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First Financial Bancorp (FFBC -0.84%)
Q3Â 2019 Earnings Call
Oct 18, 2019, 8:30 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Good morning and welcome to the First Financial Bancorp Third Quarter 2019 Earnings Conference Call and Webcast. All participants will be in listen-only mode. [Operator Instructions] Please note this event is being recorded.
I now would like to turn the conference over to your host today is Scott Crawley. Please go ahead, sir.
Scott T. Crawley -- Corporate Controller & Principal Accounting Officer
Thanks, Steve. Good morning, everyone. Thank you for joining us on today's conference call to discuss First Financial Bancorp's third quarter and year-to-date 2019 financial results. Participating on today's call will be Claude Davis; Executive Chairman, Archie Brown; President and Chief Executive Officer, Jamie Anderson, Chief Financial Officer and Bill Harrod; Chief Credit Officer. Both the press release we issued yesterday and the accompanying slide presentation are available on our website at www.bankatfirst.com under the Investor Relations section. We will make references to the slides contained in the accompanying presentation during today's call.
Additionally, please refer to the forward-looking statement disclosure contained in the third quarter 2019 earnings release as well as our SEC filings for a full discussion of the company's risk factors. The information we will provide today is accurate as of September 30th, 2019, and we will not be updating any forward-looking statements reflect facts or circumstances after this call.
I will now turn the call over to Archie Brown.
Archie M. Brown -- President and Chief Executive Officer
Thank you, Scott. Good morning and thank you for joining us on today's call. Yesterday afternoon we announced our financial results for the third quarter. Before I turn the call over to Jamie to discuss those results in greater detail, I would like to make a few comments regarding our quarterly performance. Successful integration of Bannockburn Global Forex and other capital deployment activities.
Our third quarter results were strong reflecting continued top quartile performance and marking our 116th quarter of profitability -- consecutive quarter profitability. Our performance demonstrates strength in our businesses despite a more challenging interest rate backdrop and was highlighted by consistent earnings, solid loan growth and strong fee income. For the quarter, our adjusted performance metrics included earnings per share of $0.56, a 1.54% return on average assets, a 17.6% return on average tangible common equity and a 52% efficiency ratio.
Core banking trends continue to be positive with loan demand remaining strong across many of our units resulting in record originations enabling us to grow loan balances by approximately 4% on an annualized basis. Deposits were mixed with growth in our non-interest bearing balances tempered by lower money market balances and seasonal declines in public fund balances.
Our core net interest margin remained strong and on the high end of the range previously provided supported by disciplined deposit cost management enabling us to mitigate some of the impact from declining rates. Overall, credit trends are very good and improved during the quarter as both non-performing and classified asset balances declined during the period. However, we were disappointed in elevated net charge-offs which were driven by three franchise relationships discussed in prior periods. I'll provide more comments regarding the franchise portfolio a little later in our discussion.
Our fee income performance was a highlight this quarter with growth of over 15% year-over-year driven by continued record client derivative fees and mortgage income and the addition of foreign exchange income from our newly acquired Bannockburn unit. As anticipated the third quarter saw 49% decline in bank card income from the linked-quarter due to the impact of Durbin. Our 52% efficiency ratio continues to be a bright spot, although we saw elevated expenses during the quarter even after adjusting for severance and merger-related items largely driven by performance-based incentives, continued strategic investments and some transitory expenses.
We were also pleased to complete the integration of Bannockburn during the quarter, which will allow us to broaden the product offering to our middle market clients while also enabling us to provide banking services to their extensive customer base. The addition of this experienced team and its capital market offerings creates tremendous opportunities for our banks, clients and shareholders.
During the quarter, we made progress in our share repurchase program by buying 1.1 million shares. We were able to enhance shareholder value, while sustaining financial strength and capital flexibility, while the acquisition of Bannockburn in the share repurchases modestly impacted our capital ratios, our continued strong capital levels provide opportunities for additional capital deployment opportunities in the future.
With that, I will now turn the call over to Jamie to discuss further details of our third quarter results. After Jamie's discussion, I'll wrap up with some comments on our franchise portfolio, forward-looking commentary and closing remarks. Jamie?
James M. Anderson -- Executive Vice President, Chief Financial Officer
Thank you. Archie and good morning everyone. Slides three and four, provide a summary of our third quarter 2019 performance. As Archie mentioned third quarter performance was solid, as loan growth, net interest margin, fee income and efficiency all met or surpassed our expectations. Capital ratios remain healthy, despite declining slightly as a result of closing the Bannockburn acquisition and share repurchase activity during the quarter, although the interest rate environment continues to be challenging, our overall profitability remain strong in relation to our peer group.
Slide five reconciles our GAAP earnings to adjusted earnings. Highlighting items that we believe are important to understanding our quarterly performance. Adjusted net income was $55.5 million or $0.56 per share for the quarter, which excludes $5.2 million of severance and merger related costs and 711,000 of cost related to branch consolidations. As shown on Slide six, these adjusted earnings equate to a return on average assets of 1.54% and a return on average tangible common equity of 17.6%. Further, our 52% adjusted efficiency ratio reflects our continued ability to appropriately manage expenses while making targeted investments in growing the business.
Turning to Slide seven, net interest margin on a fully tax equivalent basis declined 8 basis points in the third quarter to 3.96%. The margin was negatively impacted by lower interest rates resulting in lower asset yields. Basic net interest margin declined 9 basis points compared to the linked quarter as lower asset yields combined with additional days in the quarter, more than offset a favorable shift in funding cost and mix. As we've mentioned in previous quarters, we anticipate further margin pressure given the potential for additional Fed rate cuts, which would negatively impact asset yields as our loan portfolio is 59% variable rate.
As shown on Slide eight, the yield on loans declined 15 basis points and the investment yield dropped 8 basis points. We partially offset these declines by proactively managing our deposit pricing, which help to lower our cost of deposits by 2 basis points.
Slide nine depicts our current loan mix and balance shifts compared to the linked quarter. End of period loan balances increased $83 million as ICRE and mortgage loan growth outpaced a slight decline in C&I and an intentional reduction in franchise balances. We remain optimistic regarding future loan growth potential and expect the fourth quarter to approximate the third quarter results.
Slide 10 shows, the mix of our deposit base as well as a progression of average deposits from the linked quarter. Average deposit balances declined $78 million as public fund and money market declines outpaced increases in non-interest bearing accounts and brokered CDs. Overall deposit costs stabilized and began to slightly decline in the back half of the quarter with the reduction in interest rates. We intend to actively manage these costs in future periods to help alleviate pressure on the net interest margin.
Slide 11 highlights our non-interest income and expense for the quarter. Fee income was bolstered by the Bannockburn acquisition as well as continued momentum in client derivative, deposit service charges and mortgage banking. These fees helped offset the impact from Durbin, which drove a $3.2 million or 49% decline in bank card income during the period. Non-interest expense for the quarter is depicted on Slide 12. Higher salaries and benefits were driven by incentives tied to the overall company performance outpacing our peer group, as well as the strong client derivative and mortgage banking income. The quarter included $1.4 million of Bannockburn operating costs.
In addition, we had approximately $1 million of transitory cost, such as recruiting fees, fraud and OREO losses that we don't expect to occur in future periods. We also recognized an FDIC assessment credit during the quarter which helped offset the increases previously mentioned.
Slide 13 depicts our asset quality trends for the last five quarters. Provision expense declined during the period, although it was slightly higher than expected. Third quarter net charge-offs were $10.2 million or 45 basis points of total loans, which included $6.3 million related to three franchise relationships discussed in previous quarters. Classified assets, which we believe to be the leading indicator of credit losses declined as a percentage of total assets from 1.02% to 0.92% which is the lowest level in over a year. This classified asset level combined with the resolution of problem credits drove the decline in the loan loss reserve balance.
Finally, as shown on slides 14 and 15, capital ratios remains strong and are in excess of our stated targets. As Archie mentioned we were active in repurchasing 1.1 million shares during the quarter, which reflects our intention to maximize shareholder value while sustaining financial strength and capital flexibility. Our tangible book value and capital ratios were modestly impacted by the acquisition of Bannockburn and the share repurchase activity. Tangible book value per share declined 3.6% during the third quarter to $12.33 and our tangible common equity ratio declined 17 basis points or 1.8% to 9.17%.
I'll now turn it back over to Archie for an update on the franchise portfolio, thoughts on our fourth quarter outlook and closing comments.
Archie M. Brown -- President and Chief Executive Officer
Thank you, Jamie. On slide 16, we provide additional information regarding our franchise portfolio. As stated earlier, we incurred additional losses in this portfolio during the quarter related to three relationships, of the $6.3 million in charge-offs, $3.2 million is related to the resolution of the large relationship we disclosed in the first quarter. The remaining $3.1 million relates to the continued work out of two relationships discussed in prior periods.
Slide 16 reflects that of the current $474 million portfolio, $29.5 million is rated special mentioned are substandard non-accrual. The pre-relationships mentioned above represent all of the substandard non-accrual balances. A few other points to make about the status of the current portfolio. The overall portfolio is performing well. 94% is rated pass, we monitor the portfolio on an ongoing basis and proactively manage relationships. Portfolio is granular, the top 10 relationships comprise 29% of the portfolio, make up all of the relationships over $10 million, $7 million of which have real estate as additional collateral in addition to all business assets and a personal guarantee of the owners.
As I mentioned in the first quarter, we've been proactively managing this portfolio to improve its overall risk profile since late 2016. Since year-end 2018, the portfolio has declined by 15% as we've exited relationships that we determine did not fit our risk profile or that have had material deterioration in performance. We estimate the portfolio will decline another 10% to 15% due to the intentional slowing of origination activity and the workout of special mention and substandard loans. Before we end our prepared remarks, I want to comment on our forward outlook as shown on Slide 17.
We remain optimistic in our ability to maintain loan growth, given the continued strength in our loan pipelines. We expect loan balances to increase in the low single digits on an annualized basis for the fourth quarter. Long term, we continue to target mid to high single-digit growth given the investments we've made in talent, our core operating markets and our comprehensive product offerings. Regarding the net interest margin, projections will be largely dependent on the path that the Fed takes moving forward. Assuming, no further cuts our outlook is at 3.65% to 3.70%, margin excluding purchase accounting. As always the net interest margin can fluctuate depending on a variety of factors and we actively work to mitigate downward rate pressures on the asset side through disciplined deposit pricing management.
As stated earlier, credit quality is stable with a normalized provision covering charge-offs and accounting for loan growth. However, individual loans can have a transitory impact from time to time. We expect fee income to increase to the range of $34 million to $36 million over the next quarter, including the full quarter impact of Bannockburn which represents approximately $6 million of income. With respect to expenses, we continuously focus on efficiency even while making strategic investments to support the long-term success of our business. We expect expenses in the range of $84 million to $86 million including the $5 million full quarter impact of Bannockburn.
With regard to taxes, our outlook for the fourth quarter is 17.5% and includes a 2% reduction for the expected recognition of tax credits. With Bannockburn closed and integrated our strong capital levels, earnings power and consistency provide flexibility for continued capital deployment strategies. We're pleased with the strength and performance of our company. We believe this strength positions us well for managing in the current environment and pursuing growth opportunities that meet our objectives.
At this point, this concludes the prepared remarks, we'll now open up the call for questions. Steve?
Questions and Answers:
Operator
Yeah, thank you. We will now begin the question-and-answer session. [Operator Instructions] And this morning's first question comes from Scott Siefers with Sandler O'Neill.
Scott Siefers -- Sandler O'Neill & Partners LP -- Analyst
Good morning, guys. Thank you.
Archie M. Brown -- President and Chief Executive Officer
Hey, Scott.
James M. Anderson -- Executive Vice President, Chief Financial Officer
Hey. Scott.
Scott Siefers -- Sandler O'Neill & Partners LP -- Analyst
Hey, just first question on the franchise finance -- the finance portfolio. Archie, just curious about your thoughts on any additional loss content within the portfolio and why we didn't see a need to reserve for any of those. And I guess, first part of the question is back in the second quarter, I think we discussed a couple of the credits, but it didn't look like there was going to be any charge-off related to them at that time, if I recall correctly. So just curious how sort of the thinking projected between then and now?
Archie M. Brown -- President and Chief Executive Officer
Yes, Scott. On the first part of the question. We did, in the prior quarter -- have a higher increased reserve related to the one that was resolved this quarter. And then there was a charge against that, not a full charge but a charge against that reserve this quarter. So that's the $3.2 million piece, I believe.
With respect to the other two, there has been some further deterioration in the credits. I think the one came up last quarter and a question, because I believe it was, had moved to an accruing TDR status and at the time when we looked at the overall value, enterprise value of the stores involved, we believed we had it adequately valued. What's been sued since, with respect to that one is that, that franchisee had two store concepts and in fact, what's occurred is one of those concept is now been sold and as part of that sale there was some loss that we recorded. So that's -- that one.
With respect to the third one. It's been a longer-term problem probably for 2.5 years or more and we had a -- we thought we had a sale worked out with that credit and for multiple quarters have been ongoing due diligence and that sale fell apart and as we started to evaluate the current performance of the stores we believed it was a appropriate to take a partial charge down, that one now is again in negotiation with another party per sale.
Scott Siefers -- Sandler O'Neill & Partners LP -- Analyst
Okay, perfect. Thank you. But I guess ultimately, it seems safe to -- while maybe it needs this handful of credits has maybe taken longer and costs a bit more than we thought, it seems like it is indeed, isolated to these couple. It's not the broader franchise portfolio. Fair enough assessments?
Archie M. Brown -- President and Chief Executive Officer
Yeah, I think if you look at the industry, there are some challenges, labor cost and some other things overall, but when we look at our operators especially with some of the winnowing we've done in the portfolio over the last year plus, Scott. We feel like the operators we have are high-quality operators and performing, if you look at the overall portfolio performing well.
Scott Siefers -- Sandler O'Neill & Partners LP -- Analyst
Yeah. Okay, perfect. And then separately, Jamie. Question on the margin, just to understand perfectly. We've got -- we're looking for basic margin of 3.65% to 3.70% or at least margin before purchase accounting adjustments, 3.65% to 3.70%. But if we did get another rate cut by the Fed here at some point in the very near future, that would imply most of quarters worth of impact for an additional 6 basis points to 8 basis points of reduction. So if we do get a cut, presumably it would come into the low this 3.65% to 3.70%. Right?
James M. Anderson -- Executive Vice President, Chief Financial Officer
That's correct, yes. So the 3.65% to 3.70% assumes no further rate cuts and then -- so we're kind of trying to set it up for you and your colleagues to be able to then assume -- because we know you guys assume when cuts are different times. So basically 3.65% to 3.70% with no further cuts and then a 6 point to 8 point drop with with each 25 basis point cut.
Scott Siefers -- Sandler O'Neill & Partners LP -- Analyst
Yeah, OK...
James M. Anderson -- Executive Vice President, Chief Financial Officer
[Speech Overlap] You can build the timing of that however you see fit.
Scott Siefers -- Sandler O'Neill & Partners LP -- Analyst
Perfect. All right, thanks a lot guys. Appreciate it.
Archie M. Brown -- President and Chief Executive Officer
Thanks Scott.
Operator
Thank you. And the next question comes from Chris McGratty with KBW.
Chris McGratty -- Keefe, Bruyette & Woods -- Analyst
Hey, good morning.
Archie M. Brown -- President and Chief Executive Officer
Hey, Chris.
James M. Anderson -- Executive Vice President, Chief Financial Officer
Hey, Chris.
Chris McGratty -- Keefe, Bruyette & Woods -- Analyst
Do you -- I have a margin question for you. You shrunk the investment portfolio by about $300 million on an end-of-period basis? I'm interested in kind of thoughts on the balances of that portfolio going forward. And also, kind of as you kind of take a step back. If the margin is going to be under pressure, like most banks. Our earning assets -- how do we feel about fourth quarter earning assets and net interest income? I think that's what people are really focusing on is the revenue.
James M. Anderson -- Executive Vice President, Chief Financial Officer
Yeah.
Chris McGratty -- Keefe, Bruyette & Woods -- Analyst
But can you maybe add some color there? Thanks.
James M. Anderson -- Executive Vice President, Chief Financial Officer
Yeah. So just with the shape of the yield curve we did throughout the third quarter reduced the investment portfolio by $300 million. I think on average, it was down about $120 million for the third quarter, but we'll get the full effect of that. In the fourth quarter, so what we did -- we just sold -- essentially sold securities that had an average yield of about, call it around 2.50 and then reduced short-term borrowings. So the spread on that was relatively low. It was very low. And so we just essentially delevered a little bit and, and reduce the portfolio. So our intent for the short term is that we will keep the portfolio basically right at that $3 billion. So at the level that we ended the third quarter we'll keep the portfolio at that level, and then the earning asset growth would be the growth that we see in the loan portfolio.
Chris McGratty -- Keefe, Bruyette & Woods -- Analyst
Okay, great. And kind of, thinking out, if we stay in this environment, you do have some borrowings on the balance sheet. I mean, is this kind of a strategy that might be considered more into 2020 just kind of shrinking in, building a little bit of capital, recycling and buyback, does that kind of what you're thinking?
James M. Anderson -- Executive Vice President, Chief Financial Officer
Yeah, that is exactly what we were thinking that we are -- based on where our stock prices -- we would be in the market buying shares like we did in the third quarter and reducing the balance sheet and increasing the capital ratios in order to essentially subsidize the share repurchase program, we would continue that. If given the yield curve staying the same.
Chris McGratty -- Keefe, Bruyette & Woods -- Analyst
Understood. Okay, great. And then maybe if I guess on the deal. I think when you announced that you said it was going to be around a $30 million annual revenue a plus about 15% annual growth. I think the guide says $6 million for the quarter -- for Q4, is that -- is there seasonality in the business? Or are revenues a little bit less than what you might have thought initially?
Archie M. Brown -- President and Chief Executive Officer
Yeah, Chris, this is Archie. There is some seasonality, you think during that integration, there's just a little bit of noise and attention on working through the deal, but as we look at Q4. I think we're seeing approximately $6 million. And then if you look at next year, we would still think that we're going to see probably a, more like an $8 million a quarter, and it won't be linear, but it will be a kind of an average of that throughout the year. So you're talking in the low 30s in terms of revenue next year.
Chris McGratty -- Keefe, Bruyette & Woods -- Analyst
Okay, great. And just the final one, if I could. The tax rate that you've pointed out, Jamie, in the fourth quarter, that's just a one quarter event, right? It goes back to what 19.5% next year?
James M. Anderson -- Executive Vice President, Chief Financial Officer
That's correct. Yeah, we are looking at getting some tax credits in the fourth quarter assuming a new market tax credit project goes into effect.
Chris McGratty -- Keefe, Bruyette & Woods -- Analyst
Okay. And same with the FDIC assessment, right? That will go back assuming you don't get another refund?
James M. Anderson -- Executive Vice President, Chief Financial Officer
That will bounce back, now the fourth quarter will still be a little bit lower because we have some credit still to heat up, but it will go back to kind of normal levels. It will go back, I would say it's about half normal levels in the fourth quarter and then first quarter back to 100%.
Chris McGratty -- Keefe, Bruyette & Woods -- Analyst
Great, thanks.
James M. Anderson -- Executive Vice President, Chief Financial Officer
Yeah.
Operator
Thank you. And the next question comes from Terry McEvoy with Stephens.
Terry McEvoy -- Stephens Inc. -- Analyst
Good morning, guys.
Archie M. Brown -- President and Chief Executive Officer
Good morning, Terry.
Terry McEvoy -- Stephens Inc. -- Analyst
Thanks for the details on page 16. I guess the annual review that you do on the portfolio, when is the last time you've kind of reviewed the portfolio, specifically those top 10 relationships, as well as that largest relationship. Was that done in the quarter, earlier in the year or last year?
Archie M. Brown -- President and Chief Executive Officer
Yeah. Terry, this is -- I'm going to have Bill Harrod; our Chief Cridet Officer jump in here and talk a little bit about the process we use for ongoing reviews and annual reviews.
William R. Harrod -- Executive Vice President, Chief Credit Officer
Absolutely. We do a quarterly review of all the franchise transactions, including covenant reviews, et cetera then we do a full past review on everything above $5 million. The next one for that review is going to be in November. We have -- we do touch everything above -- really above the $5 million level on a common test on a quarterly basis. So we do a full deep dive twice a year, and we do a little bit lighter of a touch every quarter.
Terry McEvoy -- Stephens Inc. -- Analyst
Thank you. And then as a follow-up question, I guess any CECL less than # months away? Any thoughts on CECL as we think about 2020 and then did you guys disclose that the loan mark that will flow into the reserve on January 1 in connection to CECL, just so we're modeling out the reserve as accurate as we can today?
James M. Anderson -- Executive Vice President, Chief Financial Officer
Right. So the second part of that question, the amount of the mark that will flow into the reserve is very low, just given the fact that, we didn't have buy any purchase impaired loans. It was very low compared to the -- for the acquisitions. So the -- on the CECL side, at this point we are not disclosing the range at this point. I'd say at this point, we are in the -- where we are kind of tweaking kind of the models that we have, we've had a couple of dry runs and then a parallel run that would based on our data. And -- really we're just working through final assumptions and our internal control. So we're in good shape to be ready to go January 1, we've had our model validated, but we are not, at this point prepared to disclose what that range is.
Now keep in mind with our -- with our CECL reserve, our reserve is going to go up, I would say at a higher percentage than most of our peers. Just given the fact that we have a fairly large percentage of acquired loans that are sitting in our loan portfolio that currently have no reserve. So it's going to go up by a bigger percentage, but we're not at this point prepared to disclose that.
Terry McEvoy -- Stephens Inc. -- Analyst
And would that be something in your 10-Q something you'll talk about in January, when do you expect to have some final numbers around CECL?
James M. Anderson -- Executive Vice President, Chief Financial Officer
Yeah, we're still evaluating that whether we're going to put that in our queue or whether we would follow up with that later.
Terry McEvoy -- Stephens Inc. -- Analyst
Okay, thank you guys.
James M. Anderson -- Executive Vice President, Chief Financial Officer
Yeah, sure.
Operator
Thank you. And the next question comes from Nathan Race with Piper Jaffray.
Nathan Race -- Piper Jaffray -- Analyst
Hi guys, good morning.
James M. Anderson -- Executive Vice President, Chief Financial Officer
Good morning, Nathan.
Nathan Race -- Piper Jaffray -- Analyst
Going back to the last question on the deal. I think when you announced the transaction, you guys are targeting a pre-tax margin around 40% and the guidance you guys provide for fees and expenses tied to Bannockburn implies a little lower margin for the fourth quarter and Archie, I appreciate your comments that the fee should ramp as we move into next year, but just any color in terms of, if you guys still think that 40% pre-tax margin is doable or if maybe there's some upside just given the cost side of the equation?
Archie M. Brown -- President and Chief Executive Officer
We think the margin that we disclosed before, it is really kind of an EBITDA margin. They were tracking too, we still think that type of a contribution is similar to what we had shared with you before.
Nathan Race -- Piper Jaffray -- Analyst
Okay, got it. And then if I could just ask one kind of housekeeping question on the purchase accounting accretion. I think in the past, Jamie. You've suggested that, it should declined by a basis point or so. In each subsequent quarters is that still right way to think about that decline?
James M. Anderson -- Executive Vice President, Chief Financial Officer
Yeah, so we are based on our prepayment assumptions, the fourth quarter is between 19 basis points and 20 basis points of purchase accounting accretion and then again that goes down, you got it right, it goes down, call it a basis point and a half each quarter.
Nathan Race -- Piper Jaffray -- Analyst
Perfect. I appreciate you guys taking the questions.
Archie M. Brown -- President and Chief Executive Officer
Yeah. Thanks Nathan.
Operator
Thank you. [Operator Instructions] And the next question comes from Jon Arfstrom with RBC Capital Markets.
Jon Arfstrom -- RBC Capital Markets -- Analyst
Hey, good morning, guys.
Archie M. Brown -- President and Chief Executive Officer
Hey, Jon.
James M. Anderson -- Executive Vice President, Chief Financial Officer
Hey, Jon.
Jon Arfstrom -- RBC Capital Markets -- Analyst
Hey, just one follow-up, and then, I just want to talk about loan growth as well, but Archie, you talked about the franchise finance longer-term plan to bring balances down a bit more 10% to 15%. What kind of time period are you thinking about on that?
Archie M. Brown -- President and Chief Executive Officer
Yeah, I think if we look at -- Jon, we've been kind of looking ahead and that's probably four to five quarter a period as we're looking out, that's probably what you'll see. It will just trend down from this point probably through the end of 2020.
Jon Arfstrom -- RBC Capital Markets -- Analyst
Okay. Okay. Good. That helps me. And then on Slide nine, you showed a bit of a decline in commercial and I think that's separate from finance, big franchise finance because you have that down below. So maybe talk a little bit about that. What's happening there?
Archie M. Brown -- President and Chief Executive Officer
Yeah. Some of this was -- we made -- did make some other progress in some loans that we would, let's say we wanted to move out. We made some progress during the quarter in our commercial group in particular. I mean I think that's a piece of it. We had a -- on the commercial side, we had a little bit of a lower origination quarter than we've seen in the prior quarters. We've got some decent pipelines but for the quarter -- the originations were lower than what we've seen and let's say, Q1 or Q2. So I think it's a combination of those two things.
Jon Arfstrom -- RBC Capital Markets -- Analyst
Okay, got it. And then one question on deposit cost. Jamie, I think you mentioned later in the quarter, second half of the quarter, you guys were able to bring down some deposit cost. Just curious maybe the magnitude of it, what you did and any surprising reaction at all? Or did customers generally expect it?
Archie M. Brown -- President and Chief Executive Officer
Jon, this is Archie. I'll start maybe Jamie can jump in. Even in the summer, we sat down with our consumer team in particular and talked about record we make some real progress and for us and so that comes more in the money market category in particular. So we took some actions there in particular, of course there is CD balances we've started to adjust those as well. So those are probably the areas we focused on first. You think about it in the -- a lot of the interest bearing -- other interest bearing transaction accounts or savings accounts, there's not a lot of room. So it's, money market for us, it's CDs. It's probably public funds, a little bit more elastic but still we -- probably a little progress there as well. So those are the key areas that I think we focused on and probably starting July ish.
James M. Anderson -- Executive Vice President, Chief Financial Officer
Yeah, so I mean, I would say at first, Jon, we saw that our -- keeping our deposit cost just where we kind of -- were in the interest rate cycle coming into the quarter with, we would potentially see deposit costs at best remaining flat, but I think we were able to get out in front of it, a little bit, we've got not overly aggressive but move some of our pricing down on the money market side and we saw those cost kind of flatten out in the first part of the quarter and then we were seeing a couple of basis point drop in deposit cost in the last couple of months of the quarter. So I would say, I was pleasantly surprised, I thought that they would be flat for the quarter. So, getting those couple basis points out of the deposit cost side was nice on the -- and helped the margin.
Jon Arfstrom -- RBC Capital Markets -- Analyst
Yeah. It's good to see. Okay, thanks a lot guys. I appreciate it.
Archie M. Brown -- President and Chief Executive Officer
Thank you. Jon.
Operator
Thank you. And the next question is a follow-up from Chris McGratty with KBW.
Chris McGratty -- Keefe, Bruyette & Woods -- Analyst
Yeah, thanks for the follow-up. Jamie or Archie, you guys had a really good history of managing costs in regardless the environment. How do we think and obviously Bannockburn is going to put a little bit of a pressure on your efficiency ratio. How do we think about the bank, in terms of operating efficiency heading into the next several quarters. A couple of years, if this environment persists? Although, levers you can pull on the expenses? I mean what's a kind of a range that you guys are targeting?
Archie M. Brown -- President and Chief Executive Officer
Yeah. So, if you look at our outlook slide, you take the middle of it, we're projecting, call it $85 million and non-interest expense here going forward, I think, I mean, overall, I would tell you we will see -- I would call it normal kind of annualized percentage increases in that 2% to 4% range, but I mean we are taking a look at strategic investments on the technology side, but then on the flip side of that we're looking at ways that we can offset that and cut costs, elsewhere. So we can reallocate dollars within the organization and make those strategic investments, whether it is reducing the branch count or using technology to get more efficient.
So, having said that, with the decline in the margin and also with Bannockburn having a -- just a higher efficiency ratio, you will see our efficiency ratio tick-up a little bit. We've been in that 50% to 52% range kind of over the last three or four quarters once we got through all of the -- I would say all of the merger and getting the cost savings out of that, but you will see that tick-up a little bit given the investments we're going to make and also with Bannockburn. So you might see a tick-up a couple of percentage point.
Chris McGratty -- Keefe, Bruyette & Woods -- Analyst
Great. thank you.
Operator
Thank you. And at this time, I would like to return the floor to Archie Brown for any closing comments.
Archie M. Brown -- President and Chief Executive Officer
Thank you, Keith. Thank you everybody for being on the call today and listening to our quarter. We again feel great about where we're heading as a company, and we look forward to talk to you again next time. Have a great day.
Operator
[Operator Closing Remarks]
Duration: 37 minutes
Call participants:
Scott T. Crawley -- Corporate Controller & Principal Accounting Officer
Archie M. Brown -- President and Chief Executive Officer
James M. Anderson -- Executive Vice President, Chief Financial Officer
William R. Harrod -- Executive Vice President, Chief Credit Officer
Scott Siefers -- Sandler O'Neill & Partners LP -- Analyst
Chris McGratty -- Keefe, Bruyette & Woods -- Analyst
Terry McEvoy -- Stephens Inc. -- Analyst
Nathan Race -- Piper Jaffray -- Analyst
Jon Arfstrom -- RBC Capital Markets -- Analyst
