Home Bancshares, Inc. (Conway, AR) Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
July 20, 2023

There are 15 speakers on the call.

Operator

Greetings, ladies and gentlemen. Welcome to the Home Bancshares Incorporated Second Quarter 2023 Earnings Call. The purpose of this call is to discuss the information and data provided in the quarterly earnings release issued this morning. The company presenters will begin with prepared remarks, then entertain questions. Please note that if you would like to ask a question The company has asked me to remind everyone to refer to their cautionary note regarding forward looking statements.

Operator

You will find this note on Page 3 of their Form 10 ks filed with the SEC in February 2023. At this time, all participants are in a listen only mode and this conference is being recorded. It is now my pleasure to turn the call over to Donna Townsell, Director of Investor Relations.

Speaker 1

Thank you. Good afternoon, and welcome to our Q2 conference call. With me for today's discussion is our Chairman, John Allison Tracy French, President and CEO of Centennial Bank Stephen Tipton, Chief Operating Officer Kevin Hester, Chief Lending Officer Brian Davis, our Chief Financial Officer Chris Polton, President of CCFG and John Marshall, President of Shore Premier Finance. Well, Home Bank shares actually continues to stand tall in this shaky banking environment with a strong second quarter results. And our first speaker, Chairman, John Allison, will illustrate those details for us with some prepared remarks.

Speaker 2

Thank you, Donna, and welcome, everyone, for attending the Q2 'twenty three earnings release and conference call. Hope you find it interesting and informative and maybe a little comical. Some people set themselves up for an easy target and Sometimes I just can't pass it. Well, here we are in July 23 and just wrapped up a very interesting and unusual quarter, to say the least. We have seen the worst financial crisis since the Great Depression in 2,005 to 2010, A 1917 pandemic like we have never seen, while inflation not seen since the late '70s early '80s As a result of both the past and present administration spending money without any restraints, all of our Jerome Powell was trying to do his best control inflation with this out of control spending.

Speaker 2

I call that swimming upstream with handcuffs. So We got bad dynamics. That's a new term I just heard. So how is it working? Suicide rate has jumped.

Speaker 2

Homelessness has exploded, The highest number of bankruptcies in 12 years. We're starting to replace the U. S. Dollar with a digital one, not sure what that means. Bank failures, we've had several bank failures this year.

Speaker 2

I doubt we'll have many more than we could. Interest rates were at the highest level. Crime is running rampant in cities. The war in Ukraine continues on and Putin's own hired army seem to turn on him. The economy is slowing, The deficit is exploding.

Speaker 2

The administration is trying to get us to believe that the economy is strong while 31% of the Americans have tapped the loan From the retirement fund 401 or IRA, record level of credit card debt, pet malls continue to kill thousands of Americans, 1,000 crossing the border almost unabated. Inflation continues to march forward. However, it is improving. The last time I checked, Janet Yellen was still busy buying nonstop to her Chinese counterpart. China appears to be a threat to the U.

Speaker 2

S. Because U. S. Looks weak. China is trying to bully us a little bit around the world.

Speaker 2

China is sending weather balloons, I call them weather balloons, over the U. S. Rally, Russian aircraft playing cat and mouse with U. S. Aircraft and ships and Hunter Biden has finally agreed to take his place From the U.

Speaker 2

S. Attorney. I think they had stopped him from having snow cones on Tuesdays Thursdays. So that's his punishment. And They did prohibit him from paying any more income taxes, by the way, in no state, federal, city or county.

Speaker 2

I think that's just because they want us to pay our fair share. We can't figure out who's left the cocaine in the White House, But other than that, things are really, really good. So what can possibly go wrong? The 2nd quarter was a stressful 91 days with several bank failures in the Prior quarter and maybe more to come. This was the scariest 91 days of my banking career.

Speaker 2

As I said last quarter, liquidity was not important Until it ends. And this was my first experience up close what a liquidity crisis can do and how quick it can end the life of the bank. I was very nervous, but also proud to be one of the very few banks that have the balance sheet with the liquidity to pay out all uninsured deposits. Keeping Home's balance sheet strong with the ability to pay out all insured deposits has cost us some income, but the peace of mind that we positioned Home one America's strongest and safest financial institution more overrides the short term earning issues. Not only can we pay out, but we can pay out if we borrowed all the money and lifted the balance outstanding for the full quarter.

Speaker 2

At today's interest rates, we would still be in the top 25% to 30% of profitability for the top 200 best Publicly traded company banks in the U. S. And that includes all the money centers. However, in spite of the craziness, the second quarter was pretty good one anyway. Really, the only weakness in the second quarter we allowed was interest expense to outrun interest income by about $6,900,000 from last quarter.

Speaker 2

Interest income was a company record, but so was interest expense. That was very disappointing to me, but we're addressing that issue. We have about $760,000,000 to reprice Between now and the end of the year, at a little over 5%, and we possibly could see a 300 basis point increase in those yields. If so, that adds about $5,700,000 to the quarterly interest income, not all we need, but close. We also have about the same dollar number of scheduled payoffs, and we'll evaluate the rate and customer and hopefully retain some of those Customers at higher rate.

Speaker 2

We'll continue to originate new business as long as we feel safe and secure. We are not aggressive on the loan side And that philosophy will continue forward. It is certainly not time to be taking any risk. Our goal was to make about $400,000,000 for the year And we're on target to do that with the $208,000,000 first half of the year. I think our investors and shareholders will be happy with those numbers.

Speaker 2

Having the best year in our corporate history, we're in the middle of a banking crisis, coupled with a very unprofessional treatment And possibly illegal behavior we experienced in West Texas, I think all our people should be proud. Our performance speaks for itself. My wife said protect the chuck wagon and that's exactly what we're doing. This is a time to move slow and careful, Don't take any risk and for sure do not buy someone else's problems by refinancing their bad loans and trying to get them off the books. This is a time when problem loans flow to the top and many bankers are trying desperately to get them off the balance sheet.

Speaker 2

We're seeing some of them, but New York's our New York office said they're seeing a lot more of them, but interestingly, nobody is really taking the bait. If these 5.5% and 6% newspaper ads continue to be run by these bankers that have already run their balance sheet Excuse me, have already run the balance sheet into the ground because of mistakes they've already made. I suspect the cost of deposits will continue to move up. For them, that means screw the margin. They cannot borrow any more money from the plant.

Speaker 2

They've borrowed all they can borrow and they've spent all of their liquidity and are forced To have cash to satisfy the regulators, regardless of cost or margin, if they're forced to sell the securities, the loss could hit them so hard They could get a run on the bank, AKA Silicon Valley Bank. That's exactly what happened. And it happened quickly. A few days later, the bank is closed over forever. They thought they were totally bulletproof.

Speaker 2

I spent 23 years Billing this company and the thought that it could be gone in the blink of an eye is absolutely frightening. Those bankers who have allowed their balance sheets to go over 105 percent loan to deposit and weak capital of 8% or less Have a good chance of the same fight. If the big bad wolf shows up at the door and starts huffing and puffing, goodbye forever. That's not going to happen at home. Strength and safety has been our priority for the last 23 years, and that will never change as long as I'm here and this management team is in charge.

Speaker 2

Let's go to the results. Pretty good results, dollars 105,300,000 in earnings for the quarter. It's $0.52 I think, right in line, Got a little extra penny in there somewhere. I think the analyst were at 51. Revenue, 2.575 That was right on target, efficiency of 44%.

Speaker 2

Net interest margin remained strong. However, it dropped 9 basis points during the quarter. We tried hard to keep that up, and we're working on that now. On the asset quality side, reserves remained strong at 2.01. Non performing loans and non performing assets both improved for the quarter.

Speaker 2

Loans from 0.51 to 0.43 And non performing assets from 0.33 to 0.28, good numbers. Announcement on our member care. $30,000,000 member care loans that we've talked about for that your company follows. These loans were underwritten properly on the front end and provide an avenue for banks to get at if and when problems come up. Great job, Tahal.

Speaker 2

Asset quality has remained good. The only thing worth mentioning is I found out today or yesterday afternoon, have one office building that's half full in the $25,000,000 to $30,000,000 range. We will keep you informed on that. It's early, but we do not anticipate a loss. The tenant that moved out spent over $10,000,000 on tenant improvements, and we haven't looked at the office.

Speaker 2

Don't know if Kevin has, but I understand some nice product. Other than that, I don't see anything that bothers us. I will say it's a good feeling to have almost $300,000,000 Loan loss reserve in these uncertain times. I certainly sleep better with those kind of reserves and our employees, investors, shareholders, customers and postures It should too. Return on tangible common equity was 19.39%, nice number.

Speaker 2

And here's the capital ratio, Top tier capital ratio, CET1 at 13.63%, leverage at 11.92%, Total risk based capital at $17.28 tangible common equity and tangible assets at 10.65 percent and tangible book value is $10.87 and book value is $18.04 During the quarter, we repurchased 560,849 shares were approximately $11,800,000 and year to date, We bought back 1,150,000 shares for $25,300,000 Average loan yield was up 20 basis points to 6 0.84 from the Q1 of 6.64 from the yes, the Q1 of 6.64, excuse me. Interest ground deposits increased from 190 to 227. That's a pretty good jump, a jump more than our 20 basis points. I'm expecting the second half of the year to be much tougher than the first half. The good news is Home can handle whatever comes our way.

Speaker 2

We didn't get into this great position by luck. We controlled and directed the entire operation of the company On the most conservative path we can follow. Call the shots along the way, some are controversial and tough to see, but they had to be made, But they have certainly paid off for Home. Home continues to be recognized in the top tier of all banks It's top tier of all banks in the U. S.

Speaker 2

And even 15th in the world. That's a great place to sit. It will be interesting to see the rankings after all bank I would imagine that Home will remain in the top Exelon Group of all banks as it has been for most of its entire business life, Being ranked by Forbes Best Bank in America 3 out of the last 6 years was not luck. Running a business in normal time, If we know what normal is anymore, it's fairly easy because we all pull from our past experiences we have had. But in the last 18 years, it's been no surprise after no surprise experience.

Speaker 2

I witnessed many Home Bancshares employees Working from daylight to dark, getting very little rest in their offices, sometimes some of them slept in their offices, And I describe that feat in one word as remarkable. I'll never forget how blessed we are to have such a remarkable team that does whatever it takes to win. The entire group that participated in this process, thank you so much for what you did, not only Time Warner, but throughout the entire footprint. The efforts you made changed the course of lots of things. I want to thank the investment community for their amazing support.

Speaker 2

Being in the bank space has not been the most Popular asset class still owned in the last 15 or 20 years. So many of us have committed our lives to the space And so have many of you, but you could always sell and change your asset classes much easier than those of us that are huge owner operators of our bank assets. Home is my largest asset and the largest asset of the members of my executive committee and the largest asset of many of our regional presidents. So there is a powerful commitment to the success of this company. I don't think there is a management team in the country that is more aligned with their shareholders In the entire bank space and home, we will protect this company with whatever it takes.

Speaker 2

We've taken an attack on home in any way as an attack On all of our individual families' futures because all of us, an attack on home can change the value they have That we have committed our lives to for nearly a quarter of a century. This is not a job. This is a future. I hope all

Speaker 3

of you are proud of

Speaker 2

our performance over Yes, there's only a handful of banks that sell at 2x tangible book or more, most of them selling at 1x or lower. As we've seen the multiples decrease over the years, we do not apologize for our multiple. As a matter of fact, we're very proud. If I've heard it once, I've heard it a 1,000 times. I'd love to own your stat, but you are a little pricey.

Speaker 2

Really? Now why do you think that is? We're blessed with the best and smartest institutional investors in the entire bank space, and we've met nearly all of them over the years. Plus, strong insider ownership with about 7% of the bank and the Allison family stake is around $200,000,000 Well, we're here in the space, committed to our shareholders, and we'll continue to try to make you proud by remaining in that Small group of elite top performing banks in the country year after year. You have my personal commitment.

Speaker 2

Thank you for listening. And Donna, I'll come back to you.

Operator

Okay. Well, thank you for

Speaker 1

a very insightful report as always. Next, we have Stephen Tipton here to provide us with some more operating details.

Speaker 4

Thanks, Donna. I'll start with the topics of liquidity and funding. We mentioned last quarter the shift of deposit balances to investment firms, Money market mutual funds and the highly competitive interest rate environment in the bank space. That theme continued in the Q2 of 2023. Total deposits declined $449,000,000 in the quarter with the vast majority of that occurring in the back half of April as tax payments cleared.

Speaker 4

Across our footprint, the Arkansas regions were fairly stable over the quarter with Texas and Florida attributing the majority of the decline. Although non interest bearing balances declined slightly less than $350,000,000 they still account for a strong 27% of total deposit balances. Johnny mentioned the uninsured balances relative to our borrowing capacity. Adjusting for collateralized deposits, which are generally the municipalities, Local school districts and higher ed relationships, the calculated uninsured balances improved slightly from Q1 to 29% of total deposits. Alternative funding sources remain extremely strong with broker deposits only comprising 2.2% of overall liabilities And our internal limits would allow us to grow that by over $1,400,000,000 if the opportunities on the asset side were presented.

Speaker 4

As we mentioned last quarter, our top ten list of depositors accounts for less than 6% of total deposits With only one of those customers being uninsured or uncollateralized. As a reminder, our deposit base shows nearly 500,000 deposit accounts With over 70% of those having been open and active for at least 3 years and over 25% of those over a decade, The mix and balances today stands at approximately 2 thirds commercial and 1 third retail, while the number of deposit accounts is approximately 80% retail. The focus in loan committees and discussions amongst all of our regional presidents today is certainly on deposit gathering, Core customer growth and retention. On the asset side, loan origination volume picked up slightly in Q2 With $1,340,000,000 in commitments, notably over 80% of the volume coming from the community bank regions with over $400,000,000 each coming from Texas and Florida. And yields on originations continue to improve With an average coupon of 8.64 percent in Q2.

Speaker 4

Finally, as Johnny mentioned, the net interest margin compressed 9 basis points in Q2 to 4.28%. Lower event income in the quarter contributed approximately 3 basis points to the decline with the remainder attributable to deposit rate increases outpacing the rise in earning asset yields. Interest bearing deposits averaged 2.27% in Q2, up 37 basis points from Q1 and exited the quarter at 2.39%. The core loan yield excluding accretion and event income averaged 6.72%, which was up 23 basis points from Q1 and exited the quarter at 6.79%. With that, Johnny, I'll turn it back over to you.

Speaker 1

Well, Johnny, before we go to Q and A, do

Operator

you have any additional questions or comments?

Speaker 2

We've all been watching this bank crisis live from the front lines And watching the impact on interest rate or the impact on interest rate, the effect they've had on our banks, I remember The late 70s or 80s when the same thing happened and when the same loan process was happening. You can say what you want to create a sack full of excuses, but the financial position of any company is good or bad, Be it good or bad is based on the past decisions your management team has made and as they have total responsibility, them and the Board. That is where the buck stops. We can say we're blindsided, but we're watching it happen and all of us should have been preparing for something don't know that we knew what to prepare for. One of the big differences between the present bank prices and the S and L days was the speed of the collapse.

Speaker 2

SNL was a slow death. With today's technology, it is no longer a slow death. It is light speed. There are several differences, but lots of similarities. CD rates then were higher than loan rates.

Speaker 2

We're seeing that now. You got a 3.5% loan rate and you're paying $5.40 for money. What's the efficiency ratio on that? S and Ls, Like today, we're forced to buy money at higher and higher rates, driving the stake deeper into the heart of the bank. Exactly like today, they just need a bigger truck.

Speaker 2

They didn't work. The speed of the collapse was amazing. They moved 1,000,000,000 of dollars out of SVB by ways of today's just normal technology with their computer or with their iPhones, They moved very into that. I think it was shocking to SPV as we understand. Early on, I was not aware if we could pay out all insured Pause.

Speaker 2

It's not when I say that I mean early on in the Q1. And that's when I thought, can we pay out? And I thought if any bank can pay out, Holmes should be able to. We immediately asked Brian Davis and Stephen Tipton to give us a report, And the very comforting information arrived in the stress levels of all of us dropped immediately. The decision not to invest excess funds into securities It was one of the toughest and long list of my Viking career because the impact was huge.

Speaker 2

The impact was on thousands of people, Employee, employers, shareholders, customers, employees, the call turned out to be the correct and looking in hindsight, The call looks like a no brainer. Deploying short term money into low rate, long term securities in a raising rate environment, Well, you'd have to be stupid to do that. Well, that's what 99% of the banks did. And we could have been in the same shape as all the other reasonable banks That did that and most of them did with that one simple decision. That's why I say Regional Banks has not all made the same.

Speaker 2

We have tried to separate ourselves from the past. The call turned out to be absolutely correct by taking the $3,000,000,000 in excess funds And just putting it in Fed funds. Even we made a mistake though, we invested our cash flow from our securities back into the securities book. 1,000,000 of dollars were reinvested back into because we felt the pressure. In hindsight, that was not a very smart move.

Speaker 2

It probably cost us $200,000,000 to $500,000,000 of additional liquidity today and some additional earnings today. However, If it was $500,000,000 we put $300,000,000 in Fed funds. So I guess that was 6 times better off. So I'd rather be part right or mostly right, darling, than not right at all. I should have never fallen into that pressure.

Speaker 2

We all make mistakes Driving the stake into the heart of the bank, that was not good. Management is totally responsible for the safety and soundness of their bank. There are many different silos and responsibilities in the bank and everyone thinks that they know what is best and they may know in their own individual arenas. But management takes all inputs and has to make a balanced decision that is the best and safest for the entire corporation. In other words, the buck stops here.

Speaker 2

No one to blame. There is no substitute for experience, and I'm the only one old enough around here, not very Proud of that to vaguely remember the Volcker Day for the late '70s '80s. Don't tell me history doesn't repeat itself. As it turned out, I guess it's better to be mostly right than not right at all. We together have built one of the best and safest financial institutions in America.

Speaker 2

It may not be totally bulletproof, but it's darn close. Donna, how about Q and A? Price, do you got anything you want to say?

Speaker 5

Well, it's kind of hard to follow that comments, but just

Speaker 2

a little I can give a little heads up on

Speaker 5

the Community Bank As you identified, 1st 6 months and last quarter certainly not been dull. But it's never been that way for this company and working for a leader like Johnny Allison. While playing with the cards that we have been dealt, Centennial Bank continues to perform extremely well. Each month as we manage our company, I simply see our regional leaders, our support office directors continue to perform skills Taking care of our shareholders. To give a few examples of what I mean, our ROA for the first half of the year was 2.04.

Speaker 5

Our return on equity was 12.73%. Non GAAP equity was 21.74%. Our efficiency ratio was 41.37%. Our famous Johnny P5 Ian, whatever. Yes, T5 NR.

Speaker 5

T5 NR finished the first half of the year at 57.43%. Our net Revenue was over $522,000,000 and our net interest margin was 4.41, which is up 81 basis points from this time a year ago. As you heard from Johnny Allison earlier, our asset quality remains strong. Our 13 regions all continued to perform well, managing our cost of funds, managing our loan yields I managed our non interest income and non interest expense year to date. Today, we had 8 regions over 2% ROA, And that stood out with 2 of them over 3%, that being our Cabot region and our Northwest Arkansas region.

Speaker 5

Our lowest, Johnny, was 1.93, which is not too bad whenever you look at the rest of the country and how banks perform. Johnny, we will continue to focus daily on our strength and giving it our all for the best return for our shareholders.

Speaker 2

Thank you, Tracy. Scott, you got any comments? No, I'm good. You said it all. You want to go to Q and A?

Speaker 1

Thank you very much for those comments. And I think now we are ready to go to Q and A.

Operator

Thank you. We will now begin the question and answer session. Please remember to pick up your handset before asking your question. We will pause here briefly as questions are registered. The first question comes from the line of Jon Arfstrom with RBC.

Operator

Your line is now open.

Speaker 6

Thanks. Good afternoon, everyone.

Speaker 2

Good afternoon, John.

Speaker 6

You hear me all right? Okay, good. Question for you, maybe Tracy or Kevin, what are the loan pipelines look like? I'm curious if you're seeing quality opportunities And you had some decent community bank growth. Can you talk a little bit about the drivers there?

Speaker 3

Hey, John, this is Kevin. So I'll let Chris talk about CCFG when that comes time. But in the Community Bank footprint, we're still seeing good It's hard to make some of the deals work. I mean, you got to get you got to be looking at 45%, 50%, 55% equity And a lot of these deals to make them work and there's people willing in some cases to do that. So we're still seeing good opportunities.

Speaker 3

We actually had Growth at the community based level last quarter. So good pipelines, good opportunities. It's like Johnny always says, we'll take what the market gives us. And if you see growth, it's because the market It's there for us and we're going to continue to do what we always do.

Speaker 2

Chris?

Speaker 7

Thanks. Yes. For CCFE, I think it's we're seeing opportunities there, but You work in the market you're in, like Kevin said, and if you look at the CMBS market, for instance, I think it's down 70% this year

Speaker 8

For the first half of

Speaker 7

the year, there just haven't been a lot of transactions getting done. I think we're seeing them. Those that are getting done, I think we're seeing a lot of ideas. I just don't know that all of them work. And I think it takes right now to be a little bit patient.

Speaker 7

There are some transactions that we think will probably come our way here, but we got to be a little patient with the Sponsors and they got to be a little patient with us while we work through some things. And so the first half was a little bit slow, which is Fine. I think second half will pick up a little bit more. I'm not too worried about it. We haven't forgotten how to grow.

Speaker 7

And I think the good news through all that was we continue to get pay downs. I think I've said this before on calls. I only get worried when we're not getting paid off on things that should get paid off. And when transactions have slowed down, if Your payoff slowdown too, that starts to get me a little bit nervous. So we were down a little bit this quarter or a lot this quarter, but that was really due to mostly we were getting paid off on things.

Speaker 7

I think it was time to get paid off on.

Speaker 6

Okay. And Chris, what are the pain points in your business? And I'm just curious how your competitors are behaving? Is it just Is the volume just dried up? And I'm just curious, we all worry about central business district office and big geographies, and I'm Sure, you get to see that in your deal flow, but where are the pain points and how are your competitors behaving?

Speaker 7

Yes, I think it's the pain points for our borrowers right now, to be honest with you, there's a lot of not a lot of transactions are built for 11% coupon, Right. And so I think it's just tough to make the equity, MES, senior loan Numbers work and get a decent return for the sponsors in a lot of cases. So in some cases, they've sort of slowed down or pulled back On the transaction to wait and see if things get better, I think you're looking at a hire for longer now. And so at some point, you Bought the property or you need to develop and those things will get developed because they'll just put they'll put more equity or accept a lower return. Competitive wise, we have not seen I mean, for the folks that are pretty active in there, I haven't seen anybody do anything That they shouldn't be doing.

Speaker 7

We're not seeing people get aggressive on rates. We're not seeing people get aggressive on leverage. I think we continue to see non bank players. There was a deal the other day we were looking at, I kind of liked the transaction, but we were going to be at Sub 50% and they were going to bring in mezz and the non bank lender came in and took the whole thing. I think we see that happen a little bit more, but I think that's okay.

Speaker 7

I think that's healthy in the market and such. So I think some of the non bank actors are probably being Still pretty aggressive, but not overly so. Just not a lot of transactions actually happening in the market. I think we're getting our fair share. I just think it's been, as I said not a lot happening.

Speaker 7

That will break. You can only hold on to things so long and builders build and sponsor sponsor.

Speaker 6

Okay, fair enough. Stephen, a question for you. Johnny kind of alluded to, I don't want to call it a mismatch just on interest expense and interest income because being down 6 basis points on a core is a victory Your core margin is a victory right now, but how do you guys feel about the relatively near term outlook on the margin? Do you feel like this is really maybe the trough on it?

Speaker 4

Hey, John, this is Steven. I think we're going to continue to see Deposit costs rise. We've continued to take a measured approach and have our bankers work one off with customers as opposed to Advertisements and mailers and things like that, that we're seeing out in the place today. Johnny mentioned the opportunity on the loan side in terms of We're pricing renewals and I think that's really the goal that we set out is to try to even that up, match that up in terms Where deposit costs go and where loan yields go. Yes, they have some Slight decline to it as we continue to go.

Speaker 4

But to your point, I think we're talking basis points as opposed to 10s, 20s and 30s like we've seen from some other banks that have reported.

Operator

Thank you. The next question comes from the line of Matt Olney with Stephens Incorporated. Your line is now open.

Speaker 9

Hey, thanks guys. Good afternoon.

Speaker 2

Good afternoon, Matt.

Speaker 9

On the credit front, Great to hear the update on the memory care centers. I know that's something you've been focused on for a while, so good to see that Move off, on the office loan that you highlighted that you're carefully monitoring, looking for a few more details if you have Looking for what market that office loan is in? When does that loan mature? And any kind of color on the LTV? Thanks.

Speaker 2

I'll let Kevin take that. It's in the West location, but the LTV is, Kevin, you want to?

Speaker 3

Yes. I mean, I think we're just I think we're having it reappraised now, but I think it's going to be in the 55% to 60% LTV range and it we're still monitoring that one. John, we wanted to get ahead of it and he's always wanted to tell you ahead of time what's happening and how things are. And I think We're just kind of getting in front of that when it's something we're watching and may or may not be a problem. But if it is, Yes.

Speaker 3

We wanted you to know about it ahead of time.

Speaker 2

We do attack these things, as you know. And I apologize for not having any more information on it That I have at this point in time, we'll have a full dossier on it here pretty quick as we did on the memory care centers. We'll know where we are and what we're doing. We don't early on, from where we're looking at it, we don't unless we get a really disappointed appraisal, we think we're Good shape. We got some additional cash put back for that thing also.

Speaker 2

So as soon as we hear something, we'll let you all know.

Speaker 9

Okay. And just to clarify, you mentioned you're getting the reappraisal right now. Is that reappraisal because there was a tenant loss or it's Maturing soon or what's the reason for the new appraisal on that loan?

Speaker 3

Yes, there was a tenant loss And I think that was part of it. I think, yes, as you're working through some of these things, sometimes it's just prudent to find out where you're at. And so I think there were multiple reasons for it. But yes, there was a tenant loss in that particular property.

Speaker 7

Okay.

Speaker 9

All right. And I guess just switching gears, Want to ask about capital levels, capital continues to build. It looks like the pace of the buyback remains still a little bit slower than it did this time last year. I'm guessing that CET1 ratio could be close to 14% by year end. Any more thoughts on capital deployment?

Speaker 9

And I guess, Johnny, kind of how do you weigh your various options at this point of the cycle? You got M and A out there, which you've done successfully in the past, but it sounds like the timing of that is maybe kind of unknown right now. But I'm also guessing on the Security side, if you wanted to, you could look to maybe restructure something on that front. So curious just kind of how you weigh these various options?

Speaker 2

I kind of played with that a little bit. It's not the time to do that when everybody thought a while back that the world's going to pivot and rest came down, we thought it would be a good time maybe to look at Selling a few securities and redeploying the money, we just kind of tinkering with that a little bit. That might be something we want to do Someday, we have a pretty good yield on our investment book, by the way. So I don't think that the losses went up. AOCI increased a little bit around $20,000,000 $25,000,000 That's correct.

Speaker 2

So it's an interesting thought. You got to balance. The key is don't keep too many deposits. It's a balance between loans and deposits, enough to be able to pay out is the key to me. So Well, I won't carry.

Speaker 2

I mean, one aspect in deposits, I don't want to pay $5.40 for money. I don't need to carry a band that Around in my pocket, paying $5.40 for something I don't need. So when you see the balance of this company, you think deposits run off there. Some of that has not gone off, so much has been asked, believe. So plus we had 2 tax times here and We had a April tax time and if you were in the tornado area, you had a June tax time.

Speaker 2

So I didn't have to pay my taxes So June, so you haven't seen the results of that yet, but it's not that bad. It's not that bad. Anyway, I hope I Answered your question. I kind of run off from a little bit of transit here.

Speaker 9

No, that's helpful. I appreciate that. Okay, guys. Great color. I'll step back in the queue.

Speaker 2

Thank you.

Operator

Thank you. The next question comes from the line of Brett Rabatin with Hovde Group. Your line is now open.

Speaker 10

Hey, good afternoon, everyone. Wanted to start with the comment that you made about The second half of the year being a little harder than the first half of the year and just wanted to get some additional Clarity around that. Is that due to the margin, a little bit of non recurring fee income in the second quarter? What's the biggest challenge 2nd half versus first half?

Speaker 2

Well, to me, it's a right environment. It just continues. These people, I mean these competitive banks running 5.30, 5.40, 5.60, 5.70 In some sense, adds, I mean, they're continuing to run those. I guess, people have put enough money in there that they feel Site under the limit, 240,000 or whatever, but that might I mean, that just Flashes back to the S and L days of the late '70s early '80s, where you're paying more for money than your loan balance is. I remember looking at S and L in Conway, Arkansas, and they said our average yield is 7.90 something.

Speaker 2

I said, well, that's good. That's a good yield. Well, the cost of funds were more than that. So that's I just remember that happening and seeing that happen in the S and L here Manhattan all over the country, it just makes me it just keeps me alert and makes me nervous as to where that's going to go. Can it go much higher?

Speaker 2

If somebody has spent all their money, Brad, you know that, they spent all their money, they borrowed all their money and they're still Threshing for liquidity, they got to have liquidity, then they can go into the market and pay whatever for it just to exist. Now, at that point, it's through the margin and to hell with everything else. But I think because of the inefficiencies of the rest of them is going to put pressure on us. Does that make sense?

Speaker 10

Yes. No, that's helpful and I've heard that.

Speaker 2

They spent their money through long range securities and they don't have choice. I mean, they borrow all they can borrow. We got 2% broker deposits. We've got room to put deposits. We got room to put 1,000,000,000 almost Sure.

Speaker 2

The $2,000,000,000 of broker deposits on the books we want. We just got we try to balance that's what we try to do. I think it's the fact that everybody spent their money before and remember in the S and L Day, let me tell you something. If the big bad wolf shows up in a bunch of these banks, They're gone. They're gone.

Speaker 2

They're history. I'm not going to let homebenchers get in that position. I'm not me, but my entire Executive Betty, the Board and everybody else, we're proud of the position we sit in. Cost us a little income, but that's okay. That makes sense to you?

Speaker 10

Yes. No, that's helpful. And then just wanted to follow on, on the loan pipeline commentary. And one of the things that I thought would happen, You've been so conservative and kept your powder dry. I kind of thought when rates went up, it would be You'd see stronger growth on the balance sheet, but I'm curious to hear if loans just aren't penciling Enough or well enough for you to get interested, maybe you need more too much cash upfront for the deals to work for you or just what you're seeing that's keeping you from being more aggressive than you have been with bringing Customers that were from banks that may not be able to service them.

Speaker 3

So, hey, Brett, this is Kevin. So in the community bank footprint on some of the smaller stuff, You still got some local banks that are doing things in the 7s that just don't make a lot of sense. We're not going to play in that game. On the larger stuff, to some degree, I think you're right. I think that's Why you've seen some growth in the community bank footprint is because there are some folks that are out of the game.

Speaker 3

It is still difficult to make some of these things work. Like Chris said, we're in the 9s now to make things work, right? And it's difficult to make some of these things pencil out. So when you start talking to people about 50% equity and sometimes more. Sometimes they just don't either the deal doesn't get done or they go somewhere that they can get done a little less

Speaker 2

It's just not the time to be stretching. It's not the time to stretch. It is the time to be careful Because as I said in my remarks, lots of banks got some bad assets on their books and they're doing everything they can to get rid of Those assets. So it is a time it is a dangerous time to me. You got to be real careful, real smart.

Speaker 2

Stay with your customers, know your customer. Don't be taking any risk. Don't be taking any chances. Just sit tight. I think Michael Rose said something while Mike, he said, it doesn't hurt to shrink a little bit.

Speaker 2

It doesn't hurt to shrink a little bit and be lean in mean. Tracy, you got to comment on that? No, I

Speaker 5

think the pencil part is the biggest part that we see there. We could this bank could grow if we wanted to open that door, but the numbers just don't add up when you're doing 8%, 9% Credit.

Speaker 3

Anecdotally, on multifamily, for example, we're in some really, really strong markets, but We're not writing to trended rents. We're looking at historical rents. We're seeing rents slow down and in some cases turn south a little bit. Hotel, we're seeing some things even in our really good markets, we're seeing some things trend back towards 2019 levels In some of our hospitality. So and we've underwritten that way all the way through the pandemic.

Speaker 3

We went back to 2019 levels rather than 2021 levels. So yes, you would think this would be the time you would see growth. But as Johnny said, it's not the time to stretch. So that's where you are. You end up you take what the market gives you And you continue to write conservatively and if you grow, you grow.

Speaker 2

You don't need to come in with policy exception. Right. We're coming with a policy exceptional loan to us at this point in time. We're just not going to do that. We don't have to.

Speaker 2

We're in a good enough position. We don't have to. We've got a good margin. We'll grow we'll do some new loans We'll remove that $760,000,000 and we'll save some of that other $700,000,000 coming off. So we don't have to do that right now.

Speaker 2

So There's nothing wrong with keeping your head down. It kind of reminds me of 'five, 'six and 'seven right now, except When I saw that liquidity crisis kill those 3 banks basically overnight, that really got my attention. I don't run scared, you know that, but I get that one made me nervous. That has my attention. Plus the fact, I will not we will not get ourselves positioned, we can't pay our undisturbed deposits.

Speaker 2

That's the most important. To me, That is the most important thing right now because if there happened to be bank run start rolling, it wouldn't be good In the country and home would survive. So I think that's the most important. I wasn't sure where this was going early on, But I think it is extremely dangerous time and I see people at 108% and 109%, 110% loan deposits, I wouldn't be able to sleep at night. I just would not be able to sleep at night.

Speaker 2

You got 8% capital and 109% loan to deposit and the big bad wolf shows up, Turning up the lights because it's over.

Speaker 5

And Brad, just on the positive side, we're seeing opportunities that We're making approvals on and working today. So and that's with good businesses that Other banks may have tightened down a little bit in some areas, but we're I don't ever we'll go too positive in front of Johnny, but I think there is some opportunities

Speaker 2

We're working on some really good opportunities right now. We don't have them yet, but I think they're coming and they're priced right and they work. They appear to work at this point in time. The committee hadn't approved them yet, but we're working on some Pretty good sized loans. It makes some pretty good sense with some customers that our people know.

Speaker 5

That's in Florida and Arkansas and Texas.

Speaker 2

Yes, that's true, in Florida.

Speaker 10

Okay. Yes, I'm guessing

Speaker 9

you guys sleep

Speaker 10

a lot better at night than Go ahead. I'm

Speaker 2

sorry. No, go ahead.

Speaker 7

I was just going to say, I bet

Speaker 10

you guys sleep better than most bankers at night. So Thanks for all the color.

Speaker 2

We do. Thank you. Yes, we do. We are sleeping. It's a good time to sleep good.

Speaker 2

Thank you for that. We lose our operator. Next. We got more people in the queue.

Operator

Apologies for the delay. Thank you for your question. The next question comes from the line of Stephen Scouten with Piper Sandler. Your line is now open.

Speaker 11

Great. Good afternoon, everyone. Thanks for the time. Johnny, you always have a really good Pulse for the environment, you were saying rates were going where they are today, long before anyone thought that was possible. But I guess I'm kind of surprised to hear you be what sounds A lot more negative than what I've heard kind of so far through the quarter.

Speaker 11

It feels like the sentiment has improved a bit since early May. But maybe what are you seeing? I mean, I know you've talked about competitive pressures, but where are you seeing stress? Is it smaller banks that you're looking at? Is it I guess I'm just kind of curious what gives you this level of concern when things seem to be kind of normalizing a little bit?

Speaker 2

Well, I mean, Tracy pulled a list of those banks that were 105% loan to deposit or greater And with an 8% or less capital ratio, it is a pretty good list. And that's where the big bad wolf, If he goes there, there's going to be serious problems. So I think the thing I'm not negative about banking right now. I'm just concerned about the liquidity of these people that are 110% loan to deposit. And if they stop their toe and 1, the dominoes start falling and maybe they're not going to fall, maybe that doesn't I hope they don't.

Speaker 2

But if they start falling one after the other after the other, then I won't call bank shares to be one of the survivors. So I'm not saying that's going to happen. I hope that doesn't happen. I did call the Fed funds rate. I said it's going to be 6 and I think it's going to be right at 6 Before it's all said and done, but it is that was just the experience.

Speaker 2

And I have no experience, let me say that, I may be overreacted. I have no experience with liquidity crisis up until now. This is really got my attention. Liquidity And the financial system really got my attention when they moved all that money from SVB overnight. I mean, just boom.

Speaker 2

And they didn't know what hit them. So I think it's just time to be safe and careful And smart, I mean, maybe so. We still might probably will have the best year in this corporation's history. So that ain't all bad. I mean, I'm positive about that.

Speaker 2

I mean, we've $400,000,000 I think our I think all our investors will be happy and I think you'll be happy with 400,000,000 Stephen, we're at $208,000,000 in the 1st 6 months and I think we're going to see more pressure on rates going forward. If we can get repriced and we can get the 760 up 3 or 4 basis points on those 300 to 400, I think we're going to be able to have a good 3rd quarter and a good 4th quarter and with Kevin and Chris and John will bring some more business. They'll bring business. We got, I don't know how many dollars we got, probably $1,000,000,000 out there working right now. So We know these people and probably not going to do a lot of stretching and go outside looking for people I don't know, which we've done in the past.

Speaker 2

It will have to hit us in the face. We're just I just think it's time to be careful. When you got Balance sheet Holmes got right now. Yes.

Speaker 8

No, I

Speaker 2

mean, you don't want to mess it up.

Speaker 12

Yes. Well,

Speaker 11

Yes. And to your point, I mean, the markets rewarded you for it. You're outperforming by 25%. So what's that, dollars 1,000,000,000 in market cap, give or take? So, yes, no, I mean that's played out in your favor for sure.

Speaker 11

How do you think This might materialize in the M and A environment. I mean, you've always done a

Speaker 13

great job of capitalizing

Speaker 11

when there's opportunities. Do you think we see A wave of opportunities anytime soon. I mean, are you thinking more of a 2024 sort of environment? How are you thinking about that potential?

Speaker 2

I think we should. I think we should. I mean, a lot of boards of directors That are sitting there looking at their balance sheets today. If they understand the balance sheets, they understand what they're looking at, Have to be kind of puckered up, so to speak, looking at 110%, 112% loan deposit And not making any money and margin going through the going down, margin going straight down. I mean, it is not a If you haven't made the right moves, it's not a good place to sit.

Speaker 2

If you've made the right moves like home did, it's a great place to sit. And we just got I'd rather be lucky than smart if we got lucky and made the right call on what to do with Our reserves, our deposits, we made the right call. So I'm not trying to scare the world. I told I spoke at a conference a while back and I saw one of our investors sitting there and I said, I know this lady, she's doing conference and what are you badgering the banking industry I'm not badgering the banking industry. I just think some of the bankers got themselves in trouble.

Speaker 2

They've got themselves in trouble and they can't make any loans. I mean, they can't make a loan. They don't have any liquidity to make a loan with. It's about as tight as I've ever seen it. Yes.

Speaker 2

Which tells you there are some opportunities for people like us. I understand that. And we'll take advantage of a few of those. But we'll always keep enough money In our pocket to pay out our uninsured deposits.

Speaker 11

Yes. That's good. I guess last question I had is just actually around kind of short Premier or maybe just in general kind of the marine and RV space. I'm seeing Some weakening there in terms of values on those types of products as demand kind of seems to normalize to pre COVID level. What do you guys see in there in terms of valuations and demand and

Speaker 10

so forth in those spaces?

Speaker 2

I think it's holding fine. I'm not seeing a lot of slippage there. John's on the phone. I don't think he's got any slippage. I saw a couple of past dues he had on boats, but I mean that you have those from time to time.

Speaker 2

But think we got one repo boat that's in the Virgin Islands somewhere. So we think we got it. I I think we're fine with it. So outside of that, we didn't see anything. John, you got any comment?

Speaker 7

Stephen, thank you for the question. I think valuations, boat values are holding up nicely. There's still limited supply of new boat inventory. And so I think that's also driving up the values just a bit. Our average loan size now has crept up from $600,000 to about $800,000 So And again, we're still bringing in, I think our average loan to value is somewhere around 65%, 70%.

Speaker 7

So, we're still requiring a lot of equity, but the value seems to be holding.

Speaker 2

I think the inventory is caught up with the RV sector, Stephen. I think On the RV side, I think that the inventory is catching up there. I'm seeing a lot as I drive, I see these lots of huge lots. I think we had such demand during the pandemic. I think that's waned a little bit.

Speaker 2

So RV side, we don't have any to speak of, RV. So but I think That side is due for a little slowdown. I think you're probably right if you're seeing.

Speaker 5

I mean, the key is our Both of those. What we do mostly large credits or not. Yes.

Speaker 2

We don't finance. You remember, we don't finance a 14 foot flat bottom with

Speaker 3

a 25 horse mercury. We

Speaker 11

Yes. That's out of my real house.

Speaker 7

So that's helpful. I appreciate it.

Speaker 2

I might try to get this He keeps talking about the chuck wagon. I'm going to put it in the dock woods and you come in, we'll go in there. There you go. I'm great.

Speaker 13

I appreciate it, guys. Thanks for all the color.

Speaker 2

Thank you.

Operator

Thank you. The next question comes from the line of Michael Rose from Raymond James. Your line is now open.

Speaker 13

Hey, good afternoon, guys. I think I'm going to have to frame this transcript with given those words on this call, I don't think I'll ever hear on a conference call again. So Okay. Appreciate the dialogue.

Speaker 2

I read your stuff and you said there's nothing wrong with the shrink a little bit. If you want to shrink a little bit, get lean in Maine, that's nothing wrong with that. I thought that was a pretty good comment to me.

Speaker 13

I appreciate you bringing that up, Johnny. I just had a just a couple Kind of questions. Maybe just back to kind of M and A. Just Johnny, how do you think this all plays out? I think Some of the rhetoric that's out there on the Hill is that they're more open to kind of M and A, but there's clearly some near term components that make the math Pretty challenging, but just given how competitive it is out there and how many banks you still have, it looks like there will be a lot of consolidation at some point.

Speaker 13

Been doing this a long time. You've done a lot of deals. Just wondering more broadly how you see this all playing out over the next Yes, 5, maybe 10 years. Thanks.

Speaker 2

Michael, I think you're going to see Boards of Directors, As I said earlier, if they recognize the shape that they're in and they're investing in those banks, I think you're going to see them coming out. I think management is going to come out in some of them and I think the Board is going to want to come out. I think they're going to want to look, let's turn this Let's turn this into train ride money, if we can turn it into train ride money. I think that's going to happen. The problem is going to be With the buyers, that's going to be the problem is with people like us that are acquirers.

Speaker 2

And Are we willing to take a chance? Are we willing is the economy going to turn around enough to where we feel comfortable with it And not be afraid of the liquidity crisis. I mean, I think something's going to have to be done for the good premium banks of the country if they want to continue with some kind of Fed line that allows the good banks, the good operators to go clean up some of the other stuff. As you think about it today, we don't buy something, home as you know is in great shape and we go buy something today that gets us in not as good a shape. That's the scary part.

Speaker 2

And if the economy rates still stay high and things still stay sketchy, I don't believe you're going to see a lot of M and A. I don't believe it can be done. I think I told you I don't know if I told you Don and I looked at a bank in Dallas area 2 months ago And they're 110% loan to deposit and their margin is going straight in the tank. And I said, you want me to pay you a premium for that? I mean, think about it.

Speaker 2

I don't have I said, what you want is your problem become my problem. And I said, I don't want your problem. I don't have your problem. I've stayed out of that, and I don't have any problem. So I don't want to get our bank in there.

Speaker 2

So I think you're going to see real, particularly the good banks that run That top 15 of 20 banks that are acquired, I think you're going to see them be very conservative. And there's going to have to be some kind of backup With you're going to have to be some kind of backup, have the ability in the event that they get you do a transaction And then you get a run on that, Mike, that could scare that could take home down, right? So where we sit that's why we're so damn We don't do anything on M and A. We might buy some loans. We're looking at loan package.

Speaker 2

We may buy some. We may do that. We may buy some loans. But And what we do at M and A deal, we work with some people that have the quality of balance sheet that we have, but those are traditionally the acquirers. So you got these weak sisters out here that have been up for money and have run their margin in the ground.

Speaker 2

That's not going to get fixed in 45 days or 90 days. It's going to take a while to fix that. And then you go to the securities book and it depends on how long the duration is. It might be years before a lot of these things turn around. I'm not being a naysayer.

Speaker 2

You're usually the most conservative on the street. I'm just being Realistic and conservative about what I see.

Speaker 13

Totally got it. Appreciate the comment. Just two quick ones for me. Just Yes. Given some of your comments, I agree with them, just consumer maybe a little bit stretched, but you're seeing kind of occupancy levels at hotels being really strong again this Summer, maybe more of it's in Europe, but any sort of fears?

Speaker 13

And then are you guys taking a closer look in places that you did during COVID, whether it be Yes, restaurants, hospitality, tourism type stuff, hotels, etcetera. And are you starting to classify some of those properties at this point? Thanks.

Speaker 3

Hey, Michael, this is Kevin. No, I'm not seeing any weakness Particularly, my comments were really around just seeing the markets begin to normalize a little bit. We all kind of expected, Particularly in Florida with all the hospitality that 'twenty one and 'twenty two couldn't be real And long lasting. And we knew that when Europe opened up that there was probably going to be a normalization. So we've expected that and anticipated it.

Speaker 3

I'm not saying that Florida is going into a recession. That's not my comments were really that We just see a little year over year softening and kind of heading back towards the 2019 Kind of scenario more than continuing to move upwards, but not any weakness has not created any This is our portfolio that I've seen at this point.

Speaker 2

Actually, our hotels have really helped pretty well. When you think about it, You remember when we did that deep dive and we found those water hotels and extended stays were just really they never missed a step, but it's been really pretty amazing. And they continue to raise prices on those hotels and they just keep people keep going.

Speaker 13

I knew we could get a little optimism out of you on this call. That's good. One last question. Just the other income was up. Exactly.

Speaker 13

Just talk to my wife. Just on the other income was up a couple of $1,000,000 I think about $4,000,000 I know it's bounced around the past couple of quarters, but anything of note You should be aware of in there. Thanks.

Speaker 2

Now our securities, Brian, do you have to comment? Yes.

Speaker 14

I mean, We have some equity investments that are accounted for under the equity method. And during Q1, we had $3,800,000 of income on those investments And we had $7,500,000 of income on those investments for Q2. So probably the 3 point 8, 3.5, it's probably more of a normal run rate. We had a kind of a windfall from one of our investments.

Speaker 2

We invested in some SBICs and they really we've been in them Several years now and they have been really good performers, very, very good performers. So we bank these people and we invest with them and It's been one of the better investments of my life looking at it Over time. So we expect them to continue. There's no guarantee they'll hit that next quarter, but I think Brian's right at $3,000,000 to $4,000,000 $5,000,000 run rate is probably good.

Speaker 10

Great guys. Thanks for taking my questions.

Speaker 2

You bet. Thank you, Matt.

Operator

Thank you. The next question comes from the line of Brady Gailey from Stifel. Your line is now open.

Speaker 7

Hey, thanks. Good afternoon, guys.

Speaker 12

Most of my questions have been answered, but I just had one quick one on the margin. And the margin has seen a nice level of expansion for over a year. But this quarter, it kind of leveled off around that 4.3% level. How are you thinking about the margin outlook going forward? I know, Johnny, you're pretty Skeptical on the back half of the year with the rate environment, some deposit promos from some of your peers.

Speaker 12

How are you all thinking about the margin outlook From here.

Speaker 4

Hey, Brady, this is Steven. We posted 4.28 for the Quarter, I think our June margin was 4.29%, but had about 4 or 5 basis points of event income in it. So it was off 4 or 5 basis points. I think I told John On the outset of the call, I think something in those single digit Decline going forward is what is likely. We've got the opportunity on the loan side in terms of repricing.

Speaker 4

And On the deposit side, we were pretty aggressive in April May on the heels of everything in March in terms Passing on rate adjustments and those kinds of things. So we may can fine tune some of that. But yes, I think We'll fare better than most on the back half of the year.

Speaker 2

We're going to have double digit increase in margin. I'm watching them fight around this table, Chris. I'm watching fall underneath the table, Brady, it's going down. We are let me tell you, we're all hands Let me tell you, we're all hands on deck and I'm going to be disappointed if we don't maintain a strong margin. I mean the $750,000,000 repricing.

Speaker 2

We got those are our customers. We want to be able to get 300 basis points or more on those deals. We've talked to all our regional presidents, regional presidents are aware, they've talked to their people. We ought to be able to continue to do that. And we have about $750,000,000 scheduled to pay off and maybe instead of it may be at 5 average, Maybe there's 5 or 5.5 and we're at them at 9 or 8.5.

Speaker 2

We'll see what we can do to keep some of those. So I think it's got downward pressure, but I think we've got a good shot at holding it within range. Somewhere in this give or take 6 or 7 to 10 basis points.

Speaker 12

Okay, great. Thanks for all the color today, guys.

Speaker 2

Thank you.

Operator

Thank you. The final question comes from the line of Brian Martin with Janney. Your line is now open.

Speaker 8

Hey, guys. I appreciate taking the question here. Just one follow-up to Brady's question. Just on the margin, Stephen, I guess, would your expectation be that It does begin to kind of trough Q4, maybe Q1. Is that kind of what you're thinking time wise?

Speaker 8

I don't recall the timing of what those loans repricing were, but Is that kind of a fair outlook at this point?

Speaker 4

The loan repricing is On the second half of the year, and it's pretty consistent at $100,000,000 to $150,000,000 a month that come due. Yes, I think so. It just depends on balance sheet size and what we see in terms of the interest rate environment, Both competitively and just the shape of the curve, right? The length of time we've been Inverted year and then what we've seen from competition. But I've been reading, seeing some of the earnings releases so far and Seems like some of the banks that have already reported say they may not be as aggressive in the second half of the year on deposit pricing as they had the first half, so we'll see.

Speaker 8

Got you. Okay. And then just Stephen, just whoever, just on Kind of deposit outflows, you talked about the seasonality this quarter with the taxes. I guess, how are you thinking about deposits if the loan growth or the loan demand Is it robust at this point? It sounds like the pipelines are okay there, but in your comments about shrinking maybe a bit, is that how to think about the deposits As we look in the back half of the year?

Speaker 2

Well, we're going to balance those based on need for loans. We're going to balance those. I mean, there's no need, as I said earlier, dollars $700,000,000 of extra deposits in our pocket today. So we're not doing that. You get all the deposits you want Expensing, you get all the deposits you want.

Speaker 2

We got room to go in any direction to get deposits. That's Someone said we lost deposits. Well, part of that's purposely right. We're just balancing the deposits with loan. So we'll play the deposit side with the loan side.

Speaker 2

If the loan side goes up, it will go up on the deposit side Or vice versa. So I think we've played pretty well thus far with about we're about 82% loans in deposits somewhere in there. Now, I think that's fine for us. And if we need more, we can get them. So They're just expensive.

Speaker 2

So you don't want to carry around something in your pocket that cost you money that has no value to you whatsoever today. When you know you don't get them tomorrow. You can go get 2 year, 3 year, 3 year, 5 year money. So if you wanted to, or you can do some how much room we got on both of those, Steven?

Speaker 4

Our internal limits give us about $1,000,000,000 for runway. We're like 2% on broker deposits to liabilities today.

Speaker 2

We haven't done any Barnes to speak. We're keeping our powder dry. That's the thing, keep your powder dry. I don't want to get overreacted here. I want to get past all of this concern over bank runs.

Speaker 2

I don't want to get out personally more to get that behind us Because that could happen. It could get ugly overnight.

Speaker 8

Right. Okay. Perfect. And then just last one for me. Johnny, you talked about the liquidity scare.

Speaker 8

Just talking about the soft landing and potential recession and Credit still continuing to hold up really well. I know you had the one credit you talked about, but where is the biggest area? I mean, do you see a big Credit related recession, if you will, as you get into next year, is that kind of what you're thinking at this point? Or do you think it's more of a soft landing and you kind of manage through this. Just kind of big picture your outlook on how that plays out.

Speaker 2

Well, we had that discussion yesterday, Kevin and Don, myself, Steven, Tracy, yesterday, Brian, we had that discussion in here. He might have a shot. I didn't think he's going to have I didn't think he had a shot At a safe landing. I didn't think he had a chance. He has on one side, the inflation is better.

Speaker 2

I've got to give this administration credit for that. This inflation is better. And one thing they've done and it's I don't know how the hell Powell did it, to tell you the truth, with Trump spending money and Biden spending money. I don't know how in the heck they did it. I worry about the U.

Speaker 2

S. Dollar. I know that's getting farfetched. I worry about the U. S.

Speaker 2

Dollar and what you're going to do with it. And I worry about this Fedcoin you're bringing out. I mean, Roosevelt did it back what in the 20s and then we came back and then mix and messed with it, the money and the gold in the 70s and then I hate to say I'm messing with it again right now. So that can I don't know what's going to happen? I saw gold jump $40 yesterday.

Speaker 2

Not the only one thinking that. Something could be already out there somewhere. So usually, we get the value when they Messing with gold and coins. That's really it. I don't really have I can't put my arms around it right now.

Speaker 2

Kevin, we talked about it yesterday about whether we can land safely or not. If we can land safely, that's fine, but Something has to give somewhere as I mean, as Kevin said, commercial real estate prices really have not come down. Assets and home prices are up. There really needs to be somewhat of a little bit of adjustment Somewhere. I don't know if that is a slowdown.

Speaker 2

I think we could see a slowdown for 5 or 6 months, call it a I mean, a recession, I don't know that that would hurt anybody. If we did that, then maybe get some price adjustments, but we really haven't seen a lot of price adjustments. Kevin, you

Speaker 3

As we were talking yesterday, I mean rents are so high and prices for homes Are so high. The one thing we don't have today is an overhang of housing. So that's a positive, I guess, in the direction that maybe There could be a soft landing. We talked about it for 1 hour yesterday, and I don't think we came up with any answers One direction or the other. So best thing I think we can do is continue to block and tackle and make The right calls daily here and let the rest of that play out and be prepared for whichever way it happens to

Speaker 2

You got to think about where we're going to be in a year and where we're going to be in 2 years and where we're going to be in 3 years. What impact and the different variables there And what if this and what if that? And that's the process that goes on around here. And We don't know what that is yet, but we'll try to protect ourselves. You can't protect yourselves on all wings, but we'll try to protect ourselves on most of the wings.

Speaker 2

So I know I didn't give you the answer that you want, but we don't have it yet. You know what, you'll get it when you get it. You walk around working on it, it'll hit, it'll hit. As everything has happened over time with this company hit, we walk around sometimes and don't have the answer, but we never quit thinking about it till we finally get the answer. Hopefully, we'll get the answer on this one before too long.

Speaker 2

Thanks for your support. You've been a big support for a long time. Thank you.

Speaker 8

Yes. I appreciate guys. Thanks.

Operator

Thank you. There are no additional questions at this time. So I would like to pass the conference back to Mr. Allison for closing remarks.

Speaker 2

It's been a long call today. Thank you for your interest and your time. We'll talk to you in 90 days and maybe things will a little brighter 90 days than they are today, but it's time to be careful and smart, premeditated with the moves

Powered by Quartr
Earnings Conference Call
Home Bancshares, Inc. (Conway, AR) Q2 2023
00:00 / 00:00