CenterState Banks, Inc (CSFL) Q4 2018 Earnings Conference Call January 23, 2019 2:00 PM ET
Company Participants
Jennifer Idell - Chief Financial Officer
Ernie Pinner - Executive Chairman
John Corbett - President and Chief Executive Officer
Steve Young - Chief Operating Officer
Conference Call Participants
Michael Young - SunTrust
Brady Gailey - KBW
Michael Rose - Raymond James
Stephen Scouten - Sandler O’Neill
Tyler Stafford - Stephens
Blair Brantley - Brean Capital
Operator
Good day, ladies and gentlemen and welcome to the CenterState Bank Fourth Quarter 2018 Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] As a reminder, this conference call maybe recorded. I would now like to introduce your host for today’s conference, Chief Financial Officer, Jennifer Idell. You may begin.
Jennifer Idell
Thank you. Thank you all for joining the call this afternoon to discuss the company’s fourth quarter financial results. Joining me in our presentation today are Ernie Pinner, Executive Chairman; John Corbett, President and CEO; and Steve Young, Chief Operating Officer.
I would like to remind you that our comments made today may include forward-looking statements. Any of those statements made by any of us this afternoon are subject to the Safe Harbor rules. You can review the Safe Harbor language in detail found on Page 12 of our earnings release. As a reminder you can find all of the documents that we discuss today on our website under the corporate profile tab of the Investor Relations section.
At this time, I will turn the call over to Ernie Pinner to begin the presentation.
Ernie Pinner
Thank you, Jennifer. Good afternoon, everybody. I want to thank you for calling in. But more importantly, I want to thank you for the interest you have in CenterState. From my viewpoint, we had a great solid quarter and this past fourth quarter indicated to me that we will have a good year in 2019 and vision 2019 is a year of stability with management focused on growth in loans and deposits, with a continuing growth of steady earnings. I based my feelings to this steady Eddie 2019 on the stability of the Florida economy as well as the team that we have here. When I think about the Florida economy, Florida posted their GDP in the second quarter and that’s that most recent that we can document, but that GDP growth in 2018, the second quarter is 4.5%, that has surpassed the national average of 4.2% and makes us ninth in all of the states within the union. The personal income growth, the third quarter more current was 4.3%, which was over the national average of 4% and put us in the 16th place throughout all the states in the union. Our population continues to grow. In April of 2018, which is the more current that we have, we surpassed 20.8 million people in Florida and we grew about a net growth of about a 1,000 people a day, 356,000 people. And that makes us the third most populous state in the union. Combined all that, I feel real good that as we start into 2019 and these are my people here who can put a lot more flavor and color to it and myself. So, John?
John Corbett
Alright. Thank you, Ernie. Good afternoon, everybody and thank you for making time to join the call. I am pleased to report that for the fourth quarter, CenterState produced a record net income of $51 million or $0.52 a share. If you exclude merger cost, net income improved to $52 million and earnings per share increased to $0.54. That left us with an adjusted return on assets for the quarter of 1.68%, a return on tangible common equity of 20%, and an efficiency ratio that remained constant at 50%. Several years from now, I believe that when we pull out the CenterState year book, I think we are going to remember 2018 for two milestones in our company’s history. First, is crossing the $10 billion threshold. And second will be the expansion into the Atlanta Georgia market.
In order to effectively cross $10 billion, we closed on three acquisitions in 2018 to take us to $12 billion in assets and pay for the incremental cost of Durbin. One of their legitimate investor concerns of bank M&A is the potential dilution to tangible book value. Looking back, we are confident that we made the appropriate moves at the appropriate time when we had a strong currency. The net effect of acquiring with a strong currency is that tangible book value per share grew by 11% in 2018 even with the completion of the three acquisitions. I think we are also going to look back and recognize that we made the appropriate move into Atlanta at the only time possible. As far as bank M&A is concerned, 2018 was the year of Atlanta. Six of the eight largest banks in Atlanta sold during 2018 and CenterState acquired two of the six, including Charter Financial and First Landmark as a part of the National Commerce acquisition.
Moving forward, we are going to have a $1.5 billion Atlanta Bank franchise with a great leader in Stan Kryder. After we close with National Commerce, the CenterState franchise will be anchored with a $4.5 billion deposit franchise along the Interstate-4 Corridor stretching from Tampa to Orlando to Daytona, a $1.5 billion deposit franchise in Atlanta and roughly $1 billion each in Miami and Jacksonville. So, we position the company to operate with a reasonable scale in some of the best growth markets in the United States. Things are progressing as planned with the National Commerce integration. Richard, Will and their team have been a pleasure to work with as we make plans to combine our banks in the next few months. With their past integration experience and our 19-year personal relationship, we are finding that it’s very easy for us to reach a consensus and make decisions to keep things moving forward. They released their earnings yesterday and experienced a great fourth quarter with loans increasing 11% annualized and deposits increasing 12% annualized with a stable NIM. Things are moving forward as expected with the regulatory and shareholder approval process with no surprises and we anticipate the closing will occur in the second quarter with the systems conversion in September.
As for CenterState, revenue trends were positive during the quarter led by our interest rate swap business, our mortgage team and deposit service fees. Loan production was up 22% compared to the third quarter resulting in net loan growth of 6%. We experienced approximately $60 million of higher loan payoffs in the fourth quarter than we did in the third quarter which slowed net loan growth by about 3%. Asset quality continues to improve with our NPA ratio trending down every quarter this year to finish the year at 22 basis points.
Now I will turn it over to Steve for a deeper dive into the revenue.
Steve Young
Sure. Thank you, John. Good afternoon everyone. I will report out on 4Q earnings and year-to-date results, our fourth quarter revenue results as well as our updated expectations for both the balance sheet and revenue for 2019, including the acquisition of National Commerce. Just to reiterate the fourth quarter results, for the fourth quarter, CenterState earned $0.52 a share, adjusted for merger costs, we earned $0.54 per share, which compares to $0.35 per share or a 54% increase over the prior year fourth quarter. As John mentioned, ROA was 1.68%, ROTCE was 20.2%, and efficiency ratio was right at 50%. As we look back for the full year, CenterState earned $1.76. Adjusted for merger costs, we earned $2.06, which compares to a $1.41 in 2017, which is a 46% increase. For the year, ROA was steady at 1.67%, ROTCE was steady at 20.5% and efficiency ratio was at 51%.
Now, moving on to revenue results. We had a nice pickup in revenue for both net interest income and non-interest income this quarter. Here are some of the components. Reported net interest margin increased 6 basis points to 4.37% in the fourth quarter versus the 4.31% in the third quarter and higher than our guidance of 4.15% to 4.25%. Loan accretion increased approximately $3.2 million from the previous quarter due to $1.2 million of additional cash income from PCI loan pool payoffs as well as a full quarter accretion from Charter acquisition. If you exclude all loan accretion on acquired loans, net interest margin was stable, down 1 basis point to 3.87% this quarter from the previous quarter with the full effect of the lower margin Charter Bank. This core margin did increase 7 basis points from 3.80% in the fourth quarter of 2017. During the quarter, the originated loan portfolio yield increased 6 basis points from the previous quarter, while new funded loan production yields increased by 11 basis points to 5.19%, even as John mentioned loan production increased 22% or $109 million from the previous quarter. Investment security yields increased 18 basis points for the quarter due mainly to the reinvestment of the Charter investment security portfolio in the current quarter.
Lastly related to margin, total deposit costs including DDA increased 9 basis points from the prior quarter to 51 basis points mainly due to the re-pricing of CDs and a higher rate environment along with the impact of higher Charter cost of deposits for a full quarter. Total deposit beta for the quarter, including non-interest bearing DDAs, was 36%. Total deposit costs are up 34 basis points from the bottom in rates in September of 2015, which represent a 15% beta. Total deposit beta over the last 4 rate hikes has been 27% as deposit costs have increased 27 basis points since December of last year.
Moving on to non-interest income, I am pleased to report that we have exceeded our stated goal at the beginning of the year of bringing non-interest income to average assets to 1% by this quarter. During the quarter, non-interest income as a percentage of assets increased from 96 basis points in the prior quarter to 105 basis points in this quarter. As you may recall, we started the year at 91 basis points, so a 14 basis point improvement from the beginning of the year due to the investments made over the last few years in these revenue streams. Recurring non-interest income more than doubled from the previous year fourth quarter even as the bank efficiency ratio continued to improve from 56% to 50%.
For the quarter, the $5.2 million increase was primarily due to correspondent banking revenue, mortgage banking revenue and the full effect of Charter on the quarter. Correspondent banking revenue increased $1.7 million from the prior quarter and $3.3 million from the prior year quarter mainly due to higher interest rate swap revenue. For our interest rate swap program, the fourth quarter marked a 47% increase in notional volume as well as an increase of 11 more client banks using the product than in the third quarter. Interest rate swap revenue and pipeline is strong and should continue to be a tailwind in a flat yield curve environment. Mortgage banking at non-interest income increased approximately $1 million from the prior quarter, but increased by $3.6 million from the fourth quarter of last year as we fully build out this line of business. New loan origination was a record $244 million compared to $180 million in the third quarter. Additionally, a full quarter of non-interest income from Charter Bank added approximately $2.7 million for the quarter.
Now, moving on to the 2019 balance sheet and revenue guidance. For the current quarter, loan growth approximated 6% and core deposit growth was 2%. As John mentioned, NCOM in their release last night showed a very solid fourth quarter with 11% loan growth and 12% deposit growth. We have reiterated our guidance for loan growth in 2019 to be upper single-digits, while total deposits are expected to increase mid single-digits. So there is no change in guidance from the previous quarter.
Secondly, net interest margin, for the current quarter, our reported margin was 4.37%, while NCOM was 4.74%, which combined would be 4.47%. Excluding all loan accretion on acquired loans, our net interest margin for the quarter was 3.87%, while NCOM was 4.47%, which combined for the quarter would result in a core margin of approximately 4%. Based on our forecast, we reiterate our net interest margin guidance of 4.15% to 4.25% before the closing of NCOM and to 4.25% to 4.35% after the closing of NCOM with a nice increase in core margin ex-loan accretion to approximately 4%.
Lastly, as we mentioned before, non-interest income to average assets was strong at 1.05% for fourth quarter, which increased from the prior quarter. We would expect to start the year around 1% and to continue to grow from there. NCOM has a non-interest income to average assets of 49 basis points, which combined would result in around 90 basis points before the effects of Durbin in the back half of the year.
With that, I will turn the call over to Jennifer to discuss non-interest expense, allowance for loan losses and taxes for the fourth quarter as well as 2019 guidance.
Jennifer Idell
Thank you, Steve. First, regarding non-interest expense, the company recorded $77.9 million of non-interest expense before merger-related costs compared to previous guidance of $75 million. This variance is attributable to three main items. First, as Steve mentioned, both correspondent and mortgage had increased revenue in the fourth quarter which resulted in increased variable compensation cost of approximately $1 million. As we mentioned in the earnings release, another $1.1 million is related to legal cost as we work through and finalized immaterial cases obtained from acquired banks. And finally, the fourth quarter typically has increased employee benefit costs such as incentive and health insurance accruals, which round out the remainder of the variance.
So as we look forward into 2019, we anticipate non-interest expense in the first quarter to be consistent with the previous quarter at $75 million to $76 million. We will fully integrate Charter Bank after the conversion of the core systems, which is occurring later this quarter. We expect to realize the remaining cost saves beginning in the second quarter as originally planned for Charter. As we anticipate the acquisition of National Bank of Commerce, we continue to expect cost saves of approximately $22 million per quarter to be fully realized beginning in the fourth quarter of 2019.
Next, provision expense and the allowance for loan loss. The company recorded $2.1 million of provision expense in the fourth quarter, which is within the range of previous guidance. Allowance for loan losses on the originated loan portfolio is 88 basis points. Credit quality remains good with non-performing assets consistent quarter-over-quarter at 22 basis points and net charge-offs for the full year 2018 were 2 basis points. As we forecast loan growth and credit for the first quarter, we anticipate provision expense to be approximately $2 million to $2.5 million.
Finally, the effective tax rate. The company’s effective tax rate in the fourth quarter was 23.8%, which is also in line with previous guidance. We anticipate the first quarter effective tax rate to be consistent between 23% and 24%. Thank you.
This concludes our discussion of the fourth quarter results. We are happy to answer any questions you may have at this time.
Question-and-Answer Session
Operator
Thank you. [Operator Instructions] And our first question comes from Michael Young with SunTrust. You may proceed.
Michael Young
Hey, good afternoon everyone and Ernie, glad to hear your voice back.
Ernie Pinner
Thank you.
Michael Young
Wanted to just start on the fee side, the mortgage production was very good and versus the industry down, I am just wondering if you could give a little more color on kind of the State Bank lift out team and what their production levels were and if any of the strength this quarter was kind of a pull forward of their pipeline that was moved over last quarter?
John Corbett
Sure, Michael. So, just to give you some stats maybe in total on the portfolio, I think last quarter – in the third quarter, we had about $180 million production. This quarter ended up around $244 million of production, 82% of that was purchased, 18% was retail. As it relates to the gain on the sale, if you have netted it together is around 2.6% and of the production the $244 million about two-thirds of that was secondary production and a third of that was portfolio. So that’s what if you do the math on that that will generate your $4.2 million. If you looked at the state of our mortgage operation at the end of the fourth quarter, we have around 62 originators, of which I forget the number, but it’s somewhere around 17 or 18 State Bank originators. So, it makes up roughly a quarter of the origination staff, maybe a little bit more 30% of the origination staff. But hopefully that helps answer your question.
Michael Young
Okay. So it was generally just good production, not necessarily some accelerated closing on the pipeline that was pulled over?
John Corbett
No, it was good, locks all the way through and we actually lifted that team out in the middle of September. So, this is really the second full quarter of those originators being involved.
Michael Young
Okay. And then similarly just on SBA obviously, I think the industry as a whole has been facing a little more challenges there and that had been a decent growth area for you all. Can you just talk about the strategy going forward doubling down in that area or do you look to kind of just pullback there any outlook?
John Corbett
Yes, we look at that as – it’s been a small piece of our business, but something that we want to grow, it’s back to these fee lines of businesses, the stuff that we’ve invested in I think we’ve increased from about a year ago, we had about two or three originators, now we have 12. And then of course with National Commerce, we’ll add to that so we’re looking forward to grow in that piece of business, that’s a natural add on to what we’re doing I think this year, we did a little less than $50 million in production I think it was $45 million, and I think next year, we’re looking to try to get to $75 million or $80 million of production obviously, those margins have come under pressure and of course with the government shutdown, we’re not able to sell loans right now, but I imagine that’ll ease up so I’ve imagined over a full year, you should see good growth year-over-year.
Michael Young
Okay. And last one just on deposits, there is a bit of DDA outflow this quarter, was that just kind of year-end movement from companies or are you seeing a little bit of attrition on some of the acquired deposits? And then any outlook I guess in the next year on betas overall have increased to 34%, but you’re going to broaden the markets that you can draw deposits from, so will that help on the deposit cost and funding going forward?
John Corbett
Sure. Yes, if you looked at the last if you looked at our average balances for the for DDA for the quarter, I believe they were slightly over $3 billion, $3.50 billion or so I think our ending balance was in the $2.9 billion something range, which is probably what you’re talking about I think there was some outflows at the last calendar day or two, some of that’s picked back up there were some correspondent bank things that move around some, but we’ll see if that’s a trend but I think the average for the quarter if you look at that is pretty consistent quarter-over-quarter as it relates to betas, this quarter again, it was 36%. I want to say that National Commerce is slightly higher than ours so if you think about the NIM related to guidance from us and National Commerce, National Commerce has a bit more asset sensitivity on the asset side so their floating rate loan percentage is 35% versus our 29% so you get a little bit better on the asset side, but their betas are slightly higher than ours and so you kind of come back to the same place for the same for the different reason but I would say those betas somewhere in that 30% to 35% range probably make sense going forward, especially if the Fed stops raising.
Michael Young
Okay, thanks so much.
Operator
And our next question comes from Brady Gailey with KBW. You may proceed.
Brady Gailey
Hey, it’s Brady. Good afternoon guys.
John Corbett
Hey Brady.
Steve Young
Hey Brady.
Brady Gailey
So maybe I can just start on fee income, it’s nice to see it clearly above 1% this quarter, but kind of as you all said, once you add NCOM in there it goes down to 90 basis points, then in a post Durbin world for you all, it’s less than 90 do you think that over time, you’ll be able to get back to that 1% level? Or are you thinking about fee income differently now that you’re over $10 billion and you have NCOM in the mix?
Steve Young
No, but it’s a similar strategy and the holistic strategy there is to make sure we have diversified revenue streams over a long period of time, particularly as we go through interest cycle so interest cycles go up and go down sometimes NIM is better, sometimes it’s worse but we would love to see our non-interest income get to back to 1% and we’d love to see fee revenue as a percentage of total revenue to be in that 25% range that’s going to take time on a bigger balance sheet to grow back up but from – fundamentally from a goal perspective, that we want to strive to get back to that point.
Brady Gailey
And is that something that do you think could happen by 2020 or is it more longer term than that?
Steve Young
Yes, we haven’t really, I’d say forecast on that. I think it’d probably be a little steadier than that, maybe 5 basis point increase or something like that year-over-year but I think ultimately, what we’ve tried to do over these last two years that we knew we were going to have some growth from acquisition or we felt like we would we wanted to build platforms that we could add to so that’s the point on mortgage, that’s the point on SBA we didn’t really have much of a platform at all, two years ago, we wanted to build the infrastructure so that we could add on so we could grow fee income and so we are not really able to forecast out 2020 but I would imagine that we like to grow everything good 10% around here so if we can do that, we should probably be able to get there within a reasonable time period.
Brady Gailey
Alright. And then John, you mentioned how active you guys were on the M&A side in 2018. You know, a lot of that was Atlanta as you look to 2019, with all of the acquisitive hat just happened and NCOM hasn’t even closed yet, I mean do you think you’d take a breather on the M&A front in 2019 or do you expect to continue to be kind of just as active as you have always been?
John Corbett
I think 2019 Brady, will be a year of integration for us I think we kind of make the case of the activity levels we’ve had in the last two years were to get us over $10 billion and to get us to Atlanta we have accomplished those goals, and we did it when there was inventory available, the amount of inventory has dwindled considerably so I think 2019 will largely be a year of integration.
Brady Gailey
Alright. And then finally for me, I use Interstate as my best idea for 2019 I think almost all your sell-side analysts did the same so congrats on the that but one of the push backs that I get pitching your story is just hey, it’s mostly a Florida franchise if you look at where we are in the cycle, it feels like we’re talking peak cycle timing and Florida is known to be more of a boom-bust state, and I just get a little push back so I’d love to just get your thoughts on kind of where you think Florida is. I mean, do you think it’s frothy? Do you think we could see any sort of near-term correction in real estate values or any economic weakness or is the market being too negative when they think about Florida?
John Corbett
Yes, great. Thank you for the confidence to name us a best idea and the other analysts as well and we pass that on to Will and Richard, and Will commented back that the pressure is on we want to make you guys look good so you’re putting a lot of pressure on us but thank you for the confidence as far as the credit cycle and as far as Florida, I’ve spent the last week or two talking with our regional Presidents and asking them that very same question, Brady that you’re raising, and the general answer that I’m receiving is when they talk to their clients is, there is not a canary in the coal mine event right now nobody sees a clear elevated risk that causes concern from a real estate cycle standpoint the thing that we’ve been pointing to for two or three quarters that we’re watching closely now is the cap rates have dropped pretty low in south Florida and Miami, but they’re still pretty reasonable in Central and Northern Florida and in Atlanta so that’s something that we’re watching, right now, all the trends are positive one of the comments I received back Brady from one of the regional Presidents in Georgia, Lee Washam, that I thought made a lot of sense, just thinking about the client appetite to invest and borrow right now after the fourth quarter volatility in the equity markets and I thought he phrased it pretty well you really need to look at it differently from operating companies to real estate companies operating companies are receiving orders they’re bullish, they’re growing their business and things are good I think that real estate investors potentially got spooked a little bit by watching what was happened in the equity markets in the fourth quarter and we might see a little bit of a pullback in commercial real estate investment, which might be okay so for us, in the fourth quarter, we actually saw our non-owner occupied CRE and construction portfolios decrease while our owner-occupied C&I and consumer portfolios increase so, that gives you a little bit of flavor for what’s going on in the street.
Brady Gailey
Great. Thanks for the color guys.
John Corbett
Sure.
Operator
And our next question comes from Michael Rose with Raymond James. You may proceed.
Michael Rose
Hey, guys. How are you doing?
John Corbett
Good, Michael.
Michael Rose
Good. Maybe just following up on Brady’s question and this was something you have talked about in the past, John you have mentioned that you could grow probably 2x if not more, but the focus has really been on the highest quality credits now I guess in the context of no signs of any real deterioration at this point, do you think you maybe put the brakes on too soon? And then as we move forward, given the higher C&I mix at NCOM, I mean do you actually see better opportunities outside of Florida on the loan growth side specifically as it relates to C&I? Any color would be great. Thanks.
John Corbett
Yes, sure, Michael. We’re paid to be cautious and to be forward-looking and look for risk in the future. We’re not seeing any clear risk. We’re not seeing an abundant supply in any particular area. It seems like there has been a little bit of a wall of worry the last couple of years, which is a healthy thing in the latter part of a cycle. And as we’re seeing some of these commercial real estate projects start to – the amount of new activity maybe moderate a little bit. I do think headed into 2019, as I mentioned in my prepared remarks with National Commerce, we are bulking up the franchise in the metro markets in Atlanta, Orlando, Tampa, Jacksonville. So those are going be growthier markets than some of the suburban markets. So I feel like it’s appropriate for CenterState to continue to push and be thinking about upper single-digit growth.
Michael Rose
Okay, that’s helpful. And then maybe just one clarification on the margin, I just wanted to make clear what your outlook assumes and what it does, and I mean, are you including any rate hikes, what are you assuming for the shape of the curve et cetera?
Steve Young
Sure, Michael, it’s Steve. As it relates, if you put National Commerce and us together at the fourth quarter, our core NIM would be around 4%. And so without any rate hikes, if you – our assets and liabilities sensitivity is about the same as a combined company as a stand-alone. So flat, no more rate hikes basically, I wouldn’t expect any margin expansion or detraction. If you – we get 25 basis points or 50 basis points, I’d expect 1 basis points to 2 basis points of margin expansion for each of those hikes if we get them. But I would say based on what we look like today, flat would be probably inappropriate, core margin to look at and then from an accretion perspective approximately 30 basis points or so on a pro forma basis.
Michael Rose
Alright. Maybe just one broader one for me back to John. You guys have grown pretty substantially over the past 10 years, it’s been nice, it’s been a great story to watch. How is the culture change, and as you execute in this metro market strategy clearly the credit size has gone up, is there any concerns around that and just broadly speaking, how was – how do you maintain the culture as you build at the firm? Thanks.
John Corbett
You bet, Michael. We have grown rapidly and that’s the challenge for Ernie, myself, other leaders in the Company to continue to maintain the culture that attracted people to us in the first place and that’s why we made it our number one priority of our top four priorities. The last 2 years, we brought on David Salyers from Chick-fil-A, who kind of led a lot of that effort for them, for Chick-fil-A, and then also Jody Dreyer from Walt Disney Company to our Board and our culture committee. So one of the steps we take to work on the culture is an engagement survey process. I think we had 86% response rate to our engagement survey last summer. A lot of great constructive feedback. I’ll tell you that the top responses from our employees were that CenterState is going in the right direction and CenterState operates from a set of strong values. The area that we were weakest from a feedback standpoint from our employees was CenterState Bank does things efficiently and well. So I think that speaks to the rate of growth, but I think it’s much more important that they feel like we’re going in the right direction. And as we work through this year of integration continuing to improve how well and efficiently we do things, but then continuing to look to companies we admire like Chick-fil-A, Southwest Airlines, Publix and try to learn as much as we can from them.
Michael Rose
Great. Thanks for taking my questions.
John Corbett
You bet.
Operator
Our next question comes from Stephen Scouten with Sandler O’Neill. You may proceed
Stephen Scouten
Hey everyone. How are you doing?
John Corbett
Good, Stephen.
Stephen Scouten
Good. I was curious if you guys could give a little color around the composition and growth from a geographical perspective, maybe how much Atlanta in particular contributed to the uptick in origination levels and if there was any material change in kind of average loan size this quarter versus the previous?
John Corbett
Yes. Stephen, it’s John. I kind of give you the information the way I’ve got it presented in front of me. For 2018, our top markets, number one was Broward County, Fort Lauderdale; number two was Orlando; number three was Lakeland; and number four was Tampa, from order of highest production. From a pipeline standpoint, our biggest growth in our pipeline has been in Jacksonville. Atlanta has been – we just entered Atlanta with Charter last quarter, in the third quarter. So we’re in the process of integration there, so I don’t know that we’ve got enough of a length of data to show you trends yet in Atlanta, but we’re bullish that, that’s an area that we’re going to continue to hire lenders and continue to grow, and like I said, we’re very excited to be working with Stan Kryder, who will be our leader up there. Ernie and I were talking about it before the call back when we all work together at First Union 25 years ago. So we’re excited to work with Stan.
Stephen Scouten
Okay, nice. And just in terms of average loan size with that five – any changes there?
John Corbett
Yes. So the average loan balance in the company is $200,000, so it’s pretty granular, pretty low. But I would tell you that each quarter as we continue to grow that, that average, new production is drifting up. I don’t have the exact number, but it’s not to the point where it’s getting chunky. If you look at our top 25 loans in the company, relationships, it gets down to around $10 million or $12 million at that number 25 range. So I’d say you’re going to see more and more loans that are be in that $3 million, $5 million, $7 million, $8 million range. So it will drift up, but it’s not going to – we’re not going to bet the farm and make it a chunky balance sheet.
Stephen Scouten
Okay, great. And then maybe just thinking about potential for share buybacks, I know you guys haven’t really been able to take advantage when the stock has been lower than it is today, but I’m curious kind of what your willingness is regarding share buybacks today and maybe even how feasible that is today with the pending merger?
John Corbett
Yes, great question. We put a share buyback plan in place back in 2017, I think was when the hurricane came through and the stock really dropped. We’ve reaffirmed that a matter of fact it was in the 8-K today that we have that available to us and we intend to keep that option available. But to your point we are limited on how we can exercise buybacks right now with the pending deal with National Commerce. So we’re really going to have to get through that National Commerce deal and then look at the stock where it is, but I wish we were in a position to buy back in December we would have.
Stephen Scouten
Got it. Okay, very helpful. Thanks so much for the color.
John Corbett
You bet.
Operator
And our next question comes from Tyler Stafford with Stephens. You may proceed.
Tyler Stafford
Hey. Good afternoon, everyone.
John Corbett
Hey, Tyler.
Steve Young
Hey, Tyler.
Tyler Stafford
Hey, I just want to be super clear on the margin guide, so the context of how you presented the 4.15% to 4.25% guide for the near-term before NCOM closes, was the 3.7% core NIM. So I want to be clear the 4.15% to 4.25% and then 4.25% to 4.35% with NCOM, is that GAAP or core?
John Corbett
Yes. So sorry Tyler, if I was confusing there. So the 4.15% to 4.25% before NCOM is GAAP. Core is at 3% in that same flat range, where we are at 3.87%. When you include NCOM on the reported or excuse me the GAAP number, that ranges from 4.25% to 4.35% when we get those – when we close sometime in the second quarter from then on.
Tyler Stafford
Okay, just wanted to double check. And then any idea yet how much the incremental CBI piece if you guys did decide to exercise that the remaining 30% ownership would impact the margin?
John Corbett
We’ve modeled that. I don’t have that number in front of us, but we have modeled that out.
Tyler Stafford
Okay. But it’s – is or is not included in the margin guide as it stands today?
John Corbett
Yes. It’s – I think we’re expecting all things being equal that will happen. So that’s included.
Tyler Stafford
Okay, got it. Is there any remaining balance sheet repositioning from Charter, that’s left to go?
John Corbett
No. We took an opportunity and glad we did in the fourth quarter to reinvest their securities portfolio early on when reals were a little higher. So we did that most of that reinvestment in October and first part of November. So there’s nothing, no other positioning, no selling of loans or anything like that, so we would be doing.
Tyler Stafford
Okay. And then just one on operating leverage, obviously, Durbin after July is going to hurt the revenue side, but do you still think that you can drive positive operating leverage despite Durbin this year?
John Corbett
When you – just to make sure I’m clear, when you say drive positive operating leverage, is that what you’re saying continuing to keep over a 1% non-interest income to average assets or what do you mean?
Tyler Stafford
I guess I was thinking about more in the context of further improvement in the efficiency ratio?
John Corbett
Oh, yes, got it, yes, I understood what you’re saying. Yes. So I guess, for us, if you think about putting National Commerce and us together and if you think about the consolidation of the systems happening in the third quarter, by the fourth quarter, we should be fully phased into that and we believe that we would have upside to the efficiency ratio, I think this quarter, it was slightly over 50%, but we could get in the high 40s as we get everything consolidated together.
Tyler Stafford
Got it, very good. And then just last one for me, any early stab or attempt color you could share on CECL impacts?
Jennifer Idell
So, yes, this is Jennifer. So currently, we’ve been working through our models and doing that. We’ve done a kind of a first look at our financial impact, but we’re still working through that, so we’re on track with that, but we’re not in a position to kind of talk about the financial impacts of that yet, but we’re doing that. We did that in the fourth quarter and we’re continuing to work through that. So we’re on track with that. I think the goal is to continue to run parallel with CECL versus the allowance all throughout 2019 in preparation for the Jan 1, 2020.
Tyler Stafford
Understood. Thanks so much.
Operator
And our next question comes from Blair Brantley with Brean Capital. You may proceed.
Blair Brantley
Good afternoon, everyone.
John Corbett
Hello, Blair.
Blair Brantley
Just a quick question on your deposit growth outlook, you are calling for mid single-digits, correct?
John Corbett
Yes.
Blair Brantley
Can you give us kind of a sense as to what you think from a mix perspective may happen or kind of what you’re expecting and also maybe a view as to what kind of rates are necessary out there to really grow deposits?
John Corbett
Sure. As I think about this past year, Blair, just to around your deposit question, we started out this year pro forma for the two acquisitions around 85% loan-to-deposit ratio and our idea was to drag deposits as best we could early in the year to get some – we’ve had 7 basis points, 8 basis points of margin expansion over the year, and as you recall in our acquisitions, we’ve consolidated approximately 40 offices in this past year. So there’s been a lot of I call it disruption and maybe a little bit of focus in the offices as we’ve combined a lot of offices together. So as you think about going forward, we clearly have an expectation around deposit growth and particularly checking accounts and particularly below that is small business checking accounts, not that we’re – we are building out some treasury management systems for some of our metro areas and we – and our HOA business is very good. But if you think about where the lot of the growth will come will be in the small business checking area and that’s where we incent most of our growth. So I don’t know – from a putting it on rate perspective that’s going to be market specific, but I’d say generally, money market rates in our place is somewhere between 1.5 and 2, and CD rates are somewhere in the 2.25 to 2.50 range in the 12-month to 15-month range. So that’s where those new deposits generally are coming on there.
Blair Brantley
Okay, great. Thank you.
Operator
Thank you. That concludes our Q&A session for today’s conference. I would now like to turn the call over to John Corbett for any closing remarks.
John Corbett
Alright. Thank you very much for joining us today. Appreciate your interest in the company. We will be traveling and I think there is a conference with KBW in Boca Raton and Raymond James in Orlando during the first quarter and we hope to see you there. Have a good day.
Operator
Ladies and gentlemen, thank you for attending today’s conference. This does conclude the program and you may all disconnect. Everyone have a great day.
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