Logo of jester cap with thought bubble.

Image source: The Motley Fool.

IBERIABANK Corp (NASDAQ:IBKC)
Q3 2019 Earnings Call
Oct 18, 2019, 9:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to the IBERIABANK Corporation Third Quarter Earnings Conference Call. [Operator Instructions]

I would now like to turn the conference over to Jeff Parker, Vice Chairman, Director of Capital Markets, Energy Lending and Investor Relations. Please go ahead, sir.

Jefferson G. Parker -- Vice Chairman, Director of Capital Markets & Investor Relations

Good morning, and thank you for joining us today for this conference call.

On our call this morning, Daryl Byrd, our President and CEO will make summary comments on our earnings report, after which we will move into Q&A. Anthony Restel, our Chief Financial Officer; Michael Brown, our Chief Operating Officer; Fernando Perez-Hickman, our Director of Corporate Strategy; Terry Akins, our Chief Risk Officer; and Nick Young, our Chief Credit Officer, are all available for the Q&A session of this call.

If you've not already obtained a copy of the press release and supplemental PowerPoint presentation, you may access those documents from our website at www.iberiabank.com under Investor Relations. A replay of this call will be available until midnight on October 25th. Information regarding that replay is provided in the press release.

Our discussion this morning deals with both historical and forward-looking information. Our Safe Harbor disclaimer is provided in the press release and in the supplemental presentation.

At this point, I'll turn it over to Daryl for his opening remarks. Daryl?

Daryl G. Byrd -- President & Chief Executive Officer

Thanks, Jeff, and good morning, everyone. I'm pleased to report another quarter of solid results. We reported both GAAP and core earnings per share of $1.82 for the third quarter. Given the ever-changing economy and interest rate environment, I'm extremely proud of our company's ability to produce strong financial results, grow our client base, show good gains in both loan growth and core deposit growth, while remaining focused on expense management and maintaining strong credit quality.

For the quarter, both on a reported and core basis, we achieved a 1.26% return on average assets, a 14.48% return on tangible common equity, and a tangible efficiency ratio of 53%.

In the third quarter, total loans increased $321 million or 6% on an annualized basis. On a year-to-date basis, we added $1.2 billion in total loan balances, an annualized growth rate of 7%.

Deposit growth was also very strong, as we experienced growth in all the three of our operating markets. Total deposits increased $682 million or 11% on an annualized basis, with no increase in our broker deposit position. On a year-to-date basis, we have added $1.2 billion in total deposit balances, an annualized growth rate of 7%.

With continued client growth and positive expectations for the remainder of the year, we are adjusting our guidance range for both loans and deposits to between 6.5% and 7.25% for the full year 2019.

I think it's important to reflect on the success of our business model over the years in growing our franchise through strong loan and deposit growth and recruiting talented teams. For example, over the past 10 years, we've grown our presence in Alabama from our initial entrance in 2009 to over $2 billion in total loans. Over the same time period, we entered Florida, and have now almost $10 billion in deposits. I'm proud of our ability to develop new markets and continue to see great opportunities to enhance our franchise, recruit talented associates and grow our balance sheet. I strongly believe we are in the right markets in the Southeast.

As we've consistently telegraphed on prior calls, we continue to feel the impact of downward pressure on interest rates and net interest margin. Net interest margin for the quarter was 3.44% on a GAAP basis, down 13 basis points from the second quarter and 3.24% on a cash basis. We hit the inflection point on liabilities as our cost of deposits for September was flat compared to August, and we've seen rates begin to decline in the first part of October.

Typically, the fourth quarter of the year is our strongest in terms of deposit inflows, as institutional and public funds ramp-up. Further, we expect to see deposit rates continue to decline throughout the remainder of the year and into 2020.

The current low rate environment has benefited our fee-based businesses throughout this year and continue to be the driver for very strong core non-interest income during the quarter. Core non-interest income increased $3.8 million or 6% on a linked quarter basis to $63.6 million, a record level for us. The increases were primarily driven by a $3 million gain on the sale of certain non-mortgage loans, which is considered core, along with increases in service charges on deposits and customer swap income.

Activity in the mortgage business remains very brisk with gains in the quarter consistent with the prior quarter and up 37% on a year-over-year basis. The mortgage pipeline remains elevated at $269 million as of mid-October and provides good visibility, but mortgage activity will remain strong into the last quarter of the year.

Our customer swap business is also seeing significant activity, as a result of lower interest rates. Year-to-date swap income is up 113% versus last year at this time. These businesses which thrive in the lower interest rate environment have helped to provide a partial offset to the net interest margin compression. Given the current and projected low interest rate environment, we expect these businesses to continue to perform very well in the fourth quarter, and that strength should carry into 2020. We are also very optimistic that our non-interest income levels during the fourth quarter will be at the upper end of the guidance range provided.

Core non-interest expense increased $3.1 million or 2% compared to the linked quarter, primarily driven by a write-off of long-lived assets, again a one-time expense, but still considered core. Excluding the write-off, total core non-interest expense increased less than 1% from the prior quarter. Our core tangible efficiency ratio remained strong coming in at 53% for the third quarter. We have been and continue to remain extremely diligent around expenses.

We continue to allow the investment portfolio to compress as we find additional growth in loans. At the end of the quarter, the investment portfolio was approximately 14% of total assets. We continue to see this as a benefit to our margin and anticipate employing this strategy for at least another quarter.

The bank's credit metrics remains strong and stable. Classified assets continue to decrease, and now represent 89 basis points of total assets. Additionally, net charge-offs for the quarter were $8 million or 14 basis points of average loans, the same as in the prior quarter. We see no signs of credit deterioration in the loan portfolio. We also believe our credit culture has and should continue to benefit us if we encounter increased uncertainty in the economy.

During the quarter, we repurchased approximately 552,000 common shares at a weighted average price of $72.46 per common share or approximately $40 million in total value.

As a reminder, on July 17, 2019, we announced a new common stock repurchase plan of up to 1.6 million shares or approximately 3% of our outstanding common shares. There are currently approximately 1.2 million shares remaining in the plan, which we expect to complete over the next three quarters.

For the first nine months of 2019 through a combination of cash dividends and repurchases of our common shares, we have returned approximately 94% of net income to common shareholders. As we continue to look at the projected rate environment, we have again revised our full year 2019 guidance to account for another 25 basis point cut in the federal funds rate, which we expect to occur this month. This follows the recent cuts in July and September that we already had factored in for 2019.

As you can see with our updated guidance, we continue to manage through changing environments to deliver solid results. Specific changes to our guidance include the following. The range for average earning assets moved up again slightly as we anticipate coming in between $28.7 billion to $29 billion. We adjusted the range of net interest margin for the full year to 3.43% to 3.47%. We decreased the provision expense range to $38 million to $43 million. Non-interest income increased to a range of $230 million to $235 million. Non-interest expense was reduced to between $667 million and $673 million. We adjusted our preferred dividend and unrestricted shares allocation to a range of $16 million to $17 million. Finally, we tightened our tax rate to a range of 23.5% to 24%. This adjusted guidance still aligns us with current consensus estimates.

As I've said many times, we continue to be very focused in discipline on producing high quality earnings and are not interested in stretching to do a deal. Relative to 2020, we recognize that we are asset sensitive, and we may get more cuts beyond the one projected for later this month. As you would expect, we will be very proactive managing our business to help mitigate some of the negative impact of NIM compression, while continuing to grow our business for the long-term.

Specifically, we believe that expense savings opportunities exist, capital management activities remain attractive and viable, and our growth from diverse markets provide some solid offsets. Historically, IBERIABANK has done quite well in challenging times. I would expect us to rise to the occasion once again next year. We feel good about the business.

We remain passionate about building client relationships, delivering long-term shareholder value, and investing in our communities. Once again, I want to thank our dedicated associates for their focus and hard work in continuing to execute our strategy and grow our franchise.

At this time, let's open the lines for questions. Rocco?

Questions and Answers:

Operator

Thank you. We will now begin the question-and-answer session. [Operator Instructions] And today's first question comes from Catherine Mealor of KBW. Please go ahead.

Catherine Mealor -- Keefe, Bruyette & Woods -- Analyst

Thanks. Good morning.

Daryl G. Byrd -- President & Chief Executive Officer

Good morning, Catherine.

Catherine Mealor -- Keefe, Bruyette & Woods -- Analyst

I wanted to start with the margin. If you look at your guidance for fourth quarter, and we run that forward just to this fourth quarter then, from my math, it looks like the high-end of the range is getting the margin around 3.25% for next quarter. So one, wanted to make sure that we're kind of thinking about that correctly. And then secondly, is there anything kind of one-time or in terms of recoveries or deposit costs that are pushing the fourth quarter margin low, too low that we may see some recoveries from that, as we look to 2020?

Daryl G. Byrd -- President & Chief Executive Officer

Catherine, Anthony has got this one. Anthony?

Catherine Mealor -- Keefe, Bruyette & Woods -- Analyst

Okay.

Anthony J. Restel -- Vice Chairman & Chief Financial Officer

Yes. So, Catherine, relative to the guide, yes, the 3.25% would be implied by the guide that we've got out there. A couple of things just to remember. Right, so we did add an October cut. Remember that we are asset sensitive, we've got -- from a repricing perspective, we've got about 50% of our loans are going to reprice, and I'll call it 100% deposit beta with that October move, that we're projecting. And then, like we talked about last quarter, it's a little bit of a lag relative to seeing a deposits come back and move.

So, I think, when you look at the fourth quarter, right, we've got an additional cut, right. So three cuts in a row from the Fed that we're still trying to catch up from seeing deposits rollover. At the same time, we're projecting a little bit less on recoveries in the fourth quarter. We talked about $20 million for the year. We're at $17.7 million. So we haven't adjusted that again. Recoveries are hard for us to kind of gauge, but we went ahead and brought that down just to be safe on the guide.

I think as we sit here and look at the fourth quarter, we have started to see our deposits rollover, which is very good. I think the pace of that is going to accelerate as we move through the fourth quarter in the 2020. And then naturally, we're seeing some nice offsets from the lower rate environment that's coming through on a fee businesses. So I think as we look at it, we feel actually like not too bad relative to where we were. The only thing that's really different for us is we've got an extra cut that we've got to deal with now, as opposed to next year. So I think all-in-all, we feel pretty good about where we are.

Catherine Mealor -- Keefe, Bruyette & Woods -- Analyst

Okay. And, I mean, if we look at consensus for 2020, on average, the margins at 3.38% versus that fourth quarter 3.25%, and now, I know everyone has different assumptions for what rates are going to do next year. So it's hard to make sense of it. But I mean, if that 3.25% implies, there is fairly significant downside to consensus estimates in 2020, as we think about the margin. Is that a fair way to think about just numerically [Phonetic]?

Anthony J. Restel -- Vice Chairman & Chief Financial Officer

Yes, look, I think that there is a host of different estimates out there relative to cuts. I mean, we've got some people talking about five more cuts. We've got some people talking about one more cut. I think what I would tell you relative to the 2020 guidance is that, we feel pretty good about, we're going to see the October cut. I think right now, you've got a possibility of another cut some time, I'll call it, late into the first quarter or mid-year-ish next year.

I think the thing that might be missing from the guidance would be, you know, yes, the margin is going to come down, but what you don't really see, I think embedded in guidance would be the strength of the fee businesses that we should get from lower interest rate environment. Certainly, we're going to have really good loan and deposit growth, given that we think credit will be fairly stable as we move through next year. I think that inflection on deposit cost and we talked about that repricing is going to accelerate into next year, which will help the margin a little bit.

We do have the ability to reduce expenses, I'll just point out that we've reduced our expense, midpoint of the expense guide four quarters in a row. So although we're not out telegraph and big expense moves, we're very active and you should expect that to continue. And then look, there is viable and attractive capital market restock options that are viable and look attractive and can meaningfully improve EPS next year.

So I think as we think about our business, we feel real good about where we're positioned today against -- we recognized we are asset sensitive, but we've got a lot of other good things working our way. And as Daryl mentioned, we've actually done quite well historically during challenging times. So I think we kind of look at it more as a glass more than half full versus we're half empty here.

Catherine Mealor -- Keefe, Bruyette & Woods -- Analyst

Okay.

Daryl G. Byrd -- President & Chief Executive Officer

Yes. And I would add to that. Look, we can't predict what the rate environment is going to look like. Frankly, as we look at our markets and our clients, they're all doing pretty well which correlates over to -- we've got excellent loan growth, excellent deposit growth. So, our clients are doing well. We've got great credit and our fee businesses, given the rate environment are doing extremely well. So we've always tried to answer the challenge, and we always try to get ahead of the challenge, and historically we've executed multiple expense initiatives. But as Anthony said, we rarely telegraph those until we've already executed them. So, you know, we're going to try to get ahead of this rate environment, and certainly do the best we can to make it work for us.

Catherine Mealor -- Keefe, Bruyette & Woods -- Analyst

That's great. I put it in perspective for sure. Maybe if I could just one other follow-up on the margin, just to stay on the topic. Is the -- on cash versus reported margin, as we think about accretable yield for next year, is there any -- anything that we should be thinking about for that? We've seen about $13 million kind of on average in non-cash accretion over the past couple of quarters. Does that change significantly going into next year post-CECL or kind of how should we think about that in a post-CECL world?

Anthony J. Restel -- Vice Chairman & Chief Financial Officer

So a couple of thoughts for you, Catherine. One is obviously we've got recovery income that's embedded somewhat in that line, and that's really hard for us to kind of predict. We've talked about that, but the base level of accretion on the portfolio is fairly constant. It will roll down. I mean the actual income level will roll down as the portfolio kind of burns off, but the incremental accretion from a yield perspective on the base level is fairly consistent. CECL not really expected to have an impact on that accretion level.

Catherine Mealor -- Keefe, Bruyette & Woods -- Analyst

Got it.

Daryl G. Byrd -- President & Chief Executive Officer

And again, we don't have a clear for anything associated with that because most of the assets we picked up were mortgage-driven instruments with a very long life.

Catherine Mealor -- Keefe, Bruyette & Woods -- Analyst

That's great. Okay. Thanks for that clarity. All right. Thank you. I'll hop back.

Daryl G. Byrd -- President & Chief Executive Officer

Thank you.

Operator

Our next question today comes from Ebrahim Poonawala of Bank of America. Please go ahead.

Ebrahim Poonawala -- Bank of America Merrill Lynch -- Analyst

Good morning, guys.

Daryl G. Byrd -- President & Chief Executive Officer

Good morning, Ebrahim.

Ebrahim Poonawala -- Bank of America Merrill Lynch -- Analyst

I guess, just a question to some of the things that you mentioned to Catherine's question around expenses and the focus there. Like understanding all the macro uncertainties, Daryl, can you talk about just your expectation to getting positive operating leverage, as we think about next year, like you guys have done a great job cutting expenses, improving efficiency over the last year or two? Would love to get your thoughts in terms of, if you think that is achievable next year or could we see the efficiency ratio take higher in 2020?

Daryl G. Byrd -- President & Chief Executive Officer

Look we're going to manage what we can. I think Anthony was pretty straightforward. We've lowered our expense guide four quarters in a row. My comment is we've done multiple expense initiatives over the last several years, but we rarely telegraph those until we've executed it, for a lot of reasons. So we're going to work pretty hard at that.

Anthony J. Restel -- Vice Chairman & Chief Financial Officer

Yes. Ebrahim, the only thing I would add is next year, given kind of low rates, we are expecting to see some significant strength on -- from fee businesses, and that could, just given the nature of those businesses been very people-driven, could put some slight upward pressure on the efficiency ratio. Again as Daryl mentioned, we're going to be working very hard on the rest of the expense base. So we'll see if we can offset it. I'll just point out though that we are going to see higher levels of commissions and some stuff next year.

Ebrahim Poonawala -- Bank of America Merrill Lynch -- Analyst

Got it. And just, in terms of following-up on CECL, it's a pretty meaningful jump. On average, we've seen banks talk about 30% to 40% increase to their basis on CECL adoption. I was just wondering, Anthony, if you can talk about any particular characteristics within your loan book, which is pushing it higher, and how that influences, as we think about provisioning for incremental growth going forward?

Daryl G. Byrd -- President & Chief Executive Officer

Yes. So, I'll point out that, I think the biggest thing driving the percentage increase is the fact that we've got a large acquired portfolio that has very little reserve coverage on it today, just by the -- I guess the way the accounting is prescribed in the current methodology. Obviously, we picked up some level of longer-lived assets from the mortgage portfolios that came or the resi books that came with the recent acquisitions. And so, given the longer life of those portfolios, as well as the kind of that small residual HELOC portfolio, naturally push the average life of the portfolio a little longer. And so those would be the primary two or three drivers that are making up the bulk of the increase. Again, not that we expect credit to be different, just -- it's a function of the life of the portfolio.

Ebrahim Poonawala -- Bank of America Merrill Lynch -- Analyst

So would the run-off of the acquired book be incrementally positive, as we think about next year or two? And how it plays through the CECL math?

Anthony J. Restel -- Vice Chairman & Chief Financial Officer

I'm sorry, can you give me that one more time?

Ebrahim Poonawala -- Bank of America Merrill Lynch -- Analyst

Yes. Would the run-off of the accretive -- sort of the acquired sort of portfolio be incrementally positive to just provisioning, going forward as some of those balances run-off or...

Anthony J. Restel -- Vice Chairman & Chief Financial Officer

Yes. Look, I will tell you that I don't know relative to the allowance perspective that the portfolio running off is going to make a big deal, as we talked about just provision. I think, as we move into next year, I think what you're going to see us talk about is we have a portfolio. I think the concept for us of legacy and acquired will kind of go away because the accounting is largely indifferent at that point. I don't expect to see a significant increase in provision levels as we move forward from the new adoption, it might be a couple of million, but not going to be material. And so I hope that that helps you with that, Ebrahim.

Ebrahim Poonawala -- Bank of America Merrill Lynch -- Analyst

That's helpful. Thank you for taking my questions.

Operator

And our next question today comes from Michael Rose of Raymond James. Please go ahead.

Michael Rose -- Raymond James -- Analyst

Hey, good morning, guys. Just a question on the mortgage business. So the MBA's forecast obviously project a decline in volumes next year, but I know you guys are kind of in the midst of retooling your mortgage business. How should we think about the ability to continue to drive profitability in that business and to actually increased revenue next year? Thanks.

Daryl G. Byrd -- President & Chief Executive Officer

Michael, I'm going to turn this one over to Fernando. But I'll start by saying, we feel very good about the progress we've made in mortgage, like that team has done a great job for us. Fernando?

Fernando Perez-Hickman -- Vice Chairman & Director of Corporate Strategy

I think there are two components to that question. When we look at the pipeline that we have this year, I mean, as of this quarter compared to last year, we are looking at a time line that is more than 60% higher and that make us feel good about production in the coming quarters. And -- but at the same time, we are combining that production with hiring new MLOs in different markets that we are present and working on efficiencies. We've been work in the last couple of years on reducing the fixed cost over the total amount of -- cost of the mortgage business.

And to give you some idea of the evolution, in 2017, we had -- 65% of the total cost was fixed, and now the number is 56% and we will keep working on efficiencies and standardizing the process improvement to combine better revenue with a more variable structure of the cost basis of the business.

Michael Rose -- Raymond James -- Analyst

Okay. That's helpful. And then just as a follow-up question, you guys highlighted energy growth this quarter as one of the drivers of overall loan growth. I know there's been some consternation at least among investors around energy. Can you just talk about how you feel about the size of the portfolio? What you're growing at this point? And if we should -- is there any worries out there for you guys? Thanks.

Daryl G. Byrd -- President & Chief Executive Officer

Yes. Michael, we feel good about our energy portfolio. Jeff, do you want to talk about some?

Jefferson G. Parker -- Vice Chairman, Director of Capital Markets & Investor Relations

Sure, I'd be happy to. We have continued to get good growth out of that portfolio since we really reentered the market, Michael. I think you know that, 2017, '18 and '19 have been good. We were at 5.9% in terms of the overall portfolio right now. Frankly, that's not terribly different than where we were at 4.8% in 2015. So we're comfortable with our level of exposure.

I should mention to you, and I think this is important to me, last week, I had the pleasure of sitting down and doing a portfolio review. And we had our Chief Credit Officer and our Chief Risk Officer. And I think I can report to you today that we feel very, very good about our portfolio. And frankly during that portfolio review, we did not discover any new information. As you know, we have a balanced portfolio, largely E&P 62% of our portfolio and midstream 33%. We've made an oilfield service loan in five years that's down probably from about -- excuse me, 35% to 5% today, and we feel good about our mix.

I should probably also mention to you that 66% of our portfolio is PE backed, and we have not seen people back away from the market and supporting their investments.

I will also go so far as to say because I've seen several other people make comments on it. The question comes up, how about the recent SNC exam, that went on nationally. We saw no material impact to our portfolio as a result of that. So net-net, we feel good. We do continue to see unfortunately, probably some misinformation in the markets. From time-to-time, people cite statistics. I saw one the other day, where we were mentioned to have a $20 million exposure and a credit that fully paid off for us 18 months ago. We don't have -- we have a policy of not commenting on specific credits, but I would say that before people calculate and crank date into their assumptions, they have to look more closely.

Michael J. Brown -- Vice Chairman & Chief Operating Officer

If I could add, this is Michael, just energy has certainly been an important contributor to our company, and we feel very comfortable with that part of the portfolio. I would emphasize that we do have a diversified growth story as a company and that we see loan growth coming from multiple markets, multiple industries. We've talked last time about our equipment finance business being a strong contributor to the growth of the company, and that continues if you looked at the numbers for the quarter.

We saw real estate loans declined, we saw C&I increase, that was a conscious effort -- that was a conscious effort on the part of the company to diversify the loan portfolio, and we've seen run-off in our home equity business, which we more than offset, and that run-off is just tied to people refinancing into the mortgage business, which helps Fernando's part of the company out as well. So we feel like we have a very defined growth story and feel very comfortable with our ability to growing our clients.

Daryl G. Byrd -- President & Chief Executive Officer

So layering all that together, Michael, fair to say that mid-single digit loan growth for next year is a good starting point?

Michael J. Brown -- Vice Chairman & Chief Operating Officer

Yes, I would say so. One of the things that I would emphasize, and I did in my last comment, we've had a lot of success lately with recruiting. I mean, that's something we consciously always are doing. But of late, we've seen an increase in activity from larger institutions. And with that recruiting, we've taken up some very talented people who have got access to some large client portfolios. That has some very significant upside for us in all of our markets. So start with the single-digit number that you mentioned and the potential is higher.

Michael Rose -- Raymond James -- Analyst

Great. Thanks for taking my questions, guys.

Daryl G. Byrd -- President & Chief Executive Officer

Thank you.

Operator

Our next question today comes from Casey Haire of Jefferies. Please go ahead.

Casey Haire -- Jefferies -- Analyst

Thanks. Good morning, everyone.

Daryl G. Byrd -- President & Chief Executive Officer

Good morning, Casey,

Casey Haire -- Jefferies -- Analyst

Wanted to follow-up on the deposit costs. It does sound like they're rolling over here or started to roll over here in the third quarter. But it did -- I mean, it seemed like last quarter you guys were talking pretty optimistically about deposit costs. So I was just wondering, could you give us some color as to what surprised you? Was it competitive pressures? And then, if we could get spot rates for the money market accounts and CDs specifically at September 30th, just to give us a gauge as to how things are entering the fourth quarter here?

Daryl G. Byrd -- President & Chief Executive Officer

Yes, Casey, a couple of things. I think last quarter we talked about that we thought we'd see deposit rates roll in 60 days to 90 days, and that -- we were thinking deposit rates would kind of plateau during the quarter. So I think what we actually talked about last quarter is actually what happened this quarter. It's a little bit hard to give you a spot rate, deposit rates because we do price deposits differently in every market. And deposit rates are very fluid, right? So we talked last quarter about we were going to be a fast follower on deposit rates. We've maintained to that. And so what I can tell you is deposit rates are moving down. Then we're adjusting rates fairly constantly across the 32 different markets at different paces.

I'll give you, just as a couple of quick examples, right. We look at October month-to-date, right, CDs are down 25 basis points below the third quarter origination yields. So just in the first couple of two weeks or so in October, we're down just 25 basis points within the CD book, right. Just as an example how fluid that is. So a little bit hard to give you a rate. I can just tell you that we are just following the market closely, and we expect that those deposit -- that deposit repricing will accelerate. And to be honest with you, the more of the Fed moves, and the more often they move, and the more it's headline news, the more cover it gives for us to move rates.

So I think we'll see some pretty good momentum heading into the fourth quarter. And then we'll always be in a little bit of a catch up, just recognized. So if we get two, three, four cuts in a row, it's going to take us a little bit to catch up, but we will get some upside once we get to the final end of those cuts.

Anthony J. Restel -- Vice Chairman & Chief Financial Officer

And Casey, we had excellent deposit growth in the quarter. And we're going into the fourth quarter, which is typically our best deposit growth quarter.

Casey Haire -- Jefferies -- Analyst

Right. Yes. And I wanted to follow-up on that as well, Daryl. So, yes, and when you talk about that. Is it -- are you expecting a better mix seasonally of more DDAs than CDs?

Daryl G. Byrd -- President & Chief Executive Officer

Yes, but it's also a quarter where we see a lot of public funds come in as well.

Casey Haire -- Jefferies -- Analyst

Got you. Okay. And then just lastly on CECL. Just so I'm thinking about that -- I'm trying to quantify the dollar impact. So that 1 to 1.2 [Phonetic] ACL. Is that -- what is that -- what's the comparative ratio today? Is it just taking the loan loss allowance of $146,000 and then the reserve for unfunded which is about 69 basis points, is that the right way, is that the like, unlike number?

Daryl G. Byrd -- President & Chief Executive Officer

Yes, that's correct.

Casey Haire -- Jefferies -- Analyst

Okay. Great. Thank you.

Daryl G. Byrd -- President & Chief Executive Officer

Yes. Hey, Casey, one thing, remember on the capital impact of that -- remember that one-time adjustment is phased in over a couple of years, right? So as we think about capital impact from that, it really is pretty de minimis, just because of the way it gets phased in over a couple of years. So we will not have an impact on our ability to continue to buy shares as we head into next year.

Casey Haire -- Jefferies -- Analyst

Okay. So, I mean, what kind of TCE ratio impact do you see as of March 31st?

Daryl G. Byrd -- President & Chief Executive Officer

Hold on. We'll come back to you at the end of the call on that one.

Casey Haire -- Jefferies -- Analyst

Great. Thank you.

Daryl G. Byrd -- President & Chief Executive Officer

Okay.

Operator

[Operator Instructions] Today's next question comes from Matt Olney of Stephens. Please go ahead.

Matt Olney -- Stephens, Inc. -- Analyst

Hey, thanks. Good morning, everybody. I want to go back to the loan growth discussion. And can you just talk about the competition levels in your core markets. It seems like some of your bank peers have been growing your loan book a little bit slower. And they are highlighting irrational pricing especially from some of the non-banks. I'm curious what you're seeing in some of your core markets around loan growth?

Daryl G. Byrd -- President & Chief Executive Officer

Michael?

Michael J. Brown -- Vice Chairman & Chief Operating Officer

Yes, I mean, clearly, we've been able to provide loan growth. Our credit quality is staying strong. So we're not dipping in terms of quality, and as traditionally because we put connected people or the right people in front of the right clients. Yes, it is a more competitive environment. Yes, the banks are more aggressive on structure and pricing has come in, but our view is on the long-term, therefore banking the right clients and banking them on a relationship basis, which is our focus.

We're going to pick up deposits, treasury management, wealth that rounded our relationship is going to provide the return we're looking for. So we're messaging to our people, yes, loans are more aggressive, it's reality. But this is a time to get clients in our mind, and if we get the full relationship, that's the best approach to use in terms of overall profitability.

Matt Olney -- Stephens, Inc. -- Analyst

And Michael, I guess, sticking with the pricing discussion, is there any product or loan type, it seems to be getting more aggressive in your market places than others?

Michael J. Brown -- Vice Chairman & Chief Operating Officer

No, I wouldn't differentiate. I mean, I think it's generally across the board.

Matt Olney -- Stephens, Inc. -- Analyst

Okay. Okay, that's helpful. Thank you. And then as far as the fees, I think you highlighted in the discussion about $3 million gain on the sale of non-mortgage loans. Any more color you can provide on this and will such sales continue?

Michael J. Brown -- Vice Chairman & Chief Operating Officer

I can give you some color. They were loans that had come to us through acquisition, didn't fit in with the portfolio that we had. It's not something that we traditionally have done. It just made sense to take advantage of, frankly, the market right now to sell them.

Fernando Perez-Hickman -- Vice Chairman & Director of Corporate Strategy

Yes. So, Matt, you know, we sold things in the past, whether it was the reverse mortgage product that we had, those loans actually went out at -- or on the books were at lower yields than stuff we could originate today. And so, it just made sense to go ahead and let those go, sell those, take the gain, get us some capacity for loan growth. I will say it did truncate our loan growth numbers for the quarter. And so we'd had really stout on growth had we not gone ahead and done yet. But we'll do that from time-to-time where it makes sense from a balance sheet perspective.

Daryl G. Byrd -- President & Chief Executive Officer

And also just link it back to the methodology I just described in terms of how we look at clients, they were transactional. There was absolutely nothing more we could do with a particular client in terms of, again, improving profitability, and getting the returns you're looking for. So that just was a logical outcome.

Matt Olney -- Stephens, Inc. -- Analyst

Okay. And so in terms of forecasting, it sounds like you don't think that should be in the run rate per se, but it could happen occasionally again over the next few quarters? Is that fair?

Daryl G. Byrd -- President & Chief Executive Officer

Yes, that's fair.

Matt Olney -- Stephens, Inc. -- Analyst

Perfect. Okay. Thank you, guys.

Daryl G. Byrd -- President & Chief Executive Officer

Thank you.

Operator

Our next question today comes from Jennifer Demba of SunTrust. Please go ahead.

Jennifer Demba -- SunTrust Robinson-Humphrey -- Analyst

Thank you. Good morning.

Daryl G. Byrd -- President & Chief Executive Officer

Good morning.

Jennifer Demba -- SunTrust Robinson-Humphrey -- Analyst

Follow-up question on the energy loan bucket. Jeff, what do you think you guys are doing different from your energy lender peers in this category? We've seen charge-offs go up in that bucket for almost everybody that's doing this lending, as capital markets have tightened?

Daryl G. Byrd -- President & Chief Executive Officer

Jenny, this is Daryl. I'll start and let Jeff takeover, because I think the first part of your question is, what's different about us from a credit perspective than maybe others. And it really goes to the point, Jeff made relative to a credit paying off 18 months ago. We have a very active portfolio management process in the company, and we try to get way out ahead of issues from a credit perspective and that's whether it's energy or some other part of the C&I book or the CRE book, we're always trying to be out in front from a portfolio management perspective and dealing with issues that we think are going to be problems down the road. Jeff?

Jefferson G. Parker -- Vice Chairman, Director of Capital Markets & Investor Relations

Yes, Jennifer, I think one other things I would add is, it's hard to quantify the value of having a team of people. They have been together for a number of years. The person who actually runs this for us over in Houston, he's been with us for 10 years. And so we looked back, obviously through the last cycle and had to make decisions about how do we proceed with the business that has been a good business for us. And by the way generates a lot of ancillary positives in the form of Treasury Management and PCard and deposits. But we've been very, very careful and diligent in building this. We have, as I mentioned in the earlier question, it's no -- it's not by accident that we have a lot of PE backed companies. So trying to maintain our liquidity numbers and leverage numbers, and staying on top of that, as Daryl said a minute ago, counseling out where you need to do so. We've been -- we'll stay on top of that.

I will say this, Jennifer. We are seeing, as you know, a lot of people will look at the price of oil, and so oil is $54, everything's fine. But natural gas prices have been soft, and they were soft through the summer, and that has impacted natural gas credits. As we go through the redetermination period, we'll probably see -- we'll see certainly some borrowing bases reaffirmed, but we'll see reductions on some of the natural gas side. So I think that you got to watch that side right now, people are speculating about how much risk migration might occur in here over the course of the year, but I think we're very comfortable. And as I said a minute ago, we went through that portfolio review recently, and nothing new -- nothing new whatsoever in looking at over 90% of our portfolio.

Daryl G. Byrd -- President & Chief Executive Officer

And if I could add, this may be ties into Matt's question, that's an extremely profitable business for us. The reserve base lending space has been good for us throughout the cycle, and continues to be our top returning business. There is obviously the risk component Jeff referred to, but we believe we can manage that risk and get an outsized return from that space based on the knowledge base we have as a company.

Jennifer Demba -- SunTrust Robinson-Humphrey -- Analyst

Second question, just curious, the environment has gotten tougher year-over-year for everybody with lower rates. Daryl, what's IBERIA's interest in acquisitions right now and where do you see the M&A environment going over the next several quarters?

Daryl G. Byrd -- President & Chief Executive Officer

Jenny, there was a lot of talk early in the year, but not a lot of action. And really I think the interest rate challenges are out there for everyone. And from our perspective, we're very focused on our earnings in kind of meeting that challenge. We like our franchise and we like the opportunities that we have with this franchise. As I've said earlier, in our markets and for our clients, the economy feels pretty good for them. And so we think we have plenty of opportunities from a loan and deposit growth perspective with the existing franchise.

Jennifer Demba -- SunTrust Robinson-Humphrey -- Analyst

Thanks a lot.

Operator

And our next question today comes from Christopher Marinac of Janney Montgomery Scott. Please go ahead.

Christopher Marinac -- Janney Montgomery Scott -- Analyst

Thanks. Good morning. Daryl and team, I wanted to ask about the digital bank and the kind of digital product offerings for commercial customers. How much more is needed there? How much more have you done? I'm just kind of curious, if this is something that gets a lot of priority or is less?

Daryl G. Byrd -- President & Chief Executive Officer

Chris, Let's go back to Anthony, because Anthony has got business transformation for us, and we're spending a lot of time thinking about those issues. Anthony?

Anthony J. Restel -- Vice Chairman & Chief Financial Officer

Yes, Chris, we actually recognize that the middle market commercial space is really what drives the engine for IBERIABANK. And so, along with that, we recognize that the appropriate technology has got to be wrapped around that. So we started, call it, two, three years ago, really to make a big push to enhance. We talked a lot about Treasury Management in terms of deeper offering, better offering and that includes being able to do all that through electronic means.

We then followed up to really build out, I'll call it our loan origination system. That project continues to evolve. We think that's going to be very impactful for us in a number of ways on the cost side, speed to the customers, etc. And so it's not something that, I would say that we would declare victory on, but I think we feel really good, we've got a defined focus on where we're trying to get to recognize, and that if we wrap excellent technology around our excellent lenders, we're going to get excellent results. And so that's what our focus is.

Daryl G. Byrd -- President & Chief Executive Officer

Yes. If I could add, I mean, from a Treasury Management perspective, we compete with larger institutions on a constant basis and we win. So we think we can go toe-to-toe based upon a very good product set.

Christopher Marinac -- Janney Montgomery Scott -- Analyst

Great, Byrd. Thanks, guys. That's it. And the treasury piece is what I was going to ask. So I thank you Michael for following up. That's great, guys. Thank you for the background here.

Daryl G. Byrd -- President & Chief Executive Officer

Thank you.

Jefferson G. Parker -- Vice Chairman, Director of Capital Markets & Investor Relations

Yes. One quick thing, Casey, following back up on the TCE impact, I think if you look at the range relative to the March 31, about 25 basis points, if you just kind of straddle the range is what we think we will see impact to the TCE relative to the CECL adoption.

Operator

All right. Ladies and gentlemen, this concludes the question-and-answer session. I'd like to turn the conference back over to Daryl Byrd for any closing remarks.

Daryl G. Byrd -- President & Chief Executive Officer

Rocco, thank you. I want to thank everybody for joining us today, and your confidence in our company. Everybody have a great day and a great weekend. Thank you.

Operator

[Operator Closing Remarks]

Duration: 44 minutes

Call participants:

Jefferson G. Parker -- Vice Chairman, Director of Capital Markets & Investor Relations

Daryl G. Byrd -- President & Chief Executive Officer

Anthony J. Restel -- Vice Chairman & Chief Financial Officer

Fernando Perez-Hickman -- Vice Chairman & Director of Corporate Strategy

Michael J. Brown -- Vice Chairman & Chief Operating Officer

Catherine Mealor -- Keefe, Bruyette & Woods -- Analyst

Ebrahim Poonawala -- Bank of America Merrill Lynch -- Analyst

Michael Rose -- Raymond James -- Analyst

Casey Haire -- Jefferies -- Analyst

Matt Olney -- Stephens, Inc. -- Analyst

Jennifer Demba -- SunTrust Robinson-Humphrey -- Analyst

Christopher Marinac -- Janney Montgomery Scott -- Analyst

More IBKC analysis

All earnings call transcripts

AlphaStreet Logo