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Edited Transcript of HOMB earnings conference call or presentation 18-Apr-19 6:00pm GMT

Q1 2019 Home BancShares Inc Earnings Call

CONWAY Apr 22, 2019 (Thomson StreetEvents) -- Edited Transcript of Home BancShares Inc earnings conference call or presentation Thursday, April 18, 2019 at 6:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Brian S. Davis

Home Bancshares, Inc. (Conway, AR) - CFO, Treasurer & Director

* C. Randall Sims

Home Bancshares, Inc. (Conway, AR) - President, CEO & Vice Chairman

* Christopher C. Poulton

Home Bancshares, Inc. (Conway, AR) - President of Centennial Commercial Finance Group

* Donna J. Townsell

Home Bancshares, Inc. (Conway, AR) - Senior EVP, Director of IR & Director

* Gerald Howard Lipkin

Valley National Bancorp - Chairman of the Board

* John Marshall

* John Stephen Tipton

Home Bancshares, Inc. (Conway, AR) - COO

* John W. Allison

Home Bancshares, Inc. (Conway, AR) - Co-Founder & Chairman of the Board

* Kevin D. Hester

Home Bancshares, Inc. (Conway, AR) - Chief Lending Officer

* Tracy M. French

Home Bancshares, Inc. (Conway, AR) - Executive Officer & Director

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Conference Call Participants

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* Brady Matthew Gailey

Keefe, Bruyette, & Woods, Inc., Research Division - MD

* Brett D. Rabatin

Piper Jaffray Companies, Research Division - Senior Research Analyst

* Brian Joseph Martin

FIG Partners, LLC, Research Division - VP & Research Analyst

* Jon Glenn Arfstrom

RBC Capital Markets, LLC, Research Division - Analyst

* Matthew Covington Olney

Stephens Inc., Research Division - MD

* Michael Edward Rose

Raymond James & Associates, Inc., Research Division - MD of Equity Research

* Stephen Kendall Scouten

Sandler O'Neill + Partners, L.P., Research Division - MD, Equity Research

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Presentation

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Operator [1]

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Greetings, ladies and gentlemen. Welcome to the Home BancShares, Inc. First Quarter 2019 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 the prepared remarks and then entertain questions. (Operator Instructions) The company has asked me to remind everyone to refer to their cautionary note regarding forward-looking statements. You will find this note on Page 3 of their Form 10-K filed with the SEC in February 2019. (Operator Instructions) And this conference is being recorded. (Operator Instructions) It is now my pleasure to turn the call over to Mr. Allison.

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John W. Allison, Home Bancshares, Inc. (Conway, AR) - Co-Founder & Chairman of the Board [2]

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Thank you, Gary, and welcome, everyone, to the first quarter 2019 earnings release and conference call. First, I want to thank all of you for your support. Many of you have been with us a long time. We've been through the thick and the thin and the good and the bad, the good economic times and the bad economic times and some of the craziest times. From all of us at Home, we want to say thank you very much. Well, thank you very much. And please join us at Home's 20th year celebration this year.

Things now are much clearer than they were when we reported in January of the fourth quarter 2018, which turned out to be one of the most bizarre quarters that we've experienced together since the '08 crash with Bear Stearns, Lehman Brothers and the introduction of TARP. The difference was this time, however, the result was an enormous miscalculation in the market of the economic environment that led to a December panic in the stock market. Investors lost hundreds of billions of dollars, including IRAs, 401(k)s, just regular people lost their money and wealthy people as well, all because of incorrect and unclear guidance from the Fed.

I recently was visiting with one money manager, who at the end of September, his fund was up $100 million and he was feeling pretty good at that time. He lost the entire $100 million by the end of December. I don't blame Chairman Powell for the bad call, but I blame those who were supposed to be the so-called experts that were advising him. They need to get out of their ivory tower and get in the field and live it like we bankers that run top-performing companies do that have their ears to the ground because all the money we have in the world is invested in our banks.

Many of the best banks in America at bank conferences visit with each other, and at this bank conference was what's going on, why are prices, bank prices, disconnected from fundamentals. My business is good, but the regulators think it's too good and they see huge warning signs. We all said together that we don't see it. They said it's been -- the regulators said it's been a long cycle. Liquidity is going to be a problem, and construction loans are a major problem. What are your deposit betas? Raising rates will continue and risk profiles are increasing. I guess inflation was the so-called main reason for the rate increases.

Whatever the misconception was, it certainly had a slowing effect on the economy, in addition to the cost of funds and causing a bank market -- stock market crash. In my opinion, banks overall are in the best shape they've been in, in my banking career.

Strictly, that reason is strictly because of the lessons learned in '08 and '09. Loan to values are better than ever, strong equity in every deal. When you think about the immediate change from rate hike after rate hike, a matter of fact, 4 in a row in '18, and when we're told there's more coming, to stopping rate hikes suddenly and turning around, making a 180-degree turn, that was extremely scary and with confusion. Although very welcome, thank God, they stopped or we would be in the middle of a severe crisis. All because someone was chasing a ghost. Unbelievable. How does a bank or a business manage with that kind of inconsistency and confusion? We had people stop projects or at least postpone them until the sky clears, which is somewhat disappointing, which created the growth -- somewhat disappointing growth for this quarter.

If business can build back confidence in the Fed, I think we can get back on solid business ground again very soon. I'm not involved in Fed appointments. But it's time for a businessman with real-life experience, has done something in his life to be appointed, someone with some common sense, someone who's built something, that has survived some of the toughest business times since the Great Depression.

I bet those who led Chairman Powell to the last decision will play hell getting him to make that same mistake again. We all learn from our mistakes and there is no substitute for experience. And not all the members were totally on board with the Fed decision last time, but it's probably not time to call names. It's over. Some poor people lost their money and will never recover, but most of us will live to fight another day. The S&P 500 total return was the worst since December 1931 in the middle -- or excuse me, middle or start of the Great Depression. Bank stocks were slaughtered. Why? If you think about it, credit unions pay no taxes and they've grown beyond their guidelines.

The unregulated shadow banking system, REITs, insurance companies, fund managers should thank their lenders now, Amazon, PayPal, person-to-person payments. It was already tough to be in the banking space and it's even tougher. As one former lender said to me recently, who is now with a fund, is lending money from a fund, he said, I won't go back there because this is much easier and I don't have to deal with examiners. I told examiners if they continue to push, they may be examining dinosaurs, ha-ha. Enough of this about stuff that's beyond our control, let's talk about what is within our control.

We've all focused on NIM for the entire year of 2018, more particularly in the fourth quarter of 2018 and the first quarter of 2019 because of the situations that were created. There has been some confusion over time over the Stonegate acquisition, the Shore acquisition, CCFG's extra revenue and legacy NIM. Hopefully, we'll make this presentation clear today. Brian Davis will start first with this, and he'll talk about the margin and present that for us. Following will be Chris Poulton, who will talk about CCFG, his current business outlook and margin. And then John Marshall, who runs our marine component, Shore Premier Finance, will give insight on his business. Tracy French and Stephen Tipton are on board to discuss the legacy group. And Randy Sims will wrap it all together at the end with a report on -- combined report on Home BancShares.

So before we go to the reports, let's talk about the quarter. In my opinion, the quarter was a solid and steady quarter. One thing that was a highlight was the cost of fund pressure has subsided. We had a -- continued to have escalations in January, but February and March were only up 1 basis point each, and that's positive. Margin was flat for the quarter. That's good news that we maintained our margin, and hopefully, you'll understand better how we do that. Loan outlook is a little better for this quarter than it started out last quarter. Expense control is -- it has been good. We had a couple of one-timers on both sides, income and expense.

We're seeing good increases in renewals and modifications. It averaged 26 basis points on over $170 million in March. And yields on loan continued to expand despite reduction in increase in income. Let me say that again. Yields on loans continued to expand despite reduction in increase in income. Legacy production yields exceeded legacy payoffs by 60 basis points in March. And we'll say that again. Legacy production yields exceeded payoffs by 60 basis points. That's all good news.

On the stock buyback front, last year, we bought back $104 million worth of stock in '18. And so far, we stepped it up a little bit in the first quarter and bought back $51 million worth of stock. Last year, we bought back 5,307,000 shares. In the first quarter, we bought back 2,716,000 shares. You add those together and that's almost 5% of the total outstanding stock that we bought back in this period of time.

Overall, I think it was a decent quarter. And hopefully, we'll have a good year coming on in '19. Brian, would you take and see if you can give us a good explanation of the margin?

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Brian S. Davis, Home Bancshares, Inc. (Conway, AR) - CFO, Treasurer & Director [3]

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I will. Thank you, Mr. Allison.

The first quarter was a good quarter for our net interest income and net interest margin. On a tax equivalent basis, we recorded net interest income of $140.8 million for Q1 2019 and $141.7 million for Q4 2018. Our net interest margin was 4.30% for both the fourth quarter of 2018 and the first quarter of 2019.

Before I go over our first quarter 2019 numbers, I'd like to remind everyone about a few items from last year.

Our CFG division does a great job of being opportunistic and obtaining additional interest income from payoff events. Last year, these events resulted in our net interest margin being increased by 3, 6, 12 and 0 basis points for the first, second, third and fourth quarters of 2018. The first quarter of 2019 does not include any additional interest income for payoff events from CFG.

Also, our acquisition of Shore Premier financial is dilutive to our historical NIM by 3 basis points. Accretion income for the fair value adjustments recorded in purchase accounting was $9.1 million during Q1 compared to $9.4 million during Q4 for a decrease of $300,000. A decrease in the recognized accretion income when compared to the fourth quarter of 2018 is primarily due to the normal accretion declines. Even though we had a decline in accretion income, we maintained that flat NIM from Q4 to Q1.

Another positive was the impact of the change in rates and balances on our net interest income from Q4 2018 to Q1 2019. Those highlights are as follows. First, for the change in rates, the yield on interest-earning assets increased 9 basis points. This equates to a $2.7 million increase in interest income. The rate on average interest-bearing liabilities increased 10 basis points. This equates to a $2.6 million increase in interest expense, resulting in a total change from rates, resulting in an improvement of $157,000 from Q4 2018 to Q1 2019.

Second, the change in balances. The average balance on interest-earning assets increased $212.4 million. This equates to a $2.6 million increase in interest income. The average balance on interest-bearing liabilities increased $220.2 million. This equates to a $578,000 increase in interest expense. The total change from balances resulted in an improvement of $2 million from Q4 2018 to Q1 2019.

Third because Q1 2019 only has 90 calendar days, this quarter had 2 less days versus last quarter. The loss of these 2 days equates to a lower net interest income for Q1 2019 of $3 million.

In conclusion, even though the reported decline in net interest income was $857,000, if you adjust for the $3 million related to the 2 less days, the change in both rates and balances resulted in an improvement of $2.2 million from Q4 2018 to Q1 2019 or approximately $25,000 of additional net interest income per day.

With that said, I'll turn the call back over to Mr. Allison.

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John W. Allison, Home Bancshares, Inc. (Conway, AR) - Co-Founder & Chairman of the Board [4]

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Thanks, Brian. That's a good job -- you did a good job explaining that, I think. Hopefully, everybody gets that.

Chris, tell us what's going on in New York and what you see in your footprint. I guess not only New York, everywhere, right?

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Christopher C. Poulton, Home Bancshares, Inc. (Conway, AR) - President of Centennial Commercial Finance Group [5]

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Everywhere. Yes, sir. Thank you, Johnny. Well, first, Q1 marked our fourth anniversary with Centennial Bank. And as you may or may not be aware the traditional fourth anniversary gift is fruit, so I'm looking forward to receiving my fruit basket.

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John W. Allison, Home Bancshares, Inc. (Conway, AR) - Co-Founder & Chairman of the Board [6]

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Do you have any specifics that you want in your fruit basket?

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Christopher C. Poulton, Home Bancshares, Inc. (Conway, AR) - President of Centennial Commercial Finance Group [7]

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I don't like apples.

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John W. Allison, Home Bancshares, Inc. (Conway, AR) - Co-Founder & Chairman of the Board [8]

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You don't like apples?

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Christopher C. Poulton, Home Bancshares, Inc. (Conway, AR) - President of Centennial Commercial Finance Group [9]

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I don't like apples.

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John W. Allison, Home Bancshares, Inc. (Conway, AR) - Co-Founder & Chairman of the Board [10]

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You don't want apples, not the big apples. We'll make sure, I think, if we can get a fruit basket, that there's apples.

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Christopher C. Poulton, Home Bancshares, Inc. (Conway, AR) - President of Centennial Commercial Finance Group [11]

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Yes. Exactly. On April 1, 2015, we established the Centennial Commercial Finance Group and temporary office space, with a loan portfolio of $290 million. In the short 4 years that we've been with Centennial, we have transitioned to our permanent office in New York and established 2 additional LPOs in L.A. and Dallas. Over that same period of time, we've grown assets by $1.2 billion, for an average annual growth of 50%. We have originated over 150 credits, totaling $3.5 billion. We generated $275 million in revenue and delivered over $200 million of pretax income. We've delivered cumulative net ROAs in the high 2% range and current returns of over 3%, all of this with zero delinquencies and no nonperforming loans.

Proud as we are of these accomplishments, I expect our best days remain ahead of us. After all the market turmoil at the end of the year, surprisingly, Q1 turned out to be a nice quiet quarter. Transactions were down a bit across our markets as clients caught their breath and reassessed opportunities. This contributed to a delay in closings, but by the end of the quarter, momentum appeared to pick up again. We showed a slight decline in loans of $26 million for the quarter, primarily driven by the repayment of a single large maturing loan.

Along with a quiet quarter came a relatively clean net interest margin. While our margin was down 16 basis points from Q4 to Q1, the quarter included very little accelerated yield. Historically, we've seen quarter-to-quarter margin variation of about 10 basis points or more due to the impact of various items, including accelerations related to early repayment of loans and certain minimum interest payments. Quarter in and quarter out, CCFG's portfolios have continued to deliver above-average returns with below-average risk.

I would highlight that we closed the quarter with a healthy loan pipeline. Approved, but not closed loans stood at an all-time high, and we are seeing opportunity across several sectors, including a pickup in loan facilities. Competition from nonbank lenders remains. However, it is important to note that while these funds provide competition to us, we also often partner on transactions. We've seen an uptick in these opportunities as well to work together within the capital set.

On the market side, New York remains an attractive market despite real estate value softening. The current market demonstrates the value of a selective low-leverage approach to building a portfolio. Our L.A. office has become a significant driver and continues to open up new opportunities for us, while our efforts in Dallas are starting to show up in our pipeline. Hope to share these results -- the results of these efforts with you in the upcoming quarters. Until then, Johnny, I look forward to enjoying my fruit basket.

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John W. Allison, Home Bancshares, Inc. (Conway, AR) - Co-Founder & Chairman of the Board [12]

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That's assuming that you get a fruit basket, right?

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Christopher C. Poulton, Home Bancshares, Inc. (Conway, AR) - President of Centennial Commercial Finance Group [13]

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It's the traditional gift. The nontraditional gift is appliances.

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John W. Allison, Home Bancshares, Inc. (Conway, AR) - Co-Founder & Chairman of the Board [14]

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Appliance, so a range and a refrigerator or...

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Christopher C. Poulton, Home Bancshares, Inc. (Conway, AR) - President of Centennial Commercial Finance Group [15]

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Vacuum.

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John W. Allison, Home Bancshares, Inc. (Conway, AR) - Co-Founder & Chairman of the Board [16]

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Vacuum?

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Donna J. Townsell, Home Bancshares, Inc. (Conway, AR) - Senior EVP, Director of IR & Director [17]

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We're a bank. You get a toaster.

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Christopher C. Poulton, Home Bancshares, Inc. (Conway, AR) - President of Centennial Commercial Finance Group [18]

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Or toaster. That's right.

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John W. Allison, Home Bancshares, Inc. (Conway, AR) - Co-Founder & Chairman of the Board [19]

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A toaster. I think I missed out on some gifts. So...

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Christopher C. Poulton, Home Bancshares, Inc. (Conway, AR) - President of Centennial Commercial Finance Group [20]

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Why not, let's Google that. I want to Google that and see.

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John W. Allison, Home Bancshares, Inc. (Conway, AR) - Co-Founder & Chairman of the Board [21]

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Well, I saw his message, and I Googled it and he's right.

Good job, Chris. Thanks for that. And you'll be able to, after we wrap up here, to be open for Q&A, and you'll be able to ask Chris some questions if you'd like to.

Now we have John Marshall from our marine division who runs Premier -- Shore Premier Finance. John, can you tell us what's going on with your side of the business?

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John Marshall, [22]

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Good afternoon, and thank you, Mr. Allison, for the invitation to participate in the earnings call. Overall, it was a positive quarter for Shore Premier Finance, with acceptable asset growth, improving asset quality metrics and expanding margins. Market volatility and interest rate uncertainty have impacted buyer sentiment in the marine space. The January recovery of the stock market inspired some investors to take the risk off the table and just pay cash for their boat purchase. Also, anticipation of a slowing economy and the Fed's new dovish posture towards interest rates motivated some buyers just to defer their purchases altogether. As a result, retail applications and fundings were below expectations. However, attendance at recent boat shows in Miami and Palm Beach exceeded expectations, and we're encouraged by a robust retail pipeline for the second quarter.

So let's take a look at the numbers.

In terms of soundness during the quarter, our average consumer origination FICO score increased from 770 to 775. We're only originating prime assets into the portfolio. For the existing retail portfolio, credit quality metrics meet expectations for an acceptable operating threshold. Commercial loans have been all freshly underwritten and assigned good-quality designations. Only the highest pure manufacturers and their dealer networks are being prospected.

We're a lean team, with an average efficiency ratio during the quarter close to 30%. But of course, profitability is driven by our margins. During the quarter, our retail loan average rates grew 51 basis points to 5.52%. That's a significant achievement in a soft market when all banks are clamoring for assets. It is probably not sustainable. As the yield curve flattens out, we will have to conform to market pricing. The good news is that the commercial side of our business is taking off and offers more attractive asset returns. Advances on the commercial side were priced 37 basis points higher in the first quarter of '19 than in the fourth quarter of '18, growing to 6.17%. I'm hopeful that any softening rates on the consumer side in the second quarter will be offset by commercial advances, so our blended portfolio average rates will be flat to higher.

Our combined portfolio closed the quarter at $444 million, up just $8 million in the quarter, but up $68 million since being purchased by Centennial in July of 2018. We funded $28 million of new loans in the quarter, but in addition to softer demand, we also experienced heavier payoffs of $20 million. After the strong showing at the Miami and Palm Beach shows, our momentum is building under the Centennial umbrella. March retail applications were up 36% by volume, 56% by dollar over February, now hitting roughly $30 million. Entering the spring buying season, I anticipate consumer second quarter originations of about $35 million and commercial advances of around $25 million. As we onboard more manufacturers and the dealers, we further solidify our position as their preferred financing partner, with them as a new retail referral source.

So on that note of optimism on the quarter to come, I conclude my thoughts on the quarter behind us. I thank you again, Mr. Allison, and turn it back over to you.

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John W. Allison, Home Bancshares, Inc. (Conway, AR) - Co-Founder & Chairman of the Board [23]

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Thanks. That's a good report. I went down to the Palm Beach boat show and met -- visited with John, and that was a -- had a -- he had a little reception and a very successful reception. It looked like they're on their way to another good year ahead. I think it's been a year yet since -- I mean not quite a year yet. So John, I don't know what the anniversary present is. Chris keeps us up-to-date on what the anniversary is, so you might update us of what we should at year 1.

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John Marshall, [24]

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Thank you. I look forward to that.

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John W. Allison, Home Bancshares, Inc. (Conway, AR) - Co-Founder & Chairman of the Board [25]

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Yes, and thank you. And I asked Chris last year what he'd like to have this year, and he said a bird of prey. So we've been looking for vultures and those kind of birds for some time to see if we could present him with one of those. And I think we may have been successful, Chris. We've been working something up for you.

Thanks for that, John. A good report, and you can ask him questions after we wrap up the presentation. Tracy French, let's talk about Centennial Bank.

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Tracy M. French, Home Bancshares, Inc. (Conway, AR) - Executive Officer & Director [26]

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Yes, sir. Thank you, Johnny.

I'm pleased to report another solid quarter of profitability for Centennial Bank. As you heard from others today, throughout the market chaos, Centennial Bank continues to perform with exceptional numbers. Our motto has always been stay the course. Our focus here lately has been on net interest margin. I'm proud to say that when you take out CFG and Shore, the rest of Centennial Bank's net interest margin was 4.2%. That's up from 4.8% last quarter. The other thing we stay the course on is asset quality. Our teams continued to show improved efforts in that, along with sound underwriting of the loans that we're putting on the books today. Deposit growth has been very positive over the last 6 months, and the overall return to the shareholder has been very good.

The quarter ended for Centennial Bank, we had an ROA of 2.11%. Our efficiency ratio was 36.88%. Our total revenue was $203 million. So staying the course has proven to be the right thing for Centennial Bank.

What is typically a softer quarter for production, we saw over $500 million from the Community Bank footprint, which far exceeds the production of the year ago. This speaks to the completed integration and opportunities from our southern part of Florida, along with the steadiness of North Florida, the state of Arkansas and Alabama. We continued to see strong deposit growth over the past few quarters from all of our regions as our plan, Johnny, was still asking for the business continues.

I'm going to let Stephen Tipton give a little more detail on the loans and deposits.

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John Stephen Tipton, Home Bancshares, Inc. (Conway, AR) - COO [27]

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Thanks, Tracy.

As you mentioned, the loan production in Q1 for the Community Bank group was solid. Our president continued to work to increase the yield, and we're pleased to see the Q1 production at 5.87%, with 5 of our regions in excess of 6% for the quarter, all while maintaining our strict underwriting standards.

Although overall ending balances were off slightly, we did see end-of-period growth in the Central Arkansas, Northeast Arkansas and North Florida regions.

On the deposit side, we saw another strong quarter, with total deposits increasing $168 million in Q1 and up $443 million over the past 2 quarters. The Q1 growth comes primarily from our teams in Little Rock and each of our regions in our Florida footprint. We are encouraged to see the increase in cost of funds flow here recently and believe we will see this trend continue as we operate in more of a flat interest rate environment.

In Q1, noninterest-bearing deposits increased $118 million. While the first quarter typically has some seasonality, we're excited to see the growth and feel it is a direct correlation to our business development efforts and support from our commercial bankers and treasury services team.

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

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Tracy M. French, Home Bancshares, Inc. (Conway, AR) - Executive Officer & Director [28]

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Thanks, Stephen.

Looking out over the past 12 months, we've had a reduction of accretion income, a loss of revenue from the Durbin and our expansion of our back-office functions at Centennial Bank. Net income matched the first quarter of last year. That was a lot to overcome in 1 year. I must say that I'm pleased with where we stand today and the direction our company is going. Before Johnny and Randy get a chance to identify, we did have our regional leaders in yesterday and discussed the quarter from what they're seeing in their markets. And as we do on a regular basis in this company, the bar has been reset again to get better in all areas. Everyone is focused and excited to make 2019 another excellent year for Centennial Bank.

Thank you, Johnny.

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John W. Allison, Home Bancshares, Inc. (Conway, AR) - Co-Founder & Chairman of the Board [29]

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Thank you. And the impact on Durbin this year over last year was how much in the first quarter?

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Tracy M. French, Home Bancshares, Inc. (Conway, AR) - Executive Officer & Director [30]

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It's about $3 million each quarter, so...

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John W. Allison, Home Bancshares, Inc. (Conway, AR) - Co-Founder & Chairman of the Board [31]

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$3 million.

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Tracy M. French, Home Bancshares, Inc. (Conway, AR) - Executive Officer & Director [32]

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$3 million.

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John W. Allison, Home Bancshares, Inc. (Conway, AR) - Co-Founder & Chairman of the Board [33]

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When you think about the quarter, when you think about money sucked out, $3 million is taken right out of the income side of the balance sheet and you got, as we went over TAM, you have a lot of regulatory expenses, I think the company overall has done really a good job of managing that and swallowing those expenses and still maintaining good income, good EPS. So I'm pretty pleased with that.

Randy, I'm going to let you have it and take it and kind of wrap up.

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C. Randall Sims, Home Bancshares, Inc. (Conway, AR) - President, CEO & Vice Chairman [34]

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Thank you, Johnny. And that's well said about the Durbin costs. Just totally a burden to overcome after you hit that $10 billion mark.

As you stated in the beginning, Johnny, we continue to wonder how and why bank prices are so disconnected from the fundamentals. It almost seems like perception rules over performance and consistency. I used this comparison last quarter, and I think it's worth repeating. We have been trading between $18 and $19. But the last time we saw that price was the second quarter of 2015, and our EPS that quarter was $0.25. Try comparing that to our EPS in this first quarter at $0.42. That makes no sense. No sense at all. But what does make sense is the good quarter we had.

Just to recap. We finished the quarter with total assets of $15,000,179,501. Income was at $71.4 million on revenue of $203.2 million, which resulted in an increase in our ROA to $192 million, all of which beat the fourth quarter of 2018. More importantly, we were able to maintain our net interest margin at 4.30% and achieved our expectations of $0.42 diluted earnings per share. We are very proud of those numbers given the slowdown of the economy. As you heard in the numbers, we are working very hard on both sides of the balance sheet to maintain and hopefully increase our yields.

Once again, our profitability was helped by a very strong efficiency ratio of 41.01% as we continue to control our cost. It was a very strong quarter for deposit growth, ending at just over $11 billion, with a little over $167 million in growth resulting in a loan-to-deposit ratio of 99%. More importantly, with the pressure of rate hikes off, our cost of funds only went up 1 basis point in both February and March.

Loan growth was slow, then declined, but increased slightly on an average basis, providing confidence for the second quarter. Our asset quality has and continues to be solid, indicating a very optimistic and secure outlook for 2019.

Our intention today was to break out our numbers in a more logical and intentional methodology to provide everyone with more detailed information in our Community Banking, Centennial CFG and Shore financial portfolios. You can tell from the reports we are very confident in each of these areas in our first quarter results and anticipate a very good second quarter. We just turned 20 years old as a corporation. And throughout that time, we have remained true to our goal of stable and consistent high performance. I think the first quarter numbers are a good picture of the makings of a very successful year.

And that pretty much wraps things up. I'll turn it back to our Chairman, Mr. Johnny Allison.

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John W. Allison, Home Bancshares, Inc. (Conway, AR) - Co-Founder & Chairman of the Board [35]

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Thank you. I think overall it was a really good report. I thought -- when you think about -- a lot of bank stocks were hammered and went over $10 billion. I see that now. I didn't really see it back then, but the regulatory expenses are much higher. And the -- then Durbin, the Durbin was at $3 million. If you think about it, I mentioned that earlier, but still, when you think about that, you have to overcome that. And as accretion's gone down, and we've overcome all of that. The company has overcome all of that. And I have to say good job to all. And I think we're -- anybody else have anything -- to mention, anybody got any comments? Donna, Kevin, anything you got? You're good?

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Kevin D. Hester, Home Bancshares, Inc. (Conway, AR) - Chief Lending Officer [36]

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Happy 20th.

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John W. Allison, Home Bancshares, Inc. (Conway, AR) - Co-Founder & Chairman of the Board [37]

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Happy 20th? We ought to have those kazoos here when we celebrated the 20th and a bottle of champagne or something.

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Christopher C. Poulton, Home Bancshares, Inc. (Conway, AR) - President of Centennial Commercial Finance Group [38]

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So what's the gift for 20th anniversary?

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John W. Allison, Home Bancshares, Inc. (Conway, AR) - Co-Founder & Chairman of the Board [39]

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I don't know. Can we look that up and see what the gift for 20th is? I just went to 4. Chris, I thought we'd spend all this money getting the bird of prey and he turned on us and he's wanting the fruit basket. So let's just say it's a blue diamond. Just call it a blue diamond.

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Christopher C. Poulton, Home Bancshares, Inc. (Conway, AR) - President of Centennial Commercial Finance Group [40]

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That's good. I like that.

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John W. Allison, Home Bancshares, Inc. (Conway, AR) - Co-Founder & Chairman of the Board [41]

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Did you find out?

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Gerald Howard Lipkin, Valley National Bancorp - Chairman of the Board [42]

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China or platinum. China or platinum.

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John W. Allison, Home Bancshares, Inc. (Conway, AR) - Co-Founder & Chairman of the Board [43]

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China or platinum. So I guess maybe a platinum, big platinum bar or something. All right, Gerry, thanks.

We're -- I think -- anybody else have anything else to offer? Gary, I think we're ready for Q&A.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question comes from Brady Gailey with KBW.

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Brady Matthew Gailey, Keefe, Bruyette, & Woods, Inc., Research Division - MD [2]

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Maybe we can start with loan growth. If you look -- if you take a step back and look at organic loan growth, it was about 1% in 2017, it was about 3% last year. That was kind of flat this quarter. At this point in the economic cycle, it still feels like you're feeling good about the economy. But what do you think is the appropriate way to think about loan growth for you guys going forward?

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Kevin D. Hester, Home Bancshares, Inc. (Conway, AR) - Chief Lending Officer [3]

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Hey, Brady. This is Kevin Hester. I think you heard Chris' comments about his pipeline being really strong. And I think he had a -- fourth quarter was a little slow, and then I think he talked about all of that. So you got those comments. But overall, if you're looking at our pipeline and you compare it to where we are in the past couple of quarters, this point in the same quarter, 2 quarters ago, payoffs are similar and production is up about 30% of what we're projecting to close to this quarter.

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Brady Matthew Gailey, Keefe, Bruyette, & Woods, Inc., Research Division - MD [4]

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All right. So maybe on a consolidated basis, like low- to mid-single-digit loan growth for you, guys?

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Kevin D. Hester, Home Bancshares, Inc. (Conway, AR) - Chief Lending Officer [5]

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Yes, it's early in the quarter and pipelines are what they are. But the production side is stronger today than it has been in the last couple of quarters, and payoffs look similar.

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John W. Allison, Home Bancshares, Inc. (Conway, AR) - Co-Founder & Chairman of the Board [6]

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It's like catching a greased pig. Last quarter, we had -- we looked like we're going to be down about $400 million early in the quarter is what it appeared. This quarter appears to be about flat, but it's -- you think you got a hold of that, it is -- it really moves around. But it looks better right now than it did going into the first quarter.

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Brady Matthew Gailey, Keefe, Bruyette, & Woods, Inc., Research Division - MD [7]

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All right. And then, Johnny, just some thoughts on buyback versus M&A. I mean even buying back a decent amount of the company here. On the M&A side, I know it's tougher with your currency trade and how it's trading, but do you think M&A is likely? And then everybody's talking about MOEs nowadays just given a couple of big MOEs that have been out there. Is that something that you all would ever consider, an MOE?

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John W. Allison, Home Bancshares, Inc. (Conway, AR) - Co-Founder & Chairman of the Board [8]

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Well, we have looked. You can imagine that there's people that have looked with us and brought us ideas. The problem is that they're not MOEs. Nobody runs at the performance levels that we run at. And when you look at these other banks, you think what are they doing? They're not making any money. So yes, if the right partner came long, we're open to what's in the best interest of the shareholder, period. So you know we'll do that. This hadn't -- I looked at a couple, had a couple brought to me. I just didn't -- I couldn't get excited about them. So the egos roll in once in a while, and then somebody else looks to be the boss. And if they don't perform at the level we perform at, so you just kind of move on down the road. So it's difficult, as you can imagine, for us to find a partner that runs at the performance levels that we run at. But we're open to any of that, but we will continue buying stock. We bought back $51 million worth the first quarter this year. We bought back, in the last 5 quarters, we bought back almost 5% of the company. So we think that's a good use of funds right now. We'll continue to do that, maybe not as heavy as we have been, but when an opportunity comes, we're going to buy it. When it's -- when they want to leave it on sale, we're going to continue to buy it.

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C. Randall Sims, Home Bancshares, Inc. (Conway, AR) - President, CEO & Vice Chairman [9]

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I've never seen an MOE that doesn't become an acquisition at some point.

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John W. Allison, Home Bancshares, Inc. (Conway, AR) - Co-Founder & Chairman of the Board [10]

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If you think about it, that's a good statement, Randy. If you think about it, 3 years ago, we mentioned doing an MOE and you all threw rocks at us, now everybody's all excited about MOEs. So I guess we need to see how they work out, these 2 big ones that we're doing to see how they work out. But we're open to M&A, we're open to a merger, people, we're open to whatever. So we will continue to look -- do what's in the best interest of the shareholder.

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Brady Matthew Gailey, Keefe, Bruyette, & Woods, Inc., Research Division - MD [11]

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And then I mean, Johnny, so outside of the MOE, I mean maybe back to the M&A that you all -- I think you've done, what, 40 deals over your career. So when you look at more traditional bank M&A, you guys clearly buying somebody else. I mean again, with the currency trading, how it's trading, is that still a possibility, or is that just kind of off the radar right now?

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John W. Allison, Home Bancshares, Inc. (Conway, AR) - Co-Founder & Chairman of the Board [12]

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It's never off the radar. M&A is never off the radar. Even though we just -- it's not as attractive to us as it was. It all depends on the other side. We're swapping 2 cats for 1 dog, and we're seeing how that works out for us. I mean that's really the deal. We're in the market. We're trying to figure out where something works for us and where something fits. It either fits or it doesn't fit. If it doesn't fit, we'll just keep walking. We're in it. One of the -- senator -- Republican Senator from Louisiana, say, Kennedy, he said doing nothing, and we're not doing -- I mean we're busy, but he said doing nothing is hard to do because you never know when you're done. On that note, I'll hush about that.

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Operator [13]

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The next question comes from Matt Olney with Stephens.

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Matthew Covington Olney, Stephens Inc., Research Division - MD [14]

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I want to start on the margin. It's impressive that you maintained the core margin flat this quarter. And it sounds like the core loan yields have some nice upward momentum. I'm curious what your expectations are for the core margin for the rest of 2019.

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John W. Allison, Home Bancshares, Inc. (Conway, AR) - Co-Founder & Chairman of the Board [15]

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Well, actually, I'll let Brian talk a little bit about it. Actually, I was disappointed that the margin didn't increase more. I actually thought it would increase. I mean we had 6 of our -- 5 or 6 of our regions right over 6%. So we drew a picture of a 6 and sent it out to all our regions so they could see what one looked like. And most of the regions have jumped on it if they recognized what it is. We haven't seen any 7s yet. But overall, it's been pretty good. I think if we could control -- if we're heading in the right direction on cost to funds, if we're heading in the right direction, I believe we've got a shot at picking up on the margin, increasing the margin. I thought we would have done it this quarter. But Brian, you got any comments on that?

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Brian S. Davis, Home Bancshares, Inc. (Conway, AR) - CFO, Treasurer & Director [16]

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I mean I've got the comment that it's always better to predict the margin's going down because you always seem to be wrong. And so as a tradition, I remember when we saw it, I said margin's going down and then that margin would go up. My personal opinion is that I think we can hold our margin. Chris Poulton here is with me, and they have these payoff events. We didn't have any this quarter. It's unlikely that they would have 0 every quarter for the rest of the year. And so some of those could kick in. And that's real money. It's not an accrual, it's not an accretion, it's real cash that comes in and has real impact to the margin. We've got Stephen sitting down here with me. I know he's got some statistics, and I might let him give a little color on the loan yields for production and some of the deposit pricing. I'm sure that he's got a lot of numbers down there.

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John Stephen Tipton, Home Bancshares, Inc. (Conway, AR) - COO [17]

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Sure. I sure do. Yes, you're right on, on the production. The new yields on what we're putting on the books today, they were better in Q1 than they were in Q4 and all of the quarters prior. And that's really with a little lesser contribution from CCFG, as Chris mentioned, in Q1. And I'd expect that to rebound some this quarter. So we were at 5.87% on new production for the Community Bank segment. Johnny mentioned payoffs. It went off at basically 5.25%, so we're -- I would expect to continue to see that the core loan yield go in that direction.

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John W. Allison, Home Bancshares, Inc. (Conway, AR) - Co-Founder & Chairman of the Board [18]

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Yes. The 60 -- was it 60 basis points? That's pretty strong. 62, 62 basis points up, production over payoffs, so that's pleasing. The numbers are moving in the right direction. I think I told you all back in August, we started this plan, implemented this plan. It takes a while to turn the ship, and a lot of events happened that you don't expect during the period of time. But we have been focused on it, and I think we're winning the game, Matt.

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Matthew Covington Olney, Stephens Inc., Research Division - MD [19]

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Okay. And just to clarify, Stephen, you mentioned the 5.87% and the 5.25% just a few minutes ago. Was that just in the Community Bank or is that overall kind of corporate-wide?

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John Stephen Tipton, Home Bancshares, Inc. (Conway, AR) - COO [20]

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Just in the Community Bank segment. New production for Q1 was at 5.90% and payoffs was at 5.74%. So there is still a positive spread between the 2 on what's coming on versus what paid off.

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John W. Allison, Home Bancshares, Inc. (Conway, AR) - Co-Founder & Chairman of the Board [21]

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Chris, you don't have a comment? Okay.

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Matthew Covington Olney, Stephens Inc., Research Division - MD [22]

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Well, I was going to ask Chris about, I guess, some of the newer offices that are part of CFG, the Los Angeles office and the Dallas office. Curious kind of what the update on those branches are? And are those fully built out and fully staffed? Or is there still more work to be done there?

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Christopher C. Poulton, Home Bancshares, Inc. (Conway, AR) - President of Centennial Commercial Finance Group [23]

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So the L.A. office is a little more established. We're sort of finishing building that out. We actually just took [Darren Robbins], and who had been one of our directors in New York, and we moved him out there. He's a native of Southern California, and we'd always promised him, if we get something, we'd eventually let him go out there. He's been out there a couple of months now. We're already seeing some real benefits from moving him out there and him taking some of his clients and things like that.

So we -- right now, L.A. ends up representing 15%, 20% of what we do. That's about where it should be. And so we're really happy about that. Dallas is really in its infancy. As you may recall, we always start by hiring credit people first. And so we've made 2 hires in Dallas. They're both credit folks. You can get a lot of production if you hire a salesperson first, but no credit people out there. But you end up having to hire a lot more credit people after that. So we go ahead and start with credit folks, get that put in place. We've got maybe $100 million, $150 million in our pipeline coming out of Dallas right now. We'd expect that to be able to extend as we add some staff there. But it's 1s and 2s. We'll add another 1 or 2 people in each of those, but it's not going to be significantly higher than that.

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Operator [24]

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The next question comes from Brett Rabatin with Piper Jaffray.

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Brett D. Rabatin, Piper Jaffray Companies, Research Division - Senior Research Analyst [25]

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Wanted to ask -- a lot of banks are continuing to struggle with DDA, and your ending period DDA looked pretty nice this quarter. Can you maybe just talk about the deposit trends a little more in 1Q? And what kind of affected the DDA in particular? And then any thought on funding the growth the next few quarters as well?

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John Stephen Tipton, Home Bancshares, Inc. (Conway, AR) - COO [26]

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Brett, this is Stephen. I'll take the first part of that. Yes. And I think, really, to add a little more positive on that, the noninterest-bearing balances were up $118 million, and average balances in those categories were actually down about $20 million or $25 million. So we really didn't see a whole lot of benefit on -- in spread and NIM in Q1 and would expect that to help out in Q2. When you look at the mix, really, every region in our Florida footprint showed nice increases there. Our Central Arkansas group had some good increases. There's some seasonality I guess with tax refunds typically, but I guess there's some color on those being a little bit less than what they had been in the past. I mean I think it's really just the culmination of the efforts that we've put in place over the last year, 1.5 years kind of post Stonegate with our treasury management group, our business development officer down in Florida and just general calling efforts. I think Tracy's use of the phrase that our good plans just to ask for business has been the case for the past few years, and I think you're finally seeing kind of a culmination of those efforts.

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Brett D. Rabatin, Piper Jaffray Companies, Research Division - Senior Research Analyst [27]

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Okay. And then just in terms of funding the growth going forward, are you guys doing any kind of deposit initiatives? I mean it seems like deposit funding costs are getting a little more rational for the industry as rate expectations start to go the other direction. Are you guys seeing any pricing sort of exception?

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John W. Allison, Home Bancshares, Inc. (Conway, AR) - Co-Founder & Chairman of the Board [28]

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We're not seeing any ads. Ads are gone. You don't see any ads being run anywhere. We haven't seen any recently. We have a deposit initiative program that we put in place, and it -- we were growing deposits, but the cost of funds was growing faster than we could get the yield on the loans. So we dropped that deposit program side and issued bonuses on cost of funds, and we changed that. I think it was a good move for us. I don't know if the timing just worked out, February, March, where we just had virtually no increase in cost of funds or just -- it was as a result of dropping the deposit initiative. We still have initiatives on the cost of funds. We still -- we have bonus and reward our branches for those that have the lowest cost of funds. So that was our initiative. And I didn't think it was working. It would cost us money. So I stopped. That was my fault. I did it, I put it, and I stopped it. We've moved on to cost of funds. When you look at something, you never know until you live it. And there is no substitute for experience. And I made some mistakes with that and -- but we fixed it. We moved on. And hopefully, we're in the right -- we're heading in the right direction. Actually, I like it about 100%. We've been about 100%. We've grown about 100% our entire business life. For 20 years, we've grown about 100%. So what we'll do in the future is what we did in the past. If we fund $600 million worth, we need $600 million worth of funding, we'll pull up federal home loan and -- for $600 million, and then we'll go one-off that transaction. We'll go find the $600 million. We won't panic. We won't run any ads. We'll just take our time, and that's the way we've done it for 20 years. It's worked and we think it will continue working. We had our regional president in yesterday, Mr. David Druey, who sits in Florida. He was indicating the pricing of the deposit -- I mean the deposit can be turned up a little bit and it's there. But the thing that I continue to see and we all continue to see is our customer base, whenever they bring in that loan back in for second time from our acquisitions, the deposit size are much better. So they're asking for that business and bringing it to us, and we've earned their confidence and support with our creditor services area that has been a big boost for us. We actually have customers out referring those opportunities for us. So we're taking it up on that.

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Brett D. Rabatin, Piper Jaffray Companies, Research Division - Senior Research Analyst [29]

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Okay. I appreciate the color there. And then maybe just last. So I want to make sure I'm clear on capital. And just if your stock price stays here, is your primary MO to buy back stocks, use the excess capital given your high profitability level?

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John W. Allison, Home Bancshares, Inc. (Conway, AR) - Co-Founder & Chairman of the Board [30]

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That's correct. That would be a yes.

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Operator [31]

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

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Jon Glenn Arfstrom, RBC Capital Markets, LLC, Research Division - Analyst [32]

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A couple of things here. Johnny, you were talking about loan production early on in your prepared comments, and you talked about projects stopping in the quarter because of maybe some of the economic news or the economic mood. How significant was that?

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John W. Allison, Home Bancshares, Inc. (Conway, AR) - Co-Founder & Chairman of the Board [33]

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Well, it was -- I don't think it was a major issue. I think it was just the timing issue and confusion to the market. People that were going to do a project delayed. I mean if you think about it, I think bank stocks had the second or third worst month since the Great Depression. So a lot of people were scared and didn't know what was happening and what was going on. So I mean it's reasonable for a businessman to slow down or stop or back up or, as Chris said, catch his breath in that market. So I think that the world's back. I think the Fed realizes what a mess they created. And hopefully, we won't see that kind of action again.

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Jon Glenn Arfstrom, RBC Capital Markets, LLC, Research Division - Analyst [34]

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Okay. Okay. Good. One for you, Chris, somewhat related. Would you -- you talked about the pipeline at an all-time high, and you also said maybe it was a bit of a quiet quarter as well. Would you describe your quarter as a slower-than-usual quarter, is the first part? And then are you seeing some of this pipeline pull through into Q2 and getting some of these deals booked?

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Christopher C. Poulton, Home Bancshares, Inc. (Conway, AR) - President of Centennial Commercial Finance Group [35]

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Jon, yes. That's sort of exactly what happened. We had a lower-than-normal production quarter. I think we did maybe $100 million, $150 million in production. We would generally do $800 million for the year, so that's lower than average. In particular, I sort of mentioned that we have kind of approved but not closed transactions that were sort at an all-time high for us. And that was really 2 transactions I would expect to close in the first quarter, but during the late fourth quarter, early first quarter, they did slow down a little bit because they were in the process of completing their capital stacks. And that created maybe a month or so delay. You have a 6-week delay completing your capital stack, and that sort of ends up with more than a 6-week delay in actually getting your loan done, et cetera. So we would expect, yes, maybe a little bit better pull-through in the second quarter all for those. That's certainly what we're projecting right now, and we'll see where that goes for us in terms of what else happens in terms of pay-downs, et cetera. But yes, we had less production in the first quarter than we'd expect. We would expect to have higher production in the second quarter.

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Operator [36]

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The next question comes from Michael Rose with Raymond James.

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Michael Edward Rose, Raymond James & Associates, Inc., Research Division - MD of Equity Research [37]

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Maybe just back to Chris. Can you just kind of try to size the opportunity for the Dallas and the L.A. market specifically? I know New York may be -- might be under some pressure with some people leaving the state as we look forward. But one of your competitors in the space that obviously does some of the largest projects said that they would expect that their unfunded balance and closed loans to actually decline through the year. I know you guys play in different sized sandboxes. So just trying to kind of set the opportunity, what the opportunity set is from your vantage point as we move forward.

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Christopher C. Poulton, Home Bancshares, Inc. (Conway, AR) - President of Centennial Commercial Finance Group [38]

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No worries, Michael. In general, we expect L.A. to contribute somewhere around 15% to 20% of our volume, and I'd expect Dallas at some point to contribute about 10% of our volume. So at some point, somewhere between 20% to 30% of our volume should come out of those offices. But if you assume we do $800 million to $1 billion a year, that's a couple of hundred million dollars a year coming out of both of those. I think L.A. because it covers a larger swath of territory across all the West Coast, probably is a little bit bigger opportunity from dollars perspective. Dallas is a nice fill-in for us. We're underpenetrated in that market, but that's a tough market. Dallas in particular is a tough market. I'm not sure that most of the volume out of Dallas office is going to come from Dallas proper.

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Michael Edward Rose, Raymond James & Associates, Inc., Research Division - MD of Equity Research [39]

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Understood. That's helpful. And I know it's early, so maybe switching gears a little bit. But one national bank actually gave a pretty wide range for their initial day 1 CECL expectation. Are you guys willing to put any some sort of numbers around what the day 1 impact could be?

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John W. Allison, Home Bancshares, Inc. (Conway, AR) - Co-Founder & Chairman of the Board [40]

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No, not at this point. We are planning on running parallel starting March 31. I was going to give you a couple of food for thought items that are at a pretty high level. We've been pretty acquisitive on the acquisition front, and those acquired loans are not really embedded in the ALLL calculation. 25% of the loan balance is from acquired loans. So when you look at it, those loans are being supported by credit discounts. And to give a little more color on that, we have purchase credit impaired loans that we've acquired, and those have nonamortizing credit marks associated with it. And the nonamortizing credit mark as of March 31 was $35.7 million. The way CECL works is if you have that purchase credit impaired discount that's not amortizing, it will be added to your ALLL on day 1. Now that balance will come down as we have some charge-offs against it or as we decide we don't need it. But if the impact was today and we were going to say that the CECL was effective April 1, that would automatically increase our ALLL from $106 million to $142 million. And then that would leave $2.6 million of loans out there that aren't being accounted for in the ALLL that will have to have some kind of mark against it. But we don't have a number. I joked with Stephen Tipton that if the question came on, I might just say that it's going to be somewhere down between $50 million and up $100 million. But with us having purchase accounting on so much of this, it would seem logical that we'll have something a little higher. But it may not all go through equity because we've got so much a big balance from the purchase credit impaireds.

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Michael Edward Rose, Raymond James & Associates, Inc., Research Division - MD of Equity Research [41]

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So if I understand correctly, switching from PCI to PCD, there will -- it sounds like there will be an impact. Do you have estimate for what the capital impact might be? I assume it's minimal, but...

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John W. Allison, Home Bancshares, Inc. (Conway, AR) - Co-Founder & Chairman of the Board [42]

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Well I mean I don't. I mean you -- if I knew the exact answer to that, then I'd have -- know where the ALLL was going to be at the end. We're working on it, but we're not prepared today to give a projection on where it would be because it could be vary wildly at this point in time.

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Michael Edward Rose, Raymond James & Associates, Inc., Research Division - MD of Equity Research [43]

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Okay. And then maybe just finally. There is a fair amount of exposure from both SunTrust and BB&T, particularly in Florida. How do you guys kind of size up the opportunity as we move forward? Kelly came today, was saying that they've lost very, very few people, but we're certainly hearing different stories from a lot of the banks within the region. So I would love to get your viewpoint there as to what you think the opportunity is.

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John W. Allison, Home Bancshares, Inc. (Conway, AR) - Co-Founder & Chairman of the Board [44]

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Well, we certainly think there's some opportunity there. We have had the fortune to bring across a few staff members in the southern part of Florida, David Druey and his team has down there. He's working and putting strategies together to be able to do that. I can say that some of our deposit growth has tripled over from that. What you saw of the increase that we've seen so far this year. They even I think in the loan committee yesterday even brought in entire relationship loans and deposits with the customers. So how good and how that will be, I don't know, but we're going to certainly give it our efforts to take care, and if our services are ready for it, so -- and I think our staff is ready for it. So we're excited about it.

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Michael Edward Rose, Raymond James & Associates, Inc., Research Division - MD of Equity Research [45]

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Okay. Chris, congrats on your fruit basket. 4 years, that's good. Today's my wife's 40th birthday. If I get her a fruit basket, I think she'd kill me.

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Christopher C. Poulton, Home Bancshares, Inc. (Conway, AR) - President of Centennial Commercial Finance Group [46]

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Thanks. Thanks, Michael.

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Operator [47]

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

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Stephen Kendall Scouten, Sandler O'Neill + Partners, L.P., Research Division - MD, Equity Research [48]

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Brian, if I could follow up on that CECL commentary about the PCD loans. So that -- if I'm understanding it correctly, that $35.7 million today, like you said, would go into reserves, but that will be money that would no longer flow through into accretion. Is that right? And it would flow through the loan loss reserve as opposed to through accretion?

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Brian S. Davis, Home Bancshares, Inc. (Conway, AR) - CFO, Treasurer & Director [49]

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First off, that $35.7 million is not part of the part that flows through accretion as it stands today. The only reason it would ever flow through accretion is that the quality of the loans improved and we determine that we don't need that much credit and it would transfer from a nonamortizing purchasing credit impaired mark to an amortizing. That's not part of any of our accretion. All of the other discounts that are out there that are on our loans, they stay and they continue to amortize into infinity. So CECL doesn't cancel any of the current accretion that we have going.

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Stephen Kendall Scouten, Sandler O'Neill + Partners, L.P., Research Division - MD, Equity Research [50]

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Okay. Great. Great. And then just going back to the production levels. I think I heard, Kevin, you say that originations were maybe expected to be 30% higher relative to a couple of quarters ago. And I think the number given last quarter was around $1.1 billion in originations. So can you give us an idea on where those originations were on a dollar basis maybe in 1Q and kind of what sort of numbers you think potentially could occur in the next couple of quarters?

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Kevin D. Hester, Home Bancshares, Inc. (Conway, AR) - Chief Lending Officer [51]

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Let me clarify my comment. The comment was the pipeline today compared to the pipeline at the beginning of each of the last 2 quarters is about 30%. How much will pull through and how much will add on to that, the rest of the quarter will determine what our production is. I'm just encouraged that the level of the pipeline is higher today than it has been at the beginning of the last 2 quarters.

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Stephen Kendall Scouten, Sandler O'Neill + Partners, L.P., Research Division - MD, Equity Research [52]

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Okay. Yes. No, that makes sense. And then in terms of that actual level of originations that you saw in 1Q versus what I think was that $1.1 billion in 4Q?

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John Stephen Tipton, Home Bancshares, Inc. (Conway, AR) - COO [53]

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Yes. Stephen, this is Stephen. I'll take part of that. Production in Q1 was $541 million. And you're right, it was $1.1 billion in Q4. It was $9 [billion] and change in Q3, if I recall. So I think given Kevin's optimism and Chris' kind of backlog on his pipeline, we'd expect it to trend more towards somewhere in between.

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Stephen Kendall Scouten, Sandler O'Neill + Partners, L.P., Research Division - MD, Equity Research [54]

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Okay. And have you guys given a number on what the current level of overall unfunded commitments are today?

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John Stephen Tipton, Home Bancshares, Inc. (Conway, AR) - COO [55]

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It's about $2.2 billion, Stephen. And that's -- yes, it will bounce around $100 million here and there, but it's relatively stable over the last quarter or 2.

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Stephen Kendall Scouten, Sandler O'Neill + Partners, L.P., Research Division - MD, Equity Research [56]

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Okay. Okay. And Johnny, maybe just jumping back on the M&A side of things. I mean I know your stock isn't where you'd want it to be, but that said, it's still 2.4x tangible book. It's still much more powerful than most peers, quite frankly. So I guess what would it take, whether it be in terms of the math around the deal or where your stock would need to be, where you would get maybe a little bit more aggressive as a potential buyer?

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John W. Allison, Home Bancshares, Inc. (Conway, AR) - Co-Founder & Chairman of the Board [57]

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Well, the seller expectations have to come down a bit. The problem with the private bank sector, nonpublic, is that they all sell 2x book, and that's all that's in their head, and they don't realize that their price fluctuates, and our price fluctuates. What we can pay -- there's a limit to what Home can pay. So once that becomes more realistic and they get down to a 1.50x book and we're at 2.4, 2.5, then we do a transaction. That makes some sense. So it's really -- it's not as much the price of our stocks. It's the expectations of the seller. And as you know, we have just -- we're not going to dilute our shareholder. We never have, we never will. So that is the factor that prohibits us from doing a transaction. Most transactions in the 2x book range because it dilutes our shareholders. So we're not going to do that. We're always open though, Steve. We're always open to a deal if we find the right deal. And I looked at a couple of MOEs, I mean -- I've never run the numbers on MOE. I ran the numbers and looked at them and actually learned from the process. I wasn't sure how to -- ultimately somebody's got to buy somebody, right, in that transaction? Somebody swaps going to prevail at the end of the day. And we run both ways to see if A bought B and B bought A and took a look at them to see how they look. It was an interesting exercise, but we didn't -- as I said earlier, with an MOE, this bunch has done such a good job. Not me. But this bunch has done such a good job. There's very few people that run in the league of performance that this company runs in.

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Stephen Kendall Scouten, Sandler O'Neill + Partners, L.P., Research Division - MD, Equity Research [58]

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Yes. For sure. For sure. No, that makes sense. Okay. Well, congrats on the quarter, congrats on 20 years. And I'm voting for a platinum duck call that you guys can all bring to the (inaudible).

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John W. Allison, Home Bancshares, Inc. (Conway, AR) - Co-Founder & Chairman of the Board [59]

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I'd say, well, I'll have one of those made and wear it around my neck. You come hunt with me next year.

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Stephen Kendall Scouten, Sandler O'Neill + Partners, L.P., Research Division - MD, Equity Research [60]

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There you go. Sounds good. Sounds good.

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Operator [61]

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The next question comes from Brian Martin with FIG Partners.

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Brian Joseph Martin, FIG Partners, LLC, Research Division - VP & Research Analyst [62]

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I wanted to just ask maybe for Kevin. Just going back to your comments, Kevin, about the optimism with the last 2 quarters, the pipeline being higher. I mean is there anything you can point to that is -- and maybe I missed it in your comments earlier, but about what's driving that improvement in the last couple of quarters?

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Kevin D. Hester, Home Bancshares, Inc. (Conway, AR) - Chief Lending Officer [63]

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I mean you got -- you've heard Chris's comments, so there's some there, but in -- within the footprint, we're just seeing a lot of good opportunities. The South Florida, the southeast, the South Florida group, Central Florida there, we have strong loan committees going there talking about lots of loans each week. I mean the Arkansas guys, Northeast Arkansas has got a large pipeline. So I mean it comes from several different areas and it has to, to be able to get production to a high level.

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John W. Allison, Home Bancshares, Inc. (Conway, AR) - Co-Founder & Chairman of the Board [64]

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Brian, you may have a little overlap from the fourth quarter, too. Chris' pipeline is built up, as he said, a couple of big credits he has there. They're working on the capital stack. And with the disruption that happened in December, probably threw some people off. And so you may see with the size of that backlog may be a result of the situation that happened in December in the market.

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Brian Joseph Martin, FIG Partners, LLC, Research Division - VP & Research Analyst [65]

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Got you. Okay. That's helpful. And then just your comment on the deposit I guess costs slowing, at least particularly in February, March, I mean I guess do you guys feel like you're kind of getting near an inflection point with the Fed is on hold, that the deposit costs are close to stabilizing? I guess just relative to the initiatives I guess that you may be doing. I know it doesn't sound like there's anything going on right now other than just asking for more business. But I mean how comfortable do you feel like those trends that you saw in February and March on the deposit side will stick?

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John W. Allison, Home Bancshares, Inc. (Conway, AR) - Co-Founder & Chairman of the Board [66]

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Well, actually, some of our banks have had a little reduction. Some of them have gone down. Cost of funds have gone down a tick or 2. So we're optimistic. We're extremely optimistic that this could hold for us. Everybody, you saw billboards and ads. And everywhere you went, you're seeing an ad and people running to price money up everywhere. That's just -- it's worldwide. It's just -- I mean I feel it. I feel that it's gone away. I hope I'm right.

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Brian Joseph Martin, FIG Partners, LLC, Research Division - VP & Research Analyst [67]

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Yes. And would you feel as optimistic, Johnny, that you can have at least 2 or 3 more quarters of improving loan yields? I mean it sounds like there's at least 1 or 2 out there, but just kind of conversely to the deposit side?

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John W. Allison, Home Bancshares, Inc. (Conway, AR) - Co-Founder & Chairman of the Board [68]

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I do. I do. Our people are doing really a good job. I mean we had 4 of the regions over 6% this last quarter. That's pretty good stuff. I mean let me tell you, our guys get it. They get it, they understand it, and they are trying -- they're trying to move the yields up.

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John Stephen Tipton, Home Bancshares, Inc. (Conway, AR) - COO [69]

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You see where loans are maturing and being renewed at. You see where the production is kind of relative to the core yield. And everything's north of where the core loan yield fits today. So it can't do anything but go up.

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John W. Allison, Home Bancshares, Inc. (Conway, AR) - Co-Founder & Chairman of the Board [70]

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It has been a battle. And as I said earlier, I think we're winning.

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Brian Joseph Martin, FIG Partners, LLC, Research Division - VP & Research Analyst [71]

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Yes. Okay. Well, it sounds great. And just the last one for me was just on the buyback. What -- remind me what is left on the authorization you guys have. I know it sounds like maybe you're a little less aggressive in the near term here, but what's left on the buyback? And would you expect to compete that within -- I guess have you stated kind of what your thought is on when you complete that?

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Brian S. Davis, Home Bancshares, Inc. (Conway, AR) - CFO, Treasurer & Director [72]

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I mean the total number of shares authorized by the board at March 31 was 7.2 million shares that were left, so that's a considerable amount left.

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John W. Allison, Home Bancshares, Inc. (Conway, AR) - Co-Founder & Chairman of the Board [73]

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Yes. We got a considerable amount left. If we need to raise that, I think our board is in concert with raising it, if we need to do that. So it still is the best use of funds. It is diluted, but it still, to me, is the best use of funds. I mean we bought back nearly 5% of the stock. That's a pretty good slug of stock. So we paid out $104 million in buybacks last year and paid, what, $76 million in dividends. So it was about $180 million that went for our shareholders.

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Brian Joseph Martin, FIG Partners, LLC, Research Division - VP & Research Analyst [74]

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Okay. All right. So I guess bottom line continue to keep something in our outlook but maybe just a little less aggressive than you have been.

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John W. Allison, Home Bancshares, Inc. (Conway, AR) - Co-Founder & Chairman of the Board [75]

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Depends on the price of the stock. We'll move when we need to move and when we think it's an opportunity.

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Operator [76]

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

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John W. Allison, Home Bancshares, Inc. (Conway, AR) - Co-Founder & Chairman of the Board [77]

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Thank you, Gary. Thank you for joining us again today. We'll talk to you in 90 days from now hopefully again. Hopefully, the second quarter will be as -- we'll be as happy as we were with the first quarter, maybe a little better. Maybe margins continue to stay flat or increase a little bit, yields and loans tick up a little bit. We appreciate your support, and thank you very much.

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Operator [78]

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