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Edited Transcript of IBKC earnings conference call or presentation 25-Apr-19 1:30pm GMT

Q1 2019 IBERIABANK Corp Earnings Call

LAFAYETTE Apr 30, 2019 (Thomson StreetEvents) -- Edited Transcript of IBERIABANK Corp earnings conference call or presentation Thursday, April 25, 2019 at 1:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Anthony J. Restel

IBERIABANK Corporation - Vice Chairman & CFO

* Daryl G. Byrd

IBERIABANK Corporation - President, CEO & Director

* Fernando Perez-Hickman

IBERIABANK Corporation - Vice Chairman & Director of Corporate Strategy

* Jefferson Glenny Parker

IBERIABANK Corporation - Vice Chairman and Director of Capital Markets, Energy Lending & IR

* Michael J. Brown

IBERIABANK Corporation - Vice Chairman & COO

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Conference Call Participants

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* Brett D. Rabatin

Piper Jaffray Companies, Research Division - Senior Research Analyst

* Casey Haire

Jefferies LLC, Research Division - VP and Equity Analyst

* Catherine Fitzhugh Summerson Mealor

Keefe, Bruyette, & Woods, Inc., Research Division - MD and SVP

* Christopher William Marinac

FIG Partners, LLC, Research Division - Director of Research & Partner

* Ebrahim Huseini Poonawala

BofA Merrill Lynch, Research Division - Director

* Jennifer Haskew Demba

SunTrust Robinson Humphrey, Inc., Research Division - MD

* Matthew Covington Olney

Stephens Inc., Research Division - MD

* Stephen Kendall Scouten

Sandler O'Neill + Partners, L.P., Research Division - MD, Equity Research

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Presentation

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Operator [1]

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Good morning and welcome to the IBERIABANK Corporation earnings conference call. (Operator Instructions) Please also note, today's event is being recorded.

At this time, I'd like to turn the conference call over to Mr. Jeff Parker, Vice Chairman, Director of Capital Markets, Energy Lending and Investor Relations. Sir, you may begin.

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Jefferson Glenny Parker, IBERIABANK Corporation - Vice Chairman and Director of Capital Markets, Energy Lending & IR [2]

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Good morning, and thanks 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&A. Anthony Restel, our Chief Financial Officer; Michael Brown, our Chief Operating Officer; Fernando Perez-Hickman, our Director of Corporate Strategy; Terry Akins, our Chief Risk Officer; Nick Young, our Chief Credit Officer are all available for the Q&A session of 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.iberiabank.com under Investor Relations. A replay of this call will be available until midnight on May 2. 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. Daryl?

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Daryl G. Byrd, IBERIABANK Corporation - President, CEO & Director [3]

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Thanks, Jeff, and good morning, everyone. I'm pleased to report another strong quarter for IBERIABANK. In the first quarter, we reported GAAP and core earnings per share of $1.75 and $1.72 respectively. On a year-over-year basis. GAAP EPS improved 59% and core EPS increased 26%. These results came in well ahead of expectations as outstanding loan growth, growth in non-interest income and continued expense containment all contributed to a very good quarter.

In terms of financial metrics on a core basis, we achieved a 1.2% return on average assets, a 15.03% return on tangible common equity and a tangible efficiency ratio of 51.3%. We continue to focus on our long-term strategic goals and while only slightly behind on the return on average assets metric, we feel very good about maintaining and achieving the high level of performance and 3 year goals which we laid out last year. Net interest margin for the quarter was 3.59% on a GAAP basis and 3.42% on a cash basis. Significantly below our fourth quarter results. While it's easy to react to the overall numbers, when we break it apart, the change was due to a few items.

Let me point out the key factors contributing to this quarter's margin results. First, the bank experienced nice loan growth for in the first quarter. Total loans grew $448 million or 8% on an annualized basis. A record first quarter for the bank and well ahead of our expectations for the quarter. I will remind you that our first quarter results are typically impacted by seasonal factors. Yet we experienced both good originations and slower prepayment activity, leading to higher balances, both were unique and positive for the quarter. Additionally, we've seen a nice start to the second quarter and have a strong pipeline.

Second, the level of recoveries in the quarter was significantly down from the fourth quarter. As a reminder, both the third and fourth quarters of 2018 benefited from significant non-recurring activities that drove inflated net interest margins. The magnitude of those items was not expected to repeat in 2019. Last quarter, we announced that we expected $20 million in ancillary income in 2019, down from $35 million in 2018. Given the inability to know the exact timing of the income, we split that evenly across the quarters at $5 million per quarter.

In the first quarter, we had $3.4 million of income, down $8.3 million from the fourth quarter but only $1.6 million of our forecast. This decline represents 12 basis points of the margin decline. Looking forward, we continue to forecast to receive $5 million of ancillary income per quarter for the remainder of 2019. Although there is no absolute certainty to this income, we feel good about the second quarter coming in line with the forecast at this point.

Finally, we anticipated certain core deposits to exit the bank in the first quarter, due to normal year end cycles. In addition to those movements, the seasonal declines we typically see in the institutional deposit portfolio came in as expected. In the end, better than expected loan growth and management's desire to maintain our loan to deposit ratio in the mid-90s, led us to access wholesale funding to support the earning asset growth, which drove a higher than expected increase in the cost of funding for the quarter.

I want to sum this up and be very clear. We had an outstanding and unique first quarter from a loan growth perspective, deposit flows were as expected and recoveries did not give us the same lift as previous quarters. All leading to lower GAAP and cash margin numbers. We should not lose sight of the fact that the growth in loans was a real win for the quarter, and ultimately should enable us to drive higher revenues. As we move into the second quarter, we're responding to the interest rate environment to maximize our net interest spread. Specifically given the inversion of the interest rate curve and limited benefit of bond leverage, we intend to reduce the bond portfolio to reduce our wholesale funding. This shift should allow for a more favorable earning asset mix with a better yield.

Core deposits typically rebound in the second quarter as well, which will help to fund loan growth with better spreads. As I indicated last quarter, we do not have the capability to predict the economic cycle and when or which way rates will break until this is clearer, our NIM guidance is going to be conservative, but as we continue to have great client growth, I'm pretty sure, we'll be fine from a core revenue perspective.

On a positive note, our larger fee businesses provided a natural hedge in the lower flatter yield curve environment. This quarter, our swap business was up 124% on a linked quarter basis. Mortgage income increased $1.5 million or 14% on a linked quarter basis and 23%, as compared to the first quarter of 2018. Our mortgage business was profitable in the first quarter and we're seeing the current pipeline levels in the mortgage business that we have not seen since 2016. Our title business should be favorably impacted by the increase in mortgage activity as well.

Expense containment is still priority for our team. We had another good quarter as core non-interest expense decreased $5 million or 3% on a linked quarter basis. We have reduced FTEs by almost 10% over the last 12 months. These efforts have led to the lowest quarterly level of non-interest expense to average assets over the past 15 years. You will note in our adjusted guidance for 2019, we are lowering our expected range on expense for the full year. I'm glad to say, we are also close to getting under the 50% on the core tangible efficiency ratio.

As noted in our press release, credit metrics continue to remain strong and stable. Provision expense during the quarter rose slightly over the fourth quarter to provide adequate reserve coverage, given exception -- the exceptional loan growth. The bank sees no underlying changes in risk rating migration, portfolio classifications or changes in the credit book to indicate any change in the quality of the credit portfolio. Reserve coverage remained flat with the prior quarter. From a portfolio credit risk perspective, we continually evaluate our markets and are very comfortable with what we see.

From a capital perspective, during the first quarter, we repurchased approximately 388,000 common shares at a weighted average price of $77.19 per common share. We also announced another increase to the dividend this quarter, as we declared a cash dividend on common stock equal to $0.43 per common share payable on April 26, 2019. This equates to a 5% increase to the fourth quarter dividend. On April 4, 2019 we successfully issued and sold $100 million of gross proceeds in a preferred stock offering. Preferred offering carries a dividend of 6.1% paid semiannually for the first 5 years and then converts to a LIBOR base floating rate thereafter.

At this point, we anticipate proceeds from the offering will be used to buy outstanding common shares under our currently authorized share repurchase program. We have updated our guidance to reflect this. We estimate that we have approximately $135 million available for share repurchases in the second quarter. We believe the small re-stacking of our capital will provide a few incremental pennies of EPS and enhance our return on tangible common equity by approximately 50 basis points in 2020.

Assuming we're able to repurchase common shares at a reasonable price, the impact of this offering should be immaterial to 2019 earnings. We have revised our 2019 guidance to reflect the current rate environment and our expectation of no interest rate increases for the remainder of 2019. As I said earlier, there are many moving parts to the current economic environment and it's difficult to know where it all will end up. We adjusted the net interest margin range down 5 basis points reflecting the current expectations for the yield curve and recoveries coming in softer in the first quarter. We are optimistic, we will get more recoveries and better deposit funding but we want to reflect where we believe the market is today. We are lowering our non-interest expense guidance to a range at $675 million to $690 million for the full year.

We expect the second quarter to have somewhat higher non-interest expense reflecting a full quarter of merit increases for associates that were provided in early March as well as higher commissions from our seasonal businesses. However, we remain focused on cost containment and are fully committed to getting our core tangible efficiency ratio below 50%. As we know, every fiscal quarter seems to produce changing economic views. Our Company is committed to pivoting and adjusting as necessary to achieve the midpoint of our guidance which is currently in line with consensus estimates. I have received numerous inquiries on my thoughts about mergers and acquisitions as a result of the BB&T, SunTrust merger of equals announced earlier this year.

Certainly that transaction has spurred a lot of conversation and consideration among all of our peers including us. Whether or not this point is a catalyst for quality M&A activity remains to be seen. My current position is -- it remained focused on enhancing our earnings, our return metrics and delivering on our goals. But we are open to evaluating opportunities that enhance value for our shareholders. As always, our Company is committed to producing sustainable, profitable growth. I want to thank all of our associates for their incredibly hard work during the quarter and for their commitment to our Company, the communities in which we work and our shareholders.

At this time, let's open the line for questions. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question today comes from Catherine Mealor from KBW.

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Catherine Fitzhugh Summerson Mealor, Keefe, Bruyette, & Woods, Inc., Research Division - MD and SVP [2]

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First, I just want to dig back into the margin a little bit and Daryl, you gave a couple of comments on the ancillary income, I just wanted to circle back and make sure I had that right. So do you mind walking through what that kind of higher recoveries were or the ancillary income as you call it for maybe the last 2 quarters of '18. And then what it was this quarter, just so we can compare that to the $5 million quarter --- $5 million number that you quoted for the rest of the year.

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Daryl G. Byrd, IBERIABANK Corporation - President, CEO & Director [3]

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Yes. Catherine, we talked about being -- we were down about 12 basis points. So that's a recovery income that we've had historically and we've always talked about it as being kind of predictably unpredictable. And so the timing of that is going to vary this quarter. It was down pretty significantly and we had kind of modeled about you know last year, we did about $35 million -- we had about $35 million in recoveries. This year, I think our guidance was for about $20 million, which we did and we kind of forecasted that ratably across the year at about $5 million per quarter, I think we came in at about [34] so we're about $1 million or so under it. We expect to be back in line in the second quarter. So we feel pretty good about that. Anthony, any other thoughts?

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Anthony J. Restel, IBERIABANK Corporation - Vice Chairman & CFO [4]

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Yes, Catherine. Third quarter last year was $9.7 million, fourth quarter was $11.7 million. If you go back to the first and second quarters, you were significantly lower more towards the current expectations that we put out there.

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Catherine Fitzhugh Summerson Mealor, Keefe, Bruyette, & Woods, Inc., Research Division - MD and SVP [5]

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Okay. That's helpful. Thank you so much. And then on the swap income, obviously big number this quarter. Can you give the dollar amount that was this quarter and your expectations for swap income for the rest of the year.

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Daryl G. Byrd, IBERIABANK Corporation - President, CEO & Director [6]

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Catherine -- Michael, you wanted to give that.

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Michael J. Brown, IBERIABANK Corporation - Vice Chairman & COO [7]

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We had a really good first quarter on swap income. I don't have a number in front of me…

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Anthony J. Restel, IBERIABANK Corporation - Vice Chairman & CFO [8]

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$4.2 million. And Catherine, what's interesting is we're seeing and Michael can talk this. We're still seeing a lot of clients go floating. So we're about 70% floating from an origination perspective.

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Michael J. Brown, IBERIABANK Corporation - Vice Chairman & COO [9]

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We are -- but the good news from a swap perspective is we're still seeing a lot of interest in individuals looking to synthetically swap into fixed rates versus floating. The pipeline continues to be strong as we move into the second quarter, we're seeing good activity. The first quarter was extraordinarily strong. I would be very, very happy if we could come close to that every single quarter. But that's probably unlikely. I still think, it will be a good number, just won't be that level.

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Anthony J. Restel, IBERIABANK Corporation - Vice Chairman & CFO [10]

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Catherine, one other thing. The swap opportunity really is kind of fueled by this inverted curve that we see today. Right, so for a lot of our customers who are taken floating rate debt, rate it's cheaper for them to go ahead and fix that out lock-in rate so

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Daryl G. Byrd, IBERIABANK Corporation - President, CEO & Director [11]

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Yes, they're trying to managing their optionality, right.

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Anthony J. Restel, IBERIABANK Corporation - Vice Chairman & CFO [12]

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So I think as long as we continue to see curve be inverted. I still think that'll be an attractive option for customers. It should provide some decent level of activity, although it's hard to know these -- what the number is going to be. I think, you'll see -- a high level of activity as long as that condition continues.

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Catherine Fitzhugh Summerson Mealor, Keefe, Bruyette, & Woods, Inc., Research Division - MD and SVP [13]

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Got it and then maybe if the curve deepens and the margin will be better.

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Daryl G. Byrd, IBERIABANK Corporation - President, CEO & Director [14]

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Catherine, you feel, I mean, you can predict when the curve is going to steepen?

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Catherine Fitzhugh Summerson Mealor, Keefe, Bruyette, & Woods, Inc., Research Division - MD and SVP [15]

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No, I cannot. And then, if I could ask just one other question on expenses. Your expense guide is lower. But if -- as I look at that total number for the full year, it's still the pretty big increase kind of linked quarter and I would argue that at least in my model, the beat on expenses this quarter was effectively the same amount that you lowered the guidance for the full year. So are there any other expense savings that we could potentially get as we move through the rest of the year, that we could come in the low end of that range? Thanks.

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Daryl G. Byrd, IBERIABANK Corporation - President, CEO & Director [16]

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Catherine, we've done a great job on expenses, and it's a huge focus going forward for the Company. So if you look at the guide, you kind of taken the base first quarter and then thinking through kind of some commission income as our mortgage business is doing pretty well for us and then the typical kind of salary increases, Anthony, anything else you'd add?

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Anthony J. Restel, IBERIABANK Corporation - Vice Chairman & CFO [17]

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Catherine, I think if we just step back to the broader question, Daryl mentioned in his script [right] committed to getting below 50%. We certainly are very, very focused on expenses and we have been for the last couple of years. And so what I would tell you is, I think we're pushing really hard to see, we can do to get towards the bottom end of the range. But we've got the range out there, and I'll say that we're working really hard on expenses and that's not going to stop.

So I don't think there is a whole lot, obviously expenses will build a little bit as we move into the back half of the year. Right, we accrue payroll based on number of days in the quarter. So that's naturally going to move up, we're going to see commissions move up from swap activity, mortgage activity is going to increase. And so we'll see where it lands. But I think the broader point is, I think as a Company, we are hyper-focused on trying to push that number below 50%.

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Operator [18]

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Our next question comes from Brett Rabatin from Piper Jaffray.

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Brett D. Rabatin, Piper Jaffray Companies, Research Division - Senior Research Analyst [19]

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I wanted to ask, just going back to the margin and the yields on and I joined a few minutes late, so you may have addressed this. But just looking at the mortgage -- [revenue] mortgage portfolio yield that was down quite a bit linked quarter can you talk maybe about just all the things that went into this quarter versus last quarter in terms of that mortgage portfolio yield.

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Daryl G. Byrd, IBERIABANK Corporation - President, CEO & Director [20]

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Anthony?

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Anthony J. Restel, IBERIABANK Corporation - Vice Chairman & CFO [21]

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Brett. I'm not, off the top of my head, I'm not aware of any big anomalies within the mortgage portfolio. Could be just timing relative to number of days in the quarter over this quarter versus last quarter, but I'm not aware that we've seen significant [coupon].

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Daryl G. Byrd, IBERIABANK Corporation - President, CEO & Director [22]

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None of us remember, anything like that.

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Anthony J. Restel, IBERIABANK Corporation - Vice Chairman & CFO [23]

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Yes. So we're not, I guess, nothing stood out. So maybe I'll look around as we're talking and see if anything jumps out during the remainder of this call, but I am -- nothing jumps out at me as being something that we bought was -- was different during the quarter.

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Brett D. Rabatin, Piper Jaffray Companies, Research Division - Senior Research Analyst [24]

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Okay. And then, just sticking with asset yields, that investment securities, the securities book, the yield was up nicely there. Can you talk maybe about what you bought in the quarter and then if there's any potential for upward migration still in the securities portfolio, what you're buying, what kind of yields, you're getting?

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Anthony J. Restel, IBERIABANK Corporation - Vice Chairman & CFO [25]

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Yes, so just as a reminder, we did a bond restructuring of the portfolio late in the, I will call it mid to late fourth quarter, where we sold $1 billion of bonds and we repurchased $1 billion of bonds and we talked about.

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Daryl G. Byrd, IBERIABANK Corporation - President, CEO & Director [26]

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Picking up about a…

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Anthony J. Restel, IBERIABANK Corporation - Vice Chairman & CFO [27]

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Picking up that income. And so that's what you see in the yield which pushed the yield up nicely during the quarter. As Daryl said, we look at the bond -- and by the way the bonds we bought were just the normal types of bonds that we would buy, kind of average life, 4 years or so, traditional agency type product. As Daryl mentioned, we kind of look at current yields in the bond portfolio that we can buy today around [3, 310] against the FHLB or wholesale funding cost of around [250].

So you've got that 60 basis point kind of spread there. We don't see a lot of value to that -- to that leverage as we kind of move through time, given some of the strength that we've got on the loan side. So we're going to look both the bond portfolio shrink a little bit and that should -- and obviously as we do that. I think the overall earning asset mix will get a little bit better just from having I guess better spreads from the loan sides coming through.

So I wouldn't expect to see much more expansion on the, I mean the margin within the bond portfolio may move up a couple of basis points just as some lower coupon stuff cash flows out, but I'm not looking to try to do anything meaningful in the bond portfolio.

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Brett D. Rabatin, Piper Jaffray Companies, Research Division - Senior Research Analyst [28]

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Okay. And then maybe just one last one, you mentioned SunTrust BB&T. And I'm just curious, it seems like there is considerable market share in Florida that could really help you guys in terms of growth. Any thoughts on Florida? And are you guys looking to do some hiring as a result of any of the M&A that's happened?

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Daryl G. Byrd, IBERIABANK Corporation - President, CEO & Director [29]

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We're looking at it and we certainly see an -- it's not just Florida, Atlanta as well because we got a good team in Atlanta. I think they're pretty excited about their opportunities there and then we have overlap from Orlando down to South Florida. So we do expect to see some opportunities with that and I think, that'll be a positive for us.

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Operator [30]

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Our next question comes from Ebrahim Poonawala from Bank of America Merrill Lynch.

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Ebrahim Huseini Poonawala, BofA Merrill Lynch, Research Division - Director [31]

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One, I just wanted to follow-up in terms of the core -- I guess the adjusted margin, Anthony, which was at 342. I get the recovery impact which should impact the GAAP margin. When we look at the adjusted NIM, I guess the 342. Can you just talk through in terms of directionally and quantify how you expect this to progress in the current yield curve backdrop?

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Anthony J. Restel, IBERIABANK Corporation - Vice Chairman & CFO [32]

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Yes, look, I think, we probably expect, Ebrahim, we'll see some slight movement upward on the cost of funding. I think, we're going to. I guess as we mentioned, we are going to let some of the bonds run off, we're going to try to enhance the mix from the earning asset side. We do expect to get some more recoveries as we move into the second quarter and expect that, we may see some of those levels kind of sustain through the end of the year. And then certainly, historically, we've seen a kind of a rebound in core deposits as we move beyond tax time within the portfolio.

So my expectation when I blend all of that together is I'm hoping for the margin both top line and kind of at the cash margin to be relatively stable as we kind of move through the year, although I will tell you the interest rates and the mix can move things around a little bit. So I'm looking for stability, but I'll be the first one to tell you there's a lot of moving parts here.

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Daryl G. Byrd, IBERIABANK Corporation - President, CEO & Director [33]

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And Ebrahim, and this quarter is no different than our typical first quarter. We typically see deposit outflows in the first quarter and we typically see them come back in the second quarter.. So we would expect that to be kind of the natural sort of seasonality.

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Ebrahim Huseini Poonawala, BofA Merrill Lynch, Research Division - Director [34]

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Understood. And just moving to loan growth, Daryl, so I mean, it was strong in the first quarter, you talked about it. Any reason, we don't think that on a full-year basis, loan growth could be better than your guidance. Is deposit growth the constrain like just the thought process around not leaving that guidance versus just being conservative at this point?

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Daryl G. Byrd, IBERIABANK Corporation - President, CEO & Director [35]

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Ebrahim, what I would tell you. And I think you realize what we try to be pretty conservative as we put -- put our numbers out there. We had a good first quarter, actual -- pleasantly surprising first quarter, because first quarter is typically soft from a loan growth perspective as well. But we were very pleasantly surprised, I think a little bit of what's going on and we kind of talked about this in our last quarterly call. You've had a lot of prepayments -- over the last year and as we kind of expected that has begun to subside and ebb a little bit. And so we're getting better fundings, better originations, we've got a good strong pipeline and we've also, we're off to a really good start in the second quarter. So we feel pretty good about it out, I don't want to put a number out there.

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Ebrahim Huseini Poonawala, BofA Merrill Lynch, Research Division - Director [36]

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Understood. And just one last follow-up to your comments around expenses, so you guys have done a great job bringing down expenses, improving the efficiency. Are we running out of juice in terms of, if the environment remains where it is just on an organic basis. Is there a lot more to do on the expense front relative to what you have already accomplished?

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Daryl G. Byrd, IBERIABANK Corporation - President, CEO & Director [37]

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Ebrahim, again I think Anthony talked it. We want to get below that 50% tangible efficiency ratio. So we're focused -- intensely focused on expenses and by the way there's the other side of it, which is the revenue side. So we're focused on that as well, but we're going to stay focused on it, we're going to stay disciplined and we'll see how we do with that.

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Operator [38]

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Our next question comes from Casey Haire from Jefferies.

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Casey Haire, Jefferies LLC, Research Division - VP and Equity Analyst [39]

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Just wanted couple of follow ups on the NIM. So it sounds like there's some positive mix shift trends going forward after them going against you this quarter. Just curious, what -- you mentioned securities drawdown, what your earning asset guide, what does that presume in terms of securities portfolio as a percentage of earning assets for 2019, from this what appears to be I guess 18%, 19% level today.

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Daryl G. Byrd, IBERIABANK Corporation - President, CEO & Director [40]

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Yes. So again, what you should expect to see is the portfolio slowly kind of dwindle down as we move through the year. My guess is we could end the year probably something closer to 16%, if we kind of -- depends on how loan growth goes right. So we will kind of manage it to kind of keep those as close as we can and lock step.

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Casey Haire, Jefferies LLC, Research Division - VP and Equity Analyst [41]

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Okay. And on the funding side, the brokered CDs, obviously a big part of the growth this quarter, what -- I know it's difficult, but how much of that 5% to 7% deposit growth is expected to be from these higher cost brokered CDs?

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Anthony J. Restel, IBERIABANK Corporation - Vice Chairman & CFO [42]

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So look, I think it's a great question and look we sat around here all day yesterday talking about this as well. I think, it's fair to say that there's probably going to be some level of wholesale funding that we used during the year. It's -- we don't really have an exact number. And so that's what's kind of create some of the variability and where the margin might land. But certainly, our expectation is we will see some rebuild in core lower cost deposits relative to brokered fund. The other thing that's nice about the brokered funds that we've got on the book is most of that stuff is coming in at cheaper rates as the curves inverted. So as we have to -- if we had to renew on some of that, it's going to be cheaper for us to do.

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Daryl G. Byrd, IBERIABANK Corporation - President, CEO & Director [43]

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And Casey, I have been pretty consistent in talking about kind of the lumpy deposit flows that we see given kind of the commercial nature of our franchise and we saw it last year. And so you can -- I kind of try to remind people don't -- don't take the deposit betas as static. Although as you get to the end of the cycle, you do expect them to go up. But we get some pretty lumpy flows and we in particular, get some pretty lumpy non-interest flow. So you have to be careful with that and see how that kind of shakes out for the year.

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Casey Haire, Jefferies LLC, Research Division - VP and Equity Analyst [44]

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Understood, yes, definitely. And then on the loan side, I calculate sort of core loan yields around that [490] level. What is the new money yield on loan production today?

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Anthony J. Restel, IBERIABANK Corporation - Vice Chairman & CFO [45]

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So in the first quarter, the yield was around 5%, little bit on -- right around 5% during the first quarter for the average coupon of what was originated.

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Casey Haire, Jefferies LLC, Research Division - VP and Equity Analyst [46]

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Okay. So it's slightly accretive to the existing book?

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Anthony J. Restel, IBERIABANK Corporation - Vice Chairman & CFO [47]

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Yes, yes.

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Casey Haire, Jefferies LLC, Research Division - VP and Equity Analyst [48]

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Okay all right. And just last one from me, I hate to beat the dead horse on expenses and you guys did a great job in the first quarter. But per your guide from this [161] level, I'm calculating, it's going to run up -- it's going to average [171] for the balance of the year. It just seems in concert with your -- you are going to be very -- mindful of expenses. It seems very conservative, and so I'm just wondering, what is it a conservative guide?

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Anthony J. Restel, IBERIABANK Corporation - Vice Chairman & CFO [49]

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So Casey. Couple of things, right. Remember that the first quarter, it's got some unique elements to it that artificially keep the expense level low right. So as I mentioned, salaries and benefits for the Company are basically accrued on a number of business days and so if you think about, we pick up days as we move from the -- in -- from the first to the second and then second to the third and the fourth have more business days as we go along. We put in global raises for the Company, those went into effect in March. We do that at one time, certainly that'll push forward some of the expense. We are seeing some opportunities to recruit on the front office side of the house, which I think, we hope to see some of that materialize and you have some natural creep.

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Daryl G. Byrd, IBERIABANK Corporation - President, CEO & Director [50]

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And then our resi business is doing pretty well.

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Anthony J. Restel, IBERIABANK Corporation - Vice Chairman & CFO [51]

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Yes, and then we're going to have just the non-core -- then fee businesses, we're expecting to be a little bit stronger and so, we'll see a little bit of ramp in those beyond what we saw last year. All things being equal, when you bring it down, we feel good about the guidance. I'm not at a point where I'm saying that we can be at the low end of the guidance, but I'm sure, certainly I can say that we are working very hard to try to get to the low end of the guidance.

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Operator [52]

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Our next question comes from Stephen Scouten from Sandler O'Neill.

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Stephen Kendall Scouten, Sandler O'Neill + Partners, L.P., Research Division - MD, Equity Research [53]

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So I guess on the mortgage side, mortgage obviously has been a little bit of a drag the last couple of years, but it sounds like it could be a pretty nice tailwind here this year. Can you talk to us about what you're seeing there, if you're still hiring new producers or it's really just the manifestation of those producers and the slightly lower interest rate environment.

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Daryl G. Byrd, IBERIABANK Corporation - President, CEO & Director [54]

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Stephen, we've got probably the best pipeline, we've had since 2016. And frankly that's one that created a lot -- particularly in 2017. And we kind of committed that we would get the business fixed and do a lot of work with it and very proud of our residential mortgage team for what they've accomplished. Yes, we have been hiring people and adding originators and frankly feel like we've got a good team and with a little help in rates, it's working pretty well for us. We're making money in residential mortgage and, that's very unusual for the first quarter. So we're pretty happy with the team. Fernando, anything you want to add?

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Fernando Perez-Hickman, IBERIABANK Corporation - Vice Chairman & Director of Corporate Strategy [55]

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Just last year, we increased around 20% the number of originators that we have. And that 20% that we increased last year is going to help increase production in 2019. Besides that we have good gain on sale of spread that we believe it has been a combination of the market, but also a combination of the work -- the work that we've been doing to be more proactive setting and -- adding additional investors to our pipeline, so that we can have better spread negotiation with them.

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Daryl G. Byrd, IBERIABANK Corporation - President, CEO & Director [56]

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And Fernando, you've done a lot of work on the back end side of the mortgage business as well. Right?

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Fernando Perez-Hickman, IBERIABANK Corporation - Vice Chairman & Director of Corporate Strategy [57]

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Yes.

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Stephen Kendall Scouten, Sandler O'Neill + Partners, L.P., Research Division - MD, Equity Research [58]

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Okay, great. And just want to follow back up one last time on the NIM. I know you've got many questions on it, but the stock seems to be trading off of that number more than the strength of the quarter as a whole. So based on what I hear you guys saying and in your comments Daryl in the release, it sounds like there could be some upside to the GAAP NIM on more normalized recoveries to that $5 million sort of range. And then the core NIM could stay relatively flat. So based on that guidance that I've heard, it seems like the NIM could be the higher end of your range, you're given, is that a fair assessment of what's been said?

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Daryl G. Byrd, IBERIABANK Corporation - President, CEO & Director [59]

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Stephen, what we've said is we do -- we're kind of sticking with our guide on recoveries for the balance of the year at about $5 million a quarter, and we feel good about that. Anthony, any other thoughts to add?

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Anthony J. Restel, IBERIABANK Corporation - Vice Chairman & CFO [60]

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Yes, like, I don't know what more we can talk about that. We haven't said. Right. So we see level of recoveries. We expect those to kind of return. We're going to do some optimization on the earning asset side to try to improve the overall earning asset yield. At the same time, we expect to see some level of core deposits come back in, it's obviously a big focus for us. And so I think the guide as we've outlined it is the guide. I would tell you, I'd look towards the midpoint right now, is the kind of the base level that you should look to. We talked about the cash NIM expected to be relatively stable and so, I don't really have a whole lot more than that -- than I can give you.

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Stephen Kendall Scouten, Sandler O'Neill + Partners, L.P., Research Division - MD, Equity Research [61]

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Sure, no, that's helpful. And then just last thing for me on the buyback, I know you said $135 million, was that $135 million, were you referencing what could be done in 2Q or just overall capacity, based on cash on hand currently?

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Daryl G. Byrd, IBERIABANK Corporation - President, CEO & Director [62]

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Very clear, Stephen, that is 2Q, second quarter.

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Operator [63]

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Our next question comes from Jennifer Demba from SunTrust.

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Jennifer Haskew Demba, SunTrust Robinson Humphrey, Inc., Research Division - MD [64]

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I won't ask you about NIM, how about that?

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Daryl G. Byrd, IBERIABANK Corporation - President, CEO & Director [65]

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Thank you.

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Jennifer Haskew Demba, SunTrust Robinson Humphrey, Inc., Research Division - MD [66]

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You're welcome. I want to go back to Daryl your opening comments, you mentioned the larger transactions that were announced in the industry in the first quarter. I'm just wondering, if you could give us a little bit more detail on what your thoughts are about the implications of transactions like that for the M&A environment over the next couple of years and what that could mean for IBKC?

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Daryl G. Byrd, IBERIABANK Corporation - President, CEO & Director [67]

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Jenny, everybody is kind of talking to everybody right now, and I know you will know that. And that includes us, which I said in my comments. Here's a thing, if all of a sudden MOEs are the kind of the wild thing that everybody likes. But as I kind of remember, my history of being in this business. They're not all that easy to accomplish and integrate and be successful with. And you got to be really thoughtful about that and it's all about the cultures and it's not -- the people at the top of the house while that matters from a leadership perspective, it's what kind of companies are you putting together and do they match up well from a cultural perspective and you get the right kind of strategic outcomes.

And I think, you have to be really careful with that. As you look at our franchise, we are pretty diverse geographically. So we map with a lot of people and there is a fair amount of talk going on and as I said in my comments, we'll just see where that -- how that kind of plays out and what makes any sense.

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Operator [68]

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Our next question comes from Matt Olney from Stephens.

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Matthew Covington Olney, Stephens Inc., Research Division - MD [69]

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My questions were just addressed. Thank you.

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Daryl G. Byrd, IBERIABANK Corporation - President, CEO & Director [70]

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Thank you.

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Operator [71]

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(Operator Instructions) Our next question comes from Christopher Marinac from FIG Partners.

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Christopher William Marinac, FIG Partners, LLC, Research Division - Director of Research & Partner [72]

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I wanted to go back to the FTEs that fell in the last year. I think it's, 340 or so in the press release. How many of those were originally producers on the commercial side, or if you want to differentiate between mortgage. Just curious on kind of how much are back office folks leaving versus anything on the production side?

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Daryl G. Byrd, IBERIABANK Corporation - President, CEO & Director [73]

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Well, I can give some – yes, go ahead, Michael.

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Michael J. Brown, IBERIABANK Corporation - Vice Chairman & COO [74]

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Yes, I mean if you look year-over-year. We're pretty much at the same level of producers as a Company in terms of traditional commercial private client. What I would define as just bankers that number hasn't changed at all pretty much year-over-year.

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Anthony J. Restel, IBERIABANK Corporation - Vice Chairman & CFO [75]

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Chris, I think following on Michael's comment, it's mostly back office spots.

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Christopher William Marinac, FIG Partners, LLC, Research Division - Director of Research & Partner [76]

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Okay. So with the opportunities that might come your way both from customers and possibly other employees from these bank mergers large and small. Would we expect to see that number slightly go back up. I'm just curious if that's something we should watch for?

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Anthony J. Restel, IBERIABANK Corporation - Vice Chairman & CFO [77]

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I think, Daryl, I know Daryl mentioned earlier in terms of recruiting opportunities. Right now, we're seeing some very significant opportunities to recruit talent. A lot of people are interested in our Company right now. So I would expect to see that number go up. All that said, at the same time, we've got a much better handle relative to the value of our producers create and we work through the ones that are being productive and the ones that are not, so that's a number we manage as well. We try to get as much out of that investment as we possibly can.

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Christopher William Marinac, FIG Partners, LLC, Research Division - Director of Research & Partner [78]

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Okay, great. That's helpful. And then just final question, just on a ratio. The CET 1 ratio for the Company at 10.7%, can you push that down to 10% or less. Just curious kind of, I imagine directionally, it could go lower, but how low can you go and what is a sort of that minimum buffers that you're going to run with.

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Daryl G. Byrd, IBERIABANK Corporation - President, CEO & Director [79]

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All right, the answer is yes, but Anthony.

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Anthony J. Restel, IBERIABANK Corporation - Vice Chairman & CFO [80]

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Yes. So Chris, on the CET 1 certainly, you should expect to see that number go down. Right. We're going to be buying some shares back as we telegraphed here in the second quarter, which we will start to make that movement. I'm comfortable seeing the number move towards 10%. I will tell you though, given our business model and the commercial nature of it. Right. The binding constraints for us on capital from a ratio perspective, always just kind of led us back to total risk-based capital that we've talked about [12.25%] number we'd like there. TCE, 8.5% is a decent number for us, but no issue with 10-ish kind of number on the CET 1.

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Operator [81]

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And ladies and gentlemen, at this time, I'm showing no additional questions. We will end today's question-and-answer session. I would like to turn the conference call back over to Daryl Byrd for any closing remarks.

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Daryl G. Byrd, IBERIABANK Corporation - President, CEO & Director [82]

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Jamie, thank you. I want to thank everybody for joining us today. I hope everybody has a really great day and a really great weekend. Thank you.

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Operator [83]

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And ladies and gentlemen, that does conclude today's conference call. We do thank you for attending. You may now disconnect your lines.