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 Second 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. Company presenters will begin with prepared remarks then entertain questions. [Operator Instructions]
The company has also 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 Mr. Allison.
Thank you, Phil. Welcome to Home BancShares second quarter earnings release and conference call. And I might add the best quarter ever. Thanks for joining us today to learn more about the specifics of the second quarter results and the direction of the company for the rest of the year. We are going to change up the presentation a little bit today, so that will be a surprise.
With me today is Randy Sims, CEO of the holding company, Home BancShares; Tracy French, CEO of the Bank; Donna Townsell, Senior Vice President, Director of Investor Relations; Stephen Tipton, Chief Operating Officer; Brian Davis, Chief Financial Officer; Jennifer Floyd, Chief Accounting Officer; Kevin Hester, Chief Loan Officer; Chris Poulton, President, CCFG; and Dave Seleski, our new Director of Centennial Bank. And they will all be available for Q&A later in the meeting.
Before I go to my remarks, I think though we should go to Randy Sims, I think he has something that he wants to say that I don’t know if it’s new or not Randy, if you have got something you want to say?
Yes, sir. It was a another most profitable quarter in the history of our company, that is now 29 consecutive quarters of record income and that’s not the only record you are going to hear about today as Johnny said, it the best quarter in the history of our company and I can’t wait to hear all the results. Johnny?
Did you get somebody to figure out how many years that is?
Yes. That is, how many years is that? 7 years and 1 month, I got a hold of…
7 years and 1 quarter. I have consulted with the highest authority, 7-year-old grandson.
Know that will be correct.
Alright. Thanks, Randy. 29.
Number 29.
That’s pretty good. I want to congratulate David Druey in his new role as Regional President of Florida. I also want to congratulate Dave Seleski as our newest board member of Centennial Bank Board of Directors as well as the member he will be joining our corporate executive committee. In addition to that, I would like to invite – I mean, excuse me, correct that, I would like to welcome John Marshall from Shore Premier Finance and his team of people and welcome to Home Bancshares. We released numbers for the market opened and I hope you are pleased with them, because they are the best numbers in the company’s history. By the way, these are real numbers, not false news.
We did accomplish many objectives that we [were targeted] during the quarter. We ask our analysts what we need to do to move the stock and they [taught] us. We accomplished every target on the average objective target that we have. In 2016, we earned $177 million. In 2017, we earned $135 million and that was after $60 million for hurricane reserve and deferred tax credit write-off and we will talk more about hurricane reserves little later in the presentation. We earned $150 million in the first 6 months of this year. And if you would indulge me, that we probably will earn another $150 million in the second 6 months, you add those numbers together and have $612 million or $3.54 a share in cash earnings that we generate. The earnings included record, record, record and the stock is still trading where it was in 2016 and below where it was in 2017.
During December of ‘16 and January of ‘17, Home was trading over $28. Earnings were up and the stock is down. Somebody is wrong, either we are or the market is. And I think this quarter dispelled all the rumors and the silly ridiculous BS that some people want to spread to hold the stock down. I think the shorts have made their money and the short interest is down to less than 5%, with the stock trading at 11x 19 projected earnings. That’s the projected earnings that the analysts said, that’s not our corporate goal. There is virtually no room left for the shorts, you can’t get blood from a turnip. I have come to believe that somebody has an axe to grind is feeding incorrect information to our investors. We are working hard to show the real results and not allowing false news to control the audience.
Our plan is still Home $2 and how do we get there? With the surprising half prices paid for the last several deals, it appears that whole bank M&A maybe beyond reach for disciplined acquirers. While imaginary earn-backs of tangible book reaching unrealistic numbers, the only way to accomplish these lofty numbers is with imaginary earnings numbers. We refused to play that game and our shareholders and analysts should appreciate our conservative nature. By the way, I don’t want to be the one to bore you while wasting your time trying to convince you some deal is strategic when it’s nothing, but a phantom deal and we will never have to earn back.
Believe me we know what a good deal looks like. We have done 21 so far and they have all been accretive and we call it AAA. Including the largest one we have ever done the Stonegate transaction about $3 billion. I was told we paid too much, I was told we would never get the efficiencies to match up with ours, I was told we would stumble with the integration, I was told we would lose people I was told we would lose customers.
With us today is Dave Seleski and I am going to let Dave Seleski report his feelings and give the state of the union at the former Stonegate as he transitions to the Centennial board. Dave?
Thanks, Johnny. Lot of great things to report on. Really the two groups got together is amazing through the conversion how the two teams really came together in terms of all conversions we have difficulties and issues and the team in Centennial did such a great job pulling everything, putting it together and looking at the Stongate people. I think both sides really learn to appreciate it altogether. And a lot has evidenced by very good loan growth in Dave County, which is Miami and also in Southwest Florida, particularly Naples and Fort Myers as well as good deposit growth of West Palm Beach. I am excited about my new role of being on the board of Centennial Bank, one of the best banks of the country. I am looking forward to being on executive loan committee, continuing business development efforts of maintaining relationships to Stonegate customers and potentially doing some more business with Cuba down the road.
With that, I will turn it back to you. Thanks.
Thanks, Dave. As you heard, it’s quite the contrary. After the February conversion, we had already accomplished much more savings by far than we had forecasted. As Dave said, very quick, very smooth, which resulted in record efficiency and quickly getting there. That is the sound of a good consolidator. I read a research report recently talking about the best consolidators in the bank space. They did not list Home BancShares, Prosperity, Ozark, Renaissance, Pinnacle, First Financial Bankshares or CenterState. I shared the names on the list with a big banks stock investor I don’t think he is ever going to stop laughing. I didn’t think it was quite that humorous, because we didn’t make the list and I think we are one of the best consolidators in the country and so were those others. I think it takes the false moves out the Stonegate rumors. Instead of doing an overpriced merger and acquisition deal paying 300, 400, $600 million that might add $0.03 or $0.04, we decided to spend $20 million to $0.035 to $0.04 to EPS. As the largest individual shareholder, it was a no-brainer for me, plus think about it, we sit in the boat capital of America, Palm Beach, Fort Lauderdale, Miami and the Florida Keys. This deal fits home. It also provides a perfect vehicle to enter the high-end RV bus finance market. It was common sense for me, continuing forward on Home $2, this can be a nice contributor to that. Number one, loan growth is your number one problem, still say the analysts. Our lack of loan growth has not come from originations, but from payoffs totally. I also told the world that the unfunded backlog was growing indicating that the prospects, where loan growth was looking at. It didn’t happen the way I envisioned. I thought payoffs would slowdown and originations remain steady, then magic would happen and bingo, there would have loan growth magically. That’s not exactly what happened. Even though the payoffs remained high at $609 million for the quarter at a rate of 5.13, we were able to generate $957.9 million at a rate of 5.66. I think the breakdown here is important too. Of $957 million, $775 million was legacy at 5.48 or 81% of what we originated. New York was $183 million at a rate of 6.53. Additionally, the backlog is up with the legacy leading the way. We also had the largest payoff we have ever had I don’t know if we have ever had a $95 million payoff?
If we had, not very many.
It was one of it, it was come out of Little Rock, one of our directors in Little Rock has in the multifamily housing business and he took his multifamily company with the public and paid us off, but he is back, great operator, he will be back and do more business. That was in spite of that we still were able to grow a little bit. The backlog here could be a little misleading, because you really don’t know when that loan is going to fund, but it’s a good indicator of things to come. Number two was you will have to sacrifice your way in order to increase your loan volume. Another negative take in that proves to the numbers, we don’t sacrifice rate for growth, we monitor the margin daily. Margin has increased and new loan has even better rates, remain disciplined and hold the course. Number three, you will be forced to give up your quality underwriting standards to grow. We don’t do that, another negative to us, remain disciplined, hold the course, false news. Number four, Dave Seleski is leaving and taking the key people, false news. Nice try but no cigar. Number five, your New York office is total construction. Total construction lending business and in the next cycle, you will lose lots of money. I said, you mean the operation that made $16 million pre-tax pre-provision in the first year and made $32 million pre-tax pre-provision in the second quarter and $56 million pre-tax pre-provision in the third year and should make around $70 million pre-tax pre-provision initially that we paid zero for. Well, let me just get Chris Poulton on and let Chris himself who runs our most profitable bridge and give you the state of the union on this dangerous and risky business. Chris, are you here?
I am. Thank you, Johnny and good afternoon. Yes, the quarter – Q2 reflects another nice solid quarter for us. It’s been kind of nice slow steady growth as you described as since we have joined we closed the quarter to $1.65 billion, but I think this quarter’s results reflects the strength of diversity of the portfolio, draws on exiting facilities which you point out, draws on existing facilities more than outpaced loan payoffs. And as a reminder, our loan portfolio consists of really four primary products. The first is multi-asset facilities, which about a quarter of our total outstanding. The second is construction lending, which you mentioned which is actually just about 35% or just under 35% of the total portfolio. The third product, which is single asset CRE loans, those are about 20% and then we have a small C&I portfolio at about 20% of the total portfolio. I think with these product options, they allow us to adapt to the changing market dynamics. And while specific market conditions may shift from quarter-to-quarter, we do generally maintain each product category at somewhere between 15% to 35% of the total portfolio, hopefully that background helps a little bit and I will turn it back over to you Johnny.
You bet. Thanks, Chris. And that means his construction book is about 5.5% of our entire portfolios. I agree there were lots of problems with construction in the last cycle, but the problem really what exclusive to the asset class, it was the fact that nobody putting money in those deals. I mean, they were leveraged at 90%, 95%, 100% and 105%. They were construction millionaires with no equity. When the music stopped, they just throw the keys at the bank. I am confident that CCFG will have allow us someday, but they have never lost their time yet, they didn’t lose any money in ‘08, ‘09, ‘10, ‘11, ‘12, ‘13, ‘14, ‘15, ‘16, and so far and I think, so I call BS on that one, false news. We are about 92%, 95% in the construction bucket today and a little over 300, 302, I think in the CRE bucket. We have approval with the board to go much higher. The reality was that at one time during the failed bank purchase times, we are almost 500 in the big bucket as we liquidated hundreds of millions of dollars of all asset classes in Florida. There is no substitute for experience. Our team cleaned up the ones we bought, but we did due diligence on another 30 banks in Florida and we liquidated troubled assets from Key West to Jacksonville, West Pensacola and down both coast. We have all aligned sheets on the banks that we looked and the intellectual knowledge we have gleamed from that it was and is still amazing. The big loss will be C&I in my opinion. Even though the regulators disagree they are pushing the industry into this unrealistic terms in pricing, we are pushing ourselves into those terms. The regulators in time we have to have them and we are being pushed in that and I am concerned about that buck and I think that’s the next blow up. The yield curve might be signaling a recession. If that’s the case, we are in one of the best positions in the country, with low leverage, conservative underwriting portfolio I like our book of business.
Next one was Johnny has made millions. He didn’t have the fire that he wants to add and he is not as interested. Ask my people that, that BS is even remotely correct. In addition, I mean, really ask them. In addition, ask the companies who have been traveling with me all over the country and be traveling with me in months coming up. I am still hitting the road. I am still hitting the road hard and selling the success of Home. The game is winning, I don’t give up, I don’t quit, I will call, BS, false news. You heard my comments today. It’s a shame that banks are not trading on performance and rationality, but the herd, some of you, most of you, a few of you, I don’t have it here, is spreading on BS speculation and rumors. What happens today is the confidence and trustee in each other. We are known for telling like it is. We have always done it and we always will. I want to go back to days where investors would say I’d love to own your stock, but you are just too pricey for our fund. These days investors would say, Home is a value stuff and I agree, different from a lot of people, I don’t think there is a Russian hiding behind inventory. Before we go on, I just want to touch a couple of numbers here. Earnings were up 51.7% for the year, lowest efficiency ratio ever. I don’t really know what I have to say, because I think our stock has huge upside, which should be trading north of $30. I told you we need $1 billion in loan growth to hit $2, where we don’t need that much now. If we payout $70 million worth of trust preferred and add Shore acquisition, coupled with this quarter’s loan growth plus the opportunity to re-price $1.5 billion of loans over the next 12 months. That should move us much closer to the goal line. Hopefully, we will see some additional loan growth, coupled with some stock repurchase and I believe we will punch it across the goal line, so more good news coming out. The keys so far on the charge-offs, we charge one loan offer $500,000. We haven’t had loans that have some pretty good size exposure, but so far so good. Now we are in the slow season in the Keys. So between now and the end of the year, we will keep monitoring that loan book, because there is going to be problem, I think it was short between now and the end of the year. We will be proactive and charge it off. If it’s coming, I think it might come by the end of the year.
Well, in summary, this is great news, not false news. After reviewing the analyst best recommendations and a thorough review by our management team, I believe there is no doubt, it’s by far the best quarter ever. I believe we hit on all 10. I am sure we will have some names, naysayers, who maybe not covered their short position who try to have a negative stake, but the world will know, let’s be it. We are repurchasing on the stock repurchase, we bought back 350,000 shares during the quarter and our 10(b)5 we bought another 175, I think in that. The plan is Home $2 and I think we will get there. Thank you for listening to me today and we will go to Q&A.
[Operator Instructions] Okay. The first question comes from Will Curtiss with Piper Jaffray & Company. Okay, please go ahead.
Hey, good afternoon everyone.
Good afternoon.
Maybe wanted to get some color on the expense base and if I recall there was maybe a couple of million dollars of remaining savings that were expected to complete this quarter, but you also had a decent increase in other expenses. So just trying to get a sense for this if it’s the good run-rate or if there is something else that we should consider as we kind of finish out the year?
You think the efficiency ratio of 36 was a little high wheel?
That was really good, Johnny.
I will let Brian talk about, we had a little carryover from the first quarter we missed and that’s what kind of kicked expenses up a little bit.
Yes. Once we cross the $10 billion, the FDIC assessments went up and we didn’t get our first bill until June for the first quarter. So, if you look at our FDIC state assessment, you will see that it’s up $1.2 million, but really it should only been up about $600,000. So there is really $600,000 one-time true-up on the accrual that ran through the second quarter, so that $2.7 million that you see in expense would be about $2.1 million on a normalized quarter.
Okay, thanks. And then in terms of I guess thinking about the margin over the next couple of quarters, I think you obviously highlighted new production yields that are higher, but the deposit costs are also moving higher as well, but is there anything that you guys can do to mitigate some of those pressures or possibly hold the margin where it is, I think you had mentioned maybe the trust preferreds, but just curious how you are kind of thinking about the margin?
Hey, Will, it’s Steve and I will take that. Yes, that is the troughs that are out there, there is about $70 million that are about floating rate that are in the mid-4s or so today that’s something that’s kind of on our radar to look at taking down at some point maybe towards the latter part of the year. Yes, I guess, we are very pleased with what we saw in the quarter. I know Johnny highlighted the loan production and what we saw there, but deposit costs are going up, but the loan production and the variable rate portion of the portfolio and what we have been able to do on renewals is more than offset what we have seen on the deposit side. So, I think we are extremely pleased of what we see there. The Shore portfolio, just for modeling purposes, we show that will pull us down maybe 3 or 4 basis points, ones that’s in for a full month or a full quarter or so, but kind of reset that, I think if we are optimistic we can maintain there.
Okay. And then just one quick clarification, Johnny, I think you said the backlog had been going down, but it’s now starting to increase. Is that right?
That’s correct. [indiscernible] a while back said the unfunded backlog had gone down and we start paying more attention to it and about March it took off and then it also grew at the end of this quarter by another $150 million over what it was. So, that’s pretty good stuff. And we approved just to you give an idea of what’s going on with loans right now, improved $106 million yesterday, all $106 million was in the legacy footprint and you will probably see lion’s share of that fund this quarter. So, things are okay, we look like we are going to be down. I am not going to tell you we have loan growth, because as some of these first orders we have loan growth and we did, we were down. So, I didn’t – I no longer forecast loan growth, Will, so maybe if I don’t forecast, it will have loan growth. Kevin, you got anything on loans?
Yes, I think you covered it with production yesterday was great. The production across the group was good. Pipeline is strong thoroughly in the quarter, so lot of things can still happen for the rest of the quarter, so looking good.
Alright. I know it would stay there forever. I mean, we have generated way too much business things are too good for us to not have it in some point in time. And when you look at that, I mean, of the $957 million, $775 million was in legacy at 5.48. That bodes pretty well. New York’s team had 183 to 653, so that’s the indicator. If we can just hold our margin, we don’t have to be cranking in trying to build our margin, if we can just hold it, running our 2.10, 2.15 ROA is not too bad, we are generating lots of cash. We are making lots of money. The cash we got to say what we are going to do with it right now M&A did look very good, but maybe find another deal somewhere.
Yes, good time. Thanks for the color, guys.
You bet.
Okay. The next question comes from Arren Cyganovich with Citi. Please go ahead.
Sorry, I was on mute. If you could talk a little bit more about the Shore Premier Finance business, some of the loan attributes, what kind of profitability you expect there, you mentioned it may have a modest NIM impact into the quarter?
Yes, sure. Welcome, nice to have you, welcome aboard, Home BancShares. Thanks.
This is Kevin Hester. I will answer that one. As you know, probably about $380 million is what we brought over, it’s about 1,200 loans. It’s really traditional underwriting which is kind of what I could get real comfortable with. It’s getting personal financial statements, tax returns, verifying liquidity, view bank statements, it’s really traditional type underwriting as opposed to an automated type deal, which gave me a lot of comfort. We look at virtually half the balance. There is about 300 loans, very strong FICO scores, low DTI across the book, liquid borrowers just I gave you one number here, the median reserves, cash reserves of the borrowers, post purchase is 42 months of their total P&I payments. So, if they owe $10,000 a month to P&I payments, they had median of $420,000 in verifying liquidity post down payment. So, we are dealing with strong borrowers here.
Okay. And then what’s the typical kind of organic growth rate you would expect within that category?
Yes, I think it’s reasonable to say first year we could do $100 million. From there, it’s going to be dependent upon how well we do the commercial side of it, which they had kind of backed off a little bit. So, I think that will be the key moving from there, but I believe it’s reasonable to say $100 million in the first year.
Okay. And then just lastly I think in the press release you stated that a lot of the loans were funded towards the end of the quarter, is that going to have any positive impact on the NIM in 3Q that might offset some of the impact to Shore Finance?
Actually, Shore is little dilutive, so it will be $0.03 or so – 3%.
Yes, it could, Arren. I mean, as we have said that the bulk of the volume came in the last month or so and we talk about what yields those are, but I still think our goal is to maintain.
The good news is the interest income was up for the quarter, but I have been watching the run-rate since then and it’s up significantly, where all of loans have got buffed and sure we got buffed and the run-rate is looking pretty good.
Good. Alright, thank you.
Thank you.
The next question comes from Brady Gailey with KBW. Please go ahead.
Hey, congrats on number 29 guys.
Good morning, man. It’s going to be even 30. That might be harder to figure out how many years.
Hey, I wanted to ask, I know Durbin kicks in this quarter and in the past we have talked about for Home that is roughly $7 million pre-tax number on an annual basis is that so-called that $1.7 million to $1.8 million of pre-tax fees loss per quarter. Is that still the right way to think about Durbin for you guys?
You are pretty close. I mean, we are watching it happen as we state we have been looking at it on a daily basis and it’s real money we are losing. I probably would up that closer to little over $2 million a quarter.
And then with Shore coming in you saw the loan to deposit ratio pickup a little bit, just wondering in 3Q and 4Q, are you going to be a little more aggressive on growing deposits to try to fund the Shore assets organically or how do you think about the slight tick up in the loan to deposit ratio?
Well, Randy Sims, we could – we need to run at 110, but regulators don’t really appreciate it. I just can’t. It hurts me to see a 100.
Yes, this is our first full quarter of Kelly Buchanan’s deposit program. We are up – had pretty nice deposit growth. We have $2 billion worth of federal home loans availability and we will just – we are not going to panic on deposits. We will just – we will just pull out– really this is actually the first full quarter of our deposit program, it looked pretty good. The non-interest deposits were up $50 million, Tracy can you tell me there.
That’s correct.
So I mean it’s beginning to take hold. The rewards for those branches that won this quarter, I think Tracy and Kelly are going to go and travel and congratulate those people. So if you have some of the branch manager on the phone, you see Kelly and Tracy showing up at your doors some blues. I don’t care about that you will take the check. So this have – really just started. This is the first full quarter and it looks like we had a pretty good quarter, so we will try that. And then if you remember there is one fairly deposit rich franchise out there. We have had our hand for a while and might going to visit them after the latter part of August if there is anything to be done there.
Alright, great. Thanks for all the color guys.
The next question comes from Matt Olney with Stephens. Please go ahead.
Hi. Thanks. Good afternoon guys. I want to go back to the Shore acquisition and I guess there was a small part of that book was commercial in nature, can you talk more about that your plans are for the commercial side, what’s the nature of those lines, of that growth of $100 million, the first year, at least your goal, will any of that be commercial, is that pretty much all consumer at least early on?
The commercial side is floor plans for both dealers that primarily manufacturers agreed and where we can get buyback agreements from manufacturers, so that’s the plan there. And out of that first $100 million there is significantly some of that, but it’s they had pretty much wrapped that downward at the end of their previous relationship with the banks that we had before, so we will make, we are starting that from scratch.
Okay, that’s helpful. And then on the purchase accounting accretion maybe a question more for Brian, we will be hanging around this $10 million level now for the last few quarters, what’s your outlook on this number in the next few quarters?
It should be fairly close to the $10.6 million. One thing that did happen in this quarter is that the payoff accretion was up from the first quarter, it was up about $1.3 million. But on the other hand we are going to add Shore to the accretion bucket. And it should add about $900,000 per quarter. So I will look for the next quarter to be over $10 million and might start slipping down in Q4 and Q1 without any other acquisitions. We will still have $112 million of accretable income to take in over the life of the loans.
Got it. And then lastly I guess for Brian and probably on the fee income side on the other fee income anything unusual or that you would call up and that will be sustainable going forward?
Just Durbin, which is on the other service charges and fees. On the dividends we had an equity investment that we have had for some time and it did not pay us a dividend in Q1 and but they caught it up in Q2. So there is an extra $300,000 difference in the dividends from the line items dividends FHLB, Bankers Bank and other is part of that other there, so that’s probably they don’t think that might be a negative for next quarter and we wouldn’t have two dividends from that equity investment.
Got it, okay. Thank you, guys.
And the next question comes from Jon Arfstrom with RBC Capital Markets. Please go ahead.
Thanks. Good afternoon.
Hi Jon.
Hi, I like the new conference call format with John Allison manifesto, something, that’s good, moved up a little bit, that’s good. But the late quarter loan growth I think Randy you talked about how we have had some nice approvals coming through what – can you attribute that to anything do you think has anything changed or why do you think that happened?
This is Tracy. Just to add a little color for what Kevin and Johnny have pitched into that. It comes back of the Stonegate acquisition and settle them in. I mean, John and I have got off, had a couple of quick trips that Dave had arranged with JC, one of our market presence in the southern part of Florida and we are getting some more opportunities that we are seeing come through. So it’s more of a timing issue with the Stonegate acquisition and matching together as Seleski said in his earlier comments and we also see that over in the Sarasota side. Tyrone the Dennis are around the Sarasota side and Bud is working with there and we are beginning to get to know the customers and the comfortness of that, the credit underwriting and the things that we are doing. So, it’s just a little time that took a little bit to see some of the legacy wing of our company do well, so I think that’s really what I see and maybe the other regions across our company have always done extremely well and are continuing to go. The loan growth I think we had 8 out of 11 regions grow this past month and I am speaking on the month not a quarter. So I think it’s just really some of the timing issues has finally happened and then the same thing on the deposit side as we have been able to not only make some great loan opportunities, these also have deposit opportunities. Our management and team on the treasury services and the cash management is working well with the units in all those regions down there today and the customer basis of getting comfortable with the way we are doing realizing that we are here to take care of a customer, now we are getting customers referring us to new potential customers from other banks and I think we are hopefully going to continue to see the fruits of all that labor.
Okay, that’s good. Good to hear. And then on the payoffs, I know it’s hard to predict this, but you still believe that payoffs could eventually slow is a big number this quarter?
About the payoffs?
Yes.
It just continues on. I think if the REITs don’t buy our entire portfolio, I think the REITs don’t buy a chunk of it. I guess they are running around with their pockets full of money and trying to find the assets to purchase and their plans tremendous for us is our guest house in Key West, Florida, great operator as we have 21 guest rooms, somebody has walked in, paid $110 million for it. That’s $500,000 a key and that’s stretching it, that’s just too far in our opinion. We are not trying to go back in that credit, Jon, we passed. We said no, we don’t want it. I mean, the truth is there could never be another hurricane and you have to have escalating revenue about 5% or 10% a year. There can’t even be a wreck on the highway going in there or you will not be able to make your payments. So I mean these deals are just stretching. I tell that, I say that, and the Casa Marina in the Key West has been opened 3 years now, they went from $107,000 a key to $1 million a key, we didn’t play at $1 million a key, we passed, it’s been 3 years ago we still operate. And so I read about that. I don’t know the payoffs, it’s just probably good business actually, ‘08 ‘09 nobody can pay off, you couldn’t do anything, but the book is there is so much equity just like this Key West, it was $27 million, you sold it for $110 million, wow, if I heard something else, if they $5 million not payoff this quarter was one of our directors in Little Rock who has a great multifamily housing business, good operator, knows what he is doing and he took his REIT public and when he did that, we paid this off, but you are going to build this company. I mean, he is a building kind of guy, so he will be back, I think we are back to $30 million to $40 million right now with them, so but the pay-offs just that you can’t really predict, I knew that $85 million would come sometime, I didn’t know when it would come, but once you got his everything, his I’s dotted and his T’s crossed, he got his company when they took it public. So I just kind of wait in that. Now, in New York, we have a lot of facilities lines. Even though everybody says, it’s all constructed in New York, it’s not as you heard from Chris, but has a lot of line. Somebody may have a $100 million line and they may pull it up to the max and then pay it off 2 weeks from now. So, but you can look – you look at the average loans for the quarter and see that the loans really didn’t get booked till the end, so the run-rate is pretty sweet right now. We can just keep building on this loan right now. We are actually generating so much capital. We are not clear it, what’s new with it pretty quick, so I think that the good uses of trust preferred.
Okay, got it. I appreciate that. And then one last one maybe for you Brian, just how extensive is the loan re-pricing on the $1.2 billion I mean how – talk about the magnitude of that?
How are you, the $1.5 billion that we have maturing over the next 12 months or so was coming off in the 5.15 range, so it’s about the same rate that we saw payoff in this last quarter. And when you hear us talk about where our legacy loan yields are and we are working with the teams in the regions now to focus on that and get even better. So we should see some nice improvement in that over the course of the next 12 months.
Okay, alright. Thanks.
Thanks John.
The next question comes from Michael Rose with Raymond James. Please go ahead.
Hi guys, how are you?
Good.
So I just wanted to tell you a bit of – it’s fake news, not false news, but anyway just wanted too…
We are not going out…
So all freed us on more of those questions, just wanted to – just want to talk about the competitive dynamic and Chris’ group, you guys mentioned that obviously there was a lot of private equity money, REIT money slashing around and you had this whether it’s the target or our aspirational goal to get this group up to about 15% of assets, is that a goal, is that a target and maybe over what timeframe do you think you can get there?
Alright. Chris, answer that.
Mike, it’s Chris. As it relates to is it a goal or a target, I view it more as a limit, probably, but we are happy where we are at. The universe expands and we grow, so I expect we will continue to do so. I don’t think there is any particular time scale attached to that. We would like what we are seeing in the market right now. I would like where the pipeline is at. Growth for us is going to look a lot like what pays back, what doesn’t and in what time period it does. So it’s tough to say quarter-to-quarter, I think year-over-year on a rolling 12 months period of time I think what’s being the book grows pretty well somewhere, eventually it will settle into sort of that somewhere between 8% and 15% growth rate thing. But I would say we will continue to grow a little bit here. We may have a quarter or two where it flattens out, but that doesn’t really much to us and we like the deals that are coming in. Competitively, we will certainly see a lot of competition out there, but don’t forget the private equity money that’s out there that’s investing is actually our customer, so.
But there is a good point for us, maybe just one on the pace of share repurchases, obviously in your manifesto John, you mentioned the price of the stock, could you look to get a little bit more aggressive here?
Well, I actually had backed up on repurchases and the stock went back on sale and couldn’t stand, so we started that. So we get those numbers.
We thought about 825,000 shares year-to-date.
Okay.
Yes. We could. We actually were going to get out of the market a little bit and let the – I wonder if we were putting some upward pressure on the stock just get out. And we are wanting to sell at 21, we buy 5 million shares. So with that – we got it pretty cheap and then we filed our 10b5 for the quarter and we were able to pickup 175,000 in the 10b5. I don’t like being it seems like the market kind of beats us up around earnings time. And in the past, we couldn’t play because we are going to have the 10b5 filed. So we will file it and we have been able to acquire good blocks of stock at a really good price.
Okay.
So the answer to your question is probably, we are going to be sitting on so much cash. I think we want to payoff the trust preferred first. I think we get back towards the end of the year. Hopefully we will have enough cash generated. I think Stephen said we would have over $100 million…
$110 million.
In the year. So our shareholders probably deserve a little kick too and then they have been awfully good to us. So a little increase for the shareholders wouldn’t hurt on the dividends side, we haven’t done that yet, because the Board being tomorrow and maybe that we discuss it, but I want to get back even with the play we had $32 million deferred tax credit that we took at the end of last year, is that where I was 32.
36.
36, so I want to get back, I want to get the earnings back, felt like we were back to square we went out to do something else, but when you are running at a run-rate north of $300 million for the year, we are generating lots of money right now.
Understood. Maybe one last one for me, you guys took a big provision for the storms, couple of quarters ago, sorry if I missed it, but any plans to release that anytime soon or expectations just kind of grow into it? Thanks.
Well, we had $140 million of deferment in the Keys. We now have 1.4 million defer in the Keys. So we charged off one property at $500,000 thus far, we have an agri loan that we are watching, seems to be okay, but could have up to $6 million exposure. We are in the slow season now. So, I think if we got any problems that are going to pop up, I think we will see them between now and the end of the year. This is the time that we use to say some of those things will struggle in the Key. So, with the hurricane on top of that, let’s see what happens over a period of time. I am the kind of guy, you know me I like 1% of better reserve. So, I am not ready to rolling. It doesn’t matter to me. It’s in our – I mean, we have to justify the reserve, but to me it’s our money and shareholder money just have to be in another account, but if we need to bring it back in, we will. If we don’t, we won’t.
Alright. Thanks, guys.
Thank you.
Okay. The next question comes from Stephen Scouten with Sandler O’Neill and Partners. Please go ahead.
Hi, guys. How are you doing?
Good. Stephen, how are you?
Good, John. If they are going to stay in the top 25, I mean it might make sense, we will see. Well, I haven’t been Alabama for the rest of the country we will all be fans from then on. So, if I am hearing you correctly, John, it seems like you think the stock is a little cheap as it seems to be the message I am hearing. I guess, is some of that driven by, I mean, obviously consensus numbers are like 190 for ‘19 you seem to sound pretty confident around $2, is that $2 you truly believe that’s going to be a 2019 number and that estimates are a little low on you still and that you will have that kind of 13%, 14% earnings growth in 2019?
I don’t know it will be $2 in 2019, but I certainly expect one quarter. I think the run-rate will start hitting around $0.50 during the year, somewhere during that year.
Okay, okay.
Stephen, we got a $1.5 billion, Stephen, we got a $1.5 billion in re-price over the next 12 months or so. That’s good. Loan growth, the backlog is building no loan growth. We are holding their margin. The run-rate looks really good to me right now. Once these loans all got booked, we got booked late in end of the quarter that looks good. Expenses are under control. I think we are teed up. I mean, it really is – it really cost of deposit, what happens on the cost of deposits over the next period of time, what we do to manage those deposits, we can buy Fed Funds to fund these, but that’s 2%. We need something less than that. So, I think our cost of funds at the end of June were up 11 basis points on total deposit costs for the quarter. We are up 11 basis points and loans were up 12, right. That’s okay, if we can hold that, I mean, the only thing that will dilute us a little bit is new both finance platform, they think we run about 180, 185 ROA out there. So that dilute our ROA a little bit, but you know it’s a pretty sweet little business for us and I think we grow it over a period of time.
Yes. That’s fair. And the efficiency ratio as you noted, I mean it’s pretty good I guess you run a pretty clean bank, but I am curious how much of the cost saves from Stonegate might still be left in there to come out? Could we see some improvement even beyond what’s already a pretty impressive number, it is still room based on those remaining cost saves?
I don’t think so. We have got about 50%. We have modeled that at 33%. We normally hit 50%. The only the other thing we are about and this will maybe a little above 50%. So we have done really about all we can do there. I will also update, I was looking for the expenses you will have in this quarter 2 and I went back to one-timers and we had that FDIC there, we have missed the first quarter. I guess that was the biggest item in the one-timers for the quarter. So I think we have been at $63 million for the last three quarters. So I will have to say it’s pretty effective. If we stack on another $600 million to $700 million worth of loans in here, it’s been pretty good.
Yes. I appreciate, okay. And then the last one for me just on capital bill and you mentioned the TruPS are there any other items, I mean would you think about without DFAST now and presumably that will give you some relief on what capital you have to hold I mean do you think any about the subject that you raised and then with the rate you are paying on that, is there any thought to paying down some of that…?
Absolutely, matter of fact, we evaluated Jennifer Floyd ran the numbers for me. If we just put in period investments at an assumed rate, if we bought back the TruPS, if we bought back stock or if we bought back some of the subordinated debt. So I feel the most accretive to us is buying back the stock, but the capital treatment gets there only trust preferred gets – we get differently over $15 billion with an acquisition. So we think it makes more sense to knock that out. Now that’s about $0.02, a little over $0.02. It’s about $0.01 of 1 million shares to EPS if we would buy back stock. It’s about $0.02 on buying back subordinated debt. So I mean the boat platform as it is today is going to add about $0.04 and then the TruPS will add about $0.02. As you can see, I am counting pennies to get to my $2. And I am – someone said we want to go get there and I have said, well we are damn sure are, believe me, we get there. So it’s my mission for the next period of time to get there. So in a conservative manner though, we are not going to do anything pricey to get there. But you are right we look at all those, we are going to pull all those hands and we probably will pull some of our level.
And is that the biggest benefit kind of tangibly from the changes in the regulatory environment right now or is it just that you probably have a little more leeway around how you manage that excess capital and what you do with it and thinking about all these different possibilities, is that the easiest tangible benefit or are there other things we are not thinking about?
Well, we are generating lots of capital, I mean on a monthly basis. Someone said something to Brian Davis one day about what he is going to do with capital and he said we will make a lot of money, he said most people we run about 2% ROA, we make lot of money.
That’s great.
Jennifer, do you want to comment?
We do a capital and the comment was we do a capital raise every quarter. We do a capital raise every quarter. We do a capital raise to retain earnings.
I mean we are at $76 million as of run rate as we look forward and loans were back both – until late in the quarter and you really didn’t get in the benefit of our both portfolio. So I think you are going to see us come out. I think things are going to get a little bit stronger for us there if the run rate holds where it is. Fee is as I have said earlier it’s the cost of funds, we got to manage that.
Okay, that’s really helpful guys. Thanks so much for the color and congrats on a great quarter.
You bet. And look, if we stay in 25, we will get you down for a ball game.
There we go. I look forward to it.
Alright, thanks.
Okay. The next question comes from Brian Martin. Please go ahead.
Hey, guys.
How are you doing, Brian?
Hey, nice quarter guys. Just a couple of follow-ups or just couple of things that maybe – the deposits strength in the quarter, Johnny, I guess you talked about this new initiative, I mean, I guess is that the biggest driver of this and I guess do you feel like some of this is sustainable as you go forward based on what you kind of the initiatives you have put in place with that, I mean, maybe not the same level, but just kind of prospectively looking at deposit growth?
You know what, we have this – I am playing on new ground. We have never gone upward on deposits ever. So, I really don’t have an answer. I am pleased with what I am seeing there, but I really don’t have an answer to that. This is the first, but I would expect it to get better, that’s just got – I look at things as a business person, I would expect it to get better and will it or not, I don’t know whether it will or not, but if we can grow deposits, $600 million to $700 million a year, there is nothing wrong with that. That’s about what we need in loan growth. That’s what we need to do. So I would be pretty happy to answer that.
Right, okay. Alright. Just going back to your – the Home $2 target, Johnny, I guess it seemed like initially it was kind of talking about the $1 billion on loan growth, you kind of threw a couple of other wrinkles in there this quarter, with I guess the potentially the TruPS in the obviously the acquisition this quarter. I guess, is there anything else I guess, if we are thinking about just how to kind of sketch out how you get there, it’s the acquisition, I guess it’s potentially doing something on the TruPS, it’s the – I think you said it was $1.5 billion in loan re-pricing and is there anything else I am missing as you kind of think about that?
I think you are right, I don’t know we have our Home $2 meeting in Miami at the end of this month and all the participants will be at the meeting. And if we laid down, this whole problem will be laid out, the charge will be given to them. We have a 2-day meeting down there. I think it will be fun for everybody. We will be talking about margins. We will be talking about loans. We will be talking about rates. We will be talking about all the factors that impact that and then we are going to show them the pathway to $2. So, I am digging and looking for the right thing to do there. Once we came from the TruPS, we realized that treatment, capital treatment that’s – look, what that saves us. So I mean, we could spend with about 1 million shares back and I think it’s opinion. What that is $0.01 a share. That’s the most – we can pull that trigger and I will if I have to. We are going to $2. So, I mean, we got – we are generating lots of capital. And I am sitting out – we are kind of sitting on that money right now to decide where we want to spend, where is the best way to spend it, so probably the TruPS down the year, they will hopefully generate it again.
That’s the one reason I hadn't increased the dividend to our shareholders yet is because I want to hit all of those buttons out there to try to get us – to drive us towards $2. My point is that we will buyback stock and we bought the boat portfolio platform and that adds $0.04 and here is what the company is doing to help you get there. I need you to give me $600 million worth of loans or $700 million worth of loans at these prices. Here is what we are doing to help you get there, the sooner we get there, sooner you all get to your payday. I believe we'll get it done. They have never let me down before.
Right, okay.
I am [pinning] it to get there, I’m [pinning here two things there.] I mean, some people got up to a $1 this year and I have got it in my mind, there is about [$1, 88, 89] or about any new loan growth. If the company does a good enough job to get us a dime. I expect our people to get us the next cent.
Right, okay. So, the loan growth is still in that $0.5 billion range if you pick out the boat portfolio and then I guess the growth going forward, is that kind of what you are thinking about?
It’s about $0.5 billion. That’s correct.
Yes, okay. Alright. And just the last two things on the M&A side, it feels unlikely at this point given kind of as long as the stock stays on sale, it seems like it’s less interesting, is that seems consistent or is that still accurate?
Yes, that’s when we are 3.5x tangible or 4x tangible, it made lot more sense to us. I mean, we are looking at some stuff. Once they jump to 2x tangible book, it kind of took us out of the game. And I don’t think there were 2x tangible book. However, we got – some of that’s coming back to reality, so one just traded recently at about 170 and another one is out there at about 170, so those are coming back a little bit in the right way. And it probably makes sense if we are in the 160, 170 range and we are at 3 and change that probably make sense.
Okay, perfect. And then – and maybe last one for Stephen and maybe I just misunderstood or didn’t hear it properly, but the impact of the boat portfolio seemed like it was $0.03 or 3 basis points, I think it was 3 basis points of the margin. Is that what you are suggesting?
Yes, 3 to 4 basis points.
Okay. And then your hope would be would that factored in third quarter that the other items you have mentioned as far as we are pricing on the loan side and the rates going up should give you hopefully gets you enough to offset that early, so that’s how you are kind of thinking about it preliminarily?
Potentially, that could be our goal.
That would be our goal.
Okay.
We just need to maintain, I mean, I don’t know how many companies you have covered it around 2.10 or 2.12 ROA, but we just need to maintain, the efficiency was at 36, had we gotten that revenue earlier in the quarter, you have probably seen that – might have seen a 5 out there, might have seen a 35. So we get used – it will be fun to watch it next quarter to see what it does with the new ramp up in the revenue side.
Okay, understood. And maybe just big picture, Johnny, I guess the origination this quarter was so strong. I mean is there any commentary you can just give on whether kind of the granularity, the geographic kind of breakdown just kind of what bucket they fall and just a little bit of color on that would be helpful?
Actually, it was – it was Arkansas led this time. Arkansas was pretty strong this time. It took a while with the stone – we had to get [comps there], we had to get settled in. The Stonegate people had to get settled in with us. We had to get settled in with them. I think we are past all that today and they are back to work. I mean, matter of fact, we had an executive loan committee, 2 or 3 weeks ago, what every loan was, came out of the Stonegate footprint. So that deal is working and that deal is coming, but they are working everywhere. We approved $106 million yesterday and of that about $65 million of it will fund for sure this quarter and maybe it has 80% of that. So it’s just customers we do business with and he had paid us off on some stuff and then he got on to a $60 million deal and he brought it back to us. That’s just how it works. I mean, we had a $95 million payoff with our good director at Little Rock and then he is back doing another multifamily deal, he needs $30 million, $40 million, so that’s just how it works. It’s real commerce, real business going on. Chris, you got…
I was just going to say exactly what you said, Johnny, the bulk of that growth came from the Arkansas channel and that was our team just taking care with customer that was one of those surprise payoffs couple of months ago, which takes – most guys credit, thanks to the lot of underwriting, make sure it gets done correct and there is really just the hustle of in this case, our North Arkansas group that have been falling back up over their customers and paid us off in the prior quarters.
Yes, I was up here. You probably remember me talking about a hangar loan we picked up a hangar loan in Oklahoma City, $40 million hangar loan. Well, we paid it down about $36 million, $37 million, somebody offered him $47 million, he sold it, but that hurts right, because it comes out the book, but he gave us a $36 million multifamily deal and he has got $112 million deal going out there right now, he said I am going to bring to you all. So, it’s just a relationship with those customers.
And I don’t know if you were on the phone when Tracy talked about our trip with Dave down to Florida, J.C. and those people going over Sarasota and this with Dennis and that bunch, but it just turned, I am not sure that we didn’t turn over $150 million worth of loans that potentially could be coming down, I know part of it – Dennis has got a term sheet out to him. I think it’s ready to go to him now owns some opportunities. So, I think before I retire, I will become a loan officer and travel the country and book loans.
That would be okay, Brian. His detail on the underwritings look more challenging. He understands a good loan and not a good loan. The underwriting he is saying takes a lot of work.
So, you can buy one of the RVs, Johnny and travel the country. So I appreciate the update guys.
Alright, good. Thanks for your support.
Okay. 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 everyone. It’s been a fun day. I think everybody got a good clear picture. Our group is happy here. Things at Home were good. And as I said, the run-rate is picking up. Things look pretty good for Home and we are driving towards our goal of Home $2. And once we get back from Florida, I can give you more information when I see, but I think that will be a good trip with our people and getting everybody acquainted on the new plan and the direction we are heading. So anybody got anything else to say?
Good job by the group.
Good job by everybody. Ms. IR, do you have anything? Ms. new IR, do you have anything? Ms. SR, do you still – it’s kind of transitioning now, do you have anything? Okay. Well, we will talk to you another day. Randy Sims, I am sorry.
It was 29 consecutive quarters. I mean, it would be 30 next quarter if we do it.
That’s correct. Everybody have a good day. Bye.
The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.