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Cadence Bancorporation  (NYSE:CADE)
Q1 2019 Earnings Call
April 29, 2019, 1:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Welcome to the Cadence Bancorporation First Quarter 2019 Earnings Conference Call. All participants will be in listen-only mode. The comments are subject to the forward-looking statement disclaimer, which can be found in the press release and on Page 2 of the financial results presentation. Both of those documents can be located in the Investor Relations section at cadencebancorporation.com. After today's presentation, there will be an opportunity to ask questions. Please note, this event is being recorded.

I would now like to turn the conference over to Paul Murphy, Chairman and CEO. Please go ahead.

Paul B. Murphy -- Chairman & Chief Executive Officer

Well, thank you, and welcome to our first quarter call. Joining me today are Sam Tortorici, Hank Holmes, and Valerie Toalson.

I felt like we took a big step forward in the first quarter with the closing of the State Bank deal, and with the completion of the system and branding conversions during the quarter as planned.

I'm really pleased with our first quarter results. We're nicely ahead of expectations. I'm also extremely pleased and grateful to the great team at State Bank. I'd just like to salute them for their impressive leadership they demonstrated during the conversion. I'd like our expanded footprint and the diversity that it brings to our business model, and I kind of take a step back and take a look at the franchise today. I just see many opportunities to grow and expand our business really in Georgia, and throughout the footprint.

So, it's nice to report a strong start to the year with better earnings than even I was expecting. Many of you know, I tend to be an optimist, and when we beat my expectations that's a really good thing.

On an adjusted basis, we earned $0.57, which is a 19.7% adjusted return on tangible common equity; a 1.72% adjusted return on assets; and a 45.7% adjusted efficiency ratio. We still have some work to do on integrating State Bank, but we're on track with cost saves, and we are a bit favorable to plan on merger cost.

One quarter is not enough to judge the success of the State Bank merger, but it's nice to be off to a strong start. Often early indications are revealing. So, I would credit our performance to a couple of things. I mean, as you've heard me say it before, we have a great team of bankers working hard to do a good job for clients, and we really are in some fantastic markets.

Last week, I had a chance to spend the most of the day with our retail banking Circle of Excellence award winners. This is a group of 25 of our retail bankers, and they're the winners of the annual business production awards in our retail banking network. I notice that oftentimes people tend to discount the viability of a legacy retail banking network, and I'm here to tell you that our team should not be discounted. They do a fantastic job for clients and they compete well for business.

Let me comment on our credit metrics for the quarter. Charge-offs is about $550,000, 2 basis points annualized. Non-performers declined from 0.81% at year-end to 0.63% linked quarter. The provision was a bit larger than planned for the quarter at $11 million. The increase is due in part to loan growth, and what I would say is a prudent specific reserve for certain criticized or classified assets. Even with the increase in provision, overall, it's still a good quarter from a credit perspective. We feel like we have an attractive pipeline of loan opportunities and we remain highly selective. We're not sacrificing on structure for the sake of growth.

We are hosting our first Investor Day on Thursday, May the 2nd, in New York. At this meeting, we plan to provide a really in-depth review of our loan portfolio. We'll go deep into our credit underwriting, our monitoring, and we'll do an overall kind of State of the Union, if you will, on Cadence Bancorporation. We have limited space available, but we hope we can have as many shareholders join us in person as possible, and then others are invited to join us for the webcast. So if you need information about how to participate please go to the Investor Relations section of our website and we will follow up with you promptly.

I may ask you to turn to Page 4 of our presentation, and I will comment on period-end loans which were $13.6 billion. Excluding the impact of the loans acquired in the State bank deal, loans increased $1.6 billion or 18% from a year-ago, and $246 million, or 2.4% organic growth linked quarter. Period end deposits were $14.2 billion compared to $9 billion in the first quarter of '18. As many of you know, this has been one of our top strategic initiatives, and Sam is going to tell you more about core deposit initiatives here in a moment.

The adjusted efficiency ratio beat our targeted levels and was at 45.7% for the first quarter. This compares to both Cadence and Legacy State running at about a 49% fourth quarter number. So, this is really great to see, and Valerie is going to have a lot more details for that on -- here in a moment.

Why don't I pause now and turn it over to Sam.

Samuel M. Tortorici -- President

Thank you, Paul. I will be commenting on our deposit growth starting on Slide 9 of the presentation. As Paul mentioned, one of the things that we're most pleased within the quarter is a successful conversion of State Bank. I've been on the front lines during this conversion, and personally welcomed our new bankers and customers throughout the process. I want to recognize all the hard work of our bankers, which contributed to a successful conversion, and actual increase in our retail deposits following the February conversion through the quarter-end. I'm very excited about our future growth potential throughout our Georgia markets.

Period-end core deposits were $13.3 billion, an increase of 62% from a year-ago, driven by State Bank acquisition, as well as the result of the hard work by the team. Our organic drivers, as they have been, were primarily the expansion of commercial deposit relationships and our treasury management services, along with consumer retail growth throughout our Texas and Southeast markets.

Our bankers' ongoing focus for the past several years on multiple initiatives has helped build our core deposit funding to support our loan growth. Brokered deposits were $856 million or 6% of total deposits, a decrease of 17% linked quarter. We also increased interest bearing deposits by $756 million or 31% linked quarter, interest -- non-interest bearing now representing 23% of total deposits. We like our overall mix, and we continue to focus on improving our core deposit funding.

As we previously disclosed, management's compensation is tied very closely to this goal. I truly believe we're a great combined company and look forward to our future. With the successful conversion and rebranding behind us, our teams are focusing all their efforts on doing a great job for customers and the successful execution of our merger targets, which will enhance shareholder value.

With that, let me turn it over to Valerie to go through a few more points on our quarterly performance.

Valerie C. Toalson -- Chief Financial Officer

Thanks, Sam. With the State Bank merger completed and continued business generation throughout the network, our average earning assets increased $4.8 billion or 41% in the first quarter, with a net interest margin that increased 66 basis points to 4.21%. Combined, our total revenue increased 61% to $200 million for the quarter, a pretty exciting number for us to start the year out with.

On Slide 10, in the top left graph, the green line demonstrates the relative stability of our net interest margin throughout 2018, and a significant bump up in the first quarter driven largely by increases in organic loan yields as well as purchase accounting accretion, which was $14 million in scheduled ACI and a ANCI loan accretion, $4.3 million in ANCI unfunded commitment accretion, and another $0.5 million in ACI recovery income for a total of $18.8 million. This accretion compared to a total of $5.6 million last quarter for Legacy Cadence only before the merger. For reference, State Bank reported in the third quarter of 2018 $8.2 million in total accretion income.

The other key purchase accounting related impact to the P&L is the increase to core deposit intangible amortization of about $5.5 million this quarter flowing through non-interest expense.

The net interest margin roll forward at the bottom left of this slide is helpful in understanding the moving parts. From the fourth quarter of 2018 to the first quarter of 2019, the 66 basis point increase was made up of several key items. One, at 19 basis point impact from originated loan yields primarily as a result of the December rate increase as well as the impact of net new loan originations; a 29 basis point impact from the acquired loan accretion; an 8 basis point impact from our balance sheet hedging and derivatives activity, primarily the collar we put in place during this quarter; an 8 basis point impact from our debt costs representing a smaller impact on our larger earning asset base, since we added no debt with the State Bank acquisition; and a net 1 basis point impact from deposit costs. Within that net 1 basis point of deposit costs, the lower cost mix of deposits acquired from State Bank, provided an improvement, a positive impact to margin of 13 basis points, while the underlying deposit cost increases during the quarter impacted a negative 12 basis points, again related to the December rate increase.

Our originated loan yield, so excluding all acquired loans, was 5.46% for the first quarter of '19, up 26 basis points from the prior quarter, reflecting the fact that approximately 70% of these loans are variable rate. Total cost of deposits decreased during the first quarter to 1.30% versus 1.34% last quarter. Again with the merger impact reducing costs by 16 basis points, partially offset by a 12 basis point increase in the quarter's deposit cost.

Turning to Slide 11, as shown in the top left of the slide, our cumulative originated loan beta increased to 85% and our cumulative deposit beta decreased to 41% this quarter, with the loan beta more than twice that of the deposit beta, reflecting the inherent asset sensitivity of our balance sheet. Given this asset sensitivity, combined with the recent market insecurity around future rate environment, our larger balance sheet and a desire to minimize the impact of a down rate environment, in late February, we entered into a five-year $4 billion notional interest rate collar. Effectively, it protects us in a down rate scenario for giving up some of our upside in a rising rate environment. Specifically, in a down 100 basis point shock, our net interest income would be negatively impacted only 1%. But in an up 100 basis point scenario, we would still be positively impacted 4%.

Turning to Slide 12, for the first quarter, total non-interest income was $30.7 million, up $9.7 million from the fourth quarter. We saw increases in all components with the exception of credit fees, which were down slightly due simply to deal with specific fees in the fourth quarter. The broad-based increases reflect the addition of the former State Bank customers to our base, as well as additional revenue sources, including payroll processing of $1.9 million and SBA income of $1.4 million. The merger further diversifies this non-interest revenue source and adds meaningful opportunities for more fully leveraging these key products across our expanded footprint.

Finally, turning to Slide 13, we've always liked this slide, now it looks even better. The adjusted performance here excludes non-routine items that we detail in the release and in the appendix of the slide deck. Focusing on the top left graph, the first quarter's adjusted net income of $75 million, represents an 81% increase from Cadence in the fourth quarter, reflecting the positive impact of the merger and strong ongoing business development.

Our adjusted expenses of $91.4 million, increased 50%, which includes a full quarter of the merger impact, and a $5.5 million quarter-over-quarter increase in CDI amortization, partially offset by underlying improvements in expenses, and approximately $6.7 million during the first quarter. The large theory is making up these improvements were from merger efficiencies in personnel, occupancy, and professional fees, as well as some seasonal declines in business development costs that are typical after the fourth quarter. When you combine this level of expense with the quarter's 61% increase in revenue, it solves the efficiency ratio, an impressive 45.7% for the first quarter of '19, improved from 49% in the fourth quarter of '18. Clearly, we are very pleased with our performance as we kick off our 2019 results.

Operator, we will now open it up to questions.

Questions and Answers:

Operator

Thank you. We will now begin the question-and-answer session. (Operator Instructions) The first question will come from Steven Alexopoulos with JP Morgan. Please go ahead.

Steven Alexopoulos -- JP Morgan -- Analyst

Hi, everybody.

Valerie C. Toalson -- Chief Financial Officer

Hi, Steve.

Steven Alexopoulos -- JP Morgan -- Analyst

I wanted to start first on the NIM. And Valerie, I want to follow-up on your commentary around the underlying deposit costs, which rose 12 basis points in the quarter. Now that you have stayed in the mix, and if that's like then hold, how do you think about the progression of deposit cost for the rest of the year?

Valerie C. Toalson -- Chief Financial Officer

Yes. So, it's a great question. A couple of items there. One thing first to clarify, of that 12 basis point increased costs, and I should have noted this. There was -- about 2 basis points of that increase was related to the mark that we put on the purchase accounting mark in the quarter, and so that falls into interest expense. So to say the rest of the 10 basis points -- what we saw actually this quarter was that come in mostly early on in the quarter, and then through the rest of the quarter, it was pretty stable. And so that's a little bit of a change from what we've seen historically. If you recall, what we've seen historically is after a rate increase, that it's taken a couple of quarters for those deposit costs to really kind of flow in.

You know, I don't know what the last couple of months of stability is something that we'll see going forward, but I do think that the overall environment is such that that we do anticipate slower increase to deposit costs in general. Additionally, with the State Bank deposits, that certainly is a -- historically a lower cost increasing base, if you will, more granular, more retail, and I think that will have a positive impact also.

Steven Alexopoulos -- JP Morgan -- Analyst

So if we put the impact of accretion to the side, how do you think about the core NIM, how do you think that transit the rest of this year?

Valerie C. Toalson -- Chief Financial Officer

Well, as you know, we do have -- you know, there are several factors, and hopefully we tried to lay that out for you a little bit. We do have the inherent asset sensitivity within our loans portfolio. About 70% of that, I think 69% on a combined basis with State Bank is floating rate. And so that does tend to move with the change in LIBOR primarily. If we don't have any more rate moves and everybody can have their own different opinion on that, I think, it will take a couple of more months for kind of the full impact of the December rate increase to get into those loan yields.

And then, as we're generating -- you know the fortunate thing that we've got, we're generating really nice loan growth. We continue to do that. And when we bring on those new loans, they're generally at higher incremental rates than the loan payoffs. And so that also bodes positively for that kind of underlying core margin impact, if you will.

The other thing that we did put in place this quarter is a collar. And I might just go ahead and explain how that works a little bit, because where rates are right now that is having a positive impact on our net interest margins. Effectively, when -- for this $4 billion notional when rates are below 3%, we receive basically 3% less LIBOR on that notional amount. And then there's no activity between 3% and 3.5%, over 3% to 4.7%, we actually pay LIBOR less 3.50%, and then over 4.70% there's no payment. So where rates are today, that is also having a positive impact to margin.

Steven Alexopoulos -- JP Morgan -- Analyst

So do you think core NIM could hold in relatively stable? Is that the outlook?

Valerie C. Toalson -- Chief Financial Officer

Yes, that's our target. That's exactly what we are working hard to do. A lot of it does depend, obviously, on deposit costs, and our ability to continue to generate those costs effective deposits. But that is certainly something we're targeting. There could be a little bit of compression because of that over the quarters, but I think that's not an unreasonable expectation given what we've got on the balance sheet.

Steven Alexopoulos -- JP Morgan -- Analyst

And then finally, for Paul, now that you have put these companies together, if we look at period end loans around $13.6 billion. How do you feel about that prior guidance? I think it was grown sort of 9%, 10% annualized off this new base?

Paul B. Murphy -- Chairman & Chief Executive Officer

Yes, Steve, we were sort of rehashing that this morning, just trying to rethink where we stand, and we're right there. We've got good pipelines, the nice new business activity we'll see an increase there, in Georgia, as we continue to build the team there. So the question becomes payoffs. We have seen some of that and -- but not quite as much as some of our competitors. And if we catch up with the market on more payoff that would perhaps dampen it a little bit. But where things stand today, we think 9%, 10% is reasonable.

Steven Alexopoulos -- JP Morgan -- Analyst

Okay, terrific. Thanks for taking my questions.

Paul B. Murphy -- Chairman & Chief Executive Officer

Thanks for joining us.

Operator

The next question comes from Brady Gailey with KBW. Please go ahead.

Brady Gailey -- Keefe, Bruyette, & Woods, Inc., -- Analyst

Hi. Good afternoon, guys.

Paul B. Murphy -- Chairman & Chief Executive Officer

Thanks for joining us Brady.

Brady Gailey -- Keefe, Bruyette, & Woods, Inc., -- Analyst

So Paul, you mentioned in your opening comments, the provision came a little higher this quarter. And then, I think you said you allocated some specific reserves toward classifieds and criticized. Maybe just give us an update on classified and criticized trends and if there was anything noteworthy there this quarter?

Paul B. Murphy -- Chairman & Chief Executive Officer

Yes. So the classified and criticized trends are flat companywide. I feel good about really the credit overall. The roughly $7 million that we added in provisions pertain to six credits. There were two energy credits about $1.5 million, two restaurant credits little less than $1 million, and a couple of C&I credits there were in that $4.8 million range.

So it was diverse. But reasonable, I think, and proven to work that we did and looking at those credits. But I think the way you phrased the question is really the right way to think about it overall criticized and classifieds for the quarter are flat to maybe down just a touch from December. And by the way, this is something that we plan to do a deep dive in on Investor Day on Thursday to kind of get into the more details around really each business unit, and what we're saying there from a credit standpoint. But overall, we're still pretty comfortable about the credit story at Cadence right at the moment.

Valerie C. Toalson -- Chief Financial Officer

Brady, I would just add, what Paul spoke toward the specific provisions that were added during the first quarter. And then of course, the rest being other factors. Of those specific provisions, those loans that he spoke to really all, but one had previously had specific reserves on them. And so there was really just the incremental ones that we added some additional specific (inaudible).

Paul B. Murphy -- Chairman & Chief Executive Officer

Good point.

Valerie C. Toalson -- Chief Financial Officer

The others -- we're simply adding to what we had.

Brady Gailey -- Keefe, Bruyette, & Woods, Inc., -- Analyst

Okay. And then, we've talked about the core NIM, but maybe to ask the other side of the question, as it relates to yield accretion, I mean $18.8 million was larger than I had thought for this quarter. I mean, I know that from here on out, it's kind of a shrinking bucket. But how do you think that $18.8 million trends for the rest of the year?

Okay. And then yeah we've talked about the core NIM but maybe to add the other side of the question as it relates to yield accretion, I mean $18.8 million was larger than I had thought for this quarter. I mean, I know that you know from here on out it's kind of a shrinking bucket but how do you think that 18.8 trends for the rest of the year?

Valerie C. Toalson -- Chief Financial Officer

Yes. So, of that $18.8 million , about $14 million of that is what I would call scheduled, scheduled ACI and ANCI accretion. And so that's going to behave all else equal, fairly consistently on a quarter-to-quarter basis, as you said, kind of declining down over the life of those loans. $4.3 million of that was actually related to the $26 million mark that we took on unfunded loan commitments. And so that actually depends on those loans funding.

And so it could be volatile quarter-to-quarter, and it will accrete in at a little bit of a faster pace, if those loans do fund, more of a three-year to four-year time frame. And so within this quarter's $4.3 million, was that, and then there was only about $0.5 million of recovery income that can also be a little bit volatile quarter-to-quarter.

Brady Gailey -- Keefe, Bruyette, & Woods, Inc., -- Analyst

All right. And then last for me, I know you guys have talked about longer term with efficiency ratio in that mid-45% range. You are close to be in there pretty much this quarter. Do you think a mid -- do you think a 45% efficiency ratio is still the right way to think about you guys longer term? Or could you do better?

Paul B. Murphy -- Chairman & Chief Executive Officer

Yes, Brady, I will say, it's important to note that first quarter is not unusual for expenses to be a little light relative to the year. And so, it is what it is, but I wouldn't -- it's kind of locked on the 45.7% as the real run right, but not far off. So, yes, I mean, there is still operating leverage in the model that we should realize over time, and we would -- I think did in that 44% to 46% range is a good range. I mean, if I get to 44%, I'm going to want to do better, of course, I mean, every time you hit a goal, you're going to reset it, and I think it's achievable. I will say that, this year, or let's do it this way, last year we got it to expense growth, core expense growth around 6%, and actual came in closer to 3%.

This year, we would still say 5% to 6%, but we're going to have some offensive expense growth in that we're hiring some people in Atlanta and other places. And so, if we get in that 5% to 6% range for the year, and some of that is offensive, and that would be good. And with all that having been said, I think we should still see operating leverage in the model, and a downward trend to efficiency ratio over time.

Brady Gailey -- Keefe, Bruyette, & Woods, Inc., -- Analyst

All right. Great. Thanks, guys.

Paul B. Murphy -- Chairman & Chief Executive Officer

How dramatic is this quarter?

Operator

The next question will be from Ken Zerbe with Morgan Stanley. Please go ahead.

Ken Zerbe -- Morgan Stanley -- Analyst

Great, thanks. So, let's say, If we can just stay on the expense topic just for a minute more, it's going to be really clear. I get your topic that or what you're saying the efficiency ratio should trend down from here. But the $91 million, I think you said they tend to be lighter in the first quarter. Is it -- I guess, is that imply that it goes from $91 million of core expenses up to something else in the say the mid low-90s and before it starts trending down, or how should we think about the actual dollar expenses over the next few quarters?

Valerie C. Toalson -- Chief Financial Officer

Yes, it's a great question. What I would suggest is actually, within the expenses, we've got a pretty good bump there, about $5.5 million increase, actually quarter-over-quarter in our intangible amortization that's associated with the acquisition. So, I would actually -- when you're trying to figure out kind of the expanse behavior, set that aside. And so if you kind of back that out, you're closer to the $85 million-ish. I think, it's not unreasonable to assume a 5% to 6% annualized increase of that $85 million number over the year.

That being said, we still have some efficiencies from the State Bank acquisition that I believe will come in. I will say that that I think that we've gotten them much quicker than we had certainly modeled and anticipated. We're probably at least two-thirds to three-fourth, if not more the way they are already. But there will be some that trickle in over the rest of the year. So it could even soften that a little bit. But I think that's a reasonable expectation. It speaks to kind of what Paul said about some of the offensive things that we're doing, but certainly well within the range that we've talked about before.

Ken Zerbe -- Morgan Stanley -- Analyst

Got you. Okay. So, if you're already served two-thirds to three quarters of your expense savings already achieved then that would imply will actually the 2020 expenses probably it sounds like it may not change to the way you're thinking about expenses probably doesn't change too much in 2019, it's just you've accelerated the expense cuts in the first quarter, and obviously has benefited in the second quarter, et cetera. Is that the right way of thinking about it?

Valerie C. Toalson -- Chief Financial Officer

I think that's a reasonable way to think about it. Some of the other things other than State Bank efficiencies that we saw in the first quarter were a little bit more timing related. We typically have a lot more business development expenses, for example, in the fourth quarter more travel associated with that. Those kind of things we saw declines this quarter. I don't think that those are permanent declines, I think over the year, just like what we've seen in prior years, we'll probably see some increase there. So that just gives you an example, gives you an idea of that.

Ken Zerbe -- Morgan Stanley -- Analyst

Okay. Okay, great. And then, just in terms of the accretion, both the ANCI and the ACI, how does CECL affect that? There was another bank that reported a little earlier that essentially said that most of their accretion goes away in 2020 given the impact of CECL. Have you guys looked at that?

Valerie C. Toalson -- Chief Financial Officer

Yes. So, effectively, the ACI accretion goes away. So if you look back at Table 3 within our press release, there was $5.8 million in scheduled accretion, another $0.5 million in recovery accretion for ACI this quarter. Effectively, that goes away the mark on those loans it gets back on the balance sheet, and we provide for those likely with the others. The ANCI accretion of which we had $12.5 million this quarter, that actually continues. So if you consider the $8.1 million of that was scheduled, that actually continues over what we're estimating to be about seven years, it gets treated a little differently.

Ken Zerbe -- Morgan Stanley -- Analyst

Got you. Okay. And then just -- if I can just one last quick question. When we think about the loan growth, Valerie, I know you said or called 9% to 10% loan growth is still a good run rate. What exactly is the base that you're using that you grow to 9% to 10% off of?

Valerie C. Toalson -- Chief Financial Officer

Yes, that would actually be effectively the beginning balance sheet January 1 as a day of merger. Hold on, I can get you that number for you.

Ken Zerbe -- Morgan Stanley -- Analyst

That's perfect.

Paul B. Murphy -- Chairman & Chief Executive Officer

$13.3 million.

Valerie C. Toalson -- Chief Financial Officer

Yes, a little over $13 million.

Ken Zerbe -- Morgan Stanley -- Analyst

$13.3 million. Perfect. All right. Thank you very much.

Operator

The next question comes from Michael Rose of Raymond James.

Michael Rose -- Raymond James -- Analyst

Hey, good afternoon, guys. Just wanted to touch on loan growth, if I look at the $246 million in organic growth this quarter, it looks like a little over half of it was in energy and in the restaurant book. Can you just give us an update on energy? I know, Paul, you talked about, pulling back in midstream, just given there's a lack of deposits in that business. And I know you guys were a little bit more cautious on the restaurant industry. And then finally, if you could just give some color on the tech initiative? Thanks.

Paul B. Murphy -- Chairman & Chief Executive Officer

Yes, sure. Well, again, Michael, we'll do a deeper dive on all these questions on Thursday, and I'm looking forward to having you there. So the restaurant -- some of the restaurant growth is some State Bank restaurants adding to our existing totals. And so some of that is just the combination of the portfolios. The restaurant strategy is sort of stable, steady as she goes and we're not looking for increases in the restaurant business.

On the midstream piece, I maybe have misspoke, but we're looking for continued growth there. And it's a great story. You're going to love seeing the detail on that on Thursday. And yes, they are pushing very hard for cross selling deposit business and have had nice success there more to follow. So, I think, that beyond that, it's going to be broad-based and we're looking for really kind of a pro rata growth throughout the footprint. The technology team will also be presenting and similar story. I mean, they're looking to focus on growth where they have nice core deposits that can go with the loan part of their growth.

Michael Rose -- Raymond James -- Analyst

Okay, that's helpful. And then just moving on to the fee income side, I know there's some cross pollination efforts there with the merger. Have you guys outlined what you expect in terms of revenue synergies? And if so, can you just kind of speak to that at this point? Thanks.

Valerie C. Toalson -- Chief Financial Officer

Yes, we haven't actually outlined what we expect there, but I think we can certainly add some color on that. I might ask Sam Tortorici to chime in there.

Samuel M. Tortorici -- President

Yes, I'm happy to. So, in terms of revenue synergies, I think the investment thesis that we put forth back last May when we announced putting these two companies together is really playing out nicely where some of Cadence's core strengths being added to the Georgia footprint are paying off that being solely growing the wealth business, our treasury management platform.

And then on the State Bank Corp side, they have a very attractive SBA business, as well as the payroll processing and benefits business. And we're already seeing great examples of that being cross pollinated across the broader Cadence footprint. So, really haven't put a fine pin to that, at this point. But we are seeing really positive momentum on each of those fronts that we think will be a positive for our fee income going forward.

Michael Rose -- Raymond James -- Analyst

Okay, that's helpful. And maybe one last one for me, just back to Ken's question on the accretion. So Valerie, if I understand the schedule accretion should move off from somewhere in the $15 million , $16 million or $14 million range down to somewhere in the $8 million range as we get into 2020, with CECL, did I hear that correctly?

Valerie C. Toalson -- Chief Financial Officer

That's correct.

Michael Rose -- Raymond James -- Analyst

Okay, thanks for taking my questions.

Operator

The next question will be from Jennifer Demba of SunTrust.

Jennifer Demba -- SunTrust -- Analyst

Thank you. Good morning. Two questions, you mentioned you might get a little bit more offensive on hiring in Atlanta and elsewhere. Can you just talk about the opportunities you're seeing for hiring in Atlanta given the merger disruption? And also, my second question relates to repurchase activity and your interest there in further buybacks? Thanks.

Paul B. Murphy -- Chairman & Chief Executive Officer

Sam?

Samuel M. Tortorici -- President

Yes. So on the Atlanta hiring -- Jennifer, this is Sam. As I think I've mentioned to you already about a month ago, we were fortunate to attract BJ Green a very tenured, very successful middle market sales leader to join Cadence from SunTrust. We have started building his team of high quality bankers that are coming from really several different institutions, and we're in various stages of that process. So we're very encouraged by the early signs there.

As mentioned, as we talked about the merger, State Bank really did not have much of a focus in the wealth space. So wealth private banking could also be a real opportunity for us. And we're certainly interested in granular retail deposits, whenever opportunities would come out of the BB&T SunTrust combination would be something definitely of interest.

Jennifer Demba -- SunTrust -- Analyst

Okay. And interest and repurchase activity?

Paul B. Murphy -- Chairman & Chief Executive Officer

Yes, Jennifer, thanks. We are settling in with all these new numbers taking a close look at where we stand. We've got some debt that's eligible to be refinanced here in the next few months. We'll be looking more closely at additional repurchase, kind of as we also scrub CECL implications and just really take a deep dive into where we stand with our new combined balance sheet and resulting ratio. So on the table for additional consideration, no decisions have been made.

Jennifer Demba -- SunTrust -- Analyst

Great. Thank you

Operator

The next question comes from Brett Rabatin with Piper Jaffray. Please go ahead.

Brett Rabatin -- Piper Jaffray -- Analyst

Hi. Wanted to ask, just on the loan portfolio that you've acquired, sometimes we see the duration of the portfolios be fairly short. And then you have to make pretty sizable provisions on the acquired book as those loans are renewed. Can you talk about that and just maybe expectations for provisioning relative to the acquired book over the next year?

Samuel M. Tortorici -- President

Yes, Brett, we feel like that their credit results at State were really good and due diligence, we liked what we saw. In fact, the reason it didn't take much of a mark is because they were pretty conservative in their accounting for the portfolio, as it was. And I would say now that we've kind of lived together for most of the last nine months and seeing how they've manage credit and originate credit, my expectation would be that additional provisions would be normal or ordinary or kind of in line. This is again -- and it's hard to come back to this over and over again, but part of what we'll be talking about on Thursday kind of a little deeper dive into the State Bank, real estate portfolio and the Cadence Bank real estate portfolio and how we go forward together.

Brett Rabatin -- Piper Jaffray -- Analyst

Okay.

Valerie C. Toalson -- Chief Financial Officer

I might just point out to you. Our average balances in the first quarter of the non-credit impaired acquired loans was $3.7 billion where the acquired credit impaired was $300 million. So the vast majority of the loans that we acquired from State Bank are non-credit impaired category.

Brett Rabatin -- Piper Jaffray -- Analyst

All right. Okay. And then, Paul, just wanted to ask I know you probably going to cover some of this later this week too. But just thinking about the sectors of the portfolio that you want to grow, I mean, can you give us any color on -- I know C&I is at focus, but can you give us any color on what pieces of the portfolio you'd really like to grow from here?

Paul B. Murphy -- Chairman & Chief Executive Officer

Yes. So, overall we're pretty happy with the businesses that we're in as was mentioned, restaurant we're sort of flat tapping on the break there. Everything else would be sort of pro rata growth would be good, technology could grow a little faster hopefully we got some day light there like our team there a lot. But I'm expecting good year from the healthcare team, they've got a nice pipeline. The C&I team is again very active and lots to look at. Broadly there's not anything that we're in that we want to exit or really downsize tapped on the brakes on restaurant, but everything else would be core growth. (inaudible)

Samuel M. Tortorici -- President

No, I would just -- I would agree with that. I think we have -- it's about the team out there and making calls and bringing in business, and the pipelines are good, and we're seeing that geographically diversified along with C&I and the specialized industries group. It's really a focus on building both sides of the balance sheet that we're executing at this point.

Brett Rabatin -- Piper Jaffray -- Analyst

Okay. I appreciate all the color.

Operator

The next question comes from Brad Milsaps of Sandler O'Neill. Please go ahead.

Brad Milsaps -- Sandler O'Neill + Partners -- Analyst

Hey, good afternoon.

Paul B. Murphy -- Chairman & Chief Executive Officer

(inaudible)

Brad Milsaps -- Sandler O'Neill + Partners -- Analyst

Thanks. Just you guys have addressed almost everything. But Valarie just curious on fee income, I think the press release noted, maybe some higher partnership Boeing income kind of gains. I know State Bank divested the mortgage bank, it looks like you got all those costs out, but the fees didn't really suffer too much. Just kind of curious if anything in the fee numbers that would be outsized or something that wouldn't be run ratable based on those comments in the press release?

Valerie C. Toalson -- Chief Financial Officer

No, it was actually a pretty routine quarter, I would say on a go-forward basis on the non-interest income. We lay out in a table for you the different components on Page or Table 5. And overall, I think it's a pretty normal if you will quarter from a non-interest income standpoint.

Brad Milsaps -- Sandler O'Neill + Partners -- Analyst

Okay, great. And then just one kind of housekeeping follow up. Now that you have the two companies together more business in Georgia, is the tax rate pretty true just under 23% that you had this quarter or would you expect it to change significantly at all as you move through the year?

Valerie C. Toalson -- Chief Financial Officer

Yes, no not significantly. We're looking at basically a 23% effective tax rate for the year.

Brad Milsaps -- Sandler O'Neill + Partners -- Analyst

Great. Thank you.

Operator

The next question will be from Jon Arfstrom with RBC Capital Markets. Please go ahead.

Jon Arfstrom -- RBC Capital Markets -- Analyst

Hey, thanks. Good afternoon.

Samuel M. Tortorici -- President

Thanks, Jon.

Jon Arfstrom -- RBC Capital Markets -- Analyst

Hi. Couple of follow ups here, just curious on State (inaudible) legacy State footprint, were they contributor to organic growth this quarter, the core organic loan growth?

Valerie C. Toalson -- Chief Financial Officer

I mean, I think we don't have it broken out specifically like that, but absolutely in business activity across the entire footprint.

Samuel M. Tortorici -- President

I'd agree with that. I mean, we're seeing it in loan committee and really active calling efforts not only on the loan side but our treasury management teams coming together nicely. So, yes, I believe they are part of that.

Paul B. Murphy -- Chairman & Chief Executive Officer

Jon, we have the key folks that we wanted and kind of signed up and are part of the team. And so I think their business development activities will be felt overtime, especially I think it's also fair to say that the conversion was a major distraction for the team there. So whether they're hitting their stride right at the moment probably not, but they're definitely at work and contributing.

Jon Arfstrom -- RBC Capital Markets -- Analyst

Okay. Okay, good. And then, Sam, a question for you. You guys flagged deposit seasonality, and it's a little bit difficult, things get obscured with the merger, but can you just talk a little bit about the extent of this seasonality and what the kind of quarterly flow might look like going forward?

Samuel M. Tortorici -- President

Sure I'll be happy too and what's interesting about putting our two companies together is that our business mix is so similar that I think both companies kind of shared the same sort of seasonal effect, being largely commercial. But as Cadence -- legacy Cadence has seen for quite some time, the first quarter is typically pretty flat to a little bit down. And that's the result of our commercial clients paying bonuses, tax payments, et cetera.

We typically see a little bit of a drift downward from February through really April, maybe even into May, and then things kind of steady out in the summer. And then we see in the third and fourth quarter, a nice continued build up. So not alarmed at all. In fact, a really interesting data point is that our core retail deposits in the state of Georgia, from State Bank from the day before conversion through the end of the quarter, actually went up slightly. And so that would give me a really encouraging note that our customer retention through conversion has been pretty solid.

Jon Arfstrom -- RBC Capital Markets -- Analyst

Yes. Okay, good. And then...

Valerie C. Toalson -- Chief Financial Officer

I was going to say -- put a final point on that. The first quarter of last year, we grew only $16 million, and the first quarter of 2017, we actually declined $198 million. So again, it's very typical for the first quarter.

Jon Arfstrom -- RBC Capital Markets -- Analyst

Yes. Okay, OK. And then Valerie, I know, this is tough and we've talked about it before, but the accretion, the 29 basis points that you call out. It's hard for all of us to estimate that. But would you say any of that -- any portion of that would be what you would call elevated, or maybe something that was unexpected?

Valerie C. Toalson -- Chief Financial Officer

Yes. So, none of it's unexpected, the portion that I would say that I have a little bit less confidence on kind of a continued trends being a little bit more scheduled, if you will, is the $4.3 million that was related to the unfunded commitment. And that's simply because it is dependent upon the behavior of those loans. And so it could remain at that level, it could go up, it could go down quite candidly. Whereas the scheduled accretion that I called out would have a little bit more of a consistent downward trend over the seven years.

Jon Arfstrom -- RBC Capital Markets -- Analyst

Okay. And that $14 million is the scheduled number that you're calling out? Is that right, Valerie, $14 million was the scheduled, right?

Valerie C. Toalson -- Chief Financial Officer

Yes. That's right.

Jon Arfstrom -- RBC Capital Markets -- Analyst

Yes. Okay. All right. Thank you.

Operator

Next question will be from Matt Olney with Stephens. Please go ahead.

Christopher Marinac -- FIG Partners -- Analyst

Yes, thanks for taking my question. Just follow-up on the capital discussion. Paul, you mentioned some debt that could be refinanced at some point this year. Can you just elaborate on what that is and the size of it and what the rate is?

Valerie C. Toalson -- Chief Financial Officer

Yes, this is Valerie. We've actually got about $145 million in debt that comes through at the end of June at the rate of 4.875%. And so we are evaluating all the alternatives available to us as far as how much we want to refinance, and what that may look like going forward.

Paul B. Murphy -- Chairman & Chief Executive Officer

We would envisioned a reduction in the debt as part of an overall consideration. And so, yes, we're in full -- that will be our next order of business to really dig deep and finalize the plan there.

Christopher Marinac -- FIG Partners -- Analyst

Okay. And then on the loan growth front, you mentioned the end of period loan balances at about $13.6 billion at the quarter end. But if I look the disclosures, the average balances were quite a bit higher than that. So were there any larger pay downs toward the end of the quarter that we should be mindful of?

Okay. And then on the long growth front you mentioned the end of period loan balances at about $13.6 billion at the quarter end. But if I look at the disclosures the average balances were quite a bit higher than that. So were there any larger pay downs toward the end of the quarter that we should be mindful of?

Valerie C. Toalson -- Chief Financial Officer

It was a pretty active quarter. We also have some balances and loans held for sale, but it was pretty active quarter, also in pay down activity.

Paul B. Murphy -- Chairman & Chief Executive Officer

We saw -- I mean it wasn't inconsistent than what we've seen in the previous quarters.

Christopher Marinac -- FIG Partners -- Analyst

Okay. And then, I'm sorry go ahead.

Samuel M. Tortorici -- President

It was manageable. I'm sorry. Go ahead.

Christopher Marinac -- FIG Partners -- Analyst

Just the last question for me. You've given us some good details around the purchase accounting accretion. Valerie, do you happen to have what the remaining loan mark is in the ACI portfolio? I think you typically put it in the K or Q. I think it was around $67 million at the end of last year.

Valerie C. Toalson -- Chief Financial Officer

Yes, it was. When you add in the newly accretable difference from State Bank and take into account the first quarter activity, it's actually at $98 million as of the end of March.

Christopher Marinac -- FIG Partners -- Analyst

Okay. Thank you very much.

Operator

(Operator Instructions) The next question will be from Christopher Marinac with FIG Partners. Please go ahead.

Christopher Marinac -- FIG Partners -- Analyst

Thanks. Paul, I appreciate your comment earlier about buybacks. And just want to follow up as it relates to capital, with a CET-1 or Common Equity Tier 1 at 10.4% after this quarter's activity, do you have room to push that to 10%? Or would you even be able to go below 10% as you think about growth in organic plans in the future?

Valerie C. Toalson -- Chief Financial Officer

Yes, I mean, clearly, we could. But as you noted, we do have very nice organic growth. We anticipate that that will continue. As we look at refinancing, our debt that comes into play, as we look down the road, we've got CECL coming down the road, that comes into play. So all of these things that we consider we believe we've got a very nice dividend level $0.70 a year. And so it's something that we look at from time-to-time. And -- but on the surface, I'd say there probably is a little broom there. There are a number of factors that we're balancing right now on that.

Paul B. Murphy -- Chairman & Chief Executive Officer

I think maybe, Christopher, your point is, a huge buyback is not imminent. But whether there's a modest amount that would be worthy of consideration is kind of think the question on the table for us.

Christopher Marinac -- FIG Partners -- Analyst

Fair enough. I appreciate that. And then just a quick one for Valerie, on the use of brokered funds. Is this level at 6% that we see this quarter, is that going to be indicative going forward or is there room for that to move back up?

Valerie C. Toalson -- Chief Financial Officer

You know, that that would be our target is to keep it lower. But I will say that, we use broker deposits as really a funding tool. And so, there may be periods of volatility. For example, actually this first quarter, we always see in the first quarter some seasonality in our deposits that was masked this quarter, because of the State Bank acquisition. So it allowed us to bring those down. But there may be quarters from time to time that we have more or less deposit growth, more or less loan growth that we may see that bump around. Overall, though, I think that our preference would be to certainly not ever increase it over 10%, but between where it is now and that level.

Christopher Marinac -- FIG Partners -- Analyst

Okay, very well. Thanks so much.

Operator

Ladies and gentlemen, this concludes our question-and-answer session. I would like to turn the conference back over to Paul Murphy for any closing remarks.

Paul B. Murphy -- Chairman & Chief Executive Officer

Well, thanks everyone for joining us. Feel like we had a really solid first quarter. Just hats off to my team again and welcome to the State Bank bankers. Salute my 600 strong Cadence Bank retail bankers really proud of your results. So we are focused on doing a great job for clients and being a terrific place to work. I hope we can see as many of you as possible in New York on Thursday. We stand adjourned.

Operator

Thank you, sir. The conference is not included. Thank you for attending today's presentation. You may now disconnect.

Duration: 51 minutes

Call participants:

Paul B. Murphy -- Chairman & Chief Executive Officer

Samuel M. Tortorici -- President

Valerie C. Toalson -- Chief Financial Officer

Steven Alexopoulos -- JP Morgan -- Analyst

Brady Gailey -- Keefe, Bruyette, & Woods, Inc., -- Analyst

Ken Zerbe -- Morgan Stanley -- Analyst

Michael Rose -- Raymond James -- Analyst

Jennifer Demba -- SunTrust -- Analyst

Brett Rabatin -- Piper Jaffray -- Analyst

Brad Milsaps -- Sandler O'Neill + Partners -- Analyst

Jon Arfstrom -- RBC Capital Markets -- Analyst

Christopher Marinac -- FIG Partners -- Analyst

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