Home Bancshares, Inc. (Conway, AR) Q1 2025 Earnings Call Transcript

Quartr
Provided by Quartr
April 17, 2025

There are 14 speakers on the call.

Operator

Greetings, ladies and gentlemen. Welcome to the Home Bancshares Incorporated First Quarter twenty twenty five Earnings Call. The purpose of this call is to discuss the information and data provided in the quarterly earnings release issued after the market closed yesterday.

Operator

The company presenters will begin with prepared remarks and then entertain questions. Please note that if you would like to ask a question during the question and answer session, please press then one on your touch phone. If you decide you want to draw your question, please press then 2 to remove yourself from the list. The company has asked me to remind everyone to refer to their cautionary note regarding forward looking statements. You will find this note on Page three of their Form 10 ks filed with the SEC in February 2025.

Operator

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. Please go ahead.

Speaker 1

Thank you. Good afternoon, and welcome to our first 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 Chris Poulton, President of CCFG and John Marshall, President of Shore Premier Finance. Opening remarks today will be from our Chairman, John Allison.

Speaker 2

Good afternoon. First, today, I wanna pay tribute to a special friend of Home Bancshares' family and a director of our company. We've lost a good friend and a strong leader with the loss of Pat Hickman. Hickman was a wonderful asset to the home board of directors. And from a personal perspective, he was a man who walked in the same shoes that I've walked in while he was building happy as I've been building home bunches.

Speaker 2

He was a confidant. Pat lit up a room with his outgoing personality and was a good man of god and always wanted to pray for all of us on the board, and we probably needed it. Someone briefly said, I bet Pat, as he goes through the perfect gangs, is telling god about his bunch of new CD special. That's Pat Hickman that I remember. We will miss you, my friend, and may God be with your wife, Nancy, and your wonderful family.

Speaker 2

Good day, everyone, and thank you for joining the start of 2025 with us. First quarter earnings are in, and as I said in the headline, home strength is no accident. Couple our strength with peer leading performance metrics and you get the results you get. It might be the best first quarter in the entire bank space. Our continued conservative philosophy of maintaining strong capital, excessive loan loss reserves, excellent liquidity, good asset quality, and strong operating efficiencies have led to an almost perfect quarter for the company.

Speaker 2

The good news is we delivered a near perfect quarter while setting six new performance record. The bad news is it would deliver during uncertain economic times. Hopefully, this top tier quarter does not get lost in the shuffle. We continue to maintain the passion, the drive, and the discipline that allows our performance to separate us from the pack by being one of the most profitable institutions in the world. It is our goal to reward our owners and make them proud to be shareholders of Home Bancshares.

Speaker 2

It's really nice to have the large Texas cleanup behind us or basically in the rearview mirror, pretty much done. Plus, it appears we've reached a tentative resolution to the Texas lawsuit we filed a couple years ago. So that might go away along with millions of dollars of expenses that are incurred on a quarterly basis that could disappear in the second quarter. Couple that with strong loan growth, stable margins, and it feels like home may have finally broken out on the earning side. Management has to ride herd every day during these volatile times.

Speaker 2

That would type requires constant watching with a laser focus both internally and externally, and be prepared to shift either to direct the company in an offensively or defensively direction. The bottom line is, as my wife said, regardless, protect the chuckwagon. That's certainly the most conservative approach. And as I said last quarter, these banks don't run-in sales. I'll talk a little bit about the highlights and why they're important to our company, but most of the numbers speak for themselves.

Speaker 2

Steven will make a few comments about margin, and Kevin will make a few comments about loan, and Chris Bolton will talk about CCFG. Let's go to the numbers. Earnings was a beat. Earnings showed a hundred and 15,200,000.0, a record 58¢ per share. That represents a significant breakout in quarterly earnings that has been fixed around a hundred over the past several quarters.

Speaker 2

Reported core earnings of that was a hundred and 11.9. That's 56¢ a share. I wanna bring to your attention that the expense of the Texas lawsuit was in this quarter, and and that was $2,000,000 after tax. And, hopefully, that will be non reoccurring in the second quarter. Without the expense, the core would have been a hundred and 14000057¢ a share.

Speaker 2

Our gain from our equity investment was backed out of the income for core purposes because it's not guaranteed reoccurring. However, management believes our equity investments have certainly been profitable and put us in a position to reap the benefits that otherwise would have been a missed opportunity. That's the businessman and me always reaching for a little extra. Revenue, home was beat on revenue. We're able to grow revenue faster than interest expense.

Speaker 2

260,100,000.0 in revenue. We edged out the fourth quarter of twenty four by 700,000 and the first quarter of twenty four by 13,100,000.0. With rates down, we are pleased to continue our plan to top our billion dollar run rate that we did in '24. Margin, strong improvement on a linked quarter, up to four forty four from four thirty nine in the fourth quarter and four thirteen in the first quarter. Net interest spread improved 11 basis points from December 24 at three fifty eight to three sixty nine for the first quarter of twenty five, nice improvement while yield on loans expectedly dropped on a linked quarter basis to 7.38 from 7.49.

Speaker 2

Loans, strong loan quarter with our community footprint increasing 291,500,000 while CCFG declined a hundred and three for net loan growth for the quarter of 01/2006. At March 31, we were at a record level on loans at 14,950,000,000 and were $14,960,000,000 at 12/31/2024. And if I'm not mistaken, we've gone over, tipped over, I don't know if it will hold, we've tipped over $15,000,000,000 so far this month. Deposits, strong deposits with an increase of over $395,000,000 for Q1. The increase took us to $17,500,000,000 from $17,100,000,000 at the end of the year, which led to a decrease in loan to deposit ratio to 85.24%, and that's in spite of the strong loan growth.

Speaker 2

The rate on interest bearing deposits decreased to 2.67% from 2.8% at year end. I said last quarter, I think the strength of our company being able to pay out all uninsured deposits has served us well. There's always a flat to safety in uncertain times. Home is enjoying the deserving reputation of being able to pay out all the posters in the flat to safety. There is no place like home.

Speaker 2

Pretax net income for the quarter was 56.58. I don't know how you fuss with those numbers when you bring 56.58% of your revenue to the pretax bottom line. Asset quality non performing loans improved to 0.6% from 6.7%, while non performing assets improved to 0.56 from 0.63%. Reserve coverage grew to 312% from at the end of the year 278% and non performing dropped $13,000,000 As of 03/31/2025 non performing loans were $89,600,000 and non performing assets were 129.4 versus December 31 where nonperforming was 98.9 and nonperforming assets was a 42.4. Capital ratios continue to build.

Speaker 2

CET one at 15.4, leverage at 13.3, and total risk price at 19.1. Tangible book value increased to $13.15 from $11.79 a year ago, up a dollar 80¢. Book value hit a new record surpassing the $4,000,000,000 mark for the first time in our company history. Return on tangible common equity for the quarter was a strong 18.39. We continue to buy back stock.

Speaker 2

We have a 10 b five filed during our quiet period, but have no idea of the opportunity to buy back stock at these prices, and the purchases have been limited by our filing. We purchased over a million shares or right at a million shares, I think, in the notes for the quarter, and we'll remain active in the second quarter. This too shall pass, and I think we'll be proud of having been active at these levels. In conclusion, Holmes' powerful balance sheet coupled with repetitive strong earnings that's now showing a possible breakout because of strong margins, conservative growth, good loan quality, massive capital, hands on management, expense control, and don't forget our disciplined drive and determination that has led us to pure leading performances. It feels good to be one of the best, We love to win.

Speaker 2

We picked this up on the somebody wrote something about it. It says that home strength is not an accident. We've kinda picked that up, and we're gonna use that in some ad campaigns. It was quite a quarter, I I wanna thank all the team at Home Bancshares for a great effort and what I consider a perfect quarter. I know you're proud yourself of the numbers as well, and I'm gonna turn it back

Speaker 3

to you and let you

Speaker 2

have it.

Speaker 1

Thank you, Johnny. Congratulations on a fantastic quarter. Our next report today will come from Steven Tipton.

Speaker 4

Thanks, Donna. Talked last quarter, we mentioned that we would be pleased that the margin could remain fairly stable. I'm very proud to report that the core margin continued to expand in Q1. For the quarter, excluding event income, the net interest margin was 4.42% versus 4.36% in Q4 or an increase of six basis points. March ended slightly lower than the quarterly average, primarily due to the continued build of liquidity from the increase in deposits.

Speaker 4

This liquidity will allow us to continue to work on negotiated deposit pricing an effort to bring those costs down. We are excited about the deposit growth we saw in the quarter at nearly $400,000,000 highlighted by strong growth from all of the Florida regions and an increase in overall core non interest bearing balances. Congrats to all of our bankers as 2025 looks to be off to a great start. I'll turn it back over to you Donna.

Speaker 1

Thank you, Stephen. Next, we will hear from Kevin Hester on the lending portfolio.

Speaker 5

Thanks Donna. As Johnny mentioned, all asset quality metrics improved in the first quarter with no new material concerns noted. The anticipated recoveries from the fourth quarter cleanup are in process with nearly $7,000,000 recovered from the fourth quarter charges. Ninety days ago, I indicated that I expected total recoveries on the cleanup to exceed $30,000,000 over time, and I still believe that is the case. As expected, NPAs are reduced in the first quarter, and I anticipate further reduction in q two.

Speaker 5

All of that and solid loan growth driven by the community bank markets. As Johnny said, an almost perfect quarter. Donna, back to you.

Speaker 1

Thank you, Kevin. And now Chris Fulton will provide an update on CCFG.

Speaker 6

Thank you, Donna. This quarter, we celebrate our tenth anniversary at Home Bancshares. For those that may be looking to mark the anniversary, I'll tell you that the traditional gift is aluminum or tin. I'll be honest with you, was a little disappointed when I discovered that. Over the past ten years, CCFG has funded over $15,000,000,000 of loans and has grown the portfolio to over $1,700,000,000 representing a cumulative average growth rate of over 10%.

Speaker 6

We think that that is a pretty good start. I'll talk today specifically about our commercial and industrial loan book. It was noted earlier that the CCMG portfolio declined approximately $100,000,000 in the first quarter. This decline as well as last quarter's decline occurred exclusively in the C and I portfolio. Historically, we had two types of credits in our commercial portfolio.

Speaker 6

The first, single credit broadly syndicated and middle market loan and the second, structured facilities secured by portfolios of middle market corporate loans. As of this quarter, we've effectively exited the single credit broadly syndicated in middle market loans. At its peak, this portfolio was over $200,000,000 and today it stands at less than $10,000,000 with just four credits remaining. In addition, over the past year, we exited at maturity or refinance several structured facilities as we rotated out of prior facilities and chose to take a pause on new commitments pending the election and potential rate volatility and tariff impacts. Going forward, as we search for an equilibrium point in the C and I book, we expect to add back to the structured portfolio.

Speaker 6

Historically, C and I has represented approximately 20% of the total portfolio. Today, it stands at less than 10%. Over this prior year, we've created capacity to selectively add back to this book. Meanwhile, our commercial real estate book, which represents the core of our loan book, was stable to up over the quarter and up about 5% over the past year. The new loan pipeline remains active.

Speaker 6

Over the past twelve months, we originated just over $1,000,000,000 in new loans and I would expect to meet or exceed that total in 2025. These past ten years have been the most rewarding of my career and I want to just take a moment to thank everyone that has supported the growth of this business over the years. I'm pleased we've been able to build a foundation for continued growth and success hopefully in the years ahead. Donna, I'll hand the call back to you.

Speaker 1

Thank you, Chris, and congratulations on your ten year anniversary. It's been a pleasure.

Speaker 6

Thank you.

Speaker 1

Johnny, before we go to q and a, do you have any additional comments?

Speaker 2

Well, I just wanna say that I think we're gonna do some send Chris a roll with tenfold or something.

Speaker 1

No. Don't don't spoil the surprise.

Speaker 3

Depends what they we'll get a not we'll get a

Speaker 2

big roll of Chris to future wild. I appreciate it.

Speaker 6

So Yeah. Good day. I appreciate that. I

Speaker 2

I didn't realize it was 10. So anyway, thank you. I don't have anything else. The numbers speak for themselves. We're gonna go straight to q and a.

Speaker 2

Let everybody ask what they wanna ask and great quarter though. Great job for everyone. So bye everyone. Thanks.

Operator

Thank you. If you would like to ask a question, you can do so by pressing star followed by one on your touchscreen keypad. If you change your mind and would like to remove yourself from the list, you can do so by pressing star then two. The first question we have comes from Michael Rose with Raymond James. Please go ahead.

Speaker 7

Hey, good afternoon, guys. Thanks for taking my questions. Really solid quarter kind of all around, but I wanted to get a sense from you guys. Obviously, this quarter's growth strong. But just in general, what you're hearing from your customers, I think an increasing number of banks are just citing some tepidness from borrowers.

Speaker 7

And I specifically wanted to ask about the boat lending and if there's been any drop off in demand there and maybe just where pipelines are. Just a general color on what your borrowers, what you're hearing and seeing from your borrowers just given some of the uncertainty out there.

Speaker 8

Thanks.

Speaker 5

Hey, Michael. This is Kevin.

Speaker 9

Michael, this is John.

Speaker 5

Go ahead, Talk about short term

Speaker 9

No, just because Michael had mentioned the boat loans specifically. Michael, what we have seen, guess, the first quarter is elevated volume compared to 1Q of twenty four. And but a large part of that, because one of our European manufacturers, a significant relationship of ours, has been offering to subsidize the the pricing. And so that has tended to elevate the production volume. And that has largely masked, I guess, some of the uncertainty around the tariffs.

Speaker 9

Kevin, do you want to speak in general?

Speaker 5

Yeah. Michael, from a, you know, from a community bank footprint, I think what you what you stated is what we're hearing from a lot of people too. I mean, there's there's some uncertainty obviously over the what's happened in the last month, and that that may that may keep some projects that maybe are, you know, kinda in the development stage and then the planning stage. It may slow some of those down. I mean, still a lot of good things happening in our core markets.

Speaker 5

So, you know, I'm hopeful that that will be short term, but, you know, still a lot of activity and a lot of good things happening.

Speaker 7

Very helpful. And then maybe if

Speaker 3

I could just take it to the kind of the

Speaker 7

puts and takes on the margin for Steven. How much pull forward or repricing opportunity is there deposit or liability side? And, you know, it's good to see, you know, loan yields still, you know, holding in there above, you know, well above 7%, you know, obviously down Q on Q. But can you just give us an update on kind of where new production yields are? And then maybe how we should think about the margin here in the near term?

Speaker 7

Obviously, if the growth continues to come through that would be a helper. Thanks.

Speaker 4

Sure. Hi, Michael. Yes. So several questions there. Guess production in Q1 was a little over $800,000,000 Weighted average coupon was $775,000,000 So still hanging in there fine north of prime.

Speaker 4

On the deposit side, just here recently over the last couple of weeks have kind of tried to reignite a little effort on negotiated checking savings those kinds of things. A lot of that's going to obviously depend on competition. I had a call earlier this week with our Presidents and you're still hearing banks offering 4.5%. So we have to compete there and protect the franchise and we'll do that. But there's probably some opportunity on checking and savings to try to clip a little off here and there depending on what happens with the Fed.

Speaker 4

And then on the CD portfolio, we've got $600,000,000 maturing this quarter. We've got about $400,000,000 next quarter. Out of $1,000,000,000 that we have, I think 85% or more matures within twelve months. So we're pretty short on the CD portfolio. And we should see ten, fifteen, 20 basis points potentially come down as those come through.

Speaker 4

So, I think margin overall, I think same messages as we have for quite some time now would be pleased see it kind of hold in the range that it's in. Cash in March was up with the deposit build and that weighs on the metric itself. But that's come back in a little bit here lately just with tax payments going out over the last couple of weeks.

Speaker 7

Very helpful. And maybe just finally last one for me. Johnny, think you mentioned this in the outset, credit cleanup around Happy being just about done. You had a net recovery this quarter. Anything that you're seeing out there both in your core markets and also in Texas that gives you any sort of pause?

Speaker 7

And are there any industries or verticals that you're putting a little bit more eyes on at this point just given the tariff uncertainty? Thanks.

Speaker 5

Hey, Michael. This is Kevin again. Not from a general sense. I mean, we ask that question in every presentation. We're asking our lenders about that individually because it, you know, affects even within an industry people differently.

Speaker 5

So we're we're just dealing with that from a one off individual perspective, but certainly talk about that in every every size of the deal.

Speaker 7

Okay. Great. And

Speaker 5

It's really early yet to know. I mean, you know, you haven't really seen where they're gonna land and and what's gonna get hit and what's not. So it's it's a little early. We're having the discussions, but there's no definitive

Speaker 2

answers. That's pretty well put. Thank you, Michael.

Speaker 7

Appreciate the support. It's difficult. Yeah. Thanks, guys. And, Chris, congrats on ten years.

Speaker 7

I got a Slurpy coupon coming your way. Thanks, guys. Appreciate that.

Operator

Thank you. We have the next question from Catherine Mealor with KBW. Please go ahead when you're ready.

Speaker 10

Thanks. Good afternoon.

Speaker 2

Good afternoon, Catherine.

Speaker 10

Johnny, you mentioned about expenses that there were still about $2,000,000 in elevated legal expenses that had to do with the Texas lawsuit and that would hopefully not be recurring next quarter. So do you think excluding now we actually see expenses come down from this level or that just kind of pays for natural growth over the next couple of quarters?

Speaker 2

1111 is 111 is our number, and you pull the 2,000,000 out of of expenses this quarter, you'll be at one ten nine. So you're right at one eleven. So our management team is working hard to to keep that, and and I'm not I didn't fuss out of this quarter because we had the elevated legal expenses. We're in the middle of depositions on that lawsuit that went

Speaker 5

on all month long. Anyway,

Speaker 2

that maybe that it appears that there's a resolution that's come to that and and maybe everybody will continue. We have everybody has signed off, but we're working up towards that. So, you know, the hundred 11 is a good number. I think you know that. I think you I think that's the number we had last year, and we're still operating with it this year.

Speaker 2

So I'm pretty pleased with the with Steven's management of the expense side. Don't count on it coming down any further than that.

Speaker 10

Yes. No, it's been really good expense control. And then maybe my follow-up on the margin was just on loan yields. Can you

Operator

just kind of give us

Speaker 10

a sense as to where new loan production is coming on? We talked a lot this kind of quarter about competition being a little bit more intense this quarter. Just kind of curious how we should think about the pace of loan yields over the next couple of quarters?

Speaker 4

Hey, Catherine, this is Steven. I'll make the comment there as well and let Kevin add anything he wants to. Just in general, I think, mentioned earlier, coupon in Q1 production was at $775,000,000 That's $760,000,000 or so kind of from the Community Bank group. So, you know, a little north of prime and then, you know, mid eights for for Chris' portfolio. You know, we're hearing, you know, from our from our lenders, you know, competition is, you know, quoting some things in the sixes and and, you know, we may have to deal with that at some point.

Speaker 4

But, you know, as you all know, we're disciplined in our approach and, you know, think we can kind of hold the line where we're at. Kevin?

Speaker 5

No, it's good. No, that's I would agree with that.

Speaker 10

Okay, great. And then and maybe just one just the margin. If we are in an environment where we start to see rate cuts and maybe Johnny, I'd love your view and if you think we're going to get them or not, just as we get into an environment potentially where we see more rate cuts this year, can you just remind us on the sensitivity to the margin and how you think the direction of your margin will go with those cuts? Thanks.

Speaker 4

Yes. So from an ALCO standpoint, I think we show about 6% decline in a down 100% scenario. I think Johnny and Tracy have said for a long time our view just on the ALCO model and it being a snapshot in time. We had three I think we had three rate cuts built into our 2025 budget and actually showed a little expansion throughout the year in what our budget produced. So again, I think a lot of that factors on competition and what we have to do to protect the franchise.

Speaker 4

But overall, I think in this $4.40 ish range where we're at today would be pleased.

Speaker 10

Okay, great. Thank you. Great quarter.

Speaker 3

Thank you. Thanks, Catherine.

Operator

Thank you. We have Jon Alstrom with RBC now.

Speaker 6

Thanks. Good afternoon.

Speaker 3

Hi, John.

Speaker 11

Hear me alright? Hey there. Johnny, what are you thinking on the buyback and capital preferences from here? You would still you still prefer, you know, kind of looking around for m and a, or do you think at this point you'd rather be buying back stock?

Speaker 2

Oh, if if we found the right deal, we do one.

Speaker 3

We've got we have a payoff coming up, looks like.

Speaker 2

Brian, you'll talk about what we have coming up?

Speaker 12

Sure. We probably will pay off some sub debt. It's sub debt that we acquired from Happy. It'll be about a hundred and 40,000,000. It's currently about 5.5%.

Speaker 12

But unfortunately, it pops to 9.7% on July 1. So our plan is to try to get board approval later this afternoon to pay that off on the July 31. That'll lower our risk based capital ratios about 76 basis points once we do that.

Speaker 2

Yeah. It it it adjusts to about nine and a half, so we're not gonna we're not gonna pay that. So we'll we'll pay it off. We got cash paid off. We'll just pay it off.

Speaker 12

Yep. And we've got almost 582,000,000 in cash at the holding company, so we're we're good there. And and we're we're strong on capital, so I'm good with paying it down.

Speaker 11

Paying it down.

Speaker 2

It is getting the Okay. Capital count is getting large. You know, I think Jamie Diamond said it best. There's nothing wrong with having good liquidity and lots of capital in these kinda uncertain times. So I I like our position.

Speaker 2

I like the fact we can pay out all of our insured depositors. I like having a war chest of capital. We don't know what's gonna happen. You know? We don't know where this is going.

Speaker 2

I understand what he's trying to do. I don't know if it works. But, anyway, we're gonna all be in this for a little bit till it gets resolved one way or

Speaker 3

the other. I just wanna

Speaker 2

be in good shape. We come out the other side and ready to play. So

Speaker 11

Okay. Okay. Fair enough. So so pay pay pay down debt and maybe pick away at the buyback is the near term message. Is that fair?

Speaker 2

Yeah. We'll continue to buy. I wish we had we've always filed 10 b five. We've picked up about 480,000 shares in this 10 b five. About a million last quarter on this quarter, so we're picked up about 454 and 80,000 shares.

Speaker 2

And I assume we'll probably buy another if they stay down here, we'll continue to buy. You know, we'll just continue to sack it up. It is you know, we I didn't think we get another bite at the apple here, but we're getting a pretty nice bite at the apple. So I think we'll just keep buying for a while.

Speaker 11

Okay. Okay. Good. Chris, Poulton, on on your comments, are you are you essentially calling the bottom? Are you saying that that, you know, you'd mentioned a couple of runoff categories that it feels like you've exhausted that?

Speaker 11

Are you are you essentially saying your portfolio could be at a bottom in terms of size?

Speaker 3

I think that's pretty fair. I'd like it

Speaker 6

to be. We as I said, 100% of the decline in our portfolio has been on the C and I side. We control that, right? We can come in and we can come out of that. Wanted to leave a little dry powder coming into this year on commercial because we kind of felt like there weren't great opportunities in the second half of last year on the commercial side.

Speaker 6

We thought there'd probably be more. We just made our first commitment this month, this year. So we waited until now. We made a new commitment on the facility. So yes, I'd like to believe that.

Speaker 6

We'll have some payoffs you know, in the CRE book, but I think the pipeline is strong enough to fill that back up. So I'd like to be a little bigger than we are right now. We're down about one one seven or so. I you know, we we continue to think two is a good number, and I think we'll get think we'll get back there. It's just not a race to get back there.

Speaker 11

Yep. Okay. Okay. Good. And then, Kevin, just on core growth, core loan growth in the Community Bank footprint, is there anything you'd call out that's particularly strong at this point?

Speaker 5

Well, certainly our Southeast Florida group, our metro groups, there's, you know, just a lot of stuff, good stuff happening in Florida. And and even in even in the Dallas metros, I think, you know, I'd probably call those out. You know, 2Q payoffs look pretty high, so that's gonna be a little bit of a headwind as we go through the quarter. Not saying we can't overcome it. It is early in the quarter and the pipeline doesn't show some stuff that'll that I'm sure will come through, but payoffs definitely are a little bit higher.

Speaker 11

Okay. Fair enough. Just one comment on tin and aluminum. I see John Marshall does not have any foreclosed assets, but it's about 5,000,000 in non performers. So, Johnny, maybe there's an Alumacraft in there for, for Bolton.

Speaker 7

Thanks, John. That's all.

Speaker 11

Alright. That's that's all I had.

Speaker 2

I've been waiting. John. I've been waiting. Oh, that's funny. Thank you.

Operator

Thank you. We now have Brett Robinson with Hovid Group. Of Q3.

Speaker 8

Hey. Good afternoon, everyone. Wanted to start back back on the recoveries. And I think, Johnny, you mentioned you you still expect the cleanup to have $30,000,000 of recoveries over time. Can you talk a little bit about that?

Speaker 8

You obviously had some this quarter. Can you talk about the timing of that? And then just thinking about, do you think you can substantiate a 2% reserve if you end up back there? And just any thoughts on your provisioning needs net of the recoveries you're expecting?

Speaker 5

Brett. This is Kevin. I'll take the the first part of that question. I'll let him talk about provision. But a large, large portion of those recoveries are the the monthly payments on the the large charge off that we took, and we expect those to continue now.

Speaker 5

You know, you could have an event somewhere down the road in a sale or something like that could accelerate that. But as of right now, that's $1,000,000 a quarter, and we

Speaker 2

expect that to continue, you know, for

Speaker 5

as long as they continue to pay it, which we expect to happen. So that's the large part of the 30. Most of the other stuff is maybe one other piece. There's maybe one other piece that hasn't occurred yet that I'm hoping will happen second quarter. Think it probably can.

Speaker 5

Other than that, I mean, all of it has happened other than the monthly payments.

Speaker 11

Okay.

Speaker 8

And any thoughts, Johnny? I know

Speaker 7

it's you've had a 2%

Speaker 8

reserve in the past and your reserve is still way above, almost everyone else. Do you wanna grow that in this uncertain time, or do you think that that's kind of as high as you can get it just given the dynamics?

Speaker 2

I'm not in a hurry, but I'll you know, I like 2%. And I don't have to reiterate, but I'm going to. It has always worked. Good times, bad times, recession, financial crisis, interest rates, 2% always work. And it just something you know, we would've I didn't expect loan growth to be this powerful the first quarter, and it was really good.

Speaker 2

Or or you were seeing seeing it go back up, you know, the recoveries would have taken it back up. So but it just matched out pretty even with the loans and the and so it I think we're at one eighty six. We're still at one eighty six. So it I'm not in a hurry to do that, but if I get a chance to go back to 2% at some point in time, I like the reserve. I think it's a smart thing to do.

Speaker 2

And the conservative way to run this company is to to arrow bear with too much reserves and too much capital. So you know how we do it, and we get a chance to do it. If we don't, we'll we'll leave it. Probably not gonna let it drop. I'm trying not to let it drop any from where it is.

Speaker 2

So, hopefully, continue to to we know we're continuing to get some recovery on a monthly basis. So we'll build it. But there's always, you know, there's always a little charge off here and a little charge off there. I think we recovered 7,000,000 last month. We charged off a couple million and ended up with 4 and a half or 5.

Speaker 2

So but which was the Okay. Hundred and 90,000,000 not with the loan growth is

Speaker 3

what it was. It's about what it took.

Speaker 7

Yeah. Okay.

Speaker 8

And then just back on the the m and a topic, you know, I I assume you're gonna tell me that everyone's just kind of in a wait and see mode. And if no one has to do something, they're just gonna wait and see how the environment plays out before proceeding. But was just curious on your thoughts on the environment and what you're hearing from folks and what do you think your outlook might be for m and a? You know, I know it's hard to hard to gauge with the uncertainty.

Speaker 2

Well, Brett, we just saw Cadence get that deal done in sixty days. How long has it been since we saw a deal get done in sixty days? It's it's been the last Trump administration. So, you know, it it it is a positive for banks. Certainly, it's a positive for banks.

Speaker 2

And French Hill, head of the financial services committee, first banker in a hundred years to head that. That's a plus for the banking industry. You got a real banker running financial services. So I think that's a plus. I I think Trump is is gonna deregulate as much as he can.

Speaker 2

I think it's our opportunity. It's a window. I don't know if it's perfect timing with all of the tariff stuff going on, but we're not on a trade right now, but we're not off a trade. So we're we're we're open to, to what makes sense. And and we'll do a trade.

Speaker 2

I mean, I'm excited thinking close the deal in sixty days. That really gets pretty exciting. So from that add that that perspective, I'm I'm more inclined to do something. We're not really on something right now. We're on one last quarter and do the Texas cleanup, having to get all that crap out of out of the bank.

Speaker 2

We we didn't wanna go forward with that. So, anyway, that that one could come back at some point in time. It it may or may not come back at some point in time, but we'll we're open. I just spoke at Commerce Capital. They had a big event in in Texas, and we spoke there in front of about a 20 bankers.

Speaker 2

So I told them our our door was open. If any of them were interested in coming, then come on and we'll we'll visit. So we're not we're not excluding the m and a deal. When you run a 2% ROI as we did for the quarter, we can't get much better than that, can we? We just can't I can't you can't get much better than that.

Speaker 2

So it's time to bring some assets in, and don't we don't need to get stupid with a price. We need to buy it worth the money. You know, I told the guys in in Texas recently this last conference, I said, think about it. We all work about the same number of hours. I don't think they work as many as we do.

Speaker 2

But, anyway, I said and and you're doing a 1% or a point nine. And I said, we're doing a two. So think about that. And you wanna sell your bank, what should I pay for it? You know, I pay for what it's worth.

Speaker 2

Right? Think about think through that. You know, you you can't come beating your chest. I want two times book. Because next year, we're gonna do we're gonna we're gonna do 1.8.

Speaker 3

I said, well, then wait a little

Speaker 2

next year to sell it. Right? If you're gonna do that good next year. So just the conversation around was we're open, but it has to work for both parties. And if we found the right trade, we'll certainly do it.

Speaker 2

Does that make you understand where it's coming from? Okay.

Speaker 8

Yeah. Yeah. No. I think that makes great sense.

Speaker 7

Appreciate the color. Congrats on the quarter.

Speaker 2

Thank you.

Operator

Thank you. We have the next question from Matt Olney with Stephens. Please go ahead when you're ready, Matt.

Speaker 3

Yes. Thanks, guys. Congrats on the quarter. John, want to yes, I just want to continue the last discussion you had on the M and A front. And I'm curious if we're if we are seeing faster approvals on deals and you mentioned up to sixty days on some of these deals.

Speaker 3

Does that allow you to do anything interesting on

Speaker 13

the M and A side? And some of your peers have talked

Speaker 3

about it's really more comfortable doing multiple deals in the same year. If that's the case, it could allow the bank to do perhaps some smaller deals that they wouldn't have considered in the past if you can do multiple smaller deals. But just curious how the change of faster approvals, how that would change your M and A strategy, if if at all?

Speaker 2

Well, it it excites me to look at M and A and to be able to get would we would we do two or three deals at one time? Well, if one came, another came, another came, I guess we would. I don't think we'd announce them all the same day. But I wouldn't mind doing a smaller deal. We're not averse to doing a smaller deal at all.

Speaker 2

You know, the last one we did was was the happy deal, and, you know, the the train wreck we ran into there with that deal, but that's that's in the rearview mirror today. As you can see, the earnings has recovered. So, I mean, I'd prefer to do maybe a I'd prefer to maybe do a smaller deal or or a multiple smaller deal. So it's just I'm sure my people would prefer to do one large larger deal because it's about as much work to do a smaller deal, as you know, is is to do a large deal. So and you'd have all your focus on one trade, but I I wouldn't be adverse to doing a couple of smaller deals at all.

Speaker 2

And I'm looking at the I'm I'm ready to find something. I'm absolutely ready to find the trade that makes sense. I said a while ago, ran a two point o five or six for the month. You can't I can't ask for any more than that. This team needs some new assets.

Speaker 2

They need some assets of somebody that's running a 1% ROI that that wants to be a partner and come in and let us help them get it to a 2% ROI. I mean, that's our game. Right? That's what we've done over the years is is is by a bank that doesn't perform near at the level that home performs and bring it to our level. So that's really our strategy, and we're looking for that opportunity.

Speaker 2

But just because I sell it two times tangible book, I'm gonna pay somebody two times tangible book. There's not been a handful of us that traded two times tangible book, and we trade there because of the continued quarter after quarter after quarter performance of of of the companies. So that's why we trade there. And people that are not there, they trade there for a reason. So no disrespect.

Speaker 2

It just is what it is.

Speaker 3

And, Johnny, on the topic of just smaller banks, can you put any numbers behind that in in terms of how how small would you go versus, you know how how small is just too small, I guess, to consider?

Speaker 2

Below 300 probably is too small. You know, however, if it was sitting next door to Palm Beach or sitting next door to to Miami and it was the end market merger, you know, we might we might look at something smaller than that. It just depends on where it is. If it's out there by itself, then I'm we we probably would be we wouldn't be as aggressive on it. If it's if it's in some place where we operate today, then we could be we could be a little more aggressive on it.

Speaker 2

I mean, if the c you've heard my story, the CEO wants to stay. We'd love to have the CEO. If he doesn't, strictly in Florida, we can just pour it to somebody's bucket because those guys understand us. They know what we're doing. They've been with us for years.

Speaker 2

You don't have to hold those guys in Florida's hands. They just go get it. And and that's what's happening in Texas too. Our our team, Arkansas is that way, Texas is that way. Chris runs his own

Speaker 4

deal in New York, as

Speaker 3

you know. So if if

Speaker 2

I don't have to hold these guys' hands. And if if we get an opportunity in a market, even if it's a hundred and 50,000,000, it's next door. It might make a lot of sense if it's accretive. If it's a could be somewhat accretive to it. I mean, you can do a billion dollar deal and not it it adds 2¢ a share or you can do a hundred and $50,000,000 deal next door and it may add 2¢ a share.

Speaker 3

So depends on how much it adds to

Speaker 2

to EPS. We're in the business of making money for our shareholders, and and and we're gonna make money for our shareholders. It it most of these people sitting around this table right now are big shareholders in this company. So they're as aggressive as I am about looking for the next deal.

Speaker 3

All right, guys. Thanks for the commentary. Congrats on the quarter.

Speaker 2

Thanks, Matt. Appreciate it.

Operator

Thank you. We have Steven Scootin with Piper Sandler. Please go ahead.

Speaker 3

Good afternoon, guys. I don't know if you let Tracy hang around for one last quarter, but I hope you guys are chewing some nasty cigars in his honor, maybe. If he's if he's not there,

Speaker 2

but got one.

Speaker 5

He's He's missed.

Speaker 2

He's sitting at the end of table, one in his mouth right now.

Speaker 3

There you go. See, you guys all should have one just to to honor him on his on his what I think is maybe his last name's call. So it's been a been a great run. I guess maybe one last question on the m and a front. What do you think we need to kind of get the ball rolling on a deal flow perspective?

Speaker 3

I mean do we still need lower rates? Is it marks on or interest rate marks that are keeping deals from getting done? Do we just need higher stock prices? Mean, think most of us thought we'd have seen a lot more deals in this administration by now. I'm just wondering what you think we need to see to kind of get the ball rolling a little bit more.

Speaker 2

I saw Kevin showing his head when he when he said lower. That'll improve some people. That'll make them wanna come out. You know, it's about as broad as it is long when you think about it. We're just a tick below two times tangible book.

Speaker 2

We're right at two times tangible book, and we were at two five, you know, so or two six. It's all relative. You know? Somebody said, well, I'm gonna wait if I can get one six or one seven. Well, when I get one six, I'm probably back to two five or two six.

Speaker 2

So it kinda floats back and forth. Just educating the sellers to me more than anything else is what we need to do. As you heard me say, these people that got themselves in trouble with their securities book, it's hard to make a deal with those people because the mark is so deep into their book. But, you know, it's all relative. Right?

Speaker 2

It's it's based on what we pay for them today and how long it takes for them to heal up. And maybe they don't heal up for a couple years. So they maybe they don't sell for a couple years. But it's all about it all floats about the same. I mean, the the when Trump went in, we got the Trump bump and and huge raise of all bank raise the level of all bank stocks.

Speaker 2

Well, the tariffs come in and they're going back down. So, you know, it's we're about where we were prior to the the Trump bump. So I think it's just a matter of educating the seller because if the seller just is willing to make a deal at a point nine, then he benefits from that, and it's accretive to the company, and he gets to ride our stock. You know, he used to ride a really good quality stock. It pays a dividend every quarter.

Speaker 2

It's just an education process to me.

Speaker 3

Yeah. Yeah. That math you just talked about on the exchange ratio seems to be lost a lot of the times. There seems to be some maybe some pride in just the absolute number at announcement, which, to your point, doesn't doesn't really make any sense. But that's helpful, Johnny.

Speaker 3

I guess, you know, you said something interesting, obviously, even in your press release, right, the banking boils down to revenue and expenses. Right? And y'all's expenses are about

Speaker 2

as low as it seems like you

Speaker 3

can get them. You're talking about needing more assets to build revenue. But apart from M and A, are there any other levers you feel like you can pull to kind of, you know, pick up revenue levels more so than they are? Are there any other lines of business or anything else that's on the radar to to grow revenues disproportionately?

Speaker 2

I wish I I wish I could tell you the answer to that was yes. But, you know, we're going to keep on keeping on until we find somebody that wants

Speaker 5

to do a trade with us.

Speaker 2

So we're just gonna keep on doing what we're doing, and I expect the next quarter to look a lot like this quarter. So, actually, the run rate as of today was a million 3 higher through the same day last quarter. We're a million 3 higher this quarter than we were same day last quarter already. So I expect us to look a lot like we did last quarter. We we had a sale.

Speaker 2

Happy had an investment that they sold, and I didn't even know we had it. And it made millions of dollars, so you'll see that coming in. We had one other deal was pretty good. Oh, we looks like we may have settled the Texas lawsuit. Looks like that is settled.

Speaker 2

I'm not sure when those proceeds will come in, but they possibly could come in next quarter. And as bad as I hate to say it, we have a I wish we didn't have it. It was a life insurance policy for mister Hickman Pat. I don't I'd I'd much rather had him than the money. So got that coming in.

Speaker 2

So we got a good start on on on next quarter, and the run rate's up a million three through today. So that that tells you kind of what I'm thinking, and I'm pretty happy. We just need to find somebody that wants to partner and stay with us if they want to or go to the house if they want to. We're ready.

Speaker 3

Yeah. No. That makes a lot of sense. I appreciate the color. Everything else kinda I

Speaker 2

had is has already

Speaker 3

been asked. So fantastic quarter yet again. Appreciate the time.

Speaker 2

Hi, Steven. Thank you. We appreciate you a lot. You have a great reputation as an analyst. You do a good job.

Operator

Thank you. We have another question on the line from Brian Martin with Janney Montgomery.

Speaker 13

Hey, guys.

Speaker 2

Hi, Brian. You know, maybe

Speaker 13

hey, Brian. Yeah. Yeah. Maybe, maybe just one for for Kevin. Just, Kevin, on the, in terms of the the NPA resolution, I think last quarter, you kinda talked about directionally where you thought, you know, the NPAs could trend to here as you kinda work through the credits.

Speaker 13

Can you just kinda remind us where that where you think the NPAs will kind of shake out here over the next couple of quarters as you kind of work through some of these credits?

Speaker 5

Yeah. There's still probably another 12 another 12 or so that I'm hopeful to move this quarter. From there, it takes the the credits, the the NPAs that we have on the Florida memory care credits, it takes those to move, and those are improving. One of the three actually is cash flowing. It's now cash flow for two months on p and on what would be p and I payments.

Speaker 5

And the other one of the other two is is really close, but that's a you're probably six months. You gotta have six months of that that sort of activity before you move it out. So I think in best case, one of those is probably a third quarter third to fourth quarter activity. And those from there from the $12,000,000 I said early, it takes that to get any anything else out of any size because everything else from there

Speaker 3

on is pretty small.

Speaker 13

Okay. And that the memory care one that could go later in the year, third or fourth quarter, how how how big is that one?

Speaker 5

The one of the three is about six. The second one that's close is eight or nine ish, somewhere in there.

Speaker 3

Okay. So you could still see a

Speaker 13

good chunk. Both those could go in second half of the year or later in the year if that's possible?

Speaker 5

Possible. Yes. Possible if the if the current trends continue.

Speaker 13

Okay. Gotcha. And then I don't know if you mentioned it, Kevin, if I missed it in your opening remarks. Kind of your the loan pipeline, your community bank pipeline today. Can you just did you give some color on that of how you're feeling about that is given the uncertainty that's out there and just how you're looking at through it?

Speaker 13

Think I know you mentioned some payoff.

Speaker 5

I think the pipeline itself, the production pipeline is pretty good. I wouldn't say that it is as strong as it was the last half of this quarter that just ended. I think the challenge is going to be the payoffs, the elevation of payoffs second quarter if those do come through. That's a headwind. Not saying we can't get there, but it's going to take some things happening that aren't on the pipeline yet.

Speaker 5

And, you know, we're talking about some stuff that could hit there, but it'll just we'll just have to see how that plays out.

Speaker 13

Gotcha. Think, Brian, think this I think this,

Speaker 2

Brian, I think his tariff deal has

Speaker 3

kinda shook everybody up a little bit. We'll see how that goes. But I think it's

Speaker 2

I think it's got everybody's attention a little bit.

Speaker 13

Yeah. I think you get another quarter down

Speaker 7

the road with maybe a little

Speaker 13

bit more clarity. You'll you'll feel better about how things are how the pipeline is feeling or shaping up. And maybe just the last one for Steven. Back to the margin for just a minute, Steven, I think you said I don't know if you said where you exited the quarter. I think there's some liquidity that came in.

Speaker 13

And can you just remind us where you exited, exited the month and just kind of what what your starting point is for the margin, you know, as we as we go into second quarter? And then and just to add to that, given just the pressure point as far as it sounds like maybe I'm understanding it right. The risk to the margin moving lower is the competition at this point. Is that what you would couch as kind of the greatest risk to maintaining the margin?

Speaker 4

Yes. Hi, Brian. Yes. I would agree with that last statement. We'll see how rational everybody is over the next quarter and the second half of the year.

Speaker 4

But it sounds like it's still pretty aggressive on both sides of the balance sheet. So as mentioned, the margin excluding event income for the quarter was 4.42%. Same number there for March was $438,000,000 That had 200 or $300,000,000 more in average cash balances in March than we had in February. So that's driving that number down some. But like I said, you know, in that $4.04 range, you know, plus or minus a couple is is, you know, where we feel like we can operate.

Speaker 13

Gotcha. Okay. I think that's that's all for me. So congrats on a great start to '25, and, we'll look forward to seeing a similar quarter in in 2Q.

Speaker 4

Thank you, Brian.

Speaker 3

Yeah. Thank you. I

Speaker 2

think kind of wrapping up now, Donna. That's alright. It, it was a great quarter. I expect this quarter to be as good or better than than last quarter. I don't see any reason.

Speaker 2

You know, I've asked we've done it. I've run-in y'all at at many conferences. She said, what do you want to happen? I said, nothing. We just wanna leave it like it is.

Speaker 2

We're we got the Home Bancshares is what we call humming right now, and it's humming about as good as it's ever hummed. So I'm we're pretty pleased on this end, and we'll talk to you in ninety days. And, hopefully, we have as good or better news and maybe a deal by then. So thank you very much for your support.

Operator

Thank you all for joining the Home Bancshares Inc conference call. Today's call has now concluded. Thank you for your participation, and you may now disconnect.

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Earnings Conference Call
Home Bancshares, Inc. (Conway, AR) Q1 2025
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