John Allison - Chairman Randy Sims - CEO Tracy French - CEO, Centennial Bank Brian Davis - CFO Kevin Hester - COO Donna Townsell - VP, Corporate Efficiencies Jennifer Floyd - CAO

Michael Rose - Raymond James Brian Zabora - KBW Matt Olney - Stephens Inc. David Bishop - Drexel Hamilton Jon Arfstrom - RBC Capital Markets Stephen Scouten - Sandler O'Neill Brian Martin - FIG Partners

Greetings, ladies and gentlemen, welcome to the Home BancShares Incorporated Second Quarter 2015 Earnings Call. The purpose of this call is to discuss the information and data provided in the quarterly earnings release issued this morning. The company presenters will begin with prepared remarks, then entertain questions. [Operator Instructions]. The company has asked me to remind everyone to refer to their cautionary note regarding forward-looking statements. You will find this note on Page 3 of their Form 10-K filed with the SEC in February, 2015. 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 your first presenter, Mr. John Allison.

Thanks, Chad, and welcome, everyone, to Home BancShares second quarter earnings release and conference call. Looks like another one for the record books, a pretty good quarter. Before I start I want to send a special thanks out to Tom Eck with Cortina. You remember last conference call Tracy was kind of what we called under the weather, and Tom Eck started a fund Help The Tracy Fund or Help Tracy Get Well Fund, and I would like you to know thank you for your donations and we were able to cure him, so he will be on the call today. Again, Tom, thanks. Reporting today will be Randy Sims, Home's CEO; and the healthy Tracy French, CEO of Centennial Bank; Brian Davis, CFO; Kevin Hester, COO; Donna Townsell, Vice President of Corporate Efficiencies; and Jennifer Floyd, Chief Accounting Officer. It's all smiles around the room today, I think everybody is pretty happy that the quarter is over and it turned out to be a good one, and congratulations to all our employees for another record quarter. Let me go -- always have the pleasure taking about the record, so let me go to the record book. It was record earnings, it was record earnings per share, it was record revenue, it was record efficiencies, it was record loans for the quarter, and it was record organic loan growth; it was record for ROA; and we accomplished all these records while still putting $5.4 billion in the loan loss reserve. The margin remained strong, slightly improving asset quality, and we made an acquisition of Bay Cities during the quarter. We locked that acquisition with very good management team, very astute investor group and very strategic for the company. I think its good timing for them as well as for us, thanks for going well as a company. We look forward to getting them folded in. There were really lots of competition on the deal; it's the most competition I have seen on any deal we've run up again. I have -- we ran up against the same cast of characters that you can imagine we've seen in the past those that either don't know how to do a deal or don't care about their shareholders; they continue, the same bunch continue to dilute themselves into infinity. But in this case they ran into a real astute investor group that recognized the value of Home BancShares currency and we perceive that. We look forward to working with them in the future. We're continuing on our efforts on branch consolidation and we're looking strong at $10 billion process. We continue to work on M&A and we are busy on that side. And one key item I want to announce, I think I mentioned in last conference call is we finalized our new goals of Home $2.50. And that execution is beginning here in late August or early September. So you will hear more about to that and the plan to $2.50 a share. In summary, the company was hitting on all legs and the team executed on those flawlessly. We want to wish Randy Mayor many years of happy retirement. Randy was an outstanding leader and very instrumental in building this company. We wish him the best. And after saying all that, Mr. Sims, I'm going to turn it over to you for a little more specifics, and you turn it over to rest for more specifics.

Thank you very much, Johnny. Yes, another great, great quarter. As Johnny said, it was the most profitable quarter in the history of our company. How many times have we said that in a row? And I love saying it; it's my favorite thing to say, well, that is now 17 consecutive quarters of record income for Home BancShares. Every time we have a great quarter and especially one like this one, I wonder can we do it again. But we've been doing it for over four years and that is just a great, great path record earnings. A $2.8 million or 9% increase over our previously reported record profit last quarter. And we finally hit $0.50 diluted earnings per share for the quarter, another milestone in our history. Diluted earnings per share excluding intangible amortization for the second quarter was $0.51 per share. And on top of the record income, it was a very active quarter for us. So I will mention just a few things that went on. First of all, in June, we announced the signing of the definitive agreement to plan a merger for Homes to acquire Florida Business BancGroup, parent company of Bay Cities Bank, headquartered in Tampa, Florida. Under the terms of this agreement, FBBI will merge into Home, and Bay Cities will merge into Centennial. Florida Business BancGroup currently operates six branch locations and a loan production office in the Tampa Bay area and in Sarasota, Florida. As of March 31, FBBI had approximately $540 million in total assets, $392 million in loans, and $461 million in deposits. We are really looking forward to closing this transaction as soon as regulatory approvals are completed, and we look to welcome them to the Centennial Bank and Home BancShares family. It is going to really help our footprint in the Tampa Bay area. Also as you are aware, we acquired the Doral Florida Panhandle operations in a FDIC failed bank transaction that added to our already strong presence in Panama City, as well as giving us a good increase in market share in Pensacola. I am pleased to announce on July 15, just few days ago, we completed the systems conversion. All five of the branches will soon be consolidated into existing Centennial branches and close as regulatory approvals are obtained. Our organic loan growth in the second quarter was approximately $279.9 million, now in my book that's $280 million. Of that amount $56.2 million was associated with our Centennial Commercial Finance Group in New York City, and we continue to entertain strategic opportunities with potential acquisitions, organic growth opportunities, and working to improve our own existing markets. So I would like to turn it over to Centennial's CEO, Tracy French, to give us an update on these items and to give us just a little additional color on our performance this quarter.

You bet, Randy, would be glad to. Nice to hear all of those R words which you all are talking about out there. I think we will start set the bars get those R's, may be making put a W in front of that, let's call it a world record down the line. But having met the Centennial bankers that we have it really is proud to sit and see today in all the areas that you all are speaking about we either met or beat our internal goals that we do there and that covers some regions to divisions to other non-interest income areas that we've developed throughout the company over the past six months and the year. I know you talk about how did we compare quarter-to-quarter. Well, the second quarter really was a nice complement to our first quarter that we started out at beginning of the year. Well each mentioned some of these; I'll just follow-up on some of those. As Randy mentioned, throughout it seems like it was not too long ago we headed down to Puerto Rico and met up with a few banks down there, but that's been completed, and as you mentioned the conversion was done this past weekend, and Jim Haynes who really covers that under control and moving forward to a nice one quarter to the next. Another big area was our Commercial Finance Group that you mentioned. That's one thing that we put together in the first quarter and worked -- Jim actually had a lot of our staff working on that, but Chris Poulton and his group settled in that. The second quarter behind us and they're beginning to make things and perform as we've planned, and we're still looking for good things out of that mark. Another thing we did is you mentioned was the Bay Cities definitive agreement, that's we were working on a few banks as Johnny mentioned in the first quarter. And we were very fortunate to have this relationship with Bay Cities I'll call it. And some of the relationship started a few years ago when we met Mr. Bronson Thayer and we kept following up that relationship and ended over to Mr. Christopher Lykes, the last Chairman that we met. But Greg Bryant is our guy there. Greg and his outstanding team we look forward. He is already challenged. He knows he's challenging the numbers that our company need and want to do, but he's got the right mindset, we're really anxious and we welcome that entire outstanding banking group to our team. Another movement that within our bank, Donna would speak on just a little bit as we -- first quarter we kind of mentioned some of our DFAST operation. We have formed that commitment and it's in the second quarter, we'll begin to get access. I'm not saying that I'm all excited about that part, because I haven't heard him saying anything that's going to be a moneymaker in that process, but we will do what we need to be doing there. But the point is strategically looking forward we're going to be ready for whatever opportunities Mr. Allison brings across the table. So all in all, what a phenomenal quarter. I'm really pleased with that. And most important thing that I've seen is we're just getting better every day, every month, every week and my hats off to the entire group, the Home BancShares and Centennial Bank. We'll get back to work.

Thank you, Tracy, that's a great report. So let's just get through a few numbers here. I'm going to go through pretty quickly and then turn over to other people to give you even more. So as of June 30, the corporation is sitting at just over $8 billion in assets. Our quarterly profit was a record $33.9 million or $0.50 diluted earnings per share compared with income of $28.4 million or $0.43 diluted earnings per share the same quarter in 2014. That is an increase in income of $5.5 million or 19.3%. Our return on average assets for the second quarter was 1.72%, good to see it over the 1.70% as compared to 1.67% for the first quarter of this year, 2015. Our return on average assets, excluding intangible amortization, was 1.84%. Our core return on average assets that excludes intangibles, provision, merger expenses, and taxes, was 3.20% for the quarter. Our return on average TCE, excluding intangible amortization for the quarter was 19.69%. We ended the first quarter with a record 40.39% efficiency ratio as compared with fourth quarter 2014 of 41.41%. Our core efficiency ratio was once again very close to getting a three in front of it at 40.3% as compared with the first quarter of 40.84%. Consistency in this ratio will be a key to our success in the remainder of 2015. The total number of active Centennial branches is 148, excluding the recent Doral branches with 82 in Arkansas, 59 in Florida, and seven along the Alabama coastline, plus we also have our loan production office in New York City. We are continuing our efforts with the branch efficiency problem. And who better to tell you a little more about that in our efforts to get to that three in efficiency is our VP in-charge of efficiency, Donna Townsell. Donna?

Thank you, Randy. 40% efficiency ratio, what a great accomplishment for our team. When we started tracking our efficiency ratio in September of 2008, we were running at 59%. Congratulations to our entire team for another great milestone. Previously I reported that we were focusing on eight locations in our branch study. Well this is now down to 11, we closed one branch in the second quarter, and we have five scheduled to close during the third quarter. Four now will close in the fourth quarter with the 11th one closing in the first quarter of 2016. These branches were selected either due to underperformance or just close proximity to another location. We will continue to fine tune our monitoring process to provide our market leaders with data to help them continue to make smart business decisions. We will continue to focus on this area to hopefully see that three in front of our efficiency ratio that our Chairman and all of us would really like to see. The savings and efficiencies gained from these closures will help to tee us up for the upcoming expenses that we expect to incur as we begin the planning for Dodd-Frank stress testing requirements. With the power of the Home BancShares stock and the acquisitive nature of our Chairman which I think you're all familiar with, I think it is pretty safe to assume that we will cross the $10 billion threshold it's just a matter of when. So we have started the learning process as Tracy mentioned, and we've learned just enough to know that this process could require us to engage anywhere from one to three vendors or hire additional staffs and we just don't really know what all we're in store yet so. And what we're going to do is just focus in the meantime on growing revenue, watching expenses, and learning more about what it will be to be a the best bank in the probably near future. Randy?

Thanks, Donna. Switching to deposits, we ended the quarter at $5.87 billion compared to $5.42 billion at the end of the fourth quarter 2014. Time deposits represented 23% staying under our 25% goal to total deposits. So net interest income, margin, and non-interest expense, will all now be covered by our new Chief Financial Officer, Brian Davis. After that Brian will introduce our new Chief Accounting Officer, Jennifer Floyd, to give us more information on our capital numbers. Congratulations on the promotion, Brian.

Thanks, Randy. It's exciting when our company is able to report the strong numbers as we did in the second quarter of 2015. The net interest margin on the fully taxable equivalent basis was 5% for Q2 compared to 4.94% for Q1 2015. The yield on loans declined slightly from 6.05% to 6.01% on a linked quarter basis. The effective yield on non-covered loans was 5.63% in Q2 versus 5.65% in Q1 whereas the effective yield on covered loans was 18.4% in Q2 versus 14.65% in Q1. The cost of funds did experience a slightly improvement from 37 basis points to 36 basis points for Q2 2015. Because of the company's significant number of historical acquisitions our net interest margin has been impacted by attrition income for the fair value adjustments according to purchase accounting. Excluding these adjustments the company's net interest margin for Q2 2015 was 4.27% on a non-GAAP basis. The non-covered provision for loan losses was $5.3 million in Q2 2015 compared to $2.9 million in Q1 2015. While asset quality has remained stable since year-end, this increase is primarily related to the growth in loans during the second quarter of 2015. Non-interest income was up $2.4 million in Q2 2015 compared to Q1. The largest improvement was related to a $1.8 million reduction for the FDIC indemnification amortization. This improvement is primarily related to the ending of the five-year loss share for Old Southern and Key West FDIC acquisitions from 2010. Also there was the significant increase in our mortgage income and trust fees. The increase in mortgage income was a reflection of three new monthly records in a row for volume in our mortgage department. The increase in trust fees includes a one-time receipt of $788,000 related to 12 day one fees which were recovered from our Trust Department. Non-interest expense was up $2.5 million in Q2 2015 compared to Q1. The primary increase was related to $2.3 million of new expenses related to the opening of our New York City loan production office in Q2 2015. This quarter we have a new face to introduce to Home BancShares investors and the shareholder world, it is Jennifer Floyd. She's succeeding me as the Chief Accounting Officer and Investor Relations Officer at Home. Jennifer joined the company in June after a 17-year career with Deloitte where she was a Senior Manager focusing on financial institutions. The timing of his hire was perfect. Deloitte was in the process of closing their Little Rock offices on as of May 31, 2015. Thus we were able to keep our talents in the State of Arkansas. With that said, I will turn the call over to Jennifer.

Thank you, Brian. I'd first like to say that it's my honor and privilege to join the Home BancShares team. I look forward to working with all of you each quarter going forward. Now for a brief overview of the second quarter capital results. As of June 30, 2015, our company ended the quarter with $1.62 billion of capital, and $91 million of cash as a parent company. During the second quarter of 2015, we paid out shareholder dividends of $8.5 million and grew retained earnings by $25.5 million. For the second quarter 2015, our common equity Tier 1 capital was $725.7 million, total Tier 1 capital was $784.7 million, total risk-based capital was $845 million, and risk-weighted assets were approximately $6.8 billion. As a result, common equity Tier-1 capital was 10.7% compared to 11.4% at March 31. Our leverage ratio was 10.4% compared to 10.5% at March 31. Tier-1 capital was 11.6% compared with 12.3% at March 31, and total risk-based capital was 12.5% compared to 13.2% at March 31. The decline in our risk-based ratios is primarily attributable to the $569 million increase in the loan portfolio of which $51.5 million is in the 150% risk-weighted category. Additional second quarter capital ratios include book value per common share which was $15.67 compared to $15.38 at March 31. Tangible book value per common share was $10.61 compared to $10.30 at March 31. And finally, our tangible common equity ratio was 9.3% compared to 9.7% at March 31. Randy?

Thank you, Jennifer, and welcome to the team. Now let's turn to loan. As Johnny mentioned, our legacy loan growth was very, very strong for the second quarter. We've got a strong pipeline in the works for the third quarter and our already strong asset quality numbers continue to improve. So let's switch to our Chief Lender, Kevin Hester, who will give us more detail. Kevin?

Thanks, Randy. We're halfway through to 2015. It was a great quarter on the lending side of the house. And as Randy mentioned, legacy loan growth was $280 million for the quarter including $56 million from the New York LPO. This equates to a 23% increase on an annualized basis which is the strongest legacy loan growth quarter both in dollars and on a percentage basis since the downturn. The production pipeline is still very strong with paydowns projected for the third quarter appear to be higher than normal. A slight improvement was shown on a linked quarter basis in each of the already strong asset quality ratios led by a 4 basis points improvement in the non-covered non-performing asset ratio from 0.75% to 0.71%. Likewise, the non-covered non-performing loan ratio decreased by 3 basis points from 0.76% to 0.73%. When comparing these quarter-over-quarter, these ratios have been reduced by 32% and 30% respectively. The allowance for loan losses as a percentage of non-covered decreased slightly in the second quarter from 1.07% to 1.02%. However, if you added all the acquisition discounts to the allowance for loan losses, the combined figure would be 3.33%. Quarter-over-quarter the allowance for loan loss coverage of non-performing non-covered loans improved from 107% to 140%. Non-covered real estate loan decreased $863,000 on a linked quarter basis from $17.4 million to $16.5 million which is the lowest balance since the Liberty Bank acquisition in the fourth quarter of 2013. Net charge-offs were 16 basis points in the second quarter which is below the previous six quarter average of 20 basis points. Early stage delinquencies remain low at 1.08%. As Brian noted, the mortgage department had a world record quarter, with each month of the quarter setting a record for the highest close volume in the company's history. In addition, June set a record for the highest purchase volume ever as secondary market margins were up over 50 basis points from 2014. While we've been a preferred lender with the SBA since 1999, we have not made a concerted effort in this area for some time. As of this quarter, our government guaranteed lending area is fully staffed and operational and I expect a contribution from them in the last half of the year. By all measure, it was a great quarter. And with that, Randy, I will turn it back over to you.

Thank you, Kevin. Great report. Two very good quarters for the first half of 2015. Another definitive agreement signed for an acquisition that adds to our Tampa Bay market. Record earnings for the 17th consecutive quarter, a consistent and strong efficiency ratio, strong legacy loan growth, and great asset quality metrics. These are the type of quarters we really, really look. And I think as it's been mentioned by our CEO Tracy French, it might have just actually been a world record quarter for us. So with that, I will turn it back over to our Chairman, Mr. Allison.

Thanks. Great report, everyone. That was really good. We were bragging our efficiencies but I saw a $38.90 in June, by the way, Donna. And so, I mean, we did -- we had a good quarter, we ran a $40 and change I think but we did show under $39 in June. So when you show it to me we'll be able to get it usually. I kind of just forward, one thing I left out was our New York operation, I apologize for that. We're really pleased with what's going on in New York at this point in time, I mean. And to describe the pipeline I think the words I would use would be unbelievably powerful pipeline. So pretty excited about when we close all that but Chris and his team was kind of out of the market with Doral for a period of time because customers weren't sure they could fund, and those customers have come back to Chris and his team. So it is pretty impressive and pretty unbelievable at this point in time. Congrats to them. So I think we'll see some good performances kicking in from New York over a period of time. I think we're, Kevin, what $50 million this time from where we were when we bought it? So, anyway, I don't know what else to say. Congratulations to all, great quarter and we'll open it up, Chad, for Q&A.

Sure. Thank you, sir. We will now begin the question-and-answer session. [Operator Instructions]. Our first question comes today from Michael Rose with Raymond James. Please go ahead.

Hey, good afternoon guys, how are you?

Hey, Michael, how are you? Are you getting any sleep? Mike, are you getting any sleep?

I'm trying to get some sleep. It's pretty difficult around the Rose households these days, but hope it will get better here in the next month or so.

Congratulations.

Thank you very much. Couple questions. Just wanted to dig into the New York group a little bit. Can you give us a sense for kind of what you think the capacity could be for that team over a period of time? And then can you just remind us kind of what the loan yields in that portfolio look like and where new loan production yields are in from that group relative to other parts of the franchise? Thanks.

Well, that the pool, we thought, was about 50% loan to value and 6% flowing LIBOR plus six. Isn't that right Kevin? And that's pretty much where we're continuing, we're not getting those kind of rates anywhere else. That's the highest rates we're getting is from Chris' operation. And we're still writing in the 4% here and sometimes. So that's -- Kevin you got any comment on that, you want to take that question?

Well that as far as the capacity goes and then we -- it's a different structure and lending philosophy out there that we're -- that they've been doing and it's a short-term bridge, tight structure, and there is still a good market for that up there, and as long as there is we're going to continue that that model. And we think there is quite a bit of that left up there at that rate as long you're able to continue to do that. And we haven't set a real hard number for them to get to.

We're not pushing them. They're taking their time. They were up $50 million for us this quarter. We approved yesterday about $40 million for them. And Chris and his team ran a billion plus all the time out there. So I would anticipate that that as they take their time and if the niche that they have is still open, as Kevin said, then you'll see them with a billion plus.

Okay. That's helpful. And then I'm sorry if I missed this, but the loan growth outside of the New York group, was most of it from Florida? And if so, in what market. And how the pipeline may be in Florida, how is it changed may be quarter-to-quarter?

It was really pretty interesting. I can see we had $280 million of organic loan growth. Arkansas was $92 million, Florida was $102 million, Alabama was $19 million and New York as $56 million. That's the total of the $280 million. So kind of spread around really. Florida more. Florida, a little stronger than Arkansas, but Arkansas was good. So that kind of tells you where it's coming from.

Okay. Just one more for me. On the efficiency side, it looks like you guys are closing another five branches. Any other plans beyond that from may be the most recent deal? And the then swapping out the CFO is that going to bring you down into the 40s?

Well, we've --

Yes, we got Brian at $4 an hour and I don't think he is overpriced but I'll let Donna take that one.

Wait.

That's where I was going with that one.

Yes.

We've got 11 on our list now that we're working, Michael that will have closed by all of them by January. And we will continue to look at that, especially as we acquire. As you know sometimes we acquire in our footprint and it doesn't make sense. So when we closed the five Doral last weekend, we sold it in one of our own. It was also in that area. So we will continue to work on that.

Okay.

That's about $200,000. That was about $200,000 closing of Doral expenses, though.

Okay. That's all for me.

You were comment to it; see if we would can see a phone.

Well now I do appreciate the dollar per hour extra that I'm getting.

He got it right.

Hey, thanks a lot guys. Congrats Brian. Take care.

Our next question comes from Brian Zabora with KBW.

I have a question. John, you mentioned Home $2.50. Can you give us some details on how you think you're going to get there?

Well, actually if New York closed everything they had in their pipeline, we would be there. So I think is -- I don't think it's a stretch for us, I think it will take a while to get to that level, but I don't think it will happen overnight. If you remember Brian, I don't know if you were an analyst would understand, but two years ago we had a goal of Home $2.50 and we have a goal -- and we split the stock two-for-one and now we're back. So it tells you we got there pretty quick. We doubled our earnings pretty quick, at least our goals pretty quick. But I mean you're going to see some pick-up on the expense side, I think if Donna continues. She's not though looking at the branch operations and probably -- there's probably another five or six out there that will probably close. If you recall our numbers early on was about $2 million worth of savings on the first eight branches and she's closing 11 now, so which you will see some savings coming in there. We got rid of the Doral. Obviously the expenses of New York are pretty well ramped up at least probably management side of expenses, Chris' operation we are in this quarter. So we don't have any no significant increase in expenses there and New York continues to operate the way they operate and our loan demand continues, as Kevin said, we're -- just a little bit for this quarter but we approved the $168 million yesterday was the biggest day that the company has ever had in one day of loan approval. So we are demanding a lot of stuff working and we continue to grow our loans and Chris continues to maintain his operation, I think you will see us get into Home $2.50. I don't anticipate I think it will be next year but we will hit the run rate this quarter on the $2.55 this time or later we should be hitting that. Did that answer your question?

Absolutely. And then just on OREO losses in the quarter, it's been a while since you've had one, was there just one sizable transaction? Can you give us any details on that loss on OREO?

Yes, it was, we had some covered write-downs on some of the covered stuff at Florida that hit a year that we took some write-downs on most of that it's going to get sold this quarter. We had actually legacy was a little bit of a gain. So that was it.

And the next question comes from Matt Olney with Stephens Inc.

First off, congrats on the promotion for Brian and Jennifer and also congrats on the loan growth this quarter.

Thank you.

I want to circle back on the New York LPO. Can you give us an idea if this office was profitable in 2Q or will this take a few more quarters of loan growth to be accretive to numbers?

Well it was profitable. They wouldn't have been profitable just based on their originations but they are profitable, I mean, because we bought their loan, we bought $296 million of their loans. Have you got a run on it, Brian?

Yes, it was fairly profitable this quarter. It -- today's net income for the quarter of $1.6 million on a pre-tax basis. And just for a little highlight to that, if you want, I mean we had $2.3 million of non-interest expense. We allocated $1.2 million of provision for loan loss to them. And for the net interest income, it was allocated at $5 million.

Okay. That's great detail. Thanks, Brian. And then Brian, as far as then the margin, looks like it stabilized a little bit in the second quarter. What's the outlook from here over the next few quarters on the margin?

Well, there's no way I can answer the question without saying that the margin is going to go down because Randy Mayor had a pretty successful career here and he never said anything but margin was going to go down. So I would like to from my first quarter to go ahead and be like Randy, and decide if the margin is going to go down so that I can, have a nice career like he did. But with that joke aside, I'm a little bit like him; I'm a little pessimistic that it will go down. And it is Brian's personal opinion we did have quite bit of purchase accounting marks for this quarter. We had $10.9 million purchase accounting marks that came through the margin that's actually up from $10.3 million last quarter and if you want to know where the increase came from the increase from the loans that we bought for Doral on April 1. That's all good news. Bad news is that we have several of our covered FDIC transactions that are beginning to wind down because of the five-year FDIC loss share and it's probably about a $1 million there that will have a linked quarter basis reduction and our liberty marks are beginning to decrease and we may lose another $1 million there. Offsetting that is that we probably need to take a better look in our premier and heritage transactions which were non-covered and may be take another look at the liberty marks and we're hopeful that we will pick up about $1 million in new accretion income going forward. But right now for the purchase accounting marks, it's probably going to be down about $1 million next quarter.

Okay. That's helpful, Brian. And then last question for me, Johnny, as the New York office gets more ramped up the next few quarters, what's your overall comfort level with the percent of loan growth that's going to come from that office versus the legacy markets?

I don't know because I've -- I don't know I've looked at as percent of loan growth. I have really looked at it as Chris' team, what they handled in the past, what they handle in the future, and I mean they have a sell a lot of loans but probably originated 5, 8, 9, may be 10 I don't know what their total originations were up there over the years and they had to sell them due to the parents. So I've been comfortable with the $1 billion, $1.5 billion worth of loans with Chris and his team and I suspect they will get there over the next year or two. So I don't know what percentage that ends up being, but we kind of look at it on an individual base. And I'll let Kevin, you deal with it.

Yes, I'm not really concerned about what percentage of the loan growth it is; they're going to what they do and do well; that's what we want them to do. Whatever percentage it comes out to is what it is.

Tracy, you got any comment over -- do you have any notes?

No, sir. It's -- we all see the loans, opportunities are there. I was just sitting here just thinking of the other regions that we have throughout the company and what they have done over the past six months, which is really been really, really good. So the growth we can measure that as long as they keep doing this. Kevin said it's not been a focus as far as what they -- they can do a lot --

They're doing it already.

It's their -- I think the important part is the way that they're handling those and they're very disciplined in what they're doing. And if they want to sneak out of some of that discipline the sky could be limit but they know what they're doing, do it well.

No need to sneak it out of that, no need to do that, just stay where they are. They got enough in their pipeline right now, if they just continue to do what they're doing.

And in our own markets we'll continue to do the same things we're doing and hopefully that loan growth that we had the last three, four quarters will stay there and we'll continue to show that.

Yes, with current $168 million just which about $40 million was New York. So $120 plus million came out of our existing footprint. Pretty good day, long day basically, lots of loans lots of plus to deal with but it was certainly helpful.

The next question comes from David Bishop of Drexel Hamilton.

Hey, Johnny, any potential for you guys to may be bolt on additional stuff up in that New York Metro area with the CFG Group operating up there? Is that something you might look at, potentially look at a whole bank M&A up in the New York Metro region?

I don't know about a whole bank M&A, we might do a branch or two up there in the Metropolitan area down the road. That’s a little early for us, that’s a little for us to do. Chris and they had a couple of branches up there before with the Doral deal and generated lots of deposits that supported Chris's Doral operations. So to say that we wouldn’t branch in New York, I wouldn’t say that. I think something that -- I mean if you remember, David, we've been on the entire operation which includes the branches up there and actually we wanted them. So, we would probably look at doing a branch in New York at some point. But outside of that nothing else right there. Let's let Chris and his team get you in the million-dollar range and we'll take a look at it then.

Got you. And then Donna, you said you're still early in the process regarding maybe looking at outside vendors as you approach the $10 billion market. Any sense what the potential expense drag could be as you move through that process?

It's really hard to tell right now, David. We're kind of early in the space there and it depends on what approach we take. We know enough to know they think you should hire somebody to somebody to audit each other and look over your shoulder and we're not sure what that circle looks like yet. And I would imagine by next quarter we might know a little bit more information on that process.

Yes, David, we've sat through webinars and we sat -- I went to New York for a class and we don’t have anybody hired. So if anybody on the call knows as a think fast manager, time to send their resume to me, but it'll be several people or it'll be just a couple of people and some outsourcing and I mean, I'll just go and throw a number out there that it's probably would be about a $1 million a year in non-interest expense.

We're going, David, to visit a couple of our friends that I have stepped over that line and this month and next month I guess and we'll know a lot more once we get back to actually see it operation what they're doing, the teams of people that they have, and very gracious of them to help us. But we thought and we have interviewed three and we're going to go visit our friends and then we'll make a decision on who and what when we get back.

Yes, the problem is not only do you have to have a team that helps create the DFAST stress testing report but then you got to hire another team that comes back in and validates all of the reports. So I mean it's -- do the numbers over here and I check them over here and then just meter gets running on the expense unfortunately.

So we're probably hiring couple -- I mean, the truth we'll probably hire a couple of teams.

Got it. Then one final question. You talked about New York, but how's the pipeline in Florida, how's that shaping up heading into third quarter?

Actually we were -- we had about -- Kevin's got about $250 million worth of new loans on the books. We've got about $200 million worth of payoff up to yesterday and then we approved $168 million out. What do you think, Kevin, where did it come from?

It's --

Mostly, Florida, buddy.

It was mostly Florida yesterday. We still got a strong production pipeline, Johnny said and I said it in the remarks, we do have more paydowns that we project for this quarter than we did last quarter. But the production is still strong, good strong pipeline both Arkansas and Florida, but I'd say Florida is probably will having to wait this quarter.

Next question is from Jon Arfstrom with RBC Capital Markets.

Couple of questions, maybe for you, Kevin. How material are the payoffs? And I know it's kind of impacted growth in the past, it seems like the growth machine is on fire at this point, but how significant are we talking?

Well, it's early in the quarter, so there's still -- you still got time for people to get things approved and own the pipeline and closed in the quarter. So, I wouldn’t say that I'm that concerned about it yet but I do -- at this point, you wouldn’t see $280 million worth of growth this quarter unless we really have some things get approved in the next month or so we could close. It still -- it will still show growth but it wouldn’t be as big a quarter.

Well, outside that except for the loan committee, yes, of course, a lot of that is similar to construction but there was -- I don't know if you were wrong again it was $168 million approved yesterday. So it was a pretty -- that’s the biggest day ever. So I don’t know if those days are going to continue or not but that was a long but impressive day.

You still -- is it still decaf only in those meetings? Isn't that the rule?

Yes, that's the rule around here. You got to have decafe, that is exactly right. I get a little hyper when I get in that caffeine coffee but there was enough loans to keep you awake, I could tell you that for sure.

All right. Good, good. Just philosophical question, may be, and it's on acquisitions. You've been pretty vocal about your frustration with acquisition pricing, and I guess I understand that. On the other hand, it seems like you've got close to $100 million from Arkansas last quarter in loan growth, $112 million in Florida, CFG is just starting to kick in. The question is how do you fund the growth longer term? Do you think you need to do a bigger deal? Do you think it's easier just to pay up for deposits? Seems like you may be heading to the opposite issue you had a couple years ago where you didn't have the loan growth and you had a bunch of deposits. And how are you thinking through this?

This is Randy. I'll answer some of that and then see if Tracy wants to add anything but being completely honest, it’s a great problem. We like it that way. Opposite where we have loan growth and we are looking for deposits or may be needing fund a little bit more. But there are so many sources for funding out there, it's not a problem. We can turn deposit back on, we can go out there and decide to go ahead and lock some money in. Our Internet and broker deposit ratio is so low it's not even -- its nominal and we could handle while other banks have some pretty big ratios we could add some there. So what will we do if we don't see good deposit growth, we will do it next year and we will look at it and make good decisions and do it where it's profitable to us and we're not increasing that side of the balance sheet to a great degree. So I like the problems, finding the solutions is not that big a deal.

And Jon, I'll give you a little bit of color on what Randy just said. I mean Federal Home Loan Bank, as of today, we have about $800 million of additional borrowing capacity and that does not include the additional borrowing capacity that we will create once they analyze our June numbers. The borrowing capacity is a function of your loan balances and so we will probably pick up another $200 million in borrowing capacity at FHLB. Randy talked about our broker and internet deposits. We only have about $50 million in brokers and we have about $50 million in internet deposits and we only have about $50 million in CDARS. So as Randy said that is pretty low I mean that is real low. So I mean we have some options just from your basic 101 toolbox to fund this.

Okay, good. And then Johnny or Randy or Tracy, have you given up on acquisitions, or do you still see things that could make sense?

Not sure that, we haven’t given up on acquisitions. Now we're working on some deals right now. So we'll see, people can turn, so --

No, Jon it's interesting that even after we do announce a deal or work on the phone really picked up a little bit stronger, it will happen in some of these old friends that we talked to in the past. So those conversations are steadily going on.

It's just difficult when you heard me first about the competition from time-to-time, I guess that's last. But it is difficult to see we're very disciplined, as you know, requires we do deals it makes sense for our shareholders. And we often tell, we're out here to lose our shareholders and we don't do a deal for the sake of doing a deal and for instance not trying to grow $5 billion where you can get a bigger salary tomorrow. And it is what it is and you see these guys that either don't know or don't care about and they just lose themselves into infinity and it's -- I don't get it, I really do not get it and don't understand it, it makes no sense for the shareholders, it might make some sense for many because they get bigger salary because they are a bigger bank. But outside of that there is no sound to me no sound of reasoning, unless they're getting into a market they're moving into a market that has tremendous growth or they get higher rates or.

You know honestly from historical perspective if you look at what we have done over the last 10 years or so, we have bought banks under a very disciplined approach, banks that at the end of the day if they're going to half to be a real banks going forward that can contribute to the bottom-line. And that's why we're able to sit here quarter after quarter and announce record earnings is because we bought buyings that will contribute have good management teams or in strategic points where we can save efficiencies and really come out to the plus. And so what we're seeing when Johnny announced that breakdown of loans, what you’re seeing is a bunch of failed banks that we purchased, a bunch of banks that we bought at really good prices that whose teams are really coming along and making good loans that add to our bottom-line with outstanding asset quality metrics that is going to produce great results in the future not only now but down the road. And if we stay with that discipline of buying that -- those type of banks and increasing the footprints that we have, along with the efficiency ratio that we're able to do to our operations, you're not going to see anytime great success for this institution and this holding company.

Okay.

Well said Randy that's -- we are extremely disciplined on pricing, and when we see people do silly things there is a day they can pay too much, if there is a quarter that comes around we issued too many shares for an acquisition, some might got to have an EPS for that, you got to match that EPS, and you do that again and again and again and it gets us one company last quarter didn’t make a loan loss allocation. They grew their loans but they didn't make loan loss allocation because they would have missed. So, I'm anxious to see the core come out this time, but we're going to remain disciplined and we're going to miss some deals and we will move on with those deals. We like -- it's Jon, when we run into a group of astute investors as we did at Bay Cities, at boards astute and their owners are astute, we will run into those kind of people that that understand what we are doing in the power, at Home BancShares stock then we make a deal. We are running unsophisticated investors it's really difficult for us to sell that. I think that kind of wraps it up.

Our next question comes from Stephen Scouten of Sandler O'Neill.

Question for you just to follow-up on a comment made about your SBA team. I'm just curious if you can give any color about what the size of that opportunity might be as it regards to whether it's fee potential or loan growth potential?

Yes, it will be, I mean, primarily that the model is make and sell them. So, it should be more fee income than anything else and I do think it’s, there is a real opportunity there, I don’t know how big it is. We'll use our footprint to figure that out and we're first within the footprint for them and it’s like five or six people it’s not a huge operation so, we'll do it like we do everything else will do right start from scratch and do right.

Sounds good, sounds good, and then on the expense side with the jump that came in salaries and benefits, I think, you mentioned in the release that most of that was from the CFG group that any surprises there or anything that was maybe unusual that took down line item out more than expected on y'all then?

I don’t think so…

There is nothing as far as the New York operation, I mean we prepared our plan back we presented it back the first of the year and so that’s held through to what we thought with happened there, Steven, we did an inch into that market, we went in allow that group to go full stream prepared to say Blaze Adams in Pensacola where we brought a smaller group across and he has been successful and made that area has done very, very well. This group we allowed to go in with full steam ahead with the support that we had and we were ill fortune to be able to get the purchase loans that we did they made. So that’s made that net income – going to be very, very positive.

I think we ran about for the quarter run about $14 million and change…

Now I think when as you look at some of those cost that’s come back, Steven, our mortgage area is done really, really well, I mean some of those things have been – have increased cost the same. I've got the efficiency gurus in to my left; you can't see ones on my left but they were sat on the efficiency ratio but someone get spend little money to make a little money.

We ran about 14 and change for – I mean in the quarter was about $57 million, $52 million.

I mean on roughly non-interest expense was $14.4 million for April and $14.8 million for May and then it drop back down to about $14.1 million for June.

Yeah, and it – what is really…

You think, Donna, you saw extraordinary other than we had those --

But as I say, we'll start to see some savings now from Doral after that conversion following out of that line item, so I think there is anything unexpected.

We’d protected about $8 million a year and that appears to be about were as going to be, and if anything some of the regions are actually improving almost how exact and making good choices and so that should help down the road too.

Okay, it’s helpful. Thanks for answering the questions and congrats on a great quarter and impressive breadth.

The next question comes from the Brian Martin with FIG Partners.

Just one last follow up on that expense line. The Doral savings somebody mentioned what they were. Was it -- did I hear $200,000? Is that the savings coming out of Doral with the branch closings?

Yes, that was correct.

It’s about right, probably more in that.

That’s the least.

We ask our Jim Hines that runs that area, what was that size and [indiscernible] 200 needs and covers it’s pretty good, it’s probably 250.

And then the expenses for the media question for down, just expenses on the, the expense savings on these branch closures, the non-Doral that, the other ones here announced last quarter. The first quarter that you will see the full impact of those savings, I mean, if you just go with the 11 you’re talking about now is it and you’re thinking the early part of '16 is when you’ll see a full quarter of all the savings, the $2 million in savings you’re talking about that run-rate?

Yes, that’s fair assumption in the first quarter. As I said, the last one closed in January, '16. So that should give us time to start seeing benefits because they are going to triple out to the next two quarters.

Okay, and then just the, the compliance in de task cause, I know you don’t Brian mentioned number of least Doral out there, when you anticipate the start seeing some of that cost get in that, that in this year we got a '16 event that you start seeing impact of that?

Hi Brian, this is Brian. I really think most of it will come in next year. I mean I was joking but kind of kidding -- I mean was kind of serious when I said somebody knows us, somebody that'd be a good deep asset manager, give me a call because we find the right person, we probably go ahead and hire me. We have -- I talked to one person the other day but they weren't interested in Conway. But to make a long story is what I would like see as do is be ready -- our first mission probably will not be due until as of 12/31/2017 with the report date of July, 2018, but I think well our company probably needs to do as go ahead and start ramping up some of those and do that practice run for the balance sheet of 12/31/2016. And so for us to do that we'll probably needs to start ramp and up those expenses later in this half of the year or first part of next year.

Got you. Okay, that’s helpful and just going back to the M&A --

Let me add one more comment to that. If we don’t get rid of all the Doral expenses we carry them through August, then they're gone.

Right. I got you. Understood. May be just one last question on the M&A outlook, Johnny. It sounds like obviously that you've talked ad nauseam about the pricing. Are you noticing -- do you think about looking at other markets outside of Florida? It sounds like, I don't want to put words in your mouth, that it's more the pricing in Florida that's a bit ridiculous, not that it's not high elsewhere, but do you get more interested in other markets potentially from an M&A standpoint if the pricing just stays at where the levels you're seeing it at in Florida?

Not yet. Not yet. Win back. I mean, with the power of our stock, don’t get me wrong, we can buy the deal, we can match the deal and there's four, five of us in the country that nobody can outbid if we really want to get we want to buy one. So I think we're so well-positioned in Florida, Brian, with the team of people we have there and such good management on the ground in Florida and special assets people, I would hate to give up on Florida today and don't intend to quite honestly. I think we'll continue to acquire in that market and continue to utilize I mean a lot of more like end market mergers to us and can be really accretive down the road. So, I think we'll continue to look now. Would we look outside of that? We've been invited to look at some pretty good size operations lately one in the $4 billion and one in the $5 billion. And we might go kick the tires and I probably will. I'll probably will go kick the tires. But I don’t know that we're ready. I'm not ready to leave Florida yet. We've been working on one for about a year there, year-and-a-half. We've had -- its got some problems. We've hired a New York law firm that’s dealt with this kind of nasty problems; we've hired them. We'll be visiting back with them probably next week about where we are on that. I think we can get that resolved. It could be an extremely accretive deal to us if we can unwind their problem. So one of the advantages that that I think that the Bay Cities which brings to us is its -- they got put under BSA, regulatory action on BSA. I still don’t understand how they got put under it and I just don’t still understand what they did but anyway they had -- their people worked diligently to get out from under that BSA. So we're looking at scouts in BSA problems and we think there are people in Tampa can assists us in working on coming out of them under one of the deals would have not got some BSA problem. So I think we're going to stay hitched in there right now. We've got, I mean, David Durrey who is a regional guy for us has moved to Fort Lauderdale. I mean, he was running, I don’t know, $1.5 billion worth of assets here. He's out in Fort Lauderdale. He's running $1.5 billion $2.5 billion worth of assets; you got DM Haines who can take on more in the middle. You got Bud who can take on more. You've got Teresa Condas who can take on more in the Keys so you got great management there that are successful, that are cranking out 150s 170s and 2% of ROAs and know how to run the business and know our culture and I'd be ashamed to walk away from Florida at this point in time with all that talent on the ground. And don’t count us out on popping in to an area that we might not be in if we can find a really good theme. As Tracy mentioned what a success story of Pensacola. I recently spent a whole day there and just went around and what's going on there is exciting. I walk in and I see in less than a year they've grown their loans over $100 million in less than a year. So we hired a great team there. We've got -- we did this in Naples. That place is coming on pretty good. And so don’t count us out for doing the same thing if we can find a good strong team.

Okay. The other markets you looked at, Johnny, as far as if there's larger deals or whatnot, would they be new markets entirely, meaning new states, or do you stick with the Alabama, Arkansas, and you've talked about Texas a little bit in the past, but maybe it's still too early on that front, but is that -- think about those areas as where you're focused?

Well, a couple of these had cast to Florida which had interested me; they had some Florida operations also that they had in their back. So we had those plus some others so, and it's not markets I wouldn’t be opposed to be in, I just think we need to make hay when the sun shines and I have continued to do M&A in the Florida market and grow the Florida market with all the talent we have. We had a -- we took a big bat in Liberty that was in Arkansas, and we -- that thing is doing extremely well. We've taken little bats pretty well other than that. I mean, $500 million, $300 million, $600 million, we haven’t taken big giant steps. And when you take a giant step of $4 billion or $5 billion that’s you really better be buying, as Randy Sims talked about, great management team on the ground there. Or well, we got to move someone. Don’t get me wrong, we got talent in this company we can move them but I just think we got talent on the ground in Florida and South Alabama we got talent; we think Randy is going to get us to Mobile one of these days --

Working on it.

Keep working on it. So, if he can find the right team in there he will do that. Anyway, that’s kind of that -- what you want me do is tell you where that is and who it is and I might won't do that.

No, I appreciate it. That color is helpful, Johnny. May be just the last housekeeping question for Brian. That was the loan yield, kind of the core loan yield in the quarter, Brian, what was the linked quarter change? I think last quarter was around 5.04% all correct?

Yes. It was 5.04% last quarter and when you take out purchase accounting its 5.08%.

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

Well, thank you for your interest in the company. I'm proud of this team, what they did, and I appreciate all the support of all our investors, we've great investor group. I hope you're as happy with this quarter as I am and I want to hear -- what I want to hear next quarter is Randy Sims say 18 in a row. World record, 18 quarters in a row with record earnings. So actually, I think I'm going to have go back and look from day one. I know we had one quarter we took a hickey on but I would imagine that other than that one hickey he may have -- it may be string together a lot more than that, Randy.

That’s a good idea. We'll have that number 40 next quarter. So hold on to your seats.

Thanks. We'll talk to you in 90 days.

Thank you. The conference is now concluded. Thank you for attending. You may now disconnect.