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United Community Financial Corp  (NASDAQ:UCFC)
Q1 2019 Earnings Call
April 17, 2019, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Hello, and welcome to the United Community First Quarter 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 your host today, Tim Esson. Please go ahead, sir.

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 first 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

Thanks Tim, and good morning to all. Thank you for joining us. We're pleased to report first quarter earnings of $8.7 million or $0.176 per share. From a distance, the results may appear relatively flat versus the prior year's first quarter results, however as we peel back the figures, you'll see why we are enthusiastic about the outcome. We delivered solid loan growth on a linked quarter basis over 7% annualized and first quarter always includes the share pay downs particularly around the CRE book and this year was no exception. New business generation gathered momentum over the course of the quarter and we feel we're well positioned as we head into Q2.

Deposit growth for the quarter versus prior year first quarter was up over 6%. Our seasonal municipal deposits make the year-over-year comparison a little bit more appropriate than linked quarter. We continue to experience excellent growth in our business, non-interest bearing and municipal deposit base. Business came in -- up 24%, non-interest bearing up over 8%, and our public funds up over 27% over the same period of last year.

Margin for the quarter fell right in line with expectations at 338 basis points and our deposit betas are holding steady. While Wall Street may look a little confused from time to time, Main Street is looking really good. We closed the quarter with the lowest percentage of loan delinquency in our history across each of our major lending portfolios, that would be commercial, consumer and our residential mortgage portfolio, which is large for an organization of our size.

For the quarter, we experienced a single basis point of net charge-offs. Falling interest rates created a bit of noise in the non-interest income category for the quarter. We adjusted our mortgage servicing rights asset downward by about $500,000 for the quarter. However, we did take advantage of the rate environment and exceeded our residential loan gain on sale expectations. The additional gain on sale income combined with strong year-over-year improvement in our insurance agency revenue, brokerage fees, and other trust fees, helped offset the favorable MSR hit. Non-interest income was up approximately 13% when you exclude the MSR valuation write down versus same period last year. We anticipate a continued strong performance in our residential mortgage origination, but less in the way of unfavorable MSR adjustments going forward.

Expenses ran a bit higher than normal as we incurred a one-time expense related -- of about $650,000 related to the realignment of our retail and wealth business units. We expect to recoup these expenses over the remainder of the year with no change in our full-year expense guidance provided in January. Our sustainable growth figures are right on pace with credit and expense management well in hand. All in all, again, we're pleased with the quarter.

Now I'll ask Matt Garrity to cover our commercial and residential mortgage business units.

Matthew T. Garrity -- EVP, Commercial Lending & Credit

Thanks, Gary. As Gary mentioned, we delivered better than expected balanced growth this quarter in our commercial business. In addition, our mortgage business had a very solid start to 2019. The asset quality indicators remained Excellent. Overall, we remain on target to achieve our 2019 expectations.

Our commercial business generated portfolio growth of close to 3.4% when comparing 12/31/18 balances to 3/31/19 balances. On a trailing 12 month basis, commercial portfolio growth is in excess of 11.6%. We had expected growth to be relatively modest in the first quarter as a result of planned payoff activities, and while some payoffs did run through the portfolio, it was not at the levels expected. With that said, we expect second quarter payoffs to be significant, and as a result, we expect commercial balances to be flat or up slightly in the second quarter.

While activity levels in the first quarter were somewhat lower when compared to activity seen in recent quarters, we remain on track overall to achieve 10% to 12% balanced growth for the full year. The market remains very competitive both in terms of rate and structure, and we remain committed to maintaining our credit discipline even if it comes at the expense of loan growth.

In our mortgage business, we had a very strong first quarter in terms of originations, saleable origination mix and gain on sale. Margin stabilized somewhat in the first quarter and when combined with improved levels of saleable origination, gain on sale income improved by approximately 50% in the first quarter when compared to the prior quarter, and by over 23% when compared to the first quarter of 2018.

While we are pleased with the performance of the first quarter and our momentum kicking off the second quarter, the industry remains highly competitive which has driven margin pressure. Basically, we're very pleased overall with the first quarter but are not ready to say the tide has turned with respect to margin. That being said, we're off to a very good start and on pace with respect to meeting our full year expectations.

Asset quality remain strong during the first quarter and while we remain vigilant for signs of weakness at this late stage in the economic cycle, our outlook remains positive. Non-performing loans as a percentage of net loans remained relatively flat when comparing the first quarter of 2019 to the prior quarter and down by over 45% when comparing the first quarter of 2019 to the first quarter of 2018. Delinquency continues to improve and now stands at 0.41%. Net charge-offs during the quarter were $58,000 or 1 basis point.

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 Q1 again demonstrated good solid performance numbers along with positive growth in both loans and deposits in addition to the continuation of outstanding credit performance.

Our quarterly results at $0.176 per share on a fully diluted basis are consistent with our expectations for Q1. Matt provided commentary regarding the two major sectors of the loan portfolio. However, let's touch briefly on the total portfolio. Year-over-year we saw the total gross loan portfolio increased $152.9 million or 7.3%. On a linked quarter basis, total gross loans increased $38.7 million or approximately 7% annualized. Again to reiterate, asset quality has remained very strong.

Looking further at the balance sheet. Average customer deposit growth which excludes broker deposits grew $29 million during the quarter and increased 6.1% year-over-year, positively contributing to this increase was a 24% increase in business deposits paired with an 8.4% increase in non-interest bearing accounts. Non-interest income when comparing Q1 of '19 with the same quarter last year increased 3%. Two items have impacted that comparison. When these items are considered, net interest income for Q1 of '19 compared to last year would have increased 7%. These two items were: one, the payoff of one loan in Q1 of '18 that drove '18's margin up 8 basis points or approximately $0.5 million; and two, the level of purchase accounting yield adjustments were higher in '18 than in the current period. Again, absent of both the early payoff and the purchase accounting adjustments, the net interest margin for Q1 would be 3.32% compared to 3.30% for the same time last year.

As we discussed earlier, asset quality remain strong. We did recognize a provision for loan losses of $61,000 in the quarter, essentially to cover net charge-offs. Net charge-offs for the quarter were minimal at 1 basis point. The allowance for loan losses as compared to total loans was 0.91%. This percentage increases to point 0.99% when combining the remaining fair value adjustments for loans acquired through acquisition in 2017. Given our favorable asset quality, we would anticipate the provision in Q2 to be minimal.

Continuing on, non-interest income was $6.1 million in Q1. This level of performance is approximately 4.4% greater than Q1 of '18. We did experience a fairly significant unfavorable mortgage servicing rights valuation adjustment of approximately $0.5 million in Q1 '19. Excluding this, the increase in non-interest income is 13.1%. Also having an impact on current non-interest income was a very favorable increase in gain on sale of mortgage loans of 23.4% or $318,000 in comparison to the prior period. This favorable change along with increased mortgage service fees, greater insurance agency income, and brokerage and trust fees help offset the charge for the mortgage servicing rights valuation in the quarter.

Non-interest expense was $17.7 million, an increase of 6.5% over the same period last year were higher than planned, it is anticipated, these expenses will realign with plan in the remaining quarters. The current quarter is reflective of a one-time charge of $650,000 for organizational restructuring of the retail and wealth business. Excluding this one-time event, non-interest expense would have increased 2.6% in comparison to the same time last year. Expenses will balance out with plan as the year progresses. Consistent with guidance offered in January of this year, we anticipate there will be approximately 1% to 2% increase in non-interest expense over the last year -- over last year's level. The efficiency ratio is at 62.3% quarter-to-date. This number will decrease to the level of the mid-50s as expenses continue to align with the plan. One final comment regarding our effective tax rate, on an FTE basis for the quarter, the rate is 18.4%.

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

Gary M. Small -- President and Chief Executive Officer

Thanks again, Tim. For 2019 planning purposes, we had assumed a single Fed turn, mid-year in our budgeting process. The absence of that turn or a 25 bp reduction from the Fed during the course of the year is not expected to have a meaningful impact on our margin expectations as a whole for the year. We continue to expect earning asset growth of 6% to 7% for the year, loan growth coming in at 8% to 10% for the year. Revenue growth is anticipated also at 6% to 7% with our expenses being in the up 1% to 2% category, pretty much as we had outlined in January.

As Tim mentioned, credit performance is likely to exceed our expectations. We'll wait until the end of Q2 to revise our guidance but certainly Q1 results from the leading credit indicators are favorable at this point.

As the market stands today, I would expect that we'll have additional share repurchase activity at a pace pretty similar to what we saw in Q1. And if we continue on pace from an earnings perspective, you would expect the normal movement in our dividend, which we usually defer until July, no change this year.

From a margin standpoint, 3.37%, 3.38% was our January guidance, again, we were happy to hit the 3.38% came in on and no change there. And we are encouraged by our residential real estate gain on sale margin, certainly Q1 was better than what we had experienced last year, but as Matt mentioned, we'll wait to see that for a couple of quarters before we say we've got a trend going.

With that operator, let's turn it over for questions.

Questions and Answers:

Operator

Thank you. We will now begin the question-and-answer session. (Operator Instructions) And the first question comes from Scott Siefers with Sandler O'Neill and Partners.

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

Good morning guys. Thanks for taking my question.

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

Good morning Scott.

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

Hi. Let's see, Gary, maybe just some thoughts on sort of full year margin guide, I'm still looking for 3.37% to 3.38%. I think when you guys gave the guidance back in January, at that time it included I think you were saying 3 basis points to 4 basis points of favorable impact from purchase accounting benefits. I think that was a little higher in the first quarter, so presumably that wins a bit. Does that mean that core margin could actually expand a bit from the roughly 3.32% or so that we had in the first quarter if I'm doing my math correctly?

Gary M. Small -- President and Chief Executive Officer

I think your notes are correct. When you go to the purchase accounting, we have got 6 bps in there for the first quarter, and I think, Tim, we were down to 3 bps or 4 bps by the fourth. So just the averaging of that would say, to standstill, we've got to pick up a couple of bps in margin, and we're still of that mind.

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

Okay perfect. Thank you. And then another, a lot of -- kind of some moving parts in the expense number, but it sounds like we'll basically have a lower absolute level from here. Maybe just so that, I'm sure we're all on the same page, is the appropriate expense base from which to model for this year just over $64 million or so for 2018. Is that the core level that you guys are kind of basing off of when you say up 1% to 2% for the full year?

Gary M. Small -- President and Chief Executive Officer

I think we were -- off of our January guidance, if you took the posted results for last year, we were going to be up 1%. If you adjusted for one of our one time expenses in the fourth quarter, I think we had a termination expense, we would be up 2%. So I think your math is about right, and as we look at our expense over the course of the year in absolute terms, $65.3 million to $65.5 million is our -- has been our number and we still feel good about that.

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

Okay. And then start to hop on this one, but the $65.3 million to $65.5 million, that includes the unusual expense in the first quarter?

Gary M. Small -- President and Chief Executive Officer

Yes it does.

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

Okay, perfect.

Gary M. Small -- President and Chief Executive Officer

It's just lump. We look at it Scott as we had two things in the first quarter that made it lumpy that charge-off kind of comes in all when it comes in and then we had the MSR and we overcame that with great mortgage revenue, some additional margin income and -- versus our expectation and another good credit quarter with no net charge-offs to speak up and that kind of covers the lumpiness of the quarter.

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

Yeah, OK. And I guess the message on expenses is regardless of what happened in the first quarter, 2Q, 3Q, 4Q, it's going to be an absolute lower -- lower number on an absolute basis than what we saw in the 1Q?

Gary M. Small -- President and Chief Executive Officer

Yes.

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

Perfect. Okay. Great. Thanks a lot, Gary.

Gary M. Small -- President and Chief Executive Officer

You bet.

Operator

Thank you. And the next question comes from Michael Perito with KBW.

Michael Perito -- KBW -- Analyst

Hey, good morning Gary.

Gary M. Small -- President and Chief Executive Officer

Good morning, Mike.

Michael Perito -- KBW -- Analyst

I had a couple of other things I wanted to touch on. I guess, just on the mortgage side, you mentioned that you guys are kind of stand back for a little just to see what kind of a continuation here is after the first quarter. But I mean, you know, my understanding is seasonally obviously the first quarter typically due to various things, whether, holidays, whatever that is, it's not the strongest mortgage quarter. So I guess, as we think about the $1.7 million of gain on sale you did in the first quarter, I mean, is this -- is that number, I mean, I would imagine seasonally it trends up in the second quarter, but I'm just curious if you have any more expanded thoughts about that -- about that trend?

Gary M. Small -- President and Chief Executive Officer

I'll pass that over to Matt, but your assumption is correct. There is -- the second or third quarter come in much stronger than the first. It's just we over performed in such a way in the first. We're shy of saying we're going to over perform our expectations by as much in two and three, but in absolute terms, you're right.

Matthew T. Garrity -- EVP, Commercial Lending & Credit

Yeah. Mike, this is Matt. And Gary said that well, as we built our budget, as you know the mortgage business is very seasonal with Q2 and Q3 being the stronger quarters. So we outperformed in the first quarter a fair amount better than our own expectations from a budget perspective and frankly the margins firmed up well for us in our mix of sale where our production was much better than we had planned for, both very positive. We've got good momentum kicking off the second quarter, and yes, at an absolute basis, if those trends continue and our margins hold, we will definitely see some improvement in Q2 and Q3 in absolute dollars compared to Q1. We're just obviously having gone through 2018, which was a very difficult market for the entire mortgage industry or anybody in the business on the mortgage side, we would just like to see a little bit more data before we claim victory on the margin front.

Michael Perito -- KBW -- Analyst

Okay, helpful. And is -- if there is a pick -- I mean, you mentioned 2018 being challenging, if I look back the last few years before that you guys were doing, call it, $6.5 million of revenue in the mortgage banking income line. And my guess is, we're probably turning back toward something similar to that. I mean, if that does occur, I know you're not ready to quite go there yet, but if that does occur, does that have any type of material impact on the expense outlook due to variable comp or anything of that nature?

Matthew T. Garrity -- EVP, Commercial Lending & Credit

Not so much on the variable comp side because the margin is the margin and in terms of how we pay our people, they're not overly compensated if we do better on our margin. With that said, they're not penalized if margins are weaker, it's just not the way the mortgage business is set up. So that gain is -- if we can outperform that that doesn't necessarily flow through to the sales force.

Michael Perito -- KBW -- Analyst

Okay. Thanks, Matt. Just a few other things I just want to hit really quickly just on a long road. So it sounds like you guys are expecting maybe like low single digit overall growth in the second quarter but then a stronger back half of the year, is that fair?

Matthew T. Garrity -- EVP, Commercial Lending & Credit

All right. Mike are you speaking to the commercial business now or overall?

Michael Perito -- KBW -- Analyst

Just overall given your comments about the slower commercial activity in the second quarter?

Matthew T. Garrity -- EVP, Commercial Lending & Credit

Yeah, I think that's a fair way to look at it. We think that we -- a lot of it is, it's hard to predict due to the timing in the commercial business of the payoffs. And you guys have heard us on the call is the last couple of years now talk about that. And first quarter was no exception to that. But we've got a lot of payoffs ready to land in the second quarter which should make that business more flat, that line of our business. But our mortgage business continues to do well and we expect -- we'll expect to continue to have some growth and again a little bit more growth in all of our business lines as the second half goes on.

Michael Perito -- KBW -- Analyst

Okay. Switching to the other different part of the balance sheet. Gary, can give us just some updated thoughts on the liquidity position of the bank and more specifically the investment portfolio and cash position and how -- any near term expectations about where those could trend? I mean, I know you guys are targeting the 6% to 7% earning asset growth, which would suggest maybe some modest compression, I just wanted to confirm that, that's how you were thinking about it?

Gary M. Small -- President and Chief Executive Officer

Yeah we're running out of reduction, if you will, on the security side that we saw that we would be peeling down a few more -- exiting some tax exempt positions that with the tax change has become less advantageous here, but in the individual market you're still getting price. So that we can reinvest in some higher earning assets of similar duration. So some will get reinvested, some will just use to fund loans and that's the drop. This probably is the last year that you'll really see much of a difference between earning asset growth, you know that 2% drop versus normal loan growth. We've got -- and I'll let Tim speak to this, from a true liquidity standpoint, when you carry a $1 billion in mortgages, we've got liquidity coming out of our ears, relative ability to fund the balance sheet. But again just on the asset side, we took and we mentioned this I think in January, we took a more cautious view on our loan growth for this year coming through our planning process than we had in prior years. We would normally be telegraphing 12% plus kind of loan growth and this year we said 8% to 10% probably looks about right and then that just helps us that much more from a liquidity standpoint.

Michael Perito -- KBW -- Analyst

Okay. And then just lastly on the capital front. Can you let us know what the average share price was on the 320,000 shares repurchased in the quarter? And as we think about the overall positioning here, Gary, I mean obviously that the TCE ratio bumped up again modestly this quarter, but assuming you kind of move with the plan, which would probably be another $0.01 dividend increase in July, 8% to 10% percent loan growth. Is there room for continued share repurchase activity at the current levels? Are you comfortable with that given the share price and just the overall positioning of the bank?

Gary M. Small -- President and Chief Executive Officer

Yeah, the average price of the shares brought in was of 9.42% (ph) I believe for the quarter, which as of today feels a little rich, but we're OK from an overall standpoint. And at these prices, we'll continue to buy sort of the same pace that we have been buying. No big chunks, if you will, we'll just keep taking our slivers. The capital plan, there's not a lot different than what we've expressed in the past. It's a nice problem to have, where our earnings are outpacing our uses for the equity, keep some for M&A, keep some for the growth and give the rest back to the shareholder, be a dividend and repurchase and keep a balanced approach, don't get overly enthused about any one of those four, keep it balanced and that served us well over the last couple of years.

Michael Perito -- KBW -- Analyst

Got it, great. Thank you guys for taking all my questions. Appreciate it.

Gary M. Small -- President and Chief Executive Officer

Mike, I'll throw in one -- one more comment on the gain on sale on the residential mortgage. When we think of our seasonality on that business, you expressed it correctly, obviously, with the first quarter being down by this order of magnitude. Our expectation on gain on sale from a budgeting perspective is 40% higher in Q2 than it is in Q1. So that gives you some order of magnitude, and what we're not ready to say is, oh we're going to exceed that 40% by the same amount we exceeded it in -- in the first quarter. We had a blowout first quarter. We'd be happy to hit our number on Q2 but there is -- it is a big difference in the percentage between the two quarters.

Michael Perito -- KBW -- Analyst

Thank you, Gary. Appreciate it.

Operator

Thank you. And the next question comes from Daniel Cardenas with Raymond James.

Daniel Cardenas -- Raymond James -- Analyst

Good morning guys.

Gary M. Small -- President and Chief Executive Officer

Good morning, Dan.

Daniel Cardenas -- Raymond James -- Analyst

Just a quick follow-up question on the loan side. Maybe a little bit of color on what line utilizations look like in Q1 say, maybe versus Q4 and the year ago and the like period?

Matthew T. Garrity -- EVP, Commercial Lending & Credit

Dan, this is Matt. I don't have my line utilization data with me this morning, but we could -- we could follow up with you. I would say anecdotally, no meaningful increase in lines period-over-period, nothing significant that makes that up. We don't have a significantly size in the commercial space. We don't have a significant portfolio of unfunded lines so to speak or working capital facilities.

Gary M. Small -- President and Chief Executive Officer

That's (ph) a great idea. When we do our reviews, the C&I lines, it's not as if they're loading up under some stress level or so forth, in fact, it's more of the opposite and we get them to use it. The C&I clients just builds it on a buttload of cash and using their money sparingly. And then, the lines that we have relative to the CRE business, there's a lot more volatility in those balance movements as projects complete and ramp up.

Matthew T. Garrity -- EVP, Commercial Lending & Credit

It's well said Gary. I think the payoff activity that we'll see Dan that impacts our business is the planned payoff activity in CRE projects. They're finished and fully leased up and they're going off to the permanent market versus significant swings and line balances.

Daniel Cardenas -- Raymond James -- Analyst

Got you. It makes sense, right. And then on the M&A front, I mean, it sounds like it's been fairly quiet here over the last quarter or so, but maybe some color on what you're seeing out there right now? Is activity beginning to pick up? Any comment you can give us would be great.

Gary M. Small -- President and Chief Executive Officer

Dan, I think directionally when we were having this discussion in January, it felt like there were more discussions afoot, no more books landing on the desk if you will. But the way '19 was queueing up, it's -- we were having more discussions and that's continued to be the case over the three months. And there are banks out there that are starting to feel the pinch, they may have skirted the issue of betas for one year but they're not skirting at the second year if you will, they may not have much going on on the left side of their balance sheet, they're feeling actual earnings compression and so forth. So but again, having said that, folks are still making a nice return on asset relative to what they're accustomed to making, but the more forward thinking folks are recognizing that there's more to be concerned about out there than there has been in the past and the conversations are a little more productive.

Daniel Cardenas -- Raymond James -- Analyst

Great. And then last question for me. Maybe if you could give us an update on CECL, how that's coming along for you guys? And when do you think you'll be able to give us a little bit more color as to the potential impact that could have on capital and reserve levels?

Gary M. Small -- President and Chief Executive Officer

I'll turn that one over to Tim.

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

All right. Well, I stuck (ph) a minute to hear about CECL. Let me just briefly describe where we are. We've engaged Abrigo or formerly known as Sage Works. That said, we are right now in the process of examining the impact of several different model elections and various economic environment and running parallel models, but they're continually changing as we look at some of the loss factors and what have you. But going forward, we're getting ready to obviously firm up some of the models. And that said, if we look at a number -- we look at a number approximately in rough number, maybe $7 million to $8 million on the loan portfolio at this time. But keep in mind, that's an approximation, it's early and that will definitely firm up here in the coming weeks.

Daniel Cardenas -- Raymond James -- Analyst

Great. Thank you.

Gary M. Small -- President and Chief Executive Officer

Yeah -- we can't express enough that that's sort of the range, starts at about that with all the additional -- we have a few additional assets obviously that we have to set aside for. But the last time we really put a pen to pencil to paper and that was about a year ago and it's just been that much more of an improved credit environment. And I think for all of us in the industry, we're going to be adopting CECL at a time where the performance of the portfolio over the last few years is going to minimize the capital charge, although it may add to the volatility of earnings once we start to return to more normal charge-off levels. So depending on what their rationale was for it, I don't think lack of volatility is going to be an outcome from a production standpoint in a normal environment.

Daniel Cardenas -- Raymond James -- Analyst

Great. Got it. Thank you guys.

Operator

Thank you. And the next question comes from Scott Beury with Boenning and Scattergood.

Scott Beury -- Boenning and Scattergood -- Analyst

Hey, good morning guys.

Gary M. Small -- President and Chief Executive Officer

Hey, Scott.

Scott Beury -- Boenning and Scattergood -- Analyst

So first question, I know that credit metrics overall have been really strong. Obviously, one basis point of charge offs and the delinquencies you mentioned are record lows, but just looking at you had about $1.5 million pop up in other classified assets I believe? Just curious if you had any color on kind of what the nature of that was, as well as the uptick in CRE non-accruals?

Gary M. Small -- President and Chief Executive Officer

I'll let Matt speaks to the CRE piece on the other asset category. We have a receivable out there, it's a court case. We had a receivable on some interest and what kept that from not being on the non-performing list of forwards we had sort of a certainty around when the payoff date would be. That certainty around the payoff date has drifted away. And so we popped it back on because without that certainty, we -- without a range of certainty, we should be carrying it as a non-performing instead of performing. So just the change in circumstances.

Scott Beury -- Boenning and Scattergood -- Analyst

Understood.

Matthew T. Garrity -- EVP, Commercial Lending & Credit

And Scott, this is Matt. If you're referring to the increase in the NPL level, we had a loan that is actually still current but has reliance on a third-party payment stream that is not really contractually binding in our mind. So while it is current and we don't have any indication that the third party will not continue to support the cash flow, we just thought it was prudent to make the call now in terms of making it non-performing. So it's a little bit of a conservative play. As I mentioned, the loan still pays and it's still current but we thought non-performing was right -- was the right call to make now.

Scott Beury -- Boenning and Scattergood -- Analyst

Understood. No, that makes sense. I mean, was that something that you were unaware of previously? That kind of a nature from when...

Matthew T. Garrity -- EVP, Commercial Lending & Credit

No, Scott. We keep a pretty close tab on our portfolios, particularly the ones that begin to show signs of stress. So this wasn't a loan that was a current loan or excuse me, a non classified loan, a past rated loan that suddenly went from that category of NPL. It has been on our radar for a while.

Scott Beury -- Boenning and Scattergood -- Analyst

Understood. I understand. And then kind of switching gears just on the mortgage. You have the break out of purchase versus refi or the origination from the quarter?

Gary M. Small -- President and Chief Executive Officer

Sure, the refi percentage at our institution is a little bit lower than what you might see at other banks and part of that is that, we've got a little bit more of a distributed model from a mortgage perspective, from a geography standpoint.

Scott Beury -- Boenning and Scattergood -- Analyst

Right.

Gary M. Small -- President and Chief Executive Officer

We reach a little bit further beyond. So we're more of a low teens, low double digit percentage in terms of refi production. We think if you go back to like the really hot markets when there is big refi booms that takes us more into the mid to high 20s as a percentage of our book, but right now we're trending in the low teens, low double digits, and that's been -- that's been consistent for a while. We actually saw a nice bump in production of purchase level activity which we're really happy to see that -- we like that business.

Matthew T. Garrity -- EVP, Commercial Lending & Credit

60% of our business is in construction, right after the builder but to the individual, so that -- that keeps us low on the repurchase side as well. Oh I'm sorry on the repurchase side.

Scott Beury -- Boenning and Scattergood -- Analyst

Understood. Okay. No, that's really helpful. Yeah, I was just trying to get a sense whether you know kind of this rebound that we saw on the mortgage banking side, whether that was driven by a temporary jump in refi activity with the changes to the rate outlook?

Matthew T. Garrity -- EVP, Commercial Lending & Credit

Yeah, there's lots of conjecture on that. I think part of it was the end of -- the fourth quarter was just so difficult from a consumer's perspective with the market being the way it was. And with some rebound in the first quarter, I think consumer sentiment just got a little better and activity get better.

Gary M. Small -- President and Chief Executive Officer

Scott, you're asking the right question, because we asked that of ourselves early on and kind of as we examined our own book and the rates that are being carried on the books, that was 40 bps. We feel like the 10 year would have to move before we would really feel an uptick in refi activity on our own book.

Matthew T. Garrity -- EVP, Commercial Lending & Credit

Yeah, I think -- yeah, if you wanted to get back to, if you think about the first half of '16 which was just a huge refi era in mortgage rates, you know the rates would need to move another -- in terms of the mark and about another 70 basis points to get back to that level.

Scott Beury -- Boenning and Scattergood -- Analyst

Excellent. No, that's great color. And then lastly just -- on the one-time charge, clearly it's not a really large number or anything but you know you made a comment that you expect to recoup that realignment through the expenses in the remainder of the year and I was wondering if you could just, one for housekeeping, let me know what line item that restructuring charge went in, if it went through compensation or other. And then secondly, just kind of any detail you could give on the dynamics of how you expect to recoup those expenses.

Gary M. Small -- President and Chief Executive Officer

The majority of the dollar figure went through compensation. We had some changes at the top of the house from a leadership standpoint. So there just been some absolute dollar differences there. We've also closed two locations in our branch network, those were consolidations into existing branches. So you have a media pick up on people and so forth (inaudible) to go with that consolidation. So those are the two primary drivers and those costs kind of would be smaller and spread all out through the P&L.

Scott Beury -- Boenning and Scattergood -- Analyst

Excellent, that's perfect. Very helpful.

Gary M. Small -- President and Chief Executive Officer

We probably wouldn't have called it out if they didn't create such a lump in the first quarter. To Scott's earlier question, we wanted to make sure we were clear. That's not systemic and we won't have a problem getting back to that number.

Scott Beury -- Boenning and Scattergood -- Analyst

Got it. Excellent. All right, well thanks for answering the questions guys and have a good day.

Gary M. Small -- President and Chief Executive Officer

Thank you.

Operator

Thank you, And as that was the last question, so this does conclude the question-and-answer session. I'd like to return the floor to Gary Small for any closing comments.

Gary M. Small -- President and Chief Executive Officer

Well, again, thank you all for joining us. I know that particularly this quarter, we're a little earlier than some out of the gate coming out this week and we view that as a good thing, because we get a good audience. But as more releases come out, if you have any follow-up questions or you're trying to do a compare/contrast based on what you're seeing with the other folks, please don't hesitate to give me a call, we'll do our best to give the information to you. Thanks very much.

Operator

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

Duration: 39 minutes

Call participants:

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

Gary M. Small -- President and Chief Executive Officer

Matthew T. Garrity -- EVP, Commercial Lending & Credit

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

Michael Perito -- KBW -- Analyst

Daniel Cardenas -- Raymond James -- Analyst

Scott Beury -- Boenning and Scattergood -- Analyst

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