CenterState Bank Corporation (NASDAQ:CSFL) Q1 2019 Results Earnings Conference Call April 24, 2019 2:00 PM ET
Jennifer Idell - Chief Administrative Officer
Ernie Pinner - Executive Chairman
John Corbett - President, CEO & Director
Steve Young - Chief Operating officer
Richard Murray - Chief Executive Officer
Will Matthews - Chief Financial Officer
Conference Call Participants
Brady Gailey - KBW
Stephen Scouten - Sandler O'Neill
Michael Young - SunTrust
Michael Rose - Raymond James
Joseph Fenech - Hovde Group
Tyler Stafford - Stephens
Good day, ladies and gentlemen and thank you for standing by. Welcome to the CenterState Bank's First Quarter 2019 Earnings Release. At this time, all participants are in a listen-only mode to prevent background noise. [Operator Instructions]. Later, we will have a question-and-answer session.
And now it's my pleasure to turn the call to Jennifer Idell, Chief Administrative Officer. You may begin.
Thank you. We appreciate everyone joining this call this afternoon to discuss the company's first quarter financial results. Joining me in our presentation today include Ernie Pinner, Executive Chairman; John Corbett, President and CEO; Steve Young, Chief Operating Officer; Richard Murray, CEO CenterState Bank; and Will Matthews, Chief Financial 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.
Thank you Jennifer. Good afternoon everyone. I want to thank you for calling in. Your interest is certainly one important to us, so we thank you for that. I’ve just come in to say that we had a very busy quarter, when you think about the management closed and converted to CharterBank which was part of the Georgia operation, that’s a good group of bankers and they melt well into our company, does also lots of busy activity as the management prepared for the closing of NCOM and as you are aware we did close that on April the 1st. That’s also an excellent group of bankers that get very well into this company and make us strong overall. Because from my viewpoint the last several months have confirmed in my belief in the extraordinary leadership throughout the bank. The legacy leadership working in tandem with both Charter and NCOM has melted the cultures and the leadership into very viable and promising group for our future.
And I take a lot of comfort in that and is visible to me and I think it would be visible to you even today here are some of the remarks that will give you more color into some of the things they've released last night.
So, I'm going to turn this over to Mr. Corbett.
Alright. Thank you Ernie. Good afternoon everybody and thanks for making time to call in. We did closed the acquisition of National Commerce on April 1, so they did not prepare separate earnings release for the first quarter, so what we're going to do is briefly report on the CenterState quarter and then we'll ask Richard and Will to give you an update on National Commerce.
We’ve filed a separate investor deck along with the earnings release that we attempt to provide you with some of the results of both companies, including the balance sheet and income statement for National Commerce for your reference. For the first quarter, CenterState produced a net income of $44.6 million or $0.46 per diluted share. If you exclude the merger costs, net income improved to $49.5 million and earnings per share increased to $0.51.
The adjusted return on assets for the quarter was 1.6%, the return on common equity was 18.5% and its efficiency ratio landed at 52%. And are also very pleased to see continued growth in tangible book value per share, which is up almost 19% in the last year.
As Ernie mentioned, it was a busy quarter for our team as we prepared to close National Commerce on April 1. But we also completed the systems conversion of CharterBank in February, which added about 65,000 checking accounts onto our platform. Combined the company is now $17 billion in assets with 163 branches in the highest growth markets of Florida, Alabama and Georgia.
Now that we have converted Charter, those cost savings will be achieved in the second quarter and the National Commerce conversion is still on track for September, so those cost savings will be achieved as well in the fourth quarter. We still are confident that we will achieve the cost savings that we modeled in each deal.
We've been friends with Richard and Will for almost 20 years now, but they’ve only been a part of the CenterState team officially for less than a month and I’ve made a point to sit back and observe their commodore with our executive team over the last several months and it’s very much like they've been a part of CenterState team all along. So I couldn't be more excited about the team we've built and the markets that we will serve over the next several years.
Deposit growth was solid for the quarter with demand deposits up $229 million and non-CD deposits up 9%. Loan production softened from the fourth quarter and growth was flat but we don't feel like that's a trend and believe that the production will return to the levels we saw in the fourth quarter.
So I'll stop there and I will turn it Steve for a deeper dive into our revenue.
Thank you John. Good afternoon, everyone. I will report out on the first quarter earnings results as well as our first quarter revenue results, including net interest income and non-interest income. As John mentioned for the first quarter, CenterState earned $0.46 per share, adjusted for merger costs, we are at $0.51 a share, which compares to $0.50 a share in the prior year first quarter.
Adjusted ROA, ROTCE and efficiency ratio for the quarter was solid at 1.63%, 18.5% and 52% respectively.
Now moving on the revenue, reported net interest margin increased 3 basis points to 440 in the first quarter versus 437 in the fourth quarter. Excluding all loan accretion on acquire loans, net interest margin improved 3 basis points to 390 this quarter.
During the quarter, the originated loan portfolio yields increased 10 basis points from the previous quarter to 487, while new funded loan production yield increased by 15 basis points to 534, which remains accretive to our originated loan portfolio yields.
Investment security yields increased 8 basis points for the quarter, mainly due to the full quarter effects of the reinvestment of the Charter investment portfolio.
Lastly, total deposit costs including DDA increased 6 basis points from the prior quarter to 57 basis points. Total deposit beta for the quarter including non-interest bearing DDAs was 24%, which decreased from 36% in the prior quarter.
Moving to non-interest income. During the current quarter non-interest income as a percentage of average assets declined from 105 in the fourth quarter to 96 basis points in the first quarter. But this also improved from 91 basis points in the prior year first quarter or approximately $6.3 million. For the quarter, the decrease was primarily due to a decrease in correspondent banking revenue, seasonal changes to deposit service charges and a decrease in other non-interest income.
Correspondent banking revenue decreased $900,000 for the prior quarter, but increased $900,000 for the prior year first quarter, primarily due to the change in interest rate swap revenue. As you’ll recall this revenue fluctuates between the quarters.
Interest rate swap revenue and pipeline is strong and should continue to be a tailwind in the flat yield curve environment. Mortgage banking non-interest income was flat for the prior quarter, but increased by 1.6 million from the first quarter of 2018. The mortgage pipeline is strong going into the second quarter.
Service charges and card income were down seasonally, but increased significantly from the first quarter of last year due to continued organic growth in checking accounts and the positive impact of the Charter acquisition.
So with that, I'll turn the call over to Jennifer to discuss allowance for loan loss and balance sheet expense results for the quarter.
Thank you Steve. First, provision expense and allowance for loan losses. The company recorded $1.1 million of provision expense in the first quarter, which is less than previous guidance, mainly due to the lower loan growth in the quarter. Non-performing assets increased $11.6 million in the quarter of which $9.4 million represents administrative delayed renewals of acquired loans. Management expects the majority of these loans to return to performing status after renewal. Net charge-offs for the first quarter were 4 basis points annualized.
Second, non-interest expense, the company recorded $78.1 million of non-interest expense, excluding merger related costs of $6.4 million. This is slightly higher than anticipated due to a few main items: There were $800,000 in payroll tax expense paid on annual incentives in the first quarter; we had $400,000 less credit in deferred fees due to lower anticipated loan growth; the company experienced $300,000 in fraud losses in the quarter; and finally, we incurred $300,000 additional FDIC insurance expense due to the larger bank status over $10 billion, which came into effect this quarter.
Additionally, as John previously mentioned, we completed the integration of CharterBank in the first quarter and are in line with expected cost saves. Finally, the company's effective tax rate in the first quarter was 23%, which was also in line with previous guidance.
Now I'll turn the call over to Richard Murray.
Thank you, Jennifer. As John said, the official close was April 1, but we're really almost five months into the integration of the two companies. And while no two companies are identical, our initial thoughts about how these two companies would come together have only been reinforced as both teams have been working very closely together since that late November announcement and we've really made a ton of progress. The legacy CenterState team has done a great job of welcoming and orienting the National Commerce team and we're all very excited about the future together continuing to build this bank.
So, I'll make a few comments about changes in our balance sheet in the first quarter for National Commerce and then I'll turn it over to Will to make some comments about the income statement. While our quarter one loan and deposit growth has traditionally been soft at National Commerce, we had a pretty decent first quarter and growth in both of those categories and feel pretty good about the environment. Loan growth was 43 million in the first quarter, 5.3% annualized from Q4. Average loans were up just under 10%. The growth was primarily In Alabama and Central Florida with the largest increases in one-to-four family first mortgages as well as non-owner occupied CRE.
The loan production was strong at $150 million and pay off well not as high as what we experienced in Q4, were higher than what we had experienced in Q2 and Q3 of last year. Deposit growth was about $59 billion, 7% annualized from Q4 and was spread pretty evenly across our markets, the bulk of that net deposit growth was in interest bearing checking accounts. This is not unusual for our Q1 deposit growth, if we lose a fair amount of non-interest bearing as well as some interest bearing municipal deposits that build up through the fourth quarter and empty out generally pretty quickly in the first quarter.
Asset quality remains in good shape. Well, I had one meaningful non-performer added to the list in the first quarter was $2.3 million acquired loan, it was a C&I loan that we feel like it's fully secured. Economic environment still feels good, pipelines are either steady or growing depending on the market. But that said, we're all cognizant of the business cycle and the realization that credits underwritten today will likely go through the next downturn regardless as to how severe or not that downturn will be.
So now I'll turn it over to Will to give every couple income statement comments.
Thanks, Richard. Just a quick run on National Commerce's first quarter, our net interest margin taxable equivalent was 481, which is up seven basis points from the fourth quarter of last year. If you exclude accretion and some of the accelerated loan fees associated with the April 1 closing our core NIM was 445 which is down two basis points from the fourth quarter.
Our loan yields were 599 which is 11 basis points up from the fourth quarter of '18 or up three basis points if you exclude accretion in those accelerated loan fees I mentioned. The bank only core loan yields excluding the factoring portfolio were up six basis points, excluding accretion and the accelerated loan fees. The yields on the banking portfolio continued to be strong in the quarter but it represents a smaller percentage of the overall interest income in the quarter about 9% versus 10% in the fourth quarter.
Our deposit costs were up nine basis points from Q4 at 89 basis points for the first quarter. On the non-interest income side, we had a record quarter in our merchant sponsorship business where we had revenue of about 1.1 million versus and 835,000 in the fourth quarter and 720,000 in the year ago quarter. On the mortgage business, we also had a solid quarter, which is up slightly from Q4 and Q1 of '18 levels. Additionally, you'll see when you look at the income statement in the slide deck for National Commerce, other non-interest income included a $1.4 million write-off of servicing rights associated with the SBA portfolio and that's of course merger-related. And as you might expect the first quarter was rather messy with respect to non-interest expenses due to the merger, including -- if you exclude expenses related to the merger, Looks like our first quarter's normalized NIE was around $28 million.
Lastly, I just want to reiterate Richard's comments about our team's excitement about the opportunity to be a part of this company and the excitement we have looking ahead.
So with that, I think we're ready to take questions.
[Operator Instructions]. And our first question is from Brady Gailey with KBW. Your line is open.
So I know NPAs went up a little bit linked quarter on the CenterState side, I think in the press release you talk about some administrative delays and renewals. Could you just provide a little more color behind that NPA increase and it feels like as soon as those get worked in the renewable process, those will come right back out of NPAs, is that the right way to think about it.
That's correct. Brady, this is John. Yes, typically from an accounting standpoint if a renewal goes 90 days past due, we immediately put it on non-performing status even if we're planning on renewing it and we had a series of acquired loans this past quarter. We're -- looking back we should have just renewed them for another 90 days in order to collect financial statements. We find sometimes that our documentation and financial statements requirements maybe more than the customers are used to from an acquired bank. So looking back, we should have just renewed those another 90 days and not even had them on the NPL list and we plan to get them renewed and not have them on there in the second quarter.
So we don't see it as a deterioration of asset quality. It was more an administrative issue that we didn't cleanup.
All right, that makes sense. But I know we have been talking about a net interest margin range for CenterState of 415 to 425 with income adding about 10 basis points to that. So that takes up to 425 to 435. But also realize the yield curve and the outlook on rates has changed a lot from when we were talking a quarter or two, i guess, maybe just an update on how you're thinking about the NIM going forward with income in the fold?
Sure. Brady. This is Steve. You know, as you mentioned that, you know, just to kind of put in the two pieces and parts together, the current quarter, our margin -- reported margin was 440 while income -- accelerated loan fees recorded was around 447. If you exclude all the loan accretion on acquired loan, our net interest margin was 390, while income was 445, which combined for the quarter would result in margin of approximately 4%. So just to kind of finish the thought, based on our forecast, we continue to reiterate our net interest margin guidance reported from 425 to 435, with the core margin ex loan accretion from 395 to 405, so no change in prior guidance.
All right. And then with National Commerce again included, I think your fee to average asset ratio is around 90 basis points. So it's below the 1% target, and the 1% level that CenterState has been operating at, how quickly do you think you are going to be able to get that 90 basis point ratio back up to the 1% level?
Sure, Steve, again. I think this quarter our non-interest income to average assets was around 96 basis points, a little bit below one but that fluctuates with some of the seasonal lines of business. National Commerce is around 50 basis points. So if you just kind of add them together, we are between 85 and 90 basis points, post Durbin, I would say that it's a goal of ours to move non-interest income to average assets back up, but we don't have any particular target in mind in order to move it back over one, clearly with a $4 billion acquisition to get those assets to have a 1%. from 50 basis points it's going to take some time. So there's no expressed goal other than we try to grow organically. But really just a basis but no particular guidance or goal there.
Thank you. And our next question is from Stephen Scouten with Sandler O'Neill. Your line is open.
I wanted to just follow-up on that NIM guidance. Obviously, I understand you're kind of leaving at the same, but also note that you're well above kind of that 415 to 425 range today. So what exactly is anticipated in there that kind of brings down I guess stand-alone CenterState from 440 to that 420 sort of range that we're not seeing in there today. Is there a buildup of increased deposit costs or is it on the funding side or what kind of color can you lend to that?
Let me start, Stephen. Let me try to summarize. So if we think about core margin, we do see an increase from our 390 level to 395 to 405. So we see an increase in the core margin. As you think about reported margin, I think our reported margin for last quarter is 440. What we're guiding to is 425 to 435, which is similar that we had last quarter. The reason is, as we think about accretion and create accretion, sometimes it's highly unpredictable, but the marks that we have on National Commerce and because of the size of the acquisition, the accretion as a percentage will be less just going forward. So that's where it takes it from 48-49 basis points down to something low, almost half of that. Just because...
Got it. Okay. Yes, that make sense, great, thank you. And then just any color you guys can give on the loan production this quarter? Were there any kind of things worth noting that led to the lower production and what gives you confidence that those production levels will indeed kind of ramp back up to 4Q levels next quarter as you noted?
Sure. Hey Stephen, this is Richard. The overall loan production in the quarter was pretty good. It was 600 million in the combined company and loan production tends to be a little seasonal with it being softer in the first half of the year or so than the second half. And well, pay-offs were elevated versus 2018, as a whole they were mostly flat. So that's not a big component of it, but the pipelines are still very strong. At CenterState the legacy pipeline bears up 20% compared to the fourth quarter. The economy still feels pretty good. It's not really accelerating like it might have been in parts of the year last year, but it's not declining either. But there are competitive pressures out there and I do feel like -- we do feel like that the competitor pressures are increasing. But we are very mindful of where we are in the credit cycle and so, we're keeping that all in front of us, but we do expect loan growth in the second quarter to be more pronounced than it was in the first quarter, still expecting or expecting a mid-to-high single-digit growth going forward from today. And so for the year being closer to mid-single digit, but I don't know if there is any one thing, to answer your question at the beginning that kind of played a role. There are a lot of things that play a role. It's kind of loan growth can be seasonal, it can be lumpy and there also in credit discipline that we feel like we have especially at this point in the cycle. And so that's kind of all plays a role.
Okay, helpful. And then maybe just last thing for me. On the expense side, obviously heard Jennifer's comments about some of the items that caused the range to be higher than expected, but can you remind us what the cost saves are from Charter that should come out in 2Q and kind of any renewed guidance around what that expense run rate should be on a combined basis?
Yes. So we should be looking in the range, we realized some of that already. So we're looking at about 2 million or so, a quarter coming up starting in the second quarter from Charter.
Okay, and are you given a kind of combined expense range, kind of at the starting point or where we look in there?
Steve, this is Will. You got to keep in mind that we closed the -- our acquisition -- the income acquisition on April 1, the conversion for income will be the third week in September. So really won't start to see any of the cost saves from us to speak of until you get into the fourth quarter. So it will be -- our run rate pretty much staying like it is for another couple of quarters before we really start to see cost saves out on the income side. But then we are -- as Jennifer said earlier, we -- the Charter cost saves look like we're right on track of -- on top of what we modeled and we hope to be able to report the same when we get to the fourth quarter on the income cost saves as well.
Thank you. And our next question is from Michael Young with SunTrust. Your line is now open.
Wanted to follow up on the purchase accounting accretion kind of discussion. First, is there anything within the income loan book or some of the acquired loans where they're shorter duration loans or something where the PA will fall off more quickly for certain portion of that and we should expect that under the next quarter or two, or any kind of color you can provide there?
Hi, Michael, this is Will. Really, if you look at our two loan portfolios, they're remarkably similar. The only exception will be our factoring portfolio, but that is so short that you -- that all the impacts of it are felt within the first 90 days, because that average turnover that book is 43 days.
So if you mark a factoring receivable, you pull the mark back in by the end -- by that quarter. So, that doesn't really impact it at all. But if you look at the two core loan portfolios, they are remarkably similar. So no, there's not anything there. I think what Steve was referencing is that the mark -- we haven't finished the fair value marks but the expected fair value mark for the income loan portfolio will be lower as a percentage of total loans than what we have typically seen and some of our previous acquisitions. So therefore, the amount of accretable yield on that portfolio will be a little bit lower going forward.
Okay. And then as we think about kind of a lot of those loans, since you guys are so similar as you mentioned in terms of your underwriting et cetera, sounds like a lot of those will be refinanced. How should we think about kind of the provisioning level going forward as some of those get renewed full provision. Just trying to think about that for the duration of the year?
I don't know that we've got a great answer on that other than the similar nature of the credit makeup and the nature of both of the things, secured lenders, we're probably pretty similar probably default and probably pretty similar loss given default that I don't think for provision expense relative to the loans moving from acquired to as acquired book we will see very similar ones CenterState experienced in the past. I would imagine, but that's a pretty high level answer, that's about all I can give you right now.
Okay. And then just last one on the mortgage business. You guys have made a good bit of investment there on -- this at least on the CenterState side especially with team lift out et cetera. We've seen a lot of banks, putting more mortgage production on balance sheet versus selling it just given kind of the rate outlook. Have you guys made any shifts in terms of your stance there? Are your expectations on how much you will originate to sell versus retain?
Yes. And Michael, if you look at the past year, we were probably putting selling about two thirds of the originated book and then keeping about a third on the portfolio. Interesting enough, in the first quarter it with our production went more secondary than it did portfolio. I think we did maybe 80 / 20. I would expect that as we combine our two companies together, it would be in the middle somewhere. So around 70% of the production would be on secondary and 30% somewhere in there would be portfolio.
I think it has to do with, if you think about the rate environment related to fixed rate lending, it's pretty attractive right now. So as the yield curve moves up and down consumers right now probably -- do more fixed rate and we're probably not going to build lot of fixed rate loans on our books and that will go into the secondary, but if there's this environment where the rate curve changes little bit and arms are a little bit more attractive, we certainly would put some more arms to our portfolio.
Thank you. Our next question is from Michael Rose with Raymond James. Your line is open.
Good maybe one around seasonal. So I know you got a lot going on with two deals here and just wanted to know if you guys have done any initial work around the day one impact? And then how be accretion will change when you flip over from PCI to PCD? Thanks.
And Michael, again this is Will, and I can give you high level answer. We're not yet far enough along particularly integrating the income portfolio into the analysis to be able to give you anything that will help you with your modeling, but other than just tell you we're on track. We run a parallel model first quarter, we are planning to do one in the second quarter with income and we're in the middle of planning out all of our model validation work and things like that, but we're not yet at a point where we're ready to give any guidance on seasonal impact at this point. So have some patience and stay tuned and we'll hopefully be able to do so sometime later in the year.
Okay, appreciate it. And then you now that the dust is kind of settled a little bit around a large acquisition -- at least that's been announced, have you guys been able to size kind of the opportunity set that you think you see particularly Atlanta market from that particular transaction?
Yes, I guess [indiscernible] recruiting and relates [indiscernible] and potentially new customer. Sure. I mean recruiting new relationship managers is always very how not to do this, it was a year ago, and it will be three years from now. The relationship manager account for the combined company is about 220. Our original goal beginning of the year was to add 20 to that number. And that was unrelated to any particular opportunity. And obviously, the one that you're referring to in Atlanta is a pretty unique event, it should provide some opportunities for us and we are proactively working on that,but we don't think it's necessarily, at this quarter event for us -- nor is it a situation where the talent at those two institutions is not being well taken care of, but we are -- proactive recruiting is not limited to this, we're recruiting every day. It is just part of our jobs. And while our initial goal of adding relationship managers might have been 20 at the beginning of the year if we have the opportunity to add 30 or even as many as 40 or so, if they were the right people, we would move ahead and do that. And we're certainly having an ongoing conversations with several relationship managers and the markets you mentioned, as well as other markets with obviously no guarantee, any of them will join in any particular time, but it's an ongoing part of our job and is an ongoing event for us. While this may provide a unique opportunity, it's something we've got to continue to work on all the time.
And Michael, I'll just add that, that also impacts the non-interest expense comments I made earlier in that, as you know when you hire a revenue producer, the expense precedes the revenue, but if we think it's the net NPV positive event for our company we will certainly hire them and that may cause a blip up in non-interest expenses, but one that we think will be more than paid for by the revenue they produce going forward. So I'll make sure (inaudible) caveat out there.
Okay, that's helpful. One final one from me just around capital. I know it's probably not on the table here, but looks like the capital will build pretty nicely as we move through '20, once the accretion from this deal is realized. How should we think about what you view as on a combined company basis more optimal capital levels are and how you plan to deploy some of that capital outside of organic growth perhaps in increased dividend or buybacks? Thanks.
Yes. That's a first world problem we didn't have 10 years ago. So we're grateful for it and I think our capital levels are building pretty rapidly right now. We increased the dividend slightly in the first quarter, but we've got a buyback in place. We've had it for about a year and half-two years. And so I think we look at that from an opportunistic standpoint, Michael. So we've been kind ofb locked out of that for the last few months and we weren't able to participate in the buyback because we had the proxy pending for National Commerce.
So I think going forward after this quarterly release that is open to us. And that's something that we're going to look-grow hard at.
Remind us again, how much you have in authorization?
Yes. It's 3 million shares.
Thank you. Our next question is from Joe Fenech with the Hovde Group. Your line is open.
Hi guys. Just generally speaking with the Fed on hold here and setting aside the purchase accounting and income, is it fair to say from a 40,000 foot view the way to think about this is that funding costs generally level out here and then you still get some residual benefit with the nine rate prior rate Fed rate hikes cycling through.
And if you agree with that. How long do you think it takes for that benefit to cycle through the earning asset side, just trying to get a sense for how you're thinking about core NIM here from a conceptual standpoint and then kind of how long it takes before (inaudible) and then start to level out after you get the residual benefit of those nine rate hikes in the numbers?
Sure Joe. It’s Steve, a couple of impacts at play. I, as we think about the funding side the deposit cost numbers aren't going to flatten out anytime soon. I think they continue to increase. Probably at a less of a rapid pace, but continue to do catch up on CDs so on, but you will see on the loan side as well one of the comments I made in my prepared remarks was that are our loan yields this quarter on the originated was around 534 new production yields.
Well our originated portfolio total portfolio was 487. So we're being -- we're accretive every time we book any loans, that originated loan portfolio. So I think that the best without any big changes on the curve. I think we're going to try to hold our margins flat probably don't expect a huge increase nor a huge decrease from here assuming the environmental change but you will have some benefit from the loan repricing that we did five years ago. For instance, we have about 38% of our portfolio that reprices in the next year though you will get some benefit of the five-year treasury was lower five years ago and now we reprice that again on the hybrid, but then also be some offsetting cost of the deposit side that will offset that. So don't -- not a great answer to your question, but I don't see any huge movement one way or the other.
Great, thank you. And guys, I know you have loan growth guidance out there, but what would you consider to be the longer-term organic growth potential at the current size with MCOM as part of that. I know cyclical considerations will play a role in that. But if you were to think about of the cross-cycle, how would you characterize your organic growth potential as $70 billion company here through the cycle?
Hey, Joseph, this is Richard. At National Commerce and at CenterSate prior to us getting together both of us have had the sort of the goal and the thought that we should be able to grow at 10% a year in most categories each and every year over a long period of time. And so, if your question is over a long period of time, I think we both still feel that way together or independent, we should be able to based on the markets that we're in, the people that we have employed, the strong teams that we have, the leadership that we have in these markets over a continuous number of cycles we should be able to average a 10% growth rate including in the loan portfolio. In the latter part of the cycle, you would think that that would be somewhat less than that, maybe at the beginning part of the cycle, you feel more comfortable at a higher growth rate, but over time I think we still feel like a 10% growth rate would be appropriate for a Company our size and in the markets that we're deployed.
And just to add to Richard's comment, we run a model, it's a very decentralized companies. We are very similar, National Commerce and CenterState and so we have 33 community presence and 10 regional presence to have their own balance sheet intent statement. So, it really isn't a lower level, that gets built back up. So our goal when we do a budget over a long period of time always starts at 10 and that is an expectation that everybody knows is coming and gets built from the ground up.
Okay, thanks guys. And then just one last one for me. The credits on administrative renewal that caused the increase in non-performers, were those all from the same acquisition or were they across a smattering of deals? And that's all from me. Thanks.
Joe, it's John. It was a couple different acquisitions. It wasn't one, it was two or three. So it was a -- it was a lax on our part, we should have jsut those things renewed for another 90 days to collect the financial statements, but we didnt. So it wasn't anything, any one in particular institution.
[Operator Instructions]. And our next question is from Tyler Stafford with Stephens. Your line is open.
Richard, well good to hear from you. I wanted to try one more time on expenses. Just to reign in the 2Q run rate. So 2 million coming out from the Charter cost savings, plus the full quarter impact from income. If I look at the P&L for income in the deck, the expenses was that there were a lot higher than what I had expected, can you give us what the core expenses for 331 for the first quarter would be that you'd expect to add for income?
Yes Tyler, I'm sorry, I may not have spoken that clearly in my comments, but yes around 28 million in sort of core expenses for income in the first quarter if you back out all the noise and so [inaudible] core expenses excluding merger was around $78 million, which puts you to about 106, right there, I think our earlier comments about the merger when we first announced that once we got the cost saves out, you were somewhere in that $100 million range with the two added together after conversion, and after the cost saves, have been achieved, but that's not -- obviously not second quarter or third quarter, that that occurs.
Yes, but that $100 million range, does it feel reasonable to you after all the cost savings are realized?
It does, just with the caveat that you know in addition to things that move forward against -- there is hope out there that we can be successful . We recruit some of these teams and as I said, there's always come with expenses on the front end and the revenue follows ,so --but that's one caveat.
Okay, thanks for clearing that up. Maybe one for Steve just on the correspondent business, can you give us a sense for what you saw on the fixed income trading side this quarter. And then just expectations given where the yield curve is right now for the remainder of the year?
Sure, Tyler. Yes, the fixed income business was down or actually is actually up a little bit in the first quarter, not real meaningful. I think we had around the interest rate swap business was a little over $6 million of the revenue. I think the fixed income business was little less than 2 million but another 1 million or so in payments revenue. So with the second quarter and as we kind of look forward and look at the yield curve and we really still think the interest rate swap business is very strong. Just because we have a flat yield curve and a slide that will get lower. The fixed income business, I'd say probably, I don't see huge improvement from here, although I don't see huge degradation from here either. So obviously depending on the way the curves will change will affect both of these businesses probably to some degree offsetting a little bit.
Thanks for that and then maybe just last one for me, just a minor one on the fees for the quarter, anything in particular that stands out on what drove the other fee income line item, a million and a half lower this quarter and should that by any way come back?
Yes, I think in the prior quarter, Tyler, there was a gain on the sale of branch real estate from one of the acquisitions that was in there. So I wouldn't -- I would expect that to be lower on a run rate that was out as well higher last quarter, but I think it would -- this run rate is probably a little bit better this quarter.
Thank you. And sir, I'm not showing any further questions in the queue, I would like to turn the call back to John Corbett for his final remarks.
All right, thank you for calling in today and thank you for your interest in CenterState. We are planning to travel this quarter and we're going to be at the SunTrust Investor Conference in New York next month as well as the Gulf South Conference. So hope to see you all there. In the meantime, if you have any questions feel free to reach out to any of us and have a great afternoon.
And with that ladies and gentlemen, we thank you for participating in today's conference. You may all disconnect. Have a wonderful day.