Greetings, ladies and gentlemen. Welcome to the Home Bancshares Incorporated 4th Quarter 2018 Earnings Call. The purpose of this call is to discuss the information and data provided in the quarterly earnings release issued this morning. The company presenters will begin with prepared remarks, then entertain The company has asked me to remind everyone to refer to their cautionary note regarding forward looking statements. You will find this note on Page 3 of their Form 10 ks filed with the SEC in February 2018.
At this time, all participants are in a listen only mode and this conference is being recorded. It is now my pleasure to turn the call over to Mr. Anderson.
Thank you, Sean. Welcome to Home Bancshares 4th quarter year end conference call. It's hard to believe that another one has passed in 2018. 2018 also was the 20th year for our company, 20 year anniversary. Congratulations all.
2017 was a great year resulting in about $200,000,000 in income and now 2018 has come and resulted in about $300,000,000 in income for our company. That's a 50% increase. That's not too bad when the world was supposed to be coming to an end. With me today is Randy Sims, Tracy French, Donna Townsville, Brian Davis, Stephen Tipton, Kevin Hester, Jennifer Floyd. I will be available for Q and A after the presentation ends.
Chris Poulton, Donna Townsend, myself traveled extensively during the last 6 months of 2018, trying to understand investor sentiment towards bank stocks. We were told that the boogeyman was ever under everyone's house, that there was a Russian behind every tree, that there was an imminent recession, that the Pfaff Monster had returned and my friend Vince, after several whiskeys by the way, said he thought it may be the effects of killing Osama bin Laden. Actually, they were all wrong. The reality was that Peter Pan can no longer fly, Minnie Mouse left Mickey for goofy and the ghost bursters and the man with 2 brains had flown in a Piper Cub with Frankenstein piloting to take over the banking industry. Nevertheless, we set Batman, Superman and Nancy Pelosi to save the day and they built a wall around the airport and saved us all.
At least we finally got it figured out. Let's go to some real facts. The quarter was actually pretty good. The as adjusted numbers were EPS $0.44 net income $0.75.8.19 not too bad. Return on assets 38.30.
Dollars Expenses were basically flat ex the hurricane and merger expense. Organic loan growth stuck its head up a little bit at $239,000,000 in loan growth. I don't know if that was really I guess part of it was the fact that the payoff slowed down somewhat. Asset quality remains strong. We have one acquired Stonegate credit of about $8,000,000 that did not sell this quarter.
The loan is we thought we had it sold. The loan is both classified and specifically reserved and the company does not anticipate any loss and that one is about $8,000,000 we hope to get rid of that next quarter. Non interest expense was flat to down ex merger expense. Of the $239,000,000 in loan growth, dollars 37,000,000 came from Shore, dollars 116,000,000 of that came from the Arkansas legacy port book and New York generated $86,000,000 Florida and Alabama were basically flat for the quarter. The company had record originations of $1,100,000,000 If you remember, that's kind of been teeing up.
It was $940,000,000 $970,000,000 and then now $1,100,000,000 So that's $1,100,000,000 at an average rate of 6.07 percent, that's up 57 basis points. Legacy generated $759,000,000 of that at 5.87 dollars Shore generated $82,000,000 of that at $5,450,000,000 and New York generated $295,000,000 at 6.74. Dollars We continue to be in the repurchase business. We repurchased 5,308,000 shares in 2018 with 3,444,000 of those shares coming in the 4th quarter, while they were killing bank stocks. We'll continue to be active in 2019.
Let's talk about CCFG's performance. CCFG is presently 10% of our assets with about $1,500,000,000 in loans and of that about 1 third of their book is construction. CCFG has made pre tax pre provision income for 2018 was approximately 75 little above 75,000,000 dollars I don't think it's fair that the Street gives this segment of our business a much lower PE multiple, which impacts our overall PE by dragging down the Community Bank PE. I don't agree with this because CCFG is a minor part of our assets and is extremely profitable. At the end of the day, they created $75 plus 1,000,000 in pretax pre provision income and that increases shareholder value and EPS and say what you want to say, that's real train riding money.
Thank you all, our loyal supporters who've been with us for many years and to hell with the naysayers. This has been a wonderful 20 years and many have been with us since we started and others have been with us since we did our IPO in 'six. Thank you for your support. We're extremely loyal to our shareholders and we'll continue to run this great company the way we have in the past. 2019 should be interesting for all of us as the pendulum swings too far in both directions.
The market has been so crazy that the piling on effect has driven down bank stocks to the lows of the early mid-80s, great time to pick bank stocks because they've been treated the good ones have been treated worse than the bad ones because they had more room to drive those down. I bought more bank stocks personally in the last 2 to 3 weeks than I bought in many, many years. It's not a fact it's almost a dark border you could draw 1 out of a bow. I want to reiterate something that I said to him kind of looking at my notes from back last year, I think it was the Q1 last year. And we were talking about bank stocks and I said obviously someone liked it, liked our bank stock.
Forbes ranked Home Bank shares the best bank in America of all banks from $8,800,000,000 to $2,700,000,000 What an amazing honor that was for our people. I want to thank the home team for a job well done and I said let's do it again for 'nineteen. The ball is certainly teed up perfectly for a great year in 'eighteen. Randy, I'm looking forward to another powerful year. These are the comments I made January of last year and I said, Randy, I'm going to turn it over to you.
So I'm just going to turn it over to you right now, Randy, before we go to Q and A. Thank you, Johnny. Well, another great Q4 to complement another great year. Congratulations to all our employees and directors for a very successful 2018. You all have made a difference in our continued success.
Now normally, I lead off by highlighting the number of record quarters and profitability, like for the 31st time that our 4th quarter income exceeded the Q4 in 2017, and by the way, over $47,000,000 But instead, allow me just a few minutes to talk about something even better. And that is the last 20 years of record growth and profitability. We have now completed 20 years as a banking organization since we opened up here in Conway, Arkansas. And as an aside, I might add that I have survived, I mean completed 34 years of working for Mr. Johnny Allison.
I can still remember in late 1998 asking Johnny what his real expectations were for the new bank. He replied, well, I would be satisfied if we just had a good community banking organization and grew it to about 250,000,000 dollars Well, we finished this past year at over $15,000,000,000 20 years, it has been a wild and crazy ride, has it not? Here are just a few highlights. We started in a trailer with 10 employees growing to $100,000,000 in 3 months. There were 386 stock certificates in our first issuance of stock to local shareholders.
We placed an emphasis on customer service and that has never changed. I remember the fun of cooking cheeseburgers and hot dogs at football games plus a host of other great fun community events over the years and that has not changed either. We placed an emphasis on innovative products for our customers and that has never changed, but it's been copied often. We survived the craziness of the year 2000 with the regulators and we are still trying to survive the craziness of the regulators today. I should get an amen on that one.
We concentrated 1 year on an efficiency project that changed the way we operate resulting in a model of management and a leap in profitability, and we have stuck to those principles today. We became a publicly traded company in July of 2006. We thrived during the recession. We raised capital in 2 days and bought failed banks over a period of several years. It changed our corporation forever.
We bought the Liberty Banking Corporation in Arkansas, expanding our footprint throughout the state of Arkansas, doubled their profits in less than a year and the best deal we've ever completed. We bought and bought banks in Florida and now cover the entire state. Some were good and we fixed the poor performers. The result is great profitability today. We opened an operation in New York.
Regulators, analysts and just about everyone continues to question that. Even today, our New York office simply continues year after year to make more profit than any other region and with pristine asset quality. The cost of that particular acquisition deal or whatever you want to call it, 0. The last 20 years has been nothing but consistent and growing profitability, just like the ROA of over 2% for this past year. Now I could keep going on, but I'm to the point it sounds like I'm lost in a Billy Joel song, so and I would continue to repeat myself.
And what is that? That is the fact that since our inception and then as we became a public company, I can proudly say our corporation has performed through good times and bad. If the economy is bad, we have capitalized on opportunity. If the economy is good, we have capitalized on opportunity. We've seen a few bumps in the road over the last 20 years, but outside of that, nothing but success.
Now to the craziness of today, we have an economy and a political environment that we have never seen before. Our markets continue to see good times, nothing to scare us. So a pretty good economy as far as we're concerned, but maybe not so much on the political side. So consider this, we are trading today around $18 give or take. The last time we saw that price was the Q2 of 2015 and our EPS that quarter was $0.25 Try comparing that to our EPS for the Q4 of 2018 at $0.44 adjusted.
Now talk about crazy, I think that is a world record of not making any sense.
I don't know if we're
too high then, we're certainly too low now. Makes no sense. But then when I consider some of the things over our past 20 years, I realize we'll get past this, the politics, everything else and make the most of our opportunities as we look forward to our 21st and another successful year in 2019. Now I will end my comments and I appreciate the little time and the editorial that I've been allowed with this off the press hot off the press item that is pure evidence of what I've been discussing, preaching or whatever you want to call it. I'm so proud to be able to announce today that Forbes for the 2nd consecutive year has named us the best bank in America.
What an absolute honor. Thank you, Johnny, for allowing me to make that announcement. 20 years and it just keeps getting better. How about a round of applause for that one? We should have had the Gazooz here.
Well, we should have had a band. Yeah. We should have had a band. But with that, I will turn it back over to you. Thank you.
That's quite an honor. I looked at my phone this morning and I was working on my speech at home and I saw where Donna Townefield had called me 3 times in about 30 minutes and I thought something must be up. She never calls 3 times in 30 minutes and she gave me the news. Funny story was she was telling marketing and send information out about 2 or 3 weeks ago. So we can't use the Forbes stuff anymore.
We used it last year and we could say that we were in that year. But I said, how do you know we're not going to get it again? I said, if they liked us last year, they got to love us this year. And I don't know why it is felt that way and then bam, we get she tells me this morning that we've won the Forbes award for the 2nd time, 2 times in a row. So that's pretty makes me pretty happy, pretty proud.
Incredible honor. Yes, congratulations to everyone. And I found my info. What I read a while ago was the info I had a year ago when we're having our conference calls and there it is. And I said, let's do it again in 'nineteen and damn if we didn't.
So congratulations to everyone.
Sean, we're pretty happy around here. Are you ready for Q and A?
We will now begin the question and answer session.
This is John Allison. I have one. We don't have any kazoo's this time and we don't have any hand clappers, but I've got something to celebrate this for the 2nd time around. It's appropriate to Arkansas. So, I will pull it for all our friends.
That's an Arkansas duck call. So, all of you all have heard that before. I thought that's pretty appropriate. You can go to number 1 if you want to, Sean.
Sounds great, Mr. Allison. Our first question comes from Matt Olney with Stephens. Please go ahead.
Hey, thanks guys. Congrats on the Forbes news and Johnny, I like the duck calls out there.
Well, I thought we'd do something other than zoos. Ask them if they had them late, so they didn't know where they were. So now we got some hand clappers, but they didn't work very well. So I just got a duck call, blew it. So thanks, Matt.
So I wanted to start on the core margin in the Q4. It seems like all during 2018, the core margin was pretty flat, but it fits pretty hard in the Q4. Help me understand the dynamic of what happened in 4Q and then what's the outlook for the core margin in 2019?
Okay. I'll let Stephen and Brian cover that and maybe Chris jump in a little bit on that after that. But actually what you're going to see is the margin is pretty flat. What you saw a big drop was is all explainable and I don't know which one of you all want to go first with that Brian or Steve?
I'll give a little color and then I'll pass it off to Steve and he's in here. I'm all right. I mean what we had for the most part for the core margin, there was $3,800,000 from New York that came in from some minimum interest and default interest on a few loans that they had that paid off in the Q3. So the Q3 was a little bit inflated by this $3,800,000 That's about 12 basis points overall. And if you're looking at our 16 basis point decline in margins, we had a $1,300,000 in accretion decline and that's a little over 3 basis points.
So between the decline in accretion and the decline from New York for what I'll call maybe not necessarily non reoccurring, that pretty much explains entire decline in the margin.
That's fair. Matt, this is Steve. I'll take a little bit of that too. I think what we saw obviously in Q4 from a payoff perspective, those numbers softened quite a bit. Payoffs in Q4 were about $540,000,000 They were $330,000,000 $40,000,000 less than what we saw last quarter and maybe more of a little more of a normal quarter compared to Q1 and Q2.
So those bounce around and are hard to certainly hard to predict and what we ended up seeing in Q4 was quite a bit lower level of payoffs which has some impact on the NIM.
Chris, you want to comment?
Yes, this is Chris. Probably the only thing I'd add is, we had about 3 times the amount of payoffs in Q3 as we did Q4. But in addition to that, most of our payoffs in Q4 were paid off at maturity. And when you pay off the maturity, there's very little income acceleration. In Q3, most of the payoffs were early payoffs and those have income acceleration, including the minimum interest.
So it wasn't just the volume, but I would also say the type of payoffs where when you pay off the maturity there's less acceleration.
Matt, did that answer your question? Any other questions about that, comments?
Yes. I guess, I'll make sure I fully appreciate this. So if the Q3 was pretty heavy in terms of the minimum interest payments and the 4th quarter is pretty light, is it more normalized level of those minimum interest payments somewhere in between or how I think about a normalized level of payments for that?
Chris?
I think it's hard to do it on a quarter to quarter basis. What I would tell you is that on a year to year basis, over the course of a year, we generally do get acceleration. I would say this past year, we probably had a little higher than a normal year. But in any given year, we are going to get that. I would tell you quarter to quarter, if you averaged it out, yes, you would expect it to probably be in between there.
But I can tell you that in the first quarter, it will be an average quarter or the second quarter be an average quarter. It's really we look at it more on a year over year basis. In the Q3, a lot of those happened at the end of the quarter. We had thought they might slip over into Q4 and then it would have looked
fairly flat.
Okay. And then a related topic, I think, was some of the fees from the Q3 in fee income, I believe, were also associated with some of the pay downs from CFG. Can you kind of quantify what that was in the Q3? And then what do we see in the Q4 from that?
I mean, I can take a little bit of this. Chris, you might want to kind of chime in. But like for the other service charges and fees, we're down $1,400,000 and approximately a little over $1,000,000 of that is coming from CFG because once again, you had less exit fees etcetera from the payoffs.
Okay. So just wrapping this up, how do we think about core margin dynamics from here? I understand there could be some volatility from some of these minimum interest payments that Chris is talking about.
We started January 1 with about a 407 and we have we bought Shower, which diluted down 5 or 6 or 7 basis points. So probably think about $4,000,000,000 that's kind of where we're hanging in. We originated $1,100,000,000 this quarter, record quarter originations and those are up 50 basis points. That's pretty impressive numbers on that. So as you know, we've set that trend.
We're turning the boat. We're turning that big portfolio around over a period of time and increasing those rates. So I'm pretty pleased with that. If in fact the Fed has set it's going to sit still for a little bit, that's pretty positive for us. We won't have those immediate impact of that being 1 in that are tied to basically to whatever the Fed does.
So we've changed our program a little bit here. We grew deposits about $270,000,000 net right $270,000,000 for the quarter. Change is going to put more emphasis on the cost of funds rather than the deposit growth. We had it on cost of funds and deposit growth. We'll be focusing strictly on the winners of those groups will be on the cost of funds.
So I'm actually optimistic that we continue to write they're going to all roll our eyes here because I think that the margin ought to be increasing at least flat. Stephen's rolling his eyes, so I'll let Stephen take it from there.
That's fair. I mean, Mr. Allison mentioned the production this past quarter, we talked about the payoffs. I mean, all areas of the bank have done a great job in being able to increase rate quarter over quarter production for Q4, which is committed balances. So a good portion of that has not yet funded.
But the combined production of $1,100,000,000 for the quarter was at $607,000,000 payoffs rolled off at $550,000,000
So I
think the combination of an increase in production rates and as those balances pull up relative to what pays down gives us comfort in seeing that happen going forward.
I think the margin really even though it looks like it has jumped around, you'll see a little jumping around though it has really since the 1st year after you merge shore and has remained fairly stable. I think we have a shot at maybe moving that up. We continue our team continues to wrap where they're at in 607, 610, they continue to move those rates up. I think we got a shot at moving margins up. So overall, it's been a pretty good margin year.
We really had what looks like a
big drop really was not
a big drop. It's kind of a one time event. I think Chris kind of some of those loans that left during the Q3, I think Chris was what I say Chris you would were encouraging some of that?
I think that's right. We look at it in the towards the beginning of the year and Q2 identified a few that we thought over the course of maybe 12 months or so, we'd probably encourage them to go find financing elsewhere. I thought it would take 9 to 12 months, 6 to 12 months to get those out. It took about 3 months, which I think speaks to the strength of the secondary market during the summer. But I think we got all the ones we identified are moved on and they moved on a lot faster than we anticipated.
So I might overshot that a little bit, but I think I'm still happier that we executed.
Okay, guys. That's great color. I appreciate it. I'll hop back in the queue and congrats on the last 20 years.
Thanks, Matt.
Our next question comes from Brady Gailey with KBW. Please go ahead.
Hey, good afternoon guys.
Hey, Brady.
So 4% core margin, what about yield accretable yield? I think last year you all did a little over $41,000,000 of yield accretion. Where do you think that shakes out in 2019?
I'll take that one. We did $9,400,000 in accretable yield in the 4th quarter. As a general rule of thumb, we kind of expect that that might go down from the baseline about $500,000 So I mean it's hard to project out too far in advance, but if you were kind of to ask me where I think it will be for Q1 would probably be around $9,000,000 or just slightly under $9,000,000 Part of the decline that we had in the accretion yield for this quarter was the fact that $800,000 of it was a decline in payoff accretion too.
Okay. And then you mentioned having a lesser amount of loan payoffs that resulted in loan growth of 9% linked quarter annualized, which is a lot higher than kind of where you guys have been running. How are you all thinking about loan growth in 2019? Do you think we could keep this kind of mid to upper single digit growth level this year?
Kevin, you want to take a shot at the Board?
Well, I mean, growth was it was a combination of, as Stephen said, record production for the quarter and a more normalized level of payoffs. Will that level stay at the Q4 level of payoffs? There's really can't no way to know that today. I think we started the quarter not looking at that strong of a book. So between the payoffs being more normalized and really hitting the Q4 hard, I think, is a really great quarter, but I wouldn't push for that for expect that in 2019.
We have the High single digits would be tough, I think.
Yes. Actually, the forecast for the Q4, Tracy, was down, what, 100 or Stephen? Early quarter.
Early in the quarter, it was 150. Yes, 150
showed we'd be that's a greased pig. I mean, it's hard to get your arms around that deal because you never know what people are doing out there and forecast more payouts than we thought would come in and didn't anticipate as much loan growth being closed as we got closed. So we were forecasting it down and it ended up being up $239,000,000 It's presently forecast in the Q1 to be down, but that can change in a week or 3 days and that happens. All of a sudden something doesn't pay off and something else comes on and you just start building your loan volume. I mean, I think
the average over the year, Stephen mentioned, the production has always been really good. And I think Johnny and I hit the road last year and we had indicated we thought the pipeline was really strong with early in the quarter. So we've asked our team to be much more conservative on the projections and as we do quarter to quarter. But the activity that we see out there in the pipeline that doesn't show up on the pipeline seems to be pretty steady. We'll keep our fingers crossed.
If they all slow down a little, that'd be great. And 1 quarter is probably not a rule to go by, but the production side we hope is. We didn't let Johnny predict
loan volume all quarter long and we ended up having
$239,000,000 quarter. Yes.
If you remember, we did I do not project loan volume anymore since I got egg on my face after the Q1. I thought it's going to be good, but I didn't want to say that first. I spelled it one day.
I heard Johnny say that in the Board meeting. So I don't want to say LOAN.
Yes, I spelled loan growth out because I thought we're going to have it. So I didn't want to say the word.
And then finally for me, just on M and A, we saw you all saw a deal there in Arkansas yesterday. I know it's tougher with the currency trading where it's at, but Johnny, how are you feeling about the likelihood of you all doing M and A in 2019?
We may we're not adverse to doing M and A. We're looking around, see what makes sense. We're feeling actually feeling pretty good. I mean the boogeyman didn't get us. I'm actually feeling pretty good.
Asset quality has remained good. We're pushing up rates, growing deposits, growing loans. I don't know what else. I mean, I'm pretty happy. I mean, it's been a tough year though with all the pessimism out there.
It's really been a tough year. But overall, it's been a good year. And I suspect that the next year so it's flat and we only make $305,000,000 next year. It's still best in class or $310,000,000 or make $290,000,000 The company when the opportunities are there, home bank shares darn sure get their fair piece of the market. We'll get our fair share of the market when it's there.
We won't do anything stupid in the meantime. We won't give stuff away. And we'll just remain disciplined as we always have. And when it gets real good, we'll be there to play. If it gets real bad, we'll be there to play.
So I really like our position. I like where the company is sitting right now.
All right. Got it. Thanks, guys.
Thank you.
Our next question comes from Jon Arfstrom with RBC Capital Markets. Please go ahead, Jon.
Thanks. Good afternoon.
Hi, John.
Congrats on 20 years. Well, thank you. It doesn't seem like 20 years, but time flies, doesn't it?
Yes, it does.
When you're
having fun.
Just a different way of asking Brady's question. How do you feel about repurchase appetite at this point? You were active, but obviously you're not as satisfied with the stock price. I'm just curious what you're thinking on that.
Well, we're going to continue to buy the stock. I mean, we have requested the regulators allow us to buy just short of $200,000,000 worth of stock if we choose to. So we're in the game. We're in the market. I remember back in the mid-80s, early-80s when bank stocks were selling at book and or booking a quarter.
I remember those days and that kind of reminds me of that right now. That's why I've been buying these bank stocks and you don't really have to be real smart to buy bank stocks. Now it's almost still dark, particularly if you buy the good ones. So
I'm pretty comfortable.
Okay, good.
What does your crystal ball say about the home $2 run rate?
Well, I think it may have pushed out a little bit. I think it may have pushed out a little bit, but not far, not too far out. I think maybe another 6 to 12 months what we kind of thought around here that we might push it out. But that's really because not really I mean, when you look at $1,100,000,000 in originations in the 4th quarter, we're doing lots of business. So that deal could turn on a dime and you could end up with $800,000,000 plus quarter or $600,000,000 If you look at the steam of this deal, it's kind of pretty consistent.
I think it was $950,000,000 Stephen, dollars 9.75 and now $1,100,000,000 in originations. So it's not a flash in the pan, it's actually happening every quarter. And if we can get the paydowns to slow down, as I've said earlier on the phone, people said, boy, home took off. They grew $450,000,000 or $500,000,000 this quarter. It's not the fact that we're generating we're originating the loans.
It's just that we're getting the pay off. And you can see our revenue was down a little bit in this quarter, but all it's got booked. If you look at the average loans on the books, it was minus 20,000,000 for the quarter. So the revenue will start rolling in off of those. I can look at the data report and see the difference already.
Yes. I'm going to ask about just the period end versus averages as well. Does it feel like payoffs are easing and originations are up? Or what is the relationship there?
Actually, I'm optimistic that payoffs are easing and they certainly did. But we look back to Q4 last year and they slowed down Q4 last year, correct guys? That's right. They slowed down a little bit. Randy, do you have a comment?
Well, I was just going to say if you heard also, Florida was flat. So they got hurt a little bit by the hurricanes. And as they come back, I'm already getting e mails on where I live in the Panhandle, some sales that are going on of houses and everything. So as that comes back, that's just going to add to it. So I mean, we've had last quarter's success really without the kick of Florida and that usually we see in the numbers.
So I'm pretty optimistic like Johnny because you're going to see that come back as it gets closer and closer to spring.
And the
lion's share of origination came out of the legacy Arkansas footprint which is pretty good. Glad to see that. And good numbers, good rates on those too.
Yes. Okay. And then just one more on the margin. I know there's been a lot of questions there. But when you look at accretion and fees Q3 versus Q4, would you say Q4 is depressed and Q3 was obviously you said a little bit elevated, but would you view Q4 as a depressed number relative to where you'd normally expect it to be?
Yes, I would
because we sometimes talk about the additional interest income that comes from New York and it's sometimes fairly lumpy. But we've had some lumps along the way. It's just one lump is a little bit bigger than the next and then all of a sudden it just kind of fell off this quarter. So I didn't really have anything of significance to provide any additional juice to the margin this quarter. So it would be kind of depressed, yes.
Okay.
All
right. Thanks a lot.
Hey, John. Did you like the did the call sound good to you? I mean
Yes. Is it a Mallard call?
Well, of course.
I appreciated the Greased Pig reference more than the Mallorkel. All right. Thanks.
Our next question comes from Stephen Scouten with Sandler O'Neill and Partners. Please go ahead.
Hey, everyone. How are you doing?
Hi, Stephen. How are you?
I'm doing all right. I'm doing all right. So guys, I know, Johnny, you just said you got maybe $200,000,000 you're requesting to buy back additional stock. But is that kind of what you think is the best use for your earnings today? I mean, you all are still making a bunch of money.
So is that what you see today with where the stock is the best use of that growing capital base?
It is to me. We'll probably do a little more for our shareholders at some point in time, maybe another little dividend increase. But overall, I think it's a place to be. As Steven said, if we liked it at 23 and 24, we'll love it at 18. So and we do.
So you can see obviously, we stepped up the repurchase to about almost 3,500,000 shares in the Q4 because it was just they've thrown the baby out with the bathwater, so we just bought it. We just kept buying it.
Yes. No, definitely. And when you think about capital, I mean, would you take TCE down to maybe 9% to continue to buy back shares if it's here? Or how do you guys think about how much of that capital you would
use? Maybe, we might do that. Brian?
Well, I mean, really what we're doing right now, if you look at his $200,000,000 that he talked about, I mean, that's really the free capital that we raised through retained earnings.
Yes. At those levels, we wouldn't get
to those numbers is what I'm trying to say.
Yes. Understood. Yes. I was wondering if there'd be incremental beyond that if the market stays depressed where it's been?
I don't know. We looked at that. We looked at doing an offering, what they call it, the convertible. And we looked at that. We looked at 2 or 3 different things.
And it's didn't to me that stuff looked good, but it didn't I'm glad we didn't do it at that time. Stock was about $22 I didn't ever imagine that the stock would go to $17 $18 that never crossed my mind. That's pretty enticing to me at those levels to step up and buy 18 wheeler load of it. I mean, that's it's when they take bank stocks as the world has, take bank stocks to where they've been in the past. And if experience and what happened in the past is any likelihood of what's going to happen in the future, that's what's got Johnny tweaked on buying the bank stocks and you buy the good ones that you know, but you could actually throw a dart, hit any of them, they're probably all going to go up.
Yes. Fair enough. And on the originations that you guys had, the $1,100,000,000 can you talk a little bit about how much of those originations were funded versus what's still unfunded and kind of what segments of the portfolio are driving most of that growth?
This is Stephen Tipton. I would say all in a little over half of what was committed in Q4 funded. We had about $800,000,000 a little over $800,000,000 in production, non CFG production and $400,000,000 of that funded. And then the typical funding percentage of what we see out of Chris' CCFG offices is in the 50 percent range. So I'd say that's a good gauge to use.
And I guess with the production that we've seen from shore, that's a nice C and I component or C and I Consumer component there. And then I would just say otherwise generally kind of the bag of CRE and construction and improved CRE.
By the way, Shore had a little jump in past dues. That was not really sure, at least we're not accepting that as Shore's past dues. We did a pretty poor job here of passing the baton from 1 runner to the other runner and about 3 fourths of that or half of it's already current and paid as agreed. It wasn't that little spike there we think was mostly our fault. At least we're taking the blame for it right now and we'll see in the next 2 or 3 quarters.
Okay. Fair enough. And maybe one last question for me, just kind of as we think about the efficiency ratio, I mean, obviously, it remains impressive still under 40%. I mean, are there any major expense initiatives that you have to undertake or regulators making you invest anywhere that you wouldn't have otherwise or anything that will drive that incrementally higher from here?
Pardon me? I mean the regulators don't like our 38% efficiency ratio. I don't think that'd be my opinion. And they'd like for us to hire another we got 1800 people, they'd like for us to hire at least another 1700. But we are hiring, we are hiring, but we're maintaining our efficiency thus far.
I think I told someone to hopefully we'd cap it at 40 or below.
That sounds good. That sounds good. Well, congrats on the 20 years, guys. And Johnny, I think you've got about 10 days left to use that duck call.
So, get after it. So I have the meeting today and then I have our board meeting tomorrow and then it'll be a live duck call in the woods, Stephen.
There you go. The question is, which is easier, shooting ducks right now or picking bank stocks on that dartboard? That's the real question.
Let me tell you this, it's easier to pick bank stocks than it is to shoot it up. And I've got tens of thousands of nuts if that will tell you.
Thanks, Johnny. Appreciate it.
Thanks, Matt.
Our next question comes from Brett Rabatin with Piper Jaffray. Please go ahead.
Hey, guys. Good afternoon.
Good afternoon.
I'm kicking myself for not bringing my duck call at the office today. Wanted to ask, you commented about the negativity or the skepticism in the market. And I'm just curious, are the plans for 2019 any different for CFG or Shore Premier? And then maybe give us any color you can on how we should think about the profitability of those two areas in 2019 versus 2018 maybe?
Well, I suspect that I would be pleased if we had similar profitability out of shore and actually a little more out of shore and a little more out of CCFG, I'd be happy with that. I think overall that it should be a pretty good year, something doesn't blow up somewhere and I don't see anything to blow up. There is lots of pessimism, lots of fear and pessimism, but we've seen that before. I mean, we've seen that in the market in different spaces of the market and it just so happens right now. Well, lots of different they've taken a lot of different markets down, but they've taken bikes down substantially.
So I don't know if that answers your question.
Well, I guess I'm just trying to figure out if you view the current market as an opportunity to do more things, particularly in CCFG or if you view that as you'll just keep doing what you're doing and maybe a little more careful or watch it a little more. I mean, I guess I'm just trying to understand your mindset on that in particular given that environment out there where people are worried about credit in general?
No, Kevin.
I'll answer it for sure. I mean, we're ramping up the commercial side what they do. They had pretty much with their previous operation had wound down just because of the way it worked out. And that growth, a lot of that in the Q4 was that commercial side that's ramping up. So we see it particularly for sure as an opportunity in 19.
We think that's going to be a good year for them.
And Brad, on New York's operation, if you know, we just opened up our office in Dallas this past 2 months ago. And so that should ramp up some opportunity there. And that office also was working with our community banks too that will give us some avenues that we haven't had in the past. So I think with Kevin what Kevin said on shore and what Chris is doing in Dallas along with the community banks here that certainly opens some opportunities for us there.
2019 is just like any other year. Mr. Allison expects record breaking quarters and that has not changed. So everybody's got to make more money. Yes.
Well, New York is about $1,500,000,000 they can go to $2,100,000,000 We're kind of capping them at $2,100,000,000 unless we did about 15% asset. So you can kind of extend that out if you want to what New York looks, if in fact New York gets there by the Q4 next year. And I'm not saying they will because those numbers they don't have to do that. They take what someone gives them. But you look at New York adding to when they ramp up to $2,100,000,000 and Shore is growing.
I think Shore originated $86,000,000 worth of growth. They booked like $40,000,000 like about half of that or $30,000,000 what they booked?
Yes, we had about $80,000,000 in production from shore in the quarter and a little shy of 40,000,000 in that growth. So I think they're doing as we thought or a little better.
You got New York I mean you got I guess the proof is in the pudding, you got a 1,000,000,000 in originations for our company, which is record originations at record rates at 6.07, 6.08. So that's encouraging to me. Can we outrun the cost of funds and can we outrun the expense side? I think we can. You pull out merger and acquisitions for this quarter and Perkin losses and you see flat to down on the expense side.
So other than some regulatory stuff and hiring some people there, we got some expense going up. We can keep pushing rates up. Hopefully, we can continue to get better on the cost of funds side. If we can do that, I think we can increase our spreads and with or without loan growth, I think we're going to make more money.
And the Panhandle, as you know, just went through the Perkin not too long ago and one of our good producers that down here, Johnny and I just spent some time with 1 of North Florida's larger customers and it appears that there's more opportunity there. The South Florida is beginning to kick in. So I just think it opens up pretty good and then the Dallas office gets if the community bank does have a little stale, they can pick some up there and vice versa. So it's I think the opportunities are several different directions.
Yes, it's all good. It's all good. It depends on what the economy does and depends on investor attitude out there, developer attitude and what they want to do, what the business world wants to do.
As Steven reported, North Arkansas was one of the heavy hitters this past quarter.
Yes, we're seeing it in Arkansas too. I mean construction and remodeling from the bridge of Panama City Beach owned all the way to almost Carabel is going to be in Florida is going to be record all time. I mean, it's going to be rocking and rolling next year. And we're the fabric pound gorilla in there. So we got major presence there and great people on the ground, Jim Haynes and his team.
Okay. That's great color on that. And then I just want to make sure I'm clear on there's a lot of commentary on fees and discount accretion and whatnot, but I want to make sure I understood on the cost of deposit side. It sounds like you're saying you do think that you're over more of the hump and less of the hump in terms of deposit betas. Are you expecting deposit betas to be a lot more reasonable relative to where they have been in the past few quarters in the next one or 2 especially?
I think that's correct. And we're going to put emphasis on the cost of funds, which we really hadn't been doing. We've put an emphasis on growing deposits, but I think we're going to put emphasis on that we have as of yesterday before emphasis on cost of funds. And I think we had like 15 basis points increase and 15 basis points increase and we had 16 last quarter basis points increase. We will see if we can get that down a little bit.
Actually margin would have been margin was kind of flat to up. You really dig into it for the quarter. So we're still hanging around that 4% margin, maybe 3.97%, 4.02%. I think that's where we're going to be and maybe be able to spread that up a little more, maybe improve that somewhat in the next couple of quarters. If we can control cost if we can slow the cost of funds down, we're going to grow the margin because we're not going to quit pushing up rates on the loan side.
Okay. I appreciate all the color. Thanks guys.
Thank you.
Our next question comes from Brian Martin with FIG Partners. Please go ahead.
Hey, guys. Hey, Brian. How are you?
Hey, not bad. Hey, Johnny, just on your last comment about the deposit strategy. I mean, what in particular are you guys doing or have you changed on the funding side? I guess you're saying you're more focused on the cost versus the growth or I guess is there something to it? Correct.
That's correct. That's correct. We've had a kind of combination there of growth in cost of funds. I think we lost a little side of the cost of funds for the growth. And so we're going to try this a little bit and see how it works.
I'll tell you in about 2 quarters from now how I think it works or you'll see it. Actually, you'll see it. So, I won't have to tell you, you'll see it. Okay. So, we need we really won't cost won't the Fed to quit raising.
We really won't the Fed to quit raising. We lack and if they pause, which I have a suspicion they're going to pause here for a little bit, I think that's positive. I guess positive for us.
Okay. And the biggest driver of the potential to raise the core margin is more on the funding side and managing that rather than I mean, it sounds like you're going to continue to get better loan yields or inch that up. But if you get the margin moving higher, it's going to be more driven off of the funding side and kind of what you're doing there?
I think that's fair, but maybe sixty-forty, maybe sixty-forty on the
On both.
Maybe fifty-fifty, that's probably a fifty-fifty number. That's probably fifty-fifty. We're getting the yield. I mean, you see us getting 607, 608. We're not giving the stuff.
We're not giving it away. And our people, it took a while. We had to draw 6 and send it out to them, Brian, and show them what a 6 looks like. A lot of them didn't know what a 6 look like. So we drew pictures of 6s and emailed them out to all our lenders, so they'd know what it looked like.
I got you. I appreciate it. And just maybe one question for Brian, just on the fees that were in the service charges, kind of the exit fees. Brian, how much was how much specifically was in the Q4? I guess, is that you said that was it did you say there was a $1,000,000 decline?
I just didn't know how much was what was actually in the 4th quarter level?
It went from $2,000,000 to 1,000,000
dollars Okay.
So $1,000,000 So $1,000,000 So $1,000,000
reduction from 3rd to 4th. Yes. And that was Chris' payouts.
Yes. I
mean, it's sweet when you get it, Brian, because it's real money. It comes in the door and it's real money, but it hurts the next month.
Yes, but it was down from $2,000,000 to $1,000,000 So from a theory standpoint, it could go to 0, but they seem to have some of it every quarter.
Okay. And similar to the other question earlier, I mean, this level is more normal depressed, I guess, when you look at Q4? Because I know you're saying you're getting some every quarter. Just trying to understand what this quarter looked like.
I think Chris run with that. He has most of the fees on that. Chris, you want to talk about? Sure. Yes, yes.
That was a little down. I would say it was a little depressed. Some of that being that some of what we would normally have expected to occur in the Q4 occurred in the Q3. So some of the payoffs that would generally have occurred in the Q4, maybe even the Q1 that coming up occurred in the Q3, so you accelerated it. These are all most of this was money we were eventually going to get.
It's just what period of time it comes in. So I would say the 4th quarter fee income number was running lower than it ran in the last three quarters. And again, but and year over year, we had a little more fee income this year than we had last year, but we would expect the fee income to moderate over time.
Okay, perfect. And just the last 2 for me. Johnny, I guess just talking about expenses or kind of the efficiency ratio, I mean, do you guys expect to see positive operating leverage in 2019? And just kind of from an expense standpoint, it sounds like the current run rate is a pretty good level and it probably doesn't move a whole lot off of this level. You talked about hiring a few people and some regulatory stuff, but it doesn't sound like there's any major increase coming on the expenses from the current level?
I don't see it. Anybody see it around the table here? Is there anything I'm missing? I don't want to commit something, but I don't see it. I think we're pretty flat on the expense side than the regulatory side.
No big expenditures to come in anywhere, Tracy, you see anything?
I think we're managing that along the way. Naturally, as we go with $15,000,000,000 going forward, we got the new Dallas operation coming. So you're going to have some things that we're preparing for, but hopefully the revenue and a little bit of growth that we're seeing offset some of that expense.
Yes. Okay. Our bonus problem has been a little bit restructured that if you don't grow income, you don't grow bonuses. If you grow income, you can grow bonuses and if you reduce income, you reduce bonuses. So that's kind of the new came out of the comp committee this time that they didn't reduce bonuses this time, they left them where they were.
But if you had if your region was down, they left them where they were. But if your region was up, you could go up in bonuses. But kind of the new unwritten rule around here.
Yes. Okay. And the last one, Johnny, was just on the reserve and kind of provisioning. It's been negligible with the credit performance thus far, and it doesn't sound like there's anything on the horizon that's giving you guys a lot of pause. I mean, I guess, is that I guess, assume it's going to stay at low levels or I mean, I know that stays at 0 indefinitely, kind of your outlook on credit and provisioning?
Yes. Actually, it's really in pretty good shape. You want to run those numbers by Stephen?
Yes. Hi, Brian, this is Stephen. We've talked about that a lot over the last couple of weeks. And one, Kevin may give you some kind of commentary what we're seeing from the hurricane reserve perspective and what we think we can do over the next couple of quarters. But looking at reserve coverage non performing NPLs were gross dollars or $64,000,000 or so, I think at year endquarter end.
There's about $22,000,000 or $23,000,000 of that number that are purchased impaired acquired loans. And I think maybe differently than some of our other peers do, we give you the total gross dollar amount of non performing. So if you really look at what is nonperforming that would technically be eligible to be covered by the reserve. We've got $108,000,000 $109,000,000 in ALLL that covers $42,000,000 $43,000,000 in true non performing loans. So we still feel really good about you're at 2.5x reserve to nonperforming kind of taking that analysis and feel really good about where we are there.
Kevin, any comment on
this? No. As to the hurricane, we're a year out from Irma and we put aside $30,000,000 a year ago. I think with Michael hitting the panhandle, we're going to shift a significant portion of that $30,000,000 over to Michael event to look at for the coming year. And there's probably some number $5,000,000 $6,000,000 $7,000,000 somewhere in that number that we internally think that goes back to the general reserve based on what's happened in Irma and what we think may happen in Michael going forward for this coming year.
Okay. So I guess it's you've got some flexibility there to manage going forward. So all right. Well, I appreciate the update and congrats on 20 years, Johnny.
Thanks. I appreciate it. It's been a hell of a run. It's been a lot of fun. And we've ended up these guys, not me, they built a hell of a nice company.
And I see the reason why we'll continue doing what we're doing in the future, we've done in the past. And thanks for your support, Brian, a bunch.
Our final question comes from Michael Rose with Raymond James. Please go ahead.
Hey, guys. How are you doing?
Fine. How are you?
Good. Just a couple of follow-up questions. So last quarter you guys talked about potentially repurchasing some trucks. Obviously, I understand where the stock is that that may be the better option, but wanted to see if you guys were kind of still looking at that. And then on the $200,000,000 that you mentioned, I assume that's kind of incremental to what you already have out there.
I think you have about 4,900,000 shares left. What's the approval process for that and
how does that work? Thanks.
I'll take that. As far as paying off the trucks, I mean, even though we're over 15,000,000,000 dollars we still get to account for that as Tier 1 capital. It's not until we have an acquisition that's at the $15,000,000,000 or above that we lose the Tier one capital treatment. So the way
I look at it is it's
still pretty cheap Tier 1 capital. So when we have our next acquisition, I can see us really looking harder at paying off those trucks. But until then, I don't think that we'll actually do that. As far as the approval process goes for the repurchase, the regulators asked us to submit a plan at the end of the year to say how much stock we might need to repurchase. And they get the opportunity to at least approve or disapprove and they have approved us for just under $200,000,000
Okay. It's kind of funny, the approval. I don't know if they approved it, they didn't disapprove it. It was an interesting way to read it. The regulators never get themselves.
I never commit too much out there. It was interesting reading that. I kind of chuckled. So they didn't say no. They didn't say yes.
So we move forward.
But if you were also curious about how many shares that we could have authorized, I mean, the Board is the one that actually sets the number of shares to be authorized to be repurchased. But then we also have to take the extra step and get the regulatory approval too.
Got it. Okay. And then maybe just a follow-up question. Can you guys talk about it seemed like loans were flattish in Florida. How much is competition playing into that and how much is just normal course of pay down activity?
I think it's just part of it. I don't I mean Arkansas was up $150,000,000 $70,000,000 That's kind of unusual for Arkansas to be up that strong. I think it's just I kind of like the diversity of Florida and Arkansas and New York and Alabama, just kind of what worked. I mean, Alabama was flat, Florida was flat. But Kevin?
The competition is the same. I mean, it's shifted a little bit from I mean, rates are always an issue, right? But it shifted a little bit more from rates to advance rates on collateral. And we see as we you would think later in the cycle, you'd see people dial back a little bit and we're seeing some people go the other direction and increase their advance rates. And that's I think we fight that as much as anything.
We see a little bit of 80% advance rates and sub-five or service sub-six, fixed for 5 that you see some competitors doing that really doesn't make
a lot of sense.
Not a lot of what we run into, but some of what we run into is uncharacteristic for some of those companies. I guess they're trying to build their book or something. I don't know why they're doing it, but it's good companies that are uncharacteristically doing some of that. We're matching it. It.
If it's hitting us, we'll match it if we have to. We don't want to. It doesn't make a lot of sense, but we'll match if we have to.
Yes. I'd
just add because obviously, the bank up down there got acquired this quarter and I've heard that there's been a little bit of a lessening of competition from that one particular.
I think you're exactly right and I'm glad that was gone. I think that's good for us. I think that's good for Florida. I guess, particularly good for South Florida.
All right, guys. Well, thanks for taking my questions. Congrats on 20 years. I don't know what
a duck call is, but
if you ever need any guns, we got plenty up here in Chicago. Thanks.
I thought you couldn't have guns in Chicago. I thought it was illegal to have guns in Chicago.
Good luck with that.
All right. This concludes our question and answer session. I would like to turn the call back over to Mr. Allison for any closing remarks.
I just want to say thank everyone for joining us today. Great year, great quarter. Hopefully, 2019, I won't ask much more out of this box for 2019 other than just be the best bank in America again. Other than that, make $320,000,000 to $30,000,000 I'd be happy with that and keep our past dues and our asset quality where it is now. And other than that, that's a long ways from that $250,000,000 little community bank that you wanted and you'd be happy the rest of your Yes, I sell it.
I sell it. I was getting you hooked. Andy, you're making more net income than you were supposed to do in assets.
I think, yes. See you're at.
Hey, thanks everyone for your support. We enjoy the conference call and hope you all enjoyed too. Thanks.
Thank you so much for your time everyone. The conference has now concluded and you may now disconnect.