Home Bancshares Inc Q2 FY2020 Earnings Call

Good day, and welcome to the Home BancShares Incorporated Second Quarter Earnings Conference Call. All participants will be in a listen-only mode. After today’s presentation, there will be an opportunity to ask questions. Please note that this event is being recorded. I would now like to turn the conference over to Donna Townsell, Director of Investor Relations. Please go ahead, ma’am.

Thank you, Chuck. I’m Donna Townsell, Director of Investor Relations, and our management team would like to welcome you to the Home BancShares’ 2020 second quarter earnings release and conference call. We just finished our first full pandemic quarter, and what an amazing quarter it was. Reporting today will be Tracy French, our President and CEO; Brian Davis, our Chief Financial Officer; Kevin Hester, our Chief Lending Officer; Chris Poulton, President of CCFG; John Marshall, President of Shore Premier Finance; Stephen Tipton, Chief Operating Officer; and our Chairman, John Allison. Our first speaker today will be Tracy French.

Good afternoon, and thank you, Donna. The new normal is normal in a lot of ways for Centennial Bank. Last quarter, we were in a time of uncertainty. Well, I feel much better today as we live the new normal. You will see why as I share with you some of the Centennial Bank information. We had a 14% deposit growth this past quarter, 5% loan growth this past quarter, a 29% decrease in interest cost this past quarter, and a 53% decrease in the first six months of 2020 compared to the first six months of 2019. Net interest income is up 6.4% linked quarter, with a 9% increase in non-interest income, with mortgage up 49% comparing the first six months of 2020 to 2019. The bank’s core ROA is over 2% year-to-date. Non-GAAP efficiency stands at 37%. Tax equivalent, net interest margin is at 4.31%, and we have nearly 400% of ALLL to nonperforming loans, yielding the best ever $351 million in total revenue year-to-date. I’ve heard Johnny say that proof is in the numbers and the numbers don’t lie. In a moment, Johnny will share the Home Bancshares numbers the way that he knows how, straightforward and to the point. He, along with others, will share the powerful results that our team of bankers has produced this quarter. We’ve used the phrase PPP a lot over the last few months. I told our group of regional and market presidents that P represents the word powerful in our Group. Our team has done some amazing things over the past 20 years that we’ve been together; the last six months may have just topped them all. As we work through the events that have never happened before, such as the new accounting methods for loan loss reserves and the shutting down of the economy, our bankers continue to address the challenges head-on. The efforts have been phenomenal, and our company is prepared for whatever the future throws our way. I may be considered the cautious one in this group, but all of us are focused on the true basics of running a safe and sound company. We’re communicating with our customers regularly. Over the past several months, Johnny and I have discussed with individual customers their business situations and how they are adjusting to the new normal, and how the economy affects them. It is refreshing to get the real information and not just what’s represented when you read or hear something. Our regional leaders visit most of our customers weekly, and that provides the real-world information that we use. When I call a lender today, they have all the current information about their market, and what’s going on with their customers, and we get that information loan by loan. Today, it’s not just a certain class of credits; it’s each individual credit that we monitor. As I mentioned earlier, we’re back to the basic banking practices, and that’s how we get through today. I believe our Chairman has used the phrase blocking and tackling, and that is what we’re all doing in all areas of this Company to provide the numbers that we’re reporting today while preparing for a successful future for our shareholders. Donna?

It’s a little high.

Little high.

Hope we could get down back in there and see if we can get it down to 20%.

Tax equivalent, net interest margin at 4.31%, ALLL nearly 400% to nonperforming loans, and the best ever $351 million in total revenue year-to-date. I’ve heard Johnny say that proof is in the numbers and the numbers don’t lie, even using Jonesboro math. In a moment, Johnny will share the Home Bancshares numbers the way that he knows how, straightforward and to the point. He along with others will share the powerful results that our team of bankers have produced this quarter. We’ve used the phrase PPP a lot over the last few months. I told our group of regional and market presidents that P represents the word powerful in our Group. Our team has done some amazing things over the past 20 years that we’ve been together; the last six months may have just topped them all.

Thank you, Tracy. That’s a great overview of Centennial Bank, and now Brian Davis will walk us through the margin and CECL.

Thanks, Donna. I’m pleased to report that for the second quarter, we had a record net interest income of $148.7 million, which is an increase of $8.9 million or 6.4% from the first quarter of 2020. The second quarter net interest margin was 4.11%, compared to 4.22% for the first quarter. Normally, we would not be pleased with an 11-basis point decline in margin. However, as a result of these crazy times, the decline in margins is primarily the result of COVID-19. The Company participated in the PPP loan program during Q2 2020 with $848.6 million of PPP loans as of June 30, 2020. These loans are priced at 1% plus the accretion of the origination fee. While these loans are valuable assistance to our customers and carry no credit risk to our Company, they are dilutive to the margin by 5 basis points. The COVID-19 crisis and the resulting governmental response have created a tremendous amount of excess liquidity in the market. We believe this is a good thing for the banking industry and the economy. As a result, we had $416.8 million of additional interest-bearing cash in Q2 compared to Q1. This excess liquidity was 12 basis points dilutive to the NIM. For Q2, we recognized $7.0 million of interest accretion from acquisitions versus $7.6 million of accretion for Q1. The $600,000 reduction in accretion income was 2 basis points dilutive to the NIM. Lastly, Q2 2020 event interest income was $1.5 million compared to event interest income of $558,000 for Q1 2020. The higher event income during Q2 increased NIM by 3 basis points. In conclusion, the 5 basis point decline for PPP loans plus the 12 basis point decline for excess liquidity plus the 2 basis point decline for less accretion income, offset by the 3 basis point improvement from event interest income results in 16 basis points of noise when comparing linked quarters. With that said, our net interest margin is actually up 5 basis points on an apples-to-apples basis. Let’s turn to CECL. Our CECL provisioning model is significantly tied to projections and unemployment rates which have remained elevated during Q2. During Q2, we recorded $11.4 million of credit loss expense primarily related to the impact of COVID-19. Additionally, CECL requires a liability for unfunded commitments. This quarter we increased our liability for unfunded commitments by $9.2 million, primarily concerning COVID-19. Our goal at Home Bancshares is to be extremely well capitalized. I’m pleased to report the following strong capital information. For Q2 2020, our Tier 1 capital was $1.6 billion compared to total risk-based capital of $2 billion, and risk-weighted assets were $12.5 billion. As a result, the leverage ratio was 10.3%, which is 105% above the well-capitalized benchmark of 5%. Common equity Tier 1 was 12.0%, which is 85% above the well-capitalized benchmark of 6.5%. Tier 1 capital was up 57 basis points to 12.6%, which is 58% above the well-capitalized benchmark of 8%. Total risk-based capital was 16.3%, which is 62% above the well-capitalized benchmark of 10%. With that said, I’ll turn the call back over to Donna.

Thank you, Brian. It’s amazing to be able to report a record for net interest income during the middle of the pandemic. Now, let’s dive into the loan portfolio, and we’ll go to Kevin Hester.

Thanks, Donna. It’s been a crazy quarter on the lending side of Home Bancshares. PPP and deferments have been the order of the day, but both of those are entering a different phase as we go into the third quarter of 2020. As of June 30th, we had made over 8,600 PPP loans, totaling almost $850 million. We’ve been able to handle all applications from qualified existing bank customers and we were able to go out and locate some significant new customers as well. We had close to one-third of our employees working on this project, and I’m very proud of the product that we built in a very short time. From a dollar perspective, the top three industries were construction at $142 million, hotels and restaurants at $117 million, and healthcare at $100 million. As for the number of PPP loans, professional services replaced healthcare in the top three. We read about Congress potentially allowing an entity to apply for a second PPP loan under certain circumstances. We are preparing for that possibility by ensuring that we can reach maximum approval bandwidth very quickly. We’ve also been building out the forgiveness workflow, but it does not appear that the SBA is in any hurry to provide details about how that forgiveness will be transmitted to them. We believe that the June PPP changes will extend the current period to spend the PPP money and will significantly decrease the possibility that a material portion of our PPP fundings will not be forgiven. Any approval of automatic forgiveness under, say, $150,000 will reduce that even further. Regarding loan deferments, as of June 30th, we had executed first-time, 90-day loan deferments on just over 4,200 loans totaling $3.18 billion or 27% of our loan portfolio. Geographically, Florida borrowers made up 58% of the deferment balance, followed by Arkansas at 35% with CCFG, Alabama, and Shore at 3%, 2%, and 2%, respectively. As a percentage of their respective portfolios, the Community Bank regions were between 30% and 35% deferred while Shore and CCFG were much lower at 11% and 5%, respectively. Based on industry, real estate lessors made up the largest balance at $1.2 billion with hotels and restaurants at $607 million. After that, it drops off sharply to healthcare at $273 million. As a deferred percentage of their portfolio, hotels and restaurants were 67%, followed by healthcare at 52% and real estate lessors and retail trade both at 33%. As we mentioned last quarter, we were very quick to implement the deferment process as we had procedures and forms already in place from earlier disasters on a regional basis. We were prompt to move, and as in earlier uses, we were liberal with the first deferral. While this may have resulted in a higher initial deferral percentage than our peers, we believe that the early ability to help our customers during this situation is very important for their overall ability to stay in business. The second deferral process is in place and has been operational for about two weeks. It involves a defined process of information gathering and discussions with the borrower about current operations. Levels of approval are based on loan size and assessments of current risk grade and ultimate ability to stay in business for being captured and monitored as we progress. As of today, we’ve processed about $1.5 billion or almost 50% of the initial $3.18 billion of deferred loan balances, and 80% of those, or $1.2 billion, are going back to normal principal and interest payments at this time. I know it’s still early to attempt to see the end of this event, but as we review our largest Community Bank customers that have been on deferral for 90 days, nearly all of these are commercially real estate secured. Projecting what I could see as the worst-case scenario for any of those that do go through a second 90-day deferral and still need further assistance, one option would be a longer-term modification to interest-only payments, combined with a capitalization of accrued interest. Using our average Community Bank loan-to-value of 61% for commercial real estate loans, this capitalization of interest would only add 1% to 2% to the loan-to-value. Even with a reasonable discount to pre-COVID values, this would result in a loan that maintains adequate collateral margin. In our last quarter’s call, we’ve had discussions regarding various aspects of our lending business. We started with a call in mid-June on hospitality. Month-end June numbers have come in since that call, and the extended-stay portfolio continues its strong selling. Our Keys properties averaged 50% to 60% in June after being closed in May. Overall, our Arkansas properties continued to improve into the 40% range, while our Texas properties lagged behind as many of those are highly dependent upon airport business. On the whole, June appears to have been an improvement over May. All asset quality metrics improved this quarter with NPAs at 0.39% and NPLs at 0.5%, down 5 basis points and 3 basis points quarter-over-quarter, respectively. As Brian mentioned, the allowance coverage for non-performing loans improved to almost 400%, while past dues decreased to pre-COVID levels in dollars and at 0.56% are near a historic low. Combined with the significant migration of deferred loans back to principal and interest payments this quarter and the allowance for credit losses above 2%, we believe we’re in a very strong position at this point in the pandemic on the loan side. Before I end, I would like to talk about our mortgage group. They just posted their most profitable quarter in the Company’s history. Closings were up 50% year-to-date over the same periods from 2017 through 2019. Secondary market loans were still over 80% of the balance. June locks were at the second highest level, so we expect the third quarter to continue to surpass previous years. Congratulations to Keith Little and his group for their strong showing. We continue to look for ways to assist our customer base through this tough time. We believe that our lending posture over the last three or four years has positioned us to succeed during this difficult time. That concludes my remarks. I’ll turn it back over to Donna.

Thank you, Kevin. It’s good to hear that hotel occupancy rates are going up and so far deferral requests may be going down. Up next is Chris Poulton with our CCFG Division.

Thank you, Donna. Good afternoon. As many of you know, two weeks ago, we provided an in-depth discussion of the CCFG portfolio and product segment. So, today, I’ll focus my comments primarily on the portfolio movements in the second quarter. The portfolio was roughly flat for the quarter with an ending balance of approximately $1.76 billion. Going into the quarter, I was particularly interested in the impact COVID would have on payoffs and pay-downs. We were pleased to see that we received just over $150 million of payoffs and pay-downs during the quarter, with the vast majority of that in the commercial real estate book. As I often note, we look at payoffs as a feature of our portfolio and a signal as to the health of the overall market. The payoffs we did receive were from refinances as well as asset sales, indicating that both the sales and refinancing markets have continued to operate during this post-COVID period. We do remain open for new business, albeit cautiously so. During the quarter, we originated approximately $125 million in new loans, which is a bit below our normal Q2 volume. We continue to experience significant inbound volume and have an active pipeline building. So, we remain quite cautious as to leverage and structure. It takes a bit longer to reach a signed term sheet, and underwriting and closing timelines have expanded as well. Overall, despite a turbulent backdrop, we experienced a reasonably quiet quarter. During the presentation a couple of weeks ago, I stated that the past few months have been unprecedented in the severity and speed at which the best economy, likely in generations, abruptly halted. Times like these are important reminders that risk, like water, finds its own level. The CCFG platform was born in financial crisis and built on the idea that risks can and often do emerge for any reason at any time. We continue to manage and monitor our portfolios while also keeping a keen, but cautious eye towards emerging opportunities. The benefits of products, asset class, and regional diversity in our portfolio allow us to better manage risks and seek opportunities as they emerge. It’s pleasing to see payoffs continue at the expected pace, and we have experienced a surge in demand for our products, especially in commercial real estate. We’ll continue to balance confidence with cautiousness as we proceed through the summer and fall. Donna, I’ll turn the call back over to you.

Thank you, Chris. And now, we’re going to hear about what’s become an even more popular pastime, boating. So, John Marshall, can you please give us an update on Shore Premier?

Donna, good afternoon. And thank you once again for allowing me the opportunity to tell the boat story. Naturally, the COVID pandemic dominated the narrative with speculation of how the boating industry would be impacted in the quarter. The commercial side of our business observed foreign factories temporarily suspend production, and domestic dealers cautiously managed down inventory and took steps to preserve cash flow. We saw a floor plan line utilization drop from 58% to 47% as our dealers prudently reduced inventory and borrowings by about $26.8 million in the quarter. Conversely, and perhaps counter-intuitively, our consumer business received and underwrote record numbers of applications early in the quarter, leading to an all-time record for a single month funding in June of $32 million. That brought the quarter to a total funding of $61 million on the consumer side, a tremendous achievement and a reflection of the team’s effort, though it was still insufficient to offset the headwinds of prepayments and declining commercial inventories. In this crosswind environment, consolidated loan balances have contracted by $80 million since the acquisition of LH-Finance in late February. As dealers rebuild their inventories, we’re well positioned to substantially catapult loan growth in the second half of the year, most likely in the fourth quarter. Less ambiguous has been the benefit of scaling the business on our profitability. Our bottom-line contribution to the bank has grown from about $1 million a month to $3 million, and our lean expense structure has averaged an efficiency ratio of 17% each month in the quarter, while core ROE has stabilized at 2.48%. Rapid growth during COVID and operational integration with LH-Finance have not negatively impacted asset quality. Commercial systems were merged in late March and consumer platforms consolidated this past weekend. Consumer FICO scores held steady for originated loans in the quarter at 773 compared to an overall portfolio FICO of 774. Delinquencies improved in the quarter from 44 basis points to 30 basis points, and non-performing loans increased from 29 basis points to 38 basis points. The resolutions in July will likely bring them back down. Most of our dealers were eligible for the principal deferral program in the quarter with payments resuming this month. We had 244 consumers enrolled in the deferral program with payments also resuming this month. Of those participants, only 21 have requested a second deferment, assessed based on the individual’s need. While the future is uncertain, our dealers have seasoned through economic cycles and our consumer borrowers have strong credit profiles. I believe we’re well-positioned to benefit from a return to normalcy, whenever that may occur. Thank you, Donna. And that concludes my comments.

Thank you, John. Now, Stephen Tipton has an interesting report on our deposit side of the house.

Thank you, Donna. I will give some color on deposit activity, repricing efforts and trends, and a few additional details on the balance sheet today. The second quarter of 2020 in some respects may be one for the record books. PPP loan funding and the inflow of economic impact payments, along with general core account balance growth produced an increase in total deposits of $1.66 billion. Our mix continued to improve as time deposit balances declined by $147 million, while non-interest bearing balances swelled by $989 million to over $3.4 billion, or 26% of our total deposit balances. We’d like to congratulate our branch network and online support teams as they opened nearly 16,000 new accounts in the second quarter. While much of this is attributable to PPP funding, it is a testament to the relationships our bankers have and our commitment to the continued success of these customers. Switching to funding costs, I want to first highlight our efforts on interest-bearing deposit costs in the quarter. Interest-bearing deposits averaged 64 basis points in Q2, which was a decline of 44 basis points on a linked quarter basis, but for additional color, it averaged 60 basis points in the month of June. Total deposit costs which include non-interest bearing deposits were 48 basis points in Q2 2020, down 37 basis points from the previous quarter. Total deposit costs in June averaged 44 basis points. Our teams continue to work to negotiate rates down as the market allows. As I mentioned last quarter, we continue to see opportunity in repricing our time deposit portfolio. In the second half of 2020, we had $845 million in CD balances maturing at a weighted average rate of 1.53%. Switching to loans, we saw total production excluding PPP of $530 million in Q2, with a little over $420 million coming from the Community Bank and Shore Premier footprint. Payoff volume at $708 million was elevated from the prior quarter and highlighted by a higher level of payoffs as Chris has mentioned in a large multifamily project out of one of our Arkansas regions. I would like to update you as to the variable rate components of the loan portfolio. As we have mentioned in the past, the CCFG loan portfolio of approximately $1.7 billion is variable rate with most tied to one month LIBOR adjusting monthly. As of June 30th, approximately $1.5 billion of these balances are now protected by floors. The Community Bank and Shore portfolios consist of approximately $1.5 billion in variable rate balances set to adjust over the next six months. Over $800 million of these balances are tied to Wall Street Journal Prime as the index with the balance tied to LIBOR and other various indices. As of June 30, over $850 million of the variable rate balances are now protected by floors. The majority of the remaining balances have repriced into the current zero or low-rate environment. As a result, the loan yield, when adjusted for PPP accretable yield and event income held up well in Q2, declining only 26 basis points to an adjusted 5.20%. With that, I’ll turn it back over to you, Donna.

Thank you, Stephen. Those are tremendous numbers on deposit growth and costs. This was our first full quarter during a pandemic, and we really didn’t know what to expect. But as you heard, it’s been a remarkable quarter for Home. To share some final thoughts with you before we go to Q&A is our Chairman, John Allison.

Thank you, and welcome everyone. I think that was impressive that $660 million was the deposit growth and the cost of deposits went down by $9 million. Good job. I think that’s pretty impressive. We’ve all been preparing for the worst and expecting the best. There will be winners and losers as the strong ones separate themselves from the weak ones. Over many years, Home has played in the so-called underwriting safe game on both sides of the ball, offensively and defensively. Some in the investment community, especially critics, have hammered us for a lack of growth. I can assure you that sometimes doing the right thing can be much more difficult and lonelier than the easy way. Holding the course by remaining disciplined has certainly been one of those difficult times because it’s so easy to fall victim to following the weak and doing the silly stuff that others are doing. I hear this all the time, well, why can’t we do that? And the truth is, with the strength of our balance sheet, we can meet or beat any competitor, regardless of size. Our culture won’t allow us to fall prey to the silliness of others. There is no right way to do the wrong thing. You’re going to hear some GAAP numbers and some non-GAAP numbers out of me today, but you’re really going to get to see a comparison between CECL and non-CECL. Here are some of the results of staying the course. We had a record quarter pretax, pre-provision income of $102.5 million. That’s a PPNR of 2.53% ROA, coupled with peer-leading reserves of $238 million or 2.15%. I’d say some banks are catching up with us, but we stepped out earlier last quarter. Add to that our strong capital ratio with our strong revenue forecasts into the second half of 2020, and I think we have again positioned Home to produce peer-leading performance in 2021 and 2022. Arguably positioned, if not the best in the U.S., certainly one of the safest and best in the U.S. I'm pleased that Home has continued to be recognized for its best-in-class performance metrics, exceeding nearly all competitors for almost 14 years. This top-tier performance has not been a short-term flash, but it has been created over time with a planned, long-term solid strategy. We have remained disciplined and continued striving to be the best bank in America. After Forbes named us the Best Bank in America two years in a row, we now have the honor of being named to the list of Best Banks in the World. Being a high-performance bank is not easy, but saying and remaining a high-performance bank is even more difficult. We’ve seen many overnight popup stars, but there’s only a few of us that have continued to perform year after year. Home and a few others have led the bank group performance metrics for many years, and I have no reason to believe that won’t continue in 2021 and 2022. Let’s go to the real numbers, and this is showing you the real difference between CECL and non-CECL. Because we had such a good reserve and because asset quality was at the level it was at, we probably would not have taken a reserve this year if it hadn’t been for CECL. This year, the impact, so you understand what it does to the EPS and ROAs of the Company, we reported a return on assets of 1.55%, which is after the expenses of CECL. Had we not had the CECL quarter, we would have reported an ROA of 1.92%. We reported EPS of $0.38. We would have reported EPS of $0.47, and that would have been an industry world record. Net income was $78 million versus $62 million. We actually earned $78 million, but with the CECL deal, it reflects $62 million. Efficiency was below 44%, down to sub-40. Pre-tax net revenue was another world record at $102 million. Return on tangible common equity was $0.38 or 17.40%, which is pretty good. But actually without CECL, we reported $0.47 at 21.63%. Peer-leading margins remain strong, as you heard from Brian Davis. Solid 30% dividend payout with the best asset quality ever for this corporation. We'd have another world record, with reserves at 2.15% and above 400% coverage to non-performing loans. You heard Stephen report deposits up $660 million for the quarter. There’s a lot of banks out there focused on earnings, but Home has shown consistent performance. Even more impressive is the job that his team did on costs, successfully reducing the cost of funds by $9 million quarter-over-quarter. This indicates a strong run rate that should continue into 2021 and 2022. I would like to congratulate the House, the Senate, the President, SBA, the Fed, and the Secretary of the Treasury for an outstanding job on the creation and execution of PPP. This plan has saved many small businesses from failure and shows what can be accomplished when we work together for a common cause. Regarding stock buybacks, we stopped buying back stock when the President requested it. Our policy on stock buybacks doesn’t allow us to buy three weeks prior to earnings release because we don't want to front-run legitimate shareholders. The shorts have been predatory, and I am calling on congressional leaders to ask the SEC to stop the shorting of bank stocks. From a sense of strength, if we annualize the quarter’s PPNR of $102 million, that’s over $410 million, plus our $238 million in reserve if needed. That’s $648 million to handle future losses. As of Sunday, July 12th at 6:42 PM, I don’t know of one penny of loss thus far. I’m sure we’ll have one or two, but so far, so good. We made the necessary adjustments to cover anything that might arise.

Yes, sir. That is correct. I reran the numbers just the other day, and it was still at that same spot.

It makes you feel good to have the reserves we have, knowing if we had to take $1 billion in losses, we’re still in good shape. I’ll provide clarity into the crazy CECL model in the middle of the pandemic. CECL did not account for the over three trillion dollars in government support that’s coming. While it’s risky to lend money in the middle of this crisis, no one is getting paid for the risk associated with low fixed rates. I’m sorry. Banking seems to have forgotten what caused inflation over the years, and soon we will have to raise rates, especially after flooding the country with liquidity. Thank you for your support. I don’t think we’ve ever let you down before and we won’t this time. The discipline of years of building and developing our culture has allowed us to build one of the premier financial institutions in the U.S.

We will continue to work hard. Thank you all for your support. I think it’s crucial to our ongoing success.To recap, I am very proud of our efforts, and we believe we have positioned ourselves well for continued strength moving ahead.Very few in our industry have maintained this high performance like us.

Thank you very much for your glowing report. Chuck, I think we’ll turn it to you for Q&A.

Thank you. We will now begin the question-and-answer session. Our first question will come from Matt Olney with Stephens. Please go ahead.

I want to drill down on the loan deferment commentary. I realize it’s still in the process of the second phase of deferrals, but I think I heard you say that 80% of the $1.4 billion of the original deferments are going back on regular payment status. I’m trying to reconcile the numbers here. If $3.2 billion of loan balances were deferred on June 30, I’m getting around $2 billion of that currently deferred as of now, which represents around 16% or 17% of loan balances. Does that sound about right? Where do you see that number going in the future? What does the crystal ball look like?

Yes, that sounds about right, with the knowledge that half of that $1.6 billion is still under review, and we’re not sure yet how that will turn out. A percentage of 80% is an impressive turnaround. We believe that number will likely range from $1 billion to $1.3 billion at the end of this process. That estimate includes about $500 million from hotels that might carry forward for our second 90 days.

Yes, the trajectory appears to be better than anticipated, but it remains to be seen.

That’s very helpful. Thank you. Lastly, I want to revisit a topic from a few months ago. The bank put out an 8-K back in April around the Company’s response to Say-on-Pay around the shareholder vote. I believe you took a voluntary salary cut. Can you just add some context to the announcement of the 8-K you put out back in April?

Yes, I wanted to comment on that. We approached it to cooperate because we felt it was necessary. However, when we run the best bank in America and one of the top four in the country, peering against others isn't an easy task. We remain dedicated to sustaining our performance. We will continue running our operations with fidelity to our commitments and doing what’s in the best interests of our shareholders.

If you look at the ACL, it’s now 215 basis points of non-PPP loans. Do you think there’s any need to continue building reserves moving into the back half of the year?

Unless something goes awry, I believe we’re over-reserved at this point. I’d rather be over-reserved than under-reserved.

The models that generate these reserves indicate what we need and there’s a disconnect. I don’t feel like we’re going to need the 215 basis points at this point.

Understood. It was a strong quarter, but if you back out the PPP loans, I think period-end loans were down around 10% linked quarter annualized. What’s the prospect of forward loan growth?

We’re loaning money, but it has slowed a bit. The country appears shaken, and it wouldn’t be bad if we don’t grow for the next six months, as this company will continue to produce numbers.

We see loan opportunities out there. Staying disciplined on underwriting is essential. We’re also seeing some of our relationships that are ready to pounce when the time is right. The key is to protect your assets.

Many places had the forms ready, and we’re prepared to implement quickly. It’s a crucial time to manage business as usual and reevaluate the options available as we progress.

We’re not afraid of a bigger deal as long as it makes sense, but we need to lean on the relationships we have established. That’s why many standout banks have flourished.

No need to hurry into M&A; we will act opportunistically.

Thank you. We have reached the end of our Q&A session. I would also like to thank you for your participation and support. You may now disconnect.