Home BancShares Inc (HOMB) 2018 Q2 法說會逐字稿

Greetings, ladies and gentlemen. Welcome to the Home BancShares, Inc. Second Quarter 2018 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 has also 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 February 2018. (Operator Instructions) This conference is being recorded. (Operator Instructions)

It is now my pleasure to turn the call over to Mr. Allison.

Thank you, Phil. Welcome to Home BancShares' second quarter earnings release and conference call and, I might add, the best quarter ever. Thanks for joining us today to learn more about the specifics of the second quarter results and the direction of the company for the rest of the year.

We're going to kind of change up the presentation a little bit today, so don't be surprised. With me today is Randy Sims, CEO of the holding company, Home BancShares; Tracy French, CEO of the bank; Donna Townsell, Senior Vice President, Director of Investor Relations; Stephen Tipton, the Chief Operating Officer; Brian Davis, Chief Financial Officer; Jennifer Floyd, the Chief Accounting Officer; Kevin Hester, Chief Loan Officer; Chris Poulton with -- President of CCFG; and Dave Seleski, our new Director of Centennial Bank. And they will all be available for Q&A later in the meeting.

Before I go to my remarks, I think though we should go to Randy Sims. I think he has something that he wants to say that -- I don't know if it's new or not. Randy, do you got something you want to say?

Yes, sir. It was another most profitable quarter in the history of our company. That is now 29 consecutive quarters of record income. And that's not the only record you're going to hear about today. As Johnny said, it is the best quarter in the history of our company, and I can't wait to hear all the results. Johnny?

Randy, did you determine -- did you get somebody to figure out how many years that is?

Yes. That is -- how many years is that? That's 7 years and 1 month.

1 quarter. 7 years and 1 quarter, not month.

Not month. 7 years and 1 quarter. I've consulted with the highest authority, my 7-year-old grandson.

Okay. Know that'll be correct. All right. Thanks, Randy. 29.

Number 29.

That's pretty good. I want to congratulate David Druey in his new role as Regional President of Florida. I also want to congratulate Dave Seleski as our newest board member of Centennial Bank Board of Directors, as well as a member -- he'll be joining our corporate executive loan committee. In addition to that, I'd like to invite -- I mean, excuse me, let me correct that. I'd like to welcome John Marshall from Shore Premier Finance and his team of people. Welcome to Home BancShares.

We released the numbers before the market opened, and I hope you're pleased with them because they are the best numbers in the company's history. By the way, these are real numbers, not false news.

We did accomplish many objectives that we targeted during the quarter. We asked our analysts what we needed to do to move the stock, and they [taught] us. We accomplished every target on the -- every objective target that we had. In 2016, we earned $177 million. In 2017, we earned $135 million, and that was after $60 million for hurricane reserve and deferred tax credit write-off. And we'll talk more about hurricane reserves a little later in the presentation.

We earned $150 million the first 6 months of this year. And if you would indulge me, that we probably will earn another $150 million in the second 6 months. You add those numbers together, and that's $612 million or $3.54 a share in cash earnings that we generate. The earnings included record, record, record, and the stock still trading where it was in 2016 and below where it was in 2017. During December of '16 and January of '17, Home was trading over $28. Earnings are up, and the stock is down. Somebody is wrong, either we are or the market is. And I think this quarter dispelled all the rumors and the silly, ridiculous BS that some people want to spread to hold the stock down.

I think that shorts have made their money, and the short interest is down to less than 5%, with the stock trading at 11x '19 projected earnings. That's the projected earnings that the analysts has. That's not our corporate goal. There's virtually no room left for the shorts. You can't get blood from a turnip. I've come to believe that somebody has an axe to grind is feeding incorrect information to our investors. We're working hard to show the real results and not allowing false news to control the audience.

Our plan is still Home $2. And how do we get there? With the surprising higher prices paid for the last several deals, it appears that whole bank M&A may be beyond reach for disciplined acquirers. While imaginary (inaudible) of tangible book reaching unrealistic numbers, the only way to accomplish these lofty numbers is with imaginary earnings numbers. We refuse to play that game, and our shareholders and analysts should appreciate our conservative nature.

By the way, I don't want to be the one to bore you while wasting your time trying to convince you some deal is strategic when it's nothing but a phantom deal and we'll never have the earn back. Believe me, we know what a good deal looks like. We've done 21 so far, and they've all been accretive, accretive, accretive. And we call that AAA, including the large one we've ever done, the Stonegate transaction, about $3 billion. I was told we paid too much. I was told we would never get the efficiencies to match up with ours. I was told we would stumble with the integration. I was told we would lose people. I was told we would lose customers. On the call with us today is Dave Seleski, and I'm going to let Dave Seleski report his feelings and give the state of the union at the former Stonegate, as he transitions to the Centennial board. Dave?

Thanks, Johnny. A lot of great things to report on. Really, the 2 groups got together. It was amazing through the conversion how the 2 teams really came together in terms of when we -- all -- in conversions, you have difficulties and issues. And the team at Centennial did such a great job pulling everything -- putting it together and working with the Stonegate people. I think that both sides really learned to appreciate and pull together. And a lot of that is evidenced by the fact we've had very good loan growth in Dade County, which is Miami, and also in Southwest Florida, particularly Naples and Fort Myers, as well as good deposit growth in West Palm Beach. I'm excited about my new role of being on the board of Centennial Bank, one of the best banks in the country. I -- looking forward to being on executive loan committee and continuing business development efforts, maintaining relationships to old Stonegate customers and potentially doing some more business with [Cuba] down the road.

With that, I'll turn it back to you. Thanks.

Thanks, Dave. As you heard, it's quite to the contrary. After the February conversion, we had already accomplished much more savings by far than we had forecasted. As Dave said, very quick, very smooth, which resulted in record efficiency and quickly getting there. That is the sign of a good consolidator. I read a research report recently talking about the best consolidators in the bank space. They did not list Home BancShares, Prosperity, Ozark, Renasant, Pinnacle, First Financial Bankshares or CenterState. I shared the names on the list with a big bank stock investor, and I don't think he was ever going to stop laughing. I didn't think it was quite that humorous because we didn't make the list, and I think we are one of the best consolidators in the country, and so are those others. I think it takes the false news out of the Stonegate rumors.

Why Premier? Instead of doing an overpriced merger and acquisition deal paying $300 million, $400 million, $600 million that might add $0.03 or $0.04, we decided to spend $20 million to add $0.035 to $0.04 to EPS. As the largest individual shareholder, it was a no-brainer for me. Plus, think about it, we sit in the boat capital of America: Palm Beach, Fort Lauderdale, Miami and the Florida Keys. This deal fits Home. It also provides the perfect vehicle to enter the high-end RV Prevost bus finance market. It was common sense for me. Continuing forward on Home $2, this can be a nice contributor to that.

Number one. Loan growth is your #1 problem, so say the analysts. Our lack of loan growth has not come from originations but from payoffs totally. I also told the world that the unfunded backlog was growing, indicating that the prospect for loan growth was looking up. It didn't happen the way I envisioned. I thought payoffs would slow down and originations remain steady. Then magic would happen, and bingo, there we'd have loan growth magically. That's not exactly what happened. Even though the payoffs remained high at $609 million for the quarter at a rate of 5.13%, we were able to generate $957.9 million at a rate of 5.66%. I think the back -- the breakdown here is important too. Of the $957 million, $775 million was legacy at 5.48%, or 81% of what we originated. New York was $183 million at a rate of 6.53%. Additionally, the backlog is up, with the legacy leading the way.

We also have the largest payoff we've ever had. I don't know if we've ever had an $85 million payoff. Kevin, we ever had an $85 million payoff?

If we have, not very many.

It was one of -- it was -- it came out of Little Rock. One of our directors in Little Rock has -- in the multifamily housing business and he took his multifamily company with a REIT public and paid us off, but he's back. Great operator. He'll be back and do more business. That was -- in spite of that, we still were able to grow a little bit. The backlog here can be a little misleading because you really don't know when that loan is going to fund, but it's a good indicator of things to come.

Number 2 was you'll have to sacrifice your rate in order to increase your loan volume. Another negative take out. Proof is in the numbers. We don't sacrifice rate for growth. We monitor the margin daily. Margin has increased. The new loan volume has even better rates. Remain disciplined and hold the course.

Number 3. You're forced -- you'll be forced to give up your quality underwriting standards to grow. We don't do that. Another negative bites the bus -- dust. Remain disciplined, hold the course. False news.

Number 4. Dave Seleski is leaving and taking the key people. False news. Nice try, but no cigar.

Number 5. Your New York office is total construction, total construction lending business. And in the next cycle, you'll lose lots of money. You mean the operation that made $16 million pretax pre-provision the first year and made $32 million pretax pre-provision the second year and $56 million pretax pre-provision the third year and should make around $70 million pretax pre-provision that we paid 0 for? Well, let me just get Chris Poulton on and let Chris himself, who runs our most profitable region, give you the state of the union on this dangerous and risky business. Chris, are you here?

I am. Thank you, Johnny, and good afternoon. The quarter -- Q2 reflected another nice solid quarter for us. It's been kind of nice, steady growth. As you described since we've joined, we closed the quarter at $1.65 billion. But I think this quarter's results reflect the strength of diversity of the portfolio. It draws on existing facilities, which you pointed out -- it draws on existing facilities more than outpaced loan payoff. And as a reminder, our loan portfolio consists of really 4 primary products. The first is multiasset facilities, which are about 1/4 of our total outstandings. The second is construction lending, which you mentioned, which is actually just about 35% or just under 35% of the total portfolio. The third product, which is single-asset CRE loans, those are about 20%. And then we have a small C&I portfolio at about 20% of the total portfolio. I think with these product options they allow us to adapt to the changing market dynamics. And while specific market conditions may shift from quarter-to-quarter, we do generally maintain each product category at somewhere between 15% to 35% of the total portfolio.

Hopefully, that background helps a little bit. And I'll turn it back over to you, Johnny.

You bet. Thanks, Chris. That means his construction book is about 5.5% of our entire portfolios. I agree there were lots of problems with construction in the last cycle, but the problem really wasn't exclusive to the asset class. It was the fact that nobody put any money in those deals. I mean, they were leveraged at 90%, 95%, 100%, 105%. They were construction millionaires with no equity. When the music stop, they just throw the keys to the bank. I'm confident that CCFG will have a loss someday, but they've never lost a dime yet. They didn't lose any money in '08, '09, '10, '11, '12, '13, '14, '15, '16 and so far in '18. So I call BS on that one. False news.

We're about 92%, 95% in the construction bucket today and a little over 300, 302, I think, in the CRE bucket. We have approval with the board to go much higher. The reality was at one time during the failed bank purchase times we were almost 500 in the big bucket, as we liquidated hundreds of millions of dollars of all asset classes in Florida. There is no substitute for experience. Our team cleaned up the ones we bought, but we did due diligence on another 30 banks in Florida, and we liquidated trouble assets from Key West to Jacksonville, west to Pensacola and down both coast. We have the line -- we have all the line sheets on the banks that we looked at, and the intellectual knowledge we've gleaned from that was and is still amazing. The big loss will be C&I, in my opinion. Even though the regulators disagree, they're pushing the industry into these unrealistic terms and pricing. Or we're pushing ourselves into those terms. The regulators determined we have to have them, and we're being pushed in there, and I'm concerned about that bucket, and I think that's the next blowup.

The yield curve might be signaling a recession. If that's the case, we're in one of the best positions in the country. With low leverage, conservative underwriting portfolio, I like our book of business.

Next one was, oh, "Johnny's made millions. He doesn't have the fire that he once had, and he's not as interested." Ask my people if that BS is even remotely correct. In addition -- I mean, really, ask them. In addition, ask the companies that travel -- been traveling with me all over the country who will be traveling with me in the months coming up. I'm still hitting the road -- I'm still hitting the road hard and selling success of Home. The game is winning. I don't give up. I don't quit. I call BS. False news.

You heard my comments today. It's a shame that banks are not trading on performance and rationality. But the herd, some of you, most of you, a few of you, I don't know how it is, is trading on BS, speculation and rumors. What happened to the days of confidence and trusting in each other? We are known for telling it like it is. We've always done it, and we always will. I want to go back to the days where investors would say, "I'd love to own your stock, but you're just too pricey for our fund." These days, investors will say, "Home is a value stock." And I agree. Different from a lot of people, I don't think there's a Russian hiding behind every tree.

Before we go on, I just want to touch a couple of numbers here. Earnings were up 51.7% for the year, lowest efficiency ratio ever. I don't really know what else to say except I think our stock has huge upside. We should be trading north of $30. I told you we need $1 billion in loan growth to hit $2. Well, we don't need that much now. If we pay up to $70 million worth of trust preferred and add the Shore acquisition, coupled with this quarter's loan growth, plus the opportunity to reprice $1.5 billion of loans over the next 12 months, that should move us much closer to the goal line. Hopefully, we'll see some additional loan growth coupled with some stock repurchase, and I believe we'll punch it across the goal line. So more good news coming out the Keys so far on the charges.

We charged one loan off for $500,000. We have an agri loan that has some pretty good size exposure, but so far, so good. Now we are in the slow season in the Keys. So between now and the end of the year, we'll keep monitoring that loan book. Because if there's going to be a problem, I think it will show up between now and the end of the year. We'll be proactive and charge it off. If it's coming, I think it may come by the end of the year.

Well, in summary, this is great news, not false news. After reviewing the analysts' best recommendations and a thorough review by our management team, I believe this, no doubt, is by far the best quarter ever. I believe we hit on all 10.

I'm sure we'll have some naysayers who maybe not covered the short position who'll try to have a negative statement, but the world will know that's BS. We repurchase -- on stock repurchase, we bought back 350,000 shares during the quarter. And our 10b-5, we bought another 175,000, I think. Isn't that right, Stephen? The plan is Home $2, and I think we'll get there.

Thank you for listening to me today, and we will go to Q&A.

(Operator Instructions) The first question comes from Will Curtiss with Piper Jaffray and Company.

Maybe wanted to get some color on the expense base. And if I recall, there were, I think, a couple of million dollars of remaining savings that were expected to come through this quarter, but you also had a decent increase in other expenses. So just trying to get a sense for if this is a good run rate or if there's something else that we should consider as we kind of finish out the year.

We don't -- do you think the efficiency ratio of 36% was a little high, Will? I mean...

That was really good, Johnny.

I think we -- I'll let Brian talk about. We had a little carryover from the first quarter we missed, and that's what kind of kicked the expenses up a little bit.

Yes, once we crossed the $10 billion, the FDIC assessments went up, and we didn't get our first bill until June for the first quarter. So if you look at our FDIC state assessments, you'll see that it's up $1.2 million, but really it should only have been up about $600,000. So there's really a $600,000 onetime true-up on the accrual that ran through the second quarter. So the $2.7 million that you see in expense would be about $2.1 million on a normalized quarter.

Okay. And then in terms of, I guess, thinking about the margin over the next couple of quarters. I think you obviously highlighted the new production yields that are higher, but the deposit costs are also moving higher as well. But is there anything that you guys can do to mitigate some of those pressures or possibly hold the margin where it is? I think you had mentioned maybe the trust preferreds, but just curious how you're kind of thinking about the margin.

It's Steve. I'll take that. Yes, that is -- the TruPS that are out there there's about $70 million that are floating rate that are in the mid-4s or so today. That's something that's kind of on our radar to look at taking down at some point, maybe towards the latter part of the year. Yes, I guess we're very pleased with what we saw in the quarter. I know Johnny highlighted the loan production and what we saw there. But deposit costs are going up, but the loan production and the variable rate portion of the portfolio and what we've been able to do on renewals has more than offset what we've seen on the deposit side. So I think we're extremely pleased with what we see there. The Shore portfolio, just for modeling purposes, we show that will pull us down maybe 3 or 4 basis points once that's in for a full month or a full quarter, so -- but with reset that, I think we are optimistic we can maintain there.

Okay. And then just one quick clarification. Johnny, I think you said the backlog had been going down, but it's now starting to increase. Is that right?

That's correct. It -- Chris had sent me a note a while back and said the unfunded backlog has gone down. We start paying more attention to it. And about March, it took off and went up. And then it also grew at the end of this quarter by another $150 million over what it was. So that's pretty good stuff. And we approved -- just to give you an idea what's going on with loans right now. We approved $106 million yesterday. All $106 million was in the legacy footprint, and you'll probably see -- the lion's share of that will fund this quarter. So things are okay. We look like we're going to be down. I'm not going to tell you we'll have loan growth. Because that's something we did first quarter, we'll have loan growth, and we didn't. We were down. So I didn't -- I no longer forecast loan growth, Will. So maybe if I don't forecast it, we'll have loan growth. Kevin, you've got anything on loans?

No. I think you covered it. Production yesterday was great. The production across the group is good. Pipeline is strong. It's early in the quarter, so a lot of things can still happen the rest of the quarter. So looking good.

I know it couldn't stay there forever. I mean, we're generating way too much business. Things are too good for us to not have it at some point in time. And when you look at that, I mean, of the $957 million, $775 million was in legacy at 5.48%. That bodes pretty well. It's pretty good. And Chris is -- our New York's team had $183 million at 6.53%. So that's a good indicator. If we can just hold our margin, we don't have to be cranking and trying to build our margin if we can just hold it. Running a 2.10%, 2.15% ROA is not too bad. We're generating lots of cash. We're making lots of money. With the cash, we got to decide what we're going to do with it right now. M&A don't look very good but maybe find another deal somewhere.

The next question comes from Arren Cyganovich with Citi.

If you could tackle a little bit more about the Shore Premier Finance business, some of their loan attributes, what kind of profitability you expect there. You mentioned it may have a modest NIM impact for the quarter.

Yes, sure. Welcome. Nice to have you. Welcome aboard Home BancShares' team.

This is Kevin Hester. I'll answer that one. As you know, probably about $380 million is what we brought over. It's about 1,200 loans. It's really traditional underwriting, which is kind of what I could get real comfortable with. It's getting personal financial statements, tax returns, verifying liquidity, through bank statements. It's really traditional type of underwriting as opposed to an automated-type deal, which gave me a lot of comfort. We looked at virtually half the balances, about 300 loans. Very strong FICO scores, low DTI across the book, liquid borrowers, just -- I'll give you one number here. The median reserves -- cash reserves of the borrowers post purchase is 42 months of their total P&I payments. So if they owe $10,000 a month, the P&I payments they had an average -- or median of $420,000 in verified liquidity post down payment. So strong -- we're dealing with strong borrowers here.

Okay. And then what's the typical kind of organic growth rate you'd expect within that category?

I think it's reasonable to say, first year, we could do $100 million. From there, it's going to be dependent upon how well we do the commercial side of it, which they had kind of backed off a little bit. So I think that will be the key movement from there. But I believe it's reasonable to say $100 million in the first year.

Okay. And then just lastly, the -- I think in the press release it's stated that a lot of the loans were funded toward the end of the quarter. Is that going to have any positive impact on the NIM into 3Q that might offset some of -- impact the Shore Finance?

Shore closed the last day.

Actually, Shore is going to dilute us a little bit $0.03 or so. It may -- 3%. It may...

Yes, it could, Arren. I mean, as we said, the bulk of the volume came in the last month or so, and we talked about what yields those are. But I still think our goal is to maintain.

The good news is the interest income was up for the quarter. But I've been watching the run rate since then, and it's up significantly. All of loans got booked, and Shore got booked, and the run rate is looking pretty good.

The next question comes from Brady Gailey with KBW.

Congrats on number 29 guys.

Hey, 29. It's going to be even 30. See, an even 30. That might be harder to figure out how many years.

I might start buying him a jersey every quarter.

I wanted to ask -- I know Durbin kicks in this quarter. And in the past, we've talked about -- for Home, that is roughly $7 million pretax number on an annual basis. Is that -- so call that $1.7 million to $1.8 million of pretax fees lost per quarter. Is that still the right way to think about Durbin for you guys?

You're pretty close. I mean, we're watching it happen as we speak. We've been looking at it on a daily basis. And it's real money that we're losing. I probably would up that closer to a little over $2 million a quarter, pretax.

All right. And then with Shore coming in, you saw the loan-to-deposit ratio tick up a little bit. Just wondering, in 3Q and 4Q are you going to be a little more aggressive on growing deposits to try to fund the Shore assets organically? How do you think about the slight tick-up in the loan-to-deposit ratio?

Well, Randy Sims will tell you we could -- we need to run at 110%, but the regulators don't really appreciate it.

It's just that, that. I just can't. It hurts me to see 100%.

He wants it higher.

I want that engine running.

Well, yes. This is our first full quarter of Kelly Buchanan's deposit program. We're up -- had pretty nice deposit growth. We have $2 billion worth of federal home loan availability, and we'll just -- we're not going to panic on deposits. We'll just pull that up, and then we -- this is actually the first full quarter of our deposit program. It looked pretty good. I mean, I think the noninterest deposits were up $50 million. Tracy, didn't you tell me that?

That's correct, yes.

That's good. I mean, it's beginning to take hold. The rewards for those branches that won this quarter I think Tracy and Kelly are going to go and travel and congratulate those people. So if you -- some of your branch manager on the phone and you see Kelly and Tracy show up at your doors with some balloons, you probably don't care about that. You'll take the check too Tracy?

Yes, sir. That's the main point.

So this enthusiasm has really just started. This is the first full quarter, and it looked like we had a pretty good quarter, so we'll try that. And then if you remember, there is one fairly deposit-rich franchise out there we've had our eye on around for a while, and I might go and visit them right after -- the latter part of August to see if there's anything to be done there.

The next question comes from Matt Olney with Stephens.

I want to go back to the Shore acquisition. And I guess there was -- a small part of that book was commercial in nature. Can you just talk more about your plans for the commercial side? What's the nature of those loans? And of that growth of $100 million the first year, at least your goal, will any of that be commercial? Or is that pretty much all consumer at least early on?

The commercial side is floor plans for boat dealers that -- primarily through a manufacturer's agreement where we get a buy-back agreement from the manufacturer. And so that's the plan there. And out of that first $100 million, yes, there could be some of that, but it's -- they had pretty much -- as I said, they've pretty much ramped that downward at the end of their previous relationship with the banks that we had before. So we're basically starting that back up from scratch.

Okay. That's helpful. And then on the purchase accounting accretion, maybe question more for Brian. We've been hanging around this $10 million level now for the last few quarters. What's your outlook on this number the next few quarters?

It should be fairly close to the $10.6 million. One thing that did happen this quarter is that the payoff accretion was up from the first quarter. It was up about $1.3 million. But on the other hand, we're going to add Shore to the accretion bucket, and it should add about $900,000 per quarter. So I look for next quarter to be over $10 million. It might start slipping down in Q4 and Q1 without any other acquisitions. We still have $112 million of accretable income to take in over the life of the loans.

Got it. And then lastly, I guess for Brian again probably, on the fee income side, on the other fee income. Anything unusual or that you would call out that may not be sustainable going forward?

Just the Durbin, which is in the other service charges and fees. On the dividends, we had an equity investment that we've had for some time. And it did not pay us a dividend in Q1, and -- but they caught it up in Q2. So there's an extra $300,000 that was in the dividends from -- it's in the line item dividends, FHLB, Bankers' Bank and other. It's part of that other there. So that's probably the only thing that might be a negative for next quarter would be. We wouldn't have 2 dividends from that equity investment.

The next question comes from John Arfstrom with RBC Capital Markets.

I like the new conference call format, the John Allison manifesto, something like that.

I like it. That one -- it wasn't paid for -- this one wasn't paid for by the Democrats. I got aggravated -- I thought, well, our stock's not moving, why? Who can do better than Home is doing? So I thought, well, I'll move the -- I'll try something different.

Moved up a little bit. That's good. But the late quarter loan growth, I think, Randy, you talked about how you had some nice approvals coming through. What -- can you attribute that to anything? Has anything changed? Or why do you think that happened?

This is Tracy. Just to add a little color for what Kevin and Johnny have pitched in to that. It comes back to the Stonegate acquisition and settling in. I mean, Johnny and I have got off -- had a couple of quick trips that Dave had arranged with J.C., one of our market presidents in the southern part of Florida. And we're getting some more opportunities that we're seeing come through. So it's more of a timing issue with the Stonegate acquisition and meshing together, as Seleski said in his earlier comments. And we also see that over in the Sarasota side. Tyrone and Dennis are over on the Sarasota side that Bud is working with there. And we're beginning to get to know the customers and the comfortness of that and the credit underwriting and the things that we're doing. So it's just a little time it took a little bit to see some of the legacy wing of our company do well. So I think that's really what I see. I mean, the other regions across our company have always done extremely well, and they're continuing to go. The loan growth, I think, we had 8 out of the 12 -- no, excuse me, 8 out of 11 regions grow this past month. And I'm speaking on a month, not a quarter. So I think it's just really some of the timing issues just finally happening. And then the same thing on the deposit side, as we've been able to not only meet some great loan opportunities, these also have deposit opportunities. Our management and team on the treasury services and the cash management is working well with the units in all those regions down there today. And the customer base is getting comfortable with the way we do and realizing that we're here to take care of a customer. Now we're getting customers referring us to new potential customers from other banks. And I think we're hopefully going to continue to see the fruits of all that labor.

Okay. That's good, good to hear. And then on the payoffs. I know it's hard to predict this, but do you think believe that payoffs could eventually slow? It's was a big number this quarter.

What, the payoffs?

Yes.

If this continues on, I think if the REITs don't buy our entire portfolio, I think the REITs are going to buy a chunk of it. They just keep -- I guess, they're running around with all this -- with their pockets full of money and trying to find assets to purchase, and they're paying some tremendous prices. Our guest house in Key West, Florida, great operator, she had 221 guest rooms. Somebody's just walked in and paid her $110 million for it. That's $500,000 a key, and they -- that's stretching it. That's just too far, in our opinion. We had an opportunity to go back in that credit, Jon. We passed. We said, "No, we don't want it." I mean, the truth is there could never be another hurricane, and you have to have escalating revenue about 5% or 10% a year. There can't even be a wreck on the highway going in there or you'll not be able to make your payment. So, I mean, these deals are just stretching. I tell that -- I say that and the Casa Marina in Key West has been open 3 years now. We've -- they went from a hundred-and-something thousand dollars a key to a $1 million a key, and we didn't play at $1 million a key. We passed. That's been 3 years ago. It's still open -- it's still operating. So a REIT bought that. I don't know the payoffs. It's just probably good business actually. '08 and '09, nobody could pay off. They couldn't do anything, but the book is so -- there is so much equity. Just like this lady in Key West, she owed us $27 million. She sold it for $110 million. Wow, good for her. She'll do something else. She'll do something. This $85 million payoff this quarter was one of our directors in Little Rock who has a great multifamily housing business, good operator. Knows what he's doing, and he took his REIT public. And when he did that, he paid us off, but he's going to build his company. I mean, he's a building kind of guy. So he'll be back. I think, we're back with $30 million, $40 million right now with him, so -- but the payoff is just that you can't really predict. I knew that $85 million would come sometime. I didn't know when it would come. But once he got his everything, his I's dotted and his T's crossed, he got his company when they took it public. That just kind of the way it is. Now in New York, we have a lot of facilities lines. Even though everybody says it's all construction in New York, it's not, as you heard from Chris, but has a lot of line. Somebody may have $100 million line, and they may pull it up to the max and then pay it off 2 weeks from now, so -- but you can look -- you look at the average loans for the quarter and see that the loans really didn't get booked till the end. So the run rate is pretty sweet right now. If we can just keep building on this loan right now -- we're actually generating so much capital we going to have to figure out what to do with it pretty quick. So I think, probably good use is those trust preferreds.

Okay. Okay. I appreciate that. And then one last one, maybe for you, Brian. Just how extensive is the loan repricing on the $1.2 billion? I mean, how -- talk about the magnitude of that.

Jon, this is Stephen. How are you? Good. The $1.5 billion that we have maturing over the next 12 months or so is coming off in the 515 range. So it's about the same rate that we saw payoff in this last quarter. And when you hear us talk about where our legacy loan yields are and we're working with the teams in the regions now to focus on that and get even better, so we should see some nice improvement in that over the course of the next 12 months.

The next question comes from Michael Rose with Raymond James.

So Arfstrom wanted me to tell you that it's fake news, not false news. But anyway, just wanted to...

You tell Arfstrom, it's my job (inaudible).

Just wanted to talk about the competitive dynamics and Chris' group. You guys mentioned that, obviously, there's a lot of private equity money, REIT money sloshing around. And you have this -- whether it's a target or aspirational goal to get the -- to get his group up to about 15% of assets. Is that a goal? Is that a target? And maybe over what time frame do you think you can get there?

I'll let Chris answer that.

Michael, it's Chris. Yes, as it relates to is it a goal or a target, I view it more as a limit probably. But we're happy where we're at. The universe expands and we grow, so I expect we'll continue to do so. I don't think there's any particular timescale attached to that. We like what we're seeing in the market right now. I like where the pipeline is at. Growth for us is going to look a lot like what pays back, what doesn't and what time period it does. It's always tough to say quarter-to-quarter. I think year-over-year on a rolling 12-month period of time I think we've seen the -- the book grows pretty well somewhere -- eventually, it'll settle into sort of that somewhere between 8% and 15% growth rate, I think. But I would say we'll continue to grow a little bit here. We may have a quarter or 2 where it flattens out, but that doesn't really mean much to us. And we like the deals that are coming in. Competitively, we certainly see a lot of competition out there, but don't forget the private equity money that's out there that's investing it's actually our customer, so.

Those are good points, Chris. Yes, maybe just one on the pace of share repurchases. Obviously, in your manifesto, Johnny, you mentioned the price of the stock. Could you look to get a little bit more aggressive here?

Well, I actually had backed up on repurchases, and the stock went back on sale, and I couldn't stand it, so we went -- we start buying it again. So we bought -- get those numbers...

We bought about 825,000 shares year-to-date.

Yes, we could. Yes, I actually was going to get out of the market a little bit and let the -- I wondered if we were putting some upward pressure on the stock, just get out. And the world wanted to sell at $21, then we can go buy a block, we buy 5 million shares. So -- but it got pretty cheap. Then we filed our 10b-5 for the quarter, and we were able to pick up 175,000 in the 10b-5. I don't like being -- it seem like the market kind of beats us up around earnings time. And in the past, we couldn't play because we didn't have the 10b-5 filed. So we filed it, and we've been able to acquire good blocks of stock at a really good price. So the answer to your question is probably. We're going to be sitting on so much cash. I think we want to pay off the trust preferred first. I think we get that towards the end of the year. Hopefully, we'll have enough cash generated. I think Stephen said we'd have over $100 million.

We should, yes. $110 million, $110 million.

Somewhere in that range by the end of the year. Is that right? You're shaking your head. So we've -- our shareholders probably deserve a little kick too. They've been awfully good to us. So a little increase for the shareholders wouldn't hurt on the dividend side. We didn't -- we haven't done that yet because got a Board meeting tomorrow, and maybe they'll discuss it. But we -- I want to get back even with the plate. We had $32 million deferred tax credit that we took at the end of last year. Is that right, Brian, it was $32 million?

$36 million.

$36 million. So I want to get back. I want to get that earnings back. Felt like we were back to square before we went out to do something else. But when you're running at a run rate north of $300 million for the year, we're generating lots of money right now.

Understood. Maybe one last one for me. You guys took a big provision for the storms a couple of quarters ago. Sorry if I missed it, but any plans to release any of that anytime soon? Or the expectation is just to kind of grow into it?

Well, we have $140 million on deferment in the Keys. We now have $144 million deferred in the Keys. We've charged off one property of $500,000 thus far. We have an agri loan that we're watching. Seems to be okay, but it could have up to a $6 million exposure. We're in the slow season now. So I think if we got any problems that are going to pop up, I think we'll see them between now and the end of the year. This is the time that we used to see some of those people struggling in the Keys. So with the hurricane on top of that, let's see what happens over a period of time. I'm the kind of guy -- you know me, I like a 1% of better reserve. So I'm not ready to roll it. It doesn't have to me. It's in our -- I mean, we have to justify the reserve. But to me, it's in -- it's our money, it's shareholder money, just happened to be in another account. But if we need to bring it back in, we will. If we don't, we won't.

The next question comes from Stephen Scouten with Sandler O'Neill + Partners.

So if I'm hearing you correctly, Johnny, it seems like you think the stock is a little cheap. It seems to be the message I'm hearing. Would...

You got it. It worked. My stock theory worked.

Yes. I guess, is some of that driven by -- I mean, obviously, consensus numbers are like $1.90 for '19. You seem to sound pretty confident around $2. Is that $2 you truly believe that's going to be a 2019 number and that estimates are a little low on you still and that you'll have that kind of 13%, 14% earnings growth in 2019?

I don't know if we'll be $2 in 2019, but I certainly expect one quarter, I think, for the run rate to start hitting around $0.50 during the year, somewhere during that year. We got $1.5 billion -- Stephen, we got $1.5 billion to reprice over the next 12 months or so. That's good. Loan growth -- backlog is building on loan growth. We're holding our margin. Run rate -- the run rate looks really good to me right now. Once these loans all got booked -- they got booked late in the quarter. That looks good. Expenses are under control. I think we're teed up. I mean, it really fall -- it's the cost of fund, Stephen. It's really is -- it really cost of the deposits, what happens on the cost of deposits over the next period of time and what we do to manage those deposits. We can buy Fed funds to fund these, but that's at 2%. We need something less than that. So I think our cost of funds at the end of June were...

We were up 11 basis points on total deposit costs for the quarter.

We're up 11 basis points, and loans were up 12, right?

That's right, yes.

So that's okay. If we can hold that -- I mean, the only thing that will dilute us a little bit is our new boat finance platform it -- they think we can run about 1.80%, 1.85% ROA out of that. So that'll dilute our ROA a little bit, and -- but that's a -- it's a pretty sweet little business for us, and I think we can grow it over a period of time.

Yes. No, that's fair. And the efficiency ratio, as you noted, I mean, it's pretty good, I guess. You run a pretty clean bank.

Really? Somebody was fussing at me a while ago...

Yes. But I am curious, how much of the cost saves from Stonegate might still be left in there to come out? Could we see some improvement even beyond what's already a pretty impressive number? Is there still a room based on those remaining cost saves?

I don't think so. I mean, we've gotten about 50%. We modeled that at 33%. We normally hit 50% on everything. We're about 50% on this one, maybe a little right -- maybe a little above 50%. So we've done really about all we could do there. I thought the -- I was looking for the expenses [you'll have] quarter 2, and I went back for one-timers, and we had that FDIC deal we missed the first quarter. I guess that was the biggest item in the one-timers for the quarter. So I think we've been at $63 million for the last 3 quarters, so I'd have to say it's pretty effective. If we can stack on another $600 million, $700 million worth of loans in here, that'll be pretty good.

Yes, for sure, for sure. Okay. And maybe last one for me, just on capital bill, and you mentioned the TruPS. Are there any other items -- I mean, would you think about -- without DFAST now and presumably that will give you some relief on what capital you have to hold. I mean, do you think any about the sub-debt that you raised? I mean, with the rate you're paying on that, is there any thought to paying down some of that in addition to the TruPS or...

Absolutely. Matter of fact, we evaluated -- Jennifer Floyd ran the numbers for me on the -- if we just put it in period investments at an assumed rate, if we bought back the TruPS, if we bought back stock or if we bought back some of the subordinated debt. So actually, the most accretive to us is buying back the stock, but the capital treatment gets -- on the trust preferred gets -- we get treated differently over $15 billion with an acquisition. So we think it makes more sense to knock that out. Now that's about $0.02, a little over $0.02. It's about a $0.01 a 1 million shares to EPS if we buy back stock. It's about $0.02 on buying back subordinated debt. So I mean, the boat platform as it is today is going to add about $0.04, and then the TruPS will add about $0.02. As you can see, I'm counting pennies to get to my $2, and -- I am. Well, I truly am. I'm -- someone said we weren't going to get there, and I said, "Well, we damn sure are. Believe me." We're going to get there. It's my mission for the next period of time to get there, in a conservative manner though. We're not going to do anything crazy to get there. But you're right. We look at all those -- we can pull those handles, and we probably will pull some of all of them.

And is that the biggest benefit kind of tangibly from the changes in the regulatory environment right now? Is it just that you probably have a little more leeway around how you manage that excess capital and what you do with it and thinking about all these different possibilities? Is that the easiest tangible benefit? Or are there other things we're not thinking about?

Well, we're generating a lots of capital, I mean, on a monthly basis. Someone said something to Brian Davis one day about what he's going to do on capital, and he said, "Different than most people, we run about a 2% ROA. We make a lot of money." You got any comment on capital deal? Or Jennifer you want to make a comment?

We do a capital -- and the comment was we do a capital raise every quarter. We do a capital raise with the retain earnings.

We're -- I mean, we're at $76 million. That's a run rate of 304. I think you can -- and the loans weren't booked until late in the quarter, and you didn't really get in the benefit of our boat portfolio. So I think you'll see us come out -- I think things are going to get a little stronger for us here if the run rate holds where it is. The key is, as I said earlier, is the cost of funds. We got to manage that.

Yes. Okay, that's really helpful.

You bet. Now look, if we stay at 25, I'll -- we'll get you down for a ball game.

The next question comes from Brian Martin.

Nice quarter, guys. Just a couple of follow-ups or just a couple of things that maybe -- the deposit strength in the quarter, Johnny, I guess you talked about this new initiative. I mean, I guess, is that the biggest driver of this? And I guess, do you feel like some of this is sustainable as you go forward based on what you've -- kind of the initiatives you put in place with that? I mean, maybe not the same level but just kind of prospectively looking at deposit growth?

You know what? We've never this -- I'm plowing new ground. We've never gone upward on deposits ever. So I really don't have an answer. I'm pleased with what I'm seeing there, but I really don't have an answer to that. This is the first -- I would expect it to get better. That's just how I look at things as a business person I would expect it to get better. And will it or not? I don't know whether it will or not, but if we can grow deposits $600 million or $700 million or $1 million a year, there's nothing wrong with that. We fund -- that's about what we need in loan growth to do what we need to do, so I'd be a pretty happy camper there.

All right. Okay. All right, and just going back to your -- the Home $2 target, Johnny. I guess, it seem like initially it was kind of talking about the $1 billion in loan growth. You kind of threw a couple of other wrinkles in there this quarter with, I guess, the -- I guess, potentially the TruPS and the -- obviously, the acquisition this quarter. I guess, the -- is there anything else, I guess, if we're thinking about just how to kind of sketch out how you get there, it's the acquisition. I guess, it's potentially doing something on the TruPS. It's the -- I think you said it was at $1.5 in loan repricing. Is there anything else I'm missing as you kind of think about that?

No, I think you're right on. We have our Home $2 meeting in Miami at the end of this month, and all the participants will be at the meeting, and it'd be laid out. This whole program will be laid out. The charge will be given to them. We have a 2-day meeting down there. I think it will be fun for everybody. We'll be talking about margins. We'll be talking about loans. We'll be talking about rates. We'll be talking about all the factors that impact that, and then we're going to show them the pathway to $2. So I'm digging and looking for the right thing to do there. We just -- once we came up on the TruPS and we've realized that treatment -- capital treatment that's -- look, what that saves us. So I mean, we could spend -- we can buy 1 million shares back, and I think it's $0.01. Isn't that what that is? It's $0.01 a share. That's the most -- that one -- we could pull that trigger, and I will if I have to. We're going to $2. So I mean, we got -- we're generating lots of capital. And I'm sitting on -- we're kind of sitting on that money right now to decide where we want to spend it and where is the best way to spend it. So probably the TruPS at the end of the year, and then will, hopefully, generate it again. That's the reason -- one reason I hadn't increased the dividend to our shareholders yet is because I want to hit all of those buttons out there to try to get us -- to drive us towards $2. My point is that we'll buy back stock, and we bought the boat portfolio platform, and that adds $0.04. And here's what the company is doing to help you get there. I need you to get me $600 million worth of loans or $700 million worth of loans at this -- at these prices. Here's what we're doing to help you get there. The sooner we get there, the sooner you all get to your payday. I believe that -- I believe we'll get it done. They've never let me down before. But I'm just -- I'm pennying it to get there. I'm -- a $0.01 here and $0.02 there. I mean, some people got up to the $1.80 this year. And now I've got us in my mind at about $1.88, $1.89, without any new loan growth. So if the company does a good enough job to get us a $0.10, I expect our people to get us the next cent.

Right. Okay. So the loan growth is still in that $0.5 billion range if you take out the boat portfolio and then, I guess, the growth going forward. Is that kind of what you're thinking about?

About $0.5 billion. That's correct.

Yes, okay. All right. And just the last 2 things. The -- on the M&A side, it feels unlikely at this point given kind of -- as long as the stock stays on sale, it just seems like it's less interesting. Is that seems consistent? Or is that still accurate?

Yes, that's -- when we're 3.5x tangible or 4x tangible, it made a lot more sense to us. I mean, we're looking at some stuff -- once they jump to 2x tangible book, it kind of took us out of the game. And they all think they're worth 2x tangible book. However, we got a one -- some of that is coming back to reality. So one just traded recently about $1.70, and another one is out there at about $1.70. So those are coming back a little bit in the right way.

And would we play there? It probably makes sense if we're in the $1.60, $1.70 range and we're at 3 and change, that probably makes sense.

Okay, perfect. And then and maybe last one for Stephen, and maybe I just misunderstood or didn't hear it properly. But the impact of the boat portfolio seemed like it was at $0.03 or 3 basis points. I think it was 3 basis points to the margin, is that what you're suggesting?

Yes, 3 to 4 basis points.

Okay. And then your hope would be with that factored in, in third quarter that the other items you've mentioned as far as repricing on the loan side and the rates going up should give you -- hopefully, gets you enough to offset that or at least that's how you're kind of thinking about it preliminarily?

Potentially. That could be our goal.

That would be our goal. We just need to maintain. I mean, I don't know how many companies you've covered that run at 2.10% or 2.12%, 2.13% ROA, but the -- we just need to maintain. The efficiency was at 36. Had we have gotten that revenue in earlier in the quarter you'd probably seen that -- might have seen a 5 out there, you might have seen a 35. So we get yields -- it'll be fun to it watch next quarter to see what it does with the new ramp-up in the revenue side.

Okay, understood. And maybe just big picture, Johnny, I guess, the originations this quarter were so strong. I mean, is there any commentary you can just give on whether -- kind of the granularity, the geographic kind of breakdown of it? Or just kind of what bucket it falls in? Just a little bit of color on that would be helpful.

Actually, it was Arkansas was -- Arkansas led this time. Arkansas was pretty strong this time. It took a while with the stone -- we had to get comfortable. We had to get settled in. The Stonegate people had to get settled in with us. We had to get settled in with them. I think we're past all that today, and they're back to work. I mean they're -- matter of fact, we had an executive loan committee 2 or 3 weeks ago with every loan was -- came out of the Stonegate footprint. So that deal is working. That deal is coming. So -- but they're working everywhere. We approved $106 million yesterday. And of that, about $65 million of it will fund for sure this quarter, and maybe it has 80% of that. So it's just customers we do business with, and he had paid us off on some stuff. And then he got on a $60 million deal, and he brought it back to us. That's just how it works. I mean, we had a $95 million payoff with our good director at Little Rock, and then he's back on another multifamily deal, and he needs $30 million, $40 million. So that's just how it works. It's real commerce, real business going on. Chris, you got ...

I was just going to say exactly what you said, Johnny. The bulk of that growth it came from the Arkansas channel, and that was our team just taking care of the customer. It was one of those surprise payoffs a couple of months ago, which takes -- most [guys] credits it takes a little while to underwriting and make sure if it's done correct. It's really just the hustle of business, in this case our North Arkansas group that have been following back up over their customers that paid us off in prior quarters.

Yes, it was a -- you probably remember me talking about a hangar loan. We picked up hangar loan in Oklahoma City, $40 million hangar loan. Well, he paid it down to about $36 million, $37 million. Somebody offered him $47 million, and he sold it. But that hurt, right? Because it comes off the book. When he gave us a $36 million multifamily deal -- and he's got $112 million deal going out there right now he said I'm going to bring to you all. So it's just a relationship with those customers. And I don't know if you were on the phone when Tracy talked about our trip with Dave down to Florida, J.C. and those people are going over to Sarasota and visit with Dennis and that bunch. But it just turned -- I'm not sure that we didn't turn over $150 million worth of loans that potentially could be coming down. I know part of it -- Dennis has got a term sheet out to them. I think it's ready to go to them now own some opportunities. I think there's -- I think before I retire I'm going to become a loan officer and travel the country and book loans.

Well, that would be okay, Brian. His detail on the underwritings is a little more challenging. He understands a good loan and not a good loan. The underwriting, these things takes a lot of work.

Okay. 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, everyone. It's been a fun day. I think everybody got a good, clear picture. Our group is happy here. Things at Home are good. And as I said, the run rate is picking up. Things look pretty good for Home, and we're driving towards our goal of Home $2. And once we get back from Florida, I can give you more information when I see you. But I think that'll be a good trip with our people and getting everybody acquainted on the new plan and the direction we're heading. So anybody got anything else to say?

Good job by the group.

Good job by everybody. Ms. IR do you have anything, Ms. New IR, do you have anything.

No, I don't.

Ms. SR, are you still in kind of transitioning now? Do you have anything? Okay. Well, we'll talk to you in 90 days. Thank you for coming. Oh, Randy Sims, I'm sorry.

It was 29 consecutive quarters. That means it'd be 30 next quarter if we do it. Just thought that we'd end on that.

Everybody have a good day. Bye.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.