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Home BancShares Inc
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Greetings, ladies and gentlemen. Welcome to the Home BancShares Incorporated First Quarter 2018 Earnings Call. The purpose of this call is to discuss the information and data provided in the quarterly earnings release issued this morning. The Company presenters will begin with prepared remarks then entertain questions. [Operator Instructions]
The Company participants in this today are John Allison, Chairman; Randy Sims, President and CEO of Home BancShares; Tracy French, President and CEO of Centennial Bank; Brian David Chief Financial Officer; Jennifer Floyd, Chief Accounting Officer; Kevin Hester, Chief Lending Officer; Stephen Tipton, Chief Operating Officer; Chris Poulton, President, Centennial Commercial Finance Group; Dave Seleski, Regional President; and Donna Townsell, Director of Marketing.
The Company has asked me to remind everyone to refer to their cautionary note regarding forward-looking statements. You will find this note on Page 3 of their Form 10-K filed with the SEC in February 2018. At this time, all participants are in a listen-only mode and this conference is being recorded. [Operator Instructions]
It is now my pleasure to turn the call over to our first presenter, Mr. Allison.
Thank you, Andrea. Good afternoon and welcome. Randy, I think this is the 47th time, I looked it up and this is the 47th time that we reported our earnings release and conference call since we did our initial public offering. How was the quarter Randy? Is this another one for the record book?
I am happy and proud to announce 28th consecutive quarters of record income. And I have checked and verified with our accountants and that seven years. Can you believe it, seven years?
You don't think they might be mistaken.
No, no. I also verified with my five year grandson, if you said it's a seven years to the 28th consecutive quarters. Congratulations to everyone
That’s 28 including this quarter.
Yes, sir. That's Right.
Well, congratulations all of you because it made Home BancShares, Centennial Bank to be the best bank in America of all banks as named by Forbes in January of this year and this honor makes us all proud. I told you we’re teeing up the ball for 2018 and here is another powerful record quarter, not a bad start for ’18. We add of that the completed conversion of Stonegate and the closing the 12 branches and think about the additional reduction in salaries associated with those closings in the first quarter. This will be the best year by far our company has ever had. And I think it continues to get better.
From the good news, Randy will go through most of the numbers, but here is just a list of good news. Income up 55%, EPS up over 27%, stable margin, great asset quality, record revenue, record ROA, strong efficiency ratio. When you see the efficiency ratio, I know that number, you can see we're gleaning the efficiencies out of Stonegate, but actually the March of 31-day non-interest expense was left in February. So that’s just a good sign for to run rate coming in the second quarter. Strong loan loss reserves, completion with the Stonegate conversion. I think we’re pretty, Randy -- I mean, we've done pretty well.
Yes, sir.
That over strong capital ratio and I couldn’t pass using this number Randy of 23.33% return on average tangible common equity, that's a pretty powerful number.
Yes, sir.
We just completed a very successful lender conference. We had about 280 of our people there in Orlando. It was a great time for all. We got to know each other. We got to spend time together and get us on the same page. I guess if we had to look at bad news, I guess the loans were flat for the quarter and mortgage was up just a little bit. But I think Tracy, you told me, they had a record lock in March.
Yes, March was an exceptional month for closing.
March was an exceptional month, so that looks like then -- that's done well for the going into the second quarter. On the Florida Keys, the P/E report shows that we've only taken one loss this far, but the P/E report shows us off 22%. I was just down there for some time, lots of help warnings sign. But so far or so good, and it will be awhile as soon before we know, looks to me like it's a cash flow situation. On M&A, we’re not doing any of that presently due to the stock price; however, we are talking to some companies. Home $2 with some reduction in expense, we need about $1 billion in loan growth. We have a tentative meeting schedule in July. Donna Townsell, is that right?
Yes, sir.
To kick off the $2 program. As you recall from the fourth quarter, rudely, Donna came in and had a Slurpee, just one Slurpee and the rest of us looked at here. She didn't bring in the rest of us one. But I want to thank Michael Rose, he made a gallant attempt with the GoFundMe fund, attempting to provide refreshment all of us, everyone in this room to have Slurpees. And I think we’re getting report from Donna shortly, so thank Pat and don’t that. On the stock buybacks, year-to-date we bought back 535,000 shares at 2,301 of which 303,000 of the shares was bought during the first quarter with the balance bought with our 10b-5 program that allows us to buy them and blackout.
As a matter of fact, before we go Randy to the numbers, let's go to Donna, I think, she -- the shareholder getting set up from the shareholders meeting and get a report on the Slurpee front. Donna, are your there?
Yes, sir. I am here. I am happy to report on Michael Rose’s Slurpee campaign. It was successful because no one should drink Slurpees alone. I would have gotten you guys a bigger size, but I couldn't get Brian Hagler to commit. Here he's been watching the Slurpee industry, waiting for the process to go down, maybe they will next quarter. But since I'm in Little Rock setting up for tonight's shareholder meeting, I was hoping the Slurpees made it there safe and sound, maybe you guys can confirm that for me. Also I would like to take this opportunity to invite everyone to join us at the Statehouse Convention Center tonight for our shareholders meeting. Doors open at 5:30 and the meeting begins at 6:30.
Thank you for the update on the Slurpee report and the shareholder meeting. And if Brian Hagler decides to get in and help us, we get a better size, next time I please report that too.
I will do that. That will be great.
That’s all I have right now, Randy. So, I am now turning it over to you to run all the numbers.
Okay. Well, I was trying to slurp down my cherry one real quick, but I will get to the numbers. Thank you, Johnny. As we stated, it was a powerful quarter for Home BancShares and not just a good but a great start to 2018. And while we did go over it I am going to say it again, the first quarter of 2018 was the most profitable quarter in the history of our company. And again, that is now 28th consecutive quarters of record income, seven years.
Now, I will admit the last few quarters, they have been noisy with merger expenses, the Tax Cuts and Jobs Act, charge and other things and other non-fundamental items. However, seven years is a record of record income is quite an accomplishment that all our shareholders can be proud of. And I congratulate our employees and their hard work to accomplish this milestone.
With a few exceptions, the first quarter was relatively clean with little noise in the financials. This was very satisfying to see and I think the numbers you have already heard and will hear are a good picture of the makings of a very successful year as our Chairman stated.
If you recall, last quarter I ended by saying that 2017 was a very unusual year and our best days as a corporation could to be ahead of us in 2018. Our history is rich in acquisitions, changes and decisions to ensure the long-term success of Home BancShares. And I really believe the first quarter results are pretty good evidence. You are going to hear some really good numbers from our management team today.
Just as a reminder, our three acquisitions in 2017 resulted in over 3.5 billion in total assets being added to our balance sheet after purchase accounting adjustments. Most of that was with the Stonegate acquisition.
And in February, we completed the conversion with Stonegate systems and processes that not only consolidated our IT systems but also consolidated many of the duplicate branches in our respective footprints, all of which have and will bring about savings to our bottom line. We are already seeing the impact to that bottom line in the first quarter and I am really looking forward to seeing the synergy of our combined operations in the coming months.
With that being said, what a better way to tell you about the progress at Stonegate than to have our Regional President, Dave Seleski, give us an update. Dave?
Thanks. Thanks, Randy. Appreciate that. Yes, the conversions completed, went very smoothly. We are continuing with integration and really 99% of the cost saves were realized in the month of March. So second quarter you should see a clean run rate. But more importantly, the lending teams of both banks are not consolidated Naples, Fort Lauderdale, Tampa and Sarasota. This was really the first year in my banking career while Stonegate has done 10 acquisitions and I think Home BancShares has done 23 or 24 where we were actually larger than the acquiring bank. We had about $3 billion in assets in this market versus the $2 billion of Centennial.
The challenge is always about the integration of people rather than systems. And the merger and culture is sometimes is difficult, but I really believe that we've taken the best of both cultures and create a powerful force in Florida. Few tangible examples of this is 10 out of approximately 20 of the left of the Stonegate branches existing, actually grew deposits in the first quarter in excess of $500,000. And all of the mergers we've done, we've never seen that was actually grown deposits when we're going through a conversion and a merger usually goes the other way.
Also we've been able to increase approximately seven legacy corporate relationships lending side due to the higher lending limits of Centennial Bank. And for the Stonegate, actual legacy Stonegate piece, we actually grew loans in the first quarter. So I think this is all clear examples of with the two groups have come together and really working as a team. Our staff in Florida is working together with the goal of providing excellent customer service and while delivering a superior shareholder return, and I look forward to the future reporting very positive results.
With that, I'll turn it back over to Randy. Thanks.
Thanks, Dave. Now to some of the numbers. For the first quarter of 2018, the Company recorded 55.9% increase in quarterly profit to $73.1 million compared to $46.9 million for the same period in 2017. I still remember being so excited in April when we finally became profitable when we first started this entire enterprise in 1999. Boss, can you believe? We've made a little bit of money in 1999 and then $73 -- who would have thoughts $73 million in one quarter.
We can get better.
Yes, I know, I know and that's what I have heard for the last 20 years. And you have been absolutely right and we can get better and that is what it's all about. Our diluted earnings per share for the first quarter of 2018 was $0.42 per share compared to $0.33 per share for 2017, representing a $0.09 per share or 27.3% when compared to the same quarter in the prior year. Our return on average assets for the first quarter was 2.08% as compared to 1.86% in the first quarter of 2017. Our Chairman has been looking for that 2% and we've got at this quarter for you.
Our return on average assets as adjusted was 3.07 for the first quarter. Our return on average TCE excluding intangible amortization for the quarter was 27.33% as compared to 20.08% for the same quarter in 2017. So as of March 31st, the corporation exceeding at a little over $14.3 billion in assets, deposits ended at $10.4 billion as compared to $7.6 billion at 3-31-2017. We have a great management team on hand to talk more about the results. So I would like to turn it over to Centennial's CEO, Tracy French, to give us additional color in his comments on our performance.
Randy, the first quarter results that you and Johnny have shared in 2018 are off to a great start. Last June a little quarter of activity for the quarter that certainly is one of the busiest we've been through. I just would like to take this short second just to thank all and to complement all of our staff members that have helped, worked, assisted to this Stonegate conversion. And I think we'll see the fruits of the labor going forward. Just to a couple of numbers, if you certainly rattle out some I was giving Johnny fist pump on some of those.
You know just two things that popped up to me at the Centennial Bank level, our ROA was 2.24% and our efficiency ratio was 34%. I can remember as Johnny and I hit the road several years ago, we started talking about Florida while the Arkansas regions are some of the best in the country. I’m pleased to report, our original plan to get all the Florida regions up to those successful numbers has happened. I’m very proud we reported all the states have operated under Centennial Bank now have a 2% or better ROA, first time that’s ever happened since I’ve been with the comp.
Thank you to all for making that happened. Now, we can just sit back, Johnny, and watch to see what happens now that the Company is all getting on the same page. As you mentioned earlier, we just return from the lenders credit conference last week, and not only was it very educational it certainly was a team building opportunity for all. And as you all can imagine on the phone, our Chairman, John Allison set out a few typical goals at some time people always fall out of the chairs.
We did have about 100 new people there that day and I saw about 50 of them drop out of the chairs when they heard some of these goals. But the fun part about this company is everyone on this high-fiving on the way out and talking about how we will get those numbers done, Randy. So, we look forward to ’18 accomplishing the results there. Thank you and thank you to our staff.
Thanks, Tracy, great report. The total number of active Centennial branches is a 158 with 76 in Arkansas, 76 in Florida, which is something there same number and 5 along the Alabama coastline, and of course one in New York.
I would now like to turn it over to Stephen Tipton, our Chief Operating Officer, who will fill you in on some of our income efforts, efficiency, and other key matters.
Thanks Randy. I’ll start with margin and production. We’re pleased to record a net interest margin of 4.46% of Q1, down only 1 basis point from Q4 despite a reduction in accretion income. Our loan production in Q1 was an access of $575 million at over 6% coupon. We’re pleased with the trajectory here, particularly relative to the increase in the total costs deposits, which includes non-interest bearing deposits of 8 basis points for the quarter.
We continue to watch the yielded cost on a daily basis and we’re part of the teams you achieved. Switching to efficiency effort, I’m pleased to report an adjusted efficiency ratio 37.97% in Q1, particularly on a short 90-day quarter. We’re all excited to see the numbers for March and in April and began to analyze the full effect in synergies from Stonegate merger.
After the consolidation of 12 branches in South and Central Florida in February, the total Florida branch count is now 76 with 158 branch locations across our entire footprint. We are now two months removed from the Stonegate systems conversion and glade to see our teams in Florida playing off once again.
With that, I’ll turn it back over to Randy.
Thanks, Stephen, good report. We’ll now turn it over to our Chief Financial Officer, Brian Davis, give us a more information on income expense and other highlights. After that Brian will pass it Jennifer Floyd, our Chief Accounting Officer to give some information on those tangible numbers.
Thanks Randy. The first quarter was a record same quarter for our company. We recorded 73.1 million of net income or $0.42 diluted earnings per share and a 2.08 ROA. The Company benefited 12.1 million from the Tax Cuts and Jobs Act during the first quarter. The positive impacts with the Tax Cuts were $0.07 or about diluted earnings per share and tangible book value for Q1 and 34 basis points for ROI.
Accretion income for the fair value adjustments recorded in purchase accounting was 10.6 million during Q1 compared to 12.4 million during Q4 for a decrease of 1.8 million. The decrease of recognized accretion income when compared to the fourth quarter of 2017 was primarily due to normal accretion declines of 1 million and then 800,000 of lower accretion from lower payoffs. Stonegate accounted for 486,000 of 800,000 declines in payoff accretion.
The net interest margin was 4.47 for Q4 2017 compared to 4.46 for Q1 2018. Since we had a $1.8 million decline in accretion income, we were pleased to report a NIM with only a 1 basis point decline from Q4 to Q1. Non-interest income was down 1.5 million in Q1 2018 compared to Q4 2017. There are several items worth noting.
First, we did not have any gains or losses from investment security sale compared to 1.2 million in the fourth quarter of 2017. Second, there was a $916,000 decline in mortgage revenues. Third, we received our annual incentive for MasterCard during the fourth quarter for $703,000. Lastly, other income in Q1 included 1.4 million of additional other income for items previously charged off.
Excluding this 1.4 million of other income, diluted earnings per share would have been $0.41 for Q1 2018. Non-interest expenses were relatively flat at 63 million for Q1 2018 compared to Q4 2017. During the first quarter of 2018, we completed our systems conversion and closed 12 branches. As a result, most of the cost saves associated with the system conversion and branch closures were achieved throughout intervals through the quarter.
The first quarter of 2018 included 1.8 million of non-interest expenses that will be reoccurring in the second quarter. This includes 1.1 million from salary, 300,000 from occupancy, and 400,000 from other non-interest expense categories.
With that said, I will turn the call over to Jennifer.
Thank you, Brian. As of March 31, 2018, we ended the quarter with 2.2 billion of capital and 59 million of cash at the parent company. During the first quarter, we paid out shareholder dividends of 19.1 million while growing retained earnings by 55 million. Also during the first quarter, the Board of Directors authorized an increase of 5 million in the number of shares of stock available for repurchase under our common stock repurchase program.
Under this program, we purchased 330,637 shares of common stock at a weighted average price of $23.41 during the first quarter. For the first quarter, our common equity Tier 1 capital was 1.28 billion, total Tier 1 capital was 1.35 billion, total risk-based capital was 1.76 billion, and risk-weighted assets were approximately 11.3 billion. As a result, our capital ratios are as follows.
Common equity Tier 1 capital was 11.3% at March 31st compared to 10.9% at December 31st. Our leverage ratio was 10.2% compared to 10% at December 31st. Tier 1 capital was 12% at March 31st compared to 11.5% at December 31st and total risk-based capital was 15.6% compared to 15% at December 31st.
Our book value per common share was $12.89 compared to $12.70 at December 31st. Tangible book value per common share was $7.27 compared to $7.07 at December 31st. And finally, our tangible common equity ratio was 9.5% compared to 9.1% at December 31. Randy?
Thanks, Jennifer. Okay, let's turn to loans. And first up, I'm going to pass it to the President of our New York Group, Chris Poulton, who will give us an update on how things are going there. Chris, how we doing?
Thank you, Randy. Our CCFG turned in a solid performance for the start of 2018. Total loan balances increased by $63 million and we ended the quarter at $1.5 billion in outstanding. During the quarter, we originated $250 million of new loans with approximately $100 million of that funded during the quarter. Additionally, I want to take a moment to provide you an update on our Los Angeles loan production office. We opened that office a year ago and since that time, we've originated about $150 million in new loans and we currently manage a portfolio of approximately $100 million in outstanding. This performance is in line with our expectations and we continue to be pleased with our progress in this expanding market.
Randy, I'll turn it back over to you.
Thank you, Chris, great report. Let's switch to our, Chief Lender, Kevin Hester, who will give us some more details and color on our portfolio. Kevin, great, great numbers, tell us about everything?
Thanks Randy. The earnings release discusses as a fact that overall loan balances were basically flat in the first quarter. Legacy production was solid that payoffs continue to be somewhat elevated. Florida was down $42 million due to a net decrease in ADC balances of about $115 million. We continue to see lots of opportunities in the legacy markets but we have recently been able to put together the elusive trio of conservative underwriting, strong yield and growth in balances. And we've always said that we will look for them in that order.
A slight increase in non-performing loans increased the NPA and NPL ratios by 5 basis points each, but both are still below 50 basis points. The atypical coverage of non-performing loans remains high at 223%. Pass dues increased 2 basis points to 0.68%, but this number has been very consistent at 1% or below for the past few quarters. Lastly, the allowance for loan losses remained flat at 1.07% loans. As was mentioned earlier, mortgage closings were up 2% over the same quarter in 2017 and the yield on secondary market loans remained strong at 3.5%. Production in the second quarter is expected to be strong with March lock at a record $101 million.
On that, Randy, I'll turn it back to you.
Sure, I mean, is that a biggest lock ever?
Biggest month block, yes.
That's good news, super news. And again great and consistent asset quality numbers and I love to see that, love it. Okay a great start to another year. Let's just recap a second, record earnings, how can I not say it again? For the 28th consecutive quarter, $73.1 million in income and $97 million in income before taxes. Good net interest income a quarterly ROI of 2.08 strong.
A great quarterly efficiency ratio of 37.83 just two months removed from the Stonegate conversion. A very powerful margin, very good non-interest income and some of the best asset quality metrics we have seen consistently, as we have said consistent and solid improvement and our major components.
If you look back in our history, there is no doubt we have a culture of higher performance that's what gets you right the best bank in America. That is what we’re all about and we look forward to continued improvement as we strive to break more records throughout 2018.
And with that, I’ll turn it back over to our Chairman, Mr. Allison.
Well, those -- when you consolidate all those numbers like that Randy and put them all together a couple of paragraphs at the end, it’s pretty powerful stuff. So good job by all and I think we’re probably ready. Anybody else got any comments before we go to Q&A. Any comments anybody? Anything over the Slurpee, it's already updated Donna Townsell on the Slurpee’s?
I have no -- are you enjoying your Slurpee?
That’s pretty good.
That’s pretty good. I would like to have a better one, if Hagler step up, we'd have to -- I'd have a jumbo. I didn't get a jumbo, Hagler. I’m looking for that. Anyway, Andrea, I think we’re ready to go to Q&A.
We will now begin the question-and-answer session. [Operator Instructions] And our first question comes from Michael Rose of Raymond James. Please go ahead.
Well, because of this, you have to buy all our drinks at Gold Stop now, that’s the trade-off.
Okay. When prices for DM I will raise it to $59, so we’ll drink -- we can drink, let's go.
I appreciate it guys. That was good. I just wanted to start off on deposits. When I look at SNL at current market rates especially in money market rates, it looks like you guys are paying well above national and peer averages. Do you guys run any sort of specials there going over to the loan-to-deposit ratios up around 100%? But is there any targeted deposit strategies that you guys are working? And obviously, should we anticipate higher deposit costs as you move forward?
Hi Michael, this is Stephen. I mean most of that is still the same and it’s been the last couple of quarters and we’re still doing select negotiations in all of our markets with our customers, and no targeted specials or anything today. It’s still old fashion banking one-on-one negotiations.
Kelly Buchanan, who is our deposit czar, he’s been in place about 5 weeks now. So, we’re starting to see some results of that and the emphasis own deposits. But how much that -- how much are the funds?
It’s like 11 basis points for deposits.
11 basis points were. So I’m struggling with what you said. You said that we’re paying more money market than the national average is what you say it.
Yes, I was just looking at the data that’s in SNL, look like the national average is around 10 bps and you guys are obviously quite a bit above that.
We’re about 10 bps, but…
We don’t think the pressure has not been too bad yet. I’m sure it’s coming, we see some competitors advertising with billboards and advertising in our market. I think some of these people got themselves kind of behind the eight ball. They’ve agreed to fund a lot of loans and they’ve got to raise deposits. So we are not in that position. We are pretty comfortable with where we are. I think we’ve picked -- I think Dave Seleski group picked up a couple of hundred million that we’re getting here pretty quick last week. So that’s a nice little kick to deposit side. So, we’re working on the deposit side. It's not anything any different we've always done.
And then may be just on loan growth, ex-Chris’ group. This quarter looks like loans were a little flattish. Was there any pay down this quarter and maybe what the pipelines look like? What does competition look like, any change from last quarter?
Actually, we had the biggest week in the corporation’s history in March. We improved one day over 300 million. So that bold -- I'm going to quick forecast the deposits because were up 120 million at the end of February and I thought we were going to end up the quarter 180 million up 200 million. One of those was line of credit, $70 million line of credit, which we had for a while we paid it off then pull it back up. That’s what it is for, it’s line of credit.
But averages, we’re up almost 100 million on average balances. So we were up most of the quarter. But it’s -- we are just continuing to do what we do. It will come to us. We will get our share. We will get our fair share. In the meantime, we got good savings come off of the Stonegate acquisition. When you look at the March number and annualize March, there it still has some expenses in there. It’s pretty powerful for the Company going forward. So we had all 276 lenders together.
They know the charge. They understand the charge. We have our presidents from Florida in with us today. They understand the charge and what we need to do. I told Chris to do about 300 million and the rest of footprint to do 600 million that will get us our number for $2 EPS. That’s our goal. We will get it. This group has never fallen down before. They know the new goal was $2, and they will get it done.
And maybe one more from me. At the outset, Johnny, you said M&A maybe on the sidelines for now. You did raise the buyback authorization. How aggressive could we expect you guys to be in the next couple of quarters or going forward?
No, we won’t Mike. I think we announced 303,000 shares. We actually bought during the time, year-to-date we’ve bought 150,000, 160,000 shares. So we bought a quarter million in the blackout period. So when they give to us, we take it. We're out right now, but I wish we were in. I bought 20,000 today so if you’ll give it away, I'll buy back.
Our next question comes from Brady Gailey of KBW. Please go ahead.
This is Mike Bemis on for Brady Gailey. Just wanted to revisit loan growth and I know you guys have previously said that for the CMG Group. You are targeting about 15% of the total loan portfolio. If you turn to the elevated pay downs, do you feel comfortable taking that number up a bit?
No, we are holding to about 15% assets. It’s not loans it’s 15% assets.
And then back on deposits. I know for the quarter you guys finished at around 99% for the loan-to-deposit ratio. At what point do you feel more pressure kind a get more aggressive underfunding side?
Well, we've always run in that 95% to 100%. Actually, Randy Sims, most run at 110. The regulators don't lock us there. So, we're very comfortable here where we are at 100% loan-to-deposit. I mean we have lots of capital. We can get them up with as we need to crack it on that. So we're comfortable here. We're just not going to do it find silly. We're going to remain patient on the loan side and we're going to remain patient on the deposit side. We just -- the word around here how of course don't do anything silly.
And one last question. So you guys closed about 12% branches in Florida. Was that part of the plan cost saves? Or was that kind of above and beyond what you initially thought?
That was the plan.
Yes, exactly. This is Dave Seleski. That was exactly the plan. We've closed one previously due the hurricane in Naples. So, I think we hold Street 13 branches so that's our 13 branches.
Yes, that was the plan for the cost saves. The cost saves as you can see the efficiency ratio was 37. It would have been in the 40s if we haven't pulled Stonegate down that where we were. So you can see that what we've lean so far. And we're not done that numbers going to get better. It will have to get better actually annualized marks. And I will tell you what that looks like, but it's much more positive than the quarter was.
Our next question comes from Will Curtiss of Piper Jaffray. Please go ahead.
Maybe just real quick on back to payoffs. Can you talk about I guess activity this quarter and how it may have compared to prior quarters? And then to the extent that you came to discuss how that may affect over the course of the quarter?
Well, we were up January and February about $120 million $130 million $140 million and that's what I thought we're going to have a pretty strong quarter. I think I realized one of those was line of credit with $70 million is a paid that off. And we had some surprise payoff, but overall, I actually thought we're going to be up. I'm not going to forecast, I'm not going forecast one anymore because I'm not very at it. Randy there for years kept saying that margin was going up when it went up -- margins going down when it went up. So I won't be quiet. I will tell you that March was the biggest approval month the corporations ever had. So, I can't say that, that rolls into loan growth but it was a pretty powerful month. Kevin?
Yes, pay offs were backed down to a more normal level. Production was solid it -- good. Payoffs were just more weighted towards the end. So, average was up and ending balances were down.
And I guess the good news in the picture is that we were up averages. We're up about $95 million to $100 million and interest income was up. So that's the positive sign in the quarter. So I know we have, I think Tracy told you guys, told you that we have loan growth linked over to have it tell you but it didn't work out. But we'll get it, it's coming, we'll get it.
And Johnny, maybe, I know you've mentioned kind of in your prepared remarks about some South Florida activity. And just curious, how maybe that's kind a progressed since last call? Are we starting to see some increase in rebuilding activity after the hurricane?
Well, lastly, we’re seeing lots of rebuilding activity in the Keys. I like our reserve what we put back for the Keys. I’m beginning to believe we might not lose that kind of money in the Keys. It’s really what happens to those customers. I mean the closing restaurants already because they don’t have workers. And those workers are not there because they don’t have housing. So it kind of pleads upon itself. However, in spite of that, our Florida Keys operation has the best quarter by far it’s ever had, so part of that was a Stonegate piece that rolled in. It was a pretty powerful quarter for the Keys force.
As of right now, what are we seeing out there? We don’t really think we’ve got a couple of problem credits, we’re looking at. They’re not problems yet, but they’re apparently going to be problems but then it doesn’t look like there’s any loss and then react. So if continue to comes back which we suspect, I was there and the traffic was lots and lots, I didn’t realize that we’re off 22%. This account sent me the pending report and I look at that. So I think Key West can be fine. I don’t know about the rest of it yet, but I think we’re well reserved. We will not know until the slow season, which is the fourth quarter.
Our next question comes from Stephen Scouten of Sandler O'Neill and Partners. Please go ahead.
Just following up on Will’s question there. Has any of that on hurricane reserve been released as of yet? Or is that still all kind of unallocated reserve?
It has not been released. All unallocated.
And just thinking about loan growth a little bit more. Do you think there is any specific catalyst that could kind of flip the script here and see you guys putting up some material growth or do you think it is just what you said Johnny that’s just let’s be patient pay down eventually so that a little bit more and more of this materialize in the net loan growth. Or is there something you change or something that changes in your market that you’re waiting on?
We’re not changed to underwriting standard. We’re going to continue to do what we do and we’re not going to hold the course and we're not going to it away. So, if that calls us to be sent here a little bit and have a little loan growth that will be plan. The other something we can change, we can change underwriting standards and rates and terms. As I told you last quarter, we can fill up on ’18 with loans. But that’s just not how we run this company, it’s not how we run the Company in the past and we win.
It’s painful right now because they beat our stock up so bad, but we keep -- look at the operational numbers, they even not buying the country running better operational numbers what we’re running, but we’ll get our piece of it. We’re on $350 million deal right now loans to look at. So, we got a lot of things going out and we get our piece. And if pay downs have slowed, they did slow the first quarter. In pay down slow, it will be on time, we’ll get our piece of it. There have been a lot of people in Florida, they’re selling the franchisees.
So they’re giving us they’ve been extremely aggressive. They’re long-term fixed. They’re doing 3% stuff. And until they clean them out until we get them out of there, they'll get their franchisee sold. Then it kind of puts and that’s difficult on our people, but this thing shall pass and they will get sold to somebody. Those bigger ones are getting sold to somebody when they get sold, then maybe we’ll have somebody that comes in next time that’s got good sense and knows how to run a bank.
And I mean do you guys go up market at all at this point, now that you’re larger than 10 billion with Stonegate and what not. I mean have you gone up market at all in terms of the size of loans that you are putting on the books?
Well, our largest customer -- yes, I think Dave, I think we picked up. We’ve increased the size of six or seven of these customers. I don’t know if they fill that up as we’ve all predicted and they’ve got that.
Yes, we’ve had six or seven customers. We’ve increased our lending relationship. We got a couple more we’re looking at. But these are not -- it’s from like 20 million to 40 million or 45 million, 50 million. We are not talking $100 million type credits but yes there’s some more capacity there. I think there's more opportunity there as we go forward.
Our biggest credit is an Arkansas credit. Our largest credit in our system is an Arkansas credit so.
And maybe one last one from me. I think somebody mentioned the 11 basis point move in the cost to interest bearing deposits this quarter but obviously not a need to grow deposits all that rapidly without the loan growth. But once this loan growth does start to materialize and you do get that fair share, we expect the cost deposits ramp at an incrementally faster rate? I mean have you guys -- I mean is that 15% 20% a quarter kind of move once you have to fund up the faster loan growth?
Well, I don't think so. I think we'll just lag and we’ll continue to one-off, as Dave just did in one of his markets bought us $200 million worth as a one-off deal. When we made -- we are not advertising specials today, that’s the problem. As I’ve said, Stephen, these people who have big loan books have to fund, they get a lot of bounces and they are under the gun. We are not under the gun. We have the ability to fund our loan growth. And if we made it -- we can always raise some additional deposits. And we'll be, what, 97 with that 200 million coming in 98. We are not always running about this level. Randy Sims, you want to run 110, don't you?
Absolutely, these timers hold back on that. That means for 30 years we got that engine running. If you got a big engine why not run it fast. And -- but a 100% is good, that’s good. There’s nothing to -- don’t apologize for that. We like that. But some of these banks that are advertising, they are advertising not even in their own markets and they are advertising at huge rates. So we are not there. We are not going to get there.
Our next question comes from Jon Arfstrom of RBC Capital Markets. Please go ahead.
A couple of I guess follows-up. Margin expectations, if you take out some of the purchase accounting noise, it seems like coupons are higher than your loan yields and you’re not that worried about deposit costs, are you guys optimistic on the margin?
Hi, Jon, this is Stephen up. I'll stick with what Johnny said earlier about what they are used to forecast. But yes, I mean I think if you look at where we're loaning money at today with north of 6 in Q1 and kind of where incremental deposit costs are, we have to go pay. And I think that’s still a positive for the future.
Okay, okay. Yes that was my impression. I guess the buyback. Johnny it sounds like personal purchase you're telling us something, but you have the new authorization. It sounds like you're not interest, you're at least you can't get interested in acquisition at this price. How aggressive do you want to be on the buyback?
Well, we're generating lots of capital. It was about $27 million increased earnings in the first quarter. About $14.5 million of that was organic increase and profitability. And the other $12 million was Donald Trump. So we spent Donald Trump's money, the first year-to-date we took a $12 million in both stocks. So we'll, it while there is a stock phase where it is in this range will be extremely aggressive.
That will leave the impression then we're not talking to people and we're not planning for acquisitions. It's a long time to approach them.
Yes we're engaged in conversations, but we're not going to deal at these levels.
Okay. And then on the expenses, it sounds like you don't want to get too specific on it, but I look at it looks like there are some non-recurring numbers in there as well. And maybe you're signaling a little better expense run rate than we're anticipating. Do you think you can get below $60 million for the second quarter?
No, that's going to be tack to get there. We've got about coming out I think it's about we carried in the quarter $1.5 million to $2 million worth of additional expenses that are now gone.
We closed all the branches and we have unfortunately serving with 84 employees. And when you add up the cost that we had with those employees that we had with various intervals throughout the quarter, it was about $1.1 million. But that money will come out. So we have a lot of in January, quite a bit on in February most of them were gone in March. But if you were to just kind to reset the numbers from one quarter to the next, we've got about $1.8 million of cost savings related to Stonegate closures in emergence?
Not only how much that was then left in and when I annualized my remarks, I don't know how much of that was left then. We picked up $1.1 million on one side out of the Stonegate settlement, but we carried $600,000 or $700,000 of expenses on the other side, but if it's anywhere that -- if the March run-rate anywhere near, we'll be well over $300 million of run-rate. So I'm pretty excited about seeing what that looks like going forward.
Our next question comes from Matt Olney of Stephens. Please go ahead.
Going back to discussion on organic loan growth. Obviously, you guys don't want to change the underlying standards. But I'm curious if you guys would consider perhaps acquiring loan portfolios that would help you get to that $1 billion of loan growth that you've talked about getting?
We would and we are looking. And we're actively engaged in due diligence as we speak of about $350 million $400 million. So if it works out it could be a line of business for us. So we kind a like the business and we'll know more here Stephen?
Yes, in a couple of weeks, we’re in the middle of it.
We’re in the middle of it. We're in a middle of about $350 million to $400 million. So that gives us a pretty good start. Chris is rolling pretty Good and we’re just consolidated in our partners just met each other in Orlando and kind of settled. And it’s kind of been, it’s a process, where you do such a big conversion as we have and you’re rolling in one of the best companies in the countries, Stonegate, to Centennial Bank. Everybody has got to figure out who gets settled in to understand the velocity and agree on our rollout this going forward. So I think a lot of that…
I think it’s 100% of the integrations happening. Matt, when you look back over the regions. We had two regions that be able to couple of large that one of them knew was probably coming one of them we did, but when you look back over all the regions, so it’s been nice steady increase in loans. And that’s one of the things we recognize that the conference a lot of our community banks and were the bread and butter of the Company is they’re constantly making right progress we’ve taken steps.
But I think we had one large one that paid off in Northwest Arkansas region and then the northern part of the region had a large one to which the northern part of the region has had one heck of run over the past few years and as in the developments and what we have there. So when you look back and the average of the loan would have been pretty solid, especially with the underwriting at our company’s doing today. So you can rest assured, Johnny's guys are looking at all kinds of stuff.
I told to bank committee, bank committee. We got a strong balance sheet that’s a bank committee. If we got something that’s big and really just look at and do something a little different. Bank of it, let’s look at it. I’m not talking about it would be on the right side of terms that would not be in the underwriting side.
And then on the capital side, do you guys having updated CRE and C&D concentration? I’m just trying to understand about at all as limited factor for you guys as the organic loan growth?
No, we’re just below the 100, 300 have been for last two to three quarters.
With the flat loan growth stayed right now?
Yes and the board approved going to 150 and 350. So by the time we get there, I guess just about $1 billion was run that’s not limited there. I just ask for people to bring us the best $1 billion worth of loans they could find.
Our next question comes from Joe Fenech of Hovde Group. Please go ahead.
I just got one question. Johnny, you’re about as astute an investor is anyone out there, so if I toss this one to you, maybe help us to our jobs here? I was looking back two years ago today actually Johnny and the stock price was where it is now. And when you see situations like that, just struck me because there’s usually you can pretty clearly identify. But will you guys, now I look at Ford multiple then you’re at 17 times earnings, today it’s 12 times except back then, you were doing 170 ROA at 20% ROTC. And now you’re at 205 and 23% returns as you mentioned earlier. So it’s sort of a head scratcher as to why and even more or so because there is been such a huge changing sentiment as you know towards the group. So can you pull on your investor hat for us maybe for a minute? What do you think the issue is? What do you think it will take to get price going here to what it should going based on the numbers you guys are putting up?
I really don’t know. I really, it’s pretty amazing. I have no idea. At least one investor, he’s what’s kind of a battle going on with your own asset? What' the battle -- we don't like -- we don't have near the battle it. Some other companies in Arkansas have, but I don’t. You know, if the world thinks that everything hangs on loan growth, it doesn’t only hang on loan growth. And everybody is telling me Johnny is going to have loan growth, you got to have loan growth.
Well, Joe, you know how this on company is, in the long run we will win. In the long run this company wins, doing it the way we do it. So I think there is no long-term look with a lot of investors and more short-term what you do in this quarter, what you do next quarter, what are going to do here, what you did today, and that's not how this company was built.
You, Randy Sims, 28 record quarters in a row. I don’t know anybody else, I guess somebody in the banking industry that can count out that. But they’ve got us, we don’t get on up to share, we’re selling a 10 multiple. That's somebody by us at that point, somebody be coming and trying to buy Home BancShares. But I don’t have -- I can’t put my finger, I have no idea.
So when you are on the road Johnny that’s the one thing you hear from investors is the loan growth, anything else that you kind of push back on?
No it’s loan growth. 99% risk that we just want to address, that’s it, loan growth. You’ve put it well. I like the way you read those numbers out and that’s exactly right.
That’s a 5 multiple P/E contraction, it’s amazing. It’s not when the performance hasn’t even stagnated it’s gotten better.
And it’s going to get better. Let me tell you this Q2 is going to be better.
I just wanted what you thought about it. But looking forward to seeing you guys in a couple of weeks it goes out.
Our next question comes from Brian Martin of FIG Partners. Please go ahead.
Maybe one question for Stephen. Just kind of going back some of the discussion on deposits and the facts just on the core margin, so the core margin was up six or seven basis points linked quarter without loan growth and without really having to pay up for deposits with the benefit of rates. When you guys look at, if you -- if in an environment we do start to get some loan growth like you are expecting Johnny and you maybe have to pay a little bit more on the margin for deposits, with the expectation being with rates still heading higher, you can still drive some core margin expansion maybe not what it was this quarter but still I guess would you expect it to still be a positive trend or incremental benefit going forward on that margin number?
It’s Steve. I think so, that’s certainly plan. What we said about how you incrementally expand loan growth but I think we continue to course charge on the rates that we are getting the phase that we are getting and then what cost funded. I don’t see any change in the course of our business.
Okay. So still a positive trend maybe just a little bit less than what we saw in the current quarter on the trend. And how about just on the loan growth side, Johnny and I guess without giving up the underwriting which obviously we know you’ve talked about and won’t do. But are there hiring opportunities where you can bring more people on. You could bring and compete business or move market share, is that something you are considering, or it seems like more of the angle you look at maybe this loan purchase as opposed to trying to find some talent that could help move market share. I guess is that an option as well?
I guess that’s option. I think our people are as good as the rate is. I mean I don’t think there’s anybody -- I am not looking -- I am not out looking for the loan people because I think our people are the best. I mean they understand what we want and they try to bring that to us. I don't need hotdogs or $600 million of loans last year 3.5% beating the sales on the chest. These guys understand what it takes to make money in this corporation and what we need to do and they find those loans.
Now, if they got something that they really won't. It's a long term relationship with the big customer. But they've got bullets, they have a bullet, we'll give them bullets. So if it's a great customer has a long term future with this corporation and wants to have good deposits with us. And then whatever they do I told them that last night. I said I've got bullish, you need to bullet use it just make sure it's a good bullet.
And so, I don't, actually I thought would be able to first quarter we maybe up to second quarter no. because I'm not forecasting more so they've got place the first quarter. So I think there would be up to $100 million plus and we ended up flat for the quarter. New York had a great quarter. We'll get it, we'll get our piece of it.
Yes I got it. I guess I don't disagree with people that. Because it just seems like there may be an opportunity like you look at with this loan purchase that you put a couple of more bodies out there and it helps to. But I guess maybe just the other one was, on the expense side. And I think last quarter you guys talked about the remaining portion of the expense savings the cash from Stonegate being about $10 million pretax. So I guess I'm just wondering without, if you guys I'm giving a lot of guidance on the expense. I mean how much is remaining to be captured from Stonegate. I mean how much was recovered or I guess taken in this quarter versus how much remains out just we can kind a think about how that plays out. And are there any offsets on the expense as we are adding to expenses this quarter that will be somewhat of a headwind?
No, there are no expenses been added. I think I shared with you that. I'm not going to give you exact numbers. But February was higher and our non-interest expense in March. And if you analyze March, it's somewhere around $300 million. So you can kind a play with that yourself and compare that out. So I think it's about a $1.8 million Brian thinks to $2 million during that flushed out here about here in the margin. I'm not sure. I know we carried some that March even though March was a powerful month where we carry some of that in the March. But I don't know how many. When did you actually close to him? When did you shut the branches?
Between February, A lot of those leases were paid through March.
You'll see that savings roll in. And I'm pretty excited about I ran my ROA on March just on a March month. And it's worth looking at.
Okay. I appreciate thanks Johnny. And then maybe just the last few things. Just maybe one for Brian on the accretion. Just kind a how think about that big picture. Was it a little bit of stair stepdown this quarter? I guess is that kind a how we think about it and how much remains out there that needs to be brought back in?
So we've got $88 million of pre-buy income left on our book. So that could come in over the next four to five years. I don't the margin provision actually was a little the higher accretion month that we had and that was the first month that we had all of Stonegate. A 100% margin on the system, we hit the manually make some estimates for January and February. So I'm optimistic that we won't really have a much more of a fair step out on accretion. But it is a look forward to be a smaller stair step in the one that has this quarter. And to add a little color on one of your questions about cost savings, and we were estimating $10 million cost saves. We actually got closer to 11 and 1.8 million of that was what was expensed during first quarter.
That’s helpful. And last thing, Johnny, as it goes back M&A, you kind of about it. But as we all kind of know the banks has sold not bought. So I guess given where we are in the cycle. I guess it’s something where to come up, I guess it sounds that you just pass on at this point. If they had said on getting something sold, I guess, the side of passing on something at this point. Is that how we think until you see a rebound in the…
Yes. I think that’s good. We like something that’s kind of messed up. We like those kind of deals expect for Stonegate. We all one of those, it’s, I don’t know, we’ll get it on kind of deal. We’re working hard on some different opportunities. We’re working on a $350 million worth of loans. We’re working on a pretty nasty bank and maybe in the different geographical area, but we’re looking at.
And everybody’s on top of the game on that. So that might work out for us and then they were still looking to that’s pretty deposit rich and just hasn’t been built if stock gets backward will go after that deposit rich franchise. And you won’t have to ask me question about the deposit. That will have plenty of access to them so. Anyways, overall, I thought that was a great quarter so the stock about $0.60 and I thought with that [indiscernible] hold us back. So I did, I bought stock and we weren’t out, the Company would be the both place.
This concludes the question-and-answer session. I would like to turn the conference back over to Mr. Allison for any closing remarks.
Andrea, thank you. You are a good host and maybe we’ll get you a Slurpee next time. Thanks everyone for joining the conference. We appreciate your support and we’ll hopefully have a little loan growth next quarter maybe we can put us together. But more importantly, pay attention to the numbers. This company is hitting on all eight except for the loan side and that'll come and if not we'll go back to loans. So anyway thank you for your support and your attendance and we’ll talk to you in 90 days.
The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.