Ameris' (ABCB) CEO Edwin Hortman on Q2 2016 Results - Earnings Call Transcript

| About: Ameris Bancorp (ABCB)

Ameris Bancorp (NASDAQ:ABCB)

Q2 2016 Earnings Conference Call

July 22, 2016 11:00 am ET

Executives

Edwin Hortman - President, CEO

Dennis Zember - CFO

Analysts

Brady Gailey - KBW

Casey Orr - Sandler O'Neill

Christopher Marinac - FIG Partners

Gordon McGuire - Stephens, Incorporated

Peyton Green - Piper Jaffray

Operator

Good day and welcome to the Ameris Bancorp's Second Quarter 2016 Financial Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation there will be an opportunity to ask questions. [Operator Instructions] Please note that this event is being recorded.

I would now like to turn the conference over to Mr. Dennis J. Zember Jr., Chief Operation Officer and Chief Financial Officer. Please go ahead.

Dennis Zember

Thank you, William. And thanks to all of you for joining the call today. During the call we'll be referencing the press release and the financial highlights that are available within the Investor Relations section of our Web site at amerisbank.com. Ed Hortman, President and CEO and myself will be the presenters. We will be available after our prepared comments to answer any specific questions you might have.

Before we begin, I'll remind you that our comments may include forward-looking statements. These statements are subject to risks and uncertainties. The actual results could vary materially in our SEC filings that can be found in the Investor Relations section of our Web site and on the SEC's Web site, we provide a list of certain risk factors that could cause the results to differ materially from any forward-looking statements.

We do not assume any obligation to update the forward-looking statements as a result of new information, earlier developments, except as maybe required by law.

Also during the call we will discuss certain non-GAAP financial measures in reference to the company's performance. You can see the reconciliation of these measures and our GAAP financial measures in the appendix to our presentation.

And with that I'll turn it over now to Ed Hortman.

Edwin Hortman

Thank you, Dennis, and good morning to everyone. And thank you for taking the time this morning to join our second quarter earnings call.

In the first part of this year, Dennis and I talked about the momentum that we believe that just within our business. We got several data points including very strong pipelines that pointed to strong growth enabling better revenue. We had a special initiatives and discipline in place that look sufficient to offset a material portion of the incremental cost of the Jacksonville Bancorp transaction.

Even some older non-performing assets were showing signs of improvement and remediation with acceptable offers. The momentum that we communicated materialized and our bankers captured the opportunities which resulted in a great second quarter and first quarter -- first half of 2016. We had an outstanding quarter where everything came together from the growth, revenue and expense perspective.

I will tell you and we will discuss this in more detail later in our comments. We still see strong momentum. Loan growth is expected to be in the top of the range that we've provided resulting in outstanding revenue growth going forward. Expenses are expected to remain muted resulting in continued incremental improvement in our efficiency level.

I'm happy to report for the first time in a while, that we don't have any noise in our second quarter numbers. There are no adjustments that we have made between operating and reported earnings.

Our earnings for the quarter were $20 million or $0.57 per share, which compares to our operating earnings in the same quarter last year $12.3 million or $0.38. Our return on assets during the quarter increased to a very respectable 131 compared to 111 in the second quarter last year. Return on tangible common equity increased similarly moving to 17.03% in the quarter against 12.8% a year ago.

Actual reported earnings in the second quarter of last year were $1.3 million or $0.04 per share and included one-time credit merger charges totaling $7.3 million after tax of $0.34 a share. Obviously, we focused intently on executing numerous strategies to achieve operating performance that we are reporting. We'll go into more detail during the call on some of these but the single most important trend that has materialized for is control of operating expenses.

Our growth and earning assets in revenue has been consistently in double digits for quite a while now. But until recently the expense growth limited the amount we were able to push to the bottom line. Our reallocation strategy has succeeded in holding operating expense flat to the main level while our revenues continued to move higher. And the result is an operating efficiency ratio net of intangible amortization of 61.5% which is down from a high of just over 70% last year.

On the overhead ratio which takes into consideration our strong levels of non-interest income moved forward this quarter to [peer] [ph] level ratio of 157. I expect that looking forward the combination of our strong organic growth and an improving efficiency ratio will continue to consistently move the needle on earnings per share much like it this quarter.

On a tax equivalent basis net interest income grew solidly during the quarter a $55.5 million which is up 35% from a year ago, which relates to the integration of three acquisitions in mid-teen organic growth.

Growth against the first quarter of this year came in at $4.4 million which obviously benefited from the Jacksonville Bancorp deal that we closed late in the first quarter. Production yields for our company remained strong at 4.33% while total production was up 48% on a linked quarter basis.

Loan yields on the legacy portfolio declined 1 basis point, so overall I'm very pleased with where we're at on asset yield. Total non-interest income increased 38% to $28.3 million when compared to the same quarter in 2015. All of our sources of non-interest income were strong from deposit related charges to mortgage and SBA. What is really noteworthy about our lines of businesses how scalable they are? This will continue to be an advantage for us as we proved that we can deliver these incremental revenues and earnings within the acquisition we make.

While treasury return on SBA all had great quarters on non-interest income, our mortgage team would have delivered impressive results. Total production was up 32% over the same quarter a year ago. Our margins increased slightly and we still had 85% purchase business which we believe is sustainable in variable economic environment.

Net income from our retail mortgage group was $4.1 million and represented 20.5% of our consolidated net income which was in line with our plan.

Dennis will give you more detail shortly but total operating expenses came in at $52.4 million $900,000 more than our target for the quarter. All of the additional overhead was centered in our lines of business where we also had stronger revenue and net income than we had previously forecasted.

Expenses of the bank were much improved with an incremental overhead at the bank level of only $1.1 million including the additional taxable bank. I'm really pleased with our management of operating expenses in the core bank side and the line of business side. And the earnings momentum we have from these strategies which we believe is sustainable.

I want to comment briefly about asset growth and what we're seeing on this front. Our success for the last three years has been mostly grown through M&A and less so on the organic side. That's been acceptable given our competitive landscape has been for high-quality credits and especially when you compare the IRR's that we've seen in M&A deals relative to the [indiscernible] credits. But in 2016, is shaping up a little different.

The opportunities we're seeing on the organic growth side of our business is encouraging. And when I say opportunities, I'm speaking more broadly than just great pipelines and sales activity which is risk. I'm talking about opportunities to expand our lines of business, opportunities to hire new teams or senior bankers that can really make a difference for us.

For the organic growth, the rest came in at $223 million which was 25% annualized. This level of growth more than offset the pay downs in public loans and mortgage pools and left us with double-digit net growth in loans for the first time in seven or eight years. I'm increasingly confident that we can get the upper end of our range on target loan growth which is 13% to 15%.

Capital levels have improved during the quarter with tangible common equity reaching almost 8% and tangible book value climbing to $13.89. Some portion of the increase is related to higher comprehensive income, but the majority is from earnings. We are pleased with our capital levels and believe that capital creations through earnings is sufficient to support our strong growth rate. We're continuing to assess our dividend payout ratio which is very low at around 8% of earnings.

On the M&A front, we're still having serious conversations and taken serious looks at markets that we want to be stronger in. There's nothing in our strategy that has changed that would surprise you with respect to our desired metrics or the market areas that we are considering.

I would reiterate that we're serious about book value dilution because we think our earnings store warrants higher earnings multiple and we don't want to be limited because of book value. Also we believe our organic growth story will be more accretive than in past years and we won't augment that accretion in a noticeable manner as well as been a franchise free.

Dennis, I will stop there and turn it back over to you to discuss some of the details for the quarter.

Dennis Zember

All right. Thank you, Ed. And I will be referencing in addition to our press release some of the slides that we put out in the 8-K this morning.

We will start with some of the factors that are driving revenue. The primary driver in our revenue growth is significantly higher levels of earning assets especially lines. Ed mentioned the strong quarter we had in organic loan growth at just over 25%. We've had about 17% organic growth for the year-to- date period. And of course that excludes the loans we acquired in the Jacks Bank deal.

We are pretty just diversified in our loan growth as well with about 11% in agricultural lending, about 38% in municipal lending, 20% in CRE, and 24% in mortgage which includes warehouse lending. Being this diversified in the way we grow the balance sheet is the result of strategies we put in place a couple of years ago when we saw CRE pricing getting really thin and in our opinion close to unprofitable. So we look for other areas that were not as competitive.

On page 12 of the Investor deck, we give some color on concentrations and portfolio stats and we note that our CRE concentration is 206% at the end of the quarter. And that C&D is only 58%. It's been interesting to hear some of the color this earnings season on CRE lending and perhaps the beginning of less demand for the product. And I believe our concentrations being as low as they are may put us in a good situation if that field becomes less competitive.

We noted in the release that our margin declined to 3.7% excluding accretion compared to 3.8% in the first quarter. A couple of items impacted that. The largest item was the yield on our purchase mortgage pools which declined to 2.38% compared to 3.22% in the first quarter. This was due partially to accelerated prepayments as well as an adjustment we made to shorten the amortization period for the purchase premiums.

We don't expect the same level of prepayments going forward and expect the yields on these polls to range between 2.85% and 3% which is about 15 to 20 basis points lower than our previous forecast. We made the adjustments in May and our June yield with prepayments came in light at 2.85%. We estimate that this adjustment was probably 5 to 6 basis points in the margin that we expect to get back in the third quarter again using the lower end of that range.

Cost of funds increased a couple of basis point during the quarter despite the fact that deposit costs fell by one basis point. This relates to higher usage of federal home loan bank advances as incremental funding which we've not had to rely on for quite some time. Ed and I both expected that this is temporary and the deposit flows will track back to normal levels over time. But given the size of our pipeline and prospects for growth, I don't believe we will fully eliminate the borrowings in the coming quarter.

We are still funded almost entirely with deposits and these advances only amount to 2% of funding.

Again, I understand the concern over margin pressures given that rates appear likely to stay low for the foreseeable future. And the trend that I see in our business that I believe is most telling about margin pressure is the yield on legacy loan yields, which declined only one basis point in the -- against the linked quarter and were down nine basis points over the last year. To have grown legacy loans excluding purchased assets by 26% over the last year and suffered only nine basis points of yield compression I think is pretty solid.

We show more details on Slide 11 about loan production but briefly I will state that production was up significantly over all the other periods about 48% over the first quarter. And that production yields were down just nine basis points against that first quarter. A lot of that decline related to a strong quarter on municipal lending and when you dive deeper our commercial yields appear to have held pretty steady.

Accretion income though it's not in the margin numbers I'm discussing here, came in at $4.2 million this quarter which included about $1.1 million of unscheduled income that resulted from early prepayments. We finish the quarter with about $32.2 million of accretable yield left which compares favorably to $26.6 million at the beginning of the year and the difference there being the amounts we booked with Jacks Bank in March.

All told with all of the moving parts we believe margin for the third quarter should range somewhere in the 375 two 378 range again excluding the effect of accretion and assuming yields on the purchase loan pools come in at the lower end of range.

Non-interest income continues to move higher as well as profitability associated with those lines of business deposit charges were up $5 million in the second quarter compared to a year ago and up about $1.5 million compared to the first quarter. Obviously, three acquisitions over the past year are the main driver for these high levels of income and I would note that deposit related revenues from the three deals are right in line with what we had modeled.

Ed mentioned mortgage revenues, they were up significantly over the linked quarter and the year ago quarter. Instead of focusing on just the revenue, I'd highlight that the net income contribution from retail mortgage came in at $4.1 million on 375 million of total production. Our margins were up a hair over last year and our open pipeline was pretty much unchanged against the end of the linked quarter.

Purchase business edged up to 85% from 83% in the earlier quarter. And our average volume per producer moved to $3.8 million despite the fact that we brought on a few new bankers that aren't up to speed yet.

Lastly, on operating expenses, we did make a lot of progress on our efficiency goals. Our tangible operating efficiency ratio came in at 61.5% compared to 64% in the same period a year ago. For the year-to-date period we were down almost 450 basis points in efficiency and as Ed mentioned, we owe most of this to managing a flat line on total operating expenses while revenue continues to move in its usual trend.

On the first page of our financial highlights at the bottom we showed that in the current quarter, compared to a year ago, we're down 99 employees. And when you look at total assets and growth that we have had there you can see what kind of leverage we're getting on our staff. We finished with $6 billion -- almost $6.1 billion -- excuse me $6.1 million of assets per employee which is up pretty materially from 4.6 a year ago.

We had -- we did have a non-recurring loss of about $400,000 on the sale of bank premises and that combined with some small strategies that we're working lead us to believe we can hold the line on operating expenses for another quarter or two and perhaps get closer to our short-term goal of 60% efficiency ratio.

And with that, I will turn it back to William for any questions.

Question-and-Answer Session

Operator

We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Brady Gailey from KBW. Please go ahead.

Brady Gailey

Hey, good morning guys.

Edwin Hortman

Good morning.

Brady Gailey

Congrats on a really nice quarter. I think it's the best one I've seen yet from you guys.

Edwin Hortman

Thank you.

Brady Gailey

I wanted to ask -- you're starting to see some really nice loan growth, but you didn't add a ton to the loan-loss reserve that your loan loss reserve ratio it kind of keeps drifting down. How should we think about that ratio going forward as you all continue to grow loans?

Edwin Hortman

Brady, thank you. I think it's important to note that as we've managed our balance sheet we've done it with less risky assets. So a lot of the growth in the quarter was municipal loans, which have a much better risk rating and lower reserve required or allowed on that portfolio. So I think a part of it to is the reserve does not include obviously the discount on the purchase loans. So when you add -- all the discounts and the reserves together it's a little different picture.

Dennis Zember

And Brady I would say, obviously, the municipal credits are backed by taxing authority and those come in with pretty low reserves. The commercial construction and residential construction, we're still booking over 100 basis points of reserve on that. Owner-occupied CRE is 65 or 75 basis points. John Edwards isn't in here. But, I mean it's still -- we are still booking good reserves on those, it's just for the quarter it was a lot more. For the first half of the year it's really been more municipal in the mix than what it would be going forward.

Brady Gailey

Okay. So you think the ratio is kind of stable from here going forward? Then, I guess as acquired loans in Jack's, he has those refi into Ameris funds that will push that ratio up over time?

Dennis Zember

Yes. Yes correct. We're not -- I don't see -- I mean when we were at 85 and 95 basis points, we didn't want to see it go any lower. And so I would tell you at 77 basis points on just the legacy portfolio, I would tell you this, it's not going to go much lower than that.

Brady Gailey

Okay. And then the accretion -- the accretable yield popping up a little bit in 2Q, you mentioned the $1.1 million of unscheduled prepay income payment. Is any of that related to Jacks fee and do you think that we'll see some higher levels of unscheduled payments come in for the next year or so?

Dennis Zember

None of that is related to Jacks Bank. Okay. Jacks Bank did move accretable yield were we had been reporting say $2.6 million to $2.9 million a quarter. Jacks Bank has moved that up, top $300,000 or $400,000 and just scheduled but none of the early prepayments related to that. Our scheduled amortization or scheduled accretion probably is somewhere in the 3.2 range Brady. And so then with any kind of extra prepayment maybe that we get out of Jacks Bank, you probably see something a little higher.

Brady Gailey

Okay. And then lastly for me, I think mentioned in the press release -- you hope to be successful on the M&A front by the end of this year, Ed maybe give us an update on how conversations are going there and how confident you are that you may see something happen in the next quarter or two.

Edwin Hortman

Brady I think -- well, I will just reiterate. Our discipline remains in place and pricing remains an issue. And we are not going -- we're not going to announce a deal just to say we did a deal. With the kind of organic growth that we have and what that of the other efficiencies we see coming, we can report outstanding results without an M&A deal.

Notwithstanding that, we've done M&A for a long time and it's been a key integral part of our business. So I'm pretty confident that there's an opportunity that we could announce this year. So I would say like I generally do, don't be surprised if we announce something, but don't be surprised if we don't. We're still looking in the same markets that we've set last quarter. We would like to leverage our resources in the markets where we are having the most success with production for the last three or five years and that's Atlantis, Charleston, Jacksonville and Columbia. So that's not changed. But I'll just tell you that pricing discipline is important to us to protect our shareholders.

Brady Gailey

Okay. Great. Thanks for the color guys.

Operator

Our next question comes from Casey Orr with Sandler O'Neill. Please go ahead.

Casey Orr

Hey, guys. Great quarter.

Edwin Hortman

Thanks Casey.

Casey Orr

Just a couple questions on expenses, just try and get better idea what the back half of the year looks like. You mentioned on the release having about $0.5 million coming off of their quarter from Jacksonville. Is that going to be the bulk of what we see for additional cost saves there or should we have more baked into the fourth quarter as well?

Dennis Zember

Casey that's going to be the majority of what you see. There maybe a little more. There's -- we have one of the branches that we're still consolidating but that should happen this quarter. We've got another branch in our legacy markets that we are consolidating. That should happen in the third quarter as well. So those are some costs we are expecting we have. Again, there's the 52.4 includes $400,000 of losses on some of the branches. And so, that would moderate as well.

I mean we've got a few strategies; our goal is to hold operating expenses, somewhere close to where -- to what we reported this quarter. In the third and fourth quarter, I expect there will be -- there are some areas in the company where we are going to have to invest between now and the end of the year. But I don't expect it to move the number materially from what we reported here.

Casey Orr

Okay, great. And then curious, at the mortgage division, how much of expenses there would you say are variable or depending on volume in any given quarter versus fixed costs?

Dennis Zember

Casey, I'm going to have to get back to. Off the top of my head, I would guess two thirds are variable. Again, two thirds are variable; one-third is probably fix. I would tell you, we don't have any long-term leases. We don't have any long-term leases; we've only got a few people under contract. I would -- between commissions and I mean even some of our support staff have a significant portion of their compensation is tied to production levels. So I'll tell you it's probably two thirds but I will fine-tune the number and get back to you.

Casey Orr

No, no. That's helpful, that ballpark. Thanks. And one more question on the expense, it look like you added, I guess think five retail mortgage bankers this quarter. But, can we expect you to keep adding to the group from here. And then, I guess separately can you give us just a rough idea on mortgage volume by geography?

Edwin Hortman

Yes. Casey, I'll let Dennis answer that. But I think we feel somewhat constrained by the level of mortgage income to our total income. And so we said we were about 20% which is where we're comfortable. I think we could absolutely expand that and we're doing that possibly in the fourth quarter typically a down quarter. I think there's an opportunity there.

Dennis Zember

Yes, our mortgage group is delighted to see us growing the organic side as good as we -- as well as we have been. Just because we want to keep -- not a cap on mortgage income, but we just, don't want that to really be any more than say 20% or so from the retail side. I mean I would -- we've got more people in the pipeline. I would tell you that. Yes. So, I would expect us to -- and I think adding five this quarter -- five bankers is probably about the pace that we would move at.

I would -- we haven't talked about SBA, but I think we are recruiting just as hard on the SBA side. I think we ended the quarter with nine people on the production side and we want to move that to 15. The nine that we have are outstanding. The pipeline this quarter was up 50%. So we're getting good momentum and good revenues out of the SBA side. And we are recruiting in both of those divisions still.

Casey Orr

Okay, great. Just one last question and I'll let somebody else jump on. But, just thinking about fee income here, what would you say our outlook would be for fee income, I guess in the bank segment alone in the back half of the year, are there sort of more opportunities there from the Jacksonville conversion not completed? Thanks.

Dennis Zember

Yes. We have noted that as we do these integrations and it takes probably 3 to 6 months after conversion before we get up to full run rate on the acquired deposits and the related income. So I do expect that there will be a pickup -- an additional pickup from the numbers you're seeing here once Jacks Bank is fully onboard.

I wouldn't expect it would be that material. I wouldn't think it's going to take $10.5 million a quarter to $11 million. But I think it would at least hold it steady, if not move it higher by a couple hundred thousand dollars at the most.

Casey Orr

I agree. That's all for me. Congrats on the great quarter.

Dennis Zember

All right.

Operator

Our next question is from Christopher Marinac of FIG Partners. Please go ahead.

Christopher Marinac

Thanks. Good morning. Ed and Dennis, I wanted to drill down on Jacksonville. I know it's only been a quarter in change with the merger. But how was the penetration of customers been to widen your relationships in-depth there and I guess could you give us a percent of how much more is out there for you to grab in the coming quarters?

Dennis Zember

I would tell you and maybe we should have bragged about a little more, but the execution on the Jacks Bank side has been outstanding. I don't know of any material customer that we lost from Jacks Bank. Specific to your question about penetration and maybe expanding relationships with what we -- some of the Jacks Bank customers. I mean we see that almost every week or every other week in credit committee.

The Jacks Bank team hit the ground running and we're ahead of where we thought we would be on loan growth. Ahead of where we thought we would be on retaining the deposits. We've be achieved all the targets that we hit on operating expense. We didn't really plan on a lot of fee income. I mean this is outside of your question, but we didn't plan on a lot of fee income from the deposit side. But we picked up a little more than what we thought there. Just altogether, the success in Jacksonville between the executive team moving here in our new sort of, executive headquarters the Jacks Bank deal has paid dividends.

Christopher Marinac

Great. And I guess a separate question. As you expand teams on the mortgage and SBA fund, would you or are you already doing production outside of the tank footprint?

Dennis Zember

Yes. Yes, we are. And I don't think I answered Casey's earlier question. We do business outside the banks footprint. One of our best production offices is Nashville, Tennessee. We do $60 million or $70 million out of one office in Nashville. And obviously we're not there. We do between that -- besides that office, we're pretty strong in Charleston and Columbia. In fact, I think we are number one in mortgage production in those markets. Jacksonville and kind of North Florida are pretty good for us. We do some in Alabama.

Christopher Marinac

Sounds good. Thanks guys. I appreciate it.

Operator

Our next question comes from Tyler Stafford with Stephens, Incorporated. Please go ahead.

Gordon McGuire

Hey guys. This is actually Gordon McGuire. I work with Tyler. We fill in for him today. I'm just looking at your expenses and just kind of following up on earlier question. I was wondering if you could elaborate on the run rate from here. If I do the math, 52.4 this quarter takeout the $2 million in commissions from last quarter, the branch sale. And then, you said $500,000 from Jacks B next quarter. I think that gets you to about 49.5 million to 50 million number? Is that kind of a good run rate with delta being fee income commissions?

Dennis Zember

Except I wouldn't back out the $2 million of commissions.

Gordon McGuire

Okay.

Dennis Zember

Until we see because we're not forecasting that mortgage or SBA would fall off materially.

Gordon McGuire

Okay.

Dennis Zember

We're not -- I'm sorry that would get us back to somewhere say 51.5 and what I'm saying is, I think from that level, higher -- I know there are few things that we've -- that we've done. We've recently hired a CIO. We've got some other investments that we're making. And so I don't believe -- I don't believe we don't see us at 51.5.

Gordon McGuire

All right. Okay. Thank you. I guess moving onto fee income. Looks like SBA's shaping up to be pretty nice for 3Q. I was wondering if you could just provide a little bit more color on the outlook for that.

Dennis Zember

Yes. We didn't talk a lot about it. The pipeline again being up 50% indicates that -- I guess at least start of the fourth quarter, we don't see that but closing the loans -- there may be some construction in their that might take a little longer than a quarter to close itself. But seeing the pipeline going up that much bodes pretty well for say third and fourth quarter and maybe even a little in the first quarter. I think you'll probably see that come in gotten over the third and fourth quarter not just the third.

Gordon McGuire

Okay. And then just a quick question, I was wondering if there was anything you're kind of looking at as far as expanding your businesses on the fee income side. Whether it's organic or acquisition?

Dennis Zember

Outside of say one's and two's on the mortgage side and the SBA side, I would say no. We looked at wealth management and we couldn't make the numbers work. The answer is no. We'll just sort of focus on those two and what we're doing on the treasury side.

Gordon McGuire

All right. Well, thank you. That's all my questions. I will let another caller in.

Dennis Zember

All right.

Gordon McGuire

Thank you.

Operator

[Operator Instructions] Our next question comes from Peyton Green with Piper Jaffray. Please go ahead.

Peyton Green

Yes. Good morning. Dennis, my question was maybe from an earning asset mix or growth perspective. Loan growth clearly is very strong far in excess of run-off. To what degree would you take the cash flow from the non-purchased pools and fund loan growth with that. I guess what issue to me looks like is the deposit growth was much lower this quarter relative to yields historical levels and just wondering if we should be modeling much earnings asset mix or not going forward?

Dennis Zember

I think -- Peyton that's a good question. I think if you give us -- if you go back say eight to 12 quarters not funding 100% of our loan growth has been -- that's not been part of our story. We've really grown deposits as well. So I'm going to look at this quarter almost as anomaly or the beginning of a trend or whatever -- just a data point. If we go two or three quarters and that trend persists, that's absolutely what we would be doing versus, trying to fund the bank with sort of non-funding. So for this quarter, I'm comfortable with what we did. I think if you go two or three quarters, that's exactly what we would do just sort of run-off those mortgage pools and sort of put into commercial asset.

Peyton Green

Is there anything that you noticed on the deposit side that was a change? Maybe in customer behavior or in just maybe internal deposit generation? Anything that sticks out?

Dennis Zember

No. We still grew checking accounts -- non-interest-bearing pretty hard. The answer is no. I just -- we hit the mark on some checking accounts and money market accounts. Of course, we still seeing the run-off CD regularly. We're looking internally to make sure that we're not -- we're outside the norm on rates. We've looked at the Jacks Bank deposit to make sure that wasn't where it came from. And it wasn't.

No, I think it's just -- I also I'm not sure what happened this quarter compared to all the other quarters. And we're just again I'm thinking, it's just an anomaly for this quarter and we'll see what happens.

Peyton Green

Okay. And just to be -- so that I have a good understanding. If you grew loans a dollar and deposits didn't grow, you would felt totally comfortable borrowing to fund that loan growth for the next couple of quarters? Is that fair?

Dennis Zember

Yes.

Edwin Hortman

With the borrowings being at only 2%, that's exactly right. And the strategy initially with the mortgage pools was a temporary strategy. So we're talking about looking at it, Peyton on a quarter or two quarterly basis in making an assessment and then tweaking it as we go. We do like the incremental income and the risk profile of the mortgage pools. So we're not going to be quick to move away from that.

Peyton Green

Okay.

Dennis Zember

Let me make one more comment the incremental cost of federal home loan bank advances was -- 65 basis points or 70 basis point. If we were out in the market hunting money market accounts pretty hard, that's probably what we be paying anyhow. So I don't know that there's really any -- I don't know that we lost anything necessarily in the margin from the growth just by using federal home loan bank advances. I think we might have lost that anyhow if we funded incrementally with money market accounts. So -- anyway.

Peyton Green

Okay. No. I guess further on my modeling, I just see building tangible common equity. So I wouldn't necessarily tell you to run-off relatively good yielding assets that you are on a good spread on. I just trying to understand whether there is a preference to build capital even further above the 8% TC or if you feel good at 8%?

Dennis Zember

We felt good approaching 8%, but I think as we approach $10 billion, we want to be -- we want to have the ratio a little more stout than 8%. We've been saying we want to see 8.5% before we see 7.5%. And so -- I think you'd see us grow more towards 8.5%.

Peyton Green

Okay. Great. Thank you very much for taking my questions.

Dennis Zember

All right.

Operator

[Operator Instructions] I'm showing no further questions. So this concludes our question-and-answer session. I would now like to turn the conference back over to Dennis Zember for any closing remarks.

Dennis Zember

All right. Thank you, again, for joining the call. If you have any questions or comments, please e-mail me or Ed and we'll be in touch. Thank you.

Operator

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

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