.

I'm very proud of our team for their efforts on the transaction. But the outcomes of the branch transaction make me even more confident in our ability to further execute on meaningful M&A that's accretive to our business and our shareholders. Fortunately, our position to capitalize on acquisitions comes as we are seeing more opportunity than ever before. Opportunities are being created primarily from boards looking for solutions, to management succession issues, rising regulatory and technology cost and shareholders searching for liquidity. Valuation expectations for these banks are mixed. High quality community banks which we generally define as banks with high quality deposit franchises, good credit quality and in an absence of wholesale loans and deposits have a good recognition of their value and they're able to realize it. Low quality community banks which are more plentiful, I think that they should be valued like the high quality peers in their finding that they can't sell the banks for what they think they're worth. We're actively speaking to a view of the aforementioned high quality community banks and hope that we can reach an agreement with one or more of those in the second half of the year. With a competitive landscape and seller desire for cash, we may need to take some both dilution with a couple of years earned back to get a deal done but we think our reputation as the acquirer of choice for banks in our geography will help us to price transactions in a manner that will be attractive to our shareholders.

To summarize, we delivered a fundamentally sound quarter that resulted in strong profitability. Between our mortgage divestitures and branch acquisition, we feel that we have made strategic moves to position the Company well for many more such quarters to come.

With that overview, I will turn the call over to James to review our financial results in more detail.

James R. Gordon -- Chief Financial Officer

Thanks, Chris, and good morning, everyone. Our adjusted diluted earnings per share was $0.70 for the second quarter of 2019, with an adjusted return on average assets of 1.54% and an adjusted return on average tangible common equity of 17%. Growth improved mortgage results, expense management, than the non-credit environment, where we increased over our adjusted EPS of $0.66 last quarter.

Slide 4 illustrates the underlying fundamental trends of the Company's profitability and demonstrates our consistent performance. Our increase in adjusted return on average assets over the years, as well as our performance this quarter, served to demonstrate the strength, durability and earnings power of our core franchise. The sustained level of profitability has been driven by balanced loan and deposit growth and margin that remains one of the highest among our peers, the expense control and fundamentally sound credit quality.

Next Slide 5 presents the fundamental elements of our net interest margin, specifically loan yields and fees as we -- as well as deposit cost trends. As Chris mentioned, we landed in the middle of our target range this quarter, mostly due to controlling our cost of funds and deployment of some of the excess liquidity that we received in the branch acquisition, offset by lower loan fees of approximately $1 million as we let some of the prepayment fee be that bolstered our loan fee in the first quarter of 2019. In the absence of rate cuts, we anticipate being in the 4.15% to 4.30% range for the remainder of 2019. For each 25 basis point rate cut, we anticipate the margin declining 5 basis points to 10 basis points for each full quarter in the near term as it will take time for our liabilities to reprice downwards. Roughly 50% of our loan portfolio is variable rate, with approximately $1 billion tied to LIBOR and $1 billion tied to prime. We will see an immediate repricing on variable rate loan portfolios down if the rate cut is announced next week, LIBOR has already decreased approximately 20 basis points or so at this point. Although our investment portfolio is nearly 100% fixed rate, we may see a few basis points decline in yield related to accelerated prepayments on mortgage backed securities.

While the asset yields may decrease, we also have an opportunity to lower our liability cost over the next few quarters assuming the rates decline. We have approximately $140 million of CD priced around 2.55% coming due this quarter with another $60 million coming due in the fourth quarter. And we hope to be able to retain as much as possible at a lower rate. We anticipate that our overall CD balance may decline in coming quarters as we allow some highly rate sensitive money to leave the bank. Since quarter end, we have also taken other actions to impact the margin by obtaining $150 million in Federal Home Loan Bank borrowings with an average cost of 1.28%, and extended stated maturities. Those Federal Home Loan Bank borrowings are callable beginning next year, but offer a buffer to falling rates over the next year while providing additional liquidity.

To summarize, we continue to feel good about the relative long term strength of our margin. We're managing our overall funding costs with the excess funding from the branch deal and expect deposit rates to moderate as rates decline dependent upon customer reactions in the competitive landscape.

Moving to Slide 6, and as Chris mentioned previously, we produced another quarter of solid loan growth. Our objective remains consistent, profitable and relationship growth, not merely focusing on hitting a quarterly target, especially given higher deposit growth and cost considerations. We have also stayed comfortably within the regulatory threshold in construction and development and CRE concentration ratios. Despite our use of capital in the branch transaction, our C&D concentration stayed roughly flat due to decline in C&D outstandings as a percentage of our loan portfolio.

Next, moving to Slide 7. Our customer deposits were up related to the branch acquisition, but down slightly on an organic basis. We let some higher cost funding leave the bank, and so our loan to deposit ratio increased slightly in order to gain the immediate benefit of the excess liquidity from the branch deal. In the event that we do not retain as much in maturing CD that's expected or if we struggle to add non-time customer deposits, we should be able to replace the funds at lower costs given the likelihood of our lower rate environment over the course of the second half of the year.

Next, looking at mortgage on Slide 8. In the second quarter, our total mortgage operations had an adjusted pre-tax contribution of $2.6 million, when our retail footprint is included. For the quarter, our adjusted total mortgage contribution was approximately 8.7% with the Company's adjusted pre-tax income, which is down from 10.4% in the second quarter of 2018. Our interest rate lock volume was up significantly over the first quarter at $1.8 billion and down from $2.0 billion in the second quarter of 2018. Lower rates drew higher volumes which improved our overall profitability. However, some of that increase was offseted by lower net servicing revenue of $2.6 million due to the sale of a portion of our servicing portfolio in the first quarter and higher payouts from loans in our servicing portfolio. The two wholesale channels that we are divesting contributed approximately $5.8 million in mortgage banking revenue in the first half of the year, with approximately $500,000 of pre-tax income before allocated cost.

With our cost reductions in exit of wholesale businesses, we have not changed our goal of exceeding 2018 full year performance of $5 million in pre-tax contribution. The remainder of 2019's contribution will primarily come in the third quarter, more likely being slightly above breakeven in the fourth quarter, given normal seasonal patterns. We expect banking segment non-interest expenses, excluding mortgage related expenses to continue to grow in the mid single-digit range reflective of growth and additional investments and revenue producers and technology.

Excluding our mortgage retail footprint and estimated increase related to the lending capital bank level, non-interest expenses increased approximately 5% in the second quarter reflect a normal compensation increases and continued investments in people and infrastructure. Our effective tax rate was 25.3%, for the second quarter for the remainder of 2019, and we expect our effective tax rate to be in the 23.5% range due to projected equity compensation benefits in Q3 and Q4.

As shown on Slide 10, our asset quality remains sound and provides a strong foundation for our Company. Non-performing assets to total assets increased slightly for the quarter, but on the whole, our loan portfolio remains in solid shape. We are lower than expected provision expense this quarter on the back of that sound credit quality, but would expect those cost to increase slightly over the remainder of the year as net charge offs normalize.

Slide 11 shows our strong capital position. In this quarter, we estimate that our tangible book value per share was diluted approximately $1.48 by the branch acquisition. Just the first quarter following our IPO, our tangible book value per share has increased by $5.62 or 48.6% to $17.18. Our excess capital was utilized on the branch acquisition this quarter and a 9.2% tangible common equity at 11.6% total capital were slightly above where we had forecast. We believe that we are well-positioned to continue to grow organically, support our dividend and execute on future M&A.

With that overview, I want to turn the call back over to Chris for closing comments. And then we will open the call to your questions.

Christopher T. Holmes -- President and Chief Executive Officer

Thank you, James. And once again, we appreciate your interest and investment in FB Financial. Operator, that concludes our remarks on this morning's call. We'd now like to open the call up for questions.

Questions and Answers:

Operator

Thank you. [Operator Instructions] We'll go first to Jennifer Demba at SunTrust.

Jennifer Demba -- SunTrust -- Analyst

Thank you. Can you hear me?

Christopher T. Holmes -- President and Chief Executive Officer

Good morning, Jennifer. We can hear you.

James R. Gordon -- Chief Financial Officer

Good morning.

Jennifer Demba -- SunTrust -- Analyst

Oh, great. You mentioned obviously credit quality is still excellent, but you want to prune some weaker credits over the next few quarters. Any idea what amount of credits you're looking to prune at this point? And would they be in any particular category? Thanks.

Christopher T. Holmes -- President and Chief Executive Officer

No. There's not anything specific there, but I'll explain that this way. We are undergoing right now annual credit review process that we do annually. And it's a process where we get there and we look at all of our credits over a certain balance and then we look at some others randomly. And we do that by market, we do it with each market and we do it with our credit team. And we challenge the quality of the credits and talk about the quality of their overall portfolio. And that process is under way.

One of the things that I have challenged that team to do is to look more critically at that portfolio than perhaps we had in the past to do -- exactly, we use the word prune, you use the word prune, and for those credits that are weaker and could be even further negatively impact in a downturn to let's look at how we would take actions to either improve those or move those from the bank because as we all know once you're in the throws of the downturn, it's hard to move anything, especially if it's not of high quality. And so that's a proactive process on our part and it's going to be more rigorous than it's been in the past in anticipation that at some point that the economy is not as rosy, as it is today. So that's what that's in reference to. And so -- and you -- as you would expect in terms of what would be -- we're always going to continue to look at the hospitality segment, at the multifamily segment, at the -- at some other smaller concentrations that we particularly monitor that are specific to either a market or a footprint or some niche that we have. And so they'll look at all of those, but not with any specific targets other than the internal parties that we already have.

Jennifer Demba -- SunTrust -- Analyst

Okay, great. Thank you.

Christopher T. Holmes -- President and Chief Executive Officer

Thanks, Jennifer.

Operator

We'll go next to Catherine Mealor at KBW.

Catherine Mealor -- KBW -- Analyst

Thanks. Good morning.

Christopher T. Holmes -- President and Chief Executive Officer

Good morning, Catherine.

Catherine Mealor -- KBW -- Analyst

With the follow up on your expense guide. So you're saying that core bank level expenses from today should increase at kind of mid single-digit growth rate. Is there anything in this past quarter -- I guess maybe kind of[Phonetic] that the way we think about ACBI, is this a full quarter with ACBI? Are there any savings that we should see from that run rate that we had in this quarter? Or -- and so off of that I guess it's a bank level things were a little high, so just trying to figure out there's any kind of savings in there before we then grow it at that mid single digit rate?

James R. Gordon -- Chief Financial Officer

Not a whole lot of savings allowed because remember, we closed and converted and closed all of the branches on the same day as closing the transaction. So not a lot of savings probably a little bit on the edge, but nothing anything material on that front. I would say with a big contributor and I mentioned it in my comments was i.e., this was a quarter where we get the full effect of our normal annual merit releases and equity grants and other things. So that should be at the same level. So it shouldn't go up in absolute dollars the same but will continue in particular as we focus on hiring new revenue producers and making continued needs in the infrastructure and technology.

Catherine Mealor -- KBW -- Analyst

Okay. Got it. That helps.

James R. Gordon -- Chief Financial Officer

We did close the branch transaction on April 5. And so it is in for most of the quarter practically all the four.

Catherine Mealor -- KBW -- Analyst

Yes, OK. Okay, got it. And then on the mortgage side, what's the -- is there a way to think about mortgage expenses and then we -- once we see the full impact of the sale of the third party in the correspondent?

James R. Gordon -- Chief Financial Officer

Well, I think there's obviously a big component, there's variable that's based on the revenue produced, it looked like we saw this quarter. We did talk a little bit about the contributions of the two units that are -- have been sold or will be sold, that are roughly $2 million in the first half of the year with $2.5 million of revenues for about $500,000 direct contribution. I would -- then we're continuing to cut on the back office side, I would say somewhere in the $500,000 to $1 million of expense cuts that we're looking at over the coming months or so as we thought lot to sell the sale of the correspondent, that's not in those direct units.

Catherine Mealor -- KBW -- Analyst

Got it. Okay. And that's on a quarterly basis?

James R. Gordon -- Chief Financial Officer

Annual basis.

Catherine Mealor -- KBW -- Analyst

$500,000 to $1 million annually?

James R. Gordon -- Chief Financial Officer

Yes.

Catherine Mealor -- KBW -- Analyst

Got it. Okay.

James R. Gordon -- Chief Financial Officer

Yes. And so, Catherine, you said is there a way for you to think of those expenses post those two dispositions? And I would just say, yes, lower.

Catherine Mealor -- KBW -- Analyst

I assume that, I assume that. But -- and then -- and just to make sure I'm on the same page, the $2.5 million revenue, that is a first -- what is that time period?

James R. Gordon -- Chief Financial Officer

The first half of the year.

Catherine Mealor -- KBW -- Analyst

Okay. So those two units were $2.5 million in revenue and $500,000 direct -- bottom line contribution for the first half of '19?

James R. Gordon -- Chief Financial Officer

Yes.

Catherine Mealor -- KBW -- Analyst

It will go away. Okay. Great.

James R. Gordon -- Chief Financial Officer

Actually, I think that -- let me double check that. Yes, I think it's $5 million [Speech Overlap] this is $5 million with the $0.5 million of net direct contribution, I'm sorry, it's $2.5 million a quarter.

Catherine Mealor -- KBW -- Analyst

Okay. Just say that again.

James R. Gordon -- Chief Financial Officer

We had this year also redeemers[Phonetic] chime in there so, it's about $5 million and $500,000.

Catherine Mealor -- KBW -- Analyst

Got it. $5 million in the first half and then $500,000 also in the first half.

James R. Gordon -- Chief Financial Officer

Yes.

Catherine Mealor -- KBW -- Analyst

Got it. Okay, great. And then whether -- on the margins, so, I mean, I appreciate the 5 bps to 10 bps cut or guidance for lower margin per cut. And I mean -- and it feels high, but is that really just high because you're really not giving any benefit to lower funding costs? And does that guide also include any kind of formative excess liquidity from what you've gained in the ACBI acquisition?

James R. Gordon -- Chief Financial Officer

We deployed most of that this quarter that there's a little bit low and then we added the additional liquidity to the federal home loan bank advances that I've talked about. I would say bringing deposit costs down would get us up to 5 basis point, if we're not able to do that, it's closer to the 10 basis point. If you think about roughly half of our portfolio is variable rate, if you get a 25 basis point cut, that's roughly 12 basis points on the yield just right off the top on the loan yield, which is the majority of our earning assets. So that's where the 10 basis point comes from and then the 5 basis point would be if we're able to cut and control costs along with repositioning some of our wholesale liabilities like we've done since the quarter has ended.

Catherine Mealor -- KBW -- Analyst

Got it. Okay. That's very helpful. Thank you.

James R. Gordon -- Chief Financial Officer

Thanks, Catherine.

Operator

Next we'll move to Peter Ruiz at Sandler O'Neill.

Peter Ruiz -- Sandler O'Neill -- Analyst

Hey, good morning, guys.

Christopher T. Holmes -- President and Chief Executive Officer

Good morning, Peter.

Peter Ruiz -- Sandler O'Neill -- Analyst

Most of my questions have been answered, but, maybe if you could just give a little color. I know you guys have been pretty transparent on the CD specials and whatnot that are going to be running off here in the coming quarters. But could you give maybe some color on what -- any potential specials running right now, what they look like and maybe what competitors are doing on the deposit side?

James R. Gordon -- Chief Financial Officer

Yes, I -- go ahead, Chris.

Christopher T. Holmes -- President and Chief Executive Officer

I'll comment on competitors. We continue to see some deposit specials in the market. And it's been sort of the competitors that are fairly consistent, those that are really have an organic growth pattern and are -- and constantly growing their loan portfolio, need funding. And so we see countless specials from them. It's kind of a pattern. Some others that aren't growing, we don't -- are gone quiet in the marketplace, and so because they don't need the funding. And so -- and it continues to be mostly driven by really two things, time deposits and targeted on more -- little more targeted on money market type products.

James R. Gordon -- Chief Financial Officer

Yes, I would say that -- that's all true. We've seen a little bit of abatement of that over the last several weeks, as I think everyone's appreciative that there's likely a rate cut coming sometime when maybe unclear. And so we've seen some abatement in the competitive nature of that. Our current specials are really targeted at that money that is rolling out of that 2.55% rate on the 11 month product that we did in the third quarter of last year. And we spread out the maturities in the low 2s that they can map over to replace their maturity money at this point.

Peter Ruiz -- Sandler O'Neill -- Analyst

That's great. Thanks, guys.

James R. Gordon -- Chief Financial Officer

Thanks, Peter.

Operator

We'll go next to Tyler Stafford of Stephens.

Tyler Stafford -- Stephens -- Analyst

Hey, good morning, guys.

James R. Gordon -- Chief Financial Officer

Hey, good morning, Tyler.

Christopher T. Holmes -- President and Chief Executive Officer

Hey, Tyler.

Tyler Stafford -- Stephens -- Analyst

I wanted to go back to Catherine's earlier question, just make sure I'm clear on the mortgage expectation. So in the first half of the year that the TPO and correspondent channels where they contributed $5 million of revenue with I guess $4.5 million of expenses for the net of $5 million, pre-tax, is that...

James R. Gordon -- Chief Financial Officer

Yes.

Tyler Stafford -- Stephens -- Analyst

Okay. Okay, got it. So with the exit of those two channels, can you frame up, just I guess the -- looking at it different way, the new I guess expected gain on sale margin with the absence of those two channels?

James R. Gordon -- Chief Financial Officer

It should move higher but given the lack of that in both of those have higher margins is, historically it will move up, but not dramatically from where it's been because of the lack of the production from those two channels as we announced, the shutdowns over the last quarter or two or so. But it will move higher or so.

Tyler Stafford -- Stephens -- Analyst

Okay. What -- was rates where they're at backing up and just the added strength of the mortgage market. Do you see upside to -- upside potential to the $5 million pre-tax, I guess, guide that you've given previously with lower rates and under the rate cut scenario? Is there potential for that to move higher back half of the year on a run rate basis and into 2020?

Christopher T. Holmes -- President and Chief Executive Officer

Tyler, there's a reluctant, yes, there could be some. We have, as you know, we stay away from trying to get on mortgage. We -- I think I said last quarter we've given up on being good forecasters or predictors when it comes to rates and mortgage volumes which are closely tied together. We certainly didn't expect the -- we were talking in the first quarter, we didn't expect the volume to be where it was in the second quarter. And so as mortgage rates continue, it's been good for volumes, it's been good for margins. We hope that that is the -- that continues and if that's the case, and it leads to some outperformance there. So we think it -- so that's what -- I don't know -- I think that answered your question, is that -- is there's a reluctant, yes, there.

But I'll just throw this in. We kind of run a balanced mortgage business, I believe you also heard me say we like consistent, we like repeatable, we like predictable. And so, we saw some balancing of that with mortgage servicing rights, the decay in mortgage servicing rights that were negative for the quarter, that balanced the production. And so that's a little bit hard to forecast as well. So all things considered, sure there is some upside there, but we're reluctant to go out and say and rely on that.

Tyler Stafford -- Stephens -- Analyst

Yes.

James R. Gordon -- Chief Financial Officer

It really comes down to whether the right environment cancels out the seasonal decline that you have heading into the fourth quarter and that's the -- that's an unknown. It obviously has happened in the past, but it's not always an indicator of the future, but that would be the biggest opportunity.

Tyler Stafford -- Stephens -- Analyst

Sure. Understood. I may -- I think I did miss some of the asset -- earning asset repricing details you gave in the prepared comments. Can you just -- I guess, go over again, kind of the fixed versus floating dynamics in loan portfolio today and if you guys have any floors on the floating portfolio? And then just thinking about the $140 million of CDs that are maturing in the third and fourth quarter. Just, I guess, new kind of cost for the CD rate right now, if you could elaborate on that, appreciate it.

James R. Gordon -- Chief Financial Officer

Okay. On the assets side, so all of our investments that are 99% of them are fixed rates and nothing much coming there maybe 1 basis point or 2 basis point from accelerated repayments on the mortgage backs. On the loan portfolio, we have about a little over $2 billion that is variable rate to roughly have -- and that's pretty evenly split between about $1 billion in LIBOR and $1 billion in prime. So the LIBOR is obviously already kind of ahead of any cuts in the prime rate at this point. So that's pretty much the asset repricing side.

On the deposit side, we have $140 million at 2.55%, that is renewing this quarter in the third quarter. We would think that could come down to the low 2s based on the specials that we're running to target those customers and what they would rollover into. Then we have another roughly $60 million of that same product in the fourth quarter. It is not -- we have started lowering those rates, it is about 2.40%-ish, it's actually 2.43%. And so we would hope that could even be lower, bringing somewhere to what we do this quarter.

Now, with that said, depending on competition and other things, some of that money may leave but we think we can replace that with short term wholesale money and probably would take that route and continue to deploy some of the excess liquidity that should help us manage that cost somewhat immediately. But then over time, to return the margin to where we're operating today, but that -- it will, I think the deposit pricing will lag some of that immediate asset repricing.

Christopher T. Holmes -- President and Chief Executive Officer

And Tyler, our shortest term, we intend to price at 2%, our longest term to price about 2.30%. So it's fairly tight there that long currently in 25 months.

Tyler Stafford -- Stephens -- Analyst

Got it. Okay. That's helpful. Thanks for that color. And then just lastly...

James R. Gordon -- Chief Financial Officer

We are having[Phonetic] your deposit if you are looking for a spot.

Christopher T. Holmes -- President and Chief Executive Officer

We are on spot.

Tyler Stafford -- Stephens -- Analyst

I think you're barking up the wrong tree there. Just lastly for me, just giving -- given your M&A comments earlier, is it fair to assume that the buyback activity will remain, I guess absent at this point?

James R. Gordon -- Chief Financial Officer

Yes. We haven't bought back any share to this point. We do have the authorization in place and we certainly could but it looks unlikely right now.

Tyler Stafford -- Stephens -- Analyst

Okay. Thanks, guys.

James R. Gordon -- Chief Financial Officer

Okay. Thanks, Tyler.

Operator

[Operator Instructions] We'll go next to Alex Lau at JPMorgan.

Alex Lau -- JPMorgan -- Analyst

Hi, good morning.

Christopher T. Holmes -- President and Chief Executive Officer

Good morning, Alex.

Alex Lau -- JPMorgan -- Analyst

Hi, can you touch on the organic balance sheet growth during the quarter, which excludes the acquisition? Which loan segments or industry do you see drive the loan growth? And also on the deposit side, did you see anything seasonal like with public funds?

Christopher T. Holmes -- President and Chief Executive Officer

Yes, I'd say on loan side, it hasn't been driven by any particular segment or product type. It's pretty much been spread and that's actually been pretty consistent over the last several quarters. And so it's coming in all forms, some C&Is, some CRE, some -- many with slight bit -- some slight bit of retail that continue to have some growth in our specialty lending portfolio. So it's not specific to any product type. And we do -- we actually include a graph in there where we try to keep track of that and publicize where that is -- where the growth is coming. And so it's been fairly consistent on the loan side. And on the deposit side with public funds, probably the more seasonality in the first quarter than in the second quarter. And so most of that it was out of the balances in terms of seasonality by the end of the second quarter.

Alex Lau -- JPMorgan -- Analyst

Got it. And good to see non-interest bearing deposit growth in quarter. you mentioned the new treasury management platform. What does the pipeline or opportunity look like for this new platform for bringing on more non-interest bearing deposits?

Christopher T. Holmes -- President and Chief Executive Officer

Yes. So we're actually excited about that opportunity. If you look over, say, the last seven or eight quarters, even go back further than that, we've had good experience in growing our non-interest bearing and that's primarily been driven by treasury management. That was not nearly as robust in the last four to six quarters. And as I mentioned, investments in technology and part of what you get kind of where this is, some times your systems, most of those are tied to a pretty small world, offenders out there. Sometimes your systems can be sunset, which took place with our treasury management system. So we had to go do the process of the conversion approaches, and that probably weighed on us just a little bit during, say, the last, say -- I'll say four or six quarters. We saw some growth this quarter because we have converted to the new system, our folks are excited about it. And so we're hopeful about that moving forward. I said we had 13%, almost 14% growth in non-interest bearing this quarter on an organic basis. When you take out the acquisition, that's I think really strong. And so that's something that is a point of emphasis for us. And I think -- Alex, I'm glad you picked up on it, that's something that we're excited about.

And we'll add to that with the disruption in the market between the merger between SunTrust and BB&T, some other turmoils -- turmoils or [Indecipherable] but some other movement in the market. We see opportunities there and we see opportunities for frankly, some fairly large accounts that don't move very often, like maybe once in my career. And so we're trying to zero in on some of those, and we're hopeful that we'll be able to -- we have gotten a shot at it few of those. We have won a few of those and we want to continue to focus on that.

Alex Lau -- JPMorgan -- Analyst

Great. Thanks for the color. And then just the last point, you -- on the technology and system upgrade, there's a treasury management platform, is there anything else that you want to highlight?

Christopher T. Holmes -- President and Chief Executive Officer

Yes. Our home loan on both retail and commercial is something that are areas that we are -- have targeted for some upgrades and are doing some -- and we'll see some improvements there, and some investments there on our part. If you're going back to 2016, we did, of course, systems conversion. And so when we did that, we were taking a long term view of systematically continuing to rotate some enhancements on all of our customer facing technology, so that when well actually this treasury system was first and you'll see those online systems come next. And then again, it's a consistent process over the next -- actually, we got a three year plan there where that we'll consistently upgrade those.

Alex Lau -- JPMorgan -- Analyst

Great. Thanks for taking my question.

Christopher T. Holmes -- President and Chief Executive Officer

All right, Alex. Thank you, Alex.

James R. Gordon -- Chief Financial Officer

Thank you.

Operator

We'll move next to Brock Vandervliet with UBS.

Brock Vandervliet -- UBS -- Analyst

Hi, good morning. And thanks for...

Christopher T. Holmes -- President and Chief Executive Officer

Good morning, Brock.

Brock Vandervliet -- UBS -- Analyst

Good morning. And so -- just in terms of the balance sheet shape, now with rates looking lower, not higher anymore, would you consider raising the loan to deposit ratio closer to 100%? Or do you kind of like where it's running here?

Christopher T. Holmes -- President and Chief Executive Officer

Yes. We like where it's running now. We're not -- we're not -- we don't consider ourselves great at predicting the future there. And so we want to stay less than 100% and we like where it is today. It's in the high 80s on a loan -- on a tougher investment portfolio and we like that. It could go a little higher than where it is today, but keep in mind, we've got that held-for-sale portfolio, it will add another 5% or 6% on the actual run. When you add the held-for-sale portfolio, we're running about 95% and that's where we'd like to be.

Brock Vandervliet -- UBS -- Analyst

Okay. Got it. And you mentioned in the opening remarks looking to prune some loans, keeping things tight, anticipating slowing at some point. How -- could you just kind of frame that out a little more, how deep do you think you're going to cut there and what characteristics are you looking for?

Christopher T. Holmes -- President and Chief Executive Officer

Yes. And so we don't have any certain target that we're going where we want cut this much out. We do have a -- I guess I would made the object work analogy that they used to do with the GE, they used to prune a certain amount of folks every year, to try to always keep hard performers. And we don't have a certain target. It's just as we review the portfolios, it's think about those that are maybe struggling today. Everything's current, everything's working, but we know the customers maybe had some challenge in keeping up in good times. And when that's the case during bad times bring really bad consequence. And so I also will say, if you look at the first half of the year, year-to-date, we're nearly 14% loan growth, over 13% on an annualized basis loan growth, and we like to grow in that 10% to 12% range, so we're over that. And so, we're not talking bout anything drastic in terms of a reduction in our portfolio or in our growth rate. But, we grow 10% to 12% on an annualized basis. We can already grow at 8% and still be in the middle of that range, right? And so I think it's just a good opportunity to try to get ahead in any particular downturn. And so we don't have any -- we're not out there going what we want to reduce by extra amount. We're just saying let's take this opportunity while we continue to have strong growth opportunities to try to make sure our portfolio is as strong as it can possibly be in the face of any downturn.

Brock Vandervliet -- UBS -- Analyst

Got it. Okay. Thank you.

Christopher T. Holmes -- President and Chief Executive Officer

Thanks, Brock.

James R. Gordon -- Chief Financial Officer

Thanks, Brock.

Operator

Next, we'll go to Daniel Cardenas at Raymond James.

Daniel Cardenas -- Raymond James -- Analyst

Good morning, guys.

Christopher T. Holmes -- President and Chief Executive Officer

Good morning, Dan.

James R. Gordon -- Chief Financial Officer

Good morning, Dan.

Daniel Cardenas -- Raymond James -- Analyst

So just quickly as it, kind of goes to your comments on M&A or it sounds like you're talking to a number of folks, but are there any specific markets that perhaps hold more interest for you than others? And then if you could remind us what kind of earned back period would you be looking for in the transaction?

Christopher T. Holmes -- President and Chief Executive Officer

Sure, Dan. Yes, so first on markets. We love in footprint first for a number of reasons. One, operating leverage, we get some markets where we like to have more density to give us more operating leverage. Second, they tend to be lower risk because you tend to know the people and know the customers and know the markets and know the cultures. And so we always like end market first. And then we are -- and then beyond that, we like contiguous markets and people we know and things that we know. And so -- and then I'd say those are where probably most of our more immediate -- there's enough opportunities. We do have some ambitions that go beyond our current markets, but we probably have enough opportunities today there in those first two categories that we wouldn't have to go with the third to be able to jump to markets like Birmingham or Atlanta, places like that today. And so those are the -- that's the geography and the types of opportunities. We really like, as I mentioned, we like banks with strong deposit portfolios, we like good credit quality. And then we like good, solid customer relationship banks in a contrast that with wholesale banks. We see in some banks that are -- have a lot of wholesale loans and deposits and we can do that on our own, we don't need to -- we don't pay a premium for that.

And then when we think of the financial metrics, of course, we're looking to get some EPS accretion and then we're going to manage any dilution, tangible book value dilution carefully. We don't like any. And depending on the type of deal, we may not be willing to take any. There are some that are quite attractive banks, could be quite attractive and could be meaningful to us again, specially if they're in certain markets where we need more than we already have. And on those we would take some tangible book value dilution. That gets complicated also because today some sellers, particularly if it's a privately owned company, that may desire more cash. And so that can lead to little more tangible book value dilution. And so we may take some tangible book value dilution, but we again watch that closely and we want to manage that earn back closely. And we generally are going to keep that under three years whenever we're looking at the earn back, we generally are going to try to keep that under that three year mark on a transaction that's particularly important, even on the transaction that's particularly important to us.

Daniel Cardenas -- Raymond James -- Analyst

All right, great. That's all I have for right now. Thanks, guys.

Christopher T. Holmes -- President and Chief Executive Officer

Thanks, Dan.

James R. Gordon -- Chief Financial Officer

All right. Thanks, Dan.

Operator

And that does conclude the question-and-answer session. At this time, I'll turn the conference back over to Chris Holmes for any closing remarks.

Christopher T. Holmes -- President and Chief Executive Officer

Okay. Thank you all very much for your time. And thank you again for your interest in FB Financial. We look forward to talking to you next quarter, if not before.

Operator

[Operator Closing Remarks]

Duration: 55 minutes

Call participants:

Christopher T. Holmes -- President and Chief Executive Officer

James R. Gordon -- Chief Financial Officer

Jennifer Demba -- SunTrust -- Analyst

Catherine Mealor -- KBW -- Analyst

Peter Ruiz -- Sandler O'Neill -- Analyst

Tyler Stafford -- Stephens -- Analyst

Alex Lau -- JPMorgan -- Analyst

Brock Vandervliet -- UBS -- Analyst

Daniel Cardenas -- Raymond James -- Analyst

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