Q1 2024 Home BancShares Inc Earnings Call

Participants

Donna Townsell; Senior Executive Vice President and Director of Investor Relations, Director; Home BancShares Inc

John Allison; Executive Chairman of the Board, President, Chief Executive Officer; Home BancShares Inc

John Tipton; Chief Operating Officer; Home BancShares Inc

Kevin Hester; Chief Lending Officer; Home BancShares Inc

Chris Poulton; President of CCFG; Home BancShares Inc

Catherine Mealor; Analyst; Keefe, Bruyette & Woods North America

Brett Rabatin; Analyst; Hovde Group

Jon Arfstrom; Analyst; RBC Capital Markets

Stephen Scouten; Analyst; Piper Sandler Companies

Brian Martin; Analyst; Janney Montgomery Scott LLC

Presentation

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. Company presenters will begin with prepared remarks, then entertain questions. (Operator Instructions)
The company has asked to remind everyone to refer to the cautionary note regarding forward-looking statements. You'll 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, and welcome to Home BancShares' First Quarter Earnings Release and Conference Call. We released our results this morning prior to market opening. And overall, it was a good start to a volatile year. Anytime you can see the trends with positive results across the board of 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 deposits should provide comfort for our customers and shareholders. As I've said in the past, we will not be the highest when it comes to time, right? So in your mouth, but you will not have to worry about getting your money anytime you need during this crisis. We have we have never run a CD at times that Rydges unprofitable process for deposits like many troubled banks are doing today. This did not happen. Bala. Your management team is maintained as we're achieving are remained very conservative during what appears to be a mirror image of the inflationary, both the times of the late 70s and the early days. We have been active in recognizing the danger of Vault for years and have managed accordingly. This one is not over yet. 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 release done there. And I kept the back votes with Armada oncology and now Pall and the Fed is desperately trying this value by avoiding the recession, really they should all be punished for their action there. Stupidity is a reason for inflationary problem. The problem is it most of them couldn't run a washing machine. The buck stops with me, we have not felt the full impact of the increase of oil prices rolling into our Com Hem and from a manufacturing business. The impact of all this, not just at the service station as we learn through experience, has passed all spikes, but multitudes of products derived from our byproducts there. Earlier this year, the market was suddenly six cuts. Let me say this. If we have to have separate tax data, this country would have been in lots of trouble. I made that statement earlier Brunner. And she said we wouldn't have been troubling mathematic, Sega, C7 might clear because we say the country with big drop would call for higher for longer before that was popular. We forecasted one and not more than to write codes and beginning to bleed that may be have the only caveat, Kevin is politics. I think instead of cutting rates because it's not direct and the Fed needs to consider raising rates again, press the button when inflation was sticking its ugly head up during his term surprised everyone with a 50 basis point jump in, right? When no one expected within a short period of time, he dropped back 25 basis points, but he did stop in place. They say the program has no control over the Fed or the chairman, but it did during the Reagan administration with Volker will count on the warehouse to meet with breast at Reagan by Chief of Staff Gymbucks that meeting took place in the library and that's overall for spend according to Volker, the president never said a word, Badger ask Volker to sit down and then he looked and said, the president of the United States is order. You not to raise rates during unless you're intimating. It has finished the bulk in that little jewel was and I thought I'd share with you because it does maybe politics do involve them sales bottler.
Well, precisely the reason for the Lambert & B was not was because there's no recording to bask in that room. And as Richard Nixon found that in the later years there plus one in the home office that paved the way for the Watergate fiasco 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 there, analyze the efficiency ratio, how much does it cost to market? We have to give credit where credit's due to the map that belongs to the revenue side and the retail side of our company, it contains continued around 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 continued to hit a new high of 7.34%, and that is without any of the income I believe Steven said, correct correct of maintaining strong asset quality. Congratulations to our entire lending team. Just because of you and your strong relationship that you've developed one-on-one with our customers continue to ask the call to do the best for our shareholders and provide opportunities for home to remind one of America's best and most profitable companies.
During the quarter, our lenders originate $954 million in loans at a record rate of 9.28%, only about 40% of that funded, I think less than half yesterday, 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 homes, 25 year history however, if we did not have deposits, which I call the raw material outcome from the manufacturing business, so I'll look at deposits as raw material simply, we would not be able to not only the money there comes the Value Retail is by buying during these volatile times, departures can go back anywhere. They want to go and get any writing term. It just depends on how much risk they want to time because many of the banks that are run in half for us CDNs may not be able to pay.
Barry, you pay on all insured deposits and was headed my grandson, James Greenbriar the other night. And there's a sign hanging outside of all these banks of 6.1%, no later than the profit was 6.1%. So is it anybody more that's kept saying they have overlap or lead Mark, what's right to borrow money the fab or affect the spread funds US Fed funds at five four. So if you're paying more than that to me that says I have borrowed all the money I can bar and I got to get some money from from their customers, whether it's safe or not. Our retail staff is James directly. One on one of our customer has built relationships with OEM relationships, William, and it's been able to hold deposits at some more calls because our customers trust us to protect their personal deposits by having the ability again to pay out literature deposits in this cycle deposit campaign came lack of available apart is what the STB signature and Republic early in the pandemic, we were flush with excess deposits, but we were afraid that the excess deposits would eventually run off by our customers spending their 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 up out of the days who we did not even begin to recognize the importance of the policies as I watch SVB and Signature Bank being taken apart in a matter of days, I remember us trying to move some deposits out of our bank, how wrong and misinformed can one be protecting holding our deposits and not putting depositors money in the long term securities. Our 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. So there is nothing to account for there's nothing to regulate. There's no need to have people the expense side. So reason for existence is to account for and accommodate the retail and revenue side of this book. We have worked together as efficiently as possible and not against each other just we have just for our retail and winning horses, they are the ones that make it happen beyond the nine lasers. They don't deal from a desk in the back office there on the firing lines, one-on-one with the customers have some concerns about where we are today. And in fact, I'm not home particularly, but I'm concerned about what happens to the hundreds and thousands of zombie banks. It can no longer access to federal lending program. The BTFP. will cost of funds continue to escalate. We'll see the ranch go to seven, eight nine, will this bring about bank failures?
That would have probably we would have probably experienced if the Fed hadn't backed up the trough with a problem before at these banks recover to a point to be able to pay some or all of their owner.
Sure depositors. As scary as it has been, it could get worked up, but the Fed will be forced to extend the program or face many bank failures. I can assure you home will be one of the good banks have been helping the regulators to clean up the minutes. These plans with 8% or less capital and 110% loan to deposit may wish they'd found a partner before it's too late. When you look at margins or some buys, you see some of the to handle and believe it or not. There's some in Arkansas with the 100 watt where they plan to, I guess better said they weren't thinking that now they're entirely too many banks around their market. Do instinctive Bunge appear to not have a clue what you're doing. Don't shoot me when I'm strongly in favor of capital requirements being raised into the 10s at colleagues letterbox because they don't have a clue and most sensitive and they just get narrow bodies wide and continue to do silly and stupid funds as services claims are trends at home, our policies and appears 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 times you got to clean up in the state of Texas. It is very manageable, but it sometimes was 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 will have we'll have to deal with those. And that by Kevin's going to talk about that a little bit or somewhat less scale, the numbers earnings were a little over 100 may and I think we've been budgeted Miran, we budgeted down literally.
No, that is correct within the EverBank to everyone long said, Johnny and I didn't think we were a little bit about with beta and unfriendly. Des revenue was 246.4. It was abate. Our net interest income was $205.5 million and that trend continues. It appears it's continuing only in April, reserved alone, 2% or $90 million, and we had $3.53 for every $1 of non-performing loans, we did loan growth and deposit growth was about $80 million each for the quarter. The balance loans originated for the quarter were, as I said earlier, were $954 million or 9.28% growth job, Kevin, your team return on assets one 78, an efficiency ratio better than 44 22 that's much better than where we were up in the 40s, such as in 40 sevens and where we're headed in the wrong direction. But we've stepped that up EPS of $0.5 per share in 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 for 13 last time and you had two basis of net income, which was for 11. And Joe, remember we did the arm that was 10 basis points. So apples to apples is up for 21 and FY 20 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 close towards the middle of the month and maybe we'll see some more savings coming out there. We'll take the blame for a lot of expenses to get out of control and Morris and I will take responsibility for not taken actions earlier. Sometimes we don't see the forest for the trees, even though we started like 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 best to hold any dividend increase until later this year, as you know, and would expect my wife was not happy with that decision that no, no dividend increase will ask the Board of Directors to address that again in the future.
Dan, it wasn't quite as good as I wanted, but I'll take it and I'm sure there might be a few banks that might outperformance this quarter, but it so it will 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 group less but Texas individuals. The lawsuit we filed 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 from what appears to be against it. Intentional damage which include possible criminal charge. This is a matter for the court of law, ensures decide and we'll leave it to be able to resume up with this with this top-performing team of revenue horses deposit gatherers, coupled with those strong relationships with their customer base, I would expect similar positive results from its core trends are continuing to look pretty good and show an improvement in the revenue here in April. I hope that will hold throughout the quarter. If that holds, we'll have another great quarter and we could be off a really a big year.
I want to thank everyone. One change from next year. Miss Donna is we're going to report for MOM for earnings than that before we've done it the same way this time as we had in the past. We don't change it next quarter yet again, and I'll give it back to you.

Donna Townsell

Okay. Well, thank you for the colorful commentary as usual, I actually think it's a great start to the year to continue. So I expect that from this team now Stephen Tipton will share operational results.

John Tipton

Thanks, Donna. And 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 and borrowings late in Q4 that cash, that excess cash affected the Q4 net interest margin by one basis point and the Q1 2020 for 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 a 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 repricing against the increasingly lost on the funding side, the yield on loans, excluding the event income improved to 7.34% in Q1 and outpace the increase in total deposit costs. Total deposit cost 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 7.3, 4%. And we will continue to negotiate pricing with core customers as we have been for. But we are encouraged to see that 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 continue 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. Loan to deposit ratio was in line with prior quarter standing at 86% as of March 31st. From 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 volume of $954 million in Q1 with approximately two thirds of the closing volume coming from the community bank regions. Yields on those originations continued to improve with an average coupon of 9.2% in Q. one payoff volume declining 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.

Donna Townsell

With that, Don, I'll turn it back over to you and even now Cataclysm common shares that were issued, we had 13 bps increase in cost of funds. But Kevin, staying down, it's interesting. That was 15 basis points on the yield side. So what I call out running the cost of funds, sorry, I didn't mean to interrupt given the go-ahead can.

Kevin Hester

Thanks, Dan, and 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 and our producers continue to get the job done. We continue to see improvement in loan yield and a 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, leverages 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 and 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 has to do so.
While asset quality remained solid. Overall, we saw a marginal increase in nonperforming 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 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 Q3 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 Adam, I will turn it over to Chris Poulton to give an update on the California property and then a general update on CCSG. Chris.

Chris Poulton

Thank you, Kevin. Happy to provide an update on and as I reported during last quarter's call, during the fourth quarter last year, we transferred into REO the leasehold interest in approximately 50% occupied office building located on Ocean Avenue in Santa Monica, California. At that time, we identified three immediate prior priorities for the property. The first was to resolve some outstanding legacy litigation between the fee owner and our prior borrower. 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 tenant to determine their potential needs and stabilize existing tenancy. And 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 prior 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 tenants 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 that's encouraging that there appears to be increasing interest and our well-located office space and the Santa Monica submarket will 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 CCSG, 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 are 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 payoffs and paydowns in the portfolio, especially in some credits that we were probably happy to see go with that, Dan, I think I'll pass it back to you.

Donna Townsell

Thank you, Chris. Congratulations on the progress on the office building.
That's great. John, before we go to Q&A, do you have any additional comments?

John Allison

Well, I just want to say any time that using our comprehensive merger, so to speak revenue side of it. We hit every button. Everyone have grown, but there's eight or nine buckets. We had a mile and we had loan growth and we had we had loan growth and we had deposit growth. So that was positive. Asset quality remained strong. We had it. We worked on the expense side and we've 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 the homework on my other remarks while ago any questions still left, there's not as many of you have asked as I think we've got good answers real to the dollar new Craig, I think we raised our dividend.

Question and Answer Session

Operator

Thank you. (Operator Instructions) Catherine Mealor, KBW.

Catherine Mealor

Thanks. Good afternoon.

John Allison

Good afternoon, gentlemen. Welcome.

Catherine Mealor

Thanks. Brady always said this was his favorite conference call. And now I understand. I'm so glad I should be a part of it now because I really appreciate your comment, Johnny and I wanted to start maybe with credit and think I appreciate the update on those three credits and then the 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 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 overall, I'll handle the overall questions. First, overall, classifieds down probably close to $25 million in total. It's specifically the one credit that we that we talked about in the fourth quarter. That was the large increase, and we're continuing to work through that from a just from an overall perspective, it's a daily process of managing their their cash flows and we're continuing. I think we saw a 10 million or so drop in them at 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 of three quarters to work through the issues that we're evident there. And we think we're on track and on progress.

John Allison

There's two pieces that credit of one of them is tug boats and barge. There were well collateralized. So the others line of credit and some are collateralized on that piece, but Kevin has and we've built a policy in place that one piece of credit in place by the government. So really we have great equity in the barges and tugs. So that's not that's the biggest that's the lion's share of the balance of it is 47 to $50 million line of credit. So the exposure really immediately. I wouldn't classify them, but we do everything that I would classify the assets, the other assets because I think we're fine there. I mean if you tried about barge today 32 years or a tugboat. So the value of those signs are pretty strong. So anyway, that's our customer have a kind of bump there. They can bump there had gone through the process and they ship a lot of material out of the country and the bridge, it's a ship through the used to transport gas cause for some reason and that drove them into a loop. So we totaled the amount of credit and they were able to get other lines of credit to continue to operate in. We should we're told, we're going to see paydowns in the 20 plus million dollar mark this month or so. We'll see and we'll let you know when that happens. But if there's any exposure there. I think it's limited I'd say from uncollateralized might be 30 million of total sales is the pay in Florida. And so so far, so good that was there. That was that's the status of it.
Great.

Catherine Mealor

I appreciate that. And then a question on the margin on margins relatively stable. If you kind of back out some of the excess liquidity, can 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 are mentioning, Johnny or even cuts. But if rates are just stable for the rest of the year on your where do you think your deposit costs final kind of, Pete?

John Tipton

Hey, Katherine, Stephen Tipton. Yes, I think it's the same same set of, hey, I think sentiment that you're hearing from others? Certainly in this past quarter, the pace of the increases was last. I think we were we were up four basis points in January and four in February and were really pretty flat in March. And those are down from high single digit, low double-digit increases throughout the year last year. So it slowed some and we still have a CD portfolio, although, yes, fairly small relative to the overall that is maturing each month and we're having to work those. And we talked about that earlier.
Yes, 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 rationalized 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 and lower a few rates here and there it helped offset some of the continued increase. So yes, low single digits, I think would be what we would target for beer.
And just overall like Johnny mentioned in our opening comments system now running on the asset side out running anything that happens on the funding side?

John Allison

That's right. Randy is continuing into April too, Kathryn, it is the first comparable data report. So we're looking at the first 10 or 15 days, 17 days, whatever it is April compared to the first 17 days of January. And we're only in direct were up nicely in the first 17 days. We have some large credits repricing this quarter and right now the fact that should the significant significant repricing some 4.1 to 9.0 and 8.5. And so we're seeing some significant repricing there that should give us a boost, not a plus I didn't talk about a minute to talk about is that we've been working on that our office building in Amarillo, Texas and looks like we have a large tenant. We have toured 40,000 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 that in the Texas market to just another segment.

Catherine Mealor

A helpful. Thank you very much.

Operator

Brett Rabatin, Hovde Group.

Brett Rabatin

Hey, good afternoon, everyone. I wanted to tart with expenses. But hey, I just wanted to start with expenses and you talked about closing four branches and Jonny out. 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 other things either plus or minus, it might affect that going forward?

John Allison

I think it's a fair number. We are we will not have anybody else right now, and we're going to continue to work on expenses. So it's an ongoing effort here.
You don't have an ongoing effort to get to Wipro and we like it and get away from us. So we think that's a reasonable number. Actually, the forecast was a bigger number than that given to me. And when I saw the three, it's real money. So there's 100,000 accounts, 50, 60, 70 people reduction in force. So that'll continue on. So I mean, the real problem is for all banks is inflation is after-hours and insurance. Everything everything is all expenses are up. So we were able to cut 3 million out in the quarter. And hopefully, you know, that's that's 3 million below the first quarter of last year. So like that's quite an achievement and hopefully the fourth quarter, hopefully and last year terms or so will be a really good to see if we can continue that we plan on continuing and I don't plan to get away from.
Okay. Again, that's my point. Okay. It was it was a bad thing for the handling and down. It was a battle to get it down, but we got to today. So --

Brett Rabatin

Okay, that's helpful, Johnny. And then I've had a few folks asking, you know, early in earnings season, one of the Northeast banks, you indicated seeing some weakness in marine dealers in your portfolio. I think what you guys do is obviously much different than maybe what some folks realize. Can you just talk about what you guys are seeing in the marine side and just any activity? And I know at one point, you know, 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, Bret, this is Kevin. So yes, what we do is is a lot different than than what you might have seen in the news that there was an issue, particularly in that, if you remember, our stuff is primarily coast guard registered 26.5 feet. It up I mean we're talking an average loan size of seven 50. All of our dealer advances are supported by the original MSO. as well as in almost every case manufacturers repurchase agreement. So a little different than the smaller space where you're dealing with tidal boat and trailer real 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 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 that I've seen. I've not seen any 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 the dividend 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 BT. one. 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 just stop that those ratios from continuing to move higher?

John Allison

Well, because we make a lot of money, we have the ability to buy back $42 million worth of stock for the quarter by $36 million in dividends.

Brett Rabatin

And what's the other button ACLs?

John Allison

Yes, ALCI. 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 speak up for us when the bad backed up the trucks came in with their lending program. But if they if they in fact next March, everybody has to pay off from people that they're not going to get. And I will put that $0.3 30 up and get a $1.4 or $0.45 for something. So looking at, I think that will change. So I think we sit and continue to build capital and we continue to sit where we all are and look for opportunities for our company because I think there's got to be some like there has to be some opportunities for Home BancShares. I mean, we're all dressed up and ready to fly when all the buy at the bank, started having their problems and we had the capital and the ability and the expertise to go to acquisitions. So we're seeing it climb because the Fed backed up the truck. We've been fast safe, full truck out next March. I think you could see lots of bank players only Verizon, so where this or hang an app for that we're just continuing to do what we do. We're making banded money. As you can say, the Company is running really well. Someone said what happens if rates stay where they are so we'll just continue doing what we're doing. So I don't think we're really sitting in a good position. You see the quarter you have to you have to admit we hit a memory every button on the quarter. So I think we'll continue to handle never button going forward here and have a really, really good year for Home BancShares. So if we found the rep tried to do it. We tried today, but it's awfully difficult to do a transaction in this market unless you bounce back really in trouble and you pick that pace up. So I think we're going to see some of that, though, particularly if the Fed stops at broke. So that's going to change the world for thousands of banks from by building more by buyers if that happens.
So my prediction has been extended from well that answered your question, Brent Wood, that's that's why, obviously in the world, you know that that's helpful when your only real issue is capital is piling up. That's a good problem to have.

Brett Rabatin

Congrats on all the metrics this quarter. Thanks, guys.

John Allison

Maybe it will get capital scaling the time is a key and non-reg gains, and that's kind of how we've looked at it. Thank you.

Operator

Jon Arfstrom, RBC.

Jon Arfstrom

Good afternoon. On Fazal question for Mike. A question for maybe Johnny or Steven, if the Fed doesn't do anything on rates on 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 and how do you think about that?

John Allison

Well, I'll speak to let Stephen speak to what we've got major place adjustments coming on our loans right now, but I'm going to add millions of dollars of income to between now and the end of the year. But I'll read adjustments on some stuff that was written fixed rate, five-year fixed and the forward three quarters range has gone up significantly. So I suspect it is Stephen is working on the on the deposit side and Kevin's working on the loan side, they just continue to to mapping and do a great job and are proven to improve in the margin.
So am I more predicted the margin's going to be where it is or higher? And that's but I think we're working towards that goal. And I think everybody's pushing that why I don't want it to go backwards. It's not going backwards right now. So I'd always go backwards, but outlets Steve, and he deals with it every day and I discount generally deal with.
No, I think that's fair.

John Tipton

I mean, we've got and I think we talked about it last year, we had 1 billion or so over about a five-quarter period of loans that will reprice. And we've got about 700 less than 700 million for the rest of the year. That's below six that's blended. And John mentioned we've got some bigger credits that are that are in the fours that are coming up, but there's logistics. There's 700 million provided that we that we keep the credit that we should be able to get some pretty big improvement from a from a spread standpoint there. And then again, absent no material moves in index deposits that we have to think that the material Fed funds, if we just kind of hang out here, where we're at feel like the loan side can offset what happens?

Jon Arfstrom

Yes, fair enough. And Kevin, on what's the reaction like to the to the new pricing when these loans renew, curious about kind of the competitive environment? And then also what you're seeing for non non-CF pipeline?

Kevin Hester

And I mean, the as you would expect, I mean, nobody likes the rate going from $0.04. It something in the seventh eighth or ninth. But I mean, it is the reality and everybody's it's going to happen wherever they go. So it's just just part of the timing.
Pipelines are good. I won't. 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 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 it's a 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 and I'm encouraged that this is going to be able to keep doing that for a while.

Jon Arfstrom

Okay. Could I ask, Chris, if I heard you correctly, it's up and running after being interrupted jobs as your Avalanche and it takes a little time to get it up, get the margin up, as you know, is there a Johnny Prime today? Are you satisfied?

John Allison

We've since added to that and have come down from where they spend reflected about what I've forgotten Fidelity, Brian, we actually have loans on the books at data for that.

Jon Arfstrom

All right. All right. It was a nice quarter. Thank you. Appreciate it.

Operator

Stephen Scouten, Piper Sandler.

Stephen Scouten

Hey, good afternoon, everyone. I'm I guess I might have missed it. My had some technology issues during summer KEVIN statements, but did you guys talk further about these and the bump that you referenced, Johnny and the state of Texas and what that looks like.

Kevin Hester

It's not really, you know, I'll give you a little bit of color, but that there's probably half a dozen credits this quarter that went nonperforming network were not last quarter. They were all 3 million or less. And almost all of them were out of Texas market and some of them we've been talking about for a while. I'm a couple of not, but nothing that I'm overly concerned about, but still it's stuff you have to work through. So and we will just continue to do that.

John Allison

But some of that statement is candidly, from the time we were close to half the cabin own And often we pay and are not faring as well. And so what can happen with our Texas loan officers to get them straight up and get them out and get it cleaned up. But it's not I mean, if we launched an alum it might be 8.9 million hours will ask now. So it's not it's not that huge to us, but just wondering, could play into a zone where we're doing like I mean, at some point along and kind of milk and the daily time, it is time to get on fixed data. And so it is kind of a legacy credits or was it something you identified in terms of how those lenders were operating in those Texas markets that you wanted to change moving forward?

Kevin Hester

Well, yes, you remember they are backed by our 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 some of those acquisitions today and as well?

John Allison

That's correct.

Kevin Hester

That is correct.

John Allison

And to the to these loans, it bothered me Intact is one of them was made about the time we close to a more made about the time we close the transaction. So there are loans that we would not have made today. One of them is the marina and if so, let's go up that we have, Kevin get that deal closed and ultimate bundle of whistle pit so that the guest that zone done before then the quarter adherence or what's the pay. So they want to have Howard, so you can send me some octane. What was the other one was that about 11 million?
Our apartment complex that just in effect, I don't know if it will be on or not. So but it's not in the world. I mean, if there might be also that there might not be. But if there is I mean it's amazing or plus or minus a million. So it's just getting it cleaned up. It's really it is just drug along here. Remember, I read every line of our classified asset that happy had before we bought the bank and some of that old stuff that's just hadn't been clean.

Kevin Hester

That means between them net net in various periods due diligence, he read all the due diligence of problem loans that we had. And by the time we got to the first asset quality meeting after acquisition, a lot of those and 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 the losses. They've they've cleaned a lot of step up through the time part. That's what they're in a good market, just like we are in Arkansas, Florida. So we'll see if that continues and I'd expect that it will.
But you're right.

John Allison

And when you suddenly move into seven, eight, 9% pension and interest rates, you don't see some cracks come differently is the difference now between oh four and five is nobody had any money that they are low form back and they got money meetings, people got money in these deals. It might be 20%. It probably there's no equity in some of those today because of interest rates at high levels, they are. But there's not big losses that were made. So I mean in three, four and five out, nobody putting money in the deal and whether lucky or loan from the food they eat. So they don't happen anymore and where they had anybody thought was the case of a no-brainer that those the keys on Marina. So but we're adding we're down, we're done. So Kevin worked that well, and we all got our hands into that one. But Kevin lettuce, you gave us that you've got buyers for that instead of So anyway, so far, so good. And then I guess my only other question is really thinking about growth moving forward. I mean, Chris, in the CCSG team had a nice fourth quarter and the organic growth in legacy markets grew a little bit. I mean, is that growth a function of you guys haven't been patient and having liquidity put to work when others don't? Or is it more you guys have gotten a little more constructive on the overall environment or maybe a little bit about?

Kevin Hester

I'll let Chris speak to his dynamic. But from a community bank standpoint, it's about I think it's the former. I mean, we hear a lot of folks not in the market on certain things and worse, whereas as we always do, we're in the market, we've always got money alone. So we're going to do it our way, and we're going to make it right. But I think it's the first part that we've got money allowed other folks have stepped on the sidelines for a while for us to jump in, I guess, Kevin, I couldn't have said it better.

Chris Poulton

I mean, last year, I think we did have another 50 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 market would come back our way. And so having not lent the money last year, we have the money available. And this year, I can't say that's true for everybody on. Will it change as the year goes on?
Yes, I think people come back into the market, they start to feel better about it. We have the benefit of never feeling good about them.

Stephen Scouten

So I'd say, yes, you're very consistent there, Chris, and thank you guys for the color.
Thank you very much.

Operator

Brian Martin, Janney.

Brian Martin

Thank you, guys. Good afternoon, February and Kevin. Just on those credits injury, those credits you talked about in Texas, Kevin, what would see it's small I guess the Johnny mentioned one number, but what's the exposure or was he talking with Johnny, are you talking more about the loss content, but you said about eight 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 I was talking about the increase in nonperforming loans quarter to quarter. He was talking more about overall exposure. You know, if everything that is that we see in our asset quality ratings just went in the toilet. So we were talking about two different things.

Brian Martin

Okay. So the total 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 some potential loss on that but 60% export a couple to 3 million.

Kevin Hester

I would think I mean, at this point, I'm not convinced real lose anything in any of those credits and the advice that they were the change this quarter, but they're I believe they're all real estate secured. And yes, there's going to be some level of the even if you foreclosed on everyone, there's going to be some level of recovery that you have saw?
I don't think it's going to be a material number. Just really, I was really replicating that change the change in balances quarter to quarter as Repligen.

Brian Martin

I got it. Okay. Maxwell's. Okay. Yes. Okay, that's helpful. Thank you. And then just in terms of the US on the margin with the banks from lending program. I guess what's kind of your outlook there? I know, Johnny, you said you think it continues. I think last quarter was would you keep it? Would you not continue to use its I guess right now it's in the numbers. I guess is your expectation that you kind of continue that net debt drag that we're seeing on the percentage versus the dollars you're getting and just kind of continue to think about that being status quo for the near term or at this?

John Allison

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 we might as well hang onto the money will have to pay it back, I believe on January 16th.

Chris Poulton

Right now, we've got a positive arbitrage on it. So there's no real reason to pay back unless rates go down.

John Allison

And you look at our catalyst show that and we have cash. But at MAX, we don't have the bar, I mean.

Brian Martin

Got you. Okay. And Stephen, I think you mentioned the repricing opportunity. I think you said six or $700 million this year that you've got a pretty nice pickup on. Is there does that feed into 25 is while there still will there still be that type of opportunity will solicit what's repricing 45.

John Tipton

You know, it begins to step up and pick up the last couple of years of production at a little higher rates when you get out into 25. So we really just kind of focused on, yes, near term this quarter and next couple of quarters.

Brian Martin

Okay. And I think you mentioned the deposit stabilizing your thought as back half of the year as kind of was that kind of reading between the lines, what you're suggesting, Stephen, what you see there from from a from a balance standpoint or from a rate standpoint, this mixture. But yes, from a rate standpoint, more.
Yes, just a rate standpoint.

John Allison

Yes.

John Tipton

I mean, I know you how much of the top part of the deposit book that we continue to track to kind of shave off and offset some increases.

John Allison

We'll see.

John Tipton

But I think we see something in that in the low single digits in terms of an increase we’d 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 trinity of arm from and from a net standpoint, yes.

Brian Martin

Okay. And then the last one from the trends and that trend should continue should continue with repricing MegaRed

John Allison

pricing is that we've got sitting in front of us right now, so that it will be another kit. We're already up running well. We ought to give another can't care with them 30 days.

Brian Martin

Yes, understood. Okay. And then last one for me was just on U.S., just the expenses and the improvement you saw this quarter and if there are these 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 that overhead?
I guess where else others potential opportunities as you kind of continue to work on that?
I'm sorry.

John Allison

So 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 you can pull $30 million out and and the days there may be more. You know that I'm not saying there is more what I'm missing. There might be more, but to operate this quarter, 3 million less than we did last year. At this time. I think that's a it speaks pretty well for what we're doing because you know, we've had increases. You know, we've had increases in all categories of everybody getting these increases now. So I think that's probably a good run rate. I would expect it to go up, I guess probably a good run rate. If it goes up, we'll do some math to figure out something else to the cap.

Brian Martin

Okay, perfect. Got it. Thanks for the thanks for the color. I appreciate it.

John Allison

Thank you, percentages for this concludes our Q&A.

Operator

And I'll now hand back to Mr. Allison final remarks.

John Allison

Thank you, everyone, for your support. We had a good quarter. We're pretty happy around Home BancShares right now with what we see, I know this may be the best quarter of the corporations ever had. So when you look at all the we hit the low offense of buttons, bam, bam, bam, bam bam 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 LAP would appreciate that. I can assure you that anyway for center by sport. We'll talk to you in 90 days, I believe.

Operator

Ladies and gentlemen, today's call is now concluded. We'd like to thank you for your participation. You may now disconnect your lines.