Home BancShares Inc (HOMB) 2016 Q1 法說會逐字稿

Greetings, ladies and gentlemen. Welcome to the Home BancShares Incorporated first-quarter 2016 earnings call.

(Operator Instructions)

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

Thank you very much. I'd like to thank you each of you for joining us today, as the Company holds our first-quarter2016 earnings release and conference call.

With me today is the usual suspects, you know all of them, Randy, Tracy, Donna, Brian, Kevin and Jennifer. You'll hear from each one of them today. You'll hear Randy in a minute talk about Home just completed, its 20th record quarter of earnings in a row. That's five years of solid performance.

First quarter was really a pretty good quarter for the Company with record EPS, record earnings, record revenue, record efficiency, record core ROA and record pretax pre provision ROA. Other outstanding numbers for the quarter was loan growth. But [pretty] loan growth for the quarter how we had a huge pay off. I'll let Kevin Hester talk more about that today. 33% increase in earnings, good expense control, margin remained flat ex-accretion, non-interest expense was flat and if you pull out of New York and look back last year non-interest expense was basically flat and we're pretty proud of that.

Continued improvement on asset quality, good coverage on non-performing loans reserved to non-performing. We continued to build reserves in both the fourth quarter and the first quarter of 2016. We believe that it's prudent to see in line of the length of this cycle the slight kick up in construction loans coupled with low long term energy prices.

As you remember we had only a little over $30 million of total energy exposure. It's just time to be a little more cautious. We're seeing a few funny things done in the marketplace that makes us a little nervous. Not any one thing, just over time there's been a cumulative effect of some silly trades that wants to make one more cautious.

We've grown our lines to loan reserve almost $16 million from last year reaching, I think, a new high of $72 million. Even though charge-offs are down, loan growth is still good. When you add the credit marks to the reserve, we're just under 3%.

We'll continue to build when appropriate. I think the fourt quarter and the first quarter we put in $14.6 million. It's our money, we are just putting in another account to be cautious. Mark Twain said it's not what you know that gets you in trouble, it's what you think you know that gets you in trouble. So we think we're alright, we just want to be careful. We bought back about 250,000 shares during the quarter. The market put our stock on sale so we took advantage of the opportunity and we'll continue to buy when the opportunity presents itself.

On the branch closing, we're continuing to analyze the branches and we'll continue to close when appropriate and opportunistic. On the M & A, lots of banks for sale. I don't know that any of them had a great price, but better said, we get lots of looks at lots of deals, but when we go back on the second visit if we think the deal fits it either works or it doesn't work. There's no need wasting time and giving people false expectations.

We have an M & A committee that filters our deals. We still have a letter of intent that's out on the Florida Bank and we're trying to work through a situation out there and hopefully we'll get resolution this quarter. On the loan loss buyout discussion, it's not as big a deal as it was at one-time. We worked through that, and we'll be continuing to analyze it as we go forward.

First-quarter2016 looks like a great start. Good loan growth coupled with strong efficiencies, good asset quality, stable margins, hard work and commitment from our team. I think we'll hopefully will lead us to our new goal of Home 250. Of particular interest in the quarter, we pay attention to was the record revenue in spite of the accretion income down $2.5 million in the first quarter over the fourt quarter and one less day. So strong stable margin, good loan growth, and good non-interest income more than overcame that. Randy, it's your turn. You get to give everybody the numbers.

Thank you, Johnny.

first quarter of 2016 is over and in the books, and as you shared, it was a good one for Home BancShares. I really believe we are hitting on all cylinders. And we have a great team on hand today to tell you about each area of the numbers, so let's get into them, I'll start with net income.

Net income from March 31, 2015 was $41.4 million compared to $31.1 million for the first quarter of 2015 for a 33% increase, or $10.3 million. Diluted earnings per share for the quarter were $0.59 per share compared to $0.46 per share for the same period in 2015.

We were very pleased with our net income and our start to 2016. Which leads me to my favorite part of the report, even though my Chairman beat me to it, that is now 20 consecutive quarters of record income for Home BancShares.

You should have had a drum beat for that.

I should have. Maybe next time we'll do that, or when we hit 25. We will have a real drum beat. I guess we could have the horns back.

The horns would be good too.

We'll have to think of something when we hit 25. But that is now 20 consecutive quarters and naturally, you have to be proud of that. Our $41.4 million this quarter is a $4 million increase and 10.7% improvement compared to our previously reported fourt quarter of 2015. So improvement and increases everywhere. And, as Johnny said, records, records, records. Components that help get us to this record income was strong organic loan growth, a continued strong and consistent margin, excluding accretion yield on purchase loans, as well as, a great efficiency ratio. All of which others will discuss in more detail.

Our success continues to be our progress and improvement in these key components resulting in greater net income and, as I stated, record income for 20 consecutive quarters. Can't say it enough, so I would like to turn it over to Tracy French to give us additional color and his comments on our performance.

Thank you Randy. I'm proud to say the momentum we carried into 2016 resulted in improved financial performance, in all of our regions in the first quarter. We achieved strong organic growth while maintaining in most cases, we were strengthening our already conservative underwriting standards.

The strength focus of our rising low cost core deposits in our market resulted in some nice gains for several regions, most notably our North East Arkansas, the Panhandle, or as we call it North Florida now, Alabama and the Florida keys. It's nice to see that the hard work that was planned paid off.

As I mentioned on the loan side many of our Markets saw strong increases in loan volume throughout the quarter. Arkansas showed solid growth in all Markets particularly in Northwest Arkansas this past quarter. The panhandle or as North Florida would call it today lead the charge in Florida in growth but the South Florida and the Southeast Florida region made meaningful volume and congratulations to all those regions.

Central Florida, still amazes me to watch this team continue to build and improve on a valuable Central Florida footprint. Our local Boards there have been a tremendous asset, as well. Thank you to all.

I want to recognize our team in New York as we just had our one year anniversary with them. They continued to perform at or above our expectations and we look forward to converting our current office to a branch in the Second Quarter.

To close I'd like to mention a few financial metrics of our regions. Using our internal calculations and excluding accretion income, our Arkansas regions continued to run near 3% core return on assets and operate very, very efficiently.

Our combined Florida market did a 170 ROA for the first quarter. That's up 146 from the fourt quarter and we continue to see the efficiency ratio approved in most of those regions as they generate revenue, as well. It's fun to watch our regional Presidents compete against each other on a regular monthly basis and I have no doubt we will continue to improve these already impressive numbers. Thank you.

Great report Tracy. So let's get to just a few more numbers. So as of December 31, the Corporation is sitting at 9.4 billion with just a little rounding in total assets.

Our return on average assets for the first quarter was 1.79% compared to 1.67% for the first quarter of 2015. All regions, as Tracy just went over, performed well and it is good to see the great results in our key components. Congratulations to our entire group of bankers.

Our core return on average assets excludes intangibles, provision, merger expenses and taxes was 3.27% for the quarter, as compared to 3.04% for the same period in 2015.

Our return on average TCE excluding intangible amortization for the quarter was 20.79%. These are strong numbers. The total number of active centennial branches is now 142, with 77 in Arkansas, 59 in Florida and six along the Alabama coastline. Plus our loan production office in New York City.

Speaking of New York, as Tracy informed us we received approval this quarter to open a deposit-only branch location in New York City during the Second Quarter. But here to tell you more about branches and a strong efficiency ratio is Donna Townsell.

Thank you, Randy.

As you know, we hit the goal of a sub 40% efficiency ratio in the third quarter last year. We managed to drop it a little more in the fourth quarter with a 37.86% and we saw a slight improvement in the first quarter with our core efficiency ratio remaining strong at 37.52%. We have said it before, it was hard to get here and it is equally hard to stay here; however operating at this ratio really separates Home BancShares from the pack.

As our revenues continues to tic up we will continue to maintain a watchful eye on expenses. We completed the closure of four branches in the first quarter and we've already closed a branch this quarter. We will continue evaluating our branch network, as well as, our operating expenses in order to deliver an efficient product to our customers. Having already broken our previous sub 40 record, it looks like home is on its way to meeting Johnny's newest goal of 35%.

Randy?

Thank you, Donna. Another great report.

Let's switch to deposits. We ended the quarter at 6.58 billion, time deposits represented 21.4% of total deposits. Net interest income, margin, and non-interest expense will all now be covered by Brian Davis. After that Brian will pass it to Jennifer Floyd to give us more information on our capital numbers.

Brian?

Thanks, Randy.

The first quarter was a great quarter for Home BancShares. Once again, we were able to report significant earnings improvements. During the first quarter of 2016, excluding merger expenses, we increased net income $2.2 million from $39.2 million in Q4 to $41.4 million in Q1 for an annualized increase of 23% for our link quarter basis.

Because of the Company's significant number of historical acquisitions, our net interest margin was impacted by $10.7 million of accretion income for the fair value adjustments reported in purchase accounting during Q1, compared to $13.2 million during Q4. Excluding this accretion income and the associated loan discounts the companies net interest margin for Q1 2016 was 4.22% on a non-GAAP basis compared to 4.23% in Q4 2015.

Net interest income decreased $2 million to $98.1 million in Q1 versus $100.1 million in Q4. This decline is the result of one less calendar day for net interest income and the $2.5 million decline in our accretion income.

On a GAAP basis the yield on loans declined from 5.95% to 5.80% on a linked quarter basis. Excluding the accretion income and the associated loan discounts, the companies yield on loans for Q1 2016 improved by two basis points to 5.07% on a non-GAAP basis compared to 5.05% in Q4 2015. Non-interest income was up $2.2 million in Q1 2016 compared to Q4 2015.

This increase is associated with an improvement of $877,000 in our FDIC indemnification asset amortization and $594,000 of loan recoveries on our FDIC cover transactions and another purchase loans combined with a $459,000 increase in our mortgage lending income. Excluding merger expenses, non-interest expense improved $442,000 or about 1% in Q1 2016 compared to Q4 2015.

During the first quarter the remaining cost savings achieved, with the largest being related to the Bay Cities Bank acquisition on October 1, 2015. Also as we approach the $10 billion asset mark we're now incurring new costs in preparation for (inaudible), which were about $230,000 in Q1 and $180,000 for Q4.

With that said I'll turn the call over to Jennifer.

Thank you, Brian. Now let's review the first quarter capital results. As of March 31, 2016, we ended the quarter with $1.2 billion of capital and $60 million of cash at the parent Company. During the first quarter, we paid out shareholder dividends of $10.5 million while growing retained earnings by $30.9 million. For the first quarter2016, our common equity Tier 1 capital was $831.4 million, total Tier 1 capital was $890.4 million and total risk-based capital was $962.7 million, with risk-weighted assets of approximately $8 billion.

As a result, our common equity Tier 1 capital was 10.4% compared to 10.5% at December 31. Our leverage ratio was 10.0% compared to 9.9% at December 31. Tier 1 capital was 11.1% compared to 11.3% at December 31 and total risk-based capital was 12.1%, compared to 12.2% at December 31. The slight decline in our capital ratios is a result of the Company repurchasing 230, 900 shares of Common Stock for approximately $8.8 million during the first quarter. Had we not repurchased these shares our risk-based capital ratios would have remained flat.

Additional first quarter capital ratios include book value per common share, which was $17.49 compared to $17.11 at December 31. Tangible book value per common share was $11.81, compared to $11.41 at December 31 and finally our tangible common equity ratio was 9.2% compared to 9.0% at December 31.

Randy?

Thank you. Thanks to both of you very good numbers and great information.

So let's turn to the subject everyone wants to hear about, loans. Another huge component to our net income numbers. So let's roll to Kevin Hester, who is going to give us more details and color. Kevin?

Thanks, Randy.

As has been mentioned previously organic loan growth of 213 million lead a quarter full of good news on the lending side. This growth was 60% from CCFG and the rest more weighted towards Arkansas than Florida. CRE loan growth in Arkansas and Florida was offset by reclassification of New York CRE to C & I loans due to the technicality of the collateral were called for purposes. Second Quarter loan production is very strong, but a seasonal pay down and a large operating line and a large construction loan pay off, as well as two CCFG exits could hold down growth.

Both the non-covered non-performing loan and asset ratios decreased by 10 and five basis points respectively this quarter, as a result the ALLL coverage of non-performing and non-covered loans increased by 15% to 126%. Past dues remained low at 1.14% and net charge-offs at 15 basis points were the lowest sin the Second Quarter of 2011.

The allowance for loan losses as a percentage of non-covered loans increased two basis points back to the Third Quarter of 2015 number of 1.03%. If you add all the acquisition discounts for the allowance for loan losses the combined figure would be 2.88%, which continues to drop as we amortized the acquisition discounts. Mortgage continues to shine with overall production of 31% and profitability up 180% quarter-over-quarter.

Due to the fact that we choose to exceed both regulatory guidelines for CRE exposures we have embarked on an effort to enhance our risk Management practices. This includes a focus on cleaning up acquired loan coding, improving concentration analysis, undertaking sensitivity analysis at the portfolio level and improving our market analysis. This will lead us right into deep act environment where stress testing will be required.

Randy with that I'll turn it back over to you.

Great numbers again. Thank you, Kevin.

A powerful start for 2016. Record earnings for the 20th consecutive quarter ending. I can just keep saying that over and over. I know you're all sick of hearing it. But a strong efficiency ratio of 37.5, a powerful margin, strong loan growth of 212 million and great asset quality metrics. Consistent improvement in our major components in metrics that results in another great quarter and that is the secret to our success.

And with that, I will now turn it back over to our Chairman Mr. Allison.

Thank you. Good job, everyone. And we're ready for Q & A.

(Operator Instructions)

Our first question comes from Matt Olney with Stephens.

Thanks, good afternoon, guys.

Good afternoon.

Wanted to start with a discussion of potentially terminating a loss share contract that you guys have. The impact of that loss share isn't that big at this point but sounds like something that still may be on your mind right now.

Well it was when we had QS before we got rid of the five year loss share it was making a pretty good impact on the income statement and we worked through that. We attempted to get our loss share back then we thought that would help us but it doesn't make as big an impact on Home today as it did and I think they're here now aren't they? People are here doing the analysis?

They are here. They are here this week and next and they are running numbers to see whether it's financially feasible to want to get out of loss share.

I guess it's up in the air. At one point in time I really want to get it done, disappointed where we get through it but we swallowed most of the tough time so it's not as big a deal as it was. Thanks for asking.

Thanks for the update and also as far as the loan to deposit ratio that continues to creep up, I think we're over 100% now, what's the strategy on the loan to deposit ratio and how comfortable are you operating here and is the opening of that New York City branch going to be an important part to get that down?

Well I think it will, we're looking for a couple hundred million dollars from our customers in New York and I think that will help. Randy Sims says we not running hot enough. Randy likes to run about 110-115. I'll let Randy comment.

Amen. We've got plenty capacity to fund us into next year. We don't have a lot of brokered, I'll let Brian comment on that too. We are in great shape and we had some deposit growth this quarter. We have not had emphasis on deposit growth in the past. All our recent [friends] are in today and Tracy and Steven were [distant] a little bit about deposit growth but they did get some last year and there getting more. Brian do you want to comment on it?

One of the things I'm counting on in Randy Sims' camp I'm okay with it running a little hot like that myself. One of the things that we have on our plate is that we have a lot of availability left at the Federal Home Loan Bank and that's just the cheapest source of funds no matter how you slice and dice it and we have over $900 million available in availability on that and that's before we get additional availability for the loan growth we had in Q1.

As far as broker deposits we have in my opinion, a fairly low amount of broker deposits which is over $300 million and of that $300 million only $60 million is what I think is the traditional broker deposits which is brokerage CDs because including in those broker deposits is part of our [cedars] program so we need to go get more broker deposits and get that ratio down, we could easily do it, but it's just hard to when FHLB has such good borrowing capacity.

And I would add to that, the fact that I really do think you're going to see some growth when our deposits come about. And it's true I've always liked high loan to deposit ratios because I feel like the engine is running at its full capacity but I think the next few quarters you're going to see pretty good deposit growth. We're actually talking with a few customers that there is some really great potential for some large deposits and so at this point in time, I feel very comfortable with where we are and what it's going to look like for the rest of the year.

I'd be glad to follow-up a little bit there. As Johnny mentioned our team really got focused on about this time last year whenever our New York operation came on Board we could see the loan growth was going to kick in.

At that time our organic organization was taking care of itself and the year Mr. Sims down there kept challenging us to make sure we had the core relationship and not the CDs. So we geared up and I think I said in my earlier remarks several regions have done that and with our newer acquisitions and the relationships that are developed they are out asking for the business and as I told our regional Presidents this morning how nice it is to ask for deposits and we've been very fortunate to get those so far this year.

I think cost of funds were flat for the quarter, so obviously we aren't chasing anything. Thanks for asking the question, Matt.

Thanks guys and congrats on the quarter.

Thank you.

Our next question comes from Jon Arfstrom with RBC Capital Markets.

Thanks, good afternoon.

Thanks, Jon, how are you?

Good, good, congratulations on the streak, should we call it the streak? The earnings streak?

We are pretty proud of it.

That's good. Just follow-up on Matt's question on the New York office. How soon will that be, will that office be taking deposits and I think at one point you talked about a second office as well. And it kind of goes this loan to deposit question, just curious what your expectations are overall for that market?

Jon, this is Tracy. We've been approved by all of the regulatory agencies to do that and Chris is developing his team right now, so I see Chris this afternoon and I can get you a better answer but we're anticipating that to be the second quarter.

Yes, and we'll do that one first and then a ground branch at some point in time in the future probably down the road three or four months. Those branches Doral had in there were $500 million branches, so that would be a nice kick for us in that market.

Okay, good. Tracy, as long as you're front and center, you mentioned the Florida ROA at 170, that's obviously a great number that you want to try to take up, but what are the pressure points there, how do you bring that up? Is it lending or expense work to do?

I think you have a combination of both there, as some of the opportunities we've taken over, we're still into some expense savings there but certainly the revenue side is what's driving it today. And all of our regional leaders there are out making the loans bringing in the opportunities again to cross-sell our products so it's revenue but there's always room to work on that expense side.

It's kind of fun. I've chartered for the shareholders meeting and I'll get you a copy Jon, chartered the efficiency as it came down from the high 60s over the years and it's fun to watch it and see it come down, down, down and suddenly spikes straight up.

That's when we bought the big spikes, when we bought six Florida banks at one-time and it spiked straight up and then you'll see it coming back down and you'll see the Liberty purchase and it really jumps on the Liberty purchase so that thing was pretty inefficient. It jumps straight up and starts coming down to the new level. So you track that based on the acquisitions and when you go to 170 in Florida, after just swallowing [Bay City] I'm pretty proud of our team. That's pretty impressive.

Absolutely.

Don't forget our mortgage Company is really growing and a lot of the growth is coming in Florida and we're seeing some really good income come out of residential lending there.

That's great.

Yes, mortgage is doing great.

Okay, good. And then Brian Davis, we exchanged on the NIM a little bit stated versus core but how are you feeling about both of those stated versus core and I guess my biggest interest is can that core NIM stay stable?

I do anticipate the core NIM to stay stable. Its been stable for several quarters in a row. I think that it will stay that way. Will the GAAP NIM come down? Maybe a little bit. We have over probably $100 million of additional accretable income to come over the life of the purchase portfolios. Obviously that can't last forever and by nature gets smaller each quarter. We had 10.7 this quarter and do I think it's going to drop 2.5 million again next quarter. No I do not. Do I think it might drop a little bit, might drop from 10.7 to 10. So you could see a little bit of pressure on the GAAP NIM, but I think the core NIM will stay pretty flat.

To add a little bit to that Jon, this Management team is really watching the renewals process of this Company. Somebody writes below that mark they will know why it's, we do very few loans below that but we do a lot of loans above that. This isn't something that has just come about, they have been tracking that for some time and keeping up with it by region.

Okay, thanks for the help.

Thank you.

Our next question comes from Brady Gaily with KBW.

Hi good afternoon guys.

Hi, Brady.

So you were active buying back some stock. If I ran the numbers right it was around an average of $38 a share you repurchased your stock. Is that the stocks done better and it's now in the low 40s. Are you still going to be active on the buyback or at this price point do you become more neutral?

I'm a businessman that looks for opportunities and if Lowe's has a sale I go down to see what they got on sale and they had Home Bancshares on sale. So you don't get many shots at Home BancShares on sale and the only thing I'm aggravated about is we didn't buy a million shares, we should have bought more but we started a little late and we actually bought in February and we got into our window, so we didn't feel like we needed to -- when was that about the mid-- ?

We started buying that stuff actually the very end of January maybe January 25 I think and we bought back 230,900 shares at a weighted average price of $38.26. So when we started the price was $34.

We should have brought instead of we were buying 10,000 shares a day, we should have bought 100,000 shares that day and we'll do better next time. But when they put on the sale we'll buy it so I'd rather not tell the Street where I buy them and don't buy them and where I'm interested and not interested.

Yes, I hear you and then on M & A you've mentioned the LOI on the Florida bank for a couple times. Do you think that you're getting closer to announcing another M & A deal or is pricing kind of hanging you up for the near term?

Not really. The problem with most independent banks is they don't realize they've been repriced too. And the Street got repriced for some reason and the market took bank stocks down. They were hammering us in January and we just came off a record month and had the biggest month we ever had and I thought it doesn't correlate very well. But the independent banks, private banks have been repriced too and it takes a little while for that to sift through the process because obviously somebody repriced us and we get repriced they get repriced but you know, there's opportunities out there now.

Somebody brought a deal a couple weeks ago that looks like it's got real possibilities for the Corporation and Tracy went down last week in Florida looking at another opportunity and there are just lots of opportunities just picking out the right one. As you watch out we've done over the years, we don't get in a hurry and we don't get excited and we are extremely patient on the M & A side and when the opportunity comes it's kind of like New York opportunity.

We paid nothing for that and had a pretax pre provision last year of about $14 million and maybe $40 million this year and we didn't issue a pretax pre provision. We didn't issue a share for it. So we're looking for those opportunities and again, we won't be doing deals for the sake of doing deals and they have to move our EPS needle or they don't. If they don't move it, then -- if you think about it, if somebody adds a penny a share to us and after cost saves and we sell at 20 multiple, we aren't going to do that. We won't take on headaches and liabilities for $0.20.

We may take it on if they give us $0.15, $0.18, $0.20 a share, we might do that. That's what we are looking for and if we have been successful over the years in finding those deals if we look at the deals we've done, we've done a [363] bankruptcy, selected assets, failed bank transactions, we've done a little bit of every kind of transaction that's out there so we're looking for that next deal and we may have found one by now.

Okay got it thanks for the color.

Our next question comes from Stephen Scouten with Sandler O'Neill.

Hi how you doing down there?

Great, how are you Stephen?

Doing very well. Congrats on a great quarter here.

Thank you.

Maybe just following up on Brady's question from an M & A front obviously you guys are starting to absorb these DFAST costs already and you're getting close to $10 billion. I guess part one, are there anymore sizeable transactions that you're looking at to help you absorb some of those costs? And maybe two, if a deal doesn't come this year do you think you'll try to stay just under $10 billion to minimize the Durbin impact or how do you think about that?

Yes, yes, and yes. Actually deals are getting late enough in the cycle that if we may push it into next year and our organic growth will take us just forecast take us just around at $10 billion, but we aren't going to jump out here and try to do a big deal for the sake of doing a big deal.

The one deal we have a letter of intent out right now as Brian said we've absorbed most of the expenses on DFAST internally right now except for the Durbin amendment, so we're only a $400 million bank I think it will pay Durbin. My point is I think it will pay Durbin.

I've seen some people jump over the $10 billion and do it in a big fashion and do deals that really didn't make any sense to me, so we're not going to do that. We are not going to, if really to walk across it or you'll probably see it happens in '17, would you agree Brian?

I do agree and if you have, if you cross over in Q1 of 2017, it really gives you almost 18 months to grow your balance sheet and grow those earnings because you would not lose the Durbin money until July 1 of 2018. So if we could grow to $11 billion in that 18 months which would seem fairly reasonable to do, it would more than cover all of the lost Durbin money. We only need about $500 million in assets to cover the lost Durbin money.

That makes sense. And then on the CFG front, how much more room do you have to grow? Can you remind me the balance of those loans with the additional $135 million and how much more room you have to grow into there?

We're about $850 million, he ran about $1.3 billion-plus before and we set an internal goal here recently of about $1.3 billion. I'll let Kevin and Tracy comment on this but we didn't have a gun to his head on the $1.3 billion. Just grow it to $1.3 billion when he finds that quality loan to put in the books then do that. Do I think he will grow it to $1.3 billion? I do. I think he's got nearly a lot of capacity left in his group so that's another $500 million or $600 million that he will grow that. So we're looking for that growth and then after that, we will evaluate and determine and look at where the opportunities are. Kevin you could comment on that?

I think Johnny hit it on the head. We set a goal, they look every quarter at how we're going to get to that goal. We see getting there and when we get there we'll stop and look at where we're at and look at the opportunities and move forward from there.

Stephen, just remember April 1 is really the first year anniversary of us shaking the hand and getting everybody beginning to come across and was able to do the purchase of $290 million of those loans, but a lot of those have gone. So it's really just in one year and we try to pick a little time to get it going, so I think the $1.3 billion number certainly is reachable. It's just a matter of time and Chris has been and his team are just like the rest of us here, we won't push that rope but it's certainly out there to get it and it's certainly reachable.

And think about the numbers they did $14 million pretax pre provision last year and they got a shot at $39.9 million almost $40 million this year, so pretty powerful.

Wow yes, that's impressive. How about on the community bank side, maybe Kevin can you comment on what kind of trends you're seeing?

I know Johnny you actually expressed maybe some tempered expectations about growth for the year last quarter but also sounds like Arkansas is performing pretty well. So can you give us an idea of what you're seeing in the community banking side there and if you're cautious or you feel like things could hum along pretty well?

I think the community bank footprint is doing well. The production is still strong. I mentioned it in the remarks, the pay downs that we're looking at this quarter that may, we may hold growth down a little bit but if the rest of the quarter shakes out the way it looks here, you'd see a flip in the growth would being mostly footprint rather than CCFG. But it is early in the quarter though and that could change between now and the end of the quarter but it is footprint right now.

Okay, and then maybe one last one for me just, Kevin, you also spoke about kind of some increased internal oversight given your CRE exposure. Is that all just kind of internal realization of what you need in preparing for DFAST or is there any pushback from a regulatory standpoint on any of your exposure or anything that you think would make you need to slow down your growth from that concentration standpoint?

No, it was really DFAST. We brought as we started bringing in the resources for that, we really started -- they've worked more on CRE than they have DFAST to this point just getting ready for that and then we're comfortable with our CRE.

We're comfortable with what we're doing. We know it's going to be a focus when examiners come in next. They've told us that. We know it so we're just trying to be prepared for it and also getting prepared for DFAST as well.

You know, one things they don't ask is what your loan to cost or loan to value on your CRE and you know, we know New York is running 55% or 50% loan to cost on CRE, so we like our CRE position. Things are really good right now. Don't panic put next to money in reserve.

It's just how I operate. If things are really, really good and when they're that good and you're making the money we are making if we had the ability to feed reserves a little bit let's just feed them because it just, you know, some day we're going to cycle again. I don't know when that is. I don't see it for the next 24 months but we will have a cycle again and those who are prepared for the cycle are much better off.

Yes, I agree. I agree well congrats on the great quarter. The record quarter I should say I think you might have set a record for how many times you said record, Johnny, but I like it.

And I probably did but I was pretty proud of it. I guess I could go back to horns would you prefer that?

I like the horns personally.

Our next question comes from Michael Rose with Raymond James.

Hi guys, how you doing?

Fine, Michael, how are you?

Good just wanted to touch on a topic I touched on last quarter which is the reserve build. and obviously credit quality continues to perform well, Florida is doing really well but, Johnny, you've talked about bringing the reserve up to 150 over time and your remarks at the outset not what you don't know or maybe what you don't realize may ring true here, so is that kind of still the course of action over time?

Yes, when we had the ability to do that we are going to do that. We will continue to build when appropriate. I mean we're within the range of where Kevin needs us to be on the allowance for loan loss.

You know me I'm just a 150 guy and believe that's the kind of month, kind of reserve you have to have. Actually, when you heard the conversation put us in the marks around 283. I like that position. Again I said just awhile ago we're going to have a cycle again some time and you prepare for those cycles when you don't see any problems and all I see is clear sailing which tells me we need to be on reserves.

Okay that's helpful and just your comments on M & A. If you want a deal that's maybe not going to move the needle, as I look at Florida and obviously your size, there's probably not a lot of targets left for you.

Have you guys started to have discussions with potential partners out of state and maybe what does that geography encompass? Have you gone maybe as far as Texas or further or kind of how should we think about the longer term M & A opportunity for Home as you move forward? Thanks.

We'll go to Texas at some point in time. But it may be two to three quarters from now. I think this thing is deeper and longer than most people anticipate but my people around here think that I'm exaggerating the situation a little bit, but I think we're going to see opportunities in Texas at some point in time, some of them are already there now but it is too early to move on Texas.

Outside of that geography, we're probably not going to go anywhere else right now. We'll continue to build in Florida. I mean you've got four or five down there that needs a sale. Pretty good sized companies that should be sold and put in the hands of strong operators to reward the shareholders property for what they deserve. And you can look at them as well as I do there's some down there that hadn't rewarded their shareholders in years and should be put in strong hands.

And I think you're seeing activists out there in today's market and some of these there may be some opportunities to come out of that. There should be because if you aren't returning double digit returns to shareholders, you put it in strong hands to sell it or put it somewhere they can get that return. Any other comments from anybody here?

Well said.

Well I think you should maybe send all those banks maybe a copy of Waiting for Godot. Thanks for taking my questions guys.

Okay, thank you.

Our next question comes from, Brian Martin, with FIG Partners.

Hi guys.

Hi Brian.

Just most of my stuff has been answered here but just maybe two things. It sounds like Kevin mentioned that the growth in Arkansas was maybe a bit stronger than Florida of late.

I mean is there do you expect that to flip as you go deeper into the year? I guess I'm not sure where the pay-offs were in particular if they were ones you were expecting were Florida or Arkansas. But just comments on the Florida outlook and maybe just a little bit of color on the mortgage [border] like you alluded to was a very strong performance this quarter.

Yes, it goes back and forth between Arkansas and Florida. I would think Florida has more opportunity, the two largest MSAs that we deal with there and certainly there's probably more activity down there, so you would think they have more opportunity. Right now at this juncture, Arkansas is just a little bit ahead in this quarter, but it certainly could flip at any point. Mortgage, just strong activity and we've got MLOs in the two biggest MSAs we've added there, continue to add good people and just they're doing a really good job.

Okay that's all I had thanks guys.

Thank you.

Our next question comes from Joe Gladu with Merion Capital Group.

Yes, hi guys.

Hi Joe.

Just a quick one. In regards to branch closings, just wondering where they're likely to come from and just what the recent experience has been with branch closures in terms of how much deposits or business you're losing with those?

Joe we have some criteria Joe we look at so it's not like we are looking at just a certain market. We take all of our branches one in time and look at them in terms of profitability and proximity to other branches that we have and in almost all cases, there has been some very close by that we transfer the deposit that we really haven't had a big customer loss with that.

In fact our last branch that we closed this quarter was a unique situation where we actually sold that branch and actually had a number of customers request to stay with us and the closest branch there was about 40 miles away. So I wouldn't say loss of customer base has been an issue with that but we'll continue to evaluate our networks. Okay, fair enough, thank you, that's it.

Thank you.

Our next question comes from Peyton Green with Piper Jaffray.

Yes good afternoon. Congratulations on yet another strong quarter. Maybe for Brian. I think you mentioned that only about a $400 million asset size bank would be needed to really cover the DFAST Durbin cost. So is that number you think down from the guidance you gave in the third and fourth quarter last year in terms of the overall cost?

No the overall cost, well the Durbin maybe is down a little bit. We've done a little bit more research on that and we had been kind of estimating it was going to be about a million per billion and now we're probably down to a million per billion on deposits. So it was interpreted it would be about $10 million for Durbin but now it's more in the $6 million to $7 million range so that is a true statement.

Okay great. And Johnny one for you, you mentioned early on in your comments that you're seeing a collection of small things that suggest more caution. Is that, how does that help you or how does that change how you look at operating this year versus maybe last?

It just makes me a little more cautious. That's just a businessman's gut when you'll see cumulative effect of people doing these loan transactions that these cheap rates with long term fixed rate deals that are done with little or no down. It just kind of makes you shake your head and think did they forget or did they never learn? So we just don't do those trades, cost us some business. Ours will be clean and lots of money in the deals. Just enough of it and I'm seeing enough of it and things are so good right now that it's a good time. I think it's just a good time to be careful.

That's just a businessman's gut there thinking about building our reserves and protecting ourselves for the future. As I said, there's nothing really big. It's just a cumulative effect of a bunch of silly little deals I've seen over a period of time and we hear about them.

Our Regionals will call in. Somebody in Orlando wanted the other day loan in home loans 100%. 100%, they're putting nothing in it. We start seeing that stuff. Plus what you got? You've got a lot of these guys with these blank checks that raised all this capital and they are about six or seven years old now, and the funds ready to cash out they are ready to roll. So these guys are cranking that volume, they are cranking up the volume so they can pump up the sale. And probably the most important thing that a buyer can do today is kind of wave the past loans and go in and look at what they've written over the last year, year and a half because it's a pump up to sell and lots of those specs. And if you're going to go look at something like that, probably need to totally focus on the last year, year and a half.

I mean we walk in and talk to people and they say we just hired a new loan team and we're going $300 million a quarter and I look at them and I say I wish you hadn't said that. I just really wish you hadn't said that because you don't know these people, this new loan team and that kind of stuff just makes me nervous. Kevin?

Two things we've talked about. Operators that we trust, people that are our customers, we see selling rather buying and the deals they do are harder to come by today as they were two years ago and that is a little bit scary.

That's right. We've got some great customers and friends in our portfolio and when they turn the seller here recently because of the prices he got my attention and Kevin's too. That's the kind of thing just leading us down the road.

Okay, great. Thank you very much for the color.

You bet.

Our next question comes from Joe Fenech with Hovde Group.

Afternoon guys.

Hi, Joe.

Most of my questions were answered apologize if I missed the answer to this one. Can you tack about where you think, Brian, the amortization of the IA settles out over the next few quarters? I know it bounces around but it was way down this quarter, just trying to get a sense of where you'll see that near term.

The run rate you have this quarter is the run rate we should have for the foreseeable future unless we're able to get out of loss share. And if we are able to get out of loss share it will go to zero because it will accelerate all of the amortization in one quarter and that could be $7 million accelerating in one quarter. But if the run rate you have now is good and the reason that it dropped is because we finished up the five year loss share on those IAs so the only thing we've got left is the 10 year loss share.

And I think the take away from this quarter Joe is that even though accretion dropped $2.5 million in the quarter, and we had one less day in the quarter, that we overcame that in the revenue side and I think we had $124 million in total revenue for the quarter. So that was, and that's the biggest drop that I believe we've had or we've seen that I've seen in accretion income and we overcame it and ended up performing pretty well I thought.

Okay and then Johnny, just a big picture question for you. You just mentioned a little while ago you don't see anything on the credit side of things for maybe up to 24 months. What do you see generally in the economy just kind of big picture or not seeing that sort of gives you the confidence that next cycle is that far off?

Well one thing I don't like that I do like. Two sides of the coin is I'm seeing a lot of pay-offs, businesses sell. I'm seeing trades happen in the marketplace and as Tracy comments that's real business happening out there. That's real trades and real business. So this quarter I think we're looking at a couple hundred million dollars worth of pay-offs that we anticipate. We're really, it's not refinances. It's really sales to a new buyer somewhere.

Well that's pretty healthy stuff, you know, as you know, there's no substitute for experience but I remember in '08, '09, '10, '11 there wasn't much of that going on except the guys going around and cherry picking the really sweet deals. But we're seeing a lot of activity in the business world while the buying and selling and swapping and trading so that's a good indication as far as I'm concerned.

I don't really like it from the loss of loans, we had a great loan on the books that Kevin put together back some time ago about a $45 million or $50 million pay off we got last quarter, but it was smart money that came in that did a deal, picked something up, cherry picked an asset, fixed the asset and turned around and flipped it. So that's real business and we're seeing a lot of that happening so that's what gives me the encouragement that things are pretty clear sighted out there.

Plus I don't see any cracks on the asset quality side of our Company at this point in time. I don't see any, so I'm sure at some point in time we'll have some cracks of the asset quality but as of right now it's pretty good.

Okay thanks.

Thank you.

This concludes our question and answer session. I would like to turn the conference back over to Mr. Allison for any closing remarks.

Thank you for your support. We appreciate you joining us today. We will hopefully have another good quarter to report to you next quarter. We will talk about is it 91 days next quarter so we'll get that extra day. We'll get that extra day and hopefully we'll have margin will stay flat and the revenue up.

This team is working very hard. We had our regional Presidents in today and Tracy and Steven were working with them today and talking about their areas of what they can do to improve in their areas and hopefully Donna will show us a [35] some day. If we can just keep our hands-on and our foot on the throat of the expenses I think the revenue side continue to rev up over a period of time and we may see that some day. So again thank you for the support and we'll talk to you in 91 days.

The conference has now concluded. Thank you for attending today's presentation.