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Executives

Scott A. Almy - Chief Risk Officer, Executive Vice President and General Counsel

Kevin J. Hanigan - Chief Executive Officer, President, Director, Member of Lending Committee, Chief Executive Officer of Viewpoint Bank, President of Viewpoint Bank and Director of Viewpoint Bank

Pathie E. McKee - Chief Financial Officer, Principal Accounting Officer, Executive Vice President, Treasurer, Chief Financial Officer of Viewpoint Bank, Principal Accounting Officer of Viewpoint Bank, Executive Vice President of Viewpoint Bank and Treasurer of Viewpoint Bank

Analysts

Brett D. Rabatin - Sterne Agee & Leach Inc., Research Division

Brad J. Milsaps - Sandler O'Neill + Partners, L.P., Research Division

Matt Olney - Stephens Inc., Research Division

Scott Valentin - FBR Capital Markets & Co., Research Division

Gary P. Tenner - D.A. Davidson & Co., Research Division

ViewPoint Financial Group (VPFG) Q4 2012 Earnings Call February 8, 2013 11:00 AM ET

Operator

Good morning, and welcome to the ViewPoint Financial Group's Fourth Quarter 2012 Earnings Call and Webcast. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to Scott Almy, Executive Vice President, Chief Risk Officer and General Counsel.

Scott A. Almy

Thank you, and good morning, everyone. Welcome to the ViewPoint Financial Group Fourth Quarter 2012 Earnings Call.

At this time, if you're logged in to our webcast, please refer to the slide presentation available online, including our Safe Harbor statement on Slide 2. For those joining by phone, please note that the Safe Harbor statement and presentation are available on our website at viewpointfinancialgroup.com.

I'm joined today by ViewPoint's President and CEO, Kevin Hanigan; and Chief Financial Officer, Pathie McKee. After the presentation, we'll be happy to address questions you may have if time permits.

With that, I'll turn it over to Kevin.

Kevin J. Hanigan

Thanks, Scott, and thank you all for joining us on the call this morning. I'll cover some financial highlights for the year and for the fourth quarter, and then Pathie will walk us through the remainder of the slide deck. After Pathie is done, time permitting, we'll answer any questions you may have.

In summary, it may be an understatement, but we had a record year. We successfully integrated the Highlands acquisition and vastly improved our operating metrics.

Net income for the year totaled $35.2 million, up 34% over 2011. On a core basis, our EPS for the year was $1.04, up 51% over last year. For the fourth quarter, our core EPS was $0.27 compared to $0.26 last year and $0.30 last quarter.

Loan growth for the year was outstanding. Our loan portfolio increased nearly $690 million in 2012, up 33% over year-end 2011. If we exclude the loans from the Highlands acquisitions, loans grew $466 million, or 23%. On a linked-quarter basis, loans held for investment were up $39 million, or 2.4%, while loans held for sale grew by 4.6%. In looking at just our C&I and CRE portfolios, loans were up 6.8% over the prior quarter, and that's despite some December pay-downs that appear to us to have largely been driven by tax matters.

Turning to our net interest margin. NIM for the year was 3.61%, up 70 basis points over 2011. In looking at just the fourth quarter, our NIM rose to 3.77%, up 7 basis points from the prior quarter. In a year where NIM compression was a headwind for the entire industry, our NIM improved every single quarter.

Our tangible common equity and TCE ratio remained very strong at $490 million and 13.48%, respectively. Our non-performing loans remain fairly benign and stable at 1.61% of total loans.

Finally, we paid dividends of $0.30 for the year. And just as a reminder, we pre paid our first quarter of 2013 dividend of $0.10 in late December.

With that, let me turn the call over to Pathie, and she'll discuss some of the specifics.

Pathie E. McKee

All right. Thank you, Kevin. And turning to Slide 4, we show our core earnings per share growth on an annual and a quarterly basis. On an annual basis, we have a compounded average growth rate of 51%, growing from $5.7 million to $37.3 million on a core basis. Year-over-year, we have grown from $22.2 million to $37.30 million, $15.1 million or 68% on a core basis.

Looking at the quarter, we did grow $0.01 from the last quarter at the same time last year, and this even includes an investment in our infrastructure and long-term growth in the fourth quarter, which we'll talk on later.

Turning to Slide 5. Our growth in earnings has been primarily revenue-driven. This slide shows the 5-year trend of our revenue growth and our operating expenses.

Operating expenses are shown in the blue bar. And as you can see, it remains relatively flat in relationship to the revenue growth.

The revenue growth, in the maroon and gray bars, has grown 15% on a compounded average growth rate over 5 years. If I can point you to the 2011-to-2012 growth period, you can see that the net interest income, represented now by the gray bar, has grown the most. It grew 40% to $116 million during the year.

If you turn to Slide 6, we'll highlight our fourth quarter financial review of our operating expenses. The company has [Audio Gap] operating expenses to continuation of our growth strategy.

It can be broken down into 3 areas: Growth, retention, improvement and building our franchise.

Operating expenses increased $495,000 during the quarter, to $21.7 million. The growth has contributed to the addition of high-level revenue producers in our lending and treasury management area. And in retention, we increased our performance-based compensation during the fourth quarter, all based on improved performance metrics, as well as we awarded restricted stock and options. To improve and build the franchise, there's been expenditures in our marketing branding awareness campaign, and as well as building infrastructure in the technology area to support our growth strategy. All in all, seize out expenses added up to about $0.04 per share during the quarter.

Moving onto the next slide, you can see the improvement on all profitability metrics, most notably the NIM. As Kevin mentioned, we've grown from 2.91% to 3.61% during the year, 70 basis points.

In the quarter -- linked-quarter, we've grown 7 basis points, to 3.77%. Also, the efficiency ratio has improved well below 60% now, at 57.3% in the fourth quarter and 61% at the end of the year.

Moving to the ROA side, we are now exceeding over 1% return on assets. up 35 basis points from the same time last year and just on the last quarter of 1.15%. On the ROAE side, we continued to work to deploy our capital, and our return on equity has improved from 5.5% to 7.7% during the year and as of the fourth quarter to 7.8%.

Now If I'll turn you to the details of our loan growth on Page 8. Contributing to our profitability factors has primarily been driven by our strong loan growth and our mix of earning assets. This slide shows the 2 areas of concentration the company is focusing on: Commercial and industrial lending and commercial real estate. If you just look to where we began the year, at $70 million in C&I lending, and now that we've grown over $208 million now to $278 million just in the 1 year. Yes, we did have an acquisition. But if you exclude the loans, as far as the acquisition, the organic growth far exceeds what we even began the year with.

Looking to our commercial real estate portfolio, it started off the year at $624 million, ending the year at $839 million, growing over $215 million just in 1 year. Excluding the acquisition, loan growth is over $132 million in this portfolio. If you look at C&I and CRE combined, on a linked-quarter basis at 7%, annualized at 28%, there's excellent loan growth in these 2 portfolios.

Turning to the next slide on Page 9, this represents the piece of our loans that are in loans held for sale, our Warehouse Purchase Program. We ended the year over $1 billion in outstanding, $1.60 billion, with average balances being $908 million. The average balance grew during the fourth quarter, $33 million. The gross average yield on this portfolio is still north of 4% at 4.05%. We've increased in number of customers that we have in this portfolio to 43, up from 41 at September and 36 at the end of the year. The mix of purchase versus refi still tends to be highly on the purchase side at 53% versus 47%. And we have a 65% average utilization rate at the customers' facility.

Something to note about our Warehouse Purchase Program is we have received availability at the Federal Home Loan Bank to collateralize these loans, giving us more availability at the FHLB to borrow against the loans on our matching strategy.

If you turn to Slide 10, you can see the improvement in our earning asset mix. The company's strategy is to move out of lower-yielding securities and overnight funds and into loans. And during the year, you can see the improvement has been a mix of 38% at the end of the year, now at 24% at 2012. As we transition out of lower-yielding securities and into higher-yielding loans, there has been an improvement to our NIM as well as a reduction in deposit cost that we'll talk on later.

Turning to the next slide on Page 11, it shows the quarterly average outstanding balances of these portfolios.

If I can bring your attention to the net loan growth and average balances, quarter-over-quarter, we had a 4% on the net loans growth and 35% year-over-year. Right below there, in the securities line, you can see the decline in securities portfolio has gone down 20% quarter-over-quarter and 36% year-over-year. This really highlights the strategy of us getting out of our securities and into loans.

Looking to the deposit mix, our focus is trying to increase our non-interest-bearing deposits and getting out of less of the higher cost in deposit, and this average balance sheet shows that we grew 6% on a quarter-over-quarter change in non-interest-bearing deposits and 75% year-over-year, again, executing our strategy.

Turning to Page 12, it shows the improvement in the deposit cost. We continue to see small improvements in the deposit costs were down to 43 basis points. The cost of funds on deposit, down 6 basis points from the last quarter and comparably to 88 basis points at the same time last year and 142 from the year of 2010. This is a significantly improvement in our NIM and our cost to deposits. As mentioned, our average non-interest-bearing deposits continued to be a higher mix of our total mix of deposits, growing from -- to now 16% from 15% on a linked-quarter. We still have a good portion of our time deposits maturing over the next 12 months that are at a weighted average rate of 1.15%. About 78%, $353 million, and will mature in the next 12 months.

Now if I can turn you to Slide 13, we'll discuss the credit quality trend. The company still has improved NPAs and NPL ratios during the quarter and during the year and still compare favorably to the industry.

Fourth quarter ended the non-performing asset-to-asset ratio at 0.79%, down from 0.88% linked-quarter and fairly -- relatively flat at the same time last year at 80 basis points. The non-performing loan-to-loan ratio is now down to 1.61% compared to 1.70% linked-quarter, and 1.88% at the same time last year. The snapshot on the side gives you a picture of what types of non-performing loans we have. As we mentioned, the top total non-accruals is at $27 million, down $878,000 from the same time -- the linked-quarter. And most notably, our foreclosed assets have dropped now to less than $2 million, down from $3.8 million to $1.9 million. The company did have charge-offs during the quarter of $1.8 million, and those are primarily a result of 2 large loans, 1 being a CRE loan and 1 being a legacy Highland loan.

Okay. And with that, we will turn it over to -- for you for any questions that you may have.

Question-and-Answer Session

Operator

[Operator Instructions] And our first question is from Brett Rabatin of Sterne Agee.

Brett D. Rabatin - Sterne Agee & Leach Inc., Research Division

I wanted to first ask if you could give a little more color around the hires that you made this quarter and give us maybe a sense of the loan pipeline as you look out in the next few quarters as well?

Kevin J. Hanigan

Sure, Brett. This is Kevin. We did make a few new hires. Let me kind of go over those. Most of them were in revenue-producing roles. So we hired 2 new C&I lenders, both from bigger banks, both with substantial number of years of experience, 1 over 10 years of experience, the other 1 about 16 years of experience. We have hired 2 new treasury management people, somebody to run treasury management sales and another salesperson in treasury management that both came from a bigger bank than ours, again, bigger platform. And then, we hired a portfolio manager in C&I, who we -- the intention there is they'll handle day-to-day portfolio needs while the C&I lenders, we have spend their time out on the streets, looking for new deals. So I wouldn't call that a revenue producing, I just think that's a more efficient way for our revenue producers to be out in the street. And the last thing I'd say is -- in the last quarter, Brett, I talked about we hired somebody to run our small-business lending platform, 30 year experienced person who's built 2 very substantial platforms in their career, 1 at the First Horizon, the other one at JP Morgan. He was hired right at the end of the last quarter, so the bulk of the expense of that hire was borne in the fourth quarter.

Brett D. Rabatin - Sterne Agee & Leach Inc., Research Division

Okay. And then, maybe on the loan side again, what the pipeline looks like and then just what the growth was in the quarter in energy and short [ph] national credits, what that contributed in the 4Q?

Kevin J. Hanigan

Sure. So if we look at CRE for the quarter -- I'll just give you a couple of stats so you can follow along. New loan production in the fourth quarter was $143 million of new CRE loan production and that was at a weighted average coupon right at 4.9%. And the headwind there was we had about $98 million worth of payoffs in the category, and the payoffs had about a 6.40 handle on it. So that netted our roughly $45 million increase in CRE. In C&I, another really good production quarter. Last quarter, in terms of new commitments, I think I -- we announced we did $71 million in new commitments. In the third quarter, we did a little bit better than that. In the fourth quarter, $76 million in new commitments. We have 1 loan transfer out of C&I, about $9 million, over to CRE. And the reason we only pulled through and shown about a $26 million -- $26.2 million increase in the C&I portfolio is we got hit in December. Really, it's mostly in the last couple of days of December. It was about $20 million worth of payoffs, all in our oil-and-gas-related assets. So oil and gas total for us had started approaching about $70 million, and we believe most of those payoffs came in the form of folks trading out some assets for tax purposes and that they may find themselves either drilling back up in this quarter or buying some assets back. So had we looked at the year-end number for C&I 5 days earlier, it would have been closer to $45 million. The payoffs hit us literally between the 28th and the 31st.

Brett D. Rabatin - Sterne Agee & Leach Inc., Research Division

Okay. And then, just one last one, if I may, just around the mortgage warehouse operations. I was just curious where do you guys stood in terms of 300% sort of being at the peak of how you guys kind of look at that business, and if you intend to add any new clients to that portfolio and what's your outlook as for that business?

Kevin J. Hanigan

Yes, sure. So at year end, we got the 270% of capital that's relative to the 300%. And for the quarter, on average, we were at about 231%. So there was, obviously, a year-end kind of spike. We added 2 clients in the quarter. I think we went from 41 to 43. We actually thought we were going to add a third client that we had approved, and it busted out in documentation. We just couldn't see eye to eye on how to operate in the back office, and we did -- we both elected to part ways. So we didn't close that deal. We have a couple of deals that are in the pipeline currently, 2 that have been approved but haven't come on yet. Whether they come on late this quarter, Brett, or early the next quarter will all depend upon how we do in documentation and get the back-offices synced up. And then, I think our pipeline of what looks good to us behind that's about 3 other additional clients, and those haven't even gone to the loan committee yet, but we've kind of given them a prescreen and they looked pretty good to us. So, I think we'll add some clients either late this quarter or early into the second quarter. In terms of other veins that people typically ask about, our breakout was about 53% purchase and 47% refi. So we're still doing pretty well in that regard. Coupons have softened up a little bit. I think they were 4.11 for the last quarter, and they're down to 4.05. But the business still seems to be doing pretty well.

Operator

And the next question is from Brad Milsaps with Sandler O'Neill.

Brad J. Milsaps - Sandler O'Neill + Partners, L.P., Research Division

Kevin, just a couple of kind of P&L questions. Kind of back to the expenses, I know you'd lose the expenses related to mortgage company in this quarter. But obviously, more than made up for with the things that you guys mentioned. Do you that somewhere between the third and fourth quarter is kind of the run rate going forward? I'm just kind of curious if any of those, some of those hires and sort of accruals, would reverse out, or do you plan to -- obviously, your plan is to hire more people. I'm just kind of curious what your thoughts are on there, bringing more folks on as we kind of get through the first part of the year, sort of the hiring season time of the year?

Kevin J. Hanigan

Yes. So let me -- let's talk about expenses just generally and particularly at the salary and benefits line. I kind of lumped the fourth quarter into a couple of buckets, Brad. The first and maybe the easiest to explain would be, we had some really unusual health care claims and items in the quarter, never seen before in the history of the company. So we insure our 500 employees and, in many cases, their families, and we were a sicker bunch than normal, I would tell you. The increase in our health care cost quarter-over-quarter was $460,000. So a pretty good chunk of money in terms of increased health care cost that was an outlier, and I wish I could tell you whether that would happen again. We just can't predict when people are going to get sick or seriously ill. The second and the biggest component here, we hired some good people during the year, and we had a really good year, I mean, as reflected, if you would, on Slide 7. We have about 90 people in the company that are on a relatively common incentive program. That includes the executive team and the folks, the next level down, in the company. And we are all in a common system where we get rewarded based upon improvements in net interest margin, efficiency ratio, NPAs to loans, return on equity, return on assets. And in the fourth quarter, on a cumulative basis, we kind of clicked in from maybe payouts to 50th percentile ratio into closer to the 75th percentile ratio. All told, between cash bonuses, some options and grants that were put out and an increased valuation in the ESOP because of the share price -- so we true-up that at the end of the year as well -- that was about $1 million, $998,000 to be exact in that overall category. And then, the last piece is the new hires. The new hires, in terms of salary and benefits in the quarter, cost us about $133,000 for that group of new hires. So they came on throughout the quarter, and we probably paid out between options and some incentives or onetime payouts on that group of maybe another $110,000 or $120,000. So what I would say about our efficiency ratio in general, and I said this, once we start hiring people, it can get lumpy, okay? You bring on some people, and you -- we expect these people to produce. Fortunately, we've seen some evidence that they can produce early in this quarter through what activity we're seeing in loan committee, and we'll bring on others as we can. So I would say, Brad, our efficiency ratio may just bounce around between 55, where it kind of bottomed out, and the higher 50s, call it 58. In the first quarter, some of these things won't exist, hopefully, although we can't predict what's going to happen on health care. We have higher payroll taxes and some other things that usually kick in and make the first quarter for all banks, not just us, more challenging from an expense perspective. So as we hire people, it will tick up, as those people produce revenues, it will tick back down and a lot of that would be dependent upon the timing of hiring people and when they start producing.

Brad J. Milsaps - Sandler O'Neill + Partners, L.P., Research Division

Got it. But you feel confident as you move through the first part of this year that you potentially maybe have some more people queued up to come onboard?

Kevin J. Hanigan

We are talking to folks every day. And I'm kind of -- the reason I would take a few more on now is because the ones we've hired, we've seen some nice production early in their first 45 days, and that's when we would expect them to be able to drive things in from the institutions they came from. So I'm pretty comfortable of what we've brought in now, they're going to pay for themselves in a hurry. And if we can find some others out there, we would prefer to grow organically that way than any other way we can grow.

Brad J. Milsaps - Sandler O'Neill + Partners, L.P., Research Division

Okay. And then another question on fee income. You guys made up for the lost mortgage banking revenue. Anything specific you did this quarter, changed pricing or is it just more, more volume, more, more accounts, et cetera?

Kevin J. Hanigan

Yes. I would tell you that the biggest change in -- and a lot of things were pretty stable I think our treasury management fee income is picking up normally. But in the quarter, we had a prepay on a real estate transaction. We go 3 2 1, 5-year fixed-rate deals, 3-year -- you can pay off in the first year at 3%, second year 2%. We had an early pay off in that portfolio and netted us right at $830,000. So that was a big part of the pickup in the fee income.

Operator

And our next question is from Matt Olney of Stephens.

Matt Olney - Stephens Inc., Research Division

Can you give us any more commentary on the size of the securities book? It seems like the balances came down more than I was expecting. And I believe, Kevin, you've talked about that decreasing to around 20% of earning assets in the past, and it looks like we're almost there. So I guess, first off, why did it come down so hard. And secondly, what is the outlook for that securities book in 2013?

Pathie E. McKee

All right. I'll take that, Matt. Yes, you may recall in the second -- or third quarter we sold quite a bit of securities, but that was at the very last month of the quarter. So the average earnings assets in the securities portfolio is really being reflected in the fourth quarter. So that's may be why, if you're looking at the end-of-period balance from third to fourth quarter, why's the average earning in the fourth quarter is significantly less.

Kevin J. Hanigan

That was about $120 million sold at the end of the third quarter.

Pathie E. McKee

And then, we continue to have about $20 million in loss in prepayments. So that's another $60 million that comes down, so for a total of about $174 million decline in earning average assets in the securities portfolio. So going forward, we'll continue to see that about $20 million a month coming off. And then also trying to focus on how -- what percentage of securities do in the mix of earning assets. At a certain level, we were trying to get to $20 million. We probably would get to that based on the prepayments and pay-downs in the securities portfolio this year. And there's a certain level that we need to keep in securities just for cash and liquidity purposes. So we anticipate getting to 20% at 2013, and we'll be managing to around in that level. If it -- if we didn't get to a better one, we still have efficient liquidity, we will do that as well.

Kevin J. Hanigan

Yes, I would look longer term for our securities portfolio to be somewhere between 15% and 20%. We're a little bit over 20% at year end. We think we'll get it down to 20% at year end. And if there's opportunities to get out of securities and into loans all the way down to perhaps 15%, we would be comfortable drifting down that low but at some level we got to have secondary sources of liquidity.

Matt Olney - Stephens Inc., Research Division

Okay. Great color. And then, secondly, on the credit side, I heard the commentary as far as the net charge-offs being elevated in the quarter, can you give us any more commentary on that provision in the fourth quarter. And secondly, do you have the dollar amount of classified assets by December 30 -- 31 versus September 30?

Pathie E. McKee

Yes. I'll answer that Matt. Talking about the allowance for loan losses, kind of think of it in 2 perspectives. Charge-offs are one thing and it's a end-of-period type of event versus the allowance, which is really something that you evaluate to determine what your loss is in your portfolio at the end of the period. On the allowance, the company continues to look at it in a more granular standpoint and given the extreme low loss levels we have had in our commercial real estate portfolio, and the addition of the new C&I producers and the credit quality and the types of loans that we're putting on in the portfolio today, as well as our improved economic conditions, we feel like we can add adjustments to the allowance that would reflect that, and we deemed it to be accurate and appropriate. So the charge-offs are a separate event. We had some legacy Highlands that we were working through on the purchase-impaired credits that we worked through during the quarter. And then, we have the CRE loan that we did sell at a discount. And something we should note about that, is that when we sold it off, it did take a charge-off of about $200,000 net, but we released $794,000 in reserve. So that's another reduction to the allowance for loan loss that when we sold off that loan. And as far as the classified, I don't have them on the top of my head, but they -- I believe, they're around $50 million and that's up a little bit from where we were at the same time last quarter.

Matt Olney - Stephens Inc., Research Division

And as far as that reserve ratio, Pathie, I guess some of your peers, especially in Texas, have suggested a 1%. They prefer to not go below that level. How do you guys see it internally as far as that 1% floor?

Pathie E. McKee

Well, I think the 1.07% that we are at right now is reasonable to think where we would be. But you also have to consider that we have about $222 million of loans that were purchased and our mark-to-fair value through a contra. And the remaining outstanding on that contra on those accounts are about $8.3 million. So we've had that set aside for the ones that are being charged off from the purchase [indiscernible] care. So if you add that together with what we have, you're closer to 1.25%.

Operator

And our next question comes from Scott Valentin of FBR.

Scott Valentin - FBR Capital Markets & Co., Research Division

Just with regards to the mortgage warehouse, it sounds like you guys are adding clients and growing the balance. I'm just wondering how you think about it in light of 10-year rate going up, maybe volumes slowing down for the industry. Do you think you can hold the balance, or do you think the balance will contract, kind of, in line with the industry?

Kevin J. Hanigan

Yes. Let me -- let's start at the big picture. The MBA, the Mortgage Bankers Association, is predicting this year about a 25% decline in overall volumes. And this isn't good or bad, it's just a fact. They predicted much the same last year and missed our prediction, and they missed their prediction, and they missed it big the year before. So, I don't know that we'd place a whole lot of credence on that. In talking to our clients, they're a very relatively optimistic bunch, and they think the first half of the year is going to continue to be good, but the refis start to burn down in the second half of the year. So if we are confronted with a drop in refi volumes, in the absence of doing anything else, that could hurt maybe our balances of close to $200 million on an average. So what are we doing to offset that? Well, first of all, we've done a couple more participations. We had one at the end of the third quarter. We added a second one in the fourth quarter. We're adding a third and fourth one here in this quarter. And those participations, generally speaking, have an early exit at our option, i.e., 30-days notice, we can bring that volume back on our books. If somebody says, "Hey, I'm just going to cut my line." And we can bring that volume back onto our books. And the other thing we're doing is adding clients. So our pipeline of clients, as I indicated, we have 2 that are in the queue and approved, waiting to get through documentation and back-office syncing and another 3 that are queued up to move through our approval process over the course of the next several weeks. So as I put all those things together, if volumes come down 25% within the industry, we think we can do better than that kind of volume decline because of the opportunity to, a, bring back participations and, b, add a few clients to the mix. I would indicate to everybody that it is not unusual, and it happened in the first quarter of '11 and '12 that the January volumes are off. They are -- for us and for the industry in general, the volumes are off as they typically are in January. So, we'll see if like in prior years, in late February or March, the volume to start rebounding again. Again, our clients anticipate that, that's what's going to happen.

Scott Valentin - FBR Capital Markets & Co., Research Division

Okay. That's helpful color. And then, on the participations, can you give us a sense -- I mean, you mentioned, I think, you'll add numbers 3 and 4, I think, in the second quarter -- or in the first quarter, sorry. Just the dollar amount, total outstanding participations?

Kevin J. Hanigan

Yes. In the one we did in the second quarter was a $20 million participation. And the one we did in the third quarter was $15 million. We've got one queued up for $15 million that we're working through the documentation on right now. I think we might have completed that yesterday. I don't know if we have started funding those things out or not. And the next one in the queue is also at $15 million. So generally speaking, we might have clients that are at $35 million kind of hold limit for us, and they come in and ask for $50 million. We take it up to $50 million and lay off $15 million to someone else.

Scott Valentin - FBR Capital Markets & Co., Research Division

Okay. And in terms of the new clients, I mean, moving up the market or is it about the same in terms of their request for allowance?

Kevin J. Hanigan

It's about the same. We've had a couple of increases come through early in the year. But those have been few and far between, and most of them we're renewing in existing levels. And then, we've had this couple I just talked about come back and say, "Hey, we're looking for additional capacity." So -- and a lot of that is really driven on where they are in the country.

Scott Valentin - FBR Capital Markets & Co., Research Division

Okay. That's helpful. And then, moving on to the margin. You mentioned you had 7 basis points of expansion this quarter. I'm just wondering how much benefit there was from accretable yield?

Kevin J. Hanigan

12, 12 bps.

Scott Valentin - FBR Capital Markets & Co., Research Division

12 bps, okay.

Kevin J. Hanigan

Yes.

Scott Valentin - FBR Capital Markets & Co., Research Division

And then...

Kevin J. Hanigan

Hang on. That was down from maybe 15 or 16, Pathie?

Pathie E. McKee

Yes, in the last quarter, 15 last quarter.

Kevin J. Hanigan

15 last quarter.

Scott Valentin - FBR Capital Markets & Co., Research Division

Okay. And that will keep coming down, I guess, depending on the prepay loan speeds.

Pathie E. McKee

Absolutely.

Scott Valentin - FBR Capital Markets & Co., Research Division

Okay. And just looking forward on margin, I know that the mix shift, obviously, is helping quite a bit as lower-yielding securities decline, you have more higher-yielding loans. But the kind of -- on a core basis or core margin, x accretable yield, do you still expect it to expand a little bit, given kind of cost of deposit -- you mentioned earlier, the deposit pricing opportunity you have?

Kevin J. Hanigan

Yes. I think the deposit pricing opportunity is waning. I mean, it's -- we still improved by several basis points in the quarter, and we still got some CDs that are repricing as we indicated in the slide deck. And NIM at this stage of the game, I think to eke out improvements is going to be challenging. I'm not saying we can't, but I think it becomes more challenging. The biggest swing factor, I think, about in that is our payoffs, and the payoffs that we experience in the real estate portfolio, which has still got some little '07, '08, '09 originations, where pricing was higher. As I indicated, we have 140 -- or we had about $100 million in payoffs, $98 million in payoffs, that had a 6.40 handle on them. That -- as we replace those, it's something closer to a 5 handle. That -- and we have to fight against that as well. So I would -- I think in last quarter I said we'll be getting another quarter or 2 out of NIM improvements. I think the next moves from here become more challenging.

Scott Valentin - FBR Capital Markets & Co., Research Division

Okay. Fair enough. And then, just one final question on capital management, I think you mentioned your potential common equity ratio increased a few basis points this quarter. I'm just wondering how you think about in terms of the share count and maybe allocating between dividend and buyback, you mentioned that you pull forward the dividend for tax purposes. But I'm just wondering how you think about the 2?

Kevin J. Hanigan

Yes. We still think the dividend payout kind of between 30 and 35, no more than 40 at this stage of the game is kind of how we model things. Share repurchases at today's pricing, probably unlikely, although we have a program in place. We've talked several times about now that we're trading in the higher book value multiple, we can enter the range or we can enter the conversation, if you will, on acquisitions. We've had many an opportunity, mostly for small banks, and we passed on all of them at this stage of the game. But that doesn't mean we wouldn't do something if we could find something that looked like it was accretive for us and made sense. We just haven't found anything there. How I would think about it is this, we think -- and we hope we've earned the right to at least try to go out and deploy the capital either organically or through acquisition. But we also realize, if we grow the institution on a 15% organic growth rate from now for the next 7 years and don't do any acquisitions, it would take 7 years for us to get down to about a 9% TCE. That's a little too long. Well, you then turn and say, "Well, what would you do if you don't make an acquisition?" And I think what we're prepared to say in that regard is, if we go through this year and we don't utilize more capital, we understand that it's incumbent upon us to make a down payment in terms of returning capital. How do we do that? We haven't really gone into and will depend upon what the price looks like at the end of the year, what our dividend payout ratio is, what our earnings were. But if we're unsuccessful in deploying it, well, we need to make at least a downpayment in giving it back.

Operator

[Operator Instructions] And our next question today is from Gary Tenner of D.A. Davidson.

Gary P. Tenner - D.A. Davidson & Co., Research Division

I had a -- just a question for you regarding the C&I production in the quarter. I think you had it around $76 million of new commitments. Could you talk about that in terms of how much of that were participations in banks -- or, excuse me, in other banks' credits, and also maybe just talk about kind of the top 2 or 3 in terms of size?

Kevin J. Hanigan

All right. So the -- 2 of them were participations, oil and gas deals, and they were our 2 largest. One was new commitments at -- right at $10 million, the other one was at $13 million. And overall, there were about 16 overall deals so the weighted average, new commitment size was right at $6 million or so.

Operator

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

Kevin J. Hanigan

Great. Again, thank you all for joining us, and we'll be back out on the road here soon. We look forward to seeing you all. Thank you.

Operator

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

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