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Bank Ozk
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Good day, ladies and gentlemen, and welcome to the Bank of The Ozarks First Quarter 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. [Operator Instructions] And as a reminder, this conference call is being recorded.
I would now like to introduce your host for today's conference, Mr. Tim Hicks. Sir, you may begin.
Good morning. I'm Tim Hicks, Chief Administrative Officer and Executive Director of Investor Relations for Bank of The Ozarks. Thank you for joining our call this morning and participating in our question-and-answer session.
As discussed last quarter, we made what we hope is a significant enhancement to our earnings release process by publishing management comments with our earnings press release earlier this morning. These comments are available on the Investor Relations section of our website.
In today's Q&A discussion, we may make forward-looking statements about our expectations, estimates, and outlook for the future. Please refer to our earnings release, management comments and other public filings for more information on the various factors and risks that may cause actual results or outcomes to vary from those projected in or implied by such forward-looking statements.
Joining me on the call to take your questions are George Gleason, Chairman and CEO; Greg McKinney, Chief Financial Officer and Chief Accounting Officer; and Tyler Vance, Chief Operating Officer and Chief Banking Officer. We are very pleased to report our excellent first quarter results and we’ll begin by opening up the lines for your questions.
Let me ask our operator, Sandra, to remind our listeners how to queue in for questions.
And our first question comes from the line of Ken Zerbe with Morgan Stanley. Your line is now open.
Great. Thanks. Good morning. While we’re starting, just in terms of expenses, obviously, I saw your expense guidance for the rest of the year that it’s going to be lower than what it was in the first quarter. Can you just talk about some of the dynamics behind that?
Like, how much was your first quarter expenses related to sort of unusual items - sort of the unusual expenses, not the core of structure build out, but then how much of that goes away? And how are you thinking about what you need to spend over in the course of the year? Thanks.
Hey Ken. Tim Hicks here. I'll start by answering that question. Obviously, you saw our salaries and expense line increased $7 million on a linked quarter basis from fourth quarter. And you saw on our management comments that we discussed, the deferral of some of those costs was lower this quarter in accordance with FAS-91. We defer costs on loan originations. So, as you saw in our management commentary, we did have lower originations during this quarter, so we had lower deferred costs.
As you also noticed on our management commentary, we have more -- net more deferred loan fees than net costs, so it's accretive to our margin going forward. But if you look to just that salary line, the increase of $7 million, roughly half of that was due to lower deferred costs, and the other half was due to just normal increases in salaries and benefits that we typically see during the first quarter.
Got you. Okay. Because I guess I'm just thinking, the guidance says it’s going to be lower than where it was this quarter. I mean, obviously it's a positive, but just -- if you look back over the last year or two years or three years, we’ve seen such strong growth in expenses.
I’m just trying to get my head around aside from a couple million dollars of comp, what's driving sort of much more of that dramatic slowdown in expenses versus what we've historically seen?
Ken, George Gleason here, let me comment on that. We are, as we've talked about for a number of quarters now, nearing a point where the majority of this infrastructure build is complete.
We will be continuing to add additional people to head count in Q2 and, to a lesser extent, Q3 and Q4. But we believe that some of our consulting and other cost that have been involved in that build out of infrastructure will be headed downward as the year progresses.
So, when you factor in continuing to add additional people, and you factor out the declining expectations for expenditures, on consulting and other costs over the course of the year, and you assume a more normalized rate of deferral of costs related to a more normalized origination volume.
We actually think that our noninterest expenses will be lower in future quarters than they were in Q1, and that's what our projections in that end budget reflect.
Great. Okay. No. I just want to make sure I understood. I think it's good, and that clarity helps certainly.
The second question I had, just in terms of -- can you just comment a little more broadly on the outlook for loan growth? Obviously, I want you to address the decline that you saw in unfunded balances this quarter. But what are you seeing from a broader environment, like why should that not keep going down? Thanks.
Ken, I’ll -- this is George Gleason. I’ll address that. We had a lower-than-expected volume of originations of new loans at RESG. Our fundings and so forth were very much in line with our expectations. That lower origination volume, we believe, is really just a temporary phenomenon.
We had a number of transactions that we had expected and hope to close in Q1 that it rolled into the month of April. There were specific reasons for each of those that -- none of them systemic or chronic issues. It's just a lot of sort of one-off issues that caused those transactions to roll over a few weeks. So we have expectations for a very good closing month in April and so forth.
So our expectation, to answer your first question on loan growth, is unchanged. We expect that our 2018 loan growth in non-purchase loans will exceed our 2017 year growth in non-purchase loans. We believe, as we said in the management comments, that that downtrend in the unfunded balance of loans already closed that we saw in Q1 is not a trend.
That's just -- that number will move around from quarter-to-quarter. We expect that number will tend to move up over time and not down. So, we certainly don't think that one quarter result is a trend.
Great. Okay. Thank you very much. I appreciate it.
Thank you. And our next question comes from the line of Michael Rose with Raymond James. Your line is now open.
Hey, good morning, guys. How are you?
Hi. Good morning, Michael.
Yeah. I have a question on capital. Earlier this week, the Fed put out a proposal as it relates to CCAR moving the time line for the amount of capital that you would need through the stress scenario to four quarters from nine quarters.
And if that's passed, it's our belief that that could trickle down to the DFAST Banks. And I know you guys are proactively raising capital. So, I wanted to get your thoughts on capital and if this would help. And then, b, given where your stock is, at any point, would a buyback make sense? Thanks.
Michael, it’s George. Let me take that, and then Tim may -- since Tim works a lot on our capital issues, he will probably want to weigh in on that as well. Number one, I would tell you, we appreciate the fact that the regulators are looking at capital and the leadership of the Federal Reserve.
And looking at that, we have not had time with other things we've had going on in the last couple of days to look at either their first or their second proposal in any detail. So, it would be premature to comment on the impact of those proposals and how that might filter down to us.
In regard to a stock buyback, we've got a tremendous history of growing our balance sheet. We've raised capital with the expectation that we will need that capital for future growth. We continue to be very positive on our growth trajectory. You noticed, I think, in Tim's management comment that our trailing four quarters growth in non-purchase loans is, I think, 33.8%. Tim, is that right?
That’s correct.
So, we would expect that our forward growth in earning assets, particularly, non-purchase loans; to a lesser extent, securities, would ultimately utilize all of the capital that we've got. And we're excited about that because we believe that's very good for shareholders.
Yeah. Michael, this is Tim. What I would add to that is what I saw in that proposed rule was also a static environment where you took out growth. Obviously, when we talked about raising capital last year, it was because of our expectations for robust growth. So if the rules would allow us to have a static review of that, that obviously would be very beneficial but I think too soon to tell at this point.
Obviously, it's addressed to seek our banks, and I would imagine that would trickle down to DFAST as well. Obviously, there's things in Senate Bill 2155 that it would be positive as well. So you know we're watching that very closely and all that is very positive.
Okay. Maybe as a follow-up, just back to Ken's question on expenses, I noticed that you guys are winding down the mortgage business. Can you give us a sense for what would come out related to that in terms of expenses?
Most of that is out in Q1. There are some small incremental amount and the same on the small ticket leasing business that we started winding down in Q4. Most of that is out. So there's a little bit more of efficiency gain, but it's not a meaningful number. And whatever savings there are in that regard will be offset or more than offset with the addition of people in other lines of business where we're having significant growth.
Okay. It's helpful. Maybe one more for me for Tyler. Any update on the spin-up campaigns and kind of where we stand and just any thoughts on general deposit environment would be would be helpful? Thanks.
Sure, Michael. I’m happy to take that. Q1 spin-up was a very nice contributor to our deposit growth. You noted our management comments That was $641 million. Figure 21 on page 23 gives some more metrics related to that. That included organic growth of $654 million and another quarter, in a string of quarters where we paid down broker deposits, those decreased about $13 million.
The non-spin-up offices contributed very nicely. And you'll note also in our management comments that net checking was about $7,500 in Q1. So that's an excellent start to the year. We're proud of that number. Currently, related to spin-up, we have 33 offices in 22 different markets. You'll note that's down some from Q4 and the beginning of Q1. We've needed a little less spin-up recently given our strong performance in the New York office.
Now, that was a little less in Q1. The New York office grew about $57 million, but that follows a year of growth last year of $1.4 billion, and our expectation for that deposit-gathering team is that they would have another significant contribution to our growth this year. They had some very nice deposits in their pipeline, so excited about that as well.
In terms of just competition for deposits, we did refresh some spin-up special offerings after the Fed moved and really in response to some additional promotional rate offerings we're seeing competitors put into the market.
Our CD specials in those 33 offices that I mentioned range now from you know 11 to 15 months, and those APYs are anywhere from a 1.80% to a 2.11% APY. Those are competitive offerings. They're not always the best offering in those markets. We've seen competition, as I mentioned, in promotional offerings increasing recently, but we still think spin-up will be a nice contributor to our growth this year.
Hey, guys, thanks for taking my questions.
Yeah. Michael, I might add on that. Our core spread increased, I think, 9 basis points in Q3 and 9 basis points in Q4 of last year and increased 4 basis points in Q1. And Tyler and the deposit team had been very disciplined in trying to hold the line on deposit cost in Q3 and Q4. So there was a little bit of a snapback effect to that, we think, in Q1
Where we had to push a little bit more but we still had a 4 basis point positive difference between our increasing yield on non-purchase loans and our cost of interest bearing deposits. So we thought that was a very good outcome, and Tyler and his team did a really good job managing that cost to deposits given the growth we achieved over a multi-quarter period of time there.
Noted. Thanks, guys.
Thank you. And our next question comes from the line of Jennifer Demba with SunTrust. Your line is now open.
Thank you.
Good morning, Jennifer.
Hi, George. You said some of your loans on RESG slid into the second quarter. Just curious what you saw in paydown activity this quarter versus maybe third or fourth quarter of last year?
Let’s see if I can if I can give you that. Tim, is this data, all or is it just RESG?
That’s just RESG.
Okay. Yeah. I think our repayments were about $800 million in round numbers on RESG for the quarter. Obviously, we had $525 million-plus in net funding, so we had gross advances of about $1.325 billion, again round numbers on that for RESG.
And how does that compare to last couple of quarters?
It's in the middle. We've had quarters where there were more and less in each of those metrics over the last, say, six or seven, eight quarters.
And, George, you said earlier that you think you’re kind of nearing the -- or you’re in the late innings of the infrastructure build. What do you think is kind of a normalized expense growth level for you guys given the level of loan and revenue growth you like to have?
Jennifer, I don't know that we're prepared to give you a comment on that. I think we would leave that with the comments in the -- in our prepared management comments which suggest that, number one, we think noninterest expense in the remaining three quarters of this year will be less than noninterest expense in the first quarter.
And I've talked about the reasoning for that, and the biggest factor there is the fact that we had a low level of deferred loan origination cost in Q1.
And. Secondly, again, pointing to the management comments, we expect that our efficiency ratio will improve over the course of 2018, and that by the end of the year or for the full year, that efficiency ratio will be much closer to the 2017 efficiency ratio than what our first quarter results would indicate. So, I think I'll leave it at that, and we may have some run rate guidance in a future conference call that would apply to future years.
Okay. Thanks so much.
Thank you. And our next question comes from the line of Stephen Scouten with Sandler O'Neill. Your line is now open.
Hey, guys. Good morning.
Good morning.
So, I wanted to follow up on kind of the discussion around the unfunded commitments and kind of what maybe gives you confidence that that number will start to creep back higher in the coming quarters.
And maybe, George, too, if you could talk a little bit about -- you said you had maybe $525 million in net new fundings and $1.3 million of loans that advanced on the unfunded commitment book. So is that a similar dynamic, or did that unfunded book decline because a greater number than average of those came over to the funded side, if that makes sense?
No. As I said in response to Jennifer's question, our net funding number, our gross advance numbers, and our repayment numbers for Q1 were very much sort of in the middle of the pack of where those numbers have been over the last six, seven, eight quarters.
So there was nothing unusual about that. We just had a number of closings that slid from Q1 to Q2. And as I said, those were -- there was not any sort of systemic reason for that. It was a lot of different one-off issues that delayed things 15 to 45 days.
So, we think we'll be back on track, and I would expect to see a generally positive trend in the unfunded balance of closed loans for the remainder of this year and in future years. We expect that balance will grow. Obviously, as we saw in the first quarter, there will be anomalous factors that will cause it to not grow in particular quarters, but we continue to think the trend is up.
Okay. But it's not necessarily going to jump right back to growing $600 million, $700 million a quarter. Is that maybe a fair way to characterize it?
Well, I think that's just going to be dependent upon how many loans we get closed in particular quarters and what pay down some curtailments and other thing so…
Okay.
And back - I really mean some -- let me explain what I mean by curtailments. A lot of times as we're getting to the end of a loan, it becomes clear of it the sponsors are not going to spend all of the money budgeted in that loan for various reasons and a lot of our loan documents allow us to curtail those commitments when we mutually agree that they're not going to be needed, so that we don't have to hold capital for balances that are never funded.
Okay. That's helpful. That's helpful. And maybe talk a little bit about the Marine and RV portfolio. It looks like it grew maybe $225 million this quarter. Is there a point where that portfolio starts to get too big or you kind of fill your appetite for those loans or you still feel pretty good about you’re continuing to grow that at similar pace as well?
We feel very good about what those guys are doing. We're monitoring the quality of it very closely. We're having very low levels of past due and repossessions in that portfolio.
But we're doing a pretty good forensic dive on things that do become past due and do results in repost to make sure that we’re properly accounting for all factors that we ought to be accounting for in our underwriting of those credits. We’ve been able to get the yield up on those credits as rates have moved upward. So we’re feeling very good about that portfolio and the -- what our team is doing there.
Okay. Great. Maybe one last one for me, just -- you mentioned the positive move in the core spread which is -- which is great to see it again. Do you -- you also said in quarters maybe where we don't get a rate hike that that could be under more pressure. Can you maybe give us an idea of -- is that -- when there's no rate hike, is that maybe a flat core spread or do we actually see that decline?
And maybe also, of that $640 million in deposit growth, how much of that came from the higher costs like promotional spin-up stuff and how much of that is maybe more, I don’t know, true core, if you want to call it that?
I don't know if we can give you that. But I'll tell you what I would point you to -- Tim, where is that…
Core spread graph?
Yeah.
Page 12.
Hold on just a second. Yeah. If you look at page 12 of the management comments, I think this graph -- this data tells you a lot. You can see over the last seven quarters which is really from the second through the most recent six Fed rate increase that core spread has improved 42 basis points over that period of time.
Clearly, we're benefiting from rising rate environment. If you go back and look at a similar time period from Q1 of 2014 through, say, Q4 of 2015, that spread declined 28 basis points when we were in an environment where the Fed was essentially on hold and we were near zero on the Fed funds target rate.
So I think if we enter into an extended period where the Fed is on hold and the Fed funds target rate is stable that would be an environment that would tend to, as reflected in that part of the data in that graph, I think that would tend to put some pressure on our net interest margin. Obviously, as long as the Fed is moving upward, we think that it tends to help us improve our core spread which tends to support our net interest margin.
I would also take you to page 10 of management comments, Stephen, and you look at the net interest margin on the page there, our net interest margin in Q4 was 4.72%. Our net interest margin in Q1 was 4.69%. That -- almost that entire difference is a result of the lower tax equivalent yield on tax exempt securities resulting from the lower tax rates.
If we had had in the first quarter the tax rates applicable in the fourth quarter of last year, our net interest margin would have rounded to 4.72%. So we would have had a essentially flat NIM, like fraction of 1 basis point down trend there, I believe. We would have essentially a flat NIM if we had the same tax rate.
So, that suggests to us that the work we're doing on the core spread and the good jobs that Tyler is doing managing the increases on our deposit cost as we grow deposits and deal with a rising rate environment or beginning to have a nice impact on the attrition in that spread.
I would also point out to you the data on page 8 which is the graph that shows our yield on non-purchase loans and our yield on purchase loans, and we've made a lot over the years about the fact that as our higher yielding purchase loan portfolio runs off, that tends to put a downward impact on our margin.
And as you can see from that graph, our non-purchase loan yields are not quite yet at the same level as our purchase loan yields, but they're a lot closer than they were a year or two years ago. And that convergence in those yields which we think will likely continue.
Now, there’ll be erratic movements from quarter to quarter, but we think that convergence will likely continue. And that has positive implications for our net interest margin going forward.
Definitely. Definitely. Thanks for the color, George, and congrats on another good quarter and the recent recognition for the bank. Appreciate the time.
Thank you, Steve.
Thank you. And our next question comes from the line of Matt Mooney with Stephens. Your line is now open.
Hey. Thanks. Good morning. I wanted to go back to the core spread discussion, and I was just curious kind of on what your thoughts are from here. You mentioned it was a 4-basis-point expansion in the first quarter compared to the 9-basis-point expansion in late 2017.
And if we assume that the Fed continues to march up interest rates, is this a good way to think about the range of this expansion the next few quarters somewhere on that 4- to 9-basis point range, or are you biased more towards the lower end of that given the recent trend?
Well, Matt, as you -- if you look again at page 12, that little green box at the bottom of that chart, as Fed has raised rates, we've had a couple of quarters where we were nine basis points and improving core spread. We've had one quarter where we were zero basis points in improving core spread. If you look at that, the cumulative of that is 42 basis points of improving spread over -- Tim, seven quarters? So, the average is about six basis points.
And it's hard to know how all of that dynamics and moving parts play out, but we would we would hope that we would be a plus or minus, a little bit around that average as we as we go forward as long as the Fed is continuing to increase the Fed funds target rate which, based on recent comments and transcripts of their conversations and so forth on that subject, seems to suggest they are inclined to continue to do so.
Okay. And then on the leasing division, I think we talked last quarter about you restructuring that division. I think you're keeping parts of the business aviation group. Any update you can provide on that group, and when would you expect that group to contribute more meaningfully to the positive overall loan growth?
Well, the business aviation group is -- been moved over from our leasing division to the community banking group. We feel very positively inclined toward that group, and think they will be a source of positive growth.
It will not be a huge line item for us, but it's one of many contributors to growth in our community banking division. The -- I think the more important part of that story in the short run for this year and next is the small ticket part of that portfolio that was about $97 million, I believe.
When we started working our way out of that was about $80 million at the end of the last quarter. And that portfolio has contributed a disproportionately large percentage of our losses the last few years. We’ve had so little losses.
Nobody is asked about the composition of them, but I think our net charge-off ratio in the first quarter was 4 basis points, but they annualized which is almost nothing. But most of that almost nothing number came from that portfolio. So that portfolio winding off really quickly. And we think that’s a positive factor.
Okay. Thank you.
Thank you.
Thank you. And our next question comes from the line of Catherine Mealor with KBW. Your line is now open.
Thanks. Good morning.
Good morning, Catherine.
One follow-up on other margin discussion. I mean, clearly, we’ve talked about how the LIBOR impact had a positive impact on your asset betas this quarter. I guess question one on that is just remind us how much of your variable portfolio is tied directly to LIBOR versus prime.
And then secondly, can you talk a little bit about the competitive dynamics that you’ve seen year-to-date on pricing? I mean, clearly, you’re benefitting from the increase in Fed funds and LIBOR, but have you seen any kind of tightening on credit spreads and pricing kind of outside of just rates moving higher?
Of course competition is always a huge factor for us, Catherine, as you know and as you and I have discussed a number of times. We did see a very competitive environment in Q1 which is not surprising, and that's not surprising because the Fed's been moving quite a bit. The tax rates moved, and also a lot of our competitors get annual allocations of budget for them to loan out.
So you typically, in the first quarter, see a lot of exuberance and aggressiveness from your competitors in getting started on their new year's allocation for loans. And as they fill up that bucket, a lot of times you see that aggressiveness diminish over the course of the year.
And I think that's one of the reasons that we've traditionally had exceptional loan growth in Q4 of each year as a lot of our competitors have filled their budget, earned their bonus, and gone to the sidelines by Q4. And it lets us be even more rational and prudent in what we do.
So it's hard to know how all that competition that we saw in Q1 really translates out over the course of the year. I think that does tend to normalize and rationalize as we go through the year.
But clearly it's a very competitive environment. What we have to do and have always done in a very competitive environment is keep our focus on our priorities, and priority number one is asset quality.
So giving on credit terms or getting competitive on credit terms is really a nonnegotiable thing for us. We protect credit quality as our paramount mission.
Secondly is to maintain profitability, and we will make adjustments to our pricing as we think are appropriate based on return on equity and so forth. And you have a little room to move, but you don't have a ton of room to move and still meet our profitability standards. And then growth is the tertiary consideration.
So if we're faced with a situation where we have to give on credit quality to achieve growth, we're not going to do it. If we're faced on a situation where we're going to have to give on pricing to achieve growth, we're only going to do it if we can still achieve our target minimum return on equity numbers.
So you just got to be disciplined and continue to execute well. I think the one thing that really helps us is that our ability to execute for our customers and the confidence that our customers have in us being able to deliver what we say we’ll deliver and to execute with excellence in the transactions gets us paid more than our competition in many, many transactions.
So we're relying on the reputation, the relationship, our execution and expertise, our discipline to continue to maintain our credit quality and our profit margins in whatever sort of competitive environment we're in.
Tim can answer the question on LIBOR. I've taken enough time to answer your second question, and he has with that on your first question.
That’s great. Thank you.
Hey, Catherine. You were asking about variable rate loans and how many were in LIBOR. So 79% of our non-purchase loans are variable and 83% of those are either based off of one, three or six month LIBOR. The vast majority of those are based off of one month LIBOR. Don't forget that we do have 42% of our purchase loans that are variable.
Those are roughly half and half between LIBOR and something else. So if you look at our total loan portfolio, it's actually 79% of our total loan portfolios based off of either one, three or six month LIBOR.
Okay. That’s super helpful. And then one follow-up on the expenses. I don’t know, can you -- I know you mentioned that about half of the $7 million increase in salaries came from the FAS 91 deferral of loan cost. Is there a way to quantify what that typically is on a quarterly basis?
It's going to vary from quarter-to-quarter, just based on what George indicated in our originations in any particular quarter. I don't have the numbers in front of me that would suggest what it was over the last several quarters. But if you just linked it, the fourth quarter was roughly half of that change was from that.
Okay. Is it typically a percentage of originations or kind of what’s the way to think about modeling it?
Yeah, I mean, our accounting guys look at it every quarter and they do have a percentage that they come up with the recorder and it varies on a lot of different factors.
Okay.
Actually there's a big element of it and there is a variable piece of it. This is consistent with requirements under FAS-91. So every loan has a fixed component depending on the loan type, as well as a variable component. Variable component is based on size.
And to Tim's point, that does move around. We look at that. We do a detailed review of that annually, and then quarterly, we do an update. Some of those quarterly updates are more extensive than others depending on what we're seeing in changes in projections, thoughts, pipelines, trends.
But that is -- it -- to Tim's point, about half of that increase in the salary line was directly attributable to the lower closing and the fact that we had fewer cost deferrals in the first quarter relative to what that has been running over the last three, four, five, six quarters or so.
Got it. Okay. Great. Thank you.
Thank you. And our next question comes from the line of Blair Brantley with Brean Capital. Your line is now open.
Good morning, everyone. Just got a quick question on the purchase loan yields. Were there any prepayment benefits this quarter?
There are always…
Yeah.
Prepayment benefits and minimum interest benefits…
Yeah.
In any quarter.
Blair, this is Tim. The number you may be looking for that we often get asked is how much additional accretion income we had this year -- this quarter. It was $12.7 million in Q1. I think that was roughly $14 million in Q4. But as George said, we always have some prepayment activity in the quarter. But that number should give you a sense of the accretion income impact.
Okay. And then -- I mean, I know this is probably a hard question to answer. But in terms of convergence with the purchase and non-purchase yields, is that something you think that could happen this year based on what you see out there?
I think it depends on how many Fed moves we have. But yeah, you're right, it's hard to know and the purchase loans vary a little bit. But if we get several more Fed moves, I would not be surprised if that converges towards the end of the year.
Okay. Great. Thank you.
Thank you. And our next question comes from the line of Bryce Nasser [ph] with KBW. Your line is now open.
Hello.
[Operator Instructions]
Sandra, I think he may have given up. Let’s go to our next question.
Yes, sir. Our next question comes from the line of Matthew Keating with Barclays. Your line is now open.
Yes. Thank you. My question is on fee income, I just wanted to confirm, you did call out the BOLI death benefits this quarter, the $2.7 million. It seemed like that's nonrecurring. Is that a correct way to think about that?
And maybe, just more in general on fee income, do you think this is sort of a low level? A lot of items were down a little bit, understanding mortgage is down because it's down permanently. But how do you view sort of the income trajectory as we move throughout 2018? Thanks.
Yes. Good question, and we tend to think of BOLI income death benefits as being onetime items although with many hundreds of people insured as we have. We’ve got an active BOLI program in Bank of The Ozarks. We’ve made a number of acquisitions and acquired substantial BOLI portfolios in those acquisitions.
So given the volume of people covered by our program, it’s not unusual to have quarters where we have BOLI death benefits. But you can't really project them or -- they're random events, so we take them out of our run rate.
So, in our view, instead of an $0.88 EPS quarter, it was an $0.86 EPS quarter was the way we look at it correctly. It is correct to assume that mortgage is going away. As we said, we'll have nominal mortgage income this quarter and essentially none thereafter.
Service charges are down from a year ago because of the Durbin Amendment. But, actually, we thought the $9.525 million in service charge income in Q1 was a good number. Q1 is seasonally our lowest quarter of the year in service charge income, so we would expect that number to go up, had a good quarter. I think it was a record quarter in trust income, wasn't it, Tim?
I believe it was.
And that continues to be a focus for us. Our other income from purchase loans, because of the continued declines in that purchase loan portfolio, the volume of that purchase loan portfolio is going down. That number probably trends down over time. Likewise, gains on sale is driven primarily by liquidation of OREO assets, and that portfolio continues to wind down. So that line item will have a downward trend longer term.
On the other hand, loan service maintenance and other fees has had a very nice trajectory over the last several quarters. That includes unused fees and asset management fees from our RESG portfolio and other underwriting and certain fees that we charge.
I think that number has an upward trend to it over time that should be very, very beneficial to us. So, there are a lot of moving parts there. Some going up, some going down, but we think the first quarter number apart from BOLI income was probably a pretty conservative number.
Thanks. That's very helpful color. And my second question would be on the name change. I'm just curious for the backstory, sort of how long have you guys been contemplating this transition and maybe how did you end up on Bank OZK given that you do expect to be entering the international markets and how you’re likely to go with that? And there's obviously a lot of options, but I'd love to hear some additional color around that. Thanks.
We've been contemplating this name change for several years, and the decision to go with by Bank OZK was a decision that I recommended to our senior management, and after a lot of discussion, they agreed with it. And the idea was to protect and maintain the significant brand equity that we've built in the name Bank of the Ozarks over many years.
Our customers that do business with us as Bank of the Ozarks know as well. They obviously like us largely because we’re adding thousands of net new core checking customers and other customers every month. So, we obviously have a good reputation, a good relationship with our customer base, a reputation in the investment community for
high performance, having been named now 12 times in the last 8 years as the top-performing bank in our size group in the country.
So we wanted to protect that brand equity and that value that we've created through hard work and excellent performance.
And we felt like the name Bank OZK would be close enough to Bank of The Ozarks that our existing customers and the communities in which we have deep relationships would immediately recognize the name as a natural evolution of Bank of The Ozarks.
On the other hand, it is an edgy name, putting the word bank to the front of it. It seems to have sort of a European or international flavor to it. The OZK, we felt like just being three letters would be a very modern name and would convey a sense of technology surrounding it, and technology is a huge focus for us and a significant part of our recipe for the future.
So we just felt like we had a name here that gave us the best of both worlds. It protected the brand equity, the reputation, the relationships we had and yet was very forward-thinking and would really travel well with us across the country.
Of course, we're already doing business in almost every state now, have customers in almost every state now. So it would travel well with us and even thinking many years down the road to when we might be travelling outside the U.S. We thought it was a name that travelled well internationally.
So as we decided at the management level that was a name we wanted to go with, we realized that we're not brand experts, per se. So we engaged a branding firm to do a series of focus groups and a study to not suggest alternate names but to just tell us how that name would be received.
And that focus group focused on, I think, about 500 people that included existing customers and non-customers in our existing markets and non-customers in markets where we are largely unknown.
And the name scored extremely well among all those different groups and accomplished our objectives of being very modern, being very international but having a warm feel that customers would embrace, and in the case of our existing markets and existing customers being immediately recognizable as a natural evolution of Bank of The Ozarks.
So we feel really good about it, and based on the study we've done, we think we've picked a really good evolution of our name.
That's really helpful, and I happen to like the choice. So thanks for that color. I really appreciate it.
Thank you for your support.
Thank you. And our next question comes from the line of Brian Martin with FIG Partners. Your line is now open.
Hey, guys.
Hey, Brian.
Hey. Just a couple of things for me. Just the geography of the loan growth, George. Any particular markets I guess driving more of that growth if you look at maybe the top two markets as far as the growth this quarter that you can comment on?
Yeah. The top two markets are really unchanged. It’s been New York and Miami. This particular quarter, Miami actually had more than New York but I think that's just based on timing and other things. But Dallas, Chicago, Atlanta, Washington D.C., Philadelphia, those are you know some of our top markets in the quarter where we saw originations. So again, really, really good diversifications by geography and some really great markets.
Okay. Thanks, Tim. And just the -- just big picture on the loan growth, I mean I think the loan growth, at least on the non-purchase side this quarter, was greater than three of the quarters last year.
I guess is there any way to -- I guess, in the past it doesn't seem like there’s been -- or more recently in the past, there’s not seem to been a seasonality issue with these -- with the growth we're seeing by quarter.
I guess -- yeah, I guess in general -- I guess, do you guys have any feel for seasonality this year or should it be more -- the originations be more -- or the closing be more stable going forward or, I guess, is any way to think about that?
Brian, I would tell you our current expectation is that we will have at least one quarter this year that will be less than Q1’s growth and at least one quarter this year that will be more than Q1’s growth.
Now, that could all -- that deck could get totally shuffled by prepayments or changes in the velocity or timing of loan originations. But we think this was a really good quarter, but a quarter of that is not the best or the worst that we’ll have this year. We think it's in the middle somewhere.
Okay. That's helpful. Thanks, George. And just on the expenses and the impact this quarter from the lower originations, I mean could the bounce back next quarter be greater? It sounds like some of those originations got pushed into Q2.
So, I mean, could that swing next quarter be greater than it is in Q3 and Q4 just given some of the bounce back or some of the stuff that got pushed from Q1 to Q2? Is that fair to think about at least that element?
Brian, that is really hard to project. What I would tell you is I think it will tend to be more level in Q2, Q3, and Q4. And the reason for that is, yes, we had almost $1 billion. I think it was $960 million that we thought we would get closed in March that slid to April. So that's a big volume.
A lot of the transactions that we worked on in Q1, and particularly transactions of size will probably not close to Q3 because they’re large transactions that we've got signed up and are working through the approval process. But the size complexity and the moving parts of those transactions will take a while.
So, I think what got pushed from Q1 to Q2 sort of levelizes Q2 with what we would expect to see in Q3 and Q4. Again, these things tend to move around a lot. And if you look at the projection of closings one week versus a week or two or three later, there's always a lot of movement in those things moving a month or two or three one way or the other.
So, it's impossible to predict. But right now, our thinking is that we end up with the rest of the year being more or less level. Among -- and I should clarify that level among Q2, Q3 and Q4 originations looking very similar in volume, much higher than Q1.
Thank you. [Operator Instructions] And I'm showing no further questions. I'd like to return the call to Mr. Gleason for any closing remarks.
All right. Thank you, Sandra. A few days ago, as I mentioned earlier, we were named the top performing bank in the country in our size group. This is the eighth consecutive year that we've been named as the top performing bank by one or more leading industry publications.
This is a tremendous honor achieved through the hard work and the teamwork of all of our employees. We're very pleased with our past accomplishments, and we're very excited about the future. Our first quarter results provide a strong start for 2018.
There being no further questions, this concludes our call. Thank you so much for joining us today.
Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Everyone, have a great day.