SmartFinancial, Inc. (SMBK) Q2 2019 Earnings Call Transcript

SMBK earnings call for the period ending June 30, 2019.

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SmartFinancial, Inc.  (NASDAQ:SMBK)
Q2 2019 Earnings Call
Jul. 25, 2019, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning. And welcome to the SmartFinancial Second Quarter 2019 Earnings Conference Call. [Operator Instructions].

I would now like to turn the conference over to Miller Welborn, Chairman of the Board. Please go ahead.

Wesley Miller Welborn -- Chairman of the Board

Thanks, Kerry. Good morning, folks, and thanks for joining us today. And as always, we appreciate your interest and investment in SmartFinancial. Joining me this morning are Billy Carroll, our CEO and President; Ron Gorczynski, our CFO; and Frank Hughes, our Investment Relations Officer.

Before we get started this morning, please refer to page 2 of our slide deck that we filed this morning, and in particular, if you would see our forward-looking and non-GAAP statement disclosures, and our Safe Harbor provisions, comments.

Yesterday afternoon, we released our Q2 '19 earnings. And I have to say, overall, we feel it's a great quarter for SmartFinancial. Obviously, there's a little bit of noise with some anomalies from the quarter with our income spike due to the receipt of our termination fee from a previous deal. But we feel the theme from the Q2 was definitely repositioned with solid results. A couple of highlights. We had record income of $9.1 million. Incredibly strong loan production. We had great pure deposit growth of 10% plus for the quarter, which we'll expand on a little bit later.

This morning, strong quarter for talent acquisition with new market leads, both in our Huntsville, Alabama and our Murfreesboro, Tennessee market, two of our markets where we feel have our top potential strong NIM that we're reporting and also continued strong margin. I'm now going to turn it over to Billy Carroll to give a little bit of color, and I'll complete my remarks by saying that I'm very excited about what the balance of this year holds for all of our stakeholders and clients.

We're on a solid trajectory, and our Board is engaged and supportive of where this management team is headed. Thanks. Billy?

William Young Carroll -- President and Chief Executive Officer

Thanks, Miller. I'll open up with some anecdotal comments and then turn it over to Ron and let him walk through the deck. As Miller said, a really solid repositioning quarter for us. We let you know last quarter, we would be utilizing Q2 to reset several areas of our company to position us better moving forward.

Obviously, we had a strong GAAP earnings quarter of $9.1 million, and a portion of that income was attributed to the deal termination fee. While we consider the termination fee non-core, we utilize that income tailwind to focus on a couple of areas that will position us well moving ahead. First, we restructured our finance team, now led by Ron Gorczynski. The team is better suited to handle the needs of the $2.5 billion company. Ron joined us a year ago after a successful career with Bank of North Carolina. He is now retooled and adds great experience needed for a growing public bank.

We also centralized our deposit operations area and a office space that we added through the Foothills Bank transaction. This will lead to much better efficiency, space utilization for that operations growth. We continue to bring in new revenue-producing team members. This is what's caused a little bit of an uptick in our comp line that Ron will touch on, including bringing on, as Miller said, two great new leadership positions in both our Huntsville and Murfreesboro markets.

The only little headwind we saw for Q2 was flat loan balances. That kept us from pushing our interest income up the pace we wanted. But even with the flat quarter from that standpoint, we're still tracking at over 6% year-to-date on the loan growth front, and we believe we'll continue the second half somewhere in that same 6% to 8% range. And that's where we forecasted at the beginning of the year.

Our loan production has been actually very strong, actually hit a goal here today. We've just seen some additional payoffs and paydowns in this quarter. I don't believe this is systemic and have confidence. We'll pick that back up on the balance front in the second half. Payoffs and paydowns were mostly anticipated. We just had more land in Q2 with several larger deals rolling into non-recourse permanent financing.

We had a small handful of deals where we weren't as comfortable with some of the deals where borrowers wanted to deleverage. We let those go. We are seeing a little more of a stretch on credit in some markets, but I've instructed our credit team to stick to their guns on their underwriting. So we are letting a few deals walk. Ron will spend a little bit more time on our deposit metrics in a bit, but the quarter showed a very positive impact on the work we're doing on the deposit growth front. As Miller stated, pure deposit growth around 10% for the quarter, and this continues to be a big focus area for us.

Our core earnings per share, even with all the repositioning was right in our target range for the quarter. And the initiatives we put in place and we have planned so like, we're really positioned for this next step in earnings growth. We're making that transition from a growth company building infrastructure to an earnings company with a continued growth focus. I really do like where we're sitting today, feel really good about where we're positioned now in the second half of the upcoming year.

Before I turn it over to Ron, I wanted to refer those that have the deck to page 6 of the deck. I think it's a really important slide. We put it in front of our packet. So I think it tells a really good story. As you can see from this slide, focusing more on the graph, the trajectory that we had in our net operating earnings less accretion has been a big focus for our company. We've had over the course of the graph and these quarters, we've had three acquisitions. And you can see the continued growth in that core net operating earnings less accretion, the light blue line is the accretion impact. That will be spiking. We'll continue to be spiky at times. But the overall trajectory of that dark blue line and net operating less accretion, something our company is focusing on and something that we've been really excited to see grow over the last several quarters.

So I'll stop there, turn it over to Ron, and let him walk through the deck in some greater detail.

Ronald J. Gorczynski -- Executive Vice President, Chief Financial Officer

Thanks, Billy. Good morning, everyone. Let's start with slide 8, balance sheet trends. All of our trends are showing continued, consistent growth. Since year-end 2018, our total assets have increased to $117 million, loans increased $56 million, and deposits increased $90 million. We have seen continuous increases in our book value and tangible book value per share as well. In the next few slides, we'll give more details on these numbers.

The next slide is our earnings profile. Our net interest income has increased over 6% year-over-year. Excluding loan accretion, this was over 14% due to the fact that during the second quarter of 2018, we have reported significantly higher accretion into the current quarter. Our total revenue increased over 38% year-over-year. Excluding the merger termination fee, our year-over-year increase was over 8%. The merger termination fee recorded this quarter has increased our GAAP results considerably. We will go through the individual components of this presentation over the next several slides, focusing on GAAP and operating results.

As a reminder, as we move forward to the slides, during the periods presented, we had completed both the Foothills and Tennessee Bancshares acquisitions. Moving on to page 10, net interest income. Our average earning assets and liabilities have consistently increased quarter-over-quarter, year-over-year due to both acquisitions and organic growth. Our net interest margin was down slightly from the prior quarter, primarily due to lower recorded accretion and increased funding costs.

Loan yields, when removing accretion, have increased 3 basis points to 5.23% in comparison with the prior linked quarter of 5.2%. As we move forward, loan accretion will have less of an impact on our loan yields and margin. Our scheduled loan accretion going forward will be around 15 basis points to 20 basis points, not take into account any acceleration from prepayments or paydowns.

Deposit costs have increased 10 basis points to 1.42% when compared to the prior linked quarter. Our margin for the current quarter was 3.94%, a 16 basis point decrease from the prior linked quarter. Our loan-to-deposit ratio was within our range between 90% to 92%. Our strategy. During the latter part of the quarter, actually, in late May, we deployed an initiative to lower our funding costs. We decided to strategically fund wholesale deposits with shorter maturities as well as satisfying some callable brokered CDs. Additionally, we shifted our brokered money market accounts to a combination of brokered CDs and FHLB overnight borrowings.

We will continue our internal focus to address the future potential Fed movements. We are currently reviewing our current rate sheet pricing structure as well as customer exemption pricing and balance sheet strategies. Moving on to page 11. Our non-interest income continues to increase. We have removed the merger termination fee from this presentation, so we can emphasize our continued focus on increasing non-interest income. Operating non-interest income to average assets have increased to 35 basis points, an increase of 5 basis points from the prior linked quarter. We have had consistent growth in majority of our non-interest income components, both our mortgage banking and wealth platforms have experienced increased revenues. Mortgage banking has experienced higher production levels for the current quarter, as expected. As previously mentioned in prior calls, our mortgage business is highly seasonal and subject to these rate changes. Our wealth platform continues to perform as we have added new professionals to this business line.

Moving on to page 12, you'll find non-interest expenses. During the quarter, we reported $1.8 million of merger-related and restructuring expenses. Excluding these expenses, our operating non-interest expenses had increased $357,000 from the prior linked quarter, primarily in personnel expense. The personnel expense increases are primarily related to increased commissions, incentive accruals as well as various talent upgrades. Our efficiency ratio for the quarter was a record 58%, but this was due to the termination fee. Excluding this, our operating efficiency ratio was 65.6%. Over the last several quarters, we have maintained the 65% range.

On page 13, we see our deposit mix. We are still consistently maintaining our one-third, one-third, one-third mix. On the bar chart to the right, you'll see that our composition has changed slightly when compared to the prior quarter. As I mentioned earlier, we repositioned brokered money market deposits to brokered CDs. This was prudent due to the decrease in wholesale funding costs over the last several months. Our cost of interest-bearing deposits for the current quarter increased by 10 basis points when compared to the first quarter, and our total deposits have increased 8 basis points for the same period.

We have experienced continued growth in our deposit portfolio. Total deposits are, as Billy mentioned, pure deposits. We're defining as deposits less any brokered deposits that had increased over 10% annualized from the prior linked quarter. Another area of mention is our team is focused on growing non-interest-bearing deposits, which increased over 34% annualized from the prior linked quarter.

Our loan portfolio, on page 14, has remained relatively stable for the linked quarters. Our loan production has been ahead of internal projections. But as Billy had indicated, higher loan payoffs and paydowns have offset this growth, as well as timing on the funding of loans. We anticipate having mid-single-digit growth in the second half of 2019. Our CRE ratios, as seen on the lower-left side, have been consistent over the past five quarters. We continue to benefit from the superior quality our team is booking.

That brings us to slide 15, asset quality. You'll see that our asset quality has continued to perform better than our peers. Our nonperforming assets to total assets was up 17 basis points, significantly lower than our peer group.

At quarter-end, our nonperforming assets totaled $4 million, which has been the lowest amount in nonperforming assets for the periods presented. Our allowance for loan losses to loans had increased slightly to 50 basis points, largely from our acquired portfolio decreasing over time and being replaced with our organic loans, which are subject to a reserve. Our remaining fair value discounts totaled $18.6 million at quarter-end, with $13 million of debt relating to credit marks. For the current quarter, we virtually had no charge-offs reported. Again, our credit quality has been steady, consistent, no signs of deterioration.

And with that, I'll hand this back over to Billy.

William Young Carroll -- President and Chief Executive Officer

Thanks, Ron. And from Ron's comments in the deck, I think you'll see that the work that our team is doing is really starting to pay off, and we anticipate that will continue to really bode well for us as we look into the second half. Loan yields continue to hold actually picking up a little further for the quarter. Deposit costs stabilizing. Ron had mentioned kind of a wholesale restructure that we did on that piece of the balance sheet. So I think we'll see continued stabilization on those deposit costs. And then an overall reliance on accretion, reducing all things that we think are very positive.

We continue to build a really strong core deposit base, really starting to build a stronger core bank. And again, with the work that we're doing there, we think that's going to really bode well in the second half. Just, as I wrap up, just look at the last comment, just on page 16 of the deck, kind of looking at moving forward initiatives. A nice summary slide, a couple of the big ones completed and a couple of those in process, a couple of those will probably always be in process, but our team has really reenergized over the last quarter and ready to tackle our old data growth strategy. And if we find the right strategic M&As there, we're ready to tackle that as well. But all in all, we think a solid quarter with a repositioning, nice solid earnings quarter and well positioned for moving into the second half of the year.

So I'll stop there, and we can open it up for questions.

Questions and Answers:

Operator

Thank you, sir. We will now begin the question-and-answer session. [Operator Instructions] First question will come from Stuart Lotz of KBW.

Stuart Lotz -- KBW -- Analyst

Hey, guys. Good morning.

William Young Carroll -- President and Chief Executive Officer

Good morning, Stuart.

Wesley Miller Welborn -- Chairman of the Board

Hey, good morning.

Stuart Lotz -- KBW -- Analyst

I guess first -- my first question, starting on expenses. So after Entegra, you announced that you're still going forward with a number of technology expenses and just kind of planning for being a larger bank. And then, I guess if you look at the annualized rate from this quarter, about 10%, should we kind of run rate that in the back half of this year? Or what do we expect from a core -- sorry, a core expense growth in the second half of this year?

Ronald J. Gorczynski -- Executive Vice President, Chief Financial Officer

I would -- I don't see much change for the core expense rate changing much over time. We're working on some internal initiatives that we're not ready to broadcast yet. But we will hold or slightly decrease this line item. The only issue we have is some of the -- like in the expense comp for personnel, higher commissions, kind of will make that a little volatile as our wealth and mortgage platforms, grow revenues. That commission is kind of like a bouncing ball a little bit. But other than that, we think what we reported is a good baseline going forward.

Stuart Lotz -- KBW -- Analyst

Got it. Thanks for the color there. And then, I guess back to M&A, obviously, after Entegra. I think last time I saw you, you were eager to get back in the M&A game. Just curious how conversations are going? We've heard that conversations around Tennessee have been picking up. I just wanted to see where you stand on M&A at this point? And if we can expect to see something in the coming months?

Wesley Miller Welborn -- Chairman of the Board

Stuart, as we said, we are focusing, certainly on being an organic growth bank. We have always looked at deals from day one. We will continue to look at deals. I will say, you're right, the Tennessee market, well, really all of our markets, the phone's probably ringing more than it ever has. We must to look at stuff, but we're going to take a slow discerning look as we always have. We've got -- we've been pretty disciplined in our metrics, and we're going to continue to be. But we're not afraid to pull the trigger when the right one comes along, but we're not itching to do one tomorrow.

William Young Carroll -- President and Chief Executive Officer

And Stuart, it's Billy. I'll add -- Miller is right. I think there are others -- there are opportunities out there. I think for us, I think the key -- our team is ready if the right opportunity comes along. But I think you're also seeing some different variables in pricing in some deals. But overall, we feel confident that we're ready if the right thing comes down the pike.

Wesley Miller Welborn -- Chairman of the Board

Absolutely.

Stuart Lotz -- KBW -- Analyst

Got it. And -- sorry, just one more for me. On the margin. So accretable yield guidance, I appreciate that they're 15 basis points to 20 basis points going forward. Is that -- as we look into 2020, with CECL, could we expect that the drop-down is -- a lot of that accretion coming from the credit side? Or is it most of the interest rate mark -- sorry, is most of the accretable yield at this point related to the interest rate marks on your --

Ronald J. Gorczynski -- Executive Vice President, Chief Financial Officer

Well, I'm sorry, I'll take that. The guidance that we gave for the 15 basis points to 20 basis points is on -- is truly the discounts, not the credit side. So we will maintain that going forward. We won't lose that in a CECL impact.

Stuart Lotz -- KBW -- Analyst

Got it. All right. Thanks, guys. Great quarter.

Wesley Miller Welborn -- Chairman of the Board

Thanks, Stuart.

Operator

The next question will come from Peter Ruiz of Sandler O'Neill.

Peter Ruiz -- Sandler O'Neill -- Analyst

Hey, good morning, guys.

Ronald J. Gorczynski -- Executive Vice President, Chief Financial Officer

Good morning, Peter.

William Young Carroll -- President and Chief Executive Officer

Good morning, Peter.

Peter Ruiz -- Sandler O'Neill -- Analyst

Just wanted to follow up on Stuart's question on the NIM, but just kind of thinking about it a little bit differently. How are you guys thinking about what the impact would be here, if we get a rate cut next week and kind of maybe what -- I know you have some offsets there that you're working on the liability side, but what does it look like going forward with maybe with each 25 basis point cut?

Wesley Miller Welborn -- Chairman of the Board

Yeah, Peter. I think we've been doing a lot of modeling around that, as I'm sure that many organizations have. And really, it's -- yes, it is a moving target, because I think you -- with that, you're seeing a little bit increased pressure on some of the loan competition, but we feel we'll probably see some contraction. I'll let Ron probably talk a little bit about NIM contraction with a Fed cut. We'll probably see some, but we think we can offset a lot of it going forward. Ron, you want to give some color on kind of NIM forecast?

Ronald J. Gorczynski -- Executive Vice President, Chief Financial Officer

Yes. At this point, we're modeling on a down 25 basis point scenario. Probably, it will be a $143,000 a quarter. So we'll give up 3 basis points to 4 basis points for the quarterly effect. And really, if it goes to 50%, we're pretty much on a doubling scenario. So let's -- that's what we're looking at, at this point based on our modeling. We do have some avenues of looking at customer exemption pricing and other areas, but that's kind of where our gut is -- what we're seeing right now. So I think it -- I think we're in pretty good for this 25% -- 25 basis point cut.

Peter Ruiz -- Sandler O'Neill -- Analyst

Okay. And kind of what the expectations of the rate cuts kind of baked into the market now. Are you guys kind of seeing any change on the deposit front? I know things are really competitive in your markets, but you kind of indicated that deposit costs are stabilizing, but do you see them stepping down here in the near term? Or maybe just holding where they are?

William Young Carroll -- President and Chief Executive Officer

Yeah, I think you'll see them step down, Peter. I think what we have is just this rate forecast had such a pivot. We're kind of in an area where we're moving. We're all kind of moving these deposit rates up and moving our feets forward, then you get this pivot. So everybody kind of stopped. I do think if you get a 25 cut stabilization, you're probably not going to get a lot of relief. I think if you probably get a little bit deeper cut or if the Fed continues to look to hedge down another 25 bps over the next few meetings, I do think we can get some relief, not along in wholesale, but I also think we can -- one of the reasons we've really shortened a lot of our wholesale is to be ready to take advantage of that. But also, we'll get some end market relief as well. So as Ron said, I think it's -- there are a couple of variables there. But I do think if the Fed cuts, we will get some end market relief on some of that pricing as well.

Peter Ruiz -- Sandler O'Neill -- Analyst

Got it. Thanks for the color.

Ronald J. Gorczynski -- Executive Vice President, Chief Financial Officer

Thanks, Peter.

Operator

The next question will come from Joe Fenech of Hovde Group.

Joseph Anthony Fenech -- Hovde Group -- Analyst

Good morning, guys.

William Young Carroll -- President and Chief Executive Officer

Good morning, Joe.

Joseph Anthony Fenech -- Hovde Group -- Analyst

Hey Billy and Miller, just maybe more of a big picture question for you, and you addressed this a little bit earlier, but over a longer-term perspective -- next several years, not months -- would you say that SmartBank is now more of an organic optimization play? Or still over a longer-term period, still more of an M&A story, until you get to whatever you would consider to be critical mass? Or just really still a combination of the two? Just trying to understand if you think the next few years look like the last few years or if we're at an inflection point where the story now maybe changes a bit.

William Young Carroll -- President and Chief Executive Officer

Yes, Joe, let me start. And I'll let Miller chime in. Yeah, I still think we're a combination of the two. In my comments, we are shifting. We understand. I mean, we've been building this over the last two to three years in particular. A lot of it was getting the scale to take advantage of our infrastructure. And so -- but we understand now the shifting of a more earnings focused growth company. So it's an earnings focused growth company is the way I would look at it going forward, versus a growth company building infrastructure. For us, I still think it's both. Obviously, we understand the importance of growing EPS. That's the reason we're really laser-focused on getting these efficiencies in place, pushing efficiency ratio down and getting there. We still think -- we've also gotten fairly good at the integration of these acquisitions. And so if those opportunities present themselves, we want to take advantage of them. But we're definitely building a stronger organic model, while still looking at that. Miller, anything to add?

Wesley Miller Welborn -- Chairman of the Board

I would just add to that -- echo that, Joe. And both your questions is yes and yes. We think there's a lot of consolidation, it will continue in this industry, and we think we're in an area of the country where we can take advantage of that. But we also think the markets we're in, we've now got a platform of the size where this organic engine can begin to grow at a faster pace than it has in the past. So yes, and yes.

Joseph Anthony Fenech -- Hovde Group -- Analyst

Okay. That's helpful, guys. And then for the optimization aspect of the story, Billy and maybe Ron, also. If you pick out two or three main objectives that you want to be sure to focus on and improve going forward, what would you say those are and are there targets that you can share that they are attached to those objectives?

William Young Carroll -- President and Chief Executive Officer

Good question, Joe. Really, I think, overall, and I think we alluded to it and Ron did on I think maybe Stuart's question regarding the expense run rate. I think a lot -- one of the key objectives is if -- where we are now is really keeping that non-interest expense line as stable as we can. And then just growing that top line, I think that's the thing. I think with the deals that we've done over the last few years, we've been able -- we've had to grow that expense line. Well, our goal now is to try to hold that expense line as steady as we can while growing the revenue. I think that's one. And as Ron mentioned, we've got some initiatives on that. We've got -- we're in the middle of a core data processing renegotiation right now that we've said publicly. We've got a contract that's up in the first quarter of next year. We think there's some really nice opportunities there.

Centralization of people in some of their facilities to really try to allow us to lever growth without having to add headcount. Those are things that are probably the top things on the list. Ron, any thoughts or comments on that as well?

Ronald J. Gorczynski -- Executive Vice President, Chief Financial Officer

No, you hit the highlights. There's a lot of smaller initiatives that we're not going to have any home runs here, but we'll have a lot of singles. I think we can accomplish the overall, after seeing -- taking over the finance department, just kind of taking a step back in restructuring the workflow, the efficiencies, the vendors, that's kind of -- we're kind of hitting a lot of areas. So it's kind of a loaded -- it's a loaded question, and a lot of answers, but everything is victim for us to look at and to try to lower and get more efficient out of all of our expense line items.

Joseph Anthony Fenech -- Hovde Group -- Analyst

Okay, thanks guys. And then it doesn't seem as though, just switching gears here, even though it's a Southeast deal, it's you all know in the sectors market BB&T and SunTrust as maybe some others, but are there pockets of M&A dislocation that you're looking at -- maybe some other smaller deals that are going on right now or some markets where you see dislocation, where you think you can maybe swoop in and capitalize, whether it's a market you're in already or a market that you've been eyeing?

William Young Carroll -- President and Chief Executive Officer

Yeah. We're seeing -- we are seeing an opportunity, not as much from the combination front, as you had mentioned, kind of BB&T and Sun. We do have some markets where we see some overlap there, that there's probably some opportunity there. Most of the houses just continue -- as we build the size, scale and credit infrastructure that we have, our ability to attract bankers from larger regional banks I think, is probably our key story and our key play. I don't necessarily think we're targeting any specific groups that have been impacted by an M&A. Some of that definitely could be the case. But I think ours is more just general recruitment of really good bankers that are in these larger banks that are more -- if you to come to a bank that they can have a little more flexibility in banking the clients.

Ronald J. Gorczynski -- Executive Vice President, Chief Financial Officer

And neither one of those two banks are really very prominent in most of our markets.

Joseph Anthony Fenech -- Hovde Group -- Analyst

Okay. And then last one for me, guys. Obviously, you've got the wide geographic map that you operate in, is M&A is still going to be more opportunistic? Or do you have a stack ranking of geographic areas in the sense that if all else was equal in terms of the M&A targets, like you like two banks equally, there are markets that you would prioritize over others? And then also are there any new markets that you would think about?

William Young Carroll -- President and Chief Executive Officer

Yes. Probably not a lot of, what I would say, expansion markets outside of our foot -- you're right, our footprint is fairly vast. And so for us, again, just what we've emphasized in kind of the East and Middle Tennessee, down I-65 growing at Huntsville, Alabama corridor down I-65, Birmingham. There are opportunities -- ours is more fill-in now with the kind of the states that we've got between the panhandle over to Fairhope, and then up I-65 in Nashville over to Knoxville. For us, it really is more about filling in that density. Not a lot of -- there is thought there could be some new market expansion a little bit. But it would probably be close to the geographies where we are, i.e., a Northern Georgia, for example, to tie in with our Chattanooga market. Something like that might play well. But most of it's going to be fill-in and very close expansion to where we already are.

Joseph Anthony Fenech -- Hovde Group -- Analyst

Great. Thanks for the color, guys. Appreciate it.

Wesley Miller Welborn -- Chairman of the Board

Thanks, Joe.

Operator

The next question -- comes from Tyler Stafford of Stephens.

Tyler Stafford -- Stephens Inc. -- Analyst

Hey, good morning, guys.

Wesley Miller Welborn -- Chairman of the Board

Good morning, Tyler.

Tyler Stafford -- Stephens Inc. -- Analyst

Most of my questions have already been addressed, but just a couple of follow-ups, I just want to make sure I understood or heard correctly, the growth expectations for the back half. Is it point-to-point, 6.30 to 12.30 mid single-digit growth expectation -- is that what you said?

William Young Carroll -- President and Chief Executive Officer

Yeah. Tyler, we still think we can -- we're going to try in that, as I said, kind of 6% to 8% pace, that's really kind of where we've targeted for the year -- that's really where we are year-to-date, for the calendar year. I think we're going to see that same -- probably same trajectory second half.

Tyler Stafford -- Stephens Inc. -- Analyst

And Billy, do you think that trajectory continues into '20 as well -- at the same range?

William Young Carroll -- President and Chief Executive Officer

Yes. I do -- when you look at the -- and I've alluded to this in some of our other calls. We continue to really focus on growing talent and also reshuffling some talent. I think the thing that we've seen that our company has been very comfortable doing is making replacement -- replacing folks when we need to, that's both operational and revenue side. And the talent that we've added over the last several quarters, has a lot more breadth and depth on the sales side. So yes, I like -- from an organic standpoint, still feel good about 2020 kind of showing that same range.

Tyler Stafford -- Stephens Inc. -- Analyst

Okay. And then, obviously, you addressed M&A in a couple of earlier questions. And so I hear you loud and clear there. But just with that framework, can you just talk about your appetite for your buyback at this point? And the context of M&A opportunities will likely come up at some point.

Ronald J. Gorczynski -- Executive Vice President, Chief Financial Officer

We do have that approved buyback Tyler. And again, that's just a math question that we look at on a regular basis. If it becomes a better use of capital, we'll certainly pull the trigger on that.

Tyler Stafford -- Stephens Inc. -- Analyst

Okay, that's it for me. Thanks, guys.

Ronald J. Gorczynski -- Executive Vice President, Chief Financial Officer

Thanks Tyler.

Operator

The next question will come from Christopher Marinac of Janney.

Christopher Marinac -- Janney -- Analyst

Hey, good morning. Just wanted to kind of also ask a big picture question as it relates to credit quality. I mean, any changes that you've seen underneath the surface that we would not see in these numbers and ratios for 6.30. And I'm also curious if the behavior of your customers in terms of their just overall willingness to continue to grow next year has changed at all in the last 60, 90 days.

Ronald J. Gorczynski -- Executive Vice President, Chief Financial Officer

Yeah, first answer, Chris, nothing underlying. Our credit -- we dig pretty deep as we go through annual reviews and take a look at renewals and things along those lines. There's really -- the client base that we've got, really nothing that we're seeing kind of under the covers are outside of what we're seeing -- what we're reporting here. I just feel very good about overall credit in the bank. And as far as kind of borrower sentiment and borrower expectations, not really. I think, overall, when you look at our geographies, economies are -- continue to be growing, very stable. We're in some great growth markets. Most of the folks that we're talking to feel pretty bullish as they look into 2020. So and I think that gives -- that's what kind of gives me the confidence on the previous question about kind of our growth expectations for next year.

We're in good markets. We still think there's quality credit out there. I'd say the only real caveat is what's going -- is kind of what's going on with rates and competitiveness around rates and competitiveness on terms in credit structure. As I alluded to, we're seeing a little bit of stretch. We're letting some deals walk, just -- so that's kind of the caveat that's out there. But outside of that, we feel good about growth expectations, our clients do as well, and feel like we're in a good spot to move forward-looking into next year.

Christopher Marinac -- Janney -- Analyst

Perfect. Thank you for the background. I appreciate it. And then just a follow-up on -- I know you talked about deposit costs earlier in the call. Does the change in the wholesale market impact kind of how CDs pricing may act for you the next couple of quarters or even the timing of CD renewals -- if you could elaborate on both?

William Young Carroll -- President and Chief Executive Officer

Yeah, I think so. I mean, obviously, the reset, and Ron alluded, we reset some things related to this projected drop in rates. So we saw wholesale funding calls, really drop over the last 30, 45 days. And so we took advantage of that, hit the reset, try to get everything short, anticipated that could edge down a little bit further. I think that does it -- it flows -- the wholesale metrics do flow into our methodology around how we price our market pricing. And so I do think you'll see that kind of play in and allow us to kind of lever down some of our end market pricing moving forward. And I would anticipate we'll see that from a competitive side as well. Don't know that. But feel like we'll be able to kind of lever that -- being able to lever that down going forward.

Christopher Marinac -- Janney -- Analyst

Great. Thanks again for the background this morning.

Wesley Miller Welborn -- Chairman of the Board

Thank you, Chris.

Operator

The next question will come from Kevin Fitzsimmons of D.A. Davidson.

Kevin Fitzsimmons -- D.A. Davidson -- Analyst

Hey, good morning, guys.

Wesley Miller Welborn -- Chairman of the Board

Good morning, Kevin.

Kevin Fitzsimmons -- D.A. Davidson -- Analyst

Just most questions have been asked and answered, but just one bigger picture question on the spending on infrastructure and the platform that you guys have done in preparation for being a larger company. Can you just allude to some of the intangible benefits that might come from that? Like, for instance, one, I think was potentially, if you agree, is -- does that make it easier dealing with the regulators on future acquisitions that all of this that you've gone through over the past few months in terms of the initiatives? Thanks.

William Young Carroll -- President and Chief Executive Officer

Kevin, I'll take that. Ron, Miller can chime in. Yes. Obviously, when you hit the size that we are now, I think we've had a great relationship with our regulatory agencies, and they've given us great ability to expand and grow. But we also know that we're at kind of this juncture to where now we have to -- they won't let us catch up, we kind of got to go ahead and be ready for next phase of growth. So that has been part of the spend. And that, in itself, just kind of dovetails into -- I think we can continue to grow now and not grow the non-interest expense line at the same pace, the efficiencies, the centralization, the upgrade of talent. I think that's really the transition that we've seen our company goes through. We really, in anticipation of growing to be in this $3 billion to $5 billion sector, which is where we would like to grow moving forward because we can think -- that's where we get the best efficiencies and generate the best returns. We got to kind of -- we had to stack up to kind of go ahead and be ready for that so when those opportunities do come. The regulators allow us to make those moves. And then it also allows us to better leverage, get better cost saves and deals moving forward. So I think that's really the -- to me, the two key pieces of the investments that we've made over the last little bit.

Wesley Miller Welborn -- Chairman of the Board

Yeah it often happens every year at the bank. Yeah I believe our fixed -- after digging deep the last month or two, into the numbers, our fixed costs are already there. I think any total expenses will be variable. So I think most of our infrastructure is built to go forward. And with our initiatives, I think we're in a good position to go forward from today.

Kevin Fitzsimmons -- D.A. Davidson -- Analyst

Okay, great. And one quick follow-on, I saw the release about the LPO being opened in Tallahassee -- and apologies if you already discussed this, but just if you could characterize that? Is this more of a kind of rightful shot, very specific situation? Or do you have -- is it part of a broader push where you have other markets on the map that you plan to --

William Young Carroll -- President and Chief Executive Officer

Yes, we -- we didn't talk about it on this call, but we did open a loan production office in Tallahassee. We were already doing -- I think we've alluded to that in previous calls and meetings. We do a fair amount of business in Tallahassee, out of our Panama City office. We have some team members that have got some great relationships over there. And so opening up this LPO. I think it was more of a -- let's get a spot over there to where we can lever some additional growth. We added another lender in that market. Our anticipation would be, if we continue to grow with that, that might be a de novo branch opportunity for us in that zone. We like that area. It kind of fits, it fits with what we've done kind of a state capital, college, a strong educational market. So we like it, we were already doing some business over there. So the LPO was really just to kind of put a stake in the ground, allow us to add another team member that really covers that market for us specifically. And then see what opportunities present themselves as we look to grow. But that's really about as far east as we would anticipate moving in the Panhandle.

Kevin Fitzsimmons -- D.A. Davidson -- Analyst

Okay. That's great. Very helpful. Thanks, guys.

Wesley Miller Welborn -- Chairman of the Board

Thank you.

Operator

[Operator Instructions] The next question will come from Daniel Cardenas of Raymond James.

Daniel Cardenas -- Raymond James -- Analyst

Hey, Good morning, guys.

William Young Carroll -- President and Chief Executive Officer

Good morning, Dan.

Daniel Cardenas -- Raymond James -- Analyst

So appreciate all the color around your thoughts about holding -- being able to hold your expense levels or keep them well controlled on a go-forward basis and grow revenues. But can you provide a little bit of color as to how you think that's going to translate into an ROE target? And at least an ROI target for you guys? And then what's kind of the timeframe to get to that target?

William Young Carroll -- President and Chief Executive Officer

And I'll start, Ron, and then you can jump in. I think, for us, we've been bumping right at that kind of that core one number. And our goal for this year was to take over. I still think we're probably on the right trajectory to take over that from a core standpoint year as we approach the end of the year. Going forward, our goal is to move through that, to move toward that 115 number. And I really think, for us, is just continued growth on the revenue side. As we've alluded to, hold expenses down from a -- just in a pure organic strategy, continue to hold those revenues targets steady and grow top line. Provided we can continue to grow our loans as we anticipate and as we've talked about, I think we could move -- kind of step that up -- kind of on a 5 basis point a year of clip, Ron, I think that's really what we've talked about. Looking at 105 to 110 over the next 18 months to 24 months. And I know you've been kind of digging into these projections. Any additional color you want to give?

Ronald J. Gorczynski -- Executive Vice President, Chief Financial Officer

Yeah, I'm in agreement with Billy. We're focusing -- if we can focus harder on our initiatives, on the expense control and continue our trending of non-interest income that will get us to our goal. But it's just, constant turning in this area, just trying to make it keep growing on this stuff. So now, Billy, you're dead on what you know, kind of where we're at with this.

Daniel Cardenas -- Raymond James -- Analyst

All right, great. And then just one on the administrative side. How should I be thinking about your tax rate here in the back half of the year? Is that kind of stable to what we saw in 2Q?

Ronald J. Gorczynski -- Executive Vice President, Chief Financial Officer

Yes, I think we're 24%, 24.10%, 24.20%, somewhere in that range. I mean we've had a lot of -- our tax rate has been kind of up and down because of the merger, non-merger, deductible, non-deductible. But I think that's -- I think that's pretty much around -- to be safe, 24.5%, but I think we're probably around 24.20%, let's just say in that range.

Daniel Cardenas -- Raymond James -- Analyst

All right. Good. And just last question for me, just in terms of competitive pressures on the deposit side. Have you seen any signs of abatement here in the most recent quarter and coming into 3Q? Or is it still kind of balls to the walls and everybody is hot and heavy in terms of competition?

William Young Carroll -- President and Chief Executive Officer

It's still pretty hot and heavy in terms of competition. You know, simply -- the growth markets, in particular, we're seeing -- still seeing a lot of competition as I alluded to. I think the rate pressures have maybe subsided a little bit. But you still get surprised on some of the rates that we see quoted when we get some opportunities presented to us, but it's still pretty hot and heavy. But at least, I think, the rate increasing pressure has subsided.

Daniel Cardenas -- Raymond James -- Analyst

And that's all I have for right now. I will step back. Thank you guys.

Ronald J. Gorczynski -- Executive Vice President, Chief Financial Officer

Thanks, Dan.

William Young Carroll -- President and Chief Executive Officer

Thanks, Dan.

Operator

And this concludes our question-and-answer session. I would like to turn the conference back over to Miller Welborn for any closing remarks.

Wesley Miller Welborn -- Chairman of the Board

Thanks, Carrie. And thanks again for your time today, your questions today, and your investment in our bank. We really appreciate your interest in us. And I hope you have a great day. Talk to you soon. Bye.

Operator

[Operator Closing Remarks]

Duration: 44 minutes

Call participants:

Wesley Miller Welborn -- Chairman of the Board

William Young Carroll -- President and Chief Executive Officer

Ronald J. Gorczynski -- Executive Vice President, Chief Financial Officer

Stuart Lotz -- KBW -- Analyst

Peter Ruiz -- Sandler O'Neill -- Analyst

Joseph Anthony Fenech -- Hovde Group -- Analyst

Tyler Stafford -- Stephens Inc. -- Analyst

Christopher Marinac -- Janney -- Analyst

Kevin Fitzsimmons -- D.A. Davidson -- Analyst

Daniel Cardenas -- Raymond James -- Analyst

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