Home BancShares Inc (HOMB) 2011 Q3 法說會逐字稿

Greetings, ladies and gentlemen. Welcome to the Home BancShares Incorporated third-quarter 2011 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 remind everyone to refer to their cautionary note regarding forward-looking statements. You will find this note on page 3 of their Form 10K filed with the SEC in March 2011. 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 your our first presenter, Mr. Allison.

Thank you, Mike. Welcome to Home BancShares third-quarter earnings release and conference call. We are kind of split of today. Kevin and Randy Mayor and Brian Davis are in Arkansas; and Randy Sims along with Tracy French, Bob Birch, and myself are in Florida on a due diligence trip.

I really don't know what to say, it is kind of a fun conference call to do. Congratulations to the management team, to Randy Sims, Randy Mayor, Kevin Hester, Bob Birch, Tracy French, and all the 700 employees for a great quarter. I hope you are all as pleased as I am. I mean what can you say, they produced record earnings, record margin, record net interest income, marked asset quality improvement, continued strong efficiency ratio, a record ROA, and a record EPS. These guys have hit the goals that I've set for them.

I told them a while back and I told you guys all a while back that I thought this bunch would run a little bit north of 150 ROA; well, I think you can see the results of that. They were all over it last quarter and they beat it this quarter and over 14% return on equity on TCE, strong efficiency ratio, and basically a 50% -- if you remember, we talked about $0.50 a share run rate for $2.00 per share back in the first quarter, that I thought that this team might get us there by the fourth quarter or the first quarter of next year; well, they were all over it in the second quarter of last year and they actually hit it this time. I think we reported $0.48 in change and if you add to that the amortization of warrants since we bought the warrants back, that is $0.50 a share. So great job for them they've hit that.

Actually they've done their job, I'm the one that's not getting my job. My job is to get them some assets so they can run 150 on those, but I can assure you, we are working on that, but we are remaining patient. They know probably I won't be happy they've hit every goal that I've set out there, so it may be time to raise the bar on them a little bit. Whatever you asked them to do, they seem to be able to do. When you look back over the year, just think about what has happened this year, record first quarter earnings, we announced right after that a major recovery. We announced we are going to pay back TARP and we paid back TARP. We announced record second quarter earnings. We announced that we are going to buy back the warrants and we bought back the warrants. We announced a 48% increase in dividend and now we've announced a record third-quarter earnings.

Looking forward, I expect that we will have more recoveries in the fourth quarter. I think we will have continued strength in earnings, and I think that we will add more assets, hopefully before the end of the year or surely by the first quarter of next year. Overall, great quarter, guys. Now time to turn it over to Randy Sims for the numbers.

Thank you, Mr. Chairman, and thank you for all the kind words, and I can assure you that he will raise the bar and there will be more goals. But as you shared, 2011 has been a very good year for us and for our performance. Each quarter has been record results for us.

I would also like to, before starting, and as I have in the past, I would like to congratulate all our employees that work so hard to make a difference and improve our banking organization. It really is truly a team effort that makes us successful. It seems our strategy has been found this year, as we have concentrated on 3 areas. The first is profitability and the control of our expenses, protection of our margin, an improvement of our non-interest income. Second is efficiency, especially with our Florida acquisitions. Third, and most important to us this year, has been asset quality.

Our goal was to see marked improvement in our non-performing totals and ratios. And for the quarter, our ending numbers and overall legacy asset quality are very, very good. And as Johnny covered, one question I'm sure is on the mind of everyone is acquisitions. We have not made any this year. But let me assure you, we have been very active in the pursuit of FDIC failed institutions throughout the year, and we believe our continued discipline in our bidding process and patience for the right strategic addition to our organization is the right decision. And we will continue in that direction.

Having said all that, let's take a look at some of numbers on profitability. We finished the quarter with earnings of $14.3 million or $0.48 diluted earnings per common share. In comparison to the same period of 2010, our net income was $9.6 million or $0.31 diluted earnings per share. From our operating net income comparison, we increased our income by $4.8 million or 49.7%. This quarter was the most profitable in the history of our Company. Diluted earnings per share, excluding intangible amortization ended at $0.50 as compared to $0.33 for quarter end 2010.

Yes, I want to say it again, we have hit our goals of a $0.50 run rate or $2.00 per share on an annual basis, again, excluding intangible amortization. Earlier in the year, we thought it would take another acquisition to get to this goal, but excluding the remaining amortization on TARP that ended this quarter, we are there. This was a milestone for our corporation and now we must improve on it as he said. Return on assets for the quarter was a record for normalized earnings at 1.56% and our ROA, excluding intangible amortization ended at 1.64%; another historical milestone achieved as we've surpassed our goal of an ROA of 150.

Our high-performing Arkansas banks are producing great results. Probably a good analogy with the current baseball playoffs is that the Arkansas banks are hitting grand slams every time they are up to the plate. But as I have said in past quarters, what is really exciting is the potential of our Florida markets. At the bank level and on an operating basis before tax, 43% of all our assets are in Florida. But their contribution to income is significantly less. So as we continue to see their improvement, while I guess you can see the picture, the potential for further growth in earnings is exciting.

Of course, the most important component of our net income is our net interest income in margin. Here we go again, another all-time record was set for the Company with an increase of 18.4% to $35.7 million, compared to $30.2 million in the third quarter of 2010. Net interest margin on a fully taxable basis was also a quarterly record of 4.75%, up from June quarter-end of 4.69%, and as compared on a quarter-over-quarter basis to 4.35% an increase of 40 basis points. And by the way, the effective yield on a fully taxable equivalent basis on non-covered loans was 6.49% and on covered loans was 7.2%. The covered loans yield increased this quarter as performance of the pools has exceeded our expectations. We anticipate some overall positive accounting changes with the covered loans in the coming months.

Non-interest income ended at $10 million as compared to $8.3 million over the third quarter of 2010. The Company increased third quarter non-interest income by $1.7 million or 19.9% compared to the same period of the previous year. Non-interest expense for the third quarter of 2011 was $23.7 million compared to $21.3 million for the third quarter of 2010. We ended the quarter with a core efficiency ratio of 49.31%, below our goal of 50%. We are very pleased with this.

Now let me switch to deposits. We have allowed some non-core deposits to runoff and our deposit total ended at $2.89 billion at quarter end, compared to $2.96 billion at December 31, 2010. Loans not covered by loss share ended the quarter at $1.8 billion compared to $1.9 billion at December 31, 2010, with covered loans now at 22% of the total. Stockholders equity was $463.1 million at quarter end compared to $476.9 million at December 31, a decrease of $13.8 million due to the Company repaying TARP funds. We continue to be positioned with excess capital for additional acquisitions.

Book value per common share was $16.39 at September 30, compared to $15.02 at December 31, 2010. I'll kind of stop at this point and turn it over to our CFO, Randy Mayor, to give a little more color on what we have just discussed. Can we continue to improve income, margin, and maintain our sub-50 efficiency ratio? He will cover this and other financial insights. After that, Randy will pass it to Brian Davis to give us more information on our capital and some discussion on anticipated accounting changes with our covered assets that I mentioned earlier. So, let's get started. Randy, you want a take over?

Thanks, Randy. Let's start with the margin, which increased 6 basis points Q2, up to 4.75%. The earning asset yield increased 3 basis points primarily due to the movement of interest-bearing balances at the Fed into the investment portfolio and the associated yield increase. The yield on interest bearing liabilities also improved 3 basis points from 1.15 down to 1.12, primarily due to the reduction of the cost of interest-bearing deposits from 0.97 to 0.93. We do expect to continue to see pressure to maintain loan yields as competition for loan growth remains strong, however, we also expect to be able to continue to improve our cost of deposits especially in the area of time deposits as a result of the Fed's indications of maintaining lower rates for an extended period of time.

As for the efficiency ratio, we continue to focus on non-interest expense and non-interest income. We are carrying some additional expenses associated with the travel for due diligence associated with potential acquisitions, and we are working to reduce some rental occupancy costs. We have the core efficiency ratio under our goal of 50%, actually closer to 49% this quarter; and we will continue to try to improve on that number. As for net income, as Randy mentioned, ROA excluding intangible amortization was 1.64%, which is a very strong number.

You may have noticed in the press release that our yield for uncovered loans improved from 6.95% to 7.20% in the third quarter. We are getting to the point of having some sufficient performance history in the loan pools to make the determination to increase the projected yields on our covered loans. Also, this experience will allow us to move some of the credit mark to rate mark and begin accreting into income, which will also improve earnings. Brian will provide a little more color on this in just a minute.

Overall, as Randy mentioned, the franchise -- Arkansas franchise continues to post excellent numbers, and as the Florida franchise continues to improve, we should see overall improvement in the numbers. With that, I will turn it over to Brian for a few comments.

Today, I will cover 2 items. The first is our risk-based capital ratios. During the third quarter of 2011, we repaid our TARP capital. As a result, the risk-based capital ratios are down slightly from the previous quarter. For Q3, 2011, our leverage ratio was 12.1%, tier 1 was 16.2% and total risk-based capital was 17.5%. As you can see, all 3 ratios are very much above the well capitalized benchmarks.

My second item is a movement between credit mark and rate mark. Each quarter we perform impairment test on our credit marks from our FDIC acquisitions. During our third quarter impairment testing, we noted 3 pools which experienced positive material movements since the acquisition date. This will allow us to move $3 million of the credit mark to rate mark, which will be accreted into income, and the $2.2 million associated with the indemnification asset will have to be amortized as an expense. The positive impact to pretax net income will be approximately $50,000 per quarter over the next few years. Randy, this concludes my prepared remarks.

Thank you, Brian. Okay, let's take a look at quarter end asset quality. Here are just a few of the legacy numbers and ratios.

Let's start with non-performing loans -- December 31, 2010, $49.502 million; March 31, 2011, $33.533 million; June 30, 2011, $31.229 million; and as of this quarter end, September 30, 2011, $27.854 million. This is what we have been striving to accomplish, good, consistent improvement in the numbers. And that improvement has been significant from December 31, 2010; and of course, the story is the same in the other ratios. Non-performing loans to total loans, December 31, 2010, 2.62%; March 31, 2011, 1.81%; June 30, 2011, 1.72%; September 30, 2011, 1.53%.

Let's look at non-performing assets -- December 31, 2010, $61.205 million; March 31, 2011, $51.425 million; June 30, 2011, $51.093 million; and as of this quarter end, September 30, 2011, $44.617 million. Non-performing asset to total assets, that ratio mirrors the above -- December 31, 2010, 2.08%; March 31, 2011, 1.78%; June 30, 2011, 1.75%; and September 30, 2011, 1.55%. Allowance for loan losses to non-performing loans, in other words the coverage of our non-performing loans -- December 31, 2010, 107.77%; March 31, 2011, 159.82%; June 30, 2011, 181.83%; and September 30, 201, another record, 195.69%. These are very good results for the quarter.

Charge-offs for the quarter were approximately $6.370 million, but recoveries were very strong at $4.094 million for a net charge of $2.276 million for the quarter. Year-to-date charge-offs and recoveries are within $90,000, which has been very positive to income and has eliminated the need to take any loan loss provisions. We anticipate more recoveries in the fourth quarter. The majority of these charge-offs this quarter were representative of known exposure with a specific allowance established for the loans last year.

As a result of this treatment, the reserve coverage of our non-performing loans, as I said, actually increased from 182% in June to 196% in September. I'm going to switch to our Chief Lending Officer, Kevin Hester, who will go into a little more detail about the charge-offs and recoveries and give us some color on the progress we have made in both the legacy and covered loan portfolios. Kevin?

Thanks, Randy. The results of the third quarter indicate improvement in every asset quality metric of the legacy portfolio. I want to take this opportunity to congratulate our entire lending team for this achievement.

As Randy mentioned, non-performing non-covered loans to total non-covered loans decreased by 19 basis points and non-performing non-covered assets to total non-covered assets decreased by 20 basis points both on a linked quarter basis. This represents the third consecutive quarter for improvement in these 2 ratios, and we are encouraged by the significant improvement experienced this quarter. As of September 30, 2011, our allowance for loan and lease losses provided 196% coverage of our non-performing non-covered loans. This compares favorably to the 182% coverage at June 30 and the 108% coverage at December 31, 2010. This improvement is due to a combination of a decline in non-performing non-covered loans and a small net recovery position that we have enjoyed through the first three quarters of 2011.

Non-performing assets were down significantly in the third quarter from $51.1 million to $44.6 million. This was a result of a decrease in non-performing loans of $3.4 million and a decrease in real estate owned of $3.1 million. This decrease in non-covered real estate owned during the quarter lowered the balance to $16.5 million. The mix has changed somewhat in 2011 with 70% of legacy real estate owned being located in Arkansas.

Selling activity was strong in the third quarter, however, we continued to move some credits into real estate owned as we complete the legal process primarily in Florida. As Randy also mentioned, we experienced gross charge-offs of $6.370 million in the third quarter. As has been the case in each of the last 2 quarters, where possible, the specific exposures allocated to these credits were significantly higher than the amounts being charged off. Specifically in the third quarter, we charged-off $5.254 million on loans that were eligible for a specific reserve, and the allocations on those loans totaled $6.958 million.

Early stage delinquencies decreased 62 basis points on a linked quarter basis and are down 208 basis points on a quarter-over-quarter basis. We anticipated this decline and hope to make further progress in this area in the next couple of quarters. We have reached our first anniversary in all of our acquired banks and from a lending perspective, in the past, I have said that it would take 6 to 12 months to incorporate our credit culture. We have accomplished that and we are seeing opportunities for new credit in each of our acquired markets. With this first phase of the transition completed, our lending team is prepared for more acquisitions. Randy, it was a very positive quarter on the lending side, and we are encouraged by the prospects for the fourth quarter.

Thank you, Kevin, for that great report. Well, with a quarter like this, I just have to say it one more time; record earnings, record margin. We are past our goal of a 1.5 ROA. We've made it to that $2.00 a share annual run rate. Our asset quality ratios are at strong levels, and we continue to maintain strong reserves and capital. Another best overall quarter in the history of our Company. And we will work hard, Mr. Chairman, to keep the improvement going. That pretty much covers our report and I will turn it back over to you.

Thank you, good report. We'll keep raising those bars. One thing we didn't talk about today that I did want to mention, I don't know if it is a trend, probably not; but we had loan growth for the first time in 18 or 24 months. So you're going to see loans up -- non-covered loans up a little bit. I don't know if one month makes a trend or not, but it was encouraging to see that.

Also, I have to congratulate Kevin Hester and his team because, obviously, we mark these loans -- the good news was, as you remember me saying -- the bad news was we were in Florida, the good news was we have been in Florida and we understand that you can be hit based on the price of real estate. So obviously, our team did a good job of marking along as evidenced by the fact that part of the credit mark has now moved to the yield mark.

Good job done by all and again, congratulations to the entire team. And I mean the entire team from the tellers to middle management to the executive management, good job. So, I think it is time for Q&A, Mike if you're ready to take us to Q&A, let's go.

Yes, sir. (Operator Instructions) The first question we have comes from Jon Arfstrom of RBC Capital Markets. Please go ahead.

Thanks. Good afternoon, everyone. Really nice job.

Thank you very much.

Couple of questions, a question on loan growth, and I don't know if this is for Randy or Kevin. But Jon mentioned loan growth, and I think the way we look at it, the first time in the last 5 quarters you have had a core improvement in loans.

Kevin, you mentioned that you have everybody on the same page in Florida now, and I would assume Arkansas is still strong, but I wondering if you could just maybe talk a little bit about what you see in terms of the loan growth outlook, and then touch a little bit on pricing as well, whether you think it is remaining rational?

I'll take the pricing question first. No, it is not remaining rational. It is as irrational as it has been. The loan growth, this Quarter actually was in the legacy markets here in Arkansas. We are seeing and looking at opportunities in Florida, but each of the legacy regions here in Arkansas had loan growth this quarter.

We're seeing the -- I don't think it makes a trend, Jon, yet. We had worked on some of these loans -- big loans for a period of time and they happen to close in this Quarter. So -- but it is a little better than it was. We are seeing more opportunities.

And we are taking them 1 at a time. We have been fighting the battle on pricing here for 3 years, but we are just taking them 1 at a time as they come in and deciding what to do with them, and either working with them or not working with them.

Okay. Another question, maybe for you, John, or Randy Sims. But you obviously have high capital. You have high reserves and you have improving credit. I'm just curious, you have a number of tools you have a dividend, you now have a buyback, which you didn't talk about in the prepared comments, but you have maybe some loan growth potential.

You also have some acquisition potential, and I'm just curious if you have preferences in terms of how you use the capital, and if the deals don't come in, is there an alternative use of capital that you see?

Well, I guess we are sitting on all of those levers and I'm glad we got all those levers to pull, but I really believe you will see us with another billion dollars worth of assets in the next 6 months or so. We are working on some opportunities out there.

We bought back a little stock in the last quarter for a bonus program we're going to create, but we are not adverse to buying back some of our own stock from time to time. I think we have got a million, Brian what we have got, a 1 million something authorized

We had 1.188 million authorized and so take 250,000 of that would leave a little less than 1 million shares.

You can't be all things to all people, but if you could kind of balance that act with a little dividend increase, maybe, and continue to buy back some stock as well as maintain strong capital for the opportunities that we think are coming, these deals are not over.

There's as many troubled banks as there were before. They have just kind of slowed down, they will be back. I thought it would be over by now, we still have got a run of 18 to 24 months on failed banks. They may get a little more competitive, but it is probably time to pick your fights and figure out where you want 1 and go after it.

Okay, that is helpful. I appreciate it. Thank you.

Okay. Next question we have comes from Dave Bishop of Stifel Nicolaus.

Hey. Good afternoon, gentlemen. Randy, you noted in terms of the deposit cost there, maybe some room to move there. As you look at the time deposits bumping up in that 130 mark, but what's sort of the current pricing there that -- the running off on and putting back on the balance sheet, in terms of the current cost of some of those time deposits?

I think you are pretty much on target there. Our next 12 months or so, I think the average rate runoff is about 129. And in the last couple of months, we have seen in the 0.8 to 0.75 range for putting them back on. We think we still have some more room on that side.

And in terms of the size, Brian, I think you alluded to in terms of the accounting change, what was the net effect on a per monthly basis?

That was actually per quarter.

Quarter, okay.

And it was going to be approximately about 50,000 per quarter and that will be for the next several years And when I say several years, it will run out to about 2015.

That is all I had. Thanks, guys. Good quarter.

The next question we have comes from Matt Olney of Stephens.

Hey, guys, good afternoon. Brian, on that positive impact we just talked about on the accounting adjustment, would that go through the interest income or fee income?

Well, that is a good question, Matt. And Randy and are going to be meeting with BKD tomorrow to discuss that with them. There seems to be a little bit of diversity in practice, in that it will either all run through net interest income, or the gross amounts will run through interest income, and then the other gross amount will run through a reduction in non-interest income, as a reduction in our FDIC indemnification accretion.

So like I said, it will either be that or it will be a net number running through interest income. Bottom line, net income number is the same.

And as far as the TARP warrant repurchase, were there any costs associated with that from the transaction in 3Q?

No, there was not. The only cost that we have is we had to write-off the remaining discount, but that wasn't a net income item, that was what I'll kind call below the line in the calculation of EPS. The net income available to common shareholders.

That was about $450,000 --

$488,000 and that is done and over with.

Okay. And last question, within the expenses in 3Q, are there any more initiatives that are not in the 3Q run rate that we may see over the next few quarters?

Any initiatives? We are still working on a lot of things, and we've got a lot of efficiencies that I think we can ring out. I mentioned what Florida is doing and what Arkansas is doing. So, as Florida continues to improve their performance, we've got some really good possibilities for our profitability to increase. The sky is the limit, really in Florida, just how well and how quick that they get there.

Okay, that sounds great. Thank you for that color.

The next question that we have comes from Andy Stapp of B. Riley & Co. Please go ahead.

Hi, guys. Nice quarter.

Thanks, Andy.

Was any of the $50,000 accounting change you discussed captured in Q3?

No, it was not. It was something that will start October 1, 2011.

That's what I thought. Okay. And, John, you mentioned the $1 billion in assets that you think you can pick up over the next few quarters, is that from FDIC deals, or perhaps a combination of FDIC deals and open bank transactions?

How about, yes.

Okay, that's what I thought. That works.

Thanks, Andy.

Sure. And I saw that securities were up in the quarter, what are your thoughts about the size of the portfolio going forward?

This is Randy on that. We just increased it a little bit with the Fed coming out and saying they're going to keep the rates down a little bit longer. We've moved some of the overnight purchases, so to speak, into the investment portfolio.

Still pretty defensive, as Fed fund alternatives, but we just moved that time frame out little bit. We are still staying pretty liquid there, to take care of any opportunities that come up.

Okay. Thank you.

The next question we have comes from Michael Rose of Raymond James.

Hey, guys. How are you doing?

Hi, Michael.

I wanted to get some color around the reserve level and how we should think about it. I think what you laid out in the call, is that reserve coverage is up, early stage delinquencies are down. You guys feel like you got your hands around the credit. In terms of a quarterly provision and how we think about that, could we expect to see no provision expense for really all of next year?

You get -- as low as we've got our non-performing now, $4 million or $5 million moves the number on it. I think it will probably continue to ebb and flow for a period of time, but we may be in a position, hopefully, we are in a position to grow into our loan loss reserve over a period of time. So, I don't know -- we have always erred on the conservative side. If we think we need to put something in there, we will, but it probably would be -- it probably is timely, as conservative as we have been, to let that grow into our reserve.

Yes, it just seems like because around your commentary about probably not having much growth, at least over the next couple of quarters, it seems like that could happen. I think you still have not recovered some of the problems you had back in the Fourth Quarter. So, is there any update there and how might that play into your outlook? Thanks.

Since we are on a conference call, I guess I can say it. We have had -- we'll have a recovery for the Fourth Quarter. We don't have the money, we have agreed to agree and -- but we don't have the money, and it is a pretty nice sizable recovery that will be coming in for the Fourth Quarter.

Care to speculate on how big that might be?

Well, it is more than $1.00 and less -- it's a little over $2 million.

Okay. All right, guys. Thanks a lot.

The next question we have comes from Kevin Reynolds of Wunderlich Securities.

Good afternoon, gentlemen.

How are you doing?

I'm doing great, how are you doing?

Great, Kevin.

Good Quarter. Most of my questions have been answered. But, Johnny, I think in the past and even last Quarter you sort of talked about not just looking in Florida, but also -- as far as potential acquisitions, but also looking in places where you've banked before or worked before, east Texas, Southern Missouri, Arkansas, Mississippi, things like that.

Is that still on the table and do you see opportunities there? I think I heard you say earlier that you were performing due diligence in Florida. Would you care to tell us what part of the state you're in?

Did I say Florida? I said we are performing due diligence. No, I'm not going to tell where we are.

We've got -- Kevin's got a loan team down there, we have got our special assets people there. Tracy French is on the ground, and I am really proud of our Florida operation right now. We were just there, and went by some of our branches and seeing the quality of that people that we have put together in Florida, it is a great little organization.

We've got a well-oiled machine that is running well right now. And to take our eye off the ball and look at something in another location concerns me. Plus the fact, that as the accretion runs off, we have to be in a market that has the potential to be profitable.

You buy some of these rural markets that don't have the potential to be profitable, and at the end of the day we don't have anything. So you remember as well as I do the highest priced bank market in the country was Florida, and it will be again.

So, everybody wants to be there, everybody wants to be in Florida, it is extremely competitive. But, I think at the end of the day that we are in a lot better position in that area that we operate in now, particularly in the Panhandle, and the Keys, and in Orlando. We've got some great opportunities to grow that franchise. So I think we are going to stay hitched there.

If something came up in east Texas, I'm going to tell you that we would go look at it. If something came up in Arkansas, we would certainly go look at it. But that is probably the extent of it right now.

Okay, and then should we -- you tell me, should we read into the FDIC, sort of announcing that they're closing their satellite offices out West and in the Midwest? Should we read into that they are bringing people -- reallocating their resources and that perhaps we might see a pickup in activity out of the FDIC in places like Florida and Atlanta over the next several months. Say, the next 12 months?

I don't know. The politics of that thing may have slowed down a little bit, but they didn't close their Jacksonville office. The Jacksonville office got extended, my understanding is, for 18 months, so they didn't close that one. Based on what we are seeing there, we run our own numbers, and we get numbers from third parties.

We have our eye on 5 or 6 targets and they have to be coming. Those targets have to be coming. It's just a matter of a waiting game. I think maybe the Obama administration may have decided to slow that down a little bit, but things -- those banks that are sitting there with a 150 margin or a 2% margin.

They can't earn themselves out of this deal, and continuing to have some asset quality problems and continuing to come on. We had 1 show up -- as good as it is, we had one show up 62 days past due the other day that we just didn't have an eye on that ball. We didn't see that 1 coming and it just kind of popped up on us.

I think it is going to be all right, but it was in the Keys and it is a slow season in the Keys. So if you got -- as you know, if you're there during -- anything shows up during the slow season, it is probably not going to show up during the good season because 9 months out of the year they have plenty of occupancy for hotel deals. So hopefully it will work out. I hope I -- a kind of long-winded answer, but I hope I answered your question.

I'll take it, thanks a lot. Good Quarter.

All right. Thank you.

The next question we have comes from Brian Martin of FIG Partners. Please go ahead.

Hi, guys. Nice Quarter. The 1 question I had on recoveries was answered. But Johnny, just -- or maybe for Randy, just talk about the opportunities to move the earnings higher going forward, and just the opportunities in Florida.

Can you just talk about where the biggest opportunities to improve the profitability in Florida are. Maybe just the near-term opportunities, and longer-term, and give a little color surrounding that?

Well, no doubt, our mass is in the Panhandle and we've got big percentages of a lot of the markets along the coastline that allows us to try to regroup and improve those efficiencies. To continue -- to get the bankers back out on the good side of the bank, and to make some loans, and to just do some things. It's going to be a natural for the Panhandle to improve, probably more quickly than the rest of Florida as that mass continues.

South Florida, the Keys, has been stable, they've got -- they still have got to get through their non-accruals. But they are doing everything right, and both sides of that equation, both on the efficiency and on the loan side, continue to improve and they could come on pretty strong too. We would love to have more mass in central Florida, but we are just a little presence right there, so it is difficult for them to do a lot with what they have.

Brian, we just added some bench strength. We hired Mike Carrigan who joined -- who is working for us in the Keys, former President of TIB. Just in the last 2 months or so we've hired him. So, he has run an organization before, and brings a little bit to the table, and he will help with our Keys franchise. Teresa Connors is still running that and Carrigan is working with her.

Okay, and just as far as the growth outlook in Florida, on the loan side, I guess what is the -- what are your thoughts as far as that going? It sounds like most of the growth this quarter was all from the Arkansas put through; but as you look at Florida, going forward outside of the FDIC deals?

Brian, we did have a -- we did have some growth in South Florida too. And I think you could see some growth out of there over the next couple of years as that -- I think they will recover down there probably before anything else recovers.

We are seeing prices stabilize, the real estate reports are showing prices stabilizing and numbers of properties going down. So you could probably see growth out of South Florida quicker than you see it out of the other Florida regions that we have.

I would just add to that, there are some relationships in the Keys that we think that we can reach out there while some of the banking is kind of in chaos. Reach out there -- there's some good relationships that we will be able to bring it. So, we are looking forward to maybe some opportunities in the Keys.

Okay. All right. Thank you very much.

The next question we have comes from Derek Hewett of KBW.

Good afternoon. And good quarter, gentlemen.

Thanks, Derek.

Circling back to the recoveries, after the expected $2 million recovery in the fourth quarter, how much more should we expect going forward?

I don't how to answer that. I really don't know. I can assure you that this team is working on every nickel that is out there. We thought we would have a little more than that. I had a sale the other day it didn't go out very well. It would've been a nice recovery, but I don't know how to answer that.

I was just talking about the expected recoveries from the Fourth Quarter charge-off. You had given some guidance, at least your expectations, on the last quarter's conference call.

Well, we've collected $4 million, $8 million, $9 million, close to $10 million on that so far. There is another piece of that that will be a substantial recovery, probably in the $5 million range on it, but it's going to take a little time before it's real estate -- it's going to take a little time before that comes in. So I don't know -- I think I talked about a total -- I got a little more optimistic as the year went on.

I think I talked about some recovery on it at the end of the Fourth Quarter, I may have put an $8 million figure out there. But we have are ready exceed that figure and there is more to come over a period of time.

And I would just add on that a little bit, a lot of it depends upon the legal process. The recovery that he mentioned is well ahead of where we thought it would be. We are actually -- we are very pleased that it could be coming in this quick. But, I would say that, you could also see if the legal process speeds up is, just like this last quarter that happened, we had some things that did finally make it through and that we were able to sell.

And we took a specific that we knew that we had, and we took a charge-off that was well below what the specific was. So, in a sense, that was good news on the front too. So, you may see some of that coming down the pipeline; but again, it is completely hard to predict with all of the legal processes and how long it takes. Because every area of Florida, it takes a different time period.

It is more than I originally anticipated, I can say that; and it will -- over the next 2 or 3 years -- I think we've gotten the quick money -- I think we've gotten all of the easy -- picked all the low hanging fruit, I guess you'd say right now, some of the others might take a little longer. But it could happen. I mean I didn't expect this $2 million, as Randy said, anywhere near as quick as we got it.

Okay, great. That's very helpful. And then also, do you guys have the TDR balances for this Quarter?

Kevin, have you got them?

Yes, Derek, it is down to $56 million, 91% of it performing.

91% performing. And did you see any sort of material movement in TDRs based on the new guidelines that are out this Quarter.

We won't have any. I read that yesterday on the airplane. We won't have any, no, we will have some TDRs but they will go down.

Okay. All right. Great, thank you very much.

The next question we have comes from Emmanuel Franjul of Frontier Capital. Please go ahead.

Good afternoon. The only question I had was about provisions, and it was answered before, but if I could just follow-up on that. Your reserves are roughly 3% of non-covered loans, which is higher than Pierce, and your non-covered MPAs are down significantly from last Quarter and even from same Quarter last year.

So, your provisions are a function of credit quality, but can we also think of your 0 provisions also as function of your general macro expectations, and what you're seeing out there in your markets?

I think that is probably right. If we saw something out there, we've got, I don't know how many dollars worth of specific reserves laying in our reserve category, right now, so --

Close to $30 million.

Close to $30 million. So, if we saw something that we thought we didn't have the reserve to cover, we would probably put something in there to recover it; but I think we -- if things -- if the sky clears as it's been clearing, there will be ebb and flow inside that loan reserve category.

There will be some coming in and some going out until all the sky clears and we get back down to where we were years ago. But, I think that is probably -- I think you're reading it pretty well, and we don't anticipate having to feed that reserve. Maybe we can grow into it.

Okay. Thank you.

Thank you.

Well, it appears that we have no further questions at this time. We will go ahead and conclude the question-and-answer session. I would now like to turn the conference back over to management for any closing remarks.

Thank you for your support and thank you for your attendance today. Hopefully we will have something to announce before too long. We are working on lots of projects out there and hopefully the Fourth Quarter will be as good and the Company roll into a record year. Again, thanks for your support. And we will talk to you in 90 days.

And we thank you, gentlemen, for your time. The conference call is now concluded. We thank you all for attending today's presentation. At this time you may now disconnect your lines. Thanks and take care.