John Allison - Chairman Randy Sims - Chief Executive Officer Randy Mayor - Chief Financial Officer Brian Davis - Chief Accounting Officer Kevin Hester - Chief Lending Officer Donna Townsell - Vice President, Corporate Efficiencies Tracy French- Regional President.

Brian Zabora - Keefe, Bruyette & Woods Matt Olney - Stephens Inc. Kevin Reynolds - Wunderlich Securities, Inc. Michael Rose - Raymond James & Associates Jon Arfstrom - RBC Capital Markets David Bishop - Drexel Hamilton Peyton Green - Sterne, Agee & Leach, Inc. Brian Martin - FIG Partners.

Greetings, ladies and gentlemen. Welcome to the Home BancShares Incorporated Second Quarter 2014 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 and then entertain questions.

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 2014. At this time, all participants are in a listen-only mode and this conference is being recorded.

(Operator Instructions) It is now my pleasure to turn the call over to our first presenter, Mr. Allison..

Thanks, Jerry. And welcome to Home BancShares' second quarter 2014 earnings release and conference call. With me today is Randy Sims, CEO; Randy Mayor, CFO; Brian Davis, Chief Accounting Officer; Kevin Hester, Chief Lending Officer; Donna Townsell, Vice President of Corporate Efficiencies and Tracy French, Regional President.

It was just a little over year ago we announced Home BancShares' largest acquisition ever (inaudible) Arkansas deal. The question on everyone's mind was how could Home integrate big one as efficiently as they have done that doesn't ourselves smaller transactions that they done.

Only prepared can they executed as efficiently, do they have the experience, do they have the people and do they have the knowledge. Well, I guess the best way to show that is to compare second quarter 2013 just before Liberty with second quarter of 2014 with Liberty.

After eight months of -- eight months later after closing and integration of $2.9 billion that was run in 0.80% ROA and efficiency ratio of almost 70% with some major asset quality concerns. Well, here we go, June 30, 2013. We are all pulling around play Conway; we are pretty playing out at Home BancShares that done a strong 1.70% ROA.

And after we brought Liberty in the deal we are proud to announce that we did 1.70% for June 30, 2014. Core ROA was 1.79% last year, 1.83% this year. And our pretax pre provision ROA last year was strong 2.85% and this year is 3.27%. Return on tangible common equity last year was 16.97% and this year it's a 21.03% (Refer press release 20.94%).

Efficiency ratio Donna Townsend, it was crawling around here last year this time with the 45.50% efficiency ratio and we are not thought might happen is happen we came out with the combined efficiency ratio of 41.09%. Earnings were $17.7 million last year and $28.4 this year, up $10.8 million, that is up 61%, earnings up 61%.

I think it was 55% in the first quarter and 61% even stronger in this quarter. We went from $0.31 to $0.43 and I think we lack I don't know to $300,000 deficit, that's a strong $0.43, that's not weak $0.43.

And while we did all these, if you remember it from a (inaudible), we really didn't working made no loan loss reserve allocations and while we this year we have added $13 million of loan loss, we have taken a loan loss reserve from 0.93% to 1.17%, that's over $6 million score that I am pretty proud of the results with that.

The cause of concern over the asset quality-- the quality the assets acquired in the Liberty transaction. We mopped up portfolio over $100 million. That's the bad news. The good news is that it may not be as bad as we expected. We've had-- we've already taken many of these losses and resolved many of the issues that were outstanding.

This might turn around to have positive effect earnings down the road. That's what we do. We purchase companies with poor to moderate operating methods and transformed them with the high performing companies. I want to thank the employees of the former Liberty Bank for their confidence and leadership.

I know it has been fast and tough eight months but congrats to all of you, keep your heads high; you have become one of the highest performing banks in the USA. He made the translation from a poor performer to a great performer. Yes, I heard all of the naysayer but the numbers don't lie.

It is what it is congrats to all Liberty and Home BancShares' employees. I love it when plan comes together. You heard me say many times if you can't push loan, it is like pushing a rope, if you can't make it happen. It is happen or it doesn't happen. And when it comes the end we will get our fair share of it.

I have also heard the good times come to those who wait. Well, I guess fair term. We have a huge pipeline of approved loans. The largest pipeline in the company's history or that I can remember since we started keeping up with it.

You know when you think about it for a company that doesn't involved itself in exotic risky transactions, it is a very conserved company that doesn't sell the future in terms an rate even I am totally amazed at the size of this pipeline. And from the looks at the next loan committee, it's not stopping.

We are very busy on the acquisition but hoped turned out the couple more deals this year, in addition to Bud's Florida Traditions deal which could should close soon. The future for Home has never been brighter. As Liberty on the wraps, Florida Traditions closing, a couple more deals this year and the largest pipeline in the company's history.

I think we are in a very positive position for the future.

Randy?.

Thank you, Johnny. It has been a very busy quarter. And add just a little more color to your highlights. Let's start with Florida Traditions Bank. If you recall, we signed a definitive agreement in May with Florida Traditions located in Dade City, Florida.

This gives us an additional eight branches and a great footprint to fill in between our Orlando and Tampa network. I'm pleased to announce that that as of today all approvals have been obtained and Florida Traditions branches will open up as Centennial Bank in the morning. There will be a press release this afternoon.

We are very excited about this addition to the Centennial family. And we welcome Bud Stalnaker and his banking team. Bud will be leading our Central Florida region as president. And as always our first priorities is to get the acquisition converted to our systems. The Florida Traditions conversion will take place on September, 26.

Our conversion team and the bank staff started this process soon after signing of the agreement. I'm also pleased to announce that we will be opening de nova branch in Naples, Florida, at the beginning of August. We've hired an experienced team led by Brian Kenny who will be the Market President of Collier County.

Brian has more than 25 years of experience in both lending and market development with the last 10 years being in Naples. We are excited about this new market in our South Florida region. Perhaps is the best news that we currently have is exactly what Johnny talked about. We have the largest pipeline of loans in our history.

And while the timing of our closing didn't help much this quarter, we really look forward to the good growth to remainder of the year. And we continue to make progress with the Liberty acquisition.

Our branch staffing model is being worked and significant improvement has been made within the last month with the goal to be within the guidelines in the third quarter. We've also seen some branch closings during this quarter from the former Liberty regions. We extremely busy looking at new acquisition.

There are more opportunities than we've ever seen before. Like Florida traditions, we are looking for the right, strategic addition to our organization. And speaking of that joining us today is Tracy French who is going to add little more color on the acquisition efforts. .

Thank you, Randy. Good afternoon, everyone. We continue to -- as there were several opportunities and I have two due diligence teams set and ready to go. Our visits have gone well. We've actually added a few new ones over the past couple of weeks. These banks are in existing markets that we are currently in that would be a great tack-on.

And some areas markets that are in our region that we cover as of today. Most of the ones that we are working are nice, healthy banks; most importantly they have good bankers. These banks have weathered the storm and making profits today.

Our focus remains to -- on any transaction to be AAA as we call it accretive, accretive, their earnings per share, book value and tangible -- adjusted tangible book value. As we have seen in the past experience if we stay that course that tends to be win-win for both buyer and seller shareholders.

Or as I might say price expectations have ticked up bit mostly on deals that have been made that hasn't ended up well for both buyer and seller. Guess if it was seller turned out to be pretty good. Most banks are making better profits but still a below peers, looking to be paid for what average peers or top performers are making.

Our goal is to take good bankers, as Johnny mentioned earlier make it top performer for our shareholders. And our history is proven that. So we are busy, right Randy? There are several opportunities and I believe we will have deal or two in time.

Our plan is to stay disciplined with our strategy and that is to work with the banks who want to give returns to the shareholders in all deals, in another words make it win-win for both shareholders in any transaction. Thank you, Randy..

Thank you, Tracy. You've really been busy working on that -- in that area. But now let's get to some numbers. I'll go through this quickly since Johnny has already highlighted many of them. But I'll give you a little -- a few more and little more color.

As it was said it was another record quarterly profit at $28.4 million or $0.43 diluted earnings per share compared with income of $17.7 million or $0.31 diluted earnings per share for the same quarter in 2013. That is an increase as Johnny said of $10.8 million or 61%.

Diluted earnings per share excluding intangible amortization for the second quarter was $0.44 compared to $0.32 diluted earnings per share excluding intangible amortization for the same period in 2013. We are very pleased with our income as we've said throughout this presentation.

But it is now 13 straight quarters of record earnings excluding the merger expenses in the fourth quarter of 2013. And we are very proud of that. Our metrics continue to improve. Our return on average assets for the second quarter was the 1.70% as compared to 1.64% for the first quarter in 2014.

Our return on average assets excluding intangible amortization was 1.83%. Our core return on average assets that excludes intangibles, provision, merger expenses, bargain purchase gains, life insurance gains and taxes which is mouthful was 3.27% for the quarter as compared to 6.30%, 2013 of 2.93%.

Our return on average TCE excluding intangible amortization for the year was 21.2%. The overall internal ROA for the Arkansas banks was over 2% including all the former Liberty branches with the legacy banks from 2.25% to over 2.80%.

Again based upon internal numbers to be used for comparison only, we are seeing ROAs in our Florida and Alabama regions average in excess of 1.50%. As with the last quarter, we are seeing good improvement in Florida.

At the Centennial bank level and on internal analysis 70% of all assets in all Arkansas, 4% of assets are in Alabama and 26% of the assets are in Florida. The total number of active Centennial branches is 141 with 84 in Arkansas, 50 in Florida and 7 along the Alabama coast line.

And of course we need to talk about our efficiency ratio as Johnny has already mentioned. We ended the fourth quarter with the 42.2% core efficiency ratio and after the Liberty acquisition took it to another level with improvement of 41.4% in the first quarter.

And I'll now turn it over to Donna Townsell to talk about the efficiency ratio for this quarter..

Thank you, Randy. Well, if I was recall in last year I guess I am starting this year then as I am proud to report that we were able to continue or excellent efficiency ratio of 41% from the first quarter.

Some of our bigger efficiency gain this quarter includes merger expense dropping over $700,000, and salaries and benefits were also down over $100,000. This quarter we were also able to close or merge four banks in Arkansas and two in Florida. You will see a little more of that activity as the year winds down.

As for Liberty, we continue to make improvement in the contracted services area, still expecting about an additional $100,000 in annualized savings well into next year. Three of the four Arkansas branch mergers in Q1 that we mentioned were within the Liberty footprint and we continue to focus on assessing model for that region as well.

So this part of our franchisees doing very well for us as they staging gain. We also set up our branch through e-process during this last quarter and we will now have a more structured way to help us set goals in local markets as well as track area growth, decline and transactions.

As we turn our focus to converting Florida Traditions, we are still reviewing various department processes looking for automation opportunities that will allow us to continue to manage our growth in our backroom operations.

Randy?.

Thank you, Donna. Let's switch to deposits. We ended the quarter at $5.19 billion compared to $5.34 billion at the end of the first quarter of 2014. Time deposits represented 25.17% down a little from the 27.2% of total deposits at the end of the first quarter and 29.8% at the end of 2013 as we continue to see improvement after the Liberty acquisition.

We are very, very close to our goal to being under 25%. Net interest income, improvement in our margin and noninterest expense; I'll turn it over to our CFO Randy Mayor to give you all of the numbers. And after that Randy will pass it to Brian Davis to give us more information on our capital numbers.

So Randy?.

Thanks, Randy. Once again similar to Q1 we had a positive impairment in Q2 when several FDIC loss share pools were reevaluated. As a result the company will recognize approximately $23.4 million as an adjustment to yield over the weighted average loss of these loans. $3.7 million of that was recognized in Q2.

The positive impairment reduced the indemnification asset by $17.3 million with $3 million of that being recognized in Q2 and it also increased our FDIC true -up liability by $1.1 million with $42,000 of that recognized in the quarter.

The $17.3 million will be amortized over the weighted average life of the loss share agreement and we will be shown as a reduction to the FDIC indemnification noninterest income. And the $1.1 million will be expensed over the remaining true-up measurement day as other noninterest expense.

The net income impact was an additional income of about $600,000. The net interest margin improves slightly from 5.48% in Q1 to 5.50% in Q2. Loan yields were basically flat while the yield on interest bearing liabilities improved two basis points.

The provision for loan loss was $6.2 million in Q1 compared to $6.9 million in Q2 as we continue to build reserves for the Liberty loans. As you recall, due to the acquisition accounting guidance there was no reserves for loan losses carried over in the Liberty transaction.

The loans were recorded at fair value but as new loans are generated, renew or pay off, it is necessary to establish an appropriate reserve balance to absorb the future credit losses.

In the noninterest income area, service charges increased $574,000, trust income decreased $113,000, and mortgage income increased $288,000 and insurance income decreased $482,000. Recall that our insurance department has a typically strong first quarter each year.

Dividends from investment increased to $185,000, gains on the sale of OREO increased $320,000, and we sold the branch location $400,000 or $500,000 gain. The FDIC and indemnification counter income mentioned earlier was $6.6 million for the quarter.

In the noninterest expense category as Donna gave you little color on salaries and benefits declined to $120,000 and other operating expenses declined $642,000 primarily due to the merger expenses decline in $743,000. As mentioned our ROA of 1.70% and a core efficiency ratio of 41.56% were strong ratios for the quarter.

With that I'll turn it over to Brian. .

Thanks, Randy. During the second quarter of 2014, we paid out dividends of $4.9 million and grew retained earnings by $23.5 million. For Q2, 2014, our Tier 1 capital was $620.4 million, total risk-based capital was $671.6 million and risk weighted assets were $5.0 billion. As a result, the leverage ratio was 9.71% compared to 9.08% at 3.31%.

Tier 1 capital was 12.53% compared to 11.67% at 3.31% and the total risk -based capital was 13.56% compared to 12.65% at 3.31%. Additional capital improvements include book value per common share was $13.77 compared to $13.34 the previous quarter.

Tangible book value per common share was $8.83 compared to $8.38 at 3.31% and the TCE ratio was 9.1% compared to 8.5% at 3.31%. As Florida Traditions Bank is concerned, the acquisition will be immediately accretive to tangible book value and will be virtually neutral to the risk-based capital ratios.

Randy?.

Thank you, Brian. Let's switch to loans and our chief lender Kevin Hester. I am sure everyone wants to hear more color on our loan pipeline. And he will also fill the same on asset quality and some other loan matters.

Kevin?.

Thanks, Randy. This quarter is rather quite as it relates to asset quality. On the link core basis, our non-covered, nonperforming assets ratio increased one basis points from 1.03% to 1.04%. And our non-covered nonperforming loan ratio increased six basis points from 1.03% to 1.09%.

However, compared to the same quarter year ago, these ratios declined 23 basis points and 16 basis points respectively. These ratios were solid and reflect our efforts to maintain strong asset quality. Our allowance for loan losses as a percentage of non-covered loans increased from 1.07% to 1.17%.

However, if you add a division, Premier and Heritage acquisition discounts to the allowance for loan losses, the combined figure will be 4.80% of non-covered loans at quarter end. Non-covered real estate loan decreased 11% on a linked quarter basis from $23.5 million to $21 million. The share related Arkansas properties drop 73%.

For the second consecutive quarter, net charge-offs were less than 20 basis points. At 18 basis points for the quarter, net-charge offs were the lowest level in the last 12 quarters. At 1.47%, our stage passed these was up five basis points on a linked quarter basis but down 28 basis points on a quarter-over-quarter basis.

Loan balances were effectively unchanged in the second quarter. The minimal increase in non-covered loans and equally minimal decrease in covered loans. However, as it has been previously mentioned on the call, the loan pipeline is at its highest level ever.

Secondary mortgage volume is solid and we continue to develop new in-house mortgage products and programs for different segments in our customer base. We've completed another analysis of each of our loss ratio portfolios and on the overall basis we are saying it can be improved in the loss expectations of those loans.

This result in the accretion of some of the credit markets associated with loans as well as an amortization of the associated FDIC and indemnification asset. This is usually negative effect because of the mismatched of the timing of the amortization of the expense compared to the increase in income.

Based on this recent analysis, this mismatch is much less severe than we thought it could have been in the remaining period of loss ratio agreement and will result in a positive effect over time. We are evaluating a buyout one of our loss share portfolios by the FDIC.

If this would have occurred, it would create a one time acceleration of the indemnification asset on that portfolio. Overall, the news on the lending side is good with continued solid asset quality and a very strong new loan pipeline. Randy, I'll turn it back to you. .

Thank you, Kevin. And I just like to comment based upon what we are saying lot now with that loss share buyout, we could be very advantageous to the bank. And so we are looking forward to see how that turns out. Well, I just like to say thanks to all the employees.

A great job with the result of the second quarter and we look forward to continued improvement in the third quarter. We saw our 13th consecutive quarter of record earnings, improvement in our margin and outstanding core efficiency ratio, and we've added another institution to our family in Florida Traditions. And a new market to open soon in Naples.

Quiet a quarter. With that I'll turn it back over to our Chairman, Mr. Allison..

Well, thanks everyone. Hope you all enjoyed the reports. They are fun to give when they are likely so -- Jerry, I think we are ready for questions and looking forward to..

Hi, good afternoon, guys.

Could you give us a little bit more detail on the loan pipeline, maybe magnitude of how much is up versus last quarter or any details along those lines?.

How much is up from last quarter?.

Right.

Or maybe the size of it now, just any numbers around how much it's grown over the last quarter?.

It is several hundred million dollars and Kevin will comment on that. .

Brian, it is probably up 50% over last quarter and changing daily. I mean it is literally as we are adding things to it daily. .

We had a loan committee yesterday, there was about $60 million -$70 million approved. So you give an idea. .

Ad is you seeing that across your footprint as far as demand or are you seeing less competition? What do you think is driving this pretty sizeable increase?.

It's a combination of factor. So I think it is across our footprint. And it is just relationships that we built. Some other through -- some of the problem assets that we worked through and smart money coming in and taken those up and develop a relationship with those people into other deals but it's across the footprint. .

And just lastly, how is the pricing on those transactions?.

It is kind of depends on whether it's fixed or floating but if it is fixed we are getting then loading this force. Also, it is also customers that we have been working in the long time, so some of the stuffs that we have been working on for a while have started to come to submission..

Brian, we were having loan growth, we had a run off in the Liberty transaction, some we wanted to run off and some we did, I mean that's dropped to about a dribble basically or trickle as you call it. So always -- and then all of a sudden loan grown just jumped about 50% so it is anything exotic, it is just --sometimes it happens when it happens. .

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

Hey, guys, how are you? Hi. I'm well, thank you. I wanted to ask about the branch closings that were mentioned in the press release.

Can you remind us the branch closings, did those happen throughout the quarter? And could there be more branch closing in the future, or is that initiative now complete with these six?.

Matt, this is Donna. Yes, they did happen before that we mentioned Arkansas, three of them were in the Liberty footprint, they did happen in this quarter but it was towards the end, so we really seeing more of the benefit going forward from that. And you will continue to see more that activity throughout the footprint.

And we did mention that we were going to do a better job of being structured on how we look at our branches. We decide to close one last Friday but of course we didn't show up in our last quarter's report. So you will continue to see benefits from those closures. .

One of the things that are really started moving in a greater way than we ever thought is the mobile banking. And as we continue to see electronic transactions go up and I guess you might say branch transaction drop. We are continually reevaluating our position on our branches especially when they are pretty close together.

We've got -- still got some branches that are close together but to drive them is 30 or 45 minutes. So those have some unique characteristics but we continue to evaluate and look at different parameters and give the branches a chance to either improve or look at what type of sizes that we might actually have.

So it's an ongoing effort and we will continue it throughout the year. I hope that helps. .

Okay, and then getting back to the loan growth discussion, it sounds like you expect the run-off from the Liberty loans to slowdown.

Is that a commentary for the third quarter, or is that the next three quarters at some point it's going to slowdown?.

I think we saw they did slow down in the second quarter. And we would expect that would continue going forward. .

The slowdown will continue. .

Yes..

It is down to a trickle and it might be few more to go but outside of that I think we got a few more we would like to see go, we can't get rid of but as of right now that appears to be -- it is a combination of factors.

As Liberty slowdown we were doing loan business before and all of sudden this the pipeline has just really moved up significantly with the -- and I guess it is based on a lots of factors but it is truly all way across the footprint..

The next question comes from Kevin Reynolds with Wunderlich Securities. Please go ahead..

Good afternoon, everybody. Couple of questions. One is you mentioned in the press release and you talked about it a little in your prepared remarks, the provision remaining elevated despite pretty strong asset quality. But I guess it's reflecting renewals on the acquired loan book.

How much of the $6.2 million would you say was sort of renewals or changes in those loans that you acquired versus just brand new loans that were new originations for you in that Liberty footprint?.

Hey, it is probably 75:25..

Okay, so a good portion of that were renewals on the loans, not just the loan growth that you might see, gross originations? Is that fair?.

Well, let's take it 50:50, let's take it 50:50, about half was origination and half about is renewals..

That's a probably a better number. .

Okay and then to talk about M&A, I know you said looking to do maybe a couple more deals or announce a couple more deals this year.

Could you give us more color on what those kinds of targets might look like, size, range or the nature of them? Or they are going to be -- this last deal while it was in the central part of the state wasn't exactly in-market, specifically in-market. It was really kind of fill-in.

What might of deals that you're looking at, how might they be characterized?.

Well, we kind of like to -- we kind all over Florida right now, we are not in the East Coast, you probably see us get little more active on the East Coast. Size of deal, we would certainly love to do larger transactions. It is strictly Brian Davis and Randy Mayor would appreciate us doing larger transactions instead of a string of smaller ones.

The problem is that the buyers and the sellers get stupid on the larger transactions and both stocks go down. So it seem like you draw larger group of bankers that don't care -- don't have the skin in the game and don't care what they dilutive sales in the bigger transactions, Kevin.

So it draws more taken which brings in more people who are not spending their money but spending shareholders' money and we just saw one of those deals in Florida while back most stocks went down as a result of it. So if we have to continue to play in the smaller ones we will. We are owned some larger transactions today.

And hopefully will -- we are trying both size of that fence. So now let's Tracy is the one who spends the most time, primary he is in Florida, Tracy, you got some comments on what we are looking at..

Sure, I will share what targets and those will play was reached out some and some are reaching out to us. When you talk about the size, some of the sizes are even if they were -- the ones that Randy and Brian, they want us to go at there and they are in the markets that we are closing are there.

And so it would be accretive in some of the categories we are looking for after bill-to-book portfolio, that all said, John you mentioned the other ones that are in that region down there that would certainly give us newer markets that's out there. .

We come up Randy Mayor, if that sales seems kind of come up with the scale -- the scale to scale these things and prioritize them and what is the -- and which one is benefit Home BancShares the most and it works pretty well.

So we are -- I mean we are looking from $2.5 billion down, you may see us because we are already owned some smaller transactions in the past. You may see some of those come out here this year.

We may start excluding the real small ones but some of make some fair in market, you can close a couple of branches and you can make them real , they are already accretive, accretive, accretive then you might as well attack and muscle it.

Randy, do you have comment on it?.

Yes. What I would say too to add is you mentioned the East Coast, if it opens up and then market for us that we think that we can really add on to and grow, we are kind viewing it as almost de nova type operations. But we get some branches. We get some management and it is a little bit better.

Just as we've gone into the Naples market which is very close to our Marco Island branch and some of those on the West Coast, it makes sense. So we are all over Florida right now. All over Florida and just looking forward opportunities while maintaining that discipline of accretive, accretive, accretive.

And that's what's going to drive our acquisitions. .

Kevin, if I can ever educate these sellers to recognize the fact it is not important how much they get, give me two time book now so well I'll tell you how pay you two times book. But last time I did when their stock went down and so did the stock of the company that was acquired.

So it is a hardest time to do, they had to carry to seller that it doesn't matter, I mean it does matter how much you get but it is who stock you get. I owned regions bought it and went into two, so that's how that happens sometimes. Didn't we all? Yes. .

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

Hi, good afternoon, guys. How are you? I am settled in. Thank you for asking.

Just going back to the loan pipeline, so what really changed over the past three month? Is it more coming from market share takeaway or are you actually starting to see real traction in places like Florida?.

I think it is more the latter. I mean it's -- I don't think it is more than share takeaway, these are the things we are looking at are deals that are brand new deals that we are getting to look at. So I think it is just development of relationships in the market that we are in. .

I think it's primarily yes, it is just-- some guys you did small deal forward, they are buying a little bigger deal and you just develop a license. Kevin hit on something while ago, we've done pretty good at some of these failed bank transactions, recovering assets, and there has been some biased comment from those recovered assets.

And we've developed some relationship with some really smart money that have come in and kind of opened up that door for to do business with them and more business with them. So that's kind one of the leads of the deal. It is Arkansas circuit had appeared pretty good lately with some pretty good loan growth. So it is just kind of everywhere..

Okay that's helpful. Then just as a follow-up, can you breakdown the loan yields this quarter, covered versus non-covered or acquired and what happened there? Then in the legacy portfolio what are the new loan yields on average that you're putting on the books? Thanks..

About that I'll have to give Brian and Randy Mayor to give you that portion of it but we are riding in the four, that's where we are riding right now. We are as four, four and half, four quarter, four and three quarters.

4.95% some fixed for 3% some fixed for 5%, we spent relatively short, little bit of bearable, and we got a big approval yesterday on the bearable loan.

I don't know which type they will be doing from a consumer point of view to be to do bearable but we are remaining short on the loan, just we do our investment portfolio and I don't know who is cover that other..

I'll give him couple of numbers I mean the effective yield on the non covered loans were 6.08% and for the covered loan it was 19.38%, so that's where most of the additional accretion is going on those covered loans which is why we have all the additional indemnification asset amortization.

The average yield on the loan as you know for GAAP is 6.88% and when you factor out all the additional accretion marks that we have on the entire portfolio, the yield on that particular piece of it which is really our non-GAAP basis would be at 5.10% for the quarter. .

Okay, that's helpful. Hopefully we get back to Johnny prime soon. Thanks, guys. .

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

Hello, Mr. Arfstrom..

Close enough. I won't call you any names.

So Brian Davis, as long as your vocal cords are ready, what's the average life on that $25 million re-class, and how does that compare to the indemnification life?.

$25 million.

$23 million re-class. The question is how quickly does it come in, I guess this is what I am asking. .

They are comes in -- and mismatch is a little bit because the indemnification asset as far as -- it will almost start probably next year, so that will come in 29 in 2015 but the interest start coming through about another year. .

Another year, okay, good..

It isn't basically a negative impact to this point. However, you heard Kevin Hester talk about possible selling loss share.

We have -- we've agreed on some of that and that may end up having a very positive effect long term or the company about taking a one time acceleration -- I don't know $5 million or $6 million dollars and then from there on front end with all that could be very positive for us. We get that done, you will -- I am sure issue a press release on that.

Portfolio he is talking about getting too much weight, it is got a lot of long term loans in it so we start advertising the yield, sometimes the loans don't mature until 23rd indemnification asset, it is going fair round till 2020. And so you get up start down on a positive event.

So we are very interested and maybe possible getting out the loss share on that particular acquisition, if that's the case you might take a one time hit but be positive going forward. Plus the fact on that portfolio both sides I think both the FDIC and us would like to get, not have to work with each other for next 10 years. .

Okay, good. Randy Mayor, just in terms of the margin, it was another good quarter but it seems like you had a one-time item in there.

How are you feeling about the margin going forward?.

I would expect as Kevin was giving some loan rate there, that they are still be a little pressure on that from the lending side. We continue to manage the deposit side but there is just not much save on that side.

So I would expect a little more pressure on there with caveat that it could fluctuate because of these one time events so to speak that we are looking at. .

And Johnny, how are you feeling about the rate on the loans? I know you've talked about where they're at, but are you comfortable writing loans as long as you don't change the structure in terms? Or is it just constantly pushing for more rates? How are you feeling about it?.

I think it's virtually rate deal. We don't really change our terms much. We don't vary from where we came from. It is really right deal and we really are -- and some of these transactions as Kevin told you this $200 million to $300 million worth of pipeline out there. It is really moved -- it's really new stuff.

So we are getting looks at those deals, those relationships and we understand how we have to price those deals. I don't particularly like some of the pricing own, some of those deal but we don't want to loose that customer either.

So it should put -- I am expecting some margin pressure, I mean if you are running at a 6% yield and you are going to book a bunch of 4.5% you might as well, you know that yield is going to come down. So but we don't have any long-term fixed rate stuff in our books. We just don't have any to speak of, virtually none.

Its three to five years and I may do a 10 years fix. I am looking at a deal maybe on a 10 years fixed that would be an exception rather than a rule but it won't hurt us to do a little of that so..

Okay. Andy you've obviously gotten a few questions on the pipeline, and why it just showed up now. I guess this is for John or Randy or Kevin.

Does it feel like it's going to last? Does it feel like this is a permanent change or is it just something that turned on that maybe you're a little nervous about later in the year sustaining it?.

I have always said it wasn't here and it wasn't back. And we want to go and push it. And might be changing my tune. I just like to be changing my tune; it is so powerful right now that-- I hope it continues like it is. It is awesomely -- I don't believe I have ever seen anything in my business banking career as powerful as it is right now.

So when I met yesterday, we did approve $65 million worth credit at loan committee. These loan committees now are lasting two and two and half three hours long. These senior executive loan committees and there are just millions and millions of dollars worth of credits on there. And it is different world, Jon. I don't -- I think it's here.

I think it's here.

Kevin?.

I would agree. I mean we've got as everybody said it is very strong and when we empty this out will it still back up that high yield, I am not sure. But I think it's better than it looks six to nine months ago for sure. .

We probably have to introduce time limit so loan committees and so everybody has got five minutes to introduce which means we all the directors and senior management have to do a lot of homework ahead of time but that's the only way that we can really get through.

So as long as the committees are lasting as long as they are and we see nothing that's changing that on the horizon right now. This thing is continuing and it's continuing to grow.

Let me tell you I was with wife in Colorado for two or three days and I had already read my lesson Jon with four lesson, already read my lesson, Wednesday, Thursday and Friday and I am getting ready for next Wednesday as loan committee and I am done with that. And Friday night or Saturday morning they put $65 million 118 page loan own there.

And I thought I was through when you go to loan committee and I haven't read it so, there is just a lot going on. .

You're going to have to come off the decaf, Johnny. Just last question, remind us of what kind of incentives you have out in terms of EPS hurdles for the people there for the producers..

We haven't set the EPS hurdle yet but the reason I hadn't quite set it yet is kind of getting Liberty under tow and then we will look at it from there but we've had, we got about $50,000 month in amortization home to $250 and for home $2 and home $250.

So we got about $62,000 month expense there so I am kind of wait until one of those runs down before we add problem free but if I had add problem three today it would be probably $2.50 to $2.10 a share. .

The next question comes from David Bishop with Drexel Hamilton. Please go ahead. .

Hey, good afternoon, guys. It's good to be back, and full disclosure, I did not own regions, so I just want to get that out of there. A quick question for you, I noticed a little bit of run-off on the commercial portfolio.

Curious of that, was that out of the Liberty franchise or that one customer that's in and out on a larger scale sometimes? If so, did that mask some core origination volume that we just didn't see from the reported numbers?.

So I think it is the -- well we talked about before about Liberty and those run offs have masked the production that we have done in the last first half of the year. I think it has -- that does look like may be we hand-in-hand production, we have had production but the run offs bit higher than we expected. .

So that's your question David or --.

Yes, just trying to get a sense, what was happening there at the core with the margin whether that was that loan production activity just read between the lines of what the provisioning there. It seems like, obviously, there is some growth there to have to reserve for, so, yes, and that answered the question..

Let me say this. Could we have led with the 1% reserve maybe, we just evolved ways around in the 150 reserve are better as you know. And when we dumped in Liberty and we had -- we dropped down to 0.9 - 2.9 sorry, it just didn't look good to me. We just started building reserves and I am glad we are. I am glad we are building reserves.

The Liberty portfolio is a little maybe thus let me not go on word, we are not through it yet but we marked at $100 million assess it earlier and I think we might loose $50 million to $60 million. And we have taken a bunch of that already.

So it might be a little better but we are continuing -- we are going to probably continue to build our loan loss reserve for a period of time up to 140 -150 range I would say and then we might take a breather. And actually we got always loan grown coming on right now.

If we build that's like 4.5 million --we book to $300 million units you need $2.5 million of reserve for it the way we look at it. So we are kind of thrown over, we are kind of -- at the front of the game, it won't reflect in our asset quality. It was concern of really concern about the Liberty portfolio. .

And David kind of as a reminder I mean on the Liberty transaction, we had about $1.6 billion of loans that were not impaired but we still market about $60 million and that's money that's been accreted in on FASB 91 and that money there was what we started with but it is again to bleed down and those loans are transferring from purchase accounting into what I called originated accounting.

So if you bring all those loans over and try to have to account form in your triple A, you don't have any marked cover where as what's remaining on that portfolio that started at $1.6 billion, we still have a lot of FASB 91 discount that we can count as having coverage on those ratio for those loans..

And I can interpret what he just said we like the run rate, they are real run rate..

Okay, appreciate the interoperation.

You are not looking at phantom run rate, you are looking at real run rate. .

The next question comes from Peyton Green with Sterne, Agee. Please go ahead..

Hi, all. Good afternoon. Three questions.

Maybe if you can talk, Johnny, about the amount of expense that it takes to service the covered loans and if you were able to get out of a loss share situation, how quickly could you change how you or what expense you incurred to monitor, and get those portfolios the way you want them?.

I'll let Randy Sims who is the hawk on that..

We have had continued meetings with our special assets department and most of the expense of course is still in Florida and we are seeing that start to draw down little bit and come down a little bit, but as we continue to add acquisitions, we are increasing our loans.

So it is really a factor of our acquisitions and whether or not we continue to add banks that need additional caring and that disallows us from being able to eliminate some of our staffing on a special list, special asset side. You look at the Liberty transaction.

We added a couple of people in Arkansas and at the same time we also two or three in Florida. So we kind of ended up the same. All of the regions get charged based upon a formula on how good their asset quality is. And so there is a real incentive for them to continue to improve and even help out on the special asset side.

I know as an example South Florida saw their income go up and their special asset go down because of their improved asset quality. So we are continuing to make efforts but that cost which at one time was well over $2 million is starting to drop but it is truly a factor of the special asset portfolio and what we continue to add from the acquisition.

I hope that answers your question..

This is Randy Mayor. I would say we got -- remember, we have six different acquisitions that we are dealing with and this is a very small one. So it's not going to have an immediate impact or big savings for us right after that. .

No, I guess my question is if you've got $37 million give or take in total expense for the quarter, is it $2 million a quarter that you're racking up if you take all the loss share deals? Plus, I'm just trying to get a ballpark number of what might come out over time.

If you do a live bank deal, odds are the portfolio is a lot better shape and maybe somewhat closer on how you do credit. It's a lot easier to assimilate I would think than a truly broken bank.

That's where I was trying to go, what kind of efficiency you might be able to get?.

I think it is $2.5 million deal cost, if you went to zero, what we spend $2.5 million -$3 million. Special assets, I think it is now under $2 million. I would say about $1.8 million just in that special asset allocation. That's what you are wanting. It is got $1.8 million.

I would like to see in a lock list but again if we continue to add portfolio that need a little help then it is going to remain where it is. .

It is Arkansas or Florida. .

We got a pretty powerful team there. They do obviously good job. And as we acquire more banks and live banks transactions and we have problem loans, we just hand it to them. So let's deal with them. .

Yes. Our goal is when we go into convert a bank not only do we convert the accounting system but we take all of the special assets out of that bank so if it is a good performing bank and if the staff can concentrate on the retail side and start bringing in new loans and not have to worry about that. So those loans immediately transfer.

Now in this last acquisition Florida Traditions, they are very clean institution. So that's not going to add anything. So there are savings when we buy something that is very, very clean. So but we are continuing to evaluate that special asset team and we are continuing to see some savings though that may be a little bit slow for me..

Probably more saving can no mean branch closings than on that end of it, go ahead. .

Okay, great. Thank you.

On the $60 million or $70 million on the loans that you mentioned were approved in committee yesterday, what's the normal kind of pull-through rate on that and in timing? If you get $60 million or $70 million approved, do you hope to book 60% of them over a 60-day period, or how should we think about that?.

There is probably a bad asset that can close pretty quick. It looks like of the $60 million we approved yesterday it could close this quarter. All of it could close this quarter.

And I know the $31 million we just discussed yesterday that we didn't approve or disapprove, its come under committee next week, that could close in the matter of 45 days so 30 days, probably 30 days so these are deals -- some of these are up there large deals that are up now.

One large loan Kevin has, he thinks so close in the next month right, Kevin?.

Yes..

Good credit, yes. I am optimistic these deals could happen; if you are trying to give us credit for you might give us half a quarter credit for..

Okay, but it could easily be a $40 million to $50 million loan growth quarter, ignoring run-off just on the legacy portfolio.

Is that fair?.

I would be very disappointed if it wouldn't -- I would be very, very disappointed if it wasn't way over 100 and closer to two. So I am optimistic again. They are all might be falling in the floor. Well news here is the closing and there is the funding. Some of the stuff is construction so.

But at the same time we've got some deals that we closed and we -- the owner's money was used first and now they are starting to fund. So we got one big deal in the Panhandle that way so. We are very optimistic about it. May be not quite that optimistic but we are optimistic. .

Okay, great.

Then last question is what the balance of Liberty loans was at the second quarter, first quarter, and fourth quarter?.

I don't know. Cross about $150 million probably. I don't know. I have Brian Davis and Randy Mayor or Kevin get-- I don't know. .

The next question comes from Brian Martin with FIG Partners. Please go ahead. .

Hi, guys. Maybe one question for Brian Davis. Just the last quarter, I guess the purchased accounting accretion, I think, Brian gave it was like a 5% number on the yields. What was the dollar amount in the purchased accounting accretion, Brian, this quarter? Do you have that? I think it was around $15 million last quarter..

Yes. It is $16.4 million this quarter. .

Brian Martin - FIG Partners:.

Okay, $16.4 million. That 5% you talked about on the call, compares like a 4% and 4.25% level last quarter? -.

No, that's the 5.10% that I gave was just the yield on the loans. .

I've got you. Okay, perfect.

And then just maybe the last two things, maybe a question for Donna, the Liberty savings, is everything effectively complete at this point as far as the expense savings as it relates to Liberty, or just minimal left at this point?.

No, Brian, we really had estimated anywhere from 18 to 24 months before we thought we would be complete and I don't know if that's too aggressive but that's what we have been saying so while we have said we think we are well over half, we've got -- we still got more work coming in regards to not just looking at contracts still haven't been renegotiated or looking at branches so what kind of staffing models so there is various pieces to that puzzle but no we are not comfortable in saying we are complete.

.

Okay, all right, and then may be --.

I just want say we are complete..

No, we are not complete. .

I've got you. Perfect.

The last two things, the team of lenders you guys brought on in Naples, can you just give a little background on those? The last question would just be the potential buyout, timing wise, how quickly could something like that happen?.

How quickly is Naples going to be open, is that what you are --.

No, the team of lenders was the question on Naples.

If you can give a little color on those, and then just the buyout of the loss share agreement, how quickly could something like that happen?.

As far as buyout of the loss share agreement, there are some steps that you have to go through. One of which is the FDIC has to come in and take it look, look at our audit and come up with their own opinion that our offer -- I think our offer is a very aggressive good one.

But they are going to have-- we are in the process of scheduling that time right now.

So I don't, Randy Mayor, how long do you think?.

Yes. They kind of went through preliminary time line and I would say a month at the earliest. That would be as everything is just finished fast as it could but it got to go through Washington and some other approval levels..

But certainly we would help to have a decision on that this next quarter. Go ahead. .

That was it. That's perfect, thanks.

Then the team of lenders in Naples?.

We are not only having hired a team of lenders but we have also hired some good retail people so we are hiring on both sides. But Brian Kenny is the 10 year lender out at Naples and so he has been there quite a long time with the competitor bank.

And he is already started and he is already there and he is already working customers and we hoped to have that open the 1st, August, we actually are looking at soft opening at the end of July and so but our team is already working and trying to bring over some relationships as we speak. I hope that answers your question.

I can't really give you some -- we are going to add this many amount of loans and this time period but we will update everybody next quarter with how it is going and the initial success of the opening and where we are with it. .

This concludes our question-and-answer session. I would like to turn the conference back over to John Allison for any closing remarks. .

Well, I would like to thank everyone for their participation today and I am pretty proud of the quarter. I hope you are all. I see that the stock hasn't reflected it but anyway the performance of the company up, earnings up $10.8 million or 61% is pretty powerful. One thing I didn't mention is that March was the best month of the quarter.

And was the best month in the company's history. And another item is that our Jonesboro Board has formed. We have our new Jonesboro Arkansas Board and it looks like who is who at Jonesboro. So in closing, thank you and we appreciate the support. We'll talk to you in 90 days..

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