John Allison - Chairman Randy Sims - CEO Randy Mayor - CFO Brian Davis - Chief Accounting Officer Kevin Hester - Chief Lending Officer Donna Townsell - Vice President, Corporate Efficiencies Tracy French - Regional President, Centennial Bank

Stephen Scouten - Sandler O'Neill Matt Olney - Stephens Brian Zabora - KBW David Bishop - Drexel Hamilton Michael Rose - Raymond James Jon Arfstrom - RBC Capital Markets Brian Martin - FIG Partners

Greetings, ladies and gentlemen, welcome to the Home BancShares Incorporated First Quarter 2015 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 and then entertain questions. [Operator Instructions] 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 10-K filed with the SEC in February, 2015. At this time, all participants are in a listen-only mode, and this conference is being recorded. [Operator Instructions] It is now my pleasure to turn the call over to our first presenter, Mr. Allison. Please go ahead, sir.

Thank you Chad, and welcome to the first quarter of 2015 Home BancShares earnings release and conference call. With me today is Randy and Randy and Brian; Kevin; Tracy and Donna. Tracy is a little out of the weather with us today. I don't know what he is going to say. He’s got little cold but he is with us today. This was an extremely busy quarter for the Group. I think this was busy quarters we’ve had in years. We are working on three different merger and acquisition deals, straight Home Banc deals, the Doral deal with our last bids that we did with both Banco Popular and Oriental and in addition to that, the JC Flowers deal that we did. So, some time I’d go more in depth about the Puerto Rican deal, that was pretty interesting. Four Arkansas guys loading in an airplane and flying to Puerto Rico. That was a lot of fun. Meeting people we didn't know and signing alliance agreements, but we got it done and got something out of it. In addition to that, hiring our New York team to run new operation there. In spite of that, the company had record earnings of $32.1 million or $0.47 a share, strong efficiency ratio, outstanding cost control by our group, improved asset quality, margins remaining strong, $200 million in new deposits out of the Doral deal, $40 million in loans that we brought at a substantial discount and made a little gain of $1.6 million, little busy in our income statement this month with the plusses and minuses. And we just picked up $290 million new loans in this quarter. The creation of Centennial Commercial Finance Group, we grew stockholders equity by $24.3 million, we had a record revenue, 140% coverage to non performing, and to show you how well we have operated on the expense side, non interest expense, ex-merger expenses were $100,000 lower this year than they were last year, even after adding Florida Traditions and Broward plus Doral in the fourth quarter. So, I’d just say, congrats to everybody. What a great quarter it was. We're extremely busy on the M&A side. I think you will see us get some M&A deals this year. We have completed our branch study. You've asked about that several times and Donna Townsell will report on that today. So overall, I'm a pretty happy camper. I'm looking forward to the next quarter. I've been watching the income stream come in, also these new loans and that's pretty sweet. When you're booking $300 million worth of loans at a 50% loan-to-value with 6% coupon that adds to income, which is pretty nice. So, I think I'll turn it over to Randy Sims and Randy will go into the more of the specifics and let everybody report. Randy?

Thank you, Johnny. It was really a good quarter for us to start off 2015. In fact, as Johnny stated, I can say it was the most profitable quarter in the history of our company, and that leaves me to quote most favorite thing to say on these calls. That is now 16 consecutive quarters of record income for Home BancShares, a $1.2 million or 4% increase over our previously reported record profit last quarter. And on top of the record income, as Johnny alluded to, it was a very, very active quarter for us. And I'll just review a few of the following things that he talked about. We acquired the Doral Florida Panhandle operations and the FDIC failed bank transaction that just adds to our already strong presence in Panama City as well as giving us a good increase in market share in Pensacola. All five of their branches will be consolidated into existing Centennial branches. We acquired $289 million of national commercial real estate loans in a kind of related Doral transaction, and we started up the new Centennial Commercial Finance Group in New York. In addition to these transactions, as Johnny said, I can say without hesitation the first quarter has been extremely busy as we continue our quest with potential acquisitions, organic growth opportunities, and working to improve our own existing markets. So, let me get to the numbers. I'll go through these pretty quickly and add little color to them. So, as of March 31, the corporation is sitting at $7.5 billion in assets. Our quarterly profit was a record $31.1 million or $0.46 diluted earnings per share, compared with income of $27.3 million or $0.42 diluted earnings per share the same quarter in 2014. That is an increase in income of $3.8 million or 13.8%. However, excluding the special $918,000 of net provision for loan loss on covered loan pools, the diluted earnings per share for the first quarter of 2015 was $0.47 per share, taking net income to $32,102,000, which is where we wanted to end up, so we made it. Our return on average assets for the first quarter was 1.67% as compared to 1.62% for the fourth quarter of 2014. Our return on average assets excluding intangible amortization was 1.79%. Our core return on average assets so they exclude intangibles, provision, merger expenses and taxes was 3.04% for the quarter, all good numbers. Our return on average TCE excluding intangible amortization for the quarter was 18.99%. We ended the first quarter with a 41.41%, that's kind of an odd number to end on -- efficiency ratio as compared with the fourth quarter of 2014 of 41.87%. So, as Johnny said, improvement, even in our efficiency, our low efficiency ratio. Our core efficiency ratio was once again getting very close to that three in front of it at 40.84%. Consistency in this ratio was a key to our success in 2014, and our goal is the same for 2015 hoping to get under that 40%. At the Centennial Bank level and on an internal analysis, 63% of all assets are in Arkansas; 33% of the assets are in Florida, and 4% of the assets are in Alabama. The total number of active Centennial branches is 149, excluding the recent Doral branches with 82 in Arkansas, 60 in Florida, and seven along the Alabama coast line. In the first quarter, we closed one branch in Longwood, Florida. We're continuing our efforts with the branch efficiency problem. And here to tell you just a little bit about -- more about that program and our efforts to get through that, little three number in front of the efficiency ratio is Donna Townsell. Donna?

Thank you, Randy. We announced our branch study a little over a year ago. We pulled a year's worth of data and evaluated about 42 branches across the enterprise. Many variables were considered, such as proximity to other branches, deposits, transactions, market share profitability, et cetera. We've narrowed our current focus to about eight locations. Over the course of the next year, you will likely see us announce strategic consolidations where it improves efficiency and maximizes customer service in certain markets. In terms of cost, if we were to consolidate our current focus group, it could result in a one-time hit of close to $2 million. However, the good news is that $2 million -- of that $2 million, about $800,000 is related to the write-off of goodwill, which will lower the impact to tangible book value and annual operational savings will be in the neighborhood of $1.5 million. And in terms of overall bank efficiency, we're still running pretty flat with a 40% for the first quarter. Randy?

Thank you, Donna. I also want to say that our new operations committee has started efforts on increasing fee income as well as improving operational efficiencies, and we're very optimistic that there is a lot of opportunity for improvement. So, kudos to them on really getting after it and we'll see what comes for the rest of the year. Switching to deposits, we ended the quarter at $5.10 billion compared to $5.42 billion at the end of the fourth quarter 2014. The Doral Florida acquisition was approximately $466.3 million in deposits. Time deposits represent 24.6% staying just barely under our 25% goal of total deposits; so, net interest income, margin and non-interest expense. I'll turn it over, as usual, to our CFO, Randy Mayor to give you all the numbers and some color. And after that Randy will pass it to Brian Davis to give us more information on our capital numbers. So, Randy?

Thanks Randy. The first quarter is a little more challenging due to the fewer processing days which impacts net interest margin and the connectivity charges as well as the resetting of some limits related to certain payroll taxes. But overall, it was a good quarter. Net interest margin on an FTE basis was 4.94% in Q1 compared to 5.26% for Q4 2014. Loan yields declined from 6.41% to 6.05%, mainly as a result of a slowdown in the accretion from the Liberty transaction of $2.9 million and a reduction of $1.8 million related to the positive impairment on loans recorded in Q4 2014. Without the positive impairment in Q4, the yield would have been 6.23% compared to 6.05% in Q1. Investment yields increased from 2.78% in Q4 to 2.89% in Q1. The effective yield on non-covered loans was 5.65% Q1 versus 5.89% in Q4, whereas the effective yield on covered loans was 14.65% in Q1 compared 16.53% in Q4. The yield on interest bearing liabilities increased slightly from 0.36% to 0.37%, primarily as a result of the deposits acquired in the Doral transaction. In Q1 '15 there was a covered provision for loan loss of 9.18%, as Randy mentioned, related to the slight decline in asset quality of couple of the covered loan pools. There was also a reduction in the provision of non-covered loans or of $1.6 million from Q4 2014 due to the continued improvement in asset quality and the slowdown in loans migrating from purchase loan accounting to originated loan accounting from the Liberty transaction. Total non-interest income was up $4.5 million from the prior quarter. Of this change there was a bargain purchase gain, as Johnny mentioned, of $1.6 million and a reduction in the amortization of the FDIC indemnification asset of $3.5 million. Adjusting for these two items, non-interest income decreased $659,000 with service charges decreasing $725,000; trust fees actually increased to $119,000, mortgage lending income decreased $409,000, and insurance commissions decreased $410,000, partially due to the sale of the town and country division that was located in Jonesboro, Arkansas. Gain on sale of OREO increased $229,000; investment income increased to $161,000 and other miscellaneous income increased $351,000. Total non-interest expense decreased $436,000; salaries and benefits decreased $521,000, occupancy expense decreased $271,000, fee expenses increased $577,000 and other operating expenses decreased by $221,000. Overall, the adjusted ROA of 1.67% and core efficiency ratio of 40.84% were good numbers for the quarter.

Thanks Randy. As of March 31, 2015, our company ended the quarter with $1.40 billion of capital and $75 million of cash at the parent company. During the first quarter of 2015, we've paid out shareholder dividends of $8.4 million and grew retained earnings by $22.7 million. As of March 31, 2015 the Basel III rules are effective for the first time. So this is the first quarter for the new rules. The final call report numbers could be slightly different than what I'll discuss today. There is a new ratio under Basel III is the common equity Tier 1 capital ratio. It's the calculation of common equity Tier 1 capital divided by risk weighted assets. Also, the risk weighted asset calculation has become much more stringent, particularly for the acquisition, development and construction, commercial real estate loans. These loans previously were risk weighted 100% and now they are risk weighted 150%. For Q1 2015, our common Tier -- our common equity Tier 1 capital was $686.4 million, total Tier 1 capital was $745.4 million, total risk-based capital was $801.9 million, and risk weighted assets were approximately $6.1 billion. As a result, the new ratio, common equity Tier 1 capital was 11.2%, the leverage ratio was 10.4% compared to 10.3% at 12/31; Tier 1 capital was 12.2% compared to 12.6% at 12/31, and the total risk-based capital was 31.1% compared to 13.5% at 12/31. The projected decline in the Tier 1 capital and the total risk-base capital ratios was expected and is directly related to the most stringent rules on risk weighted assets. Additional capital ratios include book value for common share, which was $15.38 compared to $15.03 at 12/31. Tangible book value for common share was $10.30, compared to $9.90 at 12/31. And lastly, the TCE ratio was 9.7% compared to 9.5% at 12/31. Randy?

Thank you, Brian. Great reports from both of you. Let's switch to loans. We have a very projective strong loan growth pipeline for the second quarter. I think we have -- are continuing to improve our already strong asset quality numbers, plus as I turn it over to Kevin Hester, our Chief Lending Officer, is going to give you some information that I think everyone is wanting to hear on our New York start-up. So, Kevin?

Thanks Randy. The first quarter of 2015 is in the books and even though one that splashes last couple of quarters it was still very solid, especially as first quarter go, led by a 7% improvement in our non-covered, non-performing loan ratio from 82 basis points to 76 basis points. All asset quality measures improved on a linked quarter basis. When comparing quarter-over-quarter, both non-performing ratios have been reduced by 27%. The allowance for loan losses as a percentage of non-covered loans decreased slightly in the first quarter from 1.09% to 1.07%. However, if you added all the acquisition discounts to the allowance for loan losses, the combined figured would be 3.70%. Quarter-over-quarter, the allowance for loan loss coverage of non-performing, non-covered loans improved from 103% to 141%. Non-covered real estate loan increased just over $400,000 on a linked quarter basis from $17 million to $17.4 million. This is a first increase in OREO since the Liberty Bank acquisition in the fourth quarter of 2013. Net charge offs were 22 basis points in the first quarter, which is below the previous eight quarter average of 30 basis points, and early stage delinquencies remained low at 1.27%. While non-covered loans grew over $100 million in the first quarter, only a small portion of that was organic growth. That's following a pattern that we've noted in previous first quarters. Looking forward, the pipeline is strong as Randy have mentioned. And it looks like the next couple of quarters could provide organic growth like we experienced in late 2014. Our Mortgage President, Michael Powell has only been with us for two quarters and we're already seeing an improved loan yield. Also, in March we experienced the highest single month of lot of volume in the Bank's history. Congratulations on those two accomplishments. I also would like to take the opportunity to introduce Chris Poulton, the President of our newly-formed Centennial Commercial Finance Group located in Manhattan. He and his team will be servicing the $289 million in loans that we recently acquired from J.C. Flowers that resulted from the sale of Doral Bank as well as handling new origination of similar credits. During our due diligence process that lasted the couple of months, our management was very pleased with the underwriting and structure of their credit. Our executive loan committee will review and approve those credits after they've gone through the primary process. Our shareholders can rest assure that our approval process for these credits will remain strong. With that Randy, I'll turn it back over to you.

Thank you, Kevin. Great report. And kind of summing up another acquisition that adds to our Panama City and Pensacola markets, plus a new opportunity in New York, record earnings for the 16th consecutive quarter, a consistent and strong efficiency ratio, right asset quality metrics and I just can't wait to see what our team can do the rest of the year. Prospects look really good, and with that I'll turn it back over to our chairman, Mr. Allison.

Thanks guys. I hope you all enjoyed the report as much as I enjoyed it. I thought` it was pretty good. Overall, we did three M&A deals this week Randy, or two this week, really three Kevin. We've did about three M&A deals this week. We're on the hunt, so hopefully we'll bring some of those home herein the next quarter or two. I think that will work out. Anyway, I guess it's time for questions, and I think we can -- Chan, we can go to question if you want to.

[Operator Instructions] Our first question comes today from Michael Rose with Raymond James. Please go ahead. Go ahead Mr. Rose. Your line has been promoted. Is your line muted? I think we'll go with our second question. That is from Stephen Scouten with Sandler O'Neill.

Hi guys. How you're doing this morning or afternoon, I guess. Sorry.

Hi. How are you?

Good, good. A couple of questions may be. Johnny, you sound incrementally may be more excited than your recent public commentary around M&A. What are you seeing in terms of pricing in terms of this due diligence like -- or things may be in the ballpark of where you're comfortable, and any kind frame-up you can on size of deals you guys are looking at currently.

Well, we're looking at that from $250 million to about $1.5 billion. I'm optimistic. We might bring some of them home. We're not going to get stupid like some of these people do. We're remaining very disciplined. We're looking at the deals. And we're selling that side of it as hard as we can. When you really look at the chart of those that are bidding against us particularly in the Florida market, when you analyze the last 10 years of their performance just compared to ours, only one of them is above the zero line. We're up 300%. So, I think that the story is beginning the sale that it's not necessarily the price you get. It’s the quality of the stock that you get in the performance. And you can kind of go back and look at those deals, and I listed our competitors here recently, and we have more inside ownership in Home BancShares than all our competitors combined. So it's pretty interesting to see if you get skin in the game, then you're spending your own money, and if you don't have skin in the game, you're spending other people's money. So, it gets back to my comments about why in the heck would any CEO dilute themselves, but they continue to do it and continue to do it and it's pretty amazing to me. But it's catching up with them, as we seen the results coming out lately from the prices they paid and with the huge expectation to earnings they thought was coming out of the target that they didn't get, and they're missing their number which makes sense and their stocks have gone down and they will continue to go down as long as they do dilutive deals. So I think that's beginning to sell. I think that people are really beginning to look at that. Instead of investment bankers going out and saying, hey, I did 42 deals this month, what they need to do is look at the deals they did last year. We need to look at all these deals six months after the deal, nine months and a year after to see how the street received those. So anyway, I think people are beginning to understand that and it makes sense and I hope I answered your question with that.

Yes, you did. Thanks. And then maybe talking a little bit about organic growth, it sounded like, you said the pipeline looks pretty strong heading into this quarter. But can you talk a little bit about maybe what caused organic growth to be a little slower this quarter, and then what you think is possible maybe even if you can talk about it separately from your maybe legacy markets and then the New York City LPO?

I'm just quickly going to make a comment. We have the largest pipeline we have ever had. So – and Kevin Hester is going to talk more about that. I do want to tell you that we have approved our first New York loan. It was a $40 million take down. We put in 20 million, they put in 20 million, so it's 50% loan to value. It was a 6% coupon and it's a short term loan and our people were on the ground. We went through the regular process and we're very pleased with that. Having said that, I’m going to turn it over to Kevin, so say what went on in the first quarter versus the fourth quarter and what he sees.

Yes, Stephen, the first quarter is really more related to just being the seasonal production. We did about 75% of the new production that we did in the fourth quarter last year. We saw that coming as we emptied the pipeline in fourth quarter, you could see that that was the way the first quarter was shaping up a little bit. Throughout the first quarter though, that pipeline has been building back and it's up to the same point that it was in August of last year before that strong third quarter. So that's pretty much…

I think Kevin said we did 400 million originations. In the fourth quarter, we did 300 million originations to the first quarter. We had renewals – we actually did 309 originations in the first quarter and about 303 million worth renewals. So it wasn't – when we were asleep, it's just a lot of pay offs and a lot of activity going on. And – but interestingly as Kevin described with me earlier, when we had the big loan growth awhile back, we had 4 or 5 big loans in there that kind of thought they were one offs. That's different from this loan growth, this $300 million plus. This is – there's one pretty good size in there and the rest of them are kind of mixed around. So it's kind of all over the board. I think I'm beginning to think its maybe here to stay for a while.

Okay. And then just following up on that in terms of the pace of forward loan growth. I mean, you've got nearly 300 million in loans that you acquired. You added 20 million. I mean, how quickly can you grow that portfolio or how large and how quickly I guess?

Are you talking about the New York portfolio?

Correct.

Well these guys are pretty darn good. I mean, they've been around for a while and they've done lots of good business. They were pretty much a bright spot for Doral and we're honored to have this team working for us now. They had – they ran, their sweet spot was about 1.3 billion, 1.4 billion is where they like to be over the years, a five year run, I think they had $4 million worth of total charge offs. We aren't in any hurry. I won't – someone said we can get it to a billion, add me another 300 million to it, that's excellent. So I mean, they have a lot of relationships and a lot of customers and that's already coming back and there's six or eight more loans in the pipeline, right now with them. I haven't seen those yet, Kevin just reiterated that to me this morning. So I'm pretty pleased with that. We're not in a hurry. You know we don't do silly stuff and we're going to protect our sales and do a good job. But I think what I see from their due diligence and their underwriting when they bring a loan to you, it’s you've got to find something wrong with it because it's pretty strong. We had done due diligence on this team. If you think about it, we bid on the entire North American operation, including Doral money which was a CLO to try to win that North American operation. So we had already done due diligence on all of these $1.3 billion worth of loans that they had. So we already knew them. We're familiar with them. So when this opportunity came up with J.C. Flowers we moved on it. So you know, we've got 300 million out there and add 6% kicking in, 18 million it cost about 8 million to run it. You can see what the numbers will be. If they get to 600 million and they maintain that margin as 36 million and if by chance over the years we can take it to a billion dollars, that's kicking out $60 million in income to us and basically the costs are fixed on that side. So it has a great opportunity for us. We'll take our time though, we are not in a hurry.

Okay. Thanks guys for taking my questions. I appreciate that.

Kevin has one more comment for you.

I am just going to say, I think the best thing about it is they know what they are. They have a niche. They are disciplined like we are. They know what they are and they stick with it. And it's easy to get your hands around that.

Great. Congrats on the continued earnings growth guys, appreciate it.

Thank you.

Our next question comes from Matt Olney with Stephens.

Hi, thanks guys. How are you?

Fine, Matt. How you doing?

Hey, I'm doing well. I want to go back to the…

Congrats on your new team you hired by the way down there.

Yes, I appreciate that. We're excited. We're growing quite a bit and we're excited. I wanted to ask you about M&A and going back to your commentary about M&A going forward. It’s already been a busy year for you guys between the LPO announcement, the loan acquisition, the branch deal. Anymore commentary you can give us on what types of announcements that we should expect this year? Could there be more LPOs out there, will there be more traditional M&A? What all is in the pipeline right now?

Well, it will be traditional M&A. I mean, we're owning some transactions, three, of which we would like to bring all three of those home that add up to about $2 billion. Will we get them, I don't know, we're bidding. We're certainly the best bidder in the pack. We probably weren't the highest bidder in the pack, but we certainly are the best bidder in the pack. So we'll see how that shakes out. And another one is a real complicated transaction and we thought two weeks ago we would be bringing it home and anyway it got even more complicated. So that one didn't come at the top. The other one we sent a bid in this week, today, sent a bid in on today. So they are primarily – that can be, that's Arkansas and Florida primarily. So I think the announcements coming, if we're successful is there will be M&A deals, right. We didn't – we've got a big write up that we took a page out of George Crablin's [ph] Bank of Ozark, they going to New York and that didn’t have any – I mean George Gleason, I'm sorry. That didn't have anything to do with. We have been – this just happened. That deal just happened. We honestly went there to review them, to try to do the alliance bid with the Puerto Rican banks and ran into these guys and we're very, very impressed with what they do and how they've done it and when we left there we left there with the opinion we're going to put something together with this team, so – and we've done that. So we don't have anything and George did something in Los Angeles and Atlanta. We don't have anything in there and we are probably to going to. So New York will probably be where we'll hang out.

Okay. That's great commentary, thanks. And then Johnny I think in the past, you've talked about trying to hit that $2 EPS level in 2015. Can you talk more about what has to happen in order to hit that $2 EPS is number this year?

Well I'll let Donna talk a little bit more about it. We'll let her talk about her branch, what she's doing on the branch side and I've come down pretty hard on that. We're fixing to get some of these closed and I think that when she talks about the numbers that's pretty significant savings for our company. And I think do we have to do another deal to get there? No. I think the little Florida deal we did was an accretive little transaction with $400 million in deposits and $44 million worth of loans and then no doubt this $280 million in loans is accretive. I'd like to see another deal or two, but I think we have what we need to get to the $2. We may not be on a run rate right now to get to $2, but I think we're really close to that. So I don't think it will be long until we get there. I haven't announced this yet but my now goal for the company will be home to 50. That will be the new goal that we set for the corporation. And I think that's achievable over the next period of time as we continue to do these trades. I mean, you look at this deal, this New York opportunity and it has the ability to add $0.10, $0.15, $0.20, $0.30, $0.40, $0.50 to EPS and you go out and spend $600 million for a bank and it adds $0.12. So just continued - this group continues to shop hard and see if we can dig in the ground, so if we can find a nugget. You didn't see anybody else show up in the Puerto Rican deal. We just dug that whole transaction out because of hard work and effort and aggressively and looking to find something and we found something after we kept digging. So I don't think you'll see any other big announcements other than I would like to announce those three deals this year. Hopefully we can announce those three M&A deals and add about $2 billion to the bottom line.

Our next question comes from Brian Zabora with KBW.

Thanks. Good afternoon, guys.

Hi. How you doing?

Just a question on the accretion. I know it's hard to forecast, but can you give us a sense of what it might look like the rest of the year? Do you expect anymore step downs like you saw in the first quarter or could it level out and with everything going on with the Doral loans, maybe some cash on the balance sheet what do you think about the margin going forward?

Hi, Brian. This is Brian Davis. As far as the accretion income we had about $3.4 million of that this quarter and it will go down next quarter probably about a million bucks, maybe a little more at about $9.2 million and the projections hold true, it will probably fall to about 8.1 in Q3 and 7.7 in Q4. Offsetting that is going to be an improvement probably in our indemnification asset amortization and we whittled down about $10 million of that from quarter end through amortization and collections from the FDIC, but we had about $4 million of that amortization in Q1. But it will probably drop off to about $2.1 million next quarter, saw about $2 million for Q3 and then about $1 million for Q4 and the drop off from Q1 to Q2 is that we had a lot of indemnification asset, amortization that was cranking on Old Southern and some on Key West, but there was a lot of it Old Southern and the five year loss share for Old Southern is over. And so there is virtually the fact there is no indemnification asset left for Old Southern, very small amount for Key West because it has some 10 year loss share and then you see this next stare step between Q3 and Q4 because Coastal, Bayside will lose its five year loss share and that's pretty much how it will shape out for the rest of the year, Brian.

That's very helpful. And just thoughts on the margin, you've got 6% loans coming over from New York, but I guess, at the lower accretion could we see a little bit more pressure on the margin in the next couple quarters?

Maybe, maybe not. I mean, the Doral loans will help that, but when we start clipping a million dollars a quarter off of the accretion it may kind of counter balance itself.

Okay. All right. And then just lastly, talking about the pipeline, it sounds like by size it's pretty diversified, is it also diversified by region as well?

Yes, it is. It is diversified by region.

All right. Thanks for taking my question, guys.

Yes. Thank you.

The next question comes from David Bishop with Drexel Hamilton.

Hi. Good afternoon, gentlemen.

Hi, David.

A question for you in terms of the quarter. The Doral branch system, how duplicative were the expenses this quarter really for all of the branches in the expense run rate for that month?

Yes, we had them in there. We closed, if we closed this...

They are not in that original pipeline we talked about.

No, no, he's saying were those expenses from Doral. Those expenses were in the quarter.

Oh, yes.

The expenses from Doral were in the quarter, we'll also practice…

They were only in there for one month though.

Yes, just one month.

I think they're set for July.

And you're set to close those correct? I think you mentioned you're going to consolidate this?

That's correct.

Yes, the conversion is set for early July and all of those branches will be closed and handed back to the FDIC.

That's why I was bagging on the expense side. I mean, actually the company was $100,000 less than it was this time last year and with the addition of these other banks and also Doral in for a month. So good job by them.

Got it. And the john I think you spoke about maybe looking on the fee income side how to expand that. Any color in terms of thoughts of what you might be looking out there to jump start some of the fee income line items you have?

Well, that's a committee to storm right now that I think Donna is running, is looking at income – fee income side. I think our NSFS were off quite a bit for the quarter. I think that's kind of a trend that’s going on out there, with lot's people, not write as many high chicks on it, as they used to write. Anyway, we had a little reduction. We sold our Jonesboro Arkansas insurance agency which was a pretty good sized agency. We got that in the Liberty deal and the reason we did that was because of the age of the people that were running that company and we didn't have any youngsters in the company, we felt like we needed to do that and so we sold it and I think that we broke even – Randy, we got broke even on that trade. So far as other initiatives, Randy has got some ideas.

Well, I would just say the committee is examining every facet of our fee income. We're ramping up our investment side. There's a couple of nuggets out there that I want do see come to fruition before we say anything about it, but they're doing a really good job and the prospects are really good. So I wouldn't project any major super increase, but certainly we're going to see some improvement in our fees and some of the things that we're doing. Kevin talked about mortgage and some of the great things going on there and I think you'll see our margin and mortgage continue to increase in our – especially in our secondary markets. And so good things coming about. A lot of hard work going into it for this quarter and I think we'll start seeing results probably towards the end of the second quarter and the rest of the year.

Let me have Donna report a little bit. You asked about revenue, but let me talk about the expense side little bit, and let her talk about what we're doing on these branch closing.

Okay. And actually the eight that we're looking at we're really spending about $2.3 million to earn about 300,000 in income there. So while I had earlier said our savings might could be around $1.5 million, that's conservative. It actually could be upwards of about $2 million. So that will definitely improve the efficiency ratio.

Yes, we're spending $40 to make 100 now and we're spending $2.3 million to make 300,000 there. So that will be – maybe I'll get to see my three on the efficiency ratio David and we get all of this done. Once we do these things, we're going to continue on and maybe – there may be 12 or 15 more by the time we finished.

Then just Donna just a housekeeping, I noticed DP data processing that spiked a little bit. Anything unusual in the quarter on that regards?

David, this is Randy Mayor. Yes, there were a couple things in there, some of that is a little bit of the Doral expense, but not a whole lot of it. Most of it is that we kind of hit a new level on our pricing for some of our electronic banking fees. So that will probably be close to the new norm going forward. There's not a lot of opportunity in there. We just kind of clip the new level on our asset sizes.

Legal was pretty heavy last month because of the Doral deal. We spent a lot of money on the legal expenses there. So that was pretty heavy for us. It won't be as heavy going forward.

Got it. Thank you.

Our next question comes from Michael Rose with Raymond James.

Hey, good afternoon, guys. I'm sorry about before. Just a question on the insurance revenue quarter-to-quarter. It's a step down, does that relate to the sale of the insurance agency that you just mentioned?

Yes.

That's it. We sold that and I won't go into that story, but we weren't making much money on that deal anyway, from the efficiency aspect it was not efficient.

Michael, we got out of that deal with no gain or loss and net bottom line profit was virtually zero. So what you're just seeing is the revenue side grossed up on the non-interest income.

Got it and then just looking at the mortgage income, I'm sorry if I missed it. But you guys were down about $400,000 and lot of the industry is off this quarter, is there any way to kind of reconcile that?

It's timing. I mean, you've got timing of the purchases and when they get out of here. So I mean, we're looking at from the yield standpoint, our yields are up. They're up today over where they were last year, either this time or whatever measurement you use, our yield is better than it was and that's directly related to – we've got a person name Michael Powell that’s managing that every day. That's his job, that’s what he does. So you're going to see as purchases happen on a monthly or quarterly basis, that goes up and down but overall the yield is better.

Okay.

We don’t know how we look at there Kevin - how we’re going - I mean projection wise reference.

Well, yes, I mentioned in the earlier remarks the, we had the largest month in March of large volume that we’ve ever had, it was close to, I think it almost $60 million in locks that we worked, we will working through the pipeline to get close this month and next month.

Got it. So it's more of a timing issue.

It is more of a timing issue.

Okay. And then I think I heard the outset of the call, that Tracy is little bit sick, is that true, is he okay.

He is okay, he has got little cold and when he talks he coughs, we've been around him, we talks a lot and we coughs a lot, so -

Michael, I'm doing very well thank you for asking me.

Well, I talked to all the other analysts and we all set up a collection point similar to first dealer, we started Safe Tracy Campaign. You’re welcome, thank you guys. Appreciated.

Our next question comes from Jon Arfstrom with RBC.

Hi, good afternoon. I thought maybe Tracy was down in Cuba, now that the embargo is gone.

He starts, what is that course he takes? Rosetta Stone, he takes Rosetta Stone, so he might be going there.

I know to take you with the John -

Couple of questions here, the $8 million you talked about expenses in the New York office, how would you expect that to come in, assuming there is some hiring that has to happen and well that hit the run rate by Q3?

It definitely will be a hiring process as we can build up there operation up there so it will be a growing, slow growing against as we bring those folks on.

How many we’re having there?

17, 18 somewhere in that number.

We got 17 or 18 now. That’s probably be about the number for what, that’s probably we’re going to be, so we’re all I think that – board and going probably the number.

We’ll add a few more over the next few months but this was kind of the first level out here.

Okay. So it should be close to been in the run rate, when we see it next quarter.

I would say so.

Okay. And did the cost go up materially, let's say if you take the portfolio from $300 million to $600 million or even a $1 billion, did the cost go up.

Not really, not significantly, I mean we got some variable there that will go up, I looked at projection owned and the difference between the $300 million and $600 million and look at those costs and may just, way in, he is going to be in our shareholders meeting tonight and may be just talk to him about what were those additional expenses are coming from.

Well I think there is another, there is a potential for another 10 to 12 hits over the course of time but I think where we're right now, you could take this, I mean this could generate the first 300 million to 400 million.

Okay. And then -

We'll take the people as they come lot, there will be opportunities to take out people that several part of his time may be or won’t be part of team, we'll take those as the come.

Okay. And I guess the other question just on the fee income, would you consider selling some other production rather than keeping on the balance sheet.

I don't know when, I don’t know when we do that, they done some of that Chris has done a little late from time to time and some of that’s from, I don’t know 101, 102, 103, we - I don’t really see any need to do that unless we saw something’s so weak ones, some more than we ended up with some.

That’s not part of our thought process today. They have talked about securitizing and doing some other opportunities those are down the road but right now we are looking for its portfolio for us.

They didn't draw out money, they just didn’t have the ability to fund our money so they took the equity piece and did that, we've been on that John and we didn’t get it but we always we had it, it through out about $12, $14 million a year pre tax income just for managing that Dorel money. So that’s was a pretty nice piece of bid, we bided it 115, I think we added 135 or so -

And how do you feel about loan deposited ratios is there a limit and you – it sounds like you have good organic pipeline and you're going to have the New York loans coming on. Do you worry at all about funding it?

Well not really. We had a good, I mean, we got lots of federal home loan bank borrowing capacity if we choose to do that and we could turn on the spigot if we wanted to. We don't have any brokered at all. We could pick up some broker if we wanted to. We haven't - certainly haven't been aggressive on the deposit side and we've been truly relationship, if they don't have a checking account and loan business with us, we aren't just, we aren't here just to book CDs. So we don't do much of that. If we want to turn it on we could turn it on. So I mean, you talk about running hot. We used to run, we ran 105%, 107% loan to deposit fast, but I think deposits to growing little bit, I think other than – and we've grown deposits other than…

They have grown a little bit, but it was a great match. We had $400 million and we are still sitting on $300 million of the Doral deposits coming in and guess what $300 million of loans that came in on the other side. So we can play some different angles on that. Originally I would probably FHLB some of it and broker some in and then see if we needed to raise some rates. But we've got a pretty good deposit base that we can crank you on if we need to.

Okay good. And then -

We've been on the New York branches, our New York branches had about $500 million a piece in them, pretty interesting. So I don't think we're going into New York any time soon with a branch, but we would like to have those.

Okay. Just a couple more things. Just on the deal, one more on the deal, just out of curiosity, I know Johnny you're a big shareholder and so are a lot of your people on the board. How big of a debate internally was the decision to go to New York and I'll say I think it's a good idea that makes sense business wise, but how big of a leap was this internally?

There was nobody opposed to this at all. Once they heard the story from the team that went to New York, there was – the board was 100% behind it. We've been blessed with the ability to read people pretty well and this New York team is really, really impressive to us. So, I mean, can we be fooled? of course we can always be fooled, but we've been pretty good at judging people over a period of time. And I think it was when Kevin and his team got through with the due diligence on this portfolio. Kevin said that it's as good as I've seen anywhere. So that's a pretty – and this isn't Kevin's first rodeo. He's only done about 45 due diligence so far. So I think he's a pretty good read of what's going on in the market. And in case you've got any…

I think just to add, I mean, just John even though this happened over the past quarter, I don't know how many man hours was put involved in all of this and we – certainly we started off with five or six of our senior lending staff and ended up with about four just spending several, several weeks, seven days a week, a lot of times Johnny and I spent quite a bit of time with Chris. We kept our board informed this entire time. We actually were bidding on it two different ways that we went at. So our board was fully aware and then we started putting together the LPO and presented that and went overall of these discussions. Our team has met of this group over time and Kevin I don't want to speak for you or Dave or Steve or whoever did all of the hard, hard work. But, I mean, the group opened up and as far as due diligence performance, it was by far the most extensive and having several members of their staff involved and several members of our staff involved when certainly it was a lot of comfort level as we got. And I think it's fair to say we didn't expect this and we kicked off and started going off there kicking the tire and it turned out to be something we think its going be very good for home bank shares.

And we're going to, we'll take our time. We like our 300 million we bought and we like the first loan we did and we've got seven or eight in the pipeline, I haven't seen those yet, but we'll look at those. And I mean when you're doing a 50% loan to deposit in market, we've got a guarantor on this 40 million we just did, so they signed the note. So they're experienced people. So I’m pretty happy with it. I didn't physically myself touch the building, but our team did. Our people went from Arkansas where I saw fantastic with these guys in New York have done this a bunch of times got a good track record, good track record to customers. So understand John where the concern is about risk in this deal but I’m pretty pleased with the 50% revenue as quality of these assets. Some of the loans, most of the loans we are looking at up there when we start looking at we see more secondary and third sources of repayment and ways to get out than we do in the lot of the community bank stuff that we do in our markets that gave us a lot of comfort.

Okay good. And then just last question I know you have, you are in the Fayettwile but you are kind of used to the fluctuations there I’m thinking about this more from an M&A or business opportunity perspective. Have you seen any oil and gas fall out in some of the companies that you’re looking at is it something that you think you will continue to look at Johnny maybe in Texas or just maybe a broad brush where is this starting to create some opportunities that are interesting?

Well I like Texas is a great state. I just - as I told you before part of an oil company, and we went from 600 barrels a day to 7000 barrels a day and I looked at my P&L yesterday and the day before and my profit last month was $4 million and anything that we were drilling were completing, anything that we have drilled we frack and we stopped. So all I can tell you is that we’ve shut down that process, so we’re going to live up our – live up our cash flow from these wells, of the four wells we have $37 of barrels to put that, it is not market price it is watching there last month we have got $40 in change. So that is what we got as an oil company and you think about that and the repercussions that it had in Texas before were astronomical and I know people say is not as bigger portion of the market is used by I think 12% but it went through Texas like a plan last time I mean it didn’t discriminate with Dallas or Austin or wherever it went through the entire state. So is that going to happen again, I doubt – going to come to that extent but there is the one to be repercussioned anybody that was primarily low in those oil services don’t have depend on how much is in bottom of the segment is going to be repercussioned. And one thing one domino falls to another domino to another domino, so we go into Texas, we serve into Texas at some point in time, we are in Texas before and will probably go again but the conservative nature of this route is to look it along yesterday, it is Texas loan and I would just hesitate very, very hesitant to make that loan in Texas even though it is customers we have done business with them in the past, I am just hesitant to make those Texas loans right now. So we found Texas absolutely we not or about next year maybe. So we have some down there we talk to and I have talked to someone my analyst about some they take a look at. We are just not ready at this point to go in there, I think it’s too early and I may be missing that but I think it’s too early.

Okay. Thanks. Thanks for your help.

The next question is from Brian Martin of FIG Partners.

Hey Tom maybe one question for Brian Davis and then what the core net interest margin was in the quarter that you have that number right, if not -

It is exact same as it was last quarter 419 in Q4 and 419 in Q1 which is the question you are asking is what was our margin without all the accretion income correct?

Yes correct. Okay thanks Brian and then maybe just one other one for Donna, is just the statement you guys are anticipating here with the closures, can you give any sense of timing or give maybe I missed it when you said earlier but just how that is going to unfold or best color you can give on that?

Yes Brian you will really see the launch this year there maybe one over into the first quarter of next year but we plan to back on this, we have been researching the present time so I think you will see effect on it this year.

Okay. And earnings starting with next quarter is it more second half event?

You probably see a start on it in the next quarter.

Okay all right perfect and then maybe just one for I guess maybe for Johnny just on the New York office the one loan that you booked is the 50% loan to value and is that pretty typical of what you would expect going forward in that portfolio is that kind of an anomaly giving that much equity in the deal or how do you see that going forward?

It’s not anomaly, I mean the $300 million we bought was 50% loan to value and I guess I will ask Kevin you looked at whole billon three it was conducively pretty much.

40% to 50% is normal again they have a niche, they have a product and loan type that they go after and are known to go after and that is kind of their niche, they know what they are and they stick to it.

Okay perfect, I got it and then just the maybe Johnny you mentioned the couple of deals you have just looking at seriously and then you talked about the potential accretion this New York deal brings and you also mentioned that there is not a lot of interest to go to other markets around the country ad I am just curious given the accretion in lack of loan dilution on this deal and the fact that it can control your risk and then why wouldn’t this be more I guess an avenue you guys might pursue going forward versus maybe looking at no more M&A traditional M&A especially given the pricing is increasing or it appears the multiples going higher?

We then head to New York we kind of dug this one out, this is just what this company does is fix problems and look for opportunities and that is probably the key to this company. And this was an opportunity and we saw and we stepped up to the opportunity and it is all people and it is all the quality of the people to do business with and these are quality people in New York City. So do we have kind of - I mean it takes a while to earn our trust and earn our confidence and we don't just take cut shots across the world, we don’t just jump and run, so if another opportunity came up in another market or if Chris felt lot that he had direct people in other markets let’s walk before we run here in New York and let’s good as $600 million, $700 million, $800 million of good loans on the book and then if we want to, we will take a look at doing some in Atlanta or something that we take a look at it. So I’m open to whatever might sense this is an opportunity to make sense, it adds the EPS. I think you heard my story you don’t spend $600 million in total banking and add $0.10 a share or $0.09 and you go and do this transaction it adds $0.35, 0.40 or $0.50. Well it kind of takes you out of the M&A gain, we are not out of the M&A gain, no we are not out, we are in. And we got bids out of three bucks right now we get them all, I don’t know we get in, I don’t know because we are very disciplined on the process. But I believe that our story is not what you get is a quality of stocks you get start to sell in this marketplace look at these deals done six months, nine months later that were done and somebody paid a big price and they delivered the – out of sales and stocks have all gone down. So kind of get that is one of my - I get on my horse and get the riding at the moment.

I appreciate the color Johnny thanks for the time.

Thanks. I appreciate it. Thank you again.

This concludes our question-and-answer portion. I would now like to turn the conference back over to management for any closing remarks.

I really don't have anything else to say, it’s a great quarter. We look forward to going our New York operation, hopefully we can announce some M&A deals here in the next three, four months and we'll talk to you guys in 90 days and I hope this is good as this was Randy Sims can make his favorite statement again one more record quarter for company.

Absolutely, absolutely. Thank you.

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