Q2 2023 Home Bancshares Inc. (Conway AR) Earnings Call
Speaker 1: Long year was up 20 basis points of 6.84 from the first quarter of 664. Entry ground deposits increased from 190 to 227. That's a pretty good jump, a jump more than our 20 basis point.
I'm expecting the second half of the year to be much tougher than the first half. The good news is home can handle whatever comes our way. We didn't get into this great position by luck. We controlled and directed the entire operation of the company on the most conservative path we could follow. Call the shots along the way. Some were controversial and tough to see.
during the quarter. I would imagine that Holmwood would remain in the top excellent group of all banks as it has been for most of its entire business life. Being ranked by Forbes best bank in America three out of the last six years was not luck. Running a business in normal time.
if we don't know what normal is anymore, it's fairly easy because we all pull from our past experiences we have had. But in the last 18 years, it's been new surprise after new surprise experience. Witness, we've witnessed many home banquets employees working from daylight to dark.
getting very little rest in their offices. Sometimes some of them even slept in their offices. And I describe that feat in one word as remarkable. I'll never forget how blessed we are to have such a remarkable team that does whatever it takes to win. The entire group that participated in this process, thank you so much for what you did.
Not only commonly, but throughout the entire footprint. The efforts you made change the course of lots of things. I want to thank the investment community for their amazing support. Being in the backspace has not been the most popular asset class to have owned in the last 15 or 20 years. So many of us have committed our lives to the spice.
and so have many of you. But you can always sell and change your asset classes much easier than those of us that are huge owner operators of our bank assets. HOMA is my largest asset and the largest asset of the members of my executive committee and the largest asset of many of our regional presidents.
So there's a powerful commitment to the success of this company. I don't think there's a management team in the country that is more aligned with their shareholders than the entire bank space and home. We will protect this company with whatever it takes. We take an attack on home in any way as an attack on the economy.
on all of our individual families' futures because all of us...
An attack on home can change the value that we have committed our lives to for nearly a quarter of a century. This is not a job, this is a future. I hope all of you are proud to perform this over the years. There is only a handful of bunks that sell a two times tangible look or more. Most of them selling the one time or lower.
As we've seen, the multiples decrease over the years. We do not apologize for our multiple. As a matter of fact, we're very proud. If I've heard it once, I've heard it a thousand times, I'd love to own your stock, but you are a little pricey. Really? Now why do you think that is? We're blessed with the best and smartest institutional investors in the entire blank space.
And we've met nearly all of them over the years.
Plus, strong insider ownership with about 7% of the bank and the Allison family stake is around $200 million.
Well, we're here in the space, committed to our shareholders, and we'll continue to try to make you proud by remaining in that small group of elite top performing banks in the country the year after you. You have my personal commitment. Thank you for listening to that, I'll come back to you.
Okay, well thank you for a very insightful report, as always.
Next, we have Stephen Tipton here to provide us with some more operating details. Thanks, Donna. I'll start with the topics of liquidity and funding. We mentioned last quarter the shift of deposit balances to investment firms, money market mutual funds, and a highly competitive interest rate environment in the bank space.
That theme continued in the second quarter of 2023. Total deposits declined $449 million in the quarter, with the vast majority of that occurring in the back half of April as tax payments cleared.
Across our footprint, the Arkansas regions were fairly stable over the quarter, with Texas and Florida attributing the majority of the decline. Although non-interest-bearing balances declined slightly less than $350 million, they still account for a strong 27% of total deposit balances.
Johnny mentioned the uninsured balances relative to our borrowing capacity. Adjusting for collateralized deposits, which are generally the municipalities, local school districts, and higher ed relationships.
The calculated uninsured balances improved slightly from Q1 to 29% of total deposits. Alternative funding sources remain extremely strong.
with broker deposits only comprising 2.2% of overall liabilities.
And our internal limits would allow us to grow that by over $1.4 billion if the opportunities on the asset side were presented.
As we mentioned last quarter, our top 10 list of depositors accounts for less than 6% of total deposits, with only one of those customers being uninsured or un-collateralized.
As a reminder, our deposit base shows nearly 500,000 deposit accounts, with over 70% of those having been open and active for at least three years, and over 25% of those over a decade. The mix and balance today stands at approximately two-thirds commercial and one-third retail.
while the number of deposit accounts is approximately 80% retail.
The focus in loan committees and discussions amongst all of our regional presidents today is certainly on deposit gathering, core customer growth and retention.
On the asset side, loan origination volume picked up slightly in Q2 with $1.34 billion in commitments.
notably over 80% of the volume coming from the community bank regions.
with over 400 million each coming from Texas and Florida.
It yields on originations continued to improve with an average coupon of 8.64% in Q2. Finally, as Johnny mentioned, the net interest margin compressed 9 basis points in Q2 toable 28.
Lower event income in the quarter contributed approximately three basis points to the decline, but the remainder attributable to deposit rate increases outpacing the rise in earning asset yields.
Interest bearing deposits averaged 2.27% in Q2 at 37 basis points from Q1 and exited the quarter at 2.39%.
The core loan yield, excluding accretion and event income, averaged 6.72%, which was up 23 basis points for Q1.
exited the quarter at 6.79%.
With that, Johnny, I'll turn it back over to you.
Well, Johnny, before we go to Q&A, do you have any additional questions or comments?
You know, we've all been watching this bank process live from the front lines.
and watching the impact on interest rates, the effect they've had on our bonds. I remember the late 70s, early 80s when the same thing happened and when the saving the loan process was happening. You can say what you want to create a cycle of excuses, but the financial position of any capital.
It's good or bad, be it good or bad, it's based on the past decisions your management team has made. And they have total responsibility, them and the board.
That is where the buck stops. We can say we're blindsided, but we're watching it happen. And all of us should have been preparing for something I don't know that we knew what to prepare for.
One of the big differences between the present bike process and the SNL days was the speed of the collapse. SNL was a slow down.
With today's technology, it is no longer a slow debt. It is light speed. There are several differences, but lots of similarities. CD rates then were higher than loan rates. We're seeing that now. You got a 3.5% loan rate and you're paying $540 for money. That's the efficiency ratio of the loan.
The speed of the collapse was amazing. They moved billions of dollars out of SDB. By way of today's just normal technology with the computer or with their iPhones they moved billions out.
I think it was shocking for SBB as we understand.
Early on, I was not aware if we could pay out all insured deposits or not when I say that I made early on in the first quarter.
And that's when I thought, can we pay out?
And I thought if anybody can pay out, home should be able to. We immediately asked Brian Davis and Steven Tipton to give us a report and the very comforting information arrived and the stress levels of all of us dropped immediately.
The decision not to invest excess funds into securities was one of the toughest and longest of my biking career because the impact was huge. The impact was on thousands of people, employees, shareholders, customers, employees.
The call turned out to be the correct and looking in hindsight, the call looks like a no brainer. Deploying short term money into low rate, long term securities in a raising rate environment. Well you'd have to be stupid to do that.
Well, that's what 99% of the bunks did and we could have been in the same shape as all the other reasonable bunks that did that and most of them did with that one simple decision. That's why I say reasonable bunks is not all made to sell. We have tried to separate ourselves from the pack. The call turned out to be absolutely correct.
by taking the $3 billion in excess funds and just putting it in fed funds.
Even we made a mistake though, we invested our cash flow from our securities back into the securities book. Millions of dollars were reinvested back into because we felt the pressure. In hindsight, that was not a very smart move. It probably cost us $2 to $500 million of additional liquidity today and some additional earnings today.
However, if it was $500 million, we put $300 million in Fed funds, so I guess that was six times better off. So I'd rather be park ride, or mostly ride, darling, than not ride at all.
I should have never folded that pressure. We all make mistakes by driving this stake into the heart of the bank. That was not good. Management is totally responsible for the safety and soundness of their bank. There are many different silos and responsibilities in the bank and everyone thinks that they know what is best.
And they may know in their own individual arenas, but management takes all inputs and has to make a balance of C.
that is the best and safest for the entire corporation. In other words, the buck stops here.
No one to blame, there is no substitute for experience, and I'm the only one old enough around here, not real proud of that, to vaguely remember the Volcker days of the late 70s and 80s. Don't tell me history doesn't repeat itself. As it turned out, I guess it's better to be mostly right than not right at all.
We together have built one of the best and safest financial institutions in America. It may not be totally bulletproof, but it's darn close.
Donna, how about Q&A? Tracy, you guys know what you want to say? Well, it's kind of hard to follow that comments, but I can give a little heads up on that.
community bank aspect. As you identified, the first six months and last quarter have certainly not been dull.
But it's never been that way for this company and working for a leader like Johnny Allison.
While playing with the cards that we have been dealt, Centennial Banks continues to perform extremely well. Each month as we manage our company, I simply see our regional leaders, our support office directors continue to perform the skills of taking care of our shareholder.
To give a few examples of what I mean, our ROA for the first half of the year was 2.04.
Our return on equity was 12.73. non-GAAP equity was 21.74%.
Our fishy ratio was 41.37%.
Our famous Johnny P5N whatever, P5NR finished the first half of the year at 57.43%. Our net revenue was over $522 million. Our net interest margin was 4.41 which is up 81 basis points from this time.
over 2% ROA.
And that stood out with two of them over 3%, that being our Cabot region and our Northwest Arkansas region. Our lowest, Johnny, was 1.93, which is not too bad whenever you look at the rest of the country and how banks perform. Johnny, we will continue to focus daily on our strength.
and giving it our all for the best return for our shoulder. Thank you, Tracy. Brian , you got any comments? No, I'm good. You said it all. You want to go to see on that?
Thank you very much for those comments, and I think now we are ready to go to Q&A. Thank you. We will now begin the question and answer session.
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The first question comes from the line of John Arfstrom with RBC. Your line is now open.
Thanks. Good afternoon, everyone.
Thanks. Good afternoon, everyone. Good afternoon, John .
You hear me all right? OK, good. Question for you, maybe Tracy or Kevin, what do the loan pipelines look like? I'm curious if you're seeing quality opportunities.
and you had some decent community bank growth. Let's just talk a little bit about the drivers there.
Hey, hey, John , this is Kevin. So I'll let Chris talk about CCFG when that comes time. But in the community bank footprint, we're still seeing good opportunities. It's hard to make some of the deals work. I mean, you got to get it right.
you know you got to be looking at 45, 50, 55 percent equity in a lot of these deals to make them work and there's people willing you know in some cases to do that so we're still seeing good opportunities we actually had you know growth at the community bank level last quarter so
good pipelines, good opportunities. It's like Johnny always says, we'll take what the market gives us and if you see growth it's because
The market is is there for us and we're going to continue to do what we always do
Thanks, Jeff. For CCFD, I think it's—
We're seeing opportunities there, but you work in the market you're in, like Kevin said. If you look at the CMDS market, for instance, I think it's down 70% this year for the first half of the year. There just haven't been a lot of transactions getting done. I think we're seeing them.
Those that are getting done, I think we're seeing a lot of ideas. I just don't know that all of them work. And I think it takes right now to be a little bit patient.
There's some transactions that we think will probably come our way here, but we've got to be a little patient with the sponsors and they've got to be a little patient with us while we work through some things.
The first half was a little bit slow, which is fine. I think second half will pick up a little bit more. I'm not too worried about it. We haven't forgotten how to grow. And I think the good news through all that was we continue to get paydowns. I think I've said this before on calls. I only get worried when we're not getting paid off on things that should get paid off.
And when transactions have slowed down, if your payoffs slow down too, that starts to get me a little bit nervous. So we were down a little bit this quarter or a lot this quarter, but that was really due to mostly we were getting paid off on things. I think it was time to get paid off on.
Okay, and Chris, what are the pain points in your business? And I'm just curious how your competitors are behaving. Is it just, is the volume just dried up? And I'm just curious, we all worry about central business district office and fake geographies and I'm sure you get to see that in your.
Right. And so I think it's just tough to make the equity, mez, senior loan numbers work and get a decent return for the sponsors in a lot of cases. So in some cases, they sort of slow down or pull back on a transaction to wait and see if things get better. I think you're looking at a higher for longer now. And so at some point, you've bought the property or
We're not seeing people get aggressive on leverage. I think we continue to see non-bank players. There was a deal the other day we were looking at. I kind of liked the transaction, but we were going to be at.
sub 50% and they were going to bring in Mez and the non-bank lender came in and took the whole thing. I think we see that happen a little bit more, but.
I think that's okay. I think that's healthy in the market and such. So I think some of the non-bank actors are probably being still pretty aggressive, but not overly so. Just not a lot of transactions actually happening in the market. I think we're getting our fair share. I just think it's been, as I said, not a lot happening. That'll break.
You can only hold onto things so long and builders build and sponsor, sponsor.
You can only hold onto things so long and builders build and sponsor, sponsor.
Steve and a question for you, Johnny, kind of alluded to.
I don't want to call it a mismatch, just on interest expense and interest income, because being down six basis points on a core is a victory, on your core margin is a victory right now. But how do you guys feel about the relatively near term outlook on the margin? Do you feel like this is really maybe the trough on it?
and interest expense and interest income because being down six basis points on a core is a victory, on your core margin is a victory right now, but how do you guys feel about the relatively near-term outlook on the margin? Do you feel like this is really maybe the trough on it?
Hey, John , this is Steven. I think.
We're going to continue to see deposit costs rise. We've continued to take a measured approach and have our bankers work one off with customers as opposed to...
you know, advertisements and mailers and things like that that we're seeing out in the place today. Johnny mentioned the opportunity on the loan side in terms of re-pricing renewals, and I think that's really the goal that we set out is to try to even that up, match that up in terms of where
deposit costs go and where loan yields go. Yeah, I think they have some slight decline to it as we continue to go. But to your point, I think we're talking.
go and where loan yields go. Yeah, I think they have some slight decline to it as we continue to go, but to your point I think we're talking basis points as opposed to...
10s, 20s, and 30s, like we've seen from some other banks that have reported. Thank you. The next question comes from the line of Matt Olney with Stevens Incorporated. Your line is now open.
and 30s like we've seen from some other banks that have reported. Thank you. The next question comes from the line of Matt Olney with Stevens Incorporated. Your line is now open. Hey thanks guys. Good afternoon.
Definitely, Matt. On the credit front.
Great to hear the update on the memory care centers. I know that's something you've been focused on for a while so good to see that to move off. On the Office clone that you highlighted that you're carefully monitoring...
Looking for a few more details if you have them, looking for what market that office loan is in, when does that loan mature, and any kind of color on the LTV. Thanks.
I'll let Kevin take that. It's in the west location, but the LTV is. Kevin, you want to? Yeah, I mean, I think we're having it reappraised now, but I think it's going to be in the 55 to 60 percent LTV range.
And it, you know, we're still monitoring that one. John wanted to get ahead of it, and he's always one to tell you.
ahead of time what's happening and how things are and I think we're just kind of getting in front of that when it's something we're watching.
It may or may not be a problem, but if it is, then we want you to know about it ahead of time.
We do attack these things, as you know, and I apologize for not having any more information on it than I have at this point in time. We'll have a full dossier on it here pretty quick, as we did on the Memory Care Center, so we'll know where we are and what we're doing. But we don't early on know where we're looking at it.
We don't unless we get a really disappointed appraisal. We think we're good shape We got some additional cash put back for that thing also, so As soon as we hear something we'll let y'all know.
Okay. And just to clarify, you mentioned getting the reappraisal right now. Is that reappraisal because there was a tenant loss or is it maturing soon? What's the reason for the new appraisal on that loan? What does that mean to her?
Yeah, there was a tenant loss and I think that was part of it.
Yeah, as you're working through some of these things, sometimes it's just prudent to find out where you're at.
And so, there were multiple reasons for it, but yes, there was a tenant loss in that particular property.
And so I think there were multiple reasons for it, but yes, there was a tenant loss in that particular property. Okay.
All right, and I guess just switching gears, I want to ask about capital levels. Capital continues to build. It looks like the pace of the buyback remains.
Still a little bit slower than it did this time last year. I'm guessing that CET1 ratio could be close to 14% by year-end. Any more thoughts on capital deployment? I guess, Johnny, how do you weigh your various options at this point of the cycle? You've got M&A out there, which you've done successfully in the past, but it sounds like the
a while back that the world's gonna pivot, the rates came down, we thought it would be a good time maybe to look at selling a few securities and redeploying the money. We just kind of tinkered with that a little bit. That might be something we want to do someday. We have a pretty good yield on our investment book, by the way, so I don't think that the losses went up. AOCI increased a little bit.
Why I won't carry, I mean, one aspect of deposits is I don't want to, if they're paying $540 for money, I don't need to carry a bee around in my pocket paying $540 for something I don't need. So when you see the balance of this coming in, you think deposits run off, some of that has not run off, so much has been asked to leave. So plus we had two tax times here in the past.
We had an April tax time and if you were in the tornado area, you had a June tax time. So I didn't have to pay my taxes till June , so you haven't seen the results of that yet, but it's not that bad. Anyway, I hope I answered your question. I kind of run off on a little advantage here.
No, that's helpful. I appreciate that.
Okay guys, great color. I'll step back in the queue. Thank you. The next question comes from the line of Brett Rabiton with HUB-D Group. Your line is now open.
Hey, good afternoon everyone. Wanted to start with the comment that you made about the second half of the year being a little hotter than the first half of the year, and just wanted to get some additional clarity around that. Is that...
Due to the margin, a little bit of non-recurring fee income in the second quarter, what's the biggest challenge? Growth in the uns holeable asset16 nearly 30% is affected by T- supporters accounts
margin, you know, a little bit of non-recurring fee income in the second quarter, you know, what what are the what's the biggest challenge second half versus first half.
Well to me it's the right environment.
These people, I mean these competitive banks, running 5.30, 5.40, 5.60, 5.70, and some 6.
ads. I mean, they're continuing to run those. I guess people have put enough money in there that they feel
safe under the limit, $240,000 or whatever, but that just flashes back to the SNL days of the late 70s and early 80s where you're paying more for money than your loan balance is. I remember looking at SNL in Conway, Arkansas and I remember looking at the SNL in the state
And they said, they said our average yield is 790 something. I said, hell, that's good. That's a good yield. Well, the cost of funds was more than that. So, you know, that's, I just remember that happening and seeing that happen in a, in a S&L here. And it happened all over the country. It just makes me.
It just keeps me alert and makes me nervous as to where that's going to go. Can it go much higher? If somebody has spent all their money, you know that, they've spent all their money, they've barred all their money, and they're still stretching for liquidity, they've got to have liquidity.
then they can go into the market and pay whatever for it just to exist. Now, at that point, it's through the margin and to hell with everything else. But I think because of the inefficiencies, the rest of them is going to put pressure on us. And then as we head into the market, we're going to notussen at the moment. And so, the rest of them have been Tunisia.
Yeah, no, that's helpful and I've heard that. Yeah, they spent their money putting low-rate securities and they don't even show us. I mean, in Bar All Egg Bar, we got 2% broker deposits. We've got room to put, you want deposits, we've got room to put a billion, almost short of $2 billion of broker deposits on the books we want.
We just got to, we try to balance that's what we try to do. I think it's the fact that everybody spent their money before and remember in the SNL day, let me tell you something, if the big bad wolf shows up at a bunch of these banks, they're gone. They're gone. They're history. I'm not going to let home banks just get in that position. I'm not me, but my entire executive committee is more than everybody else.
We're proud of the position we sit in. It cost us a little income, but that's okay.
position we sit in. It costs us a little income, but that's okay. That makes sense to you?
Yeah, no, that's helpful. And then, you know, just wanted to follow on on the loan pipeline commentary. And one of the things that I thought would happen, you know, you've been so conservative and capture outer dry. I kind of thought when rates went up, it would be by seeing this very commonshine of the alive it.
You'd see you know stronger growth on the balance sheet, but I'm curious to hear if Loans just aren't penciling Enough or well enough for for you to get interested. Maybe you need more too much Cash up front for the deals to work for you
or just what you're seeing that's keeping you from being more aggressive than you have been with bringing customers that were from banks that may not be able to service them.
So, hey Brett, this is Kevin. So in the community bank footprint, on some of the smaller stuff you've still got...
You've still got some local banks that are doing things in the sevens that just don't make a lot of sense. We're not going to play in that game. On the larger stuff... You've still got some local banks that are doing things in the sevens that just don't
To some degree, I think you're right. I think that's why you've seen some growth in the community bank footprint is because there are some folks that are out of the game.
It is still difficult to make some of these things work. Like Chris said, we're in the...
nines now to make things work, right? And it's difficult to make some of these things pencil out. So, when you start talking to people about 50% equity and sometimes more, sometimes they just don't, either the deal doesn't get done or they go somewhere that they can get it done a little less than that. You know, it's just not the time to be...
Stay with your customers, know your customer, don't be taking any risks, don't be taking any chances, just sit tight. I think Michael Rose said something a while back, he said, it doesn't hurt to shrink a little bit, and it doesn't hurt to shrink a little bit and be lean and mean. Tracy, you got any comment on that? No, I think the pencil part is the biggest part that we see.
We're looking at historical rents. We're seeing rents.
slow down and in some cases turn south a little bit. Hotel, we're seeing some things, even in our really good markets, we're seeing some things trend back towards 2019 levels in some of our hospitality. So, and we've underwritten that way all the way through the pandemic. We went back to 2019 levels rather than 2021 levels.
So, yes, you would think this would be the time you would see growth, but as Johnny said, it's not the time to stretch. So that's where you are. You end up, you take what the market gives you and you continue to write conservatively and if you grow, you grow. You don't need to come in with policy exceptions.
Right. You're coming with a policy exception alone to us at this point in time. We're just not going to do that.
We're not going to take it. We don't have to. We're in a good enough position. We don't have to. We've got a good margin. We'll grow. We'll do some new lawns, and we'll remove that 760-med, and we'll save some of that other 700 coming off. So we don't have to do that right now. So there's nothing wrong with keeping your head down. It kind of reminds me of 05, 06, and 07.
now. Except when I saw that liquidity crisis kill those three banks basically overnight, that really got my attention. I don't run scared, you know that, but that one made me nervous. That has my attention. Plus the fact that I was in a situation where I was in a
We will not get ourselves a position we can't pay our uninsured deposits. That's the most important. To me, that is the most important thing right now. Because if there happened to be a bank run start rolling, we would not have a position we can't pay our uninsured deposits.
it wouldn't be good in the country and home would survive. So I think that's the most important. I wasn't sure where this was going early on, but I think it is extremely dangerous time. And I see people that are 108, 109, 110% loan deposits. I wouldn't be able to sleep at night. I just would not be able to sleep at night.
You got 8% capital and 109% loan deposit and the big bad wolf shows up, turn out the lights because it's over. Brad, on the positive side, we're seeing opportunities that we're making approvals on and working to that.
And that's with good businesses that other banks may have tightened down a little bit in some areas. But we're, I don't ever, we'll go too positive in front of Johnny, but I think there is some opportunities out there that's gonna.
Well, we're working on some really good opportunities right now. We don't have them yet, but I think they're coming and they're priced right and they work. They appear to work at this point in time. The committee hasn't approved them yet, but we're working on some pretty good sized homes that make some pretty good sense with some customers that our people know.
I bet.
I bet you guys sleep better than most bankers at night. So, um, thanks for all the color.
We do, thank you, yeah, we are sleeping. It's a good time to sleep good. Thank you for that. We lose our operator.
Thank you, yeah, we are sleeping. It's a good time to sleep good. Thank you for that. We lose our operator next.
We got more people in the queue. Apologies for the delay. Thank you for your question. The next question comes from the line of Steven Scouten with Piper Sandler. Your line is now open.
Great. Good afternoon, everyone. Thanks for the time. Johnny, you always have a really good pulse for the environment. You were saying rates were going where they are today, long before anyone thought that was possible. I'm kind of surprised to hear you be with them a lot more negative than when I heard the numbers.
kind of so far through the quarter. It feels like, you know, the sentiment has improved a bit since early May, but maybe what are you seeing? I know you've talked about competitive pressures, but where are you seeing stress? Is it smaller banks that you're looking at? Is it?
I guess I'm just kind of curious, what gives you this level of concern when things seem to be kind of normalized a little bit? Well, Tracy pulled a list of those banks that were 105% loan to deposit or greater with a 90% or less capital ratio, and it was a pretty good list.
That's where the big bad wolf, if he goes there, there's going to be serious problems. I'm not negative about banking right now. I'm just concerned about the liquidity of these people that are 110% loan to deposit. If they stomp their toe and the dominoes start falling, and maybe they're not going to fall. Maybe that doesn't, I hope they don't, but if they start falling...
one after the other after the other, then I want home bank shares to be one of the survivors. So I'm not saying that's gonna happen. I hope that doesn't happen. I did call the Fed funds rate, I said it's gonna be six, and I think it's gonna be right at six before it's all said and done. But it is, that was just the experience. And I have no experience, let me say that, I may be overreacting, I have no experience with liquidity crisis.
Mark?
Maybe so, we still might probably have the best year in this corporation's history. So that ain't all bad. I mean, I'm positive about that. I mean, we've 400 million, I think all our investors will be happy, and I think you'll be happy with 400 million, Stephen. And we're at 208 million in the first six months, and we're at a million in the first six months.
I think we're going to see more pressure on rates going forward. If we can get repriced and we can get the 760 up through four basis points on those, 300 or 400, I think we're going to be able to have a good third quarter and a good fourth quarter. And Kevin and Chris and John will bring some more business. They'll bring business. We got, I don't know how many dollars, we got probably a billion dollars out there working right now. We know these people. I'm probably not going to do a lot of stretching and go outside looking for people I don't know.
How do you think?
This might materialize in the M&A environment. I mean, you've always done a great job of capitalizing when there's opportunities. Do you think we see a wave of opportunities?
anytime soon I mean are you thinking of a 24 sort of environment how are you thinking about that potential I think we should
soon? I mean are you thinking it's more of a 24 sort of environment? How are you thinking about that potential? I think we should. I think we should. I mean...
A lot of boards of directors that are sitting there looking at their balance sheets today, if they understand the balance sheets, they understand what they're looking at, have to be kind of puckered up, so to speak, looking at 110%, 112% loan deposit and not making any money and margins going down.
margin going straight down. I mean it is not a, if you haven't made the right moves, it's not a good place to sit. If you've made the right moves, like home did, it's a great place to sit. And we just got, I'd rather be lucky than smart if we got lucky and made the right call on what to do with our...
our reserves, our deposits. We made the right call. So I'm not trying to scare the world. I told somebody, I spoke at a conference a while back and I saw one of our investors sitting there and I said, I know this lady, she's going to call me and say, what are you badgering the banking industry for? I'm not badgering the banking industry. I just think some of the bankers got themselves in trouble.
They've got themselves in trouble and they can't make any loans. I mean, they can't make any loans. They don't have any liquidity to make a loan with. It's about as tight as I've ever seen it. Which tells you there are some opportunities for people like us. I understand that. We'll take advantage of a few of those.
but we'll always keep enough money.
in our pocket to pay out our uninsured deposit. Yep, yep, no, that's good. I guess last question I had is just actually around kind of short premiere or maybe just in general, kind of the marine and RV space. You know, I'm seeing...
some weakening there in terms of values on those types of products as demand kind of seems to normalize to pre-COVID levels. What do you guys see in there in terms of value valuations and demands and so forth in those spaces?
I think it's holding fine. I'm not saying why I slipped the jar. John's on the phone. I don't know.
I don't think he's got any slippage. I saw a couple of past dues he had on boats, but you have those from time to time. We've got one repo boat that's in the Virgin Islands somewhere, so we think we're fine with it. Outside of that, we haven't seen anything. John , you got any comment?
Steven, thank you for the question. I think valuation, boat values are holding up nicely. There is still a limited supply of new boat inventory. I think that's all driving up the values just a bit.
Our average loan size now has crept up from $600,000 to about $800,000. Again, we are still bringing in our average loan to value is somewhere around 65-70%.
We're still requiring a lot of equity, but the value seems to be holding. I think the inventory is caught up with the RV sector, Stephen. I think that the inventory is catching up there.
I'm seeing a lot of drive, I see these lots of huge lots and I think we had such a demand during the pandemic. I think that's waned a little bit. So, the RV side, we don't have any to speak of.
So, I think that side is due for a little slowdown. I think you're probably right if you're seeing this. The key is both of those, what we do mostly is large credits. We don't finance, you remember we don't finance at 14.
I appreciate it. I might try to get this new coat I got this new form on. I'm going to put it in the duck woods and you come in and we'll go in there. There you go. I appreciate it guys. Thanks for all the colors.
helpful. I appreciate it. I might try to get this new coat I got. I'm gonna put it in the duck woods and you come in and we'll go in there. There you go. That was great. I appreciate it guys. Thanks for all the colors. Thank you.
Thank you. The next question comes from the line of Michael Rose from Raymond James. Your line is now open.
Hey, good afternoon, guys. I think I'm going to have to frame this transcript with, given there's words on this call, I don't think I'll ever hear on a conference call again. So appreciate the dialogue.
I just had a...
I read your stuff and you said there's nothing wrong with shrinking a little bit if you want to shrink a little bit yet lean in main, that's nothing wrong with that. So I thought that was a pretty good comment for me. I appreciate you bringing that up, Johnny. I just had just a couple questions. Maybe just back to kind of M&A.
Looks like there will be a lot of consolidation at some point. You've been doing this a long time. You've done a lot of deals. Just wondering more broadly, you know, how you see this all playing out over the next, you know, five, maybe 10 years. Thanks. Michael, I think you're going to see boards of directors, as I said earlier, if they recognize the shape.
the brain riding money.
I think that's going to happen. The problem is going to be with the buyers. That's going to be the problem is with people like us that are acquirers. Are we willing to take a chance? Are we willing to turn around enough to where we feel comfortable with it?
and not be afraid of a liquidity crisis, I mean, I think something's going to have to be done for the good premium banks of the country if they want consolidation to continue with some kind of fed line that allows the good banks, the good operators to go clean up some of the other stuff. As you think about it today...
We're going to buy something home, as you know, is in great shape, and we're going to buy something today that gets us in not as good of shape. That's the scary part. If the economy rates still stay high and things still stay sketchy, I don't believe you're going to see a lot of M&A. I don't believe it can be done.
I think I told you, I don't know if I told you, Donna and I looked at her bank in Dallas area two months ago and they're 110% long to deposit and their margin is going straight in time.
And I said, you want me to pay you a premium for that? I mean, think about it. I don't have, I said, what you want is your problem become my problem. And I said, I don't want your problem. I don't have your problem. I've stayed out of that and I don't have your problem. So I don't want to get our bank in there. So I think you're going to see real, particularly the good banks that run that top 15 or 20 banks that are acquired, I think you're going to see them be very conservative.
and there's going to have to be some kind of backup, have the ability in the event that you do a transaction and you get a run on that bank, that could take home down, right? That's why we're so damn conservative on doing anything on M&A. We might buy some loans, we're looking at...
their margin in the ground, that's not going to get fixed in 45 days.
or 90 days. It's going to take a while to fix that. And then you go to the securities book, and it depends on how long the duration is. It might be years before a lot of these things turn around.
I'm not being a naysayer. You're usually the most conservative on the street. I'm just being realistic and conservative about what I see.
Totally good. I appreciate the comments. Just two quick ones for me. Just, you know, giving some of your comments, and I agree with them, just, you know, consumer may be a little bit stretched, but, you know, you're seeing kind of occupancy levels at hotels being really strong again this summer, maybe more of it's in Europe . But any sort of, you know, fears, are you guys taking a closer look in places that you did during COVID, whether it be in mentally or just RosememberR
restaurants, hospitality, tourism type stuff, hotels, etc. And are you starting to classify some of those properties at this point? Thanks.
Hey Michael, just kind of note, I'm not seeing any weakness particularly. My comments were really around just seeing the markets begin to normalize a little bit. We all kind of expected, particularly in Florida with all the hospitality, that 21 and 22, what thosehena, I can't remember how many times a week we've did that.
couldn't be real and long lasting. And we knew that when Europe opened up that there was probably gonna be a normalization. So we've expected that and anticipated it. I'm not saying that Florida's going into a recession. That's not my comments were really that we just see a little year over year softening and kind of heading back towards the 2019.ScCU John May 21st afterward 20 year
kind of scenario more than continuing to move upwards.
But not any wheat that has not created anything in our portfolio that I've seen at this point. Actually, our hotels have really helped us pretty well. When you think about it, you remember when we did that deep dive and we found those water wells and extended stains were just really, they never missed a step.
It's been really pretty amazing. And they continue to raise prices on those hotels.
It's perfect. They just keep, people keep going. I knew we could get a little optimism out of you on this call. That's good. One last question.
Just the other income was up. Exactly. You should talk to my wife. Just on the other income was up a couple million bucks, I think about $4 million. I know it's bounced around the past couple of quarters, but anything of note, you should be aware of in there. a design that speaks and addresses income tax 2018 it's a great suffering for women
Now our securities, Browning up and coming. I mean, we have some equity investments that are accounted for under the equity method. And during Q1, we had $3.8 million of income on those investments, and we had $7.5 million of income on those investments for Q2. So probably the three point.
eight, three point and a half, it's probably more of a normal run, right? We had a kind of a windfall from one of our investments. We invested in some STICs and they really, we've been in them several years now and they have been really good performers. Very, very good performers.
So we bank these people and we invest with them and it's been one of the better investments of my life looking at it over time. So we expect them to continue. There's no guarantee they'll hit that next quarter, but I think Brian's right. A three to four, five million dollar run right is probably good.
Most of my questions have been answered, but I just had one quick one on the margin. And the margin has seen a nice level of expansion for over a year. But this quarter, it kind of leveled off around that 4.3% level. How are you thinking about the margin outlook going forward? I know, Johnny, you're pretty.
skeptical on the back half of the year with the rate environment, some deposit promos from some of your peers. How are you all thinking about the margin outlook from here? Hey Brady, this is Stephen. We posted 428 for the...
quarter. I think our June margin was 429 but had about four or five basis points of event income in it so it was off four or five basis points. I think I told John on the outset of the call you know I think you know something in those single digit.
decline going forward is what is likely. We've got the opportunity on the loan side in terms of repricing. On the deposit side, we were pretty aggressive in April and May on the heels of everything in March in terms of passing on rate adjustments and those kinds of things. So we may fine tune some of that.
Yeah, I think we'll fare better than most on the back half of the year. We're going to have a double-digit increase in margin. I'm watching them fight around this table, Frank. I'm watching them fall underneath the table. Brady, it's going down. We are, let me tell you, we're all hands on deck. And I'm going to be disappointed.
if we don't maintain a strong margin. I mean, the 750 million dollars in repricing, those are our customers. We ought to be able to get 300 basis points or more on those deals. We've talked to our regional presidents and regional presidents somewhere, they've talked to their people. We ought to be able to continue to do that.
And we have about 750 million scheduled pay off. And maybe at five, maybe there's five or five and a half, and we're at nine or eight and a half. We'll see what we can do to keep some of those.
I think it's got downward pressure, but I think we got a good shot at holding it within range.
somewhere in this, give or take, give or take, six or seven to ten basis points.
Okay, great. Thanks for all the color today, guys. Thank you.
Thank you. The final question comes from the line of Brian Martin with Jami. Your line is now open. Hey guys, I appreciate the taking the question here. Just one follow up to Brady's question. Just on the margin, Steven, I guess. Could your expectation be that...
it does begin to kind of trough fourth quarter, maybe first quarter? Is that kind of what you're thinking time-wise? I don't recall the timing of what those loans repricing were, but is that kind of a fair outlook at this point? The loan repricing's over on the second half of the year, and it's pretty—
consistent at 100 to 150 million a month that come due. I think some of it just depends on balance sheet size and what we see in terms of the interest rate environment, both competitively and just the shape of the curve too, right?
the length of time we've been inverted here and then what we've seen from competition. But I've been reading, seeing some of the earnings releases so far and seems like some of the banks that have already reported say they may not be as aggressive in the second half of the year on deposit pricing as they had been in the first half, so we'll see.
Gotcha. Okay. And then just, Steven, just whoever, just on kind of deposit outflows, you know, you talked about the seasonality this quarter with the taxes. You know, I guess how are you thinking about deposits if the loan growth or the loan demand isn't robust at this point? It sounds like the pipelines are okay there, but in your comments about shrinking maybe a bit, is that how to think about the deposits as we look in the back half of the year?
Well, we're going to balance those based on need for loans. We're going to balance those. I mean, there's no need, as I said earlier, carrying a million dollars of extra deposits in our pocket today. So we're not doing that. You can get all the deposits you want. They're expensive, but you get all the deposits you want. We've got room to go in any direction to get deposits.
or vice versa. So, I think we've played it pretty well thus far with about 82% loans in the pocket somewhere in there now. I think that's fine for us. And if we need more, we can get them. They're just expensive, so you don't want to carry around something in your pocket that costs you money that has no value to you whatsoever today. When you know you can go get them tomorrow. You can go get them.
five-year money so if you wanted to or you condition our internal limit give us about a billion for runway we're like 2% on broker deposits to liabilities today we haven't done any bars to speak and we're keeping our power dry that's that's the thing keep your power dry
I don't want to get overreacted here. I want to get past all of this concern over bank runs. I don't personally want to get that behind us because that could happen. It could get ugly. And it could get ugly overnight. Right, okay. Perfect, and just last one for me. Johnny, you talked about the liquidity scare. Just talking about the stock landing and potential recession and credit still continuing to hold up really well. I know you had the one credit you talked about, but.
Where is the biggest area? I mean, do you see a big credit related recession, if you will, as you get into next year? Is that kind of what you're thinking at this point? Or do you think it's more of a soft landing and you can kind of manage through this? Just kind of big picture your outlook on how that plays out. Well, we had that discussion yesterday. Kevin and Don, myself, Steven, Tracy, yesterday, Brian , we had that discussion in here. He might have a shot. I didn't think he had a shot.
at a safe landing. I didn't think he had a chance. You know, on one side, the inflation is better. So I've got to give this administration credit for that. This inflation is better. And one thing they've done, and I don't know how the hell Powell did it, to tell you the truth, with Trump spending money and Biden spending money, I don't know how in the heck they did it.
I worry about the US dollar. I don't know if that's getting far fetched. I worry about the US dollar and what you're going to do with it. And I worry about this Fed coin you're bringing out. I mean, Roosevelt did it back in the 20s. And then we came back and then Nixon messed with it, the money and the gold in the 70s. And then I hate to see them mess with it again right now. So I don't know what's going to happen. I saw gold jump $40 yesterday. I'm not the only one thinking that. You know, it's something.
I mean, as Kevin said, commercial real estate prices really have not come down. Assets of home prices are up.
There really needs to be somewhat of a little bit of adjustment somewhere. I don't know if that is a slow down. I think we could see a slow down for five or six months, call it a mini recession. I don't know if that would hurt anybody if we did that and maybe get some price adjustments. We really haven't seen a lot of price adjustments. Kevin, you... As we were talking yesterday, rents are so high and...
prices for homes are so high. The one thing we don't have today is an overhang of housing so that's a positive I guess in the direction that maybe there could be a soft landing. We talked about it for what an hour yesterday and I don't think we came up with any answers one direction or the other.
The best thing I think we can do is continue to walk and tackle and make the right calls daily here and let the rest of that play out and be prepared for whichever way it happens to go. You know, you've got to think about where we're going to be in a year, where we're going to be in two years, and where we're going to be in three years. What impact and the different variables there and what is this and what is that.
If you walk around working on it, it'll hit, it'll hit. As everything has happened over time with this company, it hits. We walk around sometimes and don't have the answer, but we never quit thinking about it until we finally get the answer. Hopefully we'll get the answer on this one before too long.
Thanks for your support. You've been a big supporter for a long time. Thank you. Yeah, I appreciate that. Thanks. Thank you. There are no additional questions at this time. So I would like to pass the conference back to Mr. Allison for closing remarks.
It's been a long call today. Thank you for your interest and your time. We'll talk to you in 90 days and maybe things will be a little brighter in 90 days than they are today. It's time to be careful and smart, premeditated with moves.
and make good loans and protect the chuck wagon. Thanks everyone, goodbye. That concludes today's call. Thank you for your participation. You may now disconnect your lines.
That concludes today's call. Thank you for your participation. You may point yourAC