Home BancShares Q3 2024 Earnings Call Transcript

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Provided by Quartr
October 17, 2024

Key Takeaways

  • In Q3 the bank established a $16.7M reserve for loan losses from Hurricanes Helene and Milton and expects up to an additional $20M as damage assessments continue.
  • Excluding hurricane provisions, Q3 achieved record PPNR of $148M and ROA of 1.96%, with total revenue of $258M, net interest margin at 4.28%, and a 41.42% efficiency ratio.
  • Non-performing loans rose by 10 bps in Q3 due to legacy Texas hotel credits, but the bank maintains strong reserve coverage of 2.11% and over 3× coverage on non-performing assets.
  • Management expects Q4 loan balances to be flat to slightly down amid a temporary slowdown in deal flow and payoffs, and is evaluating both in-market and adjacent-market M&A opportunities.
  • The company repurchased 1M shares for $26.9M, reducing outstanding stock to 198.8M shares under its ongoing 10b5-1 buyback plan.
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Earnings Conference Call
Home BancShares Q3 2024
00:00 / 00:00

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Operator

The company has asked me to remind everyone to refer to their cautionary note regarding forward-looking statements. You will find this on page three of their Form 10-K, filed with the SEC in February 2024. At this time, all participants are in a listen-only mode, and this conference is being recorded. If you need operator assistance during the conference, please press star, then zero. It is now my pleasure to turn the call over to Donna Townsell, Director of Investor Relations.

Donna Townsell
Director of Investor Relations at Home BancShares

Thank you. Good afternoon, and welcome to our third quarter conference call. With me for today's discussion is our chairman, John Allison, Stephen Tipton, Chief Executive Officer of Centennial Bank, Kevin Hester, President and Chief Lending Officer, Brian Davis, our Chief Financial Officer, Tracy French, Chairman of Centennial Bank, Chris Poulton, President of CCFG, and John Marshall, President of Shore Premier Finance. To open our discussion on the quarter today, we will begin with some remarks from our chairman, John Allison.

John Allison
John Allison
Chairman and CEO at Home BancShares

Thank you, Donna. Welcome, everyone. Welcome to Home BancShares third quarter 2024 earnings release and conference call. The company had another great quarter. The quarter was very strong and would have finished as one of the best ever. That was until the last few days of September, when the first of two disastrous hurricanes took a swath across Florida, where Home has a little over $1 billion in customer loans. We felt it was prudent to move into hurricane mode, as we have in past years when weather events affected the area where we do considerable business. Some of our customers are still involved in litigation over the claims from the last hurricane. We had closed the books for the end of the first quarter after the first hurricane, when the reserve estimate that we made, we thought was reasonable.

John Allison
John Allison
Chairman and CEO at Home BancShares

Then here comes Milton, number two hurricane, and by the way, in two weeks. We're always trying to get out in front of situations that may affect our earnings or our company in any way. We've dealt with these events over many years. We even have hurricane procedures, and we've practiced for years. That includes satellite phones, electric generators, 1-800 wellness check-in numbers for employees, customer extensions, and the reality of losses. We would prefer to have 5%+ reserve for the main area of the storm. We already had a reserve of 2% for the area, and we're optimistic that we may not need over an additional 3%. Fingers crossed. As a result of our needed reserve, we will hopefully be in the $20 million or less range.

John Allison
John Allison
Chairman and CEO at Home BancShares

Please don't hold me to that estimate because it's early and it's a fluid situation. We'll keep you updated as we hear more information, and I would expect the flow of information to improve, and by the way, Kevin updated me, it's not only the hurricane, it spun up a lot of tornadoes outside of that, and our orange grove that we've had for years sent some pictures of some of his orange trees that were damaged, so we don't know the extent of that as of yet. As the quarter was coming to an end, I was very pleased with the results I was seeing, with July and August were nicely above forecast, and September's daily report was also running ahead. I was expecting $0.55-$0.56 for the quarter. One should never count his money until all the hay is in the barn.

John Allison
John Allison
Chairman and CEO at Home BancShares

I knew better, but things were running pretty smooth, so I made the mistake and counted the money. We reported a 1.74 return on asset, ROA, and without the $16.7 million reserve, our income would have been $112.578 million. That's an annualized income for the company of over $450 million and an ROA of 1.96. You can see why I was excited, and then bam, here's the hurricane. A little disappointing, but as always, we do what's in the best interest of our shareholders, period. Here's the numbers, and I think you'll agree with me, it was a good quarter, ex hurricanes. Total revenue was $258 million. I didn't check, but that may be a world record. Brian, is that, is that a top number?

Brian Davis
CFO at Home BancShares

It is on core earnings. We had one quarter about two years ago, where we had a $15 million windfall, and that would be slightly higher, but on core earnings, that is a record.

John Allison
John Allison
Chairman and CEO at Home BancShares

Okay, well, actually, on core earnings, that was the, the best ever, so that's good. PPNR was $148 million pre-tax, pre-provision net income. When you think about that, you put an ROA to that, that's 2.57%. That's pretty impressive. We played with some numbers, and I saw some analysts that Catherine sent out using that number, and so I put it in, it's 2.57% for us. When you think about that, that's 57.36% of total revenue goes to pre-tax, pre-provision. That may be another world record, I don't know. Stephen will cover the numbers more specifically, but I'll just kind of take a broad brush to it. Margin was up for the quarter. Yield on loans improved quarter-over-quarter. Interest-bearing deposits had a slight increase, just a tick.

John Allison
John Allison
Chairman and CEO at Home BancShares

Non-interest expense for the third quarter of 2024 was $110 million versus the second quarter of 2024 at $113 million, and the same quarter last year was $114.7 million. Much improved. Efficiency ratio of 41.42%, also good improvement. Non-performing assets, as we continue to work through the Texas credits we told you about, the resolution of those credits will hopefully be resolved either in this quarter or the first quarter of 2025. Because of our strong balance sheet, we're able to take our time and work through several of these credits, reducing the loss exposure versus having to sell the asset immediately. That may have resulted in much greater losses. Stay tuned, Kevin will talk more about that in the report. Strong capital ratio.

John Allison
John Allison
Chairman and CEO at Home BancShares

I thought we were going to catch Jamie Dimon, but we didn't. We're at 14.7% CET1, and he jumped on me. He was at 14.7%, and he jumped to 15.3%. I think he's afraid we're after him. The loan loss reserve stands at 2.11%. Tangible book for the third quarter of 2024 was $12.67, versus $10.90 for the third quarter of 2023. That's a $1.77 improvement year-over-year. $0.77 of that came from AOCI, and the $1 came from retained earnings. We earned $100 million and $0.50 a share after reserve for the third quarter. So for the first three quarters, we're at $301.6, or $1.51 per share through the first nine months.

John Allison
John Allison
Chairman and CEO at Home BancShares

Loans continued to grow in our legacy footprint, $131.6 million increase, while CCFG had $89.1 million decline in balances, but they still remained with $2 billion of outstanding loans. We were disappointed last year by missing our goal of $400 million. Those circumstances are outside our control, if you remember that being our payment to the Fed for the failed banks, plus the damage for the West Texas headwinds. The Fed also charged us with an additional assessment this year of approximately $2.3 million, that we overcame early in the year. But the hurricane reserve could cause us to miss for the year. Hopefully not. All in, 2024 is shaping up to be a good year ex-hurricane, an okay year with hurricanes, in spite of all what's happened.

John Allison
John Allison
Chairman and CEO at Home BancShares

In 20 days, I'm probably going to get off on political race, but I got to do this. In 20 days, we're going to elect a new president of the United States, and I think that we have that will have a major impact on all our lives and our futures of our children and our grandchildren. One of the candidates wanting to substantially raise all taxes and even taxes on unrecognized gain. Inflation has already taxed the American public over 20%, created by the crazy, crazy spending and firing up inflation like we've not seen since the late 1970s. The coup was throwing Joe Biden in the ditch and crowning a new candidate that absolutely has no financial experience and appears to have no idea what's going on. Whether you like Donald Trump or not, I believe he has to win the race.

John Allison
John Allison
Chairman and CEO at Home BancShares

We know what he did last time, and he was business-friendly. Watching both candidates through this short campaign has been very painful for all of us, but after watching, I cannot imagine anyone voting for Mrs. Harris. It's not about Democrats or Republicans, it's about saving our country. I think she will destroy all the good work that Chairman Powell and the committee has done to fight inflation. I'm afraid she will allow the snake to raise his head again. We have not killed the snake, but we've made an impact. 25 basis points probably would have been better than 50, but I think that may have been politics as usual, usually happens during election years. Taxes, crime, immigration, gangs, open border, sex trafficking, increased regulations, inflation, need I say more? We need to vote to stop the chaos.

John Allison
John Allison
Chairman and CEO at Home BancShares

When you hear Walgreens announcing the closing of 25% of their 8,600 stores, and one of the main reasons is theft, should tell us all we need to hear. If that's not enough, Sunday, an ABC host attempted to minimize illegal migration gangs taking over apartment complexes in Aurora, Colorado, saying the incidents were limited to a handful of apartment complex, and Donald Trump is the problem. I mean, you can't make this stuff up. Enough of that. Our Texas lawsuit, we're totally engaged and await our day in court and let a jury decide the amount of damages done by what we perceive to be illegal activity by some West Texas individuals. On stock buyback, the company purchased 1 million shares for $26.9 million. That should put us below 199 million shares. Brian, where are we now?

Brian Davis
CFO at Home BancShares

We're at, like, 198.8 million.

John Allison
John Allison
Chairman and CEO at Home BancShares

198.8 million . So we have continued to buy. Stephen, is that correct? Continued to been in there. We have a-

Stephen Tipton
CEO at Centennial Bank

We have a 10b5-1 plan in place. It's not been active over the last couple of weeks. Plan to, once we get out of the blackout.

John Allison
John Allison
Chairman and CEO at Home BancShares

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

Donna Townsell
Director of Investor Relations at Home BancShares

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

Stephen Tipton
CEO at Centennial Bank

Thanks, Donna. As Johnny mentioned, Home BancShares and Centennial Bank had another great quarter. Congratulations to all of our bankers and employees for continuing to make Home BancShares and Centennial Bank one of the top-performing banks in the country. As Johnny mentioned, total revenue increased again in Q3 to $258 million, and adjusted PPNR increased to $146.6 million, which is a 17% year-over-year increase. I'll start with the net interest margin, as Johnny referenced in his comments. The reported NIM expanded 1 basis point in Q3 to 4.28%, while we continued to hold healthy excess cash balances. Excluding the event income noted in the press release...

Stephen Tipton
CEO at Centennial Bank

The net interest margin was 4.27% for the quarter, an increase of 4 basis points from Q2, and exited the quarter in September at 4.30%. The yield on loans, excluding event income, improved 10 basis points to 7.59% in Q3, and outpaced the increase in total deposit costs by 6 basis points. During the quarter, total deposit costs increased 4 basis points to 2.31% and exited the quarter at 2.29%. Leading up to and since the recent FOMC announcement, our bankers have done an excellent job managing interest rates while being mindful of liquidity and the overall customer relationship. We've worked through most of the negotiated deposit pricing, and thus far, it appears we've been able to offset the decline in rates on the asset side.

Stephen Tipton
CEO at Centennial Bank

Switching to liquidity and funding, deposits continue to be a key focus with our management team as they review lending opportunities, as well as cross-selling opportunities on nearly 5,000 accounts that we open each month. We continue to emphasize the strength of Home and the comfort that that provides. Total deposits declined $250 million for the quarter, most of which occurred in our Florida regions, as seasonal outflows occurred with property management companies and municipal relationships. Non-interest-bearing balances ended at $3.94 billion and account for 23.5% of total deposits. Alternative funding sources remain extremely strong, with broker deposits still only comprising 2.3% of liabilities, and the loan to deposit ratio still stands below historical levels at 88.7% as of September 30th.

Stephen Tipton
CEO at Centennial Bank

On the asset side, in-period loan balances increased $43 million, highlighted by nearly $100 million in growth from the community bank regions, along with solid growth from Shore Premier, offsetting what we see as a temporary decline in CCFG balances. On loan originations, we saw a volume of $1.13 billion in Q3, similar to Q2, with a little more than half coming from the community bank regions. Yields to originations remained strong, with an average coupon of 8.96% in Q3. Payoff volume picked up slightly to a total of $699 million, although a portion of what we expected to see this past quarter appears to have pushed into the fourth quarter.

Stephen Tipton
CEO at Centennial Bank

Closing with the previously mentioned strength of our company, all capital ratios improved and remain extremely strong, with a tangible common equity ratio of 11.78%, leverage ratio of 12.54%, CET1 ratio of 14.65%, and a total risk-based capital ratio of 18.28%. Couple that with reserve coverage of 2.11% and over three times coverage on non-performing loans, we are in a strong position to capitalize on future opportunities. With that, Donna, I'll turn it back over to you.

Donna Townsell
Director of Investor Relations at Home BancShares

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

Kevin Hester
President and Chief Lending Officer at Home BancShares

Thanks, Donna. Good afternoon, everyone. We often discuss that one of the strengths of our company is that we have multiple engines or regions that can independently help us reach our combined goals. As Stephen mentioned, this quarter was Texas, Arkansas, and Shore that drove our loan growth. At other times, CCFG and Florida are the drivers. This kind of diversity is a real positive for our company. Of note, late in the quarter, I noticed a slight slowing of early deal flow, and it is beginning to show in our pipeline for this quarter. Combined with an increase in projected payoffs, I believe that fourth quarter could be flat to down slightly. Moving on to asset quality, the metrics declined slightly this quarter, with increases in non-performing loans and assets of 10 basis points and 7 basis points, respectively.

Kevin Hester
President and Chief Lending Officer at Home BancShares

This is due primarily to a Texas hotel moving to non-performing that is one of a trio of hotels to a related ownership group that we've been working with for a few quarters. One of those hotels sold this quarter, and another is in the process of selling, so we're hopeful that we can continue to achieve a good outcome with this relationship, but it could take some more time. We expected to complete the construction of the multifamily project that is in OREO, which is located north of the DFW Metroplex, in the third quarter, but a delay with an unreasonable local utility has pushed this completion into the fourth quarter. The timing delay does not appear to change our overall outcome, which will be to move it out of OREO by year-end to a buyer that we have ready to contract.

Kevin Hester
President and Chief Lending Officer at Home BancShares

We continue to expect no worse than a small loss on this exit. Other Texas issues that we've been working through include a completed multifamily project closer to the DFW Metroplex that has experienced a decline in occupancy and a South Texas C&I relationship that has had multiple recent operating issues but has a very profitable history. These regional issues have our full attention, and as Johnny said, because of our strong balance sheet, we are able to take our time and work through these credits in the best way possible. The considerable experience that we gained working through failed bank portfolios serves us well in working through these issues. Lastly, the California office that is in OREO continues to improve. Occupancy is approaching 70% after an existing tenant took another half of one floor, and it is cash flow positive.

Kevin Hester
President and Chief Lending Officer at Home BancShares

We are negotiating with another potential tenant that would take it above 80%. Switching to a discussion regarding the recent hurricanes. We are thankful that none of our employees were injured by Hurricanes Helene and Milton, and that the damage to our branches was limited in nature. This is clearly not the case across all of this widespread area impacted by these two storms. Hurricane Helene took a swipe up the west coast of Florida, where we have a substantial presence, and then proceeded inland into Georgia and North Carolina, where it inflicted major flooding damage. We have approximately $1.5 billion in loans in these counties within the FEMA-designated disaster areas from Helene, with almost 90% of those loans in Florida.

Kevin Hester
President and Chief Lending Officer at Home BancShares

Less than two weeks after Helene, Hurricane Milton cut a swath west to east across the peninsula of Florida, hitting some of the same areas on the central west coast of Florida hit by Helene, but continuing through to the Atlantic Coast side, remaining a hurricane through its exit of the mainland. We have $1.8 billion in Florida loans in the FEMA-designated disaster areas from Milton. There's about $1.1 billion in loans that were subject to both hurricanes, so the total in loans that's subject to either one of the hurricanes is about $2.2 billion. We dusted off our disaster deferral procedures and have them implemented on these loans, and as you saw in the press release last week, we established an approximate $16.7 million reserve for the loans subject to Hurricane Helene.

Kevin Hester
President and Chief Lending Officer at Home BancShares

Areas from Tampa Bay north were the hardest hit by Helene, and we were assessing damages in that area when Milton threatened less than two weeks later. A late turn to the south by Milton took the brunt of the storm south of Tampa, and areas from Bradenton southward appear to be the worst hit there, along with random places across the interior of the state hit by tornadoes spawned from landfall. We are continuing to reach out to affected customers. We're touring damage where possible, and we're implementing our past playbook. Past history tells us that it takes 6-12 months to fully assess the credit impacts of these events. I know it's hard to imagine, but we still have customers who are dealing with insurance claims from past hurricanes.

Kevin Hester
President and Chief Lending Officer at Home BancShares

The cleanup and rebuild is a long process, but this is not new to us, and we are confident that the areas will come back stronger than before. Donna, that's all I have, and I'll turn it back to you.

Donna Townsell
Director of Investor Relations at Home BancShares

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

John Allison
John Allison
Chairman and CEO at Home BancShares

No, it was, this is a great quarter. If we hadn't had the hurricanes, we would've, it would really been, an outstanding quarter. But, as you can see, I got excited. I counted our money, counted how much money we were going to earn before the final day of the quarter, and the hurricanes hit. So a little disappointing, but it wasn't even. Our people did the job. I mean, Home BancShares people did a hell of a job for the quarter. Great, great run rate, great numbers, all good, and we'll overcome it. You know, maybe we get lucky, and we put that back in income someday, or, you know, if we have to make more, a bigger allocation, we'll do that, too. Whatever's in the best interest of our shareholders. Anybody else got anything?

John Allison
John Allison
Chairman and CEO at Home BancShares

Tracy, you got a comment?

Tracy French
Chairman at Centennial Bank

No. Good, good report all.

John Allison
John Allison
Chairman and CEO at Home BancShares

Brian?

Brian Davis
CFO at Home BancShares

No. Thought it was a good quarter.

John Allison
John Allison
Chairman and CEO at Home BancShares

Stephen, you got anything else to say?

Stephen Tipton
CEO at Centennial Bank

I don't.

John Allison
John Allison
Chairman and CEO at Home BancShares

Donna, you want to wrap it up?

Donna Townsell
Director of Investor Relations at Home BancShares

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

Operator

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

Stephen Scouten
Stephen Scouten
Managing Director of Equity Research at Piper Sandler

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

John Allison
John Allison
Chairman and CEO at Home BancShares

We're looking today. I mean, we're looking at opportunities today, and to get more aggressive, the deals just have to work, right? They just have to work. Everybody, you know, everybody's price has gone up. Ours has gone up, and everybody else's price has gone up, and that probably will make more people think about doing M&A. And I suspect that we'll hopefully find something, if not this year, early next year, so to do. Regulatory-wise, it was much easier to do a transaction when President Trump was in. We had better support there, and that'll take a while to change if the administration changes. But I'm optimistic that we could see that could be a kick to M&A activity if Trump wins, comes back in.

John Allison
John Allison
Chairman and CEO at Home BancShares

They've been really slow. Regulators have been slow in approving deals. Seem like they've gotten a little quicker lately, doesn't it, you guys? It seemed that they moved on some that were hanging out there for a long time, they finally got them done and got them closed. So I don't know if that answers your question, but we're certainly looking. But as I said last quarter, and I'll say it again this quarter, when you run basically without the extra reserve of 1.96 ROA on $23 billion worth of assets, this team just needs some more assets. So, you know, we just need to find the right trade and pick up some more assets and let them fix it. I don't care what kind of shape the bank's in, we just need them to fix it.

John Allison
John Allison
Chairman and CEO at Home BancShares

Depends on the price, right? We'll buy anything from something that needs help to something that's really operating in a good fashion. So it all depends on the price, Stephen. You know how we do, so we'll work with your people on some stuff.

Stephen Scouten
Stephen Scouten
Managing Director of Equity Research at Piper Sandler

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

Stephen Tipton
CEO at Centennial Bank

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

John Allison
John Allison
Chairman and CEO at Home BancShares

I know it's early in the quarter, but the first 16 days or so of the quarter, we're actually a little ahead of where we were last month. So we've had adjustments as you in loan yields and cost of funds, and it looks like we're almost matched up. I mean, we're up $200,000 is all, but it looks like they're matched up, so I'm pretty pleased with what. It's early, right? So there'll be a lot of adjustments to that, but that, as of right now, it looks pretty good, Stephen.

Stephen Scouten
Stephen Scouten
Managing Director of Equity Research at Piper Sandler

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

John Allison
John Allison
Chairman and CEO at Home BancShares

I couldn't tell you how excited I was watching those numbers come in on the first two months of the quarter, and then I'm watching my daily report, and I'm saying: "We're gonna ring the bell this quarter. We're really gonna ring the bell." But it's-- you're right, the hay's still in there. You're right, the hay's still in there, just in a different category right now. Thank you for that.

Stephen Scouten
Stephen Scouten
Managing Director of Equity Research at Piper Sandler

Thanks for the color, guys.

Operator

Our next question today is from the line of Brett Rabatin of Hovde Group. Please go ahead. Your line is open.

Brett Rabatin
Brett Rabatin
Managing Director of Equity Research at Hovde Group

Hey, good afternoon, everyone. Wanted to just start on the loan growth outlook, and it sounds like CFG, you know, might continue to have some payoffs in 4Q that'll keep the fourth quarter anyway, flattish, maybe down a little bit. Can you guys talk about the outlook for 2025? Maybe I know it's a little bit early, and there's obviously a lot to figure out with where rates end up and all that kind of stuff, but is the pipeline for CFG strong enough to outrun any payoffs as you guys see it past the fourth quarter? Or maybe just any color you guys see it as you think about loan generation into 2025.

Kevin Hester
President and Chief Lending Officer at Home BancShares

Hey, Brett, this is Kevin. I'll give a little bit of color from our perspective on the community bank side, and then I'll let Chris talk about New York. We've had, as you saw this quarter, we've had a good year in the community bank footprint, and I think that will still continue. I think there's a little softness this quarter. I can't really pin it on anything. And we've got a couple of regions that are still, you know, they're still pretty hot as far as opportunities go. But just across the group, I'm seeing a little bit of softness this quarter. I do think that that will come back next year. And obviously, a lot of this depends on how much the rates drop, what the expectation of that's gonna be.

Kevin Hester
President and Chief Lending Officer at Home BancShares

And so, you know, I can't really tell you what that looks like, but I do think ours in 2025, we'll see in the community bank footprint, a continuation of what we've been doing the last, you know, four or six quarters. Chris, you wanna give him some color on what you're seeing?

Christopher Poulton
President at Centennial Commercial Finance Group

Sure, happy to. Thanks for the question. We certainly hope we have payoffs 'cause when we make the loan, we intend to get repaid, and so I think, you know, we've always said that's the future of the business. We may shrink a little bit and then grow. I think that's generally what we see happen. We've already originated this year over $1 billion, which is generally what our sort of yearly target is. So we're running quite ahead. We emptied out our pipeline a little bit in the third quarter because I wanna move some stuff out and get focused on the rest of the year.

Christopher Poulton
President at Centennial Commercial Finance Group

I think we'll have a pretty good solid end to the rest of the year and build a pipeline going into next year, so that's a long way of saying, my guess is we probably come down a little bit from here and then go back up. You know, growth's never really been our goal. We're gonna put good assets on, we're gonna get repaid, and we're gonna put that money back out, and you know, good Lord willing, over time, that's resulted in growth, so my expectation is I don't see anything different about that. I think we'll probably, you know, slowly grow over time, just as we've always done, but in between that, we may be up, down a little bit here and there, but we don't look at anything as having changed dramatically.

Brett Rabatin
Brett Rabatin
Managing Director of Equity Research at Hovde Group

Okay. That's helpful, guys. And then just on the deposit side, you know, I know flows were lower this quarter, and there was some mobile drawdowns. How much was the drawdown related to mobile? And then just as you guys see it, you know, any initiatives to grow deposits from here in any business lines or anything that would bolster your deposit growth? Not that the balance sheet needs the excess liquidity, but just curious how you guys think about the funding base from here.

Stephen Tipton
CEO at Centennial Bank

Sure. Hey, Brett, this is Stephen. I couldn't hear your first question on municipal. Was it on the overall size of that book?

Brett Rabatin
Brett Rabatin
Managing Director of Equity Research at Hovde Group

Just how much it came down this quarter, and then you know, just yeah, about last quarter balance would be great.

Stephen Tipton
CEO at Centennial Bank

Okay. Got it. Sure. You know, it, Munis were down about $100-$150 million or so for the quarter. I think we ended 9/30 at a little over $2.8 billion. We've been in the $3 billion range. So some of that's normal flow, normal spend, just at times throughout the year. You know, in terms of overall strategy, I mean, I think we're, you know, we're staying the course with select opportunities here and there. I mean, a lot of, you know, we've said for a long time, the counties that we operate in, in Florida, are very liquid and at times have opportunities to bring some of those in. You know, conversations with our lenders and our presidents are ongoing every day, every week, at loan committees. So I think that's still our approach, and we'll continue to work that base as we have. We're seeing-

Brett Rabatin
Brett Rabatin
Managing Director of Equity Research at Hovde Group

Okay.

John Allison
John Allison
Chairman and CEO at Home BancShares

I think we-

Brett Rabatin
Brett Rabatin
Managing Director of Equity Research at Hovde Group

Great. Appreciate the call.

John Allison
John Allison
Chairman and CEO at Home BancShares

They're still, they're still running ads. These people are still running ads. I think some of the money may... Deposits are back up. That's kind of the back up this month. So that's kind of the effect of it. They're real customers doing real business with us, and we don't. Some of that money may have gone out. We may have lost some of that money that went out to some of these people trying to cover their, for their program that they got to pay off in March of next year, the Fed lending program. So we may have lost some money to some of those people doing that, quite honestly.

John Allison
John Allison
Chairman and CEO at Home BancShares

What we predicted was happening may have been happening to us a little bit because they want to get a higher rate CD right now and lock it in as rates are coming down. So that's what we thought might happen, may be happening to us a little bit. So not much, but some of it could have been.

Brett Rabatin
Brett Rabatin
Managing Director of Equity Research at Hovde Group

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

John Allison
John Allison
Chairman and CEO at Home BancShares

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

Operator

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

Matthew Olney
Matthew Olney
Managing Director of Equity Research at Stephens

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

Stephen Tipton
CEO at Centennial Bank

No, hey, Matt, this is Stephen. I mean, you know, obviously, some of it ebbs and flows with headcount, which is the biggest driver of non-interest expense. And I'd say, you know, looking forward, you know, we're at a good base there. There are a couple of large IT contracts that we're working through that we're not there yet, in terms of final pricing and negotiation, but there's some potential there for some meaningful savings to take place, you know, at some point in 2025 and beyond.

Matthew Olney
Matthew Olney
Managing Director of Equity Research at Stephens

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

Kevin Hester
President and Chief Lending Officer at Home BancShares

Hey, this is Kevin. No, I mean, we may – I think we may have added one to the list this quarter that we're discussing with you guys. But primarily, it's the stuff that we've been talking about the last 2-3 quarters.

Matthew Olney
Matthew Olney
Managing Director of Equity Research at Stephens

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

Kevin Hester
President and Chief Lending Officer at Home BancShares

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

John Allison
John Allison
Chairman and CEO at Home BancShares

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

Matthew Olney
Matthew Olney
Managing Director of Equity Research at Stephens

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

John Allison
John Allison
Chairman and CEO at Home BancShares

Nothing, nothing, nothing new that I'm seeing. Let me put it to you that way. Nothing new that I'm seeing. Same stuff.

Operator

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

Jon Arfstrom
Jon Arfstrom
Senior Equity Research Analyst at RBC

Hey, thanks. Good afternoon.

John Allison
John Allison
Chairman and CEO at Home BancShares

Hi, John.

Jon Arfstrom
Jon Arfstrom
Senior Equity Research Analyst at RBC

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

John Allison
John Allison
Chairman and CEO at Home BancShares

How, from the loss perspective on the one north of Dallas, $600,000-$700,000, maybe a $12 million-$15 million dollar asset. Yeah, altogether, we're talking about $200-ish million altogether.

Jon Arfstrom
Jon Arfstrom
Senior Equity Research Analyst at RBC

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

John Allison
John Allison
Chairman and CEO at Home BancShares

I said we might have to have an additional $20 million is what I said. I don't know that. I just... I was just kind of getting out there, just throwing it out. I don't know that. We don't. It's too early for us at this point. But may not be any more. We had some... Where was the place we got the most damage, Kevin?

Kevin Hester
President and Chief Lending Officer at Home BancShares

Anna Maria Island.

John Allison
John Allison
Chairman and CEO at Home BancShares

Anna Maria Island. Yeah, we got pretty-- I talked to him yesterday, our customer. He said, "I'm gonna be fine," and he has business interruption in addition to coverage on his unit, so that's good. He said, "I have that with every... I do business interruption with every house." He has a bunch of houses, a bunch of re-- big into rental property, so primarily single family, and a few hotels he owns. But he didn't seem... He wasn't there. He was actually in Arizona. He said, "I wonder if there's anything I could do there." He said, "I just went to Arizona for a few days." So he doesn't seem to be worried about it at all. And that's-- I wasn't sure if he had business interruption.

John Allison
John Allison
Chairman and CEO at Home BancShares

I just wanted to make sure he did. So, now, could there be a loss there somewhere? Maybe. I always suspect there's gonna be a loss, something's gonna sneak up on us that happens, that just happens.

Kevin Hester
President and Chief Lending Officer at Home BancShares

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

John Allison
John Allison
Chairman and CEO at Home BancShares

When you think about it-

Jon Arfstrom
Jon Arfstrom
Senior Equity Research Analyst at RBC

Okay.

John Allison
John Allison
Chairman and CEO at Home BancShares

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

Jon Arfstrom
Jon Arfstrom
Senior Equity Research Analyst at RBC

Yeah. Okay, that makes sense. And then, on some of your earlier comments, Johnny, you were talking about what you thought would be a better quarter without the provision. Do you feel like that's the kind of run rate the company is on, mid $0.50 type run rate, or that you feel like there are any threats to that type of a run rate other than maybe these elevated provisions?

John Allison
John Allison
Chairman and CEO at Home BancShares

I think that's probably pretty close. I think, I think $0.53-$0.56, I think that's about where we are right now until we get. I mean, John, think about it, that's a 1.96% ROA. I can't ask for anything better than that, really. So we need to, I need to get them, get this team some assets. If they get another $2 billion-$3 billion or $5 billion-$7 billion worth of assets, it'll take them a while, as it always does, this group, to get it where they want it. And that would be my, that's what we'd be looking for.

John Allison
John Allison
Chairman and CEO at Home BancShares

We'd be looking for something in that size, $2 billion-$6 billion in a market that we think is a good market, either in an existing market or maybe something outside of that's that touches one of the markets we're in. I mean, when they run a 1.96, you get them another $5 billion worth of assets, you can see what happens.

Jon Arfstrom
Jon Arfstrom
Senior Equity Research Analyst at RBC

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

John Allison
John Allison
Chairman and CEO at Home BancShares

I'm gonna put together another bonus program for them here before long.

Jon Arfstrom
Jon Arfstrom
Senior Equity Research Analyst at RBC

Yep. Yep. Okay.

John Allison
John Allison
Chairman and CEO at Home BancShares

Check this, we get

Jon Arfstrom
Jon Arfstrom
Senior Equity Research Analyst at RBC

All right, well, you guys have a good quarter.

John Allison
John Allison
Chairman and CEO at Home BancShares

Acquisition. Thank you.

Jon Arfstrom
Jon Arfstrom
Senior Equity Research Analyst at RBC

Yep. Okay. Yep, thank you.

Operator

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

Catherine Mealor
Catherine Mealor
Managing Director of Equity Research at Keefe, Bruyette & Woods

Thanks. Good afternoon.

John Allison
John Allison
Chairman and CEO at Home BancShares

Hi, Catherine.

Catherine Mealor
Catherine Mealor
Managing Director of Equity Research at Keefe, Bruyette & Woods

How about,

John Allison
John Allison
Chairman and CEO at Home BancShares

Thanks for your RO-

Catherine Mealor
Catherine Mealor
Managing Director of Equity Research at Keefe, Bruyette & Woods

Hi. I thought-

John Allison
John Allison
Chairman and CEO at Home BancShares

I appreciate your ROA. I appreciate your ROA on the, PPNR.

Catherine Mealor
Catherine Mealor
Managing Director of Equity Research at Keefe, Bruyette & Woods

You're the one giving us the 250 PPNR, so it's not me, it's you. But on that, I wanted to dig into the margin a little bit. You know, your asset sensitive - you have a really high margin, your asset sensitive, and so I think it's natural for us to wanna model a margin that moves down over the next year, still higher than peers, but you know, kinda trend down. You know, you're right, your loan and deposit betas have been evenly matched, both at about 40% over this cycle.

Catherine Mealor
Catherine Mealor
Managing Director of Equity Research at Keefe, Bruyette & Woods

And so as we think about this easing cycle, is it fair to think about loan and deposit betas kind of still at that 40% beta, or is there maybe some, okay, maybe you have to talk about, especially on the loan side, we've talked a lot on the loan side on this call, on, on just the benefit of fixed rate repricing and, and new loan origination pricing. Could that, is there a chance that the loan beta could be actually a lot lower as we move into the next year, just given that offset?

Stephen Tipton
CEO at Centennial Bank

Catherine, this is Stephen. Yeah, there's still some opportunity on the loan repricing side. We've got about $300 million or so this quarter, that's below 6%. We've got a couple hundred million, I guess, all in total, there's probably $1 billion over the next three quarters that, you know, is in the low- to mid-6% that we should get some lift on, presumably. You know, I guess we hadn't talked competition-wise, but we're starting to hear from some of our presidents, our different footprints, that competition's, you know, pricing out the curve now, and you're seeing some stuff in the 6% and 7%, but so we'll have to deal with that. But, there's still some opportunity there on the repricing side.

Stephen Tipton
CEO at Centennial Bank

Yeah, I think we said earlier on the call. I mean, I think it's flattish in the range that we're at today, you know, would be pleased with. I think it depends, you know, how deposits behave and liquidity profile, and if we're able to continue to be aggressive on dropping rates on the deposit side.

Catherine Mealor
Catherine Mealor
Managing Director of Equity Research at Keefe, Bruyette & Woods

And on the loan side, I know you've said before that about, I think it's 34% of your loans are floating and reprice immediately. Can you kinda break that down to, is that mostly tied to SOFR? And then maybe give us the next bucket of adjustable or variable rate loans versus fixed. Just if you could-- if there's a way to kinda give us three buckets-

Stephen Tipton
CEO at Centennial Bank

Sure.

Catherine Mealor
Catherine Mealor
Managing Director of Equity Research at Keefe, Bruyette & Woods

And-

Stephen Tipton
CEO at Centennial Bank

Sure. So it's about $5.5 billion or so that are variable rate, you know, change in the next, you know, two quarters or so. We've got some adjustable stuff in there, too. But just talking about what's you know, strictly, purely variables, about $5.5 billion. There's $2.8 billion that's tied to Wall Street Journal Prime, and the vast majority of the rest is tied to SOFR. All of Chris's portfolio, you know, $192 million is tied to SOFR, and then we've got about $700 million or so in the community bank group that's tied to SOFR.

Catherine Mealor
Catherine Mealor
Managing Director of Equity Research at Keefe, Bruyette & Woods

Okay. And where is that yield today on average? What's the spread to SOFR, typically?

Stephen Tipton
CEO at Centennial Bank

I mean, the vast majority is gonna be 4+, you know, probably 4 on Chris's side.

John Allison
John Allison
Chairman and CEO at Home BancShares

On Chris's side. On our side, the construction would be in the 3.50-ish, probably average over.

Catherine Mealor
Catherine Mealor
Managing Director of Equity Research at Keefe, Bruyette & Woods

We're starting from a high 8%-9% yield.

Stephen Tipton
CEO at Centennial Bank

Yeah.

John Allison
John Allison
Chairman and CEO at Home BancShares

Yeah.

Catherine Mealor
Catherine Mealor
Managing Director of Equity Research at Keefe, Bruyette & Woods

Okay, great, and then any commentary on what products within the deposit side you've been most successful at lowering rates on for this first 50 basis points move?

Stephen Tipton
CEO at Centennial Bank

Largely, you know, negotiated money market type products. You know, we've got a kind of a standard corporate product that we've used for years now that has about $1.3 billion in it. We're able to pass essentially all of this last rate increase to the balances there, and then, you know, utilize negotiated interest rates, checking, savings, money markets. Yeah, you're to the point earlier on CDs. I mean, we've seen rates come in some there, but you've still got, you know, peers here locally doing 4.60%, 4.70%, and, you know, some community banks here and there that are still, you know, close to 5%.

Stephen Tipton
CEO at Centennial Bank

So our group's done a good job in terms of being able to negotiate there and keep the overall, you know, in the sub, you know, 4%, sub-4% range.

Catherine Mealor
Catherine Mealor
Managing Director of Equity Research at Keefe, Bruyette & Woods

Great.

John Allison
John Allison
Chairman and CEO at Home BancShares

It appears that-

Catherine Mealor
Catherine Mealor
Managing Director of Equity Research at Keefe, Bruyette & Woods

Great. Well, that's great, and congrats on a great quarter. Oh, go ahead, Johnny.

John Allison
John Allison
Chairman and CEO at Home BancShares

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

Catherine Mealor
Catherine Mealor
Managing Director of Equity Research at Keefe, Bruyette & Woods

It's working so far. Thanks so much.

John Allison
John Allison
Chairman and CEO at Home BancShares

Thank you.

Stephen Tipton
CEO at Centennial Bank

Thanks, Catherine.

Operator

The next question today is from the line of Brian Martin with Itaú BBA. Please go ahead, your line is open.

Brian Martin
Senior Equity Research Analyst at Itaú BBA

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

Stephen Tipton
CEO at Centennial Bank

Sure. Yeah, there's about $3 billion or so that's tied to either 91-day T-bill or reference to Fed Funds. Most of that is,

Brian Martin
Senior Equity Research Analyst at Itaú BBA

Got it.

Stephen Tipton
CEO at Centennial Bank

Most of that is municipal, but we've got a few other products that are directly indexed to those.

Brian Martin
Senior Equity Research Analyst at Itaú BBA

Okay. And I think you mentioned, I think it's about $1 billion of loans, I think maybe last quarter at the reprice, so in 2025. You know, I guess with the new rates today, kind of you're hearing from your presidents, I mean, you were thinking it, you know, before the rates were around, you know, pickup might go to around 9%. I mean, where are the newer rates today that you're, you know, kind of thinking that, you know, the ones that are repricing will move up to? You know, what type of range are you thinking is reasonable, given what you're hearing now in terms of the rate environment?

Stephen Tipton
CEO at Centennial Bank

On renewal, I mean, we should, you know, be able to, you know, to land in the 8-8.25% range. But, you know, again, I think a lot of this is kind of subject to what we hear and see from the competition. I'll let Kevin give a little more color on what he's seeing.

Kevin Hester
President and Chief Lending Officer at Home BancShares

I think Stephen said a minute ago, we're beginning to see some folks go out the curve a little bit and try to fix at a, you know, in the high 6s, low to mid 7s, and extend it out a few years with some prepayment penalties. I think we're seeing some of that, and I don't know how much of that will continue if you get another rate drop here before the end of the year. So that will be part of the things that we're having to fight, for sure.

Brian Martin
Senior Equity Research Analyst at Itaú BBA

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

John Allison
John Allison
Chairman and CEO at Home BancShares

Presently, we're looking at one in-market and one out-of-market. So, there would be. In-market would be, of course, our market. Outside would be something that is a state that touches a state we're already in, so we wouldn't be leaping over a state, I wouldn't think. So, we're just playing with it right now, looking. It'll be interesting to see. I think we're gonna see some boards of directors telling management to sell. You know, I think they're gonna say, "Hey, we just slipped through another one here with this tough time, and we need to get somebody, get it in good, strong hands and get a good, strong dividend." And, at least that's my belief. Where we go from here, I don't know, but one's outside and one's inside the market.

Brian Martin
Senior Equity Research Analyst at Itaú BBA

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

John Allison
John Allison
Chairman and CEO at Home BancShares

I just liked the one that was out of market. I liked their footprint. I thought it looked intriguing. You know-

Brian Martin
Senior Equity Research Analyst at Itaú BBA

Gotcha.

John Allison
John Allison
Chairman and CEO at Home BancShares

Market just got good growth.

Brian Martin
Senior Equity Research Analyst at Itaú BBA

Okay.

John Allison
John Allison
Chairman and CEO at Home BancShares

I mean, we look at everything, and I was just reading about this one out of market, and I kept reading about it, and I thought, "You know, that's really a pretty interesting story there." I verified that the information was correct and how, what kind of growth they were getting there. Just got my attention, that's all.

Brian Martin
Senior Equity Research Analyst at Itaú BBA

Okay. And then, yeah, and got you in the last two, which just on the expense side, I think you said that the current, maybe I missed, I didn't hear what you guys said earlier, in terms of, you know, kind of the outlook on expenses, kind of really good progress and trends here. Just, kind of the current levels are sustainable. Is there something to think about, you know, embedded in the numbers that we should think about as you go into 2025, or kind of current level is okay?

John Allison
John Allison
Chairman and CEO at Home BancShares

I think we had a little windfall this quarter. I think the 111 and change number is a good number. You know, we you asked-

Brian Martin
Senior Equity Research Analyst at Itaú BBA

Gotcha.

John Allison
John Allison
Chairman and CEO at Home BancShares

I was asked last quarter, and we said 111 is the number, so 111 and change is probably the realistic number.

Brian Martin
Senior Equity Research Analyst at Itaú BBA

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

John Allison
John Allison
Chairman and CEO at Home BancShares

There's always a flow, you know, how they transition. They go from past due, and they go to non-performing, and then they go out the door, right? So, I mean, there's always-

Brian Martin
Senior Equity Research Analyst at Itaú BBA

Right.

John Allison
John Allison
Chairman and CEO at Home BancShares

A transition of those things working their way through. I would have thought that we would have had, certainly the, the project north of Dallas, 'cause it's finished, and we had two offers, and we're a contract, I think, on that. So I would have thought that would have been gone, but that'll go out, something else will come in. I think we got about $200 million, probably, total, that we're dealing with. That'll be going in and out and around before it's all said and done. So, do I think there's any giant loss in any of it?

John Allison
John Allison
Chairman and CEO at Home BancShares

One credit could have some loss in it that bothers me, but outside of that, I don't think there'll be much loss in any of these credits. One of them, we got an apartment project I think we could lose $2 million on that deal. I think that could happen. We only got one big one out there that concerns me, and we'll just have to wait and see how that works out. They've certainly improved what they were doing in the past. They're getting better, so we're seeing improvement in that credit, so that one may not be a problem in 1-2 months, or it may be a problem. We'll just have to see.

Kevin Hester
President and Chief Lending Officer at Home BancShares

Hey, Brian, it's Kevin.

Brian Martin
Senior Equity Research Analyst at Itaú BBA

Okay.

Kevin Hester
President and Chief Lending Officer at Home BancShares

I was just gonna say, they're all substandard, so, you know, we'll work them. They could, you know, there could be some level of it that goes to non-accrual before it goes out of here. But as far as loss goes, I think Johnny's giving you the thoughts we have on losses, and ultimately, that's the biggest concern, right?

Brian Martin
Senior Equity Research Analyst at Itaú BBA

Yeah. No, for sure. Got it. Okay. And Stephen, just last one, just I'm thinking about it right. I know your expectation or your hope is, you know, the plan to hold the margin, you know, kind of where it's at here, just kind of, you know, fighting the, the rate cuts. You know, I guess if the risk that, I guess what is the bigger risk if you're not able to, you know, the biggest risk to not holding it stable? Kind of where is the, you know, where does the rubber meet the road there in terms of if you don't meet that objective, what's the biggest risk to not, not achieving that?

Stephen Tipton
CEO at Centennial Bank

I mean, today, probably on the loan side in terms of pricing, you know, we're gonna protect our base and, you know, do what we do. But again, we've seen a few instances where, you know, we have customers getting quotes or that may be in the payoff pipeline now that are pricing in the 6s for a mini-perm term. Kevin?

Kevin Hester
President and Chief Lending Officer at Home BancShares

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

Brian Martin
Senior Equity Research Analyst at Itaú BBA

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

Kevin Hester
President and Chief Lending Officer at Home BancShares

Yeah, Chris, I mean, $2 billion range, and construction's $2.5-ish billion, maybe a little higher than that. So, I mean, you're talking about-

Brian Martin
Senior Equity Research Analyst at Itaú BBA

Yeah

Kevin Hester
President and Chief Lending Officer at Home BancShares

Probably $5 billion that is, that's tied to a margin over SOFR, and we'll continue to do what we're doing there.

Brian Martin
Senior Equity Research Analyst at Itaú BBA

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

Kevin Hester
President and Chief Lending Officer at Home BancShares

Thanks, Brian.

Stephen Tipton
CEO at Centennial Bank

Thank you.

Operator

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

Michael Rose
Michael Rose
Managing Director of Equity Research at Raymond James

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

Kevin Hester
President and Chief Lending Officer at Home BancShares

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

Michael Rose
Michael Rose
Managing Director of Equity Research at Raymond James

All right, and any other, the other-

Stephen Tipton
CEO at Centennial Bank

There'll be some good boat sales coming out of it, Michael. I mean, some of these boats got torn up, so there'll probably be some new sales coming out of this.

Michael Rose
Michael Rose
Managing Director of Equity Research at Raymond James

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

Stephen Tipton
CEO at Centennial Bank

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

Stephen Tipton
CEO at Centennial Bank

You know, at 88%-89%, that doesn't give us any discomfort today.

Michael Rose
Michael Rose
Managing Director of Equity Research at Raymond James

All right. I guess that's it other than, Johnny, I'm a little surprised that you said a 1.96 ROA was good. I've never heard you say it's good enough, so a little surprised that you're not setting the bar higher, but certainly understand.

Stephen Tipton
CEO at Centennial Bank

Thank you, Michael.

John Allison
John Allison
Chairman and CEO at Home BancShares

Yeah.

Michael Rose
Michael Rose
Managing Director of Equity Research at Raymond James

Thanks, sir.

Stephen Tipton
CEO at Centennial Bank

I heard that, too. I heard that, too.

John Allison
John Allison
Chairman and CEO at Home BancShares

I agree with you, Michael. I'll work on that with you.

Brian Davis
CFO at Home BancShares

Thank you.

Michael Rose
Michael Rose
Managing Director of Equity Research at Raymond James

Thanks, guys. Appreciate it.

Operator

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

John Allison
John Allison
Chairman and CEO at Home BancShares

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

Tracy French
Chairman at Centennial Bank

I have no comment.

John Allison
John Allison
Chairman and CEO at Home BancShares

No comment.

Tracy French
Chairman at Centennial Bank

All good.

John Allison
John Allison
Chairman and CEO at Home BancShares

You think you can do better than 1.96 ROA?

Tracy French
Chairman at Centennial Bank

It's always been our goal to get better. Very simple. We got to get better.

John Allison
John Allison
Chairman and CEO at Home BancShares

Brian, you got any comments?

Brian Davis
CFO at Home BancShares

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

John Allison
John Allison
Chairman and CEO at Home BancShares

Thank you, all. Talk to you next quarter.

Operator

This concludes the Home BancShares Inc. Third Quarter 2024 Earnings Call. Thank you to everyone who was able to join us. You may now disconnect your lines.

Executives
Analysts
    • Brian Martin
      Senior Equity Research Analyst at Itaú BBA
    • Stephen Tipton
      CEO at Centennial Bank
    • Catherine Mealor
      Managing Director of Equity Research at Keefe, Bruyette & Woods
    • Michael Rose
      Managing Director of Equity Research at Raymond James
    • Stephen Scouten
      Managing Director of Equity Research at Piper Sandler
    • Jon Arfstrom
      Senior Equity Research Analyst at RBC
    • Christopher Poulton
      President at Centennial Commercial Finance Group
    • Kevin Hester
      President and Chief Lending Officer at Home BancShares
    • Tracy French
      Chairman at Centennial Bank
    • Donna Townsell
      Director of Investor Relations at Home BancShares
    • Matthew Olney
      Managing Director of Equity Research at Stephens
    • Brett Rabatin
      Managing Director of Equity Research at Hovde Group
    • Brian Davis
      CFO at Home BancShares
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