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Great Western Bancorp Inc (GWB)
Q1Â 2019 Earnings Conference Call
Jan. 24, 2019, 8:30 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
See all our earnings call transcripts.
Prepared Remarks:
Operator
Good morning, and welcome to the Great Western Bancorp First Quarter Fiscal Year 2019 Earnings Conference Call. All participants will be in listen-only mode. (Operator Instructions) After today's presentation, there will be an opportunity to ask questions. (Operator Instructions) Please note this event is being recorded.
I would now like to turn the conference over to Ann Nachtigal. Please go ahead.
Ann Nachtigal -- Director of Corporate Communications
Thank you, Cary, and good morning, everyone. Joining us this morning on Great Western Bancorp's first quarter fiscal year 2019 conference call are Ken Karels, Chairman and Chief Executive Officer; Doug Bass, President and Chief Operating Officer; Peter Chapman, Chief Financial Officer; Karlyn Knieriem, Chief Risk Officer; and Michael Gough, Chief Credit Officer.
Before we get started, I'd like to remind you that today's presentation may contain forward-looking statements that are subject to certain risks and uncertainties that could cause the Company's actual future results to materially differ from those discussed. Please refer to the forward-looking statement disclosures contained in the presentation we have made available on our website, as well as our periodic SEC filings, for a full discussion of the Company's risk factors.
Additionally, today we will be discussing certain non-GAAP financial measures on this conference call. References to non-GAAP measures are only provided to assist you in understanding Great Western's results and performance trends and should not be relied upon as a financial measure of actual results. Reconciliations for such non-GAAP measures are appropriately referenced and included within the presentation.
With that said, let me turn it over now to Great Western Bancorp's Chairman and Chief Executive Officer, Ken Karels. Ken?
Kenneth James Karels -- Chairman & CEO
Okay. Good morning, and thank you for joining the call. We are very pleased with the results for the first quarter of our fiscal 2019. Let me highlight a few items before we go into more detail.
Net income was $45.8 million, or $0.79 per share, up 8% over December 2018 quarter. Loan growth was strong, with loans increasing 3.7% in the quarter, with growth well balanced among all the regions. Expense control remained strong, asset quality metrics improved and we were active in the capital management during the quarter, repurchasing 2.1 million shares for approximately $75 million. This demonstrates our desire to actively manage capital in the most effective way for our shareholders as M&A pricing in our view remains elevated in the current environment.
Now, for more insight in our December quarter financial results, I'd like to turn the call over to our Chief Financial Officer, Peter Chapman. Pete?
Peter Chapman -- EVP and CFO
Thanks, Ken, and good morning, everybody. Looking to revenue, interest income was $132 million for the quarter, which reflected an increase of $7 million, or 5.5%. Our net interest margin and our adjusted net interest margin were both 3.81% for the quarter, with the adjusted net interest margin up 4 basis points quarter-over-quarter. Of the increase in margin 5 basis points was attributable to an increased yield in the investment portfolio, 8 basis points attributable to loan yields and 3 basis points due to non-accrual interest write-offs from the prior quarter. These were offset by a 12 basis point reduction due to the increased cost of deposits, which is in line with the prior quarters.
The margin for the quarter is in line guidance (ph) with the prior quarter and has not been impacted by material non-recurring items. While a challenge, we will look to NIM to remain relatively stable during the next quarter. Reinvestment rates on the securities portfolio remained positive compared to securities maturing and loan pricing is improving. There will also be some benefit from the December Fed rate rise and also, while deposit costs continue to rise, increases are in line with prior quarters rather than accelerating sharply.
Non-interest income is lower for the quarter, partly due to the adoption of the revenue recognition accounting standard, which has moved $1.4 million in costs relating to credit cards and wealth management items as a negative revenue item. Non-interest income for the December quarter declined $1.3 million as a result of seasonally higher NSF income in the prior quarter, a $1.1 million increase in credit risk adjustment on loans held at fair value and lower mortgage income and also a $0.5 million loss on securities sales to reinvest in the high-yielding securities. These items were partly offset by $1.3 million higher swap sale income compared to the September quarter.
Non-interest expenses were $57.1 million for the quarter, a decline of $1.2 million. Within this amount was the reclassification of $1.4 million of expenses to non-interest income previously referenced. Outside of this item, the movement was driven by a $1.8 million decline in professional fees as a result of non-recurring expense of $0.6 million in the prior quarter, a $0.5 million positive item in the current quarter in addition to lower consulting related costs. This was offset by a $1.1 million increase in salaries and employee benefits, mainly as a result of fiscal year-end-related items and immaterial increases of other line items.
OREO expense increased modestly to $3.1 million. However, it was above the $700,000 to $800,000 range forecast for operating expense cost during the December earnings call. The increase was due to writedowns on properties held through proactive management by our credit team. Outside of these writedowns, we would expect ongoing OREO hold cost to remain in the $700,000 to $800,000 range.
For more on loan and deposit growth, I'll now turn over to our President and Chief Operating Officer, Doug Bass, Doug, over to you.
Douglas R. Bass -- President, COO
Thanks, Pete, and good morning everyone. During the December '18 quarter loan growth was $352 million, or 3.7%, for the quarter, which was a very strong start to our fiscal year. The strong growth during the quarter was helped by several closings initially planned for the prior September '18 quarter, were growth was softer. Additionally, we had five larger payoffs that in aggregate totaled $68 million. These were all in the C&I sector. This was due to four companies that were sold and a fifth that was refinanced.
Growth was well balanced and evenly dispersed within our nine state footprint. Growth for the quarter was concentrated in the commercial real estate segment across a range of industries and geographies. Construction and development balances declined by $58 million during the period as projects completed. In addition, owner-occupied real estate and commercial non-real estate balances increased $39 million during the quarter, demonstrating good growth in segments were competition is very strong.
Agricultural balances increased $52 million during the quarter, with approximately $30 million of this in seasonal tax planning, $15 million of which was repaid in January '19. We would expect the agricultural portfolio to remain relatively flat for the remainder of the fiscal year, as we work with some of our stressed customers offset by modest new originations. Good progress continues to be made by the new loan production offices, with our North Scottsdale office opening in January, which is staffed by four seasoned lenders. Wichita, Kansas and Yuma, Arizona opened in late fiscal Q1. All three offices have material pipeline opportunities.
As we look further into FY '19, we are projecting loan growth to remain in the mid-single digit range we have previously communicated. We feel that while we have had a very strong start to the fiscal year, we will look to stay disciplined on pricing and not compromise on underwriting standards. Additionally, the March quarter is typically a softer quarter for loan growth, with agricultural loan paydowns and construction draws slower until construction conditions improve in the spring across the footprint.
Deposit growth during the quarter was $380 million, or 4%. A large part of the growth was from seasonal consumer balances, with these increasing $145 million and also $200 million of public fund balances, all within footprint relationships providing for this growth. We have seen seasonal -- we have seen deposit competition during the quarter remain strong, but consistent with prior quarters. We have lowered CD special rates through the quarter and will continue to be proactive to manage deposit costs commensurate with loan yields to stay focused on net spread, while still attracting sufficient deposits to fund asset growth.
Let's turn the call over now to, our Chief Credit Officer, Michael Gough, who will take us through asset quality developments. Michael?
Michael Gough -- EVP and CCO
Thank you, Doug. Overall, we are satisfied with asset quality during the quarter, with asset quality metrics improving compared to the September 2018 quarter. Net charge-offs for the quarter were $3.6 million, or 15 basis points of average loans on an annualized basis, which is lower than each of our previous four quarters during the 2018 fiscal year.
Our allowance for loan and lease losses as a percentage of total loans was 68 basis points, which is down 1 basis point and our comprehensive credit coverage, which includes credit related fair value adjustments on our long-term portfolio and purchase accounting marks remain sound at 92 basis points of total loans. Compared to the September 2018 quarter, we saw a $22 million decline in Watch credits to $322 million, mainly due to improvement in the ag portfolio.
Non-accrual loans declined by $4 million and substandard credits and OREO balances were in line with the prior quarter at $206 and $18 million respectively. Note that OREO balances are expected to increase later this quarter as we take back real estate as part of settlements currently being negotiated with a couple of our larger ag problem credits. We've also continued our close oversight of the ag portfolio, which has performed well during the quarter.
The dairy portfolio continues to exhibit some stress as milk prices have remained low, but within this portfolio we do not see significant losses. Forecast for milk prices indicate stable to modest increases while production cost continue to decline. Within the grain portfolio, overall more borrowers have outperformed and underperformed our expectations based upon crop revenues and financial statements received and reviewed so far. We will provide more in-depth insight into this part of the portfolio in our March 2019 earnings call once we have more complete information from our borrowers.
With that let's turn the call back to Ken for some closing remarks.
Kenneth James Karels -- Chairman & CEO
Okay. Thank you, Michael. We are very pleased with the strong start to our 2019 fiscal year. We believe our strategy is sound and will allow us to continue to deliver strong returns for our shareholders. We do expect loan growth to be slower during the remainder of 2019, but we still see good opportunities across our footprint as the economies continue to perform strongly. We will continue to be selective on loans and use this to help manage our net interest margin and credit quality. We will also manage capital, to ensure that we remain strongly capitalized while returning capital to our shareholders through stock buybacks.
Thank you for your continued interest in Great Western Bank. We'll now open up this call for questions.
Questions and Answers:
Operator
We will now begin the question-and-answer session. (Operator Instructions) The first question will come from Dave Rochester of Deutsche Bank. Please go ahead.
Dave Rochester -- Deutsche Bank -- Analyst
Hey. Good morning, guys.
Michael Gough -- EVP and CCO
Good morning, Dave.
Dave Rochester -- Deutsche Bank -- Analyst
It was great to see the solid credit trends this quarter. Just a question on the annual review process of the ag portfolio. I know you mentioned in your remarks. How far along are you guys in that? I know you've typically reviewed the higher risk stuff earlier in the December quarter historically. I was just wondering how far along are you on that?
Michael Gough -- EVP and CCO
Over 50% or overall across the footprint, with most of the Watch and worse credits already having at least a preliminary look, even though we may not have finally teamed numbers yet.
Dave Rochester -- Deutsche Bank -- Analyst
So based on what you're seeing, you feel pretty good about how those trends are going to progress as you go through the rest of the reviews?
Michael Gough -- EVP and CCO
Yes, sir.
Dave Rochester -- Deutsche Bank -- Analyst
And then, did I hear you correctly that the OREO expense should decline to that $700,000, $800,000 range, even though you're expecting that to increase in terms of the actual OREO this quarter?
Peter Chapman -- EVP and CFO
Yeah. That will be sort of the run rate hold cost, Dave.
Dave Rochester -- Deutsche Bank -- Analyst
Okay.
Peter Chapman -- EVP and CFO
We had an additional write down this quarter. Just as Michael and the credit team looked through the portfolio, we just decided to make sure that we held things where they should be. So, yeah, a little higher this quarter, but we'll just wait and see for the next quarter.
Dave Rochester -- Deutsche Bank -- Analyst
And the expectation is that OREO -- the overall OREO balance beyond this quarter would decline through the rest of this year as you work that stuff down?
Peter Chapman -- EVP and CFO
No. Michael mentioned the balance itself will increase than we expected.
Michael Gough -- EVP and CCO
David, in my comments, we mentioned a couple larger ag workout situations we're expecting, negotiating to get some OREO back.
Dave Rochester -- Deutsche Bank -- Analyst
Yes.
Michael Gough -- EVP and CCO
I won't be surprise if we saw that increase in the $15 million to $20 million range.
Dave Rochester -- Deutsche Bank -- Analyst
Okay. Got you. Great. And then on capital, you guys are obviously very active in the buyback this quarter. Is the thought that you would continue to remain as active or how would you characterize your thoughts on that front?
Peter Chapman -- EVP and CFO
Yeah. We probably won't be as active. I mean we can't afford to lose $75 million a quarter on it too, but we will continue to be opportunistic as we see opportunity to buy stock back at lower prices for us then we think it should be -- of course, we will taper that in case there is an acquisition that comes up, that would still be a choice of ours. But as I mentioned in the call, we still think prices are elevated for what makes sense, but definitely through -- I wouldn't look at quarter-to-quarter, but through the years you'll see us be chunky in the stock buybacks we do.
Kenneth James Karels -- Chairman & CEO
Thanks, Dave. I appreciate it.
Dave Rochester -- Deutsche Bank -- Analyst
Thanks. I appreciate it.
Operator
The next question will come from Jeff Rulis of D.A. Davidson. Please go ahead.
Jeff Rulis -- D. A. Davidson -- Analyst
Thanks. Good morning.
Peter Chapman -- EVP and CFO
Good morning, Jeff.
Jeff Rulis -- D. A. Davidson -- Analyst
Pete, you mentioned the -- if we couple the, I guess the OREO expense dropping down to $700,000, $800,000, also the year-end comp a little elevated, if we coupled the two of those items that would lead to another drop in the quarterly expense rate, (inaudible) with what you're thinking, if we drop another $1 million on the comp side?
Peter Chapman -- EVP and CFO
Look, Dave, I think, actually you will see expenses sort of stabilize and actually tick up a little bit. For the next quarter, I'd expect more in the $58 million range. Couple of things playing into that, all avail year-end merit increases. Even though we're on a fiscal September year-end they kick in the first of the year. So you see an increase in those, so even though the year comp goes away, you see that merit increase go up. And then for us as well, we called out consulting costs being lower in our first fiscal quarter as people were sort of working out budgets and priorities for the year and also seasonally with the holidays you had a little less spend in the December quarter. So I'd expect that to tick up in the March quarter. So I'd expect somewhere around the $58 million range, but certainly nothing too surprising outside of that.
Jeff Rulis -- D. A. Davidson -- Analyst
So, not to get too granular, but the merit increases without strip the annual comp increase, the year-end stuff because if you've got at least a $2 million drop in OREO costs and you've got some offsetting consulting increase, that's still -- if expenses are increasing from here I guess where else is that coming from?
Peter Chapman -- EVP and CFO
Yeah. Look, I think the year-end -- the merit and the year-end comp stuff is about a wash. If you look at our salaries and benefits, it's $130 million at 3% merit. So that sort of got pushed in there, Jeff. And then, on the consulting side of things, based on some projects we've got going, I just expect a bit more seasonal stuff to come through, a bit more front ended in the March quarter compared to the rest of the year, that's all.
Jeff Rulis -- D. A. Davidson -- Analyst
Okay. Great. And then, Doug, did you mention the payoff activity linked quarter? I think you alluded to it, but what was the payoff amounts this quarter versus last?
Douglas R. Bass -- President, COO
In the quarter we just completed, we had 68 million. And I just itemized the large C&I payoffs. We would have had payoffs in excess of that in the non-owner occupied sector, which are more traditional from quarter-to-quarter, but just in C&I and owner-occupied real estate, it was $68 million.
Jeff Rulis -- D. A. Davidson -- Analyst
Okay. But overall, just I guess if you don't have the number, just got feel, payoffs in total were down linked quarter?
Douglas R. Bass -- President, COO
I would say, actually, they were probably up slightly, because we would have had in the $30 million plus range of real estate projects that paid off as planned. So it would have been in the $100 million range plus, which would have been probably slightly higher than prior quarters.
Jeff Rulis -- D. A. Davidson -- Analyst
Got you. Okay. And I will step back. Thanks.
Douglas R. Bass -- President, COO
Thank you.
Operator
The next question will come from Jon Arfstrom of RBC Capital Markets. Please go ahead.
Jon Arfstrom -- RBC Capital Markets -- Analyst
Hey. Thanks. Good morning, everyone.
Peter Chapman -- EVP and CFO
Good morning, Jon.
Jon Arfstrom -- RBC Capital Markets -- Analyst
Hey. Just on that topic, maybe Doug just on growth. Were you guys surprised at all by the strength of the growth this quarter? I think, it was stronger than lot of us expected, and I'm just thinking about that. And then, I'm -- also the question on the magnitude of how soft do you expect the March quarter to be?
Douglas R. Bass -- President, COO
We had a couple of closings that carried over into October from prior quarter, and I think, as we had a softer quarter for the last quarter of prior fiscal year, that was part of it. We had some very good wins on several fronts across really all geographic areas that produced some very good results. I am very proud of what we had on closing activity for the quarter. That said, we did have some elevated pay-offs as we just went through, and still rebounded with a pretty good number.
And I think, as we do head into the current quarter we're in now, we would traditionally have slower construction activity. I think, I mentioned $58 million of construction loans that were finished, completed into a perm. So we would have some slower construction draws in this quarter just based on seasonality and a lot of the ag sector doesn't really start ramping up until April-May.
Kenneth James Karels -- Chairman & CEO
Jon, Ken. I think we're seeing good activity, but as Doug mentioned too, we also are trying to push prices up to maintain our margin and obviously, looking at credit quality too. So, we will temper some growth or maybe opportunistically grow to make sure we get and maintain our margin too.
Jon Arfstrom -- RBC Capital Markets -- Analyst
Okay. So really it's a conscious balancing act on your part is what you're saying, more than anything?
Kenneth James Karels -- Chairman & CEO
Absolutely.
Jon Arfstrom -- RBC Capital Markets -- Analyst
Okay. The other question I had was for Michael, just on the OREO and NPL expectations. You talked about the OREO balances going up, but do you expect a commensurate decline in NPLs? I guess it's encouraging to hear that you can start to work down some of the elevated NPL balances and move them to OREO, but I just want to make sure I'm thinking about that the right way.
Michael Gough -- EVP and CCO
I think you are thinking about it the right way. The situations we are referring to, we are negotiating, taking the property back would be a movement from non-accruing loans into OREO.
Jon Arfstrom -- RBC Capital Markets -- Analyst
Okay. And is this -- is it generally land or is it operating businesses or what would the characteristics be?
Michael Gough -- EVP and CCO
I think the ones that we are negotiating on right now, it would be -- I'd say, it's mostly land.
Jon Arfstrom -- RBC Capital Markets -- Analyst
Mostly land. Okay. All right. Thanks a lot guys.
Kenneth James Karels -- Chairman & CEO
Thank you.
Operator
The next question will come from Nathan Race of Piper Jaffray. Please go ahead. Nathan. Your line is open if you wish to ask a question. Perhaps, your line is muted.
Our next question then will come from Damon DelMonte of KBW. Please go ahead.
Damon DelMonte -- KBW -- Analyst
Hi. Good morning, guys. How's it going today?
Peter Chapman -- EVP and CFO
Good morning, Damon.
Damon DelMonte -- KBW -- Analyst
Good morning. My first question is just dealing with the margin. Could you just elaborate a little bit more on your expectations in the coming quarters? I know you had said you hope to keep it relatively stable from this level.
Peter Chapman -- EVP and CFO
Yes. Look, we hope to Damon. As we said last quarter, we hoped it would be around that 380 range, but it's come in a little ahead of that. As Doug alluded to on loan pricing, we've seen that increase a little. We've put a lot of money to work this quarter in the securities portfolio. Deposit costs continue to rise, but we're trying to manage that as well as we can. So we'll do all we can to manage it and try to stay flat. It will continue to be a challenge, but certainly that's what we're aiming to do.
Damon DelMonte -- KBW -- Analyst
And could you give a little color on what led to the higher yield in securities on the quarter?
Peter Chapman -- EVP and CFO
Yes. We reinvested quite a lot. Those $500,000 we had as a loss in there, Damon, we sold about $130 million of securities that were yielding about 1.40, and reinvested those in the 3 range, so that certainly helped a lot. And also as well, just general roll off, we're reinvesting at a much higher rate. So I would expect that to step up again next quarter, but probably not as pronounced as this quarter.
Damon DelMonte -- KBW -- Analyst
Got you. Okay. And then, with regards to -- thanks for the commentary on the outlook on credit, but with regard to like provision, and maybe some of those non-performing loans moving into OREO, do you expect there to be any additional build in the reserve to account for that? Or I guess also how do you look at the provision expense going forward?
Peter Chapman -- EVP and CFO
Look, pretty consistent I think with what we've seen, Damon. Coverage was down a 1 point -- plus or minus 1 point, Is a little bit of rounding, but certainly is sort of around current levels I would say, Michael?
Michael Gough -- EVP and CCO
I would absolutely agree with that. And the properties we are looking at taking back, I think, we've already got the appropriate provision raised.
Damon DelMonte -- KBW -- Analyst
Okay. Great. Okay. That's all that I had. Thank you.
Kenneth James Karels -- Chairman & CEO
Thanks.
Operator
The next question will come from Tim O'Brien with Sandler O'Neill & Partners. Please go ahead.
Tim O'Brien -- O'Neill & Partners -- Analyst
Thank you. Just following on the expected OREO take back so -- and allocated reserves there. So you expect or it's likely net charge-offs will come out of that to some degree. I am not going to pin you down because you're probably in negotiations -- final negotiations. But net charge-offs is expected to be a little bit elevated due to the OREO moves in the calendar year first quarter?
Kenneth James Karels -- Chairman & CEO
Yeah. Not really. I think it will be consistent with previous quarters on it. So we don't expect a lot of charge-offs. Some of these, well actually, most of the ones we're looking at, we've already charged off --
Michael Gough -- EVP and CCO
We have taken some charge off, already, Ken, exactly.
Tim O'Brien -- O'Neill & Partners -- Analyst
So they're marked pretty well at this point. Okay. Great. And then, you guys talked a little bit about full fiscal year expectations on the loan and deposit growth front. As far as first quarter seasonality on the deposit side, do you expect, what are your -- what's your first quarter outlook for deposit growth there or withdrawals due to seasonal factors?
Douglas R. Bass -- President, COO
Tim, I think on the full year, I think we're looking at, as we mentioned earlier, sort of that mid single-digit range on the loan side, and it will be very similar to that on the deposit side.
Kenneth James Karels -- Chairman & CEO
Yeah. Q1 Tim, you'd typically say is building consumer deposits. So we see a building consumer up till tax time and bringing some of the savings, so I'd expect an increase in the consumer. And then on the business side, we'll just have to monitor that and that can be a bit more lumpy, but I'd expect some deposit growth in this quarter as well.
Tim O'Brien -- O'Neill & Partners -- Analyst
Great. And then last question, you guys obviously are monitoring the government shutdown I would imagine. Any impact on USDA programs that would affect your borrowers that could occur, I don't know, if this thing extends through the end of the first quarter?
Michael Gough -- EVP and CCO
Short answer is, we're already starting to see some effects, mainly FSA offices not being open to endorse joint checks and taking applications for new guaranteed or direct loans. We've seen some FSA offices start to open, maybe one or two days a week, to keep the flow of funds moving, but as with prior shutdowns, no matter when the shutdown ends, we know that there's going to be a period where it's going to take some time for those offices to catch up on applications.
Kenneth James Karels -- Chairman & CEO
Yeah. And it's a relatively small piece of our business, so no material effect on our business. Obviously, discomfort for some of our customers, but small effect on our total business.
Tim O'Brien -- O'Neill & Partners -- Analyst
Could crop insurance programs be affected?
Michael Gough -- EVP and CCO
It would have to go on a long, long time, I think to be effective and I'm not expecting that.
Kenneth James Karels -- Chairman & CEO
Yeah. They are still being written. I mean obviously the insurance is being written and signed up for, none of that will change, most of that is out of the government's hands and private insurers are handling it. So that will continue.
Michael Gough -- EVP and CCO
Thanks, Tim.
Tim O'Brien -- O'Neill & Partners -- Analyst
Okay. Thanks a lot guys.
Kenneth James Karels -- Chairman & CEO
Thank you.
Operator
The next question will come from Ebrahim Poonawala of Bank of America-Merrill Lynch. Please go ahead.
Ebrahim Poonawala -- Bank of America Merrill Lynch -- Analyst
Hey, guys. Good morning.
Kenneth James Karels -- Chairman & CEO
Hey. Good morning.
Ebrahim Poonawala -- Bank of America Merrill Lynch -- Analyst
I just wanted to follow up on margin. I mean I think just beyond -- like looking into middle or back half of the year, and when I look at like the deposit mix from a time deposit standpoint, we are about close to 20% today versus 15% a year ago. Do you anticipate that the mix will continue to migrate toward greater time deposits even without Fed rate hikes? And as a result, as I think Pete mentioned, it is going to be challenging to keep a flat margin. We should assume at least some maybe margin drifting lower in the back half of the year?
Kenneth James Karels -- Chairman & CEO
Probably not. I think we'll work hard to keep that margin up there, but I think you are right. We will, as other banks will see continued shift now into CDs as customers are starting to see higher rates and push for that, I think we'll see that transition, but we are managing that well, getting higher loan rates and trying to maintain that margin. And I think proved it just last quarter here. We think we can continue doing that throughout the year.
Ebrahim Poonawala -- Bank of America Merrill Lynch -- Analyst
And are we running any active promotions on CDs in terms of six, 12 month CDs to bring in funds or is deposit growth coming more hand-in-hand with commercial loan growth, et cetera?
Douglas R. Bass -- President, COO
There are CD pricing out there, but really it's just in a retention mode based on the current pricing. Most of the promotional activity would be in the money market or business side.
Kenneth James Karels -- Chairman & CEO
We actually dropped promotional rates during the quarter on (inaudible).
Ebrahim Poonawala -- Bank of America Merrill Lynch -- Analyst
Got it. That's helpful. And just separately in terms of new markets, LPOs, any plans? I am sorry if I missed it, if you talked about it earlier in terms of any new markets where you'd be entering or hiring bankers over the next few quarters.
Douglas R. Bass -- President, COO
Nothing probably planned in the near term. We opened four offices late last year and we're in an absorption period on those and we're seeing some pretty good opportunities coming. We've got a couple of bankers that have been hired already that would potentially lead to new offices nine to 12 months down the road, but nothing probably in the upcoming quarter.
Ebrahim Poonawala -- Bank of America Merrill Lynch -- Analyst
Got it. And just one last question on capital. So obviously you were aggressive in buybacks, and I heard what you said, Ken, earlier about the outlook. Anything from an M&A standpoint? Do you see -- I mean prices have moved around a lot, but do you see any potential for smaller banks becoming more open to deals over the coming months, quarters, like do you think the likelihood of deal making increases given if the environment gets tougher?
Kenneth James Karels -- Chairman & CEO
Yes. I think it will. It's been pretty robust. I mean just prices have been higher than what we wanted to pay. So we've been absent the M&A activity, but there's definitely owners looking at selling and continue, and we are having conversation with a number of them yet, but it just has to be at the right price to make sense for us to do it. So generally, yes. I mean that's where again we will keep some powder dry in case that happens. But with what we're looking at stock buyback, obviously especially this last quarter, was a better use of our capital, but we will -- as we always have, we will continue to look.
Ebrahim Poonawala -- Bank of America Merrill Lynch -- Analyst
Great. Thanks for taking my questions.
Kenneth James Karels -- Chairman & CEO
Thank you.
Operator
The next question will come from Nathan Race of Piper Jaffray. Please go ahead.
Nathan Race -- Piper Jaffray -- Analyst
Hi, guys. Good morning. And I apologize for earlier.
Kenneth James Karels -- Chairman & CEO
No worries.
Nathan Race -- Piper Jaffray -- Analyst
I was wondering if you could just go back to some of your comments around how you expect deposit costs to behave over the course of the next few quarters? Obviously, I'd imagine deposit costs will step up from what we've seen last few quarters in terms of 12 to 13 basis points, but just curious how you expect deposit costs to trend, is it better than hold for the next few quarters?
Peter Chapman -- EVP and CFO
Yeah, two questions. Internally, we are preparing for the deposit costs to continue to increase, Nate. So that 12, 13 point range is pretty consistent with what we have seen in prior quarters, so internally we are preparing for that. Certainly, if the Fed pauses, we'd hope that maybe that decelerates a little, but in the Midwest in particular, we're still seeing pretty strong competition for deposits. May be a little less so in Arizona and Colorado, but we'll just have to monitor what the competition does Nate and continue to sort of keep pace with loan growth.
Nathan Race -- Piper Jaffray -- Analyst
Got it. That's helpful. Can you gives us a little bit anything about the impact of CECL? Just curious if you have any thoughts on just how that could impact your reserve levels once that's implemented. And just curious if your earlier fiscal year start would impact the implementation of CECL relative to what the accounting board intends to --
Peter Chapman -- EVP and CFO
Yes. No, that's a really good question actually and we will be making sure we keep you all aware of this. We will actually be nine months later than everybody else. So, while it (inaudible) on the 1 January adoption period, we will be actually on the 1 October adoption. So, we will be a little later than everybody else. Look project up and running, we have got the vendors selected, we're going through and cleansing out data, but probably haven't got strong enough view on where we're sitting at the moment to give any guidance yet, Nate, but we'll certainly keep you guys abreast of anything that comes up.
Nathan Race -- Piper Jaffray -- Analyst
Okay. Interesting. I appreciate the color. Thanks Pete.
Kenneth James Karels -- Chairman & CEO
Thanks.
Operator
The next question will come from Tim O'Brien of Sandler O'Neill & Partners. Please go ahead.
Tim O'Brien -- O'Neill & Partners -- Analyst
Sorry. Just a quick follow-up. You mentioned Yuma, Scottsdale, Wichita branch openings. What's the fourth branch opening, what market was that in?
Douglas R. Bass -- President, COO
The fourth opening that we had was Cedar Falls, Iowa, that was probably mid-calendar '18.
Tim O'Brien -- O'Neill & Partners -- Analyst
Mid -- OK. Thanks a lot.
Kenneth James Karels -- Chairman & CEO
And North Scottsdale opened during the --
Douglas R. Bass -- President, COO
Yeah. North Scottsdale just opened here in January. Yuma and Wichita opened late calendar '18.
Tim O'Brien -- O'Neill & Partners -- Analyst
Got it. All right. I appreciate it.
Operator
The next question will come from Jeff Rulis of D.A. Davidson. Please go ahead.
Jeff Rulis -- D. A. Davidson -- Analyst
Thanks. Just a follow-up on the tax rate. Pete, is this indicative of what you think for the full year, which is on fiscal Q1?
Peter Chapman -- EVP and CFO
Yeah. That's a pretty good rate, a moderate, tenth of a point lower, we're just working on a few things there. But for the moment, yeah, I think it's pretty good rate.
Jeff Rulis -- D. A. Davidson -- Analyst
Okay. Thank you.
Operator
And this concludes our question-answer session. This also concludes today's conference call. We want to thank everybody for joining today. We hope that you have a good afternoon. You may now disconnect.
Duration: 35 minutes
Call participants:
Ann Nachtigal -- Director of Corporate Communications
Kenneth James Karels -- Chairman & CEO
Peter Chapman -- EVP and CFO
Douglas R. Bass -- President, COO
Michael Gough -- EVP and CCO
Dave Rochester -- Deutsche Bank -- Analyst
Jeff Rulis -- D. A. Davidson -- Analyst
Jon Arfstrom -- RBC Capital Markets -- Analyst
Damon DelMonte -- KBW -- Analyst
Tim O'Brien -- O'Neill & Partners -- Analyst
Ebrahim Poonawala -- Bank of America Merrill Lynch -- Analyst
Nathan Race -- Piper Jaffray -- Analyst
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