Home BancShares, Inc. (NYSE:HOMB) Q2 2019 Earnings Conference Call July 18, 2019 2:00 PM ET

Corporate Participants

John Allison - Chairman
Randy Sims - President and Chief Executive Officer
Tracy French - President and Chief Executive Officer, Centennial Bank
Brian Davis - Chief Financial Officer
John Marshall - President, Shore Premier Finance
Kevin Hester - Chief Lending Officer
Stephen Tipton - Chief Operating Officer
Chris Poulton - President, Centennial Commercial Finance Group
Donna Townsell - Director, Marketing

Conference Call Participants

Brady Gailey - KBW
Stephen Scouten - Sandler O'Neill & Partners
Michael Rose - Raymond James
Matt Olney - Stephens
Jon Arfstrom - RBC Capital Markets
Brett Rabatin - Piper Jaffray
Brian Martin - Janney Montgomery Scott

Operator

Greetings ladies and gentlemen. Welcome to the Home BancShares Incorporated Second Quarter 2019 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. [Operator Instructions]

The company has asked me to remind everyone to refer to their cautionary note regarding forward-looking statements. You will find this note on Page 3 of their Form 10-K filed with the SEC in February 2019. 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 Mr. Allison.

John Allison

Thank you, Gary. Good morning to everyone.

Kevin and Chris and John are at other locations with me today. They'll be on the phone though. Stephen Tipton is with me. Brian, Jennifer, Donna, Tracy and Randy pretty much the same crew. So good morning and welcome to Home BancShares' second quarter 2019 earnings release and conference call. This is quarter number 52 since our initial public offering and once again Home produces another solid quarter.

For the most part the other 51 have been the same except for a few quarters during the financial crisis times we hit -- we bumped a little bit. In that of the 51, 26 are record quarter -- record profit quarters in a row. That's why Home was named the Best Bank in America by Forbes for the second time in a row. We're not only proud of ourselves of being the best bank in America from an ROI and efficiency, return on tangible common equity, net interest margin asset quality, we're the best in other important segments as well as helping our communities.

We recognize the importance of supporting our communities in which we serve. We serve thousands of volunteer hours for our people. Our commitment to community reinvestment fair lending and diversity with both our money and time, we have presented three quarters as you can see from the press release today, 50 and 51, Donna Townsell said how do you want to present this time, you want to do these boxes or how do you want to be able to use last quarter or the fourth quarter? And they look so good that I said let's show three quarters. These have not been easy times with rate uncertainties. Think about it. In '18, we had a rate increase every quarter.

Then told by experts, we're going to have two more in '19. Then told, we're going to pause temporarily and now we're being told to expect 2 or 3 rate cuts. Who in the world are they listening to? I think they're riding on a different financial rollercoaster than the rest of us were riding. They missed this one about as far as they did Y2K. You remember that or as Rachel Maddow, on MSNBC did on election night, and I quote "There is no way Trump can win." That was amazing and certainly comical. Both the Fed and Maddow, I don't know how you say that Maddow, whatever it is, did not listen to the right people. Obviously, they were talking when they should have been listening. But don't shoot the messenger. They're just following the law.

It's Congress that enacted the law and sent them to enforce it. It's another example of people who have no experience writing laws. In spite of the feds, year-over-year interest rate, we have a responsibility to manage our assets in a manner that is in the best interest of our shareholder and communities we serve. The key is not to panic but hold the course. They were obviously totally wrong again. These huge misses create a major loss of credibility for them.

At the end of the day your management's trying to operate profitably in the middle of this chaos. They say when you're piloting an airplane and there's a major problem like an engine going out, don't panic just fly the airplane. So, what we are doing is just running the bank and doing our best to ignore all those static. Not complaining, that's our job, though it would be nice to have a little more stability.

Couple that with going over 10 billion. The regulatory environment is like being on a different universe, other than the risk management hardly any of it has of the new regulatory expectations are involved in safety and soundness. A prime example is BSA and AML. It really would be interesting to have Congress do a cost effective study of BSA and AML. I promise you the results would be breathtaking. The waste of money is almost criminal. There are much better uses of the money than waste it like this. Bankers throughout the country should rally together to get Congress to do a study. Sorry to be a little windy and we'll get back to trying to run a good bank. We keep a sharp eye on the markets and listen to our guys and gals on the ground plus personally vesting our customers and shareholders. There are far too many models being created too many quants, too many intellectuals without real life experience and not enough people to people on the ground interaction with regulators. They need to get out of their offices and listen to real people instead of talking to each other and those that have no business experience. One can always make an argument for the negative whether real or perceived, but there is no substitute for experience. There is no substitute for experience.

Reports from experienced people on the ground that live in reality is an amazingly powerful source. The Fed should look at the models collect the quant data and the opinions of all the inexperienced PhD intellectual people who have never been there, never been in the foxhole, and then ask those in the real world what's going on in the economy. Weigh heavily on those in the field and gather the information from different parts of the country. I get it. The elitest bank they know better and they must take care of the rest of us deplorable and Wal-Mart shoppers. But, most the time, we are by far more honest, more reliable and the most reliable form of information they can get.

We together have built a financially strong and solid banking organization. It's located with a huge presence in the second or third fastest growing state in the country along with strong performance from our staff at Alabama operations coupled with a solid Arkansas market and tacked on our New York profit center. Your company remains best in plans class in all performance metrics. We continue to remain in a conservative mode on loans and M&A. While volatility continues to swirl around both politically and economically, we think not pushing the armload focusing on internal operations and taking what the market gives us in both M&A and loans is the proper position to ensure that we'll be around when the opportunities come again.

We appreciate your support and let's talk about the highlights of the quarter.

We had a strong deposit month, I think it was 250, we averaged about 240 for the month and we did about that what did we do Stephen, what did we have last month in…

Stephen Tipton

Q1 we were up almost 170 million and were a little over 720 million in the last three quarters.

John Allison

That's good. That's 720 million in the last three quarters. Loan to deposit ratio we were 106, Randy, we're down to 97.41. We need to get some loans.

Randy Sims

Way too low.

John Allison

Last, stable interest margin in the face of this chaos. I think you look at that and the fourth quarter, we were at 4.30%, the first quarter we were at 4.30% and we are 4.28% this quarter. But remember, that the quarter had over $500,000. I don't know that you know that? Maybe I'm telling it for the first time, had over $500,000 expense on pre-amortization write-down that was impacted by the margin because of the unexpected fallen interest rates resulting in faster prepayment speeds on some of the securities. I think Brian will talk more about that.

Brian Davis

Yes. I will.

John Allison

Let's talk about the cost of funds and I want you to go back with me four quarters, three quarters, two quarters and one quarter and I want you to listen to these numbers. Four quarters ago, our cost of funds increased $6,192,000. Three quarters ago, it dropped to $3,357,000. And then last quarter, quarter four last I guess it is now, $2,519,000. And this quarter, $283,000.

So, I think the cost of funds may be something that's not going to be as prevalent as it has been in the past. Strong asset quality almost the best ever; strong capital ratios, industry-leading ratios; common equity to assets 15.84%, intangible assets 9.96%, almost 10%; return on tangible common equity, 21%; strong loan production over $1 billion with a loan production, $1,024,000 at 6.14%. We had $512 million with the payoffs during the quarter, at 5.54%. So, the production coming on with what went off, that's 60 basis points higher. Great job by the team.

Overall loan yields. I've been telling you, we're going to push what we started on with the last year it is hard to turn the ship. But overall, loan yields were up 3 basis points to 6.06%. And those 3 basis points added $897,000 to income for the quarter. That's even though average loans were down $30 million, I think we ended up, up $70 million for the end of the quarter, but our average loans were down, but the interest income on the 3 basis points was $897,000. Congratulations to our team. You give them a mission and they seem to get it done. We continue to maintain strong cost controls with a sub-40 efficiency ratio and a strong ROA of 1.92%.

For our shareholders, we increased dividend $0.01 per quarter and we continue to repurchase stock. In the last year-and-a-half, we have bought back $168,400,000 worth of stock, 8,716,000 shares at an average price of $19.27. So far this year, we spent $64 million for 3,416,722 shares at $18.73.

Last year, we bought 5.3 million shares at $104 million, $19.62 average. So we'll continue to be in the repurchase business. You will see loan ratings change in the Q this quarter. In the past, all credits that were construction or ag-related automatically rated a 4, which lends to the conservative nature of our company.

Let me make this clear, there's no miss, so there's no misunderstanding, this is an internal policy and not a regulatory requirement. Actually, this was a nice change from the regulators, they actually thought we're being too hard on our sales. After a schedule with the regulators, we agreed to take a look. The approximate change were 1.5 billion of the 4s moved to 3s and 2 credits totaling about $70 million moved to a pass credit 5. The balance remained in the 4. Totally, our call. The 2 credits moved into a 5, one was an apartment construction project on a university campus, with one of our largest and oldest customers in the bank. The project was weather-delayed and missed the starting school semester. The apartment is now 68% occupied. Expect it to be in positive cash flow by the end of the year probably did not need to move because of the temporary nature of the quality of the customer, but we moved it.

The condo project, it's in one of our best markets. The owners decided to keep it as rental because he thinks it's in the best long-term interest of his family. As a result, the project does not flow as rental, does not cash flow as rentals. He has over $12 million of liquidity, has agreed to sell one of his buildings as a condo and pay down the balance enough to cash flow the project neither credit has ever been past due and management does not expect a loss on either credit.

As always, his company is totally transparent and wanted to report the changes and allowed time for discussions on the call, if necessary. We pride ourselves being known as the company that tells it like it is, good or bad. Sorry for your shorts, but it's kind of like the Trump-Russian charade, there is no bear there. And I think Christopher Steele is temporarily out of the manifesto business. However, it appears that some of your pocket journalists are still around. He appeared to enjoy the boxes in last quarter's presentation and reports directly from each person responsible for the line of business, not sure we'll continue that in the future every quarter, but certainly helped to get us a better understanding of how we looked at margin and operation.

Brian started first last time. He will also be first today and cover the margin in the pieces impacting performance. Then will be followed by Chris Poulton, John Marshall, Tracy and Stephen and then our Chairman, Randy Sims will wrap it up, and Kevin Hester will be on the phone for any questions.

So at this point in time, I'm going to turn it over to Brian and see if you can keep us clear. You did a good job last time. I think everybody got it Brian. So...

Brian Davis

Okay. Well, thank you, Mr. Allison.

The second quarter was a good quarter for our net interest income and net interest margin. On a tax equivalent basis, we recorded net interest income of $142.3 million for Q2 2019 compared to $140.8 million for Q1 2019.

Our net interest margin was 4.28% for the second quarter of 2019 compared to 4.30% for the first quarter of 2019. As Mr. Allison mentioned, during the second quarter of 2019, the interest rate environment declined. For example, the 10-year treasury went from a 2.50% on March 31, to 2.01% on June 30. This decline has increased the prepayment speeds on our investment securities. As a result, we saw an increased premium amortization of $515,000 from Q1 to Q2. If the premium amortizations had remained flat from Q1 to Q2, our Q2 margin would have been 4.30% or unchanged from Q1 2019.

Last year, our CFG division had a few payoff advance which increased our margin. For the first 6 months of 2019, they do not have any additional interest income for payoff events from CFG. Loan production was very strong during the second quarter of 2019. We saw loan production of more than $1 billion at an average rate of 6.1%. This breaks down into $484 million at an average rate of 6.3% for CFG and $538 million at an average rate of 6.0% with a community banking footprint. We are pleased with these levels of production and rates, while maintaining our strict underwriting standards.

Another positive was impact of the change in the yield on our loan portfolio. We were able to increase the yield on the loan portfolio by 3 basis points. This equates to an $823,000 improvement in loan interest income for Q2 when compared to Q1. Accretion income for the fair value adjustments reported in purchase accounting was $9.2 million during Q2 compared to $9.1 million during Q1 for an increase of $100,000.

In conclusion, even though reported margin declined 2 basis points, our daily net interest income of $1.5 million per day remained unchanged for Q2 compared to Q1. However, if the investment premium amortizations had remained flat from Q1 to Q2, we would have reported an improvement of approximately $5,000 of additional net interest income per day for Q2 2019.

With that said, I will turn the call back over to Mr. Allison.

John Allison

Did you say 823,000, I reported 897,000.

Brian Davis

Yes. I checked my number, while you are talking and I came up with 823,000. That's what Stephen and I were deciphering on over here.

Stephen Tipton

But we are okay.

John Allison

Well, is 823, is 8-something, right. So, there's nothing wrong with that. That's good.

Brian Davis

It's over 800,000.

John Allison

It's over 800,000.

Brian Davis

That's right.

John Allison

Don't want to mislead the public, so. I guess, next we go, Chris Poulton. Chris, are you on?

Chris Poulton

Yes, sir. Thank you. And thank you, Johnny.

The second quarter at CCFG was highlighted primarily by significant increase in new loan production, which Brian just discussed. As you may recall, during last quarter's earnings call, I noted that our loan pipeline, specifically, the approved, but not closed loans, stood at an all-time high.

I'm pleased to report that during the second quarter, we closed the majority of those loans and we originated just under $500 million in new loan commitment. To put that in perspective, we generally originated between $800 million and $1 billion in a given year. A little over half of those new commitments were funded during the quarter, which resulted in approximately $143 million of net loan growth for the second quarter.

Notably, just about half of the new production came out of the West Coast LPO as we continue to see good progress from Darren Robinson and his team in LA. While payoffs continued and will continue to be a feature of our portfolio, we do continue to see good opportunities in our respective markets and I remain pleased with the potential loans in our pipeline.

Thank you for the time, and I'll hand it back over to you, Johnny.

John Allison

Thanks Chris. Next up is John Marshall. Go ahead, John.

John Marshall

Good afternoon. Thank you, Mr. Allison for the opportunity to provide an update on Shore Premier Finance in the second quarter.

Profitability grew in the second quarter and we continue to run ahead of budget. This may be attributed to asset growth of $5.1 million, stable margins and good expense management. Our efficiency ratio remained below 30% for the quarter. Commercial and consumer loan originations totaled $34.2 million, an increase of $5.7 million over the first quarter or up roughly 20%. In addition, $11 million in commercial commitments were approved and our pipeline of retail assets grew due to an increase in applications of 38% by volume, 34% by dollar.

Portfolio growth has been stifled somewhat year-to-date by unusually high prepayment rates as consumers take market gains and reduce their personal data. That trend appears to have abated in June and July month-to-date. The total combined portfolio was $448.9 million at the end of the quarter compared to $443.8 million at the end of Q1 and $436 million at the year-end 2018. Since joining Centennial Bank in July 2018, interest earning assets are up $62.6 million. While we're not a financial center or a branch, marine-related deposits have grown to $1.3 million, doubling in the second quarter.

Our growth strategy for both commercial and retail is to add new manufacturers, both domestic builders and international and their attendant distribution channels in North America working with their dealer networks for commercial floor plans and to leverage these relationships for new retail referral sources.

In addition, we received commercial and retail referrals from Centennial bankers, particularly those scattered around the Florida market. And we had success in co-branding events at boat shows and marine industry trade shows with our parent, Centennial Bank. As always, we're also grateful for our broad base of marine loan brokers for the majority of our retail referrals. We continue to deepen and increase those relationships. We also anticipate launching a super yacht retail marine finance program in the third quarter of this year.

Growth has not been achieved at the expense of asset quality. Our delinquent loans were down substantially below $1 million at the end of 2Q compared to $1.4 million at the end of the first quarter and $5.8 million at the end of 2018. Commercial commitments have all been freshly underwritten and approved through Centennial Bank's loan approval process and average retail borrower FICO scores at origination have climbed from 770 at the year-end of 2018 to 775 in the first quarter and they've reached 777 in the second quarter.

The commodity type nature of the retail side of our business continues to put pressure on our margins. In addition, pressure came from recent Fed decisions and the market reactions to the Fed as it relates to the 10-year treasury, an index that is commonly pegged by us and our competitors for establishing retail rates. We see that with an average origination rates in the fourth quarter of '18 of 5.01%, climbing to 5.52% in the first quarter of this year, and then pulling back slightly to 5.37% last quarter. I expect continued downward pressure in the third quarter.

The third quarter growth outlook is mixed. While we've seen an up tick in application volume and retail originations, dealers are beginning to express some pessimism and tapering back to purchase orders. Nonetheless, I remain confident in our ability to achieve growth, profitability and asset quality objectives.

With that, I'll conclude my remarks and I thank you.

John Allison

Thank you, John. Tracy French.

Tracy French

Good afternoon to you. Good afternoon to you. Thanks Johnny.

As you may recall last quarter, I mentioned our focus was going to be on net interest margin and improving asset quality. The numbers posted today for the second quarter will show just that. We improved our loan yield. We've watched our deposit costs, and improved our non-performing loans.

To give a little bit of shout out to our community banking, our net interest margin remains at 4.2% as it was the first quarter, which is up from 4.18% at the end of last year. I also like to give a little tip of the hat to some of our regions on the deposit growth that they've had. Little Rock market has been up about 7% and a little over 7% year-to-date. And Southeast Florida is up over 11% year-to-date.

And then next, we will shout out to the North Florida market as they are up in non-interest-bearing checking accounts, 16.5% year-to-date. So congratulations to some of those, and really congratulations to all, Stephen will give a little color on the deposits a little later. For the quarter, Centennial Bank had a return on assets of 2.1% and efficiency ratio of 36.45% with total revenue of $204 million. As it has been mentioned, I am pleased to see this strong loan production from the Community Bank segment. I want to compliment our lending teams for their continued effort in this competitive landscape.

Stephen, you want to give a little color on the loans and deposits?

Stephen Tipton

Thank you, Tracy.

As you and Brian mentioned, the Community Bank loan production for Q2 is strong with the contributions split fairly evenly between Arkansas and Florida. While payoff volume in the Florida portfolio continues to be elevated, we did see end-of-period loan growth for Arkansas and Alabama.

On the deposit side, as been mentioned, we saw another strong quarter of growth of $280 million, led by Southeast Florida region with over $120 million in end-of-period growth. Johnny mentioned the interest rate environment today is quite different than where we were just 3 months ago. And we will closely monitor the impact of declining interest -- or potentially declining interest rates on both sides of the balance sheet. Our efforts are now focused on deposit pricing, while maintaining core relationships.

With that, I'll turn it back over to you, Mr. Allison.

John Allison

Thank you. I will go to Randy Sims, our Chairman and let him wrap it up.

Randy Sims

Well, one way to wrap something up is to say congratulations to everyone for another good quarter. As you've heard from everyone, the numbers are again some of the best. We seem to always talk about the numbers, so I just like to take a minute to mention we are making improvements in many areas of the bank with the intent to strategically take our operational areas to a higher level that not only provides new capabilities for our customers but also improves our infrastructure for future growth.

Our IT division, that we rarely talk about, is busy concentrating on continuing to improve structure as well as implementing new Fintech initiatives. Along with operational and retail divisions, we've deployed Zelle Person-to-Person Payments, implementing new functions within the mobile app and completely updated our customer Web site. We continue to add interactive teller machines in appropriate locations and new project -- products such as CENTS to Win, a prize-linked savings program. All to enhance the customer experience with the best in capabilities and products.

In addition, the bank has taken on a new initiative of strengthening our internal structure, including operational areas as well as taking our regulatory departments to new levels of experience and depth. These efforts and improvements position us to continue our goal of being the high-performing bank, not just now, but well into the future. It prepares us for whatever opportunity the market may provide. And with these improvements comes expense. But as you heard, our numbers have remained strong. As Johnny stated, this is quarter 52 and our high-performance has been consistent.

So, let me just recap some of those strong numbers and wrap this quarter up. We finished with total assets of $15,287,575,000. Income was $72.2 million, resulting in diluted earnings per share of $0.43 as compared to $0.42 from the last quarter, which meets market expectations. Our ROA was consistent and very strong with the last quarter at 1.92%.

More importantly, we were able to achieve a strong net interest margin at 4.28%, down just a little from the last quarter at 4.30%. As you heard from the others, we are working very hard on both sides of the balance sheet to maintain the margin. Once again, our profitability was helped by a very strong efficiency ratio of 39.93%. It was good to see it under that 40% again as we continue to control our costs, but also making enhancements within our bank infrastructure. I am very proud of this number given the improvements we have been making and the negative effect of Durbin estimated at $3 million for each and every quarter. It's been a very strong quarter for deposit growth as you heard, ending at $11.35 billion with approximately $280 million in growth, resulting in a loan deposit ratio of 97.41% as compared to March 31 at 99.20%.

And yes, Mr. Allison, that's keeping that engine running really low like 30 miles per hour. I like it when it runs hot and you're making a lot of money.

John Allison

Randy, thank you. It's interesting we ran over $10 billion and what we've been able to accomplish when you think about Durbin.

Randy Sims

Yes.

John Allison

It took $3 million straight out of our pocket this quarter. And usually, accretion's going down, so that's pulling out. And then, when you go to this next universe, regulatory-wise with the expense that we're incurring there and still be able to meet the numbers, I'm beginning to get a feel for why, in the past, that the analyst have lowered expectations for banks like us in multiples when you go over 10 because they think these guys -- will these people be able to keep up with -- can they keep up with the increased expenses? Can they keep up with losing Durbin? Can they keep up with this? And I wasn't sure we could do that.

We did it the first quarter. It was like a breath of fresh air when we did it. Well, we did it a little easier this quarter than we did the first quarter. So, I see that now and there's some understanding for that. So I'm pretty pleased. I told someone the other day, I said, where are you? We're kind of treading water, but we're okay treading water. We got through the first quarter, was kind of relieved. And in the second quarter and it was better in the second quarter. So hopefully, the third quarter will be better than the second quarter. But these reports were really good and I want to congratulate this team of people.

The one thing about our team is you give them a mission and they get after it. They try to make it work. And I've told our people last August, we started pushing rates. Everybody didn't push rates. If you want to know what the quality of a bank is, ask them what their margin is. If they're giving stuff away, is it 3.10, 3.15 Are they giving stuff away? They say we won't have good asset quality. All they've got is bad loans because they pushed that up. That's not correct at all. That's totally incorrect. That we've got the best asset quality we've ever had, it's good as it is in the country.

We just asked for this direct. We maintained that relationship. We're busy with that customer and I think all that is so important to build in the relationship. You hear people talk about relationship, well their relationship is that they give cheap rates. So we've never backed out from that and our team had the mission. Was given to them last August, and you can see what they've done with that. They've been able to continue to push rates. Now what's going to happen now is the weight will drop 50 basis points. The strong will try to continue. A matter of fact, we just got to have an executive loan committee today, and we were at about [indiscernible]. So, some of the weight will drop those rates in a hurry. We don't do that. We try to get the maximum we can get out of it, and our team does that and against all odds, they continue to produce for the shareholders.

I guess, Randy, if it's easy, monkeys would be doing it. But it's my pleasure, and I mean that, to work with such a great dedicated group of professionals and they get the job done. Congrats to you guys.

Gary, I think we're ready for Q&A.

Question-and-Answer Session

Operator

We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Brady Gailey with KBW. Please go ahead.

Brady Gailey

Hey, good afternoon guys.

John Allison

Hey, Brady.

Brady Gailey

When you look at your net interest margin, you all done a good job of holding that pretty steady around the 4.30% mark. As we look forward with the yield curve doing what it's doing and then I'm guessing we're going to see lower levels of yield accretion for you guys in the back half of this year and into 2020. Do you think that it's realistic that you could see some NIM slippage here, or do you think that maybe deposit costs start coming down and you're able to hold it around this 4.30% level?

Brian Davis

I'll take that. And Stephen might chime in a little bit after that.

John Allison

Then I will give you the answer. I'll follow up from him Brady.

Randy Sims

And then, I might add some comments.

John Allison

I'll start off with the accretion. We have been around 9 million plus in accretion each quarter, the last three quarters. I'll really predicted it go down into the $8 million range this quarter. We did have an increase in pay off accretion. The pay off accretion was up about a 500,000 this quarter from the previous quarter, so there's a good chance that might not be reoccurring. So, we would have that pressure 500,000 would equate to about two basis points on the NIM.

If you look at the models that we have and we've disclosed these model numbers before for a short analysis. I mean, we're really for the most part neutrally gap, but we are technically slightly asset sensitive. These asset sensitive and models are correct, which we can do things to try to change the outlook from those models. It would show that we would have some margin compression.

The one that's coming up here at the end of the month should cost us a quarter of the models about $2 million of net interest income, which could equate six basis points. But we're going to try to do things to try to improve on that.

Stephen Tipton

Hi, Brady, this is Stephen, and to tack on there where we spent a lot of time over the last month or so, trying to identify on the deposit side what opportunities we expect will have if the Fed lowers a quarter at the end of the month. I think indicated before we have a decent sized bucket in the funding side that is tied to either LIBOR reference rates or tied to T-bill rates that have already started to come down a little bit. We saw some good benefit from that July 1 on their quarterly reset. So, we feel like we're trying to identify what we can match up on the funding side to the loan side as to what's the variable rate and then the investment portfolio might be kind of wildcard.

Brady Gailey

All right. And then my second question is on the expense side. It sounds like you guys have some continued investments that need to be made in the infrastructure just from being a bank that's over 10 billion in assets. I was just wondering how your quarterly expenses have actually been going down in the last couple of quarters. So, as you look to invest more in the expense infrastructure, do you think that will that have a notable impact on expense growth going forward?

Stephen Tipton

Well, as you're saying, it hasn't so far. And we continue to do things to try as we're improving and putting some money into infrastructure. Some of that infrastructure is software that become makes you more efficient. Some of that infrastructure is our people that again, make you more efficient. So, it's kind of looking into the future and saying, well, are your expenses going to go way up? Well, the expenses might go up a little on the front end, but we make it investments in infrastructure to become more efficient and therefore try to keep our expenses down and even lower them.

But yes, you could see some increase, but I would hope that it would be followed by a decrease and as we improve things. And we don't make those investments without some realistic outcome of improvement and lower costs. That makes sense. I mean, is that what you're looking for?

Brady Gailey

Yes. Thanks for the color. That's great.

John Allison

Oh, great. I'm going to wrap this up for you. We're not going to let the expense to go up and margins will remain flat. Well, continuously, it's forward to go down, right. I mean, margin should in this environment go down. We have about $2.8 billion with the loans are going to reprocess. We're about 75% fixed, that's good force or adjustable. We got about $144 billion worth of funds that will adjust if they just prime. If they're going to take prime down, they need to do that that'll help us. It gives us of a GAAP of about $1 billion in there and this team works very hard.

We got a call from one of our top flat regional presence and mark me down 15 basis points already -- have already taken the cost of deposits down. So, as we work like hell on the way up, we'll work like hell on the way down. So, maybe a little blip temporarily, but I don't think it'll be a long-term blip for us, because this team has a way of finding and fixing it as you well know. So, as we battle it hard on the way up, we'll battled hard all the way down.

Stephen Tipton

Kevin, can I say one more thing on the expenses. We are challenged by taking our regulatory group to another level. And we are meeting that challenge and we are investing in that. But at the same time, we have a strategic initiative on the other side of people that are doing nothing but looking for ways to automate things. So, as we invest in taking a regulatory to another level, that team is looking to see where we can automate that to keep those costs down. And that team is also looking at other areas of the bank. And I give you examples, but I'm not going to take the time to do that. But, they also look and analyze where can we automate something that actually reduces our cost and the number of people that we have to have.

So, what we got? While, one thing is maybe making our expenses go up over here. We had another group over here that is trying to drive expenses down. So, I want to know that we're working on both sides of that. And it has always been our goal to keep that efficiency ratio where everyone is proud of it.

Operator

The next question comes from Stephen Scouten with Sandler O'Neill & Partners. Please go ahead.

Stephen Scouten

Hey guys. Good afternoon. How you all doing?

John Allison

Yes. Good Stephen. Congratulations on your recent trade.

Stephen Scouten

Thanks sir. Thank you. We will see how it all plays out. But it should be good direction for us. Thank you.

John Allison

You think they're going to keep you.

Stephen Scouten

I don't know. What do you think, Johnny?

John Allison

I hope so.

Stephen Scouten

I appreciate that. Time will tell my friend. Time will tell.

Hey, I'm curious, if you guys are seeing any sort of inflection point on the payoff levels in Florida in particular, sounds like that's where you're seeing a lot of the pay downs and production has been phenomenal. So I'm just wondering if you think we might see some time here in the near future or more that comes to the bottom-line and grows the bank a little bit quicker?

Kevin Hester

This is Kevin. I can take that or Stephen, if you want to go ahead.

Stephen Tipton

No. Please do.

Kevin Hester

Stephen, the next two quarters at least, I don't think you're going to see that, we've got as we're looking in the pipeline the next two quarters look like they're pretty heavy on the payoff side as much as I'd like to report that they're not that we do see pretty heavy movement in the next couple of quarters at least.

John Allison

Stephen, you've anything?

Stephen Tipton

No. I think, if you look at the last three quarters, it's been around -- it's been a little north of $500 million. And I think what Kevin mentioned, we're seeing that plus a little bit of forecasted. So things change, they can move around from quarter-to-quarter, but it's -- we're still seeing the volume there.

John Allison

I think you heard me refer to it as grease pig one day. It's hard to get your arms around that. And even though, when I think it's not going to be as good, it's better when I think it's going to be better, it's not. And so it's somewhat difficult to get your arms around that. But according to what the projection is that they're going to be, it would be down the next two quarters. But I've seen that many quarters before and it didn't turn out to be that way. So that's a difficult one to forecast because you never know, if you know what's coming and you never know what would you going to fund. I think our funding we grew $160 million, $150 million, $145 million, what was it, unfunded?

Brian Davis

Unfunded commitments, we are about 145 million from quarter-to-quarter.

John Allison

To 2.6 or…

Brian Davis

2.35 billion.

John Allison

2.35 billion. So, that gives you an idea of what's coming.

Stephen Scouten

Okay. Appreciate that. And John, it sounds like you've been watching a lot of MSNBC lately. So, with the rates looking like they're going to go down here. What are you guys doing to prevent against some of these rate cuts? I mean, are you do any hedging or otherwise to kind of put in protections, if in case, if those guys are right?

John Allison

We haven't done that. I watch some of our friends on the upside spend millions of dollars on the hedging process and get their hand handed to them. The Fed says they're going down. It might be 90 days and they go up ahead. So, I could get a dart board and it totally hits up or down or a quarter or a half, I'd like they just throw a dart boards. What they've been doing looks like lately so. And I don't watch too much in the MSNBC. I did watch Comedy Hour on the night of the presidential election. I did do that.

We got floors in place and significant floors in place and 75% Feds are adjustable. So, I think we're really on a down right now, I think we're in pretty good position. I actually think we're in a better position on the way down than we were on the way up. And we fought to keep it to hold our margin all the way up. So, I can assure you we'll fight to keep it on the way down. I think, I said that earlier. So, I would be disappointed, I'll be disappoint, if you know how hard I pushed, I think we got a shot, it may go down few ticks but I think we got a shot and hold it within range.

Brian Davis

One thing to remember is that we are a bank made up of a lot of different communities and those communities drive the markets. Those communities are -- is the market that we look at and that we serve. And then there's up and down that goes up and down. And whatever the Fed decides to do is -- disrupts that. I wish that the Fed would leave things alone and let the market do what it always does but we are -- have a little bit of advantage, I believe, because we serve small community markets and that those changes are not as drastic as what we see on a national level.

Stephen Scouten

Makes sense. Maybe one last question from me. I'm curious what you expect on the pace of the buybacks or kind of how you think about that moving forward. If there's a capital level, you might manage to -- or if you think they might pick back up to the levels we saw in the previous two quarters versus a little bit less active this quarter.

John Allison

Well, we've kind of overbought the first quarter. We spent more than -- I mean we had about $180 million, I think somewhere in that range, approved by our regulators. And we spent 50 something million in the first quarter, which was a little..

Brian Davis

We spent $52 million in the first quarter and we spent $13 million in the second quarter. And you're right, we had $188 million approved from the regulators.

John Allison

Yes. We're really evaluating what's in the best interest with all that capital rolling in right now, what's in the best interest the company to slow down on the buybacks to maybe look at a sinking fund to pay off some debt at some point in time that's coming in the future. So, we're really in the process of evaluating that at this point in time. We will continue to be in the buyback business, not sure how much we'll be in, but we'll continue to be in that market. And sometimes, we'll buy heavy. And sometimes, we won't. If they put it on sale, we'll jump in there.

Stephen Scouten

Very good. Thank you guys appreciate the time. Congrats on the quarter.

John Allison

Thanks.

Operator

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

Michael Rose

Hey, good afternoon guys. just had an accounting question. So I just heard the comment around the unfunded commitments and obviously with Shore Premier Finance coming on. Those two things, as my understanding, is they're treated pretty punitively under CESO. So, as we think about going into 2020, does this curtail your desire to continue to grow Shore Premier Finance or Chris' group up in New York?

Brian Davis

I mean when we get to CESO, I mean we'll set whatever it is we need to set for the day 1 accounting mark. But I would not envision that it's going to change how we look at that at all, and that's just we're doing business.

Stephen Tipton

Michael, this is Stephen. I think maybe to comment there just because I think contractually, some of the Shore Finance is longer term. I don't think we would change our desire to be in that business, particularly with what John mentioned in the underwriting standards and what we're seeing today just because of the accounting change and I guess the business we want to be in and be exposed to continue to be a part of.

Michael Rose

But it wouldn't limit your -- necessarily limit your growth plans in either of those businesses?

Stephen Tipton

I don't think so.

Michael Rose

Is that what I'm hearing?

Stephen Tipton

Yes.

Michael Rose

Okay. And I don't think the -- I'm sorry if I missed it, but I don't think the M&A question has been asked and I don't think Johnny mentioned it in the prepared remarks. So, I just wanted to get an update on your thoughts on the M&A landscape this morning and what you guys are seeing.

John Allison

I did mention them in the remarks that we'll remain conservative on M&A. We'll take what they give us on M&A and on the loan side. So, I don't think this is time to be pressing the envelope, I think, was what I said. We're continually looking. We're continually running models here with other banks.

The MOE thing as I said last quarter, is kind of off the table for us because it doesn't -- we're having difficulty finding somebody that has the quality. It's not MOE. I mean there's not -- very few people that run a bank like we run a bank and it's difficult to do an MOE particularly in light of who's going to ultimately run it at the end of the day.

So, I mean we've seen a couple of them when they want to run it, but quite honestly, they don't run near the performance that Home BancShares runs. So, some of that, they go, "Who's going to run it? Who's going to be the boss?" I don't mind if somebody is running at 2.20% ROA and they want to be the boss. That's fine. But if they're running a 1% ROA and want to be the boss, they'd probably not going to get hooked up with Home BancShares. So, we're still looking.

Michael Rose

Sorry.

John Allison

Say what?

Michael Rose

I was just going to say sorry, I missed that in the prepared comments.

John Allison

That's okay.

Michael Rose

That's clear. One final question from me. We've heard a couple of banks talk about the lag effect on the downside if we do get a couple of rate cuts on deposit rates. And I guess my question is, do you think your interest-bearing deposit costs have -- should we get a rate cut?

John Allison

I do. I think close. I think we're right at it. If you heard my comments and maybe you want to know my comments, but I went back four quarters. It was $6.3 million cost to fund increase and I'm calling from memory, then $3.2 million increase in cost of funds to $2.5 million to $293,000 this quarter, which is a pretty good indication of what's happening there. So I looked at it yesterday and I looked at it today and it was flat. So what I'm seeing, I like. I'm seeing interest income up slightly. I'm seeing interest expense down slightly. So that's a good indicator for the company.

Michael Rose

Okay. Sorry, I missed some of the commentary in the beginning. Thanks for taking my questions.

John Allison

I know you have a bunch of calls right in these times.

Operator

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

Matt Olney

Hey guys. Good afternoon.

John Allison

Hey Matt.

Matt Olney

I think Randy mentioned that the loan-to-deposit ratio is now at 97% but the lows has been for a while. Is this a strategic change and are you going to operate here or will Randy get his way and we'll see this move back up like last year?

John Allison

He'll get his way if you let him.

Randy Sims

The regulators like it. I don't think they like it, and will be somewhere in between.

John Allison

That's probably a good answer. That's probably a good answer, somewhere in between. But deposit has been awfully strong, 700 and plus -- $700-plus million the last 3 quarters. And I have to give Tracy French credit for it because he established that new policy. If you all remember, several years ago, we started asking for it. So we're not stopping now. So, we're not going to stop yet. We're not going to stop. So...

Matt Olney

And then, Johnny you mentioned, you feel like you have some protection with some floor. Can you give us an idea of what point those floor comes into play. How many Fed cuts we have to see?

Stephen Tipton

Yes. Matt, this is Steve. I can take that. On the CCFG portfolio, there's a couple of hundred million today that are protected with the floors. Functionally, all of the production and I think you heard Chris' comments on how good his production was for the quarter. All of his production so far this year should be protected as it begins to fund, which, as you know, a good portion of his production has yet to fund. We've got about $150 million or so on the Community Bank side that's protected today in a 25 basis point downright scenario and then those numbers increase a little bit, if rates were to continue to go down. So, we've got $350 million or so that's protected today if they do lower rates into this month.

Matt Olney

And Stephen, I would assume that if rates were to go down beyond 25 bps that 350 would increase, is that fair?

Stephen Tipton

Yes. That's fair. I don't have those numbers in front of me here, but yes, that's fair.

Matt Olney

Okay, guys. That's all for me. Thanks for your help.

John Allison

Don't bet the farm on that Matt.

Matt Olney

I wouldn't do that.

Operator

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

Jon Arfstrom

Thanks. Good afternoon.

John Allison

Hey Jon.

Jon Arfstrom

Hey. Kevin, can you go back over that -- I was a little confused by the payoff information you were talking about. Were you saying that's elevated the next couple of quarters or not, elevated the next couple of quarters? I missed that.

Kevin Hester

Yes. Stephen, he mentioned a number of $500 million last quarter and I think what we have -- and then Johnny made the comment, it is early. It's early in the third quarter and certainly for the fourth quarter, things can change and these things can move in and out of quarters and up and down as you go through. But as we got it, as we're seeing it right now, the payoff numbers are really -- even a little higher than what we saw last quarter. And production's been strong, if maybe we can produce it and that would be a good thing. But unfortunately, we're seeing people take things off the table and sell projects and move them to permanent and it's just where it's at.

Jon Arfstrom

Okay. So, the message would be hoping for modest loan growth, working hard to get there but probably seeing some repricing higher than yields is an offset, is that fair?

Kevin Hester

I think that's fair.

Jon Arfstrom

Okay. Is John Marshall still on?

John Marshall

Hi, good afternoon. John here.

Jon Arfstrom

Hey, John. You made a comment about consumer health and maybe picking up a little bit in June and July, but then you also talked about dealers pulling back. Can you expand on that a little bit and just let us know what you're seeing in terms of the consumer and why you think the dealers might be pulling back?

John Marshall

We've got a little bit of a conflicting message coming out. We've seen volume increase from an application standpoint and from a funding standpoint and the quality of those applications is measured by FICO scores. It's also improving. But in our conversations with our dealers, they're looking forward and they're pushing back on their manufacturers just a little bit in the amount of inventory that they're interested in holding as we move forward into probably not the third quarter, in the fourth quarter of this year or perhaps first quarter of next year.

And I don't know, I asked him what is it that they're seeing are there any technical indicators that would suggest that they want to hold less inventory. And it's more of a gut feeling. So right now, we've got sort of mixed signals. We've got retail buyers who have been buying a lot more votes, but then we've got dealers appearing to pull back just a little bit.

Jon Arfstrom

Okay. Good. That helps.

John Marshall

I'm hoping those two will offset each other and so it'll be neutral for us and we'll continue to meet our growth goals.

Jon Arfstrom

Okay. Good. I was just most interested in the narrative [on why] [ph] but that helps me. Chris maybe for you, pipelines and commitments obviously were very high. Do you see that continuing coming into Q3 and the rest of the year?

Chris Poulton

Yes. Good afternoon. We do. We like the pipeline still as we moved to a lot of our weighting to grow stuff these past quarters. That was nice. But, we continue to like to see what we're seeing through there. We review it once a week. I generally like to see about $1 billion in the pipeline. Not all of that will make its way through but as long as we have $1 billion plus in the pipeline, I usually feel pretty good about where we're headed. We have a little over $1 billion in the pipeline today.

So, I would say we continue to think they're interesting. There's interesting opportunities and transactions out there. I don't think that's changed. We certainly take, I would say, a shift towards a more defensive nature as it relates to both the pipeline and the portfolio. So, I let go of the payoff sentiment. In our business, that's a good thing. Loans aren't supposed to be out there forever. And while money is cheap and plentiful, there are some of the credits we'd like them to go ahead and move on out.

Jon Arfstrom

Okay. Fair enough. And then maybe just a bigger picture question for -- I don't know if it's Randy or Tracy or someone, but it sounds like you all don't feel like a rate cut is needed at all based on what you're seeing. But I'm just curious if you're seeing anything that bothers you or that's incrementally a little bit more troubling from an economic point of view or not? Thanks.

John Allison

Thanks. Well, we haven't seen. Our portfolio still shows all of the business is doing just fine. So, whether that's due to rate cut or not for the company was, Jon I mentioned how we used to go out and ask for the deposits and it seems to be working pretty well. I guess that the [indiscernible], Jon, we've called all our variable rate customers last 2 days and they're all coming in and signing new fixed rate loans next week. I'm just kidding on that.

So, we're going to ask them to come in and fix them up for that process, but we work on the interest rates here every day and that's something that we've done for several years now and when it goes up, it goes up. When it goes down, it goes down. So, we feel like our company's positioned pretty well to work through whatever the challenges we get thrown at on interest rates. So, we'll go up or down.

Jon Arfstrom

Okay.

Brian Davis

From a personal nature, I would just tell you that especially where I am in the beach areas and on the coastline, it is so dead gum crowded, they need to put some fences up and keep people out. There are people that need to go home. I have never, in my life, seen it that crowded, 4 and 5 umbrellas deep all the way down as far as you can see. There is no slowdown of the economy or any indicators of what's going on around where I am. And everything that we hear in Conway and our markets is things are pretty good.

Jon Arfstrom

Okay. I need to put up some bear crossings signs on the panhandle.

Brian Davis

Yes. I was a little slow on that one.

John Allison

We stay really close to our markets and what's going on in our people or on the ground, living it. So, I mean we're not seeing any disruption in the markets anywhere as of right now, I think we could say.

Jon Arfstrom

Okay. Good. Thanks for the help.

John Allison

Thanks.

Operator

The next question comes from Brett Rabatin with Piper Jaffray. Please go ahead.

Brett Rabatin

Hey guys. Good afternoon.

John Allison

Good afternoon.

Brett Rabatin

I wanted to just to go back to the margin for a second. And from a filing perspective, about 60% of your book is variable. Can you give us how much might be LIBOR? And then, the securities book is pretty small relative to earning assets, but just thinking about what you're doing in that book presently. And then, do yields pop back up going forward in that portfolio as well?

John Allison

I'll let Stephen and Brian talk about that. You've got that upside down. It's about 70%, 75% fixed or adjustable balance is variable, so, we don't have much variable. Stephen?

Stephen Tipton

Yes. Brett, this is Stephen. I think it's picked up in the filings or some of the, we'll call it, more adjustable-type deals where we're fixed in a rate for a period of time, then it will adjust 2 years from now, 3 years from now, those sometimes get picked up as a variable rate. Yes, I think what we've identified, that is subject to potentially move say in the next quarter or so. It's a truly variable-type, no, it's about $2.8 billion, half of that or so is on that CCFG side that is subject to move above the floor. The other half would be on the Community Bank side.

The majority of that is tied to LIBOR. We've got about $800 million or $900 million that's tied to Wall Street Journal Prime and then the balance of that would be tied to LIBOR. So, we've seen a little bit of movement there over the last couple of months in LIBOR, but that's where the portfolio stands as we see it.

Brett Rabatin

Okay. And then the securities book any color there?

Brian Davis

I mean it is what it is. I mean we've got $361 million of it that's variable and repriced within the next 30 days, and then after that, it gets pretty small amount.

Brett Rabatin

Okay. And then the other question I wanted to ask is, this is the first quarter in a while we've seen a provision from you guys and your credit is obviously stellar. I think that's one of the pitches for owning your company in the next few years as credit should be better than peers. Could you give us maybe some thoughts on provisioning from here, should we expect staying at 1% of new loan production or maybe give us some color if you can on how you think about the provision going forward.

John Allison

Well, we had an exceptional quarter this time, much better than the quarter actually looked and we thought it was a good work. We've always been reserved builders. We've always liked to have about 1% reserve, just kind of how the company's run, actually, in my past life, I ran a 1.50%. I think it's just a solid number. I understand we've got all these complicated measures of how we have to calculate reserves today, but that 1.50% worked for us in the worst financial crunch I've ever seen in my life. So, we're running at about 1% now and we've got marks of about another 1.20%. Is that right?

So, I'm not supposed to add those together. I guess you can't. To tell you where -- before, I think we are. And I think we're well reserved; see lots of people out here with 0.3% and 0.6% and 0.7% reserves. If we have a crunch that's not won't be enough. I don't care what the asset quality says that won't be enough, so we're just a believer. We had a good quarter. It looked like we kind of matched charge-off post the charge-offs for the quarter. And we just kind of look at it every quarter and see how it's going. But asset quality, you're right, we probably could justify a 0.50% reserve, but we'll keep as much in there as we can.

Brett Rabatin

Okay. And then just lastly, I want to go back to capital for a second. You mentioned buybacks. Let's say you're not involved in M&A in the next few quarters and you're really profitable, what do you do with capital if buybacks are not sort of enough in terms of what you're thinking about managing capital? What do you do as capital continues to keep going?

John Allison

Well, we have some trust preferred out there and we also have $300 million worth of sub-debt. So, I mean it counts as capital when it's still debt. So, I mean we're debt averse at Home BancShares, we don't like that. We don't like debt to count as capital. We don't think that's the right way to treat that, but we did raise $300 million and it would be our effort to pay that off at some point in time or start accumulating money to take advantage. How many months, 33 months left, Brian?

Brian Davis

We've had it 27 months. We have 33 months till it gets to where we start losing part of the capital treatment after 5 years, it's callable and then we will get 80% capital treatment.

John Allison

But we'll continue, Brian first [indiscernible] about dilution on buying back stock and I understand it is dilutive, but it has been one of the best uses of capital for our company for some time. And as I said, what we bought back 8.7 million shares in the last 18 months and $168 million worth. So particularly, if they want to take us down, the price down will be an active buyer.

Brett Rabatin

Okay. I appreciate all the color.

John Allison

Thank you.

Operator

The next question comes from Brian Martin with Janney Montgomery Scott. Please go ahead.

Brian Martin

Hey guys.

John Allison

Hi. How are you Brian? You've changed jobs. With Janney Montgomery?

Brian Martin

I was like Stephen as well. So, his comments, I thought. So, you guys have covered a lot of this, but maybe for Stephen, you talked about the variable rate and fixed rate, how about on the funding side, the market-sensitive deposits? What's the level of those are currently that could adjust in the next quarter or so, Stephen?

Stephen Tipton

I think Johnny mentioned maybe in the first part of the Q&A, but we've got about $1.5 billion, or so that are tied to some index side or treasuries, LIBOR or Wall Street Journal Prime that functionally should float 100% later with that as it changes and then we've got another $1 billion-ish or so that we've identified, kind of call it top of the market type rates that we can affect over time. So, that's our task and I think it's what Tracy and Johnny both mentioned. We'll work those rates down if we see the Fed make a move on the 31st.

Brian Martin

Okay. And it sounds as though just kind of hearing all the comments around margin that I guess you probably think it's fair to say that the core margin kind of actually accretion is probably -- I guess maybe near a bottom if we do get a rate decrease given kind of the initiatives maybe as Johnny said, a couple of ticks lower, but shouldn't be materially lower in a down rate environment. I guess is that in summary, kind of a fair statement?

John Allison

I think it's a fair statement. I think that…

Stephen Tipton

Yes. As Brian mentioned, the models show that we could put a little bit of pressure on it. But I think that's based on the assumptions that we have and we're evaluating all of that now and see if we can do better than that. So...

Brian Martin

Okay. All right. And I think Brian said it was about 6 basis points if you get a 25. That's what the model shows should be on a 25-basis point decrease?

Brian Davis

Yes. That is correct, Brian.

Brian Martin

Yes. Okay. And the last 2 from me was just the -- Johnny, you talked about the buyback versus the debt repayment. I mean how quickly could you do something on the debt repayment or I guess is that more near term or is that a little bit longer term given you've got a couple of years on the capital treatment?

Stephen Tipton

Yes. It's non-callable. This is Stephen, Brian. It's non-callable till '22.

Brian Martin

Okay.

John Allison

We've got there 33 months until that comes up, Brian. So, I mean if we start a few months, the problem is going to be with me. I mean we start accumulating that total amount that you're sitting on, $150 million or $200 million, and a deal comes up. I said your biggest problem is going to be me because we may let -- depends on what the next deal looks like compared to what paying down the debt looks like.

So, in both senses, if we do a deal, we've never done a diluted deal, we've always been accretive. And our stocks creep back up a little bit, getting that into 2.20x, 2.30x tangible book. We just took a look at -- how many, 296, the banks? I think we ranked sixth or seventh when you take out the non-bank so to speak in margin in the countries. So, we're pretty proud of that. As again, that was earlier in the call, I said if you want to judge a bank, ask them what their margin is to find out whether they're real banks or whether giving away. And Brian, Randy Sims and I really believe on those models. I'm just kidding. We're going to prove them wrong once again.

Brian Martin

That's right. And then last…

Randy Sims

I just look to models assuming that the other guys around the table are doing nothing except just let it roll out.

John Allison

Well, the models...

Randy Sims

Exactly right. We just actually go, go on vacation. Let the models do it and go on vacation versus actually leading our communities.

John Allison

They don't do all those tests. They're coming in. Well, the models look about that way and way up to, we're pretty much flat, we're pretty much flat. I think we could be in better shape on the way down. We'll see.

Brian Martin

Yes. And the last couple. Just on the pipeline, you talked about the payoffs, Johnny. But just as far as the production, I mean I guess your sense, I mean there's a pretty wide swing from 1Q to 2Q in the production volume. I guess one of them feel more realistic or do you think it's the production volumes maybe somewhere in between and then the back half of the year?

John Allison

Well, the first quarter, you had shock and awe from what the Fed in December. I mean it shook the world. What I'd tell you the S&P 500 total return fund had the worst month since 1929. I mean that was a major error and it shook everything. So, I think it took a while to recover back. So, I'm optimistic that production will be better. I mean I think New York started funding some this quarter, but they'll have a lot to fund as time comes on and we've got about $2.3 billion and you'll some of that funding. So, I suspect we may be down a little bit and I will tell you that we may be down a little bit on loans this quarter and the reason I'm telling you that is the last time I said we'd be up, we were down. So, I'm going to tell you we're down and maybe it will be up.

Brian Martin

Okay. And just lastly on the expenses. I guess it sounds like they could move up or tick from here based on what Randy was saying. But just kind of thinking about the efficiency, I guess, what is that here around this 40% level? I guess is that something you expect to be able to maintain or could that tick up a little bit and then as Randy said, you get the benefits and it ratchets back down a little bit?

Randy Sims

We've always had a good efficiency ratio. It's going below 40, a little bit above 40. Don't look for any major changes in that. I'm just telling you we're doing some really good things for the bank and for the future. And we're spending the money to take our regulatory areas up to the level that not only the regulators want, but that need to be done. So, I don't take so much from what I said.

Brian Martin

Yes. I got you. All right. Thanks guys. Nice quarter.

John Allison

You bet. Thank you very much.

Operator

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

John Allison

Thank you, Gary, and thank everyone for your participation in our call. And we'll talk to you in what three months. Thank you.

Operator

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