Home BancShares Inc (HOMB) 2012 Q3 法說會逐字稿

Greetings, ladies and gentlemen. Welcome to the Home BancShares Incorporated third quarter 2012 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 Mr. John Allison, Chairman; Mr. Randy Sims, Chief Executive Officer; Mr. Randy Mayor, Chief Financial Officer; Mr. Brian Davis, Chief Accounting Officer; and Mr. 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 3 of their Form 10-K filed with the SEC in March 2012. 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 first presenter, Mr. Allison. Sir, the floor is yours.

Thank you, Matt. Good to be with you again. Welcome to Home BancShares' third quarter 2012 earnings release and conference call. I love it when a plan comes together. Our plans and initiatives for our next goal of home $2.50 are beginning to take hold. Some of those initiatives, as you remember, were we're going to re-price about $350 million in liabilities, and we anticipate paying off our trust preferred. Ken has streamlined in our capital section of our balance sheet. We paid off $15 million. You won't see a lot of savings from that in third quarter as we only paid it off September 16. And before -- sometime in 2013 we'll pay off the balance of that $29 million. It depends on how much cash we have at the holding company.

The next initiative was $100 million in loan growth and obviously we're on our way to do that because $41 million in legacy loan growth for the quarter. We're pretty pleased with that. And the B4 program has kicked off. So, we should see some additional savings there, and we'll talk more about that in a minute. Tallahassee transaction hopefully is on track, and that should add about $0.10 for next year. We're in the early stages of home $2.50 and I'm seeing good progress as I'm sure you are too. And I just want to hit the high points of the quarter.

It was again as we continue to do this, seemed like every quarter the best quarter ever in the Company's history. Record earnings with a -- excuse me, $16.1 million or $0.57 a share. At a record co-efficiency ratio, the best ever in the Company's history, stable margin three quarters in a row. We told you we thought there'd be some pressure on that. We've done a pretty good job of managing the asset and liability section of the balance sheet, and I'm pleased that we were able to maintain that. As Kevin will talk about in a little bit, it's the strongest asset quality we've seen in years and over $500 million in capital.

I've talked about organic loan growth. I'm just getting on that and the strongest pipeline we've seen since '08. We had a record return on assets. The Company I think did about a 1.52% last quarter, did a 1.61% this quarter and actually for the month of September did a 1.69%. On a core ROA basis pretax, pre-provisioned the Company did an impressive 2.69% for the quarter. Tangible common equity, as you know I call it train-riding money, increased to 11.1%.

Part of the plan, assuming we pay off all of our trust preferred, an additional $29 million that we have, plus the full effect of $15 million we paid off in the third quarter, that's going to generate about $2.1 million in pretax earnings. The $100 million in loan growth is going to create about another $5 million in pretax pre-provision and we're looking for about $1 million out of B4 initiatives in savings. Tallahassee income should create about five point -- excuse me, about $5 million pretax. The combined totals of those are about $13.125 million.

As you know, Randy Mayor calls that Jonesboro math, but if you tax that Jonesboro number, that comes out about $7.8 million after tax or $0.27 a share. You add that to the existing run rate and there's your [$2.50]. So, it's not a pie-in-the-sky. We're headed in the right direction and I think this is achievable probably in the third quarter -- second or third quarter of next year we should see a run rate of about $0.625. Really, the plan has come together nicely. When we complete that, we'll move -- the new plan will be home $3. Congrats to the team, great job. Randy, ready for the numbers.

Thank you, Johnny. As our chairman has highlighted, it was a great third quarter for the Corporation and I might add, it's been a great year. I want to congratulate all our employees that worked so hard to make a difference in our team effort to be successful. Again, as you heard from Johnny, the third quarter of 2012 was the most profitable quarter in the history of our Company. I look back at my notes and we have been able to make that statement for all of the conference calls this year. Our earnings were $604,000 or 4% better than the previous record earnings reported for Home BancShares. How do we do that?

We continue to control our expenses ending the quarter with a 45.63% core efficiency ratio. We had strong net interest income, and our asset quality totals and ratios continue to be very good with improvement seen in both our nonperforming, non-covered loans and assets ratios. Even better, we ended the quarter with strong non-covered loan growth and we have once again reported strong reserves in capital levels leaving us in a solid position for both FDIC and market acquisition transaction opportunities.

Switching to acquisitions we continue to be active in the hunt. We are as busy as we have ever been looking at banks for the right strategic addition to our organization. And in saying that, and as you probably are aware, this quarter we entered into an asset purchase agreement with Premier Bank Holding Company in Tallahassee and I can report that the transaction is on schedule with the regulatory and legal process. If all goes to plan, we will be purchasing all of the issued and outstanding shares of the common stock of Premier Bank Holding Company's wholly-owned subsidiary Premier Bank that operates in Tallahassee during the fourth quarter.

As of June 30, 2012, Premier had $282.4 million in total assets, $179.5 million in loans, and $253 million in customer deposits. The transaction is accretive to net income and EPS with a payback period for dilution to tangible book value of approximately four years. And there's really more to it. With this transaction, we really improve our market position and add some very good talent to our existing team in Tallahassee. Okay, now to a few numbers.

We finished the third quarter with earnings of $16.1 million or $0.57 diluted earnings per common share. This compares to $13.8 million of net income available to the common shareholders in the same quarter of 2011, or $0.48 diluted earnings per common share. It is notable that this record income included $296,000 of merger expenses. This is very encouraging to us as we continue our efforts towards our strategic goal of $2.50 earnings per share. The Company increased its third quarter earnings by $2.3 million or 16.4%, for the three months ended September 30, 2012, compared to the same period of the previous year.

Our ROA, excluding intangible amortization, was at a record 1.69% as compared to 1.61%. Our core ROA, excluding intangibles, provision, merger expenses, and taxes ended at 2.69%. Our return on average TCE, excluding intangible amortization, was 15.88%. Our high-performing Arkansas banks continue to produce record numbers and it's exciting to see the improvement in income growth in our Florida and Alabama regions. In fact, based upon an internal daily run rate, all seven of our banking regions show upward trends in income and that is very encouraging. At the Centennial bank level and on an internal analysis, 53% of all our assets are in Arkansas, 6% of assets are in Alabama, and 41% of the assets are in Florida.

Now, let's switch to the most important component of our net income, net interest income and margin. Net interest income increased 8.2% to $38.6 million as compared with $35.7 million for the third quarter of 2011. Net interest margin on a fully taxable basis remained consistent, and I'm going to let our CFO tell you a little bit more about that. The effective yield on a fully taxable equivalent basis on non-covered loans was 6.05% and on covered loans was 7.84%. Covered loans are 16% of our total loan portfolio. Non-interest income ended at $10.6 million for the third quarter of 2012 compared to $10 million for the third quarter of 2011. non-interest expense for the third quarter of 2012 was $24 million compared to $23.7 million for the third quarter of 2011. We're doing a very good job keeping our expenses under control. In fact, excluding merger expenses, non-interest expense for the third quarter was $51,000 lower than the third quarter of 2011 and that includes adding all of the new overhead from Vision Bank, that's 15 branches and a lot of new employees. As a result of everything, we ended the quarter with a core efficiency ratio, as I have said, of 45.63% which was improvement of 368 basis points from the same period of the previous year. We continue to be very pleased with these results.

Switching to deposits, we ended the quarter at $3.13 billion compared to $3.29 billion at the end of the second quarter and $2.86 billion as of December 31, 2011. We continue to eliminate non-customer timed deposits throughout the system of branches and are making marked progress in our dependency on time deposits. This is having a significant impact on the cost of funds. Now, I've left out a few numbers. I'm going to stop at this point and turn it over to our CFO, Randy Mayor, to give you those numbers and a little more color on what we have discussed. After that, Randy will pass it to Brian Davis to give us information on capital. So, Randy.

Thanks, Randy. As mentioned, ROA increased for the second consecutive quarter to 1.61%. The net interest margin remained consistent at 4.65% for the third straight quarter. The earning asset yield declined 10 basis points from 5.33% to 5.23%. The yield on loans declined from 6.52% to 6.35%, and average total loans declined $33.3 million or 1.33% during the quarter. However, average covered loans accounted for $27.1 million of the decline and average non-covered loans only declined $6.2 million for the quarter. Ending non-covered loans actually increased $40.8 million.

The yield on interest-bearing deposits continued to improve by 11 basis points from 0.61% to 0.50% for the quarter. We also continued our efforts to change the mix in our deposits with average timed deposits declining $133.5 million while average non-interest-bearing deposits increased $37.7 million. Ending time deposits actually decreased $166.4 million.

Changing the focus to non-interest income, we had a strong quarter for service charges which increased $166,000 and mortgage lending income which increased $273,000. We did show a decrease in gain loss on sale of premises as we sold property adjacent to one of our branches in Q2 which resulted in a $382,000 gain, and we also had losses on the sale of OREO this quarter of $222,000 compared to a gain of $159,000 in Q2. Overall, non-interest expense improved $443,000 for the quarter and that number also included $296,000 of merger-related expenses, so operating expenses actually improved $739,000 for the quarter.

Salaries and employee benefits decreased $251,000, occupancy and equipment increased $253,000 half of which was attributed to a sewer backup at one of our facilities. Did you know that most insurance policies have a cap on what they will pay to cover a sewer backup? That's something we found out and you may want to check your own policy. Data processing fees decreased $234,000 as we moved off the separate processing system for the Vision Bank after acquisition. The core efficiency ratio continued to show improvement moving from 46.87% down to 45.63%. Overall, it was a strong quarter for the Company and, with that, I'll turn it over to Brian.

Thanks, Randy. During the third quarter of 2012, we increased our capital by $14.5 million and $12.7 million of this increase was from retained earnings. Also, we did pay off $15 million of our more expensive trust preferred securities. For Q3 2012 our leverage ratio was 11.3% compared to 11.1% at 6/30. Tier one was 15.6% compared to 15.8% at 6/30 and total risk-based capital of 16.9% compared to 17% at 6/30. Additionally, book value per common share was $18.10 compared to $17.64 at 6/30. Tangible book value per common share was $15.01 compared to $14.53 at 6/30, and the TCE ratio was 11.1% compared to 10.3% at 6/30. Randy?

Thank you, Brian and Randy. Well, I guess that's another new record for us, too, humor out of our CFO. Let's switch to loans.

It was a very successful quarter on the loan side, too. Our asset quality metrics have been very good throughout the year with improvement in already strong numbers each quarter in, in 2012. We saw improvement in both nonperforming loans and assets. In addition, we had strong loan growth, especially at the end of the quarter that we will see additional revenue from in the fourth quarter. For these numbers and a little more information, I don't want to steal any more of his thunder, I'm going to turn it over to our Chief Lending Officer, Kevin Hester.

Thanks, Randy. We continued to show improvement in the asset quality measures of the Company in the third quarter. Our non-covered, nonperforming asset ratio improved slightly from 1.19% to 1.14% as did our non-covered, nonperforming loan ratio from 1.28% to 1.09%. Our allowance for loan losses as a percentage of non-covered loans declined slightly from 2.45% to 2.28% as we continue to allow it to decline with the improvements we are having in asset quality. However, if you add the Vision acquisition discount to the allowance for loan losses, the combined figure would be 2.97% of non-covered loans at the end of the third quarter. The allowance for loan loss ratio -- coverage ratio improved from 191% to 209% reflecting continued strong coverage of our non-covered, nonperforming loans.

Early-stage delinquencies declined slightly from 2.12% to 1.99% of loans. Non-covered real estate owned increased slightly in the third quarter from $14.6 million to $14.9 million, and 80% of this balance is located in Arkansas. Net charge-offs were at 50 basis points in the third quarter, and this is exactly our average for the four previous quarters.

In addition to the improvement in asset quality, as it has been previously mentioned, we achieved non-covered loan growth of $41 million in the third quarter. This is an annualized growth rate of 8%. We continue to have a strong loan pipeline and believe we can experience a similar result in the fourth quarter. We continue to see our competitors expose their balance sheets to interest rate risks; however, we remain diligent. Our recent loan pipeline improvement has spread across the regions and this is encouraging for sustainability.

As has been the story in recent quarters, the third quarter of 2012 was a solid one from an asset quality perspective, and we continue to be optimistic about the opportunities for further improvement. Thanks, Randy.

Good report, Kevin. Well, the third quarter is over. More records were broken. Our asset quality ratios are at strong levels and we've had very good net income growth. It continues to be a good year and we're making progress as we try to reach that HOMB $2.50 goal. I will now turn it back over to our Chairman, Johnny.

Thanks, Randy. Good report. It's pretty amazing that this Company operating expenses were less than they were a year ago after adding Vision and their 15 branches. I think Randy Mayor reported $739,000 reduction in operating expenses. That's just goes to show how well the Company is coming on at this point in time.

So when you get expenses under control with loan pipeline growing and reduction in even the trust preferred expenses, I think you can see we're looking for a pickup in revenue. Last quarter we hit on 9 out of 10 with no organic loan growth and this quarter we hit on 10 out of 10 with organic loan growth. So, I'm pretty pleased with this and we're ready to go to Q&A. Mike, are you ready?

Yes, sir. (Operator Instructions) Michael Rose, Raymond James.

Just wanted to get a sense, I think I asked this last quarter, but clearly you guys still have a lot of reserves. How should we think about future quarters provision in light of the strong -- really strong coverage ratios you have and continue to decline or stabilization in legacy non-performers?

We -- as the asset quality continues to improve, we'll let it come down, but I think you know historically we like strong reserves. We'll maintain strong reserves. We're running about -- even when the sky clears, we'll probably be in the 150 range, so we'll let it continue to come down. The sky is not totally clear out there. It is getting better. We see progress. Kevin's team has made great progress on the loan side with the best numbers we've had in many years. Kevin, do you have any comment on what you're seeing on the reserve side?

I think that's a good -- that's exactly what we're trying to do. As things improve, we will let it decline a little bit more and we'll always keep more than the majority of our peers.

Randy, any comment? Same comment probably.

Yes, same comment. It's just good to be in this position.

Agreed. And just separately on the margin. It seems like the Premier Bank deal will have a little bit of a net negative impact. Can you kind of discuss your thoughts on the margin and kind of your expectations for loan yields as we move on? Thanks.

There's pressure on the loan yield side. The new Vice President of Corporate Efficiencies is not only the expense side but the revenue side, too. This group is taking those loans one at a time. We're battling that to keep the margin up. We -- the new initiative is to know what our cost of funds and what our loan yield is every day rather than at the end of the month and that information is being created for us now. So, we become better managers in managing that.

As you could hear Randy Mayor said, we dropped 10 basis points on earning assets, we dropped 11 basis points on the liability side. So, we're paying lots and lots of attention to that. I think the Company is -- the team is to be congratulated for paying so much attention to it. We are able to hold that. We've got a little more room on the liability side. We've got some more room on the expense side and I think you're going to see the strong -- as I said, the strongest pipeline since we've seen in '08. So, I think you're going to see volume picking up not $300 million or $400 million, but our goal was to do $100 million in loan growth and I think that is in our pocket at this point in time and maybe more, but we think that's real.

So, we're getting a little pressure on the margin as you can imagine. Some of the new deals are having to be written in the 5s rather than in the 6s, but we take them one at a time. There's no -- we're not passing out the credit card and we take them one at a time. Kevin, Randy, any comment on that? Randy Mayor?

No.

All right. Thanks, guys.

Jon Arfstrom, RBC Capital.

A couple of loan growth questions. The period end balance higher than the average and you guys sounding a little bit more optimistic on loans, is that something that happened throughout the quarter? Are you guys seeing this happening for a while or is this kind of a turn in your thinking?

I'm going to let Kevin comment on it, but we begin to see that come on, some really good deals we've done lately and -- some of the big deals it takes longer, some of the little deals you can get done a little quicker. But, I'll let Kevin comment on what he's seeing because he's got a feel of it all over the country for us.

Jon, to answer your question, the first part of your question, yes, we did see it coming throughout the quarter. A lot of it closed towards the end of the quarter, so that leads to the ending balances being higher than average. What's left in the pipeline is still strong across all of the regions. We're seeing smart money making, doing deals in each of our regions and everybody's contributing to it, so we still see some more coming.

I think it's pretty evident that by the fact that we did close out and get a lot of those loans closed at the end to show that good loan growth, that that brings some pretty good prospects for the fourth quarter. And if we can continue to close this pipeline evenly throughout the fourth quarter, it even gets better.

Okay. Just one follow-up on that. The construction and development increase. I'm guessing that's Florida opportunities or is there anything else behind that?

That's an existing customer of ours that we follow his projects around.

That's our largest customer doing another big project. That's why he's the guy that's been with us for 30 years. We've been doing business for 30 years. He's doing another $30 million project. That's primarily where that came from.

Okay. Okay. And then, Johnny, just a question for you. I'll probably hear groans in the room when I ask the question, but what's the -- we've probably all blown by the home $2.50. What's the biggest impediment to hitting the home $3? What do you guys need to do to get to that?

(laughter) Not at $2.50 yet. We'll get busy to get about 26% efficiency ratio. I'll think we'll get there pretty quick To get to $3 we need some more assets. We need another deal. I'm not sure how good these guys are. I think they're damn good. They run a 160. They run a 169 for the last month and Little Rock and Conway were off a little bit, normally stronger months and they were off a little bit. You can normally count on them running north of a 3 ROA and they were a little off, different things. We had a fraud loss on some -- what was that, Randy, on ATMs where they were skimming the ATM machines so we had a loss on that and we took that during the quarter. And Little Rock just off a little bit for different combination of reasons which they won't be next month and they'll be back stronger.

So, I'm going to let Randy Sims tell you what he is seeing out there in the regions when he looks at the ROA that's coming in and the performance of the different areas out there and what he's seeing, even though Conway and Little Rock that have been our two big horses, were off last month. Randy, you want to talk about the rest of this?

Well, for the first time, Florida's traditional ROA when calculated was higher than it's ever been. Traditionally, in the past conferences we have said that Arkansas was doing about 80% of the income and Florida and Alabama doing about 20% of the income and that we were not pleased with that and if we ever started seeing that come up that that was the real opportunity for us. Well, on an internal basis I can say today that 35% of the income came from Florida and Alabama. So, you're seeing exactly what we wanted to see. We're seeing Florida and Alabama start to get our culture, turn things around, get back out as real bankers, and start making progress which is improving our profitability and they're not completely there yet and so that just means that we've got more to come.

We are consistently turning over rocks and looking at deals and there's a couple of game changers out there that we need to go north of $3. When I saw $2, I told the Street I saw $2, I see $2.50 now, a tick over $2.50. If everything remaining the way it is, you heard those numbers a while ago you can do the math, as Mayor refers to my Jonesboro math, but it's north of $2.50 and we need a trade that makes some sense to get us to $3 and we see those opportunities out there.

Jon, we are really busy. I had to tell some people yesterday we don't have time to look at their deal because we do not have time. We've got too much going on right now and too many opportunities. we're kind of being inundated with deals right now. So, again, we've got to close the door here before long, shut the door, get back and look at those that we think can close like we thought Tallahassee could close on Premier, and hopefully we'll get that done before the end of the year, but we're very busy. Some big, some small. Some $3 billion, some $2 billion, some $1 billion, some $500 million deals. So, we're pretty busy. Hopefully we'll get one of those this year or early next year.

Okay. Okay. Nice job, guys.

Dave Bishop, Stifel Nicholas.

I was wondering if you could walk through -- you mentioned the trust preferred redemption in the quarter and additional outstanding I think you said in the fourth quarter in terms of the income statement impact there what that could have an effect in terms of spread income in the margin?

Well, I can give you the number. It's about $85,000 a month for what we paid off pre tax, pre-provision. You'll see the full -- you've only got 15 days of that in the quarter. You'll see the full effect of the three months be $255,000, $260,000 pre tax in the fourth quarter. And then we are still sitting on about $20 million of trust preferred to pay off. We'll pay that off sometime in '13, not sure when. We've got some things working right now that we might need some cash for, so we're going to sit on the cash. We'll pay them off maybe the second quarter, first quarter. We just kind of paid them off, $15 million, $15 million, $15 million and sometime in '13 will probably pay those off and that will be another -- that's $29 million at about 460, 470. That would be good numbers to use. And the combined effect annualized is about $2.1 million on the trust preferred. If you take what we paid off plus the other, it's about 2.1 -- a little over $2.1 million.

Okay. Great. And then in terms of the B4 initiative, how much of that was in the numbers in the fourth quarter? I know you've got Donna working on that, spearheading that. I don't know how much was in the third quarter numbers and what you're expecting to bleed through into the third quarter.

She'll be reporting -- she just really gotten her teams put together and getting that organized and I can't tell you how much was in there. Just -- but she'll be reporting to the group next quarter on what we've gleaned during the quarter, but her teams have just started getting organized again.

Great. Thanks, Johnny.

There's got to be some more there. I'm not sure how much more is there, but with the addition of eight banks since we've done the study, we'll hopefully be a little more -- where can we get to? They ran a core efficiency last month of 44.16%. That's really hitting the numbers, but we'll find out how good they are, Dave.

Great. Thank you.

Matt Olney of Stephens.

First, great quarter. And second of all, I wanted to ask you about the margin and in particular the loan yields. You've been holding those loan yields in very well the last few quarters and now you're starting to get some good loan growth. How should we start thinking about the loan yields going forward with the addition of this new loan growth?

Just figure them in the five range, just put a five handle in front of them. That would be the best thing to do. If you heard what I said, $100 million at 5% is $5 million in additional income coming in. So, I think that's a reasonable number. I may have to -- it still takes my approval off of 6. I'm signing more of those than I ever signed, but we're not going to do anything silly. Maybe we do a 5 or 5.25, 5.5, 5.75, but we're not going to start messing up our balance sheet.

Okay. That's helpful. And then Randy Mayor, I think you provided us with the breakdown of loan yields between covered and non-covered and I think I just missed that. Do you have that in front of you by chance?

Actually, yes. Hold on just a second. Brian, you got it?

For the non-covered loans it was 6.05% and for the covered loans it was 7.84%.

Okay. All right, guys. Thanks for your help.

Okay. Remember, we booked those at about 6.60%. The pools have improved and the performance of it has allowed us to move those up over a period of time. Okay, Mike. Next?

Joe Fenech, Sandler O'Neill.

Johnny, are you building capital so fast here and I know you've said in the past and it probably sounds like you still want to keep powder dry for acquisitions and maybe a larger deal, but as you build capital, any thoughts to maybe more of a dividend increase or a special dividend or more of a buyback or are you still in the same mode of trying to keep powder dry for deals going forward?

Let me ask you this, Joe. Who's going to win the presidential election?

Your guess is as good as mine.

(laughter) Just to be safe, I think I'm going to do about $3 special dividend. We like to pay about 1.5%. We are a little below that. We like to pay in that range. So, I wouldn't be surprised. I may talk to the Board about within like to kick it a little bit? I don't know if they will or won't, but that would take us up to about $0.52 if the Board wanted to do that. I think 1.5% is a good return for our investors. We've been buying back a little stock. We didn't get much bought back last quarter. We're going to try to get some more bought back this quarter, but we didn't -- Brian, what did we get? 13,000 shares or --? We didn't get much bought back, but we're going to keep powder dry for deals.

We want to get to about $6.5 billion to $7 billion and we will stay there and just see how efficient the Company can get because our concern is if we get around $9 billion they're going to treat us like we are $10 billion with Dodd Frank and we are not ready for that. I don't think it's efficient to be $9 billion or $10 billion and try to have all the expense associated with it. I think you're much better off being 15 or 16. So that's kind of our plans right now.

Johnny, I know it's very tough to say, you're looking at a lot of stuff, but can you handicap the odds for us of doing a sizable transaction versus kind of a string of smaller deals? Is it like 50-50? Is it more likely that we see the smaller deals? How would you kind of handicap it at this point?

We're looking at one that's $2 billion that fits us perfectly, footprint, nice trade. I don't know if we can get it to our earnings standards. And we looked at one -- looked at a little one and kind of an end market deal. It's about $100 million. So, you've got to pick and choose and you can do some creative things with some of these deals like put back the nonperforming OREO in some of these trades with these private transactions, so we're looking at some pretty creative stuff that might make sense for us. You want me to handicap? Well, that's tough. I think you'll see us -- I think you'll see us with another billion plus dollars in assets in the next six to eight months.

Great. Thanks, guys.

Kevin Reynolds, Wunderlich Securities.

Afternoon, Johnny.

Congratulations. You were the one that had us at 57.

Well, we get lucky every once in a while. Great quarter. Real quick. Talking about your M&A outlook in Vision, I want to sort of drive past which deal you do next if I can and kind of get to the out period. How big do you think you need to be where you're comfortable? I think I heard you just say in the $6 billion, $7 billion range, but when you get there how profitable can you be if you stopped growing and just started focusing on squeezing the costs out and enhancing the performance of that larger franchise?

Well, they'll all think they'll have to get oxygen in here for me in a minute, but it's not me running these banks and they're good. I have to say they're good. I mean, obviously they can run a 169 because they did last month and two of our strong markets were off a little bit, so -- which is Little Rock and Conway. Probably would have been a 172. So, where can they get to? We don't know yet. With the revenue enhancements that we're working on and the expense side we're working on, it will be interesting to see can they run a 2, can they run a 180? Every time I raise the bar, they step up and do it. So, let me give you my utopia and I'll let Randy Sims make a comment.

My utopia is about $7 billion doing a 2 kicking out $140 million a year in income and that's $3 or $4 a share because we'll continue to buy back stock and you'll be happy as an analyst for us and our shareholders will be happy and I can assure you that I'll be happy. So, that's kind of the mind goal of mine and I can't tell you how we'll get there yet, but that's kind of a mind goal and I'll let Randy Sims -- I just gave him oxygen. He woke up and I think he'll be able to talk to you.

Well, first of all I'd like to say that I've never seen a goal exceeded and you might set another goal. So, but regardless, there is a factor there that I would like to talk about just a second. If you know, we've got all these banks and we've got all these special asset people out there and we've got all these pools that are going to eventually come to an end. In Arkansas we have one special asset person. In Alabama and Florida, with these FDIC acquisitions, we have a whole team. So, there's a lot of expense that's being applied to these pools and sweat equity and in all of these employees that are working all these loans off. So, when that goes away, if you were to stop and that goes away and you get down to the real customers, there are still tremendous savings in expenses.

Let me say this. This bunch is pretty good. I was on the road the other day and someone was telling me that people in these failed banks don't know what that expense is and I said I know what it is. I know how much it is because Randy Sims told me exactly how much money he's spending on an annual basis. So, we're on top of that and that's a huge savings for us and we'll work through that at some point.

Okay. And a couple others, just maybe sort of housekeeping questions. Just so I'm clear, Randy, on the cost or the cost of the trust preferred going away, if you took that quarterly expense out about $450,000 or so assuming you paid them off, is it right in assuming that would be about 7 or 8 basis points accretive to the net interest margin calculation all else equal?

It's about 550 total, not 450. It's about $2.1 million, about 550. And would that be 7 -- I'm looking at Brian Davis, he's the -- Mayor has got a calculator in his hand. I hope he knows how to run it, but he's got one.

Give us a little time to figure out on that one.

Okay. Okay. And then the last thing, Johnny, you talked about continuing to buy your stock and I know the weighted average price that you purchased year to date is well below where you are right now and yet you talk about continuing to buy back stock. How sensitive are you to price as you contemplate further buybacks going forward?

Well, I think we continue to buy in here. I think we're not afraid to be buying in here where we are. I mean, I think $2.50 and I think you'll agree is in range and the stock's going to be trading in the $37, $38 range at that point in time and surely by then we'll have another deal and we'll set another goal. When I told you $2.50 you believed me you were the first one -- I mean to $2 you were the first one to go. When I said $2.50 you believed me, and when I tell you I see $3 I see it, I just don't see it yet. But I think I can see over $2.50 but I don't see $3, but I think I will see it and when I do, you'll hear me say it.

Okay. All right. That's all I've got. Great quarter.

Thank you.

Brian Hagler, Kennedy Capital.

I thought I heard some groans on that billion dollar plus in the next six to eight months, but I'm optimistic.

They groan a lot around here, but they get it done.

Agreed. I just had a quick question, most of them have been answered, but on that Premier Bank deal you talked about it closing in the fourth quarter. Does that mean it's been through the bankruptcy court and everything is moving on track?

Randy will give you an update on that, Brian.

Right. November 13 bidders have to declare themselves. We have passed through the hardest hurdles of the bankruptcy process and that was setting the rules and the procedures and listening to all the objections. It actually required about a six-hour day in a courtroom which, if you can imagine myself and Tracy French sitting still for six hours, that was a feat in itself, but we got past that. Now, the bidders have to declare themselves on November 13. If there are no bidders that show up, then we will automatically petition the court to make the sale final. If there are bidders that show up, then there will be an auction on November 27. So, I really don't see it not closing in the fourth quarter unless we lose the bid or something, but at this point we're very optimistic that this thing is on schedule and will close in the fourth quarter.

You would think if they were -- somebody's going to bid against us they'd be in their doing due diligence and they're welcome to do that and welcome to bring their checkbook because it purely is an auction and they want to outbid us, then they can own it. And we'll be there with our checkbook and we'll see what happens.

All right. I appreciate the update. Thanks. Thank you.

Brian Martin of FIG Partners.

Hi, Johnny. I wanted just to get a sense, Johnny, on the M&A and kind of being as busy as you are lately, are you seeing more opportunities for healthy banks or is it still problem banks more that's leading that charge on that front?

It's problem banks primarily. The little one being end market deals fairly clean. They're just problem banks. And they realize they can't -- there's 800 of them, you know that. And they can't earn themselves out of this. They can't recap. Management's tired, management's beat up. The Board of Directors are tired. They just want to get their book value if they can get their book value and get out the door.

Okay.

Mostly problem banks and you have to get in them just like we did Tallahassee. It wouldn't work. That deal would not work with trust preferred and TARP. It just wouldn't work. So, sorry, it didn't work. It will work. We can make it work, but the only reason it works for us is because it doubles our size in that market. We pick up some good management. We pick up lots of talent in that market. Their branches are a little nicer than our branches, so there was more to that transaction than just the price. Had it just been a price transaction and somebody new coming in to Tallahassee to try to do that transaction, it wouldn't work. So, you've got to look at your footprint. We got a lot of management on the ground in the panhandle of Florida. So when an opportunity comes up in the panhandle of Florida, it's not as expensive for us to increase our size there because we've got people on the ground.

Okay. And as far as the organic growth, I know you talked this quarter and fourth quarter. When you think about next year, what are your expectations as far as being able to sustain a 40 million type of number, just kind of loan growth next year?

You know, Brian, you're not going to get me out here on a limb because I'm not sure it's real yet. We got -- it looks good. Do I think we can do $100 million next year? I would say certainly we can do $100 million next year. Looks like we're going to have $100 million from the third and fourth quarter. We've got that much approved, that much in the pipeline, that much coming out. I thought it would take us a year to get the $100 million. We've got it a bit quicker but some of it -- those are spotty deals. It's smart money that is finding a deal. About $50 million of that is some of our [I-1] customers who found great transactions out in the marketplace.

Now, the cycle is there's lots of those deals out there, will we find more of those? Probably. And some of our existing customers have stepped up. So, I'm not ready to call it yet. I'm not ready to say that it's a trend, but it looks pretty good right now. And we're going to get the $100 million faster than I thought we're going to get $100 million and you're going to see the revenue side come up. There's still a little bit of room on the liabilities side and when Donna's team gets through over the next five or six months or year, whatever time. Someone asked the question a while ago, she really just started. I just got her about a month ago. She was working on another project so we just fired that up. So, we're just on the leading edge of that.

Okay. And two last things. Can you just comment a little bit on when you expect some of the FDIC loans to just stabilize versus kind of the runoff? Obviously ongoing, but when do those begin to stabilize or at what level?

We're seeing -- we've seen so far we're about one third of the way through those portfolios and the first third was slow. The second third will be quicker than the first third was and then you'll be left with good loans at the end. Will that will be a third or half, I don't know. It took us two to two and a half years to get through the first third. I think we'll get through the next third in the next 12 to 18 months.

Okay. All right. And last thing for Brian. The cash at the parent at quarter end, where was that at, Brian?

That was at $37 million.

$37 million? Okay. Thanks, guys. Great quarter.

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

Mike, thank you. It's a pleasure working with you again and your company. We thank all of our interested parties, all those on the call and on the Internet that are following us. We're proud of our quarter and hope next quarter will be as good as this quarter was or maybe better. I may ask for a little more, maybe they'll give me a little more. Anyway, thanks a bunch. We'll talk to you in 90 days.

And we thank you, sir. Always good to hear from you. The conference call has now concluded. We thank you all for attending today's presentation. At this time, you may disconnect your lines. Thank you and take care, everyone.