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United Community Financial Corp  (NASDAQ:UCFC)
Q4 2018 Earnings Conference Call
Jan. 23, 2019, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning,

and welcome to the United Community Financial Corp Fourth Quarter 2018 Earnings Conference Call. All participants will be in a listen-only mode. (Operator Instructions) After today's presentation there will be an opportunity to ask questions. (Operator Instructions) Please also note today's event is being recorded.

At this time, I would like to turn the conference call over to Tim Esson, Chief Financial Officer. Sir, please go ahead.

Timothy W. Esson -- Executive Vice President and Chief Financial Officer

Good morning, and thank you for participating in today's conference call. As always, before we begin, I would like to refer you to the company's forward-looking statements and risk factors that appear on the screen in front of you. Additionally, the risk factors can be found at our Investor Relations website, ir.ucfconline.com. This statement provides the standard cautionary language required by the Securities and Exchange Commission for forward-looking statements that may be included in today's call. In addition, a copy of the fourth quarter earnings release can be obtained at the same website.

With that said, I would now like to introduce Gary Small, President and CEO of both UCFC and Home Savings.

Gary M. Small -- President and Chief Executive Officer

Thank you, Tim, and good morning to all on the call. Thanks for joining us today. I am pleased to report another strong quarter for Home Savings. Earnings for the quarter were $9.6 million, or $0.191 per share, and full year income was $37.2 million, or $0.742 per share and each of those were meeting our expectations. Loan growth for the quarter came in slightly stronger than expected combination of good new business activity and a few delays on our CRE payoffs made the difference. We do expect the paydowns will come in the first quarter per course. And there's nothing unusual relative to that.

Loan growth continues to be a strength for the organization, commercial balances were up over 14% for the year, and we drove exceptional growth in our C&I portfolio. We continue to seek quality CRE opportunities in the market, but we do remain very selective. The residential mortgage business is very strong in a very competitive environment. We outpaced the industry in origination growth over the course of the year, and we did see pricing firming up in the second half of the year, particularly in the fourth quarter. 2018 was a good year for customer deposit growth. Year-over-year, we were up 8.3%. The non-interest bearing component of that growth was up 12%, which is fantastic from our perspective. Overall, we're very pleased with the combination of margin management during a very volatile rate and yield curve environment.

Investments made in the second half of 2017 to expand our treasury management and private banking teams really paid dividends in 2018. Business deposit growth jumped 23% for the year and our private banking team delivered $40 million in new deposits in 2018. Revenue from our trust, investment management and the insurance businesses was up 11% on a combined basis for the year, and that's consistent with our continuing double-digit revenue growth expectations for these business units. Normalized expenses came in at $64.1 million, which is on target and reflective of our focus on expense management. During the year, we did install a new consumer loan system and have initiated enhancements to our digital banking platform, each of these will improve our customer experience and efficiency.

Credit continue to be outstanding for the year 7 basis points of net charge-offs. Our non-performing loans ratio dropped to 30 bps, and every early warning indicator that we have around our portfolio continues to improve off an already strong position. While more economic uncertainty exists related to the equity market valuations, international trade, interest rates, the shape of the yield curve, et cetera, the underlying fundamentals for our clients remained strong by most any measure.

The fourth quarter did include a few unusual events. We exited and acquired impaired credit, that generated a significant recovery and we also recognized income from the sale related to some VISA Class two shares. These two positive outcomes supported us the opportunity to undertake a balance sheet restructuring that involved brief positioning of certain AFS securities and a termination of a long-term Federal Home Loan Bank borrowing commitment. While the cumulative impact of these events had no financial impact in the fourth quarter on reported earnings, the balance sheet restructuring will improve the organization’s net income and margin in the years 2019 and beyond.

Now, I'll turn it over to Matt Garrity, our Head of Commercial and Residential Mortgage Business for more color.

Matthew T. Garrity -- Executive Vice President, Commercial Lending and Credit

Thanks, Gary. As Gary mentioned, we delivered another excellent quarter in our core lending businesses and another strong year overall. Total loan growth for 2018 was 8.9% as our teams produced approximately $1 billion in loan originations across our commercial, residential mortgage and consumer lending businesses. Consistent with our strategy, the majority of loan growth was centered in the commercial business. While we expect that the market environment will be challenged in 2019 as it was in 2018, we are optimistic about our team's ability to consistently perform and deliver strong results.

Our commercial business produced another solid quarter of loan production and better than expected loan growth. As we had mentioned on our last earnings call, our expectation for the quarter -- fourth quarter was for portfolio balances to remain flat with the third quarter, as a result of heightened, planned payoff activity. Through a combination of some payoff delays and solid fourth quarter loan funding activity, the commercial portfolio was able to grow 4.8% on an annualized basis during the quarter, which was coming off a very strong third quarter growth. For the full year, commercial portfolio growth came in at over 14.6%, which was at the upper end of the range we had communicated during the year. We also remain very pleased with our origination mix, as commercial and industrial production was approximately 50% of total originations for the quarter and for the full year was in excess of 40%.

Commercial deposit activity was also very strong during the fourth quarter and for 2018 overall, as we continue to see the benefits of our previous investments in building out our treasury management team. We delivered a solid 10% growth in average commercial deposit balances during the fourth quarter, and for the full year commercial deposit growth was approximately 23%. Overall, we are very pleased with the performance of the commercial business and our momentum headed into 2019.

In our mortgage business, overall loan originations grew during 2018 by approximately 10% compared to the prior year. And with the full year of our new loan origination system, we were able to increase production, while at the same time reducing operating expenses for the business.

Mortgage banking income experienced a 20.7% seasonal decline during the fourth quarter of 2018, compared to the prior quarter. When comparing fourth quarter 2018 to the fourth quarter of 2017, mortgage banking income declined by 18.7%, and for the full year fell by 21.7%. As we have discussed previously, the reduction in 2018 is largely a result of the margin compression that has been going on across the industry. We expect the current margin environment to continue into 2019, and as such we expect modest improvement in this area for the year. Given the cyclical nature of this business, we believe conditions will eventually improve, so we remain committed to the business long-term, as we focus on continuing to leverage technology to create greater efficiencies, while improving the client experience.

Asset quality remained strong in the fourth quarter and reflects a disciplined and consistent credit culture. With significant reductions achieved in the fourth quarter, we have reduced our levels of non-performing loans to total loans and non-performing assets to total assets to 0.30% and 0.27% respectively. Commercial non-performing loans totaled $715,000, on a portfolio of $938,411,000. Delinquent loans fell by approximately 37% for 2018, and are now down to 0.5% of 1%.

With respect to the recent announcement of the upcoming closure of the General Motors assembly plant in Lordstown, we are monitoring the situation, but do not expect any meaningful impacts to our consumer or commercial lending relationships, as a result of the pending closure. Charge-offs for the fourth quarter totaled 20 basis points and for the full year totaled 7 basis points. Majority of the fourth quarter charge was associated with the resolution of the non-performing loan, it was part of the acquired portfolio. This was not a surprise and there were sufficient reserves relative to the resolution. Overall, the acquired portfolio continues to perform in line with our expectations.

I would now like to turn the call over to Tim Esson, who will discuss our financial performance in greater detail.

Timothy W. Esson -- Executive Vice President and Chief Financial Officer

Thank you, Matt. Let me begin by reiterating Gary's opening comments that Q4 demonstrated solid performance numbers along with positive growth in loans, in addition to outstanding credit performance and tight expense management. On a quarterly -- our quarterly results at $0.19 per share on a fully diluted basis are right in line with our expectations, as was our year-to-date performance of $0.742 per share. And looking at Q4, we did engage in a number of transactions at the end of the quarter. The combination of which is intended to provide benefit in the new year and beyond with minimal impact on 2018 performance because the transactions were offsetting in nature.

To summarize; $26 million of AFS securities were sold with a loss of $860,000, the proceeds of which were invested in other higher yielding securities. This loss was partially offset with the sale of our Visa Class B shares, as a result of that particular transaction a gain of $669,000 was recognized. Furthermore, we terminated a $15 (ph) million, Federal Home Loan Bank advance to reduce future funding costs. This action with the FHLB advance carried a $937,000 termination fee. Finally, a purchase credit impaired loan from our most recent acquisition was brought to resolution, which accelerated the recognition of the credit mark which aggregated $1,050,000. The net of these four transactions had a bottom line impact of $78,000 on a pre-tax basis in 2018.

Looking at the net interest margin; Q4 was 3.58%, which included the favorable recognition of the credit mark I just spoke of. That recognition totaled 16 basis points. On a normalized basis, Q4 margin would be approximately 3.42%, compared to the linked quarter of 3.33%. Margin improvement, primarily due to increases in the yield on loans, which increased at a faster pace than the cost of funding. LIBOR repriced more normally during the fourth quarter of 2018 resulted in the higher yield on loans. LIBOR repricing lagged during the third quarter of 2018. Finally year-to-date margin, we ended at 3.43%.

As we discussed earlier, asset quality remained strong. We did recognize a provision for loan losses of $178,000 in the quarter. Total provision for the year aggregated approximately $700,000. Charge-offs for the year were right at the 7 basis point level. In dollar terms, net charge-offs totaled $1.5 million for the year, of that total $676,000 related to one acquired impaired loan relationship. The allowance for loan losses as compared to total loans, our coverage ratio was just short of 1% at 0.93%. This percentage increases to 1.03%, when combining the remaining fair value adjustment for loans acquired through acquisition last year.

Continuing on, non-interest income totaled $5.6 million in Q4, compared to $6.5 million in the fourth quarter of 2017. And as I mentioned, there are one-time transactions that impact this compare, specifically the securities transaction coupled with the VISA sale generated a collective loss of $191,000. Additionally, Q4 of 2017 contained a gain of $595,000 from the sale of a bank-owned building. Adjusting for these one-time items in both quarters, non-interest income would essentially be flat. As you'll note, mortgage banking income did increased $257,000 comparing Q4 of 2018 to Q4 of 2017, but we were able to offset part of this decrease with increases in mortgage servicing fees. We will continue to manage pricing and mix of the originations to limit margin compression in this area.

Non-interest expense was $16.2 million for the quarter, backing up the FHLB termination fee of $937,000, that I just spoke of. This level aligns right with plan and meets our expectations. As I indicated, the last time we spoke, we anticipated expenses for the quarter to approximate $16 million. Our efficiency ratio continues to improve and is now at 54.79% quarter-to-date and 56.85% year-to-date. One final comment regarding our effective tax rate; on an FTE basis for the quarter, the rate is steady at 19.1%.

With that said, I would now like to return the call back to Gary Small.

Gary M. Small -- President and Chief Executive Officer

Thank you, Tim. A lot to unpack there. Looking to 2019, we expect to deliver steady growth combined with a much disciplined expense management. Our model anticipates a single fed rate increased during the year. However, we can handle additional hikes from a margin perspective. Over a 12-month horizon we're relatively neutral from an ALCO position.

For 2019 modeling purposes, I'll provide the following: expect earning asset growth in the 6% to 7% range; loan growth in the 8% to 10% range; commercial loan growth in 10% to 12% range; customer deposit growth will be 7% to 8%; you will see fluctuations in the broker deposit versus Federal Home Loan Bank borrowings depending on who has most advantageous rate, those are both wholesale sources for us. Margins would be in the 3.37% to 3.38% range for the full year, and that's versus 3.33% or so, when you exclude the remaining purchase accounting marks that are in our book. Betas were 36 basis points, or 36% I should say for 2018, and there will be some additional repricing upward, as we head into 2019, CDs repricing and so forth in all likelihood. The absolute calculation still a bit uncertain, but we do see rates continuing to March.

Revenue growth 6% to 7% coming off the very strong net interest income growth year for the organization of 9.4%. Expenses will come in at less than 1% year-over-year against our reported expenses, and if you normalize our reported for that early termination, we come in just under 2%, and we'd expect an efficiency ratio in that 55% range. Pretax, pre-provision growth 2019 over 2018 will be 12%. Net charge-offs will be consistent with 2018, and the impact on our provision will be impacted somewhat by additional reserve releases out of the ALLL account due to the excellent credit environment that we're all experiencing. So again a modest year for provision. Effective tax rate, as Tim has mentioned, GAAP 18.7%; FTE 19.2%.

As we look at the three-year planning horizon as we do, we target annual EPS growth of 10% to 12% a year. With the impact of the fourth quarter restructurings and the stock buyback activity that we incurred, we expect to fall in that mid-to-high point of that range for 2019. Stock repurchase activity was at 800,000 shares for the quarter, the Board just authorized another $1 million available to be repurchased to provide us with some additional capital management. And I think for planning purposes, 49 million in outstanding shares on average for the year is a good place to start.

With that, I'll turn it over for questions.

Questions and Answers:

Operator

Ladies and gentlemen, at this time we'll begin the question-and-answer session. (Operator Instructions) Our first question today comes from Scott Siefers from Sandler O'Neill & Partners. Please go ahead with your question.

Scott Siefers -- Sandler O'Neill and Partners -- Analyst

Good morning, guys.

Gary M. Small -- President and Chief Executive Officer

Hi, Scott.

Scott Siefers -- Sandler O'Neill and Partners -- Analyst

Hey, I think the first question is just on the margin, so just given the balance sheet restructuring actions from the fourth quarter. Can you spend just a second talking sort of specifics about how much you would anticipate that impacting the net interest margin rate and NII dollars, as we move throughout 2019? And then I guess, Gary, just in terms of the guide on the margin for 3.37% to 3.38%, maybe some thoughts on how that trajects (ph) throughout the year. I guess we're starting with the fourth quarter margin on an adjusted basis of 3.42%. So at some point that guide seems to anticipate some contraction here. Does that – is that the kind of thing where we sort of take a step down in the 1Q and then steady out in the 3.37%, 3.38% range or are we going to bleed down to like the low-3.30s throughout the course of the year, such as the full year margin in that kind of high-3.30s range?

Gary M. Small -- President and Chief Executive Officer

Thanks, Scott. I'll answer the question relative to the impact on our fourth quarter. About 2.5 basis points to 3 basis points is the margin improvement that we'd expect to see that works out to be in the neighborhood of $750,000 of income on pre-tax, as both the interest earned on the AFS securities will improve and we no longer have the amortization of that restructuring charge running through margin. And that will bring us another 1.5% or so up on our EPS for the year. With regard to the 3.37%, 3.38% range, we would say it will be pretty even, although the first quarter is always a bit tight just the way the math works with the days in the year, but there's not any perceived lumpiness in there. I would say there is a bit of an abundance of caution in that number for modeling purposes, we went with the low range, if you will, on our expectations and made sure that we could get the results we are looking for with by hitting that low range, and as the year develops we may have some expanded notion relative to margin, but we'll stick with 3.37% to 3.38% right now.

Scott Siefers -- Sandler O'Neill and Partners -- Analyst

Okay. That's perfect. Thank you. And then just as I look at the expense guide. I think when we're talking 90 days or so ago on the call, I know this is a -- sort of a small change, but it looks like closer to -- I think you'd said just under 3% growth now just under 2%. Just curious if there's been any change at how you are approaching the cost base into 2019, or if that's just, here we have another 90 days worth of evidence here and that's the way the math works?

Gary M. Small -- President and Chief Executive Officer

I appreciate the question, Scott. I think, for most of the year, we were committed to $64 million in expense and I can recall we said a number of times we'd be under $16 million in any given quarter from second, third and fourth. And I think on the fourth quarter, if you normalized for the termination expense we came in at 16% and change, which brought us to $64.1 million. So $64 million would have been perfect. $64.1 million, acceptable range just fourth quarter clean up, that sort of thing. No change in guidance. We still see, as I say, a 2%, or less increase off of that $64 million, or 1% or less off of the $65 million number that we posted either way you want to look at it.

Scott Siefers -- Sandler O'Neill and Partners -- Analyst

Okay. Perfect. All right. Thank you very much.

Gary M. Small -- President and Chief Executive Officer

Thank you.

Operator

(Operator Instructions) Our next question comes from Michael Perito from KBW. Please go ahead with your question.

Michael Perito -- KBW -- Analyst

Hi. Good morning, Gary. How are you?

Gary M. Small -- President and Chief Executive Officer

Good morning, Mike.

Michael Perito -- KBW -- Analyst

A few questions I still had; one on the loan growth side, I was just curious, if you guys are seeing obviously the outlook still seems fairly healthy. But I know in some of the investor real estate stuff you guys are doing and some of the CRE, I was curious, if you guys are seeing a dramatic impact from the non-bank lenders in any of your spaces where competition is, maybe increased more so than others?

Matthew T. Garrity -- Executive Vice President, Commercial Lending and Credit

This is Matt, Mike, good morning.

Michael Perito -- KBW -- Analyst

Good morning.

Matthew T. Garrity -- Executive Vice President, Commercial Lending and Credit

Definitely seeing an impact in that CRE space from non-bank lenders, competition remains very strong there. We're very pleased with the activity that we got in 2018, I would tell you, we looked at a lot more deals and competed on a lot more things to get what we got in 2018. There was a lot of business we would have liked to have gotten, that we could not get just because the terms and conditions just weren’t. It just didn't meet our credit metrics and we just couldn't get comfortable with it. So we're comfortable with what we -- we're certainly happy with what we did do in 2018, and we expect that, that is going to continue into 2019. And I think that speaks a little bit also to the amount of C&I production we got in 2018 at about 40% of our business overall for the year. I expect that trend to continue with more business coming out of our regional markets as we head into 2019, and look at growth. And just speaking to growth for a moment, we talked a little bit about some delayed payoff activity. We expect them to be delayed and not eliminated. So, we'll see some of that payoff leak into the first quarter on top of what we would normally get in a quarter. So as you're thinking about the year, as Gary had mentioned, our 10% to 12% commercial growth for the year, I would expect first quarter to look more in line with fourth quarter, as we kind of build out the construct of growth just based on the payoff activity I see coming up in the quarter, but good momentum overall.

Michael Perito -- KBW -- Analyst

Helpful, Matt. Thank you.

Matthew T. Garrity -- Executive Vice President, Commercial Lending and Credit

Sure.

Michael Perito -- KBW -- Analyst

Gary, on the -- maybe a kind of longer-term high level question. But you know, if we look back, I think, total commercial loans were about 43% of the portfolio today. So obviously, you guys have made tremendous progress over the last few years since you guys kind of laid out your plan to do so. As we think about where the company is positioned today, that you've made progress on the commercial front, I'm sure there's some more progress to be made there. It seems like near term share repurchases organic growth, but you know capital levels are still fairly heavy even with the mix of loans shifting more towards commercial. And I'm just curious how you kind of envision the next couple of years, strategically, playing out, and if you could provide us, maybe with any thoughts about what some of the priorities are going to be for the next couple of years after having such success kind of growing the commercial portfolio from scratch basically?

Gary M. Small -- President and Chief Executive Officer

Relative to that specific topic, Mike, I kind of look at the inverse of that, in that we still get about 41% of our loan portfolio, it's in 1% to 4%. And as we -- we'll have growth in that portfolio, but it'll certainly be outpaced by the commercial and the consumer book growth. And I think its percentage of our mix will fall 2% or 3% a year, it’s not going to fall 10%, if you will. So, 41%, becomes 38%, becomes 35% and so forth, that would be the pacing of the portfolio change. With regard to capital of which I would agree we would probably carry, depending on the math you like 8% to 10% more capital than our balance sheet would designate. The buyback is one of the tools we're using to manage our capital from just an absolute perspective, as the best way to return capital to the shareholder and then have the longer term impact relative to EPS. We do like the notion of sitting on a little bit of excess capital, not necessarily as much as we have now to be dry powder for anything that might come unfavorably on the credit front, to be there for acquisitions, all the normal things that we've talked about in the past. So it's a high quality problem to have. But we, in the near term, are kind of managing our exposure there, a bit more through buybacks, we’ll continue to try to grow the balance sheet into that capital another high quality problem our earnings growth keeps outpacing our -- and the residual balance of capital left is outpacing our ability to get the capital deployed. So that continues to be a focus. I don't know that the tools are going to change much over the next two years unless we strike or sort of find the right opportunity to do in the market.

Michael Perito -- KBW -- Analyst

Helpful. I mean, is it fair to say that the post-tax reforms that -- I mean, share repurchases might have to become a bit more regular occurrence. Just to manage, I mean not to build back north of 10% again, given how strong, obviously, your profitability in the fourth quarter was a little elevated given some of the stuff that was going on. But I think still doing quite strong ROAs and ROEs, respectively. So is that starting to kind of become more of a thought process, or is it still more just utilize it for the next 12 months and then kind of reevaluate at that point?

Gary M. Small -- President and Chief Executive Officer

Two things there. The fourth quarter really wasn't even though we did buy back 800,000 shares, the majority of that was laid in December. So on an average basis, it didn't have much impact on the EPS that was reported from the quarter and so forth. Again, it's the best tool that we have to manage our absolute capital dollar. We prefer that over a one-off special dividend. We prefer that to an unnatural increase in the quarterly dividends and so forth. So relative to the tools that we have to manage it, that's the one we prefer. And I think, the board authorizing another million shares is being responsive to that by the -- with that addition, we'll have 1.8 million authorized for repurchase and we'll use them appropriately as we see the market being opportunistic.

Michael Perito -- KBW -- Analyst

Got it. And then just to make sure I'm following you correctly. You said you bought 800,000 shares late in the fourth quarter. So that would bring your pro forma average share count to about 49.1 million. So the 49 million for 2019, does that assume only modest additional repurchase activity or did I miss a piece of that somewhere?

Gary M. Small -- President and Chief Executive Officer

I don't know if 49.1 million is our average. It might be the ending. But your point is correct, that we will be taking, we do anticipate taking down a few more shares as part of the model. We also issue shares because of compensation plans and so forth over the course of any year. And so that movement to 49 million is taking in additional netting out of those additional share -- of the shares that we will issue.

Michael Perito -- KBW -- Analyst

Got it. So the expectation is for the full year average diluted share count for next year in your budgeting would be 49 million?

Gary M. Small -- President and Chief Executive Officer

Because, again that will be the place to start. We would adjust our guidance, if we get more active or have more to say on that as the year nominal (ph).

Michael Perito -- KBW -- Analyst

Perfect. Great. Thank you guys for taking my questions. I appreciate it.

Gary M. Small -- President and Chief Executive Officer

Thank you, Mike.

Operator

Our next question comes from Daniel Cardenas from Raymond James. Please go ahead with your question.

Daniel Cardenas -- Raymond James -- Analyst

Hey, good morning guys.

Gary M. Small -- President and Chief Executive Officer

Hey, Dan.

Daniel Cardenas -- Raymond James -- Analyst

Just couple of quick questions. A follow-up on the -- on the stock repurchase during Q4. What was the average price on that 800,000 shares that you bought back?

Timothy W. Esson -- Executive Vice President and Chief Financial Officer

$9.06.

Daniel Cardenas -- Raymond James -- Analyst

Okay, great. And then maybe just a little bit of color on M&A, what's the environment like right now in your footprint? Is there a lot of activity and what are seller expectations looking like?

Gary M. Small -- President and Chief Executive Officer

Yeah, it feels a little bit like the discussion we had in the third quarter. There is enough uncertainty in the market, and certainly with the equity prices falling and so forth that's not a catalyst for getting close to the table. The economic uncertainty is something that could generate as that we see more conversation in 2019, and that certain organizations will struggle either with higher funding costs or less loan demand and think about their alternatives. In the Ohio market in general, it was a pretty quiet 2018. We do expect 2019 to pick up a bit, if for no other reason than 2018 was so low. I will say conversations continue and folks are engaged, but all the uncertainty that scrolls around folks got used to seeing higher prices, boards got used to seeing higher prices, they don't always think about share conversion rates being the same that sort of thing. I think all that just takes time to settle in, create a new norm and then you start to have more direct important conversations. We are still in the queue talking with folks, but I would not say it's a robust discussion set right now.

Daniel Cardenas -- Raymond James -- Analyst

Great. That sounds fair. Yeah, all my other questions have been asked and answered. Thanks guys.

Gary M. Small -- President and Chief Executive Officer

Thank you, Dan.

Operator

Your next question is a follow-up from Scott Siefers from Sandler O'Neill and Partners. Please go ahead with your follow-up.

Scott Siefers -- Sandler O'Neill and Partners -- Analyst

Hey guys, thanks for taking the follow-up. Just wanted to go back to the margin for a second. Gary, do you have the amount by which purchase accounting benefited margin in the fourth quarter, in other words, I think we had about 375,000 or so back in the third quarter benefit. And I think throughout 2018, you averaged somewhere in the neighborhood of, call it, 7 basis points or so, between what I would call like the reported and sort of core margin. Do you have those numbers for the fourth quarter and then what your expectation for the benefit would be throughout 2019?

Gary M. Small -- President and Chief Executive Officer

Yeah, Scott, I'll start with that sort of basis point impact. It was a lumpy number in 2018. We started off, Tim, with 6 basis points or 7 basis points, say, in the first two quarters, and then finished the year more of a 4 basis point move. So we are tracking down 2 basis points to 3 basis points depending on the quarter. As we look at 2019, there is less lumpiness to it or there's less of a curve. So it's 4 to 3 kind of contribution all through the year. So we're on the upfront quarter and then we'll trial down just a bit toward the end of the year based on the way the amortization is running right now.

Scott Siefers -- Sandler O'Neill and Partners -- Analyst

Okay, good. All right. So then that -- the 3.42% adjusted margin we had in the fourth quarter that was a pretty good approximation within 2 basis points of what we would consider sort of core margin and then less of a benefit in 2019, than in 2018 it sounds like?

Gary M. Small -- President and Chief Executive Officer

That's right.

Scott Siefers -- Sandler O'Neill and Partners -- Analyst

Perfect. Okay, great. Thank you.

Operator

And ladies and gentlemen, at this time, I'm showing no additional questions. I'd like to turn the conference call back over to management for any closing remarks.

Timothy W. Esson -- Executive Vice President and Chief Financial Officer

Appreciate you joining us today. And again, we'll keep everyone updated as our year progresses. And if you have any questions at all, never hesitate to call. Thank you so much.

Operator

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

Duration: 35 minutes

Call participants:

Timothy W. Esson -- Executive Vice President and Chief Financial Officer

Gary M. Small -- President and Chief Executive Officer

Matthew T. Garrity -- Executive Vice President, Commercial Lending and Credit

Scott Siefers -- Sandler O'Neill and Partners -- Analyst

Michael Perito -- KBW -- Analyst

Daniel Cardenas -- Raymond James -- Analyst

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