HOMB - NYSE

Greetings, ladies and gentlemen. Welcome to the Home Bancshares, Inc. Second Quarter 2025 Earnings Call. The purpose of this call is to discuss the information and data provided in the quarterly earnings release issued after the market closed yesterday. 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 the forward-looking statements. You will find this note on Page 3 of their Form 10-K filed with the SEC in February 2025. [Operator Instructions] This conference is being recorded. [Operator Instructions] It is now my pleasure to turn the call over to Donna Townsell, Director of Investor Relations.

Thank you. Good afternoon, and welcome to our second quarter conference call. With me for today's discussion is our Chairman, John Allison; Stephen Tipton, Chief Executive Officer of Centennial Bank; Kevin Hester, President and Chief Lending Officer; Brian Davis, our Chief Financial Officer; Chris Poulton, President of CCFG; and Scott Walter of Shore Premier Finance. Opening remarks today will be from our Chairman, John Allison.

Thank you. Welcome, everyone. I want to thank you for joining today. Today is the 76th quarter that we've had the privilege to report to our shareholders since going public in June of '06. I have to say that we've come a long way since June of '06, and even a longer way from the day in 1998 when my co-founder, Bunny Adcock and myself made our original purchase of a $22 million Holly Grove bank in Holly Grove, Arkansas. We've come from $22 million in total assets then to almost $23 billion now, from 5 employees then to 2,600 now, and from one small office in Holly Grove, Arkansas to 217 banking offices in five states, from a pretax income of $400,000 to an after-tax income of over $400 million now. And from our purchase price of $4.5 million in 1998 to today's New York Stock Exchange market cap of just short of $6 billion. I have to say that Home Bancshares' story is certainly one for the record books. Many of you have been with us and enjoyed this amazing ride through the years, and we're extremely appreciative of your long-term loyalty to what has turned into one of America's best and most profitable banks. For that, Bunny thanks you, and I thank you and our 2,600 associates thank you. We have moved from one of the smallest, there was about 10,000 banks there as I recall, to #64 in total asset size U.S. banks. But with our $5.9 billion New York Stock Exchange market cap, our company ranks #35 in the U.S. in market value. I've said on the conference call last quarter that the second quarter would look a lot like the first quarter, and we were right on the button. However, this quarter was a little better with record earnings of $118.4 million or $0.60 earnings per share, producing a return on assets of 2.08% versus last quarter, $115.2 million in earnings, producing a return on assets of 2.07%, pretty consistent, I would say, in the quarter. Those were non-GAAP numbers, but I'll take them. The non-GAAP ROTCE, return on tangible common equity was 18.26% and 17.68% GAAP return on tangible common equity. Loan loss reserve remained strong at 1.86%. Tier 1 capital continue to build at 15.6%, leverage ratio at 13.4%, total risk-based capital of 19.3%. Over the past 12 months, we have grown tangible common equity by $1.36 or 11.25% from $12.08 to $13.44. While at the same time, the company bought back over 3 million shares equaling about $86 million worth of our common stock and paid out about $150 million in dividends to our shareholders, all while continuing to grow tangible common equity. That performance displays the earnings power of your company. We continue to add more strength to our already fortress balance sheet. And as we say, the strength is no accident. And you never know when you're going to use it, and it's comforting to know that you have it. We've continued to be aggressive on stock buybacks, buying 1 million shares for both the first and the second quarter. That's 2 million shares so far this year. And we introduced for the first time the buyback yield. That's an incremental increase value for each individual shareholder based on the reduction in the number of shares. In addition to that, paying $0.20 per share for quarterly dividends to reward our shareholders. Over the last 8 years, we have bought back $520 million of our stock, approximately 22 million shares at an average value of $22.60, while at the same time, continue to grow tangible common equity. It is what it is, so far, so good. Nice start to 2025 with already $233.6 million of non-GAAP earnings, and that certainly is a record income for this company. Last year at this time, I think we're around $201 million in non-GAAP and $203 million in GAAP. So for the first 6 months so far this year, we're up a little over 15%. I certainly can't ask for much more of these assets. We need to find something to buy that will be additive to our income. I was looking this year for about $450 million in the income. And next year, I kind of had targeted $0.5 billion. That just rings the bell with me. I used the term $500 million, $0.5 billion kind of rings the bell for '26. But we need to acquire some more assets to get that done. We are presently looking at several opportunities, and we will pick the best of the line to keep the forward progress moving in the positive direction. The intention is to hopefully have an announcement before the next quarter's report. Back to you, Ms. Donna.

Okay. Thank you very much for a great report, and congratulations on a strong quarter. Our next report today will come from Stephen Tipton.

Thanks, Donna. As Johnny mentioned, the second quarter was another strong performance by Home and Centennial Bank. Highlighted by strong revenue and stable core expense trends, we were able to produce an adjusted return on assets of 2.02% and an adjusted efficiency ratio of 42.01%. The reported net interest margin came in at 4.44%, in line with prior quarter, even with a lower level of event income. The core margin, excluding event income, was 4.43% versus 4.42% in Q1, and is up 20 basis points from the same period 1 year ago. I'm encouraged to see the trajectory of the margin in June as we enter the second half of the year. Deposits ended slightly lower in Q2, down $53 million as a result of seasonal tax payments that occurred in April, but we are pleased to see balances grow in both May and June. As we observed the deposit activity early in the quarter, we hated to see the money go out, but we are comforted to know that we have core customers that are doing well, making money, and operating in dynamic growing states like Arkansas, Texas, Alabama and Florida. In our other business lines, the trust, wealth management and mortgage divisions continue to improve and show meaningful additions to the bottom line. I'd like to thank our regional and division presidents and all of our bankers on another great quarter. And with that, I'll turn it back over to you.

Thank you, Stephen. Next, we will hear from Kevin Hester on the lending portfolio.

Thanks, Donna. We continue to achieve recoveries from the charges taken in the fourth quarter cleanup. This quarter, we recovered a total of $3 million, and we remain on track to achieve the expected $30 million in total recoveries over time. One large nonaccrual loan from that group remains very close to being resolved in a positive manner, but that resolution will have to wait another quarter. In addition, the multifamily construction in the north part of the DFW Metroplex is complete, and we will begin leasing activities this month. Asset quality metrics were mixed, but none of the changes were material in either direction. The slight increase in NPLs was primarily due to a large yacht for which we are in the middle of the arrest process. We have possession of the vessel, which is in very good condition, and we expect a full payoff on this loan once we exit the arrest process. Solid loan growth split evenly between CCFG and the Community Bank complete the results of another impressive quarter. Donna, I'll give it back to you.

Thank you, Kevin. And now Chris Poulton will provide an update on CCFG.

Thank you, Donna, and good afternoon. An uptick in originations for Q2 led the portfolio growth for CCFG. For the quarter, we closed approximately $500 million in new commitments, which brought our year-to-date total to just over $800 million, which compares favorably to prior years. The portfolio grew by about $122 million during the quarter, taking our total over $1.8 billion and putting us in plus territory for year-to-date as well. Our unfunded commitments, approximately $1 billion, which has been fairly consistent over the past year. As we look forward, we may see an uptick in payoffs during Q3, but ultimately, we expect the portfolio to be stable to up over time. Donna, that concludes my brief update from CCFG.

Thank you, Chris. Johnny, before we go to Q&A, do you have any additional comments?

Well, I feel like we need to have a [indiscernible] two record quarters back to back.

I agree. Let's see if anybody in the crowd love to send us and go find me this -- I believe that was Michael Rose.

I believe it was Michael Rose.

So, challenge extended.

Yes. Well, it was a great start to the year. The first 6 months are outstanding. So I'm pretty pleased with what's going on. And I expect that the third quarter will be about like the first and second quarters. We've kind of had to win that back, had a little extra income in both the first and the second quarters, and we got a shot at having some extra income in the third quarter here, too. So hopefully, we'll continue to keep it strong until we find something else. We need to find something that makes sense for us that's in our marketplace or close to our marketplace. We can -- and be additive to the EPS of this company. So anyway, we're working on that. And I guess we're ready for Q&A.

[Operator Instructions] First question comes from Stephen Scouten with Piper Sandler.

Hey. Good afternoon, everyone. I wanted to start around loan growth. Another really nice quarter, both CCFG here and the Community Bank. And year-to-date, this is -- it seems like the best organic loan growth you guys have had really as long as I can remember. And so I'm just wondering what you're seeing from your customer base, if there's been kind of an increase in aggressiveness to drive that new loan growth or really what might be driving the success there?

Hey Stephen, this is Kevin. I mean Johnny says we take what the market gives us. I wouldn't say that we're more aggressive. I would say that we've got some markets in which there's still some really good things happening, and our folks are hitting on all cylinders in some of those markets. It is tough. We've got some competition that I think has loaned into the rate cuts that have not occurred yet and tried to reach out and maybe lock some of that in for a little bit. So that's made it a challenge really across our footprint. All of our presidents are talking about that. So that's a challenge. But we just have some -- we're in a lot of really good markets and including what Chris does with his group, we just got a lot of good markets to loan in, and that's why we're here -- so why we're in those markets.

We had the loan committee yesterday, and we had almost $100 million project, a couple of $30 million projects. It was a pretty good loan committee yesterday. There wasn't many loans, it was a lot of big loans yesterday that we've been working on for some time, and they just come into fruition. So we're seeing that. But the rest of the market may force us down at some point in time because they're already writing it. They didn't chase us on the way up, but they're leading on the way down. So I mean the real truth is anybody can give it away. So I'm not sure this is over yet. I mean I think we're banking on Trump and Tau having a drink together or something and lower the rates. So that may happen, it may not happen. But what we don't need to happen that happened -- if we take rates -- President Trump, as you know, I'm a huge supporter of, talked about going back to 1% money. If we do that again, we'll have inflation again running rapid. So that's the scary part of that. We don't need -- we need a slow premeditated drop in interest rates, we don't need a quick drop that could really kind of screw things up.

Yes. Makes sense. And then maybe going to the M&A side of things. Obviously, we've seen some more deals in Texas as of late. You noted earlier that you guys are looking at a few things currently. I'm curious maybe if you could give us an idea of what size opportunities you might be targeting here in the near term? And then would there be anything that you all would pursue right now similar to CCFG or marine where you're acquiring loan assets versus a whole bank deal?

Well, probably not on the whole bank deal. I mean, we'll be looking for a whole bank probably not on the subsidiary operation or loans. We're probably not -- I mean, not that we wouldn't do it, we haven't seen it. So if we saw it, Kevin look at it and let us know. But we are pursuing a couple of banks that give us an opportunity to grow. And we've seen a couple, we're going to talk about a couple next week, and then I'm going to see one next week. So we're trying to find something -- you run, call it, GAAP or non-GAAP, 2.02%, 2.08% ROA. You can't ask for much more than that out of your people. So we've milked all we can get out of this turn. So it's time to find something else for us to buy. And we're on the path. Just has to be accretive, accretive, and accretive and makes sense. And if somebody out there wants to join a company that's growing and making lots of money and got a strong financial statement, we're the one. So we're one of, we're not the only one, there's more than us. But I don't know if that answers your question or not.

Yes, it does. And you kind of led to my last question is just with the way the math works today with the marks and the interest rate marks still, do you think you can get a triple accretive deal still at this time? Or do you have to take a de minimis amount of dilution to get something across the finish line?

We haven't taken dilution before. Interesting you say that. I went back and looked at the serial acquirers recently. If you go back and look at some of those, one of them I look back, they outdid me 10 years ago, and the stock is the same price today that it was 10 years ago. And the dividend is the same price. They're paying the same dividend that they did 10 years ago. And the people that -- I mean they bought the bank, but they didn't do anything. I mean nobody got any appreciation out of that trade. So you go back and look at those serial diluters 5 and 10 years back, and there's -- I just started looking one day, those that been on some bids back in those days. And actually, this one is at the same price it was 10 years ago. It was about $1.5 down, but bank stocks have risen a little bit lately. So we're not going to get into that game. I don't know what people are thinking when they dilute themselves into infinity. We have no intention to do that, we're not going to do that. And I mean, would I do 6-month dilution? Maybe if it's the right deal that was EPS accretive, maybe. But to go out and dilute myself -- I mean some of these people bought some of these deals that we turned down. I mean we saw some of those deals and we turned down. We saw Veritech -- Veritex got a nice deal, it was a good company. That's a nice trade to win. I congratulated them on that trade. So we didn't -- we were not on that trade, but we were on one of the others [indiscernible] recently. I don't know you get me off of that. When I look back how we got out bid on these deals 5, 6, 7, 8 years ago, and the stock is less today than it was then that are still paying the same dividend, then nobody got anything. That's the problem. Do a 4-year earn back to tangible.

Yes, I think I know the deal you're talking about in Florida right there. I think I remember the one you're talking about there. So I think that's why your stock trades where it goes, Johnny. So I appreciate how it goes. Thanks for the time.

We now turn to Matt Olney with Stephens.

Probably for Tipton. I want to ask about just deposit pricing in the footprint. Saw some good results in 2Q. But just curious what you're seeing as far as deposit pricing. Any incremental pressure you saw during the course of 2Q? And some of your peers have talked about seeing potentially some higher deposit costs in the third quarter or at least until the Fed makes its next move. Just curious what you're seeing with respect to deposit cost competition in the footprint.

Yes. It's about the same as we talked about in the first quarter. I mean, you kind of got some of the same guys running the same specials here that they have been for the last 6 months or so. Our folks negotiate against those well, and we're able to price them slightly lower than what some of the competition is doing. We've got a decent amount, about $1.1 billion or so in CDs that mature in the second half of this year and hoping that we can -- optimistic that we can get those down just a little bit from where they're maturing at.

Okay. I appreciate that, Stephen. And then I guess the other question is more for, I guess, for Johnny. Johnny, you mentioned that buyback yield in the press release and in the prepared remarks. Just curious about your thoughts on the buyback and the 1 million share pace that you mentioned in 1Q, 2Q. Just trying to appreciate if you still have a similar appetite for that pace even at these current valuations.

Well, that's a good question. We'll see if we can put some money to work here in the next 30 days, some capital to work. Having the -- we've continued to buy the stock back. It has been dilutive to us to buy back as we know. We have -- I think your group is running the numbers on that and also DD&F is running those numbers on that on the buyback yield and give us a better understanding of where we need to be. But as of -- we talked about a special dividend to all our shareholders. We actually were looking at have a seriously considered and still have seriously considered a special dividend to our shareholders. But let's see what we get bought in the next 30 days here. And maybe we'll have -- we got about how much cash at the holding company right now?

About $400 million.

$400 million, that's so comfortable. Anyway, we've got a few that we got to pay off.

$140 million.

$140 million, I thought that paid off July 1, it pays off July 31, right? So we got $140 million to pay off Happy the sub debt, and we'll pay that off when that comes up. So we'll probably sit for a little bit. But actually, we've got so much capital and that's going to reward our shareholders. And we may do that anyway, certainly a thought that's on our mind to do is to do something with that.

Our next question comes from Brett Rabatin with Hovde Group.

I wanted to -- I guess, first, Johnny, you mentioned the $450 million this year and $500 million next year. Are those just kind of round numbers because that would imply a bit of net income atrophy in the back half of this year?

Well, we're at $233 million today. We are -- that's just about what we're running, right? We're running about $110 million, $115 million, $120 million a quarter. So that's -- you annualize that, that's about where that is. I don't think that's a reach. I think next year is the reach. I think next year is the reach. I mean we may not get $450 million this year, maybe $440 million or may get $460 million depends on what happens between now and the end of the year. But I think $500 million is realistic if we can get some assets under tow, we get a handful of some assets. That's the key. We can't -- I was at a bank conference recently, and I said I can't ask our people for any more than a 2% ROA. And Donna said, yes, but you do. So we will ask for it, but it's not realistic, so.

Yes. Is that $450 million, is that on reported or the core earnings?

It would be reported earnings, combined with the shareholders.

It would be better than that, Brett. I think that was just a round number.

Do you hear that? I like what he said, just a round. I think he voted for $420 million budget, and I voted against them.

And then it sounds like the loan volumes are still strong, but you're expecting some payoffs in 3Q. Any color on the pipeline relative to 1Q and then just what the production was this quarter?

Brett, this is Kevin. The pipeline is still pretty strong. You are right. We had a couple of things that we thought would probably pay off in the second quarter that moved into the third quarter. So last quarter, I was saying we had an uphill climb because of what we saw coming to payoffs, a little bit pushed to third quarter. But production is good. I think $1.1 billion last quarter. Pipeline is still like it was.

Okay. And then maybe just last one around the margin. And if the Fed does cut in September, perhaps, how do you guys think about the impact to your margins?

Brett, this is Stephen. I think the same thought process as we've communicated in the past. I mean, we still screen to be a little asset sensitive. But I think in the first 25 or 50, whatever it is, down scenario, that gives us certainly some cover to lower deposit rates. We've seen a little bit of sensitivity around 4% or 3% in some of our deposit book and going below there. And so I think if you see the Fed make a move at some point, that will give us the news and the ability to be able to lower that and hopefully be able to offset what occurs on the loan side from the variable rates.

You didn't ask this question, but I have to get it out. Our expenses were high this quarter, and they were high because of a lawsuit settlement that we had that had been going on for several years. It was about $3.5 million. Actual expenses when you take the one- timers out according to Stephen, is $111.5 million, and I did the numbers myself, and that's pretty close when you take the one- timers out. So the expenses -- don't think the expenses have run off the rails, they haven't run off the rails. So we'll do a better job next quarter, but that was something that brewing -- we've been dealing with for years. We dealt with it and on the expense side, but we also had something offsetting income item there. We sold fintech operation out of Happy Bank that brought us about $3.5 million in pretax income in. So anyway, the expenses will be back around the $111 million, $112 million mark for next quarter, it should be.

Good to hear. Congrats on the quarter and hope things cool off a little bit in Arkansas.

Yes, there are we who laughed here, it's too high. Kevin told us as well something about the 10-day advanced weather, the low is today at 96 or something, right, Kevin?

That's correct.

We now turn to Jon Arfstrom with RBC.

Stephen, maybe for you just to clean up on the margin. In your prepared comments, you talked about being optimistic about the June margin. Can you give us a little bit more detail on that? It seems to indicate you think it's going to step up, but just curious your thoughts on that.

Yes. So thanks, Jon. The core NIM, excluding event income in June was 4.47%. So it was up a handful of basis points from where the quarter averaged. Some of that was loan yields were up a couple of basis points. Deposit costs were flat, and then the investment portfolio has performed a little better as of late.

Okay. Very helpful on that. And then just a couple more smaller ones. But can you talk a little bit about the mortgage banking outlook? I know it's a small line item, but maybe it's symbolic of a little better activity in some of your footprints on housing. Can you talk about that a little bit?

Jon, this is Kevin. Yes, I mean, I think it's been up and down. We'll have a good month of locks and then the next month will not be good. I don't know that there's going to be -- until there are some rate drops that get the mortgage rates down below where they are today, I don't know that we're going to see any kind of real positive multi-month trend there.

This is Stephen. I mean I would say, we're more committed to -- I'm sorry, Jon. I was going to say we're committed to the space. We brought a team in DFW area on board kind of late first quarter of this year. They had a good second quarter and are profitable already. So I mean, I think we'll continue to be in that space and continue to try to grow it the right way.

Okay. And then a small one on Shore. I know you mentioned the yacht. Is there anything else in there? Or is that that's really substantially all of the change in nonaccrual loans?

Yes. I mean that was the change for this quarter was that -- and that's been on our radar for a solid 6 months. The arrest process takes quite a while, takes longer than I would hope even when it's here in the U.S. And so we think we're in good shape once we're able to do something with it. But right now, it's sitting in our possession and working through the legal process.

It's a $9 million yacht with less than $5 million payoff on it. So it's just a matter of getting your hand -- when you get your hands on and get it sold. There's not a loss in this perhaps maybe. If it brings $5 million, we got legal fees, maybe some, but there should not be a loss, let me say that. The process just takes much longer than we anticipate to take it. The process just continues on. But I think we're about to get -- the process is about over, right? The [indiscernible] arrest it, types it, puts it in, then the judge gives some x number of days to pay us off and they don't get us paid off, then we get the boat. So we're at the point of getting the boat, I think, Kevin.

We're close. It's close.

We now turn to Catherine Mealor with KBW.

Really nice quarter. Most of my questions were asked and answered. But my one follow-up is just on credit. You mentioned you still have about $30 million left over of charge-offs just from the Texas cleanup a few quarters ago. Any update on the cadence of that $30 million and how we should see that come through over time?

Yes. Just to make sure to be clear there, what I was mentioning was the $30 million recoveries that we think that...

On the recoveries, excuse me. Yes, I misspoke.

Largely, it's $1.5 million a quarter. There's a couple of chunks in there. We could get -- if one works out, this quarter, we could get $1.5 million on top of that. But from a recurring standpoint, it's $1.5 million a quarter on one of the loans that we charged off.

Okay, great. And then maybe just one more back on the buyback. I mean is it -- you've been really active in lieu of not having any M&A in the past few quarters. Is it fair to assume that, that holds back -- if you do announce a deal that you're looking at this quarter that we probably pull back on the buyback for a period of time, just depending on what that looks like? Or do you think you're -- outside of when you're not able to buy back stock just with the deal pending, you're just going to be continually buying back stock kind of alongside M&A?

We have not quit buying back stock, and we probably won't quit if we run into -- if we see -- I don't see the capital restraints keeping us from doing what we need to do even if we buy $4 billion, $5 billion, $6 billion, $7 billion worth of assets. So I would -- we actually, Steve and I talk about it nearly 3 or 4 times a week, whether we want to do it or don't want to do it where we are. We have a 10:10 meeting -- executive meeting every day, and we cover all those items. So to say we're going to put buying back, I wouldn't say that. But to say we're going to buy $1 million, I can't say that, but I'm sure if we'll continue to buy back stock. I just -- I have this nondilution idea that I don't want to dilute. We don't dilute and then we turn around and buy the stock back and we actually dilute ourselves buying the stock back. And I wondered sometimes if that was the right thing for us to do. And we have a couple of companies running that analysis for us as we speak and going to make presentations to us. I want to see that. I really wasn't familiar with the buyback yield, we've seen the buyback yield now. We've started adding it to our chart. It does add incremental kick to our shareholders. But I said to Donna, I said, did you feel that kick last quarter? And she said, no. And I said, if I did a big stock dividend, would you feel that kick? And she said, yes, I would. So the answer is we'll probably continue to buy back stock unless we need money for an acquisition.

That makes sense. Especially given you're -- if you're saying you're looking at deals, did you say you're looking at adding $400 million to $700 million in assets? I mean that's just so small given your capital levels. So certainly, you'll have plenty of capital still unless you do multiple deals, right?

Billion, I didn't say -- did I say million? I'm sorry, $400 billion to $600 billion. We'd buy $400 million if it was good enough trade for us. It takes a lot of work.

And you're also not the kind that would issue cash with an acquisition, right? It's always stock for stock given your currency.

Cash in an acquisition, would you do cash?

Well, we haven't. It gets dilutive, right? It gets really dilutive. Our dollar bills worth [ 2.25 ]. So it sure works better to use your currency and do a trade. But we throw some cash in the deal. We used to throw cash in about every deal we did. We put 10% or 20% cash in. We're not afraid to do that. It does creep up on the dilution. It gets there pretty quick, Dr. Brian? Yes, it does.

[Operator Instructions] We now turn to Michael Rose with Raymond James.

Just a question on hiring. We've seen a lot of banks disclose hiring plans, some formal, some informal. Just wanted to get a sense from you guys what the hiring plans were for you, if you plan to accelerate them. I know the expense run rate will come down next quarter, what you said earlier, but is there an opportunity here? Is it a little too rich for what you guys are looking at, at this point?

You said hiring plan? Well, we don't...

Yes, hiring of lenders is what I was referring to.

We don't do that. That's not our style. I think that's chicken share, part of my expression. I really do. I don't like that. And we've had -- I don't know, over the years, seven or eight teams in here, people wanting to walk out of their company. Some of my -- I don't know how you face those CEOs, Michael. I walk in -- we just had them here in our office one time, and I went to a meeting in Dallas, and I walked right into the CEO of the company they were leaving. And just something that bothers me, you take a young loan officer and you bring them up through the ranks and you help him build his book and his portfolio and then someone offers him another $200,000 in a bonus and they walk out the door. That's not our style. We don't do that. We'll be -- not to say we won't hire somebody from somebody from another company, but that's just not our style. We don't do that. We don't plan on doing it. That's not going to be a focus for us.

All right. Maybe just one more separately maybe for Chris. Obviously, devastating what happened out in California. You guys have an office out there. There's going to be some rebuilding. How much of an opportunity is that for you all? And is that something that we should consider as we're thinking about the growth potential over the next couple of years?

Yes. Thanks, Michael. I think it remains to be seen in terms of what kind of opportunity it's going to be. It's a long-term opportunity if it's an opportunity. I think I read the other day, I was talking to somebody, they've issued 50 building permits total. Since then, I find it very hard to believe California will start rebuilding in the near term.

We now turn to Brian Martin with Janney Montgomery.

Johnny, maybe just one back on the M&A. I think last quarter, you talked about maybe preferring some smaller deals as opposed to bigger deals. But depending on what's available and what you're looking at, I mean, any change in your outlook or just thoughts on just the sizing of things you're looking at near term here, what they look like or geographically, any -- a little bit more color on that?

No. They're in the $2 billion to $6 billion range, and they're in the United States, footprint around. Does that help you?

Yes. So $2 billion to $6 billion in the U.S. and your preference in terms of multiple deals versus one deal? Is it -- any preference there still in terms of how you're thinking about that?

It doesn't matter. That's probably what will happen. We'll sign up a deal and then there'll be another one pop right behind it. But if it is a good deal and it works, we'll go ahead with it, provided the regulators will allow us to do that. I assume they will.

Okay. And then how about just -- one for Stephen on the margin. Stephen, I think the -- it sounds like the margin, I guess, where it exited versus where it's at today, it's up a little bit this quarter-to-date. But on top of that, you've also got the sub debt coming off. I guess, so just the benefit -- I mean, is your expectation then that -- I guess, what's the impact of that sub debt on the margin as you get into 3Q?

Sure. So Brian and I were talking before the call, it's about 5 basis points or 6 basis points that it will benefit the NIM when it goes away. Again, it's going to go away end of this month or 1st of August. So you'll have 2/3 of the benefit this quarter, and then the full benefit in Q4. But absent that, I mean, I'd still say pleased with where June ended. But if we can hold in this 45% range and then layer a little benefit from the sub debt, I think we'd be pleased for that in Q3. I mean we talked a little earlier about what you're seeing on loan pricing and some of those things, and we'll see where that goes, but yes, very pleased with that.

I think we have just short of $1 billion repriced between now and the end of the year, Stephen...

Yes. We got a little less than $800 million in loans, fixed rate loans that mature in the second half of this year. Those were coming off at $546 million. So there will be an opportunity to get those up some. We've got about $1.1 billion next year that's at 5.99%. So who knows what happens with interest rates between now and then? But certainly, in the second half of this year, I think there's an opportunity to get a little extra yield on what's maturing.

Got you. Okay. That's perfect. I was going to ask on the loan yield, so that's something you addressed. And then just on the -- I think Johnny said or yes, I think, Johnny, on the expense number, the core number, just in reconciling to that $111 million, I guess the -- when you get down kind of that level this quarter, Stephen, outside of the $3.3 million, if you're $116 million in reported expenses, absent the $3.3 million, what else comes out of that to kind of get down to that $111 million-ish type of number is more core?

Yes. We had $1.3 million -- a little over $1.3 million in legal expenses related to our West Texas lawsuit, and we talked a little bit about that last quarter. I think we had one fairly large invoice in April that was from the prior month. Those invoices have gone down to a nominal number now. So assuming we get that settled in the near future, I would expect those legal expenses go away. And that kind of gets you down into the $111.5 million range.

One thing we do need to add back to the number is that we had that special assessment reduction. And so that was -- our FDIC number was down $1.5 million.

Yes. And if you look at where salary expenses landed for Q2, they were a little elevated just from fee income, particularly at CCFG incentive comp and then kind of same on mortgage. Mortgage had a good quarter. So I'm holistically saying that incentive comp was up a similar number to what we had offset from the FDIC credit. So there's about -- those cancel each other out, there's about $4.5 million that I would not expect to reoccur.

Okay. So the extra that's in there is in the salary line, and that's how to think about that to kind of get to the core number?

Yes.

Yes. Okay. And then, Stephen, I think last quarter, and maybe Kevin talked about this, but the payoffs versus originations, you guys had expected some payoffs. It sounds like those maybe are going to roll into the next quarter. But just what were the payoffs in the originations this quarter?

Yes. Payoffs this quarter were $756 million. And you're right, there are a handful of those that we expected to occur in Q2 that may slide into early Q3. So $755 million, they were about $650 million last quarter. And then origination, Kevin mentioned origination volume was about $1.1 billion. Typically, about half of that is funded at quarter end.

Got you. Okay. And then maybe just one for Kevin on the credit quality. It sounds like, I guess, the expectation was that the credit -- I guess, there was maybe one large credit I thought was going to kind of come off or maybe a couple that are going to come off this quarter. Is that kind of the one you're referring to? I guess at least when we think about third quarter, kind of what the -- that improvement that was kind of expected this quarter, would you -- are you suggesting that, that's likely in -- I thought it was in the $10 million or $12 million range that maybe we see that type of improvement in nonperformings in the third quarter here or just some benefit there?

Yes, your own point, there's around $12 million, and I really was hoping to be able to announce that we had it moved in the second quarter, but it looks like it will be third quarter. And then we got another one in OREO that I don't think it's quite time yet, but we will be -- we'll start leasing the apartments this quarter, and we'll see how that -- if that takes off well, then it will generate activity with somebody coming in and wanting to buy it. So we're making progress.

Got you. Okay. And just the reserve level, it kind of drifted down a little bit this quarter. Just this kind of this level is where you're comfortable for now and just it kind of hangs around where it's at. Is that how you're thinking about it given the current credit outlook?

Yes, we're comfortable. We're comfortable with -- extremely comfortable with the reserve. If we had an opportunity we'll build it, we'll build it at some point in time. So I still like a 2% reserve. I just like it. I just always run a 2% reserve. And if I get a chance to build it to 2%, I'll take it to 2%. I just sleep better than that, you should, too. But I sleep pretty good at 1.86% to 1.85%.

This concludes our Q&A. I'll now hand back to Mr. Allison for any final remarks.

Good quarter. Thanks, everybody, for your participation. I hope you enjoyed the earnings release. And I guess next quarter, we'll be 77. Is that right, Donna? Next quarter, we'll be 77. So Bunny is in here with us. You got anything to say to the folks?

No, just fantastic quarter. That's what I would say. I can say on behalf of all the other Board members, we're very, very, very proud of this group sitting in this room today and all that you've done. Thank you. Appreciate it.

Brian, anything that you want to say or anything we left out you think we need to cover?

No, I think we pretty much covered it all.

Stephen, anything else?

Good quarter.

Kevin?

I'm good, sir.

Donna?

Not here.

All right. Well, we're going to be going. We'll see you and talk to you in 90 days. Thank you.