Home BancShares Inc

NYSE:HOMB

Earnings Call Transcript 2020-Q3

[Operator]

Greetings, ladies and gentlemen, welcome to the Home BancShares 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 [Operator Instructions].

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. [Operator Instructions] And this conference is being recorded [Operator Instructions]

It is now my pleasure to turn the call over to Donna Townsell, Director of Investor Relations. Please go ahead.

[Donna Townsell, Director, IR]

Thank you, Gary. I am Donna Townsell, Director of Investor Relations. Our management team would like to thank you for joining our third quarter conference 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 Poulton, President of CCFG; John Marshall, President of Shore Premier Finance; Stephen Tipton, Chief Operating Officer; and our Chairman, John Allison.

First up today to share with you will be Tracy French for the Centennial Bank report.

[Tracy French, Chairman, President and CEO, Centennial Bank]

Good afternoon, and thank you, Donna. We had great quarter to report for us today. That as it goes for Centennial Bank as we navigate through 2020. The water may have been a little choppy along with the hurricane [indiscernible] all while our company continues to produce very solid results. And in some cases, we'll have the best results ever, complements 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 BancShares is 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 feel that you're going to hear a little more Ps this afternoon from our Chairman. Others will report details of the quarter and the 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 is $0.42. Total revenue $176 million. Those are Home BancShares’ numbers. 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 noninterest income, mortgage leading the way.

Operating expense, the same as last year, not included in our unfunded commitment charge that was done. Always, the one I like it here is total revenue of $533 million year-to-date, again pretty darn good first nine months. Kevin is going to give us an update since our fireside chat that Donna 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 are 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. So, customer needs assistance, we will work with them while protecting the bank. We have the experience in difficult times, and we’ve worked out several challenged institutions over the 20-plus years.

Our team is ready to assist in any need. Our allowance for credit losses is 2.29% when you add back our PPP 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 Stephen 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’ll say, good morning Johnny. So that's how top of the line focused it is. Brian and Stephen will also give a little color on the deposit, our 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, managing all areas, income and expenses, be in touch with our customers and provide the best returns to our shareholders.

Donna?

[Donna Townsell, Director, IR]

Thank you, Tracy. Those are impressive numbers.

Now, Brian Davis has some detail on how COVID-19 has impacted our margin. Brian?

[Brian Davis, CFO]

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 dilutive to the margin.

Second, as of September 30, 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 6 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 pro forma our Q3 2020 margin at 4.18% compared to 4.32% for Q3 last year or a 14-basis point decline, considering there was an 8 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'll conclude with a few remarks on capital. Our goal at Home BancShares is to be extremely well capitalized. I'm pleased to report the following strong capital information. 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.

[Donna Townsell, Director, IR]

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.

[Kevin Hester, Chief Lending Officer]

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 have 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 30, we have about 330 loans remaining on deferral totaling about $930 million. Within that number, our loans totaling $347 million that are only deferred 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 25% 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 RevPAR 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 8 basis points 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. At $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 is 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 nonaccrual 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 were 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 of new opportunities in the 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, Donna.

[Donna Townsell, Director, IR]

Thank you, Kevin. Having only 5% of the loan portfolio on full P&I deferral, as I say it again, is remarkable.

Up next, we have Chris Paulson with our CCFG division. Chris?

[Chris Poulton, President, CCFG]

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 C&I 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 coved reality. And as a result, borrowers are once again looking to move projects and opportunities forward.

As I mentioned last quarter, the time lines on new loans have expanded, and we continue to observe that loans generally take longer to complete and require a bit more work in 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.

Donna, I'll turn the call back to you.

[Donna Townsell, Director, IR]

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.

[John Marshall, President, Shore Premier Finance]

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. To 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 across 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 the end of the quarter about where we started to $920 million in loans.

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, 3.69% -- 3.69% spread in the first quarter, 4.25% in the second quarter, 4.47% in the just concluded third quarter and a respectable 4.73% spread for the month of September.

Further good news is the asset quality of the marine book. Origination FICOs grew from 7.76% to 7.78% 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 down to 24 basis points in September. Non-performing loans similarly improved each month from 49 bps to 48 bps to 43 bps.

There is some evidence of rationality returning in the fourth quarter as retail sales abate and are replaced by dealer inventories as European factories resumed 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.

[Donna Townsell, Director, IR]

Thank you, John. And now Stephen Tipton will discuss liquidity and its effects to the net interest margin along with funding cost. Stephen?

[Stephen Tipton, COO]

Thank you, Donna. I'll give color on deposit activity, re-pricing 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 build 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 the 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 environments.

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 re-pricing in our time deposit portfolio. We have $595 million maturing in the fourth quarter of 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 Shore Premier footprints. Payout volume at $711 million was in line with prior quarters and has highlighted by a larger contribution from our Florida and short premier regions, as John mentioned, than in prior quarters.

In Brian David'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 and 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 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 decline on a linked-quarter comparison.

On a core basis, and excluding event income, the loan yield declined 8 basis points, while the total deposit cost declined 7 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.

[Donna Townsell, Director, IR]

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?

[John Allison, Chairman, President and CEO]

Thanks. We'll talk more about that in a little bit. Tracy, kind of broke a little bit there, talking about the multiple piece. 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. We're in the Middle East pandemic. We've been concerned about certain asset classes and their performance. CECL -- CECL may be the -- it's not an asset class, but that may be the most uncertain.

But in spite all that, the Company produced another record quarter. Once you adjust for CECL, Home earned $0.47 this quarter and earned $0.47 last quarter. I mean you think about the consistency of earnings of this corporation. If you go back a year, it was 44 and then the next quarter it was 42, and if we go back a year it was 43, and then the next quarter it was 44. And last quarter it was 47x CECL, and this quarter it was 47x CECL. These are two of the best back-to-back quarters in our company's 21-year history.

As I said in the press release, I'm tracking a new metric. I recognize it's not GAAP. You'll be flustered by the accountants Donna or the attorneys, but it's almost a reverse of the efficiency ratio in some respects. And I call it P5NR. And that's where Tracy got all the peace. He gets -- I didn't know if he spits out, and sometimes I think he's stuttered, but it -- and that stands for pretax, 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 to shoebox. And it's the money you put in the shoebox, and all you have to do with it is pay taxes and make loan loss allocation, if that's the case. So to make it simple, it is net total revenue divided into pretax, 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 million. You simply divide the $104 million by the $176 million, and that came out to 59.28%. And I think last quarter is 59.3%.

Donna is that about right?

[Donna Townsell, Director, IR]

Yes.

[John Allison, Chairman, President and CEO]

So we're running pretty consistent. What that means is that Home BancShares 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 noninterest income. Plus it shows the earnings power of the corporation. And you can see the earnings power that it has given on Home BancShares. 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. Ex-CECL, the Company made $79.61 million, almost $80 million. And EPS, as I said, was $0.47. Loan reserve, strong loan reserve at 2.29, we built it a little bit this quarter. We had a -- I think we put $14 million charged off $10 million, built to about $10 million. We'll probably do the same next quarter. Unless we see something out there, I think there's becoming a little more transparent in the asset quality.

So, we have a return on tangible common equity of 18.29 and return on asset adjusted of 1.91 million. We are building a new branch in Marathon, Florida. I don't know if we have raised that building down it. We've taken down 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 you all keep doing it? How do you do it quarter after quarter after quarter? How do you keep producing those results? And you all never heard me say this before and now you chuckle around here, there is no substitute for experience. And I just want to give you an example of our Bank Board, Centennial Bank Board at HBI 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 have 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 Cabot and Little Rock in those branches.

So I think it would be well over 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 attention lots of answers. 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, Steven, 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 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, a great team of people and others supporting and helping that team. But it's pretty amazing. There was just kind of was a one-off, I call Donna.

So, it's Donna run this up for me and look at this and look at that, and when you think about putting these numbers together, that's -- I was actually taken back a little bit by the amount of experience. But I've always been a believer, you can get it out of a book -- but 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 or non-performing a little bit this time.

Basically, movie theaters, Kevin, when not basically put it tied down to. And we have one loan in Jonesboro matter of fact, $2 million manufacturing credit that I think they died. I think capital's probably over. Other than that, loans were a little soft. We're holding tight. It I looked at -- I read yesterday that inflation was up 2/10 in September, that it was up 6/10 in August and 4/10 in July.

So it's time to be careful. I know the Fed is 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 we -- you start doing these 2 -- 2% and 3% loans in the marketplace today. I think you could pay the paper for that down the road. We're holding tight. We're holding our rates up. We're holding our -- working on a margin hard.

I think you heard Stephen report on the margin, and Brian reported 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 or the banks that have reported so far, and they've done pretty good. And Donna, I don't -- other than anybody else got any? Tracy guys you want to add another two on that.

[Tracy French, Chairman, President and CEO, Centennial Bank]

I think you covered them PPP.

[Donna Townsell, Director, IR]

Well said Tracy.

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

[Operator]

We will now begin the question-and-answer session [Operator Instructions].

[John Allison, Chairman, President and CEO]

Thank, Gary. Before we go forward, I have one comment to make, if I could.

[Operator]

Absolutely sir.

[John Allison, Chairman, President and CEO]

I met Joe Baiden a while ago. I pulled Joe Baiden. I said we put $14 million in reserve and we charged off $10 million, that's not correct. We put $14 million reserve and charged off $4 million. And so, I just got it to the upside down and backwards like my friend, Joe.

[Operator]

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

[Brady Gailey, KBW]

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

[John Allison, Chairman, President and CEO]

Probably some, probably -- until it clears up, I am kind of like Chris. Some of those projects that you could 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've got to comment on that. It looks like we're seeing -- we did what, $25 million yesterday in loan committee meeting. But it's probably a good time. It's -- there's nothing wrong getting paid off, Brady, there's nothing wrong, 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 Hester, Chief Lending Officer]

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 try to be profitable.

[John Allison, Chairman, President and CEO]

So, 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.

And -- but outside of that, we -- our movie theaters, 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 million, $250 million [ph] worth of reserves, and you can see what we're generating on the income side.

So, it's probably not a time to be really 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. I mean, 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 got to pay the piper, right?

And when you got that -- what you see lumber up or average cost of single-family homes up $17,000 this year, I mean that's going to take its total at some point in time. And when it does, the Fed is going to be forced to raise rates and home is not going to be caught up in that.

[Brady Gailey, KBW]

Yes, got it. That makes sense. So, 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 only 5 basis points on a linked 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?

[Stephen Tipton, COO]

Brady, this is Stephen. Yes, I think the last comment I had about what we were able to do in terms of deposit costs related to loan yields and those matching fairly well. We do have still a pretty good opportunity to push on deposit rates both via the CDs that are maturing, and then we still got over $1 billion that's over 50 basis points on the checking and savings side that 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 to some degree, the wildcard will be the impact from the investment portfolio and kind of where reinvestment rates and those cash flows come in over the next -- over the next six months or a year, if we continue in this rate environment that we're in.

[John Allison, Chairman, President and CEO]

We're -- the investment portfolio is the problem. We're writing at about 150 in there. So, we're putting it on the books at 150. Tracy, every time he meets with his President, he talks about rates. And anything we write below our average yield right now is 514, ex-PPP. So, anything we right below 514 is dilutive.

So, I mean, he continues to preach to our group. And our group is doing a good job on that, 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. We were sitting on all that cash that made $100 million [ph] to $1 billion. We put a little of it to work. How much was -- Brian, how much of that we put to work?

[Brian Davis, CFO]

Well, we did increase our investment portfolio about $100 million 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 10-Q is that our government-sponsored enterprises was down about $30 million and our residential mortgage backs was down about $30 million, and our CMOs were 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.

[John Allison, Chairman, President and CEO]

Thank you, Brian. We bought -- a lot of banks are raising money right now and we bought a few of those pieces of paper. I don't know what we've got, $20 million?

[Brian Davis, CFO]

Yes.

[John Allison, Chairman, President and CEO]

20 million, we may buy some more of that. We're buying banks that we know that we're familiar with. But as we [indiscernible] a lot of banks raise money. We have not done that. We don't need -- look at our capital ratios, we don't need that. So Tracy, any comment?

[Tracy French, Chairman, President and CEO, Centennial Bank]

I think yell covered it pretty well. 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 downtick, 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.

[Brady Gailey, KBW]

All right. And then lastly for me. You got Baiden leading in the polls. You're 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?

[John Allison, Chairman, President and CEO]

Brian?

[Brian Davis, CFO]

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 a interesting question, 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.

[Brady Gailey, KBW]

Okay. Well hopefully that doesn't happen.

[John Allison, Chairman, President and CEO]

Yes, that's not going to happen, Brady, thank you.

[Operator]

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

[Matt Olney, Stephens]

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 930? Just trying to see if there's any negative migration during the quarter?

[Kevin Hester, Chief Lending Officer]

Matt, this is Kevin. Yes, of course, great movement on the 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 the $500 million or so that we've still got in the second deferral, we -- our special mention went up about $150 million in the third quarter, substandard up about $50 million.

So if you think of that compared to the $500 million plus and second principal, principal and interest, it's about a 40% migration. That's probably fair. We got a lot of folks that we know are going to come out at the end of the second when 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 the second 90 days, those are going to be the ones that that migrated further to a special mention or a substandard at this point.

[Matt Olney, Stephens]

Okay, got it. That's helpful. And then I guess thinking about the reserve build from here, I think we're almost at 230. Once we exclude some of the PPP stuff, 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 any charge-offs yet, but I'm curious what you think the timing of charge-offs would be for, I guess, for Home Bank and for the industry?

[John Allison, Chairman, President and CEO]

Well, we'll take them when we see them. 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. The manufacturing facility in Jones for is probably a charge off. 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, you probably won't. I think we did you non-perform non-performed.

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 got real estate attached to it. So there's no buildup.

There's no pocket here. 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 don't -- I mean, our hotels are going to be fine. Even our airport hotel is 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 will 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.

We get a vaccine. I think things will turn around, people start traveling again. So do you write-off a hotel, it's running 20% and struggling for cash flow that you deferred, that at some point in time will come back. Already write-off 7% of it, if you want to, when you're 57% loan to -- loan-to-value, and you can get $0.50 for it, I mean, from the voters everywhere.

So the good news is that as I -- as we were selective on our credits, when 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 got to replace a brick here and there, you were pleased it. So there is -- when we see it, we'll call it,

Kevin?

[Kevin Hester, Chief Lending Officer]

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 a 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.

[John Allison, Chairman, President and CEO]

We have one that was owned full deferral, and he's come back on interest and principal and genres back open, as 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 the worst thing could happen not talking politics, but the worst thing could happen is a complete shutdown again. That would be -- there are some people talking about shutting it down again, and that would not be good. That would not be good for any of us.

[Stephen Tipton, COO]

And that when Johnny is talking about has happened since quarter end, so that's --

[John Allison, Chairman, President and CEO]

Yes, that $70 million is an improvement. That -- yes, that happens since quarter end. So that's good news.

[Operator]

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

[Stephen Scouten, Piper Sandler]

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. I'm wondering, how the state is from a staying open perspective? And how businesses are doing there, overall?

[John Allison, Chairman, President and CEO]

Well, we're open. The states open. And COVID numbers have been moving up and down and up and down, but we're open. And so far, so good at Home BancShares, we've had 30 cases or so, Tracy, is that right, all over company-wide out of 2,000 people, so a little more in that 40.

So -- but everybody is doing well. We didn't anybody -- we hadn't lost anybody. At -- I mean Flask's pretty high. Butner 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 mask and we're wearing gloves, and we're social distancing. And we're doing those things that we need to do to protect our sales in our other people.

[Stephen Scouten, Piper Sandler]

Yes. Most businesses, small businesses, restaurants, all that stuff kind of still open where you are today?

[John Allison, Chairman, President and CEO]

That's correct. Yes. I was biting with the 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 -- if it's a hospitality and you're 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, John and Kevin just mentioned a while ago.

I mean, gentleman has a lot of liquidity when it shut down. They just shut down. I actually wanted to pay a lot more back on his loan that was being safe in case they do shut down again. To where we would have the liquidity and that's what people are a little more cautious on the liquidity side this time instead of jumping in and prepaying. And back to Kevin's point on the call like it is, and Johnny has 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 they were in, call it, over $10 million in debt, and some of them are just doing just fine. It was -- it's a lot of precautionary and some of that deferments that you see out there in some businesses. There is definitely the few that need it to make this time. But all in all, you continue to feel much better out there. I certainly do. When you're talking to our lenders and seeing our customer base and what's going on.

Don't forget, we're going to see another stimulus coming for the American public. It will be Baiden or Trump, but somebody is going to bring it. And it's going to be coming for the end of the year. So we got more money coming for these businesses. And Arkansas stayed open. We plan to price order 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.

[Kevin Hester, Chief Lending Officer]

And if they do it right, target towards the ones that really needed. Particularly hotels, restaurants, if they do it right, the car.

[Stephen Scouten, Piper Sandler]

Yes. Yes, I agree, Kevin. I'm curious what you guys are thinking on the capital front here today. Obviously, TC climbing nicely here this quarter, thinking about your pre-tax pre-provision 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?

[John Allison, Chairman, President and CEO]

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've looked at them, I mean, there are all some capital ratios we have not -- 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 by $200 million or $300 million worth of stock? Do we need to do we need to not buy stock? Do we need to increase our dividend? If we do an M&A, 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 may 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 still fair. 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, but made for some bank, but not for Home BancShares.

So I thought there might be some kind of program that came out. And if you had you're buying back your stock, you couldn't participate. So that's really been the reason we're out. Some banks -- 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 -- it has not been as bad as I thought it could be.

It certainly has -- it's a different situation in '08, '09 and '10 too many unknowns in the unknowns now, when is the vaccine coming out and getting their people back to work. So I feel good enough now that it's -- I feel comfortable enough now to go into the market and buy stock. And 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 we're -- that discussion is going on, and we're not going to sit here and end up with a 50% capital or 25% capital, it's pretty ridiculous.

So I mean, we're -- I think what was the capital ratio when 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 of reserve, and the Company just had a record PPNR. So the -- we're kicking out, as I said last quarter, over $100 million a quarter that we could use for losses if we needed to.

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, could lose $1 billion straight out and still hit all the regulatory capital requirements. So it is a topic discussion. I understand why you ask it, and we're in the middle -- we're executive committees in the middle of discussing that.

[Stephen Scouten, Piper Sandler]

Yes. Yes. No, that's good. Okay. Maybe last question for me, you talked about reserve levels there. I mean it seems like you got more than enough to me, honestly, here today, but I'm wondering the effects of CECL one, 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 of serve could normalize over time? And do you think that CECL was a benefit for you guys in the sense that it may just build reserves more than we 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?

[John Allison, Chairman, President and CEO]

Well, I don't know if CECL is right or wrong. I have no idea. Did it make us add more reserves? I'm sure. But Home's always been a big reserve builder anyway. And even when people are running down to 40 basis points to 30 basis points to 50 basis points on loan losses are, as we always kept 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 gets -- we announced record earnings day and the stock went down. So nobody gives a damn about earnings. So why not bill reserves. I mean, what difference does it make? I mean I've -- we've visited with some -- many of our analysts and said, should we -- we're going to have a record quarter, blown it out and we had $0.47. 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 want to head and build it, and we'll probably do it again next quarter.

And depending on -- the jury is out on CECL. So I'm not expecting strong pressure from the accountants on CECL because who knows if this is the right deal or the wrong deal. So it may be right, it may be wrong, but we managed through '08, '09 and '10 and '11 without CECL. We did fine. We just continue to be a reserves when we needed it. And I like the reserve. As far as I'm concerned, we 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 just to leave where it is. I don't have any -- there's no reason to move it. We've already done it. Just leave it there. We don't meet a Y-o-Y. I saw where JPMorgan took $500 million out of the reserve and put into income. They got $500 million, $600 million. I guess they needed $500 million so it's a great bank. And Jamie Dimon is a great guy. I 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 -- we've already taken the fight. We've already done it. Let's just leave it alone, just leave it there. And we're going to try to do that at Home BancShares, which I don't want to come -- I come in the first quarter and the accountants make, we reversed $100 million or $150 million and put into income that's really ridiculous. So I don't think we'll be playing that game. It's too -- way too early for banks to be playing yo-yo with their loan loss reserves, and we're not going to do that.

[Stephen Scouten, Piper Sandler]

That makes sense. And it that a lot of good color. Thanks, Johnny, and congrats on the really good quarter.

[Operator]

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

[Michael Rose, Raymond James]

Okay. So I appreciate this new metric that you've created. And certainly, this is not going to be an issue that's germane to you, but it does seem 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, some of the mortgage that is probably not going to recur at these levels, how should we think about this new metric that you've kind of created as we move forward? And what levers do you have, probably more on the expense side than anything to offset some of the revenue pressures? 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?

[John Allison, Chairman, President and CEO]

Let me say that the expense side, as Donna calls that, she says that's '08 and '09 stuff. We've already been through the expense reduction side. And we -- as we went over $10 billion, it's extremely expensive, and we've swallowed those expenses thus far and still running about 40% efficiency ratio. So I think that ratio -- I was just looking at it, just thinking about where it came from is 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 taxes and before loan loss allocation. I just plan 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 Tracy come here, I got something new on to show you so he what have we done. And it isn't -- it really shows -- it shows your margin. It really -- it shows your margin. It picks out your interest expense basically. And I may go further with that and take total revenue, not just net revenue and take total revenue. So 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?

[Michael Rose, Raymond James]

Yes. 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 looks like it would go down next year, particularly as the accretion 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 yes...

[John Allison, Chairman, President and CEO]

This is a point. That's a good point. And I see that. How long can mortgage stay as strong as it is, but then you're going to have another PPP program. 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 will pretty much resolve it and put it behind us. So 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. And then you had our small business investment group and our investments that kicked in $3 million this quarter, and that will be kicking in next year. So Home has put itself in a position with enough handles to pull all that we think that we can continue to produce these kind of numbers in the future. Tracy?

[Tracy French, Chairman, President and CEO, Centennial Bank]

That's exactly what I was going to add to it. I mean, you used the mortgage 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 right here. But based with our President of Keith yesterday, 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. And I go back to -- 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 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 the -- there are 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 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.

[Michael Rose, Raymond James]

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. Trust, for instance, this morning, discussed disposing of some of the 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 does seem depending on the next round 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?

[John Allison, Chairman, President and CEO]

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 flush, 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 movie theater guy that doesn't have any new movies, it's got a gorgeous facility.

We got real estate in that deal. He don't come out of this deal. Somebody going to come by that at some point in time, that movie theater is going to operate again. It may be 18 months for it operates, but we're going to stay with them. We're not -- we're not for close on him. He's the best -- one of the best operators in the country. He's done everything right. None of this is his fault. We'd need to be honorable people to him and stay with them and do the right thing with those customers. Kevin?

[Kevin Hester, Chief Lending Officer]

Well, we're going to look at pricing today. I mean, I'm not sure that today is 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. It'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.

[John Allison, Chairman, President and CEO]

I think 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're in -- 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 it's the I'm just 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 make their livelihood and survival is what America is all about. They're not sitting back here just waiting on somebody to give them something. They're getting after. We will tell you that is about a $70 million credit who's struggling, but he's got $4.2 million in cash. And we could loan them some money.

So I mean we can loan him a couple of million dollars, and he gives close to $7 million. And according to the forecast that we have, 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. That's what -- the good news is 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, they'll do a -- a lot of people did 80% hotel loans. We did 50% hotel loans.

So we set ourselves up to win 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 of 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're building the wall and homes in damn good shape. And 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 we just charge it off. We got the money to do that. We've got the capital to do that.

[Kevin Hester, Chief Lending Officer]

And you work with your customers. I mean it's -- when I met you, Michael, years ago, down here in Florida, you know the times that was and it's pretty rewarding to meet the customers that were in some challenged 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 has been with you many years?

[John Allison, Chairman, President and CEO]

The what?

[Kevin Hester, Chief Lending Officer]

The staff, management staff, how many years?

[John Allison, Chairman, President and CEO]

About 20 years.

[Michael Rose, Raymond James]

102 years.

[Kevin Hester, Chief Lending Officer]

102 years.

[Michael Rose, Raymond James]

102 years of total experience.

[Kevin Hester, Chief Lending Officer]

What I told you, when he asked me how long I've been with it, Michael. I said, well, it's been 18 years. He's well, that's nice. But it's like 47.

[John Allison, Chairman, President and CEO]

First job, a compliant is hard to work for. I do ask him about margin every morning, though, I do that.

[Operator]

The next question is from Jon Arfstrom with RBC Capital Markets. Please go ahead.

[Jon Arfstrom, RBC Capital Markets]

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

[Kevin Hester, Chief Lending Officer]

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 from a cash coming back in standpoint.

[Jon Arfstrom, RBC Capital Markets]

Okay. Okay, got it. Good. Question for Chris. You talked about the pipeline rebuilding for CFG. Can you just talk a little bit about the magnitude of that and the composition of that?

[Chris Poulton, President, CCFG]

Yes, happy to. Good afternoon. 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 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 borrowing need 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 mostly the deal is 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 -- or starts with screening and then software sheets and then deals approved, ready for close. We probably have more deals in the underwriting rate for close than we usually would, and they tend to take a little bit longer. I think most of them will on through but they're a little bit hard 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 of months delay to get that done. I think that's okay. And most of these, what we continue to see on the pipeline, it's all still pretty 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 and Al for financing in sort of a post code environment. But what we do as a 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 it, you can probably get that done.

[Jon Arfstrom, RBC Capital Markets]

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

[John Allison, Chairman, President and CEO]

No, we've just been careful. We were engaged in M&A, somebody looking at acquiring us at one point in time. And we've just been before we move as the discussion ran today, and it continues to run around here, and I'm sure it will 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 then go back and evaluate it and we took deep dives into our asset classes.

And we even learned something, Jon, that I've never learned before. 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 it's been a learning process for all of us. And you never know -- I think Home BancShares probably has the best handling 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 BancShares does. So to go do a $10 billion or $5 billion or $12 billion trade today would 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 a much -- it'd be kind of like Chris was talking about the loans. I'd be extended. It would just extend out, extend out. And if it were -- they were public, we probably want to right 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 and we might go buy something small. We might find us something small out there and go -- if we -- in the market, we might step up and buy something. Just if you got a car in the garage, you don't ever drive it, the batteries runs 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 dam good putting together up banks and consolidate them, we integrate them into our company. We haven't done one in a while because we've 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.

[Jon Arfstrom, RBC Capital Markets]

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

[John Allison, Chairman, President and CEO]

You got to do.

[Michael Rose, Raymond James]

Bigger shoebox, yes, bigger pair of boots.

[Operator]

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

[Brian Martin, Janie Montgomery]

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

[Kevin Hester, Chief Lending Officer]

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

[Brian Martin, Janie Montgomery]

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, or just any bigger pieces in there?

[Kevin Hester, Chief Lending Officer]

Not really. It is outside of hotels, it's spread out across asset classes and across our footprint. I can't really -- a little bit of health care, a little bit of just real estate type deals that are not owner occupied. I mean, hotel is the big concentration.

[Brian Martin, Janie Montgomery]

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

[Stephen Tipton, COO]

Sure. This is Steve, Brian. Functionally, all of Chris' -- the CCFG portfolio is at its floor today. And then we've got about a little over $800 million of the $1.3 billion or so in the near-term community bank inshore portfolios that are at its floor. I kind of look at it really just in 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 $1 billion, maybe just shy of that in maturing loans that will come up for re-pricing that are in the 4.9% range. So when we think about where we're where we're re-pricing, where we're originating today. I think our group will prospects are good to be able to hold in that range.

[Brian Martin, Janie Montgomery]

Got you, okay. I think that -- just maybe lastly on the expenses. It sounded as though there's not a whole lot to do there. That seems like you get pretty consistent with what you guys have said last couple of quarters. So, that's -- am I hearing that right on -- you did most of that in the last --

[Kevin Hester, Chief Lending Officer]

Pretty well, that's right, yes.

[John Allison, Chairman, President and CEO]

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 has given us some credit and we're trading at about 6x 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 the in 90 days with this same group of people. And we may be instead of having the group, instead of having the 102 years experience maybe we'll have 103, Tracy.

[Kevin Hester, Chief Lending Officer]

And we'll have six months experience in 90 days.

[John Allison, Chairman, President and CEO]

Thank you.

[Operator]

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