Q2 2020 Home BancShares Inc Earnings Call

Good day and welcome to the home Bancshares incorporated second quarter earnings Conference call. All participants will be in listen only mode shouldn't even need assistance. Please signal conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions to ask a question.

You May press Star then one all your Touchtone phone to withdraw your question. Please press Star then too. Please note that this event is being recorded I would now like to turn the conference over to Donna Townsell Director of Investor Relations. Please go ahead ma'am.

Each at I'm, Donna Townsell director of Investor Relations and our management team like to welcome you to the home Bancshares 2022nd quarter earnings release in conference call.

We just finished our first full pandemic corridor and what an amazing quarter. It was reporting today will be Tracy French our president and CEO, Brian Davis, Our Chief Financial Officer, Kevin Hester, Our Chief lending Officer, Chris Bolton President of C.D.S.G., John Marshall President of short premiered fund.

Yeah.

Stephen Tipton, Chief operating officer, and our Chairman John Allison, Our first speaker today will be Tracy French.

Good afternoon, Thank you Donna.

New normal is normal and a lot of ways for Centennial Bank last quarter, we were in a time of uncertainty well I feel much better today as we love the new norm.

You will see why as I shared with you some of the Centennial Bank information.

14% deposit growth this past quarter.

5% loan growth this past quarter.

29% decrease in interest cost this past quarter and 53% decrease the first six months 2020 compared to the first six months 2019.

Net interest income up 6.4 linked quarter non.

9% increase a non interest income with mortgage up 49% comparing the first six months of 2020 to 2019 banks Carl coal or our away is over 2% your today.

Non-GAAP efficiency at 37% Johnny.

Hello.

[laughter] beat get done them back in there you can get down to 20 tax equivalent net.

Net interest margin at 4.31%.

Hey, triple while nearly 400% to nonperforming loans.

The best ever 351 million in total revenue year to date.

I've heard Johnny say the proof is in the numbers and the numbers don't lie even use a jonesborough <unk> in a moment Johnny will share the home Bancshares number the way that he knows how and that is straight to the point he along with others will share the powerful resolved sort of our team of bankers have <unk> produced this quarter.

We've used the phrase P.P.P. a lot over the last few months I've told our group of regional the market presidents. The P. represents were powerful and our great.

Our team has done some amazing things over the past 2020 years of we've been together last six months may have just top them all as we work through advanced that have never ever happened before such as the new accounting method for loan loss reserves and the shutting down or trying to shut down the economy, our bankers continue to address.

Challenges and tackle them head on.

The average said then phenomenal in our company is prepared for the future whatever it throws our way I may be considered the cautious one in this group, but all of US are focused on the crude basics are running a safe and sound company.

We're communicating with our customers on a regular basis.

Over the past several months, Johnny and I have discussed with individual customers are business situations. How are they adjusted to the new normal and how are things in their economy that affects them.

Is refreshing to get the real information and not just not the what you get represented when you read or hear something.

Our regional leaders visit with most of our customers on a weekly basis and that provides the real world information that we use.

Call lender today, they have all the current information about their market and what's going on with their customers.

We get that information loan by loan and today and today, it's not just a certain class of credits its each individual single credits that we monitor as I call. This earlier, we're back to the basic banking practices and that's what we get through today I believe I've heard our chairman used the word blocking and tackling that is what we're.

We're all doing in all areas of this company to provide the numbers that we're reporting today.

Preparing for successful future for our shareholders.

Huh.

Thank you Tracy that's a great I reviewed since oneq.

And now Brian Davis will walk us through the margin in seasonal.

Thanks Donna.

I'm pleased to report for the second quarter. It was like record for our net interest income.

For Q2, 2020, we reported 148.7 million of net interest income.

This is an increase of 8.9 billion or 6.4% from the first quarter of 2020.

I'm also pleased to report the second quarter net interest margin was 4.11 per cent compared to 4.22% for the first quarter.

Normally we would not be pleased with 11 basis point decline in margin. However, as result of these crazy time the decline in margin primarily the result cobot 19.

That said, let me walk you through the margin.

First the company participated in the PPP loan program during the second quarter of 2020.

As of June Thirtyth 2020, we had 848.6 million of PPP loans, these loans or 1% plus the accretion of the origination thing.

While these loans are valuable assessment to our customers can carry no credit risk to our company. They are dilutive to the margin. The pp pay loans were five basis points dilutive to the NIM.

Second the cobot 19 crisis, and the resulting governmental response has created a tremendous amount of excess liquidity in the market.

We believe this is a good thing for the banking industry and the economy.

As a result of excess liquidity, we had 416.8 million of additional interest bearing cash in Q2 compared to Q1, the excess liquidity was 12 basis points dilutive to the now.

Third for Q2, we recognized 7.0 million of interest accretion from acquisitions versus 7.6 million of accretion for Q1.

The 600000 dollar reduction accretion income was two basis points dilutive to the NIM.

Lastly, Q2 2020 event interest income was 1.5 million compared to event interest income of 558000 for Q1 2020.

The higher event in time during Q2 increase NIM by three basis points in conclusion, the five basis point decline for PPP loans, plus 12 basis point decline for excess liquidity plus the two basis point decline for less accretion income offset by the three basis point improvement from event interest income results.

Then I 16 basis points of noise, when comparing linked quarters, but that said our net interest margin is actually up five basis points on an apples to apples bikes.

Let's change the sequel, our seasonal provisioning bottle significantly tied to projection and unemployment rates.

Which have remained elevated during Q2.

During Q2, we recorded 11.4 million of credit loss experience this expenses primarily related.

So the impact of Cobiz 19.

Additionally, Ses will require scalability for unfunded commitments.

This quarter, we increased our liability for unfunded commitments.

9.2 million.

The increase in the expected funding of unfunded commitments was $5.9 billion.

The remaining is primarily related to the cold in my team.

I'll conclude with that being remark on capital are going home bancshares extremely well capitalized.

I'm pleased to report the following strong capital information for Q2.

And the 20, our tier one capital was 1.6 billion compared to total risk based capital that was 2 billion and risk weighted assets were 12.5 days as a result.

The leverage ratio was 10.3%, which is 105% above well capitalized benchmark a 5%.

Common equity tier one was 12.0%, which is 85% above well capitalized benchmark of 6.5% tier one capital was up 57 basis points, the 12.6%, which is 58% above the well capitalized benchmark of 8%.

Total risk based capital was 16.3%.

Which is 62% above well capitalized benchmark of 10%, but that said I'll turn the call back over to Don. Thank you, Brian is really amazing new game when they report a record for net interest income during the middle at the beginning.

Now, let's dive into the loan portfolio and we'll go to Kevin Hester.

Thanks, Donna it's been a crazy quarter on the lending side of home Bancshares.

BP in deferments had been the order the day [noise].

But both of those reentering a different phases, we go into the third quarter 2020.

As of June Thirtyth, we had made over 8600, PPP loans totaling almost $850 million.

We've been able to handle all applications from qualified existing bank customers and we were able to go out and located some significant new customers as well.

We had close to one third of our employees working on this project and I'm very proud of the product that we built at a very short time.

From a dollar perspective, the top three industries, where construction at a 142 million hotels and restaurants at 117 million and health care at 100 million.

As for numbers of PPP loans professional services replaced health care in the top three.

We read about Congress potentially allowing an entity to apply for a second PPP loan under certain circumstances, and we're preparing for that possibility, but making sure that we have the ability to reach maximum approval bandwidth very quickly.

We've also been building out the forgiveness workflow.

Not appear to be asked me a isn't any hurry to provide details of how that forgiveness will be transmitted to them.

We believe that the gene PPP changes will extend the covered period to spend the PPP mining among other things.

We will serve to significantly decreased the possibility that a material portion of our PPP findings will not be forgiven.

Any approval of an automatic forgiveness under say $150000 would reduce that even further.

Regarding loan departments as of June Thirtyth, we had executed first time 90 day loan departments on just over 4200 loans totaling $3.18 billion.

Or 27% of our loan portfolio.

Graphically, Florida borrowers made up 58% of the deferment balance followed by Arkansas, 35% with CCFG, Alabama, and short at 3%, 2%, 2%, respectively as a percentage of their respective portfolios. The community bank regions were between 30 and 35% Dick.

Our while short CCFG were much lower at 11% and 5% respectively based on industry real estate lessors made up the largest balance at $1.2 billion with hotels and restaurants at $607 million after that it drops off sharply to health care at 272 million additive.

Bird percentage of their portfolio hotel in restaurants, where it's 67% followed by health care and 52%.

And real estate lessors and retail trade both at 33% age as we mentioned last quarter. We were very quick to implement the department process as we had procedures and forms already in place from earlier disasters on a regional basis.

We were very quick to move and is in earlier uses we were very liberal with the first deferral.

While this may have resulted in a higher initial deferral percentage than our peers. We believed that the early ability to help our customers. In this situation is very important and helpful to their overall ability to stay in business.

The second deferral processes in place and has been operational for about two weeks you.

It involves a defined process of information gathering and discussions with the borrower about current operations.

Levels of approval or based on loan size at assessment, the current risk grade and ultimate ability to stay in business are being captured and monitored as we progress.

As of today, we processed about one of the half billion dollars or almost 50% of the initial $3.18 billion over of deferred loan balances and 80% of those or $1.2 billion are going back to normal PNR payments at this time.

I know, it's still early to attempt to see the into this advanced but looking forward as we review our largest community bank customers that had been own deferral for 90 days.

Nearly all of these are commercial real estate secured.

Projecting what I can see is the worst case scenario for any of the do go through a second 90 day deferral and still need further assistance.

One option would be a longer term modification to interest only payments combined with a capitalization of accrued interest.

[noise] using our average community bank LTV, 61% for CRT loans. This capitalization of interest would only add 1% to 2% to the LTV.

And even with a reasonable discount to pre coven values would result in alone that maintains adequate collateral margin.

Since last quarter's call. We've had a couple of calls to discuss various aspects of our lending business.

We started with the call it mid June on hospitality.

But in gene numbers have come in since that call an extended stay portfolio continues its strong showing.

Our key properties averaged 50% to 60% in June after being closed in May.

Overall, our Arkansas properties continued to improve into the 40% range, while our Texas properties lagged behind but many of those are highly dependent upon airport business on the whole June appears to have been an improvement over me.

All asset quality metrics improved this quarter within P, 8.39%, and NPL that 0.5% down five basis points and three basis points quarter over quarter, respectively.

As Brian mentioned, the allowance coverage for nonperforming loans improved almost 400%.

While pass these decrease to pre kobin levels in dollars and at point by 6% or near a historic low.

Combined with the significant migration of deferred loans backed PNR payments this quarter and an allowance for credit losses above 2%.

We believe we were in a very strong position at this point in the pandemic loan side.

Before I end I would like to talk about our mortgage degree they just posted their most profitable quarter in the company's history.

Closings were up 50% year to date over the same period, the 2017 through 2019.

Secondary market loans are still over 80% of the balance.

June locks were at the second highest level area. So we expect third quarter to continue to be well ahead of previous years.

Graduations to keep little and his group, they're strong showing.

We continue to look for ways to assist our customer base through this tough time, and we believe that our lending posture over the last three or four years, leading up to this difficult time has put us in a position to succeed.

That concludes my remarks, I'll turn it back over to Nada.

Thank you Kevin it's good to hear that hotel occupancy rate are going up and so far deferral of requests may be going now.

Next is going to be Chris Thompson with RCC, a key division.

Thank you done a good afternoon.

As many of you know two weeks ago, we provide an end up discussion of the CCFG portfolio and product segment. So today I'll focus my comments, primarily on the portfolio of movements in the second quarter.

Portfolio was roughly flat for the quarter with ending balance of approximately $1.76 billion.

Going into the quarter was particularly interested in the impact code would have on payoffs and paydowns.

We were pleased to see that we receive just over $150 million the payoffs paydowns during the quarter, but the vast majority of that and the theory book.

They often note we look at payoffs as a feature of our portfolio and a signal as to the health of the overall market.

The payoffs, we did receive were from refinances as well as asset sale, indicating that both the sales and refinancing markets have continued to operate during this post cobot period.

We do remain open for new business. So cautiously so during the quarter, we originated approximately $125 million, a new loan which is a bit below our normal Q2 volume.

We continue to experience significant inbound volume and have an active pipeline building. So we remain quite cautious as to leverage and structure.

We're seeing it takes a bit longer to reach the signed term sheets and that underwriting and closing timelines have expanded as well.

Overall, despite a turbulent backdrop, we experienced a reasonably quiet quarter.

During the presentation a couple of weeks ago.

Stated that the past few months have been unprecedented in the severity and speed at which the best economy likely in generations abruptly halted.

I'd like these are important reminders that risk like water finds its own level.

CCFG platform was born financial crisis, and built on the idea that at any time and for any reason b'rith can and often do emerge.

We continue to manage and monitor our portfolios, while also keeping a keen the cautious by towards emerging opportunities.

Benefit the product asset class and regional diversity in our portfolio allow us to both better manage risk and seek opportunities as they emerge.

I was pleased to say payoff continue at the expected pace and we have experienced the surge in demand for our products, especially in theory.

We'll continue to balance confidence with cautiousness as we proceed through the summer and fall.

Now I'll turn the call back over to you.

Thank you Chris.

And now we get to hear about whats, becoming even more popular past time Boden. So John Marshall can you. Please give us an update on short premiere.

Good afternoon, and thank you once again for allowing me the opportunity to tell the boat story naturally Toby dominated the narrative with speculation of how the boating industry would be impacted in the quarter.

Commercial side of our business observe born factories temporarily suspend production and domestic dealers cautiously manage down inventories. It took steps to preserve cash flow. We saw for planned line utilizations dropped from 58% to 47% as our dealers prudently reduced inventory and borrowings.

By about $26.8 million in the quarter.

Conversely in perhaps counter intuitively.

Consumer business received an underwrote record numbers of applications early in the quarter, leading to an all time record for a single month funding in June $32 million.

The quarter to a total fundings of 61 million on the consumer side.

Tremendous achievement reflection on the team's effort, but still insufficient to offset the headwinds of prepayments in declining commercial inventories.

So when this crosswind environment consolidated loan balances of contracted $18 million since the acquisition of LH finance in late February.

Dealing rebuild their inventories were well positioned to substantially catapult low growth in the second half of the year, most likely we'll see that in the fourth quarter.

Less ambiguous has been the benefit of scaling the business on our profitability our bottom line contribution to the bank has grown from about $1 million a month to $3 million as our lean expense structure has averaged an efficiency ratio at 17% each month in the quarter, while core Aro weve stabilized at 2.48%.

Rapid growth coated and operational integration with LH finance it not negatively impacted asset quality commercial systems were merged in late March and consumer platforms consolidated this past weekend.

Consumer Ficos held steady for originated loans in the quarter at 773 compared to overall portfolio FICO 774.

Delinquencies improved in the quarter from 44 basis points to 30 basis points.

Nonperforming loans increased from 49 basis points to 38 basis points resolutions in July will likely bring them back down.

Most of our dealers were eligible for principal deferral program in the quarter with payments resuming. This month, we had 244 consumers enrollment of referral program with payments also resuming this month.

Those participants only 21 have requested a second deferment NSS based on the individuals neat.

While the future is uncertain, our dealers are seasoned economic cycle and our consumer borrowers have strong credit profiles I believe we're well positioned to benefit from a return to normalcy whenever that may occur.

Thank you Don that concludes my comments.

Thanks, John now Stephen Tipton has an interesting report on our deposit.

Thank you Donna I will give some color on deposit activity repricing efforts and trends and a few additional details on the balance sheet today.

The second quarter of 2020 in some respects, maybe one for the record books.

PT loan funding the inflows of economic impact payment.

Along with general core account balance growth produced an increase in total deposits of $1.66 billion.

Our mix continue to improve as time deposits.

As time deposit balances declined by $147 million, while non interest bearing balances swelled by $989 million to over 3.4 billion or 26% of our total deposit balances.

We would like to congratulate our branch network and online support teams as they opened nearly 16000 new accounts in the second quarter.

While much of this is attributable to PPP funding. It is a testament to the relationships our bankers have and our commitment to the continued success of these customers.

Switching to funding costs I want to first highlight our efforts on interest bearing deposit costs in the quarter interest interest bearing deposits averaged 64 basis points in Q2, which was down 44 basis points on a linked quarter basis.

But for additional color averaged 60 basis points in the month of June.

Total deposit costs, which includes noninterest bearing deposits were 48 basis points in Q2, 2020, which was down 37 basis points from the previous quarter.

Total deposit costs in June averaged 44 basis points at our teams continue to work negotiated rates down as the market will allow.

As I mentioned last quarter, we continue to see opportunity and repricing our time deposit portfolio.

In the second half of 2020, we have $845 million in CD balances maturing at a weighted average rate of 1.53%.

Switching to loans, we saw total production excluding PPP.

$530 million in Q2, with a little over 420 million coming from the community Bank and short Premier footprint.

Payoff volume at 708 million was elevated from prior quarter and highlighted by higher level of payoffs as Chris mentioned and a large multifamily project out of one of our Arkansas region.

I would like to update you as to the variable rate components of the loan portfolio.

As we have mentioned in the past the CCFG loan portfolio of approximately $1.7 billion is variable rate with the vast majority tied to one month LIBOR adjusting monthly.

As of June Thirtyth, approximately 1.5 billion of these balances are now protected by floors.

The community Bank and shore portfolios consist of approximately 1.5 billion in variable rate balances set to adjust over the next six months.

Over 800 million. These balances are tied to Wall Street Journal Prime as the index with the balance tied to LIBOR and other various indices.

As of June 30 over 850 million of the variable rate balances are now protected by floors.

And the majority of the remaining balances have re priced into the current zero or low rate environment.

As a result, the loan yield.

When adjusted for PTT, Accretable yield and event income held up extremely well in Q2, only declining 26 basis points stood adjusted 5.20%.

And with that I'll turn it back over to you Donna.

Thank you Steven does their tremendous numbers on deposit growth and cost of deposits.

So this was our first full quarter during a pandemic and we really didn't know what to say, but as you've heard it's been a remarkable quarter for him to share. Some final thoughts the key before we go to Q in a is our chairman John out.

Thank you and welcome everyone I think at was.

Pretty impressive that they is $660 million or the deposit growth and the cost deposits went down $9 million.

Good job that was I can't comment was more.

More I hear it the better is.

You know with all been preparing for the worst and expecting that this will be winners and losers as a strong one separate themselves from the wafer.

However, many of those home has played in the quote.

Underwriting say, okay on both sides of the ball offensively and defensively some of the investment community as fast as I also criticized for lack of ROE I can assure you sometimes doing the right thing can be much more difficult and lonelier than the easy way how in the course of our mining this.

On has certainly been one of those difficult time, because it's so easy to fall victim to follow the weight and do the silly stuff and others are doing.

You know this all the time, we're lacking we do that and the truth is with the strength of our balance sheet Leach and meet or beat any competitors regardless of size. Our culture, we're not allowed us to fall prey to the silliness of others.

There is no we're at way to do the wrong thing.

That plays around is that by the glide that's not my quote but at a lot when I heard it. So when you think about it there's a lot of crews that there is no right way to do their own.

You're going to hear some get numbers. Some non-GAAP numbers out of me today, which are really going to get to see a comparison between seasonal and non seasonal and I think it's important because investment can't community has a difficult time unwinding and all of this the Cecil actions along with the pandemic right now so I thought I'd try to make it.

As simple as I could make it that way I even understanding.

But here are here several the results so staying the course.

And we'll want to record quarter pretax pre provision income.

Great provision net revenue excuse me PPNR record quarterly net income that's not necessarily a gap, but you'll see that brought bring that in shortly.

And as you heard from Steven and Brad margin, staying strong conservative dividend payout policy and best in class asset quality.

And for the quarter, we actually are breakout.

I mean, pre seasonally or 47 cents and Thats, a 20% return on tangible common equity, but here's the real power of home for the quarter a record 205.

Excuse me 102.5 million in pretax pre provision net revenue as a PPNR up 2.53% ROI.

A couple that with pair leading reserves of 238 million or 2.15% actually some of them are catching up with this now we kind of step down earlier last fall.

Add to that our strong capital ratio reflects our strong revenue forecast into the second half a 2020 and I think we have again position Homescan, Andy continued to produce peer leading performance and a 21 and 22.

Arguably positioned if not the best in the U.S. certainly one of the size and best in the U.S. only has continued to be recognized with a best in class performance metrics exceeding nearly all competitors and has for almost 14 years.

Its top peer performance has not been short term flash in the plan, but it has been created over time with a planned long term solid strategy, we ever my guess form and continue strap and to be the best Bank of America. After four named US the best Spike in America two years, the ROE we have now.

We now have the honor being named to the last the best spikes in the world.

Being in a high performance bank is not easy, but staying in remaining a high performance buying because even more difficult. We've seen many overnight pop up stores, but theres only a few of US continued to perform year after year home home and a few others have led the bank group performance metrics for many years.

I have no reason to believe that that won't continue to 21, and 20 foot, but lets go or the real numbers and this is showing the real difference between Cecil anonymously, because we had such a good reserve and mccall's asset quality was at the level. It was at least probably would have not taken a reserve this year had it not bad.

This achievement this quarter had not been for seasonal but this year the impact. So you understand what it does to the EPS in the are always on the company were reported return on assets at 1.5 Pi.

After the expenses of Cecil actually had we not had to say so quarter, we would have reported.

On our way of 1.9 to we reported EPS of 38 cents literal reported EPS of 47 cents and that would have then as Randy slams what to say had a world record.

No lack the world record, David Trice that would have been world record net income was 78 million versus 62 million.

Actually earned 70 April lifts assays will deal safety data that's another roll records efficiency Donna was below sub 40.

From 44% to 44% down to sub 40.

Pre tax net revenue 102 million after another world record.

Turn on tangible common equity, we reported 38 cents or 17.40, which is pretty good but actually without say so we were reported 47 cents has 21.63%.

Leading margins as you heard from Brian diagnosed margin was actually up right job at all.

Well I already per cent dividend payout.

With that asset quality ever for this call pricing and that would be another will record 2.15 reserves $283 million and is Kevin and I think prices I'd say, we're both pretty proud I went over 400% coverage to nonperforming.

You heard Steve the reporting on deposits up $166 billion per quarter. There's a lot of bikes are amount of things $660 million. So that's 1.66 billion as pretty impressive and even more impressive matters. The job that his team did on the cost of funds by warrant the Pratt cost to follow.

By $9 million quarter to quarter. That's also another world record, 57% loan to value continues we like our book not only in many people willing to walk from from that equity if I do it won't be all bad.

Strong run rate should continue to 21 and 27 as Kevin said, 80% of the first 4.1 point $4 billion. There has been were issued and deferment are going back a piano, that's probably pretty good news. This is why or how long is the best in class and all metrics.

Even with Faisal Sarkis, we aren't 38 cents and around a 155 inspite of the parents disappearance of $21 million. It a back right into the sequel, Cecil sorry to stay in most buys will be proud of those numbers at a 135 38 cents to respond to manage the.

I'd like to congratulate the how's the size the president and the way the final distance or the treasure, where an outstanding job only creation an execution a DPP I know there's work in process and there were lots of changes.

It's a terms in that and I suspect they'll continue more but I'm convinced this plan has signed many small business.

It shows how we work together for common calls what can be quickly account was on the stock buyback side, we stopped buying back stock today. The present asked us to do that on television.

Stop buying back stock puts bank stocks in serious jeopardy, and totally at the mercy of the shareholders.

Well I'll stop buying back stock at our policies on stock buybacks doesn't allow buying three weights prior to earnings rules. The reason for that is we don't want to front run that legitimate shareholders.

But there is no stop or Marci from the show whores. They will attempt the wrong stock in the gravity is like and Mike of nickel. These people had nothing to the wall and our vultures that is for the values of stocks home by August hard working Americans that do not have the time.

How are the advantages of the lightning fast stock its execution, while they are working for Olin.

Masking, our congressional leaders to ask the NC state to stop the showing a buy stocks.

Tony did Europe initiated on the here all publicly traded bikes and their investors should answer politicians designs on.

From a sense of strength, if we annualize the quarters PPNR of 102, that's over $410 million.

Plus our $238 million reserve, if needed and gives us $648 million to handle future losses, that's not going to happen, but if it does we're prepared to hand as the G. As of Sunday July 12 that say 42 PM Amerada. This deal I don't know one.

Painting, a loss of thus Paul I'm sure, we'll have water toads, but so far so.

And while we made the adjustments to cover anything.

Come out.

I think it with Brian Davis, It ran a model in the first quarter, but as we charge off a billion dollars. We still had all regulatory capital requirements and that's not that's not telling the for $10 million and pretax pre provision earnings that we think will become an industry box as next 12 months is that about right.

I was pretty close which hours to billion would still hit all in all the regulatory.

Requirements.

Yes, there that is correct.

He ran the numbers or just the other died and we're still at that signed by saying spot.

It might she feels pretty good to have the reserves. We have no. We had to take a billion dollars losses were still a good side.

But I hope this provides some clarity into the crazy see some model in the middle Middle plan doesn't it.

Moving over factored in to the model as Kevin Hester has referred to that three trillion dollars plus and government support thats coming that and with more down you know that in itself is probably a game changer.

It's still a little date dangerous to lend money in the middle This crisis, many lenders, allowing long term with low fixed rights in the delays and even some of the times at those rights no one's getting paid for the river.

Flooding the contract with liquidity was certainly the rat funded the but somebody said it has to pay the inflation fiber.

We're adding five year all right thanks loans.

We will those people who wrap those would be the price I'm, sorry, biking, we must at forget forgotten what falls inflation over the years, particularly essentially flooded the wall with liquidity what is that that we slow inflation down with remember what the fed uses is rising right steadily.

So I will get ready when this is over for laser rights.

Thank you for your support I don't think we've ever let you down before and we won't just and I just want to put this in perspective.

My last month was first commercial corporation bright back a little rock, Arkansas, we grew it to $7 billion and solid and mapping 98 for 4.11 times book now that was not tangible book that was total book.

The back was earning about $110 million per year, we sold it for 22 and a half past projected earnings that was one that was $120 million year that was projected any brought about 10.7 bed.

Right that in contrast that with the diverse market volume environment.

I will Miss a 16.7 billion dollar earnings by.

And actually still is already in about $300 million year with a market cap of 2.5 liquids trading not even at 10 times earnings. If we were trading at 98 levels are perhaps would be actually is.

Our book value is 56 times for 11 comes at the $61, an 89 cents a share arms 165 million shares gives us would give us a market cap of 10.231 billion at $7 billion to $9 billion. More this is what people have done the bank.

Hey, Rob American shareholders of billions of dollars to low loan balance down with additional expenses requirements at regulations.

Right and now Cecil.

Is the next not enter the yet to feel bank on I think it's time to put picking on buying spikes or in the best financial position in my mind group. Some politicians have major entire careers bidding up minds I guess, it's fashionable and political just hammer in handling wells Fargo didn't help us either and those gas ought to be.

Tartan, rather and it looks like that might be what's happened to.

It has the best quarter in our 20 year history, almost 21 year history and in the metal middle of abandonment.

Support shows strong, but you're still strong belief in support of how we never give up we never CLIA, obviously, the proper discipline of euros of billing and developing our culture has allowed us to bill one of the Premier financial institutions in the world at least in the US thanks to all of you for.

Being a part of this amazingly strong immersive American success story.

The banks have had been picked on the banks have been picked on when the upsell policies and try to find somebody asked.

And hopefully we get rather the shows in conclusion, great quarter from everyone right participation from ever won and I think were set for the rest of the year Donna and if you have any are you on site anybody else got anything and so want to site comments.

Not I'll turn it back to you.

All right. Thank you very much for glowing report and I think what Frank to you for Q1 night.

Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone, if you're using a speakerphone. Please pick up your handset before pressing the keys. If at any time. Your question has been addressed and you will like to withdraw. Your question. Please press Star then to at this time, we'll pause momentarily to assemble our roster.

[laughter].

And our first question will come from not only with Stephens. Please go ahead.

Hey, guys good afternoon.

Hi, Matt.

Hey, I want to drill down on the low loan to find my commentary and I realize it's still in the process. The second phase if deferral, but I think I heard you say that 80% of the 1.4 billion of the original deferment are going back on regular payments data.

So I'm trying to reconcile the numbers here say with 3.2 billion of a loan balances were deferred on June June Thirtyth.

I'm getting around $2 billion are currently deferred as of now which represents around 16 or 17%.

Loan balances does that sound about right and then park to where do you see that number going into future with a crystal ball look like.

Yeah that sounds about right with the knowledge that there's still half of that 1.6 or that is still being reviewed in and we're not sure yet how that will turn out but.

At 80%, that's a really strong percentage.

Of what we've already looked at being half of the 3 million to where we're proud of that we believe that.

Do you know that number's, probably going to be at the end from 3 billion to maybe two.

Billion to be in three somewhere in there and that includes what we expect to be about 500 million of hotel that we'll we'll probably carry forward for a second 90 days.

So significant drop and again, we're we're looking closely at at that each one of those it's a very defined process with a lot of information gathering talking our customers.

I'm talking out past the next 90 days trying to figure out where we.

Where we go from here, if they're taking the second one.

And then Kevin just make sure I understand I write that $1.0 billion to $1.3 billion. It you mentioned I guess that would be the number that kind of your estimate at some point over the next few weeks white. Once you reviewed the entire first phase that that the second deferral that right.

Yes that would be our our hope.

Got it okay.

That's very helpful. Thank you and then.

Go ahead.

It's tracking a little better than that but hopefully that.

So those would probably be probably a billion dollars.

Hoping for a billion dollars, but it is what it is right. They they'll open their old tail. It doesn't matter when you gotta forgotten deferral.

Good news as we've been here before what they discuss lot of these customers from the 11 five hurricanes that appear so as Kevin said, we had the forms of a pipe work and we went straight into that mode. So it it just.

I think I made it a statement earlier in my prepared remarks that I haven't seen a penny allows thus far.

And I can assure you Tracy French has been degen for I mean, he's been dagan for losses, but thus so far so good.

Good that's fantastic.

And then I was surprised to see the unfunded commitment expense of around $9 million into Q.

What was the driver behind that and ended the bank see any any strong growth and the unfunded pipeline.

I'll take that one mr. Allison.

It's really.

Factor a three components.

The primary factor is that our expected funding percentage went up quite a bit and our loss rate went up. Some for example, our expected finding percentage went up from 46% to 55% and that accounted for 4.8 million of expand.

Our last right on that the total gross balance went up about 24 basis points that was related to the higher unemployment relates unemployment right in our Sixtyl model, but also our unfunded commitment bounce did go up about 83 million and that accounted for.

About 1.1 million so to recap at the a change in expected finding percentage went up 4.8 million. The balance itself went up 1.1 million and the loss right went up 3.4 million for total up 9.3 million.

Got it Okay. That's that's helpful. And then just lastly, I just want to go back in to revisit the topic from a few months ago I think that the bank, but at a 8-K back in April but that talked around the company's response to the say on pay around the shareholder vote and as a result of that I think.

Johnny I believe you took a voluntary salary cuts in a few board members were re assigned some committees keeps add some some context to the announcement. The can you put out there back in April.

Hi, Thanks, Yeah, Thanks for that I've actually want to comment on that.

The the saying it was.

The Randy Sims It was a president and CEO the holding company resigned I don't remember in October November and actually we Didnt increase we didn't put anybody else in that role I just assume that ROE I took that was already chairman I took the CEO and president ROE. So we didn't have any additional expense to the company.

We could have averaged Sam salary with my salary or my bonus I like the there you got aggravated my bottlenecks or something they won't some kind of matrix I'm not sure. What it is when you run the best Mike In America, and we're one of the top four bikes in America. They want you to compare peer groups, we really don't have a lot to compare with Ana.

For.

The reason I made the Moose was to try to cooperate you know give a a token that we're trying to cooperate. However, you know we have a business to Ron and I look down the shareholder listen I didn't say they pay only share so when I'm being told to get rid of boards of directors from people who have no idea.

What they're talking about then I'm going to we'll do that you know when you run this kinda performance over financial institution, you have to continue to do that and if you look at the performance of this company over the years and years, we've continued to do that and by the way they might want to pick up on the knowledge that the first 10 years. So this.

Corporations life, which was about half of it.

There are chairman didnt tight a salary or bone, it's not a penny no no expense checks known up and so you know they come in kind of late and they snapper shoot you from from out before we try to cooperate we'll try to what product while fiber wherever business strong we've been in middle of a pandemic we've come out of the word.

Financial crisis away don't sense in my business Slack and we have to run our company way. We're running so we made a few adjustments on the board.

But.

For someone to tell me to get rid of those two guys. One of them was a former might commission or the state of Arkansas without his expertise and the other one is repeatedly debate the top financial gas and the state Arkansas, what they don't know is that I talked to these people weren't particularly the financial analysts law, we spend lots of time talking.

Oh online offline wherever so anyway I thought it gets a little unfair but it is what it is we will try as I've said, we'll try to cooperate but we have a business to run and will run at the best we can and I hope my shareholders understand that I am the largest individual shareholder so I'm going to do.

It's totally in the best Centrus of all shareholders, whether other people like it or not so.

Appreciate the question thanks for that.

Okay sounds good thank you guys.

And our next question will come from Brady Gailey with KBW. Please go ahead.

Hey, Thanks, good afternoon guys.

Barry.

So.

If you look at the Hcl, It's now 215 basis points of non PPP loans, that's definitely towards the top end to the range as far as where other bank threat.

My question as you look towards the back half of the year do you think there's any need to continue building reserves or do you think you're at peak reserve levels right now.

Unless something go haywire [noise].

I think were old.

Uh huh.

I believe we're over reserved at this point, but that's okay. I mean, it's I'd rather be over reserve that then under reserve. So I actually I'm feeling a I'm feeling good I'll I'll, let Kevin who deals with that more than anyone in the company or Tracy, who who's trying to find a basketball somewhere so.

[noise] I got it last comment from somebody a sand that said.

I agree you do run to best Bank of America. They are leave you alone. So other than I was comment. Thank you very much color your nine but I appreciate that Kevin you got to comment on what you see over the last Saturday thing did well reserved yeah. My comment would be that you know what's.

The models that generate what we put in reserve really talk about what we need that there's a disconnect there.

I don't feel like.

We're going to need the 215 basis points at this point, but the models that you know that are put in place because of seasonal indicate that.

And what goes in or out in the next 2345 quarters, we'll all be determined Bob.

Estimates of.

GDP and unemployment rate things like that not losses that were seeing.

All right. That's helpful. And then if it's such a strong quarter from hole, but I did notice if you back out the PPP loans.

<unk> period end loans worked out.

Oh around 10% linked quarter annualized.

Maybe just a comment if you back out to noise associated with PPP.

How are you thinking about.

Forward loan growth from here or potential loan shrinkage.

Well, we're holding money we've had a couple of big loans, if we did.

This quarter, it's a it has slowed I think it scared some people has slowed a little bit so which is not all bad right.

Chris Bolton says, there's nothing wrong with getting paid off and sometimes you get paid off so I'll just go back to though eight 910, adding care. If I wrote another loan the key was to remain stable and strong that's when we did the efficiency Dale protect your capital and add like that's the time I think thats where in that same over.

Right now so not that we won't know money, we will own money, but I think it Scott I like the country is a little shook up right now with all of this don't know if we're in a b or adelphia. So it appears in most our markets were to be there was some of them it could be could be a w., but most are markets. We're in a me but I.

I don't.

Tracy Kevin Steven got to comment on that.

Then about no I agree I think we're seeing the loans were seeing the opportunities that are out there.

Again stay in our disciplined underwriting that.

Not winning all all of them that are out there the payoffs they probably were a little bit more than what we thought during this time.

Expect some of that's come down the there'll be some opportunities do as we go through the Contrave, we're dealing with some of our excellent say borrowers will restructure some stuff potentially and we also have a lot of customers sitting in the wings to take advantage of any opportunity was out there I was thinking the water.

Our larger relationships in South, Florida today up felt the you'd see some of the values decrease over the over this time is ready to pounce. If it has but it's just been just the opposite it's just the the opportunities have not been there for some of our borrowing base is ready to go.

You think about it Bernie yet he had some stuff going on in 2% to 3% money out there you're not getting paid for your risk here and it here at a time you don't know if you're to be or a debit. It's a time the whole time, it's a time the whole watch you got protect your assets manage your business. The way we manage this company and if we don't grow Jeremy.

Well the next six months so be it will be fine. This company will continue to do produce the numbers.

I mean, the whole loan growth would be great, but we're not you don't have desk one way, our we don't get off of that this one. Thank god, we never got off of that business. We were pushed in push to get off of that this when we never did and I think the proof in the put me with the asset quality in the earnings performance of this company.

Yeah, and then finally for me I mean, Tracy and Johnny objects in M&A is dead in the near term.

I am I wrong.

Well I keep right.

A couple analysts that mentioned some people, having some trouble with some buying seven some struggles and.

It wouldn't be a bad time to look at one that we're struggling.

It did probably a good time to do that.

You know is the problem is you Gotta Blackrock you know you got to you Gotta Biothrax you can't do a deal for the site to do it a deal you've got about right or has the combination has to make lots and lots of sense for both the seller and the buyer with when they team up so I am I right people are more concerned at this point in time about.

ER business as usual protecting their assets getting their deferments.

Well, then I'm from <unk> numbers down I think they're more concerned with operational opportunities right now than they are M&A, but if the rockdale came up home and do it we're in a position to do it we have plenty of capital to do it with.

You know he think about if we can continue this run right as I said in my remarks, that's $400 million plus the reserve a 230 plus million dollars.

And I can't imagine I can't imagine us every even denton that into that but.

No. It is it is a sense of Brad the that we've built a damn fortress balance sheet, we like where we're sitting.

Got it thanks guys.

Thank you.

And our next question will come from Jon Arfstrom with RBC capital markets. Please go ahead.

Thanks <unk>.

Hi, John.

Hi, I'm a couple of follow ups.

Kevin you talked about.

BP significant new customers from PPP and I think.

Some of his time to carve it out and see it doesn't count but.

And the new customer.

Just curious if you can size that all materials.

Of the of the PPP I'm going to say it was probably of the dollar amount of that it was probably.

[noise] and a 15% maybe 20.

But some of the customers, we we targeted some out of that and.

Some of the customers that we've gotten out of it are going to turn into some significant deposit relationships. Some some long relationships and.

So I mean first thing we had there was take care of our existing customer base and we did that.

At different points, we had we knew we had some capabilities to.

To do extra and so we would that those points, we would send people out.

As to the folks that they had had targeted but other times, we were making sure we could take care of our own folks.

And that and then on the deferral in terms of what Stena deferral. You you mentioned 500 million in hotel any other seems for what else is.

Staying on deferral.

Oh, I mean, we've got to.

We've got a guy that has a movie theaters you know he's going to you'll probably be on the second deferral when you've got some.

Some HLS that we're we're in.

The latter stages of stabilization that this is going to extend out a little bit. So those are the types of things you know from.

From a size standpoint that.

The gets my attention.

Joining maybe another way to ask how many question Bridie asked but from an industry perspective, I think we call. We all understand your credit discipline, but from an industry perspective.

What do you think will start to see industry losses happen.

What categories do you think will see the most damage.

And does that tie into M&A thinking at all.

Here.

Well.

I'm not sure you wouldn't be recognizing problems today.

We know the good news about our customers as we know our customers and we pick up the phone as Tracy said in column and visit with them. So we're big enough to have a personal relationship with these customers.

I mean, we're small enough type of person relationship with them with big enough to take care of their needs and that is one of the strengths of home Bancshares is our customer management controls we deal with I can't answer what other people are going to do but I can tell yet again.

We could have some lawson probably we'll have some loss you know our movie theater Gaffey doesn't get three open I mean, that's at the he can.

Were $5 million that could be a loss.

Our oil and gas it's come back a little bit we only got total Chris has got 50, and we got 16 here. So you know that exposure is not bad.

And let's come back a little bit and and people are doing a little better but.

From a the hotels would be the ones that are going continue, particularly the airport hotels are going to struggle a little bit long, but you know as Kevin said.

If there 50% loan to value and we defer room for six months dinner at 53% loan to by 54. The good news is having that equity in the deals they protect you. So.

I don't know what other people are expecting but.

What I said to you earlier to today that I don't see a penny is worth a loss I don't see one.

Now that doesn't mean that we probably will have one I mean, our or movie theater Guy could blow up and then we can do we could lose four or $5 million on that on that trade, but outside of I think our hotel book is fine we did a complete deep dive in that wholesale broken learned a box actually we have learned more than.

We learned a bunch of deep dive in so.

I can't answer that I can tell you that they may buy for honestly is looking at his book today. He would tell you. He would be so you haven't had identified problems in the book and I can tell you we do not see a problem in our book that concerns us at this point Tracy.

Totally agree I think when when you say when this banks begin to recognize it if we're doing our jobs away. We are doing here back to the basic bank and were going up but we're identifying things that.

Have a an issue today if it has lost a day, we try to identified as Johnny said, so far we haven't seen that we mentioned the one credit while ago that that's one isolated product. We don't have a certain class that we sit here and it has identified saying Mrs an entire portfolio.

As we shared with the loans and Kevin is team did an outstanding job, bringing about speed got a better report on those today from Kevin.

There are a few of those that's going to go through some talents times over the next few months, but they have the wherewithal I noticed on some of those extension credits and again.

Well front as the case I look at all of them that we're trying to Sony most of it that but some of those are certainly not in the need of.

The another differ is just that they want it can continue to keep their liquidity in a position. They are they are in that position. Kevin mentioned, it's not anything that's going to make our loan it or any more risk than probably what it is today. So it's a case by case and I.

I think banks should begin to.

Recognize any potential lost over the next three or four months. If they are doing their job doing it right. We're certainly had that identified when that happens by been little later well. The good news is there I don't know anybody else. It's running the 250, our ways the homes running free tax pretty provision I mean, we're in great position to if you're looking for my skin earnings.

Sales out of a <unk> well get there is a problem. This is this is certainly one that can you can argue themselves out of a problem. So overall, Kevin any comment on that just one thing about hotels.

Everybody thinks that hotels Ren.

Really difficult spot and they are as a group, but there are so sub segments of that asset class that are performing well our coastal properties in our extended stay properties are both doing well coastal is 37% of our portfolio an extended stay at 27%. So you combine the two of those that's.

Really two thirds of our of our hotel portfolio consist of two sub segments that are really doing pretty well right now and we'll out outperformed the other so you really have to dig deeper than than just making a broad brush across one one asset class and that goes for you know for all the other things and we're looking at.

Tail everything else you have to dig deeper.

That answered your question John Yes that helps that helps I appreciate it. Thank you.

Thank you.

And our next question will come from Stephen Scouten, What's Pipers handler. Please go ahead.

Hey, guys good afternoon.

[music].

Okay.

So question and just one more question maybe on the deferral process I'm curious on the 1.5 billion was there any sort of.

Concentration in terms of the loans that have been reviewed for that second deferral as of yet or.

Policy on becomes a loan size or whats been reviewed I guess to date.

No I don't think I can tell you as far as a it nothing as far as loan size amid that they're doing it but largely based on day on the day.

When the first one's came in those are generally the first ones are working on because they were really due.

To be worked on when when we rolled out our process. So it's probably more related to timing than anything else.

Got it and when is the process for those loans I guess on deferral now and that could get a second deferral in terms of potential downgrade moving them into you know Watson special mention or anything of that nature or any of these within special mention today or would that transition occur where the second deferral potentially.

So do you just take the 300 million that that really has already.

Come through that will stay in for a second deferral those are being graded.

Based on what we learned in this in this process there will be those will likely all move to a four if they weren't enough as if it's a pass watch already they would at least go there. Some will go to two special mention.

Just based on what we what we see in the future prospects. So that that's the process, we're going through right now [noise].

David I know Kevin is that they put together one heck of an underwriter slight re underwriting credit again with a lot more detail. He's got a regional markets that are under re underwriting the credit and then they if it's a certain size that goes to a we call. It a.

Tight could committed as to works do with all of our senior leaders in the company and then naturally certain ones would come to our executive board level, if thats the case, but it's so well the Kevin in the south but together the documentation that that they're doing and it's kind of like a re underwrite.

In the credit again and sometimes they.

Since the lender back and get a little more information and then given lower direction on it so it's a.

That's one of the things that have been I personally have been really pleased with how they're doing that.

That's great. That's really helpful. And you guys gave color on a long to lot of color during the quarter in your hotel booking from given the balances on the oil and gas portfolio do you have any other detail available there in terms of current balances within.

New restaurants retail theory healthcare any of those other types of loan book.

That people or maybe slightly concerned about.

[noise] that was I think the retail book and maybe one other segment. We're we're going to be the two segments. We were going to tackle next in our in our series a visit so we're probably couple of weeks away from.

From being ready to do that you think itself.

It's like do you think that was helpful. On that somebody said I, Johnny just picked his friends, which was an installed hitting a plant.

Let me phrase prices have not gotten that was the efforts I took that as an insult, they're all our friends and.

No. We got 100 200, I will tell us what are we got and we've got 107 hotel staff I mean I.

Welcome them to pick any one of those customer sleep, we don't we don't orchestrate a call like that so it was that was a little.

Aggravating.

I thought it was very helpful. I was very helpful. I think you know we've all been hearing kind of anecdotal stuff around extended stay hotels and you know coastal hotel too good to have some data points.

There that you got well appreciate it.

Thank you I'm glad I'm glad that will continue its long I mean, Chris came back someone mentioned well what about CCFG came back debt reporting CCFG and I thought that went well I mean, we don't.

Unless something Pops up we at least as I said earlier, we don't see any problems, but there might be some but anyway. We work hard at it if it's beneficial to the story to dissect that actually the hotel look as Kevin said that I mean, our coastal hotels or straight up there their revenues better that it lost last year.

And believe that he would as Scott I guess they get.

Second sitting in the house and took off we went on vacation. So that area has been good case were a little light opening up the fees will be fine. That's one that we've been in that market for many years that one will be fine. So I worry about our airport hotels, However, air airfares picking up a little bit select may be better after what are you.

Interstate hotel that 40 hotels that 30 hotels of running as Kevin said about 40%. So I'd say taken up thats taken out so that maybe you know the next quarter that might not be as bigger problem, but we're going to look at where to look at other.

Asset classes, and if that works for us and if that works for you guys that then we'll we'll bring amount will bring some more on what discrete we don't have anything that we spend an awful lot of time on that well, Johnny Kevin Stephen and myself I know, we said in hair. Many a day just taken down a specific class and then we'll.

But up on the board will just quick follow up call the customer will call. The our lenders will reach out to make sure. So it's.

Not anything as Kevin and Johnny pointed out there's a certain class of credit that we were.

Overly concerned about compared to anybody else, it's a it's been.

Pretty as I said I feel a lot better today than I did 90 days ago with uncertainty remember Steven.

It appears 57% loan deposit and you have to deferred for six months.

Then you say student loan to deposit.

Not the and the world.

We're work where are we got in trouble in a way to one that is we rolled into 100% and I needed money, we're going to be 105. So it's a different it's a different world bless you got the BP to pay money plus you've got lots of things, helping and federal government itself to box.

Okay, Great maybe one last thing for me it sounded like maybe this more for Steven Steven will allow the detailed it you gave around gene deposit costs, an incremental declines in what feels like some relative stability on the average loan yields do you think you can keep the NIM kinda in this range north of 4%.

In the months ahead in the quarters and then you ask you to stay if it or me [laughter] Stephenville, Matt drift, a little bit I'm, okay, it's not going to a little ahead, Steve or dividend rate.

Yes, Stephen give the Randy Mayor, that's what I've always said, let us get guidance last quarter. It. It would go down it went up so critical just keep saying it may go down [laughter] you know certainly in the first month or two of Q2, we're able to the really aggressive in south steep decline on on funding cost [noise].

Still got them down a little bit in the month of June, but maybe a little.

Slower pace that I think everything we see on on loan yields the yields on the construction balances.

Yet to Thunder 30, 40 basis points are higher than where our book yield is today.

Yes, the the balances that we have coming due over the next six months and I think is tracing Johnny mentioned some of that on the on the loan side depends on what competition does and what we have to do to fight back.

But if pricing is somewhat rational and I think thats all of our prospects so that we're able to.

To keep funding costs kind of inline with what happens on on the loan side.

Got it may be helpful. Congrats guys on a great go there really nice to see.

Thanks, David.

And our next question will come from Michael Rose with Raymond James. Please go ahead.

Hi, guys. Thanks for taking my question I just have one I don't want this to turn into the world record for a long this earnings call.

So I'm not [laughter].

[laughter] said one question around around buybacks, obviously, probably on hold for now, but you know something like Jamie Diamond says you have that rule that out for the fourth quarter. You guys are clearly building a lot of capital.

Awesome, others boss projections are wrong. It come in lasted you're building even more capital.

Hi, how do you think about that in this type of environment, where unemployment and GDP are still gonna be soft as we move into next year. Thanks.

Oh, we're not I just have been jump into be getting back in president Trump ask us not to do that we stopped that day.

I didn't know if we're going be penalize you get put in a penalty box for continuing to buy back stock we have the ability to buy back I would like to be in the game to buy back I hate to be at the Mercy of the short swim we can't buy back.

I would I'd love to be back in the game and I'm not going to rule it out either I'm not going to rule out going back because it is something I think is.

As has been good for our company and I think it'll continue to be good for our company.

[noise] and we're building a lots of cap they might be able to go into by better block at some point in time.

Because it it or we are we're steadily building some cap that you're right.

Hi, guys. Thanks.

Thank you Michael.

And our next question will come from Joe Fenech, but to have the group. Please go ahead.

Hey, guys are most my questions are answered here, but just a one for Brian and one for Johnny question for Bryant Bryant for the types of Securities you guys hold which I assume aren't all that different from most other banks you had the upward revaluation and market values. During the second quarter would you consider those markets have basis.

If we normalize at this point I'm, just trying to figure out it relative to where the mark to market would have been let's say at the end of January or February is there potentially more upward revision to come or are those marks kinda back to where they were pre cope it.

Well them from the main driver and that is the fact that we have a higher yielding investments still on our book versus what the market is so you know we've been building, our unrealized gain or loss throughout the year.

In my level out a little bit, but that's pretty much. The factor is that our rights that are left on the books historically are higher than whats current market rights are.

Okay, but most of the most part the disruption from March April is kind of settle down.

That's correct and we know we took a little bit of a reserves on our portfolio in the first core we'd brand that same analysis and probably didnt, we didn't take any more reserve a it actually probably showed it was a little bit less than what we needed, but we put a management adjustment factor on it because.

Q2 didn't seem like the time be reversed in any reserves.

Okay Fair enough and then Johnny a correct me, if I'm wrong, but with the Liberty deal was the closest you guys came to a transformational acquisition in the last cycle in terms of size assuming your active this next M&A cycle should we expect more the same in other words.

Don't bet, the ranch or your culture at any one deal or things lined up right could we see you do something or consider something more transformational.

HM.

Oh.

I'm not afraid of that I'd rather.

I'd, rather let some time pass.

I mean, I know our book I don't know if we did something that was upsized.

I don't know their book.

And I don't know reach we can get to know their book in the due diligence.

I don't know that we can do that.

I would be a hesitant to do a big deal wouldn't mind do it as I've said in the patching do a smaller deal and not hurt yourself.

And you know we can do a 5 billion a third of our size or something that would would be a that'd be a pretty good sized strike force, but that wouldn't that wouldn't be afraid of that probably better than that right now would bother me it in the market, but Uh huh.

As we get more clarity down the road from some of these other people to see what they're doing it and I don't know what their reserves or we've looked at some different bikes and I think you know we don't have a lot of oil and gas exposure here's the key what are your alone what I asset class Eagle put your money in credit cards domain Carlos.

We're [noise].

Where are these people where are these banks Clinton, putting their money in bought asset class a nurse risk in every asset class. So you just got to manage those class those classes whale and know your customer and be able to pick up phone column I know I'm getting off a little well off track here, but I think its ailing is a place for home bancshares.

A major plus for home Bancshares, no wonder customers and most of them. We've we've had a drink with an had dinner with so and the ones that we hadn't we won't <unk>, we want that to happen. So.

I don't I wouldn't be doing a big deal in this market right now I think as Bob Bacon are down a third of our size or something that makes some sense, but.

I don't know if I, all things equal all things equal Johnny you still look in west or be opportunistic around the southeast.

And I Wouldnt, both I'd be boat that I've just.

There's I want to see how they shakes out Joe.

We're not necessarily bottom feeders, but we've made a bunch of money.

Over the years and help build our franchise by looking at opera being offered to mistake. So I think we have the capital to go do something if we find an opportunity and.

But otherwise there's nothing wrong with running this company the way, it's running and taken out $300 million year free Cecil.

That's about the new numbers I mean, Brian I haven't run new forecast for me and I think.

We were all over 300 million for the next 12 months, you know forget Cecil let I mean, the timing of this seasonal deal is absolutely ridiculous and we're up and down inside ways, you know that Prefunded <unk> I mean, the commitment on unfunny I had no idea that that went to operating expenses I mean, how crazy.

Is that really shown it as a liability and then we're going to have to adjusted every month, it's another complicated factor or they just only at on top of banks in.

Hey, well have us.

I got a longer lifetime.

Yeah. Thank you all have.

And our next question will come from Brian Martin with Janney Montgomery. Please go ahead.

Hey, guys. Thanks for taking the question. The just won a couple of things for me just on the PPP Me do you guys I don't know what I guess I missed some of what you said, there, but just kind of the expectations as far as a forgiveness goes and kind of timing of that benefit I guess can you give any thoughts on how you're thinking about that given the haven't gotten a lot of clarity from the FDA.

Hey, Brian This is Kevin that you know I would expect a large large percentage to be forgiven at this point given they you know the extended to the covered period. They made it easier 40% can go to other things all those things they did improve the probability of getting good forgiven.

So I would think it's not you can throw out a number of seen 90, I've seen 85 that I think it's a large percentage will be forgiven.

Timing I I'm I'm hearing that we're getting close to having some guidance on how we're going to transmit the so if that happens.

Soon then we'll get our process completed and we'll be ready to start taking them.

Relatively soon I don't know how many people are actually ready but.

Between now and October you know those folks will will complete there there are covered period and they'll be ready to start getting those off their books. So yeah, I'm I'm really hopeful Bob.

The October to December that the majority of these are gone.

Okay see you I guess, yet your hope would be like it sounds like that that month. The December maybe forgiveness occurs and so it's a fourth quarter event for the largest for large piece and then some may extend out into 20 intent and into next year.

The way it seems to be line enough at this point.

Okay fair enough that makes sense and then just how about maybe just going back to the margin for Stephen for one second just as far as the kind of it the liquidity that's on the balance sheet today, I mean, I guess, how long do you expect that to stick around and I guess, Stephen you Kinda talk about big picture, maybe holding the margin kind of worth at I guess is that.

I guess I'm, assuming that's with the that liquidity sticking in there I guess.

Any thoughts on that liquidity PCB helpful.

Sure I mean, I think the comment around and I think Brian gave some really good color in his prepared remarks around where the.

The adjusted NIM is X liquidity or the impact from liquidity and TPP and other things I think thats kind of really what we're.

What we're talking about you know we we are we talking daily I guess from up from a liquidity standpoint o'bryan his team the.

Daily and weekly than ours, Edgar talks about the claim and we've had.

Probably let.

Hundred hundred 50 million go here recently that we were originally kind of proactively holding onto it we'll see some of this pair down with tax payments are going out yesterday. So.

And then I would expect at some point, what we feel like a good portion of the PPP balances behaviors are still in the bank Yemen operating accounts that some of that gets spent over time so.

No I don't know maybe.

When we talk 90 days for now.

I would expect things maybe to trend back to you towards a more.

A more normal level from a liquidity standpoint, if we all have the cup.

Where things.

Go in the economy and what the government governmental support is.

Okay. All right. That's helpful exist, maybe one last one for Kevin just on the deferrals, Kevin unless I missed it I mean 3.2, you said a billion too is you know kind of going back to.

Paying that that remaining 2 billion that that's out there on on the deferrals.

I guess can I guess.

Maybe I missed your comments about the billion it sounds as they expect to billion you'll be left in the billion. After you know those ft. I guess take a look at how those are performing how many of those are going back to payment is that what is that what I heard you say.

Let me say a little bit differently, there's there's still a billion sticks forced to look out so out of that being six there'll be some number of that that stays on deferral whatever whatever number that is will add to the 300 million that we've already identified in the first time.

Okay I got to that makes sense. Okay. That's not that's all I had for me guys. Thanks.

You bet. Thank you very much.

This concludes our question and answer session I will like to turn the conference back over to John Allison for any closing remarks. Please go ahead.

Thank you for Jono has come a long call a lot of questions, but there was a lot to talk about today Theres a lot going on.

So far it's all good.

I think to have a record quarter in the middle is pandemic speaks for the strength of the people of this corporation and I want to tell you.

My wife asked me about the dividends. So don't don't worry about the diversity of [laughter] the dividend inside so we don't anticipate anything there, we don't anticipate any losses to speak of and.

Overall, I'm, Dan I'm happy I think were to be in the middle of this crisis I'm I'm happy I think and I. Thank you all for your support very much it's important to us and your inputs and important to US. If you have something you want to say about the asset classes are what we need recommendations give donna call well.

He is open to that so.

Wasn't great quarter performance was outstanding and congratulations to the home team I guess I get a lot of credit for being here, but it's really the people who run this company Tracy his group and congratulations you tracing year group so.

You got any comments first thank you will Smith.

We'll talk to you will continue to work or.

Talk to you 90 days, thank you very much.

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