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IBERIABANK Corp (IBKC) Q2 2019 Earnings Call Transcript

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IBERIABANK Corp (NASDAQ: IBKC)
Q2 2019 Earnings Call
Jul 19, 2019, 9:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning and welcome to the IBERIABANK Corporation Second Quarter Earnings Conference Call.

[Operator Instructions]

After today's 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 and Director of Capital Markets, Energy Lending and Investor Relations. Please go ahead, sir.

Jefferson Glenny Parker -- Vice Chairman and Director of Capital Markets, Energy Lending & IR

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&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; and Nick Young, our Chief Credit Officer, are all available for the Q&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.iberiabank.com 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. Daryl?

Daryl G. Byrd -- President and Chief Executive Officer

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 and $1.87 respectively, an improvement on a linked quarter basis of 6% and 9%. Also want to note that our core EPS of $1.87 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 and non-interest 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 a 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 delevered approximately $424 million of securities in 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 is still some room to continue to efficiently delever 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 improved the cost structure of that business over the last couple of years. I expect the performance of the mortgage business to remain 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 continue 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 5 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 in total value. We have subsequently purchased an additional 117,000 shares early in the third quarter to complete the share repurchase plan announced in November 2018.

On July 17 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 is expected to be completed over the next year. For the first six months, we've 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 $0.02 per share to our common dividend as we declared a quarterly cash dividend on common stock equal to $0.45 per common share payable on October 25, 2019. This equates to a 5% increase over the prior quarterly dividend and total declared common dividends for 2019 will represent a 13% increase over last year.

To appropriately reflect the projected rate environment, we have revised our full year 2019 financial guidance to account for updated expectations of two 25 basis point cut 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 non-interest 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 interest expense range to between $667 million 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 achieved 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 has peaked leading to an ability to improve pricing and deposit mix in the near term. We are also seeing strength in recruiting, which should aid loan growth and fee income in the second half of the year. As always, we continue to work toward 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 close the first half of 2019, I can say that I'm very pleased with our Company's progress.

I believe we are in incredible markets providing best-in-class products to our exceptional clients. Our 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 will open the lines for questions. Rocco?

Questions and Answers:

Operator

Thank you, we will now begin the question and answer session. [Operator Instructions]

Today's first question comes from Ebrahim Poonawala of Bank of America. Please go ahead.

Ebrahim Poonawala -- Bank of America Merrill Lynch -- Analyst

Good morning, guys.

Anthony J. Restel -- Vice Chairman & CFO

Good morning, Ebrahim.

Ebrahim Poonawala -- Bank of America Merrill Lynch -- Analyst

So I was just wondering if Daryl or Anthony, I think just a little bit more color around the margin so it makes sense in terms of their 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 to the yield curve, what should we be paying attention to as the rate environment evolves and as we sort of think about your margin, not just for the back half of the year but from our feet going into 2020, that would be extremely helpful.

Daryl G. Byrd -- President and Chief Executive Officer

Ebrahim, I'll start and then turn it back, 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, it's amazing to me the volatility in the economic environment. Where go from two rate increases to two rate decreases and we're seeing, you know, 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?

Anthony J. Restel -- Vice Chairman & CFO

Yeah, I think Ebrahim, I think we've talked a lot about our balance sheet positioning as we kind of move through the year. So, certainly as we've kind of moved really from, I'll call it through May, we've seen a couple of things happen, right? We've seen LIBOR come in quite substantially. And so, even today, you know, LIBOR 230 is in a good 20 basis points below kind of where that where that funds sits today, kind of reflecting the expectation that we do get that full cut today.

So, I don't know there is a whole lot that should be surprising relative 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 Daryl's point, every 60 days to 90 days we seem to be getting a different look in. 180 days is a long way away.

Obviously, as a Company we continue to pivot and adjust as best we can, given the the never-ending environmental changes that we're looking at. Certainly, we've 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 business is 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 Daryl mentioned in his comments.

We know the deposit rates are rolling over, particularly on the brokerage side, those will move with the curve, wholesale funding will move with the curve. Ultimately, retail and customer deposits will follow. It's going to be a little bit of a slower pace, but they'll 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 Fed got us projected, right? We should see a positive sloping curve next year, which creates, which will create options for us that don't exist today.

Our technology investments over the last two years or three years continue to drive efficiency, meaning we can do more without adding, I think it's 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 rate perspective, we certainly have started to position and change things internally to get prepared for a different rate environment, we will mitigate where we can, eventually the biggest variable for us is going to be deposits and another core funding and that will come lower [Indecipherable] lower.

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.

Ebrahim Poonawala -- Bank of America Merrill Lynch -- Analyst

And then just, Daryl, I think you mentioned, be careful what do you expect. Is that implying that you are seeing a fair amount of strength from a customer standpoint and in the local economies across your markets? Is that kind of the read into it?

Daryl G. Byrd -- President and Chief Executive Officer

Yes. Ebrahim, I think we feel very good about our clients, Anthony mentioned it, Michael can mention it, but we've had some pretty unique recruiting opportunities recently and we see that evolving into excellent client growth. And so, we'd be very positive about the future.

Ebrahim Poonawala -- Bank of America Merrill Lynch -- Analyst

Got it. And just second question. There's been a fair amount of discussion with investors around 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've been out of M&A for the last year. So, would be helpful to just kind of remind us around what the key priorities are? What you're looking to achieve, if at all you engage in some kind of transaction activity?

Daryl G. Byrd -- President and Chief Executive Officer

Ebrahim, everybody has been talking after the more recent M&A transactions and that includes us. 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 not all the talk is a catalyst for M&A activity, it kind of remains to be seen. And MOEs are not easy. The social issues are difficult and the cultural issues are difficult.

I guess, to the point you're asking about, I'd say with conviction, we have no interest in high premium deals. We will be disciplined. We see no reason to overpay for a transaction. By the way, I had the same view about overpaying for EBIT 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, my current position is that we remain focused on enhancing our earnings return metrics and delivering sustainable profitable growth.

Ebrahim Poonawala -- Bank of America Merrill Lynch -- Analyst

Okay, that's helpful, thanks for taking my questions.

Daryl G. Byrd -- President and Chief Executive Officer

Thank you.

Operator

And our next question comes from Jennifer Demba of SunTrust. Please go ahead.

Jennifer Demba -- SunTrust -- Analyst

Okay, Ebrahim taking my question.

Daryl G. Byrd -- President and Chief Executive Officer

Sorry, Jennifer.

Jennifer Demba -- SunTrust -- Analyst

That's alright. So, question on credit. You guys commented your metrics remain great, you said everything looks very good to you in 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 and you did mention that energy was one of your growth area this quarter.

Daryl G. Byrd -- President and Chief Executive Officer

Yeah, Jenny, I'll kind of start and let Nick and Terry -- kind of talk this one. We've made, I'd like to think we've always been pretty good at credit, have been pretty consistent. We've made, I think, excellent progress from a classified asset perspective, we are down about 24% year-over-year.

Energy has done well for us. I think we've been pretty thoughtful, our book is very E&P and midstream oriented. So, we've been thoughtful about what we put together and over the last couple of years, energy has done really well for us from a credit perspective, Nick? Terry? Thoughts?

Nick Young -- Chief Credit Officer

Yes, thank you. [Indecipherable] portfolio continues to perform well, as you said. So, we have been very careful in lending and focused on E&P and midstream. Our portfolio now is for oilfield services only 7% in total, down from 35% several years ago.

Our NPLs are only 1.9% of total energy portfolio. And we have no energy net charge off last year, or actually since '17. So we feel very good and very strong about the energy portfolio in general.

Daryl G. Byrd -- President and Chief Executive Officer

So, that portfolio has performed really well for us. Terry anything you'd add?

Terry Akins -- Chief Risk Officer

Yes, just a couple of things. Jennifer, I would just say that, we have clients where we have very good diversification and access to multiple sources of the 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 and Daryl said, we feel very good about our energy portfolio today.

Jennifer Demba -- SunTrust -- Analyst

Okay. Just one more question for Anthony. Professional fees were up, just wondering how that number looks going forward?

Anthony J. Restel -- Vice Chairman & CFO

Yeah. Jennifer, I think that number will be fairly consistent moving through the remainder of the year. There is 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, you've got, anyway I would assume that number is largely flat as we kind of move through the end of the year, will bounce around a little bit, but it shouldn't move that much.

Jennifer Demba -- SunTrust -- Analyst

Thank you very much.

Operator

And our next question comes from Catherine Mealor of KBW. Please go ahead.

Catherine Mealor -- KBW -- Analyst

Thanks, good morning.

Daryl G. Byrd -- President and Chief Executive Officer

Good morning Catherine.

Catherine Mealor -- KBW -- Analyst

Just a follow-up on the margin, I guess maybe the first question is, how should we think Anthony, about you mentioned it's $0.05 a quarter for the impact of one rate cut and as we think about that more for 2019 and before you can really aggressively lower deposit costs if you move into 2020 or is that $0.05 really full rate cut plus and offsetting benefits on the deposit side?

Anthony J. Restel -- Vice Chairman & CFO

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. Things are going to evolve, Catherine, and we're going to have options and be able to pivot into 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 so I just want to put it out there. But again I would look at that more of a near-term -- kind of number and not a, not necessarily a long-term kind of thing.

Catherine Mealor -- KBW -- Analyst

Okay, that's helpful. And then as we think about your new NIM guidance, 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. Can you talk about the range of that guidance and what scenario we would see that full-year [Indecipherable]?

Anthony J. Restel -- Vice Chairman & CFO

What I would do is I'd prefer, maybe, push a little bit toward focusing on the midpoint of the guide as opposed to the lower end of the guide. The difference between the two has to do with consumer, or deposit related assumptions, recovery income whether that kind of drives up on us at the end of the year and some other things. What I will tell you is, I think we feel pretty good. We've got some good visibility into some nice recoveries for the second quarter -- I mean, it's the third quarter already. And so at this point again I would push you more toward the middle as opposed to focusing on the bottom end.

Catherine Mealor -- KBW -- Analyst

Great. Okay. And the recovery, do you still feel that $5 million a quarter range is a good level to model?

Anthony J. Restel -- Vice Chairman & CFO

Yeah, I mean, look we, as we talked about last quarter, it was $5 million per quarter and we were -- if you look at it we are at a 10.6 for 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 tell you that I know that we've got some recoveries already in 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 third quarter and so we'll just have to see how it all plays out.

Catherine Mealor -- KBW -- Analyst

Okay, great, thanks for the color.

Anthony J. Restel -- Vice Chairman & CFO

Thank you.

Operator

And our next question comes from Michael Rose of Raymond James. Please go ahead.

Michael Rose -- Raymond James & Associates, Inc. -- Analyst

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 [Indecipherable] much strong mortgage pipelines and obviously there is some title income that goes along with that. So I guess why wouldn't you be with that backdrop, and assuming rates continue to stay low on the mortgage side, why wont you comment toward the upper end of that guidance range? And I guess maybe what are the other factors that we should be thinking about there? Thanks.

Daryl G. Byrd -- President and Chief Executive Officer

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 a good year, back making pretty decent money and I think we've got a shot at coming in at the high-end. Fernando, any comments on mortgage?

Fernando Perez-Hickman -- Vice Chairman & Director of Corporate Strategy

Well, as you said, we've had a very strong first half of the year and we expect the rest of the year to continue in that trend. We've continued to hire loan officers and continue to improve our back office and reduce the fix [Phonetic] 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.

Anthony J. Restel -- Vice Chairman & CFO

[Indecipherable] certainly to Daryl's point right, I think the opportunity to be at the top end of the range is very good. I think one of the wildcard is that it's a little bit 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 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. But I think that's 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%. We're probably up toward the upper end of the range.

Michael Rose -- Raymond James & Associates, Inc. -- Analyst

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're reinvesting some of that capital. It sounds like obviously hires [Phonetic] on the mortgage front, but other efforts, if you could just outline it would be appreciated.

Anthony J. Restel -- Vice Chairman & CFO

So look, we don't have a announced expense initiative. But certainly, I think from an internal focus there is a lot of effort in terms of making sure that we're looking for opportunities to manage the expenses lower and the worst case, trying to just contain them at current levels. The greatest pressure we see is really salaries and expense just from a competitive standpoint. And so I think you just got to just I'll call it hyper focus on it within the company, which has really worked out well. But against that focus, we continue to invest, we've got 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've put in place to help us better, take a look at pricing as we're making loans, we've deployed several instances of robotic process automation within the bank, 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.

Daryl G. Byrd -- President and Chief Executive Officer

Yeah, 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 a company as we possibly can be. Michael?

Michael Brown -- Chief Operating Officer

Yeah, I was going to add, I think what you were looking for more focused on was what we're doing to invest in revenue opportunities at the same time we're managing our expense structure. And I think what's important is we are continuing to recruit and hire as we sort of recraft 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 most is when we've talked about in terms of impacting growth a great deal, certainly in last six to nine months which is our corporate asset finance group, it's our equipment lease and financing group and as we've sort of driven that business into our markets, we found a significant number of opportunities with our client base and prospects who were very active with equipment purchases, that's diversifying our portfolio more into the C&I space, which gives us opportunities for non-interest income tied to treasury management, picking up some free [Phonetic] 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 at market level. We're seeing some great opportunities relative to relationship managers who are leaving, 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. Obviously, at the same time, we are continuing to answer assess talent and try to understand where the best investment or return in our investment is coming from and continue to focus on that.

Michael Rose -- Raymond James & Associates, Inc. -- Analyst

That's all very great color. Thank you guys for the help. Appreciate it.

Operator

And our next question comes from Casey Haire of Jefferies. Please go ahead.

Casey Haire -- Jefferies -- Analyst

Thanks, good morning everyone. I wanted to touch on the loan growth guide. You guys were 5% to 7% this year, you guys are I mean halfway point of your 4%. So I'm pretty upbeat about what you're seeing in your footprint and borrow activity. I'm just wondering, I mean is that just a conservative guide or should we expect a more moderate pace of loan growth in the back half of year?

Daryl G. Byrd -- President and Chief Executive Officer

I think Casey, I think we'd be very positive about loan growth. We've got -- Michael has got a great pipeline. Michael your want to talk?

Michael Brown -- Chief Operating Officer

Yeah. The thing I'm most excited about is the diversity tied to our pipeline, that's coming from a lot of different areas. We've consciously increased our focus, as I've noted in the last commentary about C&I. So it's a very significant contributor too as I expect that to continue. Our clients are continuing to invest. There is 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 our 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 non-interest 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 are pretty bullish about loan growth at this particular point.

Anthony J. Restel -- Vice Chairman & CFO

Yeah. 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 customer behavior and appetite for loans. I can tell you that absent the rate cuts, I feel very confident we would below the original guidance we laid out for the year, loan growth would be phenomenal and things would be I think really rosy. And so again, you have to think about all that guidance against the backdrop and unfortunately the backdrop from a market perspective, it's always a little bit of a disconnect and you see it between the equity and the debt markets today but the backdrop [Indecipherable] maybe things a little bit more cautious which is why you see the guidance kind of remaining the same. We just didn't think it was appropriate to move it up despite the fact if you annualize year-to-date, you'd be kind of closer to 8 and you'd be above the range.

Casey Haire -- Jefferies -- Analyst

Yeah. 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 that's going to be -- you're going to continue to use that as a funding mechanism for loan growth. Just trying to get a sense for how aggressive you're going to be with this strategy, we're at 17% of earning assets. How much lower can we go from here?

Daryl G. Byrd -- President and Chief Executive Officer

No, go ahead. Anthony.

Anthony J. Restel -- Vice Chairman & CFO

Casey, what I'll tell you is, 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, but we've got 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 will kind of maybe reevaluate and we'll give you some color, maybe better call next quarter as we kind of think out a little bit more --

Daryl G. Byrd -- President and Chief Executive Officer

And Anthony, how about a quick comment on spreads on bonds?

Anthony J. Restel -- Vice Chairman & CFO

You know, look, the bond portfolio, Casey, when you look at it, bond yields, I'll call it the typical bond we buy today might yield us 240 if we were to go buy that bond today. I'd be largely -- tap in some type of wholesale funding to cover the liability side of that at something like 240. And so 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 2 basis points, which I think is phenomenal. And some of that is, we're trying to do as much of these kind of things as we can to stabilize the margin.

Michael Brown -- Chief Operating Officer

One thing would add in terms of the loan side is, we're continuing to see yields from an origination perspective stay pretty much consistent -- 2Q over 1Q spreads. I'm sorry. Yeah.

Casey Haire -- Jefferies -- Analyst

Yeah, makes sense. And then just switching to the buyback, I'm just curious how you guys came up with the $1.6 million, just some of the loan growth feels a little conservative. You guys are at 9% TCE and then as I roll forward to my model, you built very nicely on TCE into the upper 9s next year and with a modest sort of payout ratio.

So I'm just trying to -- a little color on as to how you arrived at 1.6 million shares.

Daryl G. Byrd -- President and Chief Executive Officer

Jeff you want to talk that?

Jefferson Glenny Parker -- Vice Chairman and Director of Capital Markets, Energy Lending & IR

Casey, we've been restacking the capital as you know, and when we talked earlier in the year we anticipated probably doing about $37 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 gross at a 6.1% rate. And frankly, while we're both investing in the company, investing in people, investing in technology, we see the ability to buy our stock back. So we raise that number. We completed a program and we initiated a new program as it turns out, we've 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 in the past couple of years.

So we're managing our capital stack, we're managing our capital and and we're able to return capital to shareholders. So all in all, good.

Anthony J. Restel -- Vice Chairman & CFO

Casey, a couple of couple of extra at add on points. One is on the $1.6 million -- that I think in Daryl's commentary we said we thought we'd 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 12th or so plan. We'll finish this one up at some point and if we get there quick, well we will go with another one. Right. So there is no magic, but we can get lost in [Indecipherable] to read at the 1.6, just it was a number that was good for us that we put out. Daryl said he thinks we will get it done within a year. And when we do that, depending on the environmental conditions at that time, if we're going to do -- we want to do more, then we'll roll a new plan forward.

Casey Haire -- Jefferies -- Analyst

Great, thanks.

Operator

And our next question comes from Stephen Scouten of Sandler O'Neill. Please go ahead.

Stephen Scouten -- Sandler O'Neill and Partners -- Analyst

Hi, everyone. Good morning.

Daryl G. Byrd -- President and Chief Executive Officer

Good morning.

Stephen Scouten -- Sandler O'Neill and Partners -- Analyst

I appreciate all the color here. I guess I'd love some additional clarity on what you think might happen with your deposit book when we do start to get a couple of these rate cuts. SunTrust and some others have kind of mentioned that the deposit base will probably be lower on the front end, we wouldn't get all the help we saw on the upside at back if rates come down. I'm wondering if you think there would be a similar phenomenon there for you all and that there would be a catch-up in 2020 or kind of how you think the deposits would respond initially to one or two cuts.

Daryl G. Byrd -- President and Chief Executive Officer

I think the first comment we do think with the rate cuts, deposit pricing is peaked, Michael, you want to.

Michael Brown -- Chief Operating Officer

I do think deposit pricing has peaked in the moment. I think that it's going to take a little bit of time to work its way through, but I mean I expect pricing to decline at a reasonable pace during the third quarter into fourth quarter, you feel pretty comfortable with that Anthony?

Anthony J. Restel -- Vice Chairman & CFO

Yeah, look, I think 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 to exception price above the rate sheets basically that's gone away. At some point, you should expect, we expect deposit rates to go. 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 and go down and so I'll tell you that I'm all in, we'll cut 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 toward the end of the third quarter is where you really start to see some movement from the customer deposit perspective.

Michael Brown -- Chief Operating Officer

Good news we have a lot of deposits that actually are tied to floating rates. So they should move pretty quickly. Thinking of the institutional book we have, that happens immediately.

Stephen Scouten -- Sandler O'Neill and Partners -- Analyst

Do you know the amount of that off hand?

Daryl G. Byrd -- President and Chief Executive Officer

1.4 billion.

Stephen Scouten -- Sandler O'Neill and Partners -- Analyst

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 wasn't for the uncertainty created by potential rate cuts but can you talk about what dynamics you think could be created there? I mean, my first thought would be if rates go down, you might get higher pay-offs, 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?

Daryl G. Byrd -- President and Chief Executive Officer

Yeah, Stephen, I think that's, 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, my suspicion would be that we'll have a pretty solid economy and a good solid economy will create opportunities for our clients and that will end up giving us loan growth. Michael?

Michael Brown -- Chief Operating Officer

Yeah, I hope I'm not going to be repetitive, but I mean I think what we've tried to do is we've tried to step back and take a look at our business and try to grow it based upon call it diversity again or a diversification geographic, as well as a business, as well as individual makeup of the book. I agree with you, I think lower rates might encourage some refi activity, particularly in the real estate business. But again, we've tried to diversify away from that over the last 18 months into businesses that are less interest rate sensitive, meaning they're not going to refi energy loans because rates drop, that will 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 that's going to offset whatever increase in refi activity which will impact our real estate book and in turn will get reasonable growth in overall loan portfolio.

Daryl G. Byrd -- President and Chief Executive Officer

And Stephen I want to make sure we kind of underline Michael's 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 that that presents.

Stephen Scouten -- Sandler O'Neill and Partners -- Analyst

Yeah. 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&T, SunTrust or any segments of your business or any kind of incremental color you can give around those opportunities?

Daryl G. Byrd -- President and Chief Executive Officer

Stephen, I think, I want to be polite around this comment and fair enough. Look, we've got a, we have a very diverse organization and we have a pretty strong recruiting network, 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 across a number of different markets.

Stephen Scouten -- Sandler O'Neill and Partners -- Analyst

Perfect, thank you so much guys and congrats on a really solid quarter.

Daryl G. Byrd -- President and Chief Executive Officer

Thank you.

Operator

And our next question comes from Matt Olney of Stephens. Please go ahead.

Matt Olney -- Stephens -- Analyst

Hey, thanks, good morning guys.

Daryl G. Byrd -- President and Chief Executive Officer

Hey Matt.

Matt Olney -- Stephens -- Analyst

I want to go back to credit quality and it looks like you improved the guidance on provision expense. Can you shed some more light on this, was it driven by some specific credits that [Indecipherable] recent weeks or do you just feel better about the overall economy? Any color you can give on that.

Daryl G. Byrd -- President and Chief Executive Officer

Yeah. Again, I must start we, we do feel good about the overall economy and we feel very good about our credit posture and look. Classifieds probably, I think maybe the biggest example of kind of track in terms of the improvement in the portfolio. Nick, you got any thoughts there?

Nick Young -- Chief Credit Officer

I will echo what you said in your opening remarks that we don't see any sign of a duration in our portfolio, the credit quality remains strong, stable and trending in the good direction and no concerns in the economy [Indecipherable] certain.

Daryl G. Byrd -- President and Chief Executive Officer

Yeah.

Matt Olney -- Stephens -- Analyst

And then this is a follow-up for Daryl. I think last quarter it seems like you were anxious to get some type of preliminary guidance around 2020, the investment committee. So at this point, when should we expect to see some kind of preliminary 2020 guidance?

Daryl G. Byrd -- President and Chief Executive Officer

You know Matt, the issue gets to be and even though and we are 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, it just keeps changing on us and it's hard to come out with, future oriented goals until you can kind of get, get a pretty solid feeling about what kind of volatility we're going to see from an economic perspective.

Again, we think we've had solid performance. We continue to improve the talent in the Company and the client relationships, we're very focused on productivity. Like we've said a couple times, we think deposit cost have peaked and we're working to trying 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.

Matt Olney -- Stephens -- Analyst

Yeah. And that's certainly understandable. Yeah, I get that. Okay, thanks guys.

Daryl G. Byrd -- President and Chief Executive Officer

Thank you.

Operator

And our next question comes from Christopher Marinac of Janney Montgomery Scott. Please go ahead.

Christopher Marinac -- Janney Montgomery Scott -- Analyst

Hey, good morning. I know that pass rate cycles are kind of hard to compare to today and the Company has changed a lot. But, is there a loan beta behavior or 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.

Anthony J. Restel -- Vice Chairman & CFO

You know, Chris, unfortunately this is not only because the composition of our Company so different today than the last upcycle that we got. And also, right, the last cutting cycle, it was dramatic and I feel pretty confident saying this and I know I'm early but despite, even if the Fed were to start moving rates, 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, we're so much larger. The composition of the balance sheet is different. I wouldn't, I personally would not be comfortable drawing any correlations between what we saw a decade ago and today. I'd just be cautious not to do that.

Christopher Marinac -- Janney Montgomery Scott -- Analyst

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 the NIM is composed?

Anthony J. Restel -- Vice Chairman & CFO

Speed of turnover relative to what?

Christopher Marinac -- Janney Montgomery Scott -- Analyst

Sort of the repricing of loans in earning assets as that sort of defines this range of margin with the two rate cuts.

Anthony J. Restel -- Vice Chairman & CFO

Look, 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 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 minutiae of all of 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, what happened, looking at all the assumptions, again, with the best light and the best information that we've got against those assumptions.

Christopher Marinac -- Janney Montgomery Scott -- Analyst

Great Anthony. Thanks for the color this morning.

Anthony J. Restel -- Vice Chairman & CFO

All right, thank you.

Daryl G. Byrd -- President and Chief Executive Officer

Thanks Chris.

Operator

And this concludes our question-and-answer session. I'd like to turn the conference back over to Daryl for any closing remarks.

Daryl G. Byrd -- President and Chief Executive Officer

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 have a great weekend. Thanks.

Operator

[Operator Closing Remarks]

Duration: 47 minutes

Call participants:

Jefferson Glenny Parker -- Vice Chairman and Director of Capital Markets, Energy Lending & IR

Daryl G. Byrd -- President and Chief Executive Officer

Anthony J. Restel -- Vice Chairman & CFO

Nick Young -- Chief Credit Officer

Terry Akins -- Chief Risk Officer

Fernando Perez-Hickman -- Vice Chairman & Director of Corporate Strategy

Michael Brown -- Chief Operating Officer

Ebrahim Poonawala -- Bank of America Merrill Lynch -- Analyst

Jennifer Demba -- SunTrust -- Analyst

Catherine Mealor -- KBW -- Analyst

Michael Rose -- Raymond James & Associates, Inc. -- Analyst

Casey Haire -- Jefferies -- Analyst

Stephen Scouten -- Sandler O'Neill and Partners -- Analyst

Matt Olney -- Stephens -- Analyst

Christopher Marinac -- Janney Montgomery Scott -- Analyst

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