Q2 2021 Home BancShares Inc Earnings Call
Good day and welcome to the home Bancshares, Inc. Second quarter conference call on.
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I would now like to turn the conference over to Donna Townsell Director of Investor Relations. Please go ahead.
Thank you Rocco I'm, Donna Townsell director of Investor Relations and our management team would like to thank you for joining our second quarter conference call reporting today will be our chairman John Allison price.
C French president and CEO of Centennial Bank, Brian Davis, our Chief Financial Officer, Kevin Hester, Chief Lending Officer, Chris Poulton President of C. C. S T. John Marshall President of Shore Premier Finance, and Stephen Tipton, Our Chief operating officer.
Before we jump into the numbers I wanted to highlight a couple of developments that occurred in the second quarter. First you may have seen our announcement earlier this week, where home wholly on subsidiary Centennial Bank announced the appointment of a new director of corporate social responsibility. This news highlights our intention to enhance the development of.
Strategic initiatives supporting Centennial Bank focused on environmental social and governance topics. While these pillars are corporate citizenship have always been important at centennial, we feel like a more formalized program will ensure that we continue to keep ESG on top of mind.
Also there continues to be discussion around Fintech partnerships home recently joined in with 65 other banks to form an investment fund designed to help accelerate technology adoption at community banks across the United States.
The partnership brings together season in Czech entrepreneurs and bank expert to invest in the next generation of companies changing the way financial institutions and their customers news track and interact with money.
These are just a couple of examples that show homes desire to continue to be 1 of the best banks in America.
Now to transition to what you all calling in for our first reported quarter. It will come from our chairman John Allison.
Thank you, Jonathan Thats pretty exciting about the fintech.
Good some bad ESG Force I think tells a positive developments for our company.
Good afternoon, everyone. Thank you Dan on that and again welcome to home Bancshares second quarter 2021 earnings release and conference call format from the second quarter was another solid quarter for our company with 48 cents EPS and $71.9 million in profit.
Asset quality again decent expense control.
Loan demand is for US is the frustrating part of the equation well sitting home $2.7 billion income listen no reasonable place to invest for a decent return we've decided to holdco home closed patient and do not set on our future we might be wrong, but it is a decision that we made and we're holding to that.
If we're right. We think we're only 6 months away from rising rates, which might include on earlier period of time of paper, Inc, and purchases by the fed.
I pay a lot of attention to Jamie Diamond and I agree with what he's saying he's sitting on $500 billion in.
And he says patients historically the key here because rates are going on.
As I've said in the first quarter, we have the wind are back on a lot of things that we've been working on came home to us I've met that is upon <unk> debt.
During the second quarter, we had the brings to our back with continuing income from investments. We made last year since going public in mid <unk>, 6 which together have been through the worst financial complete collapse or financials lapsed since the great depression, and the worst pandemic the world has ever known might be worst in the water.
1970 by otherwise as you well know throw in a couple of Hurricanes in Florida during that time, the huge events created fear uncertainty and lots of things Andy for all Americans as well as people throughout the rest of world.
I want to thank you all for your support during these very difficult and stressful times.
In addition to all of this debt.
That said, we were going over to bad Tim cheap Mckenzie and incurred additional tube. They can have on exact Blu Blu 2 billion 10 billion, which was a big Mark force.
Oh, Oh associated expenses, the adjustments for 10 day took us longer and cost more than we ever anticipated new terms to our vocabulary like enterprise risk management CFPB Bank say per se just to mention a few.
I actually wanted to say on less than 5 minutes as an exit exam was spent on capital, earning asset quality margin on liquidity.
These were the most important components components to running a successful and profitable banking the mortgage side. The other 50 minutes were spent on fines are barely heard over the last 4 or 5 years.
Through all the other C and Crazy times home has continued to produce peer leading results with Rois Rhonda from what 80 to 190 and from over 2%, we have manage tariff through the crisis, regardless of Pandemics Hurricanes or COVID-19 virus, where the business was good or bad regardless of the interest rate.
It's going up or going down or adjusting to what plan of attack that our management decided so that's what good management teams should be doing this type of work back over the last 3 and a half years, a 2018.2019 2020 and the first half of 'twenty, 1 and I think you'll agree with me.
Assistance C of homes, earning is impressive even without all the unusual circumstances, we found around us.
I'm just get rate 2018, 1920, and 21. So in 2018, we did a tool now or why these are adjusted numbers.
We did have children on in 2019 on 196 in 2021.92 in the first 6 months of this year on 97.
Debt converted into income in 2018, 303 million $19.294 million in 'twenty $309 million in the first 6 months of this year $167 million.
The total wherever you tell where it would be net after interest expense was 663 million and 28 day.
$662 million in that day 694 million in 'twenty and $365 million in 'twenty 1.
You know I think you have to agree with me that these numbers are pretty impressive and shows the stability of this cooperation on how the management team adjust those situations. That's in front of us I cannot ask for much more performance than that was impressive.
As a result, we decided to pick up our M&A hat.
M&A to allow the toolbox.
We worked on a couple of interesting opportunities, but to no avail. So far I was visiting with a very smart good friends on the money management space and I was telling the difficulties were reported through I told him I said it appears that the bankers are screening all bonds to see who can pay the highest price.
And then they go out to potential sellers and sales.
Hi look how much home get paid for your bi or someone like home and there's not many lack home, but theres a few of us that trade at a pretty high bar.
Tangible book it's.
It's almost like a pocket listing on a realtor has 1 of the potential seller says well my home is not for sale, but if you can get somebody that's crazy enough to buy at this price. He said in my house will be for sale and you can sell it kind of like real estate pocket list.
From a laughed and said they don't worked and what doesn't work. He said the M&A deals just don't work you went back to 2010 looking at all transactions and there were very few that were very interesting comments. He says Oh on announcement of a deal by a bad day.
He flowers the seller immediately.
In short the buyer as why would you do that so that's probably the highest price to sellers going to ask it.
<unk> it to go up.
It's tied to the buyers price and he subsides and I don't get paid until a sale in cash the money yet he said 98% of the deals are dilutive to the buyer.
If it's a 3 or 4 year earn back debt.
Well why would why would I sit around for 4 or 5 years waiting for that earn back they come back to get somebody back to EBIT. The only deals that make good sense or non dilutive transactions that have all day, all cause calculate into the transaction and experienced acquirers. He said you'll never hear this from an investment banker.
But remember they don't get paid they get paid whether it works or it doesn't work.
He said keep your discipline well how do you think.
Why do you think they wanted to do a transaction with home it's because your stock is good.
And why is your stock good it's good because youre discipline or your discipline that Mikey stopped doing it makes a lots of fans. Another interesting point that came from the matrix of the deals is the higher price to tangible book paid.
On a run from 1.4 times tangible book all the way up to 2.3 times tangible book and the higher the tangible book multiple of 1 word the market punished you and puts you in time out and in some cases it was years because you're waiting on the earn back to tangible book and nobody wants to hang around for that cause nobody keeps up with it.
Nobody Catlin.
We will continue to look for lack minded partners in this space. In addition to this integration risk. However, a lot of that integration risks can be mitigated when you're 5 black minded partners dilution is the killer if a buyer dilutes himself to day to value.
For your earn back to tangible book don't you think you'll do it again before 4 years and again and again. It is conceivable that you might never get your tangible book back to where you start.
1 way to look at it as homes market cap is $4 billion based on a multiple of tangible book, if I dilute shareholders by 5% I've just reduced the value of my company by $200 million now that tells you what smart money managers short the bar because it puts a dilutive transaction.
It does not work today, what it was yesterday if there is no dilution. There is no reason to short the back you say that again, if there is no dilution and it's an accretive transaction. There is no reason to short to buyer.
If the company has local shareholders.
And as prime at the on some negative triggered by the market is substantial.
If a company is owned by a bunch of hedge funds really complicates a transaction even more because they're go on Baidu land. If it's an asset day in the morning, they'll be gone they all sales.
Many sophisticated bank investors individual investors pension funds quality portfolio managers and E. T. S. And then theres the hedge funds, it's important to analyze the stockholder ownership before engaging in a transaction.
We still are engaged on M&A, but I'm looking for other opportunities that could increase or on its way over $300 million sub debt that is callable in April at 5.6 to 5 and.
$71 million worth of trust preferred we have been putting back 5 million a month and in April we will have $150 million.
Setback.
We may request I don't know what price do you think about request the regulators last 2 special dividends are correct within the numbers that we're working on the numbers and we will send them to them. So we may request, a special dividend and then if I were to approve that.
We could pay off the entire debt.
That's about $17 million pre tax and it runs at about 8 cents EPS.
That's without doing the trust preferred and we might save those and do them on a little later day, but all told we do involve us about nonsense might be 10 sales.
I would anticipate us.
At least on hanging on the sub debt and maybe all of it probably all of it with inflation running at historic levels. I guess you saw June it was up 9.2 net.
June was not intense may was 5 times. So that's 1.4% and 60 days Kevin adequate what did you say that according to almost 9% almost 9% Atlanta annualized basis. So I think with my direct call to invest this money into long term securities today to investors.
Money and 2.3% loans day, I think just a mistake.
Time will tell you, although time will tell with a rate or we're not yet other than bad not I think it's been pretty good.
And we're just sitting here waiting on the next process and I hope, it's not the delta balance coming back.
I'm going to let you go to management reports and Oh, I'll just hand, it back to you as well that was insightful and I also hope that we're not looking at it at a big surge in says the Delta virus, either so now we move over to Tracy French for Centennial Bank.
Thank you Don and good afternoon to everyone steady as it goes in the second quarter for Centennial Bank and home Bancshares, maybe steady and consistent is more accurate net steady and consistent.
As our performance expectations, a group to share with you in a moment some of the details about capital earnings assets liabilities.
Here are a few strong and safe performance numbers for the first quarter and the first half of 2021% Penny on Mike.
That represents all regions. It just keep producing such powerful results in fact 8 of our 12 regions had their best 6 months ever led by Central and South, Florida, while others are still doing extremely well and still complaining about our transfer price of internal model, where they their numbers would be bad.
And we understand that.
For Centennial Bank, our total revenue was $367 million per the first half of 2021, making a return on assets of 2.08%.
Our return on average tangible common equity non-GAAP was $19.6 6% on our efficiency ratio was at 30.859 for the first 6 months of 2021.
The Allison P..5 anr, there's still above the 60% level coming in at 60, 199% for the first half of the year on holding that number throughout the quarter.
A nice factor being our net interest income on the efforts of all focusing on our interest income and interest expense.
Noninterest income was actually up over double digits for the first half of the year on noninterest expense is up slightly.
Brian will give more detailed information on our strong capital as our risk based capital reported at 19, 5% Stephen will share the detail of the loan production and the deposits summary, as Johnny mentioned is now over $2.7 billion in excess and our loan to deposit ratio is around 70%.
3%.
Kevin will share the loan information as it continues its safe and sound numbers on nonperforming finished the quarter at 0.58% of loans, our allowance for loan and lease losses, excluding PPP ended the quarter at $2.4 8%.
Quarter end shows on our allowance for credit losses to loans to nonperforming is 407.99%.
While we saw on expected deal from an overall loans, who would've thought a 1% annual percentage rate on PPP loans would be good.
Weis, the returners of 3 or 5 year Treasury.
But let's look out rates have gone up 50% to 80% over the past month, So Johnny my forehead Comex rubbing just looking promising going forward.
Inflation was receiving a lot of attention lately as we discussed nearly this a year ago as we knew that the staying in touch with our customers on these factors we will continue to stay the course.
As we have said previously we have made conscious decisions to sit in cash with our asset growth and it appears the signs are showing some positive movement in the second half of the year.
The first half the year turned out the way, we fall and most of our markets. We're seeing good solid growth.
Through the swing of this other side of the cycle that would go on through.
We have stayed committed to our strategy and disciplined to make decisions for not to make decisions for short term gain.
That could affect our company long term.
Just on our long term and loyal shareholders appreciate that discipline Donna.
Thank you Tracy.
I think steady and consistent or certainly complementary adjutant and we'll take that and now we'll move to Brian Davis and give us a financial report.
Thanks on them today.
Today, We reported 141.3 million of net interest income and on a 361% net interest margin for Q2.2021.
Our second quarter net interest margin decreased 41 basis points from Q1 day.
October 2 items, which significantly contributed to this decrease decrease.
First during the second quarter, we had $247 million of PPP loans forgiven.
This forgiveness causes the acceleration of deferred fee income for the loans forgiven or paid day pay deferred fee income decreased $3.5 million from Q1 Q2.
This decrease was 9 basis points dilutive to the NIM.
Oh.
Second the COVID-19 crisis, and the resulting governmental response has created a tremendous amount of excess liquidity on the market.
As a result of the excess liquidity, we had $967 million of additional interest bearing cash in Q2 compared to Q1.
Excess liquidity was 23 basis points dilutive to the Q2 NIM compared to Q1.
From our point of historical reference the Q2 excess cash versus the historical normal cash balance has a negative impact to the Q2 NIM of 63 basis points. Once again that 63 basis points negative impact to the Q2 NAND because of the excess cash.
Cash.
So what would that be I mean, when he came on at much would come up with we had.
3.4 and $3.61, plus was 63 before 'twenty right.
Rate for 'twenty 4 it does charge you Rodney has had again.
Now I'll switch to the unfunded commitments this quarter the company reversed $4.8 million of the unfunded commitment reserve liability.
This reversal was primary related to 1 C&I alone during.
During Q2, the company determined it was not necessary to maintain the reserve on this cash flow on credit.
I will conclude with a few remarks on capital our goal at home Bancshares is to be extremely well capitalized I am pleased to report the following strong capital information for Q2.2021.
1 capital was $1.8 billion total.
On a risk based capital was $2.2 billion in risk weighted assets were $11.5 billion.
As a result, our leverage ratio was 10, 9%, which is 119% above the well capitalized benchmark of 5%.
Common equity tier 1 was 15%, which is 131% above the well capitalized benchmark of 6.5%.
While tier 1 was $15.6 which is 95% above the well capitalized benchmark of 8% and finally total risk base capital was $19.5 percentage is 95% above the well capitalized benchmark of 10% I think we have plenty of capital day Mr. Allison.
Wow, that's pretty impressive.
But on well if you try to C. When you asked the regulators to help us with this.
This loses money on facilities.
It would be in good shape should be in good shape. Thank you. That's good good docket on Olive garden will turn it back over to you. Okay. Thank you, Brian now, Kevin Hester will update us on.
Oh yeah.
Thanks Donna.
The first half of 2021 was much like we anticipated we've been fully engaged in PPP with forgiveness of rounds, 1 and 2 and funding around 3 with both going largely as expected.
Credit metrics continue to improve slightly even when it appears theres not much room left room for improvement.
New lending opportunities of return, but the excess liquidity and low loan to deposit ratios across the banking industry have resulted in even more rational pricing and underwriting so growth is elusive.
We've said all along that we felt that it would be the second half of 2021 before we could see any loan growth and we still feel that way.
Good news is that our production pipeline is stronger today than it was 90 or 190 days ago.
C. The specifics in the area of PPP round, 1 and 2 balances have been reduced from the original $850 million.
Just below $150 million.
We're still over 99, 5% of the requested balances being forgiven.
We've seen the SBA released funds on a good portion of the round, 1 and 2 loans over $2 million in the second quarter, which has been helpful.
We will make a hard push to submit the remaining round 1 and 2 balances this quarter.
3 funding into during second quarter, and we funded just over $350 million or about 40% of the total rounds, 1 and 2.
We've initiated that forgiveness process on a few of these as well and have received about $30 million on these balances in a very short amount of time.
Covid modified loan balances remained flat during the second quarter and ended June at $265 million.
As we discussed 90 days ago Little change was expected in early 2021, because a large majority of these balances were placed on an 18 to 24 month interest only modification to provide sufficient time to recover from the remainder of the pandemic.
Roughly 70% of this balance is hotels and the recovery is definitely underway with virtually all of the modified property is experiencing a significant improvement in cash flow.
It appears that as much as 2 thirds of the modified properties experienced at least a breakeven revpar in the months of April and May.
I would not be surprised to see a good portion of these loans, especially the Florida properties returned to P&I payments at some point during the last half of the year if positive cash flow continues.
Remember that we stipulated no disbursements as long as they were on interest only so the incentive will be there to go back to P&I payments once positive cash flow as this day.
There's even good news on the movie theater customer that you've heard Johnny discussed from time to time. He has received notification that he will receive funding from the shuttered venue, operator grant and it will likely be sufficient to get them back on track with us.
As I mentioned credit metrics continued to improve in the second quarter as Tracy mentioned nonperforming loans improved to 58 basis points.
Only up 5 basis points pre COVID-19 and down 1 basis point on a linked quarter basis.
Nonperforming assets were even better at 35 basis points.
Around 9 basis points, pre COVID-19 and down 3 basis points on a linked quarter basis.
Early stage past dues remained very low at 41 basis points, which I believe is the lowest figure we have achieved in recent history.
These measures are even more impressive given the lower loan balances in the last couple of quarters.
On the technology front, we're in the latter portion of the build phase of an end to end commercial loan origination system.
We anticipate that go live date to be early fourth quarter, and we expect to gain efficiency as well as visibility and control. It will also provide the platform for growth and sustainability as we continue to evaluate M&A opportunities.
Overall, the second quarter of 2021 was very much like we expected when we visited back in April and it feels like we're getting back to normal except for market pricing and underwriting with that Donna I'll turn it back over to you. Thank you Kevin It's reassuring to hear that things are going is pretty predicted and credit quality remains strong.
And we just had a hotel you and your sales golf term.
He is talking about his hotel before a hotel and that flow through you said Oh, John He said, we are 100% full ramp.
Or impactful he said somebody cancels worried about it.
Marine is full he said the hotels full assets.
On the right C said, they're up a little bit.
He had a pretty good smile on his face.
Okay.
That's great news.
And now we will hear from Chris Poulton with C. G.
Thank you Don and good afternoon C.
C F G generated modest growth.
During the second quarter of about $40 million, we ended the quarter with loan balances of approximately 1.56 billion I'd note that this number does vary over the course of the reporting period, along with the timing of draws on pay downs et cetera. So by way of reference our high balance during the quarter was $1.6 8 billion.
Increased economic activity during second quarter, especially in New York, and California is starting to show up on our production and loan pipeline, we saw sales and rental activity and pricing picking up throughout 2021, particularly in New York, and California markets, which are joining them already active markets in Florida, Texas and the mountain where.
First we would expect this to lead to more opportunities in these markets, but we also expect that we'll see some pay offs accelerate during the second half of the year as our borrowers are able to complete their exit strategies.
New loan commitments for the quarter were $213 million and that brings us to a total of about $430 million a year to date that number is in line with both our 2019 on our 2021st half production as you might expect in 2022nd half production was impacted by the shutdowns are we don't anticipate that for 2020.
1 and we would think that the expansion.
That where that we're seeing now will also help us increase that commitment volume through the rest of the year unfunded commitment standard over $800 million at quarter end, that's a bit higher than we've carried in the past few quarters and I would hope that this build in a future funding will help us offset some of the potential higher payoff volume over time.
Overall, the second quarter continued the trend we've experienced in Q1, which were markets are reopening activity was increasing particularly sales and rental volume and prices and are in New York and California that had lagged behind some other markets. We are seeing a both an increase in the number of new leases and the number of sales in the in those markets and we are seeing prices.
Start to rebound.
We remain pleased with the size and quality of the existing portfolio and the makeup of our pipeline, where we have several loans in closing in late stage underwriting while markets are recovering we do continue to see that it takes a bit longer than usual to close loans, particularly at the time from term sheet signing to closing remains several months longer than our historic norms I'd expect that.
This will moderate over the remainder of the year and start to return to our historic timelines Donna I'm happy to turn the call back to you.
Thank you, Chris that's an encouraging report and now we will get an update on shore Premier from John Marshall.
Thank you Donna and good afternoon I'm pleased to report the second quarter of success for Centennial's Marine Finance lending unit as we explore the new post Covid reality retail applications have moderated to 120 per month from a totally peak of 210 per month more of a function of limited inventory available for sale rather than associated consume.
Demand.
Interestingly, Indiana I suppose in support of inflation Hawks are average application amount has grown from 504000 pre COVID-19.
<unk> hundred 57000.
June just ending.
The 1 vessel financing now comprises 68% of our applications that's year to date versus 52% in all of 2020. So we've moved from 50.50, new to used ratio to closer to a 30.70 split.
New product just isn't available.
We've addressed the collateral value risk by managing down our loan to values from an already conservative 71% pre COVID-19 to 66% in the past quarter.
Second quarter retail production was a near record setting pace at $59.5 million on our commercial business continues to shrink as sold inventories cannot be replaced due to suspended production in Europe last year supply chain gas due to labor shortages and limited shipping container capacity.
Despite strong production for the quarter, our balance sheet contracted by $36.7 million as business, it's been stimulus money and consumers use stockpiled cash or tap new firm on home equity priced at 2.5% to reduce their more extensively price boat loans.
Prepayments in the second quarter were the highest in the past 2 years swallowing $55 million on interest earning assets.
We're seeing some evidence of prepay cycle may be slowing and despite of a perhaps because of our falling asset values and disciplined expense management.
Contribution to centennial's bottom line has grown year over year as our efficiency ratio was below 18%, which is lifted our weighted to 2.7%.
And Donald while the prepay rate is frustrating our growth goals. The good news is that we are replacing prime assets with prime assets origination FICO was pre Covid were 778 in last quarter held 7 held steady at 777.
Additionally, we have no COVID-19 related impairments or deferrals no non accruals reached a 3 year low of $1.6 million and our accruing delinquent loans have been hammered down to 13 basis points I believe we're well positioned for growth once surplus cash has been exhausted and factories resumed shipments on that note down on.
I'll return the call to you.
Thanks, John.
Pretty good report.
Good job very good for them.
And for our final reports a day, we were trying to Stephen Tipton.
Donna.
I'll give the standard color on deposit activity repricing efforts and trends and a few additional details on the balance sheet.
On the deposits that core inflows continued during the second quarter of 2021 as total deposits increased 379 million from $3.31 to just under $13.9 billion to.
For Florida regions accounted for $263 million or 69% of the increase in the quarter on.
Florida franchise now accounts for 52% of the total deposit base.
Focusing on our core base.
Noninterest bearing account balances increased over $200 million on a linked quarter basis, and now stand at over $4 billion or 29% of our total deposit base.
Switching to funding costs interest bearing deposits average 26 basis points in Q1 down 7 basis points on a linked quarter basis and exited the quarter in June at 25 basis points.
Total deposit costs were 19 basis points in Q2, and we're down to 17 basis points in the month of June.
C. D's are now at an all time low at 7.7% of total deposits.
We're continuing to work deposit rates down where we can as liquidity levels persist.
In addition, we're continually evaluating our product set and commercial fees to align with the market and drive additional revenue in this low interest rate environment.
I'm pleased to see the efforts over the past few quarters here begin to show on the bottom line this quarter.
Switching to loans, we saw total production a little over $700 million in the first and the second quarter with nearly $400 million coming from the community Bank footprint.
We continue to monitor the competitive environment and focus on the disciplined approach to pricing and underwriting has long served as well.
Payoff volume was in line with prior quarters at $882 million as we against our borrowers continue to liquidate large assets and we'll go to the permanent financing markets.
Brian mentioned in his remarks, when normalizing for the impact from PPP event income and a tremendous amount of excess liquidity. We're pleased with how the net interest margin continues to hold up.
And with that I'll turn it back over to you on it.
Thank you Steven.
Before we go to Q&A do you have any additional comments, but honestly, it's a good it was a good quarter.
Interesting numbers, it's interesting times with all this liquidity I mean, we run 105% loan to deposits was coded running hot around here that we're over 70.
70, <unk>. So you know if the market picks up we certainly had a great position to it.
We can deploy that money into the loans at a reasonable price I think it sets us up pretty good for the year. So we're continuing to hang in and.
I think debt.
All good reports from all parties.
Rocco hadn't gone on to sleep wellness, Don I think we will be ready for Q&A.
Okay, Rocco I'll turn it team.
Thank you Madam will now begin the Q&A session, if you'd like to ask a question. Please press Star then 1 on your Touchtone phone.
On the speaker phone, we ask you please pickup your handset before pressing the keys.
Your question. Please press Star then 2.
Today's first question comes from Michael Rose of Raymond James. Please go ahead.
Hey, good afternoon. Thanks for taking my questions. So John it sounds like Youre, a little frustrated with the with the M&A backdrop, but continuing to look can.
Can you just give us on update on you know what what you'd be looking for at this point and it does seem like there has been from deals that you might have essentially been interested in semi on markets.
Just any general update on M&A would be appreciated thanks.
Well.
We're active we're very active on M&A.
[noise], probably farther along on that.
M&A deal at this point in time than we've been in some time so.
You can find like minded people like we are.
We're on good operations and understand what dilution does to a deal when you find those kind of people and you can make it make sense instead of everybody bombed on stock at all times from a project, particularly if we brought on 1 hand, it triple play and you know, we don't do them without without debt mountain so where.
We're excited about what's going on in the marketplace and we think we found at least 1.1 group of people that are like minded us debt or interest in the long term future of the value of the company. So we.
Understand what dilution does and those that don't understand out on understand but.
That part is a little frustrating because our stock was wanted to 7.7 times tangible book and bankers from let's say on home can pay to U C.
On a big number.
Home goods home doesn't go to <unk>.
Home price, where it is and you know that Michael it's a disciplined on this company.
When you find out as I said earlier, you find like minded people I think you I think you can see on our stride coming off for home health.
Great and maybe just as a follow up so the NIM compression was even on a core basis was a little bit more than I.
I think what me and others, where we're looking for.
Do you think we're nearing a bottom here for the core NIM kind of ex the P. P. P index ex accretion if we if we think about it that way or.
Are we still going to be subject to some some ongoing pressures from move forward just given the lack of loan growth opportunities. I know you guys are super disciplined on pricing and things like that in Arcata.
And your words, Johnny push a rope.
In the past, but would just love some would just love some color on the margin dynamics as we think about the next couple of quarters. Thanks, Let me just give you. An example warm on regions called price yesterday.
Somebody quoted 3 and a half fixed for 7 and the next Guy that's simple I'll tell you what I'll do I'll do 3% fixed for 10, and the oil and gas. So I got the loan now I'll do it at 2%.
It was absolutely a race to the bottom and when you see that kind of stuff. It really gets frustrating that impacts on them, we're not playing that game, but I don't think on them.
Other than the excess liquidity has really been hit Brian on my right.
Yes, I would agree with that.
Is the excess liquidity, that's cost of 63 basis points on our R&R margin from Q2 based on the excess liquidity that we have.
You asked the question if it was going to be excluding PPP.
From a reported namely market still C. A little compression because we reported $6.3 million of PPP income. This particular quarter and just from a point of reference there is $18.2 million of it left so it'll be difficult to continue at the $6.3 million because some of the round 2 forgiveness is 5.5 years.
<unk> and Theres not a tremendous amount of the.
Round, 1 left so that will kind of dial up a little bit.
Well, we continue to build excess cash so far from the first 15 days I'm going to go with no.
Our deposits are functionally exactly flat from where we are.
At the end of the quarter. So you know, we really won't receive any more pressure. There is just a matter of what will decide to do in deploying the excess cash because we deploy any employed deployed anywhere it's accretive to the NIM, although I would like to go on record that is going to go down because I'm, usually wrong and so it would.
Probably a jinx myself decided on might improve.
But the debt.
It really shouldnt bottom out there on what we have from excess cash on less deposits has continued to come in but just keep in mind. If we move it out of the fed which is earned 15 basis points and just moving to 1%.
Something easy on the investment portfolio that is technically accretive to the margin on those Stephen sitting here bombing and he's got a few things he may want to add some more color to that on the on.
M himself.
Hey, Michael we've been able to despite loan balance is being down a little.
The loan yields come down some but we've been able to to on.
I'll set that with deposit cost decreases its really just a function of kind of mix and liquidity today.
Yeah, there were always hesitant to.
That said, we see loan growth at some point, but were up a little bit quarter today.
C where the pipeline goes this quarter.
I think some companies have pushed off some of that excess liquidity, we haven't we haven't pushed it out we could push some of that off and then bring it back but that's kind of a game you'll stay as what it is we actually.
At some point in time, we will be able to deploy that money and when we get an opportunity to deploy it I think it'll be thank.
Thank you.
Pam will tell crises, Rob most of the hair off the front of USA and for them to figure out what to do with this.
$7 million it was on.
That 1 billion 5 internet 2.7 and he didn't have near as much hair left there as you used to.
You got a comment on that charge.
Cheaper at the barbershop [laughter].
[laughter].
Hey, Michael the list of questions you sent with rate that was a really you're talking about a thorough set of questions. So we're really excellent.
I appreciate it so just 1 quick follow up it does look like you built the bond book a little bit this quarter, if I look at it as a percentage of earning assets or just stated assets and I think what youre trying to convey is that you may build a little bit more.
If you get more liquidity, but if not the bond book maybe size. It in terms of percentage of assets or earning assets is about where you want it to be at about 17, 5% per.
I think that's fair we have we have a 10.10 called Daily every day 10, 10, and we're discussing what to do with this money but.
Actually I'm not going to predict loan demand going up because every time I do it goes down but.
You heard Chris talk and favorably and you heard Johns Hopkins favorably you heard Kevin talk from favorably and we had a good executive loan Committee yesterday was about $100 million. So.
I'm optimistic that maybe things are turning around a little bit we have a lot of <unk>.
<unk> work in lots and lots of big loans work.
Just had come to fruition.
Chris is on what's the problem and price is taking longer to close these loans than we anticipated in the past because a lot of municipalities are involved in and Theyre not working full staff you can't get the information you need and you can't get that they can't do on Jack on the on the progress.
So it is.
Frustrating, but that's to share resolve itself.
Okay. Thanks for taking my questions guys on Tracy I got a extra sport cut haircut coupon if you need 1 just let me know.
Okay.
And Michael.
He doesn't need 1.
Okay.
Next question on next question today comes from Brady Gailey of <unk>. Please go ahead.
Hey, good afternoon guys.
Hey, Brady.
It's 1 more on the topic of loan growth or the lack of loan growth.
Is it more.
Truly a loan demand issue or is it more.
You don't want to wind at today's rate I'm trying to figure out how much of it is really low loan demand versus home being thoughtful and saying, hey, I'm not going to put out a loan with a 2 or 3 handle.
Hey, Brian This is Kevin it's a mixture of net.
Things are coming back in Florida for sure, Arkansas is a little bit slower, but I mean, there it's more than just interest rate. It's leveraged to we're seeing I think particularly in our in our.
Community Bank markets in the smaller markets are smaller competitors are doing some really crazy stuff on leverage as well as rate. So.
You know you can you can play with that rate a little bit, but we're not going on we're not going to do.
Z stuff on leverage for sure not.
Not with prices as high as they are.
We're seeing all assets, we're seeing some 95 and 100% stuff that just doesn't make any sense.
That's just people getting too aggressive.
On a loan that needs have recourse on it and make it a non recourse.
I think there was a panic in the world out there home not panicking, we got a great company make still make a lot of money and even with all this excess liquidity. So we're going on a whole were going to hold tight to what we do what we've done the entire time and I think in the long run home home or when you know you can chain you can picture about anything.
Well the by <unk>.
At the margin.
It takes years to fix a margin when you do 7 and 10 year fixed rate stuff out here at low rates, you're going to be living with that for a long time. So we buy we think we think we're on the right track.
I don't believe.
We believe the fed can as said last quarter keep their foot on this.
On this inflation.
And on power trying to convince the world is going to do that and I'm afraid they might have gone too far. So this thing could get a little crazy here.
To give a little crazy here for too long if things don't change that hopefully the bad on type a little bit and we'll see so you're right start ticking up a little bit I mean, we got.
He bought gasoline and food likely you know what I'm talking about is still as I get it used cars are up 40%.
That could that could come back it probably will come back at some point in time, but it probably won't until the new car business can fill the needs that are out there.
The demand.
Yep.
Back on the topic of M&A.
Sounds like you guys are clearly focus on bank M&A, but what would you ever look at other types of M&A like you know acquiring kind of some niche.
Specially a lender like a commercial funny answer our premium finance our equipment playing its like would you ever look at those sort of acquisitions. In addition to bank live them every day.
I mean, I'm a businessman I think makes sense. It makes money I mean, we moved out in the shower.
And.
Then.
We can see of course, we would look at something if it made some sense, but we think we think finding like minded partners in the banking space are probably the price for us place for us to be.
Yeah.
Our group is looking at more of those opportunities for at night on fiber 1 on 1 of those outside opportunities.
Alright.
Lastly for me it looks like you bought back maybe a little bit of stock this quarter.
But yet your stock has pulled back a little bit. It's now trading at 225 times tangible book, which is pretty attractive for you guys. So just you know did you buy back stock intra quarter and talk about your appetite for continued buybacks from here.
Yes, we did have and Steven can talk about that but our appetite as it goes down becomes more as you understand when we bought it all the way to 27.28, I think that what you're saying yeah. We bought about 600 little over 600000 shares.
Q2, and then we've got a <unk> 1 plan in place at the end of the quarter Thats been.
Pretty active in the last 2 weeks or so if we hadn't had the Tempe fab woodman tie our hands to have you'd probably see us in there with both feet right now.
Yes.
We have bought stock and we will continue to be in.
Okay, great. Thanks, guys.
And our next question today comes from Matt Olney of Stephens. Please go ahead.
Hey, Thanks, guys good afternoon.
Hi, Matt.
Hey, I wanted to go back to the discussion on the loan balances and I think Tipton gave us the overall level of originations in <unk> just trying to appreciate if there was any kind of deceleration or acceleration from the April to June timeframe within that.
Hey, Matt Stephen on pay offs, they were a little.
Heavier than in the last month of the quarter in June they were all over $300 million, but but.
In a relatively tight range there from April to June we had a couple of projects I think in June that we thought.
With pay off potentially in Q3 that were that were pulled forward. So.
That's what drove that number up a little bit.
And that's on pay offs, what about on the other side on the origination side any kind of trend intra quarter that you noticed.
No not necessarily not necessarily.
$700 million been.
Last 3 quarters, or so has been pretty consistent.
We generally fund about half of that.
At quarter end balance is about half of that was funded.
Chris talked about a couple of things. He thought we were going to fund in June that didn't kind of got pushed.
The discussion have not been able to get.
It'll work and appraisals and cities to do those things I think that happened a little bit on June, particularly with Chris.
I think Chris your backlog as bad as good as several been isn't it.
Yes, Sir.
Continue to again I think we said this last quarter too I mean, we have nice backlog, which.
We're underwriting deals we are signing them up in and we're getting them negotiated a Kevin mentioned that.
In June I had 2 deals that I fully expect to close in June.
1 of them has been sitting on the documents in escrow for 2 weeks waiting for somebody from the city to finally get back to work but.
Did that help they're not listening right now but.
[laughter].
I Love you, but.
Yeah, I mean, we're just seeing stuffs you know, we're just saying things that take a while I mean, you know the closing alone is a.
The 910 party affair and.
No.
I think we hear people, saying that they are more productive working remote I think that might be true individually, but not when you need to get 6.7 parties together to get something done is just taken taken a while though.
None of the ones that we have in there looked like they're going to they're going to fall out because of that but it is frustrating to.
To sit there and wait for these things to close if nothing else just because you know every day I don't have it closed its a day less of them, earning but.
We still have confidence they'll get they'll get done and these are usually outside our control on the borrowers.
Outside the borrower's control sometimes so.
I think.
I think everybody's.
Thank you everybody is looking forward to getting back on it does help that New York is it has it has reopened now I mean as of July 5th rate. The city's reopened in terms of the also the employees have to be back in.
Those types of things. So I think we are seeing it I think we are seeing things start to accelerate and I know we are going to the point now with borrowers where they want to get these closed so.
We'll hopefully get through those this quarter.
Okay. That's helpful. Chris.
Chris and Chris I think in your prepared remarks, you also mentioned potential for some heavier paydowns at the back half of the year.
Can you just kind of clarify those comments as well and.
Do you expect to have some net loan growth in the back half of the year or is it just.
The outlook there.
Yeah, I'd like to have net loan growth.
A lot of that is going to be timing oriented right. I mean, I think we ended the quarter I think I mentioned in my comments out for a good part of the quarter. We were sitting probably <unk> 50, we ended up at $15.50 or $50.56.
On back up over 1 billion fixed today for instance, so some of that is just what happens.
When do you get the pay down when do you do the funding it.
It moves around by maybe $100 million here or there we are starting to see unfunded balances grow which is good because that's future funding that'll that'll come through whether that future funding comes through.
For the payoffs come through or as they do over.
Over time that will all settle out whether it next quarter and is that what is that number going to look like I don't know.
We are seeing some pay offs Oh I have some expectations of some payoffs because we have borrowers who have a plan and they weren't able to execute that plan as well as they'd like to under under Covid and at some point I do want them to as much as I love them I want them to go away.
And so we do have a couple that I expect this quarter that are that will execute their plan execute their plan on that would take their permanent financing now and it's a good market for them right. We want that for our clients as well theyre going to go out and get permanent financing. It's a good market to do that.
It's the flip side of that which is they can go out and get good long term financing right now and so we want them to do well as well. So I expect we will have a few.
If you do that 1 of them is 1 that we thought would probably pay off they get their TCE oh, they they lease up probably pay off towards the end of the quarter and they're probably going to pay us off this month, because theyre not at Tc O yet but.
They're going to get permanent financing pre <unk>, which is not unusual today.
Hum.
Got it okay.
Great. That's all from me Thanks for taking my question.
I think the last question.
Question comes from Stephen Scouten with Piper Sandler. Please go ahead.
Hey, good afternoon, everyone.
Steven.
I'm curious.
If you could talk about what other things you guys are maybe.
Tracy in particular, if you're saying he's the 1 robin all that hair off his head had been thinking about in terms of investing the excess liquidity I mean, if you looked at.
Other banks sub debt I mean, what kind of initiatives have you have you looked into to try to put some more of that money to work.
Uh huh.
Yes to all of the above that you mentioned there we have done some of the sub debt from primarily with the banks that we are familiar with making sure that they're safe and sound too.
Yes, we talked to Chris we talked are Brian Greathouse, who worked through these assets as truck here every day at 70 <unk> Johnny.
Just looking at all sorts of different.
Avenues that we can.
Invest in but.
It's still nothing there that gets our excitement level up with the term and the commitment out there. So from this back to the.
Short term pain.
Making sure short term gain that we don't have the pain that comes along with it.
It's very challenging, but we look at it as Johnny mentioned every single day.
Yeah.
That makes sense and then thinking about M&A again, if you look at a potential deal and I know you said, you're further down the line and you had been in a while on 1 I mean would would a deal potentially help you put any of this liquidity to work or with any bank you likely acquire kind of have the same issue today and also house.
Fair amount of excess liquidity.
You answered your own question.
There isn't a bad just fine there and advisors right. So you've got the same centralized Lagos you know so.
Uh huh.
Yes.
The key is the do you have overlap.
Is it is it accretive accretive accretive and do you have overlap on already like minded cultures fit.
Things are extremely important to both seller and a buyer.
Do they partner.
We are looking forward to hopefully bring them on home that youll see that fits.
It's AAA likeminded.
Overlap.
Lots of savings so I think.
Hopefully this hopefully we'll get 1 brought home before home at <unk>.
Disappointed if we don't get this with the others you discount.
So you hadn't on running but this 1 really.
Worked on them pretty hard and I think.
It makes lots of sense for us.
We have not signed.
The LOI, yet, but we didn't.
Send it out so we're waiting on that to come back hopefully that transaction could be.
Ford announced tiered 30 days from so we see no Stephen the thing I keep thinking about is the questions. You used to ask a few years ago was 1 of our loan to deposit ratio was on.
On a pretty hot.
Yeah, we could we could turn the faucet on and Thats the.
The nice thing about this is we've got a great core relationship with these customers today.
Could when we went to the Florida market and it certainly has proven that and our staff.
They've done an outstanding job of development relationship. So never thought we would I'm never going to say I don't want on deposits, but I think we all know the excess funds today is just not.
It's a cost and debt.
Net chip for turnaround some day and were ready ahead of customer accounts added.
Customer Collins will tell you how much attention paid to it now you said that is so a b C and I got $16 million on cash Johnny and how many deposits somewhere in a partial year on a GAAP.
Charging, but 10 basis points.
[laughter] C said, obviously, you don't want the mining and assets are down and hold up and charge, you said, who love that and that's a damn file remember so.
Normally I wouldn't mind Elisa that attached to his name on my arm, but.
In this environment.
Yeah, It's it's strange I mean, I know, we all still probably think about deposits being kind of the fuel that makes a bad run but it.
It's a strange environment just that.
They have so much of a day I mean, it feels like even if growth comes back it's going to take 3 or 4 years.
Floating that liquidity and ever get back to that.
Of that 95% loan to deposit ratio I mean is that does that kind of a fair assessment as you guys look at it over the longer term.
Yeah.
I think that's a fair number I mean, I'm sitting I'm sitting here thinking about the trillions theyre talking about spending.
We haven't even spent yet.
Yes.
Could get worse before it gets better yes, it certainly could.
I'll spend these trillions and trillions of dollars.
The World is awash in money right.
And I guess, what happened what happens what happens in the world is awash in money, that's usually when rates go up so you got to believe.
But if history repeats itself, which it normally does.
It.
Up 9 tenths in June and 5 or 6 in May.
As inflation I don't know I don't know where past looking but I know he's trend, but this 10 year 130, something on it gets artificial I don't believe that's rail like assets.
I'd like catch just results of US just by on all the tenures went bad so that to me has to change at some point on them and even Moodys, which I don't know if they've got all the answers they are calling for a 1 portmanteau by the end of the year. So it could bode well for bank stocks going forward and people have projects after might want to get out and get them done.
Sooner rather than later.
Who knows we wish we knew that answer but you've got.
The County state cities have been flushed with excess money.
Part of Christmas problem getting loans close they've got plenty of money on the banks they don't need to generate the revenue I guess and then we're both a commercial bank and our retail bank.
Through the PPP programs and we are in markets that Didnt close so that's.
Good cash in the business pockets that didn't have to spend all of it and then the.
Individuals on accounts that had been plus 2 over the last year with this so I think youll see some of that begin to trickle out.
Once they start.
Putting it in.
Yep Yep makes sense and then last thing from me on that Johnny I think you said, maybe the expense management with decent I think it was the word maybe you used I know you always want it.
Patient day ratio lower but I mean, do you think there are opportunities there somewhere within the expense base to take it even lower from what it's already a really impressive number.
Yeah.
30.
8% efficiency ratio.
Talking about the mine.
We got we have a long find on our holding company here. They don't do derive we add to this deal on.
Bancshares, Inc.
It gets lost sometimes even if we get rid of this dam holding company will make a lot of money.
[laughter].
No.
I mean, what was the question.
<unk> expense.
Can we reduce expenses expense well a little bad.
Probably we have.
We as I said getting ready for.
Over $10 million was took us longer and cost more money than we ever anticipated and.
We threw millions and millions of dollars add it so.
To think at some point in time, we will go back and look at that now.
Thank you can pretty much if the regulators allow gives us approval, which I think they will with our capital ratios to move up $150.175 million I think you can see the cost of debt.
Of that trust preferred going away, so that's about $17 million.
Sub debt I mean, excuse me on sub debt.
That $17 million pre tax so we're looking at that and Don on his group has not gone back in some time and looked at branching.
And she has just pulled up.
All of the branches.
Certain level or below and we're comparing that to back where they were prior to all this free money flow and we're probably going to look at there might be an opportunity on 567, maybe 8 or 9 branches, though it.
And we're looking at that and we're looking at that so we're back to looking at those expense deals at this point in time.
So we're on it.
We usually are able to able to do a scrounge up a little bit of assignments.
Yeah, great. Okay. Thanks, guys for the color I really appreciate it thank.
Thank you.
And our next question comes from will Curtiss at Halsey groups. Please go ahead.
Hey, good afternoon, everyone.
Hi will.
Tracy I was going on where my razorback share it has to make good on the bad but you never Senate. So.
You never.
Now on.
No, we even did a double or nothing so alright.
Maybe next quarter.
If I remember you were supposed to go buy your own share pay for it and I didn't know us by.
Yeah, I was going to.
Assuming on a linked into the store.
I think most of my.
Most of my questions have been addressed but just a couple of quick ones.
And then following up on on Steven's question about the expenses. So if I understand you know as we think about maybe the next quarter or 2.
2 quarters or is there anything that we need to consider in the expense space or some of those things Johnny you were talking about probably.
More intermediate type disc.
Discussions.
Well the thing the Big Park $300 million in sub debt matures in.
April so it won't come until then we have to give notice prior to that on this.
Subordinated debt I think we will just kind of hopefully will get debt paid for and the trust preferreds will just kind of Technosis income down the road.
I think you can kind of count on that I don't think the regulators would oppose us doing that but if they do we won't do it but at least we don't have.
We take half of it out.
Okay, and then last 1 Brian I think you said theres $18.2 million.
Remaining fees, what's your best guess on on when you think those will be realized.
While from a timing from at the top on there.
We've tried to put it on a re forecast models every quarter and unfortunately has not been very close.
$18.2 million of it I mean theoretically it could spread out over the next 4 years.
I would probably just say there'll be cut.
A couple million next quarter, and then probably trail off after that you've got a better field, Kevin because it's all related to getting the money back from.
I mean, that's what's causing that we're down pretty low on the round 1 stuff. So for forgiveness will be on round 2 step and we've gotten like I said.
Earlier about I think $30 million, so far out of that $3.50, forgiving on the second round and we will start pushing hard on that the back half of this year.
It's just really hard to it's hard to gauge what people.
No.
There.
Whether they have any.
Whether they want to do it now or push it off until till some other time I mean, it's just a little bit hard to.
On to know what that's going to be.
I understood. Thank you guys, Hi, Bryan Thank Brian <unk>.
<unk> or bad is good as I can.
Could come up with at this point.
Understood. Thank you.
And our next question today comes from John Kim with RBC capital markets. Please go ahead.
Thanks, Good afternoon.
Hey, John.
A couple of follow ups.
Do you feel about your ability to defend the net interest income line.
And if the growth doesn't show up your ability to keep.
Kind of high teens to 20% return on tangible equity level.
Well.
How do I feel about that.
I would.
I would hate to see us falloff on that.
We've always run in.
<unk>, we've always run 17.18 north of 21 those are on TCE.
Return on tangible so it's not anything unusual force.
And over the last.
Probably hard to force the reported you look at the stability of the earnings over years, we've always lad.
In that group and our peer group, 10% to 50 day and where.
Always from the top 2 or 3.
Arnold TCE in the group, so I wouldn't anticipate.
We're going to try to defend the NIM hopefully we can if we're right if we called it rather than rate start moving I think youll see a change in this silly silly race to the bottom will go away pretty quick so.
Okay.
We can play the game and believe me, we look at the muscle to play the game and I'm not saying, we're bulletproof, but you heard the capital ratios and you see how much cash this company throws off.
Alex sales ended the shoe box so it is.
It's a pretty powerful earning machine that that has great asset quality, that's sitting on the GAAP merged C.
If we can just find the right place to deploy for the assets on the cash so I think that'll come on I just have to believe it we have.
Some really big credits that we worked on for a long time debt because of situations have not come to the top.
They are actually going to the board to get approval to do some of these because they're big credits for us and it is.
Haven't they just haven't hit yet, but they're coming.
As I said, we did about $100 million or little over yesterday.
And those will fund pretty quick so I'm optimistic that we have not given away the shift and we're not going to give away. The ship. If we have to defend ourselves we can do that but I'm pretty.
Optimistic about their own TCA on I'm pretty optimistic about about the NIM I mean, if you add the excess liquidity back. It really takes you to about a 424 $24.424 million. So it through all of this chaos and <unk> Kras as home sale really am very very strong.
Okay.
2 more questions.
Maybe an odd question, Johnny but would you would you run the company any differently, if you were private versus public.
Do you feel like you are running it as if your owners today or would you do something different if you didn't have off to answer too.
Well.
The answer is no.
The discipline every day some of the 10.10 collar Labor day, and Brian says, we got $2 billion in the next day to 1 in which layers. So we've got 2.4.
The desk is difficult so.
And then the same thing with my money than I do with the company's mining. So I don't treated any differently I feel like this is our like we do on <unk>.
We're on it lack of owners, we don't run it lacked employees, we run it like owners.
We are doing what we think is totally in the best interest of this cooperation from 1 step down in the threes net terms.
Tom on the Guy a while back so I'm doing 3 and a quarter fits for Tan He said gee ever done any of that.
You have any idea how many loans, we can load a 19 oiler or a warehouse full of loans at that kind of rate, but asset yourself on your future and youre trying to sell your bank Dominion I don't know what you got so as I said you got to pay the Piper sometime right. So you don't have a free lunch every day when you give that stuff away. So.
We're holding Pat I think we're doing the right thing and time will tell you if we miss it have windows and play the game with them. So.
So.
Okay.
And just 1 more maybe kind of an internal question for Tracy.
You referenced the transfer pricing internal model on some complaints.
Share with with what you can on that day kind of give us some idea of what the message is internally.
On past above the Stephen Tipton.
He gets blamed for everything so all we tried to do on that.
We measure out in some markets have more loans than deposits in some markets have more deposits than loans. So you try to try to give a transfer pricing figure to to be fair and of course.
Depending on what wagging your own.
Tends to hurt those if they have more loans or deposits. So it's more of an internal they get it they understand it would have a little fun with it.
All in all it still comes back to.
Centennial Bank and home Bancshares number so.
When I mentioned, the 8 debt had done above I promise you if the rate if the loan demand and all of those things on excess deposits. Some of these guys I've got plenty of excess deposits from whereby charge on them a little more than what they would really be getting out there.
Okay does that answer your question, yes that helps.
Right.
They flashed about it when rates were 7% win rate.
105, 4321, it just gives them something to argue as you charge me too much price.
Some of those some of those as that carry on the excess deposits and loans are very critical to this company, but it only matters to them because they're competitive with each other.
They want to be the best in.
And even though the worst of our group.
In any particular month would be at the top of most banks. So thats right Thats the only reason that Madden.
Okay.
I think I can still listening, but were both a little offended by Delta Airlines talk.
Uh huh.
Good.
Tom just send me a picture Hamlin just bit molpus metal sales letter.
And our next question today comes from Brian Martin of Janney Montgomery. Please go ahead.
Hey, guys good afternoon.
Couple of last ones from me just on the Brian on that split on the on the PPP is most of that is round I guess round 2 or 3 around having the most recent round does that kind of what's left in that debt.
That bucket today.
Yes, there is 100 and this is as of.
June 30, we had $144 million left in round 1.
And it looks like we had probably $347 million in round.
And thats balance loan balances, but the fees would be even more heavily weighted.
The second towards that last round the dry so if we had we had.
What's left of round, 1 is not the lion share of its more around today.
Okay, and I guess, just with the forgiveness of the $2 million loans I guess I guess is it I guess I was on my thoughts you guys were more optimistic that some of that could get cleared up in that.
And the next 2 quarters, rather than potentially like you said earlier, Brian dragging out, but just an unknown at this point is I guess it seems like you are maybe less optimistic on getting cleared it up.
No actually more on you may have misunderstood my comment.
About in round, 1 and 2 we had roughly a $100 million worth of loans that were <unk>.
Loans of over $2 million and they were holding those up.
And in the <unk>.
Almost all of them have been sent in and they were holding them up until this quarter and we have gotten roughly I think about half of that has been released and paid.
So I would've hoped it would've happened before now but there was it was good to see it finally start happening.
Yeah, I guess I was just thinking if more of that happens for the most recent round of PPP kind of exiting youre done with it by the end of the year as opposed to maybe what Brian was saying that maybe it's just an unknown on it drags out maybe into into next year on the on the actual fees.
Collecting $18 million.
It's all going to be at our customers being willing to.
To send in there.
Theyre forgiveness, and what we're finding at least with the funding part and the last phase.
They werent as a 10 day or in the second phase as they were the first day because they were busy these folks have businesses in their operating again and so when we were talking about funding around 3 it was harder to get all their stuff and get it done and then it was the first 2 rounds when they were sitting at home and I guess it may be the forgiveness may may fall prey to that.
Same thing.
Got you, Okay, perfect and just maybe 1 last 1 on to ask on just on the back to the margin whether it be Steven Obrian, just from a core margin standpoint, I mean, there's a lot of noise you talked about from both the PPP and the liquidity, but just as you go forward I guess, how are you guys thinking kind of about that core margin I guess is your expectation it sounds like that's relative.
The stable at this point I guess as we think about it.
Yes, Stephen Brian.
I think it stands to have a little continued pressure just in terms of where investment rates are on the cash flows that we have there.
I said earlier, we've been able to.
Kind of keep the deposit cost in line with where the loan yield is that just is mix.
On <unk>.
On a bigger percentage of the earning assets overall.
Yes, they have a little downward pressure too.
And it didn't look.
Look back equaled back over the last year and a half 2 years to do all this stuff.
We've held fairly strongly in there at all on our margin yet.
He mentioned the $4.20 number I mean, we used to target to 4%.
On a on a core.
Core core basis, so I think overtime, that's trended trade it up yes, I think yes, I think we can manage that I think we mentioned it well over the time youre not giving us credit from that.
No, yes, that's definitely definitely got it.
How about just on the discipline is evident Johnny 100%.
Yeah.
Alright.
On the on the fee income side I think.
Kind of just a crystal ball on kind of the mortgage line and I also noticed the.
The service charge line was up a little bit in the quarter just anything on the on.
Either of those 2 comments on economic growth.
All day as a service charge 1.
The lion's share of that is related to C. J I think we're up about $2 million 48 for that particular line item you referred to and $1.4 million of that is related to our New York operation. The rest of it I think is just related to some increased interchange fees that we had for the quarter.
Okay mortgage, but somebody else type mortgage.
Mortgage is having.
It is having a good year theyre down a little bit from the frenzy of the end of last year.
On the beginning of this year I think they still feel like it will be on a very strong 21, but.
There is just.
Not a lot of product out there thats the difficult.
The difficult to use.
How has brought it up.
Hello.
You heard shore Premier our commercial lines that are just not very strong each rat and lots of business, but again, we're getting lots of pay offs paper, they are actually going out and refinancing their housing in that low rate and paying off their 5% ballpark for what they've been doing so.
John reported that he is continuing to see rate.
Any comment John on that.
No Sir.
Now exactly as you've said on production, we're pushing out $60 million a quarter, but our prepays were about $50.556 million per quarter. The commercial side of our business. Johnny I really think is going to slingshot back in second quarter of 2022, and again, what that looks like that's a tailwind of about 100 million 120.
So I'm optimistic that we will sustain net growth.
It's going to take inventory once it starts going back.
I was visiting with our Arkansas, both dealer and ask.
He said I had the best year last year I have ever had and each of them have more on the worst years. This year because they have no inventory.
That went on things that we saw around so.
It's what happens Yep Jpmorgan I didn't buy there is a net.
Well the last last 1 or 2 from me Johnny the sizing on M&A I think you had talked about if you get back on the game I know theres been a lot of opportunities looked at but is your expectation on your hope still that it's more on the smaller side on potential M&A opportunities.
Well that was a little bigger.
When we're looking at a little better okay.
Okay and then.
The the comments, maybe I misunderstood you on just the last thing is on the sub debt and that the trust preferred just the timing of Windows could occur I think you guys gave the color on the benefit but the timing on 1 of them was April.
April April.
April is the sub debt or the trust preferred April is the sub debt.
And the trust preferred we have to give notice on land what did you do that anytime that's not as significant as as the sub debt sub debt is much more significant.
Brian ran the numbers on the sub debt, we got $71 million on I think it was going to keep you won't pay out 41 or keep 41, you remember we were going to pay off 47, we're going to pay out 47 keeps about maintenance.
The problem. It's a good problem to have some of our sub debt is at extremely low rate. So.
When I'm sitting here looking at it today with all the excess cash flow. So I don't have.
All of this excess cash isn't at the holding company Inc. But.
Right now there is some of that stuff that doesn't make any sense to pay off because its at such low rates.
Got it.
Goodbye off the 300 million of subs my preference would be filed through on a man of sub debt first even though we could pay off the trust preferreds. Today, you just don't get much Bang for your book for paying off that little bit of sub debt right. Now that's at that low rate. So I will focus on trying to get 300 million or as much of it paid off as possible on April 2020 day, It comes down and as Mr. Allison.
We will have $150 million for sure and available cash and whatever else book regulators, let us take out the bank's mobile data file sub debt.
Remember we've been you remember, we didnt put them back 5 million a month for some time, we didn't start it day, 1, but we decided to kind of have a mental sinking fund and it start to retire that debt that will.
DNS at some point in time as well as the company is doing to be debt free, but if we need to go back in the sub debt market. We can always go back and the rates are down probably can get some sub debt done today at 3%. So it may be Nike might get a 2 handle.
Alright.
Yes got you okay. Thanks, taking my questions guys.
Thank you.
Ladies and gentlemen. This concludes the question and answer session I would like to turn the conference back over to Mr. Allison for final remarks.
Okay. Thank you and thanks, everyone for participating today. It has been some interesting in trying times, but we're we've gotten through if you can get through Panda mentioned yesterday on the worst financial collapse in the World you still have a company that's as strong as this 1 is it makes us all I think.
Not me, but this management team has done a good job.
Maneuvering through this process anyway I appreciate your support and.
Hopefully, we'll have an M&A deal we can announce here for long and we'll see you in 90 days.
Thank you Sir This concludes today's conference call. Thank you Rocco today's presentation. You may now disconnect. Thank you Sir.
Yes.