Q2 2019 Earnings Call
Good morning, and welcome to the Iberiabank corporations second quarter earnings Conference call, all participants will be in listen only mode.
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After todays presentation, there will be an opportunity to ask questions.
Please note this event is being recorded.
I would now like to turn the conference over to Jeff Parker, Vice Chairman director of capital markets Energy lending and Investor Relations. Please go ahead Sir.
Good morning.
And thank you for joining us today for this conference call.
On our call. This morning, Daryl Byrd, our president and CEO will make summary comments on our earnings report after which we will move into Q and a.
Anthony Restel, our Chief Financial Officer, Michael Brown, our Chief operating officer for Native forests, Hickman, our director of corporate strategy.
Terry Akins, our chief risk Officer, and Nick Young our Chief Credit Officer are all available for the Q and a session on this call.
If you've not already obtained a copy of the press release and supplemental Powerpoint presentation, you may access those documents from our website.
At Www Dot Iberia Bank Dotcom under Investor Relations.
A replay of this call will be available until midnight on July 26.
Information regarding that replay is provided in the press release.
Our discussion this morning deals with both historical and forward looking information.
Our safe Harbor disclaimer is provided in the press release and in the supplemental presentation.
At this point I'll turn it over to Daryl for his opening remarks, Darryl Thanks, Jeff and good morning, everyone.
I'm pleased to report another quarter of strong results, we reported GAAP and core earnings per share of $1.86 cents and $1.87 cents respectively.
And improvement on a linked quarter basis up 6% and 9%.
Also want to note that our core EPS of $1.87 cents was a record for the company.
We increased revenues, 4% or 15% annualized during the second quarter, primarily from strong loan growth a stable net interest margin.
Noninterest income gains from both our mortgage and title businesses.
For the quarter and on a core basis, we achieved a 1.31% return on average assets, a 15.58% return on tangible common equity and tangible efficiency ratio of 52%.
All better than the 2020 strategic goal metrics.
Loan growth continued to be solid in the second quarter as total loans increased $387 million or 7% on an annualized basis.
Reaching the top end of our 2019 guidance, our corporate asset finance team had a very good quarter, providing a significant portion of our overall loan growth along with both our mortgage and energy businesses.
Net interest margin for the quarter was 3.57% on a GAAP basis relatively flat as compared to the first quarter and 3.37% on a cash basis as anticipated we realized approximately $7.2 million in recoveries. This quarter rebounding from the first quarter and in line with our previous expectations of approximately $5 million a quarter for 2019.
As we mentioned in our first quarter release, we de Levered, approximately $424 million of securities and our bond portfolio in the second quarter.
As a result of a sale of $300 million in securities and expected cash flow payments.
As of the end of the second quarter, our investment portfolio was approximately 15% of total assets. We believe there's still some room to continue to efficiently de lever this portfolio to fund future loan growth, allowing for an improved overall mix of higher earning assets.
Core non interest income increased $7.3 million or 14% on a linked quarter basis, primarily due to a $6.6 million or 56% increase in mortgage income and a $1.7 million or 32% increase in title revenues I'm very pleased with the performance of our mortgage group as they have repositioned and improve the cost structure of that business over the last couple of years I expect the performance of the mortgage business remains strong and profitable throughout the remainder of 2019, given the strength of the pipeline and lower mortgage rates.
Core non interest expense increased $8.3 million or 5% on a linked quarter basis as anticipated salaries and benefits contributed approximately $5 million of this increase this includes a $3.1 million increase in mortgage commission expense, a full quarter of merit increases and the impact of one additional business day in the quarter.
Our core tangible efficiency ratio remained strong for the quarter coming in at 52%.
The bank's credit metrics remained strong and stable.
Classified assets continued to decrease and now represent 97 basis points of total assets a reduction of 24% from a year ago.
Provision expense was 10.8 million down $3 million on a linked quarter basis. Additionally, net charge offs for the quarter were essentially flat and only 14 basis points of average loans, we continue to see no signs of credit deterioration in the loan portfolio.
During the second quarter, we issued and sold 100 million in depository shares related to our series D. Perpetual preferred stock our third such issue. The preferred stock has an initial coupon of 6.1% fixed for five years, and then converts to LIBOR plus 386 basis points.
Also during the quarter, we repurchased approximately 1.8 million common shares at a weighted average price of $76.59 per common share or approximately 135 million and total value. We have subsequently purchased an additional 117000 shares early in the third quarter to complete the share repurchase plan announced in November 2018.
On July 17th 2019, we announced a new common stock repurchase plan of up to 1.6 million shares or approximately 3% of our outstanding common shares. This plan as expected big completed over the next year.
For the first six months Weve returned over 100% of net income to common shareholders in the form of cash dividends and the repurchase of our common stock.
Also earlier in the week, we announced another increase of two cents per share to our common dividend as we declared a quarterly cash dividend on common stock equal to 45 cents per common share payable on October 25, 2019. This equates to a 5% increase over the prior quarterly dividend in total declared common dividends for 2019 will represent a 13% increase over last year.
To appropriately reflect the projected rate environment, we've revised our full year 2019 financial guidance to account for updated expectations of 225 basis point cuts in the federal funds rate in 2019, one in July and one in September .
We adjusted the net interest margin range down to 3.48% to 3.54%, reflecting the current market rate expectations.
The range for average, earning assets moved up slightly as we anticipate coming in between $28.6 billion to $28.8 billion.
Our noninterest income increased to a range of.
222 million to $230 million up on expectations of continued strength in our seasonal businesses.
We reduced and tightened our noninterest expense range to between 667 and $677 million, we have been and continue to be diligently focused on the items, we can control and believe our cost containment measures will allow us to comfortably achieve this range.
As I said last quarter every fiscal quarter seems to produce changing economic views. We have gone from two rate increases for 2019 projected at the end of last year to our current guidance, which now includes two rate cuts the updated guidance targets a midpoint of $7.12. We continue to see opportunities for improvement as we believe deposit pricing as Pete leading to an ability to improve pricing and deposit mix in the near term. We're also seeing strength in recruiting which should aid loan growth in fee income in the second half of the year as always we continue to work towards achieving our long term strategic goals. While also committed to achieving our stated 2019 financial guidance.
As far as the M&A environment, our stance remains consistent with my prior remarks, we remain focused on enhancing our earnings achieving our return metrics and delivering sustainable profitable growth.
Our commitment to enhance shareholder value remains our priority and we're open to evaluating opportunities both internally and externally to achieve these goals.
As we closed the first half of 2019, I can say that I'm very pleased with our Companys progress I believe we were incredible markets, providing best in class products to our exceptional clients.
Strong results are a reflection of our associates dedication and hard work and our clients' confidence in us as their financial institution of choice.
At this time I'll open the lines for questions Rocco.
Thank you.
I will now begin the question and answer session.
To ask a question you May press Star then one on your telephone keypad.
If we are using the speaker soon we ask you. Please pick up your handset before you press the keys.
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Today's first question comes from Ebrahim Poonawala of Bank of America. Please go ahead.
Good morning, guys.
Good morning Abrams.
So I was just wondering if that lower Anthony I think just a little bit more color on the margin. So it didn't make sense in terms of.
The revised guidance given the forward curve, but if you could just talk to in terms of.
As the market evolves like just the sensitivity of the balance sheet after the ecova.
What should we be paying attention to as they need environment evolves and as we sort of think about fuel margin not just for the back half of the year, but from our seat going into 2020 on that would be extremely helpful.
You have a mile I'll start and then turn it that.
Anthony I guess I guess, we're not surprised to see margin come up first this morning.
And Ebrahim, one comment I would make and I think I've been pretty consistent.
No.
It's amazing to me the volatility in the economic environment.
Where we are from.
Two rate increases to two rate decreases and we are seeing.
Payroll data that's very strong.
And pretty hard for us to predict and I would encourage all of you to be careful with that Anthony comments.
Yeah.
I think DRAM I think we've talked a lot about our balance sheet positioning as we kind of move through the year. So certainly as we as we've kind of moved really from I'll call. It through may.
We've seen a couple of things happened right, we've seen a lot more coming quite substantially.
And so even today LIBOR to Thirtys in a day 20 basis points below kind of where that.
No were fed funds sits today kind of reflecting the expectation that we do get that that full time today.
So I don't know there is a whole lot that that should be surprising relative to the to the margin. This year I think as we think about next year.
I'll leave you just kind of with a few high level thoughts one is first and foremost we haven't provided any guidance yet for next year to Daryls point.
Every 60 to 90 days, we seem to be getting a different look in.
180 days, a long way away.
Obviously as a company we continue to to pivot and adjust as best we can given the never ending environmental changes that were looking at.
Certainly we have started to take actions I think you can see those in the balance sheet today, we're shifting the mix on earning assets to improve the yield I think that will continue.
We're seeing the positive impact of non interest income on our businesses from lower rates that also should continue if we see lower rates as projected.
We continue to work very hard on the overall expense base, while still investing in the business I think it's worth highlighting at least for this year just looking at the second quarter versus the first quarter, we lowered the midpoint of the guide on the expense guide by about $10 million.
Despite the fact that we are going to have higher mortgage commissions and we are seeing some pretty nice recruiting opportunities.
As Darryl mentioned in his comments, we know that deposit rates are rolling over particularly on the brokerage side those will move with the curve wholesale funding will move with the kind of ultimately retailing customer deposits will follow its going to be a little bit of a slower pace, but no follow along.
We're going to have good loan growth next year, we're seeing some great recruiting opportunity today, which should aid in that endeavor.
And I'll just tell everybody that even if the fed does count is projected rate, we should see a positive sloping curve next year, which grades which will create options for us that don't exist today.
Our technology investments over the last two or three years continue to drive efficiency, meaning we can do more without adding which I think is great.
And finally, we still have flexibility within our capital stack.
To drive more share repurchases, if we want to do that so I think as I think about next year.
I'll say, it's a long way away.
And we recognize the potential headwinds that might be out there from a from a rate perspective, we certainly have started to position and change things internally to get prepared for a different rate environment.
We'll mitigate where we can.
Eventually the biggest variable for us is going to be deposits and other core funding and that will come lower if rates do move lower in and look we still got a lot of flexibility and we're committed to controlling what we can control and delivering.
At least on the expectations that we've laid out.
And then just a data.
I think you mentioned be careful what you expect is that.
Implying that you are seeing a fair amount of sand from a customer standpoint going into local economies across your markets is that kind of eat into it.
Yes.
Ebrahim I think we feel very good about our clients.
Anthony mentioned that Michael can mention it but we've we've had some pretty unique recruiting opportunities recently.
And we see that evolving into excellent client growth.
And so we would be very positive about the future.
Got it and just a second question.
There's been a fair amount of discussion with investors that on your messaging on M&A and obviously, you've been pretty vocal about it over the last few quarters would love to hear your thoughts around just the nature of transaction that do you think at this point you would engage in you being out of M&A for the last year. So it would be helpful to just kind of remind us at all on what the three key priorities on what you're looking to achieve if at all you engage in some kind of fun.
Transaction activity.
Hey from every everybody is.
Everybody has been talking.
After the more recent M&A transactions.
And that includes the us well as far as we're concerned we're open to opportunities that would be complementary.
To our focus on enhancing earnings and returns.
And improving shareholder value.
I can't tell you whether or not all the talk is a catalyst for AMETEK M&A activity. It kind of remains to be seen and employees are not easy.
The social issues, a difficult and the cultural issues are difficult.
I guess to the point you're asking about.
Yes, I'd say with conviction.
We have no interest in how premium deals we will be disciplined so we see no reason to overpay for.
A transaction, but wed had the same view about overpaying for either loans or deposits.
I think we have a clear picture to good earnings and don't need to stretch for growth.
And as I said in the script.
No. My current position is that we remain focused on enhancing our earnings return metrics.
And delivering sustainable profitable growth.
That's helpful. Thanks for taking my questions.
Q.
And our next question comes from Jennifer Demba of Suntrust. Please go ahead.
Okay Ebrahim, taking my question.
Hi, Jennifer.
Right.
Uh huh.
So a question on credit you guys comment your your metrics remain great. You said everything looks very good to you and your portfolio I'm wondering if you're particularly cautious on anything you're seeing out there in the market right now.
There have been a few energy issues, just wondering what you're seeing in your energy portfolio in it and you Didnt.
I mentioned the energy was one of your growth areas this quarter.
Yes, Jamie.
Kind of start and let Nick and Terry kind of Kinda talk this one.
We've made.
With that I'd like to thank we've always been pretty good at credit been pretty consistent we've made.
I think excellent progress from a classified asset perspective, we were down about 24% a year over year.
Yes, energy's done well for us.
I think we've been pretty thoughtful on our our book is very NP and midstream oriented. So we've been thoughtful about what we put together and over the last couple of years.
Energy is done done really well for us from a credit perspective, Nick Terry thoughts.
Yes. Thank you.
So what are the portfolio continued to perform well. It's just so we have embedded careful in lending and focus on EMEA midstream.
Our.
Portfolio now is for oil field services on these to imprison that though.
Down from 35%.
Several years ago.
Our MPL so on the 1.1% of the total energy portfolio.
And we have no energy net debt as of last year, and we're actually seeing 17.
So we feel very good numbers talking about the yes, the energy portfolio in general so that portfolio has performed really well for exterran anything you'd add Oh, yes, just a couple of things that Jennifer I would just say that you know we have clients, where we have very good diversification and access to multiple sources of capital we remain very disciplined in our pricing deck and enter into credits where the companies have strong cash flow and reasonable leverage so.
I would just echo what Nick in General said, we feel very good about our energy portfolio today.
Okay. Just one more question for Anthony professional fees were up just wondering.
How.
That number looks going forward.
[noise] yeah.
Jennifer I think that number will be fairly consistent moving through.
The remainder of the year, there's a there's a little bit of legal expense and some other things that came through this quarter.
I don't view.
But anyway to answer the question I think clearly the terminations, yes, I think what you've got.
Anyway, I would assume that number is largely flat as we kind of move through the India will bounce around a little bit, but it should or shouldn't be that much.
Thank you very much.
And our next question comes from Catherine Mealor of KBW. Please go ahead.
Thanks, Good morning.
Good morning Catherine.
Hi, just to follow up on the margin.
I guess my first question is how should we think Anthony about.
You mentioned, it's five cents a quarter for.
Maybe if I could one rate tied and.
Do we think about that more for 20 Knight team and before you can really aggressively lower deposit cost.
It is going to the 2020.
Or is that five cents really full rate plus an offsetting benefits on the deposit side.
No I would tell you I would probably think of that more of through the end of this year and maybe a little bit into the early next year right things are going to evolve Katherine and we're going to have options and be able to pivot and to your point right things are going to change a little bit so I would.
Again, we put that in there just because I knew I'd get asked and I just want to put it out there.
But again I would look at that more of a near term kind of kind of number and not a not necessarily a long term kind of thing.
Okay. That's helpful. And then as we think about your new NIM guidance well.
For you to hit the low end of that guidance for the full year I mean, your margin is coming down pretty significantly in the back half of this year. What can he can talk about the range of that guidance and.
What city area, we see that full year 340 area.
What I would do is that I'd I'd prefer we maybe push a little bit towards focusing on the midpoint of the guide as opposed to the lower end of the guide you know the difference between the two has to do with consumer relay our deposit related assumptions.
Recovery income, whether that kind of dries up on us at the end of the year and some other things.
No what I will tell you is I think we feel pretty good weve got some good visibility into some nice recoveries for the second quarter I mean for the third quarter already.
Insight at this point again, I would push you more towards the middle as opposed to focusing on the bottom end.
Great again, the recovery do you still feel like that 5 million a quarter range is a good.
Well in the model.
Yes, I mean look we.
So we talked about last quarter. It was 5 million per quarter and we were if you look at it were at 10.6 year to date from a year to date. So I think the magnitude of the recoveries feels good but the timing always gets to be the bigger challenge. However, I can say that I know that we've got some recoveries already and.
For the third quarter, so again I still feel good about the overall number for the year, we're going to have recoveries in the <unk> in the third quarter and so we'll just have to see on all plays out.
Great. Thanks to the dollar.
Thank you.
And our next question comes from Michael Rose of Raymond James. Please go ahead.
Hey, guys.
Just wanted to talk about non interest income.
So I guess I'm looking at the first half of the year and you guys talking about strong mortgage pipelines and obviously, there's some some title income that goes along with that.
So I guess why wouldn't you be you know with that backdrop and assuming rates continue to stay low on the mortgage side why why wouldn't you come in towards the upper end of that guidance range and I guess, maybe what are the other factors that we should be thinking about there. Thanks.
Michael I think we've got a pretty good chance to do that.
We feel very good about our mortgage group.
They've done a lot of work they've kind of repositioned and become much more productive much more efficient.
And we're having we're having a good year.
Back, making pretty decent money.
And.
I think we've got a shot at coming in at the high end Fernanda and any comments on mortgage.
Well as you said, we've had a very strong first half of the year and we expect the rest of the year the continuing that trend we continue to hire.
Officers and a continued to improve our back office and readiness to fix a component of our cost.
So.
Bottom line, we are making money, we've made around over $3 million year to date in this business and we expect for the rest of the year to continue to be profitable.
Yeah, Okay Golfinho, that's number one and you know certainly to Daryls point right I think the opportunity to be at the top end of the range is very good I think one of the wild cards that it's a little bit of a of a difference right. We had some pretty good swap income in the first part of the year and if you think about it right customers are swapping from an insurance perspective against the risk of rates rising on them and so in today's environment I don't think too. Many people are worried about about rising rates and the risk of being caught upside down. So we're going to see a natural slowdown in that we'll still have swap income and I think thats, where our I'll call. It the variable gets to be with us about exactly where we land I do think though it is.
Possible and probably even.
Greater than 50% were probably up towards the upper end of the range.
That's a that's very helpful and then Conversely on expenses.
You guys mentioned some expense control efforts can you just talk about some of those efforts and then maybe some areas where you reinvesting some of that capital it sounds like obviously hires on the mortgage front, but other efforts.
If you could just outlined will be appreciated.
Yeah.
So look we don't have a announced on expense initiatives, but certainly I think.
From an internal focus there is there is a lot of effort in terms of.
Making sure that they were looking for opportunities to manage the expense is lower.
And worse case trying to just contain them at current levels. The greatest the greatest pressure, we see isn't really salaries and expense just from a competitive standpoint.
And so I think you just got just I'll call. It hyper focus on it within the company, which is really worked out well, but against that focus right. We continue to invest.
We've got.
Some some pretty big movements on our loan origination system I think that's coming along nicely we continue to invest there.
We've got some new pricing tools that we put in place to help us better take a look at pricing is were making loans. We've deployed several instances of robotic process automation within the bank. Those those efforts are ramping up.
And we're seeing some good results from that so I think it's a lot of just a continuation of what we've been talking about.
Michael nothing necessarily that stands out as a unique item just kind of the follow through from all the work last year, just kind of continues into this year, Michael as we talked in the first quarter. We've been very focused on expenses and we continue to be in.
And want to be as productive at the company as we possibly can be Michael Yes, I was going to add them and I think what you were looking for more focused on was what we are doing to invest in revenue opportunities at the same time, we are managing our expense structure.
And I think what's important is we are continuing to recruit and hire as we sort of re craft the balance sheet or at least the loan part of the balance sheet to continue sort of diversifying it.
The example, I'd like to focus on.
The most is when we've talked about in terms of impacting growth a great deal certainly in the last six to nine months.
Which is our corporate asset finance group Thats, our equipment leasing financing group and as we sort of driven that business into our markets. We found a significant number of opportunities with our client base and prospects who are very active with equipment purchases.
Thats diversifying our portfolio more into to see a nice base, which gives us opportunities for noninterest income tied to Treasury management.
Picking up some free deposits, it's a very very good business for us and required an investment for us that team has done a great job.
We continue to hire the market level, we're seeing some great opportunities relative to relationship managers, who are leaving a let's say larger institutions and with them. They bring us some pretty attractive clients. So we continue to invest.
Relative to people and into our markets are obviously at the same time, we are continuing to insys assess talent and try to understand where the best investment to return our investment is coming from and continue to focus on that.
That's all a very great color. Thank you guys for the help appreciate it.
And our next question comes from Casey Haire of Jefferies. Please go ahead.
Thanks, Good morning, everyone.
Wanted to touch on the on the loan growth guide.
You guys are the 5% to 7% this year.
You guys are halfway point your 4% you sound pretty upbeat about what you're seeing in your footprint and borrow activity.
Just wondering I mean are you is that just a conservative guide or or or should we expect a more moderate pace of loan growth in the back half year.
No I think Casey I think we'd be very positive about loan growth. So we've got a Michael's got a great pipeline Michael yes.
The thing I'm. Most excited about is the diversity tied to our pipeline this coming from a lot of different areas. We've consciously.
Increased our focus as Ive noted in the last commentary about Cnine.
So it's a very significant contributor to us I expect that to continue.
Our clients are continuing to invest there's there's a lot of positive activity in the marketplace. We see some good opportunities on real estate, we're very careful from a risk perspective relative to that considering where we are in that particular part of the cycle.
Our residential mortgage business, which ties to a sort of high net worth clients continues to be very strong.
We've seen some weakness on home equity that's typical as home equity rolls into the.
Mortgage refinancing activity that we're doing.
But at the end of the day, it's a good mix of clients and really important as I noted as we're seeing noninterest opportunities tied to those clients. So from a relationship profitability perspective, we're thinking we're making the right investments and getting a pretty attractive return and.
Back to your point or question, we're pretty bullish about loan growth at this particular point.
Yes, Casey I'll throw in one other comment just remember that that the guide assumes two rate cuts right.
And so what's the impact on that is really would be unknown, how that impacts us customer behavior in appetite for loans and I can tell you that you know absent the rate cuts I feel very confident we would we would blow through the original guidance, we laid out for the year.
Loan growth would be phenomenal and things that would be.
I think really rosy I'd say again, you have to think about all that guidance is against the backdrop and unfortunately, the backdrop from a market perspective, it's always a little bit of a disconnect in you see between the equity and the debt markets today.
But the backdrop says you know maybe things a little bit more cautious which is why you see that the guidance kind of remaining the same we just didn't think it was appropriate to move it up. Despite the fact, if you annualized year to date you'd be kind of closer to eight and.
You'd be above the range.
Yep, great great color. Thanks, Anthony.
And then just the securities portfolio.
Daryl you mentioned that you guys took it down this quarter and then it sounds like thats going to be.
You're going to continue to use that as a funding mechanism for loan growth just just trying to get a sense for how aggressive you're going to be with this strategy.
17% of of earning assets you know what's.
How much lower can we go from here.
Yeah.
No no go ahead, Andy sorry, Casey what I'll tell you as I think you should expect at least see US continue that through the end of the year and then we'll kind of reevaluate.
I'm looking at something of approximately the bond portfolio to decline about 185 million per quarter, obviously that will move around depending on prepayment levels.
Well, we've got you know at that at 15 ish percent today on total assets right that number can come down from that level. So again at this point I'd say you should expect us to continue that process.
Through the end of the year once we get to the end of the year, we'll kind of maybe reevaluate and we'll give you some color maybe better color next quarter as we kind of think out a little bit and Anthony I have a quick comment on the spreads on bonds.
You know look the bond for the bond portfolio Casey when you look at it we bond yields if we the I'll call. It the typical bond we buy today might yield us to 40.
If we were to go by that bond today I'd be largely bar you tap in some type of wholesale funding to two to cover the the liability side of that.
At something like 240.
And so there's just there's just nothing there.
With the inverted curve that works for us and so we built the bond portfolio up in a better time and so now we can kind of live off of that cash flow.
Let that run down.
We've got great loan growth right. So.
It gives us the ability to really create a shift within the earning asset side to a higher yielding asset you see during the quarter.
Our average, earning asset yield went up two basis points, which I think is phenomenal and some of that you know is we're trying to do as much of these kind of things as we can stabilize the margin you mentioned I would add in terms of the loan side as we're continuing to see yields from an origination perspective stay pretty much consistent one quarter to Q, everyone Q spreads spreads Im sorry, yes.
Yep.
It makes sense.
And then just just switching to the buyback.
I'm just curious how you guys came up with would be the $1.6 million.
Just some of the loan growth feels a little conservative you guys are 9% Tc and and then as I roll forward in my model you built very nicely.
On Tc in into the upper Nines next year.
And with a modest sort of payout ratio. So im just just trying to little color on as to how you arrived at 1.6 million shares.
Jeff you want to talk about.
[laughter].
Casey we've been Restacking the capital as you know and.
When we talked earlier in the year.
We anticipated probably doing about $35 million per quarter, we saw the opportunity as you know we highlighted both last quarter and this quarter.
To take advantage of rates in the market raise $100 million grows at a 6.1% rate.
And frankly.
While we are both investing in the company investing in people investing in technology.
We see the ability to to bar stock back so we raise that number.
We completed a program and we initiated a new program.
As it turns out we have returned about 100 plus percent.
Of earnings this year in the form of dividends and share repurchases that number has been between 55 and 65% annually over the past couple of years. So we're managing our capital stack, we're managing our capital and.
And were able to return capital to shareholders. So all in all good.
Hi, Casey a couple couple extra at add on points.
One is.
On the 1.6 million right that I think in Daryls commentary, we said, we thought we get that completed within a year.
Given the change in the capital rules that are I guess were announced last week right.
Prior approval from regulatory is a lot easier to kind of deal with on a move forward basis. So remember this is our twelveth or so plan.
We will finish this one up at some point and if we get there quick well, we'll go with another one right. So there is no magic, but wouldn't get lost in is there any secret tea leaves to read at the 1.6.
Just it's it was a number that was good for us that we put out there I will say he thinks will get it done within a year and when we do that depended on the environmental conditions at that time.
If we're going to do we want to do more of them will roll new plan forward.
Great. Thanks.
And our next question comes from Stephen Scouten of Sandler O'neill. Please go ahead.
Hi, everyone. Good morning.
Good morning.
I appreciate all the color here I guess I I'd love some additional clarity on what you think might happen with your deposit book, we do start to get a couple of these rate cuts.
Suntrust and some others have kind of mentioned that the deposit betas will probably be lower on the on the front end, we wouldn't get all the help we saw on the upside it back if rates come down I'm wondering if you think there'd be a similar phenomenon there for you all.
That there'd be a catch up in 2020.
Or kind of how you think the deposits would respond initially to one or two cuts.
I think the first comments, we do think.
With great cuts for the end deposit pricing is pig, Michael you want to.
Oh I do think deposit pricing has peaked in a moment I think that the.
It's going to take a little bit of time to work its way through but I mean, I expect pricing to can to decline.
At a reasonable pace during the.
Third quarter into fourth quarter, you feel pretty comfortable with it and yeah look I think you're you're already seeing kind of new CD pricing is kind of the bar for that's been set lower than where it was last quarter.
The level of us having two exception price above the rate achieved its basically.
That's gone away.
You know at some point you should expect.
We expect deposit rates are good it's ultimately going to be driven by.
Competitiveness and so a lot of people are talking about it and so what I will tell you is I think the banks did a great job of holding on the way up and so.
I hear a lot of banks talking about we're going to cut them go down and so I'll tell you that I'm all win will come and go down with everybody else.
But I do think it's going to take a little bit of time.
And so I would say probably more towards the end of the third quarter is where you really start to see some movement from the customer deposit perspective.
Okay very helpful. Good luck.
Good news is we have a lot of deposits that actually are tied to floating rates. So they should move pretty quickly thinking of institutional book, we have that happens immediately.
You know the amount of that off hand.
So I want to point and $1.4 billion.
Great. Thanks.
And then maybe thinking a little bit more about the loan growth I know Anthony you mentioned you'd probably raise that guidance if it wasnt for the uncertainty created by potential rate cuts, but can you talk about what that what dynamics you think could be created there I mean, my first thought would be if rates go down you might get higher payoffs, but you'd also have greater demand. If the economies are really as strong as the underlying trends still seem to intimate. So can you give some commentary there maybe yeah. Stephen I think that's the I think you just hit the wildcard and we're all trying to kind of figured out if you.
If you get these rate cuts.
Yes.
My suspicion would be that we will have a pretty solid economy.
And a good solid economy will create opportunities for our clients and.
And that will end up giving us loan growth.
Yeah.
I hope I'm not going to be repetitive, but I mean, I think what we've tried to do as we've tried to step back and take a look at our ER business and try to grow it based upon co diversity again, our diversification geographic as well as business as well as the individual makeup of the book.
I agree with you I think lower rates may might encourage some refi activity, particularly in the real estate business, but again weve tried to diversify away from that over the last 18 months into businesses that are less interest rate sensitive, meaning they are not going to re fi.
Energy loans because rates drop it to create income for the bottom line.
So.
I'm with Daryl I think that we would expect to see an offsetting increase in activity with our clients and our prospects, which is very important add on because that's where we're getting a lot of our growth is from bringing market share over from other banks. That's going to continue we think at a faster pace because of our investment in.
Recruiting activity, we think thats going to offset whatever increase and.
Re fi activity, which will impact our real estate book in turn will get reasonable growth in the overall loan portfolio and Steve and I want to make sure we kind of underline Michaels comment we are seeing some fairly interesting recruiting opportunities.
And feel really good about some of the talent that's coming into our company.
And the client opportunities with that presents.
Yes, that's that's helpful and I guess, maybe is there any additional detail you can give there is that geographical concentrated opportunities is that from dislocation from things like BB and T. Suntrust or.
Any segments of your business or any kind of incremental color you can give around those opportunities.
Steven I think I'd want to be polite.
Around around this comment and fair enough flow.
Look we've got a we have a very diverse organization.
And we have a pretty strong recruiting network yeah from the Carolinas, all the way down to the keys across to Texas.
And we lever those.
Our network of relationships from a recruiting perspective.
And so it's.
It's across a number of different markets.
Perfect. Thanks, so much guys and congrats on a really solid quarter.
Thank you.
And our next question comes from not only of Stephens. Please go ahead.
Hey, Thanks, good morning, guys.
Hey, Matt.
I want to go back to credit quality and it looks like you improve the guidance on provision expense can you shed some more light on that was it driven by some specific credits that are held in recent weeks or do you feel better about the overall economy, just any color you can give on that.
Yeah again I must start we we we do feel good about the overall economy.
And we feel very good about our credit posture.
And look classified ads, probably I think maybe the biggest example.
To kind of track in terms of the.
The improvement in the portfolio, Nick you got any thoughts there.
I will echo what you said in your opening remarks that.
We don't see any sign of the duration portfolio. The good quality remains a strong stable and trending in the direction and.
No no concerns in the economy and so yes.
And then just as a follow up for Daryl I think.
Last quarter.
Seems like you are anxious to get some type of preliminary guidance around 2020, the investment committee and so at this point when should we expect to see some kind of pulmonary 2020 guidance.
[laughter] Nomad it's.
Yes, the issue gets to be you know, even though and we're proud that we've been able to meet and exceed the 2020 goals.
But as we've said a couple of times. This morning, we have been and continue to be concerned about the volatility of the economic environment just keeps changing on us.
And it's hard to to come out with.
Future oriented goals until you can kind of get you get a pretty solid feeling about.
What kind of volatility we're going to see from an economic perspective.
Yes again.
We think we've had solid performance.
We continue to improve the talent in the company and the client relationships were very focused on.
Productivity.
Like we said a couple of times, we think deposit cost of peak.
And we're working to try and to be on the best end of the ranges that we provided.
But I'm struggling to want to put out longer term guidance.
In light of just the changing nature of the economic news.
Yeah, and that's that's certainly understandable, yeah I get that.
Okay. Thanks, guys.
Thank you.
And our next question comes from Christopher Marinac of Janney Montgomery Scott. Please go ahead.
Hi, Good morning, I know that pass rate cycles are kind of hard to compare to it today and the company has changed a lot but.
Is there a loan beta behavior, earning asset beta behavior, that's kind of transferable to what you're seeing now Anthony and kind of how we expect the next several quarters play out.
You know, Chris Unfortunately, there's not only because the composition of our company so different today than the last up cycle that we've got.
And you know and also right the last cutting cycle. It was dramatic and I feel pretty confident and ethanol apparently but despite despite even if the fed were to start moving rates.
You know to support the economy, it's a different type of support they were trying to provide against the last cuts that we saw in 2008 2009. So.
We're just different were so much larger the composition of the balance sheet is different I wouldnt I personally would not be comfortable drawn any correlations between what we saw a decade ago and today I just I'd be.
I'd just be cautious not to do that.
Okay is there any embedded sort of speed of turnover that you kind of think about it as you kind of laid out this near term guidance on how then is composed.
Speed of turnover relative to what.
Sort of the repricing of loans and earning assets as that that sort of defines this outrageous margin with the two rate cuts like that that is based on our I'll call. It our very detailed asset liability modeling, which takes into account all of the contractual.
Cash flow from all of the repricing of loans.
We have a prepayment assumptions built into that on the loan side as well and so I don't we certainly I'm not going to but you wouldn't want me to get into the the minutia of all the thousands of assumptions that drive the asset liability model I think the best thing I can tell you Chris is that I think that the guidance that we've presented provides our best estimate of what we believe would happen looking at all the assumptions again with the best light and the best information that we have got a against those assumptions.
Great Anthony Thanks for the color this morning.
All right. Thank you thanks for us.
And this concludes our question and answer session I'd like to turn the conference back over to Brian for any closing remarks.
Thank you Rocco I just wanted to tell everybody I hope you have a great weekend. We appreciate your confidence in our company.
And again just to have a have a great weekend. Thanks.
Thank you Sir todays conference has now concluded and we thank you all for attending today's presentation. You may now disconnect your lines.
Okay.