John Allison - Chairman Randy Sims - President & CEO Home BancShares Tracy French - President & CEO Centennial Bank Brian Davis - CFO Jennifer Floyd - CAO Kevin Hester - CLO Stephen Tipton - COO

Brady Gaily - KBW Michael Rose - Raymond James Stephen Scouten - Sandler O'Neill & Partners Matt Olney - Stephens Increase Peyton Green - Piper Jaffray Brian Martin - FIG Partners

Greetings, ladies and gentlemen. Welcome to the Home BancShares Incorporated Second Quarter 2017 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 participants in this call are John Allison, Chairman; Randy Sims, President and CEO Home BancShares; Tracy French, President and CEO, Centennial Bank; Brian Davis, Chief Financial Officer; Jennifer Floyd, Chief Accounting Officer; Kevin Hester, Chief Lending Officer; and Stephen Tipton, Chief Operating Officer. The company has asked me to remind everyone to refer to the cautionary note regarding forward-looking statements. You will find this note on Page 3 of the Form 10-K filed with the SEC in February 2017. At this time, all participants are in a listen-only mode and this conference is being recorded. [Operator Instructions] It is now my pleasure to turn the call over to our first presenter, Mr. Allison.

Thank you, Kay. Welcome to Home BancShares second quarter 2017 earnings release and conference call. You'll hear from Home's Management Team today on the financial operations, performance and other important numbers for the quarter. Q2 of '17 was another strong one for our shareholders as we tacked up one more record quarter to our string of 24 record quarters and Randy is going to talk more about that in a little bit. Earnings were $50 million at the first time. It was $6.6 million increase over the same time last year, but probably more importantly, excluding merger expenses, we are $50.7 million a $3.3 million increase over the first quarter of 2017 our annualized 27.7%, pretty impressive numbers. Earnings climbed from $31 million to $35 million from this time last year and from the last quarter $33 million to $35 million. So the company produced a pretty interesting numbers here, the company produced a $186 return on assets and that's the same as we did last quarter. But what is significant about this quarter is that we had nearly 90 days of interest on our $300 million sub debt, approximately $4.2 million in interest expense that was not in the first quarter. So our previewed number is and I love preview is what we run without the sub debt and that number is a 1.94. So apples to apples, the company would have run on a 1.94 and that gives you an idea of how well your company is running. These strong numbers show how quickly your company has moved to capitalize on our operational efficiencies that this corporation has become very famous for. There are limited efficiencies left in the landmark transaction until the Stonegate transaction closes and there will be substantial opportunity for additional consolidations items on that merger. However we still have substantial opportunities for cost saves and on Bank of Commerce in both lease payment as well as salary reductions and you'll see those in the third and fourth quarter. All inquisitive companies have been told, asked or urged by the regulators to increase capital. Thus we made the decision to use sub debt rather than dilute our shareholders with an equity offering. Our plans of retirement debt in less than five years and this decision will not create shareholder dilution. As you know I'm the largest individual shareholder and that number does not include my immediate family that has two million plus shares of ownership and that included our Board and employees. The results in strong insider ownership and again we do not dilute. Additionally good numbers, revenues for the second quarter was $147 million versus last quarter at $140 million in December 31 at $135 million. We've grown over $12 million in revenue since December 31. That's what great companies do. The efficiency ratio remained strong at 37.48% for the quarter versus 37.52% last year and 40.76% the first quarter this year, but we had some, we're having a bunch of other expenses burn in that last quarter. Good revenue growth was strong, expense control leads to top tier performance. As we acquire a problem, failed or even good banks, they all have performing or non-performing loans. Some have more than others, particularly Bay Cities and the Liberty Bank transaction. We've cleaned up about half of the Bay Cities garbage and hope to get most of the rest before the end of the year. If you remember, we marked Liberty Loans a $100 million with 5% of total loans. We not bought them and they continue at operating the same operational start, they would enforced to recapitalize sale of our base even worse circumstances. This has been a three year battle but Davey and his management team has cleaned out the bad apples in the group removing the poor managers and poor loan allowances. From a profitability perspective, the deal has been an absolute HOMB run and has been -- but the challenge has been quality from day one. It's not over, but congrats to the team, they’ve done a great job and come along life. While we review the challenges of the past and look at the perks of the asset quality ratio, one only wonders of what it would look like without the problems that we acquired through acquisitions. We still have more to charge-off, but thanks to a great loan team, most are probably marked. Homes asset quality is very strong as it's good as it's ever been. Net charge-offs were at a almost a record low with 0.03 for the quarter. Reserves and nonperforming is 170.99 but they don't call at 171 we round up here if it's good. Nonperforming to loans was 0.60, nonperforming to assets 0.60 and reserves to loan a strong 1.02. In addition to that marks left remaining on the loans are $96 million or 1.22%. Loans have been flat or slightly down this year. I don't want you to be overly concerned about the flat loan growth or lack of that the last two quarters. We originated $370 million this quarter and $400 million in Q1. We had large number of payouts, most were scheduled payouts but some surprises as they sold their businesses or their proprietaries. Actually the quality of the loans we've seen in the last six months has not been by their standards. It's just a hick up in the cycle and many businessmen are sitting on the sideline with lots of money to deploy, just waiting for an unproductive Congress to take some action on healthcare and taxes. It's difficult for businessmen to operate sometimes. What is the capital gain rate going to be? What is the corporate tax rate? What's the personal rate? What happens to depreciation? Can we deduct sales tax? What about home interest? Just to start the business world is waiting while they squander the opportunities at hand. I agree with Jamie Diamond and his comments the other day. Quite to the contrary we might need to be more concerned with banks that are having large loan growth over the past two quarters. We take what the world gives us. We never pressed the loan flow in unreadable fashion or either own rate or term much less quality. The way to get in trouble is to push loans. I'll say it's like pushing a row. We're seeing lots of loans that don't pass the test, but they're too sharp. The key is to remain disciplined, hold the course, work on your loan problem, raise deposits and continue to build enterprise risk management problems and try to be more efficient during these times. Look for new opportunities like thin tech, merger branches and other creative ideas. Even I was busy to sign the lease for MDAs during the quarter and perform due diligence on one. As I said earlier, the Stonegate transaction is progressing along pretty much the same frail as the other 19 transactions we've done. Chip closed late third quarter, fourth quarter. We have our eyes on a couple of deals that might come together sooner rather than later. We remain extremely disciplined on our M&A strategy, no dilution to our shareholders. We never have and never will. All transactions will be AAA accretive, accretive, accretive. I think where the ones is going there. Dividend increased, the Board will be evaluating this and maybe it's time to look at that again. Stock repurchase, we bought back over 400,000 shares during the quarter and will continue in the future if home stock remains on sale. Our stock is undepressed and creates a great buying opportunity for our shareholders. Consensus is almost $30 per share and trading is about 24.50. We're slowly saying regulatory reliefs make itself through the crazy political process. That coupled with tax relief will create a bank run and create a big run and bank stocks and I think the odds are good that we'll see both of those this year. So good luck to the shares. Capital ratios are strong and improving, tangible book value of June 30 was 723 versus 663 at December up $0.60, 18.2% increase pretty impressive. Margin declined due to mainly the sub-debt issues and excess liquidity. Additional trivia, margin would have been up without those two items sub-debt liquidity, apples to apples comparison. Loan deposit ratio at the end of the year was 106 directly result of the strong loan growth that we have from CFG coupled with strong loan growth in our legacy footprint. At the end of the quarter we were running 100%, second core deposits have grown over 200 million. The new program with Tracy French created on the deposit side and its very creative. I said, what is it Tracy, he said let's ask for deposits. So we hadn't good job Tracy - we're going to answer deposits in years, then we suddenly start asking for deposits and here they can't. On the concentration and CRE bucket is home is running below the 100 and 300 with plenty of room to grow and looking for good opportunities so we are back in the game. Randy I don't know I have been windy today but a great quarter. Kind of a catch your breath quarter. We all need it once in a while and as I said quality improved, deposits grow and all the other factors are profit for the company. Your company is hitting on all cylinders and getting better every quarter. We are ready for new opportunities that may come our way. Thank you very much, Randy.

Thank you Johnny, great comments and well covered. As you stated it was a very good quarter. In fact it was a great quarter and another landmark point in the history of our Company. It's not just the fact that we made over $50 million during the quarter, while that earnings per share were $0.35 or the record net interest income or any of the other great achievements during the quarter. More than that ladies and gentlemen, the second quarter of 2017 was the most profitable quarter in the history of our company. And I get to say that again because we keep saying again, again and again. Now that is 25th consecutive quarters of record income. Well, Mr. French was an all-state member of band in high school. Maybe he can do better. But 25 consecutive quarters of record income and I get to say that and that is the great privilege to be able to say because that is just a fantastic achievement and on top of that we look forward to closing on our largest acquisition in the history of our company with Stonegate Bank hopefully within the next quarter or early for. I can confidently say, Home BancShares is again moving forward towards a very successful year. So quite a quarter, quite a year over six years of record income and I think all shareholders can be proud of what we're doing and I congratulate our employees and their hard work. Now I’ll start with the numbers and I'll be quick because many of them have been covered. For the second quarter of 2017, the company recorded a quarterly profit of $50.1 million compared to $43.5 million for the same period in 2016, a 15.1% increase. If you exclude merger expenses and gain on acquisitions, our earnings were $50.7 million, $3.3 million higher or 7% higher than the previous record earnings during the first quarter. Diluted earnings per share for the second quarter of 2017 was $0.35 per share compared to $0.31 per share for 2016 representing an increase of $0.04 per share or 12.9% when compared to the same quarter in the prior year. Excluding merger expenses, diluted earnings per share for the second quarter of 2017 remained at $0.35 per share. Our return on average assets for the second quarter was 1.86% as compared to 1.83% in the second quarter of 2016. Our return on average assets excluding intangible amortization as Johnny said was 1.96%. Our core return on average assets excluding intangible amortization, provision for loan loss, merger expenses and income taxes was 3.19%. Our return on average TCE excluding intangible amortization for the quarter was 20.09%. So as of June 30, the Corporation is sitting at almost $10.9 billion. Deposits ended at $7.77 billion as compared to $6.94 billion at 12/31/16. We've got a great management team that's on hand to talk about more results of the second quarter so let's get started with Centennial CEO, Mr. Tracy French to give additional color and his comments.

Randy it was nice to hear that $50 million number for earnings your team of bankers continue to stay focused on getting better. The excellent financial results for our shareholders come from all regions of our companies and I’d like to share just a few of those numbers with you. The most ever $102 million for the first half 2017 and net income for Centennial Bank. The Bank's overall return on assets of 2% for the month is up to 1.98% year-to-date for six months. Arkansas markets which were led by Cabot in the Northeast Arkansas regions led the way. The Florida markets are nearing at 1.9% ROE mark, which is led not more Florida region that is over 2% now. Our Alabama region has a strong 1.83% ROA, and our New York region is doing a 3% return on assets. The Bank efficiency ratios year-to-date stood at 34.33% with Conway leading the Arkansas regions at 32.69%. The Florida market is at 37.69% and this was led year-to-date by North Florida region standing at 34.25%. Alabama's efficiency ratio was a strong 31.93% and our New York operation is an amazing 26.13% efficiency ratio. You heard from Johnny and Randy and you’ll hear from others today, one our reasons that our company is a top performer. Couple of points I would like to share of our asset quality numbers continue to improve from already very good number. The groups of bankers are getting it done. Loan originations remain very good with our focus on strong loan underwriting and yields to preserve the shareholder profits. Our deposit growth has been good with careful priority as our team stays focused daily on our net interest margin. CFG our New York region is performing as planned with an expected net of return or better than planned as noted earlier on the ROA and efficiency numbers noted. The Los Angeles production office is open and servicing our clients out West. The Stonegate transaction remains on course. Our group in Stonegate's are working well together and we look forward to a nice smooth landing in the second half of the year. Stonegate Bank as we know is an impressive Bank. We're looking forward in joining forces with this outstanding group of bankers. So Randy, I’m not sure if you used all our words yet but I believe it's safe to say it now and we will give it our all and let you say again next quarter. And you can get your drum rolls fixed.

Thanks Tracy, great comments. The total number of active Centennial branches is 147 versus 151 in the first quarter with 76 in Arkansas, 64 in Florida and six alone in beautiful Alabama Coast Line and of course one in New York. I would now like to turn it over to Stephen Tipton our COO who will fill you in on some of our income efforts efficiency - not efficiency because Tracy covered that well but some key operational numbers.

Thanks Randy. As you all have mentioned the second quarter of 2017 set many records. We're proud to continue to post such impressive performance metrics. With the Bank of Commerce conversion completed in May, our project and implementation teams are now fully focused on the Stonegate acquisition and as Tracy mentioned working with their peers in South Florida even as we speak today. As you’ll hear, we posted a core net interest margin of 4.11 for the second quarter of 2017 and as Johnny mentioned, it's not a full impact or the rate of subordinated debt offering in our NIM in Q2. We are constantly monitoring loan yields and funding costs and I’m pleased to see an increase in the core loan yield to 5.27 in June up 8 basis points from March month end. Switching to funding, core deposit relationships continue to be a daily focus for our regions. We continue to see our calling efforts materializes as we saw $200 million in deposit growth in Q2 with nearly $90 million of that increase in non-interest-bearing balances. Despite the recent rate hikes, we continue to hold the line on our stated deposit rates. Our deposit to deposits-only increased four basis points from March month end and again compared that to an eight basis point increase on the core loan yield. Moving to efficiency, I am pleased to report solid core efficiency ratio of 37.29% for Q2, although up slightly from the prior quarter, a direct result of the two recent acquisitions. Our President continue to focus on expense control and revenue growth in the legacy regions. Both Mark in Central Florida and David Druey in Southeast Florida are quickly working to rain efficiencies out of the Bank of Commerce and landmark acquisitions. With that Randy, I'll turn it back over to you.

Thank you, Steven. You did cover efficiencies and you can tell that this corporation it's a big, big factor in our overall successfulness. I would like now like to turn it over to our CFO, Brian Davis who will cover net interest income, margin, noninterest expense and other highlights. After that, he will pass it to Jennifer Floyd our Chief Accounting Officer to give you some information on our capital numbers. Brian?

Thanks Randy. The second quarter was a milestone quarter for our company. For the first time in our company's history, we recognized net income greater than $50 million per quarter, plus we recorded both GAAP and non-GAAP earnings of $0.35. Net interest income increased $2.5 million to $107.4 million in Q2 versus $104.8 million in Q1. The increase is primarily the result of acquiring John Bank Holdings on February 23 and Bank of Commerce on February 28. During the second quarter, we had a 20 basis point decline when compared to Q1 and our GAAP net interest margin primarily as a result of issuance of $300 million of subordinated debt on April 3, 2017. The subordinated notes added approximately $4.2 million of additional interest expense when compared to the prior quarter. Consequently the addition of the subordinated notes negatively impacted net interest margin by 15 basis points. Also the company made a strategic decision to keep excess cash liquidity on the books during the second quarter of 2017, resulting in a negative impact of the net interest margin of seven basis points. Accretion income for the fair value adjustments recorded in purchase accounting was $8.5 million during Q2 compared to $7.6 million during Q1 or an increase of $850,000. The increase of recognized accretion income when compared to the first quarter of 2017 is primarily due to payoff accretion increasing from $1.9 million to $2.6 million. Excluding, the accretion income and the associated loan discounts, the company's net interest margin for Q2 2017 was $4.11 on non-GAAP basis compared to $4.32 in Q1 2017. Excluding the gain on acquisition of Bank of Commerce, noninterest income was up $1.8 million in Q2 2017 compared to Q1 2017. Excluding merger expenses, noninterest expense was up $1.8 million in Q2 2017 compared to Q1 2017. The primary increase was related to the increase in cost associated with the two acquisitions completed in February 2017. With that said, I'll turn the call over to Jennifer.

Thank you, Brian and now for our second quarter capital results. As of June 30, 2017 we ended the quarter with $1.5 billion of capital and $94 million of cash at the parent company. During the second quarter, we paid out shareholder dividends of $12.9 million those are in retained earnings by $37.2 million. During the second quarter, we utilized a portion of our approved stock repurchase program and repurchased 420,000 shares of common stock at a weighted average price of $24.51 per share. On April 03, 2017, we completed our underwritten public offering of $300 million of our 5.625% fixed deposit rate subordinated notes during 2027. The notes were issued at 99.997% at par resulting in net proceeds after underwriting discounts of approximately $297.2 million which have classified as Tier 2 capital. For the second quarter of 2017, our common equity Tier 1 capital was $1.03 billion, total Tier 1 capital was $1.09 billion, total risk-based capital was $1.47 billion and risk weighted assets were approximately $8.8 billion. As a result, our common equity Tier 1 capital was 11.8% compared to 11.4% at March 31. Our leverage ratio was 10.5% compared to 10.9% at March 30, Tier 1 capital was 12.5% compared to 12.1% at March 31 and our total risk based capital was 16.8% compared to 13% at March 31. Some additional second quarter capital ratios include value per common shares, which was $10.32 compared to $10.05 at March 31. Tangible book value per common share was $7.23 compared to $6.96 at March 31, which represents an annualized increase of 15.6% on a linked quarter basis. And finally our tangible common equity ratio was 9.9% compared to 9.7% at March 31. Randy?

Thank you, Jennifer. You've heard several comments on our continued improvement in asset quality numbers. So let's switch to our Chief Lender, Kevin Hester, who is going to give us more detail.

Thank you, Randy. As was previously mentioned, organic loan growth was basically flat this quarter, but it was largely due to a continuation of the elevated level of payoffs that we experienced in the first quarter. As John noted, some of the deals that we've seen recently seem to indicate that our desire for discipline in pricing and underwriting at this point is not shared by all lenders. Said differently, the risk versus reward proposition is harder overall to reconcile than it was earlier in the cycle when credit risks seem to be lower. Headwinds at a couple of asset classes along with the uncertainty that Jonny mentioned earlier are driving us to be even more judicious in our approach. Johnny also mentioned the strong asset quality ratios. They’ve continued to improve and currently sit at a level that's unparalleled in recent history. The nonperforming loan and nonperforming asset ratios both at 60 basis points improved by 15 basis points and 11 basis points respectively. I mentioned on the last call that our nonperforming balances were still elevated due to a couple of large problem loans acquired in most recent acquisition. This quarter's asset quality improvement reflects a resolution in one of those loans and we're progressing towards a possible third quarter resolution of another. The ALLL coverage of nonperforming loans improved by 35 percentage points to a strong 171%. Past dues decreased four basis points to 0.91% and this number has been very consistent for the past few quarters. Lastly, the allowance for loan losses as a percentage of noncovered loans remained at 1.02%. Mortgage continues to improve each quarter with closings up 5% and locks up 7% year-over-year. In addition the second quarter replaced the first quarter as the most profitable quarter ever and the pending Stonegate acquisition would provide a very strong opportunity for this business unit. On that note Randy, I'll turn it back over to you.

Thank you, Kevin. Good stuff. Well another good quarter. To recap just a second, record earnings for the 25th consecutive quarter, record net interest income, a quarterly ROI of 1.86%, a strong and powerful quarterly core efficiency ratio of 37.29%, an excellent margin, very good noninterest income and continuing improvement with great asset quality numbers. Consistent and continued improvement in our major components and to top it off, all eyes are now on the closing of our largest acquisition in the third quarter hopefully. That is what we're all about. Great numbers, continued growth and acquisitions as we strive to break more records throughout 2017 and the future. Stay tuned next quarter as we try to make it 26 straight quarters of record income. This is really getting fun. With all that said, I'll now back over to our Chairman Mr. Allison.

Thank you, Randy. 24 was great that was twice. Since we had to give a mathematician to calculate and we did that. That was great. Those numbers are powerful. Thank everyone for their support and joining us today. It's another great quarter. We have about 8 million shares short on this and I don’t know - I just laid a stone on the wall and see if some of it stick because I can’t imagine of all companies in the U.S. not to assure our Home Bancshares would be one of them you take that and capital the strong performance with the rooming regulatory relief and cash relief and additional Stonegate you say it. And appears somebody is playing Russian roulette that's not transverse by the why because one airplane would kill him. So they’re lucky boys in shorts so anyway Carrie I think we’re ready for Q&A.

[Operator Instructions]

Carrie, this is John Allison can you hear me?

Yes I can.

While they are putting that together, I left a few comments that I’d like to add that’s all right. I didn't give enough emphasis on CFG this time I just want to tell regular 67 million or 20% annualized and they had paydowns of about 93 million, that’s about normal that’s about that where they should be on the gross side. Portfolio of $1.15 billion, originations they originated 10 loans for the quarter at $204 million of which they funded $72 million that’s about normal. We have as Tracy mentioned earlier we have the Louisiana pipeline, I mean Los Angeles Louisiana. Los Angeles office open and that topline firstly has about $200 million in the pipeline, so that’s kicked off pretty well. From a pricing perspective our portfolio is now just shy of 7% in New York we’re on a 6.92%, so that’s pretty strong and almost 100% of the book is floating. Deposits have grown from about up to $100 million and we expect maybe get $200 million. For the quarter the company had a pretty good performance a $13 million pre-tax pre-provision and pre-tax pre-provision return on assets of 4.8%. So that’s good job by oil and gas we appreciate that. After the Stonegate transaction we happened to thrive on New York to about 15% of our total loans and that would allow New York the opportunity to grow about $2.1 billion. So that’s pretty powerful stuff when you look at - I think our group will all take another break and we [indiscernible] they are going to be pretty good. So I want to congratulate Mervin on a great job. Carrie you can go with questions now please.

Our first question comes from Brady Gaily of KBW. Please go ahead.

Good afternoon, guys and congrats on another great quarter. So you’ve been talking a lot about loan payoffs in your legacy market. I know CFG grew nicely in the second quarter but is there any sign that payoffs will slow and you all will start to see some more robust loan growth in your legacy markets going forward?

Yes, Brady this is Kevin I'll start it and let Johnny chime in if he wants to. Yes, we have had two quarters of elevated payoffs specifically in the legacy side early indications would be that third quarter looks more normal than it is 20 days in but looks more normal as far as payoffs go. We are looking at several large credits that could hit the third quarter if couple of those do then it could turn a really good quarter into a great quarter. So early indications are it looks a little bit more normal.

Okay. And then Johnny as in your closing Stonegate, it sound like you're back busy maybe you're never quiet on that front, but you’re back busy on the M&A front. Just remind us what types of banks you're looking for now, I know Stonegate was kind of different sort of bank you be in high quality and then also any sort of specific geographies that you're interested in?

Well we stayed pretty much in our footprint we didn’t like Texas we think Texas is good stay what we have looked at on - we signed NDAs zone about half of that was getting scratch and about half of that was good. The due diligence - when our due diligence team went out to complete the deal your thoughts on the getting scratch, we were call in on. So we get the measure what that is. So we’re looking on both sides of the street. We played heavily as you know and we’re in a bit of scratch for a long time but then the Stonegate there was a great transaction for us. So we're open to looking at transactions that are accretive pretty accretive Home Bancshares and from a sales perspective, we like to play in the $2 million range, we think that's a good place for us to play. However we would do selected transactions but some of those scratch deals can add $0.03, $0.04, $0.05, some are more to you EPS and over the years we've been pretty successful that so. We kind of open - we are open what we've always been open when we look at the last 10 days we've done, they have all over the board so we’ll continue to look at opportunities like that. We got another opportunities that hit [indiscernible] a pretty good size bank but you have to pick the ones that make sense for you, Stonegate make sense and just when I talked about the consolidation savings when you look at the ROA actually, we pull out the $300 million subway that’s pretty powerful when we go back to 1.94. We just bought those two banks end of the cold. So our team gets pretty efficient pretty quick, pretty proud of them. So we’re looking at whatever comes up it makes sense, we’ll do anything that is accretive to this company and geographically fits. We probably wouldn't do a deal and dent in scratch somewhere didn't fit too our footprint.

Okay. And then finally from me I know with the sub-debt raise and with Stonegate, your CRE to capital goes sub 300% I think the pro forma numbers around 285 is that still the right way to think about your Pro…?

Yes, we’re below - the company is below the 100% bucket and the 100 bucket and 300 bucket and actually we’re looking for opportunities right now and Stonegate slightly improves those two buckets, so we’re in good shape on deposits, good shape on loans, good shape on CRE. So we take it probably good - as I said in my remarks kind of catch your breath for which was pretty nice and we got a lot of one thing accomplished. One thing Kevin talked about some of those big loans that we had worked out over a period of time, we had another one payoff to-date, it was about $10 million bad terrible liberty credit, we got it worked out and got going and that's another one hit the dust. So one thing about the core loan side once a little slow you really focus, on cleaning up these none no don’t focus on cleaning up these nonperforming just one more after another after another it has been and the run issue has been great on cleaning up those big bad credits. We have got one more big bad one out of base cities we think will clean up the third quarter may be the fourth quarter and I am trying to think if we got another big bad one anywhere that kind of pretty well cleans up the big bad ones that have been in the entire portfolio. So could be continue to improve but there we had in asset quality we got charge-off in Arkansas coming on a dealer kind of surprised us but outside of that they’re pretty good.

Okay, great. Thanks for the color guys.

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

Hi guys, good afternoon how're you?

Hi great, Michael how're you?

Good. Just wanted to get to the margin a little bit so if I add back the soft debt and excess liquidity looks like the core margin was up about basis point. Any thoughts as we move into the third quarter - obviously the fourth quarter is going to be impacted by Stonegate which on the surface looks like their margin are a little bit lower than you guy. How should just we think about the core margin with the generate hike over the next few quarters in Stonegate? Thanks.

I will give it Stephen Tipton, he hops it almost every day.

Hi Michael, how're you? I think you hit what Brian said I think that’s a good way to look at it kind of ex sub debt that we run slightly and I think look to see that trend continue. When you look at the loan yields increased kind of compared to March month which had both the prior two acquisitions, then we - as I said earlier we saw as eight basis points cost of deposits was up four, give you some other exciting information on our side despite loan growth on the renewal side, we saw $150 million really kind of in May and June mature and we modified and increased the rate about 20 basis points each month on those $150 million worth of loans. So we continue to see our core loan yield improve and I think that you did at the June rate hike, we saw about $450 million or so change on the daily changes and you'll see another couple hundred million move over the next few months.

Okay. That's helpful. And then just separately, obviously good growth at CFG in the quarter, are you guys starting to take deposits. Can you guys frame for me how you guys think about legal and how that might come into play or into full over the next couple years both in New York and then in California, thanks?

Mark, let me address that a little bit. I think we'll continue to -- we'll continue to work with commercial customer base that we have and I think there's increasing opportunities there. You see what we've been able to do over the last quarter and increase severity and getting over hundred and the comment was made that potentially get to $200 over time and that may present opportunities out of the California office to raise deposits there. So I think we're very excited about what Chris is doing there and that's really when you think about it, that's with no retail, no street presence. This is strictly working our core customer base.

I guess a follow-up to that is when you guys consider either accelerated deposit strategies hiring some deposit generators up there or would you consider acquisitions in either New York or California?

I don't think we're ready to be looking in California. We'll be more comparable with New York than we are in California, but I think we'll be trying on the deposit side than we'll be looking at another opportunity on $300 million, $400 million worth of deposits and I think we've really just started on the deposit side and has controlled deposits. So that's as I told you, it's kind of a hick up too because if you had such a strong loan growth last year and Legacy had strong loan growth. We've always been able to core fund our growth, but we just kind of outgrew our core funding that's catching up, so you see that and we're actually turn to deposits. So it's really not -- that's not my concern. My concern was not big concern of the quarter was how do we overcome that monster $300 million sub debt and we overcome that when you swallow all interest expense of that for the quarter in the company and I have to say I am very proud of the performance of our company. Not many company companies after they swallow $300 million interest expense on the sub debt and still maintain 1.86 ROI.

I know, that does it for me, but for Tracy that's trombone. You probably should get a look at it, sounds a bit rusty, thanks guys.

Thank you, Michael. Next question please.

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

Hey guys. Good afternoon.

Hi Stephen. You look good on TV the other day. You look great on TV the other day. You really clean up good.

Yeah, yeah. My suits aren’t quite as nice as yours, but I'll try. They just don't play better for me when I get some. So guys tell me about the net interest margin in the liquidity deployment. Is that something that's going to hang around for a couple quarters or is that seven basis points. Will that run down, that seven basis point impact, will that run down over the next quarter or two?

This is Brian. I'll take that. We have made a decision to keep excess liquidity on our books being a $10 billion it's something we're going to have to do. We don't have as much choice in that. We been probably use some of it in some loans, but for the most part, most of it will hang around it for the foreseeable future.

It's all refined liquidity ratio 10%. Historically we had it at 5%. So we're trying to increase the liquidity ratio far that strategic decision.

Okay. Sounds good. And then on the deposit side with the increase you saw in the interest bank deposit cost quarter-over-quarter, is that -- was that an abnormally high run rate this quarter or I know it was still below the increase in core loan yields which is good, but do you expect to see similar increases this quarter from the June hike or, what's that play there? Was any of that from the online deposit gathering strategy or what sort of color can you lend there?

Stephen, this is Stephen. I'll take that. Not necessarily on the internet gathering strategy, I think a good portion of it was what you're seeing. We have some accounts that are tied to treasuries and you're seeing that ramp up a little bit. Maybe that flattens out short-term. I know we had seem like over the course of the -- the full course of the second quarter. We already had short-term T-bills pricing in the June net rate hike. So we'll see some movement there, but I think our success is back to the core accounts that we're bringing in, the non-interest-bearing growth that we've had. I think we look to see that continue and help offset any increase at a negotiated type rates. We still haven’t affected our stated rates and we monitor that on a daily basis. We continue to see a good majority of our CDs renew at our stated rates and I think we'll continue to watch the inflows and outflows as we set those rates.

I'll say one more comment on the excess liquidity. If we -- the amount of liquidity that we brought out, hasn’t hurt earnings per share and net income because we're earning about 125 cost and just probably slightly lower than that. So it's probably very slightly accretive earnings per share. It's just a matter of having more cash and basically you have a margin on that about 0.25 or less. So its earnings on that. It's just keeping excess cash on our books for a better liquidity ratio.

Okay. Yeah that makes sense. Great. And then maybe last one for me, just on the loan growth front, you guys have given some good color around paydowns and origination activity, but Johnny you also mentioned now maybe you're back in the game. So was that to say that you needed to stay below the 100 and 300 for a period of time and now you're kind of ready to move forward and could extend back through that level and really what do you expect to see from a net growth perspective through the end of the year?

No, we're real estate lenders and then we've always been real estate lenders. When we rent 360 last year, but in past year 420, 450, 480. We never lost even money in those times either. So we lacked that. So what I am saying is we're looking for good real estate, good quality loans for that matter. We have a core in addition to what Kevin was talking about, we have over a $0.25 billion worth of loans that have come to us recently that they're large loans that we're looking at and we'll probably close two of those loans. They're close -- maybe close to end of the year and one of those loans might have closed until the first of the year. But we have some really big credits out there. So that's another reason we need to correct that deposits a little bit. That we've got -- it appears that I think we've got really picking out loans that we did serve. Not that we weren’t picky in the past. We're just remaining picky and seeing some structure on some loans and some loan to cost stuff that we don't do. We're not going to do. It's not smart to do at this point. So I said in my remarks that I would be concerned about those having great loan growth in this kind of market. I think it will give Stonegate as I said earlier, we throttle, New York throttled at about 15%. That will give them the ability to go about $2.1 billion. These three large loans are not in the New York path line either. They're in the legacy footprint path line that came to us for several different reasons. I think you'll see as Kevin said, it looks like this quarter is going to back to more normal and you may see a pop this quarter if we hit one of these big loans and get one of these or two of these close. So I think we're back to path. I think we're back on. We're just picky and as the economy is good, we just keep working on it and we're not more putting plain on the books. There will be a factor sometime, but I don't know when it's coming. Appreciate your support Stephen.

Thanks John. I appreciate it. And tell Randy with all the home bank stock he has got he can afford a better drumbeat there.

I’m playing to bringing back the horns Steve we might bring back the horns.

We’re going to do better next quarter.

That was weak I got in this.

Our next question comes from Matt Olney of Stephens Inc. Please go ahead.

Hi, thanks guys how are you?

Great.

I want to go back to the loan paydown question and I’m trying to understand how much of the paydown it just a timing issue that just seems random versus their competitive issue where competitors are getting more aggressive and perhaps refinancing some of your customers on deals that you just don't go comfortable with.

I’ll let Kevin take this but I want - it’s not going to customers I mean I think I remember one loan that we lost our customer in the last quarter it’s not going to customers it’s actual real business being transacted scheduled paydown I mean right now it looks we’re up about 80 million or 90 million. What’s going into this quarter with 20 days in but we have we already have schedule paydowns that we know of they’re going happen this quarter. We know how many loans that we have in the pipeline coming forward. So it's just normal course of business and it’s not referring to panic about. Kevin?

No I would agree. I mean we got $1 billion plus in construction loan so over time you’re going to see some of those move as they complete they’re going to move to permanent, they’re going to move other places. So some of that has hit the last couple of quarters and as Johnny has said before some of our customers are selling things and moving into other - looking for other opportunities in the cycle and some just aren’t finding deals that makes sense for their hurdles. So as they find things and get back in some of these opportunities come back like Johnny is talking about some large credit. So I think it was more timing than anything else.

We did 2000 loans last quarter, we’re still busy on the loan side and you just payoff I mean – we have done a good job of protecting our assets. We done a good job on the loan-to-value side and some of those people have taken some money off the table you need to understand that. Some they got $0.40 to $0.50 in the dollar I mean late 2009 and 2010 they bought some property and they’ve been sitting on all that forever may paydown even lower they’re taking some money off the table so and that’s somebody else. French you’re seeing things.

No thanks but I don’t point it’s not anytime making us nervous about. We get the opportunity on some of those that are come in and say a particular loan made three years ago that we spend enough on that three to five year renewal without the payout, without least be in four-five years economy put them in a position whether they could sell they did and we got an opportunity to may be help or to hire loan rate and while we may have been comfortable with our underwriting which is the good news is our lenders out there are taking care of the business and that give the chance to do the next slump but we were comfortable to where we’re at and underwrite and still try to make a deal but we didn’t get that’s okay. We're satisfied with that.

Let me say this with the margin that we carrying one of the highest in the country if we want deal we can get the deal and if ever a situation comes up on a competitive situation and we want to keep the loan, we’ll keep the loan nobody can - and we’ve been whatever we want to do whatever is in the best interest this corporation. So we’re not late here and be plus - don’t get off on that but that’s all so we’re going to be here and be plus but so my phone up, because we’re not going to let that happen that’s not a reality. That’s a good customer somebody want to keep we’ll do what we need to do.

Okay. I appreciate all the color on that and Johnny you also mentioned in the pipeline there are a few larger loans.

Yes.

At this point given your size at the bank what is a larger loan for you guys?

Well this three loans that are - bank $0.25 billion so that’s almost $0.25 billion that’s pretty good size loans.

Have you said those were not in the New York office is that right?

They are not in the New York office now let’s chain through our legacy footprint and through the company I call and MGU recognize company. So it’s really good opportunities for our company and what I am actually - two of them are really relationships so just relationships that have been there for years. And we’ve worked relationships to a point and we’re going probably refinance our businesses that make problem to us. So very nice and I understand we’re not giving it away. We don’t give our loans away these are not cheap rates, we’re not breaking our several doing away we need to do them. So we’re doing properly they’ll money - but we’ll put on the books they’ll be money markets.

Understood, thanks for the color.

The next question comes from Peyton Green of Piper Jaffray. Please go ahead.

Yes, good afternoon. Brian I was wondering on the liquidity side if you all continue to have success of going after and minding more deposit shared in your existing markets. Will you change how you manage maybe the mix of overnight funds relative to the bond portfolio or deploy more in the bond portfolio which can help the yield?

We have a done a little bit of that this quarter. During the third quarter we really don’t have to cross that bridge because we have little over $200 million by 225, our federal home loan bank advance is maturing so if that were to be the case, we could take that strategy here and evaluate where we want to go but yes so weren’t deploying some. We probably leave any more cash like we had if we had excess liquidity - even to the bottom so I don’t think that will happen this quarter we have to be soft and we have couple of quarters in a row with that.

Okay. And then Johnny or Tracey, I mean how optimistic are you’ll about the deposit gathering opportunity and would you expect that to ramp over the couple of quarters or couple of years or may be how could characterize the potential growth of that?

Let me talk about and let Tracy have that. We don’t have a gun to our head so we got about $1 billion worth of tremendous out there and we can easily do those. So what we don’t want to do is just rattle the ship we don’t want panic we remain discipline and we tried it from 106 to 100 and what happens to you when you start slamming at accelerate we are going to flows I am in balance the other day and I opened the newspaper and here is one of our competitors has jack add in there 150 CD write well. We start cannibalizing your entire portfolio at that time, we don’t tend to do that. So when we say ramping up, we’re talking about quietly ramping up, we’re talking about easing it up slowly and building over a period of time not take a strong aggressive what we have don’t have to do that, so we don’t want to get ourselves in that position I had a meeting yesterday on deposits was talking about in my state we’re in great shape, we don’t want to get behind the eight ball, we want to stay where we are stay ahead of the game, and we’re working on that I think Stephen visited with some of our compadres the other day, I mean $200 million to $300 million worth of deposits that appear to be in the 130-140 range if we want them. And up to $500 so these are two, three, four different bills so yet no surprises I think and they will be core deposits there will be real core deposits. So I think we’re in good shape on that. Suddenly only big loans have come in here to us and New York’s ramping up a little gusty ramp a little more and we look like we’re back on a normal ice on the paydowns and loan growth so I think we need to grow a little deposits here but if we need to run 106 for a while what we do we’re not going to pass correctly. We’re very fortunate to be in the markets that we are and have in the deposit opportunities are theirs. Johnny mentioned earlier our strategy year and half ago just last - we went it that way and then markets that have gone in to are able to go to certainly hope are just opportunities we’re already getting opportunities from say a Stonegate contact, that does not have the all the money within at this stage of the game. So we just being very fortunate on that part and we feel very - we respect and understand concerns of deposits and we watch it every day probably.

No I guess my point was just what something Johnny mentioned earlier it charges mark really asking for the deposits and but just seems to me like if you can grow it $200 million to $300 million a quarter in a quiet way that helps your balance sheet growth from the other side of the balance sheet.

We will do that Randy Sims was the hawk running out off hot deposits and anytime we bought a bank he went through there and ran off the amount there they didn’t have a relationship. So our strategy changed its running off deposits asking for mail. So it had been it just and we just took that the University of Central Arkansas we just picked up $70 million from there and we had -- we haven’t been asking for deposits and we're not asking for it.

The last few years if you know the strategy was to get rid of all your hot deposits and those that didn't have relationships and many of acquisitions that we had had high rate CDs, but what we're going after now are core deposits that are reasonable rights or no rights at all. Were asking for just business accounts and noninterest bearing halves and just getting after it, but the answers is what to get rid of all that hot money and honestly when we get another acquisition with this hot money in there, we would probably will run that off and reemphasize core deposits. So that's been the strategy and we had a lot of run offs and that we're over $10 billion. We made our liquidity a little stronger are we're going to do that.

Okay. And then last question for me, the expense management has been absolutely phenomenal for years now. Is there anything that just, you are over $10 billion in assets, is there anything from a lumpiness perspective that shows up in the second half of the year or first half '18 that we should be aware of?

Expect us to continue to run just like we're running. We're spending about $230,000 a quarter last year on path. We had anticipated when we started that, that we would probably be over foot into last year. Now we've been able to kick that can down the road. We're not spending quite as much this year as probably running about 160 per quarter and that won't be any of that for the second half of this year. We'll probably pick back up more of the $250,000 around next year because our guys are going to do a practice run on pass and try to do a practice permission to see where they need to do improvement. So we should be in good shape there.

The key is to watch our -- I think you're going to see us with some loan growth. I think we'll get a little more efficient as we bring out the efficiencies out of Banc of Commerce. We'll be moving out with Stonegate. I'm anxious to see their income this quarter. So we had our outcomes out and annualized that and then anticipate the mark savings that we'll be generating through this acquisition both on the personnel side as well as relative side because there is major savings coming out of this organization. So I think pretty simple. That's the big thing, the company is running, they’ll continue to run just like it's running and the big thing is Stonegate and that acquisition and how pretty that acquisition. Somebody made statement the other day they call that deal was dilutive and I might say they're delusional. We don't think it's dilutive. I got off to service it a little bit, but I felt that might get it. Thanks, Peyton.

That fine. And then last one, Brian do you think, you can hold the accretion income can stay between the first quarter and second quarter level over the second half of the year?

I am not going to try to project where we'll be with Stonegate but we had $2.6 million of ALLL of accretion, which is pretty high and don't really want to root for that, because that means you got loans paying off, it was about a million dollars from last quarter and the $2.6 million is comparable to what we did in the first quarter of 2016. So if you just look at that amortization schedule and what it should do, it should just by our natural flow reduce probably $400,000 or $500,000 a quarter and we would be hard-pressed to believe that we're going to have $2.6 million in payoff accretion, but who knows that I don't have the crystal ball and now they just want to come in an pay that all. So that's the answer I am going to go for that.

Okay. No that's perfect. Thank you.

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

Hey guys.

Hey Brian.

Say just maybe a couple things, did I hear I guess just part as a closing of the Stonegate deal that it could be later this quarter, or I guess is there any better timeline on kind of how you're thinking about that.

Well I think we'll ask for here pretty soon.

We've down the track for October 1 date from day one and really came along that track, if we were able to pull the trigger I guess a little bit earlier, we might do that, but it fits nicely if you can do it at the first day of the quarter, especially a deal that size.

Okay. All right. Fair enough. And then just on the M&A front Johnny I guess given kind of the size of the Stonegate deal, it sound like you're looking at handful of items. Is it fair to think that they would probably be on the smaller side rather than the larger size given the integration and focus on Stonegate in the short term, is that fair?

Might be not. May be not fair. Actually the Stonegate transaction is as you know once we merge wiggling the efficiencies pretty quickly and the cooperation between Stonegate and Centennial has been excellent. I think as I built a lot of planning that's going into this merger and acquisition and I think you're going to see that deal is coming together pretty fast. And once it does I think you're going to see us laying the efficiency of that trade really quick. Within 90 days this bunch really has wrung out the efficiencies and between the management team Tracy and Dave, Stephen and Bob in that deal it appears to me that we'll lay down the road. This is not our personal issue. We've done a bunch of these deals and still experienced in the field that we know what to look for and what not look for and Dave is a smart businessman and he has got smart people and this deal is rolling, it's going to be, I think it's a deal to be me. And I said little ago you can negate his quarterly earnings and annualize those quarterly earnings and then figure out the major increase in savings that will get out there. It's going to be pretty easy to forecast that deal and I think we'll get there pretty fast. So as a result we have good I feel about that transaction and that's why I'm looking in the market, but I wouldn't be adverse. There's a lot of deals out there for sale. Some of them are peachy, some of them don't, some of them might be fast and we're just looking for the ones that might stand.

Okay. Fair enough. I appreciate the color and just to me the last one or two things, you talked a fair amount about the payouts, just loan production if you look at a loan production in the last several quarters, has it been pretty consistent? Is that the way it sounds? I know the payoffs have impacted in that number, but the production numbers, have they been reasonably similar quarter-to-quarter?

Kevin, you will take that.

Yeah, I think we talked about the last -- also the last couple of quarters we've seen deals that we just passed on from a quality perspective or a pricing perspective just didn't meet our standard. So I think I don't have the numbers in front of me, but I think the numbers were probably a little bit down over third and fourth quarter last year, but those were really, really strong quarters for us.

We did what 365.

Yes, in the legacy footprint.

We did 365 in the legacy footprint and then we flew to New York and New York did another couple hundred million. So we did about $0.5 billion this quarter and last quarter we did about $650 million that's about $450 million and $200 million out of New York. So we did about -- it's how we're good and let me tell you something, we're looking at that as almost as many loans as we did, but they're just squarely the hazard, the down payment, the true equity that they're putting in is not something is not real equity and I don't know some people are buying those deals. We're just not buying deals. We pay executive loans, we pay those. I think three or four go back. I want to know where the money is coming from and I want to know how much skin they got in the game. I don't know want to know a lot of bull shit and lot of smoke in mirrors. I want the real numbers, how much money they're putting in the deals. Some of them have some really pretty interesting ways of having their equity and how they put equity in those deals. So we're just -- we're pretty hard on that. We're on that pretty hard.

Hi. Okay Brian this is Stephen, if I can add a little color to that on the production side, when you look at our 10 region legacy footprint area, I wouldn't say there's a lack of production than its in any one area. In Southeast Florida their production in Q2 was triple of what it was in Q1 and the Conway region here in Central Arkansas was almost double what it was in Q1. So you have some regions that have had some good opportunities, Alabama region continues to put out $12 million to $15 million of quarter on production. So I think we have some regions that step up in place of once that maybe are little slower from time to time.

Perfect, that's helpful. And just actually maybe Steven the core margins that I hear just your thoughts - I know Brian commented about the accretion but just the core margin and the likelihood that you're not going to significantly raise the deposit cost and the core margins assuming the recent rate increases is generally kind of flat to up a little bit is…

That's fair. As we said, here we are, I guess three rate hikes in the last seven months. We not have to adjust any of our state of rates here, we've done it on a selected basis to retain and we don't like basis to bring some new money in. But if we continue to bring in core business with no cost or low cost optimistic to see that, you'll certainly see the deposit cost lag what we think will do on the loan with the last rate hike and see loan yields outpace funding cost.

Okay. That’s all guys. Thanks a lot.

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

Thank you your thoughts, thank you for listening today and hopefully we will - maybe by the time we talk next time, we can put more color on the Stonegate transaction and we'll have a little more color on the deals and opportunities it’s the only you're looking at. Appreciate your support. Thanks to everybody in the Home BancShares team. Thanks for listening this call today, participated in one of the best quarters ever in the company. And I suspect maybe next quarter will be little better. So thank you very much.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect your lines. Have a great day.