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Home Bancshares Inc (NASDAQ:HOMB)
Q2 2019 Earnings Call
Jul 18, 2019, 2:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings, ladies and gentlemen. Welcome to the Home Bancshares, Inc. Second quarter 2019 Earnings Call. The purpose of this call is to discuss the information and data provided in the quarterly earnings release issued this morning. The Company presenters will begin with prepared remarks and then entertain questions. [Operator Instructions].

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

It is now my pleasure to turn the call over to Mr. Allison.

John W. Allison -- Chairman

Thank you, Gary. Good morning, everyone. Kevin and Chris and John are at other locations. With me today, they'll be on the phone though. Steven Tipton is with me. Brian, Jennifer, Donna, Tracy and Randy, pretty much the same for.

So good morning, and welcome Home Bancshares Second Quarter 2019 Earnings Release and Conference Call. This is quarter number 52 since our initial public offering. And once again, Home produces another solid quarter. For the most part, the other 51 have been the same except for a few quarters during the financial crisis times we hit -- we've bumped a little bit.

And that, of the 51, the 26 have a record quarter -- record profit quarters in a row. That's why Home was named the best bank in America by Forbes for the second time in a row. We're not only proud of sales and being the best bank in America from our ROA, an efficiency return on tangible common equity, net interest margin, asset quality were the best in other important segments as well as helping our communities.

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

Been told [Phonetic] by experts, we're going to have two more in that team. Been told we're going to pause temporarily and now we're being told to expect two or three rate cut. Who in the world are they listening to? I think they're writing on a different financial rollercoaster and the rest of us are riding. They miss this one about as far as they did Y2K. You remember that? Or as rates MAC -- MBC did on election night. And I quote, there is no way Trump can win. That was amazing and certainly comical. Both the Fed and magna [Phonetic], I don't know how you say that, magna whatever it is, did not listen to the right people. Obviously, they have been -- they were talking when they should have been listening.

But don't shoot to master, they are just following the law. It's Congress that enacted the law and sent him to enforce it. It's another example of people, who have no experience writing laws. In spite of the Feds, year-over-year interest rate, we have a responsibility to manage our assets in a manner that is in the best interest of our shareholder and communities we serve. The key is not to panic, to hold the course. They were obviously totally wrong again. These huge messes create a major loss of credibility for them. At the end of the day, your management is trying to operate profitably in the middle of this chaos. I say when you're piloting an airplane and there's a major problem like an engine going out, don't panic, just fly the airplane. So we're -- what we are doing is just running the bike and doing our best to ignore all who's staring. Not complaining, that's our job, though it would be nice to have a little more stability.

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

One can always make an argument for the negative, where the real or perceived, but there is no substitute for experience. There is no substitute for experience. Reports from experienced people on the ground that live in reality is the amazingly powerful source. The Fed should look at the models, collect the quant data and the opinions of all the inexperienced PhD intellectual people who've never been there, never been in the pothole and then I ask those in the real world, what's going on in the economy? While heavily on those in the field and gather the information from different parts of the country. I get it. Their latest strength I know better and I must take care of the rest of us deplorable and Walmart shoppers. But most the time, we are by far, more honest, more reliable and the most reliable form of information I can get.

We'd together built a financially strong and solid banking organization is located with a huge presence in the second or third fastest growing state in the country. Along with strong performance from our South -- Alabama operation coupled with a solid Arkansas market and tack on our New York profit center.

Your company remains best in class and all performance matters. We continue to remain in a conservative mode on loans and M&A. While volatility continues to swirl around both politically and economically. We think not pushing the envelope, focusing on internal operations and taking what the market gives us and both M&A and loans is a proper position to ensure that we'll be around when the opportunities come again.

We appreciate your support and let's talk about the highlights of the quarter. And a strong deposit months, I think it was $250 [Phonetic], we averaged about $240 [Phonetic] for the month. And we did about what we do, Stephen, where we have last month in the --

Stephen Tipton -- Chief Operating Officer

Q1 we were up almost $170 million and we're a little over $720 million in the last three quarters --

John W. Allison -- Chairman

That's good. That's $720 million last three quarters. Excuse me. Loan to deposit ratio, we were $106 million. Randy, we're down to 97.41%. We need to get some loans --

C. Randall Sims -- President, Chief Executive Officer and Vice Chairman

Way to low [Indecipherable].

John W. Allison -- Chairman

Last stable interest margin in the phase this chaos, I think you look at that. And the fourth quarter we're 4.30%, the first quarter of 4.30% and we're 4.28% this quarter. But remember that the quarter had over $500,000. I don't know that you know that you -- maybe I'm telling for the first time $500,000 expense on preamortization writedown that was impacted by the margin because of the unexpected fall in interest rates, resulting in faster prepayment speeds on some of the securities. I think, Brian will talk more about that.

Brian S. Davis -- Treasurer and Chief Financial Officer

Yeah, well.

John W. Allison -- Chairman

Let's talk about the cost of funds. And I want you to go back with me, four quarters, three quarters, two quarters and one quarter. And I want you listen these numbers. Four quarters ago, our cost funds increased $6,192,000 [Phonetic]. Three quarters ago, it dropped to $3,357,000. And then last quarter, quarter before last, I guess it is now $2,519,000 in this quarter $283,000. So I think, the cost of funds may be something that's not going to be as prevalent as it has been in the past.

Strong asset quality almost the best ever strong capital ratios, industry leading ratios. Common equity to assets 15.84% and tangible -- common equity -- excuse me -- the tangible assets 9.96%, almost 10%. Return on tangible common equity 21%. Strong loan production over $1 billion with loan production, beginning $24,000 at 6.14% [Phonetic]. We had $512 million with payoffs during the quarter at 5.54%. So the production coming down with what went off at 60 basis points higher. Great job by the team.

Overall, loan yields. I've been telling you where we're going to push it. We started all with last year, it's hard to turn the shift. But overall loan yields were up three basis points to 6.06%. And those three basis points added $897,000 to income for the quarter. That's even though average loans were down $30 million, I think we ended up $70 million for the end of the quarter, but average loan were down. But the interest income on the three basis points was $897,000.

Congratulations to our team, you give them a mission and they seem to get it done. We continue to maintain strong cost controls with the sub-40 efficiency ratio and a strong ROA of 1.92%. For our shareholders, we increased dividend $0.01 per quarter and will continue to repurchase stock. In the last year and a half, we have bought back a $168,400,000 worth of stock, 8,716,000 shares at an average price of $19.27. So far this year, we spent $64 million or 3,416,722 shares at $18.73 [Phonetic].

Last year we bought 5.3 million shares at -- for $104 million, $19.62 average. So we'll continue to be in the repurchased business. You will see loan writings changed in the queue this quarter. In the past, all credits that were construction or agro-related automatically ready to forward, which lands to the conservative nature of our company. Let me make this clear. There is no miss -- so there is no misunderstanding. This is an interim policy and not a regulatory requirement. Actually, this was a nice change from the regulators, they actually thought we're being too hard on our sales. After sketched with the regulators we agreed to take a look. The approximate change were $1.5 billion of the 4s moved to 3s. And two credits totaling about $70 million moved to a pass credit five. The balance remained in the four. Totally, our call. The two credits move into a five, one was an apartment construction project on the university campus with one of our largest and oldest customers in the bank. The project was weather delayed and missed the starting school semester. Apartment is now 68% occupied, expected to be productive cash flow by the end of the year, probably did not need to move because the temporary nature and the quality of the customer that we moved.

Condo project, it's in one of our best markets, the owner said to keep it as rental because he thinks it's in the best long-term interests of his family. As a result, the project does not flow as rentals, does not cash flow as rentals. He has over $12 million liquidity as a grade to sell one of his buildings as a condo and pay down the balance enough to cash flow the project.

Neither credit has ever been past due and management does not expect a loss on either credit. As always, his company is totally transparent and wanted to report the changes and allow time for discussions on the call if necessary. We pride ourselves being known as the company that tells it like it is, good or bad. So a few shorts, but it's kind of like the Trump-Russian charade. There is no better there. And I think Chris is temporarily out of the manifesto business. However, it appears as some of your pocket journalists are still around. You appeared to enjoy the boxes in the last quarter's presentation and reports directly from each person responsible for that line of business. Not sure we'll continue that in the future every quarter, but certainly helped to get us a better understanding of how we looked at margin and operation.

Brian started first last time, he will also be first today and cover the margin in the pieces impacting performance. Then we'll be [Technical Issues] Chris Poulton and John Marshall, Tracy and Steven. And then our chairman, Randy Sams will wrap it up. And Kevin Hester will be on the phone for any questions. So at this point in time, I will turn it over to Brian and see if you can keep us clear. You did a good job last time, I heard, but I've got it right. Brian?

Brian S. Davis -- Treasurer and Chief Financial Officer

Okay. Well, thank you, Mr. Allison. The second quarter was a good quarter for our net interest income and net interest margin. Tax equivalent basis we recorded net interest income of $142.3 million for Q2 2019 compared to $140.8 million for Q1 2019. Our net interest margin was 4.28% for the second quarter of 2019, compared to 4.30% for the first quarter of 2019. As Mr. Allison, mentioned during the second quarter of 2019, the interest rate environment declined. For example, the 10-year Treasury went from 2.50% on March 31 to 2.01% on June 30th. This decline has increased the prepayment space on our investment securities. As a result, we saw an increased premium amortization of $515,000 from Q1 to Q2. If the premium amortization had remained flat from Q1 to Q2. Our Q2 margin would have been 4.30% or unchanged from Q1 2019.

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

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

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

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

John Allison -- Chairman

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

Brian S. Davis -- Treasurer and Chief Financial Officer

Yeah, I check my number while you were talking, and I came up with $823,000 [Phonetic]. That's what Stephen and I were talking on over here.

John Allison -- Chairman

[Indecipherable] Well it's $823,000 -- it was 8 something right? So there's nothing wrong with that, that's good.

Brian S. Davis -- Treasurer and Chief Financial Officer

It's over $800,000.

John Allison -- Chairman

It's over $800,000.

Brian S. Davis -- Treasurer and Chief Financial Officer

That's right.

John W. Allison -- Chairman

Don't mislead the public. So I guess. Next we'd go, Chris Poulton. Chris you on?

Chris Poulton -- President of Centennial Commercial Finance Group

Yes, sir. Thank you. And thank you, Johnny. Second quarter at CCFG was highlighted primarily by a significant increase in new loan production, which Brian just discussed, as you may recall during last quarter's earnings call, I noted that our loan pipeline, specifically the approved, but not closed loans, stood at an all time high. I'm pleased to report that during the second quarter we closed the majority of those loans and we originated just under $500 million in new loan commitment.

To put that in perspective, we generally originate between $800 million and $1 billion in a given year. A little over half of those new commitments were funded during the quarter, which resulted in approximate a $143 million of net loan growth for the second quarter. Notably, just about half of the new production came out of the West Coast LPO as we continue to see good progress from Darren Robinson and his team in L.A., while payoffs continued and will continue to be a feature of our portfolio, we do continue to see good opportunities in our respective markets and I remain pleased with the potential loans in our pipeline.

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

John W. Allison -- Chairman

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

John Marshall -- President

Good afternoon. Thank you, Mr. Allison, for the opportunity to provide an update on show premiere finance in the second quarter. Profitability grew in the second quarter and we continue to run ahead of budget. This may be attributed to asset growth of $5.1 million stable margins and good expense management. Our efficiency ratio remain below 30% for the quarter.

Commercial and consumer loan originations totaled $34.2 million an increase of $5.7 million over the first quarter are up roughly 20%. In addition, $11 million in commercial commitments were approved in our pipeline of retail assets grew due to an increase in applications of 38% by volume, 34% by dollar. Portfolio growth has been stifled somewhat year-to-date by unusually high prepayment rates. As consumers take market gains and reduce their personal debt, that trend appears to have abated in June and July month today. The total combined portfolio was $448.9 million at the end of the quarter, compared to $443.8 million at the end of Q1 and $436 million at the end of the year in 2018.

Since joining Centennial Bank in July 2018, interest earning assets are up $62.6 million. While we're not a financial center or a branch, marine related deposits have grown to $1.3 million doubling in the second quarter. Our growth strategy for both commercial and retail is to add new manufacturers, both domestic builders and international and their attendant distribution channels in North America, working with their dealer networks for commercial floor plans and to leverage these relationships for new retail referral sources.

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

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

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

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

With that, I conclude my remarks. And I thank you.

John W. Allison -- Chairman

Thank you, John. Tracy French?

Tracy M. French -- Centennial Bank President & Chief Executive Officer

Good afternoon to you. Thanks, John. As you may recall last quarter, I mentioned our focus was going to be on net interest margin and improving asset quality. The numbers posted today for the second quarter or show just that. We improved our loan yield. We've watched our deposit cost and improved our non-performing loans. To give a little bit of shout out to our community banking, our net interest margin remained 4.2% as it was the first quarter, which is up from 4.18% at the end of last year. Also like to give a little tip of the hat to some of our regions on the deposit growth that they've had. Little Rock market has been up about 7% and -- a little over 7% year-to-date. In southeast Florida's up over 11% year-to-date.

And then next we will shout out to the North Florida market as they are up in non-interest bearing checking accounts, 16.5% year-to-date. So congratulations to some of those and really congratulations to all. And Steven will give a little color on the deposits, a little later.

Well the quarter Centennial Bank had a return on assets of 2.1%, and efficiency ratio of 36.45% with the total revenue of $204 million. As it has been mentioned, I am pleased to see the strong loan production from the community bank segment. I want to compliment our lending teams for their continued effort in this competitive landscape. Steven, do you want to give a little color on the loans and deposits.

Stephen Tipton -- Chief Operating Officer

Thank you, Tracy. As you and Brian mentioned, the community bank loan production for Q2 was strong, with the contribution split fairly evenly between Arkansas and Florida. While payout volume in the Florida portfolio continues to be elevated, we did see in the period loan growth for Arkansas and Alabama. On the deposit side has been mentioned, we saw another strong quarter of growth $280 million led by southeast Florida region with over $120 million in the end of period growth.

Johnny mentioned the interest rate environment today is quite different from where we were just three months ago. And we will closely monitor the impact of declining interest -- potentially declining interest rates on both sides of the balance sheet. Our efforts are now focused on deposit pricing while maintaining core relationships.

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

John Allison -- Chairman

Thank you. Go to Randy Sims, our Chairman, and let him wrap it up.

Randy Sims -- Chief Executive Officer

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

Our RT [Phonetic] division that we rarely talk about is busy concentrating on continuing to improve structure, as well as implementing new fintech initiatives, along with operational and retail divisions we've deployed via person-to-person payments, implementing new functions within the mobile app and completely updated our customer website. We continue to add interactive teller machines in appropriate locations and new project -- products such as Spin To Win, a prize linked savings program. All to enhance the customer experience with the best and capabilities and products.

In addition, the bank has taken on a new initiative of strengthening our internal structure, including operational areas, as well as taking our regulatory departments to new levels of experience and depth. These efforts and improvements position us to continue our goal of being a high performing bank not just now, but well into the future. It prepares us for whatever opportunity the market may provide. And with these improvements comes expense. But as you heard, our numbers have remained strong. As Johnny stated, this is quarter 52 and our high-performance has been consistent. So let me just recap some of those strong numbers and wrap this quarter up. We finished with total assets of $15,287,575,000 [Phonetic]. Income was $72.2 million, resulting in diluted earnings per share of $0.43 as compared to $0.42 from the last quarter, which means the market expectations.

ROA was consistent and very strong with the last quarter at 1.92%. More importantly, we were able to achieve a strong net interest margin at 4.28%, down just a little from the last quarter at 4.30%. As you heard from the others, we are working very hard on both sides of the balance sheet to maintain the margin. Once again, our profitability was helped by a very strong efficiency ratio of 39.93%. It was good to see it under that 40% again. As we continued to control our costs, but also make enhancements within our bank infrastructure.

I am very proud of this number, given the improvements we have been making and the negative effect of Durbin estimated at $3 million for each and every quarter. It's been a very strong quarter for deposit growth, as you heard, ending at $11.35 billion with them approximately $280 million in growth, resulting in a loan deposit ratio of 97.41% as compared to March 31 at 99.20%. And yes, Mr. Allison, that's keeping that engine running really low like 30 miles per hour. I like it when it runs hot and you're making a lot of money.

John W. Allison -- Chairman

Honestly. I understand.

C. Randall Sims -- President, Chief Executive Officer and Vice Chairman

And of course, as you have heard from others, we had over $1 billion in loan production and an average rate of 6.1%, which again is one of the reasons why we're able to maintain a strong net interest margin. Our asset quality has and continues to be solid, indicating a very optimistic and secured outlook for 2019. And of course, strong capital ratios as always. And you will always see that from Home BancShares.

We now have two quarters behind us. And I think you'd agree that once again the results we presented today are powerful numbers. We look forward to the third quarter and another opportunity to once again perform in the high -- level for our shareholders. And that pretty much wraps things up.

John W. Allison -- Chairman

Randy, thank you. It's interesting going over $10 billion and what we've been able to accomplish when you think about Durbin. Yes. It took $3 million spread out of our pocket this quarter. And usually accretion is going down, so that's pulling out. And then, when you go to this next universe regulatory lives with the expense that we incurring there, and still be able to meet the numbers. I'm beginning to get a feel for why in the past that the analysts have lowered expectations for banks like us and multiples, when you go over team because they think these guys, well these people be able to keep up, well can they keep up with the increased expenses, can they keep up with illusion Durbin, can they keep up with it. And I wouldn't sure we could do that. We get it the first quarter and it was lake of breath of fresh air to me, we did it. Well, we did it a little easier this quarter than we did it -- did the first quarter.

So I see that now and there's some understanding for that. So I'm pretty pleased. I tell some other days that where are you, we're kind of treading the water, but we are OK, treading the water. We got through the first quarter, it's kind of relieve, entered the second quarter and it was better in the second quarter. So hopefully the third quarter will be better than the second quarter. But these reports were really good. And I want to congratulate this team of people. You know, the one thing about our team, is you give them a mission and they get after it, they try to make it work. And I've told our people last all this, we started pushing the rates. Everybody didn't push rates. If you want to know what the quality of a bike, you've ask them what the margin is. You know, if they given stuff why, is it 310, 315 are they given stuff away? They say we won't have good asset quality. All they got bad loans because they pushed that up, that's not correct at all, that's totally incorrect. We got the best asset quality we've ever had, it's as good -- it's good as it is in the country.

We just asked for the additional rate. You know, we've -- we maintain that relationship, we visit with that customer. And I like all that is still important to building the relationship, you hear people talk about relationship, what their relationship is that they give a cheap rate. So we've never backed off on that and our team had the mission was given to them last August, and you can see what they've done with that. They've been able to continue to push rates. Now, what's going to happen now is the weight will drop 50 basis points. The stronger product continue, matter of fact, we just got our executive loan committee today and we're at 570, 566 in a quarter. So some of the ways we'll drop those rates in a hurry, we don't do that, we try to get the maximum we can get out of it and and our team does that and against all odds, they continue to produce for the shareholders.

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

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

Questions and Answers:

Operator

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

Brady Gailey -- KBW -- Analyst

Hey, good afternoon, guys.

John W. Allison -- Chairman

Hi, Brady.

Brady Gailey -- KBW -- Analyst

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

John W. Allison -- Chairman

I'll take that, and Stephen might chime in a little bit after that. And then, I will give you the answer. And I'll follow up from him. [Speech Overlap] And then I might have comment. I'll start off with the accretion. We have been around 9 million plus in accretion each quarter, the last three quarters. I'll really predicted it go down into the $8 million range this quarter. We did have an increase in pay off accretion. The pay off accretion was up about a 500,000 [Phonetic] this quarter from the previous quarter. So there's a good chance that might not be reoccurring. So we would have that pressure of 500,000 with equate to about two basis points on the NIM.

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

Stephen Tipton -- Chief Operating Officer

Or [Indecipherable]

John W. Allison -- Chairman

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

Stephen Tipton -- Chief Operating Officer

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

Brady Gailey -- KBW -- Analyst

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

Stephen Tipton -- Chief Operating Officer

Well, as you're saying, it hasn't so far. And we don't -- we continue to do things to try as we're improving and putting some money into infrastructure. Some of that infrastructure is software that become makes you more efficient. Some of that infrastructure is our people that again, make you more efficient. So it's kind of looking into the future and saying, well, are your expenses going to go way up? Well, the expenses might go up a little on the front end, but we make it investments in infrastructure to become more efficient and therefore try to keep our expenses down and even lower them. But yeah, you could see some increase, but I would hope that it would be followed by a decrease and as we improve things. And we don't make those investments without some realistic outcome of improvement and lower costs. That makes sense. I mean, is that what you're looking for?

Brady Gailey -- KBW -- Analyst

Yeah, thanks for the color. That's great.

John W. Allison -- Chairman

Oh, good. I'm going to wrap this up for you. We're not going to let the expense to go up and margins will remain flat. Well, continuously, it's forward to go down, right. I mean, margin should in this environment go down. We have about $2.8 million with the loans are going to reprocess. We're about 75% fixed, that's good force or adjustable. We got about $144 billion worth of funds that will adjust if they just prime. If they're going to take prime, they need to do that that'll help us. It gives us of a GAAP of about $1 billion in there and you know this team works very hard. We got a call from one of our top flat recent presence and mark me down 15 basis points already -- have already taken the cost of deposits down. So as we work like hell on the way up, we'll work like hell on the way down. So maybe a little blip temporarily, but I don't think it's -- I don't think it'll be a long-term blip for us, because this team has a way of finding and fixing it as you well know. So as we battle it hard on the way up, we'll battled hard all the way down.

Stephen Tipton -- Chief Operating Officer

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

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

Operator

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

Stephen Scouten -- Sandler O'Neill & Partners -- Analyst

Hey, guys, good afternoon. How you all doing?

John W. Allison -- Chairman

Good. Stephen. Congratulation on the all recent trade.

Stephen Scouten -- Sandler O'Neill & Partners -- Analyst

Thank you, sir. Thank you. We'll see how it all plays out. But it should be good direction for us. So thank you.

John W. Allison -- Chairman

You think they're [Indecipherable].

Stephen Scouten -- Sandler O'Neill & Partners -- Analyst

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

John W. Allison -- Chairman

I hope so.

Stephen Scouten -- Sandler O'Neill & Partners -- Analyst

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

Kevin D. Hester -- Chief Lending Officer

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

Stephen Tipton -- Chief Operating Officer

No please do.

Kevin D. Hester -- Chief Lending Officer

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

Brian S. Davis -- Treasurer and Chief Financial Officer

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

John W. Allison -- Chairman

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

Brian S. Davis -- Treasurer and Chief Financial Officer

Unfunded commitments were up about $145 million from quarter-to-quarter.

John W. Allison -- Chairman

To $2.6 billion or?

Brian S. Davis -- Treasurer and Chief Financial Officer

$2.35 billion.

John W. Allison -- Chairman

$2.35 billion. So it gives you an idea of what's coming.

Stephen Scouten -- Sandler O'Neill & Partners -- Analyst

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

John W. Allison -- Chairman

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

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

Stephen Tipton -- Chief Operating Officer

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

Stephen Scouten -- Sandler O'Neill & Partners -- Analyst

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

Stephen Tipton -- Chief Operating Officer

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

Brian S. Davis -- Treasurer and Chief Financial Officer

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

Stephen Tipton -- Chief Operating Officer

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

Stephen Scouten -- Sandler O'Neill & Partners -- Analyst

Very good. Thank you, guys. Appreciate the time. Congrats on the quarter.

Brian S. Davis -- Treasurer and Chief Financial Officer

Thanks.

Operator

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

Michael Rose -- Raymond James -- Analyst

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

John W. Allison -- Chairman

I mean, when we get to CICO, I mean, we're -- we'll set whatever it is we need to start for the day one accounting mark. But I would not envision that it's going to change how we look at that at all. And that's just the way of doing business.

Stephen Tipton -- Chief Operating Officer

Michael, this is Steve. I think maybe they coming there just because they contractually some of the shore finance is longer term. And I think I don't think we would change that our desire to be in that business, particularly with what John mentioned in the underwriting standards and what we're seeing today, just because of the accounting change and it gets the business we want to be in and be exposed to continue to be a part of.

Michael Rose -- Raymond James -- Analyst

But it wouldn't limit your necessarily limit your growth plans, and neither of those businesses.

Stephen Tipton -- Chief Operating Officer

I don't think so.

Michael Rose -- Raymond James -- Analyst

Is that what I'm hearing?

Stephen Tipton -- Chief Operating Officer

Yeah.

Michael Rose -- Raymond James -- Analyst

Okay. And I don't think these -- sorry if I missed it, but I don't think the M&A questions been asked and I don't think John you mentioned in the prepared remarks. So just wanted to get an update on your thoughts on the M&A landscape at this point. What you guys are seeing?

John W. Allison -- Chairman

I did mention them in the remarks that we will remind conservative on M&A will take what they give us on the M&A and on the loan side. So I don't think this is time to be pressing the home loan. I think what I said, where we're continually looking, we're continually running models here with other banks. The MOE thing is, as I said last quarter, it's kind of the table for us because it doesn't --. We're having difficulty finding somebody that has the quality, it's not a MOE. mean, there's not very few people at run a bank like we run a bank, and it's difficult to do at M&A in perfect, particularly in last who's going to ultimately run it at the end of the day.

So, I mean, we've seen a couple of them and they want to run it. But quite honestly, they don't run near the performance that Home Bank's shares run. So some of that as they go who's going to run it -- who is going to be the boss. I don't mind if somebody is running a 2020 hour way, and may want to be the boss expand. But they're running at once in ROA will be the boss. They probably not going to get hook up with home banks here. So we're still looking --

Michael Rose -- Raymond James -- Analyst

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

John W. Allison -- Chairman

That's OK.

Michael Rose -- Raymond James -- Analyst

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

John W. Allison -- Chairman

I do. I think close. I think we're right at it. If you heard my comments, maybe you did, maybe you want to go to my all comments, but I went back four quarters, it was $6.3 million cost to fund increase and then I'm recalling from memory, then $3.2 million increase in cost of funds to $2.5 million to $283,000 this quarter, which is a pretty good indication of what's happening there. So I looked at it yesterday and -- excuse me, I looked at it today and it was flat. So what I'm seeing a lot, seeing interest income up slightly. I'm seeing interest expense down slightly. So that's a good indicator for the company.

Michael Rose -- Raymond James -- Analyst

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

John W. Allison -- Chairman

I know you have a bunch of -- have a bunch of calls right in this time.

Operator

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

Matt Olney -- Stephens Inc -- Analyst

Hey, guys. Good afternoon.

John W. Allison -- Chairman

Hi, Matt.

Matt Olney -- Stephens Inc -- Analyst

I think, Randy mentioned that the loan to deposit ratio is now at 97%, but the loans has been for a while. Is this a strategic change and are you going to operate here or will Randy get his way and we'll see this move back up [Speech Overlap]

John W. Allison -- Chairman

[Indecipherable]

C. Randall Sims -- President, Chief Executive Officer and Vice Chairman

The regulators like it. I don't particularly like it. And we'll be somewhere in between. That's probably good answer somewhere in between. But deposits has been awfully strong, 700 plus -- $700 million plus in the last three quarters. And it's -- I have to give thrice the credit for because he established that new policy if you'll remember several years ago we started asking for it. So we're going to stop it. We're not going to stop.

Matt Olney -- Stephens Inc -- Analyst

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

Stephen Tipton -- Chief Operating Officer

Yeah, Matt, this is Stephen take that. We've got on the CCFG portfolio, there's a couple $100 million today that are protected with the flaws, you have functionally all of the production. And I think your, Christ's comments on how good his production was for the quarter, all of this production so far this year should be protected as it begins to fund, which as a good portion of his production has yet to fund. We've got about $150 million or so on the community bank side that's protected today in a 25 basis point downright scenario and then those numbers increase a little bit, as -- if rates were to continue to go down. So we've got 350 or so that's protected today, if they do lower rates into this month.

Matt Olney -- Stephens Inc -- Analyst

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

Stephen Tipton -- Chief Operating Officer

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

Matt Olney -- Stephens Inc -- Analyst

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

Stephen Tipton -- Chief Operating Officer

Don't bet to farm on that, Matt.

Matt Olney -- Stephens Inc -- Analyst

I wouldn't do that.

Operator

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

Jon Arfstrom -- RBC Capital Markets -- Analyst

Thanks, good afternoon.

John W. Allison -- Chairman

Hi, Jon.

Jon Arfstrom -- RBC Capital Markets -- Analyst

Hi. Kevin, what -- can you go back over that -- I was a little confused by the pay-off information you were talking about. You were saying it's elevated the next couple of quarters are not elevated the next couple quarters I missed out.

Kevin D. Hester -- Chief Lending Officer

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

Jon Arfstrom -- RBC Capital Markets -- Analyst

Okay. So the message would be hoping for modest loan growth, working hard to get there. But you've probably seeing some repricing higher in yields, there's an offset, is that fair?

Kevin D. Hester -- Chief Lending Officer

Yeah, I think that's fair.

Jon Arfstrom -- RBC Capital Markets -- Analyst

Okay, OK. Is John Marshall still on?

John Marshall -- President

Hi, good afternoon, Jon's here.

Jon Arfstrom -- RBC Capital Markets -- Analyst

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

John Marshall -- President

They had a little bit of a conflicting message coming out. We've seen volume increase from an app based standpoint. And from a funding standpoint and the quality of those applications is measured by FICO scores, it's also improving. But in our conversations with our dealers, they're looking forward and they're pushing back on their manufacturers just a little bit in the amount of inventory that they're interested in holding. As we move forward into probably not the third quarter [Technical Issues] in the fourth quarter of this year, or perhaps first quarter of next year. And I don't know. You know, I asked it what is it that they're seeing? Are there any technical indicators that would suggest that they want to hold less inventory and it's more of a gut feeling? So right now we've got sort of mixed signals. We've got retail buyers are buying a lot more boats. But then we've got dealers appearing to pull back just a little bit.

Jon Arfstrom -- RBC Capital Markets -- Analyst

Okay. Good. That helps.

John Marshall -- President

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

Jon Arfstrom -- RBC Capital Markets -- Analyst

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

Chris Poulton -- President of Centennial Commercial Finance Group

Yeah. Good afternoon. We do, we like the pipeline still as we move through a lot of our waiting to close stuff this past quarter, so that was nice. But we continue to like to see what we're seeing through there. We review it once a week. Generally like to see about $1 billion in the pipeline. Not all that'll make its way through. But as long as we have a billion plus in the pipeline, I usually feel pretty good about where we're headed. We have a little over $1 billion in the pipeline today. So I would say we continue to think they're interesting -- there's interesting opportunities and transactions out there. I don't think that's changed. We certainly take a -- I would say shift toward a more defensive nature as it relates to both the pipeline in the portfolio. So let go the payoff sentiment. In our business, that's a good thing. Loans aren't supposed to be out there forever and while money is cheap and plentiful there's some of the credits we'd like them to to go ahead and move on out.

Jon Arfstrom -- RBC Capital Markets -- Analyst

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

John W. Allison -- Chairman

We haven't seen our portfolio still shows all businesses doing just fine. So whether that is a rate cut or not for the company wise, as I mentioned, I was going to ask for the deposits. And then, and it seemed to be working pretty well. He guessed that the speaker here, John. We've called our variable rate customers last two days and are all coming inside of new fixed rate loans next week. I'm just kidding. So we're going to ask them to come in and fix them up for that process. But it's -- we worked on the interest rates here every day, and that's something that we've done for several years now. And when it goes up, it goes up, when it goes down, it goes down. So we feel like our company is positioned pretty well to work through whatever the challenges we get thrown out on interest rates. So we'll go up or down.

Jon Arfstrom -- RBC Capital Markets -- Analyst

Okay.

Stephen Tipton -- Chief Operating Officer

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

Jon Arfstrom -- RBC Capital Markets -- Analyst

Okay. Need to put up some of that. [Speech Overlap] That's back handling on the size of the panhandle.

Stephen Tipton -- Chief Operating Officer

Yeah. I was a little slow on that one.

John W. Allison -- Chairman

We stay really close to our markets and what's going on our people on the ground, live in it. So, I mean, we're not seen any disruption in the markets anywhere.

Jon Arfstrom -- RBC Capital Markets -- Analyst

Thank you. We could say. Okay, good. Thanks for the help.

Operator

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

Brett Rabatin -- Piper Jaffray -- Analyst

Hey, guys, good afternoon.

John W. Allison -- Chairman

Hi Brett.

Brett Rabatin -- Piper Jaffray -- Analyst

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

John Allison -- Chairman

I'll let Steve and Brian talk about that. You got that upside down, it's a about 70%, 75% fixed or adjustable balance is variable. So we don't have much variable.

Stephen Tipton -- Chief Operating Officer

Yeah, Brett, this is Stephen. I think what gets picked up in the filings are some of the we'll call it more adjustable type deals where we're fixing to write for a period of time and then it was just two years NOW those sometimes you get picked up as a variable rate. Yeah, I think what we've identified that is subject to potentially move, say in the next quarter or so as a truly variable type note is about $2.8 billion, half of that or so is on the CCFG side that is subject to move above a floor, the other half would be on the Communities Bank side. The majority of that is tied to LIBOR, we've got about $800 million or $900 million that's tied to Wall Street Journal prime and then the balance of that would be tied to LIBOR. So we think a little bit of movement there over the last couple of months in LIBOR. But that's where the portfolio stands as we see it.

Brett Rabatin -- Piper Jaffray -- Analyst

Okay. And then the security book, any color there?

John W. Allison -- Chairman

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

Brett Rabatin -- Piper Jaffray -- Analyst

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

John W. Allison -- Chairman

Well, we had a exceptional quarter this time, much better than it -- than the quarter actually looked and we thought it was a good work. We've always been reserve builders. We've always liked to have about 1% reserve. Just kind of how the company is run, actually, my past lap, I ran a 150, and I just think that's -- I think it's just a solid number. I understand we've got all these complicated measures of how we have to calculate reserves today. But those were -- that 150 workforce and the worst financial crunch I have ever seen in my life. So we're running about one now and we got marks of about another 120 that ran. So I'm not supposed to add those together. I guess you can't tell you where I think we are. And I think we're well reserved. See, lots of people out here with 43 and 46 and 47 reserves. If we have a crunch, that's not will be enough. That's what the asset quality says, that won't be enough. So we're just a believer. We had a good quarter. It looked like we found a match charge off closed charge offs for the little quarter and we just kind of look at it every quarter and see how it has got that. But asset quality of that, I mean, I probably, we probably could justify four overs five , but we'll keep as much in there as we can.

Brett Rabatin -- Piper Jaffray -- Analyst

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

John W. Allison -- Chairman

Well, we have some trust preferred out there and we also have $300 million worth of subdebt. So I mean accounts is capital one is still that. So I mean we're dead reversed at home bank shares. We don't like that. It counts as capital. We don't like -- that's the right way to treat that. But we did raise $300 million and it would be our effort to pay that off at some point in time or start accumulating money to take it in advantage. How many months, 33-months left, Brian?

Brian S. Davis -- Treasurer and Chief Financial Officer

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

John W. Allison -- Chairman

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

Brett Rabatin -- Piper Jaffray -- Analyst

Okay. I appreciate all the color.

John W. Allison -- Chairman

Thank you.

Operator

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

Brian Martin -- Janney Montgomery Scott -- Analyst

Hey, guys.

John W. Allison -- Chairman

Hi, how are you, Brian? You've changed jobs, change the government?

Brian Martin -- Janney Montgomery Scott -- Analyst

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

Stephen Tipton -- Chief Operating Officer

First, as John mentioned, maybe the first part of the Q&A. But we've done about a $1.5 billion or so that are tied to some index, either treasuries lab or Wall Street Journal from that, functionally should flow 100% native with that as it changes and then we've got another $1-ish billion or so that we've identified kind of call it market top of the market type rates that we can affect over time. So that's our task. And thanks for Tracy and Johnny, both mentioned well -- will work to work those rates down. If we see the Fed make a move on the 31st.

Brian Martin -- Janney Montgomery Scott -- Analyst

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

Stephen Tipton -- Chief Operating Officer

I think it's a fair statement and like that.

John W. Allison -- Chairman

Yeah, as Brian mentioned, I mean, those the models show that it could put a little bit of pressure on it, but I think that's based on the assumptions that we have and we're evaluating all of that now to see if we can do better than that.

Brian Martin -- Janney Montgomery Scott -- Analyst

Okay. All right. And I think it was -- Brian said it was six basis points if you get it, 25 that's with the models show. Should be a 25 basis point decrease.

Brian S. Davis -- Treasurer and Chief Financial Officer

Yeah, that is correct.

Brian Martin -- Janney Montgomery Scott -- Analyst

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

Stephen Tipton -- Chief Operating Officer

Yes. It's not callable. It's Stephen, it's Brian. It's not callable till '22 we shouldn't have change [Phonetic].

Brian Martin -- Janney Montgomery Scott -- Analyst

Okay. We got 33 months until that comes up Brian. And so I mean, we start few months but the problem is going to be with me. I mean, we start accumulating the total amount you're said $150 million to $200 million and the deal comes up. I said, I'm will be -- your biggest problem is going to be maybe. We might let depends on what the next deal looks like compared to what paying down the debt looks like. So most sense is if we do a deal, we've never done a deluded deal, we've always been a creative snow, and our stocks creep back up a little bit getting back into 2.20 times to 2.30 times tangible book. We just took a look at. I mean, if you are 96 [Phonetic], I think we rank six or seven when you take out the nonbank, so to speak, in margin in the country, so we're pretty proud of that. As again -- earlier in the call, I said just bank what the margin is. Found out where there's the real monster, whether given. Brian, Randy Sims, and I really believe in those models.

Brian S. Davis -- Treasurer and Chief Financial Officer

We are going to improve them run once again. [Speech Overlap]

C. Randall Sims -- President, Chief Executive Officer and Vice Chairman

And I just what the models -- I just what the models said, assuming the other guys around the table do nothing except just let it roll out. [Speech Overlap]

Brian S. Davis -- Treasurer and Chief Financial Officer

Well, the models notification, models do it and go on vacation, the first actually our communities.

John W. Allison -- Chairman

[Speech Overlap] Let the model looked about that way all the way up to you. We're pretty much flat. I think we're -- we maybe, we could be in better shape on the way down we'll see.

Brian Martin -- Janney Montgomery Scott -- Analyst

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

John W. Allison -- Chairman

You had the first quarter -- you have shock and all from the data from what the Fed in December. I mean, it shook the world, the S&P 500 total return phone had the worst month since 1929. I mean that was just -- that was a major error and it shook everything. So I think it took a while to recover back. So I'm optimistic that production will be better. I mean, New York funded started funding some of this quarter, but still have a lot to fund. As time comes on and and we're up 100 -- we've got about $2.3 billion and you'll see some of that funding so.

I suspect we might be down a little bit. And I must tell you that we might be down a little bit on loans this quarter. And the reason I'm telling you that is the last time I said we'd be up, we were down so long as they were down and maybe up.

Brian Martin -- Janney Montgomery Scott -- Analyst

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

John W. Allison -- Chairman

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

Brian Martin -- Janney Montgomery Scott -- Analyst

Yeah, I got it. All right. Thanks, guys. Nice quarter.

John W. Allison -- Chairman

You bet. Thank you very much.

Operator

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

John W. Allison -- Chairman

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

Operator

[Operator Closing Remarks]

Duration: 75 minutes

Call participants:

John W. Allison -- Chairman

Stephen Tipton -- Chief Operating Officer

C. Randall Sims -- President, Chief Executive Officer and Vice Chairman

Brian S. Davis -- Treasurer and Chief Financial Officer

John Allison -- Chairman

Chris Poulton -- President of Centennial Commercial Finance Group

John Marshall -- President

Tracy M. French -- Centennial Bank President & Chief Executive Officer

Randy Sims -- Chief Executive Officer

Kevin D. Hester -- Chief Lending Officer

Brady Gailey -- KBW -- Analyst

Stephen Scouten -- Sandler O'Neill & Partners -- Analyst

Michael Rose -- Raymond James -- Analyst

Matt Olney -- Stephens Inc -- Analyst

Jon Arfstrom -- RBC Capital Markets -- Analyst

Brett Rabatin -- Piper Jaffray -- Analyst

Brian Martin -- Janney Montgomery Scott -- Analyst

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