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Home Bancshares, inc (HOMB) Q2 2021 Earnings Call Transcript | The Motley Fool

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Home Bancshares, inc (NASDAQ:HOMB)
Q2 2021 Earnings Call
Jul 15, 2021, 2:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, and welcome to the Home BancShares, Inc. Second Quarter Conference Call. [Operator Instructions]

I would now like to turn the conference over to Donna Townsell, Director of Investor Relations. Please go ahead.

Donna J. TownsellSenior Executive Vice President and Director of Investor Relations

Thank you, Rocco. I am 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; Tracy French, President and CEO at Centennial Bank; Brian Davis, our Chief Financial Officer; Kevin Hester, Chief Lending Officer; Chris Poulton, President of CCFG; 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’s wholly owned subsidiary Centennial Bank announced the appointment of a new Director of Corporate Social Responsibility. This news highlight our intention to enhance the development of strategic initiatives supporting Centennial Bank focus on environmental, social and governance topics.

While these pillars of corporate citizenship have always been important at Centennial, we feel like a more formalized programs will ensure that we continue to keep ESG top of that. 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 seasoned Fintech entrepreneurs and banking experts to invest in the next generation of companies, changing the way, financial institutions and their customers move, track and interact with money. These are just a couple of examples, that show Home’s desire to continue to be one of the best banks in America.

Now to transition to what you called in for, our first report of the quarter will come from our Chairman, John Allison.

John W. AllisonPresident and Chief Executive Officer

Thank you, Donna. That’s pretty exciting about the Fintech, it’s a good — somebody to hit ESG for us. I think those are positive developments for our Company. Good afternoon, everyone. Thank you, Donna, and again welcome to Home Bancshares second quarter 2021 earnings release and conference call.

The performance of the second quarter was another solid quarter for our Company with $0.48 of EPS and $71.9 million in profit, net asset quality and decent expense control. Loan demand is the frustrating part of the equation, while sitting on $2.7 billion in cash, in a reasonable place to invest for a decent return, we’ve decided to hold close and be patient, and do not set our future. We might be wrong, but it is a decision that we made and we’re holding tight.

If we’re right, we think we’re only six months away from rising rates, which may include an earlier period of time of tapering in purchases by the Fed. I pay a lot of attention to Jamie Dimon, and I agree with what he said. He’s sitting on $500 billion and he says, patience is certainly the key here, because rates are going up. As I said in the first quarter, we have the wind on our back and a lot of things that we’ve been working on came home to us amid, that is upon Home.

During the second quarter, we had the breeze to our back, with continued income from investments we made last year. Since going public in mid-’06 [Phonetic] we together have been through the worst financial collapse — worst financial collapse, it’s a Great Depression. And the worst pandemic, the world has ever known might be worse than the one in 1970. My other way as you well know, throw in a couple of hurricanes in Florida during that time. These huge events created fear, uncertainty and lots of anxiety 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 that — to all the events that happened, we were going over $2 billion — $10 billion and incurred addition of $2 billion, that one itself, with more than $2 billion, but $10 billion was a big mark for us. And all the associated expenses, the adjustment for $10 billion, took us longer and cost more than we ever anticipated. New terms to our vocabulary last year, infra’s risk management, CFPB say, just to mention a few. Actually wanted less than five minutes was spent on capital earnings, asset quality, margin and liquidity. I thought, these were the most important components to running a successful and profitable banking-mortgage say.

The other 15 minutes, finds very hard over for the last four, five years. Through all we have seen in crazy times, Home has continued to produce peer leading results with always run it from what 180 to 190, and some over 2%. We’ve managed, held through the process regardless of pandemic, hurricanes or COVID-19 viruses, where the business was good or bad regardless of interest rates going up or going down. Our adjusting to what plan of attack than are managing the size, that’s what good management teams should be doing.

Let’s take a walk back over the last 3.5 years, 2018, 2019, 2020 and the first half of ’21, and I think you’ll agree with me, that’s a consistently of Home’s earning is impressive even without all the unusual circumstances we found around us. And risk in 2018, ’19, ’20 and ’21. So in 2018, we did a tool non-ROI, these are adjusted numbers. We did until now in 2019, a 196; and 2020, 192; in the first six months of this year, 197. That converted into income of — in 2018, $303 million, in ’19, $294 million, in ’20, $309 million, and the first six months of this year $167 million.

The total revenue — total revenue mix after interest expense experiences was $663 million in 2018, $662 million in ’19, $694 million in ’20, and $365 million in ’21. I think you have to agree with me that these numbers are pretty impressive and shows the stability of this corporation and how the management team adjust those situation that’s in front of us. I cannot ask for much more performance than those impressive numbers. As a result, we decided to pick-up our M&A ahead. M&A too allowed the toolbox.

We worked on a couple of interesting opportunities, but to know well so far, I was visiting with a very small good friend in the money management space. And I was telling the difficulties we were gone through, I told him as it appears, that the bankers are screening all by to see who can pay the highest price. And then they go out to potential sellers and say, hi, look on which Home can pay for your buy or someone lack on. There’s not many lack on, but there is a few of us that trade in a pretty high multiple tangible book. It’s almost like a pocket listing, in a real dress when the potential sellers — my hands not foreseeable, if you can get somebody its pricing up by this price. He said, then my house would be for sale and you can sell it, like a real estate pocket list.

My friend laughed and said, they don’t work, and has a lot done more, he said the M&A deals just don’t work. He went back to 2010, looking at all transactions and there were very few that worked, very interesting comments. He said, own announcement of the deal bank A and bank B, he sells the seller immediately, and shorts the buyer. I asked why would you do that, and he said that’s probably the highest perhaps the seller is going to have, and expect it to go up, because it has — it’s tied to the buyer’s price. And he subsides that, I don’t get paid until our sale in cash, the money, he said 98% of the deals are dilutive to the buyer if it’s a three or four-year earn back to tangible book.

Why would ask around for four, five years, waiting for that our own back, to come back to get someone back to EBIT. The only deals that make good sense are non-dilutive transaction, that had all the deal cost calculated into the transaction and experience acquirers, he said you will now hear this from an investment banker. But remember they don’t get paid — they get paid whether it works or don’t work. He said keep your discipline, why do you think they want to do a transaction alone, it’s because your stock is good. And why is your stock good, it’s good because you’re disciplined. Why are you disciplined? To make your stock good. It makes a lot of things.

Another interesting point that came from the makers of the deals is the higher price to tangible book pay, they had a run from like 1, 4 times tangible book, up to 2, 3 times tangible book, and they have the tangible book multiple, the longer the market punished you and puts you the entire amount. And in some cases it was years, because we’re waiting on earn back to tangible book and nobody wants to hang around for that, because nobody keeps up with it and nobody care for it. We will continue to look for like minded partners in this space. In addition to this one integration risk. However, a lot of that integration risk can be mitigated when you find like-minded partners. Dilution is the killer. If a buyer dilutes himself today to buy you a bond and have a four year earn back to tangible book, don’t you think it will do it again before four years. And again and again, it is conceivable that you may never get your tangible book back to where you started.

One way to look at it is Home’s market cap is $4 billion based on a multiple of tangible book. If I had to loop my shareholders by 5%, I have just reduced the value of my company by $200 million. Now that tells you what smart money managers short the buyer, because if it’s a dilutive transaction, the Company is not worth, today what it was yesterday. If there is no dilution, there is no reason to short the buyer. You say that again, if there is no dilution and it’s an accretive transaction, there is no reason to short the buyer.

If the company has local shareholders and is fraud at the eyes of native triggered by the market is substantial relief. If a company is owned by a bunch of hedge funds, it really complicates the transaction even more because they’re going by day light. If it’s announced today, in the morning they’ll be going, they all sell. To me, sophisticated bank investors, individual investors, pension funds, quality portfolio managers and ETFs and then there is the hedge funds. It’s important to analyze the stockholder ownership before engaging in a transaction.

We still are engaged on the M&A. We’re looking for other opportunities that could increase our earnings. We have a $300 million sub-debt that is callable in April at 5.625% and $71 million were the trust preferred. We have been putting back $5 million a month and in April we will have $150 million setback. We may request normal price you think of that request the regulators allows to a special dividends, is that correct — look at the numbers as we speak. We are looking the numbers, we’re going to send them too. So we may request a special dividend. And if they were to approve that, then we could pay off the entire debt, that’s about $17 million pre-tax and it runs at about $0.08 EPS. That’s without doing the trust preferred, we might save those and doing at a little later date. But I’ll tell, if we do both, that’s about $0.09 maybe $0.10.

I would anticipate us engaging at least on half of the sub-debt and maybe all it, probably all of it. With inflation running at historic levels, I guess, you saw at June, it was up 19%. June was 19%, May was 5%. So, that’s 1.4% in 60 days. Kevin, I had a — would you say that according to…

Kevin D. HesterChief Lending Officer

Almost 9%.

John W. AllisonPresident and Chief Executive Officer

Almost 9% on an annualized basis. So, I think we might direct call, I mean to invest this money in the long-term securities today, to invest this money in 2% and 3% loans today, I think is the mistake. Time will tell. Time will tell we’re right or not right. Other than that, I think it’s been pretty good, and we’re just sitting here waiting over the next process, and I hope it’s not the Delta — come back of us.

So, I’m going to let you go to management reports and I’ll just hand it back to you. Thank you.

Donna J. TownsellSenior Executive Vice President and Director of Investor Relations

Well that was insightful and OK for now, so hope that we’re not looking at it at a big surgeons as the delta virus either. So, now we’ll move over to Tracy French for Centennial Bank.

Tracy M. FrenchChairman of Centennial Bank, President and Chief Executive Officer

Thank you, Donna 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, and that steady and consistent is our performance expectations. Our Group would share with you in a moment, some of the details about capital earnings, assets liabilities.

Here are few strong and safe performance numbers for the first quarter and the first half of 2021 for Centennial Bank. That represents all regions, that just keeps producing such powerful results. In fact, 8 of our 12 regions had their best six months ever, led by Central and South Florida, while others are still doing extremely well and still complaining about our transfer pricing internal model for their numbers would be better and we understand that.

For Centennial Bank, our total revenue was $367 million for the first half of 2021, making a return on assets of 2.08%. Our return on average tangible common equity, non-GAAP was 19.66% and our efficiency ratio is at 38.59% for the first six months of 2021. The Allison — P5NR is still above the 60% level, coming in at 61.99% for the first half of the year and holding that number throughout the quarter. A nice factor being our net interest income, by the efforts of all focusing on our interest income and interest expense.

Our non-interest income was actually up over double digits for the first half of the year. Our non-interest expense is up slightly. Brian will give more detailed information on our strong capital as our risk-based capital reports at 19.5%. Stephen will share the detail of the loan production and the deposit summary, as Johnny mentioned is now over $2.7 billion in excess [Phonetic] and our loan to deposit ratio is around 73%. Kevin will share the loan information, it continues its safe and sound numbers, our non-performing finished the quarter at 0.58% to loans, our allowance for loan and lease losses, excluding PPP ended the quarter at 2.48%.

Quarter-end shows our allowance for credit losses to loans to non-performing is 407.99%. When we saw an expected dip in overall loans, who would have thought of 1% annual percentage rate on PPP loans would be good, and twice the returners of three or five-year treasury. Let’s look out rates have gone up 50% to 80% over the past month. So Johnny, my forehead coming [Phonetic] rubbing is looking promising going forward. Inflation is receiving a lot of attention lately as we discussed nearly this a year ago, as we knew that, but 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 of the year turned out the way we thought, and most of our markets were seeing good solid growth, through the swing of this other side of the cycle that we’re going through. We have stayed committed to our strategy and discipline to make decisions for not to make decisions for short-term gain. That could affect our Company long term. Our trust that our long term and loyal shareholders appreciate that discipline. Donna?

Donna J. TownsellSenior Executive Vice President and Director of Investor Relations

Thank you, Tracy. I think steady and consistent are certainly complementary additives and we’ll take that. Now we’ll move to Brian Davis and give us a financial report.

Brian S. DavisTreasurer and Chief Financial Officer

Thanks, Donna. Today, we reported $141.3 million of net interest income and a 3.61% net interest margin for Q2 2021. Our second quarter net interest margin decreased 41 basis points from Q1. Today I’d like to go over two items, which significantly contributed to this 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. Our PPP deferred fee income decreased $3.5 million from Q1 to Q2. This decrease was 9 basis points dilutive to the NIM.

Second, the COVID-19 crisis and the resulting governmental response has created a tremendous amount of excess liquidity in the market. As a result of the excess liquidity, we had $967 million of additional interest bearing cash in Q2 compared to Q1. The 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 of negative impact of the Q2 NIM, because of the excess cash.

John W. AllisonPresident and Chief Executive Officer

So would that be, I mean we came with — with how much we came up with?

Brian S. DavisTreasurer and Chief Financial Officer

We had 361 plus 363.

Kevin D. HesterChief Lending Officer

420, right?

Brian S. DavisTreasurer and Chief Financial Officer

424.

John W. AllisonPresident and Chief Executive Officer

That doesn’t price, you’re on this head again now.

Brian S. DavisTreasurer and Chief Financial Officer

Now switching to the unfunded commitments. This quarter, the Company revised $4.8 million of the unfunded commitment reserve liability. This reversal was primarily related to one C&I loan. During Q2, the Company determined it was not necessary to maintain the reserve on this cash flow and credit.

I’ll conclude with a few remarks on capital. Our goal at Home BancShares is to be extremely well capitalized. I’m pleased to report the following strong capital information. For Q2 2021, our Tier 1 capital was $1.8 billion, total risk-based capital was $2.2 billion, and risk-weighted assets were $11.5 billion. As a result, the leverage ratio was 10.9% which is a 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-based capital of 19.5% versus 95% above the well capitalized benchmark of 10%. I think we have plenty of capital, today, Mr. Allison.

John W. AllisonPresident and Chief Executive Officer

That’s pretty impressive, that might bode well for you, Tracy, when you ask the regulators to help us with this — move this money out to.

Tracy M. FrenchChairman of Centennial Bank, President and Chief Executive Officer

We’ll be in good shape.

John W. AllisonPresident and Chief Executive Officer

Yeah. Should be in good shape. Thank you. That’s good.

Brian S. DavisTreasurer and Chief Financial Officer

Donna, I’ll turn it back over to you.

Donna J. TownsellSenior Executive Vice President and Director of Investor Relations

Okay. Thank you, Brian. And now, Kevin Hester, will update us on the loan portfolio.

Kevin D. HesterChief Lending Officer

Thanks, Donna. The first half of 2021 was much like we anticipated. We’ve been fully engaged in PPP with forgiveness of rounds one and two, and funding around three with both going largely as expected. Credit metrics continue to improve slightly, even when it appears there is not much room left for improvement. New lending opportunities in 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 illusive.

We set 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. The good news is that, our production pipeline is stronger today than it was 90 or 180 days ago. To the specifics, in the area of PPP round one and two balances have been reduced from the original $850 million to just below $150 million. We’re still over 99.5% of the requested balances being forgiven. We’ve seen the SBA release funds on a good portion of the round one and two loans over $2 million in the second quarter, which has been helpful.

We will make a hard push to submit the remaining around one to two balances this quarter. Around three funding ended during second quarter and we funded just over $350 million or about 40% of the total of rounds one and two. We’ve initiated the forgiveness process on a few of these as well, and we have received about $30 million on these balances in a very short amount of time.

COVID modified loan balances remain 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 the modified properties experiencing a significant improvement in cash flow. It appears that as much as two-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 return to PPNR 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 C&I payments, once positive cash flow is the same. There is 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 grand, and it will likely be sufficient to getting back on track with us.

As I mentioned, credit metrics continue to improve in the second quarter. As Tracy mentioned, non-performing loans improved to 58 basis points, only up 5 basis points pre-COVID and down 1 basis point on a late-quarter basis. Non-performing assets are even better at 35 basis points, down 9 basis points pre-COVID and down 3 basis points on a linked quarter basis. Early stage past dues remain 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 the 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.

Donna J. TownsellSenior Executive Vice President and Director of Investor Relations

Thank you, Kevin. It’s reassuring to hear that things are going as predicted, and the credit quality remained strong. Do you have a comment?

John W. AllisonPresident and Chief Executive Officer

Yeah. We just had hotel [Phonetic] and we got the term. I want to [Indecipherable] and I think that he said, John, he said we are 100% full, he said bag full. He said, somebody cancel, you’re at the word buddy. He said, rain is full, the hotel is full. How about the right season, they’re up a little bit. He had a pretty good smile on his face.

Kevin D. HesterChief Lending Officer

Good.

Donna J. TownsellSenior Executive Vice President and Director of Investor Relations

That’s great thing. And now we will hear from Chris Poulton with CCFG.

Christopher PoultonPresident of Centennial Commercial Finance Group

Thank you, Donna, and good afternoon. CCFG 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 and paydowns, etc. So by way of reference, our high balance during the quarter was $1.68 billion. Increased economic activity during second quarter especially in New York and California, is starting to show up in our production in 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 West. We’d expect this to lead to more opportunities in these markets. So, 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 year-to-date. That number is in line with both our 2019 and our 2020 first half production, as you might expect in 2020, second half production was impacted by the shutdowns. We don’t anticipate that for 2021, and we would think that the expansion that we’re seeing now will also help us increase that commitment volume through the rest of the year.

Unfunded commitment stand at 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 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 in New York and California that had lagged behind some other markets.

We are seeing both an increase in the number of new leases and the number of sales 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, is particularly at the time from term sheet signing to closing, remain 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, happy to turn the call back to you.

Donna J. TownsellSenior Executive Vice President and Director of Investor Relations

Thank you, Chris. That’s an encouraging report. And now we will get an update on Shore Premier from John Marshall.

John MarshallPresident of Shore Premier Finance

Thank you, Donna, and good afternoon. I’m pleased to report the second quarter success for Centennial’s Marine Finance lending unit, as we explore the new post-COVID realities. Retail applications have moderated to 120 per month from a COVID peak of 210 per month, more a function of limited inventory available for sale, rather than associated consumer demand. Interestingly, I suppose in support of inflation hawks, our average application amount has grown from 504,000 pre-COVID to 657,000 in this — in June just ended. Pre-owned vessel finance now comprises 68% of our applications, that’s year-to-date versus 52% in all of 2020. So we moved from 50-50, new to use ratio to closer to a 30-70 split, as 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 to 66% in the past quarter. Second quarter, retail production was a near record setting pace at $59.5 million. Our commercial business continues to shrink as sold inventories cannot be replaced due to suspended production in Europe last year, supply chain gaps due to labor shortages in limited shipping container capacity. Just to fight, strong production for the quarter, our balance sheet contracted by $36.7 million as business has been stimulus money in consumers use stockpile cash or tap new selling Home equity priced at 2.5%, to reduce their more expensively priced build loans.

Prepayments in the second quarter were the highest in the past two years, swallowing $55 million in interest earning assets. We’re seeing some evidence of pre-pay cycle maybe slowing and despite of — or perhaps because of our falling asset values and disciplined expense management our contribution to Centennial’s bottom line has grown year-over-year, as our efficiency ratio is below 18%, which has lifted ROA to 2.7%. And Donna, while the prepay rate is frustrating our growth goals. The good news is that, we were replacing prime assets with prime assets. Origination cycles pre-COVID were 778, and last quarter held steady at 777. Additionally, we have no COVID related impairments or deferrals, non-accruals reached a three 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 surplus cash has been exhausted in factories resumed shipments.

On that note, Donna, I’ll return the call to you.

Donna J. TownsellSenior Executive Vice President and Director of Investor Relations

Thanks, John.

John W. AllisonPresident and Chief Executive Officer

That was a pretty good report. Good job, John.

Donna J. TownsellSenior Executive Vice President and Director of Investor Relations

Very good report. And for our final report today, we will turn to Stephen Tipton.

Stephen TiptonChief Operating Officer

Thank you, Donna. I’ll give a better color on deposit activity repricing efforts and trends and a few additional details on the balance sheet. On the deposit side, core inflows continued during the second quarter of 2021, as total deposits increased $379 million from $331 million, to just under $13.9 billion. Four Florida regions accounted for $263 million or 69% of the increase in the quarter. Our Florida franchise now accounts for 52% of the total deposit base.

Focusing on our core base, non-interest 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 averaged 26 basis points in Q1, down 7 basis point 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 were down to 17 basis points in the month of June. CDs 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 in the bottom line this quarter. Switching to loans, we saw a total production of a little over $700 million in the first — in the second quarter, with nearly $400 million coming from the community bank footprint. We continue to monitor the competitive environment and focused on the disciplined approach to pricing and underwriting has long served us well.

Payoff volume was inline with prior quarters at $882 million, as we’re 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 and net income and a tremendous amount of excess liquidity, we are pleased with how the net interest margin continues to hold up.

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

Donna J. TownsellSenior Executive Vice President and Director of Investor Relations

Thank you, Stephen. John, before we go to live Q&A, do you have any additional comments?

John W. AllisonPresident and Chief Executive Officer

No, it’s a good — it was a good quarter. Those are interesting numbers, it’s interesting times with all these liquidity. I mean, we used run 105% loan to deposits, we call it run and hot around here. Now we’re in 75%. So if the market picks up, we certainly had a great position to — if we can deploy that money into loans at a reasonable price. So I think it’s sets us a pretty good for the year. So, we’re continuing to hang in, and I think that all good reports from all parties. And if Rocco hadn’t gone to sleep on, Donna, I think we’d be ready for Q&A.

Donna J. TownsellSenior Executive Vice President and Director of Investor Relations

Okay. Rocco, we will turn it to you.

Questions and Answers:

Operator

Thank you, ma’am. We’ll now begin the Q&A session. [Operator Instructions] Today’s first question comes from Michael Rose of Raymond James. Please go ahead.

Michael RoseRaymond James — Analyst

Hey, good afternoon. Thanks for taking my questions. So John, it sounds like you’re a little frustrated with the M&A backdrop, but continuing to look. Can you just give us an update on what you’d be looking toward at this point? And it does seem like there has been some deals that you might have potentially been interested in, some of your markets. And just any general update on M&A would be appreciated. Thanks.

John W. AllisonPresident and Chief Executive Officer

Well, we’re active — we’re very active on M&A. And probably further along an M&A deal, at this point in time, and we’ve been in sometime. So, you’ll find a like minded people like we are, that run good operations and understand what dilution does to a deal. When you found those count, and you can make — probably it makes sense, and instead of everybody buying those stock it all have some appreciation.

Particularly, if we’re buying one in a AAA, and you know we don’t do them without that model. So we’re excited about what’s going on in the marketplace, and we think we found at least one group of people that are like minded to us, their interest in the long-term future of the value of their company. So, we — understand what dilution does, and those that don’t understand, I’ll understand.

But that part is a little bit frustrating. Our stock was 2.7 times tangible book and bankers from the selling homes can pay you some big number, and Home could, but Home didn’t, there is a reason Home price where this — you know that, Michael, it’s a discipline of this Company. And when you find, as I said, how we do find like minded people, I think you can see a nice trade coming out for Home held with.

Michael RoseRaymond James — Analyst

Right. Maybe just as a follow-up, so the NIM compression was on a core basis was a little bit more than — I think what, me and others we’re looking for. Do you think we’re nearing a bottom here for the core NIM, kind of ex the PPP and ex-accretion, if we think about it that way? Or are we still going to be subject to some ongoing pressure as we move forward? Just given the lack of loan growth opportunities, I know you guys were super disciplined on pricing and things like that. And I think in your words Johnny push a rope. You said 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.

John W. AllisonPresident and Chief Executive Officer

Let me just give you an example. One of our regions called Tracy yesterday, and somebody quoted 3.5% fixed for 7%. And the next, so I got the loan now I’ll do to 2%. So it was absolutely a race to the bottom, and when you see that kind of — it really gets fresh primary impacts on them. We’re not playing that game, but I don’t point to NIM, other than the excess liquidity is really bizarre [Phonetic]. Brian, am I right?

Brian S. DavisTreasurer and Chief Financial Officer

Yeah, I would agree with that. As the excess liquidity that’s cost 63 basis points on our margin from Q2, based on the excess liquidity that we have. You asked the question, if it was going to be excluding PPP. For reported NIM, we might still see a lot of compression because we reported $6.3 million of PPP income this particular quarter. And just for a point of reference, there is $18.2 million of it left. So, it will be difficult to continue at the $6.3 million, because some of the round two forgiveness is five years and there is not a tremendous amount of the round one left. So, that will kind of die off a little bit.

Well, we continue to build excess cash. So far in 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, we really won’t receive any more pressure there. It’s just a matter of what we’ve decided to do and deploy in the excess cash, because if we deploy it anywhere it’s accretive to the NIM. I would like to go on record is going to go down, because I’m usually wrong. And so, it would probably jinx myself, say it might improve. But it really shouldn’t bottom out there on what we have from excess cash and as deposits just continue to come in. But just keep in mind, if we move it out of the Fed, which is 15 basis points and just move it to 1%, and something easy in the investment portfolio, that is technically accretive to the margin. And as Stephen sitting near Bob, he’s got a few things, you might want to add some more color to that, on the NIM and so.

Stephen TiptonChief Operating Officer

Yeah, I mean — hi Michael. We’ve been able to, I mean despite loan balances being down a little, that’s the loan yields come down some, but we’ve been able to offset that with deposit cost decreases. It’s really just a function of kind of mix and liquidity today. And we’re always hesitant to say we see loan growth at some point, but we’re up a little bit quarter today, and we’ll see where the pipeline goes this quarter.

John W. AllisonPresident and Chief Executive Officer

I think some companies have pushed out some of that excess liquidity, we haven’t pushed it out we could push some of that off and then bring it back, but that’s kind of again just is what it is, we like actually. At some point in time, we’ll be able to deploy that money and when we get an opportunity to deploy it, I think it will be. Time will tell, prices were up. Most of the Home, say for instance, then with this $2.47 billion, it was $1.5 billion and then $2.27 billion [Phonetic] as much air lift there as used to. You got to comment on it Tracy?

Tracy M. FrenchChairman of Centennial Bank, President and Chief Executive Officer

Cheaper at the barber shop.

John W. AllisonPresident and Chief Executive Officer

Hi, Mike, on the last question you said we’re right, that was really talking about a third, set of questions, those were really excellent.

Michael RoseRaymond James — Analyst

Appreciate it. Just one quick follow-up. It does look like you built a 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 you’re 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 in terms of percentage assets or earning assets is about where you want it to be, at about 17.5%, is that fair?

Brian S. DavisTreasurer and Chief Financial Officer

I think it’s fair, we have a 10-10 call daily, every day 10-10, and we are discussing what to do with this money. But actually I’m not going to predict that loan demand going up, because every time I do, it goes down. But at we heard Chris talk in favorably, and you heard John talked in favorably, you heard Kevin talked in favorably, and we had a good executive loan committee yesterday with about $100 million.

So, I’m optimistic that maybe things are turning rental a little bit. We have a lot of stuff working, lots and lots of big loans work in the — just had come to fruition. And I asked Chris, what’s the problem, and price is taking longer to close these loans, and we anticipate in the past, because lot of municipalities are involved and they’re not working full staffs. And you can’t get the information you need and you can’t get that, they can’t do a check on the progress. So, it is somewhat frustrating, but that too shall resolve itself.

Michael RoseRaymond James — Analyst

Okay. Thanks for taking my questions guys. And Tracy, I going to be extra sport, hair cut coupon if you need one, just tell me now.

Tracy M. FrenchChairman of Centennial Bank, President and Chief Executive Officer

Thank you, Michael.

John W. AllisonPresident and Chief Executive Officer

He don’t need one, Mike.

Operator

Our next question today comes from Brady Gailey of KBW. Please go ahead.

Brady GaileyKBW — Analyst

Hey, good afternoon guys.

John W. AllisonPresident and Chief Executive Officer

Hey, Brady.

Brady GaileyKBW — Analyst

Guys, one 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 lend at today’s rates? I’m trying to figure out how much of that is really loan demand versus Home being thoughtful in saying, hey, I’m not going to put out a loan with the two or three handle?

Kevin D. HesterChief Lending Officer

Hey, Brady, this is Kevin. It’s a mixture — 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 leverage too. We’re seeing. I think particularly in our community bank markets, in the smaller markets are, our smaller competitors are doing some really crazy stuff on leverage, as well as rate. So, you can play with that, right a little bit. We’re not going to, we’re not going to do crazy stuff on leverage for sure, not with prices as high as [Indecipherable] total assets.

John W. AllisonPresident and Chief Executive Officer

We’re seeing some 95 and 106 stuff, it just doesn’t make any sense. And that’s just people getting too aggressive, taken a loan that needs have recourse only, and make it a non-recourse. I think there’s a panic in the world out their homes, not panicking. We got a great company, we make — still make a lot of money. And even with all this excess liquidity, so, we’re going to hold tight to what we do, what we’ve done the entire time. And I think in the long run, Home will win. You can change — you can picture about any fine, with the bank except the margin. It takes years to fix the margin. When you do 7 and 10 year fixed rate stuff out either at low rates, you don’t need 11 with that for a long time.

So, we think, we’re on the right track. I don’t believe — I don’t believe the pricings, as said, last caller keep their foot on this inflation. An old pal [Phonetic] is trying to convince the world, he is no — there. And I’m afraid he may have gone too far. So, this thing could get a little crazy here — it could get a little crazy here for too long, if things don’t change. Hopefully, the Fed will type a little bit and we’ll see right start ticking up a little bit. I mean, we got — we bought gasoline and food lately. What I’m talking about, this deal was — I get used cars are up 40%, that could come back, it probably will come back at some point of time. But it probably won’t until the new car business can fill the needs is out there for the demand.

Brady GaileyKBW — Analyst

Yeah. And back on the topic of M&A, it sounds like you guys have really focused on bank M&A. Would you ever look at other types of M&A, like acquiring kind of some niche specialty lender like a commercial finance or premium finance or equipment finance? Would you ever look at those sort of acquisitions in addition to back of M&A?

John W. AllisonPresident and Chief Executive Officer

Certainly. I mean, I’m a business man — if it makes sense, it makes money. I mean, we moved out in the Shore. And then we see of course, we would look at something if it made some sense. But we think that like minded partners in the banking space or probably a place for us to be.

Brady GaileyKBW — Analyst

Yeah.

John W. AllisonPresident and Chief Executive Officer

Our group is looking at one of those opportunities for that level by the way, or loans outside opportunities.

Brady GaileyKBW — Analyst

Yup. All right. And then lastly for me, it looks like you bought back maybe a little bit of stock this quarter. But yeah, your stock has pulled back a little bit, it’s now trading at 2.25 times tangible, which is pretty attractive to you guys. So just, did you buy back stock at your quarter? And talk about your appetite for continued buybacks from here.

John W. AllisonPresident and Chief Executive Officer

Yes, we didn’t. Stephen can talk about that. But our appetite is, it goes down becomes more, as you understand. But we bought it, our way to 27, 28, I think that we’ve seen.

Stephen TiptonChief Operating Officer

Yeah, we bought about 600,000 and little over 600,000 shares in Q2. And then we’ve got a 10b5-1 plan in place, since the end of the quarter, that’s been pretty active in the last two weeks or so.

John W. AllisonPresident and Chief Executive Officer

Yeah, we hadn’t had the 10b5, we had been tied, our hand is tied, you’d probably see us and both feet. So yeah, we have lot of stock and we will continue to be in there.

Brady GaileyKBW — Analyst

That’s fair. Great. Thanks guys.

John W. AllisonPresident and Chief Executive Officer

Thank you.

Operator

And our next question today comes from Matt Olney with Stephens. Please go ahead.

Matt OlneyStephens Inc. — Analyst

Hey, thanks guys. Good afternoon.

John W. AllisonPresident and Chief Executive Officer

Hi, Matt.

Matt OlneyStephens Inc. — Analyst

Hey, I want to go back to the discussion of the loan balances. And I think Tipton gave us the overall level of originations in 2Q. Just trying to appreciate if there was any kind of deceleration or acceleration from the April to June timeframe within that?

Stephen TiptonChief Operating Officer

Hey Matt, it’s Stephen. On payoffs, they were a little heavier in the last month of the quarter in June, they were a little over $300 million. But in a relatively tight range there from April to June. We had a couple of projects, I think in June, that we thought would payoff potentially in Q3, that were pulled forward. So, that’s what drove that number up a little bit.

Matt OlneyStephens Inc. — Analyst

And that’s on payoff, what about on the other side, on the origination side, any kind of trend intra-quarter that you noticed?

Stephen TiptonChief Operating Officer

No, not necessarily, $700 million in last three quarters or so, has been pretty consistent. We generally fund about half of that, at quarter-end balances, about half of that was funded.

Kevin D. HesterChief Lending Officer

Chris talked about a couple of things, he talked, we’re going to fund in June, that didn’t kind of got pushed. The discussion is not been able to get final work in the appraisals and cities do those things, I think that happen a little bit, particularly the credit.

John W. AllisonPresident and Chief Executive Officer

I think, Chris, your backlog is just, is bounce getting, several?

Christopher PoultonPresident of Centennial Commercial Finance Group

Yes sir. It’s — we continue to, again, I think we said this last quarter too, I mean, we have nice backlog. Our underwriting deals we’re signing them up and we’re getting them negotiated, as Kevin mentioned that, I mean, in June, I had two deals, I fully expect to close in June. And what I miss been sitting — with documents and escrow for two weeks, waiting for somebody from the city to finally get back to work, but never do that. Hoping, I listening right now. But, yeah, I love you, but yeah, I mean, we’re just seeing steps. We’re just seeing things just take a while, I mean, we’re closing a loan is a 9, 10 [Phonetic] party affair. And I think we hear people saying that, they’re more productive work in remote. I think that might be true individually, but not when you need to get 6, 7 parties together, to get something done, has just taken a while.

So, none of the ones that we have in there look like, they’re going to fall out, because of that. But it is frustrating to sit there and wait for these things to close. If nothing else, because every day I don’t have it closed, it’s a day less than earning. But we still have confidence they will get done, and these are usually outside our control and the borrowers — even outside the borrowers control sometimes.

So, I think everybody is looking forward to getting back, it does help that New York has reopened now. I mean, as of July 5, the cities reopened in terms of all city employees have to be back, and 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 who really want to get these closed. So, we’ll hopefully get through those this quarter.

Matt OlneyStephens Inc. — Analyst

Okay. That’s helpful, 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 you expect to have some net loan growth in the back half of the year or is it — just what’s the outlook there?

Christopher PoultonPresident of Centennial Commercial Finance Group

Yeah, I would like to have net loan growth. A lot of that’s going to be timing oriented, right. I mean, I think we ended the quarter, I think, I mentioned in my comments for a good part of the quarter, we were sitting probably 16.50. We end up with 15.50 or 15.56, back up over $1.6 billion today, for instance. So, some of that’s just what happens, when do you get the pay down, when do you do the funding, 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 will come through. Whether that future funding comes through, before the payoffs come through or as they do, over time that will all settle out, whether at next quarter end, is that — what’s that I’m going to look like? I don’t know. We are seeing some pay-offs. I have some expectations of some payouts, 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 COVID.

And at some point, I do want them to, as much as I love them, I wanted to go away. And so we do have a couple of that, I expect this quarter that will execute their plan, have executed their plan, and they will take their permanent financing now. And it’s a good market for them, right, we want that for our clients as well. They’re 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 on and get good long-term financing right now. And so, we want them to do well as well.

So, I expect we’ll have a few do that, one of them is — one that we thought would probably payoff, they get their TCO, they’d lease up, probably payoff toward the end of the quarter, and they’re probably going to pay us off this month, because they’re not at TCO yet, but they’re going to get permanent financing per TCO, which is not unusual today.

Matt OlneyStephens Inc. — Analyst

Got it. Okay. Great. That’s all from me. Thanks for taking my question.

John W. AllisonPresident and Chief Executive Officer

Thank you, Matt.

Operator

Next question comes from Stephen Scouten with Piper Sandler. Please go ahead.

Stephen ScoutenPiper Sandler — Analyst

Hey, good afternoon everyone.

John W. AllisonPresident and Chief Executive Officer

Hi, Stephen.

Stephen ScoutenPiper Sandler — Analyst

I’m curious if you could talk about what are the things you guys or maybe, Tracy, in particular, if you’re saying he’s the one. Rubbing all the hair off his head, have been thinking about in terms of investing the excess liquidity. I mean, if you looked at other bank sub-debt, I mean, what kind of initiatives have you looked into to try to put some more of that money to work?

Tracy M. FrenchChairman of Centennial Bank, President and Chief Executive Officer

Yes to — all the above that you mentioned there. We have done some of the bank, primarily with the banks that we were familiar with, making sure that they’re safe and sound too. We talked to Chris, we talked to our buying great more opportunities, I say, this is truck here every day at 7, he beet me work, Johnny. So, 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 in the commitments out there. So just back to the short-term pain — making sure our short-term gains, that we don’t have the pain, that comes along with. It’s very challenging, but we look at it, as Johnny mentioned, every single day.

Stephen ScoutenPiper Sandler — Analyst

Yeah, and that makes sense. And then thinking about M&A, again if you look at a potential deal, and I know, Johnny you said, you’re further down the line and you have been a while 11. I mean, 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 have excellent amount of excess liquidity?

John W. AllisonPresident and Chief Executive Officer

You answered your own question. There is margin space,, so you got the same situation we got. So the key is, do you have overlap? Is it accretive? And do you have overlap? And are you like minded? And will the culture expand. Those kind of things are extremely important to both the seller and a buyer, when they partner in that. We are looking forward to hopefully bring it one Home, that you’ll see that fits AAA like-minded overlap, so lots of savings.

So, I think, hopefully this — hopefully we’ll get one brought Home. I would be disappointed, if we don’t get this with –. The others you discount — though he had in, but this one really we’ve worked on pretty hard. And I think it makes lots of sense for us. And we have not signed the LOI yet, but we — as sighed it out, so we’ll wait nack to come back. Hopefully that transaction could be — they just go forward announced here 30 days or so.

Kevin D. HesterChief Lending Officer

Stephen, I could thinking about is the question used to ask a few years ago, is when our loan to deposit ratio was pretty hot. Well, we did — yeah, we could turn the faster down, and the nice thing about this is, we’ve got a great core relationship with these customers today. Now we could — when we went to the Florida market, it certainly has proven that in our staff, just really have done an outstanding job of development relationship. So, never thought we would — I’m never going to say, I don’t want to deposit. But I think we all know the excess funds today is just not, it’s a cost and that it will turnaround someday and we’re ready.

Tracy M. FrenchChairman of Centennial Bank, President and Chief Executive Officer

I had a customer count, so how much attention paid to it. Most of that is so, A, B, C, and I got $16 million in cash. Johnny, and I need to pocket somewhere, yeah, I will charge but 10 basis points. And we said — he said, obviously you don’t money and I said, I don’t and I hang off. So, normally, made of list of that but not in this environment.

Stephen ScoutenPiper Sandler — Analyst

Yeah, it’s strange, I mean, I know we all still probably think about deposits it’s being kind of the fuel, that makes the bank run, but it’s a strange environment. Just to have so much of it that, I mean, it feels like even if growth comes back, it’s going to take three or four years to deploy that liquidity and ever get back to that 95% loan to deposit ratio. I mean, is that kind of a fair assessment as you guys look at it over the longer term?

Brian S. DavisTreasurer and Chief Financial Officer

I think, it’s a fair number. I’m sitting here thinking about the trillions that they’re talking about spending, that we haven’t even spent yet. So, it could get worse before it gets better.

John W. AllisonPresident and Chief Executive Officer

Yeah, it certainly could. If we’re going to spend these trillions and trillions of dollars, I mean, the world is washing money, right. And I guess what happens — what happens in the world is washing money. That usually when rates go up. So you got to believe, at least if history repeats itself, which it normally does, blanks in June and 5 or 6 in May, this inflation, I don’t know, I don’t know where Paul is looking. But I know these trend, but this 10 year 130 some, I guess artificial. I don’t believe that’s real. I think that’s just like it just the results of last year’s ban, all the 10 years. So that to me has changed at some point, I mean, even Moody’s, which I don’t know, if they got I’ll answer, they’re calling for a 1.90% 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 like.

Who knows, we wish we knew that answer, but you got the county state, cities have been flushed with excess money. Part of Chris’s problem get loans closed, they got plenty of money in the bank that will need to generate the revenue against. And then we’re both the commercial bank and a retail bank and through the PPP programs and we are in markets that didn’t close. So, that’s put some good cash in the business pockets, that didn’t have to spend all of it. And then the individual accounts have been plus two over the last year with this. So, I think you’ll see some of that begin to trickle out, because once they start reported in.

Stephen ScoutenPiper Sandler — Analyst

Yeah, makes sense. And then last thing for me, and Johnny I think you said maybe the expense management was decent, I think, was the word maybe you used. I know you always want efficiency ratio lower, but I mean — or do you think there are opportunities there, somewhere within the expense space to take it even lower from what’s already a really impressive number?

John W. AllisonPresident and Chief Executive Officer

Yeah. I said, 38% efficiency ratio. We have a little find on a holding company here, we add to this view, the Home BancShares. He gets lost sometimes, he said, when you — understand, holding company will make a lot of money. What was the question…

Kevin D. HesterChief Lending Officer

John, reduce expenses?

John W. AllisonPresident and Chief Executive Officer

Well, a little bit, probably we have, as I said, getting ready for over $10 million, will took us longer and cost more money than we ever anticipated. And we threw millions and millions of dollars at it. So, I have to think at some point in time we’ll go back and look at that now. I think you can pretty much if the regulators allow give us approval, which I think they will, with our capital ratios to move up $150 million, $175 million, I think you can see the cost of that trust preferred go away.

So that’s about $17 million in the sub-debt, I mean, the sub-debt — that $17 million pre-tax. So we’re looking at that, and that Group has not going back in some time and looked at branching. And she has just pulled up, all the branches at a certain level or below. And we’re comparing that to back where they were prior to all of this, free money flowing. And we’re probably going to look at, there might be an opportunity on five, six, seven, maybe eight or nine branches though. And we’re looking that, we’re looking at that. So we’re back, looking at those expense deals at this point in time. So, we’re only, and we usually, are able to do around a little bit of savings.

Stephen ScoutenPiper Sandler — Analyst

Yeah. Great. Okay, thanks guys for the color, I really appreciate it.

John W. AllisonPresident and Chief Executive Officer

Thank you.

Operator

And our next question comes from Will Curtiss at Hovde Group. Please go ahead.

Will CurtissHovde Group — Analyst

Hey, good afternoon, everyone.

John W. AllisonPresident and Chief Executive Officer

Hey, Will.

Will CurtissHovde Group — Analyst

Tracy, I was going to wear my razor back, sort to make good on the bet, that you never seen it. So…

John W. AllisonPresident and Chief Executive Officer

Oh, he never seen it.

Kevin D. HesterChief Lending Officer

No, we even didn’t, that was nothing. So, all right, so maybe next quarter.

Tracy M. FrenchChairman of Centennial Bank, President and Chief Executive Officer

If I remember, you were supposed to go buy your own share, pay for it and I don’t know what…

Will CurtissHovde Group — Analyst

Yeah, I was going to — maybe the linked into the store. I think most of my questions have been addressed. So, just a couple of quick ones. And then following up on Stephen’s question about the expenses. So if I understand, as we think about maybe the next quarter or the next two quarters, there is no — is there anything that we need to consider in the expense base or some of those things, Johnny, you were talking about, probably more intermediate type discussions?

John W. AllisonPresident and Chief Executive Officer

Well, the big part, $300 million in sub-debt matures in April. So, it won’t come until then we have to give notice prior to that owners, where they did, I think was kind of — hopefully we get that paid for in the trust preferreds, we just kind of take those as they come down the road. So, 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 if — later on, half of it, we take half of it out.

Will CurtissHovde Group — Analyst

Okay, and then, platform Brian, I think you said there is $18.2 million of remaining fees, what’s your best guess on, when you think those will be realized — from the time?

Brian S. DavisTreasurer and Chief Financial Officer

That’s the tough one there. I mean, we’ve tried to put it in our reforecast models every quarter and unfortunately this not been very close. As $18.2 million, I mean, theoretically it could spread out over the next four years. I would probably just say, there’ll be a couple of million next quarter and then probably it’s going to trail off that, you had any better feel Kevin, because it’s all related to get in the money back from…

Kevin D. HesterChief Lending Officer

Yeah, we’re…

Brian S. DavisTreasurer and Chief Financial Officer

What’s causing that?

Kevin D. HesterChief Lending Officer

Yeah, we’re down pretty low on the round one stuff. So, the forgiveness will be on round two step. And we’ve gotten, like I said earlier, about I think $30 million, so far out of that $350 million forgiven on the second round. And we’ll start pushing hard on that, the back half of this year. But maybe it’s just really hard to — it’s hard to gauge what people there — you know whether they had any, will they will do it now or push it off until some other time. I mean, it’s a little bit hard to know what that’s going to be.

Will CurtissHovde Group — Analyst

Understood. Thank you, guys.

Kevin D. HesterChief Lending Officer

I think Brian’s numbers are about as good as I could come up with, at this point.

Will CurtissHovde Group — Analyst

Understood. Thank you.

Operator

Our next question today comes from Jon Arfstrom with RBC Capital Markets. Please go ahead.

Jon ArfstromRBC Capital Markets — Analyst

Thanks. Good afternoon.

John W. AllisonPresident and Chief Executive Officer

Hey, Jon.

Jon ArfstromRBC Capital Markets — Analyst

Hey. Just a couple of follow-ups. How 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 this kind of high teens to 20% return on tangible equity level?

John W. AllisonPresident and Chief Executive Officer

How about, feel about that, I would hate to see us fall off of that. We’ve always run in ROTCE, we’ve always run 17, 18, north of 20, on those ROTCE’s return on tangible. So, it’s not anything unusual for us. And over the last, probably hard to first report, you look at the stability of the earnings over years, we’ve always led in that group in our peer group, $10 billion to $50 billion. We’re always in the top territory of ROTCEs in the group. So, I wouldn’t anticipate, we’re going to try to defend the NIM, hopefully we can, if we’re wrap if we call it right, then rates start moving. I think, you’ll see a change in this silly race to the bottom, will go way pretty quick.

So, we can play the game, believe me, we got the muscle to play the game, and I’m not saying we’re bullet proof, but you heard your capital ratios. And you see how much tariffs this Company throws off, as Alex says into the shoebox. So it is a pretty powerful earning machine that has great asset quality, that sitting in the cap merge, see if we can just find the right place and for the assets, the cash. So, I think that will come, just have to believe it. We have some really big credits that we worked on for a long time, that — because the situations have not come to the top, but they’re actually go into more to get approval to do some of these, because their big credits is for us.

And I just haven’t — they haven’t hit yet, but there — they’re coming. We, as I said, we did that, I think a $100 million, a little over yesterday and also find pretty quick. So, I’m optimistic that we have not given away the shift and we’re not going to give away the shift. If we have to defend our sales, we can do that, but I’m pretty optimistic about ROTCE, and I’m pretty optimistic about the man. I mean, if you add the excess liquidity back, it really takes you to about $420 million…

Brian S. DavisTreasurer and Chief Financial Officer

$424 million.

John W. AllisonPresident and Chief Executive Officer

$424 million. So, and through all this kiosks and all its crosses, homesale really in very, very strong.

Jon ArfstromRBC Capital Markets — Analyst

Okay. Two more questions. Cut maybe an odd question, Johnny. But would you run the Company any differently if you were private versus public? Or do you feel like you’re running, if you’re owners today or would you do something different if you didn’t have us to answer too?

John W. AllisonPresident and Chief Executive Officer

Well, the answer is no. That is one, let me take some of the 10, 10 toll over day and brands as we get $2 billion, and the next day says is we’re at $2.1 billion. And then which layers have got $2.4 billion. You know the disc one is difficult. So, the same thing with more money than I do with the Company’s money. So, I don’t treated any differently. I feel like this is our — something like we do on. I think we run it like owners. We don’t run it like employees, we run it like owners. And we are doing what we think is totally in the best interest of this corporation.

So we step down in the threes and twos, and I was talking again, the quarter fits for 10. He said, you have done, you have any idea, how many loans we can load in 18 [Phonetic] or warehouse full of loans, is that kind of right but as you’re selling your future and you’re trying to sell your I know what you got. So, I said, you got to pay the pipe for some time, right. You don’t have a free lunch every day when you give that stuff away. So, we’re holding that, I think we’re doing the right thing, and time will tell you. If we miss it, hey wind doesn’t played the game with we have done so.

Jon ArfstromRBC Capital Markets — Analyst

Yeah. Okay. And then just one more, maybe kind of an internal question for Tracy. You referenced the transfer pricing in the internal model and some complaints. Just share with us what can you on that to kind of give us an idea of what the message is internally?

Tracy M. FrenchChairman of Centennial Bank, President and Chief Executive Officer

I’m passed above Stephen, Tipton, he gets blame for everything. So, what we try to do on that is, we measure out in front — some markets have more loans than deposits and some markets have more deposits and loans. So you try to give a transfer of pricing figure to be fair. And of course, waiving 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. We have a little fun with it. And all-in-all, it’s still comes back, the Centennial Bank and Home BancShares number. So what I mentioned, the eight that have done above, I promise you if the rate — if the loan demand and all of those things of excess deposits, some of these guys have got plenty excess deposits to provide charge and a little more than what they would really be getting out there.

Jon ArfstromRBC Capital Markets — Analyst

Okay. Good.

Tracy M. FrenchChairman of Centennial Bank, President and Chief Executive Officer

Does that answers your question?

Jon ArfstromRBC Capital Markets — Analyst

Yeah, that helps. And [Speech Overlap]

John W. AllisonPresident and Chief Executive Officer

They first about it when rates were 7% or rates were 6%, 5%, 4%, 3%, 2%, 1%, it just give some hard was your charge me too much prices? Some of those is [Indecipherable] the excess deposits and loans are very critical to this Company. But it only matters, because they’re competitive to each other. [Indecipherable] they want to be the best, and even the worst of our group, in any particular month would be at the top of most banks. So, that’s the only the reason the matter is.

Jon ArfstromRBC Capital Markets — Analyst

Okay. And I think I can still listening, but we’re both a little offended by all the airline talk?

John W. AllisonPresident and Chief Executive Officer

I’d get Tom just send me a picture, and mine is bit and feel better.

Operator

And our next question today comes from Brian Martin of Janney Montgomery. Please go ahead.

Brian MartinJanney Montgomery Scott — Analyst

Hey guys, good afternoon. A couple of last ones for me. Just on the — Brian on this split, on the PPP, I think most of that’s round, I guess, round two or three, it’s round, I have it, the most recent round, is that kind of what’s left in that bucket today?

Brian S. DavisTreasurer and Chief Financial Officer

Yeah, there is the 100 — and this is as of June 30, we had $144 million left in round one. And it looks like we had probably $347 million in round two.

Brian MartinJanney Montgomery Scott — Analyst

Okay.

John W. AllisonPresident and Chief Executive Officer

And that’s balance — loan balances, but the fees would be even more heavily weighted.

Brian MartinJanney Montgomery Scott — Analyst

That’s where…

John W. AllisonPresident and Chief Executive Officer

Towards the second. Towards that last round.

Brian S. DavisTreasurer and Chief Financial Officer

That’s right. So if we add — we add, so what’s left of round one is not the lion’s share, it’s more around to…

Brian MartinJanney Montgomery Scott — Analyst

Okay. And I guess just with the forgiveness of the $2 million loans, I guess is it, I guess, my thoughts you guys were more optimistic that some of that could get cleared up in the next two 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 maybe less, that getting cleared up.

Brian S. DavisTreasurer and Chief Financial Officer

No, actually more — you may have misunderstood my comment. We have about in rounds one and two, we had roughly $100 million worth of loans that were loans of over $2 million, and they were holding those up. We have demand, almost all of them have been sent in, and they were holding them up until this quarter. And we’ve gotten roughly, I think about half of that has been released and paid. So, I would have hoped it would happen before or now, but it was good to see it finally start happening.

Brian MartinJanney Montgomery Scott — Analyst

Yeah. I guess, I was just thinking if more of that happens for the most recent round the PPP kind of exits and you’re done with it by the end of the year as opposed to maybe what Brian was saying that maybe it’s just an unknown and it drags out maybe into next year, on the actual fees of collecting $18 million.

Brian S. DavisTreasurer and Chief Financial Officer

It’s all going to be at our customers being, willing to send in their forgiveness. And what we’re funding, at least with the funding part in the last phase, they weren’t a tenant in the second phase as they were the first, because they were busy. These folks have businesses and they’re operating again. And so, they — when we were talking about funding around three, it was harder to get all their stuff and get it done. Then it was the first two rounds, when they were sitting at home.

Brian MartinJanney Montgomery Scott — Analyst

I got it.

Brian S. DavisTreasurer and Chief Financial Officer

Maybe the forgiveness may fall prey to the same thing.

Brian MartinJanney Montgomery Scott — Analyst

Yeah. I got you. Okay, perfect. And just maybe one last one on the — two last ones. Just on the –back to the margin, whether it would be Stephen or Brian, just from a core margin standpoint, I mean there is 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 the core margin? And is, I guess, is your expectation, it sounds like, that’s relatively stable at this point, I guess, as we think about it?

Stephen TiptonChief Operating Officer

Yeah. This is Stephen. Brian, I think it stands to have a little continued pressure, just in terms of where investment rates are and the cash flows that we have there. Like I said earlier, we’ve been able to got to keep the deposit costs in line with where the loan yield is, that just as mix as investments are a bigger percentage of the earning assets overall, may have a little downward pressure too.

Brian MartinJanney Montgomery Scott — Analyst

Okay. And can you…

John W. AllisonPresident and Chief Executive Officer

I mean, if I look back over the last year, two years ago, we’ve held — we held fairly strongly in their — those of our margin. Yeah, you mentioned the 4.20 number and we target 4%, on a core basis. So, I mean, I think over time that’s trended credit up.

Brian S. DavisTreasurer and Chief Financial Officer

Yeah, I think we managed that — I think we managed it well over the time, you’re not giving us credit for that.

Brian MartinJanney Montgomery Scott — Analyst

No. Yeah, definitely.. How about, just on the discipline is evident, Johnny 100% in the — on the fee income side, I think, just the — kind of just a crystal ball on kind of the mortgage line. And I also noticed the service charge line was up a little bit in the quarter, just anything on the — either those two comments on, you can answer?

Brian S. DavisTreasurer and Chief Financial Officer

I’ll take the service charge one. The lion’s share that is related to CFG, I think we’re up about $2.48 million for that particular line item you referring to. And $1.4 million of that is related to our New York operations. The rest of it, I think is just related to some increased interchange fees that we had for the quarter.

Brian MartinJanney Montgomery Scott — Analyst

Okay.

Brian S. DavisTreasurer and Chief Financial Officer

Mortgage, let somebody else take mortgage.

Kevin D. HesterChief Lending Officer

Mortgage is having a — it’s having a good year, they’re down a little bit from the frenzy of the end of last year and the beginning of this year. I think they still feel like it will be a very strong ’21 but there is — is this not a lot of product out there, that’s the difficult is.

Brian S. DavisTreasurer and Chief Financial Officer

I mean, we heard Shore Premier, our commercial lines are just not very strong. He’s right in lots of business, but there again, we get launched payoffs paper, they’re actually going out and refinancing their housing, they’re right paying out their 5% outlook for [Indecipherable]. So, John reported that he’s continuing to receive that. Again any comment, John on that?

John MarshallPresident of Shore Premier Finance

No sir. Right now what is exactly as you said, our production were pushing out $60 million a quarter, but our prepays were about $55 million — $56 million a quarter. The commercial side of our business. Johnny, I really think is going to slingshot back in the second quarter of 2022. And again what that looks like that’s a tailwind of about $100 million — $120 million. So, I’m optimistic that we will sustain net growth, but it’s going to take inventory, once it starts going back.

John W. AllisonPresident and Chief Executive Officer

That was based in, with Arkansas [Indecipherable] that was moved. He said, I had the best year –last year I’ve ever had. And these are them have one of the worst years, this year, because I have no inventory, and have things that — so that’s what happens.

Brian MartinJanney Montgomery Scott — Analyst

Yeah. Well, last one or two for me, Johnny, the sizing on M&A, I think you had talked about, if you get back in the game. I know there is been a lot of opportunities, looked at, but just, is your expectation, your hope still that it’s more on the smaller side on potential M&A opportunities?

John W. AllisonPresident and Chief Executive Officer

Well, this is a little bigger — one we’re looking at is a little bigger.

Brian MartinJanney Montgomery Scott — Analyst

Okay. Okay and then just the comments, maybe I misunderstood John, the slicing was on the sub-debt in the trust preferred. Just the timing of when those could occur, I think, you guys gave the color on the back, the timing and one of them was April…

John W. AllisonPresident and Chief Executive Officer

April.

Brian MartinJanney Montgomery Scott — Analyst

April is the sub-debt or the trust preferred?

John W. AllisonPresident and Chief Executive Officer

April is the sub-debt. And the trust preferred — we have to give notice on that. We can do that any time. That’s not as significant, as the sub-debt. The sub-debt is much more significant.

Brian MartinJanney Montgomery Scott — Analyst

Yeah. [Indecipherable]

Kevin D. HesterChief Lending Officer

When I told, Brian ran the numbers on the sub-debt. We got $71 million and I think he was going to keep, — pay out 41 or keep 41, you remember. We were going to pay 47. We’re going to pay out 47 keeps about. I mean, the problem, it’s a good problem to have some of our sub-debt is extremely low rates. So, when I sit here looking at it today, with all the excess cash, because I don’t have all this excess cash is — at the holding company. But right now, there is a — some of that stuff don’t make any sense to payoff, because it’s at such low rates.

Brian MartinJanney Montgomery Scott — Analyst

Got you. Okay.

Kevin D. HesterChief Lending Officer

So, we’ll payoff the $300 million of sub, my preference would be healthcare and maintenance debt first, even though we could payoff the trust preferreds today, you just don’t get much bang for your buck for paying off that little bit of sub-debt right now, which is that lower, right. So, I will focus on trying to get the $300 million or much out of paid-off as possible in April 2022 comes down, as Mr. Allison’s had a tough time. We will have $150 million for sure in available cash and whatever else the regulators, let’s take out of the banks problem.

John W. AllisonPresident and Chief Executive Officer

You remember, we’ve been, you remember we’ve been putting back $5 million a month for some time. We have started, day one, the strategy is kind of have model thinking fun and historic return, that yet that will be announced 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 always go back, and the rates are down, probably we can get some sub-debt under day 3%. So might he not get 200 [Phonetic].

Brian MartinJanney Montgomery Scott — Analyst

Yeah. Got you. Okay. So, thanks for taking the questions guys.

John W. AllisonPresident and Chief Executive Officer

Thank you.

Operator

Ladies and gentlemen, this concludes the question-and-answer session. I’d like to turn the conference back over to Mr. Allison for final remarks.

John W. AllisonPresident and Chief Executive Officer

Rocco, thank you, and thanks everyone for participating today. It is been some interesting and trying times, but we’re — we’ve gotten through, if you can get through pandemics, and you get through the worst financial collapse in the world, you still have a company that’s as strong as this one is, it makes us all, I think this is 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 along and we’ll see you in 90 days.

Operator

[Operator Closing Remarks]

Duration: 83 minutes

Call participants:

Donna J. TownsellSenior Executive Vice President and Director of Investor Relations

John W. AllisonPresident and Chief Executive Officer

Kevin D. HesterChief Lending Officer

Tracy M. FrenchChairman of Centennial Bank, President and Chief Executive Officer

Brian S. DavisTreasurer and Chief Financial Officer

Christopher PoultonPresident of Centennial Commercial Finance Group

John MarshallPresident of Shore Premier Finance

Stephen TiptonChief Operating Officer

Michael RoseRaymond James — Analyst

Brady GaileyKBW — Analyst

Matt OlneyStephens Inc. — Analyst

Stephen ScoutenPiper Sandler — Analyst

Will CurtissHovde Group — Analyst

Jon ArfstromRBC Capital Markets — Analyst

Brian MartinJanney Montgomery Scott — Analyst

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