Thank you, Rocco. I am Donna Townsville, Director of Investor Relations, and our management team would like to thank you for joining our Q2 conference call. Reporting today will be our Chairman, John Allison Tracy French, President and CEO of Centennial Bank Brian Davis, our Chief Financial Officer Kevin Hester, Chief Lending Officer Chris Fulton, 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 set a CURD in the Q2. First, you may have seen our announcement earlier this week where Home's wholly owned subsidiary, Centennial Bank, announce the appointment of a new Director of Corporate Social Responsibility.
This move highlights our intention to enhance the development seek initiatives supporting Centennial Bank's focus on environmental, social and governance topics. While these pillars of corporate citizenship have always be important at Centennial. We feel like a more formalized program will ensure that we continue to keep ESG 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 design to help accelerate technology adoption at community banks across the United States.
The partnership brings together seasoned FinTech entrepreneurs and bank experts to invest in the next generation of companies, changing the way financial institutions and their customers smooth, track and interact with money. These are just a couple of examples that show Holmes' desire to continue to be one of the best banks in America. Now to transition to what you all called in for. Our first report of the quarter will come from our Chairman, John Allison.
Thank you, Donna. That's pretty exciting about the FinTech. That's in a good that's somebody to head ESG for us. I think those are positive developments for our company. Good afternoon, everyone.
Thank you, Donna, and again, welcome to Homebuyer's Q2 2021 earnings release and conference call. Performance for the Q2 was another solid quarter for our company with $0.48 EPS and $71,900,000 in profit, Good asset quality and decent expense control. Loan demand is the frustrating part of the equation. While sitting on $2,700,000,000 in cash and no reasonable place to invest for a decent return, we've decided to hold close and be patient to and do not set our future. We may be wrong, but it is a decision that we made and we're holding tight.
If we're right, we think we're only 6 months away raising rates, which may include an earlier period of time of tapering and purchases by the Fed. I pay a lot of attention to Jamie Dimon and I agree with what he said. He's sitting on $500,000,000,000 and he says patience is certainly the key here Because rates are going up. As I said in the Q1, we had to wind our back and a lot of things that we've been working on came home to us. I meant that as a pun, H OMB.
During the Q2, we had the breeze to our back with continued income from investments we've made last year. Since going public in mid-two thousand and six, we together have been through the worst financial collapse since the Great Depression And the worst pandemic the world has ever known maybe worse than the one in 1970. By the 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 take questions as well as people throughout the rest of the 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 $2,000,000,000 excuse me, dollars 10,000,000,000 And incurred additional $2,000,000,000 how funny is that. We blew through $2,000,000,000 but $10,000,000,000 was a big mark for us. And All the associated expenses. The adjustments for $10,000,000 took us longer and cost more than we ever anticipated. New terms to our vocabulary like enterprise risk management, CFPB, bank secrecy, just to mention a few.
Actually, one exam less than 5 minutes is an excellent exam 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 organization. The other fifty take a few minutes. We'll spend on things I've barely heard of for the last 4 or 5 years. Through all the unseen and crazy times, Home has continued to produce peer leading results with ROIs running from 180 to 190 and some over 2%.
We have managed her through The crisis regardless of pandemics, hurricanes or COVID-nineteen viruses, whether the business was good or bad, regardless of interest rates going up We're going down or adjusting to what plan of attack that our management decides on. That's what good management teams should be doing. Take a walk back over the last three and a half years of 2018, 2019, 2020 and the first half of twenty twenty one. And I think you'll agree with me That the consistency of Holmes' earning is impressive even without all the unusual circumstances we found around us. I must read 2018, 2019, 2020 2021.
So in 2018, we did a $209,000,000 ROI. These are adjusted numbers. We did a 209 in 2019, a 196 in 2020, a 192 in the 1st 6 months of this year, a 197. That converted into income of in 2018 $303,000,000 in 2019, dollars 294,000,000 In $2,309,000,000 in the 1st 6 months of this year, dollars 167,000,000 The total revenue net after interest expense was $663,000,000 in 20.18, dollars 662,000,000 in 2019, $694,000,000 in 'twenty, dollars $365,000,000 in 'twenty one. I think you have to agree with me that these numbers are pretty and show us the stability of this corporation and how the management team adjust to a 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 and A hat M and A tool out of the toolbox. We've worked on a couple of interesting opportunities, but to no avail so far. I was visiting with a very smart, good friend in the money management space. And as I was telling the difficulties we were going through, I told him, I said, it appears to The bankers are screening all banks to see who can pay the highest price and then they go out to potential sellers and say, hey, look how much home could pay for your bank or someone like home.
There's not many like home, but there's a few of us that trade at a pretty high It's almost like a pocket listing that a realtor has when the potential seller says, Well, my house is not for sale, but if you can get somebody that's crazy enough to pay this price, he said, then my house will be for sale and you can sell it, kind of like a real estate Pocket listing. My friend laughed and said they don't work. And I said, what doesn't work? He said the M and A deals just don't work. He went back to 2010, looking at all transactions and there were very few that were very interesting comments.
He said on announcement of a deal, Bank A, Bank B, he sells the seller immediately And shorts the buyer. I said, why would you do that? And he said, well, that's probably the highest price that the seller is going to have and expect it to go up because It's tied to the buyer's price. And he subsides that I don't get paid until I sell and cash the money out. He said 98% to of the deals are dilutive to the buyer.
If it's a 3 or 4 year earn back to tangible book, why would I sit around take 4 or 5 years waiting for that earn back to come back to get somebody back to EBIT. The only deals that make good sense are non dilutive transaction That have all the deal costs calculated 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. Why do you think they want to do a transaction with homes? 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 lots of sense. Another interesting point that came from the matrix of the deals is the higher price to tangible book pay They had a run from like 1, 4 times tangible book all the way up to 2, 3 times tangible book. And the higher the tangible book multiple, The longer the market punished you and puts you in time out. And in some cases, it was years because they're waiting own the earn back to tangible book and nobody wants to hang around for that because nobody keeps up with it and nobody calculates.
We'll continue to look for like minded partners in the space in addition to disciplined 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 your book and have a 4 year 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 may never get your tangible book back to where you started. One way to look at it is Holmes market cap is $4,000,000,000 based on a multiple of tangible book.
If I dilute my shareholders by 5%, I've just reduced the value of my company by $200,000,000 Now that tells you why 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. 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 private, the odds of negative treatment by the market substantially do.
If a company is owned by a bunch of hedge funds, it really complicates the transaction even more Because they're gone by daylight. If it's announced today in the morning, they'll be gone. They all sail. To me sophisticated bank investors, individual investors, Pension funds, quality portfolio managers and ETFs and then there's the hedge funds. It's important to analyze The stockholder ownership before engaging in a transaction.
We still are engaged on the M and A, We're looking for other opportunities that could increase our earnings. We have a $300,000,000 sub debt that is callable in April $5,625,000,000 $71,000,000 worth of trust preferred. We have been putting back $5,000,000 a month And in April, we will have $150,000,000 setback. We may request, I don't know, Tracy, you think about requesting the very latest Dividends, is that correct? Working the numbers as we speak.
We're working the numbers, we're going to send them to them. So we may request a special dividend. And if they were to approve that, We could pay off the entire debt. That's about $17,000,000 pre tax and it runs out about $0.08 EPS. That's without doing the trust preferred, we might save those and do them at a little later date.
But all told, if we do involve, that's about $0.09 maybe $0.10 I would anticipate us engaging at least on half of 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 0.9 June was 9.10, May was 5.10. So that's 1.4% 60 days. Kevin, that equated what did you say that equated to? Almost 9%.
Almost 9% on an annualized basis. So I think we've made the right call. I mean to invest this money In the long term securities today to invest this money in 2% to 3% loans today, I think is a mistake. Time will tell though. Time will tell whether right or not right.
Other than that, Nana, I think it's been pretty good. And we're just sitting here waiting on the next crisis and I hope it's not the Delta virus coming back to us. So I'm going to let you go to management reports and I'll just hand it back to you.
Thank you. Well, that was insightful as always. And I also hope that we're not looking at a big surgeons of the Delta virus either. Follow. Now we will move over to Tracy French for Centennial Bank.
Thank you, Don, and good afternoon to everyone. Steady as it goes in the Q2 for Centennial Bank and Home Bancshares, maybe steady and consistent is more accurate and that steady and consistent discuss our performance expectations. Our group will share with you in a moment some of the details about capital earnings assets liabilities. There are a few strong and safe performance numbers for the first quarter and the first half of twenty twenty one for Centennial Bank that represents all regions continue to execute on 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 of pricing internal model where their numbers would be better And we understand that.
For Centennial Bank, our total revenue was $367,000,000 for the first half of twenty twenty one, making a return on assets of 2.08%. Our return on average tangible common equity Non GAAP was 19.66 percent and our efficiency ratio was at 38.59% for the 1st 6 months of 2021. The Allison P5NR is still above the 60% level coming in at 61.99 present 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 focus in on our interest income and interest expense. Our non interest income is actually up over double digits for discuss the first half of the year where our non interest expense is up slightly.
Brian will give more detailed information on our strong capital as our risk based capital report at 19.5%. Stephen will share the detail of the loan production and the deposit summary, As Johnny mentioned, there's now over $2,700,000,000 in excess and our loan to deposit ratio is around 73%. Kevin will share the loan information as it continues its safe and sound numbers. Our nonperforming finished the quarter at 0.58 percent of 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%. While we saw an expected dip in overall loans, who would have thought a 1% annual percentage rate on PPP loans would be good And twice the return as a 3 or 5 year treasury. Let's look out. Rates have gone up 50% to 80% over the past month. So Johnny, my forehead is coming up rubbing is looking promising going forward.
Inflation was receiving a lot take our attention lightly as we discussed nearly this a year ago as we knew that by 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 are seeing good solid growth take a look at 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 or not to make decisions for short term gain that could affect our company long term.
I trust that our long term and loyal shareholders Appreciate that discipline. Donna?
Thank you, Tracy. I'd say steady and consistent are certainly complementary to take that. Now we'll move to Brian Davis and give us the financial report.
Thanks, Donna. Today, we reported $141,300,000 of net interest income and a 3.61 percent net interest margin for Q2 2021. Our 2nd quarter net interest margin decreased 41 basis points from Q1. Today, I'd like to go over 2 items, which significantly contributed to this decrease. 1st, during the Q2, we had 247,000,000 PPP loans forgiven.
This forgiveness causes the acceleration of deferred fee income for the loans forgiven. Our PPP deferred fee income decreased $3,500,000 from Q1 to Q2. This decrease was 9 basis points diluted to the NIM. 2nd, the COVID-nineteen 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 967,000,000 take 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 a 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's 63 basis points negative impact to the Q2 NIM because of excess cash.
So what would that be? I mean, we came how much we come up with?
We had 3.61 plus the 63. Now switch to the unfunded commitments. This quarter, the company reversed $4,800,000 of the unfunded commitment reserve liability. This reversal was primarily related to 1 C and 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 HomeBanc shares is to be extremely well capitalized. I'm pleased to report the following strong capital information. For Q2, 2021, our Tier 1 capital was 1,800,000,000 Total risk based capital was 2,200,000,000 and risk weighted assets were 11,500,000,000. As a result, the leverage ratio was 10.9% which is 118% 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 percent which is 95% above the well capitalized benchmark of 8%. And finally, Total risk based capital was 19.5%, which is 95% above the well capitalized benchmark of 10%. I think we have plenty of capital today, Mr. Allison.
Well, that's wow, that's pretty impressive. It may bode well for you, Tracy, when you asked the regulators to help us with to move this money up. We'll be in good shape. Yes, should be in good shape. Thank you.
That's good. Good enough. I'll turn it back over to you.
Okay. Thank you, Brian. Now Kevin Hoestier will update us on the loan portfolio.
Thanks, Donna. The first half of twenty twenty one was much like we anticipated. We've been fully engaged in PPP with forgiveness of rounds 12 and funding of round 3 with both going largely as expected. Credit metrics continue to improve slightly even when it appears there's not much room left for improvement. New lending opportunities have returned, but the excess liquidity And low loan to deposit ratios across the banking industry have resulted in even more irrational pricing and underwriting, so growth is elusive.
We said all along that we felt that it would be the second half of twenty twenty one 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 12 balances have been reduced from the original $850,000,000 to just below $150,000,000 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 1 and 2 loans over $2,000,000 in the 2nd quarter, which has been helpful. We will make a hard push to submit the remaining round 1 and 2 balances this quarter.
Round 3 funding ended during the second quarter and we funded just over $350,000,000 or about 40% of the total of rounds 12. We've initiated the forgiveness process on a few of these as well and have received about $30,000,000 on these balances in a very short amount of time. COVID modified loan balances remained flat during the Q2 and ended June at $265,000,000 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 2 thirds of the modified properties experience at least a breakeven RevPAR in the month of April May.
I would not be surprised to see a good portion of these loans, especially the Florida return to P and 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 and I payments once positive cash flow is sustained. There's even good news on the movie theater customer that you've heard Johnny discuss 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 him back on track with us.
As I mentioned, credit metrics continued to improve in the Q2. 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 linked 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, 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 Q4 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 and A opportunities. Overall, the Q2 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 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 as predict it and the credit quality remains strong.
Do you
have a comment?
Yes. We just had a hotel you're in. We just had a golf tournament. He's talking about his hotel, Big Florida Hotel. And I think that
he said,
Oh, hold, Johnny. He said, We are 100% full. He said, cram back full. He said, somebody cancel, you don't have to worry about it. He said, Arena is full.
He said the hotel is full. I said how about the rides? He said they're up a little bit. He had a pretty good smile on his face,
That's great news. And now we will hear from Chris Fulton with CCFG.
Thank you, Donna, and good afternoon. CCFG generated modest growth during the Q2 of about $40,000,000 We ended the quarter with loan balances of approximately $1,560,000,000 I'd note that this number does vary over the course of the reporting period along with the timing of draws and pay downs, etcetera. So by way of reference, our high balance during the quarter was $1,680,000,000 Increased economic activity during the Q2, especially in New York and California, It's starting to show up in 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 some already active markets in Florida, Texas and the Mountain West. Expect this to lead to more opportunities in these markets, but we also expect that we'll see some payoffs accelerate during the second half of the year take a look at our balance sheet as our borrowers are able to complete their exit strategies.
New loan commitments for the quarter were $213,000,000 and that brings us to a total of about $430,000,000 discuss 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 $800,000,000 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 Q2 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 and late stage underwriting. While markets are recovering, we do continue to see that it takes a bit longer than usual to close loans, particularly the time from term sheet continue to make progress on our take a look at historic time lines. Donna, 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 Q2 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 the satiated consumer demand. Interestingly, and I suppose in support of inflation hawks, our average application amount has grown from 500 and 4,000 pre COVID to 657,000 in this 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 fifty-fifty new to used ratio closer to a thirtyseventy 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. 2nd quarter retail production was a near record setting pace at $59,500,000 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 and limited shipping container capacity. Despite strong production for the quarter, our balance sheet contracted by $36,700,000 as businesses spend stimulus money and consumers use stock file cash or tap Newfound Home Equity priced at 2.5% to reduce their more expensively priced boat loans. Prepayments in the 2nd quarter were the highest in the past 2 years, swallowing $55,000,000 in interest earning assets.
We're seeing some evidence that the prepay cycle may be 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 are replacing prime assets with prime assets. Origination FICO's pre COVID were 778 And last quarter held steady at 7.77. Additionally, we have no COVID related impairments or deferrals, Non accruals reached a 3 year low of $1,600,000 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 resume shipments.
On that note, Donna, I'll return the call to you.
Thanks, John.
That's a
pretty good report, Donna.
It's a
good report. Good job, Donna.
It's a
very good report. And for our final report today, we will turn to Stephen Tipton.
Thank you, Donna. I'll give the 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 Q2 of 2021 as total deposits increased $379,000,000 from 3.31 to just under $13,900,000,000 Four Florida regions accounted for 263,000,000 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 $200,000,000 on a linked quarter basis And now stand at over $4,000,000,000 or 29% of our total deposit base.
Switching to funding costs, Interest bearing deposits averaged 26 basis points in Q1, down 7 basis points on a linked quarter basis to 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. 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 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 total production of a little over $700,000,000 in the first in the second quarter With nearly $400,000,000 coming from the Community Bank footprint, we continue to monitor the competitive environment and focus on the disciplined approach Pricing and underwriting has long served us well. Payoff volume was in line with prior quarters at $882,000,000 As we again saw borrowers continue to liquidate large assets and or 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 see margin continues to hold up. And with that, I'll turn it back over to you, Donna.
Thank you, Stephen. Johnny, before we go to live Q and A, do do you have any additional comments?
No, honestly, it's a good it was a good quarter. Those were interesting numbers. It's interesting times with all this liquidity. I mean, we used to run 105% monthly deposits, which call it running hot around here. Now we're always around 70%.
75%. 75%. If the market picks up, we certainly are in a great position to if we can deploy that money into 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 that All good reports from all parties. And if Rocco hadn't gone to sleep on us, Don, I think we'd be ready for Q and A.
Okay. Rocco, we'll turn it to you.
Thank you, ma'am. We'll now begin the Q and A session. Take your questions. Today's first question comes from Michael Rose of Raymond James. Please go ahead.
Hey, good afternoon. Thanks for taking my questions. So Johnny, it sounds like you're a little frustrated with the M and A backdrop, but continuing to look. Can you just give us an update to what you'd be looking for at this point. And it does seem like there has been some deals that you might have potentially been interested in, in some of your markets.
And to just any general update on M and A would be appreciated. Thanks.
Well, we're active. We're very active on M and A and probably further along on an M and A deal at this point in time than we've been in some time. So you find like minded people like we are that run good operations and understand what dilution does to a deal. When you find those kind of people, then you can make a trade, it makes sense. And instead of everybody bombing the stock, it all adds some appreciation.
Certainly, if we bring 1 in at AAA and we don't do them without them fitting that mode. 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, ought to understand. To That part is a little frustrating. Our stock was what at 2.7 times tangible book and bankers were saying Holmes can pay you Some big number and home could, but home doesn't.
There's a reason home trades where it is. You know that, Michael, it's a discipline of this company. And when you find as I said earlier, you find like minded people, I think you could see a nice trade coming off our home hopefully.
Great. Maybe just as a follow-up, so the NIM compression was even on a core basis was a little bit more than I think what me and others were looking for. Do you think we're nearing a bottom here for the core NIM kind of ex So PPP and ex accretion, if we think about it that way? Or are we still going to be subject to Some ongoing pressures and move forward, just given the lack of loan growth opportunities. I know you guys are super disciplined on pricing and things like that and aren't going to I think in your words, Johnny pushed a rope.
You said in the past, but 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. 1 of our regions called Tracy yesterday and somebody quoted 3.5% fixed for 7% and the next guy said, well, I'll Tell you what I'll do, I'll do 3% fixed for 10% and the other guys, so I got the loan now, I'll do it at 2%. So it was absolutely a race to the bottom. And when you see that kind of stuff, it really gets frustrating that impacts the NIM. We're not playing that game, but I don't think the NIM at home other than the excess liquidity has really been hit.
Brian, am I right?
Yes, I would agree with that. To It's the excess liquidity that's cost us 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 NAND, we might could still see a little compression because we reported 6,300,000 PPP income this particular quarter. And just for point of reference, there's $18,200,000 of it left.
So it will be difficult to continue at the $6,300,000 because some of the round 2 forgiveness is 5 years And there's not a tremendous amount of the round one left, so that will kind of die off a little bit. Will we continue to build excess cash? So far for the 1st 15 days, I won't 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'll decide to do in deploying the excess cash because if we deploy it anywhere, it's accretive to the NIM. Although I would like to go on record that it's going to go down because I'm usually wrong. And so it would probably jinx myself to say that it might improve. But it really shouldn't bottom out there on what we have from excess cash unless deposits just continue to come in. But Just keep in mind, if we move it out of the Fed, which has earned 15 basis points and just move it to 1% and something easy in the investment portfolio, that is Technically accretive to the margin.
And I know Stephen sitting here bombing and he's got a few things. He may want to add some more color to that on the NIM himself.
Yes, I mean, Michael, we've been able to I mean, despite loan balances being down a little, 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 I know we're always hesitant to say we see loan growth at some point, but we're up a little bit quarter to date and We'll see 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 off. We could push some of that off and then bring it back, but that's kind of a game. 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'll be time will tell. Tracy's rubbed Most of the hair off the front of his head for us throughout what to do with this $2,700,000,000 It was $1,500,000,000 $1,500,000,000 $5,200,000,000 now $2,700,000,000 and He didn't have near as much hair left there as he used to. You got a comment on it, Tracy?
It's cheaper at the barbershop.
Hey, Michael, the list of questions you sent were great. Those are really You talked about a thorough set of questions. Those were really excellent.
Appreciate it. Just one quick follow-up. It does look like you built the bond book A little bit this quarter if I look at it as percentage 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 of assets or earning assets This is about where you want it to be at about 17.5%. Is that fair?
I think it's fair. We have a 10.10 call 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 talking favorably and you heard John talking favorably. You heard Kevin talking favorably. We had a good executive loan committee yesterday with about $100,000,000 to I'm optimistic that maybe things are turning around a little bit.
We have a lot of stuff working, lots and lots of big loans working that Just had to come to Perush. And I asked Chris, I said, what's the problem? And Tracy, it's taking longer to close these loans than we anticipated in the past, Because a lot of municipalities are involved and they're not working full staffs, 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 a little frustrating, but that too shall resolve itself.
Okay. Thanks for taking my questions, guys. And Tracy, I got a extra sport haircut coupon. If you need one, just let me know.
Thank you, Michael. He doesn't need one, Michael.
Our next question today comes from Brady Gailey of KBW.
Hey, good afternoon, guys. Hi, Brady.
Hey, so 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 Yes, you don't want to lend at today's rates. I'm trying to figure out how much of it is truly loan demand versus home being thoughtful and saying, hey, I'm not going to put on a loan with the 2 or 3 handle.
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, our smaller competitors are doing some Really crazy stuff on leverage as well as rate.
So you can play with that rate a little bit, but We're not going to do crazy stuff on leverage for sure, not with prices as high as they are.
We're seeing some $0.95 and $100 stuff. It just doesn't make any sense. And that's just people getting too aggressive, take in a loan that needs to have recourse on it and make it a non recourse. I think there's a panic in the world out there. Homes not We've got a great company.
We might still make a lot of money and even with all this excess liquidity. So we're going to hold 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 fix about anything With the bank except the margin, it takes years to fix the margin. When you do 7 10 year fixed rate stuff out here at low rates, You're going to be living with that for a long time.
So we think we're on the right track. To I don't believe the Fed can, as I said last quarter, keep their foot on this inflation. I know Powell is trying to convince the world he's going to do that. I'm afraid you may have gone too far. So this thing could get a little crazy here For too long, if things don't change, hopefully the Fed will taper a little bit and we'll see rights start ticking up a little bit.
I mean, we got You bought gasoline and food lately. You know what I'm talking about. This deal is I get it used cars are up 40%. 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's out there for the demand.
Yes. And back on the topic of M and A, it sounds like you guys are clearly focused on bank M and A. But would you ever look at Other types of M and A like acquiring kind of some niche specialty lender like a commercial finance or Premium Finance or Equipment Finance, like would you ever look at those sort of acquisitions in addition to Bank of M and A?
Certainly. I mean, I'm a business If it makes sense, it makes money. I mean, we moved out in the shore and we Of course, we would look at something if it made some sense. But we think finding like minded partners in the banking space are probably the Place for us to be. Yes.
Our group is looking at one of those opportunities for our balance by the way, one of those outside opportunities.
All right. And then lastly for me, it looks like you bought back maybe a little bit of stock this quarter, but your stock has pulled back a little bit. It's now trade in that 2.25 times tangible, which is pretty attractive for you guys. So just did you buy that stock intra quarter? And talk about your appetite for continued buybacks from here.
Yes, we did. And Stephen can talk about But our appetite as it goes down becomes more as you understand. But we bought it all the way to 27, 28, I think,
Yes, we bought about 600 well over 600,000 shares in Q2 and then we've got a 10b5-1s plan in place since the end of the quarter that's been Pretty active in the last 2 weeks or so. Yes. If we
hadn't had the 10b5, we haven't been tied our hands tied, you'd probably see us in there with both feet right now. So Yes. We have bought stock and we'll continue to be in there.
Okay. Great. Thanks, guys.
Thank you.
And our next question today comes from Matt Olney with Stephens. Please go ahead.
Hey, thanks guys. Good afternoon.
Hi, Matt.
I want to go back to the discussion of the loan balances, and I think Tipton gave us overall level of originations in 2Q. I shouldn't appreciate if there was any kind of deceleration or acceleration from the April to June timeframe within that.
To Hey, Matt, it's Steven. On payoffs, they were a little heavier in the last month of the quarter in June. They were a little over 300,000,000 But in a relatively tight range there from April to June. We had a couple of projects I think in June that we thought to would pay off potentially in Q3 that were pulled forward. So that's what drove that number up a little bit.
And that's on payoffs. What about on the other side, on the origination side, any kind of trend interquarter that you noticed?
No, not necessarily. Dollars 700,000,000 has been last 3 quarters or so has been pretty consistent. We generally fund about half of that. At quarter end balances about half of that was funded.
Chris talked about a couple of things he thought we're going to fund in June that didn't kind of got pushed. The discussion of not being able to get title work and appraisals and to
do those things. I think that happened a little bit
in June, particularly with Chris.
I think, Chris, your backlog is about as good as it's ever been, isn't it?
Yes, sir. It's we continue to again, I think we said this last quarter too. I mean, we have a nice backlog. We're underwriting deals. We're signing them up, and And we're getting them negotiated.
Kevin mentioned that I mean in June I had 2 deals I fully expect to close in June And one of them has been sitting with documents in escrow for 2 weeks waiting for somebody from the city to finally get back to work, but I hope they're not listening right now.
But
if they are, I love you. Yes, I mean, we're just seeing stuffs we're just seeing things just take a while. I mean, closing alone is to it was a 9, 10 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.
It's 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, it's because every day I don't have it closed. It's a day less than I'm earning. But We still have confidence they'll get done and these are usually outside our control and the borrowers or even outside the borrowers' control sometimes.
So I I think everybody is looking forward to getting back. It does help that New York has reopened now. I mean, as of July 5, Right. The cities reopened in terms of all city employees had 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 getting to the point now where borrowers really want to get these closed. So we'll hopefully get through those this quarter.
Okay. That's helpful, Chris. And Chris, I think in your prepared remarks, you also mentioned potential for some heavier Pay downs 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? Yes, I'd 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 comment. For a good part of the quarter, we were sitting probably $16,000,000 $16.50 We end up at $15.50 or $15.56 I'm back up over $1,600,000,000 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 $100,000,000 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 number going to look like? I don't know. We are seeing some payoffs.
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 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 will execute their plan, have executed their plan and they'll 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. To 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'll have to a few do that.
One of them is one that we thought would probably pay off. They get their TCO, they'd lease up, probably towards 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 permanent financing pre TCO, which is not unusual today.
Got it. Okay. Great. That's all for me. Thanks for taking my question.
Thanks, Matt. The Next question comes from Stephen Scouten with Piper Sandler. Please go ahead.
Hey, good afternoon, everyone.
Hey, Stephen.
I'm curious, if you
could talk about what other things you guys or maybe, Tracy,
in particular, if you're saying
he's the one Rubbing all that hair off his head, have been thinking about in terms of investing the excess liquidity. I mean, have
you looked
at other banks' sub debt? I mean, what kind of Initiatives have you looked into to try to put some more of that money to work?
Yes, to All the above that you mentioned there, we have done some of the bank sub debt primarily
with the banks that we would
we are familiar with, making sure that they're Safe and sound too. Yes, we talked to Chris. We talked to Brian Greathouse who work I see his truck here every day at 7. He beats me to work, Johnny. So they're 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 it's back to the short term pain, Making sure our short term gains 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.
Yes. That makes sense. And then thinking about M and 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 on 1. I mean, would a deal potentially help you put any of this Acquire you to work or would any bank you likely acquire kind of have the same issue today and also have
You answered your own question.
They're in
a budget space. They're in a budget space. They got the same situation we got. To the key is, do you have overlap? Is it accretive, accretive, accretive and do you have overlap And are you like minded and will the cultures fit?
And those kind of things are extremely important to both a seller and a buyer to partner and we're looking forward to hopefully bringing one home that you'll see that It's AAA like minded overlap, lots of savings. So I think Hopefully this hopefully we'll get one brought home before long. I'd be disappointed if we don't get this one. The others you just kind of throw your So you had in the ring, but this one really we worked on pretty hard and I think it makes lots of sense for us. And We have not signed the MOI yet, but we I signed it and sent it out.
So we're waiting on it to come back. Hopefully that transaction could be it just go forward announced here in 30 days or so.
You know, Stephen, the thing I keep thinking about is to The questions you used to ask a few years ago is when our loan to deposit ratio was pretty high. We could turn the faucet on and the nice thing about this is we've got a great core relationship with these customers today. Thought we could when we went to the Florida market and it certainly has proven that and our staff just really have done an outstanding job of developing relationships. So Never thought we would I'm never going to say I don't want to deposit. But I think we all know that excess funds today is Just not it's a cost and but that jump will turn around someday and we're ready.
I had a customer call. I had a customer call and so tell you how much attention I paid to it. And they said, I just sold ABC and I got $16,000,000 in cash, Johnny, and I need to park it somewhere. And I parked it with you and I said, yeah, I won't charge you but 10 basis points. And he said, obviously, you don't want the money.
And I said, I don't. And I hung up. And Tracy said, who was that? And I said, damn fire member. So normally, I would have made a list of that and tattooed his name on my arm, but Not in this environment.
Yes. It's strange. I mean, I know we all still probably think about deposits as being kind of the fuel that makes the bank run, to it's a strange environment just
to have so much of it there.
I mean, it feels like even if growth comes back, it's going to take 3 or 4 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?
I think it's a fair number. I mean, I'm sitting here thinking about the 1,000,000,000,000 that they're talking about spending We haven't even spent yet.
Yes.
It could get worse before it gets better.
Yes, it certainly could. If we're going to spend these trillions and Trains of dollars, I mean the world's awash in money, right? And I guess what happens, what happens, What happens in the world is washing money. That's usually when rates go up. So you got to believe at least if history repeats itself, which it normally does, You know, up 9 10ths in June and 5 or 6 in May, This inflation, I don't know where Pal is looking, but I know he's trying.
But this 10 year at 130 something, I think it's artificial. I don't believe that's real. I think that's just results of us just ban all the 10 years we can buy. So That to me has to change at some point. I mean even Moody's, which I don't know if they got all answers or not, but 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 out there may want to get out and get them done sooner rather than later. To Who knows, we wish we knew
that answer, but you've got the county, state, cities have been flushed with excess money. Part of Chris' problem get loans closed. They got plenty of money in the bank. They don't need to generate the revenue, I guess. And then we're both a commercial bank and a retail bank and through the PPP programs and we're 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 flushed through over the last year with this. So I think you'll see some of that begin to triple out because once they stop pouring it in.
Yes, yes, makes sense. And then last thing for me, 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, do you think there are opportunities there somewhere within the expense base to take it even lower from what's already a really impressive number?
Yes. I said 38% efficiency ratio.
He's talking about the bank. We have a little thing called a holding company here. We don't do it directly. We add to this deal. All whole banks here.
So He gets lost sometimes. He said, we get rid of this damn holding company, we'll make a lot of money. What was the question?
Can we reduce expenses?
Well, a little bit. Probably. We have we as I said, getting ready for over $10,000,000,000 took us longer And cost more money than we ever anticipated. And we threw 1,000,000 and 1,000,000 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 $150,000,000 $175,000,000 I think you can see the cost Of that trust preferred going away. So that's about $17,000,000 in the subject, I mean, excuse me, subject going away, About $17,000,000 pre tax. So we're looking at that. And Donna's group has not gone back in some time and looked at branching. And she has just pulled up all the branches at 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 5, 6, 7, maybe 8 or 9 branches though.
And we're looking at that. So we're back looking at those expense deals at this point in time. So we're on it. And we usually are able to do a scrounge up a little bit of savings.
Yes,
great. Okay. Thanks guys for the color. I really appreciate it.
Thank you.
And our next question comes from Will Curtis at Hovde Group. Please go ahead.
Hey, good afternoon, everyone.
Hey, Will.
Tracy, I was going to wear my Razorback shirt to make good on the bet, You never sent it, so.
No, we even did a
double or nothing. So All right, well, maybe next quarter.
If I remember, you were supposed to go buy your own shirt, Pay for
it and work. I didn't know what I was expecting.
Yes, I was
going to all right. Send me
the link 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 But understand, as we think about maybe the next quarter or the next two quarters, 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.
Well, the big part, the $300,000,000 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'll just kind of hopefully get that paid for and the trust preferreds, we'll 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 at least we don't have half of it, we take half of it out.
Okay. And then, last one, Brian. I think you said there's $18,200,000 of remaining fees. What's your best guess on On when you think those will be realized?
Wow! From the time of
the year. That's a tough one there.
I mean, we've tried to put
it in our re forecast models every quarter and Unfortunately,
it's not been very close. It's $18,200,000
I mean theoretically it could spread out over the next 4 years. I would probably just say there will be a couple of million next quarter and then probably going to trail off after that. You got any better feel Kevin because it's all related to Getting the money back from the
Yes, we're I mean That's what's causing that. Yes, we're down pretty low on the round 1 stuff. So The forgiveness will be on round 2 stuff. And we've gotten, like I said earlier, about I think $30,000,000 so far out of that 350 Forgive it on the 2nd round and we'll start pushing hard on that the back half of this year. But I mean it's just really hard to it's hard to gauge what people their to whether they have any whether they want to 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.
Understood. Thank you, guys.
I think Brian's Numbers are about as good as I could come up with at this point.
Understood. Thank you.
And our next question today comes from Jon Arfstrom with RBC Capital Markets. Please go ahead.
Thanks. Good afternoon.
Hi, Jon.
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.
Well, how do I 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 ROTCEs return on tangible. So it's not anything unusual for us. And over the last you
probably heard the first report,
if you look at the stability of the earnings over years, we've always led In that group, in our peer group $10,000,000,000 to $50,000,000,000 we're always in the top 2 or 3 of the ROTCEs 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 call it right and rates start moving, I think you'll see a change in this silly race to the bottom will go away pretty quick. To We can play the game, believe me.
We got the muscle to play the game. And I'm not saying we're bulletproof, but you heard the capital ratio And you see how much cash this company throws off as Alex says into the shoe box. So It's a pretty powerful earning machine that has great asset quality that's sitting in the catbird's seat, if we can just find the right place and For the assets, the cash. So I think that will come. I just have to believe it.
We have some really big credits that we worked on for a Long time that because of situations have not come to the top, but they're actually go on to the Board to get approval to do some of these because they're big credits for us and they just haven't hit yet, but they're hitting. They're coming. As I said, we did, I think, $100,000,000 a little over yesterday and those are fund pretty quick. So I'm optimistic that we have not given away the ship 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 TCE and I'm pretty optimistic about the NIM. I mean, If you add the excess liquidity back, it really takes you to about a 4.24 NIM. So Through all this chaos and all this crisis, homes held really in very, very strong.
Okay. Two more questions, 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 it as if you're owners today or would you do something different if you didn't have us to answer to?
Well, the answer is no. The discipline, Let me tell you something. A 10.10 call every day and Brian says we got $2,000,000,000 and the next day he says we got $2,100,000,000 and then a week later he says we got 2.4 to The discipline is difficult. So I do the same thing with my money that I do with the company's money. So I don't treat it any differently.
I feel like This is ours. I feel like we do on this. I feel like 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. Could we step down in the threes and the twos? And I was talking to a guy a while back. He said, well, I'm doing 3.25 fits for 10. He said, do you ever done any of that?
I said, do you have any idea how many loans We can load an 18 wheeler or warehouse full of loans at that kind of rate. But I said, you're selling your future and you're here trying to sell your bank to me and I know what you got. So I said you got to pay the time for some time, right? You don't have a free lunch every day when you give that stuff away. So We're holding tight.
I think we're doing the right thing and time will tell. If we miss it, hell, we can go and play the game with them if we have to. So Yes.
Okay. And just one more, maybe kind of an internal question for Tracy. You Reference the transfer pricing internal model and some complaints. Just
share with us what you can
on that to kind of give us an idea of what the message is internally.
I can pass the buck to Stephen Tipton on that. He gets blamed for everything. So what we try to do on that is, when we measure out and try some markets have more loans than deposits and some markets have more deposits than loans. So you Try to give a transfer pricing figure to be fair. And of course, depending on what wagon you're on, it 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 still comes back to Centennial Bank and Home Bancshares number.
So when I mentioned the 8 that have done above, I promise you if the Loan demand and all of those things and excess deposits. Some of these guys have got plenty of excess deposits and we're probably charging them a little more than what they would really be getting out
there. Okay.
Good.
Does that answer your question?
Yes, that helps. And for the record
They fussed about it when rates were 7% when rates were 6%, 1 or 5, 4, 3, 21, it just gives them something to argue with you charging me too much, Tracy.
Some of those is carrying 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. And even though the worst of our group in any particular month would be at the top of most banks. So that's the only reason it matters.
Okay. And I think Ek is still listening, but we're both a little offended by all the hairline talk.
If I
can get Tom just send me a picture of him, where I can just bid my office, it's making me feel better.
And our next question today comes from Brian Martin of Janney Montgomery. Please go ahead.
Hey, guys. Good afternoon. Hi. Maybe Just a couple of last ones for me. Just on the Brian, on that split on the PPP, most of that's round, I guess, round 2 or 3 round The most recent round is that kind of what's left in that bucket today?
Yes, there's like 100 and this is as of June 30, we had $144,000,000 left in round 1. And it looks like we had probably 3 $47,000,000 in round 2.
And that's balance, low balances, but the fees would be even more heavily weighted to That's towards the 2nd towards that last round. That's right. So if we had
so what's left of round 1 is not the lion's share, it's more round 2.
Okay. And I guess just with the forgiveness of the $2,000,000 loans, I guess is it I guess I was 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're maybe less optimistic on getting cleared up.
No, actually, more, you may have misunderstood my comment. We had about in rounds 12, we had roughly $100,000,000 worth of loans that were loans of over $2,000,000 and they were holding those We've sent in 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 have happened before now, but It was good to see it finally start happening.
Yes, I guess I was just thinking if more of that happens for the most recent round that the PPP PP 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 Collecting the $18,000,000
It's all going to be up to our customers being willing to send in their forgiveness and what we're finding at least with the funding part in the last phase that they weren't as attentive in the 2nd phase as they were in the first two because they were busy. These folks have businesses and they're operating again. And so they when we were talking about funding of round 3, It was harder to get all their stuff in and get it done than it was the first two rounds when they were sitting at home. And then maybe this forgiveness may fall prey to the same thing.
Yes. I got you. Okay, perfect. And just maybe one last one on or two last ones. Just on the back to the margin, whether it be Steven or Brian.
Just from a core margin standpoint, I mean, there's a lot of No, as 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? And I guess is your expectation, it sounds like that's relatively stable at this point, I guess as we think about it?
Yes, this is Stephen, Brian. I mean, 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 kind of keep the deposit cost in line with where the loan yield is, Just as mix, as investments are a bigger percentage of the earning assets overall, Yes, they have a little downward pressure too.
Okay.
And you look back over the last year and a half, 2 years to do all this stuff, we've We feel fairly strong in there, I thought, on our margin.
Yes. You mentioned the 4.20 number. I mean, we used to target 4% on a to core basis. So I mean, I think over time that's trended up.
Yes. I think we've managed that. I think we've managed it well over the time. You're not giving us credit for that?
No, yes, definitely. Definitely, in fact. How about just on the discipline is evident, Johnny, 100%. On the fee income side, I think 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 On either of those comments you can
offer. I'll do the service charge one. The lion share that is related to CFG, I think we're up about $2,048,000 for that particular line item you're referring to and $1,400,000 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, let somebody else take mortgage. Mortgage is having a it's having a good year. They're down a little bit from the frenzy of At the end of last year and the beginning of this year, I think they still feel like it will be a very strong 2021, but There's just not a lot of product out there. That's the difficult. The difficulty is
Yes, how is the product? Right. I mean, you heard of Shor Premier, our commercial lines are just not very strong. He's writing lots of business, but There again, we're getting lots of payoffs. People are actually going out and refinancing their housing in that low grade and paying off their 5% boat loans, what they've been doing.
So John reported that he's continuing to see that. Any comment, John, on that?
No, sir. Right now, exactly as you've said, our production, we're pushing out $60,000,000 a quarter, but our prepays are about $55,000,000 $56,000,000 a quarter. The commercial side of our business, Yani, I really think is going to slingshot back in Q2 of 2022. And again, what that looks like, that's a tailwind of about $100,000,000 $120,000,000 So I'm optimistic that we will sustain net growth, But it's going to take inventory once it starts going back.
I was visiting with an Arkansas pulp dealer and I said, how was business? He said, I had the best year last year I've ever had. And he said, I'm having one of the worst years this year because I have no inventory. He said, I don't want everything set. We sold out.
So That's what happens. Yes. Jay, one bite and feathers the next.
Well, last one or 2 for me, Johnny. The sizing on M and A, I think you had talked about, If you get back in the game, I know there's been a lot of opportunities looked at, but just is your expectation or your hope still that it's more on the smaller side on potential M and A opportunities?
Well, this is a little bigger. When we're looking at it's a little bigger.
Okay. And then just the comments, maybe I misunderstood you on just the last thing was on the sub debt and the trust preferred. Just The timing of when those could occur, I think you guys gave the color on the back there, but the timing, one of them was 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 that. We can do that anytime. That's not as significant as the sub debt. The sub debt is much more significant.
Yes, that's JP.
When I talked Brian ran the numbers on the subject. We got $71,000,000 and I think he was going to keep you're going to pay out $41,000,000 or keep $41,000,000 Do you remember?
We were going to pay off 47,000,000 We're going to
pay out 47 teeth of battle.
I mean, the problem it's a good problem to have. Some of our sub debt is at extremely low rates. So to When I'm sitting here looking at it today with all the excess cash because I don't have all this excess cash isn't at the holding company, But right now there's some of that sub debt doesn't make any sense to pay off because it's at such low rates.
Got you.
So we would pay off the $300,000,000 of sub my preference would be $300,000,000 of sub debt first, even though we could pay off the trust preferred today, you just don't get much bang for your buck for paying off that little bit of sub debt right now, let's hit that lower rate. So I would focus on trying to get $300,000,000 or as much of it paid off as possible when April 2022 comes down. And as Mr. Allison said a couple of times, we'll have $150,000,000 for sure in available cash and whatever else the Regulars let
us take out the banks,
but we'll do foul stuff that.
You remember we've been you remember we've been putting back $5,000,000 a month for some time. We didn't start at day 1, but we decided to kind of have a mental sinking fund and start to retire that debt. That will be nice 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 or Probably can get some sub debt done today at 3%.
So maybe you might get a 2 handle on it.
Yes, got you. Okay. Cool. Thanks. Take your questions,
guys. Thank you.
And 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.
Marco, thank you and thank everyone for participating today. It has 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 and I think this 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 and A deal we can announce here before long.
And we'll see you in 90 days.
Thank you, sir. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect. Thank you, sir.