Greetings, ladies and gentlemen. Welcome to the Home Bancshares Incorporated Second Quarter 2018 Earnings Call. The purpose of this call is to discuss the information and data provided in the quarterly earnings release issued this morning. The company presenters will begin with prepared remarks then entertain questions. The company has also asked me to remind everyone to refer to their cautionary note regarding forward looking statements.
You will find this note on Page 3 of their Form 10 ks filed with the SEC in February 2018. It is now my pleasure to turn the call over to Mr. Allison.
Thank you, Phil. Welcome to Home Bancshares' 2nd quarter earnings release and conference call, And I might add, the best quarter ever. Thanks for joining us today to learn more about the specifics of the second quarter results and the direction of the company for the rest of the year. We're going to kind of change up the presentation a little bit today, so don't be surprised. With me today is Randy Sims, CEO of the Holding Company, Home Bank shares Tracy French, CEO of the Bank Donald Towne, Senior Vice President and Director of Investor Relations Stephen Tipton, the Chief Operating Officer Brian Davis, Chief Financial Officer Jennifer Floyd, the Chief Accounting Officer Kevin Hester, Chief Loan Officer Chris Poulton, President of CCFG and Dave Silevski, our new Director of Centennial Bank.
And they will all be available for Q and A later in the meeting. Before I go to my remarks, I think though we should go to Randy Sims. I think he has something that he wants to say that I don't know if it's new or not. Randy, have you got something you want to say?
Yes, sir. It was another most profitable quarter in the history of our company. That is now 29 consecutive quarters of record income. And that's not the only record you're going to hear about today. As Johnny said, it is the best quarter in the history of our company.
And I can't wait to hear and all the results. Johnny?
Now did you determine did you get somebody to figure out how many years that is?
Yes. That is how many years is that? That's 7 years. 7 years
and 1 month. I got a hold of 1 quarter, 7 years and 1 quarter, not
a month. 9 months. 7 years and 1 quarter, I've consulted with the highest authority, my 7 year old grandson.
Okay. No, that will be correct. Thanks, Randy. 29. That's Number 29.
That's pretty good. I want to congratulate David Drury in his new role as Regional President of Florida. I also want to congratulate Dave Zaleski as our newest Board member of Centennial Bank Board of Directors as well as a member who will be joining our Corporate Executive Loan Committee. In addition to that, I'd like to invite I mean, excuse me, let's correct that. I'd like to welcome John Marshall from Shore Premier Finance and his team of people and welcome to Home Bancshares.
We released the numbers before the market opened and I hope you're pleased with them because they are the best numbers in the company's history. By the way, these are real numbers, not false news. We did accomplish many objectives that we were targeted during the quarter. We asked our analysts what we needed to do to move the stock and they told us we accomplished every target only every objective target that we had. In 2016, we earned 177,000,000 dollars In 2017, we earned $135,000,000 and that was after $60,000,000 for hurricane reserve and deferred tax credit write off.
And we'll talk more about hurricane reserves a little later in the presentation. We earned $150,000,000 in the 1st 6 months of this year. And if you would indulge me that we probably will earn another $150,000,000 in the 2nd 6 months, you add those numbers together and that's $612,000,000 or $3.54 a share in cash earnings that we've generated. The earnings included record, record, record and the stock still trading where it was in 20 16 and below where it was in 2017. During December of 'sixteen and January of 'seventeen, home was trading over $28 Earnings are up and the stock is down.
Somebody's wrong, either we are or the market is. And I think this quarter dispelled all the rumors and the silly ridiculous BS that some people want to spread the whole stock down. I think the shorts have made their money and the short interest is down to less than 5%. With the stock trading at 11 times 19 projected earnings, that's the projected earnings that the analysts had, that's not our corporate goal. There's virtually no room left for the shorts.
You can't get blood from attorney. I've come to believe that somebody has an axe to grind and is feeding incorrect information to our investors and we're working hard to show the real results and not allowing false news to control the audience. Our plan is still Home $2 and how do we get there? With the surprising high prices paid for the last several deals, it appears that whole bank M and A may be beyond reach for disciplined acquirers. While imaginary earnbacks a tangible book reaching unrealistic numbers, the only way to accomplish these lofty numbers is with imaginary earnings numbers.
We refuse to play that game and our shareholders and analysts should appreciate our conservative nature. By the way, I don't want to be the one just to bore you while wasting your time trying to convince you some deal is strategic when it's nothing but a phantom deal and we'll never have the earn back. Believe me, we know what a good deal looks like. We've done 21 so far and they've all been accretive and we call it AAA, including the largest one we've ever done, the Stonegate transaction about $3,000,000,000 I was told we paid too much. I was told we would never get the efficiencies to match up with ours.
I was told we would stumble with the integration. I was told we would lose people. I was told we would lose customers. I want to talk with us today is Dave Silevskiy and I'm going to let Dave Silevskiy report his feelings and give the State of the Union at the former Stonegate as he transitions to the Centennial Board. Dave?
Thanks, Johnny. A lot of great things to report on. Really the 2 groups got together. It was amazing through the conversion how the 2 teams really came together in terms of when we often conversions you have difficulties and issues and the Stonegate people. I think that both sides really learn to appreciate it and pull it together.
And a lot of that's evidenced by the fact we've had very good loan growth in Dade County, which is Miami and also in Southwest Florida, particularly Naples and Fort Myers, as well as good deposit growth in West Palm Beach. I'm excited about my new role as being on the Board of Centennial Bank, one of the best banks in the country. I'm looking forward to being on Executive Loan Committee, continuing business development efforts, maintaining relationships with Stonegate customers and potentially doing some more business with Cuba down the road. With that, I'll turn it back to you. Thanks.
Thanks, Dave. As you heard, it's quite to the contrary. After the February conversion, we had already accomplished much more savings by far than we had forecasted. As Dave said, very quick, very smooth, which resulted in record efficiency and quickly getting there. That is the sound of a good consolidator.
I read a research report recently talking about the best consolidators in the bank space. They did not lift Home Bancshares, Prosperity, Ozark, Renaissance, Pinnacle, First Financial Bancshares or CenterState. I shared the names on the list with a big bank stock investor. I don't think he's ever going to stop laughing. I didn't think it was quite that humorous because we didn't make the list and I think we are one of the best consolidators in the country and so are those others.
I think it takes the false news out of the Stonegate rumors. Why Premier? Instead of doing an overpriced merger and acquisition deal, pay $3,000,000 $600,000,000 that might add $0.03 or $0.04 we decided to spend $20,000,000 dollars to add $0.035 to $0.04 to EPS. As the largest individual shareholder, it was a no brainer for me. Plus, think about it, we sit in the bulk capital of America, Palm Beach, Fort Lauderdale, Miami and the Florida Keys.
This deal fits home. It also provides a perfect vehicle to enter the high end RV Prevost bus finance market. It was common sense for me. It continued forward on Home2 dollars this can be a nice contributor to that. Number 1, loan growth is your number one problem, so say the analyst.
Our lack of loan growth has not come from originations, but from payoffs totally. I also told the world that the unfunded backlog was growing indicating that the prospects for loan growth was looking up. It didn't happen the way I envisioned. I thought payoffs would slow down and originations remain steady, then magic would happen and bingo, there we'd have loan growth magically. That's not exactly what happened.
Even though the payoffs remain high at $609,000,000 for the quarter at a rate of 5.13. We were able to generate 957,900,000 dollars at a rate of 5.66%. I think the breakdown here is important too. Of the 9.57 dollars 775,000,000 was legacy at 5.48 percent or 81% of what we originated. New York was $183,000,000 at a rate of $6,530,000 Additionally, the backlog is up with the legacy leading the way.
We also had the largest payoff we've ever had. I don't know if we've ever had an $85,000,000 payoff. Kevin, we ever had $85,000,000 payoff?
If we have, not very many.
It was one of it was came out of Little Rock, one of our directors in Little Rock has in the multifamily housing business and he took his multifamily company with a REIT public and he paid us off. But he's back great operator. He'll be back and do more business. That was in spite of that, we still
were able to grow
a little bit. The backlog here can be a little misleading because you really don't know when that loan is going to fund, but it's a good indicator of things to come. Number 2 was you'll have to sacrifice your rate in order to increase your loan volume. Another negative taken out proofs in the numbers, we don't sacrifice rate for growth. We monitor the margin daily.
Margin is increased and new loan volume has even better rates. Remain disciplined and hold the course. Number 3, you'll be forced to give up your quality underwriting standards to grow. We don't do that. Another negative bites the bus dust, remain disciplined, hold the course, false news.
Number 4, Dave Silevskiy is leaving and taking the key people, false news, nice try, but no cigar. Number 5, your New York office is total construction, total construction lending business And in the next cycle, you'll lose lots of money. I said, you mean the operation that made $16,000,000 pretax, pre provision the 1st year and made $32,000,000 pretax pre provision the 2nd year and $56,000,000 pretax pre provision the 3rd year and should make around $70,000,000 pre tax pre provision issue that we paid 0 for. Well, let me just get Chris Polson on and let Chris himself, who runs our most profitable region, give you the state of the union on this dangerous and risky business. Chris, are you here?
I am. Thank you, Johnny, and good afternoon. Good afternoon. Yes. The quarter Q2 reflects another nice solid quarter for us.
It's been kind of nice slow steady growth. As you described as since we've joined, we closed the quarter to $1,650,000,000 But I think this quarter's results reflect the strength of diversity of the portfolio. It draws on existing facilities, which you pointed out, draws on existing facilities more than outpace loan payoff. And as a reminder, our loan portfolio consists of really 4 primary products. The first is multi asset facilities, which are about a quarter of our total outstanding.
The second is construction lending, which you mentioned, which is actually just 35% or just under 35% of the total portfolio. We have a 3rd product, which is single asset CRE loans. Those are about 20%. And then we have a small C and I portfolio at about 20% of the total portfolio. I think with these product options, they allow us to adapt to the changing market dynamics.
And while specific market conditions may shift from quarter to quarter, we do generally maintain each product category at somewhere between 15% to 35% of the total portfolio. Hopefully, that background helps a little bit and I'll turn it back over to you, Johnny.
You bet. Thanks, Chris. That means his construction book is about 5.5 percent of our entire portfolios. I agree there were lots of problems with construction in the last cycle, But the problem really wasn't exclusive to the asset class. It was the fact that nobody putting money in those deals.
I mean, they were leveraged at 90%, 95%, 100%, 105%. They were construction millionaires with no equity. When the music stopped, they just throw the keys to the bank. I'm confident that CCFG will have a loss someday, but they've never lost a dime yet. They didn't lose any money in 2008, 2009, 2010, 2011, 'twelve, 'thirteen, 'fourteen, 'fifteen, 'sixteen and so far in 'eighteen.
So I call BS on that one false news. We're about 92%, 95% in the construction bucket today and a little over $300,000,000 $302,000,000 I think in the CRE bucket. We have approval with the Board to go much higher. The reality was that at one time during the failed bank purchase times, we were almost $500,000,000 in the big bucket as we liquidated 100 of 1,000,000 of dollars of all asset classes in Florida. There is no substitute for experience.
Our team cleaned up the ones we bought, but we did due diligence on another 30 banks in Florida and we liquidated troubled assets from Key West to Jacksonville, West to Pensacola and down both coasts. We have the line yes, we have all the line sheets on the banks that we looked at and the intellectual knowledge we gleaned from that was and is still amazing. The big loss will be C and I in my opinion. Even though the regulators disagree, they're pushing the industry into this unrealistic terms and pricing or we're pushing ourselves into terms. The regulators are telling we have to have them and we're being pushed in there.
And I'm concerned about that bucket and I think that's the next blow up. The yield curve might be signaling a recession. If that's the case, we're in one of the best positions in the country with low leverage, conservative underwriting portfolio. I like our book of business. Next one was, oh, Johnny's made millions.
He doesn't have the fire that he once had, and he's not as interested. Ask my people if that BS is even remotely correct. In addition, I mean, really ask them. In addition, ask the companies that travel been traveling with me all over the country and will be traveling with me in months coming up. I'm still hitting the road I'm still hitting the road hard and selling its success of home.
The game is winning. I don't give up. I don't quit. I'll call BS false news. You heard my comments today.
It's a shame that banks are not trading on performance and rationality. But the herd, some of you, most of you, a few of you, I don't know how it is, is trading on BS speculation and rumors. What happens in the days of confidence and trust in each other? We're known for telling it like it is. We've always done it and we always will.
I want to go back to days where investors say, I'd love to own your stock, but you're just too pricey for our fund. These days investors will say home is a value stock. And I agree. Different from a lot of people, I don't think there's a Russian hiding behind every tree. Before we go on, I just want to touch a couple of numbers here.
Earnings were up 51.7% for the year, lowest efficiency ratio ever. I don't really know what else to say except I think our stock has huge upside. We should be trading north of $30 I told you we need $1,000,000,000 in loan growth to hit $2 Well, we don't need that much now. If we pay off $70,000,000 worth of Trust Preferred and add the Shore acquisition coupled with this quarter's loan growth plus the opportunity to reprice $1,500,000,000 of loans over the next 12 months that should move us much closer to the goal line. Hopefully, we'll see some additional loan growth coupled with some stock repurchase, and I believe we'll punch it across the goal line.
Some more good news coming out. The key so far on the charge offs, we charge one loan off for $500,000 We have an AgRad loan that has some pretty good size exposure, but so far so good. Now we are in the slow season in the Keys. So between now and the end of the year, we'll keep monitoring that loan book because if there's going to be a problem, I think it will show up between now and the end of the year. We'll be proactive and charge it off.
If it's coming, I think it might come by the end of the year. Well, in summary, this is great news, not false news. After reviewing the analyst best recommendations and a thorough review by our management team, I believe this no doubt is by far the best quarter ever. I believe we hit on all 10. I'm sure we'll have some naysayers who maybe not cover their short position who try to have a negative statement, but the world will know that's BS.
We repurchased on stock repurchase. We bought back 350,000 shares during the quarter And our 10b5, we bought another 175, I think, in that respect, Steve. The plan is home to dollars, and I think we'll get there. Thank you for listening to me today and we'll go to Q and A.
We will now begin the question and answer session. The first question comes from Will Curtis with Piper Jaffray and Company. Okay, please go ahead.
Hey, good afternoon, everyone.
Good afternoon, Will.
Maybe wanted to get some color on the expense base. And if I recall, there was maybe a couple of $1,000,000 of remaining savings that were expected to come through this quarter, but you also had a decent increase in other expenses. So just trying to get a sense for if this is a good run rate or if there's something else that we should consider as we kind of finish out the year?
You don't do you think the efficiency ratio of 36 was a little high, Will? It
was really good, Johnny.
I'll let Brian talk about we had a little carryover from the Q1 we missed and that's what kind of kicked expenses up a little bit.
Yes. Once we crossed the $10,000,000,000 the FDIC assessments went up and we didn't get our first bill until June for the Q1.
So if
you look at our FDIC and state assessments, you'll see that it's up $1,200,000 but really it should only been up about $600,000 So there's really a $600,000 one time true up on the accrual that ran through the Q2. So the $2,700,000 that you see in expense would be about $2,100,000 on a normalized quarter.
Okay.
Thanks. And then in terms of, I guess, thinking about the margin over the next couple of quarters, I think you obviously highlighted the new production yields that are higher, but the deposit costs are also moving higher as well. But is there anything that you guys can do to mitigate some of those pressures or possibly hold the margin where it is? I think you had mentioned maybe the trust preferreds, but just curious how you're kind of thinking about the margin?
Will, it's Stephen. I'll take that. Yes, that is the trust the trust that are out there, there's about 70,000,000 that are floating rate that are in the mid-4s or so today. That's something that's kind of on our radar to look at taking down at some point maybe towards the latter part of the year. Yes, I guess we're very pleased with what we saw in the quarter.
I know Johnny highlighted the loan production and what we saw there, but deposit costs are going up, but the loan production and the variable rate portion of the portfolio and what we've been able to do on renewals is more than offset what we've seen on the deposit side. So I think we're extremely pleased with what we see there. The Shore portfolio, just for modeling purposes, we show that will pull us down maybe 3 or 4 basis points once that's in for a full month or a full quarter. So but kind of reset that I think we are optimistic we can maintain there.
Okay. And then just one quick clarification. Johnny, I think you said the backlog had been going down, but it's now starting to increase. Is that right?
That's correct. Tracy sent me a note a while back and said the unfunded backlog had gone down. We started paying more attention to it. In about March, it took off and went up. And then it also grew at the end of this quarter by another $150,000,000 over what it was.
So that's pretty good stuff. And we approved just to give you an idea of what's going on with loans right now, we approved $106,000,000 yesterday. All 100 and $6,000,000 was in the legacy footprint and you'll probably see a lion's share of that will fund this quarter. So things are okay. We look like we're going to be down.
I'm not going to tell you we're going to have loan growth because that's something in the Q1 we're going to have loan growth and we didn't. We were down. So I didn't I no longer forecast loan growth, Will. So maybe if I don't forecast it, we'll have loan growth. Kevin, do you have anything on loan?
No, I think you covered it. Production yesterday was great. The production across the group is good, pipeline strong. It's early in the quarter, so a lot of things can still happen the rest of the quarter.
So looking
good. I know it couldn't stay there forever. I mean we generate way too much business. Things are too good for us to not have it at some point in time. And when you look at that, I mean, the $957,000,000 $775,000,000 was in legacy at $548,000,000 That bodes pretty well.
Pretty good. And Chris is down in New York's team had 183 at 653. So that's a good indicator. If we can just hold our margin, we don't have to be cranking and trying to build our margin, if we can just hold it. Running a 210, 215 ROA is not too bad.
We're generating lots of cash. We're making lots of money with the cash. We got to decide what we're going to do with it right now. M and A doesn't look very good, but maybe find another deal somewhere. Enjoy the trip with you Will.
Yes, I had a good time. Thanks for the color guys.
You bet.
Okay. The next question comes from Arren Cyganovich with Citi. Please go ahead.
Sorry, I was on mute. If you could talk a little bit more about the Shore Premier Finance Business, some of the loan attributes, what kind of profitability you expect there? You mentioned it may have a modest NIM impact for the quarter.
Yes. Sure. Welcome, nice to have you. Welcome aboard Home Biteshares team.
Thank you, Beth. This is Kevin Hester. I'll answer that one. As you know, probably about $380,000,000 is what we brought over. It's about 1200 loans.
It's really traditional underwriting, which is kind of what I could get real comfortable with. It's getting personal financial statements, tax returns, verifying liquidity through bank statements. It's really traditional type underwriting as opposed to an automated type deal, which gave me a lot of comfort. We looked at virtually half the balances, about 300 loans, very strong FICO scores, low DTI across the book, liquid borrowers. Just I'll give you one number here.
The median reserves, cash reserves of the borrowers post purchase is 42 months of their total P and I payments. So if they owe $10,000 a month in P and I payments, they had an average or median of $420,000 in verified liquidity post down payment. So strong we're dealing with strong borrowers here.
Okay. And then what's the typical kind of organic growth rate you would expect within that category?
I think it's reasonable to say 1st year we could do 100,000,000 dollars From there, it's going to be dependent upon how well we do the commercial side of it, which they had kind of backed off of a little bit. So I think that would be the key moving from there. But I believe it's reasonable, say, dollars 100,000,000 in the 1st year.
Okay. And then just lastly, the I think in the press release stated that a lot of the loans were funded towards the end of the quarter. Is that going to have any positive impact on the NIM into 3Q that might offset some of the impact to Shore Finance?
Shore closed last day. Actually Shore is going to dilute us a little bit, dollars 0.03 or so. It may 3%. It may
Yes, it could, Aaron. I mean, as we said, the bulk of the volume came in the last month or so and we talk about what yields those are, but I still think our goal is to maintain.
The good news is though the interest income was up for the quarter, but I've been watching the run rate since then and it's up significantly. But all of loans got booked and sure got booked and the run rate is looking pretty good.
Good. All right. Thank you. Thank you.
Okay. The next question comes from Brady Gailey with KBW. Please go ahead.
Hey, congrats on number 29 guys.
Hey, 29. It's going to be
even 30. That might be harder to figure out how many years.
I might start buying him with Jersey every quarter.
I wanted to ask, I know Durbin kicks in this quarter and in the past we've talked about for home that is roughly $7,000,000 pre tax number on an annual basis. Is that so call that $1,700,000 to 1.8 $1,000,000 of pre tax fees loss per quarter. Is that still the right way
to think about Durbin for you guys?
You're pretty close. I mean, we're watching it happen as we speak. We've been looking at it on a daily basis and it's real money. It's we're losing. I probably would up that closer to little over $2,000,000 a quarter.
All
right. Free tax.
All right. And then with Shore coming in, you saw the loan to deposit ratio ticked up a little bit. Just wondering in 3Q and 4Q, are you going to be a little more aggressive on growing deposits to try to fund the Shore assets organically? Or how do you think about the slight tick up in the loan to deposit ratio?
Well, Randy Sims will tell you we could we need to run at 110, but the regulators don't really appreciate it. It's that.
I just can't. It hurts me
to see 100. He wants it higher. I won't pay the engine running. But yes, This is our 1st full quarter of Kelly Buchanan's deposit program. We're up had pretty nice deposit growth.
We have $2,000,000,000 worth of federal home loan availability and we'll just we're not going to panic on deposits. We'll just pull that up and then we this is actually the 1st full quarter of our deposit program. It looked pretty good. I mean, I think the non interest deposits were up $50,000,000 Tracy, can you tell me that?
That's correct.
That's good. So I mean, it's beginning to take hold. The rewards for those branches that won this quarter, I think Tracy and Kelly are going to go and travel and congratulate those people. So if you have some of your branch manager on the phone, you see Kelly and Tracy show up to your door with some balloons, I probably don't care about that. You'll take the check too, Tracy.
Yes, sir. That's a meaningful.
So, this enthusiasm has really just started. This is the 1st full quarter and it looks like we had pretty good quarter. So we'll try that. And then if you remember, there is one fairly deposit rich franchise out there. We've had our island for a while and I may go visit them right after latter part of August to see if there's anything to be done there.
All right, great.
Thanks for the color guys.
You bet.
The next question comes from Matt Olney with Stephens. Please go ahead.
Hey, thanks. Good afternoon, guys.
Good afternoon.
I want to
go back to the Shore acquisition. I guess there was a small part of that book was commercial in nature. Can you just talk more about your plans for the commercial side? What's the nature of those loans? And of that growth of $100,000,000 the 1st year, at least your goal, will any of that be commercial or is that pretty all consumer at least early on?
Yes. The commercial side is floor plans for both dealers that primarily through a manufacturer's agreement where we get a buyback agreement from the manufacturer. And so that's the plan there. And out of that first $100,000,000 yes, there could be some of that, but it's they had pretty much as I had said, they pretty much ramped that downward at the end of their previous relationship with the bank they were at before. So we're basically starting that back up from scratch.
Okay. That's helpful. And then on the purchase accounting accretion, maybe question more for Brian. We've been hanging around this $10,000,000 level now for the last few quarters. What's your outlook on this number
quarters? It should be fairly close to the $10,600,000 One thing that did happen this quarter is that the payoff accretion was up from the Q1. It was up about $1,300,000 But on the other hand, we're going to add store to the accretion buckets and it should add about $900,000 per quarter. So I look for next quarter to be over $10,000,000 It might start slipping down in Q4 and Q1 without any other acquisitions. We still have $112,000,000 of accretable income to take in over the life the loan.
Got it. And then lastly, I guess for Brian again probably, on the fee income side, on the other fee income, anything unusual or that you would call out that may not be sustainable going forward?
Just the Durbin, which is in the other service charges and fees. On the dividends, we had an equity investment that we've had for some time and it did not pay us a dividend in Q1 and but they caught it up in Q2. So there's an extra $300,000 that is in the dividends from it's in the line item dividends FHLB, Bankers Bank and other is
part of that other there.
So that's probably the only thing that might be a negative for next quarter would be that we wouldn't have 2 dividends from that equity investment.
Got it. Okay. Thank you, guys.
Thank you.
The next question comes from Jon Arfstrom with RBC Capital Markets. Please go ahead.
Thanks. Good afternoon. Hi, Jon.
Hey, I like the new conference call format.
Thank you, Who can do better than homes doing? So I thought, well, I'll try something different.
It's moved up a little bit. That's good. But the late quarter loan growth, I think Randy, you talked about how you had some nice approvals coming through. What can you attribute that to anything? Has anything changed?
Or why do you think that happened?
This is Tracy. Just to add a little color for what Kevin and Johnny pitched into that, it comes back to Stonegate acquisition and settling in. I mean, Johnny and I have got off had a couple of trips that Dave had arranged with JC, one of our market presidents in the southern part of Florida. And we're getting some more opportunities that we're seeing come through. So it's more of a timing issue with the Stonegate acquisition and meshing together as Silevsky said in his earlier comments.
And we also see that over in the Sarasota side. Tyrone and Dennis are over on the Sarasota side that Bud is working with there. We're beginning to get to know the customers and the comfortness of that and the credit underwriting and the things that we're doing. So it's just a little time that took a little bit to see some of the legacy wing of our company do well. So I think that's really what I see.
I mean the other regions across our company have always done extremely well and they're continuing to go. The loan growth, I think we had 8 out of the 12 excuse me, 8 out of the 11 regions grow this past month and I'm speaking on a month, not a quarter. So I think it's just really some of the timing issues is finally happening. And then the same thing on the deposit side as we've been able to not only meet some great loan opportunities, these also have deposit opportunities. Our management and team on the treasury services and the cash management is working well with the units in all those regions down there today.
And the customer base is getting comfortable with the way we do and realizing that we're here to take care of a customer and now we're getting customers referring us to new potential customers from other banks. And I think we're hopefully going to continue to see the fruits of all that labor.
Okay. That's good. Good to hear. And then on the payoffs, I know it's hard to predict this, but you still believe that payoffs could eventually slow? Is a big number this quarter?
With the payoffs?
Yes.
It just continues on. I think if the rates don't buy our entire portfolio, I think the rates don't buy a chunk of it. They just keep I guess they're running around with all this with their pockets full of money and trying to find assets to purchase and they're paying some tremendous prices. Our guest house in Key West, Florida, great operator, she had 2 21 guest rooms. Somebody just walked in and paid $110,000,000 for it.
Now that's $500,000 a key and they that's stretching it. That's just too far in our opinion. We had an opportunity to go back in that credit, John. We passed. We said, no, we don't want it.
I mean, the truth is there can never be another hurricane. You have to have escalating revenue about 5% or 10% a year. There can't even be a wreck on the highway going in there or you'll not be able to make your payments. So, I mean, these deals are just stretching. I tell that, I say that.
The Casa Marina in Key West has been open 3 years now. They went from $107,000 a key to $1,000,000 a key. We didn't play at $1,000,000 a key we passed. That's been 3 years ago still open, still operating. So I read about that.
I don't know the payoffs. It's just probably good business actually. In 'eight and 'nine, nobody could pay off. They couldn't do anything, but the book is so there is so much equity, just like this lady in Key West, she owed us $27,000,000 she sold it for $110,000,000 Wow! Good for her.
She'll do something else. She'll do something. That's $85,000,000 payoff this quarter, was one of our directors in Little Rock who has a great multifamily housing business, good operator, knows what he's doing and he took his republic and when he did that, he paid us off, but he is going to build his company. I mean he is a building kind of guy. So he will be back.
I think we are back to $30,000,000 $40,000,000 right now with him. So but the payoff is just that you can't really predict. I knew that $85,000,000 would come sometime. I didn't know when it would come. But once he got his everything, his eyes dotted, his teeth crossed, he got his company when they took it public.
So I just kind of waited in that. In New York, we have a lot of facilities lines. Everybody says it's all construction in New York, it's not as you heard from Chris, but has a lot of lines. Somebody may have $100,000,000 line and they might pull it up to the max and then pay it off 2 weeks from now. So but you can look you look at the average loans for the quarter and see that the loans really didn't get booked till the end.
So the run rate is pretty sweet right now. We can just keep building on this loan right now. We're actually generating so much capital, we're not fair what to do with it pretty quick. So I think probably good use is those trust preferred. Okay.
Okay. Appreciate that. And then one last one, maybe for you, Brian. Just how extensive is the loan repricing on the $1,200,000,000 I mean how talk about the magnitude of that.
Hey, John, this is Steven. How are you?
Hey, good, Steven.
Good. The $1,500,000,000 that we have maturing over the next 12 months or so is coming off in the $5,000,000,000 range. So it's about the same rate that we saw pay off in this last quarter. And when you hear us talk about where our legacy loan yields are and we're working with the teams in the regions now to focus on that and get even better. So we should see some nice improvement in that over the course of the next 12 months.
Okay. All right. Thanks.
Thanks, John.
The next question comes from Michael Rose with Raymond James.
So Arfstrom wanted me to tell you that it's fake news, not false news. But anyway, just wanted to
You tell Arfstrom, it's my job, and
Well, hopefully you don't find any more of those Russians. Just wanted to talk about the competitive dynamics in Chris' group. You guys mentioned that obviously there's a lot of private equity money, REIT money sloshing around. And you have this, whether it's a target or an aspirational goal to get the to get his group up to about 15% of assets.
Is that a goal?
Is that a target? And maybe over what time frame do you think you can get there?
I'll let Chris answer that.
Hey, Michael, it's Chris. Yes, as it relates to is it a goal or a target, I view it more as a limit probably. But we're happy where we're at. The universe expands and we grow. So I expect we'll continue to do so.
I don't think there's any particular timescale attached to that. We like what we're seeing in the market right now. I like where the pipeline is at. Growth for us is going to look a lot like what pays back, what doesn't and what time period it does. So it's tough to say quarter to quarter.
I think year over year on a rolling 12 month period of time, I think we've seen the book grows pretty well. Somewhere eventually, it will settle into sort of that somewhere between 8% 15% growth rate type of thing. But I would say we'll continue to grow a little bit here. We may have a quarter or 2 where it flattens out, but that doesn't really mean much to us. And we like the deals that are coming in competitively.
We certainly see a lot of competition out there, but don't forget the private equity money that's out there that's investing is actually our customer.
Those are good points, Chris.
Maybe just one on the pace of share repurchases. Obviously, in your manifesto, Johnny, you mentioned the price of the stock. Could you look to get a little bit more aggressive here?
Well, I actually had backed up on repurchases and the stock went back on sale and I couldn't stand it. So we started buying it again. So we bought get those numbers.
We bought about 800 and 25,000 shares year to date. Okay.
Yes, we could. Yes, actually we're going to get out of the market a little bit and let the I wondered if we were putting some upward pressure on the stock, just get out and if the world wanted to sell it 'twenty one then we can go buy a block. We buy 5,000,000 shares. So but it got pretty cheap. Then we filed our 10b5 for the quarter and we were able to pick up 175,000 in the 10b5.
I don't like being a few like the market kind of beats us up around earnings time and in the past we couldn't play because we didn't have the 10b5 filed. So we filed it and we've been able to acquire good blocks of stock at a really good price.
Okay.
So last question is properly, we're going to be sitting on so much cash. I think we want to pay off the trust preferred first. I think we get back towards the end of the year. Hopefully, we'll have enough cash generated. I think Steven said we'd have over $100,000,000 We should, yes.
Somewhere in that range by the end of the year. Is that right? You're shaking your head, Jack? So our shareholders probably deserve a little kick too. They've been awfully good to us.
So a little increase for the shareholders wouldn't hurt on the dividend side. We didn't we haven't done that yet because the Board meeting tomorrow maybe they'll discuss it. But I want to get back even with the play. We had $32,000,000 deferred tax credit that we took at the end of last year. Is that right?
Brent was $32,000,000 $36,000,000 $36,000,000 So I want to get back. I want to get that earnings back. I felt like we were square before we went out to do something else. But when you're running at a run rate north of $300,000,000 for the year, we're generating lots of money right now.
Understood. Maybe one last one for me. You guys took a big provision for the storms a couple of quarters ago. Sorry if I missed it. But any plans to release any of that anytime soon or is the expectations just kind of growing through it?
Thanks.
Well, we had $140,000,000 of deferment in the Keyes. We now have 1,400,000 dollars deferred in the Keys. We've charged off one property of $500,000 thus far. We have an Agri loan that we're watching, seems to be okay, but could have up to a $6,000,000 exposure. We're in the slow season now.
So I think if we got any problems that are going to pop up, I think we'll see them between now and the end of the year. This is the time that we used to see some of those people struggle in the key. So with the hurricane on top of that, let's see what happens over a period of time. I'm the kind of guy, you know me, I like a 1 of better reserve. So I'm not ready to roll it.
It doesn't matter to me. It's in our I mean we have to justify the reserve. But to me it's in it's our money, it's shareholder money just had to be in another account but if we need to bring it back in we will. If we don't we won't.
All right. Thanks, guys. Thank you.
Okay. The next question comes from Stephen Scouten with Sandler O'Neill and Partners. Please go ahead.
Hey, guys. How are you doing?
Good. Stephen, how are you doing? Good, good, John.
Are you going to come up to ASU, play to a football game with us?
If they can stay in the top 25, I mean, it might make sense. We'll see.
Yeah, I got it. I won't be there long enough.
We'll see. We'll see. Have them beat Alabama for the rest of the country. We'll all be fans
from then on.
Just watch out. So if
I'm hearing you correctly, Johnny, it seems like you think the stock is a little cheap. It seems to be the message I'm hearing. I guess is some of that driven by I mean, obviously, consensus numbers are like $190 for 2019. You seem to sound pretty confident around $2 Is that $2 you truly believe that's going to be a 2019 number and that estimates are a little low on you still and that you'll have that kind of 13%, 14% earnings growth in 2019?
I don't know if it will be $2 in 2019, but I certainly expect 1 quarter, I think, with the run rate to start hitting around $0.50 during the year, somewhere during that year. Okay. We've got a 1,500,000,000 dollars Stephen, we got a $1,500,000,000 to reprice over the next 12 months or so. That's good. Loan growth backlog is building on loan growth.
We're holding our margin. Run rate, the run rate looks really good to me right now. Once these loans all got booked, they got booked late in the quarter, that looks good. Expenses are under control. I think we're teed up.
I mean it really is all
it's a
cost of funds deal. It really is it really cost of deposit deal. What happens on the cost of deposits can buy Fed funds to fund these, but that's a 2%. We need something less than that. So I think our cost to fund at the end of June were
we were up 11 basis points on total deposit costs for the quarter.
We're up 11 basis points. Loans were up 12, right? That's right. Yes. So that's okay.
If we can hold that, I mean, the only thing that will dilute us a little bit is our new boat finance platform. They think we can run about a $180,000,000 $185,000,000 ROA out of that. So that dilute our ROA a little bit. And but that's a pretty sweet little business for us. And I think we can grow it over a period of time.
Yes. No, that's fair. And the efficiency ratio, as you noted, it's I mean, it's pretty good, I guess. You run a pretty clean bank.
Really, somebody was fussing at me while I was
listening. But I am curious, how much of the cost saves from Stonegate might still be left in there to come out? Could we see some improvement even beyond what's already a pretty impressive number? Is there still a little room based on those remaining cost saves?
I don't think so. I mean we've got about 50%. We model that at 33%. We normally hit 50 on everything. We're about 50 on this one, maybe a little above 50.
So we've done really about all we could do there. I thought the I was looking for the expenses go down this quarter too and I went back for one timers and we had that FDIC deal we missed the Q1. I guess that was the biggest item in the one timers for the quarter. So I think we've been at $63,000,000 for the last three quarters. So I'd have to say it's pretty big.
If we could stack on another $600,000,000 $700,000,000 of loans in here, being pretty good.
Yes, for sure, for sure. Okay. And maybe last one for me just on capital build and you mentioned the TRUPS. Are there any other items, I mean would you think about without DFAS now and presumably that will give you some relief on what capital you have to hold. I mean, do you think any about the sub debt that you raised?
I mean, with the rate you're paying on that, is there any thought to paying down some of that in addition to the troughs
or Absolutely. As a matter of fact, we evaluated, Jennifer Floyd ran the numbers for me on if we just put it in pure investments and as soon great, if we bought back the trucks, if we bought back stock or if we bought back some of the subordinated debt. So actually the most accretive to us is buying back the stock, but the capital treatment gets on the trust deferred, we get treated differently over $15,000,000,000 with an acquisition. So we think it makes more sense to knock that out. Now that's about $0.02 a little over $0.02 It's about $0.01 a 1000000 shares to EPS if we buy back stock.
It's about $0.02 on buying back subordinated debt. So I mean the boat platform as it is today is going to add about $0.04 and then the trucks will add about $0.02 As you can see I'm counting pennies to get to my $2 And I am well, I truly am. Someone said we weren't going to get there. And I said, well, we damn sure are. Believe me, we're going to get there.
So it's my mission for the next period of time to get there. So in a conservative manner, though, we're not going to do anything crazy to get there. But you're right, we looked at all those stuff. We can pull all those handles and we probably will pull some of all of them.
And is that the biggest benefit kind of tangibly from the changes in the regulatory environment right now? Is it just that you probably have a little more leeway around how you manage that excess capital and what you do with it and thinking about all these different possibilities? Is that the easiest tangible benefit? Or are there other things we're not thinking about?
We're generating lots of capital, I mean, on a monthly basis. Someone said something to Brian Davis one day about what he's going to do in capital. He said, different than most people we run about a 0.2% ROA. We make a lot of money.
That's correct.
You got a deal or Jennifer you want to comment?
We do a capital raise. The comment was we do a capital raise every quarter.
That's right.
We do a capital raise
with the retained earnings.
Yes. I mean we're at $76,000,000 that's a run rate of 304. I think you and the loans weren't back booked until late in the quarter and you didn't really get any benefit of our boat portfolio. So I think you're going to see us come out. I think things are going to get a little stronger for us here.
If the run rate holds where it is, as I said earlier, is the cost of funds. We got to manage that.
Yes. Okay. That's really helpful, guys. Thanks so much for the color and congrats on a great quarter.
You bet. But look, if we stay at 25, I'll start, we'll get you down for a ballgame. There we go. I look forward to it. All right, thanks.
Okay. The next question comes from Brian Martin. Please go ahead.
Hey, guys. Hi, Brian. Hi.
How are you doing, Brian?
Hey, not too bad. Hey, nice quarter, guys. Just a couple of follow ups or just a couple of things that maybe the deposit strength in the quarter, Johnny, I guess you talked about just this new initiative. I mean, I guess is that the biggest driver of this? And I guess do you feel like some of this is sustainable as you go forward based on what you kind of the initiatives you put in place with that?
I mean maybe not the same level, but just kind of prospectively looking at deposit growth? You
know what, we've never this I'm planning new ground. We've never gone out for deposits ever. So I really don't have an answer. I'm pleased with what I'm seeing there, but I really don't have an answer to that. This is the first what I would expect it to get better.
That's just I look at things as a business person, I would expect it to get better. Now will it or not? I don't know whether it will or not, but if we can grow deposits $600,000,000 or $700,000,000 or $1,000,000,000 a year, there's nothing wrong with that weak fund. That's about what we need in loan growth to do what we need to do. So I'd be a pretty happy example of that.
Right. Okay. All right. And just going back to your the home $2 target, Johnny, I guess it seemed like initially it was kind of talking about the $1,000,000,000 in loan growth. You kind of threw a couple of other wrinkles in there this quarter with I guess potentially the TRUPS and obviously the acquisition this quarter.
I guess the is there anything else I guess if we're thinking about just how to kind of sketch out how you get there, it's the acquisition, I guess it's actually doing something on the TRUPS. It's the I think you said, was it $1,500,000,000 in loan repricing? Is there anything else I'm missing as you kind of think about that?
No, I think you're right on. We have our Home $2 meeting in Miami the end of this month And all the participants will be at the meeting and it'll be laid out. This whole program will be laid out. The charge will be given to them. We have a 2 day meeting down there.
I think it will be fun for everybody. We'll be talking about margins. We'll be talking about loans. We'll be talking about rates. We'll be talking about all the factors that impact that and then we're going to show them the pathway to $2 So
I'm
digging, looking for the right thing to do there. We just once we came up on the trucks and we've realized that treatment, capital treatment, that's what that saves us. So I mean we could spend, we could buy 1,000,000 shares back and I think it's a $0.01 and that what that is, $0.01 a share. That's the most that one we could pull that trigger and I will if I have to. We're going to $2 So I mean we got we're generating lots of capital.
And I'm sitting on we're kind of sitting on that money right now that's sad where we want to spend it and where's the best way to spend it. So probably the troughs at the end of the year and then we'll hopefully generate again. That's the reason one reason I hadn't increased the dividend to our shareholders yet is because I want to hit all of those buttons out there to try to get us to drive us towards $2 My point is that we'll buy back stock and we bought the boat portfolio platform and that adds $0.04 and here's what the company is doing to help you get there. I need you to give me $600,000,000 worth of loans or $700,000,000 worth of loans at these prices. Here's what we're doing to help you get there.
The sooner we get there, the sooner you all get to your payday. I believe that I believe we'll get it done. They've never let me down before.
Right. Okay.
But I mean, I'm pinning it. I'm pinning it to get there. I'm a penny here, 2 pennies there. I mean, some people got us to $1.80 this year and I've got us in my mind is about $1.88 $0.89 without any new loan growth. So if the company does a good enough job to get us a dime, I expect our people to get us the next time.
Right.
Okay. So the loan growth is still in that $500,000,000 range if you take out the boat portfolio and then I guess the growth going forward, that's kind of what you're thinking about?
That's about $500,000,000 that's correct.
Yes, okay. And just the last two things. On the M and A side, it just feels unlikely at this point given kind of as long as the stock stays on sale, it seems like it's less interesting. Is that seems consistent or is that still accurate?
Yes. That's when we're 3.5 times tangible or 4 times tangible, it made a lot more sense to us. I mean, we're looking at some stuff. Once they jumped to 2 times tangible book, it kind of took us out of the game. And I all think there were 2 times tangible book.
However, we got a one some of that's coming back to reality. So one just traded recently at about 170 and another one's out there at about 170. So those are coming back a little bit in the right way. And what we play there, it probably makes sense that we're in the $160,000,000 $170,000,000 range and we're at 3 and change, that probably makes sense.
Okay, perfect. And then maybe the last one for Stephen, and maybe I just misunderstood or didn't hear it properly, but the impact of the boat portfolio seemed like it was at $0.03 or 3 basis points.
I think
it was 3 basis points in the margin. Is that what you're suggesting?
Yes, 3
to 4 basis points.
Okay. And then your hope would be, would that factored in, in Q3 that the other items you've mentioned as far as repricing on the loan side and the rates going up should give you hopefully get you enough to offset that or at least that's how you're kind of thinking about it preliminarily?
Potentially, I think it'd be our goal.
That'd be our goal.
Okay. We just need
to maintain, I mean, I don't know how many companies you've covered that run a 210 or 212, 13 ROA, but we just need to maintain. The efficiency was at 36. Have we gotten that revenue in early in the quarter? You've probably seen that that might have seen a 5 out there, might have seen a 35. So we get it'll be fun to watch it next quarter and see what it does with the new ramp up in the revenue side.
Okay, understood. And maybe just big picture, Johnny, I guess, the originations this quarter were so strong. I mean, is there any commentary you can give on whether the kind of granularity, the geographic kind of breakdown of it or just kind of what buckets it falls? And just a little bit of color on that would
be helpful. Actually, it was Arkansas led this time. Arkansas was pretty strong this time. It took a while with the stump. We had to get comped, we had to get settled in.
The Stonegate people had to get settled in with us. We had to get settled in with them. I think we're past all that today and they're back to work. I mean, matter of fact, we had executive loan committee 2 or 3 weeks ago and every loan came out of the Stonegate footprint. So that deal is working.
That deal is coming. So but they're working everywhere. We approved $106,000,000 yesterday. And of that, about $65,000,000 of it will fund for sure this quarter and maybe it has 80% of that. So, it's just customers we do business with and he had paid us off on some stuff and then he got on a $60,000,000 deal and he brought it back to us.
That's just how it works. I mean, we had an $85,000,000 payoff with our good director at Little Rock and then he's back on another multifamily deal. He needs $30,000,000 $40,000,000 So that's just how it works. It's real commerce, real business going on.
Price, you got out. I was just going to say exactly what you said, Johnny. The bulk of that growth, it came from the Arkansas channel and that was
our team just taking care of
the customer. That was one of those surprise payoffs a couple of months ago. This takes most of those credit takes a little while to underwrite, make sure it gets done correct. It is really just a hustle of in this case our North Arkansas group that happened bottom back up over the customers that had paid us off in prior quarter.
Yes, it was a bit you probably remember me talking about a hanger loan. We picked up hangar loan in Oklahoma City, dollars 40,000,000 hangar loan. Well, he paid it down about $36,000,000 $37,000,000 somebody will offer him $47,000,000 he sold it. But that hurt, right, because it comes off the books when he gave us a $36,000,000 multifamily deal and he's got $112,000,000 deal going out there right now. He said, I'm going to bring it to you all.
So it's just the relationship with those customers. And I don't know if you're on the phone with Tracy, talked about our trip with Dave down to Florida and JC and those people going over Sarasota and business with Dennis and that bunch, but it just turned I'm not sure that we didn't turn over $150,000,000 worth of loans that potentially could be coming down. I know part of it, Dennis has got a term sheet out to him. I think it's ready to go to him now on some opportunities. So I think there's I think before I retire, I will become a loan officer and travel the country and book loans.
That'd be okay, Brian. His detail on the underwriting is a little more challenging. He understands
a good loan and not a good loan.
Loan.
You can buy 1 of the RVs, Johnny, and travel the country. So I appreciate the update, guys.
All right. Yes. Thanks for your support.
Okay. This concludes our question and answer session. I would like to turn the conference back over to Mr. Allison for any closing remarks.
Thank you, everyone. It's been a fun day. I think everybody got a good clear picture. Our group's happy here. Things at home are good.
And as I said, the run rate is picking up. Things look pretty good for home and we're driving towards our goal of home $2 And once we get back from Florida, I can give you more information when I see you, but I think that will be a good trip with our people and get everybody acquainted on the new plan and the direction we're heading. So anybody got anything else to say?
Good job by
the group. Good job by everybody. Ms. Howard, do you have anything? Ms.
New Howard, do you have anything? No, I don't. Mr. Howard, do you still kind of transition Howard, do you have anything? Okay.
Well, we'll talk to you in 90 days. Thanks for that. Hi, Glenn. Randy Sims, I'm sorry. It was 29 consecutive quarters.
I mean, it'd be 30 next quarter
if we did. We thought we'd end on that.
That's right. Thanks. Everybody have a good day. Bye.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.