Home BancShares Inc
NYSE:HOMB
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Home BancShares Inc
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Greetings ladies and gentlemen. Welcome to the Home Bancshares Incorporated First Quarter 2019 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 and then entertain questions. [Operator Instructions]
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 2019. 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 Mr. Allison.
Thank you, Gary and welcome everyone to the first quarter 2019 earnings release and conference call. First I want to thank all of you for your support. Many of you have been with us a long time and been through the thick and the thin and the good and the bad, the good economic times and the bad economic times in some of the craziest times. For all of us at home, we want to say thank you very much -- well, thank you very much. And please join us at Home's 20th year celebration this year.
Things now much clearer than they were when we reported in January, the fourth quarter 2018, which turned out to be one of the most bizarre quarters that we've experienced together since the '08 crash, when Bear Stearns, Lehman Brothers and the introduction of TARP. The difference was this time, however, the result was an enormous miscalculation of the market of the economic environment that led to a December panic in the stock markets. Investors lost hundreds of billions of dollars including [indiscernible] just regular people lost their money and wealthy people as well all because of the incorrect and unclear [indiscernible] Fed.
I recently was facing one money manager who at the end of September his fund was up $100 million and he was feeling pretty good at that time. He lost the entire $100 million by the end of December. I don't blame Chairman, Paul for the bad calls, but I blame those who were supposed to be the so-called experts that were advising him. They need to get out of their ivory tower and get in the field and live it like we bankers that run top performing companies do. They have their ears to the ground because all the money we have in the world is invested in our banks.
Many of the best banks in America at bank conferences visit with each other and these bank coverage was what's going on. Why BRAC process -- my process disconnected from fundamentals. My business is good but the regulators think it's too good and they see a huge warning signs. We all said together that we don't see it. They said it's been up. The regulator said it's been a long cycle. Liquidity is going to be a problem. Construction loans are a major problem. What are you deposit [indiscernible]? Raising rates will continue and risk profiles are increasing. I guess inflation was the so-called main reason for the rate increases. Whatever the misconception was, it certainly had a slowing effect on the economy.
In addition to the cost of funds and causing a bank market -- stock market crash. In my opinion, banks overall are in the best shape they've been in my banking career. Strictly that reason -- is strictly because of the lessons learned in '08 and '09. Loan to values are better than ever. Strong equity in every deal. You think about the immediate change from rate hike after rate hike. Matter of fact four in a row in '18 and when we're told there's more coming to stopping the rate hikes, suddenly and turn it around make an 180 degree turn. That was an extremely scary and confusion although very welcome thank god they stopped, or we would be in the middle of a severe crisis. All because someone was chasing a ghost. Unbelievable. How does a bank or a business manage with that kind of inconsistency and confusion? We had people stop projects or at least postpone them until the sky clears, which is somewhat disappointing, which created the growth -- somewhat disappointing growth for this quarter. If business can build back confidence to pay it, I think we can get back on solid business ground again very soon. I'm not involved in Fed appointments, but it's time for a business man with real app experience has done something [indiscernible] to be appointing. Someone with some common sense; someone who's built something that has survived some of the toughest business times since the Great Depression. I bet those who led Chairman Paul to the last decision will play getting him to make that same mistake again. We all learn from our mistakes and there is no substitute for experience.
And not all the members were totally on board with a bad decision last time but it's probably not time to call names. It's over some poor people lost their money and will never recover. But most of us will live to fight another day. The S&P 500 Total Return was the worst since December of 1931 in the middle of a start of the Great Depression. Bank stocks were slaughtered flat.
When you think about it, credit unions pay no taxes and they've grown beyond their guidelines. The unregulated shadow banking system, rates, insurance, [indiscernible] fund managers who thank their lenders now, Amazon, Paypal, person to person payments it was already tough to be in the banking space and it's even tougher.
As one former lender said to me recently who is now with the fund is lending money from a fund. He said I won't go back there because this is much easier and I don't have to deal with examiners. I told examiners they continued to push they may be examined dinosaurs ha-ha. Enough of this stuff, it's beyond our control. Let's talk about what is within our control.
We've all focused on man for the entire year of 2018 more particularly the fourth quarter of 2018, the first quarter 2019 because of the situations that were created. There has been some confusion over time over the stone gate accusation, the Shore acquisition, CCFGs extra revenues and legacy NIM. Hopefully, we'll make this presentation clear today. Brian Davis will start first with us and he'll talk about the margin and present that force, solid will be Chris Poulton who talk about CCFG, his current business outlook and margin. And then, John Marshall who runs our marine component show premiere finance will give insight on his business. Tracy French and Stephen Tipton are on board to discuss the Legacy Group and Randy Sims will wrap it all together and with reports -- combined report on Home Bancshares.
So before we go to the reports, let's talk about the quarter. My opinion the quarter was a solid and steady quarter. One thing was a pilot was a cost of fund pressure has subsided. We had to continue to have escalations in January, but February and March were only up 1 basis point each and that's positive. Margin was flat for the quarter, that's good news that we maintain our margin and hopefully you'll understand better how we do that.
Loan outlook is a little better for this quarter then started out last quarter, expense control it has been good. We had a couple of one timers on both sides income and expense. We're seeing good increases in renewals and modifications that averaged 26 basis points on over 170 million in March and [indiscernible] loan continued to expand despite reduction increase in income. We say that again yields on loans continue to expand despite reduction in accretion income.
Legacy production yields exceeded legacy payoffs by 60 basis points in March. I will say that again legacy production yields exceeded payoffs by 60 basis points. That's all good news. On the stock buyback front, last year we bought back 104 million worth of stock in '18. And so far we stepped it up a little bit the first quarter and bought back $51 million worth of stock. Last year, we bought back 5,307,000 shares in the first quarter buyback 2,716,000 shares. You add those together and that's almost 5% of the total outstanding stock that we bought back in this period of time.
Overall, I think it was a decent quarter and hopefully we'll have a good year coming out in that team. Brian, would you take and see if you can get us a good explanation of the margin.
Well, thank you, Mr. Allison.
The first quarter was a good quarter for our net interest income and net interest margin. On a tax equivalent basis, we recorded net interest income of $140.8 million for Q1 2019 and $141.7 million for Q4 2019. Our net interest margin was 4.30% for both the fourth quarter of 2018 and the first quarter of 2019.
Before I go over our first quarter of 2019 numbers, I'd like to remind everyone about a few items from last year. Our CFG division does a great job of being opportunistic and obtaining additional interest income from payoff events. Last year these events resulted in our net interest margin being increased by 3, 6, 12 and 0 basis points for the first, second, third and fourth quarters of 2018.
The first quarter of 2019 does not include any additional interest income or payoff events from CFG. Also our acquisition of Shore Premier Financial is dilutive to our historical NIM by 3 basis points.
Accretion income for the fair value adjustments recorded in purchase accounting was $9.1 million during Q1 compared to $9.4 million during Q4 for a decrease of $300,000. The decrease of recognized accretion income when compared to the fourth quarter of 2019 is primarily due to normal accretion declines. Even though we had a decline in accretion income, we maintained a flat NIM from Q4 to Q1.
Another positive was the impact of the change in rates and balances on our net interest income from Q4 2018 to Q1 2019. Those highlights are as follows. First, for the change in rates, the yield on interest earning assets increased 9 basis points. This equates to a $2.7 million increase in interest income. The rate on average interest bearing liabilities increased 10 basis points. This equates to a $2.6 million increase in interest expense resulting in a total change from rates resulted in an improvement of 157,000 from Q4 2018 to Q1 2019.
Second, the change in balances, the average balance on interest earning assets increased $212.4 million. This equates to a $2.6 million increase in interest income. The average balance on interest bearing liabilities increased $220.2 million. This equates to a $578,000 increase in interest expense. The total change from balances resulted in an improvement of $2 million from Q4 2018 to Q1 2019.
Third, Q1 2019 only has 90 calendar days this quarter had two last days versus last quarter. The loss of these two days equates to a lower net interest income for Q1 2019 of $3 million.
In conclusion even though the reported decline in net interest income was $857,000, if you adjust for the $3 million related to the two last days, the change in both rates and balances resulted in an improvement of $2.2 million from Q4 2018 to Q1 2019 for approximately $25,000 of additional net interest income per day.
With that said I'll turn the call back over to Mr. Allison.
Thanks Brian. Did a good job explaining that, I think hopefully everybody gets that. Chris, tell us what's going on in New York and what you say in your footprint. This time not only New York. Everywhere?
Everywhere, yes sir. Thank you, Johnny.
First, Q1 marked our fourth anniversary with Centennial Bank and as you may or may not be aware the traditional Fourth Anniversary gift is fruit. So I'm looking forward to receiving my fruit basket.
Do you have any specific [indiscernible] since you are asking your fruit basket?
I don't like apples.
You don't like it.
Don't like it.
[indiscernible]
On April 1, 2015 we established Centennial commercial finance group and temporary office space with a loan portfolio of $290 million. In the short four years that we've been with Centennial, we've transitioned to our permanent office in New York and established two additional LPOs in LA and Dallas.
Over that same period of time, we've grown assets by $1.2 billion on an average annual growth of 50%. We've originated over 150 credit totaling $3.5 billion. We generated $275 million in revenue and delivered over $200 million of pre-tax income. We've delivered cumulative net ROEs in a 2% range and current returns of over 3%. All of this with zero delinquencies and no non-performing loans.
[indiscernible] we are of these accomplishment, I expect our best days remain ahead of us. After all the market turmoil at the end of the year surprisingly Q1 turned out to be a nice quiet quarter. Transactions were down a bit across our markets as clients caught the breath and reassessed opportunities. This contributed to the delay in closings, but by the end of the quarter momentum appeared to pick up again.
We showed a slight decline in loans of $26 million for the quarter primarily driven by the repayment of a single larger maturing loan. Along with a quiet quarter came a relatively clean net interest margin, while our margin was down 16 basis points from Q4 to Q1, the quarter included very little accelerated yield. Historically, we've seen quarter-to-quarter margin variation of about 10 basis points or more due to the impact of various items including accelerations related early repayment of loans and certain minimum interest payments.
Quarter end and quarter out, CPF fees portfolios have continued to deliver above average returns with below average risk. I would highlight that we closed the quarter with the healthy loan pipeline approved but not closed loans do it at an all time high. And we're seeing opportunity across several sectors including a pickup in loan facilities. Competition from non-bank lenders remains, however, it is important to note that while these funds provide competition to us, they also often partner on transactions. We've seen an up tick in these opportunities as well to work together within the capital set.
On the market side, New York remains an attractive market despite real estate values softening. The current market demonstrates the value of a selective low leverage approach to building a portfolio. Our LA office has become a significant driver and continues to open up new opportunities for us, while our efforts in Dallas are starting to show up in our pipeline. Hope to share the results of these efforts with you in the upcoming quarters. Until then Johnny, I look forward to enjoying my fruit basket.
[Overlapping Conversations]
Good job, Chris. Thanks for that. You will be able to -- after we wrap up here, we will be open for Q&A. And you will be able to ask Chris questions, if you'd like to.
Now, we have John Marshall from our Marine Division, who runs Shore Premier Finance. John, tell us what's going on with your side of the business.
Good afternoon. And thank you, Mr. Allison for the invitation to participate in the earnings call.
Overall, it was a positive quarter for Shore Premier Finance with acceptable asset growth, improving asset quality metrics and expanding margins. Market volatility and interest rate uncertainty have impacted buyer sentiment in the marine space. The January recovery of the stock market inspired some investors take some risk off the table and just pay cash for their boat purchase. Also anticipation of a slowing economy and the Fed's new dovish posture towards interest rates motivated some buyers just to defer their purchases altogether.
As a result, retail applications and fundings were below expectations. However, attendance at recent boat shows in Miami and Palm Beach exceeded expectations and we're encouraged by a robust retail pipeline for the second quarter. Let's take a look at the numbers.
In terms of soundness during the quarter, our average consumer origination FICO score increased from 770 to 775. We're only originating prime assets into the portfolio. For the existing retail portfolio, credit quality metrics meet expectations for an acceptable operating threshold. Commercial loans have been all freshly underwritten and assigned good quality designations. Only the highest tier manufacturers and their dealer networks are being prospected.
In our lean team with an average efficiency ratio during the quarter close to 30%, but of course profitability is driven by our margins. During the quarter, our retail loan average rates grew 51 basis points to 5.52%. That's a significant achievement in a soft market when all banks are clamoring for assets. But it's probably not sustainable. As the yield curve flattens out, we'll have to conform to market pricing. The good news is that the commercial side of our business is taking off and offered more attractive asset returns. Advances on the commercial side were priced 37 basis points higher in the first quarter of '19 than in the fourth quarter of '18 growing to 6.17%.
I'm hopeful that any softening rates on the consumer side in the second quarter be offset by commercial advances. So our blended portfolio average rates will be flat to higher. Our combined portfolio closed the quarter at $424 million up just $8 million in the quarter, but up $68 million since being purchased by Centennial in July of 2018.
We funded $28 million of new lows in the quarter, but in addition to softer demand we also experienced heavier payoffs of $20 million. After the strong showing at the Miami and Palm Beach shows, our momentum is building under the Centennial umbrella. March retail applications were up 36% by volume, 56% by a dollar over February valued at roughly $30 million entering this spring buying season, I anticipate consumer second quarter originations of about $35 million and commercial advances around $25 million.
As we onboard more manufacturers than the dealers, we further solidify our position as their preferred financing partner with them as a new retail referral source. So on that note of optimism on the quarter to come I conclude my thoughts on the quarter behind us. Thank you, again, Mr. Allison and turn it back over to you.
Thanks. That's a good report. I went down to Palm Beach Boat Show and met with John and he had a little reception and very successful reception it's like they're on their way to another good year -- has been a year yet since, I mean quite a year. So John, I don't know what the anniversary [indiscernible] Chris keeps us up to-date on what the anniversary is, so you might update us on what we should do at year 1.
Thank you. I look forward to that.
Thank you. I will ask Chris last year what he'd like to have this year and he said a bird price. So we've been looking for vultures and those kind of birds for some time to see if we can present him with [indiscernible]. I think we may have been successful [indiscernible] working something up for you. Thanks for that John. Good report. And you can ask him questions after we wrap up the presentation. Tracy French [indiscernible] Centennial Bank this year.
Thank you, Johnny. Pleased to report another solid quarter of profitability for Centennial Bank. If you've heard from others today throughout the market chaos, Centennial Bank continues to performed with exceptional numbers. Our motto has always been stay the course. Our focus here lately has been on net interest margins. Proud to say that when you take out CFG and Shore, the rest of Centennial Bank's net interest margin was 4.2%. That's up from 4.8 last quarter.
The other thing we say the course known as asset quality. Our teams continue to show improve the efforts in that along with sound underwriting of the loans that were on the books today. Deposit growth has been very positive over the last six months and the overall return to shareholders has been very good. The quarter ended for Centennial Bank, we had an ROE of 2.11, our efficiency ratio was 36.88, our total revenue was $203 million. So staying the course is prove to be the right thing for Centennial Bank.
What is typically a softer quarter for production; we spot over 500 million from the community bank footprint, which far exceeds the production of a year ago. This speaks to the completed integration and opportunities from our southern part of Florida along with the steadiness of North Florida, the state of Arkansas and Alabama.
We continue to see strong deposit growth over the past few quarters from all of our regions as our plan Johnny was still asking for the business continues. I'm going to let Stephen Tipton give a little more detail on the loans and deposits.
Thanks Tracy.
As you mentioned, the loan production in Q1 for the community bank group was solid. Our presidents continue to work to increase the yield and we're pleased to see the Q1 production at 5.87% with five of our regions in excess of 6% for the quarter all while maintaining our strict underwriting standards. Although, overall ending balances were off slightly, we did see the end of period growth in the central Arkansas, Northeast Arkansas and North Florida regions.
On the deposit side we saw another strong quarter with total deposits increasing $168 million in Q1 and up $443 million over the past two quarters. The Q1 growth comes primarily from our teams in Little Rock and each of our regions and our Florida footprint. We're encouraged to see the increase in cost of funds flow here recently and believe we will see this trend continue as we operate in more of a flat interest rate environment.
In Q1, non-interest bearing deposits increased $118 million, while the first quarter typically has some seasonality, we're excited to see the growth and feel it is a direct correlation to our business development efforts and support from our commercial bankers and treasury services team.
With that Tracy, I'll turn it back over to you.
Thanks Stephen.
Looking out over the past 12 months, we've had a reduction of accretion income, lost revenue from the Durbin and our expansion of our back office functions at Centennial Bank. Net income match the first quarter of last year that was a lot to overcome in one year. I must say that I'm pleased with where we stand today in the direction of our company is going.
Before Johnny and Randy get a chance to identify. We did have our regional leaders in yesterday and assess the quarters and what they're stand in the markets. And as we do on a regular basis in this company, the bar can reset again to get better in all areas. Everyone is focused and excited to make 2019 another excellent year for Centennial Bank. Thank you, John.
Thank you. And the impact on Durbin this year and last year was how much in the first quarter?
It was about $3 million each quarter.
When you think about the quarter and you think about -- $3 million is taken right out of the income side of the balance sheet. And you get -- as we went out with [indiscernible] regulatory expenses. I think the company overall is doing a really good job of managing that and swallowing those expenses and still maintaining good income, good EPS. So pretty pleased with that. Randy, I'll let you have it and take it and kind of wrap up.
Thank you, Johnny. That's well said about the Durbin cost. It's just totally a burden to overcome after you hit that $10 billion mark.
As you stated in the beginning Johnny, we continue to wonder how and why are bank prices are so disconnected from the fundamentals. It almost seems like perception rules over performance and consistency. I use this comparison last quarter. I think it's worth repeating. We have been trading between $18 and $19, but the last time we saw that price was the second quarter of 2015 and our EPS that quarter was $0.25. Try comparing that to our EPS in this first quarter at $0.42. That makes no sense, no sense at all. But what does make sense is the good quarter we had.
Just to recap. We finished the quarter with total assets of $15,000,179,501. Income was at $71.4 million on revenue of $203.2 million which resulted in an increase in our ROI to 192, all of which beat the fourth quarter of 2018. More importantly, we were able to maintain our net interest margin at 4.30% and achieve our expectations of $0.42 diluted earnings per share. We are very proud of those numbers given the slowdown of the economy as you heard in the numbers we were working very hard on both sides of the balance sheet to maintain and hopefully increase our yields.
Once again, our profitability was helped by very strong efficiency ratio of 41.01% as we continue to control our cost. It was a very strong quarter for deposit growth ending at just over $11 billion with a little over $167 million in growth resulting in a loan to deposit ratio of 99%.
More importantly with the pressure of rate hikes off, our cost of funds only went up 1 basis points in both February and March. Loan growth was slowed and declined but increased slightly on an average basis providing confidence for the second quarter. Our asset quality has and continues to be solid indicating a very optimistic and secure outlook for 2019. Our intention today was to break out our numbers in a more logical and intentional methodology to provide everyone with more detailed information in our community banking, Centennial CFG and Shore Financial portfolios. You can tell from the reports, we are very confident in each of these areas in our first quarter results and anticipate a very good second quarter. We just turned 20 years old as a corporation and throughout that time we have remained true to our goal of stable and consistent high performance. I think the first quarter numbers are a good picture of the makings of a very successful year and that pretty much wraps things up.
I'll turn it back to our Chairman Mr. Johnny Allison.
Thank you. Overall, it was a really good report. I thought when you think about a lot of bank stocks were hammered [indiscernible] I see that now and I didn't really see it back then with regulatory expenses are much higher. And then, Durbin, the Durbin was $3 million, you think I missed that earlier but still when you think about that you have to overcome that and his accretion is gone down and we've overcome all of that. The company has overcome all of that. And I have to say good job too all. And I think we've emailed everything to mention anybody got any comments, Donna, Kevin anything you get, good.
Happy 20th.
Happy 20th. We all have had those [indiscernible] here celebrating the 20th and a bottle of champagne or something. So what's the gift for 20th anniversary? You know, I don't know. When we look that up see what the gift for 20th anniversary. I just went to [indiscernible]. Chris, I thought we'd spend all this money getting [indiscernible] turnovers and he's more of a fruit basket, so that's just a taste of [indiscernible].
[Overlapping Conversations]
So I guess maybe a big platinum bar or something. Gary thanks. I like we are -- anybody else have anything else to offer. Gary, I think we're ready for Q&A.
[Operator Instructions] The first question comes from Brady Gailey with KBW. Please go ahead.
Hey good afternoon guys.
Hey, Brady.
Maybe we can start with loan growth. If you look, you take a step back and look at organic loan growth is about 1% in 2017 and is about 3% last year. Those kind of flat this quarter. At this point in the economic cycle, it still feels like you're feeling good about the economy. But what do you think is the appropriate way to think about loan growth for you guys going forward.
Hey, Brady. This Kevin Hester. I think you heard Chris' comments about his pipeline being really strong. I think he had a fourth quarter was a little slow and I think you talked about all of that. So you've got those comments. But overall, if you're looking at our pipeline and you compare it to where we are in the past couple of quarters this point in the same quarter -- two quarters ago, pay offs are similar and production is up about 30% of what we're projecting to close to this quarter.
All right. So maybe on a consolidated basis like low to mid single digit loan growth for you guys.
It's early in the quarter and pipelines are what they are, but the production side is stronger today than it has been in the last couple of quarters and payoffs look similar.
It's like catching [indiscernible], last quarter we had -- we looked like we're going to be down about 400 million early in the quarter, what it appeared is this quarter appears to be about flat. But it's you think you got a hold of that. It's really moves around, but it looks better right now than it did going into the first quarter.
All right. And then Johnny, just some thoughts on buyback versus M&A, even buying back a decent amount of the company here, I mean on the M&A side, I know it's tougher with your currency trade and how it's trading, but do you think M&A is likely and then everybody's talking about [indiscernible] nowadays just given a couple of big issues that have been out there. Is that something that you all would ever consider [indiscernible]?
We have looked, you can imagine that there's people that have looked with us and brought us ideas. The problem is that there's not always, nobody runs at the performance levels that we run at. And when you look at things on the minds, you think what are they doing. They're not making any money. So, yes, if the right partner came along, we were open to what's in the best interest of the shareholders period. So we'll do that. And if I hadn't, I looked at a couple -- had a couple brought to me and I just didn't, but I couldn't get excited about them. So the egos were only in once in a while and somebody else wants to be the boss and they don't perform at the level we perform at. So you just kind of move on down the road. So it's difficult as you can imagine for us to find a partner that runs at the performance levels that we run at. But we're open to any of that, but we will continue buying stock.
We bought back $51 million the first quarter this year; we bought back in the last five quarters we bought back almost 5% of the company. So we think that's a good use of funds right now. We'll continue to do that. Maybe not as heavy as we have been, but when the opportunity comes, we're going to buy, when it's -- when [indiscernible], I'm saying we're going to continue to buy it.
I've never seen in MOE, it doesn't become an acquisition at some point.
If you think about it, three years ago, if we did an MOE, and [indiscernible] and everybody is all excited about MOE. So, I guess we need to say how they work out of these two big ones we're done to see how they work. And we're open to M&A. We're open to merger vehicles. We're open to whatever. So we'll continue to look do what's in the best interests of shareholders.
And then, Johnny, so outside of the MOE, I mean maybe back to the M&A, you have done about 40 deals over your career. So, when you look at more traditional bank M&A you guys clearly buying somebody else. I mean again with the currency trading, how is it trading, is that still a possibility or is that just kind of off the radar right now.
It's never off the radar. M&A is never off the radar, even though we just -- it's not as attractive to us as it was. It all depends on the other side. We're swapping two cards for one dollar and we're seeing how that works out for us. I mean that's really the deal. We're in the market. We're trying to figure out where something works for, where something fits and fits or doesn't fit; if it doesn't fit we just keep walking. We're in it. We wanted to get the Republican Senator from Louisiana say Kennedy. He said he said doing nothing. And we're not doing, I mean we're busy, but he said doing nothing is hard to do because you never know when you're done. On that note I'll hush about that.
All right. Thanks guys.
The next question comes from Matt Olney with Stephens. Please go ahead.
Hey thanks guys. Good afternoon.
Hey Matt. How are you?
Hey, I'm great. Thanks. Hey, I want to start on the margin. It's impressive that you've maintained that the core margin flat this quarter and it sounds like the core loan yields have some nice upward momentum. I'm curious what your expectations are for the core margin for the rest of 2019.
Well, actually -- I let Brian talk a little bit about actually I was disappointed that the margin didn't increase more. Actually thought it would increase. I mean we had six of our -- five or six prior regions over 6%. So we drew a picture of a 6 and send it out to all our region. So they can see what one looked like and most of the regions have jumped on that they recognized what it is [indiscernible]. Overall, it's been pretty good. I think if we could control if we're headed in the right direction on cost of funds, if we're headed in the right direction, I believe we've got a shot at picking up on margin, increase the margin. I thought we would have done it this quarter. But Brian, you got any comments on it?
I mean I've got the comments that it's always better to predict the margins going down because you're always seem to be wrong. As a tradition, I remember we've always said margins going down and then margin would go up. My personal opinion is that I think we can hold our margin. Chris Poulton here is with me and they have these payoff events, we didn't have any this quarter it's unlikely that they would have zero every quarter for the rest of the year. And so some of those could kick in and that's real money and it's not an accrual, it's is not an accretion and it's real cash that comes in and it has real impacts to the margin.
I got Stephen sitting down here with me. I know he's got some statistics and I will let him give a little color on the little loan yields for production and some of the deposit pricing, I know he's got a lot of numbers down there.
Hey Matt. Yes. You're right on the production fields on what we're putting on the books that they were better in Q1 than they were in Q4 and all of the quarters prior. And that's really with a little lesser contribution from CCFG as Chris mentioned in Q1. And we expect that to rebound sometime this quarter. So we were at that 587 on new production for the Community Bank segment. Johnny mentioned payoffs went off but basically five and quarters. So, I wouldn't expect to continue to see that the core loan yield go in that direction.
Yes, with a 60 basis points, that's pretty strong 62 basis points up production over a payoff. So that's pleasing. The numbers are moving in the right direction. Like I told Joe back in August, we starting this plan, implement this plan, it takes a while return to ship and a lot of events happen that you don't expect during the period of time. But we have been focused on it and I think we're winning the game.
Okay. And just to clarify, Steven you mentioned the 587 and the 525 just a few minutes ago, was that just in the community bankers that overall kind of corporate wide?
Just in the community bank segment. New production for Q1 was at 590 and payoffs 574 and they're still in a positive spread between the two on what's coming on versus what paid off.
Okay, great. That's helpful.
Chris, you don't have any comments.
Well, I was going to ask Chris about I guess some of the newer offices that are part of CFG, the Los Angeles office and the Dallas office. Curious kind of what the update on those branches are and are those fully built out and fully staffed or is it still more work to be done there?
The LA office is a little more established. We're sort of finishing building that out. We actually just took Darren Robinson who had been one of our directors in New York and we moved him out there. He's a native of Southern California and we've always promised him if we did we eventually let him go out there. He's been out there a couple months now. We're already seeing some real benefits. We are moving him out there and taking some of his clients and things like that.
So right now LA ends up representing 15% to 20% of what we do that's about where it should be and so we're real happy about that. Dallas is really in its infancy as you may recall we always start by hiring credit people first. And so we've made two hires in Dallas. They're both credit folks. You can get a lot of production you hire salesperson first with no credit people out there, but end up having to hire a lot more credit people after that. So we go ahead and start with credit folks get that put in place. We've got maybe $150 million in our pipeline coming out of Dallas right now, we'd expect that to be able to extend as we add some staff there. But it's ones and twos will add another one or two people in each of those. But it's not going to be significantly higher than that.
Okay, great update guys. I'll see you got time.
You bet, man. Thanks.
The next question comes from Brett Rabatin with Piper Jaffray. Please go ahead.
Hey, good afternoon.
Hey, Brett.
I wanted to ask a lot of banks are continuing to struggle with DDA and you're in a period DDA look pretty nice this quarter. Can you maybe just talk about the deposit trends a little more in 1Q and what kind of effect the DDA in particular. And then any thought on funding the growth the next few quarters as well?
Hey, Brett. This is Stephen. I'll take the first part of that. Yes, I think really to add a little more positive on that the non-interest bearing balances were up $180 million in an average balances in those categories were actually down about 20 or 25. So we really didn't see a whole lot of benefit on in spread and NIM in Q1 and would expect that to help out in Q2. Yes, when you look at that -- at the mix really every region in our Florida footprint showed nice increases there. Our Central Arkansas group had some good increases. There's some seasonality I guess with tax refunds typically but I guess there's some color on those being a little bit less than what they have been in the past.
And I think it's really just -- it's a culmination of the efforts that we've put in place over the last year, year and a half kind of post stone gag with our treasury management group. Our business development officer down in Florida. And just general calling efforts, I think Tracy's use of the phrase that our new plants just to ask for business or in the case for the past two years and I think you're finally seeing kind of a culmination of those efforts.
Okay. And then just in terms of funding the growth going forward, are you guys doing any kind of deposit initiatives. I mean it seems like the deposit funding costs are getting a little more rational for the industry as rate expectations start to go the other direction. Are you guys seeing any pricing…
We're not seeing any ads. Ads are gone. You don't see any ads being run anywhere we haven't seen any recently. We had a deposit initiative program and we've put in place and it -- we were growing deposits but the cost of funds was growing faster than we could get the yield on the loan. So we dropped that deposit program and issue bonuses own cost of funds and we changed that. And I think it was a good move forward. I don't know if the timing just worked out. February and March where we just had virtually no increase in cost of funds or just it was as a result of drop in the deposit and we still have initiatives on the cost of funds. We still will bonus and reward our branches for those who have the lowest cost funds. So that was our initiative and I didn't think it wouldn't work. It would cost us money, so I stuck that was my fault. I put it and I stopped. We've moved down to cost of funds.
You look at something you never know what to you live it and there is no substitute for experience. And I made some mistakes with that and but we fixed it. We moved out and hopefully we're in the right -- we're heading in the right direction. Actually, I like it about 100, we've been about 100, we've run about 100 our entire business for 20 years. We've run about 100%. So what we'll do in the future is what we did in the past. If we fund 600 million dollars worth winning that kind of man now where the funding we'll pull up federal home loan and $600 million and then we'll go one off that transaction. We will go find the $600 million. We won't panic. We won't run any ads. We'll just take our time and likely that's the way we've done it for 20 years it's worked and we think it will continue to work.
We had our regional President yesterday visited David Druey's Southern Florida. He was indicating the pricing of the deposit and the deposit can be turned up a little bit and it is there. But the thing that I continue to see or we all continue to see is our customer base whenever they bringing that loan back into the second time from our acquisitions, the deposits size are much better. So they're asking for that business and bringing it to us. And we've earned their confidence and support with our creditors services area that has been a big boost for us. We actually have customers out referring us to opportunities for us so taking it up on that.
Okay. I appreciate the color there. And then, maybe just lastly I'll make sure I'm clear on capital and just if your stock price stays here, is your primary MO to buyback stock use the excess capital during your high profitability level.
That's great. That would be a yes.
All right. Great. Thanks for the color.
The next question comes from Jon Arfstrom with RBC Capital Markets. Please go ahead.
Thanks. Good afternoon.
Hi, Jon.
A couple of things here. Johnny you were talking about loan production earlier on in your prepared comments. And you talked about projects stopping in the quarter because of maybe some of the economic news or the economic mood. How significant was that?
Well it was -- I don't think it was a major issue. I think it was just a timing issue and confusion to the market. People that were going to do a project delayed. I mean we did. If you think about it, I think bank stocks had the second or third worst month since the Great Depression. So there are a lot of people -- a lot of people were scared and didn't know what was happening and what was going on. So I mean it's reasonable for a businessman to slow down or stop or back up or as Chris said catch his breath in that market. So I think it's -- I think that the world's back. I think the fed realizes what a mess they created. And hopefully we won't see that kind of action again.
Okay, good. One for you Chris, somewhat related. You talked about the pipeline at an all time high. And you also said maybe it was a bit of a quiet quarter as well. Would you describe your quarter as a slower than usual quarter? This is the first part. And then, you've you seeing some of this pipeline pull through Q2 and getting some of these deals booked?
Jon, yes, that's not exactly what happened. We had a lower than normal production quarter. I think we did a maybe $100 million to $150 million in production. We would generally do $800 million for the years. That's lower than average. In particular I sort of mentioned that we have kind of approved, but not closed transactions that were sort of at an all time high for us. And that was really two transactions, I would have expected to close in the first quarter, but during the late fourth quarter, early first quarter they did slow down a little bit because they were in the process of completing their capital back. And that created a maybe a month or so delay. You have a six week delay clean your capital stack and that sort of ends up with more than a six week delay in actually getting your loan done et cetera. So we would expect that yes, maybe a little bit better pull through in the second quarter off of those. That's certainly what we're projecting right now and we'll see where that goes for us in terms of what else happens in terms of pay downs et cetera. But yes, we had less production in the first quarter than we'd expect, we'd expect to have higher production in the second quarter.
Okay. Good that helps. That's all I had. Thank you.
Thanks Jon.
The next question comes from Michael Rose with Raymond James. Please go ahead.
Hey, good afternoon guys. How are you doing?
Good afternoon. How are you, Michael?
Good. Maybe just back to Chris. Can you just kind of try to size the opportunity for the Dallas and the LA market specifically, I know in New York maybe -- might be under some pressure with some people leaving the state as we as we look forward. But, one of your competitors in the space that obviously does some of [indiscernible] projects said that they would expect that their unfunded balance close loans actually decline through the year. I know you guys plan a different size sandbox. So just trying to kind of set the opportunity what the opportunity set is from your vantage point as you move forward. Thanks.
No worries. Michael in general, we expect LA to contribute somewhere around 15% to 20% of our volume and I'd expect Dallas at some point to contribute about 10% of our volume. So at some point somewhere between 20% to 30% of our volume should come out of those offices.
If you assume we do $800 million to $1 billion a year that's a couple of hundred million dollars a year coming out of both of those. I think LA because it covers a larger swath of territory across all the West Coast probably is a little bit bigger opportunity from dollars perspective Dallas is a nice fill-in for us we're under penetrated in that market. But that's a tough market. Dallas in particular is a tough market. I'm not sure that most of the volume of the Dallas office is going to come from Dallas property.
Understood. That's helpful. And I know it's early so maybe switching gears a little bit. But one National Bank actually gave a pretty wide range for their initial day one seasonal expectation, if you guys willing to put any sort of numbers around what the day one impact would be?
No, not at this point. We're planning on running parallel starting March 31. I'm just going to give you a couple of food for thought items that are at a pretty high level. We've been pretty acquisitive on the acquisition front and those acquired loans are not really embedded in the ALLL calculation, 25% of the loan balances from acquired loans. So when you look at it those loans are being supported by credit discounts.
And to give a little more color on that we have purchase credit impaired loans that we've acquired and those have non-amortizing credit marks associated with it. And the non-amortizing credit mark as of March 31 was $35.7 million, the way season works is, if you have that purchase credit compared discount is not amortizing, it will be added to your ALLL on day one. Now that that balance will come down as we have some charge offs against it or as we decide we don't need it. But if the impact was today and we were going to say that the season was affected April 1, that would automatically increase our ALLL from $106 million to $142 million. And then, that would leave $2.6 million of loans out there that aren't being accounted for in the ALLL that have to have some kind of mark against it.
But we don't have a number. I joked with Steve and Tipton that if the question came out I might just say that it's going to be somewhere down between $50 million and up $100 million, but with us having purchase accounting so much of this, it would seem logical that we'll have something a little higher. But it might not all go through equity because we've got so much a big mounts from the purchase credit impaired.
So, if I understand correctly switching from PCI to PCD there will -- it sounds like there will be an impact. You give an estimate for what the capital impact might be estimates minimal but…
Well, I mean I don't. I mean if I knew the exact answer to that and I'd have that number ALLL was going to be there at the end. We're working on it but we're not even prepared today to give a projection of where it would be because it could vary wildly at this point in time.
Okay. And then, maybe just finally there is a fair amount of exposure from both SunTrust and BB&T particularly Florida. How do you guys kind of size up the opportunity as we move forward? Kelly King today was saying that they've lost very, very few people, but we're certainly hearing different stories from a lot of the banks within the region. So we'd love to get your viewpoint there, what do you think the opportunity is? Thanks.
Well, we certainly think there's some opportunity there we have had the fortunate to bring across a few staff members in the southern part of Florida, David Druey and his team has down there he's working and put strategies together to be able to do that. I can say that some of our deposit growth has trickled over from that what you saw of the increase that we've seen so far this year, even I think in the loan committee yesterday wrote an entire relationship of loans and deposits with the customer. So how good and how that would be I don't know. But, I'll certainly give it our effort to take care. Our services are ready for it. So I think our staff's ready for it. So we're excited about it.
Okay, Chris. Congrats on your fruit basket. [indiscernible] my wife's 40th birthday. If I get her fruit basket, I think she [indiscernible].
Thanks Michael.
The next question comes from Stephen Scouten with Sailor O'Neill & Partners. Please go ahead.
Hey guys good afternoon.
Good afternoon, Stephen.
Hey, Brian. If I could follow up on that Steve's commentary about the PCB loans, so that, if I'm understanding it correctly that $35.7 million today like you said would go into reserves, but that would be money that would no longer flow through into accretion is that right. And it would flow through the loan master reserve as opposed to through accretion.
First off, that 35.7 is not part of the part that flows through accretion as it's already whatever flow through accretion is that the quality of the loans improved and we determine that we don't need that much credit and it would transfer from a non-amortizing purchase credit impaired mark to an amortizing.
Got you. Okay.
That's not part of any of our accretion period. All of that are discounts that are out there that are on our loans that nice day and I continue to amortize into infinity. So seasonal doesn't cancel any of the current accretion that we have going.
Okay, great. And then just going back to the production levels, I think I heard Kevin you say that originations were maybe expected to be 30% higher relative to a couple of quarters ago. And I think the number given last quarter was around $1.1 billion in originations. So can you give us an idea on where those originations were on a dollar basis maybe in 1Q and kind of what sort of numbers you think potentially could occur in the next couple of quarters.
Let me clarify my comment. The comment was the pipeline today compared to the pipeline at the beginning of each of the last two quarters is about 30%. How much will fall through and how much will add on to that the rest of the quarter will determine what our production is, I'm just encouraged that the level of the pipeline is higher today than it has been at the beginning in the last two quarters.
Okay. Yes. Now that makes sense. And then in terms of that actual level of originations that you saw in 1Q versus what I think was that $1.1 billion in 4Q?
Hi, Stephen. This is Steve. I will take part of that. Production in Q1 was 541 and you're right it was a $1.1 billion in Q4 it was 9 and change in Q3 if I recall. So yes, I think given Kevin's optimism and Chris's kind of backlog on his pipeline would expect it to trend more towards somewhere between.
Okay. And have you guys given a number on what the current level of overall unfunded commitments are today?
It's about $2.2 billion, Stephen. It'll bounce around hundred million here and there, but it's relatively stable over the last quarter or two.
Okay. And then, Johnny maybe just jumping back on the M&A side of things. I mean I know your stock isn't where you'd want it to be. But that said it's still to 2.4x tangible books, is still much more powerful than most peers quite frankly. I guess what would it take whether it be in terms of the math around a deal or where your stock would need to be, where you were you would get maybe a little bit more aggressive as a potential buyer.
Well, the seller expectations have to come down. The problem with the private bank sector, non-public is that they are also two times book and that's all it's in their head and they don't realize that their price fluctuates as our price fluctuates. What we can pay there's a limit to what Home can pay. So once that becomes more realistic and they get down to a 1.50 times book and we are at 2.4, 2.5, we do a transaction that makes some sense. So it's really, it's not -- as much the price of our stocks, it's expectations of the seller. And as we have just we're not going to dilute our shareholders. We never have we never will. So that is a factor that prohibits us from doing a transaction. Most transactions in the two time look [indiscernible] range because it dilutes our shareholders. So we're not going to do that. We're always open Steve. We are always open to a deal. We found the right deal and I looked at a couple of MOEs. I've never run the numbers on MOE around the numbers and looked at them and actually learned from the process.
I mean, I wouldn't sure have it until somebody got hit by somebody right in that transaction. Somebody's got to prevail at the end of the day and that was that we ran it -- we'd run them both ways to say A bought B or B bought A and to look at them and see how they look, it was an interesting exercise. But we didn't. As I said earlier, MOE, this bunch has done such a good job not me, but this bunch has done a good job. There's very few people that run in the league that performance that this company runs in.
Yes, for sure. That makes sense. Okay. Well congrats on the quarter. Congrats on 20 years and I'm voting for a platinum duck call that you guys [indiscernible]
And I will wear it around my neck. You come back with me next year.
There you go. Sounds good. Thanks guys. Appreciate it.
The next question comes from Brian Martin with FIG Partners. Please go ahead.
Hey guys.
Hey Brian.
I wanted to just ask maybe for Kevin just going back to your comments Kevin about the optimism with the last two quarters the pipeline being higher. And is there anything you can point to that is and maybe I missed it in your comments earlier but about what's driving that improvement the last couple of quarters.
I mean you've heard Chris's comments so there's some there, but within the footprint we're just seeing a lot of good opportunities. The Southeast and the South Florida group, Central Florida there, we have strong loan committees going there, you're talking about lots of loans each week. I mean the Arkansas guys, Northeast Arkansas has got a large pipeline, so it comes from several different areas as it has to be able to get production to a high level.
Brian, you may have a little overlap from the fourth quarter too. Chris's pipeline is built up as we said a couple of big credits he has there. They're working on the capital stack and with the disruption that happened in December probably threw some people off. And so you might see with the size of that backlog may be a result of the situation happened in December in the market.
Got you. Okay. That's helpful. And then just your comments on the deposit, I guess, cost slowing at least particularly in February or March. I mean I guess do you guys feel like you're kind of getting near an inflection point with the Fed is on hold that the deposit costs are close to stabilizing. I guess just relative to the initiatives I guess that you may be doing, I know it doesn't sound like there is anything going on right now than just asking for more business. But I mean how comfortable do you feel like those trends that you saw in February and March and the deposit side will stick.
Well, actually some of our banks have had a little reduction. Some of them have gone down, costs funds are going down a tick or two. So we're optimistic. We're extremely optimistic that this could hold force.
Okay.
And everybody as you saw billboards and ads and everywhere you went you were seeing an ad and people running into press money up everywhere that just went away. It just I mean, I feel it, I feel that it's gone away. I hope I'm right.
Yes. And we do feel is optimistic Johnny and that you can have at least two or three more quarters of improving loan yields and it sounds like there's at least one or two out there but in just kind of conversely to the deposit side.
I do. Our people are doing a really good job. I mean we have four of the regions doing 6%. Well, this last quarter that's pretty good stuff. I mean there let me say our guys get it. They get it they understand it and they're trying to move the yields up.
The loans are maturing and being renewed. You see where big production is kind of relative to the core yield and everything is north of where the core loan yield sits today. So, again, do you think that go up?
Yes. It has been a battle. And as I said earlier I think we're winning.
Yes. Okay. Well, sounds great. And just the last one for me, was just on the buyback. Remind me what is left on the authorization do you guys have, I know it sounds like maybe a little less aggressive in the near term here, but what's left on the buyback and would you expect to complete that within I guess have you stated kind of what your thought is that when you complete that.
I mean the total number of shares authorized by the Board at March 31 was 7.2 million shares that were left, a considerable amount left.
Yes. We've got a considerable amount left, if we need to raise that. I think our board is in concert with rising it, if we need to do that. So it still is the best used fund. It is dilutive but it still to me is the best use of fund. I mean we bought back nearly 5% of the stock that's a pretty good slug of stock. So we paid out $104 million in buybacks last year and paid what $76 million in dividends. So it was about $180 million, it went out for our shareholders.
Okay. All right. So I guess bottom-line continue to keep something in our outlook, but maybe just a little less aggressive than you have been.
Depends on the price of the stock. We will move when we need to move and when we think it's an opportunity.
Okay. All right. That's all I have.
Brian, they've called it sounds like. Police is on their way. We called them and [indiscernible].
All right. I appreciate it guys. Thanks.
This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Allison for any closing remarks.
Thank you, Gary. Thank you for joining us again today. We'll talk to you in ninety days from now hopefully again. Hopefully, the second quarter will be as happy as we were with the first quarter maybe a little better and maybe margins continue to stay flat or increase a little bit, yields on loans pick up a little bit. We appreciate your support and thank you very much.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.