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spk08: Ladies and gentlemen, thank you for standing by. The Home and Bank Shares first quarter earnings call will begin shortly. If you would like to register a question at any time, please press star 1 on your telephone keypad. Thank you for your patience. Greetings, ladies and gentlemen. Welcome to the Home Bank Shares Incorporated first quarter 2024 earnings call. The purpose of this call is to discuss the information and data provided in the quarterly earnings release issued this morning. Company presenters will begin with their prepared remarks, then entertain questions. Please note that if you would like to ask a question during the question and answer session, please press star then one on your touch-tone phone. If you decide you want to withdraw your question, please press star then two to remove yourself from the list. The company has asked to remind everyone to refer to the cautionary notes regarding forward-looking statements. You'll find this note on page three of the form 10-K filed for the SEC in February 2024. At this time, all participants are in this mode and this conference call is being recorded. If you need operator assistance during the conference, please press star then zero. It is now my pleasure to turn the call over to Donna Townsend, Director of Investor Relations.
spk01: Donna Townsend Thank you. Good afternoon and welcome to our first quarter conference call. With me for today's discussion is our Chairman, John Allison, Tracy French, President and CEO of Centennial Bank, Stephen Tipton, Chief Operating Officer, Kevin Hester, Chief Lending Officer, Brian Davis, our Chief Financial Officer, Chris Poulton, President of CCFG, and John Marshall, President of Shore Premier Finance. To open our discussion on the quarter today, we will begin with some remarks from our Chairman, John Allison.
spk15: Thank you, Donna, and welcome, everyone. Welcome to Home Bank Shares' first quarter earnings release and conference call. We released our results this morning prior to the market opening, and overall, it was a good start to a volatile year. Anytime you conduct the trends with positive results across the board on net interest income, revenue, EPS, margin, increases in both loans and deposits while maintaining our strong liquidity position and reducing expenses by over $3 million, below the first quarter of last year, 23, is a big win. Home with our Fortress balance sheet is one of the strongest banks in America, and having the ability to pay out all uninsured depositors should provide comfort for all our customers and shareholders. As I've said in the past, we will not be the highest when it comes to paying rates on your money, but you will not have to worry about getting your money anytime you need it. During this crisis, we have never run a CD ad paying these outrageous, unprofitable prices for deposits, like many trouble banks are doing today. This did not happen by luck. Your management team has maintained, as we're choosing, remained very conservative during what appears to be a mirror image of the inflationary Volcker times of the late 70s and the early 80s. We have been active in recognizing the danger of the Volcker years and have managed accordingly. This one is not over yet and will not be over this year. Inflation is and will continue to be with us for the foreseeable future. Our government is totally responsible for this situation. Irresponsible spending is the direct cause of all our inflation in this country. Both Republicans and Democrats and more so Democrats are spending like drunken sailors and even trying to relieve student debt in an attempt to buy votes with our money. They caused it and now Powell and the Fed is desperately trying to stop it by avoiding a recession. Really, they should all be punished for their action. Their stupidity is the reason for an inflationary problem. The problem is that most of them couldn't run a washing machine. The buck stops with them. We have not felt the full impact of the increase of oil prices rolling into our economy. Coming from the manufacturing business, the impact of oil is not just at the service station, as we learned through experiences past oil spikes, but multitudes of products derived from oil or byproducts thereof. Earlier this year, the market was signaling six cuts. Let me say this. If we had to have six cuts, Donna, this country would have been in lots of trouble. I made that statement earlier in front of her, and she said, we wouldn't have been in trouble. And I said, I didn't say us. She said, make clear that we say the country would have been in trouble. We called for higher for longer before that was popular. We forecasted one and not more than two rate cuts. I'm beginning to believe that may be high. The only caveat coming is politics. I think instead of cutting rates, because it's not the right time, the Fed needs to consider raising rates again. President Clinton, when inflation was sticking its ugly head up during his term, surprised everyone with a 50 basis point jump in rates when no one expected it. Within a short period of time, he dropped back 25 basis points, but he did stop in place. They say the president has no control over the Fed or the chairman, but it did during the Reagan administration. When Volcker was calling the White House to meet with President Reagan by Chief of Staff Jim Baker, the meeting took place in the library and not the Oval Office. And according to Volcker, the president never said a word. Baker asked Volcker to sit down. And then he looked at it and said, the President of the United States is ordering you not to raise rates during an election year. End of meeting. I just finished the book and that little jewel was in. I thought I'd share it with you because it does, maybe politics do involve themselves. By the way, Volcker thinks the reason for the library meeting was not, was because there's no recording device in that room. And as Richard Nixon found out in the later year, there was one in the whole office that paved the way. for the Watergate fiasco. The profitability of our bank is simply based on earnings, revenue, and expenses. I understand that's a simple approach to looking at our company, but how much revenue was generated over the quarter, and how much did it cost us to generate that revenue? Therein lies the efficiency ratio. How much does it cost to make a dollar? We have to give credit where credit's due, and that belongs to the revenue side and the retail side of our company. Our loan teams have continued to write loans in a way that is accredited to our overall yield. As a result, it has been pleasing to watch the overall yield of the entire book continue up to hit a new high of 7.34%. And that is without any event income, I believe, Stephen, is that correct? All while maintaining strong asset quality. Congratulations to our entire lending team. It is because of you and your strong relationship that you've developed one-on-one with our customers. You continue to answer the call to do the best for our owner shareholders and provide opportunities for home to remain one of America's best and most profitable companies. During the quarter, our lenders originated $954 million in loans at a record rate of 9.28%. Only about 40% of that funded, I think. Less than half?
spk03: Yes, sir.
spk15: We appreciate the support of our customers and our shareholders as we protect the strength of our fortress balance sheet during some of the most volatile times in Homes' 25-year history. However, if we did not have deposits, which I call the raw material, I come from the manufacturing business, so I look at deposits as raw material. Simply, we would not be able to loan any money. There comes the value of the retail areas that I'm buying. During these volatile times, depositors can go about anywhere they want to go and get any rate in turn. It just depends on how much risk they want to take, because many of the banks that are running high-priced CD ads may not be able to pay out all insured deposits. I was headed to my grandson's game at Greenbrier the other night, and there's a sign hanging outside of one of these banks that says 6.1%. No way they can be profitable at 6.1%. Anybody that's got signs out over 5-4, what's the rates of borrowing money today, 5-4? That's Fed funds, yes. Fed funds at 5-4. So if you're paying more than that, to me that says I have borrowed all the money I can borrow and I've got to get some money from the customers, whether it's safe or not. Our retail staff who deals directly one-on-one with our customer has built relationships with them and has been able to hold deposits at some lower cost. because our customers trust us to protect their personal deposits by having the ability, again, to pay out all uninsured deposits. In this cycle, deposits have been king. Lack of available deposits is what took down SBB, Signature, and Republic. Early in the pandemic, we were flush with excess deposits, but we were afraid that the excess deposits would eventually run off by our customers spending that money. That's pretty much exactly what happened. and we were suddenly scrambling to have enough deposits for our loans plus being able to pay out uninsured deposits. I thought of the days when we did not even begin to recognize the importance of deposits as I watched SVB and signature banks being taken apart in a matter of days. I remember us trying to move some deposits out of our bank. How wrong and misinformed can one be? Protecting and holding our deposits and not putting depositors' money into long-term securities are the main reasons Home Bank Shares is in the great financial position that it is today. There will be no need for the expense side if there were no revenue. The lifeblood of this company is revenue. Nothing happens until something is sold. There is nothing to account for, there's nothing to regulate, there's no need to hire people. The expense side's sole reason for existence is to account for and accommodate the retail and revenue side of this bank. We have worked together as efficiently as possible and not against each other. We have to support our retail and revenue horses. They are the ones that make it happen. They are the rainmakers. They don't deal from a desk in the back office. They're on the firing lines one-on-one with the customers. I have some concerns about where we are today in this cycle. Not home particularly, but I'm concerned about what happens to the hundreds and thousands of zombie banks that can no longer access the federal lending program. BTFP. Will cost of funds continue to escalate? Will CD rates go to 7, 8, and 9? Will this bring about bank failures that we would have probably experienced if the Fed hadn't backed up the truck with their program before? Have these banks recovered to a point that they'll be able to pay some or all of their uninsured deposits? As scary as it has been, it could get worse. I think the Fed will be forced to extend the program or face many bank failures. I can assure you, home will be one of the good banks, helping the regulators to clean up the mess. These banks with 8% or less capital and 110% loan deposit may wish they'd found a partner before it was too late. When you look at margins of some banks, you see some with a two-handle, and believe it or not, there's some in Arkansas with a one-handle. What were they thinking? I guess better said, they weren't thinking at all. There are entirely too many banks running around in the market doing stupid things appear to not have a clue what they're doing. Don't shoot me, but I'm strongly in favor of capital requirements being raised into the teens. I call them clutter bikes because they don't have a clue in most instances and they just get in everybody's way and continue to do silly and stupid things. As serious as things are, trends at home are positive and appear headed in the right direction with deposits, loans, margin, efficiency, net interest, income, expenses, asset quality. We're going to have a little bump coming out of Texas. We've got a few things we've got to clean up in the state of Texas. It is very manageable, but some things, early on, they just weren't dealt with and they need to be dealt with. We've made some loans that shouldn't have been made, and we'll have to deal with those. I think Kevin's going to talk about that in a little bit, or some of them. Let's scale the numbers. Earnings were a little over $100 million. I think we even budgeted, Brian. We budgeted down, didn't we?
spk13: No, that is correct. We didn't do that.
spk15: Everybody went along and said, Johnny, I didn't think we were going to do that. I thought we'd beat that, and I'm proud we did. Revenue was $246.4. It was a beat. Net interest income of $205.5 million. And that trend appears it's continuing only in April. Reserve for loan, 2% or $290 million. And we had $3.63 for every $1 of non-performing loans. Loan growth and deposit growth was about $80 million each for the quarter, good balance. Loans originated for the quarter, as I said earlier, were $954 million at 9.28%. Great job, Kevin, your team. Return on assets, $178. And efficiency ratio, better at $44.22. That's much better than where we were. We're up in the $46s and $47s. We were headed in the wrong direction, but we stemmed that off. EPS at 50 cents per share. Margin, apples to apples, Stephen, was 4.21. And I'm not going to get into the math how we get there, but I think it was 4.13 last time. And you had two basis of event income, which was 4.11. And if you all remember, we did the arm that was 10 basis points. So apples to apples is 4.21, I think is what it was. Tangible book value of $11.79. Return on tangible common equity of 17.22 and capital of 14.3%. That's a little improvement from last quarter. Tangible book value of $11.79 and we closed four branches in March and they were closed towards the middle of the month and maybe we'll see some more savings coming out of that. We'll take the blame for a lot of expenses to get out of control. And worse than that, we'll take responsibility for not taking actions earlier. Sometimes we don't see the forest for the trees. Even though we started late, non-interest expense for the first quarter of 24 was less than the first quarter of 23 by over $3 million. Keeping expenses under control will be an ongoing project here. Because of our earnings being off and expenses continued unabated last year, The board decided it's best to hold any dividend increase until later this year. As you know, and would expect, my wife was not happy with that decision at all. No dividend increase. We'll ask the board of directors to address that again in the future. Donate wasn't quite as good as I wanted, but I'll take it. I'm sure there may be a few banks that might outperform us this quarter. but if so, it'll be a very small group, and those that beat us, congratulations to them in a tough environment. It has been a tough couple years attempting to overcome the damage done to our company by a group of West Texas individuals. The lawsuit we filed against the individuals is and will continue going forward until our shareholders receive proper restitution for acts of others. We have a fiduciary responsibility to protect our shareholders from what appears to be intentional damage which includes possible criminal charges this is a matter for the court at law and juries to decide and we'll leave it to them to resolve with this with this top performing team of revenue horses deposit gathers coupled with their strong relationships with their customer base i would expect similar positive results in this quarter trends are continuing to look pretty good and showing improvement in in the revenue area in april I hope that will hold throughout the quarter. If that holds, we'll have another great quarter, and we could be off on really a good year. I want to thank everyone. One change from next year, Ms. Donna, is we're going to report our earnings the night before. We've done it the same way this time as we have in the past, but we're going to change that next quarter.
spk01: Yes, okay.
spk15: And I'll give it back to you.
spk01: Okay. Well, thank you for the colorful commentary, as usual, and I actually think it's a great start to the year if trends continue. I expect that from this team. Now, Stephen Tipton will share operational results.
spk03: Thanks, Donna. I'll start with the net interest margin that Johnny referenced in his comments. As we discussed on the January earnings call, we added approximately $500 million in cash through borrowings late in Q4. That excess cash affected the Q4 net interest margin by one basis point and the Q1 2024 net interest margin by 10 basis points. as we had the cash for a full quarter. Additionally, we had event income in Q1 2024 that accounted for a two basis point increase to the margin. Normalizing for those items, we would have seen a nice three basis point improvement in the margin on a linked quarter basis. We continue to closely monitor asset repricing against the increasing cost on the funding side. The yield on loans excluding the event income improved to 7.34% in Q1 and outpaced the increase in total deposit costs by a couple of basis points. During the quarter, total deposit costs increased 13 basis points to 2.22%, while the yield on loans excluding event income increased 15 basis points to 7.34%. We will continue to negotiate pricing with core customers as we have been, but we are encouraged to see the pace of increases on the deposit side begin to moderate. Switching to liquidity and funding, it was great to see an increase in deposits again in Q1 with solid growth from several of the Florida, Texas, and Arkansas regions. Total deposits increased $78 million for the quarter. The deposit mix movement was similar to prior quarters as CDs continued to be in focus for the consumer. Non-interest-bearing balances grew by $30 million in Q1 and account for 24.4% of total deposits. Alternative funding sources remain extremely strong, with broker deposits still only comprising 2.2% of liabilities. The loan-to-deposit ratio was in line with prior quarters, standing at 86% as of March 31st. On the asset side, in-period loan balances increased $89 million, led by growth from CCFG, SHORE, along with several individual regions within the community bank markets. On loan originations, as Johnny mentioned, we saw a volume of $954 million in Q1, with approximately two-thirds of the closing volume coming from the community bank regions. Yields on those originations continue to improve. with an average coupon of 9.28% in Q1. Payoff volume declining from Q4 was a total of 549 million, which appears to be the lowest level we've seen in nearly five years. Closing, with the previously mentioned strength of our company, all capital ratios remain extremely strong, with a tangible common equity ratio of 11.06%, a leverage ratio of 12.3%, and a total risk-based capital ratio of 17.9%. We repurchased 1,026,000 shares in Q1 under our repurchase plan, and we've repurchased about 400,000 or so so far this month through our 10b-5-1 plan. So we continue to be active there. With that, Donna, I will turn it back over to you.
spk01: Thank you, Stephen. Now, Ted. I just have a comment.
spk15: Sure. 13 basis points increase in cost of funds, but Kevin's team and Chris' team got us 15 basis points on the yield side. So that's what I call outrunning the cost of funds. Sorry, I didn't mean to interrupt. Kevin, go ahead.
spk01: Go ahead, Kevin.
spk02: All right. Thanks, Donna. Good afternoon, everyone. As Johnny said, it is pretty simple. At the end of the day, it's just revenue and expense. On the expense side, our producers continue to get the job done. We continue to see improvement in loan yield and in net interest margin when adjusted for the Fed arbitrage. Volume was impactful as well, resulting in a third consecutive quarter of loan growth. I'm encouraged that we're continuing to see very good opportunities in our high growth markets. Leverage is the question, but fortunately there is plenty of equity available to get deals done today. The synergies that we've seen in our legacy footprint are becoming evident in post-acquisition HAPI. It took us a little longer to get there due to the orchestrated exodus, but when you continue to focus on the right things, it's just a matter of time before it clicks and you see the benefit. On the expense side in the fourth quarter, we took the opportunity in what I would consider to be a challenging M&A market to make some overhead adjustments. Those changes really bore fruit in this quarter. The effects of improvement on both sides of the ledger are impactful. We will continue to look for opportunities to be more efficient, as that has been our hallmark, but there are definitely opportunities to bring on producers who fit our culture, and we're not hesitant to do so. While asset quality remains solid overall, we saw a marginal increase in non-performing loans up 11 basis points to 0.55%. This increase was centered in a few smaller happy credits. Interestingly, as a reminder, we noted early in the acquisition that while they may have had a higher relative level of problem credits compared to home, it did not correlate exactly with losses as a significant level of problems were resolved in between due diligence and closing. We will see if that phenomenon continues as we move forward. We recognize that a higher for longer scenario puts more pressure on many projects. We fully expect that we'll see an occasional problem arise from time to time, but we're confident in our underwriting and in our geographies. And in addition, we have a fortress balance sheet with plenty of capital and a 2% allowance for credit losses. Lastly, an update on the three credits that we discussed last quarter. Subsequent to quarter end, the Oklahoma marina note sale has closed. And as we anticipated, it cleared out the balance that existed at quarter end. The Miami property is still under contract and there's no change in the timing of the approvals needed to close. I would anticipate that's probably a second half of the year item. I will turn it over to Chris Poulton to give an update on the California property and then a general update on CCFG. Chris?
spk07: Thank you, Kevin. Happy to provide an update. As I reported during last quarter's call, During the fourth quarter last year, we transferred into REO the leasehold interest in approximately 50% occupied office building located on Ocean Avenue in Santa Monica, California. At that time, we identified three immediate priorities for the property. The first was to resolve some outstanding legacy litigation between the fee owner and our prior borrower. The second was that we were going to move our LA-based West Coast regional office to the facility. And the third was we wanted to engage with the existing tenants to determine their potential needs and stabilize existing tenancy. During the quarter, we made progress on all three of these areas. First, the outstanding legacy litigation was resolved with the landlord withdrawing their claim against the bank. The second is we did complete our office relocation in February upon the termination of our prior office space lease. and the third is that in discussions with the existing office tenants they expressed the desire to remain in the building longer term and potentially expand their existing space in the coming months we'll shift our focus to finalizing lease extensions and expansion for existing tenants as appropriate and determine the remaining available space for lease We anticipate at least one floor being available for lease and have begun marketing this space in the past few weeks. We've hosted a number of showings, and while showings don't necessarily equal leases, and we do expect it may take some time to lease the available spaces, it's encouraging that there appears to be an increasing interest in our well-located office space in the Santa Monica submarket. We'll continue to provide some updates on this space building as we go forward, but I think we're at least encouraged that we were able to accomplish what we wanted to in a fairly short period of time. Overall for CCFG, we continue to see a good pipeline and good demand for our product. I think as many of you know from prior conversations, kind of during these types of times or when we get to see some interesting transactions, and so I think we've done well. In the first quarter, we'll see that continue on into the second quarter, though I do expect that eventually it slows down a little bit. But we continue to be encouraged with the quality of product that we see. And we continue to see some nice payoffs and paydowns in the portfolio, especially in some credits that we were probably happy to see go. With that, Donna, I think I'm passing it back to you.
spk01: Thank you, Chris. Congratulations on the progress on the office building. That's great. Johnny, before we go to Q&A, do you have any additional comments?
spk15: Well, I just want to say anytime that you can, on all offensive measures, so to speak, or revenue side of it, we hit every button, every one of them. If there was eight or nine buttons, we hit them all. And we had loan growth, and we had deposit growth. So that was policy. Asset quality remains strong. We worked on our expense side, and we made a big impact on the expense side. So I don't really have much to fuss about for the quarter. I think I said on my other remarks a while ago, any questions? You can ask about anything you want to ask, because I think we've got good answers for all of them. And I'm through there, Donna, and you're ready to go.
spk01: Okay, I think we're ready for Q&A.
spk08: Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad. If you would like to withdraw your question, please press star followed by two. When preparing to ask your question, please ensure your device is unmuted locally. The first question comes from Catherine Miller with KBW. Your line is open. Please go ahead.
spk00: Thanks. Good afternoon.
spk14: Good afternoon, Catherine. Welcome.
spk00: Thanks. Brady always Deb, this was his favorite conference call, and now I understand. I'm so glad I should be a part of this now. Really appreciated your comments, Johnny. I wanted to start maybe with credit and think I appreciate the update on those three credits and then the commentary on the small increase in NPAs. I was curious if you could just give us an update. I know mid-quarter there was an increase in classified assets that you highlighted in your 10 K and I think it was mostly related to one credit, but just wanted to see if you could give us an update on that. And then also if there was any change in classified into this quarter.
spk02: Hey Catherine, this is Kevin Hester. Um, overall, I'll handle the overall question first. Overall, um, classifieds down probably close to 25 million in total. Um, specifically the one credit that we talked about in the fourth quarter that was the large increase. We're continuing to work through that just from an overall perspective. It's a daily process of managing their cash flows and we're continuing. I think we saw a $10 million or so drop in the operating line and we're continuing to work to get additional collateral and shore that up. We feel like it's going just like we expected to. We knew it would take a couple three quarters to work through the issues that were evident there and we think we're on track and on progress.
spk15: There's two pieces that credit. One of them is tugboats and barges that were well collateralized on the other line of credit and semi-collateralized on that piece but Kevin has them, and we built the policy, if you classify one piece of credit, you classify it all. So, really, we have great equity in the barges and the tugs. So, that's the biggest, that's the lion's share. The balance of it is 40-something, $50 million is the line of credit. So, the exposure, really, I mean, if we, I wouldn't classify, but we do everything, I wouldn't classify the other assets, because I think we're fine there. I mean, if you try to buy a barge today, it takes you two years or a tugboat. So the value of those things is pretty strong. So anyway, that's our customer. They kind of bumped their head going through the process, and they ship a lot of material out of the country, and the bridge that they ship through, they use to transport, got closed for some reason, and that threw them into a loop. So we pulled the line of credit, and... they were able to get other lines of credit to continue to operate. We're told we're gonna see pay downs in the 20 plus million dollar mark this month. We'll let you know when that happens. But if there's any exposure there, I think it's limited. I'd say uncollateralized might be 30 million dollars total. But they're paying and it's working. So far so good. That was it. That's the status of it.
spk00: Great. I appreciate that. And then a question from the margin. The margin is relatively stable if you kind of back out some of the excess liquidity. Do you think about deposit costs going into the next couple of quarters? It feels like many of your peers have talked about this quarter still seeing pressure on deposit costs, but we're a quarter or two away from that stabilizing. Can you talk a little bit about where you think you are in that process? Assuming, let's just say rates are stable for the rest of the year, kind of outside of any increases that you were mentioning, Johnny, or even cuts. But if rates are just stable for the rest of the year, you know, where do you think your deposit costs finally kind of peak?
spk03: Hey, Catherine, this is Stephen Tipton. You know, I think it's the same thing. Same sentiment that you're hearing from others. Certainly in this past quarter, the pace of the increases was less. I think we were up four basis points in January and four in February, and we're really pretty flat in March. And those are down from high single-digit, low double-digit increases throughout the year last year. So it slowed some. Tad Piper- You know, we still have your CD portfolio, although you know fairly small relative the overall that is maturing each month and we're having to work those and we talked about that earlier on a. Tad Piper- You know, selected negotiated basis so there's some you know lift there but we're able to also as as liquidity kind of holds in well here we're able to. kind of rationalize some of the top end of money markets and those kinds of things that we've had over the years. And I think that's what we saw in March. We're actually able to go in and lower a few rates here and there and helped offset some of the continued increase. Low single digits, I think, would be what we would target from here. And then just overall, like Johnny mentioned in our opening comments,
spk15: outrunning you know on the asset side outrunning anything that happens on the on the funding side that's that that that running is continuing into april too catherine it is uh the first we compare daily reports so we're looking at the first 10 or 15 days 17 days whatever it is of april compared to the first 17 days of january and where were we and we're up we're up nicely in the first 17 days. We have some large credits repricing this quarter, and right now, matter of fact, that should be significant repricing. Four and a half going to nine, four and a half going to eight and a half. So we're seeing some significant repricing there. That should give us a boost. Another plus I didn't talk about, I meant to talk about, is that we've been working on our office building in Amarillo, Texas, and it looks like we have a large tenant And we have 240,000 square feet. Looks like we have a large tenant. Cross your fingers. We might get that leased up. So that could be a real plus for us in the Texas market too. Just another side of it.
spk00: Great. Helpful. Thank you very much. Thank you.
spk08: We now turn to Brett Rabaton with Hope's Group. Your line is open. Please go ahead.
spk12: Hey, good afternoon, everyone. Wanted to start with expenses. Hey, guys. Wanted to start with expenses. And you talked about closing four branches. And, Johnny, I was expecting you to be pretty tight on expenses this year. Not that you're not always, but, you know, just kind of given the revenue headwinds the industry is facing. Is the level of expenses in one queue, is that a good run rate to think about for the remainder of the year? Or are there things either plus or minus that might affect that going forward?
spk15: I think it's a fair number. We're not hiring anybody else right now. We're going to continue to work on expenses. It's an ongoing effort here. If you don't have an ongoing effort, it gets away from you like it did. It got away from us. I think that's a reasonable number. Actually, the forecast was a better number than that given to me. When I saw the three, it's real money. There's 150, 60, 70 people reduction in force. So that'll continue on. So, I mean, the real problem is for all banks is inflation is after us and insurance, everything's up. Everything is, all expenses are up. So we were able to cut 3 million out in the quarter and hopefully, you know, that's 3 million below the first quarter of last year. So I think that's quite an achievement and hopefully, or the fourth quarter. Hopefully, and last year too, I'm sorry. So it'll be good to see if we can continue that. We plan on continuing that. I don't plan on letting it get away from us again. That's my point. Okay. It was a battle to get it down, but we got it down.
spk12: Okay. That's helpful, Johnny. And then I've had a few folks asking, you know, early in earnings season, one of the Northeast banks indicated seeing some weakness in marine dealers. And, you know, your portfolio, I think, and what you guys do is obviously much different than maybe what some folks realize. Can you just talk about what you guys are seeing, you know, on the marine side and just any activity and just I know at one point, you know, the inventory was hard to get, and maybe that's changed somewhat for the industry. But just any thoughts around the marine portfolio and what you guys are seeing there?
spk02: Hey, Brett, this is Kevin. So, yeah, what we do is a lot different than what you might have seen in the news that there was an issue of. particularly in that, if you remember, our stuff is primarily Coast Guard registered, 26 and a half feet and up. I mean, we're talking an average loan size of 750. All of our dealer advances are supported by the original MSO, as well as, in almost every case, by manufacturer's repurchase agreement. So a little different than... you know, the smaller space where you're dealing with tidal boats and trailerable stuff. So that, I think, is the big difference from that perspective. Certainly, I think the inventory has been easier for our folks to get, which has been, to them, a good thing because they hadn't been able to, in a lot of cases, they didn't have anything to sell. So I think I've not seen in any of the annual reviews that I've seen, I've not seen any weakness from that perspective.
spk12: Okay, that's helpful. And if I could sneak in one last one. Johnny, your comments around capital were a little confusing to me because you put off a dividend increase, but it also seems like you're less optimistic on M and a and the near term, and you know, your, your capital ratios are really, really strong at 14.3. The T one, just curious how you think about, you've done a little buyback here continued in the second quarter, but how you think about capital levels and what you might do to, to stop that, those ratios from continuing to move higher.
spk15: Well, you know, because we make a lot of money, we have the ability to buy back $22 million. where the stock for the quarter paid $36 million in dividends and what's the other button? AOCI. Yeah, AOCI hit us for about $25 million and still grew capital. So I think we're going to sit with our strong capital base for a period of time here. I think it's the right thing to do. There wasn't any opportunity to speak up for us when the Fed backed up the trucks and came in with their lending program. But if they, in fact, next March, everybody has to pay off those people that they're not gonna get, they're not gonna put that 50 cent security up and get a dollar for it. They're gonna get 45 cents for it or something. So they got, I think that world will change. So I think we sit and continue to build capital and we continue to sit where we are. and look for opportunities for our company, because I think there's got to be some. I think there has to be some opportunities for home banks here. I mean, we were all dressed up and ready to play when the banks started having their problems. And we had the capital and the ability and the expertise to go to acquisitions. So we didn't get to play because the Fed backed up the truck. But in fact, they pulled the truck out next March. I think you could see lots of bank failures on the horizon. So we're hanging out for that. We're just continuing to do what we do. We're making damn good money, as you can see. The company's running really well. Someone said, what happens if rates stay where they are? I said, we just continue doing what we're doing. So I think we're really sitting in a good position. You see the quarter, you have to admit, we hit on every button on the quarter or so. I think we'll continue to hit on every button going forward here and have a really, really good year for home bank shares. If we found the right trade to do it, we'd trade today, but it's awfully difficult to do a transaction in this market unless you find somebody that's really in trouble and you pick that piece up. I think we're going to see some of that, though, particularly if the Fed stops that program because that's going to change the world for thousands of banks. I think there'll be more bank failures if that happens. So my prediction is the federal extended. I don't know if that answers your question, Brett, but that's the way I'm seeing the world right now.
spk12: Yeah, no, that's helpful. When your only real issue is capitals piling up, that's a good problem to have. Congrats on all the metrics this quarter. Thanks, guys.
spk15: Well, you got capitals king, deposits are king, and loan rates are king. So that's kind of how we've looked at it. Thank you for such a support.
spk08: Our next question comes from John Armstrong with RBC. Your line is open. Please go ahead.
spk05: Hey, thanks. Good afternoon. Hey, John. Question for maybe Johnny or Stephen. If the Fed doesn't do anything on rates, can the margin just grind higher over time? And I'm thinking more medium term. It seems like the ingredients are all there with the slowing deposit cost pressures and the higher loan yields. but how do you think about that?
spk15: Well, I'll speak to it, let Stephen speak to it, but we've got major price adjustments coming on our loans right now that are going to add millions of dollars of income between now and the end of the year on rate adjustments, on some stuff that was written fixed rate, five-year fixed, and the four and three-quarters range is going up significantly. So I suspect Stephen is working on the deposit side and Kevin's working on the loan side. They just continue to, in my opinion, do a great job in improving the margin. So I'm going to predict that the margin is going to be where it is or higher. And I think we're working towards that goal. I think everybody's pushing that way. I don't want it to go backwards. It's not going backwards right now. So I don't want to go backwards, but Steven, he deals with it every day, and I just kind of generally deal with it.
spk03: No, I think that's fair. I mean, we've got, I think we talked about it last year. We had a billion dollars or so over about a five-quarter period in loans that were repricing. We've got about 700, well, less than 700 million for the rest of the year that's below six. That's blended in. Johnny mentioned we've got some bigger credits that are, that are in the fours that are coming up, but there's below six, there's 700 million that provided that we keep the credit, that we should be able to get some pretty big improvement from a spread standpoint there. And then, again, absent no material moves and indexed deposits that we have, things tied to the PPO Fed funds, if we just kinda hang out here where we're at, feel like the loan side can offset what happens on the deposit side.
spk05: Fair enough. And Kevin, what's the reaction like to the new pricing when these loans renew? Curious about kind of the competitive environment and then also what you're seeing for non-CFG pipelines.
spk02: I mean, the As you would expect, I mean, nobody likes the rate going from fours to, you know, something in the sevens, eights, or nines. But, I mean, it is the reality, and everybody's, it's going to happen wherever they go. So it's just part of the timing. Pipelines are good. I won't speak for Chris. I'll let him speak for his. But from the community bank standpoint, I mean, we're in, really good markets in in the southeast so i mean we're still seeing really good activity and we're able to uh we're able to structure things the way we need to for the most part i mean you see some a crazy thing every now and then but but we're we're able to structure things the way we should and get the pricing that we're looking for as evidenced by what we did this quarter so i'm i'm encouraged that this is going to be a you know, be able to keep doing that for a little while.
spk06: Okay. Okay. Good. And Chris, if I heard you correctly, it's a couple. Yeah. Go ahead, Johnny.
spk15: I didn't mean to interrupt you, John. I was going to ask you, I tell you, we're going to try to get it up, get the margin up if we can. Yeah.
spk05: Yeah. Is there a Johnny Prime today? Are you satisfied?
spk14: I don't know. There's kind of a Johnny Prime. We just had to put it back in. Yeah. That's funny. I forgot Johnny Brown. We actually have him still on the books with Johnny Brown.
spk05: All right. All right. It was a nice quarter. Thank you. Appreciate it.
spk14: Thank you very much.
spk08: Our next question comes from Steven Scootin with Piper Sandler. Your line is open. Please go ahead.
spk11: Hey, good afternoon, everyone. I guess I don't mind to miss it might have some technology issues during some of Kevin's statements, but did you guys talk further about these bumps that you referenced, Johnny, out of the state of Texas and what that looks like?
spk15: Not really.
spk02: No, I'll give you a little bit of color. There's probably half a dozen credits this quarter that went non-performing that were not last quarter. They were all $3 million or less and Almost all of them were out of the Texas market, and some of them we've been talking about for a while, a couple of them not, but nothing that I'm overly concerned about, but still it's stuff you have to work through, so we will just continue to do that.
spk15: Some of that, Stephen, just kind of from the time we've closed, it's kind of been on and off, and they're paying and they're not paying as well, and so we've kind of with our Texas loan officers to get them straightened up or get them out and get them cleaned up. But it's not, I mean, if we lost all of them, it might be $8.5 million, $9 million. We lost it all. So it's not huge to us, but just want to get it cleaned up. That's it. That's it. That's the only reason we're doing it. I mean, some of them are playing along and kind of milking the deal. It's time to get them fixed.
spk11: Nothing. And so are these kind of legacy credits or was it something you identified in terms of how, how those lenders were operating in those Texas markets that you wanted to change moving forward?
spk02: Both. Yeah. And you gotta remember they had that, they had acquisitions on their books as well. So they were, they had just finished an acquisition of a centennial bank oddly enough, but, um, that they were working through it. So some of those are acquisitions to them as well. That's correct.
spk15: That is correct. Two of these loans that bothered me in Texas, one of them was made about the time we closed. Two of them were made about the time we closed the transaction. So they're loans that we would not have made today. One of them is the marina that's sold. It's gone. We got that deal. Kevin got that deal closed out. I owe him a bottle of Whistle Pig. So I told him if he got that sold and done before the end of the quarter, I'd give him some Whistle Pig. So anyway, I owe him some. You can send me some so I can pay him. The other one was an $11 million apartment complex that just didn't, I don't know if it's going to be all right or not, but it's not the end of the world. There might be a loss and there might not be, but if there is, it's a million or plus a million or minus a million. It's just getting it cleaned up. That's really it. It's just drug along. You remember I read every line, every classified asset that Happy had before we bought the bank. And some of them are that old stuff that just hadn't been cleaned up and needs to be cleaned up.
spk02: Nothing big. He read the due diligence. He read all the due diligence problem loans that we had. And by the time we got to the first asset quality meeting after acquisition, a lot of those had cleaned up. And so that's the comment that I made a few minutes ago is, is that that's been their history they had relative to us they had more problem loans than we had but a lot of it didn't necessarily translate to losses they've they've cleaned a lot of stuff up through the time part of that's you know they're in a good market just like we are in in arkansas florida so uh we'll see if that continues and and i i'd expect that it will but um you're right when you're suddenly moving to seven eight nine percent
spk15: 10% interest rates, you're going to see some cracks come. The difference is, the difference now between 2004 and 2005 is nobody had any money in the deal in 2004 and 2005, and they got money in these deals. People got money in these deals. It may be 20%, and probably there's no equity in some of those today because interest rates at high levels they are, but there's not big losses in them either. So, I mean, in 2004 and 2005, nobody put any money in the deal, and when the you had loan problems, they just threw the keys. So that doesn't happen anymore. We haven't had anybody throw us a key on the marina. They threw us the keys on the marina. But we're out of it. We're gone. We're done. So Kevin worked that well. And we all got our hands into that one. But Kevin led us. He got us out. He got buyers for that stuff. So anyway, so far, so good.
spk11: Okay. Good. And then I guess my only other question is really thinking about growth moving forward. I mean, Chris and the CCFG team had a nice little quarter, and the organic growth, I mean, the legacy markets grew a little bit. So, I mean, is that growth a function of you guys having been patient and having liquidity to put to work when others don't, or is it more you guys getting a little more constructive on the overall environment, or maybe a little bit of both?
spk02: I'll let Chris speak to his dynamic, but from the community bank standpoint, I think it's the former perspective. I mean, we hear a lot of folks not in the market on certain things, and we're, you know, as we always do, we're in the market. We've always got money to loan. So we're going to do it our way, and we're going to make it right. But I think it's the first part that we've got money to loan, and other folks have stepped on the sidelines for a while.
spk15: Chris, do you want to jump in there?
spk07: Yeah, Calvin, I couldn't have said it better. I mean, last year, I think we did. $150 million in volume last year, which is down kind of from what we normally do, but part of that was because we just didn't like some of the things, and there were some people doing some things, etc., and we felt like at some point the market would come back our way, and so having not lent the money last year, we have the money available to lend this year. I can't say that's true for everybody. Will it change as the year goes on? Yeah, I think people come back into the market if they start to feel better about it. We have the benefit of never feeling good about the market, so...
spk10: Thank you. Yep, you're very consistent there, Chris. I appreciate that a lot. So thank you guys for the call.
spk14: All right, thank you, Simon.
spk08: Our next question comes from Brian Martin with Johnny. Your line is open. Please go ahead.
spk09: Hey, guys. Good afternoon. Hey, Brian. Hey, Kevin, just on those credits, Hey, Johnny, those credits you talked about in Texas, Kevin, what's the small, I guess, Johnny mentioned one number, but what's the exposure or was he talking, Johnny, were you talking more about the loss content? I thought you said around $8 or $10 million, just trying to get an idea of, you know, how much exposure there is to those credits versus, you know, maybe if you were talking about the loss content, I'm not sure.
spk02: So I was talking about the increase in non-performing loans quarter to quarter. He was talking more about overall exposure you know, if everything that we see in our asset quality meetings just went in the toilet. So we were talking about two different things.
spk09: Okay, so that total exposure of those half dozen credits, how big is that exposure as you kind of look at it and then there's some potential loss on that, but you said exposure.
spk02: A couple, two, three million dollars, I would think. I mean, at this point, I'm not convinced we're going to lose anything in any of those credits that were the change this quarter. I believe they're all real estate secured and there's going to be some level of, even if you foreclosed on every one, there's going to be some level of recovery that you have. I don't think it's going to be a material number. I was really referencing the change in balances quarter to quarter.
spk15: Yeah, that's representative.
spk02: I got it.
spk09: Okay.
spk15: It was a max loss, so okay.
spk09: Yeah. Okay. Thank you. It's helpful. Thank you. And then just in terms of the margin with the bank term lending program, I guess what's kind of your outlook there? I know, Johnny, you said you think it continues. I think last quarter it was, you know, would you keep it? Would you not continue to use it? So I guess right now it's in the numbers, I guess, is your expectation that you kind of continue that and that that drag that we're seeing on the percentage versus the dollars you're getting, you know, just kind of continue to think about that being status quo for the near term or?
spk13: Mr. Bryan, I'd say that it's probably going to be status quo for at least a couple quarters. If there's no drops in the Fed funds rate, you know, we might as well hang on to the money. We'll have to pay it back, I believe, on January 16th. But right now we've got a positive arbitrage on it, so there's no real reason to pay it back unless rates go down.
spk15: I mean, you look at the balance sheet. We got to cash back so we don't have to go borrow it.
spk09: Gotcha. Okay. And Steven, I think you mentioned the repricing opportunity. I think you said $600 or $700 million this year that you got a pretty nice pickup on. Does that feed into 2025 as well? Will there still be that type of opportunity when you look at what's repricing in 2025?
spk03: You know, it begins to step up and pick up the last, you know, couple years production at a little higher rates when you get out into 25. So we really just kind of focused on, you know, near term this quarter, next couple of quarters. Got you.
spk09: Okay. And I think you mentioned the deposit statewide. I mean, your thought is back half of the year is kind of, is that kind of reading between the lines, what you're suggesting, Stephen, on what you see there?
spk03: From a balance standpoint or from a rate standpoint? Just make sure. Yeah, from a rate standpoint.
spk09: Yeah, just a rate standpoint.
spk03: Yeah, I mean, how much of the top part of the deposit look that we can continue to try to kind of shave off and offset some increases, we'll see. But I think we see something in the in the low single digits in terms of an increase, we'd be pleased with and feel like we can offset on the loan side. Like Johnny said, through the first half of this month, it's trended so far from a net standpoint. Yeah. Okay.
spk15: All right. Last one. The trend should continue. It should continue with the repricing, big repricings that we've got sitting in front of us right now. So it ought to be another kick. We're already up, running well. We ought to get another kick here in the next 30 days.
spk09: Yeah, understood. OK. And then the last one for me was just on the expenses and the improvement you saw this quarter. And if there are the overhead you cut, and I guess if we think about where there's opportunity, further opportunity, if there is any on the expense side. If it's not overhead, I guess, where else are there potential opportunities as you kind of continue to work on that expense side?
spk15: Well, we went from 38% efficiency to 46%, 47% efficiency, and we had to come back, and we're at 44% for this quarter. We're pleased with $3 million, but if you can pull $3 million out in 90 days, There may be more. I'm not saying there is more. I'm just saying there may be more. But to operate this quarter $3 million less than we did last year at this time, I think that speaks pretty well for what we're doing because you know we've had increases. You know we've had increases. Everybody's getting these increases now. I think that's probably a good run, right? I wouldn't expect it to go up. I think that's probably a good runway. If it goes up, we'll do something else. We'll figure out something else to do.
spk09: Yep. Okay. Perfect. Got it. Thanks for the call. I appreciate it.
spk15: Thank you. Appreciate your support.
spk08: This concludes our Q&A. I'll now hand back to Mr. Allison for final remarks.
spk15: Thank you, everyone, for your support. We've been a good quarter. We're pretty happy around home bank shares right now with what we see, this may be the best quarter the corporation's ever had. So when you look at all the, we hit on all the offensive buttons, bam, bam, bam, bam, bam, and then the decrease in expenses, and you look at the impact that that's made to the company, maybe our shareholders get a dividend increase for too long here. So my wife would appreciate that, I can assure you that. Anyway, appreciate everybody supporting. We'll talk to you in 90 days.
spk08: Ladies and gentlemen, today's call is now concluded. We'd like to thank you for your participation. You may now disconnect your lines.
spk15: Anyway, appreciate everybody's support. We'll talk to you in 90 minutes.
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