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spk07: Greetings ladies and gentlemen, welcome to the Home Bank Shares Incorporated second quarter 2024 earnings call. The purpose of this call is to discuss the information and data provided in the quarterly earnings release issued after the market closed yesterday. The company presenters will begin with 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 1 on a touch tone phone. If you decide you want to withdraw your question, please press star then 2 to remove yourself from the list. 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 three of their form 10 K filed with the SEC in February 2024. At this time, all participants are in a listen only mode and the conference 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 Townsell, Director of Investor Relations.
spk01: Thank you. Good afternoon and welcome to our second quarter conference call. With me for today's discussion is our Chairman John Allison, Stephen Tipton, Chief Executive Officer of Centennial Bank, Kevin Hester, President and Chief Lending Officer, Brian Davis, our Chief Financial Officer, Tracy French, Chairman of Centennial Bank, Chris Fulton, 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.
spk04: Thank you, Donna. Welcome to the 18th year as a public company and the 26th year for us as a financial institution. This conference call is number 72 for those of you that have been with us since the beginning of years, and I still look forward to presenting our quarterly results. I'm certainly more comfortable today than I was June of 06 when we first reported our quarterly numbers. I could not sleep that night. I was so nervous I had my notes around, but I just had worn them out. We just returned from a two-week trip with Stevens telling our story all over the country. If you remember those times, not many IPOs were getting done. As a matter of fact, the company scheduled in front of us had pulled out and the one behind us had pulled out. I was laughed at, yelled out, and even called a one-trick pony by a Dallas firm. We traveled for two weeks and raised about $50 million, and I was not sure we were going to get it done. One of the investment banking firms that was in our syndicate sold their retail arm and dropped out of the bank space just prior to the offering date. It was a terrible time to bring an IPO. However, we met many wonderful people, and some are still major shareholders of our company. From $2 billion to $23 billion, what a ride. So let's go to the report. So far, so good for 24. As we said in the first quarter, nice start to 24, and home's top-tier performance continues through the second quarter. Last quarter, I said to improve profitability, we simply need to reduce expenses and increase revenue. Easier said than done. So here's what happened. On the expense side, we improved our efficiency ratio from 44.43 last quarter to an adjusted ratio of 42.59 for the second quarter of 24. Add to that a strong profitable loan growth in both first and second quarters allowed us to continue on with what is a great start to 24 in spite of the economic environment. Loans grew in the second quarter by nearly 270 million, while margin was a strong 4.27, up 14 basis points from the first quarter of 24. Non-interest expense for the first quarter of 24 was 111,496,000, and the same quarter last year, expenses were 116,282,000. We made marked improvements of over $5 million after adjusting for, and you'll hear this repeated several times today, I guess we got another letter of invoice from the Fed for $2,260,000 for an additional payment for the FDIC insurance fund. I think we're done with that now. After pulling out the FDIC insurance fund of $2,260,000, actual expenses for the quarter was 110,925,000, a slight improvement from the first quarter of 571,000, but from the first quarter, 5.3 million better. That's 20 million a year in savings if we can continue to do that. Diluted earnings per share were reported at 101,530,000, or 51 cents a share. That's sporting an ROA of 179. When adjusted for the additional $2,260,000 for the FDIC insurance fund, the company actually earned $103,916,000, or 52 cents a share, and that sports an ROA of 1.83. Adjusted earnings for the second quarter actually beat the adjusted earnings for the second quarter of 23, a 24 beat 23 of adjusted earnings. I'm pleased with that. Having a balance sheet that supports superior profitability during this high interest rate environment that runs almost side by side with 2023 is very pleasing to our management team. With analysts projecting all bank earnings to be down 5% to 10% this year, being able to run a top tier ROA allows homes management to be able to pull lots of handles for our shareholders, including dividends and stock repurchases. Quarterly dividends of $36 million, or annual dividends of $144 million, plus we repurchased $1.4 million for $32.5 million during the second quarter, and we repurchased $1,026,000 for $24 million during the first quarter. For a total of $56.5 million and almost 2.5 million shares, it was actually 2,426,000 shares, That's a 1% reduction in shares outstanding in the first six months of the year. As I said, there's an advantage to be able to run a 180 ROI because there's lots of panels that can be pulled to benefit our shareholders. That brings the total outstanding average number of shares for future quarters to below 200 million. Over the past several years, we have repurchased many millions of shares and retired the stock and still improved our tangible common equity in the last 12 months by $1.21 a share, or 11.1%. We always try to do what's in the best interest of the shareholders. Some Wall Street talk is all reasonable banks are in trouble and may blow up. I want to assure the investment community that home is not one of those bad banks we're talking about. Due to the mistakes most banks made, Many of the banks' only way out is to sell. They can't earn the way out. They can't earn enough money to earn the way out of trouble. So they sell at some reduced price or they bring in additional capital. But the dilution to the shareholders is extremely painful, as we've seen in some deals recently where the dilution was as much as 50%. Shocking. They probably would have been better off to sell to a good bank and ride their bank stock up. Your home has a war chest of capital and continues to build month by month and quarter by quarter, having the ability to earn more than $100 million quarterly while maintaining almost $300 million in loan loss reserve. Couple that with a huge capital account and stable margins, and I now present you HomeBank's years. We truly are a reasonable bank, and many reasonable banks are in trouble. So it's our goal to separate ourselves from the pack while maintaining a fortress balance sheet and continuing to be a top tier performer while remaining patient because patient capital is smart capital. I don't think the bank crisis is over. We've just been kicking the can down the road. Not much has changed for a lot of these banks, except more of the same. They have improved their loan to deposit ratio slightly, maybe. by either allowing securities to roll off and or loans to roll off, or they chased high-priced CDs to improve their loan-to-deposit ratio. But either way, the odds of a quick fix is not likely. They may be able to improve their earnings slightly, but not enough to earn themselves out of the problem quick enough. Another dark cloud to me is coming to show up in February and March of 2025. That's when the end of the bank-saving Fed program called Bank Term Funding Program, or BTFP, expires, and the problem banks have to pay the money back on the securities that the program allowed the Fed to loan the face value of the securities that was much higher than the market value was. How are banks going to make up the shortfall? Instead of rates going down, there is a chance that CD rates may go higher. That would not be positive politically for the Biden administration. Odds are against it. But in reality, it's certainly a possibility. If bank liquidity is in question and a bank has to have liquidity or fail, they'll pay whatever they have to pay for the money. That's exactly what happened to the savings and loans in the 80s. I don't think there's been sufficient time between the inception of the Fed lending program and March 25 when the program ends. That's why I call it kicking the can down the road. Many banks have negative tangible common equity and many have less than 3%. I hope I'm wrong, but it could be a bloodbath if the Fed does not extend. Stay tuned. We're back carefully looking for an acquisition that makes sense for our shareholders. We're also looking to March of 25 because we think there will be opportunities that arise as the BTFP comes to an end. I'm sure one thing, that banks will not be able to do, and that is to borrow $100 on something that's worth $50, like securities have turned into. Bingo, that's the problem forcing the bank to recognize loss on securities if they have to sell the securities and couple that with not being able to earn themselves out of the problem. This could get very serious, and many of them may be interested in talking to good banks. At home, we provide safety, security, for our depositors and customers and shareholders. I just have a couple of additional comments here. It's nice to see the bank stocks running and everybody get a little kick in the bank stocks. I just got several random things here. We sold our building that housed Gold Star Trust in Canyon, Texas for a nice profit, and the Gold Star team moved into our large Amarillo facility. We also leased an additional 60,000 square feet in that headquarters building. If you remember, that's a 200, 40,000 square foot facility that kind of was an albatross around our neck. But as gold stars moved in and now we've leased 60,000 square feet and maybe you have an opportunity to lease more. So looks like we're turning a 240,000 square foot albatross into maybe a profit center over time. In conclusion, as I said earlier, the first two quarters were a very nice start to 24 with over $200 million of income. and revenue of over $500 million and improving earnings per share. That means we're bringing 40% of the revenue to the after-tax bottom line. Good job for everyone. I had the privilege of visiting with Arkansas State University head football coach Butch Jones, Tracy and I did, and sharing stories with each other about respective businesses. And he left me with a quote that I've seen come true so often, and let me share it with you. If you lower your standards, you'll lose the winners. If you raise your standards, you'll lose the losers. He had many more quotes, and I've shared those over the years, but that one just stuck home with me. Patient strategy, conservative management, unwavering discipline, good efficiency, hard work, smart investments, strong capital. Defensive reserve allocation, good asset quality, strong liquidity have led our company to be one of the strongest banks in the nation. And as I said, we've been thrown in the regional bank basket. But all banks are not created equal. We'll continue to try to separate ourselves from the pack. And in closing, as I said, there is no place like home. Donna?
spk01: Thank you, Johnny. Congratulations on a great quarter, and thank you for sharing all that information with us. Our next report today comes from Steven Tipton.
spk14: Thanks, Donna. As Johnny mentioned, Home Bank shares and Centennial Bank had another great quarter, highlighted by continued loan and deposit growth and expanding net interest margin and solid expense control. I'll start my comments with the net interest margin, which Johnny's already touched on already. The reported NIM expanded by 14 basis points in Q2 to 4.27%, all while continuing to maintain healthy excess balances, cash balances that we discussed in detail on the first quarter earnings call. Excluding event income noted in the press release, the net interest margin was 4.23% for the quarter, an increase of 12 basis points from Q1, and exited the quarter in June at 4.27%. The yield on loans excluding event income improved 15 basis points to 7.49% in Q2 and outpaced the increase in total deposit costs by 10 basis points. During the quarter, total deposit costs increased five basis points to 2.27% and exited the quarter at 2.30%. Our bankers have done an extraordinary job managing this interest rate environment. and the seemingly endless advertising across our footprint for high rate CD and money market accounts. The pace of the increase in interest bearing deposit costs has been cut in half each of the past two quarters. We continue to negotiate pricing with core customers as we have been, but are encouraged to see the pace of increases on the deposit side continue to moderate. On asset repricing, we have over $550 million in loans maturing in the second half of this year at a weighted average rate of 5.99%. And over the next 18 months, a little over $2 billion maturing with a weighted average rate of 6.5%. Switching to liquidity and funding, deposits continue to be a key focus, now with three consecutive quarters of deposit growth behind us, despite what is typically a seasonally tough quarter with tax payments and municipal outflows. Our presidents and lending staff are analyzing customer balance sheets and mining for additional opportunities on the deposit side. Total deposits increased $90 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 continued to be fairly stable and account for 24% of total deposits. Alternative funding sources remain extremely strong. with broker deposits still only comprising 2.2% of total liabilities, and the loan-to-deposit ratio still stands well below historical levels at 87% as of June 30th. On the asset side, in-period loan balances increased $268 million, highlighted by over $200 million in growth from the community bank regions, along with solid growth from CCFG and Sure Premier. On loan originations, we saw volume of $1.19 billion in Q2 with a little less than half of that funded at quarter end. Yields on originations remained strong with an average coupon of 9.20% in Q2. Payoff volume was slightly lower from Q1 at a total of $508 million, although we expect that to increase in the back half of 2024, particularly from CCFG. Closing with the previously mentioned strength of our company, all capital ratios remain extremely strong, with a tangible common equity ratio of 11.23%, a leverage ratio of 12.3%, and a total risk-based capital ratio of 18%. Couple that with a reserve coverage of 2% on loans and over 340% coverage on non-performing loans, we're in a strong position to capitalize on future opportunities. I want to thank all of our centennial and happy state bankers for their dedication and efforts in the first half of this year to produce such impressive results. With that, Donna, I'll turn it back over to you.
spk01: Thank you, Stephen. And now, Kevin Hester will provide some color on the lending portfolio.
spk02: Thanks, Donna, and good afternoon, everyone. As Johnny mentioned, our ending loan balances grew by nearly $270 million in the second quarter, making it the fourth consecutive quarter of loan growth for homes. While loan growth is not the first or even the second most important aspect of our strategy, it is impactful when it occurs, especially when we can string several quarters together like we have recently. Our consistent conservative approach to credit paired with our forward-looking management during the rising interest rate cycle have combined to facilitate this growth. We also benefit from a large portion of our banking activities occurring in the great economies of Florida and Texas. This was not by accident and is an often overlooked reason for our success. Asset quality remains a strength for HOME as well. Two occurrences are in play here, one continuing and one new. The continuing trend is that the majority of any new asset quality issues are tending to be from the acquired HAPI portfolio. This is not totally unexpected given that, as we've said before, we knew that their leverage was higher. and that they had relatively higher levels of asset quality issues than our legacy portfolio. Notably, though, we also experienced that a significant level of their problem assets identified during early due diligence were resolved before closing. As a current example of this trend, we foreclosed on an incomplete multifamily project north of Dallas in the second quarter, increasing OREO by approximately $11 million. While poorly underwritten and originated at 80% loan to cost by the leader of the defectors on his way out the door just before acquisition, we still anticipate a reasonable outcome. We are less than 90 days from completion with the original contractor who is also a customer and have two serious LOIs that would result in no worse than a small loss upon achieving the CO. This outcome is due to the excellent work of our special assets group and is underlined by the continued growth and strength in the overall DFW metro geography. The new occurrence I mentioned appears to reflect a shift in regulatory tone, which resulted in different outcomes on a small number of previously reviewed relationships compared to the last review cycle. This includes the memory care facilities, which we've discussed in the past, which were placed on non-accrual this quarter. They continue to pay as agreed, and while they are actually showing recent increases in occupancy, this hasn't yet translated to positive cash flow. As for the numbers, NPLs and NPAs increased three basis points and seven basis points respectively due to the memory care non-accrual and the addition to OREO, but criticized and classified loans dropped by $68 million. Early-stage past dues are still low at 0.60%. Overall, even with the noise around the occurrences noted above, asset quality is strong and not something that keeps me awake at night. Donna, that's all I have and I'll turn it back to you.
spk01: Thank you, Kevin. Johnny, before we go to Q&A, do you have any additional comments?
spk04: I really don't. It's been a great first six months this year and I'm very pleased. I think everybody's pleased. Congratulations to everybody. Hard work pays off and will still continue to work to separate ourselves from the PAC. So with that, if nobody else has a comment, we'll go to Q&A.
spk07: Thank you. If you would like to ask a question, please press star followed by 1 on your touchtone phone now. If you change your mind, please press star followed by 2 to exit the queue. And finally, when preparing to ask your question, please ensure that your phone is unmuted locally. And our first question today is from the line of Steven Skelton of Piper Samba. Please go ahead. Your line is open.
spk13: Hey, good afternoon, everyone. Appreciate it. I guess I'd love to start with loan growth. Really nice number there, especially in light of what we're seeing for the industry as a whole, which I think is a bit weaker growth this quarter. So I was kind of wondering what dynamics kind of led to that? I know Steven said pay downs were a little lighter this quarter, but have you been able to pick off business from other folks stepping away from the market and getting a little more aggressive or just kind of good blocking and tackling?
spk02: Hey Steven, this is Kevin. So I think it's, you saw a good production from the community bank footprint. I think that's, we talked about that last quarter that we were seeing some really good opportunities in our community bank markets, and I think that translated to some growth. Steven did mention the lower paydowns, and I think you're going to see that probably pick up a little bit third quarter, maybe even fourth quarter, particularly for CCFG. But the pipeline's been good. It's a little bit lighter right now than it was this time last quarter, I think, but still good. We have a lot of opportunities. We're talking you know, in our markets with. So there could still be some good things happen that we don't have, you know, particularly on the pipeline today.
spk13: OK, sounds good. And then just kind of thinking around M&A, like you said, there have been some some capital raises that are seemingly a little hard to understand. I'm kind of I'm curious. why those banks wouldn't sell maybe Johnny to your commentary there. And, and if for you guys, if the math still doesn't work relative to where you've seen some of these trades go off and kind of how you think about that transpiring for you all.
spk04: Well, I guess I can use Ron White's statement. You can't fix stupid. So, you know, I, I, they ride their bikes, a lot of them run their bikes in the ground. And now they're running them in the ground again. It makes absolutely no sense to me whatsoever. One of them I looked at and was interested in and made a call and started to bump that a little bit, but I didn't want to get in the game. I stayed out of it. I don't understand some of these people, the moves they made. They run it in the ground, they're the ones that ran it in the ground, and then they're the ones that run it in the ground again. I've said that twice, but it's pretty amazing to me what they've done and how they go about it. Good luck to them. If you dilute your shareholders 40% to 50%, that's a major hit, and to overcome that is shocking. I don't know. I really don't have an answer. They've actually given up control of their companies to somebody else. If we're going to give up control of this one, it's going to cost somebody getting control of this one. I don't think it was a very bright move. I just don't believe that. I think you're in agreement with me that some of these moves we're watching out there are not the best way to go about it. I mean, all bank stocks, they're gonna rise and fall together. So if they merge with somebody like Home, and they think they're missing a two or three point run, well, Home's gonna get the two or three point run. It's as broad as it is long, and I don't understand why they don't see that. Maybe they think they've got a secret sauce and they're gonna outperform Home and the rest of the top performing banks in the country, I don't believe they're going to get that done. So, I mean, they were, I won't say it again, but they didn't manage it in the first time very well, and they hadn't managed it the second time. Anybody, Stephen, you got any comment? Tracy, you got a comment on that?
spk13: I guess it sounds like maybe for you guys, M&A is more of a potential 25 event. You see if turmoil shakes out first from the BCFP and so forth, and in February, March, and then, and then see where we go from there. And maybe at that point we've had some rate cuts in the math a little bit more palatable. Is that the right way to think about it?
spk04: I think that's the way to think about it. I mean, we're, we're, we're interested and we're looking a little bit, we're just kicking the tires. What I'm afraid of is being tied up in a deal. You know, we've got a war chest of capital. We're making good money and looks like income's improving. We struggled a little bit last year, but we had to wind our back in the second quarter last year. We had some of our investments really kick in a lot of money. Poor income-wise, this was one of the best quarters in the corporation's history, maybe number two, and it may be number one. We out-earned last year's income this time. And I see good things in the daily reports continuing. So we get that daily report, and I look at it every day. I like what I'm seeing. I like what's going on. Kevin has been able... His lending team has been able to provide lots of good loans to us over a period of time and continues to do that, basically. We get lots of looks at lots of stuff. And just to... We could have done more, but the conservative nature of the company is not good. So we're... I don't want to have my hands tied up, Steven, in the middle of a deal when real opportunities come up. I don't mean this disrespectful, but if they run their bank in the ground, I'm going to buy their problem and it's going to come on our books. How long does that impact home bank shares before we come out the other side? I guess you can do the marks and we can come out the other side pretty quick, but I just don't want to do anything to damage home bank shares where we sit right now. Making the kind of money we're making and seeing the upside that we see, I think I told you that last year that home was sitting in the catbird seat, and we're sitting in a better position now than we were in the first quarter, and I think we're going to be in a better position in the third quarter than we were in the second quarter. So it just continues. As long as Kevin's team and our retail people control it, the cost of the funds, and Kevin brings the loans, the team brings the loan people in, I think you're going to see good numbers coming from home.
spk13: Yeah, absolutely. Great quarter. Shareholders should be happy, and I'm sure your wife's still happy, too.
spk04: Well, we're going to look at the dividend at the board meeting Friday. Maybe I'll get a hug and a kiss when I walk in.
spk13: There you go. That's worth it. Thanks, guys, for the time.
spk02: Thank you. Thank you.
spk07: Our next question today is from the line of Brett Rabitin of Hovda Group. Brett, please go ahead. Your line is now open.
spk08: Hey, good afternoon, everyone. Hi, Brett. Wanted to start with, Johnny, I know your goal going into the year was, hey, let's make $100 million a quarter and $400 million on the year and people were doubting whether you could do that or not. Given this quarter, I hate to raise the bar for you, but it feels like with some loan repricings in the back half of the year, slowing increases in your cost of funds, it would seem like maybe you might want to tweak that goal higher. Any thoughts on full year expectations and maybe how you're thinking about that?
spk04: Well, you know, the big key here is $111 million in expenses quarterly. And we've been able to hold that. And I think we can continue to hold that. There's some things we won't be able to control. But so far, so good on that side. I'm very proud of our team and how much expenses we've cut out. And Kevin, you're right. I get it. I might want to stick my neck out here. But his team has produced. And our retail team is handling our cost of funds. And it's what, one of my directors said the other day, he said, I see that spark back in your eye, Johnny. And I said, we're back humming again. The company's back humming again. So I like to see us humming. I feel good about that. I feel good about the company. I feel good about what's going on. It's just a matter if we can continue to get the good loans to come in over the third and fourth quarter like we've been able to do the first and second quarter. Let me say, we're looking at some really good stuff, so I'm optimistic. I think Chris has about $300 million or so in pay downs coming in this quarter, but he's continuing to write business too, and we're continuing to write business. It's good to see the legacy footprint step up as strong as it has in the last two quarters. Now, Chris, you know Chris, he's going to get a payoff. He said there's nothing wrong with me getting my money. So that's Chris's attitude, and I like his attitude. I get what you're saying about the increased profitability. I'm not going to get too crazy out here right now. But let me tell you one thing. When they told me at the first year we were going to not make as much money as we did last year, I think you heard me. I said I can't get my arms around that. That's not how Johnny Allison thinks, so you know that. I don't think we're going to have less income. Excuse my expression. I call that BS. And we haven't, as you can see, it was a kind of personal challenge to me. We've done a great job so far. Our team has been really performing.
spk08: Yep, definitely. The other thing was just you went through the asset quality stuff, guys, and I know the past six months you've been dealing with some cleanup, if you want to call it that, in the Texas markets. Are we essentially through with that and whatever else comes from here would be something you haven't seen yet or any color on the Texas cleanup from here and what might be left to do?
spk02: This is Kevin. I'm not going to say that we're completely through. I think there can be one or two things that we're going to continue to deal with. It's just tough when you've doubled interest expense or interest rates over a period of time. You've got some folks that are just going to struggle through it. I don't see anything that I think I went through. The scenario that we added this quarter into to be able to work through that and come out with a very, very small loss on a situation like that's a pretty good deal. And that's the kind of stuff we're working through. It's not big problems. It's just distractions. It's things you've got to work through and work out.
spk04: We saw another multifamily project stick its head up and We're working on that project, too. I haven't seen that one. I saw the first one, and I believe you'll be pleased. I believe we're gonna be able to work that one out pretty well. It's a new construction. The other one was an older apartment unit that was refurbed, and I'm not sure about that one, but may be a loss and may not be a loss in it, but we'll analyze that. That one just kind of came up on us in the last short period of time. We weren't, we were not, that was not on our radar screen. But, you know, it is what it is, and we do a pretty good job of managing our credits around here, and we don't get in a hurry as we didn't get in a hurry on this multiple family unit out of north of Dallas. We just didn't get in a hurry. When they finish it, they finish it, and if we gotta keep it and lease it up, we'll do that. We don't, however, we've got, three or four people very interested in that project with virtually no loss, so I'm pretty optimistic about that. We take problem credits very seriously around here, and we want to know who made it, and why they made the credit, and why they made the loan, and is it a danger to our loan loss reserves, impact our loan loss reserves, so it is a serious, serious When you get a situation like, or we found a loan that should have never been made and we found some of those, but we worked through a bunch of them already and Kevin's team does a great job. So I don't expect. I sleep. Let me say this. He said he, nothing keeps him up at night. That $300 million reserves gives me a good night's sleep. So I can promise you that.
spk08: Yep. I bet. Um, if I could sneak in one last one, just on, just back on the loan growth topic. Given this quarter and last quarter, just kind of looking at the trends, you mentioned the payoffs. Would it be fair to say that you guys can grow a single digit this year or any color on the pipeline relative to where it was prior to 2Q?
spk02: Are you talking about the rest of the year? Are you asking for the rest of the year?
spk09: Right.
spk02: I think... Mid-single digits is going to be a little tough with the paydowns that I see, maybe lower single digits.
spk03: Okay.
spk02: And it will depend. It'll just depend on originations because, I mean, we see the paydowns coming, so it will all depend on, you know, what originations come in that can fund. You know, a lot of stuff we're doing is construction, and so the thing that's going to get booked in the third quarter is not going to fund until... probably first quarters next year is when it'll start funding as they work through their equity. It would depend on some things that fund on the front end. We're working on some stuff that funds pretty quickly.
spk03: Tracy, you got something? I was just going to say on the Texas asset quality, a lot of that's smaller things. It's a lot of it, but it's small things. Most of those, if I look back, were on banks that Happy State acquired. It wasn't a lot of the credits that they made. That part It just takes a little bit of effort on that. I hear on the loan growth, we're seeing good opportunities. South Florida's really seeing some good opportunities. North Florida and Arkansas are staying steady. Central Texas is certainly getting some opportunity. I think John and I are going down to meet a new customer they brought in just last week on that aspect. My final thing to you, Brett, was thanks for raising the bar.
spk08: I'm happy to do it. Thanks for all the color.
spk07: Our next question today is from the line of John Afstrom of RBC. Please go ahead. Your line is open.
spk06: Thanks. Good afternoon. Hi, John. Can you talk a little bit more about the deposit? gathering strategy you referenced a couple of times the retail bank and their successes just kind of what's the strategy there and how are you growing deposits well actually we've never run as I let Steven talk about let me start out we've never run a CD ad we're on a strength ad because
spk04: We're seeing 6% and 550s and 570s, and you can borrow money cheaper than that as a bank. So my point is there's so many of these banks in trouble that they're having to get the money and particularly make it worse because when they have to pay back this Fed program in February, March, I don't know where in the world they're going to get the money because the Federal Home Loan Bank is not going to loan them a dollar on something that's worth 50 cents. I'm not sure where that goes. We've just taken a path of taking one customer at a time. The ads that are run by home bank shares is that we can pay out all uninsured depositors. I'm very proud of that. We're not going to get ourselves into a position that we can't do that. I think that's extremely important. Not only are we making a lot of money, but it may be one of the safest financial institutions in the country because of the deposit base that we have. Our people on the retail level know these customers. It's not hot money. They know it's Mary's and Fred's money, and they're talking to them, and they understand, and we preach it. We're not going to be the highest rate in town. We're not broke. So many of these banks are in trouble, and they're having to pay up for money, and we're not doing it. It's happening right here in our market, and we're not doing it. they know that their money's safe at home bank shares. So we can pay every uninsured depositor, and I think Steven and Tracy took a path a while back to just work one-to-one.
spk14: Yeah, I was just gonna say, it's working existing relationships that we have both on the deposit and the loan side. We had a municipal relationship up in North Arkansas here recently that took some additional deposits in and we're actually able to reprice rate down somewhat as well. And then we have an association banking division that we've had for some time now and visiting with our president there in the last couple of weeks. I think there's path to some pretty significant growth over the next year, year and a half as some of the other bigger banks shy away from some portion of that business. Like I mentioned on the loan side, we've got an opportunity as we work through new loan opportunities and see borrowers that have liquidity at other institutions to capitalize on that at the time that we're making the loan.
spk06: Okay. Good. Thank you for that. Yep, yep, and I guess it ties a little bit, and it does tie into the margin. I guess you had a great margin quarter, and I asked you about this last quarter, and you delivered on it, but how do you feel about margin sustainability and maybe the margin trajectory from here?
spk04: Well, I don't expect margin to go down. They're all crawling on the table here, but I don't expect margin to go down. I expect margin, you know my thoughts. We are expanded a little bit, in my opinion. They are crawling under the table by the way. And that's just my thought. Why should it change? Unless we want to change, right? Unless we want to change the rates we're charging. Unless we decide to make a change. And at some point in time, we'll do that. At some point in time in the future, we'll have a lower rate and we'll go pick up a bunch of business with a prepayment penalty on it. That's a thought that we've talked about. We haven't done it. We haven't made that move. But at some point in time, we might look at that. There'll be a time to do that. But facing what we're facing, John, with February and March and the Fed program coming to an end, You have to think about that. Some of these people, that's why you're seeing sixes on some of these CDs out here now, or over six, because they're trying to get that money in where they can get the money to pay off the Fed, and they're just digging a bigger hole. But maybe some of that will come around on the M&A side, and we can make a trade or two. Did I answer what you were... All right, thank you, guys.
spk06: I appreciate it. Yep, yep, absolutely. Yep, absolutely. Thank you very much.
spk04: Thank you.
spk07: Our next question today is from the line of Catherine Miller of KBW. Catherine, please go ahead. Your line is open.
spk00: Thanks. Good afternoon.
spk04: Hi, Catherine. Welcome.
spk00: Thanks. I just had a follow-up on the margin question. If we look at loan yields, Stephen, you gave some information on fixed rate loan repricing in the back half of the year, but we saw a really big increase in loan yields this quarter. So was all of that kind of natural? Is there anything kind of, you know, one time within that that may have driven that? And what kind of, maybe what kind of pace of increase in loan yields would be fair to expect over the next couple of quarters?
spk14: We did have, we had one relationship in the quarter that repriced. It was probably $175 million or so that we repriced 300 basis points or so, give or take. So that's kind of been out there for the last year or so that we knew was coming. So that provided a little bit of lift this quarter. But yeah, if I look across on a monthly basis, over the last four months or so, we've seen the core loan yield, X of N income up six, seven basis points a month pretty consistently and even into parts of last year, kind of the same thing. Loans that pay off are coming off at a lower yield as the new originations come on. They're either funding out in the future at nine plus, give or take. I think we should continue to Johnny's point. I think it's really relative to what happens on on the deposit cost side, but I think we can continue to outpace the increases there with the loan yields.
spk00: Great. And then just on balances for average earning assets, what would be your expectations for, I guess, would you continue to expect modest rundown in the securities portfolio? And then also on just the liquidity levels, which remain really high, what are your plans? plans are to kind of keep that elevated for the rest of this year, just until we pay off the BTFP early next year. But just kind of curious on excess liquidity balance.
spk14: Yeah, that's the plan today. We're sitting on $900 plus million in cash or so today. And with the BTFP program ending in March, we plan to carry this level of cash through to that point to retire it. And On the securities portfolio, we've really kind of been in mode of letting it run down some and use this to either fund loans or kind of replace any deposit loss potentially or that we had in the past. You know, there'll be a point where, you know, for pledging purposes and things, we'll need to be mindful of that, but it probably still has some room to come in. We're looking.
spk00: Is there a size?
spk04: If we see something, Catherine, we'll step up. If we see something that makes some sense for us, we'll buy a security. We're looking at different securities. We haven't bought much, but we looked at one today. I sent him one today to look at. I don't know what the rate's going to come out on it. It's a citizens group doing a deal. Good bank might buy some of that if the rate's right. I don't know. He's looking at it, and I haven't heard back from him.
spk00: Okay, great, but still modest. Is there a size or kind of percentage of averaging assets, you know, you wouldn't want that to go below?
spk04: Size of what?
spk00: Of the bond book.
spk09: Oh, bond portfolio. I mean, we right now are just planning on letting it kind of run down. We may make some CRA purchases, you know, here and there, but, you know, pledging.
spk04: Yeah, CRM pledging. Outside of that, we're just letting it run down. Unless, I mean, we'll pick one off once in a while. We'll find something gets out of balance and get good rates on it. We're getting a reset on some of that right now. We had about, I don't know, we got out of balance back a couple years ago, and I think we bought like $150 million worth of securities, AA and AAAs, and it's reset time, so they're going to go down a little bit on us and So some of that we kept and some of that we took to cash.
spk00: That makes sense. All right. Great. Great quarter. Thank you.
spk04: Thank you. Appreciate it.
spk07: Our next question today is from the line of Matt Olney of Stevens. Please go ahead. Your line is now open.
spk12: Hey, thanks. Good afternoon. I wanted to follow up on John and Catherine's question on the margin. And if we were to kind of walk through the margin into next year and we were to see some lower interest rates, I'm curious kind of what you think the banks, you know, the reaction would be to lower rates. And looking at the sensitivity and the disposures, it looks like the bank is still asset sensitive, but I know these are just models. So just kind of looking for some color on what the margin could look like if the Fed were to cut a few times next year. Thanks.
spk14: Hey, Matt. This is Steven. Yeah, I think from a modeling standpoint, I think we show down 4% or 5% in a down 100 rate scenario. That's what the model shows. The conversations we've had around here are around how aggressive we can be from a deposit beta standpoint. We've got, call it $5 billion, give or take, in variable rate loans that adjust within a quarter's time, but we've got 11 plus billion in interest-bearing checking and savings, and a billion seven in CDs that will reprice over time. So I think some of that's a function of how aggressive we can get, what happens with the market, and how other banks may follow potentially on the deposit pricing out there, what ads and those type of things that we're able to run with. But I was talking with one of our regional presidents this morning, He was looking at his maturing CD portfolio over the next couple months and thinks he has some room, even right now, absent any rate increase yet, to be able to lower some of those CDs as they come through. So I think it predicates a lot on that. And then we've got a decent-sized book of index deposits, municipal deposits, that are generally tied to the 13-week T-bill that will move once there's some conviction around interest rates.
spk04: Having said all that, we're going to try to maintain margin or increase it. Get me a bullwhip, Matt.
spk12: I believe it. I wouldn't doubt it. I guess just Changing gears, going back to the stock repurchase program, you mentioned it was active in 2Q, and now the stock is quite a bit above kind of those average levels in 2Q. Curious kind of what the appetite is at these current levels of the buyback, and given the M&A thoughts you mentioned before about some kind of a fertile market in the next year, should we assume the capital levels just continue to build here the back half of the year?
spk04: Yeah, I think that's correct. We're always in the market to buy stock. There may be some blocks that come around, but we're always in the market to buy stock. I recognize, Brown Davis says that's diluted to us. He said, you always fight and say you're not going to dilute, and then you dilute yourself by buying stock. I think we'll probably, I think our board will probably look at a dividend increase tomorrow, and hopefully that, I think it's time for that. We had some people ask us last time, why didn't we do that? And now we're just a little nervous about what this year was gonna be. I mean, it's been kind of, everything's been a little squirrely around the economy, but it appears to be settling down somewhat, particularly for us, things have settled down. And we got a run rate out here that's really running good. So I think we're going to be all right for a while. And when they start moving rates up and down, someone said, what do you want to happen? As far as I'm concerned, they leave things just like they are. Just don't mess with anything, because it's very nice to see what we're doing. And when you look at that daily report, and it continues to improve over the same day last month, you just get a smile on your face.
spk12: Yeah. Okay. All right, guys. Thanks for getting my question. Great quarter.
spk02: Appreciate it. Thank you.
spk07: Our next question today is from the line of Brian Martin of Janney Montgomery. Please go ahead. Your line is now open.
spk11: Hey, good afternoon. Hey, Brian. Hey, just maybe one question on the expenses. It sounds like they're, you know, a pretty good level, but, Janney, you mentioned some, you know, potential, you know, maybe I don't want to say pressure, but some some things out of your control? I mean, I guess the expenses, given what you've done, you know, I guess the outlook is maybe there's kind of sustainable around this level. Are there, you know, other things to think about as far as that drifting a bit higher?
spk04: Well, you know, we made a pretty good cut here. We still are not where we were before that. You know, we're around a 42, around a 42 this month adjusted once you adjust for that 2.2 million. Do all the adjustments, pro and con. That's pretty good. Can we improve that? We can if we have to. I think we need to hang in this. 111 is my number. So hopefully we can hang into that 111. If we see it going up over that, we'll try to make corrections. Gotcha. Okay.
spk11: That makes sense.
spk04: When I'm sitting at home and I've just got my notepad and I'm running, playing with my numbers, 111 is my number.
spk11: Got you. Okay. In the, you know, I guess if you, the payoffs, it sounds like, is it, you talked about CFG having some, you know, payoffs in the second half. I guess there's a third quarter. Is it just really, is 300 million, is that kind of what you're thinking in the second half of the year, or is that the third quarter type of number?
spk02: Hey, Brian, this is Kevin. I'm going to let Chris cover that, if that's okay.
spk05: Yeah, sure, Kevin. Hey, Brian. Yeah, that's kind of my number for the third quarter. I mean, some of that might slip to the fourth quarter. We already had a little bit of that, you know, this month and such. So I think that's – That's the third quarter number. Again, some might flip to the fourth quarter and then, you know, they'll have a little bit more in the fourth quarter. We didn't have a lot so far this year because we didn't have a lot scheduled to. But I think Johnny mentioned earlier, you know, I like payoffs. And we make the loan with the intention to get repaid. So when that happens, we tend to not celebrate when we make the loan. We tend to celebrate when we get paid off. So probably celebrating a lot in the third quarter.
spk11: Okay. Good to hear. Um, you know, I guess, and Johnny, I guess to your point about potentially lowering, you know, maybe loan yields, if not, I mean, I guess, are you getting any pushback today at, I mean, I think you said that the yield was nine and a quarter, maybe if that was, maybe I missed that, but on new originations, I mean, are you getting any pushback on that such that if you start getting a few payoffs just to kind of overcome those, you get a bit more volume or I guess, you know, I know some of that's, you know, if you have M and a opportunities, You may push it back a bit, but is that part of it here with some payoffs coming, at least trying to think about maintaining the originations?
spk02: Well, this is Kevin. I'll just say, yeah, we always get pushback to registrates. We ask our folks to do the best they can do, and because of that, they're going to get pushback. I definitely will say that. You know, Johnny mentioned lowering rates, and that's not something we're necessarily looking toward. I think what he was saying is that if there's an opportunity out there that we really feel like is a very good credit opportunity that requires us to lower a rate to get it, we have the ability to do that if we choose to do it. That's not been our... you know, something we've done a lot and we wouldn't do a lot of it, but in the right situations to get a customer we really want or be, you know, to do something, you know, maybe non-CRE that, you know, that doesn't impact the concentration levels, then, you know, we certainly have the ability to do it. Gotcha. Okay.
spk11: All right. Yeah, I just want to make sure I understand. It seems like there's an opportunity, you know, at least on the M&A side. And, you know, we'll see how the loan volumes hold up here. But it sounds like the originations are still, you know, the opportunities are still there. So, you know, there'll be time to consider that. So, all right. That's all I had, guys. The other stuff was answered. Thank you. Thank you very much. Appreciate it.
spk07: With no further questions in the queue at this time, I would like to hand the call back to John and Allison to conclude.
spk04: Okay, back to me. Thank you. It was a great quarter, and home's running very smooth right now, so I want to thank everybody for their efforts and what they've done, and we'll talk to you here in the next quarter, and I hope the next quarter is as good or better than the one we just completed. Thank you very much.
spk07: This concludes today's conference call. Thank you all for joining. You may now disconnect your lines.
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