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FB Financial Corporation (FBK 0.74%)
Q4Â 2019 Earnings Call
Jan 21, 2020, 6:00 p.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Good evening. And welcome to the FB Financial Corporation's Conference Call regarding their Fourth Quarter 2019 Earnings Release and Proposed Merger with Franklin Financial Network Incorporated. 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; as well as Myers Jones, Chief Executive Officer; and Chris Black, Chief Financial Officer from Franklin Financial Network Incorporated.
Please note FB Financial's press release and each of this evening's presentations are available on the Investor Relations page on the company's website at http://www.firstbankonline.com. Today's call is being recorded and will be available for replay on FB Financial's website approximately one hour after the completion of this call.
At this time, all participants have been placed in a listen-only mode. The call will be open for questions after the presentation.
During this presentation, FB Financial may make comments, which constitute forward-looking statements under the federal security 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 any 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, as well as the press release announcing the transaction of the company's most recent earnings release. 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 Principle financial measures as defined by Securities and Exchange Commission Regulation G. A presentation of the most directly comparable Generally Accepted Accounting Principle financial measures and a reconciliation of the non-GAAP measures to comparable GAAP measures is available in FB Financial's earnings release, supplemental and financial information, this evening's presentation which are available on the Investor Relations page of the company's website at http://www.firstbankonline.com and on the Securities and Exchange Commission's website at http://www.sec.gov.
I would now like to turn the presentation over to Chris Holmes, FB Financial's President and CEO.
Christopher T. Holmes -- President and CEO
Thank you very much, Keith. Good evening. And thank you for joining us on this call to hear about our fourth quarter earnings and the merger announcement with Franklin Financial Network. We appreciate your interest in both companies. We have exciting news tonight and I know you all want to hear about, but first I want to walk through the highlights for the year and let James briefly cover our earnings. Then I'll turn it over to Myers and Chris for a moment, before I share my thoughts on the merger with Franklin Synergy.
Looking at 2019, we feel that we delivered outstanding results. Our highest priority is always going to be taking care of our customers and the top initiative in our strategic plans take just that. When we formalized our strategic planning process 10 years ago, that was the case and that's going to be the case for each of our future strategic plans under this leadership team. The measures of how we execute on that, on our core growth and profitability metrics. For the year, we delivered on those metrics. Adjusted EPS of $2.83 or 8.4% growth over 2018 with no share buybacks, which resulted in an adjusted RO -- return on average assets of 1.55% and a return on average tangible common equity of 16.4%.
Excluding acquired balances, we grew loans by 10% and customer deposits by 6.3%, while non-interest bearing deposits increased by 14.8%. We're proud of those growth in profitability metrics, and as a result, we call 2019, the successful financial year. 2019 was also an exciting year for us from a strategic standpoint. We acquired 10 branches from Atlantic Capital Bank, increasing our market share in Chattanooga from seventh to fifth and in Knoxville from 11th to ninth. That acquisition has performed better than expected so far and we look forward to continuing to build on our presence in those markets. We also converted through our new treasury platform, which is partially responsible for the -- for our outstanding organic non-interest bearing deposit growth of 14.8% over the course of the year.
We reorganized our mortgage operations, sharing our wholesale channels and aligning the division more directly with our customer relationship focus strategy. We feel that we are now properly positioned to excel in the favorable environments while avoiding a drag on earnings in higher rate environments. And we announced the pending acquisition of Farmers National Bank in Scottsville, Kentucky, where we will enter the Bowling Green MSA ranked seventh in market share, including over 50% market share in Scottsville, Kentucky. We anticipate closing that acquisition in mid-February and look forward to officially welcome these associates and customers to our FirstBank family. Also a very strong year and we're very proud of our associates for continuing to execute and deliver these results.
I'll now turn it over to James to talk through our quarter results.
James R. Gordon -- Chief Financial Officer
Thanks, Chris, and good evening, everyone. Obviously, this is an exciting time in the history of our company. But first let me share some thoughts on the fourth quarter and 2019 earnings. We had another solid quarter of results with adjusted EPS of $0.70 per diluted share, adjusted ROAA of 1.42% and adjusted return on average tangible common equity of 15.2%. We delivered annualized loan growth of 5.9% for the quarter, which is in line with our current guidance of 5% to 10% over the near term.
Customer deposits were up slightly at 1.5% annualized growth for the quarter, excluding the $104.1 million decline in mortgage and other deposits. The overall deposits in our banking markets grew 10.5% annualized. Our net interest margin felt the impact of September and October's rate cuts as we were at 3.91% when excluding the 21 basis points impact of accretion and non-accruals within our expected range of 3.85% to 4.15%. As a current guidepost for the month of December, our contractual yield on loans was 5.19%, our cost of total deposits was 99 basis points and our net interest margin, excluding accretion and non-accrual interest collections, was 3.86%. We believe that we've seen a pause in downward pressure on our loan yields and we are actively managing our deposit costs down. We may have a slight dip in the first quarter margin from the fourth quarter margin given where December was compared to the quarter, but we believe that we have an opportunity to improve on that over the second half of the year.
Mortgage delivered better than anticipated results as volumes and margins remain higher than expected in November and December, resulting in a total mortgage pre-tax contribution of $3 million. For 2020, we hope to deliver total mortgage pre-tax contribution results that would be flat to slightly down from 2019's adjusted contribution of $11.7 million. That target will be largely depended upon the overall rate environment.
On credit, you saw our net charge-offs and provision expense increase this quarter as we had a single loan that accounted for $2.6 million of our charge-offs or 24 basis points of our 30 basis points of net charge-offs for the quarter. The remaining balance of that credit is $1.6 million and it accounted for the majority of our increase in non-accrual loans this quarter. The credit referenced is an isolated occurrence related to specific events with a single borrower. The underlying trends of our loan portfolio remain solid and we continue to see overall strength in our markets.
With that summary of the quarter, I will turn it over to Chris Black to speak about Franklin Financial's quarter.
Chris Black -- Chief Financial Officer
Thanks, James. Good evening, everyone. We had a strong quarter at Franklin Financial. We delivered core EPS of $0.68 for the quarter, up 11.5% from the fourth quarter of 2018. We continue to see progress on our balance sheet rotation optimization and a reduction in non-core banking activities. Our select [Phonetic] portfolio is $112 million smaller than it was in the fourth quarter of 2018 and is down to just 4.9% of the total portfolio.
Our securities portfolio was $500 million smaller than it was in the fourth quarter of 2018, down to 16.7% of total assets from 27.1% a year ago. We've also significantly decreased our non-core funding, down $379 million over the course of 2019. As a result, profitability metrics have improved with our net interest margin up 14 basis points from last quarter and 43 basis points from the fourth quarter of 2018. We are excited to join forces with FB Financial going forward and build upon a very strong core community bank.
I'll now turn it to Myers to share his thoughts on our merger.
Myers Jones -- Chief Executive Officer
Thanks, Chris. Hello, everyone. We are here tonight to celebrate a momentous occasion. This pairing with First Bank is the beginning of a great partnership. Together, we believe that we have the opportunity to be Tennessee's premier community bank. It became clear over the course of diligence and negotiation that each of our customer-centric cultures would be very compatible. I truly believe that we will be better together and our ability to serve our customers and our communities will be stronger than ever.
I want to thank all of our Franklin Synergy associates for getting us to this point and I think that we should all be excited about this next chapter and our potential together with First Bank.
With that, I will turn the call back over to Chris Holmes for his comments on our merger.
Christopher T. Holmes -- President and CEO
Thank you, Myers and Chris. We're excited to be sitting here at the table with you tonight. And there are three driving reasons for this combination. First, expanding the presence and deepening the penetration of the combined bank in the Nashville MSA. Second, combining the talent base of First Bank with Franklin Synergy's strong community bankers. And third, the opportunity to meaningfully improve our earnings per share, while taking a protective approach to our balance sheet and tangible book value per share.
On the first item, we will add eight branches to the distribution network across the MSA, all in highly attractive locations. As we said time and again, we believe that density and scale in a banking -- in a market provides tremendous value and brand recognition, pricing power and ability to accelerate growth. That is growth and profitability, the two objectives that we preach every day. With this merger, we achieve the density and scale that we've been building toward Nashville since 2012 and that we believe is going to propel our growth and profitability.
Following the close of transaction, we'll rank first in Williamson County, second in Rutherford County and 10th in Davidson County in terms of deposit market share. In the broader Nashville MSA, we will move from 12 up to six with $4 billion in deposits.
From a demographic standpoint, Williamson and Rutherford counties are driving forces behind the Nashville MSA being as attractive as it is. Williamson is the wealthiest county in Tennessee, while Rutherford is the third wealthiest. From 2010 to 2020, Williamson and Rutherford counties were the two fastest growing markets in the state, when you exclude counties with less than 15,000 residents. Over the next five years, Williamson is expected to be the fastest growing county in Tennessee and Rutherford the third fastest, again excluding the smaller counties.
Well, FirstBank had a presence in Franklin for a number of years, we have been largely irrelevant there with the exception of the Fairview [Phonetic] community. Our lack of progress in the market has been partially due to Franklin Synergy's dominance.
We have been doing our best to compete within Williamson County. But we have been largely unable to do so due to Franklin's deep relationships in the community. It feels great to stop beating our head against the wall and be on the same team going forward. Rutherford County has been a steady market for FirstBank since we expanded there with the acquisition in 2007, but we've not had the distribution network and scale we have needed to fully take advantage of the growth that Rutherford County has experienced. By pairing with Franklin Synergy and become the second largest market share bank in that county, we are excited about our future in that community.
On reason number two for partnering with Franklin Synergy, their bankers are the best in their markets. What we found during diligence was a powerful team of community bankers that had built a very strong core asset and we believe that core asset has been less recognized by the public markets in the past due to the noise in risk around the non-core assets and the funding issues.
If you look at our assumptions, we have modeled 30% cost saves on this transaction. This relatively low rate of cost saving is despite our plan to consolidate seven branches in our combined footprint or almost half of the 15 branches that get added in this merger and not all of those closures will be Franklin Synergy branches, we will keep the best of what our two banks offer.
If I were a bank analyst or investor, I might assume that we were sandbagging with that 30% number. We are not. We have entered into employment agreements with key members of Franklin's senior leadership. We value this team of bankers and we are making their transition our highest priority. Some of the management cost savings that you get from most bank M&A are not present or desired in this transaction.
At the core, Franklin Synergy has an incredibly strong group of relationship managers. They epitomize our definition of everything that community bankers should be. They live in, interactive in their communities. They bank their friends and neighbors. They have a travel club for their customers. They serve on boards and hold specific leadership positions and they dominate their markets. In fact, they remind us of ourselves in our community markets. In Nashville, FirstBank has a very strong commercial bank, but we have never been able to transition into the strong community bank that we have desired to be. The Franklin team is exactly that. We are very excited to pair with this exceptional team and hopefully provide them with additional resources to enable them to go out and win even more than they already do.
One other compelling part of the union between the two companies is that for some time, FirstBank has been considering bringing several pieces of its operations -- of the operations part of the company together in a centralized operation center. Following the close of this transaction, we plan to keep Franklin Synergy's headquarters location in Downtown Franklin. While we maintain some of the portions in Lexington, Tennessee, we will be turning that cluster of buildings into -- in Downtown Franklin into our primary operation center.
We want the combined company to be a cornerstone of Williamson County community and we want our impact there to grow as our company continues to mature into the Southeast, the leading community bank franchise.
To summarize, we highly value the core bank, its associates, their customers and their path to the community, and we want to support them as they combine -- as they continue to dominate their markets.
Moving to the third point, the financial results of the transaction, we think the -- we think this checks the boxes that enables us to make the investment. We are tangible book value neutral. We are picking up roughly 10% in EPS accretion and we do that while protecting our balance sheet [Indecipherable] and paying across the $10 million asset threshold. We achieve all that while attaining true mass in our most vibrant market. Personally, I believe this creates significant franchise value for the company and value for our shareholders.
I also want to touch on the risk of the transaction and how we double those. Heading into diligence, we felt that we needed to be comfortable with four things; the credit culture, the construction and commercial real estate concentration, the funding profile and the healthcare, SNC and leverage lending portfolios.
Following a thorough review of the portfolio, credit culture, underwriting practices and credit monitoring, we are comfortable with the credit culture and understand the construction in CRE portfolios.
In our meeting with Franklin Synergy's management team over the course of diligence and negotiations, they described themselves time after time as a leading Middle Tennessee real estate franchise and we agree with their assessment.
We will implement some of the residential construction credit monitoring practices that they put in place over the past few years. Their credit officer will take a senior role with the combined company continuing to serve Franklin Synergy's existing relationship managers while taking up responsibility for our Rutherford and Williamson County bankers, and we will work closely with FirstBank Chief Credit Officer.
Construction and development balances will move over to the 100% risk-based capital threshold at the close of this transaction. However, we do think managing the concentration in that portfolio to near 100% of risk-based capital is good policy and our goal is to gradually through the growth of our risk-based capital and controlling exposures, manage to that goal over the four quarters following the close and operate at that level.
On the third concern, we will have initial core funding hold upon close that we will have to grow out of both organically and potentially through acquisition. The culture of Franklin Synergy prior to 2019 had not been to concentrate on the liability side of the balance sheet. Their strategy was to let the treasury function provide the funding and that was done with extensive use of wholesale liabilities and broker deposits.
Over the past year, Franklin Synergy's management team has been in the process of adding more deposit relationships through the objectives for their bankers and they started to see some results over the past couple of quarters. We look forward to fostering that progress with our treasury management services and retail products. We will work with -- we'll work together to continue the trend of growing customer deposits.
On the last concern, we have decided to wholly divest of Franklin's shared national credits, healthcare and corporate portfolios totaling $430 million. We have assumed a mark on these portfolios reflective of liquidation value. And if not wholly divested on day two after the close, we plan to be fully exited in the first quarter following the close of transaction. I will let James walk through the financial impacts that we have assumed from exiting this business.
All I have to say, we are thrilled with the strategic nature of this deal and we are also elated with the financial impact and think -- that we think we are going to see. We can't wait to welcome Franklin Synergy's team members and customers into our FirstBank family.
With that overview, I will turn the call over to James to talk about the transaction and a little bit more financial detail.
James R. Gordon -- Chief Financial Officer
Thanks, Chris. First, I just want to emphasize how excited we are about this merger. We believe that Franklin Synergy is one of the strongest community banking franchise in the Middle Tennessee and we are thrilled to be able to add their associates to the FirstBank family. Our team obviously feel the same way and they have been working tirelessly over the course of this process to make this a reality.
Moving on -- I won't go slide by slide, but I do want to provide some color on a few of our key financial assumptions for this transaction. Looking first at our credit assumptions, we underwent a thorough review of the portfolio.
We hired Big Four firm on the loan review side and we evaluated 66% of the non-owner occupied CRE portfolio, 41% of the construction and development portfolio and 46% of the core C&I portfolio, including owner-occupied CRE, supplemented by additional deeper discussions of the construction and development CRE, as well as the shared national credit, healthcare and corporate portfolios.
We also had extensive discussions with senior management on credit philosophy, monitoring in the current portfolio. Ultimately, we developed a view that there are two distinct portfolios at the bank, the core community banking book of business, which is approximately $2.4 billion and the $430 million corporate, SNC, healthcare and leverage lending book.
We feel good about the core community banking book. We think that it looks and feels like loans we would be making in those markets if we have their presence there. We are excited to continue growing that portfolio. The corporate book does not align with our philosophy as it does not generally involve local customers or financial sponsors.
We will not be putting that on to our balance sheet and we have assumed a discount on the portfolio to protect tangible book value as that portfolio is exited. We have lumped that number into our PCD [Phonetic] mark assumption for this presentation and we will treat any of those loans that come over to our balance sheet at close as held for sale.
We have assumed roughly $10 million of loss net income as a result of divesting that $430 million of loans and have assumed that will decrease their wholesale funding on a roughly matching basis.
Through that review, we have ultimately assumed non-accretable credit marks of 2.7%, that will handle the losses in the exited non-strategic portfolio and a CECL-based allowance for credit loss reserve for the core portfolio.
We have also assumed an accretable mark of 1.3% on the portfolio, roughly evenly split between fair value credit and interest rate marks. This will come back through income over the lives of the loans, also that is approximately $110 million of initial combined gross credit and rate marks on Franklin Synergy's loan portfolio are approximately 3.9%.
We have assumed 30% cost savings to Franklin Synergy's stand-alone net interest expense, with 50% phased in over 2020 and 100% phased in in 2021. We have assumed lost interchange revenue due to the Durbin amendment of roughly $4.5 million after-tax when fully phased in during 2022. If we are closed, as possible, we could choose to try to stay under the $10 billion in assets at December 31, 2020. But we have modeled that income loss beginning on June 30, 2021 to be safe.
We have assumed that we are taking advantage of Franklin Synergy's REIT subsidiary and gain conservatively $2.5 million in state tax benefit annually going forward. With those adjustments and Franklin's stand-alone earnings power, we estimate that we will achieve roughly 10% EPS accretion through this transaction, while staying tangible book value neutral.
As is typical, we assume no revenue synergies in our modeling, but we do believe that there are plenty of opportunities to grow revenues. Easily identifiable items include improving Franklin's funding base, hiring additional bankers and wealth managers in Middle Tennessee due to the increased brand strength of FirstBank across Nashville.
In summary, we created a transaction that protects our balance sheet and tangible book value per share, while providing for earnings per share accretion and growth, which creates value for all of our stakeholders. I am happy to answer any additional questions that you all might have on the modeling and due diligence process in the question-and-answer session.
Now I will turn it back over to Chris.
Christopher T. Holmes -- President and CEO
Thank you, James. We will welcome Myers and Chris and the entire Franklin Synergy team into the FirstBank family. The welcome has to remain unofficial until we close but it's already heartfelt.
We think that together we will be very well positioned to serve our customer base better than ever. We are thrilled with the financial metrics, and most importantly, we believe that this combination creates the premier community banking franchise in Middle Tennessee.
Operator, that completes my remarks on this evening's call and we would now like to open it up for questions.
Questions and Answers:
Operator
Thank you. [Operator Instructions] We will take our first question from Jennifer Demba with SunTrust. Please go ahead.
Jennifer Demba -- Suntrust Robinson Humphrey, Inc. -- Analyst
Thank you. Good evening.
Christopher T. Holmes -- President and CEO
Good evening, Demba.
Jennifer Demba -- Suntrust Robinson Humphrey, Inc. -- Analyst
Can you just talk about the background of the deal, how long you guys have been talking and how everything came together here [Phonetic]?
Christopher T. Holmes -- President and CEO
Yeah. So, first off, we are sitting, I guess, two blocks. We are pushing the blocks -- a branch of two blocks from the Franklin Synergy headquarters and so we know each other. Our headquarters office in Downtown Nashville, theirs in Downtown Franklin. But we do compete, we know each other and we see each other socially and we go to football games and things like that. So we know the folks.
This conversation really started, I guess, in the last quarter of the year. And it sort of picked up steam near the end of that quarter and led to the announcement. So we also -- so we have known several folks there. Chris Black, who's sitting at the table has been an employee of both organizations. He left FirstBank to go to become the CFO at Franklin Synergy, left with good -- but left on good terms, and so luck has good thing for him. He left on good terms. But -- and so that was -- that's how -- and he didn't have anything with coming together other than the fact he was -- he did -- he was the CFO, but there was a comfort level with some of their financial information because we sort of talk the same language there.
Jennifer Demba -- Suntrust Robinson Humphrey, Inc. -- Analyst
Okay. Thank you. Appreciate it.
Christopher T. Holmes -- President and CEO
Sure.
Operator
We will take our next question from Stephen Scouten with Piper Sandler.
Stephen Scouten -- Piper Sandler & Co. -- Analyst
Hi, everyone. Good evening.
Christopher T. Holmes -- President and CEO
Good evening, Stephen.
Stephen Scouten -- Piper Sandler & Co. -- Analyst
So congrats on the deal. I think it's pretty exciting. It's exciting to see all focusing on the Nashville MSA. I guess, first of all, is it fair to assume that this will be what you focus on for 2020 or would you still think about looking at other incremental deals if they came about, came to you in other markets?
Christopher T. Holmes -- President and CEO
Yeah. This can be what we focus on for 2020 and so we are going to be -- it's going to take all of our attention, where we totally focused on execution on this deal, little like I was talking about seeing these guys not seeing each other.
We will continue to see bankers at conferences and things like that, and I am sure there will be casual dialog as Stephen you know, but we are going to be focused on this and really solely this during 2020.
Stephen Scouten -- Piper Sandler & Co. -- Analyst
Right. And you put a lot in the presentation [Indecipherable] hear about retention of talent, retention of management. When you are talking about the assumed retention of all the revenue producers, are those folks that you look to put under retention agreements currently or will that be transpiring? What are the targets or goals around retaining all those people?
Christopher T. Holmes -- President and CEO
Yeah. Well, our target is to retain 100%, and so that's -- we want to retain all of them. There are some really good bankers on both sides. But certainly in terms of Williamson and Rutherford counties, the bulk of the key revenue producers, the vast majority are with Franklin Synergy. So we will work through the retention tools that we have, things like -- well, all the retention tools that you would apply will be the types of things we will be using to try to hang on to those folks. And I will add this to -- we -- when we talk about what makes our company's success, the first thing we -- the first thing on that list is being a great place to work, second one is being an elite financial performer and the third one is being a great community bank.
This is going to move our asset size up to close to $10 billion, but we are still a community bank because we think it's about how you do it, not the size of the bank. And so, but the first of those has been a great place to work and that's the real way that you retain folks is having a great culture and a great environment and both companies do that. So when we think we bring it together, we think that will keep people on the seat.
Stephen Scouten -- Piper Sandler & Co. -- Analyst
That's great. And then, obviously, Franklin has a much lower NIM than you guys do on a stand-alone basis. And you are doing some balance sheet restructuring here and other things. Can you talk a little bit about where you think the pro forma NIM will shake out roughly or what the impact of that will be, if you have any preliminary numbers there?
Christopher T. Holmes -- President and CEO
Yeah. I will let James talk about, but you are right, there's a difference in the NIM and we have modeled that in and we haven't been terribly aggressive going forward because we don't think that's probably the last way to do it. But James you want to comment further on the NIM?
James R. Gordon -- Chief Financial Officer
Yeah. I think as we take out some of the wholesale funding with the sale of the $400 million portfolio, that will happen. I think as we focus going forward on growing the deposits, will be the opportunity to bring the margin back into our levels over time with that, so immediately it will bring our margin down in the 3.60% [Phonetic] kind of range. But we expect to rebuild that over time as we work on the funding side of the balance sheet.
Stephen Scouten -- Piper Sandler & Co. -- Analyst
Okay. That's helpful. And maybe just one last thing on kind of FBK stand-alone, it looked like loan growth was pretty much in line with kind of where you guys have been guiding. But just kind of curious what you are seeing in terms of kind of overall customer demand and some of the late-cycle type of activities or lending structures that you were talking about a little bit last quarter.
Christopher T. Holmes -- President and CEO
Yeah. So during the quarter, yes, we were at -- come around -- we are at 5.97%, I think...
James R. Gordon -- Chief Financial Officer
Yes. 6%.
Christopher T. Holmes -- President and CEO
...in terms of loan growth, almost 6% for the quarter, 10% for the year. And so, we like those numbers. We still -- and I think specifically on the quarter, we have seen a few things on the pricing front that had been a little bit crazy to us, especially on the fixed rate side, we will see some fixed rate things that go out for longer terms.
But I would have to say, not quite as much as we had seen in the middle part of the year in terms of things that just made us wonder what was happening in the market. Demand -- and then we haven't seen much change in demand, it's still relatively strong. So we haven't seen a lot of change in the market, particularly Nashville continues to be strong, but we see -- still see pretty good momentum in places like Knoxville or Chattanooga or Memphis.
James R. Gordon -- Chief Financial Officer
We did probably see some elevated early payoffs and expect that to continue to keep us in that range over the near term as well.
Christopher T. Holmes -- President and CEO
Yeah. That is a good point, James. We did see more payoffs actually in the fourth and we will have some in the first than we have seen earlier -- in the early part of the year.
Stephen Scouten -- Piper Sandler & Co. -- Analyst
Great. Well, thanks again guys and congrats on two really solid quarters and a great deal.
Christopher T. Holmes -- President and CEO
Yes. Thanks, Steve.
Operator
We will take our next question from Catherine Mealor with KBW.
Catherine Mealor -- Keefe, Bruyette & Woods, Inc. -- Analyst
Thanks. Good evening.
Christopher T. Holmes -- President and CEO
Good evening, Catherine.
James R. Gordon -- Chief Financial Officer
Good evening, Catherine.
Catherine Mealor -- Keefe, Bruyette & Woods, Inc. -- Analyst
I wanted to dig into the expense savings a little bit. You were clear, Chris, that you are not being too conservative on the 30%, given the retention of people at Franklin, but how should we think about that 30% cost saving number and maybe expense growth into the next couple of years as you prepare for the $10 billion cost and how much of those assumptions are baked into your estimates?
James R. Gordon -- Chief Financial Officer
So, Catherine, this is James. I will answer that. I think two things. We started about 18 months ago, started laying the infrastructure in knowing that $10 billion was out there someday. We didn't know that day would be sooner or later. So we have been laying that in and that's one reason there our expense grew. It's been a little bit higher than, I would say, historically over the last, say, 18 months.
And then as part of the 30%, I think, some things that look at -- if you looked at, I would say, would be higher, as Chris said, the branch consolidations, then I think offsetting that or keeping a lot of people to maintain that balance sheet and the customers that we are bringing over built into that, as well as building in some incremental cost to keep positions and increase our overall infrastructure to meet the demands of passing the $10 billion level from -- in particular from a regulatory. But we think we are well positioned for that. A lot of it's in our run rate and a lot of it where we have kept through keeping a very achievable 30% cost saving rate.
Christopher T. Holmes -- President and CEO
Hey, Catherine. I will add two things there just to bring a little bit of commentary and clarity. First, we did mention that operation center, we will be having some expense related to the operation center in Franklin that we will be having there that we will be establishing there.
And so there's a little bit of that expense that doesn't get eliminated. And then the other thing there's a non-expense side, but we do have Durbin, the Durbin amendment. We take that into account. That didn't come in until the second half of '21, but we do allow for the revenue reduction related to the Durbin amendment.
Catherine Mealor -- Keefe, Bruyette & Woods, Inc. -- Analyst
Okay. And then [Indecipherable] big picture, how do you think about big picture profitability with the combination of these two companies? I know that will bring the margin down originally and then you should kind of get some of that back as you grow core deposits. But, just generally, you mentioned that it's accretive to the ROE, but how should we think about the pro forma effect on the ROA?
Christopher T. Holmes -- President and CEO
Yeah. I am going to comment on big picture, and let James comment on the pro forma effect on the ROA. From a big picture standpoint, when you think about the profitability moving forward, we've modeled in and it's slightly accretive to our ROA and slightly accretive to our return on average tangible common.
But I guess the exciting part there is, we haven't built in what we are all excited about on the deposit side of the balance sheet. The deposit side has been something that we are reasonably provision at and so we haven't built really much in there and so excited about the opportunities that it gives us, particularly, I'd say there.
And the other thing, I'd say, that I am excited about is, we are -- in a lot of our communities, we are the community bank. We have 30%, 40%, 50% market share in a lot of smaller communities. In Nashville, we have never been that, we've never been that community bank that really knows the customer with a lot of depth.
And so we've been successful, but we are a lot more of a commercial success in Nashville. And so this does give us that. And so, again, there's going to be some revenue from that, but we don't -- that's of course not built in the model, but we are excited about that opportunity. And so, our specifics, I know it was -- I don't know exactly how many basis points it was in ROA and ROTCE, but it was...
James R. Gordon -- Chief Financial Officer
Yeah. ROTCE, I think, to our consensus number that's out there, that's a little over 14%, at a little over 100 basis points back on that and I think that's before. I think consensus generally doesn't take in capital planning on that. We would end up with a lot of excess capital at that point to deploy to help increase that as well.
Then, I think, the other big opportunity, we talk about there's a lot scale, density in markets creates a lot of operating efficiency irregardless of the 30% cost savings. That's still on a -- they operate with a fairly strong efficiency ratio already, adding that together along with that, it will help our overall efficiency. It lessens the impact on the efficiency front for mortgages. That becomes smaller to the overall pie, still large, but smaller to the overall pie on that too. Our goal is to be in the lead financial performer and we think over time we will continue with that after this transaction.
Catherine Mealor -- Keefe, Bruyette & Woods, Inc. -- Analyst
Great. And one last thing if I may is on growth. You will be over $10 billion in asset pro forma. How do you think about your pro forma growth rate?
Christopher T. Holmes -- President and CEO
Yeah. We have kept things steady. What we modeled in James on pro forma growth rate on our balance sheet?
James R. Gordon -- Chief Financial Officer
Yeah. We've modeled for the first couple of years the consensus number and then about 8% going forward after that. I would say, we will have by taking off the non-strategic assets and then focusing on deposits, I think we will have a big opportunity to add producers in that, I will call it, the middle market C&I business that will help us both in deposits and help replace some of that. We did not model that into our numbers and I think that will continue to help us to have fairly solid loan growth going forward as well as deposit growth.
Catherine Mealor -- Keefe, Bruyette & Woods, Inc. -- Analyst
Great. Thank you so much and congrats.
James R. Gordon -- Chief Financial Officer
Thank you.
Christopher T. Holmes -- President and CEO
Thanks Catherine.
Operator
We will take our next question from Tyler Stafford with Stephens.
Tyler Stafford -- Stephens Inc. -- Analyst
Hey. Good evening, guys.
Christopher T. Holmes -- President and CEO
Good evening.
James R. Gordon -- Chief Financial Officer
Good evening. How are you doing?
Tyler Stafford -- Stephens Inc. -- Analyst
Good. Thanks and congratulations on the deal guys. Maybe, Chris Holmes, first, just to start on legacy FBK, the quarter and kind of outlook. At this point, could you give us any clarity or do you have any clarity about how you are viewing the mortgage business for 2020?
Christopher T. Holmes -- President and CEO
Yeah. As we are -- what we view it at this point, we think 2020 is going to be similar to 2019 in terms of our production and in terms of our profitability. And it could -- of course it's all dependent on the rate cycle. It could be down just slightly but we are -- our thinking of it today has been a flat to could be slightly down, is the way we are thinking of it.
Tyler Stafford -- Stephens Inc. -- Analyst
Okay. Thanks. And then, James, just going back to one of the comments in the earnings release tonight about just the margin trajectory for 2020. You mentioned kind of stabilized over the first half and then some opportunities for expansion in the back half. Just as you see the margin on a stand-alone basis in 2020, what are the kind of puts and takes that you see impacting that view?
James R. Gordon -- Chief Financial Officer
Yeah. So, I think, on the second half, we have a lot of opportunity. If you remember back to the third and fourth quarters of 2018, we did a lot of promo CD campaigns, that was -- one of those products was 11-month. We have kind of gone through the first renewal cycle of that in '19, that's helped us.
Then we also did a 30-month product -- I mean, sorry, 25-month product that was at 3%. That will start maturing. There's around $200 million of that that starts in the third quarter and carries through the fourth quarter. We think the data rate would be 1.65% [Phonetic], 1.70% [Phonetic] as rates go today, and then we continue to balance that. We've had a good success rate on capturing that 11-month around 70% of rollover rate at the new rate. So you factor that in there and kind of kept the balance flat. So we are also still growing net-net keeping that balance flat in the time deposit. So I think it's a big opportunity for us in -- particularly in the second half of the year. There's a little bit in the second quarter, but I think most of that will come in the third and the fourth quarters.
Tyler Stafford -- Stephens Inc. -- Analyst
Okay. That's helpful. Thanks. Just shifting over to the Franklin deal. Can you just confirm the $6 million pre-tax of Durbin, that does include both FBK and Franklin, it impacts not just FBK?
Christopher T. Holmes -- President and CEO
Yeah, it does.
Tyler Stafford -- Stephens Inc. -- Analyst
Okay.
Christopher T. Holmes -- President and CEO
Primarily ours, but yes.
Tyler Stafford -- Stephens Inc. -- Analyst
Primarily, FirstBank, so...
Christopher T. Holmes -- President and CEO
Tyler [Indecipherable] FBK, we have got a bigger retail book -- retail assignment.
Tyler Stafford -- Stephens Inc. -- Analyst
Yeah. All right. Thanks. Thanks for clarifying that. On the $50 million of merger cost, I was a little bit surprised of the magnitude of that. Can you give us any color about what's baked into that $50 million?
James R. Gordon -- Chief Financial Officer
Yeah. I would say, in round numbers that about a third of that is, I will call it, employment and related items, then about another third of it is related to contract buyouts, data processing, those kind of contracts and conversion cost, which will be fairly high on a deal that size and then roughly the other third is kind of split between branch closing cost and then transaction deal fees to investment bankers, lawyers and other professionals that we will need through the process.
Tyler Stafford -- Stephens Inc. -- Analyst
Okay. Got it. I may have missed this in the deck, but the Page 5, I guess, talks about how there are key Franklin executives that enter employment agreements, but I didn't see any exact roles for Myers or Chris or the others. Is that something that you can share about what -- at this point, what the expectation is for their involvement in the combined company going forward?
Christopher T. Holmes -- President and CEO
Yeah. We can share this. They are going to be involved and they look forward to be involved, but all of those details aren't worked out, and so [Indecipherable] in general, because all those details aren't worked out. And so, at this point, we don't want to share any deeper than that. We will, just not yet.
Tyler Stafford -- Stephens Inc. -- Analyst
Okay. And then just lastly from me, following up on Steve's earlier question just around the core margin impacts, I think a couple of quarters ago and this maybe more of a question for Chris Black. I think a couple of quarters ago, you guys talked about that Franklin that the syndicated book was around LIBOR 220 [Phonetic]. So do you guys just kind of have ballpark what the $430 million yield is that you are running off and just kind of think about the margin pick-up once you do exit those 2.30% [Phonetic] rate of FHLB's and the lower yielding assets that you are running off?
Christopher T. Holmes -- President and CEO
Sure. So I think on that book, we are probably in the 5.5% ballpark on loan yields and so a little bit akin to what James said, in terms of stand-alone FBK and some of the repricing. I think we see that similarly situated on the horizon as well. So both inside with the wholesale and across the footprint, but specifically on the loans, about 5.5%.
Tyler Stafford -- Stephens Inc. -- Analyst
Okay.
James R. Gordon -- Chief Financial Officer
We have signed about a 3.25% spread on that portfolio. That's roughly how we came up with the $10 million after-tax.
Tyler Stafford -- Stephens Inc. -- Analyst
All right. That's what I was looking for. Thanks guys. I appreciate it.
James R. Gordon -- Chief Financial Officer
Right. Thank you.
Christopher T. Holmes -- President and CEO
Thanks, Tyler.
Operator
We will take our next question from Daniel Cardenas with Raymond James.
Daniel Cardenas -- Raymond James Financial -- Analyst
Good afternoon, guys.
James R. Gordon -- Chief Financial Officer
Good afternoon.
Daniel Cardenas -- Raymond James Financial -- Analyst
Congrats on the deal. Just a couple of quick follow-up questions, kind of going back to the legacy margin for FirstBank, I guess, question one here, just as I look at the accretion contribution, in Q4, seems to be a little bit more accelerated than in previous quarters. I mean what kind of a good run rate at least for the first half of 2020 to think about in terms of accretion contribution.
James R. Gordon -- Chief Financial Officer
Yeah. So it was a little bit higher and that really is generally generated by payoffs on some of those credits, that's different from the marks that you have. I would say, we are going to run somewhere in the $1.2 million to $1.5 million range on a go-forward basis before this transaction just on a stand-alone basis, may be slightly higher than that when you have payoffs on that. So...
Daniel Cardenas -- Raymond James Financial -- Analyst
And the $3.6 million [Phonetic] range that you gave on a pro forma basis. That's core -- is that a core number or is that all in?
James R. Gordon -- Chief Financial Officer
That's more core. Yes.
Daniel Cardenas -- Raymond James Financial -- Analyst
Okay. Excellent. And then just quickly jumping back to mortgages in terms of expenses for the mortgage division, how should we be thinking about that in 2020? Is there room for additional improvement there?
Christopher T. Holmes -- President and CEO
We hope so. There's always room for improvement and imagine the guys that's responsible for mortgage. We hope so. It's gotten more efficient with our -- with the downsizing and we hope it continues to improve in efficiency, say, adjusting for the seasonality of the business.
James R. Gordon -- Chief Financial Officer
Yeah. There would be other thing I would say on that, that distorts; one is, because of the size of last quarter, say, versus this quarter. The other thing that distorts it somewhat is on the way you do the presentation of the mortgage servicing rights income or the mortgage servicing income and you take the fair value against the revenue, so -- and that's actually been a lull. So that's in the revenue -- against the revenue number at least for the last two quarters or three quarters. We hope that slows down over the course of next year as well. And so if you take that out, the efficiency ratio for mortgage looks a little better, but still opportunity is there over the course of time to work through that.
Daniel Cardenas -- Raymond James Financial -- Analyst
Okay. Great. And then, I guess, given the deal that was announced in the pending transaction in Kentucky, should -- is it safe to assume that maybe buybacks take a -- going to back-burner here?
Christopher T. Holmes -- President and CEO
Yeah. It's safe to assume at least in the near term.
James R. Gordon -- Chief Financial Officer
Yeah. I think, even from a legal standpoint, we still have that authorization, but not the ability to use it at this point, based on the structures of really both deals. So...
Daniel Cardenas -- Raymond James Financial -- Analyst
Okay. Great. All my other questions have been asked and answered. Again, congrats on the transaction.
James R. Gordon -- Chief Financial Officer
Thanks, Dan.
Operator
At this time, we have no further questions in the queue. I would like to turn the conference back to Chris Holmes for any additional or closing remarks.
Christopher T. Holmes -- President and CEO
Okay. Thank you very much. Once again, we appreciate you staying with us into the evening and we are excited about moving forward with -- as partners with Franklin, between FDK and Franklin. So thank you all and have a good evening.
Operator
[Operator Closing Remarks]
Duration: 54 minutes
Call participants:
Christopher T. Holmes -- President and CEO
James R. Gordon -- Chief Financial Officer
Chris Black -- Chief Financial Officer
Myers Jones -- Chief Executive Officer
Jennifer Demba -- Suntrust Robinson Humphrey, Inc. -- Analyst
Stephen Scouten -- Piper Sandler & Co. -- Analyst
Catherine Mealor -- Keefe, Bruyette & Woods, Inc. -- Analyst
Tyler Stafford -- Stephens Inc. -- Analyst
Daniel Cardenas -- Raymond James Financial -- Analyst
