Home Bancshares, Inc. (Conway, AR) (NYSE:HOMB) Q1 2024 Earnings Conference Call April 18, 2024 2:00 PM ET
Company Participants
Donna Townsell – Senior Vice President, Director of Investor Relations
John Allison – Chairman, President and Chief Executive Officer
Stephen Tipton – Chief Operating Officer
Kevin Hester – Chief Lending Officer
Chris Poulton – President, CCFG
Brian Davis – Treasurer and Chief Financial Officer
Conference Call Participants
Catherine Mealor – KBW
Brett Rabatin – Hovde Group
Jon Arfstrom – RBC Capital Markets
Stephen Scouten – Piper Sandler
Brian Martin – Janney Montgomery Scott
Operator
Greetings, ladies and gentlemen. Welcome to the Home BancShares Incorporated First Quarter 2024 Earnings Call. The purpose of this call is to discuss the information and data provided in the quarterly earnings release issued this morning. The company presenters will begin with their prepared remarks, then entertain questions. [Operator Instructions]
The company has asked to remind everyone to refer to the cautionary notes regarding forward-looking statements. You will find this note on Page 3 of the Form 10-K filed with the SEC in February 2024. At this time, all participants are in listen-only mode and this conference call is being recorded. [Operator Instructions]
It is now my pleasure to turn the call over to Donna Townsell, Director of Investor Relations.
Donna Townsell
Thank you. Good afternoon and welcome to our first quarter conference call. With me for today’s discussion is our Chairman, John Allison; Tracy French, President and CEO of Centennial Bank; Stephen Tipton, Chief Operating Officer; Kevin Hester, Chief Lending Officer; Brian Davis, our Chief Financial Officer; Chris Poulton, President of CCFG; and John Marshall, President of Shore Premier Finance.
To open our discussion on the quarter today, we will begin with some remarks from our Chairman, John Allison.
John Allison
Thank you, Donna, and welcome, everyone. Welcome to Home BancShares first quarter earnings release and conference call. We released our results this morning prior to the market opening and overall it was a good start to a volatile year.
Anytime, you conduct the trends with positive results across the board on net interest income, revenue, EPS, margin, increases in both loans and deposits, while maintaining our strong liquidity position and reducing expenses by over $3 million below the first quarter of last year ’23 is a big win.
Home with our fortress balance sheet is one of the strongest banks in America and having the ability to pay out all uninsured depositors should provide comfort for all our customers and shareholders.
As I’ve said in the past, we will not be the highest when it comes to paying rates on your money, but you will not have to worry about getting your money anytime you need it. During this crisis, we have never run a CD ad paying these outrageous, unprofitable prices for deposits, like many trouble banks are doing today.
This did not happen by luck. Your management team has maintained as we’re achieving you know remained very conservative during what appears to be a mere image of the inflationary Volcker times of the late ’70s and the early ’80s. We have been active in recognizing the danger of Volcker years and have managed accordingly.
This one is not over yet and it will not be over this year. Inflation is and will continue to be with us for the foreseeable future. Our government is totally responsible for this situation, irresponsible spending is the direct cause of all our inflation in this country, both Republicans and Democrats and more so Democrats are spending like drunken sailors and even trying to relieve student debt in an attempt to buy votes with our money.
They caused it and now Powell and the Fed is desperately trying to stop by avoiding a recession. Really? They should all be punished for their action. Their stupidity is a reason for inflationary problem. The problem is that most of them couldn’t run a washing machine. The buck stops with them.
We have not felt the full impact of the increase of oil prices rolling into our economy. Coming from the manufacturing business, the impact of oil is not just at the service station, as we learned through experiences past all spikes, but multitudes of products derived from all or by-products thereof.
Early this year, the market was signaling six cuts. Let me say this, if we had to have six cuts, Donna, this country would have been in lots of trouble. I made that statement earlier in front of her and she said we wouldn’t have been in trouble. And I said, I didn’t say us. She said, well, make clear that we say the country would have been in trouble.
We called for hire for longer before that was popular. We forecasted one and not more than two rate cuts. I’m beginning to believe that may be high. The only caveat coming is politics. I think instead of cutting rates because it’s not the right time, the Fed needs to consider rising rates again.
President Clinton, when inflation was sticking its ugly head up during his term, surprised everyone with a 50 basis point jump in rates. When no one expected it. Within a short period of time, he dropped back 25 basis points, but he did stop inflation.
They say the President has no control over the Fed or the Chairman, but it did during the Reagan Administration when Volcker was called to the White House to meet with President Reagan by Chief of Staff, Jim Baker. The meeting took place in the library and not the Oval Office.
And according to Volcker, the President never said a word. Baker asked Volcker to sit down, and then he looked at him and said, the President of the United States is ordering you not to raise rates during an election year, end the meeting. I just finished the book, and that little Jill was in, I thought I’d share it with you because it does maybe politics do involve themselves.
By the way, Volcker thinks the reason for the library meeting was not — was because there’s no recording device in that room. And as Richard Nixon found out in the later years, there was one in the Oval Office that paved the way for the Watergate Fiasco.
The profitability of our bank is simply based on earnings, revenue, and expenses. I understand that’s a simple approach to looking at our company. But how much revenue was generated over the quarter and how much did it cost us to generate that revenue?
Therein lies the efficiency ratio. How much does it cost to make a dollar? We have to give credit where credit is due and that belongs to the revenue side and the retail side of our company. Our teams have continued to write loans in a way that is accretive to our overall yield. As a result, it has been pleasing to watch the overall yield of the entire book continue up to hit a new high of 7.34%. And that is without any event income, I believe. Stephen, is that correct?
Stephen Tipton
Correct.
John Allison
All while maintaining strong asset quality. Congratulations to our entire lending team. It is because of you and your strong relationship that you’ve developed one-on-one with our customers.
You continue to answer the call to do the best for our owner-shareholders and provide opportunities for Home to remain one of America’s best and most profitable companies. During the quarter, our lenders originated $954 million in loans at a record rate of 9.28%. Only about 40% of that funded, I think, less than half.
Stephen Tipton
Yes, sir.
John Allison
We appreciate the support of our customers and our shareholders as we protect the strength of our fortress balance sheet. During some of the most volatile times in Home’s 25-year history. However, if we did not have deposits, which I call the raw material, I come from the manufacturing business, so I look at deposits as raw material.
Simply, we would not be able to loan any money. There comes the value of the retail areas of our bank. During these volatile times, the deposits can go about anywhere they want to go and get any rate in turn. It just depends on how much risk they want to take. Because many of the banks that are running high-priced CD ads may not be able to pay out all insured deposits.
I was headed to my grandson’s game at Greenbrier the other night. And there’s a sign hanging outside in one of these banks that says 6.1%. No way they can be proper to 6.1%. So it is — anybody that’s got signs out over 5.4% you can borrow — what’s the rate of borrowing money today, 5.4%?
Stephen Tipton
That’s fed funds, yes.
John Allison
Fed funds at 5.4%. So if you’re paying more than that, to me, that says, I have borrowed all the money I can borrow and I got to get some money from the customers, whether it’s safe or not. Our retail staff, who deals directly one-on-one with our customer has built relationship just really on relationships with them and has been able to hold deposits at some lower cost because our customers trust us to protect their personal deposits by having the ability again to pay out all uninsured deposits.
In this cycle, deposits have been king. Lack of available deposits is what took down SVB, Signature, and Republic. Early in the pandemic, we were flushed with excess deposits, but we were afraid that the excess deposits would eventually run off by our customers spending that money.
That’s pretty much exactly what happened and we were suddenly scrambling to have enough deposits for our loans plus being able to pay out uninsured deposits. I thought of the days, when we did not even begin to recognize the importance of deposits as I watched SVB and Signature banks being taken apart in a matter of day.
I remember us trying to move some deposits out of our bank, how wrong and misinformed can one be. Protecting and holding our deposits and not putting depositors money into long-term securities are the main reasons Home BancShares is in the great financial position that it is today.
There will be no need for the expense side if there were no revenue. The lifeblood of this company is revenue. Nothing happens until something is sold. There is nothing to account for, there is nothing to regulate, there is no need to hire people. The expense side’s sole reason for existence is to account for and accommodate the retail and revenue side of this bank.
We have worked together as efficiently as possible and not against each other to — we have to support our retail and revenue horses. They are the ones that make it happen. They are the rainmakers. They don’t deal from a desk in the back office. They’re on the firing lines, one-on-one with the customers.
I have some concerns about where we are today in this cycle. Not HOMB particularly, but I’m concerned about what happens to the hundreds and thousands of zombie banks, that can no longer access the federal lending program. BTFP will cost of funds continue to escalate? Will CD rates go to 7%, 8%, 9%? Will this bring about bank failures that would have probably — we would have probably experienced if the Fed hadn’t backed up the truck with their program before.
Have these banks recovered to a point that they’ll be able to pay some or all of their uninsured depositors? As scary as it has been, it could get worse. I think the Fed will be forced to extend the program or face many bank failures. I can assure you HOMB will be one of the good banks helping the regulators to clean up the mess.
These banks with 8% or less capital and 110% loan deposit may wish they had found a partner before it was too late. When you look at margins of some banks, you see some with a two handle, and believe it or not, there’s some in Arkansas with a one handle. What were they thinking? I guess better said, they weren’t thinking at all.
There are entirely too many banks running around in the market doing stupid things to appear to not have a clue what they’re doing. Don’t shoot me. But I’m strongly in favor of capital requirements being raised into the teens. I call them clutter banks because they don’t have a clue in most instances and they’re just getting everybody’s way and continue to do silly and stupid things.
As serious as things are, trends at Home are positive and appear headed in the right direction with deposits, loans, margin, efficiency, net interest, income, expenses, asset quality. We’re going to have a little bump coming out of Texas.
We’ve got a few things you got to clean up in the State of Texas. It is very manageable, but it sometimes, early on, they just weren’t dealt with and they need to be dealt with. So we’ve made some loans that shouldn’t have been made and we’ll have to deal with those. And I think, Kevin’s going to talk about that in a little bit or some of them.
Let’s go to numbers. Earnings were a little over $100 million. I think, we even budgeted. Brian, we budged it down, didn’t we?
Brian Davis
No, that is correct. We didn’t do that.
John Allison
Everybody went along and said, Johnny, I didn’t think we were going to do that. I thought we’d beat that and I’m proud we did. Revenue was $246.4 million. It was a beat. Net interest income was $205.5 million. And that trend continues. It appears it’s continuing on in April.
Reserved for loan 2% or $290 million and we had $3.63 for every $1 of non-performing loans. We did loan growth and deposit growth was about $80 million each for the quarter, good balance. Loans originated for the quarter were as I said earlier were $954 million at 9.28%. Great job, Kevin, and your team.
Return on assets 1.78% and efficiency ratio better at 44.22%, that’s much better than where we were. We’re up in the 46% and 47% and we were headed in the wrong direction, but we stemmed that off. EPS at $0.50 per share.
Margin, apples-to-apples, Stephen was 4.21%, and I’m not going to get into the math how we get there, but I think it was 4.13% last time. And you had two basis of event income, which was 4.11%. And if you all remember, we did an ARR that was 10 basis points. So apples-to-apples is 4.21%, I think is what it was.
Tangible book value of $11.79, return on tangible common equity of 17.22%, and capital of 14.3%, that’s a little improvement from last quarter. Tangible book value of $11.79. And we closed four branches in March, and they were closed towards the middle of the month and maybe, we’ll see some more savings coming out of that.
We’ll take the blame for line expenses to get out of control. And worse than that, we’ll take responsibility for not taking actions earlier. Sometimes, we don’t see the forest for the trees. Even though we started late, non-interest expense for the first quarter of ’24 was less than the first quarter of ’23 by over $3 million, keeping expenses under control will be an ongoing project here.
Because of our earnings being off, and expenses continued unabated last year, the Board decided it is best to hold any dividend increase until later this year. As you know and would expect, my wife was not happy with that decision at all. No dividend increase. We’ll ask the Board of Directors to address that again in the future.
Donna, it wasn’t quite as good as I wanted, but I’ll take it. I’m sure, there might be a few banks that might outperform us this quarter, but if so, it’ll be a very small group. And those that beat us, congratulations to them in a tough environment.
It has been a tough couple of years, attempting to overcome the damage done to our company by a group of West Texas individuals. The lawsuit we file against the individuals is and will continue going forward until our shareholders receive proper restitution for acts of others.
We have a fiduciary responsibility to protect our shareholders for what appears to be intentional damage, which includes possible criminal charges. This is a matter for the court and law and juries to decide, and we’ll leave it to them to resolve.
With this top-performing team of revenue horses and deposit gatherers, coupled with their strong relationships with their customer base, I would expect similar positive results next quarter. Trends are continuing to look pretty good and showing improvement in the revenue area in April.
I hope that will hold throughout the quarter. If that holds, we’ll have another great quarter and we could be off on really a good year. I want to thank everyone. One change from next year, Ms. Donna, is going to report. We’ll report our earnings the night before. We’ve done it the same way this time as we have in the past, and we’re going to change that next quarter.
Donna Townsell
Yes. Okay.
John Allison
And I’ll give it back to you.
Donna Townsell
Okay. Well, thank you for the colorful commentary, as usual. And I actually think it’s a great start to the year as trends continue. So I expect that from this team. Now, Stephen Tipton will share operational results.
Stephen Tipton
Thanks, Donna. I’ll start with the net interest margin that Johnny referenced in his comments. As we discussed on the January earnings call, we added approximately $500 million in cash through borrowings late in Q4. That cash — that excess cash affected the Q4 net interest margin by one basis point, and the Q1 2024 net interest margin by 10 basis points, as we had the cash for a full quarter.
Additionally, we had event income in Q1 2024 that accounted for two basis point increase to the margin. Normalizing for those items, we would have seen a nice three basis point improvement in the margin on a linked-quarter basis.
We continue to closely monitor asset re-pricing against the increasing cost on the funding side. The yield on loans excluding the event income improved to 7.34% in Q1 and outpaced the increase in total deposit costs by a couple of basis points.
During the quarter, total deposit costs increased 13 basis points to 2.22%, while the yield on loans, excluding event income, increased 15 basis points to 7.34%. We will continue to negotiate pricing with core customers as we have been, but we are encouraged to see the pace of increases on the deposit side begin to moderate.
Switching to liquidity and funding, it was great to see an increase in deposits again in Q1, with solid growth from several of the Florida, Texas ,and Arkansas regions. Total deposits increased $78 million for the quarter. The deposit mix movement was similar to prior quarters as CDs continued to be in focus for the consumer.
Non-interest bearing balances grew by $30 million in Q1 and account for 24.4% of total deposits. Alternative funding sources remain extremely strong, with broker deposits still only comprising 2.2% of liabilities. The loan-to-deposit ratio was in line with prior quarter standing at 86% as of March 31st.
On the asset side, in-period loan balances increased $89 million, led by growth from CCFG, Shore along with several individual regions within the community bank markets. On loan originations, as Johnny mentioned, we saw a volume of $954 million in Q1, with approximately two-thirds of the closing volume coming from the community bank regions.
Yields on those originations continue to improve with an average coupon of 9.28% in Q1, payoff volume declined from Q4 was a total of $549 million, which appears to be the lowest level we’ve seen in nearly five years.
Closing, with the previously mentioned strength of our company. All capital ratios remain extremely strong, with a tangible common equity ratio of 11.06%, leverage ratio of 12.3%, and a total risk-based capital ratio of 17.9%.
We repurchased 1,026,000 shares in Q1 under our repurchase plan, and we’ve repurchased about 400,000 or so, so far this month through our 10b5-1 plan, so we continue to be active there.
With that Donna, I will turn it back over to you.
Donna Townsell
Thank you, Stephen. Now.
John Allison
I just have a comment.
Donna Townsell
Sure.
John Allison
We had 13 basis points increase in cost of funds, but Kevin’s team does and Chris’ team does 15 basis points on the yield side. So that’s what I call out running the cost of funds. Sorry, I didn’t mean to interrupt. Kevin, go ahead.
Donna Townsell
Go ahead, Kevin.
Kevin Hester
All right, thanks, Donna. Good afternoon, everyone. As Johnny said, it is pretty simple. At the end of the day, it’s just revenue and expense. On the expense side, our producers continue to get the job done.
We continue to see improvement in loan yield and in net interest margin when adjusted for the Fed arbitrage. Volume was impactful as well resulting in a third consecutive quarter of loan growth. I’m encouraged that we’re continuing to see very good opportunities in our high-growth markets. Leverage is the question, but fortunately there is plenty of equity available to get deals done today.
The synergies that we’ve seen in our legacy footprint are becoming evident in post-acquisition happy. It took us a little longer to get there due to the orchestrated exodus, but when you continue to focus on the right things, it’s just a matter of time before it clicks and you see the benefit.
On the expense side, in the fourth quarter, we took the opportunity in what I would consider to be a challenging M&A market to make some overhead adjustments. Those changes really bore fruit in this quarter.
The effects of improvement on both sides of the ledger are impactful. We will continue to look for opportunities to be more efficient as that has been our hallmark, but there are definitely opportunities to bring on producers who fit our culture and we’re not hesitant to do so.
While asset quality remains solid, overall, we saw a marginal increase in non-performing loans, up 11 basis points to 0.55%. This increase was centered in a few smaller happy credits. Interestingly, as a reminder, we noted early in the acquisition that while they may have had a higher level, relative level of problem credits compared to Home, it did not correlate exactly with losses as a significant level of problems were resolved in between due diligence and closing. We will see if that phenomenon continues as we move forward.
We recognize that a higher for longer scenario puts more pressure on many projects. We fully expect that, we’ll see an occasional problem arise from time-to-time, but we’re confident in our underwriting and in our geographies. And in addition, we have a fortress balance sheet with plenty of capital and a 2% allowance for credit losses.
Lastly, an update on the three credits that we discussed last quarter. Subsequent to quarter end, the Oklahoma Marina note sale has closed and as we anticipated, it cleared out the balance that existed at quarter-end. The Miami property is still under contract and there’s no change in the timing of the approvals needed to close. I would anticipate that’s probably a second half of the year item.
I will turn it over to Chris Poulton to give an update on the California property and then a general update on CCFG. Chris?
Chris Poulton
Thank you, Kevin. Happy to provide an update. As I reported during last quarter’s call, during the fourth quarter last year, we transferred into OREO the leasehold interest in approximately 50% occupied office building located on Ocean Avenue in Santa Monica, California. At that time, we identified three immediate priorities for the property.
The first was to resolve some outstanding legacy litigation between the fee owner and our prior borrower. The second was that, we were going to move our LA based West Coast regional office to the facility. And the third was, we wanted to engage with the existing tenants to determine their potential needs and stabilize existing tenancy.
During the quarter, we made progress on all three of these areas. First, the outstanding legacy litigation was resolved with the landlord withdrawing their claim against the bank. The second is, we did complete our office relocation in February, upon the termination of our priority office space lease.
And the third is that, in discussions with the existing office tenants, they expressed a desire to remain in the building longer term and potentially expand their existing space. In the coming months, we’ll shift our focus to finalizing lease extensions and expansion for existing tenant as appropriate and determine the remaining available space for lease.
We anticipate at least one floor being available for lease and have begun marketing this space. In the past few weeks we’ve had hosted a number of showings, and while showings don’t necessarily equal leases and we do expect it may take some time to lease the available spaces.
It’s encouraging that there appears to be increasing interest in our well-located office space in the Santa Monica submarket. We’ll continue to provide some updates on this building as we go forward, but I think we’re at least encouraged that we were able to accomplish what we wanted to in a fairly short period of time.
Overall for CCFG, we continue to see a good pipeline and good demand for our product. I think as many of you know, from prior conversations kind of during these types of times or when we get to see some interesting transactions.
And so I think, we’ve done well. In the first quarter, we’ll see that continue on into the second quarter, though I do expect that eventually it slows down a little bit, but we continue to be encouraged with the quality of product that we see. And we’ve continued to see some nice pay offs and pay downs in the portfolio, especially in some credits that we were probably happy to see go.
With that Donna, I think, I’m passing it back to you.
Donna Townsell
Thank you, Chris. Congratulations on the progress on the office building. That’s great. Johnny, before we go to Q&A, do you have any additional comments?
John Allison
Well, I just want to say anytime that you can, on all offensive measures so to speak or revenue side of it, we hit every button. Every one of them. If there’s eight or nine buttons, we hit them all and we had loan growth — and we had loan growth and we had deposit growth. So that was policy.
Asset quality remained strong. We had — we worked on our expense side. We made a big impact on the expense side. So I don’t really have much to fuss about for the quarter. I think I said, on my other remarks a while ago, any questions.
So there’s not you can ask about anything you want to ask, because I think we got good answers for all of them. And I’m through there, Donna, and you — we’re ready to go with Q&A.
Donna Townsell
Okay. I think, we’re ready for the Q&A.
Question-and-Answer Session
Operator
Thank you. [Operator Instructions] Our first question comes from Catherine Mealor with KBW. Your line is open. Please go ahead.
Catherine Mealor
Thanks. Good afternoon.
John Allison
Good afternoon, Catherine. Welcome.
Catherine Mealor
Thanks. Brady, always said this was his favorite conference call, and now I understand. I’m so glad I could be a part of it now. I really appreciate your comments, Johnny. I wanted to start maybe with credit, and I think, I appreciate the update on those three credits and then commentary on the small increase in NPAs. I was curious, if you could just give us an update, I know mid-quarter there was an increase in classified assets that you highlighted in your 10-K. And I think, it was mostly related to one credit, but I just wanted to see if you could give us an update on that and then also if there was any change in classified into this quarter?
Kevin Hester
Hey, Catherine. This is Kevin Hester.
Catherine Mealor
Hey, Kevin.
Kevin Hester
So overall, I’ll handle the overall question first. Overall, classifieds down probably close to $25 million in total. Specifically, the one credit that we — that we talked about in the fourth quarter that was the large increase. We’re continuing to work through that from — just from an overall perspective, it’s a daily process of managing their cash flows and we’re continuing. I think we saw a $10 million or so drop in the operating line and we’re continuing to work to get additional collateral and shore that up. So we feel like it’s going, just like we expected to. We knew it would take a couple or three quarters to work through the issues that were evident there. And we think we’re on track and on progress.
John Allison
There’s two pieces of that credit. One of them is tugboats and barges that were well collateralized on the other side of credit and semi-collateralized on that piece. But Kevin has and we’ve built a policy if you classify one piece of credit, you classify it all. So, really, we have great equity in the barges and the tugs. So that’s the biggest. That’s a lion’s share. The balance of it is $47 million, $50 million. It’s a line of credit. So the exposure really — I mean, if we — I would classify, but we do everything that I would classify the asset. The other assets, because I think we’re fine there, I mean, if you try to buy barge today, it takes you two years or a tugboat, so the value of those things are pretty strong. So, anyway, that’s our customer. They kind of bumped there. They kind of bumped their head going through the process, and they shipped a lot of material out of the country. And the bridge that they shipped through, they used to transport got closed for some reason and that threw them into a loop. So we pulled the line of credit and they were able to get other lines of credit to continue to operate. And we should — we’re told we’re going to see pay downs in the $20 million plus mark this month. So we’ll see. We’ll let you know when that happens. But if there’s any exposure there, I think it’s limited. I’d say, uncollateralized might be $30 million total. But they’re paying, and it’s working. So far so good. That was it. That was the status of it.
Catherine Mealor
Great. I appreciate that. And then a question on the margin. Margin is relatively stable, if you kind of back out from the excess liquidity. As you think about deposit cost going into the next couple of quarters, it feels like many of your peers have talked about this quarter, still seeing pressure on deposit costs, but we’re a quarter or two away from that stabilizing. Can you talk a little bit about where you think you are in that process, assuming, let’s just say for — let’s just say rates are stable for the rest of the year, kind of outside of any increases that you were mentioning, Johnny, or even cut. But if rates are just stable for the rest of the year, where do you think your deposit costs finally kind of peak?
Stephen Tipton
Hey, Catherine, this is Stephen Tipton.
Catherine Mealor
Hey, Stephen.
Stephen Tipton
You know, I think it’s the same sentiment — hey, same sentiment that you’re hearing from others. You know, certainly in this past quarter, the pace of the increases was less. I think we were — we were up four basis points in January and four basis points in February, and we’re really pretty flat in March. And those are down from, high single-digit, low double-digit increases. You know, throughout the year last year. So it slowed some. You know, we still have, CD portfolio, although, you know, fairly small, relatively overall that is maturing each month. And we’re having to work those. And we talked about that earlier on a selected, negotiated basis. So there’s some lift there, but we’re able to also, as liquidity kind of holds in well here we’re able to kind of rationalize some of the top end of money markets and those kinds of things that we’ve had over the years. And I think that’s what we saw in March. We’re able to, we’re actually able to go in and lower a few rates here and there and helped offset some of the continued increase. So, you know, low single-digits, I think would be what we would target from here. And then just overall like Johnny mentioned in our opening comments, just outrunning on the asset side, out running anything that happens on the funding side.
John Allison
That outrunning is continuing into April too, Catherine. It is the first we compare daily reports. So we’re looking at the first 10 or 15 days, 17 days, whatever it is, of April compared to the first 17 days of January. And where were we? And we’re up nicely in the first 17 days. We have some large credits re-pricing this quarter. And right now, matter of fact, that should be significant re-pricing some 4.5 going to 9, 4.5 going to 8.5. So we’re seeing some significant re-pricing there that should give us a boost. Another plus I didn’t talk about, I meant to talk about is that we’ve been working on, our office building in Amarillo, Texas, and looks like we have a large tenant. We have 240,000 square feet. Looks like we have a large tenant, cross your fingers. We may get that leased up. So that could be a real plus for us in the Texas market too. That’s just another side of it.
Catherine Mealor
Very helpful. Thank you very much.
John Allison
Thank you.
Operator
We now turn to Brett Rabatin with Hovde Group. Your line is open. Please go ahead.
Brett Rabatin
Hey. Good afternoon, everyone.
John Allison
Hi, Brett.
Brett Rabatin
I wanted to start with expenses. Hey, guys. I wanted to start with expenses and you talked about closing four branches. And Johnny, I was expecting you to be pretty tight on expenses this year. Not that you’re not always, but just kind of given the revenue headwinds the industry is facing. Is the level of expenses in 1Q, is that a good run rate to think about for the remainder of the year or are there things either plus or minus that might affect that going forward?
John Allison
I think, it’s a fair number. We — we’re not hiring anybody else right now and we’re going to continue to work on expenses. So it’s an ongoing effort here. If you don’t have an ongoing effort, it gets away from you like it did get away from us. So, you know, we — that’s a — I think that’s a reasonable number. Actually, the forecast was — was a bigger number than that given to me, and when I saw the three, it’s real money. So there’s 100 and I don’t know, 50, 60, 70 people, reduction in force. So that’ll continue on. So I mean, the real problem is for all buyers is inflation is after us and insurance, everything’s up, everything is — all expenses are up. So we were able to cut $3 million out in the quarter and hopefully, that’s — that’s $3 million below the first quarter last year. So I think that’s quite an achievement and hopefully or the fourth quarter, hopefully, and last year too, I’m sorry. So it’ll be good to see if we can continue that. We plan on continuing that. I don’t plan on letting to get away from it again.
Brett Rabatin
Okay.
John Allison
That’s my point.
Brett Rabatin
Okay.
John Allison
It was a battle — it was a battle to get it down. It was a battle to get it down, but we got it down so.
Brett Rabatin
Okay. That’s helpful, Johnny. And then I’ve had a few folks asking, early in earnings season, one of the Northeast banks indicated seeing some weakness in marine dealers. And your portfolio, I think, and what you guys do is obviously much different than maybe what some folks realize. Can you just talk about, what you guys are seeing on the marine side and just any activity and just. I know at one point, the inventory was hard to get and maybe that’s changed somewhat for the industry, but just any thoughts around the marine portfolio and what you guys are seeing there?
Kevin Hester
Hey, Brett, this is Kevin. So, yeah, what we do is, is a lot different than what you might have seen in the news that there was an issue of. Particularly in that, if you remember, our stuff is primarily Coast Guard registered 26.5 feet and up. I mean, we’re talking average loan size of 750. All of our dealer advances are supported by the original MSO as well as in almost every case by manufacturers repurchase agreement. So a little different than the smaller space where you’re dealing with tidal boats and trailerable stuff. So that, I think is the big difference from that perspective. Certainly, I think the inventory has been easier for our folks to get, which has been to them a good thing because they hadn’t been able to, in a lot of cases, they didn’t have anything to sell. So I think I’ve not seen in any of the annual reviews that I’ve seen, I’ve not seen any weakness from that perspective.
Brett Rabatin
Okay. That’s helpful. And if I could sneak in one last one, Johnny, your comments around capital were a little confusing to me because you put off a dividend increase, but it also seems like you’re less optimistic on M&A in the near term, and your capital ratios are really, really strong at 14.3% CET1. Just curious, how you think about, you’ve done a little buyback here, continued in the second quarter, but how you think about capital levels and what you might do to stop those ratios from continuing to move higher?
John Allison
Well, you know, because we make a lot of money, we have the ability to buy back $22 million worth of stock for the quarter, paid $36 million in dividends. And what’s the other button?
Brett Rabatin
AOCI.
John Allison
Yeah, AOCI hit us for about $25 million and still grew capital. So I think we’re going to sit with our strong capital base for a period of time here. I think it’s the right thing to do. There wasn’t any opportunities to speak up for us when the Fed backed up the trucks and came in with their lending program. But if they, in fact, next March, everybody has to pay off those people that they’re not going to get, you’re not going to put that $0.50 security up and get $1 for it. They’re going to get $0.45 for it or something. So they got, I think that world will change. So I think we sit continue to build capital and we continue to sit where we are and look for opportunities for our company because I think there’s got to be some. I think there has to be some opportunities for Home BancShares. I mean, we were all dressed up ready to play, when all the banks started having their problems. And we had the capital, and the ability, and the expertise to go to acquisitions. So we didn’t get to play because the Fed backed up the truck. But in fact, they pulled the truck out. Next March, I think, you could see lots of bank failures on the horizon. So we’re just — we’re hanging out for that. We’re just continuing to do what we do. We’re making damn good money as you can see. The company’s running really well. Someone said, what happens if rates stay where they are. I said, we just continue doing what we’re doing. So I think, we’re really sitting in a good position. You see the quarter, you have to admit, we hit on every button on the quarter. So I think, we’ll continue to hit on every button going forward here and have a really, really good year for Home BancShares. So if we found the right trade to do it, we’d trade today. But it’s awfully difficult to do a transaction in this market unless you find somebody that’s really in trouble and you pick that piece up. So I think, we’re going to see some movement though, particularly if the Fed stops that program, because that’s going to change the world for thousands of banks. I think there’ll be more bank failures if that happens. So my prediction is the Fed will extend it. I hope that answers your question, Brett, but that’s — that’s the way I’m seeing the world around.
Brett Rabatin
Yeah, that’s — that’s helpful. When your only real issue is capital is piling up, that’s a good problem to have. Congrats on all the metrics this quarter. Thanks, guys.
John Allison
You bet. Well, you got capital is king, deposits are king, and loan rates are king. So that’s kind of how we’ve looked at it. Thank you for such a support.
Operator
Our next question comes from Jon Arfstrom with RBC. Your line is open. Please go ahead.
Jon Arfstrom
Hey, thanks. Good afternoon.
John Allison
Hey, Jon.
Jon Arfstrom
Question for me — question for maybe Johnny or Stephen. If the Fed doesn’t do anything on rates, can the margin just grind higher over time and I’m thinking more medium-term? It seems like the ingredients are all there with the slowing deposit cost pressures and the higher loan yields, but how do you think about that?
John Allison
Well, I’ll speak to it. Let Stephen speak to it, but we’ve got major price adjustments coming on our loans right now that are going to add millions of dollars of income to between now and end of the year on rate adjustments, on some stuff that was written, fixed rate, five-year fixed in the four and three quarters range, it’s going up significantly. So I suspect, as Stephen is working on the deposit side and Kevin is working on the loan side, they just continue to — in my opinion, do a great job in improving the margin. So I’m going to predict that the margin is going to be where it is or higher. And I think we’re working towards that goal, and I think everybody’s pushing that way. I don’t want it to go backwards, it’s not going backwards right now, so I don’t want to go backwards. But I’ll let Steven — he deals with it every day and I just kind of generally deal with it.
Stephen Tipton
No, I think that’s fair. I mean, we’ve got — I think, we talked about it last year, we had $1 billion or so over about a five quarter period in loans that were re-pricing. We’ve got about $700 million or less than $700 million for the rest of the year. That’s below 6. That’s blended in, as Johnny mentioned, we’ve got some bigger credits that are in the 4s that are coming up, but there’s below 6, there’s $700 million that provided that we keep the credit, that we should be able to get some pretty big improvement from a spread standpoint there. And then again, absent no material moves and indexed deposits that we have things tied to the people of fed funds. If we just kind of hang out here where we’re at, that feel like the loan side can offset what happens on the deposit side.
Jon Arfstrom
Okay. Fair enough. And Kevin, what’s the reaction like to the new pricing when these loans renew? Curious about kind of the competitive environment and then also what you’re seeing for non-CFG pipelines?
Kevin Hester
I mean, as you would expect, I mean, nobody likes the rate going from 4s to something in the 7s, 8s or 9s, but I mean, it is the reality and everybody — it’s going to happen wherever they go. So it’s just part of the timing. Pipelines are good, I won’t speak for Chris. I’ll let him speak for his. But from the community bank standpoint, I mean, we’re in really good markets and in the Southeast. So, I mean, we’re still seeing really good activity and we’re able to — we’re able to structure things the way we need to for the most part. I mean, you see some crazy thing every now and then, but we’re able to structure things the way we should and get the pricing that we’re looking for as evidenced by what we did this quarter. So I’m encouraged that this is going to be able to keep doing that for a while.
Jon Arfstrom
Okay. Okay. Good. And Chris, if I heard you correctly, it’s a cup — yeah, go ahead, Johnny.
John Allison
I didn’t mean to interrupt you, Jon. I was going to ask you to tell, we’re going to try to get it up, get the margin up if we can.
Jon Arfstrom
Yeah, yeah. Is there a Johnny Prime today or are you satisfied?
John Allison
I don’t know it’s kind of a Johnny Prime. We just had to put it back into this. That’s funny, I’ve forgotten Johnny Prime. We actually have some loans still on the books at Johnny Prime.
Jon Arfstrom
All right. All right. It was a nice quarter. Thank you. Appreciate it.
John Allison
Thank you very much.
Operator
Our next question comes from Stephen Scouten with Piper Sandler. Your line is open. Please go ahead.
Stephen Scouten
Hey, good afternoon, everyone. I guess I might have missed it. I had some technology issues during some of Kevin’s statements, but did you guys talk further about these bumps that you referenced, Johnny on the State of Texas and what that looks like?
John Allison
Not really.
Kevin Hester
No. I’ll give you a little bit of color. There’s probably half a dozen credits this quarter that were not performing that were — not last quarter. They were all $3 million or less and almost all of them were out of the Texas market. And some of them we’ve been talking about for a while, a couple have not. But nothing that I’m overly concerned about, but still, it’s stuff you have to work through. So we will just continue to do that.
John Allison
Some of that, Stephen, just kind of, from the time we close happy, it’s kind of been on and off and they’re paying and they’re not paying as well. And so we’ve kind of tightened up with our Texas loan officers to get them straightened up or get them out and get them cleaned up. But it’s not, I mean, if we lost all of them, it might be $8.5 million, $9 million. We lost it all. So it’s not — it’s not huge to us, but just want to get cleaned up. That’s it. That’s it. That’s the only reason we’re doing it. I mean some of them ran along and kind of milking the deal, it’s time to get them fixed.
Stephen Scouten
Okay. And so are these kind of legacy credits or was it something you identified in terms of how — how those lenders were operating in those Texas markets that you wanted to change moving forward?
John Allison
Both.
Kevin Hester
Yeah, and you got to remember they had — they had acquisitions on their books as well. So they were — they had just finished an acquisition of a Centennial Bank, oddly enough, but that they were working through. So some of those are acquisitions to them as well.
John Allison
That’s correct. That is correct. And two of these loans that bother me in Texas, one of them was made about the time we closed — two of them were made about the time we closed the transaction. So there are loans that we would not have made today. One of them is the Marina, and it’s sold. It’s gone. We got that deal. Kevin got that deal closed out. I owe him a bottle of whistle penny. So I told him to get that sold and done before the end of the quarter, I’d give him some whistle petty. So, anyway, I owe him. So you can send me some, so I can pay him. But the other one was $11 million apartment complex, that just didn’t — it’s, it’s I don’t know if it’s going to be all right or not. So but it’s not the end of the world. I mean, there might be a loss and there might not be. But if there is, I mean, it’s $1 million or plus $1 million or minus $1 million. So it’s just getting it cleaned up. That’s really it, it just drug alone. You remember, I read every line of every classified asset that happy had before we bought the bank. And some of them are that old stuff that’s just hadn’t been cleaned up needs to be cleaned up. Nothing big.
Kevin Hester
He read the due diligence. He read all the due diligence problem loans that we had. And by the time we got to the first asset quality meeting after acquisition, a lot of those had cleaned up. And so that’s the comment that I made a few minutes ago is that, that’s been their history. They had — relative to us, they had more problem loans than we had, but a lot of it didn’t necessarily translate to losses. They’ve cleaned a lot of stuff up through the time. Part of that’s they’re in a good market, just like we are in Arkansas, Florida. So we’ll see if that continues and I expect that it will, but.
John Allison
You’re right. When you’re suddenly moving to 7%, 8%, 9%, 10% interest rates, you’re going to see some cracks come. The difference is the difference now between ’04 and ’05 is nobody had any money in the deal in ’04 and ’05 and they got money in these deals. People got money in these deals. It might be 20% and probably there’s no equity in some of those today because interest rates at high levels, they are, but there’s not big losses of them either. So, I mean, in three, four and five, I don’t nobody put any money in the deal and wouldn’t, had loan problems and they just threw the keys. So that doesn’t happen anymore. And haven’t had anybody throw us the key on the Marina. They threw us the keys on the Marina. So but we’re out of it. We’re gone. We’re done. So Kevin worked out well, and we all got our hands into that one, but Kevin led us and got us out. He’s got buyers for that stuff. So, anyway, that’s so far so good.
Stephen Scouten
Okay. Good. And then I guess my only other question is really thinking about growth moving forward. I mean, Chris and the CCFG team had a nice little quarter, and the organic growth in legacy markets grew a little bit. So, I mean, is that growth a function of you guys having been patient and having liquidity to put to work when others don’t? Or is it more you guys getting a little more constructive on the overall environment or maybe a little bit of both?
Kevin Hester
I’ll let Chris speak to his dynamic. But from the community bank standpoint, it’s — I think it’s the former. I mean, we hear a lot of folks not in the market on certain things, and we’re — as we always do, we’re in the market. We’ve always got money to loan. So we’re going to do it in our way and we’re going to make it right. But I think it’s the first part that we’ve got money to loan, and other folks have stepped on the sidelines for a while.
John Allison
Chris, you want to jump in there?
Chris Poulton
Yeah. Kevin, I couldn’t have said it better. I mean, last year, I think we did $750 million in volume last year, which is down kind of from what we normally do. But part of that was because we just didn’t like some of the things, and there were some people doing some things, et cetera. And we felt like at some point the mark would come back our way. And so, having not lent the money last year, we have the money available to lend this year. I can’t say that’s true for everybody. Will it change as the year goes on? Yeah, I think people come back into the market, if they start to feel better about it. We have the benefit of never feeling good about the market so.
John Allison
Thank you.
Stephen Scouten
Yeah. You’re very consistent there, Chris. I appreciate that a lot. So thank you guys for the color.
John Allison
Thank you, Stephen.
Operator
Our next question comes from Brian Martin with Janney. Your line is open. Please go ahead.
Brian Martin
Hey, guys. Good afternoon.
John Allison
Hi, Brian.
Brian Martin
Hey, Kevin, just on those credits — hey, Johnny. Those credits you talked about in Texas, Kevin, what’s the small, I guess Johnny mentioned one number, but what’s the exposure or was he talking — Johnny, were you talking more about the lost content? I thought you said around $8 million or $10 million. Just trying to get an idea of how much exposure there is to those credits versus maybe, if you’re talking about the lost content, I’m not sure?
Kevin Hester
So I was talking about the increase in non-performing loans quarter-to-quarter. He was talking more about overall exposure. If everything that he — that we see in our asset quality meetings just went in the toilet. So we were talking about two different things.
Brian Martin
Okay. So that total exposure of those six, those half dozen credits, what — how big is that exposure as you kind of look at it. And then there’s some potential loss on that, but you said exposure how much?
Kevin Hester
I mean not — a couple — $2 million, $3 million, I would think. I mean and at this point, I’m not convinced we’re going to lose anything in any of those credits that, there were the change this quarter. But there I believe they’re all real estate secured and there’s going to be some level of, even if you foreclosed on every one, there’s going to be some level of recovery that you have. So I don’t think it’s going to be a material number. Just really, I was really referencing the change — the change in balances quarter-to-quarter.
John Allison
Yeah, that’s referenced more often so.
Brian Martin
Understood. I got it. Okay.
John Allison
It was a max loss so.
Brian Martin
Yeah. Okay. It’s helpful. Thank you. And then just on — in terms of the margin with the bank term lending program, I guess, what’s kind of your outlook there? I know, Johnny, you said you think it continues. I think last quarter it was — would you keep it, would you not continue to use it? So I guess right now, it’s in the numbers, I guess is your expectation that you kind of continue that and that drag that we’re seeing on the percentage versus the dollars you’re getting, just kind of continue to think about that being status quo for the near term or?
Brian Davis
This is Brian, I’d say, that it’s probably going to be status quo for at least a couple of quarters, if there’s no drops in the Fed funds rate, you know, we might as well hang on to the money. We’ll have to pay it back, I believe on January 16th. Right now, we’ve got a positive arbitrage on it. So there’s no real reason to pay it back unless rates go down.
John Allison
And you look at the balance sheet.
Brian Martin
Yes. We have to make sure that. Okay.
John Allison
We got cash paid back, so we don’t have to go borrow it I mean.
Brian Martin
Got you. Okay. And Stephen I think you mentioned the re-pricing opportunity. I think you said $600 million or $700 million this year that you got a pretty nice pickup on. Is there — does that feed into ’25 as well or there’s still be that type of opportunity when you look at what’s re-pricing in ’25?
Stephen Tipton
It begins to step up and pick up the last couple of years production at a little higher rates when you get out into ’25. So we really just kind of focused on near term this quarter for the next couple of quarters.
Brian Martin
Got you. Okay. And I think you mentioned the deposit stabilizing. I mean your thought is back half of the year is kind of, is that kind of reading between the lines, what you’re suggesting, Stephen, on what you see there?
Stephen Tipton
From a balance standpoint or from a rate standpoint just make sure?
Brian Martin
Yeah, from a rate standpoint. Yeah, just a rate standpoint?
Stephen Tipton
Yeah. I mean how much of the top part of the deposit book that we can continue to try to kind of shave off and offset some increases, we’ll see. But I think we see something in the low single-digits in terms of an increase we would be pleased with and feel like we can — can offset on the loan side. Like Johnny said, through the first half of this month, it’s — it’s trended so far from a net standpoint.
Brian Martin
Yeah. Okay. All right. Last one from —
John Allison
The trend — the trend should continue. It should continue with the repricing — big repricings that we got sitting in front of us right now. So that — it ought to be another kick. We’re already up running well. We ought to get another kick here within the next 30 days.
Brian Martin
Yeah. Understood. Okay. And then last one for me, with just on — just the expenses and the improvement you saw this quarter. And if there are — the overhead you cut and I guess if we think about where there’s opportunity — further opportunity, if there is any on the expense side, I mean, what — if it’s not overhead. I guess, where else are there potential opportunities as you kind of continue to work on that expense side?
John Allison
We went from 38% efficiency to 46%, 47% efficiency, and we had to come back and we’re at 44% for this quarter. We’re pleased with $3 million, but if you can pull $3 million out in 90 days there may be more. You know that, I’m not saying there is more, I’m just saying there may be more. But to operate this quarter, $3 million less than we did last year at this time, I think that’s — that speaks pretty well for what we’re doing, because, you know, we’ve had increases. You know, we’ve had increases.
Brian Martin
Right.
John Allison
Of all kinds. Everybody’s getting these increases now. So I think that’s probably a good run rate. I wouldn’t expect it to go up. I think that’s probably a good run rate. If it goes up, we’ll do something else, we’ll figure out something else to do.
Brian Martin
Yeah. Okay, perfect. Got it. Thanks for the — thanks for the color. I appreciate it.
John Allison
Thank you. Appreciate your support.
Operator
This concludes our Q&A. I’ll now hand back to Mr. Allison for final remarks.
John Allison
Thank everyone for your support. We’ve — it’s been a good quarter. We’re pretty happy around Home Bancshares right now with what we see. I don’t — this may be the best quarter that the corporation has ever had. So when you look at all that we hit on all the offensive buttons, bham, bham, bham, bham, bham. And then the decrease in expenses and you look at the impact that’s made to the company, maybe our shareholders get a dividend increase for too long here. So, my wife would appreciate that, I can assure you that. Anyway, appreciate everybody’s support. We’ll talk to you in 90 days.
Operator
Ladies and gentlemen, today’s call has now concluded. We’d like to thank you for your participation. You may now disconnect your lines.
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