Home BancShares Inc (HOMB) 2010 Q2 法說會逐字稿

Greetings, ladies and gentlemen. Welcome to the Home BancShares Incorporated second 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 and then entertain questions. (Operator Instructions). The Company has asked me to refer 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 of 2010. At this time, all participants are in a 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. Welcome and good afternoon. Welcome to -- ladies and gentlemen -- to the Home BancShares second quarter earnings release and conference call. With me today is the usual suspects, Randy Sims, Chief Executive Officer; Randy Mayor, Chief Financial Officer; and Kevin Hester, Chief Lending Officer; and Brian Davis, Chief Accounting Officer. Overall the second quarter was a very good quarter with nearly all metrics showing improvement. We kind of showed our earnings power for the quarter and actually it was the best quarter yet. Record margins, record net interest income, strong non-interest income, continuing throttle on the expense control, resulting in one of the best efficiency ratios reported by the Company.

On the asset quality side, we continue to battle in Florida and probably will continue through 2010 and even into 2011. However, we directly know our problems and continue to deal with them. Non-performing loans remained flat for the quarter while non-performing assets went down several million dollars. As we said in the past, we can deal with the problems once we get our hands on the property. Overall, congratulations to the management team for one of the best quarters in the Company's history.

I thought I would update you a little bit on the FDIC transaction side. We have been extremely busy trying to place rational bids into the market. We're continuing to be busy. The bids have been very competitive. However, in some cases they have not been rational transactions in our opinion. Some companies are opening up their balance sheets to major risks and we are not prepared to take those risks. Even though they are tempting from time to time, your management team is remaining very disciplined.

At this point in time, I'm going to turn it over and let Randy Sims tell you or give you the color for the quarter. Randy?

Thank you, Mr. Chairman. Even in these economically challenged times, I am pleased once again to be able to discuss record results. Our focus has been to improve both our earnings and asset quality while continuing to be very active in the pursuit of FDIC acquisitions, as Johnny told us. We are extremely business with both endeavors. This quarter, we had record quarterly net interest income, a sub 50% core efficiency ratio, continued growth in our net interest margin, and improving asset quality ratios. And more importantly, our net income was the best we have seen. I will explain that further, but first I would like to talk about our current activities.

I cannot adequately explain what a special and interesting time it is for our Corporation. Whether we are traveling to perform due diligence on FDIC assisted transactions, working with our recent acquisitions especially in the area of covered assets or just making record progress, our staff and personnel have really enjoyed the challenges and opportunities. As the old saying goes, we're making a lot of memories, and our staff is gaining invaluable experience. And on top of that I am pleased to report the turnaround and progress of our two acquisitions that occurred in the first quarter is better than expected. The branch in Key West, under the leadership of our Key's market president Teresa Condas, averaged gross operating income in excess of $100,000 per month for the quarter on average assets of approximately $75 million. As you may recall, this one location is a natural extension of our two branches located just a couple of blocks off of the famous Duval Street. It features a good mix of lobby, drive-through and even outside walk-up business. We have had virtually no run-off of deposits. In fact, it has grown a couple of million.

Our acquisition in Orlando is also outperforming our original expectations. We saw average growth operating income close to $450,000 per month on the average assets for the quarter in excess of $228 million. We are very pleased with the performance of these branches under the leadership of Tracy French, one of our regional presidents out of Cabot. While we did initially experience significant run-off in high rate certificates of deposits, the cleansing, as I call it, has come to an end and our deposits have stabilized into our real customer relationships. Repeating what I said in last quarter's conference call about the accounting for the acquisitions, these numbers are pretty close and may not be exactly comparable at this point due to the fact that we have not settled out with the FDIC on the facilities and some other items. However, the results definitely make the point that we are well ahead of projections for these acquisitions. We believe Key West, and especially the Orlando area, has tremendous potential for our corporation as we continue to work through the covered assets and begin to transform our branches into retail outlets, with the goal of adding core deposit relationships. There is much work to be done to achieve this, but it is our focus.

Turning our attention to overall results, as I said in the beginning, this was a very good quarter for Home BancShares. In fact, it wasn't just good, it was all-time record earnings from normal operations. Now, let me explain that statement. As you are aware, last quarter we had one-time gains from our two acquisitions that put our net income off the charts of expectations. If you take the noise of those one-time gains out of that quarter and just compare normal operations of prior quarters, the net income of $9 million for this quarter and the $9.3 million in cash earnings is the best we have ever seen as a corporation. From a quarter-over-quarter basis, our net income increased $3.5 million or 64.6%, and cash earnings increased $3.6 million or 62.7%. That record net income resulted in diluted earnings per share increasing $0.07 on a quarter-over-quarter basis from $0.22 to $0.29. Cash earnings increased that same $0.07 from $0.23 to $0.30.

We are very, very pleased with these results. Now, there's really not much to be said from a lean quarter perspective in most of the numbers because of the one-time gains from the acquisitions I already mentioned, so I'll not spend much time in that area. But let's talk about another all-time record for the corporation.

Our net interest margin on a fully taxable equivalent basis finished at 4.30%, up 22 basis points as compared to 4.08% and a quarter-over-quarter basis. Not far behind this quarter's all-time record was last quarter at 4.26%, which is a good indication we are continuing to maintain and improve our margin as we work hard to improve pricing on our deposits and hold the decline of interest rates on earning assets. Even in this time of slow loan growth, we believe our strategy of holding our loan rates up in excess of 6% continues to pay dividends to this Corporation.

Since the first of 2009, the entire Company has been focused upon getting our margin above 4%, and the progress has continued throughout the first two quarters of 2010 -- again, with all-time record results this quarter end. Non-interest income was down a little on a quarter-over-quarter basis, 3.2% or $261,000. Still a very strong quarter for us in this area. Non-interest expense on a quarter-over-quarter basis was down 6.3%, from $20.3 million to $19 million, resulting in a $1.3 million decrease, but more importantly down $400,000 on a lean quarter. Good, steady, and unexpected improvement that we will work hard to keep going.

Over the last two quarters we have anticipated the slow-down of improvement in efficiencies due to our expenses in seeking FDIC assisted transactions and with our two acquisitions. However, when you combine the effect of the strong results in our margin, non-interest income, and non-interest expense, as I just discussed, the opposite has occurred, resulting in a sub 50% efficiency ratio for the quarter at 49.39%.

From a pure core basis, we ended at 48.17% as compared to 51.16% on a lean quarter. It is an amazing story of improvement when we look back on a quarter-over-quarter basis. Our efficiency ratio one year ago was 62.67%. That is improvement of 13 basis points in an efficiency ratio. When you consider that much improvement in that short of a time period, I'll be honest, it's embarrassing to me that it was ever that high. ROA was 1.7% on a quarter-over-quarter basis from 0.84%. That is improvement of 33 basis points. Cash ROA was 1.25%, with improvement of 34 basis points on a quarter-over-quarter from 0.91. Exciting results.

With the new acquisitions, deposits were up $354 million on a quarter-over-quarter basis, ending at $2.19 billion. On a lean quarter basis, they were down $34.6 million as a result of the runoff primarily in Orlando as I have already discussed. Our total common equity increased 145 million or 49.3% on a quarter-over-quarter with our stock issuance and $10.2 million on a linked quarter to $439 million, resulting in continued strong capital ratios. We continue to be positioned with excess capital for additional acquisitions. Book value per common share was $15.50 as of June 30, compared to $14.71 adjusted for this 10% stock dividend at December 31.

Let's switch to loans and asset quality. Loans not covered by [loss] share were down $7.2 million on a quarter over quarter basis. But more importantly, they were up $5.8 million on a linked quarter basis. It is encouraging to see some growth in this area as we continue to maintain our margin standards and pricings. The loan to deposit ratio ended at 89.89%, kind of an interesting ring to it. Our non-performing non-covered loans were $38.1 million for the quarter, of which $26 million were located in Florida, or 68%.

Non-performing, non-covered loans as a percent of total non-covered loans, which is a mouthful, but what it really means is that it is just our non-performing loans to loans thrown after acquisitions, remained the same over the last quarter, moving from 1.93% to 1.94%. Our progress in asset quality this quarter came in the improvement and sale of OREO assets. This resulted in a ratio of non-performing non-covered asset, to total non-covered assets down from 2.03% last quarter to 1.83%, which is an improvement of 20 basis points, and of course under that 2%. We are very encouraged with this progress. If you recall, we reported last quarter that we were beginning to see viable offers on our OREO properties, and some of those offers were taken this quarter.

I will also mention while all our asset quality totals did improve, we anticipate a sharp increase in our restructured loan for call [report] purposes. As we continue to work with and help our customers, we have discovered the disciplined approach to the protection of our margin is a two-edged sword. Whether the loan involves working with the lead participant bank at their normal rate, or we make small concessions under our 6% standard at renewal, they're mutually beneficial to the customer and the bank. Those loans are considered restructured under a very strict approach to the definition of restructured loans. And so as is our history, we will take the most conservative approach and our totals have grown.

And while we're talking about a conservative approach, our loan loss reserve remains very strong at a record level just shy of $44 million. As a percent of non-covered loans, it was up 10 basis points on a quarter-over-quarter basis and 3 basis points on a linked quarter, ending at a very strong 2.22%, with charge-offs a little less than $3 million, which was down $240,000 from last quarter. As we have said over the last few quarters, we continue to work hard with the ebb and flow of loans through the process and the legal system, particularly in the Keys.

And while we are encouraged with the asset quality improvement of this last quarter, we have yet to be convinced, with some customers weakened by the economy, that they have turned the corner -- again, especially in Florida. Until then, we will continue our commitment to maintain strong loan loss reserves and take the appropriate charge-offs. We like the results in progress we are making, and we like our recent acquisitions. We have placed ourselves in a unique position with strong capital and are poised for the opportunities that await us as we continue our quest for additional acquisitions. Until then, we will continue our efforts in the improvement of earnings and asset quality.

One last comment from an economic perspective. Windstream Corporation, with communications operations in 23 states, announced last week that it will permanently locate its corporate headquarters in Little Rock, creating 210 new jobs and retaining 300 existing jobs. And a new report issued by the Brookings Institute shows that the central Arkansas MSA, where the majority of our locations reside, ranked 15 nationally among the 100 largest communities in the United States as the most recession-proof. I will now turn it over to our CFO, Randy Mayor, to give you a little more color on the financial results of this quarter. Randy?

As Randy mentioned, the net interest margin did improve 4 basis points from the quarter from 426 to 430. Main contributors were the fact that loan yields remain constant at 610, while interest bearing deposit yield declined 7 basis points from 133 to 126. The overall yield on our interest bearing assets declined slightly, 2 basis points, primarily because of the increase in average balances of the lower yielding asset categories, short term investments and [due prime], which primarily originated from the acquisitions late in the first quarter. Yield on FHL borrowings improved 14 basis points from 357 to 343 as we had about $22 million in maturities occur throughout the quarter. Factoring in all the discount marks for the acquisitions, they produced approximately a 5% margin for the quarter. Looking forward, if rates continue at current levels, we see the margin remaining relatively stable with a slight potential for improvement due to the improvement in CD and FHLB pricings. Randy, that's it.

Thank you very much. That was very good. We will now turn it over to a little more detail on loans and asset quality from our Chief Lender, Kevin Hester. Sorry I stole so much of your thunder, but I got going on loans a little bit too long.

No problem, Randy. Thank you. As Randy indicated, most asset quality indicators improved nominally in the second quarter. However, we continue to see some weakness in our legacy Florida market as we enter the low season. Our internal review of the 2010 high season generally indicated a slight improvement over 2009. The effects of the Gulf oil spill are being felt as far south as the Florida Keys, through lodging cancellations and reduced advanced bookings. This continues to be a challenging lending environment. As such, we are continuing to work with our borrowers to try to survive in this environment, and many times it involves reducing interest rates and/extending amortizations to lower debt service requirements. When we do this, it is termed a troubled debt restructure for regulatory purposes and we are very conservative in our application of this procedure. These balances have increased to $79 million in this quarter, of which approximately 90% is performing to the terms of the restructure. Approximately 75% of the increase in this quarter is in our legacy Florida market, underlining the challenging nature of this region.

We have continued to have success in disposing OREO in the second quarter, especially in our Florida market. This success allowed the Company to reduce non-performing assets by $6 million during the second quarter, improving the non-performing asset ratio by 20 basis points. OREO is at its lowest level since early 2009. We will continue to aggressively market and dispose of OREO to make room for assets that are in the legal pipeline. As we've said in previous quarters, if we can get control of the asset, we can get it moved in a reasonable period of time.

Thank you, Kevin. If I might, let me just summarize where we stand today real quick. We remain in the game and focussed on FDIC acquisitions. We are operating in one of the top 10 best MSAs in the United States that is in the top 15 most recession-proof cities out of 100. Our central Arkansas economy is expanding. We have a sub 50 core efficiency ratio ending at 48.17% on a core basis. We had record net interest income. We have a growing net interest margin. We have a strong loan loss reserve at 2.2%, a strong capital position with ratios off the charts, and we are improving our asset quality ratios. As I said, we like the results and progress we are making, and we like our recent acquisitions in our destination city.

That pretty much covers our report. It was really a great quarter for Home BancShares, and we hope you agree. We will now turn it over for questions and I hope there are plenty.

Thank you, we will now begin the question-and-answer session. (Operator Instructions). Our first question comes from John Arfstrom of RBC Capital Markets, please go ahead.

Thanks, good afternoon, guys.

Hey, Jon.

Randy, I have plenty of questions. I have to be reasonable. Johnny, just maybe first a question for you on M&A. You mentioned that early on in your prepared comments. Anything to report on opportunities in Arkansas or some of your nearby markets? Or is it still primarily Florida where you're seeing the opportunities? And then maybe also comment on how large of a deal you would be willing to entertain?

Well, we have been pretty much fixed on Florida recently. We said southern Missouri, East Texas, and maybe western Tennessee. We have really been working in Florida a lot. The deals have gotten a little silly, Jon. They have really got silly. We have to believe at some point in time sanity will return to that market and we'll be successful in acquiring something. It has opened our eyes to look around a little more. We haven't done due diligence on anything outside of those markets that is described to you, but it has opened our eyes maybe to look in the Oklahoma market, possibly maybe a little bit stronger into Texas, because seems like the deals have been more rational in other markets than what they have been in the Florida market.

Okay. And then, Kevin, I don't know if this would be a question for you, but how do we -- how would you handicap the oil spill and the real impact on the Keys? Is it modest softening or do you think we'll have another round of some downturn there where you have to eventually take on some properties or -- how should we just think about that from a bigger picture perspective?

Well, to this point, everything we've heard has been anecdotal, but we've come out of high season and we're getting into the low season. It shouldn't affect it as much during the low season as it would as if this were December, January, somewhere in that timeframe. You do have people who have gone through, now, 18 months of trouble and problems, and their reserves are weakened and lowered. So they don't need this on top of that. So it's entirely possible that this could, along with the continued weakness in the economy, it could negatively affect some people.

Okay.

This is Johnny. BP has three claim offices in the Keys. I'm just back from there. There is no oil in the Keys. Maybe in some people think there was oil there in the Keys. And BP is actually paying claims in the market, one of our Chairman of the Board's director's son, some other guys have a boat, they went out to fish the other day, and the Fish and Wildlife or whoever it was and said we're closing the area because of the possibility. So they picked up a check for $4,800. So the hotels are getting cancellations. So they're actually writing checks in the Florida Keys, but there is no oil in it. And it seems to be -- the area as of last week seemed to be busier than I anticipated.

Okay. Good. And then in terms of the OREO balances, are they still all primarily Florida and Keys-related?

We have got some lots in Arkansas that probably (inaudible).

It is -- OREO is about -- little bit more in Florida. It is $6.3 million in Florida and $5.3 million in Arkansas. But we've just come off a lot of sales in Florida.

Of the sales in the first and second quarter, I would say majority of those were in Florida. But you still have now -- you're still at 65% left in Florida.

Jon, you toured Florida with me 1.5 years ago, a couple years ago, and that large development in Largo, and that's the [Hound Marina], was part of the sale in the quarter. We have offers on about six pieces out there today and I'm just back from Florida, a long committee meeting, they're offering six pieces out there now. This is a slow season. We anticipate good sales continuing on through the slow times and then hopefully we'll clean out a bunch more when the season comes in later this year.

Thanks guys.

Our next question is from Derek Hewett of KBW. Please go ahead.

Good afternoon, gentlemen.

Hey, Derek.

Hey, do you guys have any appetite right now for open bank transactions, or are you kind of still focused on FDIC-assisted deals, given that some of the -- that the larger bank deals are starting to look like -- turn into open bank transactions?

Well, it is an interesting question. We are -- we have been, and all our focus has been, on FDIC-assisted transactions. I used to say that if it was football, we had a losing season. If it was baseball we had a pretty good batting average. But we have a sorry batting average now. So we're tired of losing and -- but we are going to stay disciplined. We are not going to lose our head and do a crazy bid. But I still think there are some deals out there that we have a real good shot at getting that make sense for us. Outside of that, at some point in time, if these deals do continue to be crazy, regular deals, regular mergers, regular acquisitions, are going to become much more attractive. And I think the market is going to be open for that. So while we may have a few feelers out, we're not forgetting about that while we're concentrating on these FDIC-assisted transactions. So we haven't lost sight of that. That might be the best way to say it.

Okay. Great. Thank you very much.

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

Hi, guys.

Hey, Matt.

Hey, great news on the OREO sales. Can you give us any data points or a pipeline for NPL migration, whether it is early stage delinquencies or potential problem loans?

Delinquencies stayed about the same quarter to quarter, so I don't -- I'm not seeing a big difference there. You could see an increase in NPLs in the next couple of quarters. Basically on the Florida assets that we're looking at, there could be an increase. May not. We may dodge the bullet there. But it certainly has the potential.

Okay.

Matt, these are loans we have been working with these loans, and we know where our problems are in Florida. It is just a matter of whether they're going to work out or not work out. If they don't, then we'll move along through the pipeline. Non-performing was about where it was last quarter, as you saw, and but sales have been surprisingly good, so we're optimistic.

And as far as that TDR balance, what's been the success of improving those TDRs in the past and getting them back to performing status?

Well, they are performing. I mean, 90% of them are performing. So we have been very successful.

They are performing.

Look, the Johnny 6% rate is a two-edged sword and I hope you understand that. That if we do a cash flow analysis on the Florida credit and all he can stand is 5.25% and we book him at 5.25%, that becomes a TDR, in the strictest sense. I'm not sure anybody else in the country reports in a strictest sense as our people report those credits. I mean everybody else writes below 6%. We don't. If it writes below 6%, that is out of the ordinary for us. As simple as that, it could be put on a TDR.

All right. Got it. Thanks, guys.

Our next question is from Andy Stapp of B. Riley and Company.

Hey, guys, I want to say thank you for a clean quarter. You made my life just a little bit easier.

We've had a lot of noise in quarters.

I'm so tired of noisy quarters. Could you talk about the loan pipeline and how it compares to this point in last quarter? And also about customers' confidence in their business prospects given the some of the more negative economic news of late?

I'll take the pipeline question. I think last quarter we reported we had a pretty strong pipeline, particularly in Little Rock. I think a lot of those have kind of come through. I don't think the pipeline is probably as strong as it was this time last quarter. Part of that has to do with the rate structure that Johnny talked about and how we are focused on improving and keeping our margin up. We continue to see our competitors go well below what we're willing to live with.

Got you.

Andy, you think about it, we've had virtually no loan growth in an area and increased profitability by 50% basically. So we have been doing it internally and will continue to do it internally for a while. But there is some good economic news out there on Arkansas, in particular.

I mean, yes, there is a lot of things going on here locally especially here in central Arkansas. When we're on the road show, we talk about some of the things, especially in the gas play in the Fayetteville Shale, and we were looking at the amount of gas that's been produced, and just in the first four months of 2010, they have doubled the production, the actual production, over all of last year. So that thing is still strong. Our restaurants, our single-family residence, you can not rent a single family residence still in central Arkansas, especially in Faulkner County. It is just going crazy. In fact, new figures just came out on Conway in Faulkner County, and our population has increased 32%, and leads the state. Our housing is up -- our home sales are up 36% in total number of home sales. We are up 40% something in dollar sales of home sales. And we're leading Arkansas. Our unemployment for all of Arkansas fell from 7.7% to 7.5%, which is the lowest since October of 2009, and if you are going to compare that to the United States, it is 9.5%. We've just had Kimberly-Clark announce a $25 million expansion. You heard me talk about us being on the top list of the most recession-proofed businesses, and you heard me talk about Windstream. So just a ton of stuff that really gives us a pause for being very optimistic about Arkansas, and what's going to happen there. And what should happen is that a lot of those people, as they come in -- the Hewlett-Packard plant we talked about quarter after quarter, is up to 1,200 jobs two miles from where we're sitting. And those people come in, and that's going to translate from rental areas -- rental apartments or houses or whatever, to home sales. And we just are very optimistic on what's going on from an economic standpoint.

Okay. Good stuff. Thanks. Can you also talk about the progress you're making in getting customers to opt in and accept overdraft charges on debit card transactions?

This is Randy Mayor. I'll take that one. We've got about 55% of the responses back and we're getting about an 85% to 90% accept rate. And we haven't gone to what I'll call level two of trying to get those responses in once we get the initial responses coming in. I think August 15 is the deadline on that. So we're seeing about what I think most of the other banks are seeing in that area, and we are aggressively pursuing that to make sure there's no impact. I think once the customer understands really what is involved, that they're opting in.

Okay. Great. Thanks, guys.

Thank you, our next question comes from David Bishop from Stifel Nicolaus.

Hey, that's a new one. I'll echo Andy's sentiments about the clean quarter there. I'll sure hoist a beer to you guys when I watch the NFL network this weekend. Question for you, I think you guys alluded to in the overture, in terms of pricing competition there -- is that getting a little bit crazy in terms of pricing or terms and structure? And is that more community-bank competition, or are you seeing that from from some of the super-regionals? Any anecdotal evidence of what you're seeing out there in terms of the craziness?

This is Kevin. I think it is more of those the community side rather than the super-regionals.

And it is here and there. It is one off from one bank and one from another. It is not a consistent theme, but it is consistent that across the board we've got competitors that are willing to go lower than we have been willing to go.

Is that prevented you from filling any loan buckets that you would otherwise be pursuing, keeping you out of any sort of loan segments?

Not particularly.

No.

Okay.

David, we're seeing it, but the competition but it is just one here, one there. Kevin is right. Our customers are coming to us and redoing their loans and then actually you see somebody come from another bank and you wonder why. Has he got trouble? They get scrutinized pretty good. I guess one of our customers go to another bank, he gets scrutinized pretty well, too.

Got it. I don't know if you have it in terms of the actual dollar volume [on] the real estate owned sales this quarter?

$6 million or $7 million. Close to $0.5 million.

That was reduction. What the total sales were and how much moved in? I don't have that number.

All right. Great. Thanks, guys.

Our next question is from Joe Fenech of Sandler O'Neill.

Afternoon, guys.

Hey, Joe.

Johnny, were your comments on the irrationality you're seeing with these FDIC bids, was that specific to Florida, or would you say it applies to the Southeast region more generally? And also can you update on how wide you're casting your net -- is it the same that you outlined in the past? Are there new geographies you're thinking out, maybe just the competition with geographies as far as [intense]? How are you thinking about how far you're willing to cast the net here?

We might change where we're casting the net a little bit because of the irrational transactions. When we saw the transaction on Riverside come in and TD bid that transaction and opened their balance sheet up to the first, we understand the first $350 million worth of risk, or $350 million worth of losses in that, and we're seeing some of that now. I think some people are not -- you got three days to do due diligence, Joe, in those markets, and as good as our due diligence team is, they give you a range of where they think the loss is going to be. And we compare at a time to the intrinsic losses that the FDIC proposes on those transactions and we think some of these guys that are making some of these transactions are going to take some major losses. So it is not necessarily the big banks. You see a few big banks like TD come in there. It has been these groups that raise this capital, really the ones who see it lightly, and they either got to spend the money or lose it. So it appears to me that they're doing some irrational things to try to get a footprint in Florida. So we may -- we have bid some stuff, what we thought was for us very, very competitive, and just immediately got blown out on the transaction.

So we follow -- let me say this -- we follow the transactions every week and look at that and you look at the negative discount bids, and -- but that's not all of the story, because you don't know if they have offered to do a 50/50 loss share with the FDIC on that. You don't know if they have done a 70/30. You don't know if they bid off the first $100 million of losses. So there is lots of combinations of things going on. So it's difficult to tell exactly where they are, other than, Joe, we know when we really get -- we want one and we really get competitive on it and, bingo, we're way out of the trap, and later we found out they bid off some of that liability. You may be better off -- somebody asked early about a market transaction. You may be better going in looking at a market transaction when it is troubled and spend a month or two months doing a really exhaustive due diligence. And then you know what you're getting, rather than take a shot and open your balance sheet up to risk.

Can you do that in Florida, though, at this point, Johnny? You're talking about maybe six or 12 months from now, a straight transaction?

You just saw TIB go. You just saw the TIB deal, which was a nice little organization that had some problems, and you saw that transaction. There could be -- could we do that in Florida? Yes. Have we been invited to do that? Yes. And also we have been invited to look into Arkansas market transactions. We've done those deals. We're out front there a little bit. Wherever it is the best deployment of the Company's money is what we'll do.

Okay. That's good color. Thanks. I may have missed it earlier, guys, did you guys disclose performing TDRs?

Yes, 90%.

I'm sorry, the dollar amount.

90% of --

$78 million.

$73 million, I thought.

$71 million.

$71 million of the $80 million, yes.

Okay. Thanks, guys.

Joe, you understand that that's the strictest sense. I don't know if you heard me. Our minimum rate is 6%, so if we have to do a loan at 5% to make the cash flow, that's a TDR.

Got that. Thanks, Johnny.

I don't agree with the TDR, by the way, but it is. My people tell me we have to put that down as a TDR. The reason I say that, because if 26 years ago I asked my banker to put me on interest-only, because I was going through a divorce, and he did, it had my name on the TDR then, so. But some of that is ridiculous. Can.

Thank you. Our next question is from Brian Rohman of Robeco, please go ahead.

Good afternoon, guys. Couple of questions here regarding FDIC deals. You're talking about irrational pricing -- is that getting down to even the smaller deals, the ones that -- at Riverside was a Marquis nameplate deal, but some of the smaller stuff, is it even getting down there as well?

It has in certain markets. In the more favorable markets, or the markets that you would want to have a presence in, it has even gotten down to the $300 million to $400 million institutions.

Yes, it's a definite yes for most of the banks that are failing in Florida. You might find an exception in the rural central Florida or someplace like that, but the answer is yes, and a big capital Yes.

You look at some of those deals and you look at their deposit balance sheet, and some of them are -- they're still bidding them strong and it would be 90% CD banks. There really won't be banks, it will be CD depositories, so to speak. And they're still bidding them strong.

It does make some sense from the standpoint that if you have got a great location in a great area, such as our Orlando area, that you can really provide -- that we'll provide you with a lot of organic growth down the road, it could make some sense.

Are you seeing the same competitive dynamic in some of the other places you just mentioned, Texas, Tennessee? I think Missouri?

There is not many deals.

Yes, that's true.

Think about it, Brian. You got North Carolina, South Carolina, Georgia, and Florida, that we really focus on. We haven't focused -- deal came down on Oklahoma on the -- week before last, couple of weeks ago. We probably looked at that deal and probably should have focused a little bit more on that deal. It looked like it went out at a reasonable number. Much I still think it's these blind trust or blind funds that is going ahead and raising this capital. At least they're the ones recently that have done -- other than TD, have really been stepping out there. I guess, if they don't spend their money they don't get to keep it.

Yes, that's the way that works. Next question, TARP repayment. What are your thoughts?

We talked about that yesterday. Someone said, do you have the ability to pay it back? And I said, well, we can pay it back in back in five minutes or five years. We're sitting on $150 million in the balance sheet. We wouldn't have been able to bid on Riverside, Brian, had we not had that additional capital. It has not been a real negative to us thus far. However, we haven't seen this new financial reg bill with whatever they're creating in Washington, DC for us, so that may change the game. We're thinking more about it. We're thinking more about paying it back. Let me say that.

So you're saying right now all other things being equal, the other thing being equal, if you don't do another significant acquisition, that you could pay this off of what's on your balance sheet right now without having to raise new capital?

Absolutely. We have $150 million in the bank. TARP is $50 million. Yes, we could pay it back this afternoon.

It is not just what you have in the bank, it is considered capital and it is leveraged capital.

Brian, you want to give us some -- give us some color on if we take $50 million. We [have] $50 million in capital out.

I mean, under the most strict sense we've got $269 million of excess capital at the holding Company, and we have as Johnny said $150 million. That's cash at the holding Company. So I mean you take $50 million out of our $269 million of excess capital, that's not much of a nick on your capital ratios.

Okay. That's good. Good answer. Thank you very much.

Okay.

Thank you.

Thank you. Our next question comes from David Jackson of Penn Capital Management, please go ahead.

Good afternoon, guys.

Thank you.

Question about property values in the Gulf of Mexico. Is there any information that you've heard or that you're aware of, that you can share with us, that helps us understand to what extent there's been a magnitude of decline in values there? And is this something you guys mentioned that you did an internal review of the portfolio, some of that triggered some of the TDR migration that we're looking at. How much -- how involved in that process was a reevaluation or reappraisal of collateral values in your Florida market?

There is no connection to the -- from the Florida market from a real estate standpoint, to the Gulf oil spill at this point. And I don't have any color on anything up the coast, or around Louisiana or Mississippi, I don't have any color on that. Ours is simply in the lower Keys, it is a large lodging and restaurant -- it's based on that tourist industry, and if those tourists aren't coming, then that's a negative. And negative publicity that was coming from the oil spill, has, I think, has affected them somewhat during this period of the last 90 days. But other than that, nothing from a real estate standpoint at this point.

Okay. Just not to beat a dead horse here, but I'd like to better quantify it a bit, if we can. Obviously the levels or deals that have been occurring in the Florida market have not been at levels where you would be comfortable transacting. Can you help put a number on it for me how far off the mark these transactions have been relative to where your hurdle rate would be? And maybe to ask the question a little more clearly, what is -- what is the IRR you folks are looking to achieve on a transaction?

Mid to high double-digits. It's 15% up is where we're looking.

15% up, did you say?

I would say targeting somewhere north of 20% would be preferable, but we may stretch down a little bit lower than that as far as an IRR goes.

I would say when we start the bidding process, we're probably trying to get a 25% IRR. And then we would say okay can it be a winning bid at 25%, and look around the table and probably say no, and then ratchet down at that point in time.

It appears like companies like us are going to have to -- in order to get competitive will have to put OM goodwill on the books order to win. We don't mind putting a little bit on. But if you look at our tangible common equity to our Tier 1 capital, you'll see we have been very, very protective of that tangible common equity. So we're hesitant to take on much of that, if any. Does that answer your question?

It does. Thanks.

Thank you. Our next question is from Brian Martin of FIG Partners.

Hi, Brian.

Hi, Brian.

Nice quarter. Most of these things got answered, but I just want one thing on the whole FDIC transactions -- what are you guys -- there has been a lull recently. I'm wondering your thoughts. I heard about the competition down in Florida, but what's your perspective on how these deals are going to come to the market down in Florida? Do you see some of the oil issues down [here] -- they're not impacting things, yet. But do you expect to see a glut here and maybe in the second half of the year? We've seen some in different markets. There have been five and six deals like similar ones up in Chicago all in one weekend. Do you think there's going to be a [peer] up here in the next six months?

We're working on -- Brian, it is like our group is like trying to drink out of a fire hose recently. We were on eight different deals that we were bidding at different times. And we watched those deals go to the blind trusts or whatever primarily right now who has been winning those deals. But there were, I think, three last week -- three or four last weekend in Florida. There will be -- the week prior to that there wasn't any, I don't remember. The week prior to that there were several. And we're very active in Florida.

Right.

And we'll continue to be active in there for a period of time.

Okay. You don't have any big pickup coming down there? Any time soon? Or is it pretty constant.

I think it is pretty constant. I think the FDIC is pretty well organized right now and they're just bringing them to the table as they get them ready. There were a couple out there, they've been on the list and they pull back off, maybe was they raised capital or something.

Thanks.

Thank you.

Thank you. This concludes our question-and-answer session for today. Gentlemen, do you have any closing remarks today?

No. We'll see you in 90 days. Again, it was a very, very good quarter for Home BancShares, and we hope you agree with that, and hope to bring more record results in 90 days.

Thank you. This concludes the call. Thank you for participating. You may now disconnect.