Home Bancshares, Inc. (HOMB) Q1 2012 Earnings Report, Transcript and Summary

Greetings, ladies and gentlemen. Welcome to the Home BancShares Incorporated First Quarter 2012 Earnings Call. The purpose of this call is to discuss the information and the data provided in the quarterly earnings release issued this morning. [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 three of their Form 10-K filed with the SEC in March 2012. [Operator Instructions] It is now my pleasure to turn the call over to our first presenter, Mr. Allison.

Thank you, Amy. Welcome everyone to the first quarter conference call for Home Bancshares. With me today is Randy Sims; and Randy Mayor; Kevin Hester; and Brian Davis. Kicking off 2012, with what appears to be potentially the most powerful core earnings strength in the company’s history. We were nervous about the first quarter coming in. It appeared that we were going to have lower margins or the Street was expecting lower margins. We would have higher expenses in the first quarter as we always do. And it was irrational loan pricing in the marketplace, and we weren’t sure when we would get the Vision transaction closed. We’re still seeing there is a little growth in the marketplace, but there’s not a lot of growth in the marketplace. Some of our competitors have said they are going to grow $10 million, $20 million, $30 million a month, and the only way you do that is to steal from someone else. So they come in with some kind of crazy ridiculous rate and fix it for a while and they force us. So, in the past, we didn’t match that, we’re matching a lot of that stuff now, we just now going to give up that good customer. It’s almost like they think rates will never go up. Geithner has its foot on that right now. These rates are artificially low. It appears inflation there on the horizon and somebody is going to get caught with their pants down, I think, because these rates could run in a hurry. The power of the earnings was very strong. We’re able to exceed expectations, I [indiscernible] think, expectations were $0.48, $0.49 and we were able to report $0.51, while absorbing a $1.7 million one-time merger expense for the period -- for the Vision transaction. And when you think about the Vision transaction, it was only in -- the income from it was only in the system for 43 days. We closed it February 17th. So we get about like 13 days in February and then then balance -- 12 days in February and the balance in March. So it was only in -- the income was only produced for half a quarter. I’m sure that you can extrapolate what it would -- what the impact to Vision would have been for a full quarter, as I have done and it’s very optimistic. So when we swallow $1.7 million and we only had Vision for a half a quarter and still exceed expectations, I’m very proud of it. In all fairness, we had our foot on the expense throat during this period, because we were concerned about the first quarter. But when you go to the numbers, the company still produced a 1.52% return on assets and I don’t know what they would have been if we’d had Vision for the whole quarter and wouldn’t had the $1.7 million worth of expenses. Efficiency ratio was 49.75, a good sub 50 efficiency. But the key is the core efficiency was 46.12. Diluted earnings per share, as I said earlier were $0.51 and you can extrapolate those, they could have been much higher. Core –- I remember a while back when we were pushing to get an $80 million core earnings number, I thought if we can do this, we can get to $80 million, we can do this, we can get to $80 million, while we don’t passed $80 million, and the company’s all over $100 million now. So when it comes, it comes pretty strong. I hope you guys are as happy with this as I am. 2012 is shaping up to be a record year for our company. I want to thank our employees of the company for a great job and a great quarter. When you think about it, obviously, they keep doing more and more with what they have because the efficiency ratio continues to improve. Let’s talk about deal side and what’s out there. Being spoiled a little bit by FDIC, transactions and the Vision deal, which was a semi-transaction like that, it’s difficult when looking at these other deals, as our senior lender, Kevin Hester says, you can’t rate every deal by the Vision deal, you can’t get one of those every day. Well I know that, but we’d like to have them anyway. We have 14 deals on the board. We’re trying to decide which one makes the most sense for us to do. Each one has its own twist. They are complicated and little confusing, but we have focused now. We believe we focused, narrowed it down and focused on about four of these transactions that we’ll pursue during the next quarter. Overall, it was great quarter and looks, Randy, its looks to me like it’s time to raise the bar and we’ll turn it over you for the numbers.

Thank you, Mr. Chairman, and that was more than expected, about raising the bar, and yes, it was a great quarter and wonderful start for 2012. It’s very rewarding to continue to see record results each quarter. And like our Chairman said, I want to congratulate all our employees that worked so hard to make a difference and improve our banking organization. It is truly a team effort that makes us successful. The first quarter of 2012 is the most profitable quarter in the history of our company. This was possible with a balanced improvement in all results. We continued to control our expenses in the quarter as was said with a 46% core efficiency ratio. We had record net interest income and to make it even better our asset quality totals and ratios continued to be very good, with improvement seen in our non-performing non-covered assets. And helping to make it a great first quarter was the addition of Vision Bank, which now puts our footprint from just outside of Mobile all the way across to Tallahassee. We are very pleased with this acquisition and the talented employees that have joined us from the Bank. And I’m pleased to announce that as of this past weekend, Vision Bank has been consolidated and converted into our systems, policies and procedures. This is very important -- this is a very important step to allow us to become even more efficient in our operations. Interesting enough, we converted Vision Bank on Friday the 13th and it was our 13th conversion. While this might make one superstitious, our team was able to accomplish this path within 60 days of the closing the bank, and really of the 13, this has been the most trouble-free post conversion, pretty remarkable. As Mr. Allison indicated, we continued to be active in the hunt for additional acquisitions, even though we have seen a slowdown in the FDIC opportunities. We are as busy as we have ever been looking at banks and I would add that each opportunity does seem to be quite different from another. However, we continue to hold true to our discipline and patience, for the right strategic addition to our organization. What can you say? It was a very, very good quarter. Having said all that, let’s take a further look at some of the numbers that our Chairman has already highlighted. We finished the quarter with earnings of $14.5 million or $0.51 diluted earnings per common share. This compares to $12 million of net income available to common shareholders or $0.42 diluted earnings per common share for the same quarter in 2011. The company increased its first quarter net income by $2.5 million or 20.4% for the three months, compared to the same period of the previous year. The $0.51 diluted earnings per share continues our goal of a $0.50 run rate for another quarter. And let me add, these numbers include, as we said $1.7 million of merger-related expenses. Without these merger expenses, our diluted earnings per share was $0.55 and net income would have been $15,526,000, which would be an all-time record and profitability for our company. Return on assets for normalized earnings was $1.52% and our ROA, excluding intangible amortization, ended at 1.6%. And again, if you eliminate merger expenses, our ROA for normalized earnings was at 1.63%. But let me take it a step further and examine core income. In other words, without taxes, without merger expenses, without CDI amortization, without provision and our core earnings become $24,573,000 or a 2.64% core ROA, and that is with only 43 days of Vision income. Our high-performing Arkansas banks continued to produce record numbers. As discussed, the Vision acquisition was immediately accretive to our profitability and we are seeing improvement in our other Florida banks. So as you might expect and as our Chairman said, that goal of $0.50 per quarter run rate is in the past, it’s over with, and the bar will be raised for the next quarter. So we are very optimistic for 2012 based upon this first quarter. We are now a $4.15 billion institution and for the first time have more assets out of Arkansas -- outside of Arkansas, but just ever so slightly. At the Centennial Bank level and on an internal analysis 49% of all assets are in Arkansas, 6% of our assets are in Alabama and 45% of the assets are in Florida. Now, let’s switch to the most important component of our net income –- net income and margin. Net interest income was $36.5 million as compared with $34.5 million at 3/31/11. Net interest margin on a fully taxable basis remained strong as in the first quarter at 4.65%, as compared on a quarter-over-quarter basis from 4.61% and, by the way, the effective yield on a fully taxable equivalent basis our non-covered loans was 6.21% and our covered loans was 7.78%. Non-interest income ended at $10.1 million, as compared to $10 million in the first quarter of 2011. Non-interest expense for the first quarter of 2012 was $24.4 million, compared to $23.9 million for the first quarter of 2011, and $23.3 million at year end 2011. We’re doing a good job in keeping expenses under control. As a result of that, we ended the quarter as we said with core efficiency ratio of 46.12%, which was improvement of 507 basis points from the same period of the previous year. We’re very pleased with this result. Looking at deposits, we ended the quarter at $3.38 billion, compared to $2.86 billion as of December 31, 2011. I’m going to stop at this point and turn it over to our CFO, Randy Mayor to give a little more color on what we have just discussed. After that Randy will pass it on to Brian Davis to give us some information on those capital numbers with the addition of Vision Bank. So Randy, you want to get started.

Thanks, Randy. The net interest income increased 3.4% or $1.2 million over last quarter with the addition of Vision one less day in the quarter. The net interest margin declined 8 basis points on a linked-quarter basis from 4.73% to 4.65% as the earning asset yield declined 8 basis points from 5.62% to 5.44%. The yield on Vision loans was 5.38%, while the yield on legacy loans was 6.53%. In addition, there was approximately $120 million in cash received in the transaction, which contributed to the lower asset yield. Yield on interest-bearing liabilities improved 11 basis points from 1.03% to 0.92%. The margin, excluding the effects of the Vision transaction, would have been 4.69% for the quarter, earning asset yield would have been 5.48% rather than 5.44% and interest-bearing liability yield was 1 basis point higher due to the Vision transaction. Just a reminder, the Vision transaction occurred approximately half way through the quarter. Non-interest income, excluding gains and losses on OREO and securities was up 6.7% for the quarter, while non-interest expenses excluding merger expenses declined by 1.9% for the quarter. Core efficiency ratio improved from 48.76% to 46.12% and, as Randy mentioned, the diluted EPS excluding merger expenses was $0.55 and the ROA excluding merger expense was 1.63%. All-in-all, the first quarter 2012 proved to be a very successful quarter for the company. With that, I’ll turn it over to Brian for few comments.

Thanks, Randy. During the first quarter of 2012, we acquired $530 million of assets in the Vision transaction. As a result of assets, acquired the risk-based capital ratios are lower from the previous quarter. For Q1 2012, our leverage ratio was 11.5%, compared to 12.5% at 12/31. Tier 1 was 15%, compared to 17% at 12/31, and the total risk-based capital was 16.3%, compared to 18.3% at 12/31. Additionally, the TCE ratio was 9.7%, compared to 11.5%. Book-value per common share was $17.11, compared to $16.77 at 12/31. And tangible book-value per common share was $13.96, compared to $14.35 at 12/31. The Vision Bank acquisition was $0.71 dilutive to our tangible book value for this quarter. Randy?

Thank you, Brian. Let’s switch to loans; it was a very successful quarter on the loan side, too. I’m going to steal a little bit of our chief lender’s thunder, but I’m sure he will cover, but these asset quality metrics are very good, they improved and I’m just really pleased with them. Legacy non-performing loans were $27,489,000 at 12/31/11 and slightly increased to $27,714,000. With the addition of Vision loans is the ratio to total loans it was 1.56% to 12/31/11 and ended the -- we ended the quarter at 1.35%. Non-performing assets were at $44,157,000 at 12/31 and improved to $42,419,000 at quarter end. Again, with the addition of Vision assets as a ratio to total assets, we ended the quarter at 1.22%, as compared to 1.53% at 12/31. Loans not covered by loss share ended the quarter at $2.05 billion, compared to $1.76 billion at 12/31/11. Total covered loans ended at $455.4 million or 18.2% of the total, as compared to 21.5% at 12/31, as a result of our efforts with the covered problem assets and the addition of vision loans. I’ll quit talking about those good ratios now, Kevin, I’ll turn it over to you and so that you can go into a little more detail.

Thanks, Randy. As it has been mentioned the Vision Bank addition has been very positive for many reasons. From the lending perspective, the initial structure with all non-accruals or ROA removed along with the additional loans left with part and $7.5 million put available subsequent to closing of the purchase, all give us comfort that we have acquired a high quality loan portfolio. I want to take this opportunity to welcome our Vision team and to thank all of our lending staff that has been involved in this very successful acquisition. We’re continuing the work to improve our asset quality ratios as Randy mentioned, and we’re happy with the progress that we have experienced so far in 2012. Again, as Randy mentioned, our non-performing asset ratio improved from 1.53% at December 31, 2011 to 1.22% at March 31, 2012, and improved slightly even without the Vision transaction. Our allowance for loan losses as a percentage of non-covered loans declined from 2.96% at December 31, 2011 to 2.49% at March 31, 2012. This is not a concern to us given the quality of the assets added. In addition, if you added the acquisition discount to the allowance for loan losses, the combined figure would be 3.30% of loans at March 31, 2012. The allowance for loan losses coverage of non-performing, non-covered loans declined slightly from 190% at December 31, 2011 to 184% at March 31, 2012. Non-covered real estate loan decreased $2 million on a linked quarter basis and the mix continues to be heavily weighted towards Arkansas at the present time with 80% of the March 31, 2012 balance of $14.6 being located here. Net charge-offs in the first quarter were lower than recent quarters and none of them were large enough to be subject to specific reserves within our allowance for loan losses methodology. Our pipeline is improving especially in Florida but the interest rates that our Arkansas competitors are willing to offer will make loan growth difficult. We are striving to obtained quality loan growth, but are unwilling to burden the bank’s balance sheet with the long-term fixed rate assets that will impact earnings in a rising rate environment. Overall, the first quarter of 2012 was a solid one from an asset quality perspective and we continue to be optimistic given the opportunities that are on our horizon. Randy?

Good report, Kevin. Well, more records broken. Our asset quality ratios are at strong levels and we say goodbye to that goal of $2 earnings per share as we look towards to the next bar that I know will soon be set by our Chairman, who I’ll now turn it back over to, to finish.

Great report, guys. Amy, I guess, we’ll ready for questions now. if you’re ready for questions, we’re ready.

[Operator Instructions] Our first question comes from David Bishop at Stifel Nicolaus.

I wonder if you guys could talk about, excluding the Vision acquisition. Talk about sort of what you are seeing just in terms of core loan growth, legacy loan growth trends across the footprint? What you saw come in the front door this past quarter maybe what went out in terms of payoff to most like the competitive environment out there in terms of refinancing and snapping up some of your stuff?

We’re, there is some loans out there, we’re beginning to see some activity in Florida on some really, really good loans. Little bit in Arkansas, just a little bit that -- from the competitive position, you heard my original comments, it’s as though they think rates will never go up and some people committed to major loan growth are really open some low rate longer term fixed rate loans and we’re just staying away from that. I think we could see a leveling out. We have been dropping, I'll let Kevin address what numbers we've dropped to, but we've been dropping a little bit with some payoffs, but we have probably $75 million in the pipeline, which is the most we've had in the pipeline in some time so we're encouraged by that. Kevin, you'll...

Johnny is right on there with what we're seeing in Florida we've got in -- in each of our regions our pipeline is bigger than it was three to six months ago. Arkansas, the competitive pressures on rate, while we may be looking at some credit, it's just to replace some things that we've lost to lower rates. So, we're optimistic especially in Florida.

In terms of the house rate you've alluded to in the past I mean, how successful you are, still sticking to that and keeping the current clients?

We're staying hitched -- as hitched as we can stay to the rates and it still takes the approval of Randy Sims and I to override that house rate. So our customers have stayed with us, they will stay with you for three quarters of point or so, but when some of these rates get a little ridiculous, we're forced to match. And I think legacy -- I think actually I think legacy portfolio for the quarter only dropped about 4 basis points. So you get it -- when you roll Vision in, Vision was about a point less, they're rate -- their yield was about a point less than the other. So that was the difference in the yield, but we only dropped about 4 basis points, which wasn’t too bad.

The next question comes from Michael Rose at Raymond James.

I just wanted to get a little context as it relates to your margin, on a go forward basis with Vision included. Do you have a sense for, kind where their portfolio yields have trended historically and just any kind of outlook there would be helpful?

This is Randy. That you know their yield was about 538 or so on their portfolio, which Johnny said is a little bit less than what we are running. So that's -- that I think they've been pretty consistent in that. When you take out their problem assets that we've looked at least over the three or four months that we've been kind of looking and monitoring them so. We wouldn't expect that to change a whole lot, but that he is going to bring our yield down of course because it is lower on that their -- and it's about $340 million in loan assets.

Has the impact of that already happened, Randy? Or is it?

Well it should be you just had them in there for half quarter. Obviously, you were going to see a little more impact of them for the next quarter.

Kevin, on the loan side, Florida breaks -- the fives?

Yes. Our best customers down there you're looking at fives, okay.

Okay. And then, I think you had mentioned in your prepared comments that, you were seriously looking at four opportunities right now and you mentioned some differences there. Is it a geographical differences, is it size differences I mean, you guys have gotten a little bit bigger now obviously, are you trying to look at bigger deals, is it still too competitive?

Your fishing, I know what you're doing. We're looking at big deals and medium sized deals and smaller deals. And we've narrowed it down to -- and before we narrowed it to -- they’re different sized deals geographically they fit or we wouldn’t be going after them. Each one has their own twist, I'll let that -- just a little different twist every one of them is different. They’re market transactions and they all have a little different twist so. We think -- what do they say you chase two rabbits, you lose them both, so we were on 14 different deals and we've just backed up to 4 that we're looking at. So and they're all they're from $300 million up.

The next question comes from Matt Olney at Stephens.

I wanted to focus on your expenses, pretty impressive expense managed in the quarter especially considering that the partial effect of Vision. Is there anything we should keep in mind for forecasting purposes and then thinking about expenses for the rest of the year?

Well, Randy Sims and his team did a great job of expense control. If you call Randy on the phone, Randy would answer the phone, “Randy Sims.” they’d say “how you're doing” and then Randy would say “don't spend any money”, and I know he won't [ph]. So I mean it got through the company pretty good. Randy, you want to talk about the expense control?

Well, we really, again as Johnny said, we didn't know and we were going go and get the Vision deal consummated and so we wanted to make sure that we did have a good performance. And so we backed off on a lot of things that are, you would classify as not essential such as marketing and some donations and stuff that we might normally do. And everybody just kind of really watched things closely, I was very proud of it and, as I expected, our Chairman saw what we can do and said, “well, why can’t we do this all the time?”. So but there was some expenses that and some things that we do want to promote during the rest of the year so there will be some advertising cost that will be coming down the pipeline, but that -- everyone's doing a pretty good job on expenses and we're going to expect that we continue especially in several areas of watching what we're doing and keeping track of how we do it and keeping those costs down as well as we can.

When you look at the income for the quarter, Vision, the income that came in from Vision for the forty something days did not cover the onetime expense for the quarter. So legacy, the legacy earnings of the company were very, very strong, they exceeded what we ended up. You understand the 1.7 million, they didn't cover that or so not only did legacy, legacy was far above where their earnings came out pretty impressive, I thought, and that was primarily expense control.

Sure now -- now very impressive in the quarter. Also want to ask more of a capital management question. It looks like you're pretty active as far as the share repurchase plan in the quarter. How do you think about the repurchase plan versus your goal of acquisitions?

Well, we've talked about a balanced approach here with acquisitions and kind of kick in our dividend a little bit and we've done that along with some stock buybacks. We thought the stock was cheap we could see what was happening in the company and we thought we ought to be acquiring it, depending on the size, we can probably buy a couple of billion dollars now without having to raise any capital. So that's kind of where we’re looking with. We may not be as active in the market in the second quarters as we were in the first quarter. We'll take a look at those, and we'll kind of balance that along if there's something out there that we want to acquire, we will pull out of the market. If there's something in -- if it's a smaller deals, we're going to do two or three smaller deals and we'll be active in the market. So we’re just kind of doing a balanced approach, we're maintaining good capital. I don't like us -- we're spoiled with strong capital, Brian, we'll be 9.6 tangible common equity now, something about double digit there that I like so I want to get it back over 10 to, we pride ourselves with the strength of capital of this company. Did I answer your question, Matt, or does that…

Yes. You did that's very helpful.

A next question comes from Kevin Reynolds at Wunderlich Securities.

Two questions and I guess one of them, I’ll probably have no better luck than Michael did earlier, trying to get to say something -- where do you go from here? Now that you look at averages -- what markets do you prefer, you extend from Alabama now over into Florida a little bit over into Central Florida, do you look to expand that or do you look to fill in that. And in another question, I'm going try to pin you down on if you'll answer it is, what is that new earnings bar? Last year it was try to get the $0.50 run rate on the quarter and you did that and now you've blown right past at -- what do you have your eyes set on today?

Well, let me tell you, when I first hit the street and could see $0.50, it was a stretch but I could see it and if you remembered that, I said maybe by the fourth quarter of the year, we could get to $0.50. Well for all practical purposes this company hit it other than some expenses. I think it was the warrants we bought back, the warrant expense that we had in the third quarter or the company would have hit $0.50, and company hit it the fourth quarter and the company hit it the first quarter. So I don't stretch out, but I just want to tell you that I told you we have to get to $2, we had to have another deal. I'm see for the first time -- it's small and it might be a train [ph] as that last one, but for the first time I see $2.50. I see how to get to $2.50. We have to -- everything has to run smooth, everything has to go perfect and we need another deal. But it put a smile on my face to see the core income of this company and we're on some deals that can add -- we look at the deals, what do they add? This one adds $0.10, this one adds $0.20, this one adds $0.30 under our assumptions, our pro forma forecast of earnings on those deals so, we need another deal. It doesn't have to be a huge deal but we need another deal and if things continue to run the way they are running, $2.50 is in the future, but it's probably first quarter of next year, it's probably that far out, maybe we will get lucky and do it quicker. On where we’re going to move geographically, we're not going to move too much outside of Alabama, Florida, or Arkansas. We're staying hitched there, we're going to continue to try to build in those markets, no doubt we're looking somewhere in the Naples market to try to put to build some more base there for our Keys operation. We certainly would like to do something in and around Orlando, and we would certainly continue to build in the Panhandle and also south Alabama. So have I covered everything, Randy, or did I leave something out?

No, I think you said it well, the only thing I would add, if it’s $2.50, I probably need to get off this call and get to work.

It is a stretch, but it is a stretch, but he can be done.

Well, Johnny, so let me just get clarification there. You mentioned stretched by the first quarter of next year. Do you mean you might have to wait that long to get another acquisition that gets you there or a quarterly run rate that suggests an annual run rate of $2.50 by the first quarter meaning, by first quarter of next year you might be at $0.62 and $0.63 a share.

That's what I mean -- I mean the quarterly run rate that could get us there. Now we're actively engaged in deals and we can have a deal this month. We can have a deal next month, it may be next quarter. We may not get a deal. Last year we didn't get a deal to speak of, except Vision, but it was a good year for us. As so you can see, the company got -- when you run a 46% core efficiency ratio, you can see that the company -- we don't just sit back. We continue to improve ourselves as we go through, whether we have a deal or not. I'm just saying, you get a deal that will kick in $0.20 cents or so, I think we could scare $0.50 to death -- I mean $0.625 to death sometime early next year. We don't get a deal, we may not get there, but that...

And I would add too we still got -- the opportunity in Florida, I think we keep missing because again the income from Arkansas is still way up there and predominantly what's carrying this corporation and we're seeing improvement in Florida and as they kick in more and more percentage of income and they continue to develop and do better, the opportunity there is just amazing. And so I'm really looking forward to the rest of the year seeing what Florida can do and kick in, as well as now we have South Alabama. So I'm very optimistic with Arkansas doing so well and the prospects of Florida doing better than they are now.

Now the key -- think about it -- our Keys franchise kicked in $666,000 plus pretax last month. Best month they've ever had, so it’s starting, you've got Vision income coming in, Arkansas has been carrying about 75% of all the income and Florida has been carrying about 25 as we build that up, even running a -- I mean you look at, we’re running a 160 ROA or better and you get the numbers on Florida up and you’re running a 180 or 190 ROA with existing Franchise. So that's kind of the direction we're headed.

The next question comes from Derek Hewett at KBW.

Could we circle back to the loan loss provision, going forward you didn't provide anything this quarter. How should we think about that going forward considering the charge-offs were down, non-performers were down this quarter and credit looks to kind of continue with improving trend?

And I'll comment and let Kevin comment if he chooses to. We said a while back that if we felt like we were properly reserved and we were going to let it run down over a period of time, actually if you add, as Kevin in his remarks made, if you add the discount that we got on Vision, you are 330. So we haven't really let it run down. I don't see anything out the last quarter, I don't see anything out there I've said last quarter I didn't see anything out there that would alert us to any kind of additional allocation, which we we'll do it [ph]. You know how we operate. There is something out there, we'll do it, but I don't see anything. I'm looking at only charge-offs for this month. We actually got recoveries at this point in time rather than charge-offs. Not much, but it's positive [ph] to see. So things are rocking along pretty good and seems like asset quality improved a little bit, so I don't -- we just probably let it run down over a period of time. Kevin you...?

I mean we haven't seen anything of size that we see migrate towards substandard that there wasn’t already provisioned for so, I think moving that downward a little bit as -- it really doesn’t concern us, especially when you -- if you look at and taking that discount and adding that to your loan-loss reserves and you're still back over 3% so it has not been a concern to us to this point.

And just to add one number that if you were to, like, pro forma our numbers without Vision in it, as Kevin said, it would be 3.01%, would be our coverage ratio on ALL to non-covered loans which would actually be slightly up about 5 basis points on a linked-quarter basis.

And then going back to noninterest expense, it looks like the FDIC and state assessments charge was basically cut in half if you are looking at it fourth quarter versus first quarter. Is the first quarter a good run rate going forward or was there something kind of unusual in the first quarter numbers?

The first quarter appears to be a pretty good run rate. They changed the way that that's been calculated on there. And if you remember part of their calculation is where we were for the prior 12 months and our ugly fourth quarter of '10 has fallen out of that calculation, so that did help us on the reserve -- the insurance calculation. So it looks like a good number going forward.

And then one other question on expenses. So Vision was in the expense base for that basically half a quarter, what was that dollar amount and excluding the merger related charges?

I don't know. We don't have that. We may have to circle back around and get with you on that number. I will say it on a different way. There is more -- there is going to be -- it should be less coming down the road from the standpoint that we will be closing a couple of branches that overlap and that will be going on. We continue to analyze our branches and the staffing requirements for them. So there is a little bit more there that will be coming down the pipeline.

If you remember about a 1.3 million, Randy just kind of sketch that on the back of the sheet of the paper here. If you remember the B3 program that we did several years ago headed by one of our people here, Donna Townsend, that program will start again, the B4 program I told you. We have added seven banks since then and we haven't been active in the B4 program. So even in spite of the good efficiency ratios, we will be continuing to push and I think that starts pretty quick, doesn’t it, Randy? B4?

Yes, sir. And just to remind you, B3 stands for Build a Better Bank and so this one is going to be Build a Better Bank Better.

We answer your questions?

Yes, you did.

One thing we didn't do a lot of marketing expense in the first quarter, we will take that up to rest of the year so it will be a little more expenses -- those expenses will go up. Your next question comes from Brian Martin, FIG Partners.

Johnny, just can you talk about these deals that you are looking at and just the nuisances that they have, I mean given Vision and how successful that looks like it is, do you, can you just talk about your willingness to, when you look at these deals as far as take on goodwill like the Vision transaction or I guess without taking the goodwill on the FDIC deals and just kind of how you see things playing out or just what the market is showing at this point?

The Vision deal -- Randy Mayor is saying it's going to add a little less than I think. I think the Vision deal is going to add about $1 million a month, pre-tax. He has got a lower number than that. We put $19 million worth of goodwill on the books and we got $12 million pre-tax coming in the front door on that trade, or $10 million. I will do those deals $0.77 -- or $0.71 diluted to tangible book. As you know, we are extremely protected. As you look at our history, we've been very protective of stacking goodwill on the books, and you know what I feel about goodwill, it's kind of like herpes, it never goes away. So we are going to evaluate every transaction on its merit. We are going to evaluate what the income stream that comes into this company is and how much dilution that we have to take and we are going to take them on a one-on-one. We looked at a deal the other day that look pretty good, could have kicked some income in, but it just was too diluted tangible common equity. As you know we call that train riding money. So, we are very protective of that and we will continue to be protective of it. So the deals that we are looking at, one of the main discussions around the table is how much goodwill does it create to do one of these transactions? Because when you do a market deal, you know there is not any equity in it, you know they haven't written a loan portfolio the way they have to write it to. So Kevin's got to go and mark at loan portfolio and then you got to add goodwill. So you got to look back and see, is it in your footprint, does it add to earnings? I mean the Vision started kicking money in Day 1. We are a little spoiled with that trade. The FDIC deals do the same. So some of the others are more work to do, you just have -- they have to be the right transactions. I don't know if I can answer your question other than we sit around this room, this whole team is in here and every deal is talked about. We are talking to the bankers. We are dealing with every one of them and we’re playing the what if’s on each one of them until we determine -- that's how we narrowed this deal down before. I know I rambled a little bit there Brian with that but it’s difficult to put a number on it.

All right. The color is helpful. And just have two housekeeping questions, maybe Kevin just TDRs in the quarter and Johnny you talked about just the reserve drawdown, just given where credit quality looks today, what is, how low could that reserve coverage drop to with you guys still being comfortable assuming credit quality holds. I mean it used to be a 2% type a number if I remember a while back, but I guess can you give any sense for what your comfort level is today?

I will let Kevin cover the TDRs and I will be -- he will talk about reserves and then I will talk.

Yes. TDRs is down about $5 million since last quarter, about half of it was a large loan that paid off and the other half were things that just came out that moved out of TDR status.

It depends on, when you talk about the reserve amount, what does your gut tell you that you see out there in the future, what's the economy doing and what happening? My past company that I was with, I ran the asset quality, we ran a 1.50, ran a 1.50 reserve to loans and it was a comfortable number. The rest of the world was operating at a 0.9 or 1%, we always ran 1.5% and we will probably always run a little higher than the Street, but the 2% number comes about because the clouds are still out there and what we are seeing the clouds do is clear right now. So I would say in a good economic environment that we are probably going to run a 1.50, might be a 1.70, but in tough economic times we are going to run a lot stronger reserve than that to have and -- Brian you've known us long time we've always had too much reserve probably, but we are going to continue to do that, we just think it's smart business, but we’re letting it calm we see -- we're seeing things improve so we're going to let it drift down, but as Kevin told you it's actually 3.30 and Brian said that, legacy, be 3 -- what?

3.01.

3.01, so it's still strong.

The next question comes from Jon Arfstrom at RBC.

So maybe a Kevin question or John but just, curious about the panhandle real estate values and how they're doing? Obviously it's a couple of years ago that area was in a pretty tough situation, but curious what you're seeing now in terms of real estate values and overall activity in the Panhandle?

Overall values, I'm not sure that they've hit bottom, you get a lot of people that still have, including us, that still have a lot of real estate to move, lots and vacant land. I'm not sure you've gotten to the bottom there. Anything that can generate some income or has a home on it, then we're getting a reasonable price and a reasonable percentage of the appraisal that we had that's come in. So lots and vacant lands that were difficult.

And I would guess the land issue is the same throughout the rest of Florida?

It is. We've got in Central Florida, we have a little better luck with lots. We don't have a lot of just vacant land over there. We do have more lots and more subdivision type developments and we've actually had a little bit of movement over there, even on some of our lesser stuff.

Well, you know the Keys, Jon. We don't have a land problem in the Keys. We don't have a land problem there, you've seen that, it's just...

Yes. Yes, I'd like to have land and the keys if you have it.

We can arrange it for you, just a little down. The monthly won't be too bad.

All right. All right. I'm curious at Johnny Prime as well.

At Johnny Prime, we can do that, we'll let you have it.

Just add a little bit more –- again, it is all about the lots, but you know the beach fronts and the good properties, they are recovering and prices are rising on those. We are seeing that happened in the Keys on the good properties and that's starting to happen. When we were at the analyst meeting I think we saw where with that line -- Mr. Smith showed us the line that crossed the listings with the sales, and we've just come off a tremendous season in the Keys, so I think the Panhandle will have a great season this summer, looks like bookings are up, so. I would expect -- all the good stuff is moving -- as they say moving pretty good.

Okay. A couple of more questions if I can -- you have a comment in your release and this is a subtle a comment about de novo, is there a de novo wish list or is it just everything's focused on the acquisition activities at this point.

Well, we want to be in there -- and there are a couple of markets that we'd like to be in and we're not really aggressively in the de novo business right now, but there's a couple of markets that we think are important for us to go into. As a result of that we're trying to buy something in those markets small that we can get in to if we can get in there that way. If not we have -- a couple of markets we will -- I think we likely need to be in Pensacola, we like to be in Mobile, we think we need to be in Naples, so we think we need in those markets.

When you look at some of the deals in those markets and there's no mathematical way to make any money whatsoever on the deal you go well, you'd be better off to just de novo into it. And so you know we're not there yet, but that certainly is a consideration.

Okay, okay. Good. And then just one other question, maybe following up on what's possible for the franchise, it's a little different way to think about it, but you guys just bought back some stock a quarter or two ago for management incentives and just curious whatever happened and then if you're willing to share some of the -- if you did distribute it, if there are trigger points for that, that you are willing to share?

Well we haven't distributed and I told them in a meeting the other day after this stock program I've got -- therefore you today I didn't give it to you yet. It's coming -- so we are going to do it sometime in the future but we bought back more stock than -- we just kind of got in the mode of buying back some stock, on a balanced approach, not necessarily to go for the, well that program, but that program will be coming out and one trigger on it -- it's triggered at $2 a share and it's triggered at $2.50 and it's triggered at $3. So there will be a pay day coming on the $2 deal here before long, but it will be vested over a period of time. It's kind of golden handcuffs too, it's not just a pay day, day one it'll be vesting schedule out there based on -- and probably be a clip [ph] vest, so somebody were to leave in the middle of time, they’d lose it.

See you in May.

The next question comes from Brian Hagler at Kennedy Capital.

I was just hoping you could spend a few seconds talking about how you narrowed the list down from 14 to 4. Obviously I'm assuming it's -- attractiveness of franchise and maybe combined with likelihood of closing and or is there less competition on these deals? There a lot that probably went into it.

I think you've probably answered your own question? Geographically where do we want to be? Where we need to be? What does it do for our franchise? What kind of EPS accretion can we get out of the deals? How bad is it? you never know these deals until Kevin and his crew get in to look at them. I mean you look on the surface, it's a nonperforming and they're OREO, you wonder if there's any games played because they're all short of capital. You just don't know till you get inside but we can pro forma each one of them and which one adds the most capital, which one has the least amount of goodwill for the books. All of that's going into the decision to -- you think about the Vision deal, there's overlap in there and we've announced that we're closing 2 branches, Randy?

Yes, sir.

We've announced we're closing two branches, I mean there could be a third one there that's -- we're going to get more efficient in that market than we are today. Not a lot of more efficient but we'll get –- the organization runs pretty efficient, so you know what that means those end-market deals that you can do, if you can put them together they're just tremendous, for on the savings side -- and we're still running north of 50% on every one of our deals that we did in the FDIC acquisition so that's all working with.

Yes. As I say I guess things went well, could you deal with more than one of these four deals by the end of the year and could it -- leverage most of your excess capital by the end of the year?

We could do more than one certainly. We could do -- we're hoping to do more than one, but we're looking at four different transactions and yes it could leverage our capital. If we buy $2 million, where does that take us, Brian?

Oh, I did have a number here that if we bought 1.5 billion it would take our leverage ratio down to 8% and our TCE ratio down to 7%, so it would be fine at 1.5. And that's with no gain on any FDIC transaction either, it's just booking the asset.

And that’s if we did it today, right?

If we did it today, with no earnings -- capital build from the retained earnings from each quarter.

At this time we show no further questions. Would you like to make any closing comments?

Well, I'd just like to say thanks for all the support that our investment community has given us and the trust that they've shown in us. A year ago, when we took a hit, I said it's not an asset quality problem, it's just a few bad loans out there. We've cleaned those up and they stayed with us -- the company's performed well. I am extremely pleased with this quarter, it is beyond doubt the most powerful earnings quarter in the company's history. It's just -- and hopefully we can find some more transactions in the future and I wouldn't expect the second quarter to be any different from the first quarter except you won't have those expenses, and you’ll have Vision for the three months. And, I’m looking at the accountants, and remember that's a forward-looking statement. So, you all feel better -- Randy you feel better?

Oh, yes.

Okay. Bye. Well we'll talk to you in 90 days and thanks for your help.

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