Home Bancshares, Inc. (HOMB) Q3 2012 Earnings Report, Transcript and Summary

Greetings, ladies and gentlemen. Welcome to the Home BancShares Incorporated Third Quarter 2012 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 participants in this call are, Mr. John Allison, Chairman; Mr. Randy Sims, Chief Executive Officer; Mr. Randy Mayor, Chief Financial Officer; Mr. Brian Davis, Chief Accounting Officer and Mr. Kevin Hester, Chief Lending Officer. The company has asked me to remind everyone to refer to the cautionary note regarding forward-looking statements. You will find this note on Page 3 of their Form 10K filed with the SEC in March 2012. [Operator Instructions] It is now my pleasure to turn the call over to your first presenter, Mr. Allison. Sir the floor is yours.

Thank you, Mack, and good to be with you again. Welcome to Home BancShares’ Third Quarter 2012 Earnings Release and Conference Call. I love it when a plan comes together. Our plans and initiatives for our next goal of HOMB $2.50 are beginning to take hold. Some of those initiatives as you remember were, we’re going to reprice about $350 million in liabilities and we anticipate paying off our trust preferred, kind off streamlining our capital section of our balance sheet. We paid off $15 million, you won’t see a lot of savings from that in the third quarter as we only paid it off on September 16th and before sometime in 2013, we will pay off the balance of that $29 million. It depends on how much cash we have with the holding company. Next in issue was $100 million in loan growth and obviously we are on our way to do that because $41 million in legacy loan growth for the quarter; we are pretty pleased with that. And the B4 program has kicked off, so we should see some additional savings there and we’ll talk more about that in a minute. Our Tallahassee transaction hopefully is on-track and that should add about $0.10 for next year. We are in the early stages of HOMB $2.50 and I am seeing good progress as I am sure you are, too. And I just want to hit the high points of the quarter. It was again, as we continue to do this, seems like every quarter, the best quarter ever in the company's history. Record earnings with $16.1 million or $0.57 a share. Had a record core efficiency ratio, the best ever in the company's history, stable margin, 3 quarters in a row, we told you, we thought there would…

Thank you, Johnny. As our Chairman has highlighted, it was a great third quarter for the corporation and I might add, it's been a great year. I want to congratulate all our employees that work so hard to make a difference in our team effort to be successful. Again, as you heard from Johnny, the third quarter of 2012 was the most profitable quarter in the history of our company. I look back at my notes and we've been able to make that statement for all of the conference calls this year. Our earnings were $604,000 or 4% better than the previous record earnings reported for Home BancShares. How do we do that? We continued to control our expenses ending the quarter with a 45.63% core efficiency ratio, we had strong net interest income and our asset quality totals and ratio continue to be very good with improvements seen in both our non-performing non-covered loan and asset ratios. Even better, we ended the quarter with strong non-covered loan growth. And we have once again reported strong reserves and capital levels leaving us in a solid position, with both FDIC and market acquisition transaction opportunities. Switching to acquisitions, we continue to be active in the hunt. We are as busy as we have ever been looking at banks for the right strategic addition to our organization. And in saying that, and as you probably are aware this quarter we entered into an asset purchase agreement with Premier Bank Holding Company in Tallahassee. And I can report that the transaction is on schedule with the regulatory and legal process. If all goes to plan, we will be purchasing all of the issued and outstanding shares of the common stock of Premier Bank Holding Company’s wholly-owned subsidiary, Premier Bank, that operates in Tallahassee,…

Thanks, Randy. As mentioned, ROA increased for the second consecutive quarter to 1.61%. The net interest margin remained consistent at 4.65% for the third straight quarter. The earning asset yield declined 10 basis points from 533 to 523, the yield on loans declined from 6.52% to 6.35%, and average total loans declined $33.3 million or 1.33% during the quarter. However, average covered loans accounted for $27.1 million of the decline and average non-covered loans only declined $6.2 million for the quarter. Ending non-covered loans actually increased $40.8 million. Yield on interest bearing deposits continued to improve by 11 basis points from 0.61% to 0.50% for the quarter. We also continued our efforts to change the mix in our deposits with average term deposits declining a $133.5 million, while average non-interest bearing deposits increased $37.7 million. Ending time deposits actually decreased $166.4 million. Changing the focus to non-interest income, we had a strong quarter for service charges which increased $166,000 and mortgage lending income which increased $273,000. We did show a decrease in gain/loss on sale of premises as we sold property adjacent to one of our branches in Q2, which resulted in a $382,000 gain, and we also had losses on the sale of OREO this quarter of $222,000 compared to a gain of $159,000 in Q2. Overall, non-interest expense improved $443,000 for the quarter and that number also included $296,000 of merger-related expenses. So operating expenses actually improved $739,000 for the quarter. Salaried employee benefits decreased $251,000. Occupancy and equipment increased $253,000, half of which was attributed to a sewer backup at one of our facilities. Did you know that most insurance policies have a cap on what they will pay to cover a sewer back up? That’s something we found out and you may want to check your own policy. Data processing fees decreased $234,000 as we moved off the separate processing system for the Vision Bank after acquisition. The core efficiency ratio continued to show improvement, moving from 46.87%, down to 45.63%. Overall, it was a strong quarter for the company, and with that, I'll turn it over to Brian.

During the third quarter of 2012, we increased our capital to about $14.5 million, and $12.7 million of this increase was from retained earnings. Also we did pay off $15 million of our more expensive trust deferred securities. For Q3 2012, our leverage ratio was 11.3%, compared to 11.1% at 6/30. Tier I was 15.6% compared to 15.8% at 6/30 and total risk-based capital was 16.9% compared to 17.0% at 6/30. Additionally, book value per common share was $18.10 compared to $17.64 at 6/30. Tangible book value per common share was $15.01, compared to $14.53 at 6/30 and a TCE ratio was 11.1% compared to 10.3% at 6/30. Randy?

Well, I guess that’s another new record for us too; humor out of our CFO. Let’s switch to loans. It was a very successful quarter on the loan side too. Our asset quality metrics have been very good throughout the year with improvement in already strong numbers, each quarter end in 2012. We saw improvement in both non-performing loans and assets. In addition, we had strong loan growth, especially at the end of the quarter that we will see additional revenue from in the fourth quarter. For these numbers and a little more information I don’t want to steal anymore of the thunder, and will turn it over to our Chief Lending Officer, Kevin Hester.

We continue to show improvement in the asset quality measures of the company in the third quarter. Our non-covered, non-performing asset ratio improved slightly from 1.19% to 1.14% as did our non-covered non-performing loan ratio from 1.28% to 1.09%. Our allowance for loan losses as a percentage of non-covered loans declined slightly from 2.45% to 2.28%, as we continue to allow it to decline with the improvements we are noting in asset quality. However, if you added the Vision acquisition discount to the allowance for loan losses, the combined figure would be 2.97% of non-covered loans at the end of the third quarter. The allowance for loan loss coverage ratio improved from 191% to 209%, reflecting continued strong coverage of our non-covered non-performing loans. Early stage delinquencies declined slightly from 2.12% to 1.99% of loans. Non-covered real estate owned increased slightly in the third quarter from $14.6 million to $14.9 million, and 80% of this balance is located in Arkansas. Net charge-offs were at 50 basis points in the third quarter and this is exactly our average for the 4 previous quarters. In addition to the improvement in asset quality, as has been previously mentioned, we achieved non-covered loan growth of $41 million in the third quarter. This is an annualized growth rate of 8%. We continue to have a strong loan pipeline, and believe we could experience a similar result in the fourth quarter. We continue to see our competitors expose their balance sheets to interest rate risk, however we remain diligent. Our recent loan pipeline improvement is spread across the regions and this is encouraging for sustainability. As has been the story in recent quarters, the third quarter of 2012 was a solid one from an asset quality perspective, and we continue to be optimistic about the opportunities for further improvement.

Good report, Kevin. Well, the third quarter is over, more records were broken. Our asset quality ratios are at strong levels and we’ve had very good net income growth. It continues to be a good year and we are making progress as we try to reach that HOMB $2.50 goal. I will now turn it back over to our Chairman, John.

Thanks, Randy, and good report. It’s pretty amazing that this company’s operating expenses were less than they were a year ago after having Vision and their 15 branches and like Randy Mayor reported $739,000 reduction in operating expenses. And this goes to show how well the company is coming on at this point in time. So when you get expenses under control with loan pipeline growing and reduction and even the trust preferred expenses, I think you can see we are looking for a pickup in revenue. Last quarter we hit on 9 out of 10 with no organic loan growth and this quarter we hit on 10 out of 10 with organic loan growth. So I am pretty pleased with this and we are ready to go to Q&A. Mack, are you ready.

[Operation Instructions] And the first question we have comes from Michael Rose of Raymond James.

I just wanted to get a sense, I think I asked this last quarter and clearly you guys still have a lot of reserves. How should we think about future quarter’s provision, kind of in light of the strong -- really strong coverage ratios you have and continued decline or stabilization in legacy non-performers?

As the asset quality continues to improve we’ll let it come down. But I think you know historically we like strong reserves, we will maintain strong reserves, we are running about -- even when the sky clears we’ll probably be in the 150 range. So we’ll let it continue to come down. The sky is not totally clear out there, it is getting better. We see progress. Kevin’s teams made great progress on the loan side; it was the best numbers we’ve had in many years. Kevin, you got any comment on...

I think that’s exactly what we are trying to do. As things improve we’ll let it decline a little bit more and we’ll always keep more than the majority of our peers.

Randy, any comment?

Same comment. It’s good to be in this position.

Agreed. And separately on the margin it seems like the Premier bank deal will have a little bit of a negative impact. Can you kind of discuss your thoughts on the margin, and your expectations for long yields as we move on?

There is pressure on the loan yield side, to move -- vice-president [ph] of corporate efficiencies is not only the expense side, but the revenue side too. This group has taken those loans one at a time and we are battling that to keep the margin up. The new initiative is to know what our cost of funds and what our loan yield is every day, rather than at the end of the month and that information is being created for us now. So we’ve become better managers in managing that. As you could hear Randy Mayor said we dropped 10 basis points on earning assets and we dropped 11 basis points on the liability side. So we are paying lots and lots of attention there. I think the company is -- the team is to be congratulated for paying so much attention to it. We are able to hold that. We've got a little more room on the liability side. We've got some more room on the expense side, and I think you are going to see, as I said the strongest pipeline since we've seen ’08. So I think you’ll see volume picking up, not $300 million or $400 million but our goal was to do $100 million in loan growth, and I think that is in our pocket at this point in time. It may be more, but we think that's real. So we are getting a little pressure on the margin as you can imagine. Some of the new deals are having to be written in the 5s rather than the 6s, but we take them one at a time. We are not passing out the credit card and we take them -- we take them one at a time. Kevin, Randy, any comments on that? Randy Mayor?

No.

The next question we have comes from Jon Arfstrom of RBC Capital.

A couple of loan growth questions; the period end balance higher than the average and you guys sounding a little bit more optimistic on loans, is this something that happened throughout the quarter or you guys seen this happening for a while or is this, this kind of a turn in your thinking?

I am going to let Kevin comment on it, but we begin to see that come on, some really good deals we turned lately and some of the big deals it takes longer, some of the little deals you can get done a little quicker, but let Kevin comment on what he seeing, because he’s got a feel of it all over the country for us.

John, to answer your question, the first part of your question, yes we did see it coming throughout the quarter. A lot of it closed towards the end of the quarter, so that leads to the ending balances being higher than average. What’s left in the pipeline is still strong across all the regions we are seeing. We are seeing smart money making, doing deals in each of our regions and everybody is contributing to it. So we still see some work coming.

Randy, comment?

I think it's pretty evident that by the fact that we did close out and get a lot of those loans closed at the end to show that good loan growth that, that brings some pretty good prospects for the fourth quarter and as, if we can continue to close this pipeline evenly throughout the fourth quarter, it even gets better.

Just one follow-up on that, the construction and development increase, I am guessing that’s Florida opportunities or is there really nothing else behind that?

That's an existing customer of ours that we follow his projects around.

That’s our largest customer doing another big project; he's the guy -- he's the guy that's been with us for 30 years. We’ve been doing business for 30 years. He is doing another $30 million project. That's primarily where that can come from.

And then, Johnny, just a question for you. I'll probably hear groans in the room when I ask the question, but what's the -- we’ve probably all blown by the HOMB $2.50, what's the biggest impediment to hitting the HOMB $3; what do you guys need to do to get to that?

Not at $2.50, yes.

We all get busy to get about 26% of [indiscernible].

To get to $3, we need some more assets. We need another deal. I'm not sure how good these guys are. I think they're damn good. I mean, they ran at $1.60, they ran at $1.69 for the last month and Little Rock and Conway were off a little bit, normally stronger months, they were off a little bit. You can normally count on them running north of a $3 ROA and they were a little off, different things. We had a fraud loss on, what was that, Randy? ATMs, where they were skimming the ATM machines. So we had a loss on that and we took that during the quarter and Little Rock was just off a little bit for different combination of reasons, which they won't be next month and they'll be back stronger. So I am going to let Randy Sims tell you what he is seeing out there in the regions when he looks at the ROA that’s coming in and the performance of the different areas out there and what he is seeing. Even though, Conway and Little Rock that have been our 2 big horses, were off last month; Randy, you want to talk about the rest of it?

Well, for the first time, I mean, Florida’s traditional ROA when calculated was higher than it's ever been. Traditionally, I mean in the past conferences, we have said that Arkansas was doing about 80% of the income and Florida and Alabama doing about 20% of the income and that we were not pleased with that and that if we ever started seeing that come up, that, that was the real opportunity for us. Well, on an internal basis, I can say today that 35% of the income came from Florida and Alabama. So you’re seeing exactly what we wanted to see; we’re seeing Florida and Alabama start to get our culture, turn things around, get back out as real bankers and start making progress and which is improving our profitability and they’re not completely there yet and so that just means that we’ve got more to come.

And we're consistently turning over rocks and looking at deals and there is a couple of game changers out there that we need to go north of $3. When I saw $2 I told the Street I saw $2, actually $2.50 now, I think over $2.50, if things get -- if everything remains the way it is, you heard those numbers a while ago, you can do the math, like Mayor refers to, my Jonesboro math. But it’s north of $2.50 and we need a trade that makes some sense to get us to $3 and we see those opportunities out there. Jon, we are really busy. I had to tell some people yesterday, we just don’t have time to look at their deal, because we do not have time; we got too much going on right now and too many opportunities. We’re kind of being inundated with deals right now. So again, we got to close the door here before long and shut the door and get back and look at those that we think can close like we thought Tallahassee could close on Premier and hopefully we’ll get that done before the end of the year. But we’re very busy; some big, some small, some 3 big and some 2 big and some 1 big and some $500 million deals, so we’re pretty busy. Hopefully, we’ll get one of those this year or early next year.

Next is Dave Bishop of Stifel, Nicolaus.

I was wondering if you can walk through, you mentioned the trust preferred redemption in the quarter and additional outstanding; I think you said the fourth quarter in terms of the income statement impact there what that can have effect in terms of spread income and the margin?

Well, I can give you the numbers, it’s about $85,000 a month for what we paid off, pretax, pre-provision; we only get 15 days of that in the quarter, you will see the full effect of the 3 months be $255,000 to $260,000 pretax in the fourth quarter and then we are still sitting on about $20 million of trust preferred to pay off. We will pay that off sometime in ’13; I am not sure when. We got some things working right now that we might need some cash for, so we are going to sit on the cash. We’ll pay them off in maybe the second quarter, first quarter. We just kind of pay them off $15 million, $15 million, $15 million and sometime in ’13 we will probably pay those off. And that will be another that’s $29 million at about 460, 470 that would be good numbers to use. And the combined effect annualized is about $2.1 million on the trust preferred. If you take what we paid off plus the other it’s about -- little over $2.1 million.

And then in terms of the B4 initiative; how much of that was in the numbers in the fourth quarter; I know you got Donna working on that, spearheading that. How much was in the third quarter numbers and what you are expecting to bleed through in the fourth quarter?

She will be reporting; she just really gotten her teams put together and getting that organized. I can’t tell you how much was in there, but she will be reporting to the group next quarter on what we gleaned during the quarter, but her teams have just getting organized again. There's got to be some more there, I am not sure how much more is there, but there's got to be, with the addition of 8 banks since we have done the study, will hopefully be a little more. Where can we get to? I mean when you are running, they ran a core efficiency last month of 44 16. That's really hitting the numbers. We'll find out how good they are, Dave.

The next question we have comes from Matt Olney of Stephens.

First, a great quarter, and second of all, I want to ask you the margin and particularly the loan yields. You’ve been holding those loan yields in very well the last few quarters and now you're starting to get some good loan growth. How should we start thinking about the loan yields going forward with the addition of this new loan growth?

Just figure within the 5 ranges, just put a 5 handle in front of them. That'd be the best thing to do. If you heard what I said, $100 million at 5% is $5 million in additional income coming in. So I think that’s a reasonable number and I may have to, it still takes my approval to offer 6; I am signing more of those than I've ever signed, but we are not going to do anything silly. Maybe we do a 5 or 5.25, 5.5, 5.75 but we are not going to start messing up our balance sheet.

And then Randy Mayor, I think you provided us with the breakdown of loan yields between covered and non-covered and I think I just missed that. Do you have that in front of you by chance?

Yes, hold on just a second, for the non-covered loans it was 6.05% and for the covered loans it was 7.84%.

Remember, we booked those at about 6.50%. The pools have improved and the core performance [ph] has allowed us to move those up over a period of time.

Next question comes from Joe Fenech of Sandler O'Neill.

John, you are building capital so fast here and I know you've said in the past and you probably -- sounds like you still want to keep powder dry for acquisitions and maybe a larger deal. But as you build capital, any thoughts to maybe more of a dividend increase or special dividend or more of a buyback or are you still in the same mode of trying to keep powder dry for deals going forward?

Let me ask you this Joe, who is going to win the Presidential election?

Your guess is as good as mine.

I told folks the other day just to be safe I think we’re going to do about $3 special dividend. [indiscernible] We like to pay about 1.5%; we're a little below that. We like to pay in that range. So I wouldn't be surprised; I might talk to the board about would they like to kick it a little bit. I don't know if they will or won't but that's about and take us up to about $0.52 if the board wanted to do that. I think 1.5% is a good return for investors. We've been buying back a little stock. We didn't get much bought back last quarter. We are going to try to get some more bought back this quarter, but we didn't.. Brian, will we get 13,000 shares or -- we didn’t get much bought back. But we are going to keep powder dry for deals, we want to get to about $6.5 billion to $7 billion and we will stay there and just see how efficient the company can get because our concern is if we get around 9 they are going to treat us like we are 10 with Dodd-Frank and we're not ready for that. I don't think it's efficient to be $9 billion or $10 billion and try to have all the expenses associated with it. I think you are much better off being 15 or 16. So that’s kind of the plans right now.

And John, I know it's very tough to say. You are looking at a lot of stuff, but can you handicap the odds for us of doing a sizeable transaction versus kind of a string of smaller deals? Is it like 50-50? Is it more likely that we see the smaller deals? How would you kind of handicap it at this point?

We're looking at one at $2 billion that it fits us perfectly, a footprint, a nice trade. I don't know if we can get it to our earnings standards and we looked at a little one and a headcount of an end market deal, it’s about $100 million. So you got to pick and choose. You can do some creative things with some of these deals like put back the non-performing OREOs in some of these trades with these private transactions. So we're looking at some pretty creative stuff that might make sense for us. You want me to handicap, well that’s tough. I think you will see us with another $1 billion-plus in assets in the next 6 to 8 months.

The next question we have comes from Kevin Reynolds of Wunderlich Securities.

Talking about your M&A outlook and vision, I want to sort of drive past the, which deal you do next if I can, and kind of get to the sort of the out period. How big do you think you need to be where you’re comfortable? I think I heard you just say sort of in a $6 billion, $7 billion range. But when you get there, how profitable can you be if you stopped growing and just started focusing on squeezing the costs out and enhancing the performance of that larger franchise?

Well, they'll all faint; I'll have to get oxygen in here for them in a minute. But it’s not me running these banks, and they are good. I have to say they’re good. I mean, obviously they can run on 169 because they did last month and 2 of our strong markets were off a little bit, which was Little Rock and Conway, probably would have been a 172. So where can they get to, we don’t know yet. With the revenue enhancements that we are working on and the expense side we’re working on, it’ll be interesting to see can they run a 2, can they run a 180? Every time I raise the bar, they step up and do it. So let me give you my utopia and I’ll let Randy Sims make a comment. My utopia is about $7 billion doing a 2, kicking out a $140 million a year in income and that’s $3 or $4 a share, because we’ll continue to buy back stock and you’ll be happy as an analyst for us and our shareholders will be happy, and I can assure you that I’ll be happy. So that’s kind of a mine gold to mine and I can’t tell you how we’ll get there yet, but that’s kind of a mine gold and I’ll let Randy Sims -- they just gave him oxygen and he woke up and I think he’d be able to talk to you.

Well, first of all I’d like to say that I’ve never see a goal exceeded and you’ve not set another goal. But regardless there is a factor there that I would like to talk about just a second. If we've got all of these banks and we’ve got all of these special assets people out there and we’ve got all these pools that are going to eventually come to an end. In Arkansas we have one special asset person; in Alabama and Florida with these FDIC acquisitions, we have a whole team. So there is a lot of expense that’s being applied to these pools and sweat equity and in all these employees that are working all these loans off. So when that goes away, if you were to stop and that goes away and you get down to the real customers, there are still tremendous savings and expenses.

And just let me say this, this bunch is pretty good. I was on the road the other day and someone was telling me that people in these failed banks don’t know what that expense is and I said I know what it is, I know how much it is because Randy Sims told me exactly how much money he is spending on an annual basis. So we are on top of that and that’s a huge savings for us and we will work through that at some point.

A couple of other, maybe sort of housekeeping questions. Just so I am clear Randy on the cost or the cost of the trust preferred going away, if you took that quarterly expense out about $450,000 or so assuming you paid them off. Is it right in assuming that, that would be out 7 or 8 basis points accretive to the net interest margin calculation, all else equal?

It’s about $550,000 total not $450,000 it’s about $2.1 million, it’s about $550,000 and would that be 7? I am looking at Brian Davis -- Mayor has got a calculator in his hands. I hope he knows how to run it, if he's got one.

Give us a little time to figure out on that one.

Okay. And then the last thing, Johnny, you talked about continuing to buy your stock and the weighted average price that you have purchased year-to-date has been -- is well below where you are right now and yet you talk about continuing to buy back stock. How sensitive are you to price as you contemplate further buybacks going forward?

Well, I think we continue to buy in here. I think we are not afraid to be buying in here where we are. I mean, I think $2.50 and I think you agree is in range and the stock is going to be trading in the 37-38 range at that point in time, and surely by then we’ll have another deal and we’ll set another goal. When I told you $2.50, you believe me, you were the first one to go to -- I mean to $2, you were the first one to go. When I bid $2.50 you believe me. And when I tell you I see $3, I see it. I just don’t see it yet. But I think I can see over $2.50, but I don’t see $3. But I think I will see it, and when I do, you will hear me say it.

The next question we have comes from Brian Hagler of Kennedy Capital.

I thought I heard some groans on that $1 billion-plus in the next 6 to 8 months, but I am optimistic.

They groan a lot around here, but they get it done.

Agreed. I just had a quick question. Most of them have been answered, but on that Premier bank deal, I know you talked about it closing in the fourth quarter. Does that mean it’s been through the bankruptcy court and everything is moving on track?

Randy will give you an update on that, Brian.

Right. November 13 bidders had to declare themselves. We have passed through the hardest hurdles of the bankruptcy process and that was setting the rules and the procedures and listening to all the objections. It actually required about a 6-hour day in a court room, which if you can imagine myself and Tracy French sitting still for 6 hours, that was a feat in itself. But we got past that and now the bidders have to declare themselves on November the 13th. If there are no bidders that show up and then we will automatically petition the court to make the sale final. If there are bidders that show up, then there will be an auction on November 27. So I really don't see it not closing in the fourth quarter unless we lose the bid or something. But at this point we are very optimistic that this thing is on scheduled and will close in the fourth quarter.

You would think if somebody is going to bid against us, they'd be in there doing their due diligence and they are welcome to do that and they are welcome to bring their checkbook because it purely is an auction and they want to outbid us and then they can own it. And we will be there with our checkbook and we'll see what happens.

The next question we have comes from Brian Martin of FIG Partners.

I just wanted to get a sense, Johnny, on the M&A and kind of being as busy as you are lately. Are you seeing more opportunities for healthy banks or is it still problem banks more that's kind of leading that charge on that front?

It’s problem banks primarily. The little ones that been in market deals is fairly clean. They are just, they are problem banks and they're due. I mean they are coming, they realize, they can't -- hell, there’s 800 of them, you know that and they can't earn themselves out of this. They can't recap. Management is tired. Management is just beat up. The Boards of Directors are tired. They just want to get their book value if they can get their book value and get out the door. Mostly problem banks and you have to get in them just like we did Tallahassee, it wouldn’t work. That deal would not work with trust preferred and TARP. It just wouldn't work. So sorry, it didn't work. It’ll work. We can make it work, but the only reason it works for us is because it doubles our size in that market. We've picked up some good management. We've picked up lots of talent in that market. Their branches are a little massive than our branches. So there was more to that transaction than just the price. If it has just been a price transaction and somebody new coming in to Tallahassee to probably do that transaction, it wouldn't work. So you've got to look at your footprint. We've got a lot of management on the ground in the Panhandle Florida. So when an opportunity comes up in the Panhandle Florida it’s not as expensive for us to increase our size there because we've got people on the ground.

And as far as the organic growth I know you talked this quarter and fourth quarter. When you think about next year, what are your expectations as far as being able to sustain $40 million type of number or just kind of loan growth next year?

Brian, you are going to get me out here on a limb because I'm not sure it’s real yet. It looks good. Do I think we can do a $100 million next year, I would say certainly we can do $100 million next year. Looks like we are going to have $100 million from the third and fourth quarter; I mean we've got that much approved, that much in the pipeline, that much coming out. I thought it would take us a year to get to $100 million, but we've gotten it quicker but some of it - those are kind of spotty deals. It’s smart money that's finding a deal, about $50 million of that is some of our I1 [ph] customers who found great transactions out in the marketplace. Now the cycle is there are lots of those deals out there. Will we find more of those? Probably, and some of our existing customers have stepped up. So I'm not ready to call it yet, I'm not ready to say that it’s a trend, but it looks pretty good right now and we are going to get to the $100 million faster than I thought we are going to get to $100 million, and you will see the revenue side come up. There's still a little bit of room on the liability side and when Donna's team gets through over the next 5 or 6 months or year, whatever time. And she -- someone asked the question a while ago, she really just started. I just got her about a month ago. She was working on other projects. So we just fired that up. So we're just on the leading edge of that. So...

Okay. Two last things, can you just comment a little bit on when you expect some of the FDIC loans to just stabilize versus kind of the runoff, and I guess it’s obviously ongoing, but when did those begin to stabilize or at what level?

We've seen so far, we're about a third of the way through those portfolios, and the first third was slow, the second third will be quicker than the first third was and then you will be left with good loans at the end. That would be a third or half, I don't know. But it took us 2 years to 2.5 years to get through the first third. I think we will get through the next third in the next 12 to 18 months.

Okay, and then just last thing, maybe for Brian. The cash at the parent at quarter end, where was that at, Brian?

That was at $37 million.

It appears that we have no further questions at this time. We will go ahead and conclude our question-and-answer session. I would now like to turn the conference back over to management for any closing remarks. Gentlemen?

Mack, thank you, it’s a pleasure working with you again and your company. We’ll thank all of you, our interested parties, all those on the call and on the internet that are following us. We’re proud of our quarter and hope next quarter will be as good as this quarter was or maybe better. I might ask for a little more, and they'll give me a little more. Anyway, thanks a bunch. We’ll talk to you in 90 days.

And we thank you sir. It’s always good to hear from you. The conference call has now concluded. We thank you all for attending today’s presentation. At this time, you may disconnect your lines. Thank you and take care everyone.