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Edited Transcript of HOMB earnings conference call or presentation 18-Jan-18 7:00pm GMT

Thomson Reuters StreetEvents

Q4 2017 Home BancShares Inc Earnings Call

CONWAY Jan 19, 2018 (Thomson StreetEvents) -- Edited Transcript of Home BancShares Inc earnings conference call or presentation Thursday, January 18, 2018 at 7:00:00pm 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 and Director

* C. Randall Sims

Home Bancshares, Inc. (Conway, AR) - CEO, President, Director and Director of Centennial Bank

* Christopher Poulton

* David Seleski

* Donna J. Townsell

Home Bancshares, Inc. (Conway, AR) - Senior EVP of Corporate Efficiencies

* Jennifer C. Floyd

Home Bancshares, Inc. (Conway, AR) - CAO, IR Officer and CAO of Centennial Bank

* John Stephen Tipton

Home Bancshares, Inc. (Conway, AR) - COO and COO of Centennial Bank

* John W. Allison

Home Bancshares, Inc. (Conway, AR) - Founder & Chairman

* Kevin D. Hester

Home Bancshares, Inc. (Conway, AR) - Chief Lending Officer, Chief Lending Officer of Centennial Bank and Director of Centennial Bank

* Tracy M. French

Home Bancshares, Inc. (Conway, AR) - Director, CEO of Centennial Bank, President of Centennial Bank and Director of Centennial Bank

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Conference Call Participants

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* Brady Matthew Gailey

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

* 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, Equity Research

* Stephen Kendall Scouten

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

* William Davis Curtiss

Piper Jaffray Companies, Research Division - VP & Senior Research Analyst

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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. Fourth Quarter 2017 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 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) And this conference is being recorded. (Operator Instructions)

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

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

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Thank you, Andrea, and hello, everyone. Good afternoon, and welcome to Centennial Bank and Home BancShares' 2017 fourth quarter, year-end earnings release and conference call. Randy, we have a large group joining us today. Tracy French -- most of them are the usual suspects. So it's Tracy French; Stephen Tipton; Kevin Hester; Jennifer Ford -- excuse me, Jennifer Floyd; Brian Davis; and Dave Seleski and Chris Poulton, will be joining us today. Welcome, everyone.

Well, another one in the rearview mirror. 2017 is gone, and what a year. The year yielded both good and bad. And, Randy, I'm glad to say it's over and a new one is starting.

Let's cover a few significant events for 2017 because it was a really, really busy, busy year. Landmark; Bank of Commerce; $800 million Stonegate deal; crossing $10 billion; $300 million sub debt issue; TCJA, the tax cut -- that's not John Allison, that's Tax Cut Jobs Act; Hurricane Irma; Donald Trump; first $60 million quarter ever; first $200 million year; rate hikes; payoff; $2.4 billion in total loan originations; elevation of the fintech opportunities and creation of a new deposit czar, Kelly Buchanan; and development of our first virtual branches, all of this while trying to separate real news from fake news, in addition to looking for a Russian behind every tree.

Whether you like Donald Trump or not, this man has single-handedly turned the country around by creating optimism and hope for the future. He has also created a lot of controversy, but the man is doing what he said he'd do. The burden of unnecessary rules and regulations have had business in the straitjacket for years. I'm told help is on the way. Trump has put the right people in the right places. And we just need to drain the swamp over the next 7 years.

The regulators mean well, but sometimes they fire the arrow in the wrong direction. The expectations for a company over $10 billion is pretty amazing. The problem in the last cycle was, there was no skin in the game. Those that had equity in those deals worked hard to save their companies, and those that didn't just threw you the keys. I have a fear because the capital requirements that the regulators are forcing banks into more risky C&I loans and long-term, fixed-rate, owner-occupied loans. And out of construction and development loans that certainly have the risk, but properly documented with large equities can be far safe -- be a far safer place to loan money.

Our team, while navigating the hurdles, maintain strong core efficiency ratio for the fourth quarter of 37.35%, and that's before the conversion of our largest acquisition ever. Major savings should be combined in branch closings as well as conversion. Much more to come during the quarter, stay tuned. This improvement, coupled with the tax cuts and, hopefully, decent loan growth, make '18 look like a power year for Home. The tax saves alone are over $53 million. I'm looking for ROAs in the 2.15% -- now Tracy kind of rolled his eyes, 2.10% to 2.25% range. How's that, Tracy? Is that better?

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Tracy M. French, Home Bancshares, Inc. (Conway, AR) - Director, CEO of Centennial Bank, President of Centennial Bank and Director of Centennial Bank [3]

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Sure.

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

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The rewards are greater for those companies that are top-performing companies than they are for the also-ran companies. Already running at 30% -- 37% efficiency ratio and return on assets of 1.69% before the conversion, wow, I think that's great numbers.

I want to congratulate Kelly Buchanan as our new deposit czar. She's just had her first group meeting in Conway with 18 of our brightest people from all over the footprint. They spent 2 days working on their new -- or excuse me, 2 days creating our first deposit incentive program for the branch system. Kudos to a great bunch of [advisers]. They really impressed me. Good job, Kelly and group.

I'm announcing the company's new EPS goal today of Home $2 after looking at what I believe to be a reasonable goal for the company and the participants. I think $2 is reasonable. Remember, this is a stretch goal, it's not a gimme, but it is certainly a reasonable goal. Some expense savings and loan growth and bingo, there's $2.

We repurchased about 900,000 shares during the year. And the reason we did that was because our stock was on sale. I think most analysts totally missed this investor opportunity that was presented. It was a layup to us. We saw the stock cheap, and we bought it. We bought it, and we'll continue to buy it when it's on sale. Obviously, someone liked it. Forbes ranked Home BancShares Best Bank in America of all banks between $8.8 billion and $2.7 trillion. What an amazing honor for our people. I want to thank the Home team for a job well done. Let's do it again in '18. The ball is certainly teed -- excuse me, the ball is certainly teed up perfectly for a great year in '18.

Randy, I'm looking forward to another powerful year of breaking many more records. I turn it over to you.

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C. Randall Sims, Home Bancshares, Inc. (Conway, AR) - CEO, President, Director and Director of Centennial Bank [5]

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Wow. Well said. Thank you, Johnny. As our Chairman emphasized, 2017 is now gone and it's in the history books. And despite all the noise, as Johnny said, it was an incredible year for Home BancShares as it sets in motion the potential for a very successful 2018. So I think when we look back, 2017 will be remembered as a very significant year. And with that said, congratulations to all of our employees for a very successful year. You have all made a difference in our continued success.

2017 also marks the 19th year of full operations since opening our doors in Conway, Arkansas, on the first day of 1999. So guess what? We're starting our 20th year, and what an adventurous success it has been for us all. We started 2017 with the closing of the acquisition of Giant Holdings, Inc. and the Bank of Commerce. And on March 27, announced the signing of a definitive agreement with Stonegate Bank, the largest acquisition in the history of our company. And of course, that was closed on September 26. And then also in September, we were reminded that despite all our technologies, most of nature remains unpredictable, as Hurricane Irma slammed into Florida and the footprint of Centennial Banks in South Florida and the Keys. But just as Florida knows how to deal with the aftermath of a hurricane, so do we. And a hurricane provision was established in the third quarter.

And then in the fourth quarter, we took a $36.9 million onetime charge due to the recently enacted Tax Cuts and Jobs Act. So with this charge, plus the hurricane provision, as well as merger expenses, I can confidently say 2017 may have been the most unusual year in our history.

In addition to everything else I've mentioned, let's not forget the $300 million of subordinated debt we issued in an underwritten public offering. These events are now closed out and gone with the end of the year. And with that, our team and management are very excited as we look forward to what can be accomplished in 2018.

Our 3 acquisitions in 2017 resulted in over $3.6 billion in total assets being added to our balance sheet. And in just a few short weeks, on the weekend of February 9, we will complete the conversion of all Stonegate systems that will not only consolidate our IT systems, but also begin the process of the consolidation of duplicate branches in our respective footprints, which together will bring about anticipated savings to our bottom line.

With that said, what better way to tell you more about how the transition with Stonegate is going than to have Regional President, Dave Seleski, give us an update on how things are going. Dave?

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David Seleski, [6]

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Thanks, Randy. As I mentioned in the previous quarter call, the transition's going extremely well. And for the most part, on the lending and credit side is completed. I think the best illustration of this is, since September 26, we've had over $100 million in new commitments approved to our customers and to prospects. And that's a real credit to everybody working together, both on the Centennial side and the Stonegate side. And I can see that momentum continuing additionally into 2018.

That is despite also, too, that our competition, obviously, whenever you do after these large mergers, is targeting our customers. And I feel like they've been very unsuccessful. The impact has been minimal. A good illustration of this is 65% of our branches actually increased noninterest-bearing deposits in 2017, which is pretty incredible when you consider that you're going through a conversion and you're announcing and you're going to have different products and so on. It's a real credit to our people and to the loyalty of our customers. And I appreciate that.

The next step, obviously, is in a few weeks, when we do the conversion on the deposit side, we're looking forward to doing that and completing this transition. And from that, we should be able to go forward and increase our overall market share in Florida and look at -- to improve the overall franchise. So we're really looking forward to it and looking -- and really enjoying being a part of the team. Thanks.

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C. Randall Sims, Home Bancshares, Inc. (Conway, AR) - CEO, President, Director and Director of Centennial Bank [7]

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Thanks, Dave. That's great stuff. So let's look at a few results of the quarter. Excluding the $36.9 million onetime Tax Cuts and Jobs Act, earnings for the fourth quarter were $60.2 million or $0.35 diluted earnings per share. That compares to $46,144,000 for the same period of time in 2016. I know most of you have been waiting for it. So let me say it. That makes 27 consecutive quarters of record earnings for Home BancShares. Naturally, that is calculated on the basis of fundamental net earnings. I have to say that little disclaimer. And I don't mind repeating myself again just to make sure I said it because I'm getting old. 27 consecutive quarters of record earnings. Everybody got that? Okay. 27.

Now excluding the $36.9 million onetime CJA (sic) [TCJA] charge, $33.4 million of hurricane expense and $25.7 million of merger expenses associated with the 2017 acquisitions, offset by $3.8 million of onetime nontaxable gains on acquisitions, 2017 annual after-tax fundamental earnings were $204.8 million, an increase of 15.7%. That's the most important thing that I said in all of that: an increase of 15.7% from 2016 annual after-tax fundamental earnings of $177 million.

Our return on average assets for the fourth quarter was 0.66% as compared to 0.54% for the third quarter of 2017 and 1.98% for the same fourth quarter in 2016. Of course, with the noise of 2 straight quarters, a better comparison is our return on average assets. And here we go again, excluding intangible amortization, provision for loan losses, merger expenses, FDIC loss share buyout expense, reduced provision for loan losses as a result of the significant loan recovery, hurricane expenses and income taxes, that result was 3.1% for the fourth quarter as compared to 2.94% for the third quarter and 3.23% on a quarter-over-quarter basis. I think that number is a really good comparison when you get everything out of there, showing a very strong fourth quarter, excluding all the noise, and of course, with the acquisition of Stonegate.

Our return on average TCE, excluding intangible amortization for the quarter, was 7.78%. So as of December 31, the corporation is sitting on almost $14.4 billion in assets. Deposits ended at $10.4 billion as compared to $6.9 billion at 12/31/16.

There's more to come, and we have a great management team on hand to talk about it. So I would like to turn it over to Centennial CEO, Tracy French, to give us his comments on our performance.

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Tracy M. French, Home Bancshares, Inc. (Conway, AR) - Director, CEO of Centennial Bank, President of Centennial Bank and Director of Centennial Bank [8]

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Well, after hearing Johnny's opening remarks and Dave's comments and your exceptional numbers, I just want to congratulate our entire staff for meeting the expectations of what Home BancShares is all about. Specifically, I'd like to say congratulations to our regions and identify North Florida [Panhandle] region, our Northeast Arkansas region and New York region for all producing core ROAs in 2017 of 3%. Our regions continue to post exceptional numbers quarter-to-quarter. And with the loan production we saw in the fourth quarter, I'm encouraged that, that would translate to even stronger revenue and net income for 2018.

I did have a few prepared remarks. But after hearing Johnny's opening remarks, I'm a little speechless at this time. But I do feel that 2018 is probably going to be the most exciting ever for this company. And we do look forward to that.

So I think with that, Randy, I'll just let the rest of our talented group here give you a little update on the numbers, but congratulations on the year for the success we've had.

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C. Randall Sims, Home Bancshares, Inc. (Conway, AR) - CEO, President, Director and Director of Centennial Bank [9]

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Thanks, Tracy. The total number of active Centennial branches is 171 versus 172 in the third quarter, with 76 in Arkansas, 89 -- I mean, in the fourth quarter, with 76 in Arkansas, 89 in Florida, 5 along the Alabama coastline, and of course, 1 in New York.

I'd now like to turn it over to Stephen Tipton, our Chief Operating Officer, who will fill you in on some of our income efforts, efficiency and key operational stuff. Stephen?

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John Stephen Tipton, Home Bancshares, Inc. (Conway, AR) - COO and COO of Centennial Bank [10]

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Thanks, Randy. Thank you, Randy. As you will hear, we posted a solid core net interest margin of 4.01% for the fourth quarter of 2017. Excluding CFG, legacy loan production for the quarter set a record at over $530 million at a rate of 5.35%. The Stonegate lending teams produced an additional $120 million for a total of over $650 million of origination in Q4 2017, all while continuing our conservative underwriting philosophy. While we saw slight compression on the deposit portfolio in Q4, we continue to focus on core deposit relationships and monitor the loan-to-deposit ratio at our desired level.

On to efficiency. I'm pleased to report a core efficiency ratio of 37.35% for Q4. Our President's focus on revenue, while maintaining expenses, continues to shine in our numbers. The integration efforts with Stonegate are already underway, and we are encouraged to see the cost savings materialize in the coming months. With the Stonegate conversion just over 3 weeks away, the operations teams here in Arkansas and in Florida are working tirelessly to ensure a smooth customer transition. I'd like to extend a special thank you to those staff members who are getting it done.

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

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C. Randall Sims, Home Bancshares, Inc. (Conway, AR) - CEO, President, Director and Director of Centennial Bank [11]

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Thanks, Stephen. Good stuff. Here to break down more of the quarter and report on our net interest income, margin, noninterest expense and other highlights as well as capital is our CFO, Brian Davis. After that, Brian will pass it to Jennifer Floyd, our Chief Accounting Officer, to give us the information on the capital and our book value numbers as well as other things.

Brian?

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Brian S. Davis, Home Bancshares, Inc. (Conway, AR) - CFO, Treasurer and Director [12]

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Thanks, Randy. Excluding the $36.9 million revaluation of our DTA during the fourth quarter as a result of the Tax Cuts and Jobs Act that President Donald Trump signed into law on December 22, 2017, our earnings for the quarter were a record $60.2 million. The impact of the tax cut was approximately $0.22 per diluted earnings per share for Q4, while the impact of the tax cut to tangible book value was approximately $0.21 per share. The company historically had a marginal tax rate of 39.225% and a normalized effective tax rate of approximately 37.50%. With these lower tax rates in place, the company will now benefit from a marginal tax rate of 26.135% and a normalized effective tax rate of approximately 24.40%. This will result in approximately 8-month earn-back for the dilution to tangible book value.

Accretion income for the fair value adjustments recorded in purchase accounting was $12.4 million during Q4 compared to $17.2 million during Q3, for an increase of $5.2 million. The increase of recognized accretion when compared to the third quarter of 2017 is primarily due to additional Stonegate accretion of $5.4 million. Payoff accretion was $3.3 million of the $12.4 million of total accretion. Excluding the accretion income and the associated loan discount, the company's net interest margin for Q4 2017 was 4.01% on a non-GAAP basis compared to 4.07% in Q3 2017.

Noninterest income was up $5.8 million in Q4 2017 compared to Q3. There are several items worth noting. First, Stonegate provided approximately $1.8 million of additional noninterest income. Second, there was $1 million in additional gain on investment security sales for Q4. Third, we received our annual incentive from Mastercard during the fourth quarter for $703,000. Fourth, there was a -- other income was up in Q4 because we had $800,000 of additional other income for items previously charged off. And lastly, we disposed of 3 of our vacant properties for a total loss of $1.3 million in Q4 and none in Q -- $1.3 million in Q3 and none in Q4.

Excluding merger expenses and Hurricane Irma damage expense, noninterest expense was up $11.2 million in Q4 2017 compared to Q3 2017. This increase was primarily related to the increase in costs associated with a full quarter of Stonegate expenses.

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

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Jennifer C. Floyd, Home Bancshares, Inc. (Conway, AR) - CAO, IR Officer and CAO of Centennial Bank [13]

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Thank you, Brian. As of December 31, 2017, we ended the quarter with $2.2 billion of capital and $44 million of cash at the parent company. During the fourth quarter of 2017, we paid out shareholder dividends of $19.1 million. And additionally during the fourth quarter, we utilized a portion of our approved stock repurchase program and repurchased 57,800 shares of common stock at a weighted average price of $22.26 per share.

For the fourth quarter of 2017, our common equity Tier 1 capital was $1.24 billion; total Tier 1 capital was $1.31 billion; total risk-based capital was $1.72 billion; and risk-weighted assets were approximately $11.4 billion. As a result, our capital ratios primarily remained flat when compared to September 30 as follows: common equity Tier 1 capital was 10.9% at December 31 and September 30; our leverage ratio was 10.0% compared to 13.2% at September 30. This fluctuation was a result of the timing of the Stonegate acquisition at the end of Q3, which skewed our September 30 leverage ratio. Tier 1 capital was 11.5% at December 30 and September 30; and our total risk-based capital was 15.0% compared to 15.1% at September 30.

Our additional fourth quarter capital ratios also remained fairly flat when compared to September 30. Book value per common share was $12.70 compared to $12.71 at September 30. Our tangible book value per common share was $7.07 compared to $7.06 at September 30. Excluding the onetime Tax Cuts and Jobs Act charge, tangible book value per common share for the fourth quarter would have been $7.28. And finally, our tangible common equity ratio was 9.1% compared to 9.2% at September 30. And excluding the onetime Tax Cuts and Jobs Act charge, tangible book value per common share would have been 27 basis points higher.

Randy?

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C. Randall Sims, Home Bancshares, Inc. (Conway, AR) - CEO, President, Director and Director of Centennial Bank [14]

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Thank you, Jennifer. Appreciate it. I am now going to pass it to the President of our New York group, Chris Poulton, who will give us an update on how things are going.

Chris, how are we doing?

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Christopher Poulton, [15]

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Randy, we're doing well. Thank you for asking. I'm happy to report that we saw a strong close to what was overall a good year for the CCFG platform. For the full year, we originate $818 million of loans and grew our portfolio by $295 million, a 26% growth rate for the year. We ended 2017 with $1.4 billion in assets, which represents approximately 10% of total assets and remains well within our 15% target, providing us ample room for future growth.

For the fourth quarter, it proved to be our highest quarter for loan growth as we delivered $182 million of net growth on $230 million of new originations. Asset quality remains strong with no delinquent loans or NPAs, while margins have remained relatively steady. The strong loan demand in the fourth quarter also means that we closed the year with a robust pipeline, putting us on good footing to start 2018.

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

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C. Randall Sims, Home Bancshares, Inc. (Conway, AR) - CEO, President, Director and Director of Centennial Bank [16]

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Thank you, Chris. Good report. Now last but not least, let's go to our Chief Lender, Kevin Hester, who will give us more details and colors on our loans.

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Kevin D. Hester, Home Bancshares, Inc. (Conway, AR) - Chief Lending Officer, Chief Lending Officer of Centennial Bank and Director of Centennial Bank [17]

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Thanks, Randy. As was indicated in the earnings release, we experienced organic loan growth of $45 million in the fourth quarter. Legacy loan production was the highest since the first quarter of 2016. However, legacy payoffs in the fourth quarter were almost $200 million above any other quarter in 2017, which served to mute overall growth.

The nonperforming credit that we mentioned on the call last quarter was resolved as expected, and our asset quality ratios improved even more from the record third quarter numbers. The nonperforming loan and nonperforming asset ratios at 43 basis points and 44 basis points, respectively, are the lowest since the recession. Each enjoyed significant relative improvement on a linked-quarter basis and are down close to 50% when compared quarter-over-quarter. The atypical coverage of nonperforming loans jumped from 174% to 247%. Past dues decreased 4 basis points to 0.85%, and this number has been very consistent at 1% or below for the past few quarters. Lastly, the allowance for loan losses as a percentage of non-covered loans remain basically flat, decreasing 2 basis points to 1.07%.

Even with the negative effects of Hurricane Irma on late-year activity, our mortgage group ended 2017 with production totaling $529 million, which equaled 2016, while the overall market reflected a significant decrease. Profitability was solid for this group, led by the strong 3.49% yield on sold loans.

On that note, Randy, I'll turn it back over to you.

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C. Randall Sims, Home Bancshares, Inc. (Conway, AR) - CEO, President, Director and Director of Centennial Bank [18]

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Thank you, Kevin. Just to quickly recap, 27 consecutive quarters of record earnings; a strong quarterly core efficiency ratio of 37.35%; still a very powerful margin; very good noninterest income; and great and improving asset quality metrics.

This was mentioned last quarter in this call, but I think it's worth saying again as we start our 20th year of operation. The elements of our mission statement and community banking philosophy is a strong sense of community, exceptional customer service, shareholder focus and high-performing growth. And as you examine 2017 and take out all the noise, you saw a year of our biggest acquisitions, very profitable quarters and an unbelievable response by our employees to our customers and friends in those areas affected by the hurricane. And I would add on top of all this, Johnny, when you are working so hard as a team to accomplish your mission, it is such an honor to be named and recognized the #1 bank in America by Forbes. What a year.

And with that, I would say to you, stay tuned for 2018. The trigger has been pulled, and we are off to the races. I think our best days as a corporation are in front of us. It's going to be a very exciting year.

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

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

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Thank you, Randy. I agree with you. I think '18, I said in my remarks, we're teed up. And I really think we're teed up for '18. I think we're looking good for '18. I think you're going to get to say 28, 29 and 30 in a row.

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C. Randall Sims, Home Bancshares, Inc. (Conway, AR) - CEO, President, Director and Director of Centennial Bank [20]

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I do, too.

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

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I hope that's the case. I think we're set for that. So Andrea, I think we -- that's our prepared remarks, and we're ready for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Brady Gailey of KBW.

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

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So Johnny, maybe we'll start with the $2 per share goal. Is that -- are you are assigning a specific year to that? Is that '18 or '19? Or is that just kind of -- you hope in the next couple of years that, that would be a good stretch goal?

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John W. Allison, Home Bancshares, Inc. (Conway, AR) - Founder & Chairman [3]

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Well, I mean, if they get off their butts, they probably could do it this year so. Actually, that's probably a '19, late '19 goal for us that we hit. You look at the run rate for the quarter, at about $60 million, you don't have the Stonegate savings in there, and you stack in another $53 million, $54 million, $55 million worth of tax saves, if you don't do anything else, and it's -- I don't think I'm asking for too much. I think what I -- every goal I've ever set for this management team has been reasonable to where they can reach it and I think this one is. It's not a gimme, but I think it's reasonable.

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

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All right. That's helpful. And then if you look at loan growth, I mean, for the quarter and just broadly for the year, I think if you back out the acquisitive growth, organic loans grew -- they're honestly kind of flat. They might have been up like 1% for the year. I know that's lower than what you all normally do. I know payoffs are hard to forecast and hard to predict, but any idea what organic loan growth could be this year and next year?

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John W. Allison, Home Bancshares, Inc. (Conway, AR) - Founder & Chairman [5]

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I would have told you we'll be up $250 million this quarter, we just had additional payoffs. So we had a great quarter. I mean, between New York and us, I think we did about $900 million worth of originations for the quarter. And we're going to make up on a quarter when we don't have all those payoffs and we're going to blow one out here before too long, I think. It's just real commerce. It's real business. A lot of construction loans that get taken to permanent. We have a lot of that, they get taken out and get taken to permanent. New York had a great quarter. New York had a really good quarter, but he had about, I don't know, Chris will -- Chris had about -- I'll let him speak to that -- $80 million, $90 million worth of payoffs, too, but he has had an exceptional quarter. Chris, do you want to comment on your quarter?

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Christopher Poulton, [6]

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Johnny, yes. That number is right. We had just under $100 million of payoffs, which is pretty normal for us. That's a pretty normal quarter. We had a pretty normal origination quarter, too. We talked about, about $230 million of origination. What we had happen this quarter was we had more loans with funding in the quarter, a lot of -- you mentioned construction in some of our facilities, et cetera. We generally only fund about 40% or 50% of what we originate. We had actually funded closer to 70% of what we originated in the quarter. And that -- I think that's what drove some of the bigger net gains. I think we continue to see that as we go forward that we like that type of number around $70 million -- $70 million to $100 million a quarter type of growth.

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

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All right. And then last for me. I know we have Durbin coming up this summer. I think in the past, you all talked about that impact being around $6 million to $9 million a year. Is that kind of still the right way to think about that?

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Brian S. Davis, Home Bancshares, Inc. (Conway, AR) - CFO, Treasurer and Director [8]

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It is. We've got about $3.5 million that we probably will incur in 2018, and that will start July 1 through the end of the year.

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Operator [9]

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Our next question comes from Stephen Scouten of Sandler O'Neill + Partners.

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Stephen Kendall Scouten, Sandler O'Neill + Partners, L.P., Research Division - MD, Equity Research [10]

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A question on the Stonegate. Obviously, you got the conversion coming up. How much of the cost saves -- I guess I think it was around like $65 million maybe in total cost savings -- had been realized so far? Or how much is kind of still left to come post conversion? And kind of when do you think you'll see -- will most of this be built in to kind of 2Q numbers, I guess?

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Brian S. Davis, Home Bancshares, Inc. (Conway, AR) - CFO, Treasurer and Director [11]

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Most of the cost saves will happen after the conversion in February. We have about $10 million of annualized cost savings that we should be able to realize after the conversion. Obviously, most of those expenses will be in for all of January and a lot of February. So we won't really realize a lot of that until -- see it in the run rate until Q2. Then we probably will try to wring out another $5 million, hopefully, out of that over the next couple of quarters. But we've kind of already got about $3.3 million that we've kind of already realized. And these are all annualized numbers that I'm talking about.

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

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There's about $20 million out there pretax, and you'll see most of that. As I told you last quarter, this is most of that's coming in the second quarter, but there'll be a little bit lagging after that. I mean, most of it will be gone. Most of that savings will be generated at the end of the first quarter.

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Stephen Kendall Scouten, Sandler O'Neill + Partners, L.P., Research Division - MD, Equity Research [13]

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Okay. Yes, that makes sense. Okay. And then maybe thinking about the NIM a little bit. You mentioned the new, kind of deposit initiatives and kind of trying to set some goals and plans for growth there. Kind of what do the numbers look like to date? It looked like deposit cost had a decent little jump this quarter even as actual deposits on a dollar basis ran down. So I mean, 8 to 10 basis points a quarter, is that something we're going to see for some time, especially in quarters where we have a rate hike or how do you think about deposit cost and how it weighs?

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

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Well, I mean, Stonegate was basically flat. Their cost of funds was basically flat for the quarter and their yield kicked up 3 basis points. And then for the legacy footprint, cost of funds went -- this is October, November. That's the first full month together. That's what we're comparing. That was October, November, Stonegate was 0 -- was flat on cost of funds and yield went up about 3. And the legacy footprint cost of funds, October, November, went up 3 basis points and yield went up 9. So overall yield, what you're seeing when you see the net yield come down, the core [NIM] come down, it's actually up. When you take 3.7% -- $3 billion at 3.7% and now it's at 4 -- what were we, Stephen?

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John Stephen Tipton, Home Bancshares, Inc. (Conway, AR) - COO and COO of Centennial Bank [15]

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About 4.11%.

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

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About 4.11% and we come out at 4.01%, you actually -- actually, it increased. I see some of you all talking about it going down. It actually did not go down, it actually went up. Stephen, you got a comment?

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

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Yes, I think what we're saying there is that what you all are seeing is the decline from 4.07% to 4.01% really was timing of the inclusion of Stonegate for a full quarter, where they were only in for 4 days in Q3. So I think when you -- the best thing we can do is look to see what October looked like and then track it out from there, which is what Johnny's saying. And from there, I think, overall, we saw deposit cost -- total deposit costs were up about 3 basis points in that time period and loan yields were up about 9 so I think…

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

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We were -- our loans are written at -- for the quarter at 5.35% legacy. And Stonegate's were at 4.70%. So that'd give you any indication of where we are. Dave, what are you seeing, what are you seeing on the yield side on your end?

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David Seleski, [19]

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Well, because we've got a bigger balance sheet to work with, we're going back to customers and we're able to take a bigger part of the relationship. So we're probably on about 50% of the relationships when we go in for renewal where we're increasing, which is significant amount of the $100 million in commitments. We're getting higher yields. So I suspect our loan portfolio yield will go up. I don't -- we got a ways to go to catch up to Centennial's. But I think, overall, we're going to have a positive impact on the NIM going forward.

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Stephen Kendall Scouten, Sandler O'Neill + Partners, L.P., Research Division - MD, Equity Research [20]

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Okay. That's really helpful.

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

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Stephen, let me tell you, one more comment on loan growth is that Dave had some credits that he didn't think met our criteria and he moved them out during the quarter, too. So I think those that needed to go are gone so.

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Stephen Kendall Scouten, Sandler O'Neill + Partners, L.P., Research Division - MD, Equity Research [22]

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Okay. And kind of along that line of loan growth, I mean, I know you mentioned, Johnny, you had some really good originations. And we can't really predict what the payoffs are going to be. But I mean, are there any changes you guys are looking to make from a loan growth perspective to maybe -- if you assume paydowns kind of stay at this level for the foreseeable future, is there anything you can do to get those originations up even higher to drive some better net loan growth if they persist?

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

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Yes, we'd lower our underwriting standards and lower our rates and we can crank up the risk level, but we're not going to do that. I mean, we're just not going to do that. I mean, we're just -- we're doing fine. We got lots of good stuff coming down the road for Home BancShares. We don't have to give it away, and we don't have to write bad stuff. So we're going to continue doing what we're doing. And we'll have our turn. I mean, we'll have our turn. We'll catch a quarter or 2 this year. My goal, the $2 -- the new Home $2 is based on $1 billion worth of loan growth. So these guys all know that. I don't have to say much to them. They understand that. They know what that takes. That's about $50 million, bringing in the [deal]. And that gets them pretty damn close to where they -- you could have the Stonegate savings in that deal and the $50 million, and they get pretty damn close to the $2 so.

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Stephen Kendall Scouten, Sandler O'Neill + Partners, L.P., Research Division - MD, Equity Research [24]

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Okay, yes. No, that makes sense. I think you're -- I mean, you're absolutely right about the long-term thinking. Obviously, just I think -- it's just a question of what we build in for 2018. And if paydowns stay here, is it kind of a 3% kind of growth world until maybe the markets normalize and pricing gets more rational? Is that fair if paydowns persisted?

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

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Well, it's really not -- pricing's okay right now. You see a little stupid stuff, but not much. It's really underwriting. It's really more of the underwriting side of it than -- we did not change and are not going to change our -- if you don't have discipline, this time we'll change. We'll have our turn. I mean, when you're generating $900 million worth of loans a quarter, you're going to have a good quarter here while you're doing this. We're going to step up and have a $300 million, $400 million, $500 million quarter.

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Operator [26]

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

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Jon Glenn Arfstrom, RBC Capital Markets, LLC, Research Division - Analyst [27]

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One more question on the payoffs. You talked about -- Chris and Dave had some bigger, larger than usual payoffs. How about Kevin, do you have any color in terms of what you saw in the legacy footprint?

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Kevin D. Hester, Home Bancshares, Inc. (Conway, AR) - Chief Lending Officer, Chief Lending Officer of Centennial Bank and Director of Centennial Bank [28]

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Yes, I mean, it was across the board. We had -- in the footprint, we had more than we had, had in the last 3 quarters before that. So it was across the board.

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Jon Glenn Arfstrom, RBC Capital Markets, LLC, Research Division - Analyst [29]

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Okay. Just obviously, it keeps coming up so it seems unusually large. And I guess, would you guys call this a bit of an aberration in terms of the past levels for the quarter?

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Kevin D. Hester, Home Bancshares, Inc. (Conway, AR) - Chief Lending Officer, Chief Lending Officer of Centennial Bank and Director of Centennial Bank [30]

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Well, I hope over $600 million is an aberration because we've been in a $300 million to $400 million range the past 3 quarters. And if we go back down to that then -- and production stays where it was, there's the quarter Johnny's talking about.

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

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We'll get one.

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

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Yes. No, it feels good to me. The -- so loan growth and the margin are kind of the 2 bigger questions. But I guess maybe -- and I think you've addressed that, but kind of the Keys and Southwest Florida, talk a little bit about the hurricane as you look back and talk a little bit about damage done. Is it all in the numbers and what kind of rebuild potential is there?

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

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The insurance checks are not coming at the speed that we anticipated. They're getting -- as Nancy Pelosi would say, they're feeding them some crumbs. So that's about all they're getting right now. And they're kind of arguing over the insurance. My concern is, and I think I mentioned to you last time is where the people are and are they returning. And they haven't really returned now. On a loan -- executive loan call yesterday, we were talking to Mark Todaro in Key West and he was talking about the traffic coming back there now. And he said, "I'm going to call it obnoxious." So that made me smile because the people are starting to come back. And the occupancy is up. And Kevin can talk about that. But you got a lot of workers. You got a lot of workers in those hotels. We didn't get much taken off the market there. Going up the Keys, in Key Largo and Islamorada, they got hammered pretty bad. There's a lot of rooms offline. So you have to look through those occupancies, as Kevin shared with us yesterday, and understand that they're probably not even reporting in Islamorada because they got hit so hard. So overall, it's going to be cash flow. My wife was down there for a week. She said that the restaurants were closed at night and she said, "Why are you all closing so early?" And they said, "We don't have workers. Our workers haven't returned." So that's -- the jury is certainly still out on the Key and the impact of cat, I think we took -- Kevin, what are we talking about, $2.5 million, $3 million this quarter on hurricane (inaudible)?

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Kevin D. Hester, Home Bancshares, Inc. (Conway, AR) - Chief Lending Officer, Chief Lending Officer of Centennial Bank and Director of Centennial Bank [34]

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Yes, about $2.5 million.

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

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We had a house, big house that got moved, actually moved by the hurricane. And it probably will end up being fine when they get our money out of the insurance company on that and may not. But it was vacant, it was a repossession and it moved. It shifted it on the foundation. So we'll see how that comes out for us. We had another loss down there. But so far, so good. We've had -- we deferred -- how many customers we deferred, 2 or 3?

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Kevin D. Hester, Home Bancshares, Inc. (Conway, AR) - Chief Lending Officer, Chief Lending Officer of Centennial Bank and Director of Centennial Bank [36]

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Yes, over $200 million. And there's still some that are at the end of that first 3 months.

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

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And some are asking to continue for another deferment.

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Kevin D. Hester, Home Bancshares, Inc. (Conway, AR) - Chief Lending Officer, Chief Lending Officer of Centennial Bank and Director of Centennial Bank [38]

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Some have asked for an additional.

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

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It's a little early to know what's going to come out of that right now, but I'm pretty optimistic. We made it so far, so good. We've already seen on our orange orchards or anything, nothing happened there so far?

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Kevin D. Hester, Home Bancshares, Inc. (Conway, AR) - Chief Lending Officer, Chief Lending Officer of Centennial Bank and Director of Centennial Bank [40]

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Haven't heard anything on those 2.

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

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That's about it, Jon. What else would you -- you asked about the hurricane, and what else did you ask? Is there something else?

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Jon Glenn Arfstrom, RBC Capital Markets, LLC, Research Division - Analyst [42]

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Yes, no that's what I was after. And so you just think it's a little bit too early to tell what's possible from maybe a construction lending point of view there?

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

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I think it is. They're not able to get their money right now. They've got their insurance checks.

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Kevin D. Hester, Home Bancshares, Inc. (Conway, AR) - Chief Lending Officer, Chief Lending Officer of Centennial Bank and Director of Centennial Bank [44]

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I think it's -- it is all about the tourists coming back, and this is the time that begins to happen. So 90 days from now, we'll know a lot more than we know today.

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John W. Allison, Home Bancshares, Inc. (Conway, AR) - Founder & Chairman [45]

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And you know I normally spend February and March down there. So I'll be leaving before long. I'll have a much better update on it at the end of the quarter.

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Operator [46]

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Our next question comes from Matt Olney of Stephens Inc.

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Matthew Covington Olney, Stephens Inc., Research Division - MD [47]

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Johnny, I'm curious what your updated thoughts are on capital right now. Within my model, you got a TCE building towards 10% later on this year. So I'm curious what that means for capital deployment, whether it's dividend, buybacks or M&A.

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John W. Allison, Home Bancshares, Inc. (Conway, AR) - Founder & Chairman [48]

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Well, we got a lot of handles to pull, as you can see. And suddenly, we're going to have a lot -- this income or this tax coming in -- tax savings coming in. So -- but we have a subordinated debt, too. We got about $50 million worth of subordinated debt. But I would assume probably towards the third quarter or fourth quarter, we'd look at a dividend increase. I think that makes sense. We've traditionally done about 1/3. We might build a little war chest for another acquisition or 2. We were on one just recently and it got pulled. We were -- it was a -- going to be a failed bank transaction that we're in the middle of and it got pulled. So that may or may not come back up. We've been waiting on it for several years, so we knew it's coming at some point. And so I think probably we'll -- you'll see us maybe kind of think about a sinking fund to pay off that debt. We count it as capital, but either way, it's still debt to me. And I like the debt gone off the balance sheet. And that costs us about, what, $16 million a year?

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

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Yes.

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John W. Allison, Home Bancshares, Inc. (Conway, AR) - Founder & Chairman [50]

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So anyway, we're glad it's allowing us to build capital, so that is a $16 million expense for us and I'd like to get rid of that at some point in time.

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Kevin D. Hester, Home Bancshares, Inc. (Conway, AR) - Chief Lending Officer, Chief Lending Officer of Centennial Bank and Director of Centennial Bank [51]

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Loan growth also if you -- if you have CRE growth, then you're going to have to be concerned about the capital ratios as well.

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John W. Allison, Home Bancshares, Inc. (Conway, AR) - Founder & Chairman [52]

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That's right. And we'll go through -- we're probably bouncing on 300% right now so or maybe a tick above it. So we'll need the capital for that.

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Matthew Covington Olney, Stephens Inc., Research Division - MD [53]

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That's helpful. And then, Johnny, going back to the $2 EPS goal. I think in the past, you've had the benefit of M&A to help you achieve your EPS goals. Do you feel like you need to have M&A in order to achieve this goal?

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John W. Allison, Home Bancshares, Inc. (Conway, AR) - Founder & Chairman [54]

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No. I don't feel like I have to. I don't feel like I have to have M&A to achieve this goal. I think it's -- I think they can get it. I mean, $1 billion worth of loan growth brings in $50 million, you get $20 million in savings and you get a little better somewhere else. They'll be able to stand on their heads with demand, I think. Well, I'm looking around the room and they're not all in agreement with me. You know how they do; they hide behind a log once in a while, right, so here it is. Just do it.

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

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We're trying to think through the Jonesboro map.

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John W. Allison, Home Bancshares, Inc. (Conway, AR) - Founder & Chairman [56]

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Yes, the Keys, the Jonesboro map, you know how that is. But margin's holding in there. And we got -- a lot of people were worried about our margin. I'm pretty proud of our margin. We actually grew the margin from when you combine -- when you combine Stonegate with us, we actually grew the margin. So as far as the day the margin going down, I think we got a little impact going to be as everybody will on the tax Arkansas bonds. I think we got a little. That will impact us a little bit. But outside of that, we're right in -- I think Stonegate was at 4.70%. We're at 5.35% on 900 -- I mean, on $690 million last month. And Chris is in the high 6s. So I think you'll see margin go up in the future. So that's not going to be a problem. As long as we can -- if we don't get somebody out here crazy on the deposit side, and as of right now, we haven't seen that.

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Matthew Covington Olney, Stephens Inc., Research Division - MD [57]

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And, Johnny, sticking on that core margin discussion. I think what you're saying is the legacy Home Banc core margin would have been up around 6 bps this quarter, just 9 bps to loan yield expansion, offset by 3 bps of higher deposit cost. Am I interpreting that right for the legacy Home Banc margin?

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John W. Allison, Home Bancshares, Inc. (Conway, AR) - Founder & Chairman [58]

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You're right. You're reading that right. Cost of funds up 3 and yield was up 9.

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Matthew Covington Olney, Stephens Inc., Research Division - MD [59]

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Got it, okay.

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John W. Allison, Home Bancshares, Inc. (Conway, AR) - Founder & Chairman [60]

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That's right. Yes, it would have been up. What you're seeing when you -- people saw this margin's down, our margin is not down. You take the 3.70% that Stonegate had and put it with ours, and we're actually up. So it's an improvement. I was -- when I saw that today, I was really disappointed that everybody missed that because I'm pushing it around here, by the way.

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Operator [61]

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Our next question comes from Michael Rose of Raymond James.

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Michael Edward Rose, Raymond James & Associates, Inc., Research Division - MD, Equity Research [62]

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This may be the first time in history that Tracy French is left speechless, was very surprised by that.

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Tracy M. French, Home Bancshares, Inc. (Conway, AR) - Director, CEO of Centennial Bank, President of Centennial Bank and Director of Centennial Bank [63]

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Well now, excuse me, Michael, that's all for show.

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

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He's doing that for show, but it doesn't work.

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Michael Edward Rose, Raymond James & Associates, Inc., Research Division - MD, Equity Research [65]

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I know him too well. I know he absolutely is doing it for show. Just 2 quick questions. One kind of small question for Brian. What's your guys' estimate for the effective tax rate this year?

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Brian S. Davis, Home Bancshares, Inc. (Conway, AR) - CFO, Treasurer and Director [66]

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24.4% on a normalized quarter.

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Michael Edward Rose, Raymond James & Associates, Inc., Research Division - MD, Equity Research [67]

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Okay. That's helpful. And then at the outset, Johnny, you talked about some expense initiatives to maybe help you get to that $2 target. What kinds of things are you guys looking at now you guys are clearly one of the most efficient banks in the country. And I'm just trying to figure out what areas are left to still pick apart?

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

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Well, Michael, you got -- Stonegate was running about 1% ROA. We're running about 1.80%. And we come out the quarter at about 1.69%, 1.70%. So it's my goal to get the company back to 1.80%, 1.90% ROA. And you got lots of consolidation savings coming out of Stonegate. If we don't do anything else, you got over $20 million pretax coming out of the Stonegate business. So that -- I mean, that's $15 million. It should be another $15 million of income the way I see it to the company because we're taxed at about 25%. So if we don't do anything else, we got that coming. So I think that, coupled with some loan growth, is -- and continued improvement on the margin side, just a tick here and a tick there, and I think we can get to the $2. I think the $2 is a reasonable number.

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Michael Edward Rose, Raymond James & Associates, Inc., Research Division - MD, Equity Research [69]

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Okay. That's helpful. And maybe just one last one for me, just back to the thoughts on M&A. I think I know the Florida failed bank you were talking about. But just outside of that transaction, are you guys still potentially looking out of state? I know you've talked about Texas in the past, and is that still kind of in your bailiwick at this point?

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

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Well, we're always interested in mergers and acquisitions, and we'll always look at them. But we're not going to do them when our stock is on sale. We're not going to do it in the $23, $24 range. We're just not going to do that. Even though it may be accretive, what does it look like at the end of the day? What does it do for Home BancShares? If it does something for Home BancShares and the Home BancShares shareholders, we'll do it tomorrow. But if it doesn't, we won't do it. So we're just not going to do one of those deals that's not accretive, accretive to us for the future. By the way, one of your old friends is here, just walked in the room, might want to -- Donna Townsell is here. You want to say hello to your friend, Michael Rose?

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Donna J. Townsell, Home Bancshares, Inc. (Conway, AR) - Senior EVP of Corporate Efficiencies [71]

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Hello, Michael.

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Michael Edward Rose, Raymond James & Associates, Inc., Research Division - MD, Equity Research [72]

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Hey, Donna. How are you?

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

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She brought a big Slurpee in. She didn't bring us one, but she got her big cup.

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Michael Edward Rose, Raymond James & Associates, Inc., Research Division - MD, Equity Research [74]

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Well, it's not in the budget.

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

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Must be in her budget then.

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Operator [76]

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Our next question comes from Will Curtiss of Piper Jaffray.

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William Davis Curtiss, Piper Jaffray Companies, Research Division - VP & Senior Research Analyst [77]

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Let me see, I think most of this stuff's probably been discussed quite a bit, but just want to make sure I get the message right on the core margins. So the 4 -- going from 4.07% to 4.01% was more a function of the full quarter of Stonegate. Is that correct?

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John W. Allison, Home Bancshares, Inc. (Conway, AR) - Founder & Chairman [78]

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That's correct.

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William Davis Curtiss, Piper Jaffray Companies, Research Division - VP & Senior Research Analyst [79]

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Okay. And then in terms of kind of the go-forward from here, I mean, was the expectation now that we've got the full quarter in there that you can hold it around the current levels and then obviously benefit from any rate hikes? Is that kind of the thought there?

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John W. Allison, Home Bancshares, Inc. (Conway, AR) - Founder & Chairman [80]

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I think that we had about $600 million that kicked up. Is that right, Stephen?

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John Stephen Tipton, Home Bancshares, Inc. (Conway, AR) - COO and COO of Centennial Bank [81]

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That's right. Yes, the rate hike in December, we saw an immediate impact about $600 million in balances and then have seen a couple hundred million kind of since then. So yes, you'll naturally have some of the deposits repriced. I think Johnny mentioned little impact from the tax reform on the tax-free municipals in the portfolio, but I think certainly the 4% range would be our goal.

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William Davis Curtiss, Piper Jaffray Companies, Research Division - VP & Senior Research Analyst [82]

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Okay. And then just the last one...

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John W. Allison, Home Bancshares, Inc. (Conway, AR) - Founder & Chairman [83]

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Will, I think we're in good shape there. I'm going to be disappointed. And I told a moment ago, I said, I want to know what it is every day. Somebody figure it out and tell me what it is every day. I want to know what it is every day. I know that's a big challenge. Somebody will be able to figure out how to do that, tell me every day what it is. Based on what I'm seeing on the loan side, it's got to be going up. It's got to be going up.

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William Davis Curtiss, Piper Jaffray Companies, Research Division - VP & Senior Research Analyst [84]

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Okay. And then just lastly on the expenses. So it sounds like the cost saves, we will see the -- I guess, the benefits of the conversion in February. That will come through most likely in the second quarter. So in terms of the first quarter, is that $63 million level that we are at in the fourth quarter kind of the thought that to hold it around where it is now and then you'll see the benefits in the following quarter?

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John W. Allison, Home Bancshares, Inc. (Conway, AR) - Founder & Chairman [85]

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He said 60, what do…

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Brian S. Davis, Home Bancshares, Inc. (Conway, AR) - CFO, Treasurer and Director [86]

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The expense that's noninterest.

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John Stephen Tipton, Home Bancshares, Inc. (Conway, AR) - COO and COO of Centennial Bank [87]

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From an expense standpoint.

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John W. Allison, Home Bancshares, Inc. (Conway, AR) - Founder & Chairman [88]

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From an expense standpoint, yes, I think that's probably right.

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Brian S. Davis, Home Bancshares, Inc. (Conway, AR) - CFO, Treasurer and Director [89]

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I mean, the cost saves will be -- they'll be started in the first quarter, but you really won't realize until you have a full quarter in the second quarter so.

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John W. Allison, Home Bancshares, Inc. (Conway, AR) - Founder & Chairman [90]

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Yes, we really -- I wish we had -- I wish we had closed all of this. And we would have if we'd known we're going to get approval. I wish we'd done this in December, where it could really be a clean year for Home without dragging those expenses into the first quarter. But we didn't -- we were afraid that the regulators might hold us up on the transaction so we extended it out. But it should be -- you should be able to get -- we'll be looking at the run rate from second, third, fourth quarter back to the first quarter. Once we get all those conversions done and get the consolidation, get the branches closed, I think second quarter will start -- the muscle starts, I think Home will start muscling up in the second quarter.

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Operator [91]

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Our next question comes from Brian Martin of FIG Partners.

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Brian Joseph Martin, FIG Partners, LLC, Research Division - VP & Research Analyst [92]

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I apologize I got delayed so I may ask a question here. And if you've already covered it, I can go back in and I can look at it (inaudible).

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John W. Allison, Home Bancshares, Inc. (Conway, AR) - Founder & Chairman [93]

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You can ask anything you want to ask.

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Brian Joseph Martin, FIG Partners, LLC, Research Division - VP & Research Analyst [94]

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Well, tell you what, just on the -- maybe it's more for Stephen. But just on the margin, just going back to where you guys are at today, you guys explained kind of the difference in the 4.07% and the 4.01%. But just the puts and the takes of what moves the margin higher, at least on the core side from today's level, can you just give a little bit of thought? It sounds like there's more on the yield side from Stonegate. Am I understanding that right? Or just kind of what are the drivers of moving that 4.01% level a little bit higher as you go forward? That's where it sounds like it's going.

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John Stephen Tipton, Home Bancshares, Inc. (Conway, AR) - COO and COO of Centennial Bank [95]

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Sure. I can take that. It's Stephen. I think it's what Johnny said about the production that you saw in Q4. I mean, you saw $650 million worth of production at 5.25%. And you saw New York, Chris' group do $240 million at nearly 7%. I mean, I think we continue to underwrite the way we do and price loans the way we do and then pick up a little benefit potentially from this last rate hike and any that occur in 2018. I think that potentially is positive for us.

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John W. Allison, Home Bancshares, Inc. (Conway, AR) - Founder & Chairman [96]

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And I think Stonegate was at 4.75%, wasn't it?

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John Stephen Tipton, Home Bancshares, Inc. (Conway, AR) - COO and COO of Centennial Bank [97]

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That's right. That's right.

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John W. Allison, Home Bancshares, Inc. (Conway, AR) - Founder & Chairman [98]

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Stonegate was at 4.75%. So everything -- you look at the cost of funds, everything we're writing far exceeds that. So we ought to be -- I don't have an accurate number other than to tell you, I think overall we're probably up 6 or 7 basis points. In spite of the fact the yield went down, I think the core margin went down, I think we're up 6 or 7 basis points after combining the 2 operations.

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Brian Joseph Martin, FIG Partners, LLC, Research Division - VP & Research Analyst [99]

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Okay. Got you. That's helpful. And then just maybe I missed it, what you guys are -- it seems like there's a couple of different numbers on the expense side, maybe what Brian mentioned versus kind of what you were talking about, Johnny. But just on the expense savings, I get the timing of it, is it's mostly in the second and then fully in the third. But when you look at the -- and some in the first, it sounds like coming. But the -- one of you guys mentioned a $2.5 million number, which is $10 million annualized. And there was another one that -- maybe your number, Johnny, was like the $20 million number. What -- just the, I guess maybe am I misunderstanding that or just the cost savings you expect that are still remaining out there, what is that number?

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John W. Allison, Home Bancshares, Inc. (Conway, AR) - Founder & Chairman [100]

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I think we've only got about $3 million. We think we got about $20 million pretax left out there; that nets to about $15 million after-tax. And Brian was talking about $10 million and $5 million, which was $15 million. I'm talking about $20 million overall. If you tax that, there's $15 million. So we're talking about the same number. It's about $15 million after-tax. And you'll see nearly all of that, I think, in the -- we'll get most of that this quarter. There'll be a little bit of drag out in the next quarter, but not much, but not much, around 95%.

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Brian S. Davis, Home Bancshares, Inc. (Conway, AR) - CFO, Treasurer and Director [101]

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Well, we've got about $5 million that we'll probably work on in Q2.

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Brian Joseph Martin, FIG Partners, LLC, Research Division - VP & Research Analyst [102]

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Okay. $5 million. All right. That's helpful. Okay. And then, Johnny, you mentioned -- and I don't know if you said earlier on the call about M&A. I heard what you just said recently on the comment that maybe one deal kind of went away and then may come back. But just as far as the -- and I know you guys are still looking. But I guess as far as sellers' expectations or just the dialogue that's out there today, I guess, can you just comment a little bit just on what activity is out there today. Has it changed at all or is it still pretty similar? I understand your...

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John W. Allison, Home Bancshares, Inc. (Conway, AR) - Founder & Chairman [103]

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No, no, it's not. We're just -- I think Dave had 3 or 4 teed up. And I said, we're not going to do them at these prices. We're just not going to do it at these prices. So Dave, you see any change in that? Are they still coming at you?

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David Seleski, [104]

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No, I think there are still a lot of sellers in Florida. You're either a buyer or a seller in Florida, no one's really sitting tight. So they're still out there. They're just -- their price expectations seem to be about the same. There's been a couple of outliers along the way, but it's a little bit different dynamic now when you model it because you've got the tax savings. If you can get more expense cuts, obviously, it's a little bit more accretive. Your goodwill is going to be higher. So you got to kind of rethink of how you look at it and probably look at banks that you can get more cost saves out of than traditionally a more efficient bank that you would buy.

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John W. Allison, Home Bancshares, Inc. (Conway, AR) - Founder & Chairman [105]

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They've been coming to Dave. And he's looked at some of them. I said, maybe we're just not going to do them here at the stock at this level. And I have really -- and this team has been focused on the Stonegate savings and the tax saves and trying to grow the loan portfolio. So we just had a lot of payoff. As I told them earlier, we'll surprise you one of these quarters and have a $200 million, $300 million, $400 million, $500 million quarter and be off the running. The new goal -- I don't know if you're on when the -- Brian, the new goal is Home $2. That's the new goal. And that's what we'll reach. And I think our team has hit every goal I've set out there in the past. And I assume they'll do this one, too.

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Brian Joseph Martin, FIG Partners, LLC, Research Division - VP & Research Analyst [106]

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Keep cracking the whip. Well, the -- and the last thing for me was just on the loan growth in the quarter, it kind of netted down to the $45 million. You talked about, what, $650 million and then $240 million for Chris' group. The payoffs in the quarter, did you -- I guess to net to that $45 million, what were the payoffs in the quarter in aggregate?

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Kevin D. Hester, Home Bancshares, Inc. (Conway, AR) - Chief Lending Officer, Chief Lending Officer of Centennial Bank and Director of Centennial Bank [107]

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They were over $600 million.

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John Stephen Tipton, Home Bancshares, Inc. (Conway, AR) - COO and COO of Centennial Bank [108]

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Yes, Brian, those origination numbers, some portion of those may have not yet funded. Those are booked, both funded and unfunded commitments.

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Brian Joseph Martin, FIG Partners, LLC, Research Division - VP & Research Analyst [109]

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Okay. So the $650 million and the $240 million were just the originations. And not all of that...

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John Stephen Tipton, Home Bancshares, Inc. (Conway, AR) - COO and COO of Centennial Bank [110]

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Yes, that's right.

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Brian Joseph Martin, FIG Partners, LLC, Research Division - VP & Research Analyst [111]

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Okay. And the $600 million were the payoffs in the quarter so I can back into it. So okay. All right.

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Operator [112]

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

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John W. Allison, Home Bancshares, Inc. (Conway, AR) - Founder & Chairman [113]

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I just want to thank all of you for joining us today. We'll talk to you probably in 90 days. I think the company is in the best position that Home BancShares has been in, in many, many, many years and look forward to a great '18. And I look forward to them ringing the bell at $2 and hitting the bogey. So I don't know whenever they'll do that, but probably won't be this year, but they get a shot at it. And they actually got a shot at it this year if they go to work. So anyway, thanks -- they're laughing and rolling their eyes again. Anyway, thanks for your time. Appreciate it. Goodbye.

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Operator [114]

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