Greetings, ladies and gentlemen. Welcome to the Home Bancshares Incorporated First 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 participants in this call today are John Allison, Chairman Randy Sims, President and CEO of Home Bancshares Tracy French, President and CEO of Centennial Bank Brian Davis, Chief Financial Officer Jennifer Floyd, Chief Accounting Officer Kevin Hester, Chief Lending Officer Stephen Tipton, Chief Operating Officer Chris Poulton, President, Centennial Commercial Finance Group Dave Silevski, Regional President and Donna Townsville, Director of Marketing.
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 on 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 our first presenter, Mr. Allison.
Thank you, Andrea. Good afternoon and welcome. Randy, I think this is the 47th time I looked it up, it's the 47th time that we reported our earnings release and conference call since we did our initial public offering. How was the quarter, Randy? Is this another one for the record book?
I am happy and proud to announce 28 consecutive quarters of record income. Now I have checked and verified with our accountants and that's 7 years. Can you believe it? 7 years?
You don't think they made a mistake, do you?
No, no, no. I also verified with my 5 year old grandson. He said it was 7 years too. But 28 consecutive quarters. Congratulations
to everyone. That's 28 including this quarter, right? Yes, yes, sir.
That's great.
Well, congratulations all of you that have made Home Bancshares Centennial Bank to be the best bank in America of all banks. It was named by Forbes in January this year and this honor makes us all proud. I told you we're teeing up the ball for 2018 and here is another powerful record quarter, not a bad start for 'eighteen. You add to that the completed conversion of Stonegate and the closing of 12 branches and think about the additional reduction in salaries associated with those closings in the Q1. This will be the best year by far our company has ever had, and I think it continues to get better.
From the good news, Randy will go through most of the numbers, but here's just a list of good news. Income up 55%, EPS up over 27%, stable margin, great asset quality, record revenue, record ROA, strong efficiency ratio. And you see the efficiency ratio, I know that number, you can see we're gleaning the efficiencies out of Stonegate. And actually, the March 31 days non interest expense was less than February. So that's just a good sign for the run rate coming in the Q2.
Strong loan loss reserves, completion of the Stonegate conversion, I think, aren't we pretty Randy, I mean, Steve, aren't we done pretty well?
Yes, sir.
About over. Strong capital ratios, and I couldn't pass using this number, Randy, a 23.33 percent return on average tangible common equity. That's a pretty powerful number. Yes, sir. We just completed a very successful lender conference.
We had about 280 of our people there in Orlando. It was a great time for all. We got to know each other, got to spend time together and get us on the same page. I guess if we had to look at bad news, I guess the loans were flat for the quarter and mortgage was off just a little bit. But I think, Tracy, you told me they had a record lock in March.
Yes, sir.
Yes, sir. March was an exceptional month.
March was an exceptional month. So that looks like that bodes well for going into the Q2. On the Florida Keys, the penny report shows we've only taken one loss thus far, but the penny report shows us off 22%. I was just down there for some time, lots of health warning signs, but so far so good. And it'll be a while, I assume, before we know it looks to me like it's a cash flow situation.
On M and A, we're not doing any of that presently due to the stock price. However, we are talking to some companies. Home2 dollars with some reduction in expense, we need about $1,000,000,000 in loan growth. We have a tentative meeting scheduled in July, Donna Townsend, is that right?
Yes, sir.
That kick off the $2 program. As you recall from the Q4, rudely, Donna came in and had a Slurpee, just one Slurpee, and the rest of us looked at her. She didn't bring in the rest of us one. But I want to thank Michael Rose. He made a gallant attempt with a GoFundMe fund attempting to provide refreshment to all of us, everyone in this room to have Slurpees.
And I think we're going to get a report from Donna shortly, so hang tight and don't miss it. On stock buybacks, year to date, we bought back 535,000 shares at 2,308, of which 303,000 of the shares was bought during the Q1 with the balance bought with our 10b5 program that allows us to
buy during blackout, correct? As a
matter of fact, before we go, Randy, to the numbers, let's go to Donna. I think she's at the shareholders getting set up for the shareholders meeting and get a report on the Slurpee fund. Donna, are you there?
Yes, sir. I'm here. And I'm happy to report on Michael Rose's Slurpee campaign. It was successful, because no one should drink Slurpee's alone. I would have gotten you guys a bigger size, but I couldn't get Brian Hagler to commit.
Here he's been watching the Slurpee industry waiting for prices to go down, maybe they will next quarter. But since I'm in Little Rock setting up for tonight's shareholder meeting, I was hoping that Slurpee's made it there safe and sound. Maybe you guys can confirm that for me. But also I'd like to take this opportunity to invite everyone to join us at the Statehouse Convention Center tonight for our shareholders meeting. Doors open at 5:30 and the meeting begins at 6:30.
Thank you for the update on the Slurpee report and the shareholder meeting. And if Brian Hagler decides to get in and help us, we get a bigger size next time, please report that to him.
I'll do that. That'd be great.
That's all I have right now, Randy. So I'm going to turn it over to you to run
all the numbers. Okay. Well, I was trying to squirt down my cherry one real quick, but I will get to the numbers. Thank you, Johnny. As he stated, it was a powerful quarter for Home Bancshares and not just a good, but a great start to 2018.
And while we did go over it, I'm going to say it again, the Q1 of 2018 was the most profitable quarter in the history of our company. And again, that is now 28 consecutive quarters of record income, 7 years. Now I will admit the last few quarters have been noisy with merger expenses, the Tax Cuts and Jobs Act charge and other things and other non fundamental items. However, 7 years is a record of record income is quite an accomplishment that all our shareholders can be proud of, and I congratulate our employees and their hard work to accomplish this milestone. With a few exceptions, the Q1 was relatively clean with little noise in the financials.
This was very satisfying to see and I think the numbers you have already heard and will hear are a good picture of the makings of a very successful year as our Chairman stated. If you recall, last quarter I ended by saying that 2017 was a very unusual year and our best days as a corporation could be ahead of us in 2018. Our history is rich in acquisitions, changes and decisions to ensure the long term success of Home Bancshares, and I really believe the first quarter results are pretty good evidence. You're going to hear some really good numbers from our management team today. Just as a reminder, our 3 acquisitions in 2017 resulted in over $3,500,000,000 in total assets being added to our balance sheet after purchase accounting adjustments.
Most of that was with the Stonegate acquisition. And in February, we completed the conversion of Stonegate systems and processes that not only consolidated our IT systems, but also consolidated many of the duplicate branches in our respective footprints, all of which have and will bring about savings to our bottom line. We are already seeing the impact to that bottom line in the Q1 and I'm really looking forward to seeing the synergy of our combined operations in the coming months. With that being said, what better way to tell you about the progress at Stonegate than to have our Regional President, Dave Silevski give us an update. Dave?
Thanks, Randy. I appreciate that. Yes, the conversion is completed. It went very smoothly. We're continuing with integration and really 99% of the cost saves were realized in the month of March.
So 2nd quarter, you should see a clean run rate. But more importantly, the lending teams of both banks are now consolidated in Naples, Fort Lauderdale, Tampa and Sarasota. This was really the first deal in my banking career, while Stonegate has done 10 acquisitions and I think Home Bancshares has done 23 or 24, where we were actually larger than the acquiring bank. We had about 3,000,000,000 in assets in this market versus the $2,000,000,000 of Centennial. The challenge is always about the integration of people rather than systems and the merging of cultures is sometimes difficult.
But I really believe that we've taken the best of both cultures and create a powerful force in Florida. A few tangible examples of this is 10 out of approximately 20 of the left of the Stonegate branches existing actually grew deposits in the Q1 in excess of $500,000 In all the mergers we've done, we've never seen it where we've actually grown deposits. When we're going through a conversion in a merger, it usually goes the other way. Also, we've been able to increase approximately 7 legacy corporate relationships on the lending side due to the higher lending limits of Centennial Bank. And for the Stonegate actual legacy Stonegate piece, we actually grew loans in the Q1.
So I think this is all clear examples of where the two groups have come together and really working as a team. Our staff in Florida is working together with the goal of providing excellent customer service and while delivering a superior shareholder return, and I look forward in the future to reporting very positive results. With that, I'll turn it back over to Randy.
Thanks. Thanks, Dave. Now to some of the numbers. For the Q1 of 2018, the company recorded a 55.9 percent increase in quarterly profit to $73,100,000 compared to $46,900,000 for the same period in 2017. I still remember being so excited in April when we finally became profitable when we first started this entire enterprise in 1999.
Boss, can you believe we made a little bit of money in 1999 and bang, dollars 73,000,000 who would have thought $73,000,000 in 1 quarter. We can get better. I know. I know. And that's what I've heard for the last 20 years.
And you have been absolutely right. And we can get better. And that is what it's all about. Our diluted earnings per share for the Q1 of 2018 was $0.42 per share compared to $0.33 per share for 2017, representing a $0.09 per share or 27.3 percent when compared to the same quarter in the prior year. Our return on average assets for the Q1 was 2.08% as compared to 1.86% in the Q1 of 2017.
Our Chairman has been looking for that 2% and we got it this quarter for you. Our return on average assets as adjusted was 3.07 for the 1st quarter. Our return on average TCE excluding intangible amortization for the quarter was 24.33 percent as compared to 20.08 percent for the same quarter end in 2017. So as of March 31, the corporation is sitting at a little over $14,300,000,000 in assets, Deposits ended at $10,400,000,000 as compared to $7,600,000,000 at threethirty oneseventeen. We have a great management team on hand to talk more about the results, so I would like to turn it over to Centennial's CEO, Tracy French, to give us additional color and his comments on our performance.
Randy, the Q1 results that you and Johnny have shared in 2018 are off to a great start. While it's generally a little quieter of activity for the quarter, this certainly has been one of the busiest we've been through. I just would like to take just short second just to thank all and a compliment all of our staff members that have helped, worked, assisted through the Stonegate conversion, and I think we'll see the fruits of the labor going forward. Just a couple of numbers, if you certainly rattled off some of I was giving Johnny fist bumping some of those, just two things that popped up to me at the Centennial Bank level. Our ROA was 2.24% and our efficiency ratio was 34%.
I can remember as Johnny and I hit the road several years ago and we started talking about Florida. While all the Arkansas regions are some of the best in the country, I'm pleased to report our original plan to get all the Florida regions up to those successful numbers has happened. I'm very proud to report that all the states operate under Centennial Bank now have a 2% or better ROA, first time that's ever happened since I've been with the company. Thank you to all for making that happen. Now we can just sit back, Johnny, and watch and see what happens now that the company is all ginning on the same page.
As you mentioned earlier, we just returned from the lender's credit conference last week and not only was it very educational, it certainly was a great team building opportunity for all. And as you all can imagine on the phone, our Chairman, John Allison set out a few typical goals that sometimes people always fall out of the chairs. We did have about 100 new people there that day and I saw about 50 of them drop out of the chairs when they heard some of these goals. But the fun part about this company is every one of them was high fiving on the way out and talking about how we will get those numbers done, Randy. So we look forward to 'eighteen accomplishing the results there.
Thank you. Thank you to our staff.
Thanks, Tracy. Great report. The total number of active Centennial branches is 158 with 76 in Arkansas, 76 in Florida, which is something there, same number, and 5 along the Alabama coastline and of course, one in New York. I would now like to turn it over to Stephen Tipton, our Chief Operating Officer, who will fill you in on some of our income efforts, efficiency and other key matters.
Thanks, Randy. I'll start with margin and production. We're pleased to report a net interest margin of 4.46 percent for Q1, down only 1 basis point from Q4 despite a reduction in accretion income. Our loan production in Q1 was in excess of $575,000,000 at over a 6% coupon. We're pleased with the trajectory here, particularly relative to the increase in the total cost of deposits, which includes non interest bearing deposits of 8 basis points for the quarter.
We continue to watch yields and costs on a daily basis and proud of what our teams have achieved. Switching to our efficiency efforts, I'm pleased to report an adjusted efficiency ratio of 37.97 percent in Q1, particularly in a short 90 day quarter. We're all excited to see the numbers for March and in April and begin to analyze the full effect of the synergies from the Stonegate merger. After the consolidation of 12 branches in South and Central Florida in February, the total Florida branch count is now 76 with 158 branch locations across our entire footprint. We are now 2 months removed from the Stonegate Systems conversion and glad to see our teams in Florida playing offense again.
With that, I'll turn it back over to you, Randy.
Thanks, Stephen. Good report. We will now turn it over to our Chief Financial Officer, Brian Davis, to give us some more information on income, expense and other highlights. After that, Brian will pass it to Jennifer Floyd, our Chief Accounting Officer to give us some information on those capital numbers.
Thanks, Randy. The Q1 was a record setting quarter for our company. We recorded $73,100,000 of net income or $0.42 diluted earnings per share and a 2.08 ROA. The company benefited $12,100,000 from the Tax Cuts and Jobs Act during the Q1. The positive impact of the tax cut was $0.07 for both diluted earnings per share and tangible book value for Q1 and 34 basis points
for ROI.
Accretion income for the fair value adjustments recorded in purchase accounting was $10,600,000 during Q1 compared to $12,400,000 during Q4 for a decrease of $1,800,000 decrease of recognized accretion income when compared to the Q4 of 2017 is primarily due to normal accretion declines of 1,000,000 dollars and then $800,000 of lower accretion from lower payoffs. Stonegate accounted for $486,000 of the $800,000 decline in payoff accretion. The net interest margin was 4.47 for Q4 2017 compared to 4.46 for Q1 2018. Since we had a $1,800,000 decline in accretion income, we were pleased to report a NIM with only a 1 basis point decline from Q4 to Q1. Non interest income was down $1,500,000 in Q1 2018 compared to Q4 2017.
Are several items worth noting. First, we did not have any gains or losses from investment security sales compared to $1,200,000 in the Q4 of 2017. 2nd, there was a $916,000 decline in mortgage revenues. 3rd, we received our annual incentive from Mastercard during the Q4 for $703,000 Lastly, other income in Q1 included $1,400,000 of additional other income from items previously charged off. Excluding this $1,400,000 of other income, diluted earnings per share would have been $0.41 for Q1 2018.
Non interest expenses were relatively flat at $63,000,000 for Q1 2018 compared to Q4 2017.
During the
Q1 of 2018, we completed our systems conversion and closed 12 branches. As a result, most of cost savings associated with the system conversion and branch closures were achieved throughout various intervals throughout the quarter. The Q1 of 2018 included $1,800,000 of non interest expense that will not be reoccurring in the 2nd quarter. This includes $1,100,000 from salary, dollars 300,000 from occupancy and $400,000 from other non interest expense categories. With that said, I'll turn the call over to Jennifer.
Thank you, Brian. As of March 31, 2018, we ended the quarter with $2,200,000,000 of capital and $59,000,000 of cash at the parent company. During the Q1, we paid out shareholder dividends of $19,100,000 while growing retained earnings by $55,000,000 Also during the Q1, the Board of Directors authorized an increase of $5,000,000 in the number of shares of stock available for repurchase under our common stock repurchase program. Under this program, we purchased 303,000 6137 shares of common stock at a weighted average price of $23.41 during the Q1. For the Q1, our common equity Tier 1 capital was $1,280,000,000 total Tier 1 capital was $1,350,000,000 Total risk based capital was $1,760,000,000 and risk weighted assets were approximately $11,300,000,000 As a result, our capital ratios are as follows: common equity Tier 1 capital was 11.3% at March 31st compared to 10.9% at December 31st.
Our leverage ratio was 10.2% compared to 10% at December 31st. Tier 1 capital was 12% at March 31 compared to 11.5% at December 31. And total risk based capital was 15.6% compared to 15% at December 31st. Our book value per common share was $12.89 compared to $12.70 at December 31. Tangible book value per common share was $7.27 compared to $7.07 at December 31.
And finally, our tangible common equity ratio was 9.5% compared to 9.1% at December 31. Randy?
Thanks, Jennifer. Okay, let's turn to loans. And first up, I'm going to pass it to the President of our New York Group, Chris Poulton, who will give us an update on how things are going there. Chris, how are we doing? Thank you, Randy.
Well, CCFG turned in
a solid performance for the start of 2018. Total loan balances increased by 60 $3,000,000 and we ended the quarter at $1,500,000,000 in outstanding. During the quarter, we originated $250,000,000 of new loans with approximately $100,000,000 of that funded during the quarter. Additionally, I want to take a moment to provide you an update on our Los Angeles loan production office. We opened that office a year ago, and since that time, we've originated about $150,000,000 in new loans, and we currently manage a portfolio of approximately $100,000,000 in outstanding.
This performance is in line with our expectations and we continue to be pleased with our progress in this expanding market. Randy, I'll turn it back over to you.
Thank you, Chris. Great report. Let's switch to our Chief Lender, Kevin Hester, who will give us some more details and color on our portfolio. Kevin, great, great numbers. Tell us about everything.
Thanks, Randy. The earnings release discusses the fact that overall loan balances were basically flat in the first quarter. Legacy production was solid, but payoffs continue to be somewhat elevated. Florida was down $42,000,000 due to a net decrease in ADC balances of about $115,000,000 We continue to see lots of opportunities in the legacy markets, but we have recently been able to put together the elusive trio of conservative underwriting, strong yield and growth imbalances. We've always said that we will look for them in that order.
A slight increase in non performing loans increased the NPA and NPL ratios by 5 basis points each, but both are still below 50 basis points. The ALLL coverage of non performing loans remained high at 2 23%. Past dues increased 2 basis points to 0.68%, but this number has been very consistent at 1% or below for the past few quarters. Lastly, the allowance for loan losses remained flat at 1.07% loans. As was mentioned earlier, mortgage closings were up 2% over the same quarter in 2017 and the yield on secondary market loans remained strong at 3.5%.
Production in the 2nd quarter is expected to be strong with March locks at a record $101,000,000 On that note, Randy, I'll turn
it back to you.
Joe, is that the biggest lock ever?
Biggest month for lock. Biggest month
for lock. Yes. That's good news.
Super new. And again, great and consistent asset quality numbers. Love to see that. Love it. Okay.
A great start to another year. Let's just recap a second. Record earnings. How can I not say it again? For the 28th consecutive quarter, dollars 73,100,000 in income $97,000,000 in income before taxes.
Good net interest income, a quarterly ROA of 2.08 strong, a great quarterly efficiency ratio of 37.83 just 2 months removed from the Stonegate conversion, a very powerful margin, very good non interest income and some of the best asset quality metrics we have seen consistently, as we have said, consistent and solid improvement in our major components. If you look back at our history, there is no doubt we have a culture of high performance. That's what gets you rated the best bank in America. That is what we're all about, and we look forward to continued improvement as we strive to break more records throughout 2018. And with that, I'll turn it back over to our Chairman, Mr.
Allen.
Well, those when you consolidate all those numbers like that, Randy, and put them all together, a couple of paragraphs right at the end, that's pretty powerful stuff. So good job by all. And I think we're probably ready. Anybody else got any comments before we go to Q and A? Any comments, anybody?
Anything on the slurpees? You heard any update down the towns on the slurpees?
I have not. Are you enjoying
your slurpees? It's pretty good
to me. It's pretty good. I would like to have a better one if Hagler stepped up. I'd have a jumbo. I didn't get a jumbo, Hagler.
I'm looking for that. Anyway, Andrea, I think we're ready to go to Q and A.
We will now begin the question and answer session. And our first question comes from Michael Rose of Raymond James. Please go ahead.
Hey, guys. How are you doing?
We're doing great, Michael. We're enjoying our slurpee.
Thank you.
Well, because of this, you have to buy all our drinks at Gold Stop now. That's the paid off.
Okay. Our prices per day, I raised it to $59 So we'll drink, let's go.
I appreciate it, guys. That was good. Just wanted start off on deposits. When I look at S and L at current market rates, especially on money market rates, It looks like you guys are paying well above national and peer averages.
Do you guys run any sort
of specials there? I know the loan to deposit ratio is up around 100%, but is there any targeted deposit strategies that you guys are working on? And obviously, should we anticipate higher deposit costs as we move forward? Anticipate higher deposit costs to move forward?
Hey, Michael, this is Stephen. No, I mean, most of that's still the same MOS has been the last couple of quarters. I mean, we're still doing select negotiations in all of our markets with our customers and targeted specials or anything today. It's still old fashioned banking 1 on 1 negotiations.
Well, we
Kelly Buchanan, who is our deposit czar, she's been in place about 5 weeks now. So we're starting to see some results of that and the emphasis on deposits. But how much did our deposit how much our cost of funds go up?
It's like 11 basis points for deposits.
11 basis points for deposits. So I'm struggling with what you said. You said that we're paying more on a money market than the national average. Is that what you said?
Yes. I was just looking at the data that's in S and L. Looked like the national average is around 10 bps and you guys are obviously quite a bit above that.
We're above 10 bps, but we don't the pressure has not been too bad yet. I'm sure it's coming. We see some competitors advertising with billboards and advertising in our market. Some of these people have gotten themselves kind of behind the 8 ball. They've agreed to fund a lot of loans and they got to raise deposit.
So we're not in that position. We're pretty comfortable where we are. I think we picked up I think Dave Celeste's group picked up a couple of 100,000,000 that we're getting here pretty quick last week. So that's a nice little kick to the deposit side. So we're working on the deposit side, but it's not anything any different than we've always done.
Understood. And then maybe just on loan growth, ex Chris' group this quarter, it looks like loans were a little flattish. Was there any pay downs this quarter? And maybe what do pipelines look like? What does competition look like?
Any change from last quarter?
Actually, we had the biggest week in the corporation's history in March. We approved one day over $300,000,000 So will that bode? I'm going to quit forecasting deposits because we were up $120,000,000 at the end of February, and I thought we're going to end up the quarter at $180,000,000 to up $200,000,000 One of those was line of credit, dollars 70,000,000 line of credit, which we had for a while. They paid it off. They'll pull it back up.
That's what it's for. It's a line of credit. So but averages, we're up almost $100,000,000 on average balances. So we were up most of the quarter. But it's we're just continuing to do what we do.
It'll come to us. We'll get our share. We'll get our fair share. In the meantime, we got good savings coming off of the Stonegate acquisition. When you look at the March number and you annualize March, that it still had some expenses in there.
It's pretty powerful for the company going forward. So we had all 276 lenders together. They know the charge. They understand the charge. We have a matter of fact, we have our presidents from Florida in with us today.
They understand the charge and what we need to do. I told Chris to do about $300 and the rest of the footprint to do $600 and that will get us our number for $2 EPS. That's our goal. We'll get it. We've never this group's never fallen down before.
They know the new goal is $2 and they'll get it done.
All right. And maybe one more for me. At the outset, Johnny, you said that M and A may be on the sidelines for now. You did raise the buyback authorization. How aggressive do we expect you guys to be in the next couple of quarters or going forward?
Thanks.
Well, we bought back I think we announced 303,000 shares. We actually bought during the time year to date, we bought 550,000 shares. So we've been we bought a $250,000 in the blackout period. So when they give it to us, we'll take it. We're out right now, but I wish we were in.
I bought $20,000 a day. So I mean, if they're going to give it away, I'm going to buy it back.
Understood. All right. Enjoy the surface, guys.
Thank you. Hi, that's great. Hopefully, you get Hagler in next time, Michael.
Our next question comes from Brady Gailey of KBW. Please go ahead.
Hey, good afternoon. This is Mike Belmas on for Brady Gailey.
Hi, Mike.
Hey. Just wanted to revisit loan growth. And I know you guys had previously said that for the CFG Group, you're targeting about 15% of the total loan portfolio.
But if we do have
elevated pay downs, would you feel comfortable taking that number up a bit?
No, we're going to hold it to about 15% of assets. It's not loans, it's 15% of assets.
Got you. Got you. Sorry about that. And then on back on deposits, I know for the quarter you guys finished at around 99% for the loan to deposit ratio. At what point do you feel more pressured to kind of get more aggressive on the funding side?
Well, we've always run-in that 95% to 100%. Actually, Randy Sims wants to run-in 110%. The regulators don't like us there. So we're very comfortable here where we are at 100% loan to deposit. I mean, we have lots of capital.
We can crank it on up if we need to crank it on up. So we're comfortable here. We're just not going to do anything silly. We're going to remain patient on the loan side and we're going to remain patient on the deposit side. We just the word around here is hold the course, don't do anything silly.
Got you. And one last question. Saw you guys closed about 12 branches in Florida. Was that part of the plan cost saves or was that kind of above and beyond what you initially thought?
Well, that was the plan.
Yes, that's exactly this is Dave Selesky. That was exactly the plan. We closed one previously due to the hurricane in Naples. So I think we've told the street 13 branches. So that's our 13 branches.
Yes. That was the plan for the cost saves. The cost saves, as you can see, the efficiency ratio was 37%. It would have been in the 40s if we hadn't pulled Stonegate down to where we were. So you can see that what we've gleaned so far.
And we're not done. That number is going to get better. It will have to get better. Actually, you annualize March, and I won't tell you what that looks like, but it's much more powerful than the quarter was.
Got you. Understood. Appreciate the color. Thanks.
Yes. Thanks.
Our next question comes from Will Curtis of Piper Jaffray. Please go ahead.
Hey, good afternoon, everyone.
Hey, Will. Good afternoon.
Maybe just real quick going back to payoffs. Can you talk about, I guess, the activity this quarter and how it may have compared to prior quarters? And then to the extent that you can, just discuss how that may have tracked over the course of the quarter?
Well, we were up January February about $120,000,000 $130,000,000 $140,000,000 and that's when I thought we were going to have a pretty strong quarter. I didn't realize one of those was line of credit of $70,000,000 as they paid that off. So then we had some surprise payoffs. But overall, I actually thought we're going to be up. I'm not going to forecast loans anymore because I'm not very good at it.
Randy Mayer for years kept saying that margin was going up when it went margin was going down when it went up. So I'm going to be quiet. I will tell you that March was the biggest approval month the corporation's ever had. So I can't tell you that that rolls into loan growth, but it was a pretty powerful month. Kevin?
Yes. Payoffs were back down to a more normal level. Production was solid. It wasn't earth shattering, but it was good. The payoffs were just more weighted towards the end.
So, average was up, but ending balances were down.
I guess the good news in the picture is that we're up averages were up about $95,000,000 to $100,000,000 and interest income was up. So that's the positive side of the quarter. So I know you guys thought I think Tracy talked to you guys, told you thought we're going to have loan growth. We thought we're going to have it too, but it just it didn't work out. But we'll get it.
It's coming. We'll get it.
All right. I understand. And Johnny, maybe I know you mentioned kind of in your prepared remarks about kind of South Florida activity. And just curious maybe that's kind of progressed since last call? And are we starting to see some increase in rebuilding activity after the hurricane?
Well, I think we're seeing lots of rebuilding activity in the Keys. We're I like our reserve, what we put back for the Keys. I'm beginning to believe we might not lose that kind of money in the Keys. It's really what happens to those customers. I mean, they're closing restaurants early because they don't have workers.
Those workers are not there because they don't have housing. So it kind of feeds upon itself. However, in spite of that, our Florida Keys operation had the best quarter by far it's ever had. So part of that was the Stonegate piece that rolled in. It was a pretty powerful quarter for the Keyes portion.
As of right now, what are we seeing out there? We don't really think we've got a couple of problem credits we're looking at. They're not problems yet, but they appear they're going to be problems, but it doesn't look like there's any loss in them yet. So if the keys comes back, which we suspect it will, I was there and the traffic was lots and lots of traffic. I didn't realize that we're off 22%.
So Teresa Con has sent me the tenure report and I looked at that. So I think Key West is going to be fine. I don't know about the rest of it yet, but I think we're well reserved. We won't know we will not know till a slow season, which is the 4th quarter.
Okay. Thank you very much.
You bet.
Our next question comes from Stephen Scouten of Sandler O'Neill and Partners. Please go ahead.
Hey, guys. How's everyone doing?
Doing great, Stephen. Good, good. Hey, just following up on Will's question there. Has any
of that hurricane reserve been released as of yet? Or is that still all kind of unallocated reserve?
Has not been released.
All unallocated. All in allocated.
Great, great. And just thinking about loan growth a little bit more, do you think there's any specific catalyst that could kind of flip the script here and see you guys putting up
some more material loan growth? Or do
you think it is just what you said, Jonny, it's just look, be patient, pay downs will eventually slow down a little bit more and more of this will materialize in the net loan growth? Or is there something you change or something that changes in your markets that you're waiting on?
We're not going to change our underwriting standards. We're going to continue to do what we do. We're going to hold the course and we're not going to give it away. So if that causes us to be sit here a little bit and have a little slower loan growth, that will be fine. Yes, there's something we can change.
We can change underwriting standards and rates and terms. And we can as I told you last quarter, we can fill up an 18 wither with loans. But that's just not how we run this company, and it's not how we run the company in the past, and we'll win. It's painful right now because they beat our stock up so bad, but we keep you look at the operation numbers, they're not even buying a country running better operational numbers what we're running, but we'll get our piece of it. We're on a $350,000,000 deal right now loans to look at.
So we're on we got a lot of things going on. We'll get our piece. And if pay downs have slowed, they did slow the Q1. If pay downs slow, it'll be our turn. We'll get our piece of it.
There's been a lot of people in Florida that are selling their franchises. So they're giving the stuff away and they've been extremely aggressive. They're doing long term fixed. They're doing 3% stuff. And until they clean them out, till we get them out of there, till they get their franchises sold, then it kind of puts that's difficult on our people.
But this too shall pass, and they'll get sold to somebody. Those bigger ones get sold to somebody. And when they get sold, then maybe we'll have somebody that comes in next time that's got good sense and knows how to run a bank.
Yes. And I mean, do you guys go upmarket at all at this point now that you're larger than $10,000,000,000 with Stonegate and whatnot? I mean, have you gone upmarket at all in terms of the size of loans that you're putting on the books?
Well, our largest customer, yes, I think Dave, I think we picked up, we increased the size of 6 or 7 of his customers. I don't know if they fill that up, but we've offered it to them. They've got
the right. Yes. Yes, we've had 6
or 7 customers. We've increased our lending relationship. We've got a couple more we're looking at. But these are not it's not it's going from like $20,000,000 to $40,000,000 or $45,000,000 $50,000,000 We're not talking $100,000,000 type credits. But yes, there's some more capacity there.
I think there's some more opportunity there as we go forward. Our
biggest credit is in Arkansas credit. Our largest credit in our system is in Arkansas credit.
And maybe one last one for me. I think somebody mentioned the 11 basis point move in the cost of interest bearing deposits this quarter. But obviously, not a need to grow deposits all that rapidly without the loan growth. But once this loan growth does start to materialize and you do get that fair share, would we expect to see the cost of deposits ramp at an incrementally
the Well, I don't think so. I think we'll just lag, and we'll continue to one off, as Dave just did in one of his markets, brought us $200,000,000 worth as a one off deal. When we made we are not advertising specials today. That's the problem. As I said, Stephen, these people who have big loan books they have to fund, they got to get a lot of deposits and they're under the gun.
We're not under the gun. We have the ability to fund our loan growth. And if we need to we can always raise some additional deposits. I mean, we'll be, what, dollars 97,000,000 with that $200,000,000 coming in, dollars 98,000,000 So we're not we've always run it about this level. Randy Sims, you want to run 110, don't you?
Absolutely.
The examiner holds back on that. I mean, for 30 years, you got that
engine running. If you got
a big engine, why not run it fast? And but 100% is good. That's good. There's nothing to don't apologize for that. We like that.
But some of these banks that are desperate, that are advertising, they're advertising not even in their own markets, and they're advertising huge rates. So we're not there, we're not going to get there.
Yes. I know you're waiting on the loan growth, but that 23% RoTC sure helps in the meantime. So congrats on that.
Thank you. Yes, we're proud of that.
Our next question comes from Jon Arfstrom of RBC Capital Markets. Please go ahead.
Thanks. Good afternoon.
Hi, Don. Hey.
Couple of, I guess, follow ups. But margin expectations, if you take out some of the purchase accounting noise, it seems like coupons are higher than your loan yields and you're not that worried about deposit costs. You guys optimistic on the margin?
Hey, John, this is Steven. I'll stick with what Johnny said earlier about what Meyer used to what he used to forecast. But yes, I mean, I think if you look at where we're loaning money at today, north of 6 in Q1 and kind of where incremental deposit costs are when we have to go pay. I mean, I think that still looks positive
for the future.
Okay. Okay. Yes, that was my impression. I guess the buyback, Johnny, it sounds like with your personal purchase, you're telling us something, but you have the new authorization. It sounds like you're not interest at least you can't get interested in acquisitions at this price.
How aggressive do you want to be on the buyback?
Well, we're generating lots of capital. It was about $27,000,000 increased earnings in the Q1, about $14,500,000 of that was organic increase in profitability and the other $12,000,000 was Donald Trump. So we spent that was like we spent Donald Trump's money this the 1st year to date. We took about took that $12,000,000 and stock. So we'll as long as the stock stays where it is in this range, we'll be extremely aggressive.
Okay.
But don't leave the impression that we're not talking to people and we're not planning for acquisitions. It's just it takes a long time
to court someone. Yes, we're engaged in conversations. So but we're not going to deal with these levels.
Yes, okay. And on the expenses, it sounds like you don't want to get too specific on it, but I look at it, it looks like there's some non recurring numbers in there as well. And maybe you're signaling a little better expense run rate than we're anticipating. Do you think you can get below $60,000,000 for the 2nd quarter? I
don't know. That's going to be tight to get there. We got about coming out, I think it's about we carried in the quarter $1,500,000 to $2,000,000 worth of additional expenses that are now gone.
Yes, we closed all the branches and we unfortunately severed with 84 employees.
And when you add up the cost that we had with those employees that we had for various intervals throughout the quarter, was about $1,100,000 and but that money will
come out. So we had a lot of
them in January, quite a bit of them in February, most of them were gone in March. But if you
were just kind of to reset the numbers from 1 quarter to
the next, you'd have about $1,800,000 of savings related to the Stonegate closures and conversions.
I don't know how much that was in left in. And when I annualized my March, I don't know how much of that was left in. We picked up $1,000,000 on one side out of the Stonegate settlement, but we carried $600,000 or $700,000 worth of expenses on the other side. But if it's anywhere if the March run rate is anywhere near, we'll be well over $300,000,000 on a run rate. So I'm pretty excited about seeing what that looks like going forward.
Okay. Okay. All right. Thank you.
Call me at the end of April.
Maybe I'll have a smile on my face.
All right. Sounds good.
Our next question comes from Matt Olney of Stephens. Please go ahead.
Going back to the discussion
on organic loan growth, obviously, you guys don't want to change the underwriting standards. But I'm curious if you guys would consider perhaps acquiring loan portfolios that would help you get to that $1,000,000,000 of loan growth that you've talked about getting?
We would, and we're looking, and we're actively engaged in due diligence as we speak of about $350,000,000 $400,000,000 So if it works out, it could be a line of business for us. So we kind of like the business and we'll know more here in Stephen. Yes, in a couple of weeks. We're in the middle of it. We're in the middle of it.
We're in the middle of it around. It's about $350,000,000 $400,000,000 So that gave us a pretty good start. Chris is rolling pretty good. And we just consolidated and our partners just met each other in Orlando and kind of settled in. It's kind of been it's a process when you do such a big conversion as we have and you're rolling in one of the best companies in the country, Stonegate, into Centennial Bank.
Everybody's got to figure out who's on 1st and what's on 2nd, get settled in and understand the philosophy and agree on how we're going to go about this going forward. So I think a lot of that Going on Craig, do
you agree with that? I think it's 100% on the integrations happening. And Matt, when you look back over the regions that we had, we had 2 regions that got hit with a couple of large payoffs that one of them we knew was probably coming, one of them we didn't. But when you look back over all the regions, there's been nice little steady increase in loans. And that's one of the things we recognized at the conference.
I mean, a lot of our true community banks and where the bread and butter of the company is, they're constantly making the right progress and taking steps. But I think we had one large one that paid off out of the Northwest Arkansas region and then the Northern Florida region had a large one too, which the Northern Florida region has had one heck of a run over the past few years and the developments in what we had there. So when you look back and the average of the loans would have been pretty solid, especially with the underwriting that our company is doing today. So you can rest assured Johnny's guys looking at all kinds of stuff.
I told him to bring it to committee. We got a strong balance sheet. I said bring it to committee. If you got something that's big and we need to look at doing something a little different, we'll bring it to us. Let's look at it.
I'm not talking about it would be on the right side or the term side, it would not be on the underwriting side.
Yes. No, understood. Understood. And then on the capital side, do you guys have the updated CRE and C and D concentrations? I'm just trying to understand if that at all is a limiting factor for you guys when you look at your organic loan growth?
No, we're still just below the 100, 300 have been for the last 2, 3 quarters. With the flat loan growth, it stayed right there.
Yes. And the Board's proved going to $115,000,000 $115,000,000 $360,000,000 So by the time we get there, it gives us about $1,000,000,000 worth of room. That's not limited to us. I just ask our people to bring us the best $1,000,000,000 worth of loans they could find.
Okay, guys. That's all for me. I appreciate the help, and I'll see you guys tonight at the meeting.
Okay. Thanks, Matt. Look forward to seeing you.
Our next question comes from Joe Senich of Hovde Group. Please go ahead.
Hi, afternoon, guys.
Hi, Joe.
I just have one question. Johnny, you're about as a student investor as anyone out there. So I thought I'd toss this one to you, maybe help us do our jobs here. I was looking back 2 years ago today, actually, Johnny, and the stock price was where it is now. And when you see situations like that, it just struck me that there's usually a reason you can pretty clearly identify.
But with you guys, I looked at the forward multiple then, you're at 17 times earnings, today it's 12 times, Except back then, you were doing a 170 ROA, a 20% ROTCE, and now you're at a 205% and a 23% return as you mentioned earlier. So it's sort of a head scratcher as to why and even more so because there's been such a huge change in sentiment as you know towards the group. So can you put on your investor hat for us maybe for a minute? What do you think the issue is?
Do you think it will take
to get price going here? What it should be based on the numbers you guys are putting up?
It's the damnest thing I've ever seen. I really don't know. I really it's really got it's pretty amazing. I have no idea. I've mentioned one investor and he said, there's kind of a battle going on with you all.
And I said, what's the battle? They they said, well, not like, they don't have near the battle that some other companies in Arkansas have, but I don't know. If the world thinks that everything hangs on loan growth, it doesn't all hang on loan growth. And everybody's telling me, Johnny, you're going to have loan growth, you got to have loan growth. Well, Joe, you know how disciplined this company is.
In the long run, we'll win. In the long run, this company will win doing it the way we do it. So I think the app the long there's no long term look with a lot of investors anymore. Short term, what did you do this quarter, what did you do next quarter, what are you going to do here, what did you do today. And that's not how this company was built.
You heard Randy Sims, 28 record quarters in a row. I don't know anybody else. I guess there's somebody in the banking industry that can tout that. But they got us. We're going to get our 2 dollars a share.
We're going to be selling a 10 multiple. That's somebody buy us at that point. I mean, that's the case. Someone will be coming there to buy home bank shares. But I don't have I can't put my finger on it.
I have no idea.
I don't know So when you're on the road, Johnny, that's the one thing you hear from investors is the loan growth. Anything else that you're getting kind of pushed back on?
No, it's loan growth. It's loan growth. 99% rest of it is just wind addressing. That's it, loan growth.
You put it well. I like the way you read those numbers out, and that's exactly right.
Well, it's a 5 multiple PE contraction. It's amazing. And it's not when the performance hasn't even stagnated, it's gotten better.
Yes, absolutely. And it's going to get better. Let me tell you this, Q2 is going to be better.
So anyway, just wanted to see
what you thought about it, but looking forward to seeing you guys in a couple of weeks at Gulf South.
You bet. Take care. Thanks, buddy. Appreciate your support.
Our next question comes from Brian Martin of FIG Partners. Please go ahead.
Hey, guys.
Hey, Brian.
Hey, maybe one question for Stephen, just kind of going back to some of the discussion on deposits and the fact just on the core margin. So I mean the core margin was up 6 or 7 basis points linked quarter without loan growth and without really having to pay up for deposits with the benefit of rates. When you guys look at if you in an environment where you do start to get some loan growth like you're expecting Johnny and you maybe have to pay a little bit more on the margin for deposits, would the expectation be with rates still heading higher, you can still drive some core margin expansion, maybe not what it was this quarter, but still, I guess, would you expect it to still be a positive trend or incremental benefit going forward on that margin number?
Steve, I think so. I mean that's certainly the plan. I mean you had what we said about how you incrementally expand loan growth, but I think we continue the course of charging the rates that we are getting the fees that we're getting and then what it costs to fund it. I don't see any change in the course of our business.
Okay. So still a positive trend, maybe just a little bit less than what we saw in the current quarter on that trend. And how about just on the loan growth side, Johnny? I mean, I guess, without giving up the underwriting, which obviously we know you've talked about and won't do, but are there hiring opportunities where you can bring more people on who could bring who could take business or move market share? Is that something you're considering?
Or I guess it seems like more the angle you look at maybe this loan purchase as opposed to trying to find some talent that could help move market share. I guess is that an option as well?
I guess that's an option. I think our people are as good as there is. I mean, I don't think there's anybody I'm not looking I'm not out looking for loan people because I think our people are the best. I mean, they understand what we want and they try to bring that to us. They I don't need hot dogs that wrote $600,000,000 worth of loans last year at 3.5% and beating themselves on the chest.
These guys understand what it takes to make money in this corporation and what we need to do, and they bring those loans. Now if they got something that they really want, it's a long term relationship with a big customer, well, they got a bullet, they have bullets, we'll give them bullets. So if it's a great customer, has a long term future with this corporation and wants to have good deposits with us, then we can do whatever we need to do. I told them that last night. I said, you guys got bullets.
If you need a bullet, use it. Just make sure it's a good bullet. And so, I don't actually, I thought we'd be up to Q1. We might be up to Q2. No, I'm not forecasting anymore because I got egg on my face the Q1.
So I just knew we'd be up $200 plus 1,000,000 and we ended up flat for the quarter. New York had a great quarter and we'll get it. We'll get our piece of it.
Yes, yes, I got it. I guess I don't disagree with people either, but it just seems like there may be an opportunity like you're looking at with this loan purchase that if you bring put a couple more bodies out there, it helps too. So but I guess maybe just the other one was on the expense side, I mean, I think last quarter you guys talked about the remaining portion of the expense savings to capture from Stonegate being about $10,000,000 pre tax. I guess I'm just wondering without if you guys aren't giving a lot of guidance on the expense, I mean, how much is remaining to be captured? And then from Stonegate, I mean, how much was recovered, I guess, taken in this quarter versus how much remains out there, so we can kind of think about how that plays out?
And are there any offsets on the expense side where you're adding to expenses this quarter that will be somewhat of a headwind?
No. There are no new expenses being added. I think I shared with you that I'm not going to give you the exact numbers, but February was higher non interest expense than March. And if you analyze March, it's somewhere around $300,000,000 So you can kind of play with that yourself and figure that out. So I think it's about $1,800,000 Brian thanks to $2,000,000 during the quarter that flushed out here at the by the end of March.
And I'm not sure I know we carried some of that in March even though March was a powerful month. We carried some of that into March, but I don't know exactly how many dollars. When did you actually close them, Dave? When did you shut the branches? It was
February 9th.
Lot of those leases were paid through March. Leases were
paid through March. You'll see that savings roll in. And I'm pretty excited about I ran my ROA on March, just on a March month, and it's worth looking at.
Okay. I appreciate it. Thanks, Johnny. And then maybe just the last two things. Just maybe one for Brian on the accretion.
Just kind of how to think about that big picture. Was it a little bit of a stair step down this quarter, I guess? Is that kind of how we think about it? And how much remains out there that needs to be brought back in?
Well, we've got $88,000,000 of accretable income left on our books. So that can come in over the next 4 or 5 years. The March accretion actually was the highest accretion month that we had and that was the 1st month that we had all of Stonegate 100% loaded on the system. We had to manually make some estimates for January February. So I'm optimistic that we won't really have much more of a stair step down on accretion.
If it is, I'd look for it to be a smaller stair step than the one that we had this quarter. And to add a
little color on one of your questions about cost saves, we were estimating $10,000,000 of cost saves. We actually got closer to 11 $1,800,000 of that was what was expensed during the Q1.
I got you. Okay. That's helpful. And just the last thing, Johnny, as it goes back to M and A, you kind of talked about it. But I guess we all kind of know that banks are sold, not bought.
So I guess given where we are in the cycle, I mean, I guess if something were to come up, I guess it sounds as though you just passed on it at this point. If they're headset on getting something sold, I guess you'd tire the side of passing on something at this point. Is that we think about it until you see a rebound in the Yes.
I think that's good. Now we're back we like something that's kind of messed up. We like those kind of deals except for Stonegate. We're on one of those. So it's I don't know if we'll get it to our kind of deal, though.
So we're working hard on some different opportunities out there. We're working on that $350,000,000 worth of loans. We're working on a pretty nasty bank and maybe in a different geographical area, but we're looking at it. And the accounting attorneys and everybody's on top of the game on that. So that might work out for us.
And then we're still looking at one that's pretty deposit rich and just haven't had the ability to get there. If our stock gets back where it ought to be, we'll go after that deposit rich franchise. And you won't have the world won't have to be asking me the questions about the deposits. We'll have plenty and access to them. So anyway, overall, I thought it was a great quarter.
They took a stock down to $0.60 and I thought, well, that's stupid, I'll just buy it. So again, I bought stock and we're out right now. If we weren't out, the company would be in there with both fees.
Right. Okay. Look, I appreciate the color guys. Thanks and nice quarter.
Thanks. Appreciate it.
This concludes our question and answer session. I would like to turn the conference back over to Mr. Allison for any closing remarks.
Andrea, thank you. You were a good host and maybe we'll get you a Slurpee next time. Thanks everyone for joining the conference. We appreciate your support and we'll hopefully have a little loan growth next quarter maybe. We can put it together.
But more importantly, pay attention to the numbers. This company is hitting on all 8 except for the loan side and that side will come. And if not, we'll go buy some loans. So anyway, thank you for your support and your attendance and we'll talk to you in 90 days.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.