Home BancShares Inc
NYSE:HOMB
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Home BancShares Inc
Earnings Call Analysis
Q3-2024 Analysis
Home BancShares Inc
In the third quarter of 2024, Home BancShares reported a robust total revenue of $258 million, marking a significant achievement in core earnings. This represents a record high in core earnings and reflects growth despite the challenges posed by recent hurricanes. The company initially anticipated earnings per share to be between $0.55 and $0.56, highlighting a solid run rate prior to the unexpected disruptions caused by the hurricanes.
The bank achieved a return on assets (ROA) of 1.74%, which, if not for a $16.7 million hurricane reserve, would have increased to an annualized income of over $450 million and an ROA of 1.96%. The pretax pre-provision net income (PPNR) stood at $148 million for the quarter, resulting in an impressive margin of 57.35% of total revenue allocated to pretax earnings, indicating efficient management of revenue relative to expenses.
The hurricanes, particularly Helene and Milton, posed significant challenges as Home BancShares has approximately $2.2 billion in customer loans within FEMA-designated disaster areas. The company's proactive stance involved setting aside a reserve of $16.7 million in anticipation of potential loan defaults or disruptions. They hope to manage additional reserve requirements efficiently, suggesting a forward-looking approach to maintaining financial stability.
The company's core operations saw a notable increase in loan originations, totaling $1.13 billion in the third quarter. However, management noted a slight softness in early deal flow expected to affect the fourth quarter, projecting a flat to slight decline in loan balances. Looking towards 2025, they express optimism for growth, contingent on future rate movements and market posture.
In terms of yield management, the reported net interest margin (NIM) expanded by 1 basis point to 4.28%, signaling effective control over interest expenses even as total deposit costs rose. The bank's yield on loans increased to 7.59%, reflecting a competitive edge while the overall loan-to-deposit ratio remains a conservative 88.7%. The firm is focused on maintaining healthy liquidity while continuing to manage pricing effectively amidst changing market conditions.
Noninterest expense decreased to $110 million from $113 million in the previous quarter, contributing to a notable efficiency ratio of 41.42%. This improvement indicates strong operational control and suggests the bank's dedication to cost management, essential for sustaining margins as they navigate the repercussions of the hurricane impact.
Home BancShares holds a solid capital position, with a Common Equity Tier 1 (CET1) ratio at 14.7% and total risk-based capital at 18.28%. To enhance shareholder value, the bank also announced a stock buyback, recently purchasing 1 million shares for approximately $26.9 million, demonstrating confidence in their stock and paving the way for potential future capital distribution strategies.
While the storms presented immediate challenges, Home BancShares articulated a measured optimism moving forward. Management emphasized that despite disruptions, their historically solid operational practices in response to disasters have prepared them for these scenarios. They remain committed to navigating complexities while positioning themselves to seize opportunities for future growth and expansion.
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Greetings, ladies and gentlemen. Welcome to the Home Bancshares, Inc. Third Quarter 2024 Earnings Call. The purpose of this call is to discuss the information and data provided in the quarterly earnings release issued after the market closed yesterday. The company presenters will begin with prepared remarks, then entertain questions. [Operator Instructions]
The company has asked me to remind everyone to refer to their cautionary note regarding forward-looking statements. You will find this on Page 3 of their Form 10-K filed with the SEC in February 2024. [Operator Instructions] This conference is being recorded. [Operator Instructions]
It is now my pleasure to turn the call over to Donna Townsell, Director of Investor Relations.
Thank you. Good afternoon, and welcome to our third quarter conference call. With me for today's discussion is our Chairman, John Allison; Stephen Tipton, Chief Executive Officer of Centennial Bank; Kevin Hester, President and Chief Lending Officer; Brian Davis, our Chief Financial Officer; Tracy French, Chairman of Centennial Bank; Chris Poulton, President of CCFG; and John Marshall, President of Shore Premier Finance.
To open our discussion on the quarter today, we will begin with some remarks from our Chairman, John Allison.
Thank you, Donna. Welcome, everyone. Welcome to Home Bancshares Third Quarter 2024 Earnings Release and Conference Call. The company had another great quarter. The quarter was very strong and would have finished as one of the best ever. That was until the last few days of September when the first 2 disastrous hurricane took a swath across Florida, where Home has a little over $1 billion in customer loans.
We felt it's 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 closed the books for the end of the first quarter after the first hurricane when the reserve estimate that we made, we thought was reasonable. And then here comes Milton, number two hurricane. And by the way, in 2 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 members for employees, customer extensions and the reality of losses. We would prefer to have 5% plus reserve for the main area of the storm. We already had was over 2% of the area, and we're optimistic that we may not need over additional 3%. Fingers crossed. As a result of our needed reserve, we will hopefully be in the $20 million or less runs. Please don't hold 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's spun up all of tornadoes outside of that. And our Orange Grove that we've had for years set some pictures of some of its 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 to $0.56 for the quarter. One should never count his money until all the hay is in the barn. I knew better, but things were running pretty smooth. So I made a mistake and counted the money.
We reported a 1.74% return on asset, ROA. And without the $16.7 million reserve, our income would have been $112.578 million. That's an annualized income for the company of over $450 million and ROA of 1.96%. You can see why I was excited, and then bam, here's the hurricane. A little disappointing. But as always, we do what's in the best interest of our shareholders for period.
Well, here is the number, 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 wall record. Brian, is that the top number?
It is on core earnings. We had 1 quarter about 2 years ago, we had a $15 million windfall and that would be slightly higher. But on core earnings, that is a record.
Okay. Well, on core earnings, that was the best ever. So that's good. PPNR was $148 million, pretax pre-provision net income. When you think about that and 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% (sic) [ 57.35% ] of total revenue goes to pretax, pre-provision. That might be another world record, I don't know.
Stephen will cover the numbers more specifically, but I'll just kind of take a broad brush to it. Margin was up for the quarter. Yield on loans improved quarter-over-quarter. Interest-bearing deposits had a slight increase, just a tick. Noninterest expense for the third quarter of '24 was $110 million versus the second quarter '24 at $113 million, and the same quarter last year was $114.7 million, much improved.
Efficiency ratio of 41.42%, also good improvement. Nonperforming [ SPAC ] as we continue to work through the Texas credit, we told you about the resolution of those credits will hopefully be resolved either in this quarter or the first quarter '25. Because of our strong balance sheet, we're able to take our time and work through several of these credits, reducing the loss exposure versus having to sell the asset immediately that may have resulted in much better losses. Stay tuned. Kevin will talk more about that in the report.
Strong capital ratio, I thought we're going to catch Jamie Dimon, we didn't. We're at 14.7% CET1, and he jumped on -- when he was at 14.7%, he jumped to 15.3%. I think he's afraid we're after him. The loan loss reserves stand at 2.11%. Tangible book for the third quarter of '24 was $12.67 versus $10.90 for the third quarter of '23. That's a $1.77 improvement year-over-year. $0.77 of that came from AOCI and $1 came from retained earnings.
We earned $100 million and $0.50 a share at the reserve for the third quarter. So for the first 3 quarters were $301.6 million or $1.51 per share through the first 9 months. Loans continue to grow in our legacy footprint, $131.6 million increase, while CCFG had $89.1 million decline in balances, but they still remain with $2 billion of outstanding loans. We were disappointed last year by missing our goal of $400 million. Due to circumstances are outside our control, if you remember that being a payment to the Fed to the failed banks plus the damage for the West Texas headwinds.
The Fed also charged us with an additional assessment this year of approximately $2.3 million that we overcame early in the year. But the hurricane reserve could cause us to miss for the year, hopefully not. All in, '24 is shaping up to be a good year ex hurricane, an okay year with hurricanes in spite of all what's happened. In 20 days, I 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 in 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 gains. Inflation is already taxed the American public over 20%, created by the crazy spending and firing up inflation like we've not seen since the late 70s. The [ king ] was throwing Joe Biden in the ditch and crowning a new candidate that absolutely has no financial experience and appears to have no idea of what's going on. Whether you like Donald Trump or not, I believe he has to win the race. We know what he did last time, and he was business friendly.
Watching both candidates through this short campaign has been very painful for all of us. But after watching, I cannot imagine anyone voted for Mrs. Harris. It's not about Democrats or Republicans, it's about the saving our country. I think she will destroy all the good work that Chairman Powell and the committee has done to fight inflation. Our friendship will allow the snake to raise its head again. We have not killed the snake, but we've made an impact. 25 basis points probably would have been better than 50. But I think that may have been politics as usual, usually happens during the last years.
Taxes, crime, immigration, gangs, open border, sex trafficking, increased regulations in place, need I say more? We need the vote to stop the chaos. When you hear Walgreens announcing the closing of 25% of their 8,600 stores, and one of the main reasons is spent should tell us all we need to hear. If that's not enough, Sunday, an ABC host, attempted to minimize illegal migration gains taken over apartment complexes in Aurora, Colorado, saying the incidents were limited to a handful of apartment complex and Donald Trump is the problem. I mean you can't make this stuff up, enough of that.
Our Texas lawsuit, we're totally engaged and await our day in court and let a jury decide the amount of damages done by what we perceive to be illegal activity by some West Texas individuals. On stock buyback, the company purchased 1 million shares for $26.9 million. That should put us below 199 million shares. Brian, where are we now?
We're like 198.8 million.
198.8 million. So we're going to continue to buy. Stephen, is that correct? To continue to be in there.
We have a 10b5-1 plan in place. It's not been active over the last couple of weeks. Plan to once we get out of the blackout.
I don't know where we're going with that, but we continue to buy stock, and I guess we'll continue to hang in there. Our goal was to get it to 200 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 expenses, it rolls into really a good, good quarter. So Donna, it's back to you.
Thank you, Johnny, and our thoughts are certainly with all of those in the path of the hurricane. Our next report today comes to Stephen Tipton.
Thanks, Donna. As Johnny mentioned, Home Bancshares and Centennial Bank had another great quarter. Congratulations to all of our bankers and employees for continuing to make Home and Centennial Bank one of the top-performing banks in the country. As Johnny mentioned, total revenue increased again in Q3 to $258 million, and adjusted PPNR increased to $146.6 million, which is a 17% year-over-year increase.
I'll start with the net interest margin, as Johnny referenced in his comments, the reported NIM expanded 1 basis point in Q3 to 4.28%, while we continue to hold healthy excess cash balances. Excluding the event income noted in the press release, the net interest margin was 4.27% for the quarter, an increase of 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 overall customer relationship. We've worked through most of the negotiated deposit pricing. And thus far, it appears we've been able to offset the decline in rates on the asset side.
Switching to liquidity and funding. Deposits continue to be a key focus with our management team as they review lending opportunities, as well as cross-selling opportunities on nearly 5,000 accounts that we open each month. We continue to emphasize the strength of Home and the comfort that provides. Total deposits declined $250 million for the quarter, most of which occurred in our Florida regions as seasonal outflows occurred with property management companies and municipal relationships. Noninterest-bearing balances ended at $3.94 billion and account for 23.5% of total deposits.
Alternative funding sources remain extremely strong, with broker deposits still only comprising 2.3% of liabilities. And the loan-to-deposit ratio still stands below historical levels at 88.7% as of September 30.
On the asset side, end 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. Our loan originations, we saw volume of $1.13 billion in Q3, similar to Q2, with a little more than half coming from the community bank regions. Yields originations remained strong with an average coupon of 8.96% in Q3. Payoff volume picked up slightly to a total of $699 million, although a portion of what we expected to see this past quarter appears to have pushed into the fourth quarter.
Closing with the previously mentioned strength of our company, all capital ratios improved and remain extremely strong with a tangible common equity ratio of 11.78%, leverage ratio of 12.54%, CET1 ratio of 14.65% and a total risk-based capital ratio of 18.28%. Couple that with reserve coverage of 2.11% and over 3x coverage on nonperforming loans, we are in a strong position to capitalize on future opportunities.
With that, Donna, I'll turn it back over to you.
Thank you. And finally, Kevin Hester will provide us with some color on the lending portfolio.
Thanks, Donna, and good afternoon, everyone. We also discussed 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 the increase in projected payoffs, I believe that fourth quarter could be flat to down slightly.
Moving on to asset quality. The metrics declined slightly this quarter with increases in nonperforming loans and assets of 10 basis points and 7 basis points, respectively. This is due primarily to a Texas hotel moving to nonperforming. That is 1 of a trio of hotels to a related ownership group that we've been working with for a few quarters. One of those hotels sold this quarter, and another is in the process of selling. So we're hopeful that we can continue to achieve a good outcome with this relationship, but it could take some more time.
We expected to complete the construction of the multifamily project that is in OREO, which is located north of the DFW Metroplex in the third quarter, but a delay with an unreasonable local utility has pushed this completion into the fourth quarter. The timing delay does not appear to change our overall outcome, which will be to move it out of OREO by year-end to a buyer that we have ready to contract. We continue to expect no worse than a small loss on this exit.
Other Texas issues that we've been working through include a completed multifamily project closer to the DFW Metroplex that has experienced a decline in occupancy and our South Texas C&I relationship that has had multiple recent operating issues, but has a very profitable history. These regional issues have our full attention. And as Johnny said, because of our strong balance sheet, we were able to take our time and work through these credits in the best way possible. The considerable experience that we gained working through sales 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 1 floor, and it is cash flow positive. We are negotiating with another potential tenant that would take it above 80%.
Switching to a discussion regarding the recent hurricanes. We are thankful that none of our employees were injured by hurricanes Helene and Milton, and that the damage to our branches was limited in nature. This is clearly not the case across all of this widespread area impacted by these 2 storms. Hurricane Helene took a swipe of the West Coast of Florida, where we have a substantial presence, and then proceeded inland into Georgia and North Carolina, where it inflected major funding damage. We have approximately $1.5 billion in loans in these counties within the FEMA designated disaster areas from Helene, with almost 90% of those loans in Florida.
Less than 2 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. Areas from Tampa Bay North were the hardest hit by Helene, and we were assessing damages in that area when Milton threatened less than 2 weeks later. A late turn to the south by Milton took the brunt of the storm south of Tampa and areas from Bradenton South where it appeared to be the worst hit there, along with random places across the interior of the state hit by tornado spawned from landfall.
We are continuing to reach out to affected customers, we're touring damage where possible, and we're implementing our past playbook. Past history tells us that it takes 6 to 12 months to fully assess the credit impacts of these events. I know it's hard to imagine, but we still have customers, who are dealing with insurance claims from past hurricanes. The cleanup and rebuild is a long process, but 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.
Thank you, Kevin. Johnny, before we go to Q&A, do you have any additional comments?
No, this is a great quarter. If we hadn't had the hurricanes, we would have -- really been an outstanding quarter. As you can see, I've got excited. I counted our money, counted how much money we're going to earn before we the final day of the quarter and the hurricanes hit. So a little disappointing, but it wasn't -- our people did the job. I mean Home make sure that people did have hell of a job for the quarter. Great run rate, great numbers, all good and we'll overcome it. May we get lucky and we put that back in income someday. Or if we have to make more -- a bigger allocation, we'll do that too, whatever is in the best interest of our shareholders. Anybody else got anything? Tracy, you got a comment?
No, I'm good with all.
Brian?
No. I thought it was a good quarter.
Stephen, you got anything else to say?
No.
Donna, you'll wrap it up?
I guess we will turn it over to the operator for some Q&A.
[Operator Instructions] Our first question today is from the line of Stephen Scouten of Piper Sandler.
I 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 Trump does win the presidency, if you think 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?
Well, we're looking to that. I mean, we're looking at opportunities today and to get more aggressive, they just have -- they'll just have to work, right? They just have to work. Everybody's price has gone up. Ours has gone up, and everybody else's price is going 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 to do.
Regulatory wise, it was much easier to do a transaction when President Trump was in. We had better support there. And that will 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. They've been really slow. Regulators been slow in approving deals. Seems like they've gotten a little quicker lately, doesn't it? You guys seem that they moved on some that were hanging out there for a long time. They finally got them done and get 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 said again this quarter, when you run basically without the extra reserve of 1.96% ROA and $23 billion worth of assets, this team just needs some more assets. So we just need to find the right trade and pick up some more assets and let them fix. I don't care what kind of shape the banks in. We just need them to fix it. It depends on the price, right? We will 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're working with your people on some stuff.
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 to cut, how you're thinking about loan betas and deposit betas from here? I know, Johnny, you look at the NIM on like a daily basis. But how do we think about that over the next, let's call it, 12 to 18 months?
Yes. I mean, I think a win there would be flat from where we are today. Our model shows down 4%, 5%, I think, in a down 100. But if we're able to pass through deposit rate cuts, which we -- our team has done a great job so far. And there's probably still some opportunity in the back book that we can work down. So I think predicated on that, I'd be pleased to see us in line with where we are today.
I know it's early in the quarter, but the first 15 days or so of the quarter, we're actually a little ahead of where we were last month. So we've had adjustments as you -- in loan yields and cost of funds. And it looks like we're almost matched up. I mean we're up a couple of hundred thousand dollars is all, but it looks like they're matched up. So I'm pretty pleased with what -- that's early, right? So there will be a lot of adjustments to that. But that as of right now, it looks pretty good, Stephen.
Got it. Got it. Okay. That's helpful. And I don't think you're guilty accounting the hay before it's in the barn. The hay is in the barn, it just might not be a net income, but it's still in capital. So that's still the bank's money, and it's a great quarter.
I couldn't tell you how that excited I was watching those numbers come in, the first 2 months of the quarter. And then I'm watching my daily report, and I'm saying we're going to ring the bell this quarter. We're going to ring the bell. But it's -- you're right, the hay is still in there. You're right, the hay is in there, just in a different category around that. Thank you for that.
Our next question today is from the line of Brett Rabatin of Hovde Group.
I wanted to just start on the loan growth outlook. And it sounds like CFG might continue to have some payoffs in 4Q that will keep the fourth quarter anyway flattish to maybe down a little bit. Can you guys talk about the outlook for '25? Maybe I know it's a 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 that you guys see it as you think about loan generation into '25?
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 -- 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 will come back next year.
And obviously, a lot of this depends on how much the rates drop, what the expectation of that is going to be. And so I can't really tell you what that looks like. But I do think ours in '25 will see in the community bank footprint, a continuation of what we've been doing the last 4 or 6 quarters. Chris, do you want to get in some color on what you're seeing?
Sure, happy to. Thanks for the question. We certainly hope we have payoffs because when we make the loan, we intend to get repaid. And so I think we've always said that 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 want to move some stuff out and get focused on the rest of the year. I think we'll have a pretty good solid end to the rest of the year and build the pipeline going into next year.
So that's a long way of saying. My guess is we'd probably come down a little bit from here and then go back up. Growth has never really been our goal. We're going to put good assets on. We're going to get repaid and we're going to put that money back out and 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 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.
Okay. That's helpful, guys. And then just on the deposit side, I know flows were lower this quarter and there were some municipal drawdowns. How much was that led and how much was the drawdown related to municipal? And then just as you guys see it, 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 was just curious how you guys think about the funding base from here?
Sure. Brett, this is Steve. I didn't -- couldn't hear your first question on municipal. Is it on the overall size of that book?
Well, just how much it came down this quarter. And then just -- yes, about a linked quarter balance would be great.
Sure. [indiscernible] were down about $100 million, $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 normal flow, normal spend just at times throughout the year. In terms of overall strategy, I mean, I think we're staying the course with select opportunities here and there. I mean, it's a lot of -- 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. Conversations with our lenders and our presidents are ongoing every day, every week at loan committees. And so I think it's still our approach and we'll continue to work that base as we have.
They're still running at. These people are still running at. 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. There are real customers doing real business with us. And we don't -- some of that money may have gotten 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. What we predicted was it may have been happening to us a little bit, because they want to get higher rate CD right now and lock it in as rates are coming down. So what we thought might happen may be happening to us a little bit. So not much, but some of it could be.
Yes, sure. It's been interesting to see some banks still being pretty aggressive with rates. I appreciate all the color and congrats on another good number.
Thank you. First, I hope you get feeling better. Thanks for joining.
The next question today is from the line of Matt Olney with Stephens.
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.
Matt, this is Steve. I mean, obviously, some of the ebbs and flows with headcount, which is the biggest driver of noninterest expense. And I'd say, looking forward, we're on 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 at some point in '25 and beyond.
Okay. Appreciate that, Stephen. And then, I guess, also on the credit front, I heard the prepared remarks talk about 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?
This is Kevin. No. I mean -- I think we may have added 1 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.
And as far as the resolution on some of those, it sounds like we should expect some kind of resolution in the next quarter or 2 on a number of those? Do I interpret that right, Kevin?
Yes, certainly, one of them and possibly a second one. Some of these things, they just take a little while to work out. You think you see path and you're working towards it, and you think that path leads you to 90 days and it turns into 180. But 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.
I think it looks a little different by the end of the first quarter. We've just got to get the issues resolved. And I think the -- most of them are basically resolved at this point in time. The hotel deal, the 1 hotel got sold, the other one, we put to nonperforming. And I think that's going to work itself out also. These are just some Texas hotels that we did a while back. I think anything new that I'm seeing. Let me put it to you that way. Nothing new that I'm seeing. Same stuff.
The next question today is from the line of Jon Arfstrom of RBC.
Just a quick follow-up on those -- 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?
From a loss perspective, on the one north of Dallas, $600,000 or $700,000, maybe around $12 million, $15 million. Altogether, we're talking about $200-ish million altogether.
Okay. Good. That's helpful. Another thing I want 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?
I said we have -- we might have to have an additional $20 million is what I said. I don't know that. I was just kind of getting out there, just throwing it out. I don't know that. It's too early for us at this point in time. It may not be anymore. We had some -- what was the place we got the most damage, Kevin?
Anna Maria Island.
Anna Maria Island. Yes, we got pretty -- I talked to him yesterday, our customer. He said, "I'm going to be fine," and he has business interruption in addition to coverage on these units. So that's good. He said, I have that -- I do business interruption with every house. He has a bunch of house, a bunch of -- big in the rental properties. 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 it. He said, "the only thing I could do there is [indiscernible] to Arizona for a few days." So he doesn't seem to be worried about it at all. I wasn't sure if he had business interruption. I just want to make sure he did. So -- could there be a loss there somewhere? Maybe. I would suspect there's going to be a loss. Something is going to sneak up on us. That happens, that just happens.
What we don't know is how the insurances are going to play with each other. This appears to be more of a flood event rather than wind and flood, generally has lower thresholds and lower 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, how is that going to work? And this flood fight wind and vice versa, and that just takes time to play out. When you think about it, the number of hurricanes we've had over the years, we've really had been fortunate to have really 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 why we got reserves.
Yes. 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?
I think that's probably pretty close. So I think $0.53, $0.54, $0.55, $0.56, I think that's about where we are right now until we get -- I mean, Jon, think about it. That's a 1.96% ROA. I can't answer anything better than that, really. So we need to -- I don't need to get them -- get this team some assets. They get another $2 billion or $3 billion, $5 billion, $7 billion worth of assets. It will 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. We'd be looking for something in that size, $2 billion, $3 billion, $4 $5 billion, $6 billion in a market that we think is a good market, either in an existing market or maybe something outside of that touches one of the markets we're in. So I mean, when they brought on 1.96%, we get them another $5 billion worth of assets, you can see what happens.
Yes, they're hungry, Johnny, you got to feed them. Get them some assets.
I won't get -- I'm not going to put them another bonus program together here for long.
Next question today is from the line of Catherine Mealor with KBW.
Catherine, I appreciate your ROA on the PPNR.
You're the one giving us a [ 2.50% ] PPNR. So it's not me, it's you. I wanted to dig into the margin a little bit. Your asset -- you have a really high margin, you're asset-sensitive. And so I think it's natural for us to want to model a margin that moves down over the next year, still higher than peers, but kind of trend down. And you're right, your loan and deposit betas have been evenly matched both at about 40% over this cycle. 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 -- maybe you can talk about especially on the loan side, I don't think we've talked a lot on the loan side on this call on just the benefit of fixed rate repricing and new loan origination pricing to that, is there a chance of the loan beta could be actually a lot lower as we move into the next year, just given that offset?
Catherine, this is Stephen. Yes, 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 of hundred million. I guess all in total, there's probably $1 billion over the next 3 quarters that is in the low to mid-6s that we should get some lift on, presumably. I guess we hadn't talked competition-wise, but we're starting to hear from some of our presidents or different footprints that competitions pricing out the curve now and you're seeing some stuff in the 6s and 7s, but -- so we'll have to deal with that.
But there's still some opportunity there on the repricing side. Yes, I think we said earlier on the call, I mean, I think it's flattish in the range that we're at today, I would be pleased with. I think it depends how deposits behave and liquidity profile. And if we're able to continue to be aggressive on dropping rates on the deposit side.
And on the loan side, I know you've said before that about, I think it's 34% of your loans are floating and repriced immediately. Can you kind of break that down to -- is that mostly tied to SOFR? And then maybe give us the next bucket of adjustable or available rate loans versus fixed, if there's a way to kind of get these 3 buckets and...
Sure. So it's about $5.5 billion or so that are variable rate change in the next 2 quarters or so. We've got some adjustable stuff in there, too. But just talking about what's 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' portfolio, $1.9 billion, $2 billion, is tied to SOFR and then we've got about $700 million or so in the Community Bank group that's tied to SOFR.
Okay. And where is that yield today on average? What's the spread to SOFR typically?
Make -- the vast majority is going to be 4 plus, probably [ 4.4 ]...
On Chris' side. On our side, construction would be in the 3.50-ish, probably average, over.
And we're starting from a high 8% to 9% yield?
Yes.
Yes.
Okay. Great. And then any commentary on what products within the deposit side you've been most successful at lowering rates on for this first 50 bps move?
Largely negotiated money market type products. We've got kind of a standard corporate product that we've used for years now that has about $1.3 billion and that we are able to pass essentially all of this last rate increase to the balances there and then utilize negotiated interest checking, savings, money markets.
Yes, you're -- to the point earlier on CDs, I mean we've seen rates come in some there. But you've still got peers here locally doing [ 4.60 ], [ 4.70 ] and some community banks here and there that are still close to 5%. So our group has done a good job in terms of being able to negotiate there and keep the overall in the sub-4% range.
It appears that...
Great. It's all got a great system, and congrats on a great quarter.
Thank you. Yes. Well, you -- Tracy will tell you that you run the models based on what it looks like today, you estimate what's going to happen, it never turns out. It never turns out that way. So I'm a believer we're ahead of the game right now, and we'll stay ahead of the game. So until it spends on me, Catherine, we'll stay hitched to what we're doing.
It's working so far. Thanks so much.
The next question today is from the line of Brian Martin with Itau BBA.
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 of the liabilities are indexed that move immediately that aren't the ones you're repricing, negotiating?
Sure. Yes. 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 municipal. But we've got a few other products that are directly indexed to those.
Okay. And I think you mentioned, I think there's about $1 billion of loans, I think maybe last quarter, that repriced in '25. I guess the -- with the new rates today kind of you're hearing from your presidents, I mean you were thinking before the rates were around -- pickup might be going around 9%. I mean where are the newer rates today that you're kind of thinking that the ones that are repricing will move up to? What type of range are you thinking is reasonable given what you're hearing now in terms of the rate environment?
Well, on renewal, I mean we should be able to land in the [ 8 ], [ 8.25 ] range. But 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.
Yes. 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 -- 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.
Yes. Okay. All right. And maybe just one for Johnny. Johnny, just on the M&A, I mean, in terms of kind of opportunities, whether you -- I think you're seeing it. Can you just remind us, is there market-wise, where are you kind of more focused today? And then just maybe kind of size of transactions, as it kind of drifted smaller versus bigger. Just how are you -- what are the opportunities today? I guess maybe it's a better question.
Well, one end -- presently, we're looking at one end market, one out market. So there would be -- end market would be, of course, our market outside would be something that is a state that touches the state we're already in. So we wouldn't be leaping over a state over a buck. So we're just playing with it right now. Look, it'd be interesting to say, I think we're going to see some Boards of Directors telling management to sell. I think we're -- I think they're going to say, "Hey, we just slipped through another one here. This is a tough time. We need to get somebody -- get it in good strong hands and get a good strong dividend." At least that's my belief. Where we go from here, I don't know. One's outside and one's inside the market.
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 going to go outside?
Well, just like one is out of market. I like their footprint. I like their footprint. I thought it looked intriguing in a market that's got good growth. So 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 that's really a pretty interesting story there. And I verified that the information was correct and how -- what kind of growth they were getting there. It's got my attention. That's all.
Yes. And got it. And the last 2 was just on the expense side. I think you said that the -- maybe I missed -- I didn't hear what you guys said earlier in terms of kind of the outlook on expenses, kind of really good progress in trends here. Just kind of the current levels are sustainable. Is there something to think about embedded in the numbers that we should think about as you go into '25 or kind of current level is okay?
I think we had a little windfall this quarter. I think the 111 and change number is a good number. We -- you asked -- I was asked last quarter, and we said 111 is the number. So 111 and change is probably the realistic number.
Got you. Okay. And then just a bigger picture on credit, maybe someone asked this, but just in terms of a few things to work through here. But no significant spikes expected, I guess, in terms of additional nonperforming. Is it kind of what you have is in front of you and now it's just working through that and really nothing coming on board that you're expecting?
Well, there's always a flow how they transition. They go from past due and they go to nonperforming, and then they go out the door, right? So I mean there's always a transition of those things working your way through. I would have thought that we would have had structurally the project north of Dallas because it's finished, and we had 2 offers and we're a contract, I think, on that. So I would have thought that would have been going, but that will go out, so let's come in. I think we got about $200 million probably total that we're dealing with. That will be going in and out and around before it's all said and done.
So do I think there's any giant loss in any of it? One credit could have some loss in it that bothers me, but outside of that, I don't think there'll be much loss in any of these credits. What I'm -- we got an apartment project. I think we can lose a couple of million dollars on that deal. I think that could happen. We got one big one out there that concerns me. And we'll just have to wait and see how that worked 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 a month or 2, or it may be a problem. We'll just have to see.
Brian, this is Kevin. They're all -- I'm just going to say they're all substandard. So we'll work with them. They could -- there could be some level of it that goes to nonaccrual before it goes out of here. But as far as loss goes, I think Johnny has given you the thoughts we have on losses. And ultimately, that's the biggest concern, right?
Yes. For sure. Got it. Okay. And Stephen, just last one, just thinking about it right. I know your expectation, your hope is the plan to hold the margin kind of where it's at here, just kind of fighting the rate cuts. I guess the risk that -- I guess where is the bigger risk if you're not able to -- the biggest risk to not holding it stable? Kind of 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 achieving that?
I mean, today, probably on the loan side in terms of pricing, we're going to protect our base and do what we do. But again, you've already -- we've seen a few instances where we have customers getting quotes or that may be in the payoff pipeline now that pricing in the 6s for a mini perm term. Kevin?
Yes. So from a good standpoint is from Chris' portfolio and then from our construction portfolio, we're going to do a spread over SOFR, and that spread is going to stay pretty much where it is. So rates are going to come down, that rate is going to come down with it. But it's still going to be the spread that we've been enjoying largely, I believe. So -- and that's a big chunk of our business. It's the many perm stuff that Stephen was talking about. That's the stuff we'll have to compete with the rest of the market on, and we typically do a good job on that and get the most we can get. So I think we'll continue to do that.
Yes. And Kevin, what's the breakdown on that in terms of what pieces and mini-perm pieces versus the -- Chris' piece is what, about $1.9 billion, I think? You talked -- someone had mentioned earlier.
Yes, Chris, I mean, Chris, $2 billion range and construction is $2.5 billion-ish, maybe a little higher than that. So I mean you're talking about probably $5 billion that's tied to a margin over SOFR, and we'll continue to do what we're doing there.
Next question on the line is from Michael Rose with Raymond James.
Just 2 quick ones. Any impact to Shore Premier Finance from the hurricane 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, at least in Florida, have some, at least, some near-term impacts.
Yes. As far as what we have in the portfolio, I've not heard of anything so far. I mean 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 for -- and planning for next year. So I've not heard anything negative from this perspective.
All right. And then the other...
That would some good boat sales coming out of it, Michael. I mean some of these boats got -- I'm sure they're torn up. There's probably some new sales coming out of this.
Got it. The only other thing I picked up on is that 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 closer to 100%. But any concern there? Or is that kind of a comfortable place to be? I just worry about if loan demand does pick up. I know we're not trying to push any ropes right now. But at some point, it likely will. And just wanted to get a sense for if there's any discomfort if the loan-to-deposit ratio would move higher.
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 more approved limits or in that range. I think what gives us comfort near term is borrowing about availability, what I mentioned earlier about just the liquidity in some of the markets that we're in today. It's out there, and you may have to pay a price to get it. But there's certainly liquidity in the markets that we're in. We've just chosen to kind of stay hooked to our strategy here over the last many number of years in terms of just dealing with customers one off. So at 88, 89, it doesn't give us any discomfort today.
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.
Thank you, Michael.
I agree with you, Michael. I'll worked on that with these guys. Thank you.
Thank you, guys. I appreciate it.
With no further questions in the queue at this time, I would like to turn the call back over to Mr. Allison for some closing remarks.
Thank you, everyone. Good quarter. And hopefully we have another good quarter next. I hope our people in the Carolinas and Georgia and Florida come through this without -- it's pretty tragic, what happened, certainly in the mountains of the Carolinas. So anyway, I wish them the best. And we'll talk to you next quarter. Chris, you got a comment. You hadn't commented today. You got to...
I have no comment.
No comment.
All good.
Did you guys think you could do better than the [ 1 96 ] ROA?
It's always been our goal, to get better. Yes. Very simple. We're going to get better.
Brian, you got any comments?
No, I don't think I have any comments. I think you all got it all covered.
Well, thank you all. Talk to you next quarter.
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.