Home BancShares Inc (HOMB) 2024 Q4 法說會逐字稿

Greetings, ladies and gentlemen. Welcome to the Home BancShares, Inc. fourth 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 and entertain questions.

(Operator Instructions) The company has asked me to remind everyone to refer to their cautionary note regarding forward-looking statements. You will find this note on page 3 of their Form 10-K filed with the SEC in February 2024. (Operator Instructions) This conference 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 fourth 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, we will begin with some remarks from our Chairman, John Allison.

Okay. Thank you, Donna. Welcome to Home BancShares fourth quarter and year-end earnings release and conference call. The final quarter of '24 did not disappoint with strong performance of another $100 million profit quarter. And that is after taking a hurricane reserve of $16.7 million as an amount of abundance of caution we had as the second hurricane hit.

Home still completed our first $400 million profit year. Actually, we earned $402,241,000 plus Home's first year to exceed $1 billion in revenue, the best performance in our 26 years. Think about the number. Your company brought 40% of the revenue to the after-tax bottom line. Simply 40% of $1 billion is $400 million, and that's what we earned.

I am sure there are not many banks in this country with the ability to accomplish that feat. I'm very proud of our team for this great accomplishment. Additional hurricane reserve gained EPS by $0.06 per share for the quarter and ROA by 23 basis points. We're not crying over spilled milk, because we think it's prudent to maintain strong capital. But EPS would have been $0.57 and ROI would have been exactly 2% for the quarter.

I want to congratulate our team with Stephen and Kevin's leadership in managing the net interest margin. I'll let Tim talk more about it in a few minutes. But if you remember, our models and a lot of your models show a decrease in income as rates come down.

But as Tracy says, that is only a snapshot in time and does not properly give management credit for strong expense reduction in interest expense and strong loan yields. As I've said in the past, strong loan yields by Kevin's group and low interest expense by Stephen's group makes for peer-leading margin.

The question is, can Home improve in '24? I know it's early. It's early in the year, but we're running slightly ahead of what we did last year. With interest rates possibly going up or holding steady, I don't believe they're going down. but I see it today, they may have gone down a little bit.

I think we'll continue our strong run rate into 2025. The only exception will be the actual increase in expenses for '25. We have broadcasted for a couple of years and we're going to cleanup and do what we call the Texas cleanup, which we did.

And while we were doing Texas cleanup, we just continue to do a clean sweep of all asset quality with a total charge-off of $53,394,000 of which $47.6 million was loans in Texas or 89.1%. That left a balance of about $5.8 million from Arkansas, New York, Shore Premier, Florida, and even Alabama, we charged off $8,000 plus any specific reserves that we thought were appropriate.

I really feel good about the asset quality cleanup and I'm certain that I've overkilled again, as you know, my history of doing that, but I wanted to put Home into a position for a great '25. Expect recoveries in the $30 million range over time, and probably you'll start seeing some of the recoveries this quarter. Let's go to the numbers.

Net income of $100 million -- $100.6 million for the quarter or $0.51 record income of $402,241,000. You remember last year, we got hit with the Fed for the failed banks and that took us down below that, and we didn't quite make our $400 million, but we hit it this year.

We had record revenue for the quarter of $258.4 million and Fed says, we had record revenue for the year of $1.017 billion. That's quite a mark. I didn't realize we'd hit $1 billion, but that's -- I'm glad that we did. Strong net interest margin remains at 4.39%. Return on assets for the quarter was 1.77%. I think it was for the year, too, Brian. I think 1.77% for the month.

It was, exactly right.

Record CET1 of 15.1%, record risk-based capital of 18.7%, and record book value per share of $19.92 and tangible book value per share of $12.68. P5NR pretax, pre-provision, net profit percentage to total revenue was 56.57%. Efficiency ratio for the fourth quarter of 42.24, mass improvement over '23 that was 46.21.

I believe that being an owner operator with my family being the single largest individual shareholder and Home being my largest asset, should provide comfort for all shareholders because every move made by this company that affects you also affects the Allison family and my executive team. Home is one of America's best-run banks and financially strong and has been for the last 26 years, and I want to thank all of you for your support.

'24 was really a strong year for Home and '25 should be even stronger. Outside of that, I just wanted to comment we got tenant improvements on our 60,000 square feet out in Amarillo, Texas, for our new tenant. Hopefully, that will be finished in March. So we should see some of that happening. Some revenue maybe, Stephen, coming in next year?

Yeah, early spring is what we're targeting now.

Early spring.

I want to comment on the Texas lawsuit. It's continuing on nicely with fruitful depositions going on at this time. In conclusion, as I've said, '24 was a very strong year for Home. We produced record revenues, record profits. We weathered two hurricanes so far, high interest rates, crazy inflation, bank failures, and administration level regulations. And in addition, the Texas cleanup to mention a few. I think Home is prepared and has a clear path for '25. Donna? You got it?

Thank you, Johnny. And congratulations on a record-breaking year. That was amazing. Our next report today comes from Stephen Tipton.

Thanks, Donna. The numbers for Home BancShares and Centennial Bank this quarter clearly display the balance sheet strength and earnings power of the company. I want to congratulate all of our team on our first $400 million year and achieving over $1 billion in revenue in 2024. I'll start my comments with the net interest margin, which continued to improve in Q4. The reported NIM expanded by 11 basis points in Q4 to 4.39.

We continue to maintain healthy excess cash balances despite retiring the BTFP advance earlier in the quarter. Excluding the event income noted in the press release, the net interest margin was 4.36% for the quarter, an increase of 9 basis points from Q3 and exited the quarter in December at 4.42.

As a result of the recent rate cuts, the yield on loans, excluding event income, declined by 14 basis points to 7.45 in Q4. Our bankers did a fantastic job on the deposit side, reducing interest-bearing deposit costs by 22 basis points, 2.80% for the fourth quarter, and exited the quarter in December at 2.75%.

We continue to negotiate deposit rates on a case-by-case basis and are proud to have been able to offset the reduction in rates on the asset side. The excess cash we continue to hold gives us flexibility to work deposit rates down further and be aggressive if needed on the asset side.

Switching to liquidity and funding, total deposits increased $441 million for the quarter, highlighted by growth of $69 million in non-interest-bearing balances, which now account for 23.4% of total deposits. Nearly all of the community bank regions posted deposit growth for the quarter. And from a geographical perspective, we saw growth of $232 million from Florida, $92 million from Texas, and $77 million from Arkansas.

Alternative funding sources remain extremely strong with broker deposits still only comprising 2.4% of liabilities. And with the deposit growth, the loan-to-deposit ratio trended back down to 86.1%.

On the asset side, in-period loan balances declined $59 million, largely driven by lower balances at CCFG and were offset by growth from the Arkansas, Florida, and Shore Premier Finance regions. On loan originations, we saw volume of a little over $1 billion in Q4 at a coupon of 8%, with the community bank regions making up 80% of the production for the quarter.

Payoff volume increased, as we mentioned, might happen in Q3 to just shy of $900 million in Q4. And in closing, with the cleanup behind us, we're excited about the prospects for growth and look forward to a great year in 2025. With that Donna, I'll turn it back over to you.

Thank you, Stephen. And our final report is from Kevin Hester on the lending portfolio.

Thanks, Donna, and good afternoon, everyone. In the 26 years that we have existed and in the 14 years that I've been in this position, there have been only a handful of quarters that are similar to this one. In the previous ones, we tried to ensure that we address any concern and sometimes it felt like Johnny was being too aggressive. This quarter feels similar to those in some ways. I'm very happy to say, though, that it feels really good to be able to take this kind of quarter in stride and not have any concerns about moving forward.

During the fourth quarter, we had an extended conversation with our regulators about the accrual status of a large Texas C&I credit. We've agreed to disagree, and as a result, we chose to charge off a portion of the credit to keep the rest on accrual.

Once that decision was made, it made sense to rightsize a few other credits that we've been working through over the past couple of quarters. As Johnny has mentioned, it is primarily a Texas cleanup with $48 million of the $53 million in charge-off loans coming from that state. Virtually all of these happy credits were initiated either right before or right after the happy acquisition.

Roughly half of the charge-offs are related to the disputed Texas C&I credit. We expect recoveries to begin to be received immediately on this credit as payments remain current on the entire relationship. As for the other credits, we fully expect to dispose of these credits and have some recoveries. We could experience a couple of those in the coming quarter as well. In fact, I fully expect that over time, we will recover in excess of $30 million of the $53 million balance.

To the numbers. NPLs and NPAs are basically flat quarter over quarter and are at very manageable levels. Even after this challenging quarter, our allowance for credit losses still provides a 278% coverage of NPLs. Early-stage past dues inched up 12 basis points to 1.08%, but included one large mature memory care credit that has been extended since year-end and has been placed under contract to sell.

We expect it to pay off during the first quarter and the removal of that credit would bring the past due number in line with that of previous quarters.

Earlier, I mentioned dispositions, and with assets that are under contract to sell this quarter, we expect to reduce NPAs by $9.5 million or 7% and expect to see a $4.5 million recovery. In addition, through assets that are very close to being under contract, I expect to reduce NPAs in the first quarter by another $28 million or 19% and provide an additional $3 million recovery.

At that point, NPAs would be at approximately $105 million or 0.47%. Roughly half of that remaining balance would be the California office building that's in OREO and the Florida Memory Care credits that we have discussed before. The office building has reached a point that it makes sense to talk about marketing the property, but its proximity to the ongoing fires will likely delay any real opportunity to move that asset.

The Florida Memory Care credits have exhibited strong occupancy improvements over the second half of 2024 due to a management change, but we are waiting to see that translate to an improvement in profitability. The good news is that ownership is still motivated and are continuing to cover any operating shortfalls and the occupancy improvement is promising.

I mentioned last quarter that the loan pipeline felt a little soft, and that translated into a small loan decline in the fourth quarter. A positive takeaway from that, though, is that for the second quarter in a row, the community bank footprint produced an increase of over $120 million, while CCFG contracted by 13% over the last half of 2024. We know that CCFG's loan balances will come back and we still see solid production out of the community bank markets.

As for the hurricanes that we experienced in Florida in September and October, we placed approximately $33 million in reserve for potential losses. As of year-end, we had approximately $110 million in loans in those areas that are in some form of payment deferral. It's still too early to tell what losses we might experience here. But as these deferrals mature, the picture will become more clear. We may be able to shed some more light on that next quarter.

As you can see, it was a challenging quarter, but there are very few companies, maybe none that can make the moves that we made while continuing to maintain strong profitability and a loan loss reserve that is still higher than almost anyone. This is why we built the fortress balance sheet and more than ever, I'm very proud that we did. Donna, that's all I got.

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

Well, let's see if -- Brian, do you have any comment?

No. It's been a good year, a record year for the $400 million.

Tracy?

Good report. But you, Mr. Allison, good leadership. Thank you. Stephen, Kevin, good reports on all that, but also just like to thank the Centennial Bank, the Happy Bank, the Home BancShares staff for making improvements in loans, deposits, non-interest income, non-interest expense, but also would like to remind them the guy to be a little better.

Exactly right. Well, I think lots of highlights, but I think deposits were Stephen was surprised and, Brian, they're really strong. Our deposits were really strong. I think the strength of our company being able to pay out all insured deposits is probably served us very well. We're still in that position today. But I think we were pleasantly surprised by the amount of deposits we've got.

Yeah, particularly on the core deposit balances with non-interest bearing balances being up. Very pleased to see that and look forward to continued growth this year.

That's good liquidity. I like the fact that we said -- we told them last -- I told you last quarter, we wouldn't get ourselves in a position where we couldn't pay out all insured deposits, and we have not done that. This actually strengthens that. And Brian, you paid off the Fed program, right?

No, we paid off all $700 million of that, and we still have about $0.5 billion of the Fed today.

That speaks well for the company. So anyway, I think Donna will go to Q&A if you're ready.

We are ready. Thank you.

(Operator Instructions)

Catherine Mealor, KBW.

I wanted to start on growth and see growth was a little bit slow this quarter as you predicted that it would be on the last quarter's call. But just curious what you're thinking about for '25. And Johnny if we're right, if we are going to be in a higher for longer rate environment, how do you think that impacts growth for this year?

Well, I think that plays to us well, higher for longer. I think that you can see the run rate that the company has maintained through this higher rate environment. And Stephen and Kevin have done an excellent job. Kevin holding up the yields and Stephen working on the cost of fund side. You can see the margin came out. I think you said we exited it.

4.42.

4.42. So I think that plays really well to Home. I think -- so it looks like we're running about where we ran a little better when we ran the first month of the fourth quarter. So I'm pretty optimistic. I think loans are going to be a little slow this quarter. But I think they'll come on in the second quarter. We'll start seeing that, particularly in Florida seem to have a lot of stuff. Kevin, you got to comment on that?

Yeah. I mean I think the higher for longer is going to -- it's going to be a plus and a minus. I mean it will be interesting to see how that plays out with -- we're seeing -- when rates dropped 100 basis points, we saw a lot of folks coming back with some of the 6s and other stuff that's hard to compete with. This may slow them down a little bit, if their belief is that rates are going to stay where they're at. So that will play to us.

Rates staying up don't help -- doesn't help underwriting. So that may work against us a little bit. So just be interesting to see how that plays out. I will say that we've had good -- as you can see from the comments we had, we've had really good couple of quarters in the community bank markets. They've held up well and each region has grown over that period of time. So I'm encouraged by that for sure.

And would you expect -- I mean this 4.42 exit margin is really high. Would you -- do you see expansion from there or is it more about just keeping it stable?

Hi, Catherine, this is Stephen. I think same messages as last quarter. I mean, I think with where we're at with rates today, if we can keep in line with where we're at, it'd be pleased. We'll continue to be able to reprice the CD book, which is small relative to the overall deposit base, but that should continue to come down a little bit. And then, still trying to work some of the fixed rate maturities this year that potentially can reprice a little higher. But I would be pleased if we can hold in that range where we exited the quarter.

The toughest time for us is when rates start coming down and the rest of the market jumps and things are going to lock people in at 6%, and then that becomes pretty tough times. And as rates come down, someone said, Well, you got a lot of fixed rate.

And I said, well, what is a fixed rate? I said, fixed rate is about 1 point, that's what it is. So they drop 1 point below you, if you got a fixed rate, if you don't have a prepayment penalty, they're gone. And then, they just end up, it becomes a race to the bottom again like we had in the last cycle. So I hope that that's the toughest time in the space and hopefully so far so good here at Home Bancshares, but it gets frustrating, that's really frustrating times.

Got it. Okay. Thank you.

Brett Rabatin, Hovde Group.

Wanted to start on deposits, and Johnny, you said you were a little surprised at the deposit strength this quarter. Was there anything that you would call out as maybe unusual in the deposits this quarter? And just as you think about the outlook for the year, assuming deposit -- or assuming rates don't change much, do you have a pipeline of deposits you think will continue from the strength in the fourth quarter? Or any thoughts on where you see the deposit outlook from here?

I can't answer that. I was concerned about deposit and when Brian paid off the Fed $700 million, I thought, well, we may end up being a borrowed position. But it didn't, it just flowed. I mean, the deposits flowed in the Home and we haven't done anything uncharacteristic as you can see by the cost of funds and they've just rolled in.

I like the fact that we can pay out all uninsured deposits has separated us from the pack, and there's lots of -- several banks that can do that, but most banks can't do it. I think that has helped us. We have promoted it.

We never ran a CD ad, not one during the entire time cycle that we went through. We never ran a CD ad. We ran strength ads and I think that paid off for Home Bancshares that we have the ability to pay out and we committed to our depositors that we wouldn't get ourselves in a position we couldn't do that and we haven't done it. So we're extremely pleased. Brian, you got any comment on the deposit side?

No, it was just kind of from all over the board. And so, one big smoking gun that brought it up.

Which is good. I mean, it's coming from different areas. It's not -- somebody didn't walk in and put $400 million to mine. So that's positive. That's very positive. Will it continue? I suspect -- we're a business bank. We have actually customers. We're not transaction bank. We're a real business bank and maintain those relationships. And I guess that's paying dividends. Stephen, do you agree?

Yeah. No, I don't have anything to add. I mean, competition is still rampant today. You have to deal with that, but that's nothing new. But, very pleased with the quarter and see where the year goes.

Okay. That's helpful. And then, one -- I'm sorry. What was that, Johnny?

I said that's the best we can do.

Okay. Yeah. All right. Great. The other thing I wanted to ask about was just capital and the outlook for M&A, and your capital ratios are the highest they've been the past decade. And I know you've been thinking that maybe the BTFG program winding down would create some opportunities, but wanted just to hear your thoughts on usage of capital and just how you see the M&A environment and if it looks good for you, and any color on any conversations you might be having, how those things are going?

Well, we're excited. We have this big charge-off we've seen. We did cleaned up -- had our Texas cleanup. We were on a trade. We had signed a letter of intent on the trade, and we paused that transaction because we didn't want to -- we will be totally transparent with the other side, so we just paused the transaction. Will it come back?

Maybe it will, maybe it won't. I can't answer that. But we're obviously looking at M&A and we -- you look at it, the company did 1.77% ROA, and without the hurricane reserves, it did a 2%. So, I can't ask for any more than that as you've heard me say in the past, we need more assets. We need to bring in more assets and we need to find something.

And the other transaction we're on was a good transaction and I think it would have worked out well for us. It was in a market where we already have business. And -- but we wanted to -- will that come back? I don't know. I said, you move on, do what you need to do. We want to be fair with you.

We got this loss and you don't understand it, so we'll explain it to you, and we're going to charge it off and clean it up. And if you want to come back after some point in time, come back. And if you don't, that's fine too. So we're totally transparent and they were very appreciative of the fact that we told them what we told them. So the answer is yes, we're looking for the next trade.

Okay. Great. Appreciate all the color, and congrats on a great 2024.

Jon Arfstrom, RBC.

Hey. Kevin, can you walk through what went into NPAs this quarter and then review again what was coming out? I was writing kind of fast, but I just want to make sure I understand what went in and what do you think is coming out in Q1?

So a couple of the deals that were on the charge-off list were not in NPAs yet and that's primarily due to the fact that we were -- we've been working with these clients for a couple of quarters. Johnny has been telling you guys that we had this coming. We worked through a couple of these credits.

These were larger credits that we were working with customers trying to figure out a way to make it work and keep them limping along, and I think we reached that point where we decided this is not the best exit. So when you take that charge and you move it to non-accrual, that's why those went up during the fourth quarter.

Now what you will see, as I talked about in the comments, you're going to have some dispositions in this quarter that I think could total the $20 million, $30 million, and $40 million that will reduce those NPAs back down even below where we were at 9/30. And so, that's the timing of how this will work.

The big charge-off of the group is current.

Yeah, half of it is not even in NPA.

Half of it -- that's the credit we argued about, it's current, and it never hit non-performing. It's a current credit. They're current today. They were current yesterday, last week, last month, six months ago. So anyway, that's a credit that we disagreed about, but that's the reason -- that didn't come out of non-performing, because it never went on non-performing.

Right. Okay. That's helpful. And then, it seems like you guys scrub things pretty hard, but how do you want us to think about a provision from here?

Well, we scrubbed as hard as we could including rather -- when you get down to, right now, Alabama of $8,000 and Florida of $444,000, when you scrub that hard, I don't know that -- we're probably going to leave provision in the realm that it is right now.

I like a 2% reserve because it's always worked for me, and it's always worked day in and day out. And when you think about all we've been through with the pandemics and the worst financial crisis in the history of this country and inflation, what can possibly go wrong next, right?

We just were prepared with the 2% and it worked for us. And I don't know about all the analytics and Kevin and his team works on that, but I do know 2% works. So I'm comfortable with that. We'll go back to that at some point in time, but we're not in a hurry, particularly after this scrubbing.

I mean, you've got to dig to find something. So if there is something, I don't know what it is, I can tell you that. So I'm pretty pleased with where we sit. We're really teed up really well for '25. So I wouldn't expect us to be making any big allocations. If we have an opportunity to have a wind fall, if we can put it in reserve, we'll try to do that.

Yeah. Okay. And I asked you this last quarter, I'll ask it again. How do you feel about the run rate? I mean, if you take out the hurricane provision, it's -- I know you guys are wringing your hands over the cleanup, but how do you feel about the run rate?

Yeah, the run rate is good. The run rate is good and I feel good about the run rate. We got -- we just increased salaries and you got insurance went up. I've heard we did a good job on it. Insurance went up 1%, but we've done a -- we've had about -- it's about $1.5 million a quarter in increase in salaries. So that's coming in.

Outside of that, I don't know you got the inflationary feel of it and we went over the $111 million last quarter. I think we did [$112.3 million] or something like that. Keeping it at $111 million with these salary increases is going to be difficult. But I'm going to let it run for a little bit here and look at it. And if we're going to get fat, we'll cut it back. So I'm not going to let it run away, if that's your question.

Yeah, okay.

So I like our run rate right now. I like what I'm seeing in our run rate. The good news is, it's been consistent. You just watch, look at over the past 12, 18 months, 24 months, you see, it's like it's humming. It's like the machine is doing what it's supposed to be doing. We had the little Texas blow up that we cleaned up. But outside of that, the company is actually -- it's hitting on all light.

Yeah, it seems that way. Okay. Thanks a lot. I appreciate it.

Michael Rose, Raymond James.

Just wanted to discuss the decline in -- I mean, if Chris Poulton is there, the decline in CFG loans this quarter what the outlook could be? And then, at least on the West Coast portion of the franchise, any impacts from the wildfires? Thanks.

Chris? I think Chris took off. I think they took off the last six months -- maybe for the last three months. I'm not sure. Go ahead, Chris.

Well, it was nice while it lasted. Yeah, quite frankly, largely, is in our C&I book. Our commercial real estate book is still kind of at or above where it's been. And we had increased our C&I book over the kind of '21-'22 timeframe because we saw some good opportunities in structured finance and we put money out on that. We kind of always intended to allow that to kind of run down and we allowed that to happen.

Maybe took it down a little further than I had originally intended, but we'll look for some opportunities, maybe put some money back to work in that space. Pricing came down there and I didn't love it. And so we showed some discipline and allowed those facilities to pay off, didn't go into the rollover facility when the price came down. We're seeing some opportunities to come back into some of those now at different pricing and we'll probably do that.

On the real estate side, I think we continue to see good deal flow. We see all the transactions for the most part. It's a matter of the types of things we're looking to do or not to do. We cleared out the pipeline towards the end of last year because there were some things in there that I just didn't think reflected maybe the current state of the market. And so we challenged the team to go and rebuild the pipeline, which they've done.

I think we'll have a good year, but we originated about $1.2 billion, $1.3 billion in total last year. So it was a big year for us, just happened to be more towards the first half of the year, which gave us a little bit of time to be patient in the second half of the year. Portfolio grow back. We like the portfolio around $2 billion, and we've come down a little bit from that, so we'll probably get -- we'll get back to that.

Your question on the West Coast and regarding the fires, fortunately, we have no direct exposure to any property that's in the fire zone, et cetera. So fortunately for that. We'll sort of see how LA transitions over the next few months into the next few years on what that's going to mean in terms of more or less opportunity for us.

But our presence in terms of loans and properties in Los Angeles is actually fairly small and nothing was directly impacted. So, we'll have to wait and see in terms of over the next couple of weeks whether there's anything more tertiary, but again nothing that we see right now.

Great color. Very helpful. Maybe just a follow-up outside of CFG, just on the ability to grow this year, I think what we are hearing from the larger banks is there's not a ton of demand out there, but there's a lot of green shoots, but then there's the competitive aspect, right?

You guys have historically been very firm on pricing. I think we call it Johnny Prime, right, if I got that correct. And does the higher-for-longer environment actually help you in your ability to lock-in kind of higher yields or Johnny Prime, or is the competitive aspect just going to have more loans go away from you? I'm just trying to balance the puts and takes as we think about loan growth moving forward. Thanks.

Michael, I think it's both. I think you hit on both of them. It could hanging in here and maybe some of our competition not going to the crazy numbers down low that very well could help us hang in here with some of the better yields. But it also doesn't help underwriting when your stuff has 7s and 8s in front of it. So, those are going to offset each other. And to the degree one is better than the other, will tell how growth is going to look.

I know we do have -- particularly, when you see in the last two quarters in the community bank market, each of the markets have grown and there's a lot of good things happening out in the community bank side. Will it translate to growth? It very well could, but there are definitely some competitive pressures out there that could make that more difficult.

Got it. Thanks, Kevin. Very helpful. Maybe just finally for me, Johnny, what you're looking for in a deal change and kind of what is expected to be kind of the deregulatory environment? And do you feel kind of a greater urge to do something if competitors around you are going to start doing deals?

We've seen a few already. Does that kind of push the ball forward in your mind, the need to get something done, or you're just going to continue to be opportunistic as we move forward despite your very high capital levels?

Yeah, not really. We're going to be opportunistic. We're looking for opportunities. And this other one we stepped up and the price on this other deal we're on, and it's still accretive to our company. But we're not chasing anything. We're not chasing anything. We're just going -- we're going to take it as they come. And there's lots of opportunities out there and a lot of the people, as you know, smaller banks are ready to put themselves in stronger hands with stronger capital-based banks.

So I think we're going to have a good run. I mean, everybody we went up [$1.5 trillion] in the day Trump got elected. I mean, there's excitement out there. We're going to see less regulations. We're going to get more stuff done. They're going to take I think we'll get the regulatory side to take their foot off our throat and hopefully we'll get transactions done in a reasonable time and not drag them out forever and ever and ever.

If you can do that, I mean, you get kind of tired of fighting the battle every day when you're trying to do get a transaction completed. But if we can start getting those deals done in four months or five months, I think you'll see bank M&A really pick up. They can be good for the entire industry, and I think we'll see less regulations.

I'm optimistic. The excitement is good. I'm a Trump guy, as you know, but the excitement is good. And I think that we know what he did last time. We expect him to do about the same probably this time.

Matt Olney, Stephens.

Yeah, thanks for taking the question, guys. Hey, good afternoon. Good afternoon. I want to go back to the credit discussion, and Kevin, you provided lots of good details already and perhaps I missed this, but any more color you can provide around the level of criticized and classified loan balances at December 31 as compared to the previous quarter?

Yeah. Criticized special mention was flat from quarter to quarter and classified loans were down about $22 million compared to 9/30.

Okay. Perfect. Thank you for that, Kevin. And then, switching gears, going back to the deposit discussion, appreciate that the sources of those deposit growth was kind of all over from various markets. Any just color about competitive levels by state? Any just color on the overall kind of incremental pricing that you're seeing on some of those deposit balances?

Hey, Matt, this is Stephen. No, not really any differentiation by state. There's a couple of regional banks that operate in all of the areas or most of the areas that we do. You're seeing CD ads in the 4.20-plus range. You got some small competitors that will come out even higher than that today.

In fact, one of our presidents at Florida sent me a note the other day that we were competing against 4.80 for six months, I think, which is hard to make a whole lot of sense of that. But, yeah, you're still seeing some advertisements out there in the 4%s.

When I look at what we did in December on CD volume, we were, I think, about 3.68 or so all in on new and renewed CDs. So, we got them coming off at 4. We're able to reprice them 30 basis points or 40 basis points lower. I think there's an opportunity to continue to lower cost there. But we're mindful of our core customer base and we'll defend it, if we need to against competition.

Okay. Yeah, makes sense. All right. Thanks for the color guys. Appreciate it.

Thanks, Matt.

Hi, Matt, you get to ask about the -- somebody mentioned non-performing earlier. The reason non-performing didn't go down anymore was because that big loan that we charged off never was on non-performing. It was a performing credit and it still is today by the way. So I guess you heard that, right? You got that?

Yeah. I heard that in a previous response, but appreciate the follow-up.

Stephen Scouten, Piper Sandler.

Yeah, thanks. Good afternoon, everyone. Hey. If I can just kind of go back to M&A briefly, I'm curious kind of the last two deals, you guys have done, I think, north of $3 billion in assets, north of $6 billion in assets. So can you give us a feel for kind of the size of a potential deal you'd like to do from here? And does the experience from Happy, does it change the way you think about M&A at all, or change the way you approach a potential deal? Any trepidation given that experience with the Happy deal?

Well, a little bit. I mean, you have to say it makes you look under the covers. It makes you look everywhere at every angle of a transaction. Not that we didn't -- not that we haven't. I mean, we've done 25, 30 deals here. But we'll look at it differently. Culture is certainly a key point.

We probably -- maybe I didn't give as much credit to culture in the Happy deal as we probably should have, but it would -- it makes you a little cautious. However, the last the one we signed LOI with, we were moving forward with and it was about $2.5 billion bank, you're talking about size, it was about a $2.5 billion bank, and a nice bank and it was in an area where we operate. So that was probably something in that realm.

However, we have a bid out on something less than $1 billion right now. For selected reasons, we're there. And we like the bank and we like the people there. So we probably -- I mean, we do -- depends on the market and where it is and depends on what the culture of it is, we do -- prefer to do something in the $1 billion-plus range.

But as I said, we're looking at one less than it's about $750 million. So we're going to get active. You'll see us active again out there and hopefully somebody will bring us something that we'll like it and we'll do it.

Got it. Makes sense. And you spoke to the prospect of regulatory release. And obviously, I think we all believe we'll get some of that in some way, shape or form, and just saw a sizable M&A deal approved in less than three months, which is really encouraging.

But are there any kind of specifics around regulatory relief or maybe compliance or anything that you think could be particularly beneficial to Home BancShares that you see coming down the pipe or that could allow you to run more efficiently, anything that you're targeting or looking to specifically?

Not really. We usually -- other than this one disagreement with the regulator, we haven't had disagreement with the regulators in 15 years. So that was over a credit issue and I still think they're right, but they think they're right. So that's why there's a difference of opinion. So anyway, outside of that, Stephen, you got any comment?

No, you mentioned timeline on M&A. I mean that's --

Yeah. If we can get the time -- if we can get that done where you could go do two deals a year, announce a deal and go get the trade done and get two a year done, that's going to excite lots of people in the marketplace.

It would excite us to have that opportunity to do that. And I think we're going to see improvement on that side. If someone just got out of New York protested everything, he protested -- an example was our Happy deal and he just -- what did you call it?

Copied and pasted.

Copied and pasted and he put the wrong name down there, had the wrong name down there and that delayed our deal for 45 to 60 days and that kind of frustration. I don't think the Trump administration will tolerate that kind of stuff.

So -- plus we got a new -- French Hill is the new Arkansas -- he used to work with me at First Commercial, he's the new Head of the Senate Finance Committee, I mean, House Financial Services Committee, and he's a banker and he knows what he's doing. So I think we'll get some good help out of French too. So all good stuff coming down the road and at least there's lots of excitement and enthusiasm.

Johnny, the thing that I would say is consumer compliance, we spend a lot of time on consumer compliance, a lot of effort, time, anything less where we have to spend -- where we can spend less time doing that kind of stuff and more time out with customers and doing what -- making deals, that certainly would be helpful. Not that it'll happen, but it would be helpful.

I think that, if you get that information to -- we get the information upstream, I think they'll deal with it. I think they'll deal with -- this is an administration that lacks banking and lacks business and they don't want to put their foot on your throat all the time. So, I think we've got big pluses coming for the industry.

Yeah, I think you're right. I know French Hill even wants to push for more de novo banking, which I think will be good for the sector as well. So, maybe last thing for me is just kind of loan growth trends. It sounds like you believe '25 could be a better year than '24, maybe starting to pick up in second quarter. What kind of gives you confidence there?

Is it a mix of things? Is it payoff decreasing? Is it I think maybe like Chris spoke to CCFG picking up a little bit? Or is there anything anecdotally or otherwise that makes you feel like growth gives you confidence about that growth pickup in '25?

I think I've talked about it last quarter. I was down seeing our Miami customers and there is lots of stuff going on in that market. I'm telling you lots and lots of opportunities to do transactions, good size, medium size, small, large transactions in that area.

So our people are excited about that. I came back from down there after meeting with our customers, really feeling good about what we can do in that marketplace. And they just got -- I mean, they've just got a war chest of deals right now. So I think they're getting pumped up. And this was prior to the election, but they were all Trump supporters and I'm sure they're moving forward on the deal. I guess, Kevin, you heard anything recently?

No, I was just encouraged. I mean, it's the same thing across a lot of our markets. I mean, you've got -- you've talked about what's happened since the election. If that translates to the economy really picking up and things happen like that, then I think we're in a great spot being primarily Texas, Florida, even Arkansas is on the U-Haul list again fifth or sixth this year for move ins. So I think we're in really, really good markets. We are going to benefit from whatever happens under the new administration. I think that's the big positive.

Got it. Really helpful. Thanks, guys. I appreciate the time. Congrats on a great year and being the only stock in my coverage universe that's up on the day. So there you go.

Thank you. Appreciate it.

Brian Martin, Janney Montgomery.

Yeah, sorry about that. Thanks. Yeah, good afternoon, guys. Johnny, last time -- last quarter when we talked, it seemed like you guys were on a couple of trades and you kind of went through the transparency and maybe holding off a bit, but it sounded something what -- last quarter, there was maybe something more imminent than there was.

So it sounds like you're off the trades from last quarter and you're still aggressively or assertively looking, but maybe nothing is imminent is the best way to think about it right now and just kind of take it as it comes here as you go into '25?

Yeah, we just thought, because we had this this hiccup that we need to be fair with them and pause it and then I just called them and I said, I think we'll just pull out, we'll just move on. And I think they'll get a deal with somebody. I got a call from a banker who said, do you mind if we go ahead? I said, no, go ahead. So if it doesn't work out and they won't come back to us, that'll be fine. We'll talk to them. We'll see if we can put it together again.

But I just thought it was fair to be totally transparent with them. And as it turned out, it was a hiccup, as I said, and not a bit. It hadn't still we're still the same company that we were day before yesterday, last month, and six months and a year ago and two years ago.

So we're still making the kind of money we've made in the past and we'll continue to do that in the future, but we need more assets. We need to find the next trade and we need to buy something. But we're not going to get stupid to buy it, but we hold pretty tight. We're not diluters, so we don't dilute ourselves. We're not going to do that. We'll see what happens and we're certainly open to any discussion.

Got you. Okay. And it sounded like the markets were -- no change in the markets. I mean, obviously, Florida and Texas and the Carolinas seem to be the kind of the focus in the near term?

I would say Florida, Texas, and the Carolinas, yes.

Yeah. Okay. Perfect. And then maybe just one thing back on the credit side, I think, Johnny, you talked about or maybe I misunderstood what you were talking, as far as the provision and reserves, but sounds like the provisioning, given the resolutions you're expecting, is pretty negligible here in the short term and kind of getting back to -- the timing of kind of getting back to that 2% level.

Can you give a sense on how you're thinking about that? And do I have that right as far as kind of the negligible provisioning here near-term given the positive trends in credit quality you expect?

I think that's probably good. I mean, when you scrubbed it where you charge off $8,000 in Alabama, I feel good about our reserve amount. Still -- hurricane is still up in there and we're not sure what's going to happen with that. Still got about $100 million on deferral there. We'll see where that goes.

Over the years, we've lost some money and some years we didn't lose any money. So, time will tell, and with two hurricanes, it'd probably be longer. And with all of what's happened in California, I would imagine these adjusters are extremely busy right now, so it may slow that process down a little bit.

Got you. And as far as the timing, at least how you're thinking about that 2% level that could be a ways off, it could be 12 months out as far as how you think about that?

I'd say 12 to 18 months out is what I'd say. We're not in a hurry. If we see something that we need to do, we'll make an additional reserve. But without that, we'll just keep moving down the road.

Got it.

Why do you need 2% reserve? You need 2% reserve because what else happened to us the last 10, 15, 20 years, I mean, that's why you carry that kind of reserve. Nobody can anticipate these -- nobody anticipated well, maybe some people anticipate the California fiasco, but nobody anticipated the pandemic, nobody anticipated inflation doing what it did, nobody anticipated the great financial crisis.

So it just -- you never know, that's three major events in 20 years. So, why wouldn't you or 19 years, why wouldn't you protect yourself and your shareholders with extra reserve? There's not any reason not to do that. We'll build back over the period of time -- when we get an opportunity to build back, we'll build back.

Got you. Okay. And then maybe just Kevin, on the resolutions, you talked about maybe, I think you said $30 million or so of recoveries. Just kind of wondering in terms of the timing of that, how you're thinking about a big picture? And then just the -- I think you also talked about a reduction in NPAs. Maybe I missed what you're talking about there. If you could just run back through quickly the resolution and NPAs you expect, whether it be over the next couple of quarters or next quarter, kind of whatever you commented on?

Yeah. So, the next couple of quarters, you could see probably between $30 million and $40 million reduction in NPAs, and that's just resolving the credits that we've acknowledged here and charged off some on, right? We'll work through those at the levels we're at and we'll probably see $7 million or so recovery on that batch and that would put us below 50 basis points NPAs at that point. So that's the short term of it.

Got you. Okay. And then the timing of the recovery, is that $30 million just in general kind of putting a fence around kind of how you're thinking about when those come back? What would you gauge as far as expectations there?

Well, you've got one credit that the recoveries will come in monthly as they make payments. And so, that's going to be ongoing for the next two, three, four years assuming that they just continue to operate like they are. If they sold the company or decided to pay off that note refinance something like that, then you'd have it come back in a lot quicker. But half of that number is that credit that's on a paying it's performing and paying and we'll take those recoveries monthly.

Got you. Okay. Fair enough. And then maybe just last one for Stephen. Just Stephen, I think you talked about maybe the margin being relatively stable. Can you just give some color on how you're thinking about cost of deposits and kind of loan yields, how they're trending here if we're if the Fed's kind of sitting idle for a bit of time here?

Yeah. I mean, if we're fairly flat, there may be some additional opportunity checking and savings. I mean, we have some portion of our indexed accounts or contracted accounts, municipalities that we -- that schools that we bank that change on quarterly basis.

So we have some set of that, that just adjusted on January 1 that will benefit us in Q1. And then, we've got the CD book that I talked about earlier. So there may be opportunities to work that down a couple of basis points a month here or there and hopefully kind of do the same thing to offset what potentially occurs on the loan side just as variable rates reset when they do.

Okay. So --

I think just potentially -- I think potential mix change over the course of the year, too, if excess cash comes down, goes into loans, if the securities portfolio comes down, goes into loans, I think can help with that too.

Got you. Okay. I think that's all I had. So thanks for the help and great close to the year.

We have no further questions on the line at this time. So I would like to hand the call back to John Allison for some closing remarks.

Thank you very much, and thanks everybody for your support and appreciate it. I think we didn't disappoint in '24, and we won't disappoint in '25, and we'll talk to you all in 90 days. Thank you.

Thank you. This concludes the Home BancShares Incorporated fourth quarter 2024 earnings call. Thank you for your participation. You may now disconnect your lines.