Home BancShares, Inc.

Greetings, ladies and gentlemen. Welcome to the Home Bank Shares Incorporated third quarter 2020 earnings call. The purpose of this call is to discuss the information and data provided in the quarterly earnings release issued this morning. The company presenters will begin with prepared remarks, then entertain questions. Please note that if you would like to ask a question during the question and answer session, please press star then one on a touchtone phone. If you decide you want to withdraw your question, please press star then 2 to remove yourself from the list. The company has asked me to remind everyone to refer to their cautionary note regarding forward-looking statements. You will find this note on page 3 of their Form 10-K filed with the SEC in February 2020. At this time, all participants are in a listen-only mode, and this conference is being recorded. If you need operator assistance during the conference, please press star then 0. It is now my pleasure to turn the call over to Donna Townsville, Director of Investor Relations. Please go ahead.

Thank you, Gary. I'm Donna Townsville, Director of Investor Relations. Our management team would like to thank you for joining our third quarter of Congress call. Reporting today will be Tracy French, our President and CEO of Centennial Bank, Brian Davis, our Chief Financial Officer, Kevin Hester, our Chief Lending Officer, Chris Fulton, President of CCFG, John Marshall, President of Shore Premier Finance, Stephen Pittson, Chief Operating Officer, and our Chairman, John Allison. First up today to share with you will be Tracy French with a Centennial Bank report.

Good afternoon, and thank you, Donna. That was a great quarter to report for us today. Steady as it goes for Centennial Bank as we navigate through 2020. The water may have been a little choppy, along with a hurricane or four. all while our company continues to produce very solid results. And in some cases, we'll have the best results ever. Compliments to our experienced board of directors, our outstanding Centennial Bank and home bank management staff. Our chairman has been known to say the word experience, and 2020 has been exactly that. The past 20 years for this company has proven time and time again that working together, we can accomplish anything, no matter how high the water gets. We announced our quarterly results this morning, and they represent that home bank shares are weathering well in all areas. And that's quite impressive. We have used the P letter a lot over this past year. Powerful, profitable, PPP. And I have a strong feeling you're going to hear a little more P's this afternoon from our chairman. Others will report details of the quarter and year. It will be clear our company is focused on profitability. Asset quality, margin, while maintaining the safe and sound company we are. Let me just share a few things. EPS, 42 cents. Total revenue, $176 million. Those are home bank shares. Switching over to Centennial Bank. Our return on assets, as adjusted, is over 2% year-to-date. Our non-GAAP efficiency ratio, 37% year-to-date. 336% coverage of our ACL to non-performing loans. Double-digit increase in our non-interest income, mortgage leading the way. Operating expense, the same as last year, not included our unfunded commitment charge that was done. Always the one I like to hear is the total revenue, $550 $33 million a year today. Again, pretty darn good first nine months. Kevin's going to give us an update since our fireside chats that Don organized throughout this past quarter on loans. Chris and John will join in with the specialty groups of their areas. I would like to share that our group of lenders are doing a great job in managing their portfolios. They're in constant communication with our borrowers and customers. This company has done forever. We will call it as we see it. I go back to the word experience. If a customer needs assistance, we'll work with them while protecting the bank. We have the experience in difficult times if we've worked out several challenged institutions over the 20-plus years. Our team is ready to assist in any needs. Our allowance for credit losses is 2.29% when you add back our PP loans and our allowance for credit losses to non-performing coverage is 336%. While we may have some losses, our teams feel very good about these numbers and the balance sheet of our very healthy company. Brian and Steven will give a little discussion on the margin as it still remains top focus for the company. Just for an example, Johnny calls me, and he does a lot. In the morning, I say, good morning, Johnny. He says, what's the margin? I say, good morning, Johnny. So that's how top-of-the-line focused it is. Brian and Steven will also give a little color on the deposit or liquidity situation and the strength of capital that the company has. There's one thing for certain. We will continue to manage a safe and sound company, manage in all areas, income and expenses, be in touch with our customers, and provide the best returns to our shareholders.

Donna. Thank you, Tracy. Those are impressive numbers. Now, Brian Davis has some detail on how COVID-19 has impacted our margin. Brian.

Thank you, Donna. Today, I'd like to give you some color as to how the uncertain times related to COVID-19 has negatively impacted the margin. First, the COVID-19 uncertainty and the resulting governmental response has created a tremendous amount of excess liquidity in the market. As a result of excess liquidity, we had $713 million of additional interest-bearing cash in Q3 compared to normal times. This excess liquidity is 20 basis points diluted to the margin. Second, As of September 30th, 2020, we had 848 million of PPP loans. These loans are at 1% plus the accretion of the origination fee. While these loans are a valuable assistance to our customers and carry no credit risk to our company, they are dilutive to the margin. The PPP of loans were six basis points dilutive to the margin. As you can see from these two items, the uncertainty of COVID-19 pandemic has caused a 26 basis point decline in our net interest margin. This would perform our Q3 2020 margin at 4.18% compared to 4.32% for Q3 last year for 14 basis point decline. Considering there was an eight basis point drop related to the $3 million decline in interest income events from Q3 2019 to Q3 2020, I think the company is doing an outstanding job of managing the margin. I will conclude with a few remarks on capital. Our goal at Home Bank Shares is to be extremely well capitalized. I'm pleased to report the following strong capital information. The leverage ratio was 10.4% which is 108% above the well-capitalized benchmark of 5%. Tier 1 capital was 13.2%, which is 65% above the well-capitalized benchmark of 8%. The total risk-based capital was 16.9%, which is 69% above the well-capitalized benchmark of 10%. With that said, I will turn the call back over to Donna.

Thank you, Brian. When you take out all the noise, it is nice to see that our margin is holding pretty steady, and that's a good report on capital. Now for a highly anticipated update to our loan portfolio is Kevin Hester.

Thanks, Donna. Well, we're finally three-quarters of the way through 2020. What a long and crazy year it's been. When we talked 90 days ago, I mentioned that both PPP and loan deferments would be entering a different phase in the third quarter. That, in fact, did occur. PPP forgiveness has begun, albeit slowly. We had submitted about 2% of our number of loans or about 6% of our dollar balance. Due to anticipated submission relief on smaller loans, we began with the larger loans in the portfolio. Once all parties are ready to submit using the 3508S form that was released by the SBA last week, we will begin submission on smaller loans as well. Regarding loan deferments, As of September 30th, we have about 330 loans remaining on deferral, totaling about $930 million. Within that number are loans totaling $347 million that are only deferring principal, so they are currently paying their interest. This leaves about $583 million in loans that are on full principal and interest deferment, which is about 5% of the loan portfolio. Geographically, Arkansas regions make up 51% of the deferment balance, followed by Florida at 39%, with CCFG, Shore, and Alabama at 6%, 2%, and 1% respectively. As a percentage of their respective portfolios, the community bank regions were between 5% and 13% deferred, while CCFG and Shore were much lower at 3% and 2% respectively. Based on industry, the only concentrations would be in hospitality with about half of the deferred balances at this time. The September 30th deferral number is down by 70% from the June deferral number of $3.18 billion. This decrease is even better than was anticipated when we spoke 90 days ago. Lastly, the current numbers as of October 13th show a further decline in the full principal and interest deferral balance of $64 million since month end. to a total of $519 million, or 4.4% of the loan portfolio. As I mentioned previously, about half of our deferred balances, or $475 million, are in hospitality. About 30% of those balances are on principal deferment only. Comparing loans on deferment versus not on deferment, average occupancy over the summer was similar, but REVPAR was about 15% lower on average. September, which in all of our Florida markets would expect to begin the off-season, shows a rev far decrease of only about 5% across the portfolio. This is a segment of our loan portfolio that I will continue to watch closely and provide additional color as is warranted. Asset quality is still very strong. Past due loans were at 63 basis points, which is below the last 12-month average of 69 basis points. Non-performing assets increased eight basis points off the all-time low of 39 basis points to 47 basis points, which is an increase of about $14 million. This consisted of two broadly syndicated C&I credits from the Shared National Credit Review totaling about $6 million, a $6 million COVID-affected cinema credit, and an Arkansas manufacturing credit of about $2 million. Any exposure that we feel is embedded in these credits is reflected in the individual impairment segment of CECL. As we continue to evaluate the loan portfolio through the pandemic, particularly the loans still on deferment, we are mindful of the regulatory relief provided under the CARES Act as it relates to credit modifications. This relief allows us the flexibility to provide prudent loan modifications tailored to each borrower that benefit all parties. Given that we see this pandemic overall as more of a timing event than a permanent demand shift, time is often the most important factor in these modifications. We are being creative in how we approach each situation. However, as we always do, we will continue to apply appropriate credit classification and non-accrual standards in cases where the information indicates that the loan cannot be repaid under reasonable terms. In other words, we'll continue to call it as we see it, irrespective of the relief provided by the regulators. Mortgage continues to be a shining star for us with back-to-back record quarters in both loan closings and profitability. Loan closings are up 56% year over year and September locks were higher than any month prior to 2020. Thanks to Keith Little and his group for their strong production and profitability. The remainder of 2020 will largely consist of executing PPP forgiveness and developing prudent loan modifications with evaluations and new opportunities in a post-COVID world sprinkled in. We like where we are from an asset quality perspective at this point in the pandemic and believe that 2021 will be a year to move forward. That concludes my remarks, and I'll turn it back over to you, Donovan.

Thank you, Kevin. Having only 5% of the loan portfolio on full P&I deferral at this stage of the game is remarkable. Up next, we have Chris Paulson with our CCFG division. Chris?

Thank you, Donna. During the quarter, we progressed through the initial stages of COVID response and began to see how the market in our portfolio will address recovery. Overall, the portfolio was down slightly at $72 million for the quarter with ending balances of just under $1.7 billion. Specifically, we saw C&I balances fall by approximately $130 million as corporate borrowers who had previously drawn on facilities for liquidity purposes repaid some of those borrowings during the quarter. Balances fell from a high of $515 million to $386 million at the end of the quarter. Conversely, we saw CRE balances rise by $56 million due to a combination of continued draws, an increase in production, and moderated payoffs. Going forward, we'd expect these trends to continue with CNI balances declining and CRE balances potentially continuing to expand. During the third quarter, we saw loan production and demand increase. We originated $140 million in new loans, which was up about $30 million from Q2. As important, our pipeline of new opportunities continues to grow. We're seeing borrowers adjust their business plans to a new post-COVID reality. And as a result, borrowers are once again looking to move projects and opportunities forward. As I mentioned last quarter, the timelines on new loans have expanded, and we continue to observe that loans generally take longer to complete and require a bit more work and structuring. However, we hope to see the benefits of this come through during Q4 and into next year. As a reminder, we initially built our platform to be flexible and responsive to changes in market conditions. We've always focused first on risk management with the philosophy that markets can pivot at any time and for any reason. And responding to these changes requires prudent initial credit underwriting combined with agile approach to portfolio management and composition. The benefits of product, asset class, and regional diversity in our portfolio continue to allow us to manage risk and seek new opportunities as they emerge. While each individual market is experiencing different current and long-term risks, we will continue to balance confidence with cautiousness as we build our portfolio now and for the future. Don, I'll turn the call back to you.

Well, it's good to hear that your pipeline continues to grow, Chris. And luckily, your underwriting standards have always been strong, and that diligence pays off during times like these. So that's good to hear. Now we'll turn to John Marshall for an update on the boating world.

Thank you, Donna, and good afternoon. For the Shore Premier Marine Finance Unit, the third quarter was punctuated by significantly elevated retail loan closings, exacerbating already depleted commercial dealer inventories. Here are the numbers. We funded $91 million in retail loans in the quarter, compared to $93 million in the full first half of 2020, and $145 million in full year 2019. In the turbulent cross-current COVID environment, the record retail production was necessary to absorb portfolio contraction due to repayments, prepayments, and shrinking commercial inventories. So the net result was To end the quarter, about where we started, $920 million in loans. The good news in the feverish buying frenzy, as you would expect, retail buyers have been less sensitive to financing rates, and we've observed a steady expansion in our spreads over the benchmark five-year treasury. Let's call it 369, 3.69% spread in the first quarter, 4.25% in the second quarter, 4.47%, in the just-concluded third quarter and a respectable 473 spread for the month of September. Another good news is the asset quality of the marine bulk. Origination FICOs grew from 776 to 778 in the quarter, and any COVID-related deferrals resumed payments in July at the start of the quarter. Each month in the quarter, we've seen a steady improvement in delinquencies from 74 basis points to 67 basis points and all the way up to 24 basis points in September. Non-performing loans similarly improved each month from 49 bps to 48 bps to 43 bps. There's some evidence of rationality returning in the fourth quarter as retail sales abate and are replaced by dealer inventories as European factories resume shipments to North America. Our opportunity as credit line utilizations recover to industry norms, jumping from the current 30% up to the normal 62%, is net growth close to $80 million in the next six to nine months. So with that update, I conclude my remarks, Donna, and return the conversation to you.

Thank you, Don. And now Stephen Kittson will discuss liquidity and its effects to the net interest margin along with funding costs. Stephen?

Thank you, Donna. I'll give cover on deposit activity, repricing efforts and trends, and a few additional details on the balance sheet today. On the heels of tremendous deposit growth in Q2, we carried much of the liquidity bill through the quarter, which I'll discuss later in our comments related to the net interest margin. We saw end-period deposit outflows of $240 million in the third quarter, particularly related to liquidity management and corporate deposits. along with a few seasonal items we have touched on in the past, such as tax payments, school funding, and general spend. After the flourish of activity in Q2, account opening volume is back to a more normal level, allowing our bankers to focus on supporting our customers, both in-branch, in-person, and virtually. Our presidents and their teams continue to analyze the deposit base for opportunities to improve granularity, mix, and costs as we operate in this near zero rate environment. Switching to funding costs, interest-bearing deposits averaged 54 basis points in Q3, down 10 basis points on a linked quarter basis, and we continue to see improvement in costs on a monthly basis. As I mentioned last quarter, we have a nice opportunity for repricing in our time deposit portfolio. We have $595 million maturing in the fourth quarter 2020 at an average rate of 1.56%, and another $200 million in January that is over 1.5%. Switching to loans, we saw total production of $550 million in Q3, with approximately $410 million coming from the community bank and short premier footprints. Payoff volume at $711 million was in line with prior quarters, and is highlighted by a larger contribution from her Florida and short premier regions, as John mentioned, than in prior quarters. In Brian Davis's remarks, he discussed a great comparison on the NIM to more normal times. I would like to also touch on the linked quarter comparison in our operating highlights we released this morning. The net interest margin pressure in Q3 was primarily related to continued excess liquidity, lack of event income, and the impact of from premium amortization and lower reinvestment rates in the investment portfolio. With a few additional small items as reported, we have reconciled 14 of the 19 basis points declined on a linked quarter comparison. On a core basis and excluding event income, the loan yield declined eight basis points while the total deposit costs declined seven basis points. As Tracy mentioned, monitoring and managing the net interest margin at home is a daily conversation amongst our team. Discipline around loan pricing, capital allocation, and a constant review on funding has and will continue to be our focus. And with that, I'll turn it back over to you, Donna.

Thank you, Stephen. Well, now let's turn the mic over to Chairman John Allison, who will share, among other things, I think a new metric that he's begun tracking, and we hope to hear more information about that, Mr. Chairman.

Thanks. We'll talk more about that in a little bit. Tracy kind of broke it a little bit there, talking about the multiple P's. But thanks for joining us, and thank you for your continued support. As you've heard from our team, I really don't have a lot to say today. You know, we're in the middle of this pandemic. We've been concerned about certain asset classes and their performance. CECL may be the – it's not an asset class, but that may be the most uncertainty. But in spite of all that, the company produced another record quarter. You know, once you adjust for Cecil, home earned 47 cents this quarter and earned 47 cents last quarter. I mean, think about the consistency of earnings of this corporation. If you go back a year, it was 44, and then the next quarter was 40. If you go back a year, it was 43, and then the next quarter is 44. Last quarter was 47x Cecil, and this quarter was 47x Cecil. These are two of the best back-to-back quarters in our company's 21-year history. As I said in a press release, I'm tracking a new metric. I recognize it's not GAAP. Don't be fussed by the accountants, Donna, or the attorneys. But it's almost the reverse of the efficiency ratio in some respects. And I call it P5NR. And that's where Tracy got all the P's. I didn't know if he spits it out. Sometimes I think he stutters. And that stands for pre-tax, pre-provision, profit percentage. And that kind of came from just looking at the numbers in our chart. And I thought, I wonder how much money we're actually bringing to the shoebox. One of our directors coined it the shoebox. And It's the money you put in a shoebox, and all you have to do with it is pay taxes and make a loan loss allocation if that's the case. So to make it simple, it is net total revenue divided into pre-tax, pre-provision income. And this quarter, to give you an example, this quarter the PPNR was a record, as you've heard, $104.4 million. And the net total revenue for the third quarter was another record at 176.1. You simply divide the 104 by the 176, and that came out to 59.28%. And I think last quarter it was 59.13. Is that about right? Yeah. So we're running pretty consistent. And what that means is that home bank shares is bringing down almost 60% of its net total revenue to the shoebox. And all we have to do with that is to pay taxes. I challenge you to run that number on other corporations. I think it gives you, it tells you the importance. The ratio gives a strong emphasis to the margin and non-interest income. Plus, it shows the earnings power of a corporation. And you can see the earnings power that it has given on bank shares. Bringing down 59.28% of your total net revenue, I think, is pretty amazing. There's some other great numbers for the quarter, and we'll just touch upon a few of those. At Cecil, the company made $79.61 million, almost $80 million. And EPS, as I said, was 47 cents. Loan reserve, strong loan reserve at 2.29. We built it a little bit this quarter. I think we put $14 million in. Charged off 10, built about a 10 million. We'll probably do the same next quarter unless we see something out there. I think there's becoming a little more transparency in the asset quarters. Had a return on tangible common equity of 18.29 and return on asset adjusted at 191. We're building a new branch in Marathon, Florida. I don't know if we ever raised that building down there. We've taken it down to our facility yet. We haven't paid it down yet. And we did not purchase any stock. You've heard the numbers. I was asked someone, how do y'all keep doing it? How do you do it quarter after quarter after quarter? How do you keep producing those results? And y'all have never heard me say this before. I know you're chuckling around here. There is no substitute for experience. And I just want to give you an example of our bank board, Centennial Bank Board and HVI Bank Board, our directors. have 374 years of director experience or operating experience. I mean, that's a pretty good number. They keep us out of the ditch, and I thank them very much for their contribution that they give to this corporation. In addition to that, they own 13,911,939 shares or 8.42% of the total outstanding stock We had one director, we didn't get his numbers in there, so it's a little higher than that. And that doesn't include our affiliates. That doesn't include our other, like Cabot and Little Rock and those branches. So I think it would be well over 16 million shares of stock and almost 10% of the company is owned by our directors. And you can see their interest in this company. So they keep us out of the ditch in lots of instances. I want to talk again about experience about our president group. Our president group has over 150 years of experience in the banking space. That's pretty impressive. And then you take Donna, Steve, and Tracy, myself, Kevin, and Brian Davis, which are the executive crew in Conway, and that adds up to 102 years of experience. When you combine those together, That's 626 years of total banking experience, and I think that's a pretty amazing number. So that's how we keep doing it with that team, that great team of people, and others supporting and helping that team. But it's pretty amazing. This just kind of was a one-off. I called Donna and said, Donna, run this up for me and look at this and look at that. And when you think about putting these numbers together, I was actually taken aback a little bit by the amount of experience. But I've always been a believer, you know, you can get it out of a book, and that's fine, but there is no substitute for real-life experience in doing it. I think we had another good quarter. Looks like we're seeing a little more transparency. We had a little kicked up our non-performing a little bit this time. basically movie theaters, Kevin, when that basically tied down. We had one loan in Jonesboro. It was a two-million-dollar manufacturing credit. I think they died. I think that was probably over. Other than that, loans were a little soft. We're holding tight. I read yesterday that inflation was up two-tenths in September. that it was up six-tenths in August and four-tenths in July. So it's time to be careful. I know the Fed's doing a great job and working hard at trying to keep rates down. I'm not sure they're going to be able to keep the handle on that or the lid on it. I think you start doing these 2% and 3% loans in the marketplace today, I think you could pay the piper for that down the road. We're holding tight. We're holding our rates up. We're working on our margin hard. I think you heard Stephen report on the margin and Brian report on it. I think we've done a good job. I'm really pretty pleased with the operation of the company. It looks like 21 is going to be a good year for everybody in the bank space. I've seen the reports of the banks that have reported so far, and they've done pretty good. Donna, I don't, other than anybody else got in the trash, you don't have another P or two of that?

I think the cover of it is beep, beep, beep, beep, beep, beep, beep.

Well said, Tracy. With that, Gary, I think we'll go to Q&A.

We will now begin the question and answer session. To ask a question, you may press star, then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then 2. At this time, we will pause momentarily to assemble our roster.

Hey, Gary, before we go forward, I have one comment to make, if I could.

Absolutely, sir.

I made a Joe Biden a while ago. I pulled a Joe Biden. I said we put $14 million in reserve and we charged off $10. That's not correct. We put $14 million in reserve and charged off $4. So I... I just got it tucked upside down and backwards like my friend Joe.

Our first question is from Brady Gailey with KBW. Please go ahead.

Hey, thanks. Good afternoon, guys. Hi, Brady. Why don't we start with loan growth? If you look at it, ex-PPP, loans have been down in that 9% to 10% range annualized for the last couple quarters. And, Johnny, it sounds like you're being pretty conservative here. I mean, should we continue to expect some more loan shrinkage going forward?

Probably some. You know, until it clears up, kind of like Chris, some of those projects that you can get done in four months now take six or eight months to get done and may not get done. So I think pretty well, Kevin, you got a comment on that? It looks like we're seeing, we did what, 25 million yesterday in the loan committee meeting. But it's probably a good time. There's nothing wrong with getting paid off, Brady. There's nothing wrong with getting your money back. So I'm really not, until we get a vaccine and things turn around, I'm really pretty comfortable doing what we're doing.

Kevin? Kevin? I would agree with that. I mean, I think there's going to be some opportunities next year with repositioning of assets when you start seeing things shake out. We're not quite there yet because people are still in deferment in a lot of cases. So I think we're just kind of in this odd space where you're still in the pandemic and you hadn't come out and there's not a lot of great opportunities and we're focusing on margin and trying to be profitable.

You know, we... We've been extremely conservative over the last three or four years, as you know, and that certainly has paid off for our asset quality. We've just really – we haven't lost a penny yet. We probably will, as I've said in the past. But as so far, this pandemic, with the $2 million manufacturing loan in northeast Arkansas, didn't have anything to do with the pandemic. It was one that just, they just blew up. But outside of that, our movie theaters, you know, probably going to take a loss on our movie theaters at some point in time in the future. But I have to say that what we've done in the past is paying dividends for us in the future. And you know, we got nearly $240, $50 million worth of reserves in And you can see what we're generating on the income side. So it's probably not a time to be real aggressive in the market. And I'm seeing a lot of twos and threes. And I'm also looking at the other side of the balance sheet where I see all this possible inflation coming down the line. You know as well as I do, what does the Fed do? They're working hard to try to liquefy the market. I'm not criticizing the Fed. I think they're doing the right thing. But At some point in time, we've got to pay the piper, right? And when you've got that, what did you say, lumber up, average cost of a single family home is up $17,000 this year. I mean, that's going to take its toll at some point in time. And when it does, the Fed's going to be forced to raise rates, and homes are not going to be caught up in that.

Yeah, that makes sense. You mentioned holding the margin. I know If you kind of look through the noise, it looks like kind of the core-core margin was down, you know, only five basis points on a one-quarter. Do you think going forward you're going to be able to hold the core margin, or do you think we should expect to see some modest shrinkage in the core margin going forward?

Hey, Brady, this is Steven. Yeah, I think the last comments I had about what we were able to do in terms of deposit costs related to loan yields and those, you know, matching fairly well. You know, we do have still a pretty good opportunity to push on deposit rates both via the, you know, the CDs that are maturing and then we've, you know, we've still got over a billion dollars that's over 50 basis points on the checking and saving side that you know, is either on contract or that we're working through on a negotiated basis. So there's still opportunity there to bring some of that down. I think that, you know, to some degree the wild card will be the impact from the investment portfolio and kind of where reinvestment rates and those cash flows come in over the next, you know, over the next six months or a year if we continue in this rate environment that we're in.

Yeah, we're – The investment portfolio is the problem. We're writing at about 150. So we're putting it on the books at 150. Tracy, every time he meets with his presidents, he talks about rates. And anything we write below our average yield right now is 514. That's PPP. So anything we write below 514 is diluted. So, I mean, he continues to preach that to our group, and our group's doing a good job on that. The investment side, the investment portfolio is the struggle. That is the struggle, and there's not a lot that we can do with that. It just is what it is, and we'll have to just weather through it. We were sitting on all that cash, $700 to $100 billion. We put a little of it to work. Brian, how much of that did we put to work?

Well, we did increase our investment portfolio by $100 million last year. from the quarter. What we really did is we invested more in the municipals. We increased our municipal balances by about $200 million. And what you'll see when the investment numbers come out in the 10Q is that our government sponsored enterprises was down about $30 million, and our residential mortgage backs was down about $30 million, and our CMOs was down around about $30 million. And so the $200 million increase we put in on municipals, as Mr. Allison said, we got about a 1.5 yield, which sounds pretty good today because what we'll be reinvesting in that probably in Q4 is probably more like 1%. So there becomes part of the struggle on the margin. Thank you, Brian.

We've bought a lot of banks are raising money right now, and we've bought a few of those Pieces of paper. I don't know what we've got. $20 million? Yeah. $20 million. We may buy some more of that. We're buying banks that we know, that we're familiar with. But as we've seen a lot of banks raise money, we have not done that. We don't need – look at our capital raise numbers. We don't need that. So, Tracy, any comments? I think y'all covered it pretty well. You know, the loans are – If you go back over the last three months, if you look at a month to month, it's been holding really good. A little bit of down tick, but the deposit cost has also got some opportunity to go. So it's just time will tell. It's a hard battle to work, but we feel confident we're going to try to maintain it.

And lastly for me, you've got Biden leading in the polls. He's talking about increasing the corporate tax rate to 28% from 21%. If that happens, any idea what the tax rate impact would be for home? Brian?

I'll take that. What you would want to do is take we'll take the full 7% that would really increase it by 7%. We would actually probably have an interesting twist. You may remember when we had the Donald Trump tax cut, we had a big write-off of DTA. We'd probably recoup about half of that DTA write-off because we'd end up writing up our DTAs. But for us, it would be most of that 7% increase in the tax rate. Okay. Hopefully that doesn't happen. Thanks for the call, guys.

That's not going to happen, Brady. Thank you.

The next question is from Matt Olney with Stevens. Please go ahead.

Hey, guys. How are you? Hi, Matt. Hey, I want to circle back on the credit discussion, and I'm curious about the overall balances for special mention loans and classified loans as of 9-30. Just trying to see if there's any negative migration during the quarter.

Hey, Matt, this is Kevin. Yeah, of course, great movement, you know, on these second deferrals. You're going to expect some of that. It's definitely case by case. It kind of depends on some things like cash reserves, the borrower, the operating projections that we see going forward, how we see them handling the deferred interest. And so if you look at, you know, the $500 or so million that we've still got in the second deferral, our special mention went up about $150 in the third quarter, substandard up about $50. So, you know, if you think of that compared to the $500 – plus in second deferment principal and interest, that's about a 40% migration. That's probably fair. We've got a lot of folks that we know are going to come out at the end of the second one and go back on payments, and so those kind of folks wouldn't necessarily migrate, but some that we think may need some more help after this second 90 days, those are going to be the ones that that migrated further to a special mention or a substandard at this point.

Okay, got it. That's helpful. And then I guess thinking about the reserve bills from here, I think we're almost at 230 once we exclude some of the PPP stuff. So I'm curious if you think we've peaked from here, and if not, how close we are to peaking. And then I guess the other side of that is on charge-offs. We haven't seen charge-offs yet, but I'm curious – what you think the timing of charge-offs would be, I guess, for home banking and for the industry?

Well, we'll take them when we see them. You know, when we see a charge-off, we're not building a stack of charge-offs over here that we're going to hit at some point in time. When we see them, we'll take them. You know, the manufacturing facility in Jonesboro is probably a charge-off. You know, you think about your movie theater guy who's got real estate there and Nothing happening in that business. I mean, he's been in the business for 50 years. I suspect long-term he'll make it, but short-term he probably won't. I think we non-performed him. So, I mean, you could say we could probably take that next quarter maybe or not take it. Is he going to make it? I can't answer that. But probably prudent, we may take that. So I'm expecting – that's all I see at this point in time. There may be something else that sticks its head up, but that's about the extent of it. And that's not a total loss on that loan because we've got real estate attached to it. So, you know, there's no buildup. There's no pocket here. You know, we're pretty damn transparent, probably the most transparent bank in the country. And when we see it, we call it. We call it. So – I mean, our hotels are going to be fine. Even our airport hotels are going to be fine. How long is it going to be before they're fine? I can't answer that. I don't know how long it'll be, but a year. I mean, if in fact, if everybody got what the president got the other day when he got COVID-19, you'd think that... I think we'd all be in good shape. But if we get a vaccine, I think things will turn around and people will start traveling again. So do you write off a hotel that's running 20% and struggling for cash flow that you deferred that you know at some point in time will come back? Or do you write off 7% of it if you want to when you're at 57% loan-to-value and you know you can get 50 cents for it from the vultures everywhere? So the good news is that... As we were selective on our credits and we put them on, as we built this company one brick at a time, and we turn around and look at the building and see if there's any cracks in the brick wall, there's not any cracks in the brick wall. It makes you real proud that you built a strong wall. If you've got to replace a brick here and there, you replace it. So when we see it, we'll call it.

Kevin? Kevin? And, Matt, the encouraging thing we're seeing on these deferrals is that the majority of the cases so far that we're looking at that are coming through to the end of their second and maybe need something going forward longer term that we want to get in under the CARES Act, the vast majority of those are paying their interest up to date before we go into the longer term modification. And if they're not paying them completely up to date, they're paying it over a very short time, going forward. And so that's very encouraging to me that we have somebody that's got the ability. And we're taking that and looking at projections for the next year, two years, trying to make sure that they can make it through this with the reserves they have left. And for the vast majority of those so far, we're seeing that work out for us. And we're ready to move forward on a longer term modification if it's needed. So that's the encouraging thing to me.

We had one that was on full deferral, and he's come back on interest and principal, and General Ray's back open. His operations are back open. It's about a $70 million credit, and he's off and running. So that happens. The turnaround was pretty good. We deferred him. He got on his feet, got his businesses back open again, and, you know, the worst thing that could happen is I'm not talking politics, but the worst thing that could happen is a complete shutdown again. That would be – there's some people talking about shutting it down again, and that would not be good. That would not be good for any of us.

And that one Johnny's talking about has happened since quarter end, so that's – Yeah, that's 70 million is an improvement.

Yeah, that happened since quarter end. So that's good news.

Got it. Okay. Thank you guys very much.

Thank you. The next question is from Steven Scouten with Piper Sandler. Please go ahead.

Hey, good afternoon, everybody. How y'all doing?

We're great. How are you, Steven? Doing well. Doing well. Things in Georgia aren't bad at all, I don't think. How are things in Arkansas? I'm curious. I see a lot of negative headlines around COVID numbers and wondering how the state is from a staying open perspective and how businesses are doing there overall.

Well, we're open. You know, the state's open, and COVID numbers have been moving up and down and up and down, but we're open. So far, so good at home banks there. We've had 30 cases or so. Tracy's out right all over, company-wide, out of 2,000 people. So a little more than 40. But everybody's doing well. We haven't lost anybody. I mean, Pulaski's pretty high. Faulkner is where we are, is kind of in the middle. But it's not too bad. We're being careful. Everybody's being careful. We're wearing masks, and we're wearing gloves, and we're social distancing, and we're doing those things we need to do to protect ourselves and our other people.

Yep. But most businesses, small businesses, restaurants, all that stuff's kind of still open where you are today? That's correct. Yep.

I was visiting with a customer last night that has a lot of different businesses across the state and actually had some in Florida. And it's the same thing that Kevin just mentioned. Naturally, if you're in a – if it's a hospitality and you're in an area that it is not the travel coming through, it's not as good as it should be. But the other pieces of this puzzle are making things – making the ends meet and just like the customer – Johnny and Kevin just mentioned a while ago, I mean, the gentleman has a lot of liquidity. When he shut down, they just shut down. Actually wanted to pay a lot more back on his loan, but was, you know, being safe in case they do shut down again to where he would have the liquidity. And that's what people are a little more cautious on their liquidity side this time instead of jumping in and pre-paying.

And back to Kevin's point on the call, like it is, and Johnny's mentioned it too, I mean, when you look at the deferrals that we have,

I took the opportunity to call a significant amount of our lenders and customers that were in, I call, over $10 million in debt, and some of them are just doing just fine. It's a lot of precautionary and some of that deferments that you see out there in some businesses. Now, there is definitely the few that need it to make this time, but all in all, you continue to feel much better out there, and I certainly do, when you're talking to our lenders and seeing our customer base and what's going on. That's great. Don't forget, we're going to see another stimulus coming for the American public. It'll be Biden or Trump, but somebody's going to bring it, and it's going to be coming for the end of the year. So we've got more money coming for these businesses. And Arkansas stayed open. We're paying the price for it a little bit with the cases we're having, but if you're not open, a lot of small businesses – I can't believe they can't get together in Washington, D.C. and get some money out to these people because a lot of these small businesses are not going to make it if they don't get some money.

And if they do it right, it's hard towards the ones that really need it, particularly hotels, restaurants. If they do it right, it's hard.

Yep, yep. I agree, Kevin. I'm curious what you guys are thinking on a capital front here today. Obviously, TCE is climbing nicely here this quarter. You know, thinking about your pre-tax, pre-vision ROA or your new P5 number there, Johnny, it seems like capital is going to continue to build. So how do you think about potential share buybacks or usage of the capital here in the medium term?

You know, we have a 10-10 call every morning, and that was the topic of discussion this morning on the 10-10 call. And we've looked at our capital ratios, and they're powerful. If you look at them, I mean, they're awesome capital ratios. We have not, you know, the choice is you want to take care of your shareholder, right? What's in the best interest of the shareholder? Do we need to go buy $200 million or $300 million worth of stock? Do we need to not buy stock? Do we need to increase our dividend in? If we could do an M&A deal, it made sense. We'd probably do that. If we can't do an M&A deal, then maybe we buy back the stock. But that discussion has gone on all morning this morning around here. So I don't want to do something that I still fear. The day I heard President Trump say banks shouldn't be buying back their stock, We shut ours down. And we have not bought a share of stock since then, I don't believe at all. It's a carryover from that. But we have not bought it. And I figured it might be some – I thought it could get bad enough that banks needed a program. It's not going to get that bad. It may for some banks, but not for home bank shares. So I thought there might be some kind of program that came out. And if you had – you were buying back the stock, you couldn't participate. Okay. That's really been the reason we're out. Many banks are starting to buy their stock back right now. The bigger banks, I think, are prohibited from that. We need to do something for our shareholder. We have not raised the dividend in a long time. And we did that just to protect the dividend, just to wait and see what the repercussions of this whole pandemic were going to be. And it has not been... It has not been as bad as I thought it could be. It's a different situation in 8, 9, and 10. There are too many unknowns then. The unknowns now is when is the vaccine coming out and getting our people back to work. So I feel good enough now that it's – I feel comfortable enough now to go in the market and buy stock, or I feel comfortable enough to look at – discuss with our board raising dividends – I feel comfortable with enough capital to maybe a combination of those. And so that discussion is going on, and we're not going to sit here and end up with 50% capital or 25% capital. That's pretty ridiculous. So, I mean, I think what was the capital ratio? Well, it was 16%. We really have lots of capital. And as you know, not only do we have lots of capital, we've got close to $250 million, $240 million in reserves. and the company just had a record PPNR. So, you know, we're kicking out, as I said last quarter, over $100 million a quarter that we could use for losses if we needed to. You know, on an annualized basis, I said that's $400 million plus $240 million, gives us $640 million. And if you remember the numbers, this company could still lose $1 billion straight out and still hit all the regulatory capital requirements. So, It is a topic of discussion. I understand why you ask it, and we're in the middle. We're executive committees in the middle of discussing that.

Yep, yep. No, that's good. Okay, maybe last question for me. You know, you talk about reserve levels there. I mean, it seems like you got more than enough to me, honestly, here today. But I'm wondering, you know, the effects of CECL-1, where do you think once we get maybe the excess reserve from pandemic and deferred loans, Where do you think in a CECL environment that loan loss reserve could normalize over time? And do you think that CECL was a benefit for you guys in the sense that it made you build reserves more than it would have otherwise? Or is it more punitive because there's some maybe double reserving with CECL plus pandemic or kind of how you think about the effects of CECL longer term, even if you have to maybe extend some loans?

Well, I don't know if Cecil is right or wrong. I have no idea. Did it make us add more reserves? I'm sure. But, you know, home's always been a big reserve builder anyway, and even when people are running down to 40 basis points and 30 basis points and 50 basis points on loan loss reserves, we always try to stay up around one. I've always been a believer in a 2% reserve solves about everything, and I still believe that's the case. So from a reserve bill aspect, nobody gives – we announced record earnings the day the stock went down. So nobody gives a damn about earnings. So why not build reserves? I mean, what difference does it make? I mean, we visited with many of our analysts and said, should we – we could have had a record quarter, blown it out, and ran 47 cents. I mean, we didn't have to take a – put another $14 million reserve, in my opinion. But we didn't. We didn't do that. We went ahead and built it, and we'll probably do it again next quarter. And, you know, depending on – the jury's out on Cecil, so I'm not expecting strong pressure from the accountants on Cecil because who knows if this is the right deal or the wrong deal. So it may be right, it may be wrong, but, you know, we managed through 8, 9, and 10 and 11 without Cecil. We did fine. We just continued to build reserves when we needed it. And I like the reserve as far as I'm concerned. We've got all the reserve we ever need and may ever need. So I'd just like to leave it alone. We've already taken the money out of one side of the balance sheet, put it in the other side. So I don't know. I'd just leave it where it is. There's no reason to move it. We've already done it. Just leave it there. We don't need a yo-yo. I saw where J.P. Morgan took $500 million out of the reserve reserve. and put in the income. You know, they got fine $600 million. I guess they need $500 million to have a great bank. And Jamie Diamond's a great guy. Don't get me wrong. I just – you can't use that like a kitty, like a money kitty. It is what it is. We've already put the – we've already taken the bite. We've already done it. Let's just leave it alone. Just leave it there. And I – We're going to try to do that at home bank shares. I don't want to come in the first quarter and the accountants make me reverse $100 million or $150 million and put in the income. That's really ridiculous. So I don't think we'll be playing that game. It's way too early for banks to be playing yo-yo with their loan loss reserves, and we're not going to do that.

Other than that, I'm going to have to finish that. Thanks, Johnny, and congrats on a really good quarter. Thank you.

The next question is from Michael Rose with Raymond James. Please go ahead.

Hey, guys, good afternoon. Hope you're well.

Hey, Michael.

Don't forget we got Donna here.

You said guys. Oh, I'm sorry. Everyone, people. Okay, so so I appreciate this, this new metric that you've created, and certainly, it's not going to be an issue that's germane to you. But it does seem we're we're kind of at or very near a near term peak, just given some of the headwinds that we have on the rate front, you know, some of the mortgage that is probably not going to recur at these levels. You know, how should we think about this new metric that you've kind of created as we move forward? And what levers do you have, you know, probably more on the expense side than anything? to offset some of the revenue pressures. You know, a lot of other banks have talked about digitization trends, branch closures, headcount reduction, et cetera. Just want to see what's in the cards for you guys.

Thanks. Let me say that the expense side, as Donna calls that, she says that's 08-09 stuff. We've already been through the expense reduction side, and as we went over $10 billion, it's extremely expensive, and we've swallowed – Those expenses thus far are still running about a 40% efficiency ratio. So I think the ratio, I was just looking at it, just thinking about where it came from, as I'm looking at the PPNR versus the total revenue net, and I said, look at that. That's almost 60% that's coming to the bottom line, basically, before... and before loan loss allocation. I just planned with that, and mentally I thought that is a really strong number, which shows the earnings power of your corporation and shows the income that this company potentially can make. So I just played with it, and I ran it back for a year, and I said, I said, Tracy, come here. I've got something new I want to show you. So anyway, he said, what have you done? It really shows your margin. It really shows your margin. It picks out your interest expense, basically, and may go further with that and take total revenue, not just net revenue, and take total revenue. It's just new for us, and it was just a number that really jumped out at me, and I just wanted to share it because I'd like to see that number used by, I'd like to compare competitors and see who can run at close to 60%. Does that answer your question?

Yeah, I was just trying to figure out, because it does seem like you and others on that metric would obviously be facing some headwinds and look like it would go down next year, particularly as the Decrease and runs off and the mortgage doesn't repeat and then you just have kind of core margin pressure as you kind of talked about. So, yeah.

That's a good point. That's a good point. And I see that. You know, how long can mortgage stay as strong as it is? But then you're going to have another PPP program. You know, and if we get a vaccine, if we get a vaccine, we're going to see the market take off again and we're going to see, I think we'll see business kick back up. So, I mean, that's, We get a vaccine, and I think you'll see that'll pretty much resolve it and put it behind us. So, you know, there's always something. The loans were down a little bit this year because we were so damn conservative, and that's okay. And then you got a little PPP income, and then you got mortgage that kicks in. You know, and then you had our small business investment group and our investments that kicked in $3 million this quarter. And they'll be kicking in next year. So home has put itself in a position with enough handles to pull on that we think that we can continue to produce these kind of numbers in the future. Percy? That's exactly what I was going to add to it. I mean, you used the mortgages as an example. Yes, it's had a phenomenal time. Our team is gearing itself up to where if it actually a lot of the mortgage groups are tired and have been working so many hours and time along the ride here, but visiting with our president, Keith, yesterday, you know, you begin to say, okay, if it slows down, we're getting a lot of opportunities to expand the markets that we're in. So we have, you can grow by hiring additional lenders in the process as we have developed out the back room and continue to grow it. So even though some of that may trickle down some, the opportunities are still there, and that's what this company has done forever. I go back to, you know, it's really about the strength of capital and where you stand when you put all this money in the shoebox, as Johnny has said. It's just identifying what you have and when you can do that. And Donna started this, you know, efficiency program several years ago on the branch part, And we're always looking at those type of opportunities, and there's no doubt that there's some expenses that has incurred over the past nine months with the pandemic. Are these going to be ongoing forward? Probably going to be some of that for a little while, but the numbers are several hundred thousand dollars a quarter that we had, you know, just for the safety of our staff coming to the buildings that we operate. But there's always some opportunity when you're running a 40% efficiency ratio, it's hard. to knock some of that down, but the revenue side is still there. I'm not as negative as you may have indicated there as far as the opportunities that we have coming forward.

That's helpful. Maybe just one follow-up for me on credit. Some of the larger banks that have reported have talked about reducing a little bit more aggressively some of their at-risk exposure. Truist, for instance, this morning discussed the disposing of some of their hotel properties. It sounds from your comments, Johnny, like you're more willing to kind of work with your borrowers and see it through. Can you just walk us through the decision-making process there? Because it does seem, depending on the next round of stimulus, if it happens, that there will be some greater loss content in some of these at-risk portfolios. So I guess why not try and get out in front of it? Thanks.

We're going to take care of our customers. We always have, and we're not going to run from them, and we're not going to flush them. We'll flush them if they need to be flushed, but it is our responsibility to take care of our customers, and they've taken care of us over the years, and we're going to be there for them. So, I mean, even our guy that's a movie theater guy that doesn't have any new movies, he's got a gorgeous facility. We've got real estate in that deal. You know, he's going to come out of this deal. Somebody's going to come buy that at some point. That movie theater is going to operate again. It may be 18 months before it operates, but we're going to stay with him. We're not – why foreclose on him, you know? He's the best – one of the best operators in the country. He's done everything right. None of this is his fault. We need to be honorable people to him and stay with him and do the right thing to those customers. Kevin?

Well, we're going to look at pricing today. I mean, I'm not sure that today's the best time to move them or not. There's a lot of money out there. I think there'll be more in six months than there is today. There'll be more product six months than there is today. So we're going to look at pricing, but I'm with Johnny on his comments.

I think the best thing we put ourselves in the position is the underwriting that we've been doing for several years. And all of the businesses that have been affected by the shutdown are in the position to be able to survive and come back again. And it's not where they were leveraged up and whatever loss of revenue they're seeing or may not ever get back. They're just making that adjustment, and they're doing just fine. I mean, I'm as proud to be a banker today as I ever have because when you talk to your customer and you see what they're doing and what they're adjusting to, to make their livelihood and survival is what America's all about. They're not sitting back here just waiting on somebody to give them something. They're getting after it. We have one motelier that is about a $70 million credit who's struggling, but he's got $4.2 million in cash, you know, and we could loan him some money. So, I mean, we could loan him a couple million dollars, and he'd get close to $7 million. And according to the forecast that we have, you know, that will carry him through 24, 30 months. So by that time, we'll have a vaccine and things will be better. So, I mean, that's the way we're looking at it. You know, the good news is the people that criticized us for not growing loans fast like other people did, but not everybody wants to do. I mean, a lot of people did 80% hotel loans. We did 50% hotel loans. So we set ourselves up to win a long time ago. We set ourselves up to win with this executive loan committee. And I guess you heard the 600 years of experience and 370 years of experience with these directors. And most of them have been with me forever. And a lot of those people have been with me to the point they've been involved in every loan that's been made in this corporation. So, I feel good about the bricks that we built as we were building the wall and homes in damn good shape. And if, you know, if we need to take a $50 million charge off, we'll take it. Someone said, what would you do if you had $100 million worth of hotels that went bad? I said, well, we'll just charge it off. We got the money to do that. We got the capital to do that. And you work with your customers. I mean, when I met you, Michael, years ago down there in Florida, you know the times that was and It's pretty rewarding to meet the customers that were in some challenge situation and the ones that wanted to work and get out and do the right thing. They all did it. You just structure and go from there. Now, on a side note, Johnny, you mentioned the staff's been with you how many years? Through what? The staff. Management staff, how many years? About 20 years. 102 years. 102 years. Oh, yeah, 102 years of service. So what I told him when he asked me how long I'd been with him, Michael, I said, well, it's been 18 years. He said, well, that's nice. I said, but it's like 47 years.

He's got a cush job. He's got a cush job. And he complains because it's hard to work for. I do ask him about margin every morning, though. I do do that.

No, I appreciate the color, and thank you to everyone, including me.

Thanks, my friend.

The next question is from John Arfstrom with RBC Capital Markets. Please go ahead. Hey, thanks. Good afternoon.

Hey, John.

Just a couple quick ones here. Kevin, PPP forgiveness, you talked about how it started. What do you expect for forgiveness and kind of the cadence and timing on that?

I think we're going to get a lot of it submitted this quarter, but, I mean, from what we're seeing coming back from SBA at this point, it's largely going to be a first quarter item, I think, from a cash coming back in standpoint.

Okay. Okay, got it. Good. Question for Chris. You talked about the pipeline rebuilding for CFG. Yes. Just talk a little bit about the magnitude of that and the composition of that. Yeah, happy to. Good afternoon.

Yeah, I think the pipeline that we see now is similar to the pipeline we've seen before. What we're seeing is it just takes longer to get a transaction done now. So deals stay on the pipeline longer, and they do tend to have to go back and forth a little bit, where traditionally what would happen is we talk about a deal, we soft-quote it, we get to terms, we get a term sheet signed, we do the underwriting, and then we work towards close. I think what we're finding now is in the underwriting process, Going through that process, we're tending to find more things that need to be addressed. And that results in potentially the borrower needing to come up with more equity or restructuring the capital stack. And that's really what we're seeing. And the time it takes to do that and then restructure the deal, et cetera, just takes a little bit longer. We think most of these deals are still going to get done, but we think that they just take a little bit longer. So I would say we're having a little bit more of a backlog where stuff stays on the pipeline a little longer. where normally it might go, you know, ours starts with screening and then software that shoots and then deals approved, ready for close. We probably have more deals in the underwriting ready for close than we usually would, and they tend to take a little bit longer. I think most of them will come on through, but they're a little bit harder to get done. And I think that's okay. We could certainly resolve that by just closing the deal. but we think it's a lot better to be safe and to be a little bit cautious as we go through with these. So if it's a couple months delay to get that done, I think that's okay. And most of these, what we're continuing to see on the pipeline, it's all still pre-COVID ideas that are dressed up in a post-COVID loan. And so it's good reason why some of these would need to be structured and restructured, et cetera. It's still way too early for somebody to have identified an opportunity piece of property and put it together now for financing in sort of a post-COVID environment. But what we do as a platform is not that different than what we've been talking about from the community bank side, which is you sit down, you work with your customer, and you find a way to get it done. As long as they're willing to work with you, you can probably get that done.

Okay. Thanks for that. And then just back on the shoebox concept or how to get rid of some of your capital or spend some of your capital, Have you guys seen anything on M&A? Is there anything floating around in terms of potential, or is this still too early?

Oh, we've just been careful. You know, we were engaged in M&A, somebody looking at acquiring us at one point in time, and we've just been, before we moved, as the discussion ran today, and it continues to run around here, and I'm sure it'll continue on, is what's the best use of our capital right now. My fear is that as difficult as it has been to get your arms around your asset quality, when we knew we put it on the books properly and to go back and evaluate it, and we took deep dives into our asset classes, And we even learned something, John, that I'd never learned before. You know, we now have airport hotels and extended stays, and we call them water hotels and interstate hotels. And the way they function in a situation like this is all different. So it's been a learning process for all of us, and you never know. I think home bank shares probably has the best handle on their asset quality of any company in the country. And to do due diligence on a sizable company today, I'm not sure many CEOs have their arms around and executive groups have their arms around. I just bet they don't have their arms around their asset quality the way home bank shares does. So to go do a $10 billion or $5 billion or $12 billion trade today, uh, the due diligence would certainly be extended. It wouldn't be a 90-day and announce a deal. You'd certainly want to ride through a quarter with somebody. It'd be kind of like Chris was telling about the loans. It'd be extended. It would just extend out, extend out, and if they were public, we'd probably want to ride them through a quarter. So I'd say any M&A for home would be six months down the road. So as a result of that, we're thinking about what we do for our shareholders, such as dividend. Then we might go buy something small. We might find us something small out there and go, if we're in the market, we might step up and buy something. You know, just if you got a car in the garage, you don't ever drive it. You know, the batteries run down. Sometimes it's good to get it to start it up and run it a little bit. And our team, as you know, was damn good at putting together up banks and consolidating them and integrating them into our company. We hadn't done one in a while because we'd been focused on other things. But it probably wouldn't hurt to go out and find a $400 million, $500 million, $600 million bank and just to go through the exercise and kind of warm yourself back up and run the engine a little bit.

All right. Good. All right. Well, you're going to have to buy a bigger shoebox at some point, I think.

Bigger shoebox, yeah.

Bigger shoebox, yeah. Bigger pair of boots. All right. Thanks for everything. Appreciate it.

Thank you. The next question is from Brian Martin with Janie Montgomery. Please go ahead.

Hey, guys. Good afternoon. Just a couple easy ones for me. Kevin, back to the PPP for just one minute. Is your expectation that it's still probably 80% plus on the forgiveness side as you made the most of that being in the first quarter? It sounds like that 80% or above is greater. Is it? even higher now or less lower now?

I don't think it's any lower than 80. It could be higher.

Okay. All right. And then how about just on the deferrals, I think you guys called out that about half of them are hospitality hotels. Any other concentrations in the remaining 50%? I mean, is there just any bigger pieces in there?

Not really. Outside of hotels, it's spread out across the across asset classes and across our footprint. I can't really, you know, a little bit of healthcare, a little bit of, you know, just real estate type deals that are not owner occupied. I mean, hotel is the big concentration. Gotcha.

Okay. And then maybe just one last one on the, on the margin and just the loans. I think last quarter, you guys talked about the loans at the floor and it sounds like with some pressure on the margin from the investment portfolio. And I guess, can you remind us what, What percent of the loans are at their floor today? I think there was, you know, about, you guys, Stephen gave some numbers last quarter, but just the percentage of loans that are at their floor today. Sure.

This is Stephen. Hey, Brian. Functionally, all of Chris's, the CCFG portfolio is at its floor today. And then we've got about a little over $800 million of the $1.5 $3 billion or so in the near term community bank insurer portfolios that are at its floor. I kind of look at it really just from terms of what is in the community bank footprint where we're doing five year and less balloons, what's maturing in the coming months and how we kind of compare that to what we're able to do on the deposit side. I would say over the next six months or so, we've got a billion dollars, maybe just shy of that, in maturing loans that will come up for repricing that are in the 490 range. So when we think about where we're repricing, where we're originating today, I think our group prospects are good to be able to hold in that range. Gotcha.

Okay. I think that's it. It just may get less in the expenses. It sounded as though there's not a whole lot to do there. That seems like you're getting pretty consistent with what you guys have said the last couple quarters. So that's – am I hearing that right on – you did most of that in the last – Pretty well. Pretty well. That's right. Yeah. Okay. All right. That's all for me, guys. I appreciate it. Thanks, and nice quarter.

Thank you. Thanks. I appreciate it. Just finally wrapping up here, I guess. I'm going to wrap up, if you don't mind. We're going to continue doing what we're doing. We've done in the past, and that's continuing to produce top-tier results. I appreciate our shareholders. I see that our large shareholders are continuing to accumulate the stock, and I'm very appreciative of that. Thanks for your support. Bank prices are at basically all-time lows. Many, many banks are selling below tangible book, and I guess the market's giving us some credit. We're trading at about one-sixth times tangible book. I think this too shall pass, and I think smart money will continue to accumulate bank stocks. This pandemic will pass too. So I look forward to talking to you in 90 days with this same group of people. And we may be, instead of having the group, instead of having 102 years' experience, maybe we'll have 103, Tracy. We'll have six months' experience in 90 days.

Thank you.

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