Home BancShares Inc (HOMB) 2024 Q3 法說會逐字稿

Greetings, ladies and gentlemen. Welcome to the Home BancShares 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. (Operator Instructions)

The company has asked me to remind everyone to refer to their cautionary note regarding forward-looking statements. You will find this on Page 3 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 call is being recorded. (Operator Instructions)

It is now my pleasure to turn the call over to Donna Townsell, 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 BancShares' third quarter 2024 earnings release and conference call. The company had another great quarter. The quarter was very strong and would have finished as one of the best that was until the last few days of September when the first of two disastrous hurricane took a swap across Florida, where Home has a little over $1 billion in customer loans.

We felt it is prudent to move into hurricane mode as we have in past years when weather events affected the area where we did considerable business. Some of our customers are still involved in litigation over the claims from the last hurricane. We have 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 will refer to have 5% plus reserve for the main area of the storm. 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 by 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, it's 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 these 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 data report was also running ahead. I was expecting $0.55 to $0.56 for the quarter. One should never count his money until all the hays in the barn. I knew better, but things were running pretty smooth, so I made a 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 [indiscernible]. That's an annualized income for the company of over $450 million and 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 ex-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 and that would be slightly higher. But on core earnings that is a record.

Okay. Well, on core earnings, that was the best ever. That's good. PPNR was $148 million pretax, 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 and 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 pretax, pre- provision. 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 good improvement. Nonperforming 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're going to catch Jamie Dimon, we didn't. we didn't. We're at 14.7% CET1 and he jumped on -- he was at 14.7%, he jumped to 15.3%. I think he's afraid we're accurate. The loan loss reserves 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 $1.77 improvement year-over-year. $0.77 of that came from AOCI and the dollar came from retained earnings.

We earned $100 million and $0.50 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 continue to grow in our legacy footprint, 131.6 million increase, while CCFG had 89.1 decline in balances, they still remain with $2 billion of outstanding loans.

We were disappointed last year by missing our goal of 400 million. Due to circumstances are outside our control, if you remember that being our payment to the Fed for the failed banks, plus the damage for the West Texas headwinds.

The 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 political race, but I got to do this. In 20 days, we're going to elect a new President of the United States. And I think that we have a -- that will have a major impact on all our lives and our futures of our children and our grandchildren. One of the candidates wanted to substantially raise all taxes and even taxes on unrecognized gains.

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 of 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 us. But after watching, I cannot imagine anyone voted for Mrs. Harris. It's not about Democrats or Republicans, it's about the 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 usually happens during election years.

Taxes, crime, immigration, gangs, open border, sex trafficking, increased regulations, inflation, need I 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 Fed should tell us all we need to hear.

If that's not enough, Sunny, an ABC host, attempted to minimize illegal migration gains taken 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 damages 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. Brian, where are we now?

We're like 198.8.

198.8. So we have continued to buy. Stephen, is that correct? Continued to be in there.

We have a 10b5-1 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 -- when you have those kind of revenues and you controlling the expenses, it rolls into really a good, good quarter.

So Donna, it's back to you.

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

Thanks, Donna. As Johnny mentioned, Home Bancshares and 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 continue 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 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. Noninterest-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 volume of $1.13 billion in Q3, similar to Q2, with a little more than half coming from the Community Bank regions. Yields originations remained strong with an average coupon of 8.96% in Q3. Payoff 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 nonperforming loans, we are 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 discussed the 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 Stephen 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 nonperforming loans and assets of 10 basis points and 7 basis points, respectively. This is due primarily to a Texas hotel moving to nonperforming.

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 our 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. Occupancy is approaching 70% after an existing tenant took another half of one floor, and it is cash flow 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 of the West Coast of Florida, where we have a substantial presence and then proceeded inland into Georgia and North Carolina, where it inflected 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. By 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's 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 loans 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 South where it appeared to be the worst hit there, along with random places across the interior of the state hit by tornado spawned from landfall.

We are 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 6 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 thin 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. And just wanted to get a sense for if there's any discomfort if the loan-to-deposit ratio would move higher? Thanks.

Hey, Michael, this is Steve. No, not necessarily. I mean you mentioned, I mean it's been a little while, but we've run well over 100 in years past and more approved limits or in that range. I think what gives us comfort near-term is borrowing 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.

Great thanks Donna. (Operator Instructions)

Stephen Kendall, Piper Sandler.

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 BT P could do in the first part of next year.

And then maybe conversely if you know, if Trump does win the presidency, if you think you know 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 the deals, just have to work. Right. They just have to work and everybody, you know, everybody's price has gone up, ours has gone up and everybody else's price is going up and that probably will, will make more people think about doing M&A.

And I suspect that, that we'll hopefully find something if not this year, early next year to, to do regulatory wise, it was much, much easier to do a transaction. When, when President Trump was in, we had better support there and that'll take a while to change if the administration changes.

But I'm optimistic that we could see that could be, could be a kick to the M&A activity. If, if Trump wins comes back in, they've been really slow. Regulator has been slow on the proven deals.

Seem like they've gotten a little quicker later lately, doesn't it? Did you guys? It seems that they, they moved on some, some that were hanging out there for a long time. They finally got them done and got them closed. So I don't know if that answers your question, but we're, 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 Roy on $23 billion worth of assets. This team just needs some more assets. So, you know, we just need to clean, find the right trade and, 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, we, we'll buy anything from something that needs help to something that's really operating in a, in a good fashion. So it all depends on the price, Steven. You know how we do. So we'll work with your people on some stuff too.

Makes sense. Makes sense. Okay. That's very helpful. Johnny and then maybe one, probably more for Steven, I guess is just kind of, can you talk a little bit about how you think the name can trend from here if we get, let's call it 101 hundred and 50 basis points to cut how you're thinking about loan betas and deposit beta from here. I know, 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.

Yes, I mean, I think, I think a win there would be, you know, flat from, from where we are today. You know, our model shows down four or 5%. I think in a down 100. But if we're able to, to pass through deposit, right cuts, which we, our team has done a great job so far and, you know, there's probably still some opportunity in the, in the backbook that, that we can work down. So yes, I think predicated on that, I'd be, be pleased to see us in line with, 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 as you in, in loan yields and cost of funds and it looks like we're, they're almost matched up. We're up, a couple $100,000 is all, but looks like they're matched up. So I'm pretty pleased with what that's early. Right. So it will be a lot of adjustments to that. But that, as of right now it looks pretty good, Stephen.

Got it, got it.

Okay. That's helpful. And I, you know, I don't, I don't think you, I don't think you're guilty. Accounting. The, hey, before is in the barn. The ha is in the bar and it just might not be a net income, but it's still in capital. So that's, that's still the bank's money and a great quarter. Well done.

I was -- I couldn't tell you how excited I was watching those numbers come in 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. How you still in there? You're right. The how you still in there? Just in a different, different category right now. Thank you for that.

Thanks for the color guys.

Brett Rabatin, Hovde Group.

Hey, good afternoon. Everyone wanted to just start on the loan growth outlook and it sounds like CFG, you know, might continue to have some payoffs in 4Q. That'll, 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 bit early and there's obviously a lot to figure out with, with where rates end up and, and all that kind of stuff. But is the pipeline for CFG strong enough to outrun any payoff as you guys see it past the fourth quarter or maybe just any color you guys see it as you think about loan generation of the '25.

Hey, Brett, this is Kevin. I'll, I'll give a little bit of color from our perspective on the, 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, and I think that will still continue.

I think there's a little softness this quarter. I can't really pin it on anything. It, we've got a couple of regions that are still, you know, they're 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, will come back next year. And obviously a lot of this depends on how much the rates drop, the, what the expectation of that's going to be.

And so, you know, I can't really tell you what that looks like. But I, I do think our and '25 we, we'll see in the community bank footprint, a continuation of what we've been doing the last, you know, four or six quarters. Chris, you want to give him some color on what you're seeing?

Sure, happy to. Thanks for the question. I, we, we, we certainly hope we have payoffs because when we make the loan, we intend to get repaid. And so I think, you know, we've always said that the future of the business II I, we make, 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, our sort of yearly target is. So we're, 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, and, and get focused on the rest of the year. I think we'll have a pretty good solid into 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, we probably come down a little bit from here and then go back up.

You know, growth has never really been our goal. We're going to put good assets on, we're going to get repaid and we're going to put that money back out and, and, 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 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, as, 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 submissive drawdowns. How, how much was, was that related to, how much was the draw down related to miss?

And then just as you guys see it, you know, any initiatives to grow deposits from here in any business lines or anything that would, that would bolster your, your deposit growth. 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, Brent, this is Steve. I, I didn't, I couldn't hear your, your first question on municipal. Is that on the overall size of that book?

Well, just, just how much it came down this quarter and then, you know, just, yeah, quarter balance would be, would be great,

You know, it, you were down about 101 hundred and 50 million or so for, for the quarter. I think we're in the 930 a little over 2.8 billion billion, we've been in the $3 billion range. So, so some of that normal, some of that normal flow normal spend just at, at times throughout the year, you know, in, in terms of overall strategy, I mean, I, I think we're, you know, we're staying the course with, with select opportunities here and there. I mean, a lot of, you know, we've said for a long time, the counties that we operate in, in Florida are, are very liquid and, and at times have opportunities to, to bring some of those in, you know, conversations with our lenders and our Presidents are ongoing every, every day, every week, at, at loan committees. And so I think that's, it's still our approach and we'll, we'll, we'll continue to work that base as we

Okay. Great, appreciate the call.

They're still running ad, these people are still running ads. I think some of the money my deposits are back up. That's kind of the back up this month. So it's kind of a, the effect of it. They're real customers doing real business with us and, 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 gotta 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's what we thought might happen, maybe happened to us a little bit. So not much, but some of it could have been.

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

Thank you for, I hope you get feeling better. Thanks for joining.

Matt Olney, Stephens.

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

No. Hey, Matt Steve, I mean, you know, obviously some of it ebbs and flows with, with head count, which is the biggest, 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, in terms of final pricing and negotiation, but there's, there's some, there's some potential there for, for some meaningful savings to take place, you know, at some point in, 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 ba 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, we may, I think we may have added one to the list this quarter that, that we're discussing with you guys. But, but primarily it's, it's the stuff that we've been talking about the last '23 quarters

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

Yeah, certainly one of them and, and, and possibly a second one.

You know, some of these things, they just take a little while to work out. You, you think you see a path and, and you're working towards it and you think that path leads you to 90 days and it turns into 100 and 80. But, you know, we're still in, in each of those situations we're on, we're on track and we're working, working through the plan and sometimes the plan just takes you a little longer than you'd like.

I think it looks a little different by the end of the first quarter.

We, we, we, we just got to get the issues resolved and I think that most of them are basically resolved at this point in time. But the hotel deal, the one hotel got sold, the other one. We, we put the non performing and I think that's going to work itself out also.

These are just some Texas hotels that, that we did a while back. So.

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

Anything new that I'm seeing. Let me put it to you that way. Nothing new that I'm seeing signs.

Jon Arfstrom, RBC.

Hey, thanks, good afternoon.

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 the those

From the last perspective on the one north of Dallas, six or $700,000 maybe 1512 $15 million and

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

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

Iike I said we might have to have, we might have to have an additional $20 million. Is what I said. I don't know that I just, I would just kind of getting out there just throwing it out. I don't know that we, it's too early for us at this point in time may not be anymore. We had some, what was the place we got the most damaged Kevin Anne Marie Island, Anna Maria Island.

Yes, we got pretty, I talked to him yesterday, our, our customer, he said I'm going to be fine and he has business interruption in addition to coverage on his, on his unit. So that's good. He said I have that with, I do business interruption with every house has a bunch of house, a bunch of big, big in the rental property. So primarily single family, single family in a few hotels he owns. But well, he didn't say he wasn't there. He was actually in the, in Arizona.

He said, he said the only thing I could do there, he 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 could there be a loss there somewhere? Maybe I, I always suspect there's going to be a law, something's going to sneak up on us that 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 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 question is, you know, how's that going to work? And this 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 medical loss. So it, unless something really jumps out at us somewhere, I'm optimistic that we won't have big losses, but if we do that's what we got reserved for.

Yes. Yes. Okay. That makes sense. And then on, 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, mid 50¢ 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, I think 53 456¢. I think that's about where we are right now until we get. I mean, John, think about it. That's a 196 ROA I can't ask for, I can't ask for anything better than that really. So we need to, I need to need to get them, get this team some assets. If they get another two or 35 $7 billion worth of assets, it'll take them a while as it always does. This group to get it where they want it. And, that would be my, that's what we'd be looking for. Be looking for something in that size 2,345 $6 billion in, in a market that we think is a good market, either in an existing market or maybe something outside of that that touches one of the markets we're in. So, I mean, when they brought a 196 we give them another $5 billion worth of assets. You can see what happens. So,

Yes, they're, they're hungry, Johnny, you gotta feed them, get them some assets.

I'm going to get, I'm going to bring them, put them another bonus program together here for long.

Yes. Okay. All right. Well, that's a good quarter.

Thank you. Yes.

Yes. Thank you.

Yes.

Katherine Miller, KBW.

Thanks. Good afternoon.

Hi, Katherine.

Thanks for your color. I appreciate your color on the CPNR. Well, you're, you're the one giving us a 250 PP and R. So it's not, it's not me, it's you a little bit but on that, I wanted to dig into the margin a little bit. You know, your, your assets and 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, over the next year still higher than peers, but you know, kind of trend down. And you know, you're right, your, your loan and deposit data have been evenly matched both at about 40% over the cycle.

And so as we think about this easing cycle, is it fair to think about what the deposit data is still at that 40% be? Or is there maybe some maybe you can talk about especially on the loan side. And most like we've talked a lot on the loan side on this call on on just the benefit of fixed rate repricing and a new loan origination pricing because that is there a chance that the loan data could be actually a lot lower as we move to the next year just given that offset

Katherine. This is Stephen. Yes, there's still, there's still some opportunity on, on the low pricing side, we've got about 300 million or so this quarter that's below 6%. We've got a couple of 100 million million.

I guess all in total there's probably a billion over the next three quarters that, you know, is in the, in the low, low to mid six is that we should get some lift on presumably. You know, I guess we hadn't talked competition wise, but we're starting to hear from some of our Presidents are different footprints that competitions, you know, pricing out the curve now and you're seeing some stuff in the sixes and sevens.

But so we'll have to deal with that, but there's still some opportunity there on the, on the free pricing side. Yeah, I think we said earlier on the call. I mean, I, I think it's flattish in the range that we're at today. You would be pleased with, I think it, it depends, you know, how deposits behave and liquidity profile. And if we're able to continue to be aggressive on dropping rates on the on the deposit side

And, and on the loan side, I know you've said before that about, I think it's 34% of your loans are floating and repriced immediately. Can, can you kind of break that down to, is that mostly tied to sour and then, and then maybe give us the next bucket of adjustable or available rate loans versus six if you could, if there's a way to kind of get this 3B and --

Sure. So it's about 5.5 billion or so. That are, that are variable rate, you know, change in the next, you know, two quarters or, or so we've got some adjustable stuff in there too, but just talking about what's, what's, you know, strictly purely variable is about 5 billion , 5.5 billion. There's 2.8 billion that's tied to Wall Street Journal Prime.

And the vast majority of the rest is, is tied to. So for all of Chriss portfolio, you know, 192 billion is, is tied to so far. And then we've got about we've got about 700 million or so in the Community Bank Group that's, that's tied to so far.

Okay. And, and where is that yield today? On average? What's the spread is there typically?

Mm make the vast majority is going to be four plus, you know, probably 44 --

44 on chris' side, Chris on chris' side on our side and construction would be in the 350 ish probably average over. We're starting from a high 8 9% yield.

Yes. Okay, 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 bit move --

Largely, you know, negotiated money market type products. So we've got a, we've got a kind of a standard corporate product that we've used for years now that has about 1.3 billion in it. We're able to pass essentially all of, of this last rate increase to, to the balances there and then, you know, utilize negotiated interest rate checking savings money markets.

Now you're, you're to the point earlier on, on CD si mean, we we've seen rates come in some there but you still got, you know, peers here locally doing 4 64 70 you know, some, some community banks here and there that are still, you know, close to 5%. So our group has done a good job in terms of being able to, to negotiate there and, and keep the overall, you know, in the sub, you know, 4% sub 4% range.

It's all gone great and congrats on a great quarter. Oh, go ahead, John --

Thank you. Yes. Well, you'll, you'll Tracy will tell you that the, you run the miles 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. So until it, until it spends on me after we'll, we'll stay, stay his to what we're doing,

It will, it's working so far. Thanks so much.

Thank you. Thanks Katherine.

Brian Martin, Itau BBA.

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

Sure. Yeah, there's about 3 billion or so that's, that's tied to either, either 91 day T bill, or, or reference to, to fed funds. Most of that is, is, most of that is municipal. 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 last quarter at every 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 of, you know, before the, the rates were around, you know, pick up might be go to around 9%. I mean, where are the, where are the newer rates today that you're, you know, kind of thinking that, you know, the, 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, on renewal, I mean, we should, you know, we should be able to, you know, to land in the 88 and the quarter range. But, you know, again, I think a lot of this is kind of subject to, to what we hear and see from competition. I'll let Kevin give him a little more color on what he's seeing.

I think Stephen said a minute ago, we're beginning to see some folks go out, go out the curve a little bit and try to fix at a, you know, in the high six is 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. I, 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.

Yes. Okay. All right. And, and maybe just one for Johnny. Johnny just on the M&A, I mean, in terms of, you know, kind of opportunities, you know, whether you're that you're seeing it, can you just remind us is there, you know, market wise, you know, where you're kind of more focused today and then just maybe, you know, kind of size of, of transaction, you know, that 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 in presently we're looking at one end market, one out of market. So that would be in market would be, of course, you know, our market outside would be something that is a state that touches the state we're already in. So we wouldn't, we wouldn't be leaping over a state. I wouldn't think so.

We're just playing with it right now. Look at it. It's, it'd be interesting to see. I think we're going to see some boards of directors telling management sell, you know, I think we're, I think they're going to say, hey, we just slipped through another one here with this tough time. We're going, we need to, we need to get somebody, get it in good, strong hands and get a good, strong dividend. And, at least that's my belief where we go from here. I don't know, but one's outside and one's inside the market.

Okay? And if you go out of market it's gotta be bigger, just have enough scale or I guess, is that, is that fair to think about if you're, if you're going to, you know, go outside.

I just like the one that was out of market, I locked their footprint. I like, I like, I like their footprint. I thought it looked, I thought it looks intriguing in the market just got good growth. So, I mean, we look at, 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 and I verified that the information was correct and how, what kind of growth they were getting there? So just got my ticket

And then, yeah, and got you in the last two was just on the, 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, on expenses, kind of really good progress. And trends here, just kind of the current levels are sustainable. Is there something I 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. You know, we, we, you asked, I was asked last quarter, we said 111 is the number. So 111 and change is probably the realistic number.

Got you. 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 significant spikes expected, I guess in terms of, you know, additional non performing, that's kind of what you, what you have is in front of you and now it's just working through that and really nothing coming coming on 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 strictly the, the project north of Dallas because it's finished and we have two offers and we're a contract I think on that.

So I would have thought that would have been gone, but that'll go out. Something else will come in. I think we got about 200 million million. Probably totally that we're, 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, in, in any of these credits. One of my, we got a, we got a partner project. I think we can lose a couple of million dollars on that deal. I think that could happen.

Big, we got only got one big one out there. That, that concerns me and we'll just have to wait and see how that works out there. They've certainly improved what they were doing in the past. They're getting, they're getting better. So they're, they're, we're seeing improvement in that credit. So that 1 may not, may not be a problem in a month or two or it may be a problem. We'll just have to see.

Hey, Brian, this is Kevin. They're, they're all the, I'm just going to say they're all, they're all substandard. So, you know, we'll, we'll work them, they could, 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 the thoughts we have on our losses and ultimately that's the, the biggest concern. Right.

Yes. No, for sure. Got it. Okay. And Steven just last one just thinking about it. Right. I know your expectation or your hope is, you know, the plan to hold the margin, you know, kind of where it's at here, just kind of, you know, fighting the, the rate cuts. And I guess if the risk that, I guess where is the bigger risk if you're not able to, you know, the biggest risk to not holding it stable, you know, kind of where is the, you know, 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, what's the biggest risk to not, not achieving that?

I mean, I 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, we've seen a few instances where, you know, we, we have customers getting quotes or, or that may be in the, in the payoff pipeline now that, you know, our pricing in the sixes for a mini per term.

Yes. So from the good, you know, good standpoint is from, from chris' portfolio and then from our construction portfolio, we're going to do a spread over sour and that spread is going to stay pretty much where it is. So, you know, rates 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, 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.

Yes. And Kevin, what's the breakdown on that in terms of you know, what's, what piece is the mini firm piece versus the you know, the Chris Chris piece is what about 1.9 billion? I think you talked to someone had mentioned earlier,

Chris, I mean, Chris 2 million million, 2 billion range and constructions 2.5 ish, maybe a little higher than that. So, I mean, you're talking about probably 5 billion that, that is that tied to a a margin over sofa and, 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.

Michael Rose, Raymond James.

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 the at least the nearer term demand or potential for, for growth. I would think that this would you know, at least in Florida, you know, have some, at least some, some near term impacts.

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

Alright. And then the other piece of (multiple speakers) --

The boat sales coming out of it, Michael, I mean some of these boats got, I'm sure torn up so there's going to there'll probably be some new sales coming out of this.

Got it. The only other thing I picked up on is that, you know, the loan to deposit ratio is, is a little bit higher than it's been in a couple of years. I know historically you guys have run, you know, closer to 100% but any, any concern there or is that you know, kind of a comfortable place to be?

I just worry about it if loan demand, you know, does pick up. I know we're not trying to push any ropes right now, but you know, at some point it likely will and just wanted to get a sense for you know, if, if there's any discomfort, if, if the loan to deposit ratio would move higher. Thanks.

Hey Michael, to be, no, not necessarily. You mentioned we, we've been, it's been a little while but we've we've run well over 100 in years past and, you know, board approved limits or are in that range. You know, I think what gives us comfort, you know, near term is borrowing 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 know, 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, we've just chosen to kind of stay hooked to, to our strategy here over the last, you know, many number of years in terms of just dealing with customers one off. So at 8,889 doesn't give us any discomfort today.

All right. I guess that's it. Other than John. I'm a little surprised that you said A 196 R A was good. I've never heard you say it's good enough. So a little surprised that you're not setting the bar higher, but certainly

Understand. Thank you, Michael.

I heard That. I heard that too. I agree with you, Michael. I'll work on that with 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. Hope we'll have another good quarter next week. I hope our people in the Carolinas and Georgia and Florida come through this without. It's pretty tragic what happened, particularly in the mountains of, of the Carolinas.

So anyway, I wish them the best and we'll talk to you next quarter, right? So you got a comment. You didn't comment today. You got anything you want. No comment, no comment. All good. You can do better than 1 96 hour away. It's always been our goal to get better. Very simple, we gotta get better. John, you got any comments?

No, I don't think I have any comments. I think you got it all covered.

Well, thank you all. Talk to you next quarter.

This concludes the home bank shares, incorporation third quarter, 2024 earnings call. Thank you to everyone who was able to join us. You may now disconnect your lines.