Home BancShares, Inc.

Greetings, ladies and gentlemen. Welcome to the Home Bank Shares Incorporated third 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 one on a touchtone 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 me to remind everyone to refer to their cautionary note regarding forward-looking statements. You will find this 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 this 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 Townsall, Director of Investor Relations.

Thank you. Good afternoon, and welcome to our third 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 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.

Thank you, Donna. Welcome, everyone. Welcome to Home Bank Shares' third quarter 2024 earnings release and conference call. Your company had another great quarter. The quarter was very strong and would have finished as one of the best ever. That was until the last few days of September when the first of two disastrous hurricanes took a swap across Florida, where home has a little over $1 billion in customer loans. We felt it was prudent to move into hurricane mode as we have in past years when weather events affected the area where we do considerable business. Some of our customers are still involved in litigation over the claims from the last hurricane. We had closed the books for the end of the first quarter after the first hurricane when the reserve estimate that we made we thought was reasonable. And then here comes Milton, number two hurricane. And, by the way, in two weeks. We're always trying to get out in front of situations that may affect our earnings or our company in any way. We've dealt with these events over many years. We even have hurricane procedures, and we've practiced for years. That includes satellite phones, electric generators, 1-800 wellness check-in numbers for employees, customer extensions, and the reality of losses. We would prefer to have 5% plus reserve for the main area of the storms. We already had a reserve of 2% for the area, and we're optimistic that we may not need over an additional 3%. Fingers crossed. As a result of our needed reserve, we will hopefully be in the $20 million or less range. Please don't hold me to that estimate because it's early and it's a fluid situation. We'll keep you updated as we hear more information, and I would expect the flow of information to improve. And by the way, Kevin updated me. Not only the hurricane, it spun up a lot of tornadoes outside of that, and our orange grove that we've had for years sent some pictures of some of those orange trees that were damaged. So we don't know the extent of that as of yet. As the quarter was coming to an end, I was very pleased with the results I was seeing. With July and August, were nicely above forecast, and September's daily report was also running ahead. I was expecting 55 to 56 cents for the quarter. One should never count his money until all the hay's in the barn. I knew better, but things were running pretty smooth, so I made the mistake and counted the money. We reported a 1.74 return on asset, ROA, and without the $16.7 million reserve, Our income would have been $112,578,000. That's an annualized income for the company of over $450 million and an ROA of 1.96. You can see why I was excited, and then bam, here's the hurricane. A little disappointing, but as always, we do what's in the best interest of our shareholders, period. Well, here's the numbers, and I think you'll agree with me. It was a good quarter X hurricanes. total revenue was $258 million. I didn't check, but that may be a world record, Brian. Is that a top number?

It is on core earnings. We had one quarter about two years ago. We had a $15 million windfall. That would be slightly higher, but on core earnings, that is a record. Okay, right. On core earnings, that was the best ever, so that's good.

PPNR was $148 million pre-tax, pre-provision net income. When you think about that, you put an ROA to that, that's 2.57. That's pretty impressive. We played with some numbers. I saw some analysts that Catherine sent out using that number, and so I put it in. It's 2.57 for us. When you think about that, that's 57.36% of total revenue goes to pre-tax, pre-produce. That might be another world record. I don't know. Stephen will cover the numbers more specifically, but I'll just kind of take a broad brush to it. Margin was up for the quarter. Yield on loans improved quarter over quarter. Interest-bearing deposits had a slight increase, just a tick. Non-interest expense for the third quarter of 24 was $110 million versus the second quarter of 24 at $113 million, and the same quarter last year was $114.7 million. Much improved. Efficiency ratio of 41.42, also a good improvement. Non-performing SPAC, as we continue to work through the Texas credits we told you about, the resolution of those credits will hopefully be resolved either in this quarter or the first quarter of 25. Because of our strong balance sheet, we're able to take our time and work through several of these credits, reducing the loss exposure versus having to sell the asset immediately. That may have resulted in much bigger losses. Stay tuned. Kevin will talk more about that in the report. Strong capital ratio. I thought we were going to catch Jamie Diamond, but we didn't. We're at 14.7 CET1, and he jumped on me. He was at 14.7. He jumped to 15.3. I think he's afraid. We're after him. The loan loss reserve stands at 2.11. Tangible book for the third quarter of 24 was $12.67 versus $10.90. for the third quarter of 23. That's a buck 77 improvement year over year. 77 cents of that came from AOCI and the dollar tag from Attain Earnings. We earned $100 million and 50 cents a share after reserve for the third quarter. So for the first three quarters, we're at 301.6, or $1.51 per share through the first nine months. Loans continued to grow in our legacy footprint, $131.6 million increase, while CCFG had 89.1 decline in balances. They still remain with $2 billion in outstanding loans. We were disappointed last year by missing our goal of $400 million. Due to circumstances that are outside our control, if you remember, that being our payment to the Fed for the failed banks, plus the damage from the West Texas headwinds. Fed also charged us with an additional assessment this year of approximately $2.3 million that we overcame early in the year. But the hurricane reserve could cause us to miss for the year, hopefully not. All in, 24 is shaping up to be a good year ex-hurricane, an okay year with hurricanes, in spite of all what's happened. In 20 days, I'm probably going to get off on them. political race, but I've got to do this. In 20 days, we're going to elect a new president of the United States, and I think that will have a major impact on all our lives and our futures of our children and our grandchildren. One of the candidates wanting to substantially raise all taxes and even taxes on unrecognized gain. Inflation has already taxed the American public over 20%. created by the crazy spending and firing up inflation like we've not seen since the late 70s. The coup was throwing Joe Biden in the ditch and crowning a new candidate that absolutely has no financial experience and appears to have no idea what's going on. Whether you like Donald Trump or not, I believe he has to win the race. We know what he did last time and he was business friendly. Watching both candidates through this short campaign has been very painful for all of But after watching, I cannot imagine anyone voting for Mrs. Harris. It's not about Democrats or Republicans. It's about saving our country. I think she will destroy all the good work that Chairman Powell and the committee has done to fight inflation. I'm afraid she will allow the snake to raise its head again. We have not killed the snake, but we've made an impact. 25 basis points probably would have been better than 50. But I think that may have been politics as usual. usually happens during election years. Taxes, crime, immigration, gangs, open border, sex trafficking, increased regulations, inflation need us say more. We need to vote to stop the chaos. When you hear Walgreens announcing the closing of 25% of their 8,600 stores, and one of the main reasons is theft, should tell us all we need to hear. If that's not enough, Sunday, an ABC host attempted to minimize illegal migration gangs taking over apartment complexes in Aurora, Colorado, saying the incidents were limited to a handful of apartment complex and Donald Trump is the problem. I mean, you can't make this stuff up. Enough of that. Our Texas lawsuit, we're totally engaged and await our day in court and let a jury decide the amount of damage is done by what we perceive to be illegal activity by some West Texas individuals. On stock buyback, the company purchased 1 million shares for $26.9 million. That should put us below 199 million shares. Brown, where are we now? We're at like 198.8. So we have continued to buy. Stephen, is that correct? You continue to be in there?

We have a 10B51 plan in place. It's not been active over the last couple of weeks. plan to once we get out of the blackout?

I don't know where we're going with that, but we continue to buy stock and I guess we'll continue to hang in there. Our goal was to get it to 200. We've got it there. Now we're at 199. We may go to 195. I don't know. We'll see. We'll talk about it around the table. It was a good quarter. Thanks everybody for their support. Thanks everybody for the hard work that everybody put in. It was a When you have those kind of revenues and you're controlling the expenses, it rolls into really a good quarter. So, Donna, it's back to you.

Thank you, Johnny. And our thoughts are certainly with all those in the path of the hurricane. Our next report today comes from Stephen Tipton.

Thanks, Donna. As Johnny mentioned, Home Bank shares in Centennial Bank had another great quarter. Congratulations to all of our bankers and employees for continuing to make Home and Centennial Bank one of the top-performing banks in the country. As Johnny mentioned, total revenue increased again in Q3 to $258 million, and adjusted PPNR increased to $146.6 million, which is a 17% year-over-year increase. I'll start with the net interest margin, as Johnny referenced in his comments. The reported NIM expanded one basis point in Q3 to 4.28%, while we continued to hold healthy excess cash balances. Excluding the event income noted in the press release, the net interest margin was 4.27% for the quarter, an increase of four basis points from Q2, and exited the quarter in September at 4.30%. The yield on loans, excluding event income, improved 10 basis points to 7.59% in Q3, and outpaced the increase in total deposit costs by six basis points. During the quarter, Total deposit costs increased four basis points to 2.31% and exited the quarter at 2.29%. Leading up to and since the recent FOMC announcement, our bankers have done an excellent job managing interest rates while being mindful of liquidity and the overall customer relationship. We've worked through most of the negotiated deposit pricing and thus far it appears we've been able to offset the decline in rates on the asset side. Switching to liquidity and funding, deposits continue to be a key focus with our management team as they review lending opportunities as well as cross-selling opportunities on nearly 5,000 accounts that we open each month. We continue to emphasize the strength of home and the comfort that that provides. Total deposits declined $250 million for the quarter, most of which occurred in our Florida regions as seasonal outflows occurred with property management companies and municipal relationships. Non-interest-bearing balances ended at $3.94 billion and account for 23.5% of total deposits. Alternative funding sources remain extremely strong, with broker deposits still only comprising 2.3% of liabilities, and the loan-to-deposit ratio still stands below historical levels at 88.7% as of September 30th. On the asset side, In-period loan balances increased $43 million, highlighted by nearly $100 million in growth from the community bank regions, along with solid growth from Shore Premier, offsetting what we see as a temporary decline in CCFG balances. On loan originations, we saw a volume of $1.13 billion in Q3, similar to Q2, with a little more than half coming from the community bank regions. Yield originations remain strong with an average coupon of 8.96% in Q3. Payout volume picked up slightly to a total of $699 million, although a portion of what we expected to see this past quarter appears to have pushed into the fourth quarter. Closing with the previously mentioned strength of our company, all capital ratios improved and remain extremely strong with a tangible common equity ratio of 11.78%. leverage ratio of 12.54%, CET1 ratio of 14.65%, and a total risk-based capital ratio of 18.28%. Couple that with reserve coverage of 2.11% and over three times coverage on non-performing loans, we're in a strong position to capitalize on future opportunities. With that, Donna, I'll turn it back over to you.

Thank you. And finally, Kevin Hester will provide us with some color on the lending portfolio.

Thanks, Donna. Good afternoon, everyone. We often discuss that one of the strengths of our company is that we have multiple engines or regions that can independently help us reach our combined goals. As Steven mentioned, this quarter was Texas, Arkansas, and Shore that drove our loan growth. At other times, CCFG and Florida are the drivers. This kind of diversity is a real positive for our company. Of note, late in the quarter, I noticed a slight slowing of early deal flow and it is beginning to show in our pipeline for this quarter. Combined with an increase in projected payoffs, I believe that fourth quarter could be flat to down slightly. Moving on to asset quality, the metrics declined slightly this quarter with increases in non-performing loans and assets of 10 basis points and seven basis points respectively. This is due primarily to a Texas hotel moving to non-performing that is one of a trio of hotels to a related ownership group that we've been working with for a few quarters. One of those hotels sold this quarter and another is in the process of selling, so we're hopeful that we can continue to achieve a good outcome with this relationship, but it could take some more time. We expected to complete the construction of the multifamily project that is in Oreo, which is located north of the DFW Metroplex in the third quarter, but a delay with an unreasonable local utility has pushed this completion into the fourth quarter. The timing delay does not appear to change our overall outcome, which will be to move it out of OREO by year end to a buyer that we have ready to contract. We continue to expect no worse than a small loss on this exit. Other Texas issues that we've been working through include a completed multifamily project closer to the DFW Metroplex that has experienced a decline in occupancy and a South Texas C&I relationship that has had multiple recent operating issues, but has a very profitable history. These regional issues have our full attention, and as Johnny said, because of our strong balance sheet, we were able to take our time and work through these credits in the best way possible. The considerable experience that we gained working through failed bank portfolios serves us well in working through these issues. Lastly, The California office that is in Oreo continues to improve. Expensee is approaching 70% after an existing tenant took another half of one floor and it is cashflow positive. We are negotiating with another potential tenant that would take it above 80%. Switching to a discussion regarding the recent hurricanes. We are thankful that none of our employees were injured by hurricanes, Helene and Milton, and that the damage to our branches was limited in nature. This is clearly not the case across all of this widespread area impacted by these two storms. Hurricane Helene took a swipe up the west coast of Florida, where we have a substantial presence, and then proceeded inland into Georgia and North Carolina, where it inflicted major flooding damage. We have approximately $1.5 billion in loans in these counties within the FEMA designated disaster areas from Helene, with almost 90% of those loans in Florida. Less than two weeks after Helene, Hurricane Milton cut a swath west to east across the peninsula of Florida, hitting some of the same areas on the central west coast of Florida hit by Helene. But continuing through to the Atlantic coast side, remaining a hurricane through its exit of the mainland. We have $1.8 billion in Florida loans in the FEMA designated disaster areas from Milton. There's about 1.1 billion in loans that were subject to both hurricanes. So the total in loans that subject to either one of the hurricanes is about $2.2 billion. We dusted off our disaster deferral procedures and have them implemented on these loans. And as you saw in the press release last week, we established an approximate $16.7 million reserve for the loan subject to hurricane Helene. Areas from Tampa Bay North were the hardest hit by Helene, and we were assessing damages in that area when Milton threatened less than two weeks later. A late turn to the south by Milton took the brunt of the storm south of Tampa, and areas from Bradenton southward appear to be the worst hit there, along with random places across the interior of the state hit by tornadoes spawned from landfall. We're continuing to reach out to affected customers, we're touring damage where possible, and we're implementing our past playbook. Past history tells us that it takes six to 12 months to fully assess the credit impacts of these events. I know it's hard to imagine, but we still have customers who are dealing with insurance claims from past hurricanes. The cleanup and rebuild is a long process, but this is not new to us, and we are confident that the areas will come back stronger than before. Donna, that's all I have, and I'll turn it back to you.

Thank you, Kevin. Johnny, before we go to Q&A, do you have any additional comments?

No. This is a great quarter. If we hadn't had the hurricanes, it would have really been an outstanding quarter. As you can see, I got excited. I counted our money, counted how much money we were going to earn before the final day of the quarter and the hurricanes hit. So a little disappointing, but our people did the job. I mean, I'll make sure people held the job for the quarter. Great run rate, great numbers. all good, and we'll overcome it. Maybe we get lucky and we put that back in income someday. Or if we have to make more, a bigger allocation, we'll do that too. Whatever's in the best interest of our shareholders. Anybody else got anything? Tracy, you got a comment? No, good report at all.

Brian? No, thought it was a good quarter.

Steven, you got anything else to say? I don't. Donna, are you going to wrap it up?

I guess we will turn it over to the operator for some Q&A.

Great. Thanks, Donna. If you would like to ask a question, please dial star followed by one on your telephone keypad now. If you change your mind, please dial star followed by two to exit the queue. And finally, when preparing to ask your question, please ensure that your phone is unmuted locally. Our first question today is from the line of Stephen Skelton of Piper Sandler. Please go ahead. Your line is open.

Thanks. Good afternoon, everyone. Appreciate the update here this afternoon. Curious, Johnny, kind of how you're thinking about M&A today, if there's any change to kind of your outlook, your views on what BTFP could do in the first part of next year. And then maybe conversely, if Trump does win the presidency, if you think any regulatory relief could kind of propel you to be more aggressive on the M&A front or or maybe what it would take for you to get more aggressive?

Well, we're looking today. I mean, we're looking at opportunities today and to get more aggressive, they just have to work, right? They just have to work. Everybody, you know, everybody's price has gone up. Ours has gone up and everybody else's price has gone up and that probably will will make more people think about doing M&A, and I suspect that we'll hopefully find something, if not this year, early next year, to do. Regulatory-wise, it was much easier to do a transaction when President Trump was in. We had better support there. That'll take a while to change if the administration changes, but I'm optimistic that we could see, that could be a kick to M&A activity if Trump wins, comes back in. They've been really slow, regulators have been slow in approving deals. Seems like they've gotten a little quicker lately, doesn't it? You guys, it seems that they moved on some, but some that were hanging out there for a long time, they finally got them done and got them closed. I don't know if that answers your question, but we're certainly looking. But as I said last quarter, and I'll say it again this quarter, when you run basically without the extra reserve of 196 ROA on $23 billion worth of assets, this team just needs some more assets. So we just need to find the right trade and pick up some more assets and let them fix. I don't care what kind of shape the bank's in. We just need them to fix it. Depends on the price, right? We'll buy anything from something that needs help to something that's really operating in a good fashion. So it all depends on the price, Stephen. You know how we do. So we'll work with your people in some sense.

Absolutely. Makes sense. Makes sense. Okay. That's very helpful, Johnny. And then maybe one probably more for Stephen, I guess, is just Ken, can you talk a little bit about how you think the NIM can trend from here if we get, let's call it 100, 150 basis points to cut, how you're thinking about loan betas and deposit betas from here? I know, Johnny, you look at the NIM on like a daily basis, but how do we think about that over the next, let's call it 12 to 18 months?

Yeah, I mean, I think a win there would be flat from where we are today. Our model shows down 4% or 5%, I think, in a down 100. But if we're able to pass through deposit rate cuts, which our team's done a great job so far, and there's probably still some opportunity in the back book that we can work down. So I think predicated on that, I'd be pleased to see us in line with where we are today. I know it's early in the quarter.

But the first 15 days or so of the quarter, we're actually a little ahead of where we were last month. So we've had adjustments in loan yields and cost of funds. And it looks like we're almost matched up. We're up a couple hundred thousand dollars is all, but it looks like they're matched up. So I'm pretty pleased with what That's early, right? So there will be a lot of adjustments to that, but as of right now, it looks pretty good, Steven.

Got it. Okay. That's helpful. I don't think you're guilty of counting the hay before it's in the barn. The hay's in the barn. It just might not be in net income, but it's still in capital. So that's still the bank's money and it's a great quarter. Well done.

I couldn't tell you how excited I was watching those numbers come in and the first two months of the quarter and then I'm watching my daily report and I'm saying we're going to ring the bell this quarter we're really going to ring the bell and but it's you're right the hay's still in there you're right the hay's still in there just in a different different category right now thank you for that thanks for the color our next question today is from the line of Brett Robertson of the group please go ahead your line is open

Hey, good afternoon, everyone. Wanted to just start on the loan growth outlook, and it sounds like CFG might continue to have some payoffs in 4Q that'll keep the fourth quarter anyway, flattish to maybe down a little bit. Can you guys talk about the outlook for 25? Maybe I know it's a little bit early, and there's obviously a lot to figure out with where rates end up and all that kind of stuff, but is the pipeline for CFG strong enough to outrun the Any payoffs as you guys see it past the fourth quarter, or maybe just any color that you guys see it as you think about loan generation in the 25?

Hey, Brett, this is Kevin. I'll give a little bit of color from our perspective on the community bank side, and then I'll let Chris talk about New York. We've had, as you saw this quarter, we've had a good year in the community bank footprint, and I think that will still continue. I think there's a little softness this quarter in I can't really pin it on anything. We've got a couple of regions that are still pretty hot as far as opportunities go, but just across the group, I'm seeing a little bit of softness this quarter. I do think that that will come back next year. Obviously, a lot of this depends on how much the rates drop, what the expectation of that's going to be. I can't really tell you what that looks like, but I do think ours and 25 will see in the community bank footprint a continuation of what we've been doing the last four or six quarters. Chris, you want to give him some color on what you're seeing?

Sure, happy to. Thanks for the question. We certainly hope we have payoffs because when we make the loan, we intend to get repaid. And so I think we've always said that's a feature of the business. we may shrink a little bit and then grow. I think that's generally what we see happen. We've already originated this year over a billion dollars, which is generally what our sort of yearly target is. So we're running quite ahead. We emptied out our pipeline a little bit in the third quarter because I want to move some stuff out and get focused on the rest of the year. I think we'll have a pretty good solid end to the rest of the year and build a pipeline going into next year. So that's a long way of saying... My guess is we probably come down a little bit from here and then go back up. You know, growth's never really been our goal. We're going to put good assets on. We're going to get repaid. We're going to put that money back out. And, you know, good Lord willing, over time, that's resulted in growth. So my expectation is I don't see anything different about that. I think we'll probably, you know, slowly grow over time, just as we've always done. But in between that, We may be up down a little bit here and there, but we don't look at anything as having changed dramatically.

Okay. That's helpful, guys. And then just on the deposit side, you know, I know flows were lower this quarter and there was some miscible drawdowns. How much was that – how much was the drawdown related to miscible? And then just as you guys see it, you know, any initiatives to – grow deposits from here and any business lines or anything that would that would bolster your your deposit or if not that not that the balance sheet needs the excess liquidity but just was just curious how you guys think about the funding base from here sure hey Brett let's see I didn't I couldn't hear your your first question on municipal is it on the overall size of that book well just just how much it came down this quarter and then you know just Yeah, about a quarter balance would be great.

Sure. You know, we're down about 100, 150 million or so for the quarter. I think we're in the 930 at a little over $2.8 billion. We've been in the $3 billion range. So some of that's normal, some of that's normal flow, normal spend just at times throughout the year. You know, in terms of overall strategy, I mean, I think we're We're staying the course with select opportunities here and there. We've said for a long time, the counties that we operate in in Florida are very liquid and at times have opportunities to bring some of those in. Conversations with our lenders and our presidents are ongoing every day, every week at loan committees. I think that's still our approach and we'll We'll continue to work that base as we have.

Okay, great. Appreciate the call. They're still running out. These people are still running out. I think some of the money, my deposits are back up. That's kind of the backup this month. So that's kind of the effect of it. They're real customers doing real business with us. And we don't, some of that money may have gone out we may have lost some of that money that went out to some of these people trying to cover their for their program that they got to pay off in march of next year the fed lending program so we may have lost some money to some of those people doing that quite honestly what we predicted was that may have been happening to us a little bit because they want to get higher higher rate cd right now and lock it in as as rates are coming down so that what we thought might happen may be happening to us a little bit. So not much, but some of it could have been.

Yeah, sure. It's been interesting to see some banks still being pretty aggressive with rates. Appreciate all the color and congrats on another good number.

Thank you. I hope you're feeling better. Thanks for joining.

The next question today is from the line of Matt Olney with Stevens. Please go ahead. Your line is open.

Hey, thanks. Good afternoon. I wanted to ask more about the operating expenses. I think the core was $110 million down 4% year over year, so really good cost controls. Any more color on just the drivers of where you're seeing the cost saves? The bank already has an efficient platform, so I'm just surprised you're continuing to find more opportunities there.

No, hey Matt, this is Steve. I mean, you know, obviously some of it ebbs and flows with headcount, which is the biggest driver of non-interest expense. And I'd say, you know, looking forward, you know, we're at a good base there. There are a couple of large IT contracts that we're working through that we're not there yet in terms of final pricing and negotiation, but there's some There's some potential there for some meaningful savings to take place, you know, at some point in 25 and beyond.

Okay. Appreciate that, Steven. And then I guess also on the credit front, I heard the prepared remarks talk about, you know, still battling some of those legacy credit issues we talked about for a few quarters. I'm curious if you're seeing any new inflows of new problems, or is it just the same legacy problems, mostly in Texas, that we've discussed before?

Hey, this is Kevin. No, I mean, I think we may have added one to the list this quarter that we're discussing with you guys, but primarily it's the stuff that we've been talking about the last two, three quarters.

And as far as the resolution on some of those, it sounds like we should expect some kind of resolution in the next quarter or two on a number of those. Do I interpret that right, Kevin?

Yeah, certainly one of them and possibly a second one. You know, some of these things, they just take a little while to work out. You think you see a path and you're working towards it and you think that path leads you to 90 days and it turns into 180, but We're still, in each of those situations, we're on track and we're working through the plan and sometimes the plan just takes you a little longer than you'd like.

I think it'll look a little different by the end of the first quarter. We've just got to get the issues resolved and I think most of them are basically resolved at this point in time. The one hotel got sold. The other one we put to non-performing. And I think that's going to work itself out also. These are just some Texas hotels that we did a while back.

Okay. All right, guys. Thanks for the color. Great quarter.

Not anything new that I'm seeing. Let me put it to you that way. Nothing new that I'm seeing. Same stuff.

The next question today is from the line of John Armstrong of RBC. Please go ahead. Your line is now open.

Hey, thanks. Good afternoon. Hi, John. Just a quick follow-up on those. Hey, how large are those? Can you remind us how large those potential resolutions are? I know you said timing is up in the air, but just an idea of the materiality of those.

From the loss perspective on the one north of Dallas, six or $700,000, maybe 15, $250 million.

And all, all together, we're talking about 200 ish million altogether.

Okay. Good. That's helpful. Um, another thing I wanted to clarify, uh, Johnny, you said in the prepared comments, something about maybe 20 million needed for the hurricanes, and I didn't know if you're signaling that there's another elevated provision to come for Milton next quarter or that you feel like you already have it enough in reserves.

Can you just clarify that? I said we might have to have an additional $20 million is what I said. I don't know that. We're just kind of getting out there, just throwing it out. I don't know that. It's too early for us at this point in time. It may not be anymore. We had some, where was the place we got the most damage, Kevin? Anna Marie Island. Anna Marie Island, yeah. We got pretty, I talked to him yesterday, our customer. He said, I'm going to be fine, and he has business interruption in addition to coverage on his unit. So that's good. He said, I have that with every, I do business interruption with every house. It has a bunch of house, a bunch of, big in the rental property. So, okay. primarily single family, single family and a few hotels he owns. But he didn't say he wasn't there. He was actually in in Arizona. He said, I said, I want anything I could do Larry said I just went to Arizona for a few days. So he doesn't seem to be worried about it at all. That's I wasn't sure if he had business interruption. I just want to make sure he did. So Now, could there be a loss there somewhere? Maybe. I always suspect there's going to be a loss. Something's going to sneak up on us that happens, that just happens.

What we don't know is how the insurances are going to play with each other. This appears to be more of a flood event rather than wind, and flood generally has lower thresholds and lower payouts, so we'll just have to see in each individual case how these folks are able to to access their insurance. I think every situation we've seen so far, they had insurance in place. So the question is, you know, how's that going to work? And does flood fight win and vice versa? And that just takes time to play out.

When you think about it, the number of hurricanes we've had over the years, we've really had been fortunate to have really minimal loss. So unless something really jumps out at us somewhere, I'm optimistic that that we won't have big losses. But if we do, that's what we got reserved for.

Yep. Okay, that makes sense. And then on some of your earlier comments, Johnny, you were talking about what you thought would be a better quarter without the provision. Do you feel like that's the kind of run rate the company is on, mid-50 cent type run rate, or that you feel like there are any threats to that type of a run rate other than maybe these elevated provisions?

I think that's probably pretty close. I think 53, 4, 5, 6 cents. I think that's about where we are right now. I mean, John, think about it. That's a 196 ROA. I can't ask for anything better than that, really. So I need to get this team some assets. If they get another $2 or $3, $5, $7 billion worth of assets, It'll take them a while, as it always does, this group, to get it where they want it. That's what we'd be looking for. We'd be looking for something in that size, two, three, four, five, six billion dollars in a market that we think is a good market, either in an existing market or maybe something outside that touches one of the markets we're in. I mean, when they run a 196 and you give them another $5 billion worth of assets, you can see what happens.

Yep, they're hungry, Johnny. You've got to feed them. Get them some assets.

I'm going to put them in a bonus program together here for a while.

All right, we'll get a good quarter. Thank you.

Yep, thank you.

Next question today is from the line of Catherine Miller with KBW. Please go ahead. Your line is open.

Thanks. Good afternoon.

Hi, Catherine. Thanks for your ROI. I appreciate your ROI on the PPNR.

Well, you're the one giving us a 250 PPNR, so it's not me. It's you. But on that, I wanted to dig into the margin a little bit. You know, you're asset sensitive. You have a really high margin. You're asset sensitive. And so I think it's natural for us to want to model a margin that moves down over the next year, still higher than peers, but, you know, kind of trend down. And, you know, you're right. Your loan and deposit betas have been evenly matched, both at about 40% over this cycle. And so As we think about this easing cycle, is it fair to think about loan and deposit betas still at that 40% beta? Or is there maybe some, maybe you have to talk about, especially on the loan side, I most likely have talked a lot on the loan side on this call, on just the benefit of fixed rate repricing and new loan origination pricing. Is there a chance that the loan beta could be actually a lot lower as we move into the next year, just given that offset?

Catherine, this is Steven. Yeah, there's still some opportunity on the low repricing side. We've got about $300 million or so this quarter that's below 6%. We've got a couple hundred million. I guess all in total, there's probably a billion over the next three quarters that is in the low to mid sixes that we should get some lift on, presumably. I guess we hadn't talked competition-wise, but we're starting to hear from some of our presidents or different footprints that competition's pricing out the curve now, and you're seeing some stuff in the sixes and sevens, so we'll have to deal with that. But there's still some opportunity there on the repricing side. Yeah, I think we said earlier on the call, I think it's flattish in the range that we're at today. know would be pleased with i think it depends you know how deposits behave and liquidity profile and if we're able to continue to be aggressive on on on dropping rates on the uh on the deposit side and on the one side i know you've said before that about um i think it's 34 of your loans are floating and reprice immediately can you of break that down to is that mostly tied to SOFR and then and then maybe give us the next bucket of adjustable or variable rate loans versus fixed if there's a way to kind of give us three sure so it's about five and a half billion or so um that are that are variable rate you know change in the next you know two quarters or or so we've got some adjustable uh stuff in there too, but just talking about what's strictly, purely variables, about five, five and a half billion. There's 2.8 billion that's tied to Wall Street Journal Prime, and the vast majority of the rest is tied to SOFR. All of Chris's portfolio, one nine, two billion is tied to SOFR, and then we've got about 700 million or so in the community bank group that's tied to SOFR. Okay.

And where is that yield today on average? What's the spread is there for typically?

The vast majority is going to be four plus, you know, probably four on Chris's side.

On Chris's side. On our side, construction would be in the 350-ish probably average. over.

We're starting from a 9% yield. Yeah. OK, great. And then any commentary on what products within the deposit side you've been most successful at lowering rates on for this first 50 move?

Largely negotiated money market type products. We've got kind of a standard corporate product that we've used for years now that has about a billion three in it. We're able to pass essentially all of this last rate increase to the balances there and then utilize negotiated interest, checking, savings money markets. To the point earlier on CDs. And we've seen rates come in some there, but we've still got peers here locally doing 460, 470, and some community banks here and there that are still close to 5%. So our group's done a good job in terms of being able to negotiate there and keep the overall in the sub-4%, sub-4% range.

It appears that... It's all got great things, and congrats on a great quarter. Go ahead, Johnny.

Thank you. Yeah, well, Tracy will tell you that you run the models based on what it looks like today. You estimate what's going to happen. It never turns out. It never turns out that way. So I'm a believer we're ahead of the game right now, and we'll stay ahead of the game. Until it spins on me, Catherine, we'll stay here as to what we're doing.

Well, it's working so far. Thanks so much.

Thank you. Thanks, Catherine.

The next question today is from the line of Brian Martin with ETAL PBA. Please go ahead. Your line is open.

Hey, good afternoon, guys. say Catherine just covered some of mine on the margin side, but just maybe one question, Steven, in terms of on the funding side. Can you remind us how much of the liabilities are indexed, that move immediately, that aren't the ones you're re-pricing, negotiating?

Sure. Yeah, there's about $3 billion or so that's tied to either 91-day T-bill

uh or reference to fed funds most of that is is uh most of that is municipal uh but we've got we've got a few other products that are that are directly indexed to those okay and i think you you mentioned i think it's about a billion dollars of loans i think maybe the last quarter at the price so in 25 you know i guess the with the the new rates today kind of you're hearing from your presidents i mean you were thinking, you know, before the rates were around, you know, pickup might be going to around 9%. I mean, where are the newer rates today that you're, you know, kind of thinking that, you know, the ones that are repricing will move up to? You know, what type of range are you thinking is reasonable, given what you're hearing now in terms of the rate environment?

Well, on renewal, I mean, we should, you know, we should be able to to land in the eight, eight and a quarter range. But again, I think a lot of this is kind of subject to what we hear and see from competition. I'll let Kevin give a little more color on what he's seeing.

I think Steven said a minute ago, we're beginning to see some folks go out the curve a little bit and try to fix at a, you know, in the high sixes, Low to mid sevens and extended out a few years with, with some prepayment penalties. I think we're seeing some of that and I don't know how much of that will continue if you get another rate drop here before the end of the year. So that, that will be part of the, the things that we're having to fight for sure.

Yeah. Okay. All right. And maybe just one for Johnny, Johnny, just on the MNA, I mean, um, in terms of, you know, kind of opportunities. you know, whether you're, I think you're seeing is, can you just remind us, is there, you know, market-wise, you know, where are you kind of more focused today? And then just maybe, you know, kind of size of, of transaction, you know, the kind of drifted smaller versus bigger, just how are you, what are the opportunities today? I guess maybe it's a better question.

Well, one end, presently we're looking at one end market, one end market. So there would be, In-market would be, of course, our market. Outside would be something that is a state that touches a state we're already in, so we wouldn't be leaping over a state. We're just playing with it right now. It'd be interesting to see. I think we're going to see some boards of directors telling management to stop. I think they're going to say, hey, we just slipped through another one here. This is a tough time. We need to get somebody, get it in good, strong hands and get a good, strong dividend. At least that's my belief. Where we go from here, I don't know. One's outside and one's inside the market.

Okay. And if you go out of market, it's got to be bigger just to have enough scale? Or I guess, is that fair to think about if you're going to go outside? I just like the one that was out of market.

I like their footprint. I like their footprint. I thought it looked intriguing. The market just got good growth. We look at everything and I was just reading about this one out of market and I kept reading about it and I thought, you know, that's really a pretty interesting story there. I verified that the information was correct and what kind of growth they were getting there. Just got my attention, that's all. Okay.

And then, yeah, and got you in the last two. It's just on the expense side, I think you said that the, maybe I missed, I didn't hear what you guys said earlier in terms of, you know, kind of the outlook on expenses, kind of really good progress and trends here. Just kind of the current levels are sustainable. Is there something to think about, you know, embedded in the numbers that we should think about as you go into 25 or kind of current levels, okay?

I think we had a little windfall this quarter. I think the 111 and change number is a good number. I was asked last quarter, we said 111 is the number. So 111 and change is probably the realistic number.

Gotcha. Okay. And then just bigger picture on credit, maybe someone asked this, but just in terms of a few things to work through here, but no no significant spikes expected, I guess, in terms of, you know, additional non-performings and kind of what you have is in front of you and now it's just working through that and really nothing coming on board that you're expecting?

Well, there's always a flow, you know, how they transition. They go from past due and they go to non-performing and then they go out the door, right? So, I mean, there's always a transition of those things working their way through. I would have thought that we would have had, particularly the project north of Dallas, because it's finished, and we had two offers, and we're a contract, I think, on that. So I would have thought that would have been gone, but that will go out. Something else will come in. I think we've got about $200 million probably total that we're dealing with. That will be going in and out and around before it's all said and done. So do I think there's any giant loss in any of it? One credit could have some loss in it that bothers me, but outside of that, I don't think there'll be much loss in any of these credits. We've got an apartment project. I think we could lose a couple million dollars on that bill. I think that could happen. We've only got one big one out there that concerns me, and we'll just have to wait and see how that works out. They've certainly improved what they were doing in the past. They're getting better. we're seeing improvement in that credit, so that one may not be a problem in a month or two, or it may be a problem. We'll just have to see.

Hey, Brian, that's Kevin. They're all I'm just going to say they're all substandard, so we'll work them. There could be some level of it that goes to non-accrual before it goes out of here, but as far as loss goes, I think Johnny's giving you the Steve Szigethy, The thoughts we have on our losses and ultimately that's the biggest concern right.

Steve Szigethy, yeah no for sure got it okay and Stephen just last one just thinking about it right, I know your expectation, your hope is the plan to. Steve Szigethy, hold the margin, you know kind of worth that here just kind of you know, fighting the. Steve Szigethy, rate cuts yeah I guess it's the risk that I guess was a bigger risk if you're not able to you know biggest risk to not holding it stable you know kind of where is the. you know, where does the rubber meet the road there in terms of, you know, if you don't, you know, meet that objective, you know, what's the biggest risk to not achieving that?

I mean, today, probably on the loan side in terms of pricing, you know, we're going to protect our base and, you know, do what we do. But again, you've already, we've seen a few instances where, you know, We have customers getting quotes or that may be in the payoff pipeline now that are pricing in the sixes for a mini term. Kevin?

Yeah, so from the good standpoint is from Chris's portfolio and then from our construction portfolio, we're going to do a spread over SOFR, and that spread is going to stay pretty much where it is. you know, rates are going to come down, that rate's going to come down with it, but it's still going to be the spread that we've been enjoying largely, I believe. So, and that's a, that's a big chunk of our business. It's the, the mini perm stuff that Steven was talking about. That's the stuff we'll have to compete with the rest of the market on. And, you know, we, we typically do a good job on that and get the most we can get. So I think we'll continue to do that.

Yeah, Kevin, what's the breakdown on that in terms of, you know, what piece is the mini perm piece versus the, you know, Chris's piece is what, about $1.9 billion, I think you talked, someone mentioned earlier?

Yeah, Chris, I mean, Chris, $2 billion range and construction's $2.5 billion-ish, maybe a little higher than that. So, I mean, you're talking about probably $5 billion that is tied to a a margin over SOFR, and we'll continue to do what we're doing there. Got you.

Okay. All right. Thanks for taking my questions, guys. I appreciate it.

Thanks, Brian. Thank you.

The next question on the line is from Michael Rose with Raymond James. Please go ahead. Your line is open.

Hey, guys. Good afternoon. Just two quick ones. Any impact to shore premier finance from the hurricanes as it relates to either credit quality or maybe at least the near-term demand or potential for growth? I would think that this would, you know, at least in Florida, you know, have some, at least some near-term impacts.

Yeah, as far as what we have in the portfolio, I've not heard of anything so far. You can imagine his stuff is spread out quite a bit. We've got dealers across the country and we've got credit across the country. I've not heard of anything so far as far as damage goes. As far as the market goes, I can't really think of anything negative. This is kind of the boat show season, so they're in the middle of... doing a lot of their boat shows and planning for next year. So I've not heard anything negative from this perspective. All right.

There's probably some new boat sails coming out of it, Michael. I mean, some of these boats got torn up, so there's probably some new sails coming out of this.

Got it. The only other thing I picked up on is that the loan to deposit ratio is a little bit higher than it's been in a couple of years. I know historically you guys have run closer to 100%, but any concern there? Or is that kind of a comfortable place to be? I just worry about if loan demand does pick up. I know we're not trying to push any ropes right now, but at some point it likely will. Just wanted to get a sense for, you know, if there's any discomfort, if the loan-to-deposit ratio would move higher. Thanks.

Hey, Michael. This is Steve. No, not necessarily. You mentioned we've – I mean, it's been a little while, but we've run well over 100 in years past, and, you know, board-approved limits are in that range. You know, I think what gives us comfort, you know, near term is, you know, Barring about availability, what I mentioned earlier about just the liquidity in some of the markets that we're in today, it's out there and you may have to pay a price to get it, but there's certainly liquidity in the markets that we're in. We've just chosen to kind of stay hooked to our strategy here over the last many number of years in terms of just dealing with customers one off. So at 88, 89, it doesn't give us any discomfort today.

All right. I guess that's it other than, Johnny, I'm a little surprised that you said a 196 RA was good. I've never heard you say it's good enough, so I'm a little surprised that you're not setting the bar higher, but I certainly understand.

Thank you, Michael. I heard that, too.

I heard that, too. I agree with you, Michael.

I'll work on that. Thank you. Thanks, guys. Appreciate it.

With no further questions in the queue at this time, I would like to turn the call back over to Mr. Allison for some closing remarks.

Thanks, everyone. Good quarter. Hopefully we'll have another good quarter next week. I hope our people in the Carolinas and Georgia and Florida come through this without the pretty tragic what happened, particularly in the mountains of the Carolinas. So anyway, I wish them the best, and we'll talk to you next quarter. Brush, you got any comments? You didn't comment today. You got anything you want?

No comments. No comments. All good.

You think you can do better than 196 ROA?

It's always better to go and get better.

Very simple.

We've got to get better. Brian, you got any comments? No, I don't think I have any comments. I think y'all got it all covered. Well, thank you all. Talk to you next quarter.

This concludes the Home Bank Shares Incorporated's third quarter 2024 earnings call. Thank you to everyone who was able to join us. You may now disconnect your lines.