Home BancShares Inc (HOMB) 2010 Q1 法說會逐字稿

Greetings, ladies and gentlemen. Welcome to the Home BancShares Incorporated first quarter 2010 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.

(Operator Instructions). The Company participants in this call are John Allison, Chairman, Randy Sims, Chief Executive Officer, Randy Mayor, Chief Financial Officer, Brian Davis, Chief Accounting Officer, and Kevin Hester, Chief Lending Officer. 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 three of their Form 10-K filed with the SEC in March 2010.

At this time, all participants are in listen-only mode. And this conference is being recorded. (Operator Instructions).

It is now my pleasure to turn the call over to our first presenter, Mr. Allison.

Thank you, Andrea and good afternoon, ladies and gentlemen.

Welcome to Home BancShares' first quarter 2010 conference call. The first quarter was one of the busiest and most productive quarters in the Company's history. In addition to the mothership having a very good first three months, the Company was successful in two FDIC-assisted transactions. Those transactions resulted in a 17% increase in total assets and a bargain purchase price gain of approximately $13 million. $9.7 million on Old Southern in Orlando, Florida, and $3.3 million on the Key West Bank in Key West, Florida.

Obviously you don't have to ask where Orlando or Key West are, because they're both destination cities. Key West was a great end market acquisition. Old Southern expands our footprint in central Florida, not only however did we purchase hundreds of millions of dollars in new assets, but we were fortunate in the number of good people that were employed in these institutions. Tracy French one of our three regional Presidents has been assigned to Old Southern in Orlando, And Teresa Condes, our Florida Keys President is folding in the Key West Bank into our franchise.

Speaking of good people, I want to thank the centennial staff for all efforts in the last quarter. We took 40 members of our team to Orlando and 15 members to Key West and I rate their performance as excellent. However, while some traveled, some were left at home. With 40 of our top people out of the bank for a week or more, that can put a lot of stress on the home team, but the operations ran perfectly. Outstanding job and thanks to the home team.

The FDIC spokesman, talking about our people that traveled, said they were the most professional, best trained and most organized they had ever worked with. Today with me is Randy Sims, and I'm going to turn the program over to Randy now for some color on the first quarter. Randy?

Thank you, Mr. Chairman. For the last three quarters, I have begun my report with "this is a very special time for Home BancShares" or that "this is a quarter filled with records". Well, this quarter is no different. We again had record results to report, plus we are very excited that we now have two newly acquired institutions through FDIC failed bank transactions as Johnny covered, located in two great markets. Indeed, this was a special quarter for Home BancShares, as we were able to record one-time gains from these FDIC transactions, resulting in significant income and results for this quarter.

So, let's go back to the new acquisitions. But, first of all, there is some accounting we have to get through. All acquired assets and liabilities were recorded at their estimated fair market value as of the date of the acquisition, and identifiable intangible assets were recorded at their estimated fair market value. The estimated fair market values are considered preliminary, and are subject to change for up to one year after the acquisition date, as additional information relative to their closing date fair values become available.

Also, the tax treatment of FDIC-assisted acquisitions is complex, and subject to interpretations that may result in future adjustments of deferred taxes as of the acquisition dates. We anticipate the final determination of the fair values will be completed in the second quarter of 2010. Now, that's a lot to say and what it really means is we are pretty sure of the acquisition entries, but if our accountants change their mind,s we'll make the corrections.

Now let's look at the institutions. Johnny covered most of this. Let's take a closer look. Old Southern, an outstanding franchise in Orlando, with seven branches in very good locations surrounding the city. As of 3/31, $277 million in assets, $277 million in deposits, and $273 million in loans under our normal loss share agreement with the FDIC plus a bargain purchase gain of $9.7 million. Our regional President, Tracy French, is currently managing the bank, and we are very pleased with the progress already made with this franchise in only 38 days.

Now let's go to Key West. One location that is just a natural extension of our two branches, located just a couple of blocks off of the famous Duvall Street. It features a good mix of lobby, drive-through, and even outside walk-up business. $83 million in assets $64 million in deposits, $65 million in loans, under our normal loss share agreement with the FDIC, plus a bargain purchase gain of $3.3 million. The bank is being operated and managed by our existing Keys market President, Teresa Condes, who is doing an outstanding job.

In addition to the gains, the Company incurred about $1.1 million of acquisition expenses during the first quarter. Additionally, these acquisitions were accretable to our tangible book value through the generation of additional capital. It is important to remember, both of these acquisitions are located in very familiar destinations we all know, with tremendous growth potential for our Company.

Naturally, with the financial impact of these acquisitions, the Company had record results for the quarter in every area of operations. However, I must point out that even without the one-time gains from these acquisitions, the legacy Company had a very good first quarter. From a quarter-over-quarter perspective, our net income increased $8.9 million from income of $6.2 million to income of $15.1 million. This $15.1 million was a record quarter end, and 142% improvement over the previous quarter. Diluted EPS increased from $0.28 to $0.56, or 100% improvement. Cash earnings also increased $8.9 million, moving from $6.5 million to $15.4 million. Cash diluted EPS was up $0.27 from $0.30 to $0.57.

Net income without the impact of acquisitions would have been $7.9 million or $0.28 diluted earnings per share. Oddly enough, about half of the actual diluted EPS. Again, it was a very good first quarter for earnings, even without the one-time gains. Net income on a linked quarter basis also improved, and was up about the same, $7.2 million, from $7.9 million to again $15.1 million. Diluted EPS was up from $0.28 to $0.56. Cash earnings on a linked quarter basis improved in the same manner as net income, up $7.2 million from $8.2 million to $15.4 million. Cash diluted EPS improvement was the same $0.28 as diluted EPS.

From a quarter-over-quarter basis, our margin was up 33 basis points, from 3.93% to 4.26%. Net interest income increased $3.1 million from $21.8 million to $24.9 million. This was a quarter end record for the Company, an improvement of 14.2%. Our emphasis throughout 2009 was to lower our cost of deposits, and hold our loan rates firm. The entire Company was focused upon getting our margin above 4%, and it has continued in the first quarter of 2010.

Of course with the acquisitions, non-interest income broke all records. On a quarter-over-quarter basis, our non-interest income had improvement of $12.7 million going from $7.6 million to $20.3 million. On a linked quarter, non-interest income was up $12.8 million from $7.5 million to $20.3 million. Non-interest expense on a quarter-over-quarter basis was down 3.7% from $19.3 million to $18.6 million. On a linked quarter basis, it was up $2.3 million from $16.2 million.

As we stated last quarter, we anticipated a slowdown of continued improvement in efficiencies, as we prepared our staff and project teams for conversion and acquisitions. However, improvement did occur in our core efficiency ratio on a quarter-over-quarter basis, from 59.4% to 51.2%. On a linked quarter, the core efficiency ratio slightly increased from 49.3% to 51.2%. And of course, the actual efficiency ratio was driven down by the one-time gains to a record 39.13%, a level we can only enjoy and dream about for this quarter.

Like the efficiency ratio driven by the gains, ROA was 2.2% on a quarter-over-quarter basis from 0.97% and from 1.04 on a linked quarter basis. Cash ROA was 2.31, with improvement of 127 basis points on a quarter-over-quarter and 107 basis points on a linked quarter. Loans not covered by the loss share were down $6.9 million on a quarter-over-quarter basis, from $1.97 billion to $1.96 billion. However, when compared on a linked quarter basis, we were very pleased to see that loans were up $9.4 million. The loans to deposit ratio ended at 98.29%.

With the new acquisitions, deposits were up $385 million on a quarter-over-quarter basis, and $386 million on a linked quarter basis to $2.2 billion. Our total common equity increased $140 million, or 48.4% on a quarter-over-quarter, with our stock issuance and $9.4 million on a linked quarter to $429 million, resulting in continued strong capital ratios. We continued to be positioned with excess capital for additional acquisitions. Book value per common share was 16.71 at March 31, compared to $16.18 at December 31st.

Now let's look at asset quality. Our nonperforming loans to non-covered loans increased 69 basis points on a quarter-over-quarter basis. Non-performing assets to non-covered loans was also up 49 basis points from 1.54% to 2.03%. But we were very pleased to see a decrease in both measurements on a linked quarter basis, up 8 basis points from 2.05 to 1.97% on nonperforming loans, and from 2.12% to 2.03% on non-performing assets.

We continue to work hard with the ebb and flow of loans through the process in the legal system in Florida and we are encouraged as Kevin Hester, our Chief Lender will discuss, as we are beginning to see some viable offers on our OREO properties. As a comparison to non-covered loans, our reserve remains very strong, up 11 basis points on a quarter-over-quarter basis, and down just 1 basis points, ending at a very strong 2.19%. These numbers are comparisons to non-covered loans. Loss share loans were marked to their fair market value upon acquisition.

Once again, we have experienced record results as we welcomed two new banks into the Centennial Bank family. At the end of this quarter, we find ourselves with a very healthy profit due to our acquisitions, and in the Orlando market with endless potential, not to mention the enhancement of our Key West market share. Home BancShares is in a unique position, and poised for the opportunities that await us, as we continue our quest for additional acquisitions. That pretty well covers my report but I would like to say it was a really great quarter for Home BancShares.

I will now turn it over to our CFO, Randy Mayor, to give a little more color on the quarter and I think Brian Davis is going to speak to some of the accounting issues with the acquisitions. Randy?

Thanks, Randy. Although there was quite a bit of noise in the numbers for the quarter due to the two acquisitions, it was a relatively good quarter for the net interest margin and for the Legacy Bank overall. The acquisitions were very late in the quarter, March 12th and March 26th, and therefore did not have a significant impact on our margin percentages. The net interest margin improved 12 basis points from 4.14 in Q4 2009 to 4.26 Q1 2010. Loan yields actually improved from 6.03 to 6.10 in the quarters. The overall yield in earning assets improved 2 basis points from 5.58 to 5.60. And in conjunction with that, with the improving asset yield, the average yield on interest bearing liabilities also improved 15 basis points from 1.83 to 1.68. With time deposit yields leading the way with a 28 basis improvement from 2.26 to 1.98.

We did restrike the time deposit rates in the Old Southern acquisition because of excessive rates and we have experienced about $50 million in runoff as of the end of March. The time deposit yields in the Key West acquisition were more reasonable, and therefore, we did not restrike the rates and have had basically a zero dollars in runoff in that transaction. As Randy mentioned, the overall earnings for the quarter were slightly above expectations, keeping in mind that there were two less days which impacts net interest income and the fact that several of the payroll related taxes reset as far as caps are concerned. The core efficiency ratio for the first quarter was not quite as strong as the fourth quarter, which was helped somewhat by some accrual reversals. But overall, we were able to maintain our quarterly momentum, and with that, I'll turn it over to Brian Davis and let him cover some of the purchase accounting process.

Thanks, Randy. When you have two transactions very close to quarter end, it is difficult to get the purchase accounting entries this quick. For example, we were still evaluating and reviewing OSB, which is Old Southern entries with our third party vendor at about 5 p.m. on Friday afternoon this past weekend and we have not received our third party evaluation on Key West Bank yet. Our numbers for Key West are based on due diligence and lessons learned last week from the analysis for Old Southern.

A few numbers as they stand today are as follows. Gross loans for Old Southern are $273 million with a recorded discount of $94.2 million. Gross loans for Key West Bank are $65.2 million, with a recorded discount of $20.7 million. We also recorded write-downs on OREO of $5.8 million for Old Southern and $1.7 million for Key West Bank.

Randy, that concludes my prepared remarks.

Thank you, Brian. We will now turn to a little detail on loans from Kevin Hester, Home BancShares' Head of Lending, who is doing a great job for us.

Thank you, Randy. We said first quarter would be an active one for new OREO, due the ebb and flow of the legal process, particularly in Florida. This did occur but the good news is we have had continued success in moving OREO and this limited the increase to $1.1 million on a linked quarter basis. As a sign of this success, we have had serious offers on virtually every Florida parcel in the last two quarters, and we have several contracts pending closing in the second quarter.

Charge-offs were up over the past couple of quarters, but we took the fully reserved $1.5 million Arkansas credit that we had discussed on the call last quarter. We still believe that this project will perform to a level that will provide some recovery, but not in time to avoid the charge-off. As for growth, we achieved an increase in the first quarter for the first time in the last three quarters, and it was largely due to the strong Little Rock pipeline that we discussed in the last call, and a large marina credit in the Florida Keys that was carefully underwritten to historical income. Mix did not change materially quarter to quarter or on a linked quarter basis.

Early stage past dues increased on a linked quarter basis, especially in Florida, but were still less on a quarter-over-quarter basis. As you may remember, we are winding down the high season in Florida, and we are accumulating the seasonal results from our largest Florida credits to see how they fared. Anecdotal comments from our customers have indicated that it was an improvement over 2009.

Thanks, Kevin. It now will go back to our Chairman to sum up the results of our first quarter. Johnny, I guess you could almost say we need to acquire a bank every quarter to beat the results of this one.

That's true. One or two, Randy. A couple would be good. Warren Buffet says big opportunities come infrequently. When it's raining reach for a bucket, not a thimble. You had to recognize that an opportunity existed, you had to be prepared to move on that opportunity and then you have to execute. There are those people who watch things happen and there are people who make things happen and then there are those who wonder what happened. Well, this management team believes we make things happen.

We're not resting on our laurels or patting ourselves on the back for a good quarter. We're very much engaged and very active in Florida as we speak, and hope to announce one or more deals in the second quarter. Buffet's quote was a great quote but he left out preparation, but your management team did not. We have the infrastructure, the knowledge, the capital and the people to double the size of this company in the next 24 months, providing the opportunities remain there and we intend to do that. At this point in time, I think we'll go to Q&A. Andrea? We're ready for Q&A, if you're ready for us.

Thank you. We will now begin the question and answer. (Operator Instructions). At this time we will pause momentarily to assemble our roster. Our first question comes from Jon Arfstrom of RBC Capital Markets.

Good afternoon, all.

Hi, Jon.

First of all, just nice job, nice job this quarter.

Thank you.

Everything you've accomplished. Thank you. Couple of questions on Florida. Not necessarily to deal with acquisitions, and I don't know if this is for Kevin or John, but it seems like things are maybe basing out in Florida. You talked a little bit about the ability to move OREO and then the OREO properties and then this is the first time I've heard you talk of a new major credit in Florida in a long time. I'm just wondering if you could expand a little bit on your willingness to move the OREO right now or is it something that you're going to hang on to where you think prices will get better and then touch a little bit on some of your loan demand and your appetite in that market.

Kevin would like that one.

This is Kevin. We have seen things turn around a little bit down there from a market standpoint, especially on the residential side. The commercial side I think just like it is elsewhere in the country, there's still some softness there. So we're not going to say that we're out of the woods there, but we are seeing decent offers on virtually everything that we have down there. We will move as much as we can that makes sense and I think you'll see we've got contracts on several pieces in the second quarter. So as far as appetite goes down there, it's the same. We're looking at things the same way we looked at them the last three or four quarters.

Are you seeing a slowing of the inflow to OREO?

Yes, we said first quarter was going to be a big one, and we moved some things in first quarter and it has slowed down a little bit.

Jon we have an offer on about every piece of OREO that we have out there right now. That came about over the last 60 days, so we've got to say that the market is coming back. Has it bottomed? I think so. I think we're seeing maybe a little uptick in the prices.

That's great.

It's good news. The Keys was the last one to go down. It will be the first one to come back because it's -- it doesn't have the residential overhang. But it's got signs we're not out of the woods there, but it's got signs of improvement.

Okay. Thanks to you, I've been there a couple of times and it seems like the kind of place that would come out of it first. I'm now going to go to Disney World and check out Old Southern.

Go there. Tracy will meet you at the airplane.

I guess on that topic, what is the plan with the central Florida presence? From my outsider's view, is that it's probably more focused on more of the failed bank opportunities in Florida, and less so about filling in around Orlando. Just curious what your thoughts are, and what you do now that you're there in that market.

We're going to continue to look. As we said, we are actively engaged in failed bank transactions. We're going to continue to move on the failed bank transactions. And at some point in time, we'll come back and look at Orlando and what expansion. We're pretty pleased.

Tracy French, the reports we're getting back from Tracy is that he's pretty pleased with the people in Orlando, and pleased with the bank, so we think that gives us a real opportunity. Actually, there's more people in the Orlando MSA than there is in Arkansas. Kind of put that in perspective of what the opportunities are, and I think the reports we saw, we've got far better than the national average growth perspective in those markets. We think it's a great opportunity for us. We bid on another one in there recently that only had a small presence. We were not successful in that transaction. But if there are more that comes up in there, and we think that may happen, we'll certainly be a player.

Okay. And then just one more question, I'll let others ask questions, but this is maybe to Brian or Randy Mayor. I think you guys know I'm a CPA, and even some of the purchase accounting stresses some of my best CPA skills. And just wondering if you could help us a little bit on the margin impact going forward from these transactions and how we should think about it in maybe Q2, Q3.

This is Johnny. I'm not a CPA. You have the advantage of being a CPA. Randy Sims and I have watched these adjustments on this thus far. We think we're absolutely right, maybe.

We're pretty sure. We're pretty sure.

We both may wind up answering these questions.

They were pointing fingers at each other, by the way. We'll have to talk after the call.

We do have an accretable mark that we'll be taking to income on these loans. Plus the loans have been written down pretty hard. These are really gross loans that we have marked down from $273 million to $179 million. So just leaving that right there by itself would help improve the margin, because you've got almost a $94 million of less balance that's going to be in your margin. There's also an accretable mark that's going to be coming in to help raise those loan yields to the rates that are equal to and probably slightly above the Florida rates that we're currently getting on new originations. If that helps.

Obviously, we didn't have them long enough in the quarter to really get a material impact of it, and when we're recording some of our accretable marks we were still in the preliminary process of what was coming out from the third party vendor. For Old Southern it turned out to be pretty close so we didn't make any adjustments there. We didn't make any accretable marks for Key West, just because it was there for a couple of days.

Do you have an average life assumption on the loans?

Well, we're kind of working that one out right now. We've got to kind of clear that with all the parties, the powers that be on there, so we're still in the process of working through that one, Jon.

One of the things we decided to do in this call, instead of just pushing it back several weeks and not having this call until May 1st, we had everything we could possibly know about Old Southern and Key West, we elected to go ahead and have the conference call now. There may be a few things we didn't quite have but we'll have more information when it follows in our 10-Q.

I think we'll find that Orlando is pretty short with commercial. It's predominantly a commercial loan bank and Key West is probably just the opposite, it's more of a one to four family. But I think the number of loans in Orlando will probably keep it rather short.

Okay. Fair enough, guys. Thank you.

Thank you.

Our next question comes from [Derek Hewitt] of KBW.

Good afternoon, gentlemen.

Hi, Derek.

I have a couple questions on the securities portfolio. What's the duration and what are the underlying prepayment assumptions?

This is Randy and I'll try to take those. The duration on the -- I call it the legacy portfolio or the Old Centennial Bank is right at three. We only acquired about $29 million in the Old Southern piece and I think it had a 5.3 duration. So I think overall, it's only about 3.1 duration on the combined basis. And as far as the prepayment assumptions, we've been using basically the historical three month.

However, as you know, with the Freddy and Fannie buybacks, we've basically switched on Freddy already to the 12 month historical to try to alleviate some of that impact at this point and I think next month we'll switch on the Fannie from three month to 12 month rolling average there. So trying to eliminate some of that impact, and right now from the Freddy, we only saw somewhere a million to $2 million worth of kind of prepayments if you want to call it that from the buyback.

Okay. And then in terms of the Fannies?

Well, I think they're starting those in earnest so we really haven't seen anything yet.

All right. Great. Thank you very much.

You bet.

Our next question comes from Matt Olney of Stephens, Inc. Please go ahead.

Hey, guys, congrats on the quarter.

Thanks, Matt.

Thank you.

Hey, Johnny, you mentioned in your prepared remarks how well the operations are performing in the mother ship in Arkansas. It looks like 1Q results also agree with that statement. Would you classify the 1Q performance of the mother ship as a normalized level or do you think you can get some better results from the mother ship, whether it's in efficiencies, lower credit costs or somewhere else?

You know me, I'm always optimistic that we can improve the efficiency ratio and the charge-offs will go down but they don't always do that. No, I think we have more to glean out of the ship, the mother ship, in the second and third quarters for the Company. We have -- we told you, we cut it a little thin with a 49% efficiency ratio at the end of the year and looked up with these opportunities out there, so we've added back a little bit to our staff to be ready to acquire these assisted deals. So we're probably going to rock along, actually probably going to rock along about where we are right now for this year, maybe.

Okay. Great. And switching gears to the two Florida acquisitions, obviously your due diligence is somewhat limited when you make the bid. You've had a few weeks now to integrate the two Florida deals. What can you tell us so far about the integration, maybe something you didn't know when you made the bid?

I think the quality of the people is better than we anticipated. I think both of them were better franchises than we thought they were. We've had some runoff of the deposits in Orlando, but they were paying 4.5 and 5%. When a bank gets in trouble and liquidity's the key, then they go out and buy whatever they can buy so far as deposits go, and they paid up for deposits, so we've had some runoff of those deposits, which is fine. We're not going to pay 5% or 4.5% on deposits. We're going to remain competitive to keep our customers competitive.

But I think Orlando's -- according to Tracy French, who is running that operation, is on the ground there, he's very pleased thus far with it. The Key West acquisition, surprisingly, we originally weren't going to keep that branch open. We may keep that branch open. The number of transactions is pretty amazing there in the branch. And we're pleasantly pleased with Key West. I think both of them are going to be accretive to book and slightly accretive to net income. So other than that, I think Randy, got anything, comments on that?

No, I was going to say the same thing about the branch. It's going to be a hard decision now because there is really, really good transactions there and it's just those customers, especially in Key West, have accepted us and like us and it's been just a really good transition. Orlando, again, it's just -- if you look at the location of those branches and kind of put them on a map, it completely surrounds Orlando in some really, really good spots and it is going to be a wonderful market for us. We get through some of the problems and we turn from defense to offense. We're really excited about that market and some of the things it might bring and some of the opportunities that we may have there.

I don't know if you know this and I didn't know this, since we acquired Orlando we found out it's the number one spring break location in America and it is no doubt a destination city. We didn't have -- the next question was when we said Orlando, you didn't have to say where is that, did you?

No, not at all.

Okay. We get your question answered?

You did. Thanks for the color and congrats again on the quarter.

Thank you.

Our next question is from Dave Bishop of Stifel Nicholas. Please go ahead.

Good afternoon, gentlemen.

Hey, David.

In terms of the deposit runoff you've seen so far, in terms of the deposit repricing there, just in terms of the overall franchise, do you get a sense that there's additional room to bring those costs down more in line with the greater market area?

Well, we did, day one. We did adjust those interest rates on the deposits and that's what brought about some of the runoff. But the key in what we tried to really work the employees with and they've done an excellent job, is to keep those core deposits. The ones that have the accounts with us and the ones that are loyal to us, let's keep them. And the ones that were there just for the rates and nothing else, and there was quite a few, then that's not what we're looking for.

But you've got the opportunity to try to convert. So if they can be converted, if you can try to get them to open a checking account, or do more business with you, again, continue to work them. I just think it's going to be a great spot because there's only a couple of banks in the entire market that are a little bit higher than what they should be. Everyone else is pretty on the same level and I think we can generate deposits if we need to. I think there's going to be opportunities for loans and it's going to be a market that we can definitely expand in.

Changing the rate meant on an annualized basis about $3.6 million to us so you can see why we did what we did and we did it day one.

Got you.

Did that answer the question?

It sure did.

Okay, thank you.

One follow-up in terms of during the preamble, got a little. Delinquency trend on a quarter-over-quarter basis, understand they were down somewhat.

Past dues?

Yes.

It was down quarter-over-quarter compared to last year.

Then on a sequential basis?

On a linked quarter basis it was up.

The dollar amount or any percentages you can give?

Percentage, it went from about 2.52 to a little bit over 3, 3.11, I think.

Thanks, guys.

Thanks.

Our next question is from Andy Stapp of B. Riley. Please go ahead.

Nice quarter, guys.

Thank you.

Thanks, Andy.

With the success you've been having in moving OREO, are you willing to say that NPAs may have peaked?

Well, I've said that, that we're close to a peak. I called that for a couple of quarters. I think we've got one credit out there that concerns me. Outside of that, I don't see anything really of any size that concerns me. I say that. All of them concern me.

Right.

We're close. We're real close. We could spike again. We could spike this quarter, possibly. We could spike up a little bit this quarter. Depends on what happens with this one credit.

Yes. Understood. And what color can you provide on reserve building for the remainder of the year?

We'll continue to do just about -- we like our two plus loan loss reserve. We like to hang in there, until we see the skies clear, we'll always maintain two plus.

Okay. And could you provide some color on the increase in your legacy net charge-offs?

We had a credit that we probably should have written at the end of the year that was a C&I credit and actually we just missed it. We should have charged it. It was an Arkansas credit for about $1.5 million. We ended up probably about $2.5 million, $2.75 million of the charge-off came out of the old legacy Centennial bank as Bob Birch's team gets to the bottom of everything that's in there. That's the one we acquired a year and-a-half ago and changed management about -- how long ago? Six, eight months ago. Nine months.

A year.

About a year ago. As Bob's team took over that organization and cleaned it up, so about -- I think that's pretty well it. There might be more out there on the old Centennial but that's pretty well it. We have a chance of recovery as Kevin said on the $1.5 million charge-off possibly down the road but it needed to be charged and we charged it.

Okay. Great. Thanks, guys.

Our next question is from Mark Muth of Howe Barnes.

Good afternoon, guys.

Hi, Mark.

Hey.

Johnny, in your prepared remarks you talked about the fact that you hoped to announce additional deals here in 2Q. And just wanted to get your thoughts on -- you did your first two deals here in the first quarter. While granted they obviously were fairly small relative to the size of the institution, we've seen a lot of the other failed bank buyers out there take a few quarters to really integrate and get them down before they go back to bidding aggressively. Just wanted to get your thoughts on why you're going about it more aggressively here right off the bat.

We don't control when they come. And we don't control the locations of them. But when something is coming at you, and they've kind of been coming like drinking water out of a fire hose, so you have to kind of select where you want to be and what enhances your franchise and when one of them comes up and we have the opportunity, I mean, the Key West -- really, the Key West is a tuck-in for us if you think about it. With Teresa Condes running that deal. And there's some good people in that branch in addition to that. So the chore will be Orlando and we have Tracy assigned to Orlando now. So we'll continue to look. If something comes up in our market that makes sense for us, that helps us build our franchise, we're going to move on it.

And Mark, don't forget, we've gone through some extensive training with our employees on going out and converting these acquisitions, plus the fact, you know, we collapsed our charters a year ago and so our conversion teams are pretty well trained too. We're actually in better shape to go ahead and take them on right now than we've ever been. So it's a good thing, I think. And I'm glad they're coming out like they are. I'd like to get them, get them converted, bring them in, merge them within our operation and our policies and our procedures and we've kind of got a knack on how to do that and it's -- I don't see any problems.

Okay. And then just a quick follow-up. Would the preference be for larger institutions going forward? Obviously you don't control what fails and when it fails but just sort of what's your preferences, how they've changed if at all after these two deals.

Well, I can't tell you how much we're approved for, what our limits are on the bidding process. But it's -- we're very pleased with the number that the regulators have given us and allowed us to go to. So we would like to see a larger institution, if one came through. I mean, the one that just -- TD just got the one at Riverside, $3.4 million. We're under a confidentiality. We can't tell you whether we bid on that or not, but hypothetically you would think that we would have bid on it if it's the type of franchise that everyone deemed it to be. That was probably a good acquisition for TD.

We would like to have a larger one. If they're in your area, just like the Key West Branch came up, it was only $80 million. It was perfect for us to tuck it into our existing franchise.

Okay. Great. Thank you.

Our next question is from Joe Stieven with Stieven Capital. Please go ahead.

Good afternoon, guys. This is Steve Covington, actually.

Hi, Steve.

Hi. Congratulations on a great start to the year.

Thanks.

Just a follow-up on Mark's question, actually. I guess specifically on some of the more high profile failures recently. There's been seems a lot more competition and you've seen some changes in the loss share agreement for example and maybe even some equity participation units or any other thing that investment bankers and attorneys can dream up. I guess, Johnny, just general commentary. Does that change your strategy?

No, that's a good question, Steve. Certainly when you put more risk out there for us, we really didn't have much exposure in Orlando, if any, Orlando and Key West. In the last transaction when they moved it to 80/20 it does open up the possibility of exposure for the Company, and you certainly have to evaluate that and we do evaluate that in our bids. So it's changing a little bit, and they may not be as good as they were and they may not be as sweet as transactions as they were, but we'll all look back I think in about five years and think, whoa we should have done more of those transactions. You and I remember Texas back in the late 1980s. I remember it better than you do, because you're quite a bit younger than i am. You remember all the opportunities and you how well that worked out for the companies including my Company, First Commercial. We built about a third of our franchise in East Texas in about a year, picking up those assisted transactions down there.

Okay. And then secondly, back on the margin, just trying to understand kind of maybe some linked quarter trends. Granted, it sounds like it's going to be a little -- second quarter specifically might be a little noisy in general because you have a full quarter of operations for both the other banks, but it looked like you're carrying a little extra liquidity at the end of the quarter. Would you anticipate any type of drag on the margin from the extra liquidity, or any other noise from the acquired institutions?

This is Randy, Steve, on that. We have quite a bit of liquidity and actually when we went in and did the Orlando transaction, and we had the runoff, we've eaten into quite a bit of that extra liquidity. But I don't really see that as being a drag, and that's not something that we're dead set on getting rid of, and trying to wring every penny out of that right now. We would like to have that as a shock absorber if we do get a deal that we need to change the rates, the liquidity position of the bank is a little different, we have a shock absorber to take care of that.

That's fair. Guys, thanks a lot.

Thank you.

Thank you. Our next question is from Kevin Reynolds of Wunderlich Securities. Please go ahead, sir.

Good afternoon, everybody.

Hi, Kevin.

Actually, all of my questions have been answered by now but great quarter.

Thank you.

Thank you. Appreciate your support.

Gentlemen, we have no further questions at this time. Do you have any closing remarks today?

I would just like to thank everybody for their support for the Company and thank our employees for the hard work that they put in this first quarter. And I would assume we'll be stressing them again in the second quarter and their continued support, we need, and we'll talk to you in 90 days. Thank you.

The conference has now concluded. Thank you for attending today's presence presentation, you may now disconnect.