Good day, and welcome to the Home BancShares, Inc. First Quarter Earnings Conference Call. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. Please note this event is being recorded. I would now like to turn the conference over to Donna Townsell. Please go ahead.
Thank you, Elisa. I'm Donna Townsell, Director of Investor Relations, and our management team would like to thank you for joining our first quarterly conference call of 2021. Reporting today will be our Chairman, John Allison, Tracy French, President and CEO of Centennial Bank, Brian Davis, our Chief Financial Officer, Kevin Hester, Chief Lending Officer, Chris Poulton, President of CCFG, John Marshall, President of Shore Premier Finance, and Stephen Tipton, Chief Operating Officer. Hopefully by now, you have had the opportunity to review our proxy and read about the work that we have done in the last year on our ESG initiatives.
While our work is not complete, we have made great strides, and this will be an ongoing effort at Home. Some other exciting news that I'd like to share is, on Tuesday, Home was named to the Forbes list of World's Best Banks. We made this list last year, and we have also been named to Forbes Best Banks in America every year since 2015. One aspect of this is the performance metric, and the other aspect is driven by customer service. Because of that makes us very proud that we continue to excel in both of these categories. For our first report on the quarter, we will hear from our Chairman, John Allison.
Thank you, Donna. That was a nice award. We've continued to stack them up over a period of time. Welcome to Home BancShares first quarter earnings release and conference call. My name is John Allison, and I have the honor to serve as your Executive Chairman, President, Chief Executive Officer, and I'm also a co-founder of the company. We're here to discuss the results of our first quarter 2021 performance. Now, I mentioned the press release says, you've probably seen it, the first quarter, from a pure net profit and revenue perspective, was the most powerful quarter in the company's almost 22 years history, resulting in a record net income of $91.6 million. That's another world record for our company, as one of our former teammates would say.
Home BancShares is known for being one of the top performing banking corporations in America for the last 10 to 15 years. This quarter was no different. Sales revenue was off the charts, with total revenue of $207.927 million, a best ever. That's total revenue. What's more important is how much of the total revenue we bring down to the bottom line after tax for our shareholders. Well, I want you to know that of the gross $207 million, we brought 44.05% to the after-tax bottom line, or $91.6 million that is available to our shareholders. In addition to total revenue, our net revenue was also the highest it had ever been at $193.4. I think that's a beat on the street. Our company also brought 47.36% of the net revenue after tax to the bottom line.
These numbers reflect the earnings power of your company through the low cost of funds, strong yields, and best-in-class efficiency. It resulted in another high watermark for our shareholders of $0.55 earnings per share for the quarter. PPNR also hit a new record high of 120.5, representing a PPNR of 62.32. That means that we brought 62.32% of the net revenue to the pre-tax, pre-provision shoe box, as our longtime director, Alex Dillard, has labeled it. Here's some additional highlights. Pre-tax, pre-provision ROA was 2.92. I think that's a record. I think that's the best. After-tax ROA, 2.22. Return on tangible common equity, 22.90. That's one of the best ever.
I think we've had one better than that. Earnings per share, $0.55. That is the best. On the NIM, interestingly enough, we increased our NIM by two basis points to 402 from four basis points. Reserve to loans without the PPP loans remains at 2.40. Stable asset quality. Overall yields have remained strong at 5.56. That includes accretion of net income and PPP. Without those, the yield was 5.16. Mortgage produced another strong quarter with $8,167,000 versus last year at $2.6 million. Efficiency ratio of 36.6%. That's got to be best in class or right at it. Are you happy with that, Donna? You happy with the 36%? You're the efficiency lady.
Considering the size of the bank and the regulatory hurdles we've overcome in the last few years, I'm happy to be below 40%, but I know that we will probably be challenged to continue to push that downwards.
I agree with that. That sure is fun to talk about when you get it. First quarter loan originations were $671.65 million at 5.10%. We only funded $250. It kind of came late in the quarter. March origination was the highest, by the way, of the quarter. It was right at $320 million. 75% of the originations came from the community footprint. $671 million, we need a little more than that, but it happened mostly in March. That appears to be continuing into April also. Last quarter, I said I thought loan growth would come in the second half of the year, but it may be coming a little sooner than I expected. On the negative side, with payoffs of about $800 million in Q1, that's pretty much in line with what we had in Q4.
Hopefully, that'll slow down at some point in time, and we'll be able to match on the origination side. We had a $2 million charge-off. I just want to go over the important on this $2 million charge-off, was I made the statement to you all when we did our first fireside chat, that I don't see any losses as a result of COVID-19. I'm still saying that. This was a problem credit before the COVID-19. I'm optimistic we're going to recover here, but the conservative nature of our group is that we charge it off. That was $2 million of the How much? $2.6 million or something?
Two and a half net.
Two and a half net. Your team's also done a really good job. I found these numbers, and I hadn't been tracking them in the past. I track them, not like year-over-year. This is year-over-year cost of your liabilities versus your assets. Our total interest income for the year-over-year was down $9,524,000. That doesn't sound very good. Interest expense was down $17.887 million, which resulted in a positive net interest income of $8.363 million. That is a nice job by our presidents and Stephen Tipton, hawks that, because Tracy hawks it every day. Good job, guys. That's pretty impressive numbers. That added $8.3 million to the earnings. Good job. Over the year, we have tried to position Home to win. We've made several investments, both long-term and short-term, and we're continuing to do that again this year with all this excess cash.
Last year, we purchased some underpriced, good dividend-paying bank stocks that have performed very nicely for us. We're also in four or five different ventures that likewise have performed nicely for us. This quarter, we picked up several million dollars in income for the company. Past performance is no guarantee of future performance. Home is still in these investments. Our investments produced income of $9.5 million in 2020. So far this year, they've produced $13.8 million. Home has continued to work on M&A and presently have active discussions going on. Stay tuned. On repurchase, we spent about $8.8 million in the first quarter, repurchased 330,000 shares at a weighted average price of $26.55. We're continuing to be active through our 10b5-1 even today. We'll remain active for the rest of the year. It certainly looks like Home is off to a great start.
Business is picking up, and I think we're in for a powerful recovery. My concerns center around inflation, which I think may already be out of control. Couple existing inflation with the new $2.7 trillion fiat money printing coming down the road, and we could be back to March 1980 during the Carter administration. They also thought they could control inflation but had rates close to 20%. I wrote this, and then I was watching TV yesterday, Tracy, and the talking head comes on, and he said, "If we're not careful, we'll be back where we were in the Carter administration." I may not be the only one seeing it that way. Have you bought any gasoline lately? It's up $0.80 a gallon. Food is straight up. Lumber went from $300 a thousand board feet to $1,050. That's a 350% increase in the cost of lumber.
I would hope that the Biden administration would shut down their discussions of a huge tax increase, as we're just starting to recover from the COVID-19 crisis. I don't say this as a Democrat or Republican. I only say this as an American businessman that has the privilege of leading one of the best companies in America. The tax increase makes absolutely no sense to me, for we're currently trying just to climb out of one. Instead of trying to suppress American business, the president should be offering ideas to help all businesses. Think about it. This is not the time for a tax increase. The talking heads on Business Channel say 2.25%-2.50% on the 10 years by June is going to happen, and 3% by the end of the year.
If true, if that happens to be the case, and it may be, I personally kind of believe that, those banks riding fixed rates in the twos and the threes will pay the price, and those investing all of this excess liquidity they have into long-yielding, long-term securities will also pay the price. The risk is absolutely too dangerous for us. This is most of our largest personal asset, and I refuse, myself and our executive team does, of putting it in long-term fixed rate securities and selling the future of our company.
Those that remain disciplined, like Home, will win the race. When you get to the winner's circle, just look for Home standing in the middle of the circle. I want to thank our teammates for an amazing start to 2021, and the investment community for your trust that you've committed, and many years of that. Donna, I think it's a pretty good quarter, and I'm going to let you have the floor.
Okay. Well, thank you very much for that report. That is fabulous revenue and EPS results. Congratulations to all. Now we will go to Tracy French for a report on Centennial Bank.
Thank you, Donna, and good afternoon to all. The first quarter for Centennial Bank and Home BancShares is without question a thrill-or-two report. In fact, we might be the safest banking institution in the nation, along with being one of the best or top performers in the country. The results of our group we share today are phenomenal and not only show what hard work delivers, but also managing each detail that turns out to be financially rewarding. Our banking company continues to work hard and remain disciplined in all areas of the bank by putting our customers first.
For the shareholders, the report today is very rewarding. All of our regions had a great quarter, and you will hear from Christopher and John in a moment. For Centennial Bank, our total net revenue was $192 million for the quarter, making our old-fashioned ROA, Johnny, 2.25%. Our return on average tangible common equity non-GAAP was 21.03%. Donna, our efficiency ratio was 35.36%, with the last two months in the low 34%s.
Great job, Tracy.
Thank you. Now what we know as the Allison PPNR was at 63.56 for the first quarter. These numbers are what they are because of all the effort from every single person that works in our bank. Brian will share with you our capital position, which is very strong with our risk-based capital at 18.76%. Stephen will give the details on the loans and deposits as our excess cash has gone from over $1 billion at the beginning of the year to over $2 billion today, with our liquidity ratio at 27.21%. Kevin will share the latest on our loan portfolio with a reported 0.66 non-performing to total loans, while our allowance for loan loss, excluding the PPP loans, is at 2.4 at the end of the quarter. That makes up to be 383.47% allowance on our loans to non-performing loans.
These reports represent a very profitable and safe company. As always, we are staying in touch with our customers, and I'm glad to report all are doing better and some have not missed a beat. Our markets and customers have navigated through this past year, and we believe the economy is doing fine. Although the cost of operating that John mentioned earlier is certainly up. Our regional leaders reported that most of our branches are open to full service. With the few that are not, which should be open by next week.
Our customer activity is increasing in both loans and deposits. Loan production is showing good signs of growth along with our pipelines. Our deposit growth has been great, and our managers are working hard on the cost of these deposits. The loans that have been granted deferrals are showing much improvement, while some are back full speed. Even our airport hotel loans are feeling very good. Donna, I've always used the word better, as in getting better every day, every week, every month, and so on, and our company will continue those efforts for our shareholders. Thank you.
I have no doubt that that's true, Tracy. Thank you for that report. We will turn to Brian Davis for a finance report.
Thanks, Donna. I'm pleased to report $148.1 million of net interest income and a 4.02% net interest margin for Q1 2021. Our first quarter net interest margin increased two basis points from Q4. Today, I would like to give you some color on the Q1 NIM. First, during the first quarter, we had $314 million of PPP loans forgiven. This forgiveness caused the acceleration of deferred fee income for the loans forgiven. The deferred fee income increased $3.5 million from Q4 to Q1. The acceleration was nine basis points accretive to the NIM. Second, the COVID crisis and the resulting governmental response has created a tremendous amount of excess liquidity in the market. As a result of excess liquidity, we had $581 million of additional interest-bearing cash in Q1 compared to Q4. The excess liquidity was 16 basis points dilutive to the NIM.
For Q1, we recognized $1.1 million of event interest, primarily from large payoffs. The $1.1 million of event interest was three basis points accretive to the NIM. The nine basis points increase for PPP loans, plus the three basis points for event interest income, less the 16 basis points decline for excess liquidity, results in a net four basis points of noise when comparing linked quarters. Our net interest margin is actually up six basis points on an apples-to-apples comparison. I'll conclude with a few remarks on capital. Our goal at Home BancShares is to be extremely well-capitalized. I'm pleased to report the following strong capital information.
For Q1 2021, our Tier 1 capital was $1.7 billion. Total risk-based capital was $2.2 billion and risk-weighted assets were $11.7 billion. As a result, the leverage ratio was 11.1%, which is 122% above the well-capitalized benchmark of 5%. Common equity Tier 1 was 14.3%, which is 120% above the well-capitalized benchmark of 6.5%. Tier 1 capital was 14.9%, which is 86% above the well-capitalized benchmark of 8%. The total risk-based capital was 18.8%, which is 88% above the well-capitalized benchmark of 10%. With that said, I'll turn the call back over to Donna. Donna?
Thank you, Brian. Those are amazing capital ratios.
Where'd you get all that money, Brian? Wow.
I'm going to sleep with it underneath my pillow, if that's okay, Mr. Allison.
That'll work.
Sleep well, Brian. Kevin Hester will update us on our loan portfolio.
Thanks, Donna. The accomplishments on the lending side this quarter are very impressive. I'll begin with PPP. Round three approval and funding continues with the recent extension of the program through May 31st. Applications have certainly slowed down, but we have crossed the 4,000 loan approved mark. Those approved loans total about $350 million, and we have closed and funded just over $300 million of that amount. Rounds one and two forgiveness continue, with over $550 million requested from SBA and over $450 million paid. We have initiated round three forgiveness as well, and we have a push to focus on these two efforts during the next two quarters. COVID modified loans showed little change during the first quarter.
This was not unexpected because a large majority of the $330 million modification balance was placed in an 18 to 24 month interest-only modification just three months ago to provide the runway to weather the remainder of the pandemic. With the majority of these loans being hotels and just coming through the seasonally slow first quarter of the year, I didn't expect much movement in these balances. Two positive developments did occur, though. First, anecdotally, virtually all of our hotel operators have experienced a significant pickup in occupancy in March. In the Florida market especially, we expect this pickup to continue throughout the year. Even our hotels that were dependent upon airport traffic are showing signs of life. Given that this was a March trend, we do not have hard numbers on these, but we do expect the April reports from our hoteliers to look much more favorable.
In addition, since month-end, the single largest deferred loan of $58 million went back to full payment, showing good occupancy and cash flow. This brings our overall modified loan balance to just below $270 million, or 2.5% of the loan portfolio. We are very encouraged by the improvements we're seeing around this segment of loans. As Johnny said, mortgage continues their strong showing from last year. First quarter closings were up 50% on a quarter-over-quarter basis, and the secondary market loans consisting of over 80% of those balances, $100 million in each of the three months of the quarter, indicating a strong second quarter is to be expected. Lastly, the accomplishments in the asset quality area are certainly worth discussing. Non-performing loans are 59 basis points, up only six basis points pre-COVID-19, and down seven basis points on a linked quarter basis.
Non-performing assets are even better at 38 basis points, down six basis points pre-COVID, and down 10 basis points on a linked quarter basis. The allowance coverage of non-performing loans is at 384%, up 52% on a linked quarter basis. Early stage past dues remain very low at 46 basis points, which is below where we were pre-COVID. Combined with the encouraging reporting around modified loans, I feel very good about the asset quality of this company. We are seeing new lending opportunities in our markets, and despite the low pricing and high leverage we're seeing, I'm optimistic that the second half of the year will result in some organic loan growth. Donna, what a quarter. I'll turn it back over to you.
I agree, Kevin, and that's good information on the hotel occupancy.
Great.
Yes. Good. Next, we have Chris Poulton with our CCFG division.
Thank you, Donna. Good afternoon. The new year brought increased activity during the first quarter. Overall loan balances were roughly flat, and new fundings were offset by increased payoffs and pay downs as loans that would have generally paid off into 2020 were able to finally execute refinancing some sales. During this time, we've been able to maintain margins and returns while ensuring our asset quality remains high. New loan commitments total close to $300 million, and we ended the quarter with over $300 million of loans that are approved, awaiting closing, or in active underwriting. By comparison, we generated $700 million in originations during all of 2020. Real estate values in our key New York and California markets appear to have stabilized, with sales and leasing activity up significantly in Manhattan and Brooklyn during the quarter.
Thus far, that trend has continued into Q2 as well. With that said, we remain our usual cautious selves and continue to focus on leverage and structure that reflects a post-pandemic environment. While many of our southern and southwestern markets have thrived over the past few months, we expect the recovery in New York in particular to take a bit longer to mature. During this time, we remain focused on our core purpose of building a portfolio that delivers above average returns for below average risk. That, I'll turn it over to you, Donna.
Thank you, Chris. Now John Marshall will update us on Shore Premier.
Thank you, Donna, and good afternoon. I'm pleased to offer an update on Centennial's marine finance division. The first quarter continued to reflect elevated activity as the 2020 consumer COVID yacht-buying frenzy spilled over into the new year, tempered only by limited new boat inventories. We've seen our retail applications shift from 80% new, 20% pre-owned to a 65/35 split just because of the lack of new inventory. The quality of our applicants remains strong, with declination rates dropping from 39% in 4Q 2020 to 32% in 1Q 2021. Funded retail loans were $50 million in the quarter, with average FICOs of 780, compared to 776 for full- year 2020. Our commercial floor plan business was essentially flat in the quarter, as shipments of new boats from European factories have been pre-sold prior to arrival. Utilization rates on inventory lines remained at 30%, down from a customary 62%.
It may be mid-2022 before dealer stocks are restored to historical levels. We're witnessing some pressure on marine margins as inventory lenders hungry for assets are unsatisfied. Dealer financial health is very strong as a result of this conversion of assets. The health of the consumer and commercial portfolios has been favorable, as reflected in our asset quality metrics, achieving the lowest levels of delinquency and defaults since Shore was acquired by Centennial. The profit contribution continues to grow, and ROA in the quarter was 2.76%.
Cash has emerged as a formidable competitor in the marine lending space. Coffers bulging with stimulus money have continued to accelerate our prepayment speeds, offsetting some organic growth. The outlook for marine is good. Factories are returning to sustainable production. Dealers are placing optimistic orders, and retail buyers are placing larger deposits on their next boat. Industry experts believe that the COVID has pushed more consumers onto the water and with a long-term profound impact on the pleasure yachting industry. On that positive note, Donna, I return the discussion to you.
Thank you, John. Our final report today comes from Stephen Tipton.
Thank you, Donna. I'll give color on deposit activity, repricing efforts and trends, and a few additional details on the balance sheet today. On the deposit side, the wave of liquidity continued in the first quarter of 2021, as total deposits increased $787 million from year-end to just over $13.5 billion. That marks the nearly $2 billion increase or 17% year-over-year. Most importantly, our non-interest-bearing account balances increased nearly $600 million on a linked quarter basis and over $1.4 billion year-over-year. Today, non-interest-bearing balances stand at 29% of total deposits. We have mentioned over the past several quarters how fortunate we are to operate in states that did not shut down, states that have seen an increase in tourism and steady population growth.
Of the increase in the overall deposit base in Q1, $542 million or 69% of the increase came from our four Florida regions, all of which had nine-figure increases in total deposits. While the increase is certainly attributable to the government's response to the pandemic, we believe the growth is also a result of the business development efforts, the customer service our bankers provide, and the resiliency of our customer base and geographic footprint. Switching to funding costs, interest-bearing deposits averaged 33 basis points in Q1, down 11 basis points on a linked quarter basis and exited the quarter in March at 30 basis points. Total deposit costs were 24 basis points in Q1 and were down to 22 basis points in the month of March. We continue to work rates down as liquidity levels persist.
In addition to certain negotiated demand account rates, we have $745 million in time deposits maturing over the remainder of the year at an average rate of just under 1%. Switching to loans, we saw total production of a little over $670 million in the first quarter, with $400 million coming from the community bank footprint. As John mentioned, only slightly more than one-third of the origination volume in Q1 was funded at quarter end. Although loan balances declined, this along with the robust origination volume in March gives us optimism going forward. Payoff volume was in line with Q4 at $844 million, as we saw a number of borrowers monetize large assets or go to the permanent markets.
As Brian Davis mentioned in his remarks, we're normalizing for the impact from PPP lending, event income, and excess liquidity, the NIM would have shown a solid increase linked quarter. We're extremely pleased with how the NIM has held up over the past year. The word discipline has been mentioned a number of times today and over the past year. That discipline has put Home in a great position to capitalize on the continued economic recovery and, as John mentioned, the prospects of rising interest rates in the future. With that, I'll turn it back over to you, Donna.
Thank you, Stephen. A lot of good reports today. John, before we go to Q&A, do you have any additional comments you'd like to make?
It was a great quarter, as you know. Loans are down a little bit, we'll get our fair share of that. Tracy and Kevin, our group would go out and
Take that $2.5 billion, 2.5%, that's another $125 million pre-tax. That's what I see in front of us. If we loaded it all, which we could do, that's $100 million. I think that is pretty exciting as this economy picks up, with the company hitting on all eight in every area except for that, and not doing too bad there in the middle of it. It's interesting, even though loan growth has gone down, your non-performing percentages, Kevin, have even gone down with it.
I remember back in 2008 and 2009 and 2010, when it kind of got a snapshot of our loans, you really got to look at the book of business because it was a solid book and didn't move too much up or down. That's the same thing that's going on right now, to see our non-performing numbers come down percentage-wise on a little book of business. That's impressive. Donna, I don't have anything else to say. I think we need to hear from Q&A, and I'll let you have it.
Okay. That sounds great. Yes, thank you. I guess, Elisa, we are going to turn to you now and go to Q&A.
Thank you. We will now begin the question-and-answer session. The first question is from Michael Rose with Raymond James. Please go ahead.
Hey, good morning, everyone. How are you?
We're good, Michael. How are you doing?
Good afternoon, actually.
Where are you?
Yeah. Good afternoon. Yes. Sorry. Maybe we could just start on credit quality. Good to see non-accruals come down. Seems like everything's moving in the right direction. Is there any reason to think that you guys would have a provision expense anytime soon? Understanding that you don't expect any losses from COVID and the charge-off you had this quarter was the previously identified credit. Just seems like all the pieces are there. Your reserve level's really high, that you guys wouldn't need to provision anytime soon.
Yeah, this is Kevin. I would say no.
Yeah, I'd say the same, Tracy.
Yes. Stay the same.
All right. Well,
Back when it was really kind of tight, I asked Chris, I said, "Chris," when COVID first hit, and he had some SNCs over there, I said, "How much money we lose today if we sell it today?" He said, "We sell it today," I think, Chris, you correct me if I'm wrong, Chris, I think you said $15 million. I asked Chris that today, before the call, and he said, "Maybe $1 million." Am I saying that correct, Chris?
Yes, sir. I think that's about right.
Okay. Just curious as to, on the expenses, looks like expenses were down sequentially. Expense control's always been a hallmark with the company. Any sort of color there on a run rate perspective and any considerations for the year in terms of bonus accruals or incentive compensation that we should be thinking about? Thanks.
I'll take that one, Mr. Allison. Okay. Like on the salary employee benefit, we accrue those salaries on a day-by-day basis. We had 92 days in Q4 versus 91 days in Q1. I mean, we had 90 days in Q1, they're down a little bit there. We did have a little bit of incentive reversal from the end of the year, it was primarily offset because we always had an increase in the FICA taxes that we have in Q1.
We did have some PPE expense in Q4, fogging buildings and doing that kind of stuff, that was several hundred thousand dollars. While it is down a little bit, most of it's really due to the number of days on our salary employee benefit accrual. Plus, we didn't have really a whole lot of the PPE expenses. Our FDIC assessment was down just a little bit. That was mostly due to true-up on the accrual. There's really not any noise other than the PPE from last quarter in the numbers.
Okay. Maybe finally from me, there's a big increase in the share repurchase authorization. I guess, given where your stock is and how much capital you have, how active would you expect to be as we move forward? Thanks.
Oh, I know I asked Brian that question, but you asked me that question. We're active. We're going to continue to remain active, and I think our average price was $27.60, but we bought back about 330,000 shares the first quarter. Our team, with the earnings, have hit the Home Run, so that's going to create a few more shares that will be in the float, which is a good thing. Related to good things. We'll probably buy those shares back so we don't dilute our shareholders. We're active, and we really, Michael, looked at stepping in and buying. We increased our authorization by 20 million shares, and we looked at stepping in there. We decided that probably was time for us to look at doing some M&A. We're buying a little bit, and we'll probably buy enough to where we don't dilute our shareholders on the Home Run program.
Great. Thanks for taking my questions.
You bet. Thank you.
The next question is from Jon Arfstrom with RBC Capital Markets. Please go ahead.
Good afternoon, everyone.
How are you, Jon?
I'm good. Good to hear you. You gave the report.
Thank you.
Can you guys touch a little bit more on the pipelines? It seems like it's better. It seems like it's materially better. Maybe, I don't know, Kevin or Tracy, if you want to touch on it, and then Chris, can you expand a little bit more on the commitment numbers and why you think it's jumped so much? Thanks.
Yes. Yeah, this is Kevin. Yes, pipeline looking right now compared to this time last quarter is definitely stronger than it was. We're seeing some good projects across the footprint, some construction projects that are back on the table. I do think we've been talking for a couple of quarters, and we think second half of the year is where it looked like things would get better, and I think we still feel that way. It may be that this quarter is even better than we expected, but it is stronger right now for sure.
Chris?
Yeah, this is Chris. With regard to our pipeline, I think what you're seeing, I think we saw in the first quarter and we're seeing now into the second quarter, is the vast majority of probably what we're looking at closing now are deals that we worked on for the better part of last year. We worked through the summer and the fall and touched with a number of our borrowers on transactions. I think we talked during the second half of last year, things were just taking longer to close, taking longer to get the equity together, et cetera. Part of that is really starting to get to a point where we felt like there was a recovery coming and that you could start to see some post-COVID trades, et cetera.
I think we're seeing that. Majority of what's in our pipeline to close for the second quarter are those types of deals that have been a long time coming. We have one closing tomorrow that we worked on all summer with the borrower. It's just finally gotten to the point where they can get their deal together and close. I think we're seeing in our pipeline what the economy is seeing, which is things starting to open up and therefore transactions starting to be completed.
Most of our first quarter volume was facilities, which was nice to see. We like that part of our business, and seeing a couple facilities close where folks have got money together, and they're looking to put that money out over the rest of the year. I think we feel good about where we're at now. Last year was only $700 million. That was probably down 30% from what we normally do. I think that was the anomaly.
I think that
Go ahead, John. Sorry.
Go ahead, Jon.
I was just going to say, it seems like some of this is catch up, and I guess, or lingering projects. Is the new, call it the new pipeline, the new activity, is that increasing as well, Chris?
I believe so, yes. We're seeing now what starts to come in is new transactions, et cetera. I think there's still, the market overall was down last year, and a lot of projects that were on hold are starting to come through. I think it'll take some time to get through that backlog.
Good. Maybe one for you, John, on inflation. Are the borrowers telling you the same thing that you're feeling, or is that not part of the narrative yet?
On inflation, you say, asking Jon?
Yep, exactly.
Oh, yeah. Kevin Hester's son is a home builder. We kind of track a little bit of that. He just had a special order home for a customer. When he got through adding up all the costs, the guy said, "I can't afford it. I can't do that." I don't think there's any doubt about inflation being out there, and our bet here is to sit tight on this $2.4 billion as tight as we can sit on it. Tracy French's about to rub all the hair off the front of his head because he can't stand it, but he knows it's a smart thing to do is to sit tight and remain disciplined, and that's what we're doing. We'll have an opportunity to deploy this money at some point in time, and we have not done loan rates. If we needed to do that, we could do it.
We have not done that. We have not entered into those markets. There really wasn't a lot of business after the pandemic. Chris is right. He said he worked on those projects all summer long. That's because of uncertainty that was in the market, and we're seeing that. We're seeing it change. We're seeing it turn over where there's optimism, and there's excitement about new projects. Some of the projects, one of our good customers bring us, we can't have brought us, we can't do them all.
We could, we just don't go to that level of loan to one customer. Yeah, he's a great customer, done well. I just think we're off and running. I think inflation's got to hit us at some point in time. Think about it. The job this team did over the last year by reducing cost of funds by more than the loan yield and increasing profitability. It should be like a roller coaster on a track, and it ought to track exactly. It doesn't always do that. I know it's better for banks in raising rates environments, and I think we're going to get that.
I think the Fed has done a hell of a job, and I think they're trying to do that, but I don't know what they're seeing that says inflation's only 1.5% or 1.75%, because I see it everywhere I look all the time. Our customers are talking about it. There was a piece of, was it plywood or OSB or what it was the other day, went from seven to 21. It's just those guys in supply are going, getting appliances is a problem. I think some of that might impact the economy a little bit, but if they keep building houses, these rates stay low, they're going to keep selling them.
The message is you're being patient, you're going to wait it out, and that's the way to kind of take advantage of some of your views on inflation is let other people make the mistakes and see what happens while they're trying to catch up.
I think that's exactly. Now it's coming a little faster. Our comment was, it'll be the second half of the year. Chris is coming pretty strong, and Kevin's team with his report looks much better than n ormally, we look at a report like this from around $200 million or $300 million at this time. We're not now. I'm not going to forecast loan growth because last time I did it, we went down. It is much better. I can say that. It is much better, and it's good customers, and it's good equity in the deals. It's not a bunch of funny money stuff. It's the real deal like we underwrite. There were some deals that went by us because if they were 80% and 85%, we're not going to do that. We're going to operate that way.
All right. Thanks for taking my questions.
Hey, thanks, Jon.
The next question is from Brady Gailey with KBW. Please go ahead.
Hey there. Thank you. I wanted to just hit on loan growth from a slightly different angle. If you listen to a lot of the other Florida banks, everybody's talking about Florida really being on fire right now. They're seeing a lot of population inflow. They're seeing a lot of business relocations down there. I think Florida is now your biggest market, even bigger than Arkansas. Will Florida specifically play a big piece into loan growth returning? Just maybe any commentary about what you guys are seeing in that state.
Yes. Hey, this is Kevin. I believe it will. Obviously, it is over half of our footprint, and it has to play. It always has because there's obviously a lot more economic activity going on in Florida than there will be in Arkansas, and they really never shut down. You are coming into, for most of the markets, the busy time of the year. Yeah, I fully expect that it will play a large role in that.
All right. Then just looking at when loan growth returns to Home, what should we expect? Excluding any sort of noise with PPP forgiveness, should we expect loan Home to be growing in kind of the low single-digit range, or could it be higher than that as we come out of this?
I'd say low. In fact, let's say low, but that way I'll be wrong. Let's say low, but it looks pretty good right now.
All right.
I think it's sustainable. I think this is sustainable. Tracy talks to our customers all the time. We're certainly getting opportunities for better than we've had in the past year. I guess the question that comes to my mind when you ask the question, Brady, is really more the payoff type, as we are hearing from customers that are getting some good opportunities to cash in on what they've done over the past few years.
That's always the question for us is the payoff amounts that trickle in on primarily what we've seen on the larger payoffs we've seen lately is they have sold their opportunity, and that's a good thing for them. They'll be back, and they'll continue to come back. If it's construction-type projects, it takes us a little time to put that on the books compared to if it's got a full balance and gets paid off today. We actually feel pretty, I think if you got the sentiment, it all feels pretty good in all our markets we're in.
Yeah. Finally, I just wanted to ask about M&A. Johnny, I know you said earlier that you were active having some conversations, but I know you sometimes also give us a little additional color. I think the last time we connected, you were chasing two or three deals, but maybe just a little more detailed update on M&A and if you feel like you're getting closer on anything.
Oh, I don't know the answer to that. I've been disappointed in a couple deals recently where we made an offer that was the highest priced offer that a bank had sold for in the U.S. in the past six or eight months. The CEO commented that if he made that offer to his board, they'd laugh him out of the room. I didn't quite know what to say. I was somewhat speechless at that point in time. I said, "Let's go lunch." We went to lunch, and Tracy and I left. Tracy had one yesterday that what they're trying to do, the bankers get in the way and screw stuff up most of the time because what they're doing is they know we don't dilute, and they know how we operate. They back into a price.
They take their customer and just back into a price, everybody's going to make more money next year. I start Tracy, I tell them, "Hell, you need to sell it next year. You don't need to sell it this year." Anyway, we have a couple of really good opportunities out there we feel like right now. We actually have a total of three, we're working on one as we speak, we'll see. That'll resolve itself in the next two to three weeks, we'll move to the next one and the next one. We've taken a couple off the table because they weren't realistic, the bankers were really I don't know if they bumped their head or what they did. Anyway, they were somewhat unrealistic. Wouldn't you say, Tracy?
Yes, sir. Kind of just, wow.
Yeah. Tracy said, "Let me give you what they asked for that bank," and he brought it in and showed it to me, and I started laughing. I said, "That's a joke." He said, "No, that's not a joke. They seriously made that." I said, "Well, I don't know if they really bumped their head on the way to doing the run." Anyway, you got to be realistic. It's got to be a fair trade on both sides, and you got to allow room for a stock to breathe. I think we've got two or three deals out there that could cook off. We'll just continue in the market, and we'll continue to be smart about the deals.
You know how disciplined we are, Brady, with this one on everything. As I told one seller, I said, "You'll be proud. You think I'm too disciplined now. Once you become a Home BancShares shareholder, you'll be really proud to be with a disciplined company because we protect this stock as much as we can. Anyway, it is interesting as Tracy and I have been out here working on some of these trades. I think we got one we can get done and maybe another one.
Great. Thanks for the color, guys.
You bet.
Our next question is from Matt Olney with Stephens. Please go ahead.
Hey. Thanks, guys. Good afternoon.
Good afternoon.
Sticking with the M&A discussion, we've seen some pretty sizable deals recently that are more MOE-like. Would love to hear how Home BancShares' thinking about M&A with respect to the size of deals. Are you becoming any more open to larger deals over $10 billion of assets, or do you think you're going to stick with the smaller deals that we've discussed in the past?
Well, we're primarily sticking with the smaller $2 billion or $3 billion deals to $4 billion at this point. We're not afraid to do a $10 billion deal if we understand their asset classes, Matt. One of the larger deals done recently, we just really didn't understand or have the expertise in some of those asset classes, primarily oil and gas. We didn't know much about that except the price of oil and gas had gone up. I know that. We've just stayed pretty conservative there. Tracy, you got any comment on that?
No, sir. It's a combination. We've got some good-sized banks that really fit well with us, and larger banks probably wouldn't fit that niche today.
Kevin talked about some of the asset classes on one of these larger deals a while back. He was right. We're not a big C&I lender. We're really a construction lender, a lot. We do a lot of construction. We like it. We've done well in that business. We'll continue doing that. If somebody's got a big book, 25% of the book's oil and gas, that's probably not a place we're going to be. We'll probably be somewhere else.
Okay. Got it. That's helpful. Then switching gears over to loan growth, I appreciate the commentary that the loan pipeline seemed to have seen a nice inflection kind of late in the quarter. What about on the other side? The payoffs still remained elevated during the one Q. Would love to hear more details around those payoffs, and any way to think about the payoffs with respect to customer deleveraging or just exiting lower quality credits. Was there any change in the pace of payoffs during the quarter? Thanks.
I think, Matt, both Tracy and Chris mentioned that. For the larger credits, the two biggest things that I saw this quarter were customers taking advantage of selling their project, and refis after a project gets completed, multifamily, those sorts of things. Customers taking it permanent, taking it non-recourse, things like that. Those were the two biggest things. There sprinkled in there a little bit of refi for rates, but those other two were the main things this quarter.
Just looking at payoffs for the past several quarters, yeah, the last two look pretty much the same at over $800 million. I would anticipate you're probably still going to see some of that because I think we got more customers that I know of, a few, that are selling that will materialize this quarter or next quarter. I think you're still going to see some of that. We're going to have to outpace that to have loan growth.
Got it. Okay.
Matt
Thank you.
There's a shot at it now because things have turned, even Florida, who never shut down, those projects that are coming back on stream in Florida. I'm optimistic that we're going to see some loan growth, maybe better this quarter than I anticipate. I really wasn't looking for it till the third and fourth quarter, it may sneak up a little bit up on us now. I don't want to get too optimistic because every time I do that, it goes the other way.
Understood. Thank you.
Our next question is from Stephen Scouten with Piper Sandler. Please go ahead.
Hey, good afternoon, everyone.
Thanks, Stephen.
Maybe one question just for Brian first. Do you have the number on the remaining PPP, deferred PPP fees that could come through over the next few quarters?
I do. As of 3/31, we had $20.9 million, and as of today, it's up about $1 million to $21.9 million.
Great. Thank you. Then maybe, I don't know if this would be Kevin or who, Tracy, maybe, but with your lenders, do you feel like they have gotten distracted at all by PPP lending? Do you feel like you could actually see better core growth as PPP kind of winds down? Have they been able to manage both effectively?
This is Kevin. I would say they've absolutely been distracted by both the funding and the forgiveness aspects of PPP, without a doubt.
Funding has slowed down, I'm sorry, funding slowed down a lot. As I mentioned, we're not doing that many, and we're not really actively looking. We're responding to requests for funding. We still have a lot of forgiveness to deal with, particularly round three.
Got it. Okay. Very helpful. Okay. Then maybe one for Stephen on the deposit cost side. How much lower do you think you could get deposit costs? You guys have made phenomenal progress, but seems like maybe still some room to go with CD costs. Could we see deposit costs down in the 10, 15 basis point kind of range in a few quarters?
Thanks, Stephen. I think the way we've looked at it here over the last six months at least is kind of where we were prior to the last tightening cycle. I think interest-bearing costs were down in the low 20s, which that was obviously a number of years into that low-rate environment. Interest-bearing costs today are down below 30. That would continue to move down. We have some under contract that will come up over the course of this year. You mentioned the CD maturities that will continue to help. We'll find a floor somewhere, but given the liquidity that is in the system and in the bank today, I think we will continue to push on it as we go. Whether we can get down below 20, we'll see. There's still opportunity over the next couple of quarters for sure.
Got it. Perfect. Okay. John, maybe last one kind of for you would be jumping back to M&A. I know you mentioned maybe $2 billion-$3 billion kind of deals would be the sweet spot, but have you broadened the horizon at all in terms of geographies, or would it still largely be kind of Arkansas, Florida, or do you start looking at Georgia or Tennessee or any other states kind of in between, so to speak?
Well, I'll just tell you that we've always liked North and South Carolina. We've [inaudible] Arkansas over the years. We've always liked Texas. There's maybe some opportunity. Pretty pricey in Texas, I think we're just looking for what comes our way right now. A couple of them have come our way, and some of them have fallen by the wayside. It's just a misunderstanding. We quoted one deal for one guy, and when our stock was $21, now it's $26 or $27.
Had he taken our deal, he left about $50 million on the table. Some people don't understand what can happen to the market. If bank stocks were starting to move up, it would have been a great opportunity for them. They're a good bank. It was a good bank. It was a nice bank, nice people. As usual, the bankers kind of get in the way, or appears to me that they did. It may not be correct.
Fair enough. Well, we look forward to seeing the next one. We know it'll be a good one, and congrats on a good quarter.
Thanks. Thanks, Stephen.
Thank you. I think Brady counted out all our extra income. I think he took it all off. He didn't need to take it all off, Brady, because we're still in those investments. I want you to understand that. I don't know that we'll have that kind of return coming the rest of the year. We're still in all of those investments. Every one of them that we're in, we're still in. We didn't get in them just to be there. We got in them to make money. As you can see, we're making money with them. We're investors a little bit ourselves, Stephen.
Our next question is from Will Curtiss with Hovde Group. Please go ahead.
Hey, good afternoon, everyone.
Hey. Say, Will.
How are you?
I'm good.
Good. I wanted to kind of piggyback on the Florida discussion and just in terms of how well the market's doing. I'm just curious, as kind of this recovery moves along, is there anything that's of concern or you're watching a little closer these days, John?
Well, from an asset quality perspective, I always keep an eye on our hotels. The information coming in on hotels is much improved from where it was. I've kind of pushed that off to the side. I do worry about inflation. I think inflation's here, Will, and worry about a devaluation of the dollar. I'm scared to death that's going to happen. I listened to a guy who I've done pretty good with on investing, and he says it's coming, and he said it's going to be quick and severe. He said, "You got cash, get rid of it." That just concerns me that behind how the dollar goes down and inflation goes up, and we have to fight that battle. I said earlier, I think the Fed's done a good job, and I think they're trying. Powell's the guy to do it.
If anybody can do it, I think he can do it. I just don't believe they're not looking where I'm looking. The thing that bothers me the most is the inflationary side of it. That could be good, too. A little inflation doesn't hurt us all, and a little. Little kick up in rates wouldn't hurt us. If you think about it, you tap your money. We got $2 billion. We tap it at 1.25% today, or 1.30%, 1.40% today, and the 10-year goes to 3% by the end of the year, and you look so stupid. You think, "Why did I do that?" My deal is whether Tracy's going to have any hair left on the front of his head because he is rubbing his head every day I walk in. He's like, he said, "I know we're doing the right thing, but damn, it's tough, John."
He said, "It's hard. It is really hard not to invest some of this money." We've talked about everything in the world. We bought some bank stocks that have done extremely well for us. They're paying a good dividend, some good banks that we all know the people that run them and know how well they run their companies. And those have done well for us. They're good dividend-paying stocks, and we might as well sit with those for a little bit. Other than that, I think, a fear of this, if we go to 31 or 2%, what do you say? What did Brian say we want to go, Brian? What we'd go to in the tax bracket ? What'd you say, Brian?
Oh. Well, we were talking before the call, and you were asking me what the marginal rate might go to, and.
Right
the marginal rate that we have right now is 26.135%, and if we get the 28% tax bracket, it would go to 32.68%, would be our marginal tax rate, which is an increase of 6.545%.
Yeah, think about it. You buy something today based on today's tax bracket, and then you turn around and get hit with this. In some respects, it's a dangerous time to be in the M&A business trying to do a deal because they're all going to price it off of what today's tax rate is. If it goes up 6%, they pull, we make $300 million a year, right? 310, something like that. Go seven points, that's what? $21, $22 million a year comes out of our shareholders' pocket. I think that delays a dividend probably for our shareholders. Instead of doing one every year, it might be three years or two years before we do another one. That bothers me a little bit. I know my wife's concerned about that because if you remember, she likes her dividend every month.
She likes the amount we pay, she just wants the same amount every month is what she says. Says she's going to visit with Tracy and Brian S. Davis about that. I guess the government would spend it wiser than we spend it, so that concerns me a little bit. Outside of that, the company, you run a 292 pre-tax ROA and a 222 after that, a 36% efficiency ratio, and you make the kind of money we make, and you got some good investments kicking in for you. I could not be happier. I'm ready for a little loan growth, and I think we'll get it, but you know us, we are not going to push it. We're not going to chase 2% and 3% loans. We're not going to do that. We're not in that business. We're not going to sell our future.
We're looking at one bank right now that the problem is, it's a nice bank, it's their yield sucks. You got to pay that price, right? If you're going to ride low rates, you pay me now, pay me later. Not my fear, we don't do that, so. In the future, I hope rates come up a little bit. I think it's time for a little kick in rates, and I don't think that'd hurt things. Might slow mortgage down a little bit. I probably told you more than you wanted to hear, didn't I?
No, that was great. I appreciate your thoughts and nice quarter.
Thank you very much.
The next question is from Brian Martin with Janney Montgomery. Please go ahead.
Hey, guys. Good afternoon.
Hey, Brian. How are you?
Good, Johnny. Hope all is well there. A couple of things, maybe one for Brian or for Kevin, just on those PPP fees. Brian, I think you said there were $22 million. Do you have the breakdown of what remains on one and two versus three? Then just maybe for Kevin, the forgiveness that you talked about, just how to think about that forgiveness particularly for round three. How are you thinking about that? Or how should we big picture? Any thoughts on that?
I'll go first. Of the approximately $22 million of PPP fees, we have $7 million of it left, approximately, from round one, and we started at $30 million at that point in time. That would leave about $15 million from round two.
Okay. Perfect. Thanks, Brian.
Brian, I think, we're going to see the rounds one and two slow down. Those have been pretty consistent the last two quarters, or really the two quarters that we've been doing it. You're going to see that slow down, but you're going to see three pick up. I would think that the next quarter or two should be pretty consistent with the last two quarters. Past that, I'm not sure. I don't know how round three will finish up because some of that stuff we won't be able to start on until later in the year. Some of it we'll get to start now, but some folks will wait as long as they can. I do expect a couple of quarters similar to the last two.
Okay. Not much bleeding over into next year, to 2022.
I hope not. I really hope not. I hope to get it done this year for my people's sake.
Yeah. Got you. Okay. Maybe just one, I guess I'm not sure for who, but just on the liquidity. I guess I understand about sitting tight, but just think, I guess your comments about the loan growth funding late in the quarter, but then you have a full quarter impact of the liquidity from the deposit growth, just kind of wondering how to think about the size of the balance sheet going forward, and then maybe just the margin impact, I guess particularly as you get to Q2 here with the full quarter of both those items.
Brian, this is Stephen. To answer the last part first, we had, I think on average for the quarter, about 40 basis points impact to the NIM from the liquidity that we had, and I think it was about 50 basis points in the month of March. We really try to strip all that out and see where would we be on a core basis. I think we're still in that 4% range on a core basis that we've tracked in the past. Some of the stimulus, well, the last round of stimulus came early March. We'll see how some of that gets spent over this period of time. It certainly seems like people are saving money.
Of interest, our debit card spend in March was up 50% over what it was a year ago, and it was probably up 25% or 30% from what it had been the last four or five months in a row. Certainly some of that money is getting spent and put out in the economy. Maybe some of the liquidity gets spent over the next few months, and maybe some of that gets traded into loan balances for us. Earning asset size today for me is probably flattish to maybe down a little bit over the next several months.
Thank you. Okay, perfect. Then Stephen, just the deposit flows. You talked about them, as strong as they were this quarter, I guess, is your expectation of those kind of slow down a bit at this point?
Yeah.
Maybe stops?
I do. Q1 historically, when you had tax refunds and those kind of things, is good for us. You had PPP funding, and you had the latest round of stimulus. That all helps that. I wouldn't necessarily expect the deposit increases that we had this past quarter to continue at that level going from here. We'll continue to watch where interest-bearing balances are and what we're paying there and try to mitigate some of the inflows there just from an interest rate standpoint.
Gotcha. Okay. All right. That's all for me. I had it. Thanks, guys.
Thanks, Brian. Appreciate it.
The next question is from John Hecht with Jefferies. Go ahead.
Hey, guys. Nice quarter.
Thank you.
I dialed in a little late.
How are you?
I'm good. Living the dream, working on my bedroom. I dialed in a little late. Maybe you discussed, in the construction, your crystal ball, what sub-sectors do you see potential growth or demand, like industrial or medical office? Maybe it's a bad question. Maybe you only focus on one or two areas, I apologize. If there's a few areas, are you seeing any green shoots or whatever you want to call it in terms of construction demand? Thanks.
Yeah, I think several areas, I think, at least in the footprint. Chris can talk for his group because it may be different for his group. In the footprint, certainly, multifamily, in part of the footprint, industrial in that Central Florida area, there's a lot of that to be had, although that's generally pretty cheap. There will actually be probably a little bit of hotel that comes around. It's going to be dependent upon which market we're talking about, will determine kind of which asset classes there are. Chris, do you see something different from that?
No, I think that's right. Industrial's hot everywhere. Maybe a little too hot. We're a little cautious, to be honest with you, on industrial.
Yeah.
Anything residential's doing well. A little bit of mixed use is okay, depending on the market. Yeah, I think it's the stuff you'd expect for the most part. On industrial, it just depends a little bit on what you're taking a look at. Cold storage is really in demand. The subset of that, again, everything from single-family homes to condos to rentals, all pretty good in those markets.
Okay.
John, yeah. Chris mentioned single family, and certainly I didn't mention that in my comments, but definitely the single-family construction side is strong in really all of our markets.
Okay. Then, x that, this is maybe too theoretical. The loan to cost, the cost has got to be coming higher, so that gives you more comfort, and maybe do you underwrite to higher rents as a result or higher loan to value? I guess what I'm saying is loan to cost, loan to value are maybe getting separated a little bit. That would seem to me like put upward pressure on rent. Are you underwriting that? It's not a trick question. Maybe it may be too theoretical. I just was curious.
Yeah. We're definitely seeing the relationship between cost and value changing in our appraisals. I mean, we are seeing that as costs are going up. It's not normal for us to really try to underwrite to higher rents than the market. I mean, that's not something we typically will do. Although a lot of our projects do project that, we're sensitive about that and really try to, while we may give them credit for it on one side, we're also conservative and look at what happens if they don't get that premium. Right. That's not something that we typically would hang our underwriting on.
No, it makes sense. Good answer. It's a little cushion maybe for the underwriting in the future as well. Okay. Thank you. Right. Appreciate it.
Thank you, John.
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 all for joining today. Thanks for your support. Hopefully, next quarter we'll have another good one. We're off to a good year. Things are picking up countrywide. I think rates are going to pick up a little bit. I think that's good for banks. I'm pretty optimistic that this could be another really good year for Home. We certainly are out to a great start. We've never made $90 million in a month. I don't know if we've ever run a 36.60 efficiency ratio, have we? Somewhere we've gotten down close. Huh.
Very close.
Very close? Okay. I don't want to say something's wrong. Thank you. Thank you very much for your support, and we'll talk to you in about 90 days.
This conference is now concluded. Thank you for attending today's presentation. You may now disconnect.