Home Bancshares (Conway, AR) - Q2 2023
July 20, 2023
Transcript
Operator (participant)
Greetings, ladies and gentlemen. Welcome to the Home BancShares Incorporated second quarter 2023 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 prepared remarks, then entertain questions. Please note that if you would like to ask a question during the question and answer session, please press star, then one on a touch-tone phone. If you decide you want to withdraw your question, please press star, then two to remove yourself from the list. The company has asked me to remind everyone to refer to their cautionary note regarding forward-looking statements. You will find this note on page three of their Form 10-K, filed with the SEC in February 2023. At this time, all participants are in a listen-only mode, and this conference is being recorded.
If you need operator assistance during the conference, please press star, then zero. It is now my pleasure to turn the call over to Donna Townsell, Director of Investor Relations.
Donna Townsell (Director of Investor Relations)
Thank you. Good afternoon, welcome to our second 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. Well, Home BancShares actually continues to stand tall in this shaky banking environment with a strong second quarter results. Our first speaker, Chairman John Allison, will illustrate those details for us with some prepared remarks.
John Allison (Chairman)
Thank you, Donna, welcome everyone for attending the second quarter of 2023 earnings release and conference call. I hope you find it interesting and informative and maybe a little comical. Some people set themselves up for an easy target and sometimes I just can't pass it. Well, here we are in July of 2023, just wrapped up a very interesting and unusual quarter, to say the least. We have seen that the worst financial crisis since the Great Depression in 2005-2010, a 1917 pandemic like we have never seen, wild inflation, not seen since the late 70s and early 80s, as a result of both the past and present administration spending money without any restraints. While Jerome Powell was trying to do his best to control inflation with his out-of-control spending.
I call that swimming upstream with handcuffs. What... We got Bidenomics. That's a new term I just heard. How is it working? Suicide rate has jumped. Homelessness has exploded. The highest number of bankruptcies in 12 years. We're starting to replace the US dollar with a digital one. Not sure what that means. Bank failures. We've had several bank failures this year. I doubt we'll have many more, but we could. Interest rates are at the highest level. Crime is running rampant in cities. The war in Ukraine continues on, and Putin's own hired army seem to turn on him. The economy is slowing. The deficit is exploding. The administration is trying to get us to believe that the economy is strong, while 31% of the Americans have tapped a loan from their retirement fund, 401(k) or IRA.
Record levels of credit card debt. Fentanyl has continued to kill thousands of Americans. Thousands crossing the border, almost unabated. Inflation continues to march forward. However, it is improving. Last time I checked, Janet Yellen was still busy buying nonstop to her Chinese counterpart. China appears to be a threat to the U.S. because the U.S. looks weak. China's trying to bully us a little bit around the world. China is sending weather balloons, they call them weather balloons, over the U.S. Really? Russian aircraft playing cat and mouse with U.S. aircraft and ships, and Hunter Biden has finally agreed to take his punishment from the U.S. attorney. I think they have stopped him from having snow cones on Tuesdays and Thursdays, so that's his punishment. They did prohibit him from paying any more income taxes, by the way, no state, federal, city or county.
I think that's just because they want us to pay our fair share. We can't figure out who left the cocaine in the White House, but other than that, things are really, really good. What can possibly go wrong? The second quarter was a stressful 91 days, with several bank failures in the prior quarter and maybe more to come. This was the scariest 91 days of my banking career. As I said last quarter, liquidity was not important until it ends, and this was my first experience up close, what a liquidity crisis can do and how quick it can end the life of a bank. I was very nervous, but also proud to be one of the very few banks that have the balance sheet with the liquidity to pay out all uninsured deposits.
Keeping Home's balance sheet strong with the ability to pay out all insured deposits, has cost us some income. The peace of mind that we positioned Home into one of America's strongest and safest financial institutions, more overrides the short-term earning issues. Not only can we pay out, but we can pay out if we borrowed all the money and left it the balance outstanding for the full quarter. At today's interest rates, we would still be in the top 25%-30% of profitability for the top 200 best publicly traded company banks in the U.S., and that includes all the money centers. However, in spite of the craziness, the second quarter was a pretty good one anyway. Really, the only weakness in the second quarter, we allowed was interest expense to outrun interest income by about $6.9 million from last quarter.
Interest income was a company record, but so was interest expense. That was very disappointing to me, but we're addressing that issue. We have about $760 million to reprice between now and the end of the year at a little over 5%, and we possibly could see a 300 basis point increase in those yields. If so, that adds about $5.7 million to the quarterly interest income. Not all we need, but close. We also have about the same dollar number of scheduled payoffs, and we'll evaluate the rate and customer, and hopefully, retain some of those customers at a higher rate. We'll continue to originate new business as long as we feel safe and secure. We are not aggressive on the loan side, and that philosophy will continue forward. It is certainly not time to be taking any risk.
Our goal was to make about $400 million for the year, and we're on target to do that with a $208 million first half of the year. I think our investor shareholders would be happy with those numbers. Having the best year in our corporate history, while in the middle of a banking crisis, coupled with a very unprofessional treatment and possibly illegal behavior with Express in West Texas, I think all our people should be proud. Our performance speaks for itself. My wife said, "Protect the chuck wagon," and that's exactly what we're doing. This is the time to move slow and careful. Don't take any risks, and for sure, do not buy someone else's problems by refinancing their bad loans and trying to get them off their books.
This is a time when problem loans flow to the top, and many bankers are trying desperately to get them off their balance sheet. We're seeing some of them, but our New York office said they're seeing a lot more of them, but interestingly, nobody has really taken the bait. If these 5.5% and 6% newspaper ads continue to be run by these bankers that have already ruined their balance sheet, or excuse me, have already run their balance sheet into the ground because of the mistakes they've already made, I suspect the cost of deposits will continue to move up. For them, that means screw the margin. They cannot borrow any more money from the Fed.
They borrowed all they can borrow, they've spent all their liquidity and are forced to have cash to satisfy the regulators, regardless of cost or margin. If they're forced to sell the securities, the loss could hit them so hard they could get a run on the bank, A.K.A Silicon Valley Bank. That's exactly what happened. It happened quickly. A few days later, the bank is closed over forever. They thought they were totally bulletproof. I spent 23 years building this company. The thought that it could be gone in the blink of an eye is absolutely frightening. Those bankers who have allowed their balance sheets to go over 105% loan deposit and weak capital of 8% or less, have a good chance of the same fate.
If the big, bad wolf shows up at the door and starts huffing and puffing, goodbye forever. That's not going to happen at Home. Strength and safety has been our priority for the last 23 years, and that will never change as long as I'm here, and this management team is in charge. Let's go to the results. Pretty good results, $105.3 million in earnings for the quarter. It's $0.52. I think that right in line, I got a little extra penny in there somewhere. I think the analysts were at $0.51. Revenue, $257.5. That was right on target. Efficiency of 44%. That interest margin remains strong. However, it dropped 9 basis points during the quarter. We tried hard to keep that up, and we're working on that now. On the asset quality side, reserves remain strong at 2.01%.
Non-performing loans and non-performing assets both improved for the quarter. Loans from 0.51% to 0.43%, and non-performing assets from 0.33% to 0.28%. Good numbers. Announcement on our member care, $30 million member care loans that we've talked about for a couple of years have been sold, refinanced, with multiple buyers bidding on the properties. This is a perfect example of conservative underwriting practices that your company follows. These loans were underwritten properly on the front end and provide an avenue for banks to get out if and when problems come up. Great job by all. Asset quality has remained good. The only thing worth mentioning is I found out today or by yesterday afternoon, we have one office building that's half full in the $25 million-$30 million range. We will keep you informed on that.
It's early, we do not anticipate a loss. The tenant, the tenant moved out, spent over $10 million on tenant improvements. I haven't looked at the offers. I don't know if Kevin has, I understand it's a nice profit. Other than that, I don't see anything that bothers us. I will say it's a good feeling to have almost $300 million in loan loss reserve in these uncertain times. I certainly sleep better with those kind of reserves, our employees, investors, shareholders, customers, and pastors should, too. Return on tangible common equity was 19.39%, nice numbers. Here's the capital ratios, top-tier capital ratios. CET1 at 13.63%, leverage at 11.92%, total risk-based capital at 17.28%.
Tangible common equity at tangible assets at 10.65%. Tangible book value is $10.87, and book value is $18.04. During the quarter, we repurchased 560,849 shares for approximately $11.8 million. Year-to-date, we bought back 1.15 million shares for $25.3 million. Average loan yield was up 20 basis points to 6.84% from the first quarter of 6.64%, from the yeah, the first quarter of 6.64%, excuse me. Interest-bearing deposits increased from 190 to 227. That's a pretty good jump. That jumped more than our 20 basis points. I'm expecting the second half of the year to be much tougher than the first half.
The good news is, Home can handle whatever comes our way. We didn't get into this great position by luck. We controlled and directed the entire operation of the company on the most conservative path we could follow. Called the shots along the way. Some were controversial and tough decisions, but they had to be made, but they have certainly paid off for Home. Home continues to be recognized in the top tier of all banks. It's top tier of all banks in the U.S. and even 15th in the world. That's a great place to sit. It will be interesting to see the rankings after all bank reports during the quarter. I would imagine that Home will remain in the top echelon group of all banks, as it has been for most of its entire business life.
Being ranked by Forbes, Best Bank in America, three out of the last six years was not luck. Running a business in normal time, if we know what normal is anymore, is fairly easy because we all pull from our past experiences we have had. In the last 18 years, it's been new surprise after new surprise experience. I've witnessed many Home BancShares employees working from daylight to dark, getting very little rest in their offices. Sometimes, some of them even slept in their offices. I describe that feat in 1 word as remarkable. I'll never forget how blessed we are to have such a remarkable team that does whatever it takes to win. The entire group that participated in this process, thank you so much for what you did, not only Conway, but throughout the entire footprint.
The efforts you made changed the course of lots of things. I want to thank the investment community for their amazing support. Being in the bank space has not been the most popular asset class to have owned in the last 15 or 20 years. Many of us have committed our lives to the space, and so have many of you. You could always sell and change your asset classes much easier than those of us that are huge owner-operators of our bank assets. Home is my largest asset and the largest asset of the members of my executive committee, and the largest asset of many of our regional presidents. There's a powerful commitment to the success of this company. I don't think there's a management team in the country that is more aligned with their shareholders in the entire bank space than Home.
We will protect this company with whatever it takes. We take an attack on Home in any way, as an attack on all of our individual families' futures, because all of us, an attack on Home can change the value that we have committed our lives to for nearly a quarter of a century. This is not a job, this is a future. I hope all of you are proud of our performance over the year. There is only a handful of banks that sell at 2x tangible book or more. Most of them sell in the 1x or lower. As we've seen, the multiples decrease over the years. We do not apologize for our multiple. As a matter of fact, we're very proud.
If I've heard it once, I've heard it 1,000x, "I'd love to own your stock, but you are a little pricey." Really? Why do you think that is? We're blessed with the best and smartest institutional investors in the entire bank space, and we've met nearly all of them over the years. Plus, strong insider ownership with about 7% of the bank, and the Allison family stake is around $200 million. We're here in the space, committed to our shareholders, and we'll continue to try to make you proud by remaining in that small group of elite, top-performing banks in the country year-after-year. You have my personal commitment. Thank you for listening, and, Donna, I'll come back to you.
Donna Townsell (Director of Investor Relations)
Okay. Well, thank you for a very insightful report, as always. Next, we have Stephen Tipton here to provide us with some more operating details.
Stephen Tipton (COO)
Thanks, Donna. I'll start with the topics of liquidity and funding. We mentioned last quarter the shift of deposit balances to investment firms, money market mutual funds, and a highly competitive interest rate environment in the bank space. That theme continued in the second quarter of 2023. Total deposits declined $449 million in the quarter, with the vast majority of that occurring in the back half of April as tax payments cleared. Across our footprint, the Arkansas regions were fairly stable over the quarter, with Texas and Florida attributing the majority of the decline. Although non-interest-bearing balances declined slightly less than $350 million, they still account for a strong 27% of total deposit balances. Johnny mentioned the uninsured balances relative to our borrowing capacity.
Adjusting for collateralized deposits, which are generally the municipalities, local school districts, and higher ed relationships, the calculated uninsured balances improved slightly from Q1 to 29% of total deposits. Alternative funding sources remain extremely strong, with broker deposits only comprising 2.2% of overall liabilities. Our internal limits would allow us to grow that by over $1.4 billion, if the opportunities on the asset side were presented. As we mentioned last quarter, our top 10 list of depositors accounts for less than 6% of total deposits, with only one of those customers being uninsured or uncollateralized. As a reminder, our deposit base shows nearly 500,000 deposit accounts, with over 70% of those having been open and active for at least three years, and over 25% of those over a decade.
The mix and balances today stands at approximately 2/3 commercial and 1/3 retail, while the number of deposit accounts is approximately 80% retail. The focus in loan committees and discussions amongst all of our regional presidents today is certainly on deposit gathering, core customer growth, and retention. On the asset side, loan origination volume picked up slightly in Q2 with $1.34 billion in commitments, notably over 80% of the volume coming from the community bank regions, with over $400 million each coming from Texas and Florida. Yields on originations continued to improve with an average coupon of 8.64% in Q2. Finally, as Johnny mentioned, the net interest margin compressed 9 basis points in Q2 to 4.28%.
Lower event income in the quarter contributed approximately 3 basis points to the decline, with the remainder attributable to deposit rate increases outpacing the rise in earning asset yields. Interest-bearing deposits averaged 2.27% in Q2, up 37 basis points from Q1, and exited the quarter at 2.39%. The core loan yield, excluding accretion and event income, averaged 6.72%, which was up 23 basis points from Q1 and exited the quarter at 6.79%. With that, Johnny, I'll turn it back over to you.
Donna Townsell (Director of Investor Relations)
Well, Johnny, before we go to Q&A, do you have any additional questions or comments?
John Allison (Chairman)
You know, we've all been watching this bank crisis live from the front lines and watching the impact on interest rates the impact on interest rates, the effect it's had on our banks. I remember the late 70s, early 80s, when the same thing happened and when the savings and loan crisis was happening. You can say what you want to create a cycle of excuses, but the financial position of any company is good or bad, be it good or bad, is based on the past decisions your management team has made, and as they have total responsibility, them and the board. That is where the buck stops. We can say we're blindsided, but we were watching it happen, and all of us should have been preparing for something. I don't know that we knew what to prepare for.
One of the big differences between the present bank crisis and the S&L days was the speed of the collapse. S&L was a slow death. With today's technology, it is no longer a slow death, it is light speed. There are several differences. Lots of similarities. CD rates then were higher than loan rates. We're seeing that now. You got a 3.5% loan rate, and you're paying $5.40 for money. What's the efficiency ratio on that? S&Ls, like today, were forced to buy money at higher and higher rates, driving the stake deeper into the heart of the bank. Exactly like today, they just need a bigger truck. They didn't know. The speed of the collapse was amazing. They moved billions of dollars out of SVB by ways of today, just normal technology. With their computer or with their iPhones, they moved $ billions out.
I think it was shocking for SVB, as we understand. Early on, I was not aware if we could pay out all insured deposits or not. When I say that, I mean early on in the first quarter. That's when I thought, "Can we pay out?" I thought, if anybody can pay out, Home should be able to. We immediately asked Brian Davis and Stephen Tipton to give us a report. The very comforting information arrived. The stress levels of all of us dropped immediately. The decision not to invest excess funds into securities was one of the toughest and longest of my banking career, because the impact was huge. The impact was on thousands of people, employee, employers, shareholders, customers, employees. The call turned out to be the correct, looking in hindsight, the call looks like a no-brainer.
Deploying short-term money into low-rate, long-term securities in a rising rate environment, well, you'd have to be stupid to do that. That's what 99% of the banks did, and we could have been in the same shape as all the other regional banks that did that, and most of them did, with that one simple decision. That's why I say regional banks are not all made the same. We have tried to separate ourselves from the pack. The call turned out to be absolutely correct by taking the $3 billion in excess funds and just putting it in Fed funds. Even we made a mistake, though. We invested our cash flow from our securities back into the securities book. Millions of dollars were reinvested back into because we felt the pressure.
In hindsight, that was not a very smart move, and probably cost us $200 million-$500 million of additional liquidity today and some additional earnings today. However, if it was $500 million, we put $300 million in fed funds, so I guess that was six times better off. I'd rather be part right or mostly right, Donna.
Donna Townsell (Director of Investor Relations)
Mostly right.
John Allison (Chairman)
Than not right at all. I should have never folded to that pressure. We all make mistakes by driving the stake into the heart of the bank. That was not good. Management is totally responsible for the safety and soundness of their bank. There are many different silos and responsibilities in a bank, and everyone thinks that they know what is best, and they may know in their own individual arenas, but management takes all inputs and has to make a balanced decision that is the best and safest for the entire corporation. In other words, the buck stops here. No one to blame, there is no substitute for experience, and I'm the only one old enough around here, I'm not real proud of that, to vaguely remember the Volcker days of the late 70s and 80s. Don't tell me history doesn't repeat itself.
As it turned out, I guess it's better to be mostly right than not right at all. We together have built one of the best and safest financial institutions in America. It may not be totally bulletproof, but it's darn close. Donna, how about Q&A? Tracy, you got anything you want to say?
Tracy French (President and CEO)
It's kind of hard to follow that comments, I can give a little heads up on the community bank aspect. As you identified, the first six months and last quarter has certainly not been dull, but it's never been that way for this company and working for a leader like Johnny Allison. While playing with the cards that we have been dealt, Centennial Banks continues to perform extremely well. Each month, as we manage our company, I simply see our regional leaders, our support office directors, continue to perform skills, taking care of our shareholders. To give a few examples of what I mean, our ROA for the first half of the year was 2.04%. Our return on equity was 12.73%. Non-GAAP equity was 21.74%.
Our efficiency ratio was 41.37%. Our famous Johnny P5NR, whatever?
John Allison (Chairman)
Yeah, P5NR.
Tracy French (President and CEO)
P5NR finished the first half of the year at 57.43%. Our net revenue was over $522 million, and our net interest margin was 4.41%, which is up 81 basis points from this time a year ago. As you heard from John Allison earlier, our asset quality remains strong. Our 13 regions all continue to perform well, managing our cost of funds, managing our loan yields, and managing our non-interest income and non-interest expense year to date. Today, we had 8 regions over 2% ROA, and that stood out with two of them over 3%. That being our Cabot region and our Northwest Arkansas region. Our lowest, John, was 1.93%, which is not too bad whenever you look at the rest of the country and how banks perform.
Johnny, we will continue to focus daily on our strength and giving it our all for the best return for our shareholders.
John Allison (Chairman)
Thank you, Tracy. Johnny, you got any comments?
John Marshall (President)
No, I'm good, you said it all.
John Allison (Chairman)
You want to go to Q&A?
Donna Townsell (Director of Investor Relations)
Thank you very much for those comments. I think now we are ready to go to Q&A.
Operator (participant)
Thank you. We will now begin the question and answer session. As a reminder, if you would like to ask a question, please press star followed by one on your telephone keypad. If you would like to remove your question, please press star followed by two. If you are using a speakerphone, please remember to pick up your handset before asking your question. We will pause here briefly as questions are registered. The first question comes from the line of Jon Arfstrom with RBC. Your line is now open.
Jon Arfstrom (Managing Director and Associate Director of U.S. Research)
Thanks. Good afternoon, everyone.
John Allison (Chairman)
Good afternoon, Jon.
Jon Arfstrom (Managing Director and Associate Director of U.S. Research)
You hear me all right? Okay, good. question for you, maybe Tracy or Kevin: what do the loan pipelines look like? I'm curious if you're seeing quality opportunities, and you had some decent community bank growth. Just talk a little bit about the drivers there.
Kevin Hester (Chief Lending Officer)
Hey, John, this is Kevin. I'll let Chris talk about CCFG when that comes, you know, time. In the community bank footprint, we're still seeing good opportunities. It's hard to make some of the deals work. You know, you got to be looking at 45%, 50%, 55% equity in a lot of these deals to make them work, and there's people willing, you know, in some cases, to do that. We're still seeing good opportunities. We actually had, you know, growth at the community bank level last quarter, good pipelines, good opportunities. It's like Johnny always says, "We'll take what the market gives us," and if you see growth, it's because the market is there for us, and we're going to continue to do what we always do.
John Allison (Chairman)
Chris?
Chris Poulton (President of CCFG)
Thanks. Yeah, for CCFG, you know, I think it's, we're seeing opportunities there, but, you know, you work in the market you're in, like Kevin said, you know, if you look at the CMBS market, for instance, I think it's down 70% this year for the first half of the year. There just haven't been a lot of transactions getting done. I think we're, I think we're seeing them, those that are getting done. I think we're seeing a lot of ideas, I just don't know that all of them work. I think it takes right now to be a little bit patient.
There's some transactions that we think will probably come our way here, but we got to be a little patient with the sponsors, and they got to be a little patient with us while we work through some things. The first half was a little bit slow, which is fine. I think second half will pick up a little bit more. I'm not too worried about it. We haven't forgotten how to grow. I think the good news through all that was we continue to get pay downs. I think I've said this before on calls. You know, I only get worried when we're not getting paid off on things that should get paid off. And when transactions have slowed down, if your payoffs slow down, too.
that starts to get me a little bit nervous. We were down a little bit this quarter, or a lot this quarter, but that was really due to mostly we were getting paid off on things I think it was time to get paid off on.
Jon Arfstrom (Managing Director and Associate Director of U.S. Research)
Okay. Chris, what are the pain points, you know, in your business? I'm just curious how your competitors are behaving. Is the volume just dried up? I'm just curious, you know, we all worry about central business district office and big geographies, and I'm sure you get to see that in your deal flow. You know, where are the pain points and how are your competitors behaving?
Chris Poulton (President of CCFG)
Yeah, I think it's, you know, the pain points for our borrowers right now, to be honest with you, are there's not a lot of transactions are built for a 11% coupon, right? I think it's just tough to make the equity, mezz, senior loan numbers work and get a decent return for the sponsors in a lot of cases. In some cases, they've sort of slowed down or pulled back on a transaction to wait and see if things get better. I think you're looking at a higher for longer now. At some point, you've bought the property or you need to develop, and those things will get developed because they'll just put, you know, they'll put more equity or accept a lower return. Competitive-wise, we have not seen...
I mean, for the folks that are pretty active in there, I haven't seen anybody do anything, you know, that they shouldn't be doing. We're not seeing people get aggressive on rates. We're not seeing people get aggressive on leverage. I think we continue to see, you know, non-bank players. There's a deal the other day we were looking at, I kind of liked the transaction, but we were going to be at, you know, sub 50%, and they were going to bring in mezz, and the non-bank, you know, lender came in and took the whole thing. I think we see that happen a little bit more, but I think that's okay. I think that's healthy in the market, and such.
I think, you know, some of the non-bank actors are probably being still pretty aggressive, but not overly so. Just not a lot of transactions actually happening in the market. I think we're getting our fair share. I just think it's been a, you know, as I said, not a lot happening. That'll break. You, you can only hold onto things so long, and builders build and sponsors sponsor.
Jon Arfstrom (Managing Director and Associate Director of U.S. Research)
Okay. Okay, fair enough. Stephen, a question for you. Johnny kind of alluded to, I don't want to call it a mismatch, just on interest expense and interest income, because, you know, being down 6 basis points on a core is a victory, on your core margin is a victory right now. How do you guys feel about the relatively near-term outlook on the margin? Do you feel like this is really maybe the trough on it?
Stephen Tipton (COO)
Hey, Jon, this is Stephen. you know, I think we're going to continue to see deposit costs rise. We've continued to take a, you know, measured approach and have our bankers work one off with customers as opposed to, you know, advertisements and mailers and things like that we're seeing out in the place today. Johnny mentioned the opportunity on the loan side in terms of repricing renewals, and I think that's really the goal that we set out, is to try to even that up, match that up in terms of where deposit costs go and where loan yields go. Yeah, I think it may have some slight decline to it as we continue to go. To your point, I think we're talking, you know, basis points as opposed to, 10s, 20s, and 30s like we've seen from some other banks that are reporting.
Operator (participant)
Thank you. The next question comes from the line of Matt Olney with Stephens Inc. Your line is now open.
Matt Olney (Managing Director)
Hey, thanks, guys. Good afternoon.
Chris Poulton (President of CCFG)
Good afternoon, Matt.
Matt Olney (Managing Director)
On the credit front, great to hear the update on the memory care centers. I know that's something you've been focused on for a while, so good to see that move off. On the office loan that you highlighted, that you're carefully monitoring, looking for a few more details, if you have them. Looking for what market that office loan is in, when does that loan mature, and any kind of color on the LTV? Thanks.
Chris Poulton (President of CCFG)
I'll let Kevin take that. It's in the West location, but the LTV is... Kevin, you want?
Kevin Hester (Chief Lending Officer)
Yeah. I mean, I think we're, I think we're having it reappraised now, but I think it's going to be in the 55%-60% LTV range. It, you know, we're still monitoring that one. Johnny wanted to get ahead of it, and he's always one to tell you ahead of time what's happening and how things are. I think we're just kind of getting in front of that one. It's something we're watching and may or may not be a problem, but if it is, then, you know, we want you to know about it ahead of time.
Chris Poulton (President of CCFG)
We, you know, we do attack these things, as you know, I apologize for not having any more information on it than I have at this point in time. We'll have a full dossier on it here pretty quick, as we did on the memory care centers. We'll know where we are and what we're doing, but we don't. Early on, from where we're looking at it, unless we get a really disappointing appraisal, we think we're in good shape. We got some additional cash put back for that thing also. As soon as we hear something, Matt, we'll let y'all know.
Matt Olney (Managing Director)
Okay. Just to clarify, you mentioned you're getting a reappraisal right now. Is that reappraisal because there was a tenant loss, or it's maturing soon? What's the reason for the reappraisal, the new appraisal on that loan?
Kevin Hester (Chief Lending Officer)
Yeah, there was a tenant loss, and I think that was part of it. I think, yeah, as you're working through some of these things, sometimes it's just prudent to find out where you're at. I think there were multiple reasons for it. Yes, there was a tenant loss in that particular property.
Matt Olney (Managing Director)
Okay. All right, switching gears, want to ask about capital levels. Capital continues to build. It looks like the pace of the buyback remains still a little bit slower than it did this time last year. I'm guessing that CET1 ratio could be close to 14% by year-end. Any more thoughts on capital deployment? I guess, Johnny, kind of how do you, how do you weigh your various options at this point of the cycle? You got M&A out there, which you've done successfully in the past, but it sounds like the timing of that is maybe kind of unknown right now. I'm also guessing on the security side, if you wanted to, you could look to maybe restructure something on that front. Curious just kind of how you, how you weigh these various options?
John Allison (Chairman)
You know, I've kind of played with that a little bit. It's not the time to do that. When everybody thought a while back that the world's going to pivot, and rates came down, would probably been a good time maybe to look at selling a few securities and redeploying the money. We just kind of tinkered with that a little bit. That might be something we'd want to do someday. We have a pretty good yield on our investment book, by the way, so I don't think that... The losses went up. AOCI increased a little bit, Brian, $20 million-$25 million this quarter?
Brian Davis (CFO)
That's correct.
John Allison (Chairman)
It's an interesting thought, you know, you know, you got to balance. The key is, don't keep too many deposits. It's a balance between loans and deposits. Enough to be able to pay out, is the key to me. Why I want to carry, I mean, I, one aspect of deposits, is I don't want, I don't want. If they're paying 5.40 for money, I don't need to carry $1 billion of that around in my pocket, paying 5.40 for something I don't need. When you see the balance of this coming in, you think deposits run-off. Some of that has not run off. Some what's been asked to leave, so.
we had two tax times here in, we had a April tax time, and if you were in the tornado area, you had a June tax time. I didn't have to pay my taxes till June, you hadn't seen the results of that yet, it's not that bad. It's not that bad. Anyway, I hope I answered your question. I kind of run-off on a little tangent here, but.
Matt Olney (Managing Director)
No, that's helpful. I appreciate that. Okay, guys. Great color. I'll step back in the queue.
John Allison (Chairman)
Thank you.
Operator (participant)
Thank you. The next question comes from the line of Brett Rabatin with Hovde Group. Your line is now open.
Brett Rabatin (Director of Research)
Hey, good afternoon, everyone. Wanted to start with the comment that you made about the second half of the year being a little harder than the first half of the year. Just wanted to get some additional clarity around that. Is that due to the margin, you know, a little bit of non-recurring fee income in the second quarter? You know, what's the biggest challenge, second half versus first half?
John Allison (Chairman)
Well, to me, it's the rate environment. It, you know, it just continues these people, I mean, these competitive banks running 5.30%, 5.40%, 5.60%, 5.70%, and some 6% ads. I mean, they're continuing to run those. I guess people have put enough money in there that they feel safe under the limit, $240,000, whatever. That might, I mean, that just flashes back to the S&L days of the late 1970s and early 1980s, where you're paying more for money than your loan balance is. I remember looking at an S&L in Conway, Arkansas, and they said, "Our average yield is 7.90% something." I said, "Hell, that's good. That's a good yield." Well, the cost of funds was more than that. You know, that's...
I just remember that happening and seeing that happen in a S&L here. It happened all over the country. It just keeps me alert and makes me nervous as to where that's gonna go. Can it go much higher? You know, if somebody has spent all their money, Brett, you know that, they spent all their money, they borrowed all their money, and they're still stretching for liquidity, they got to have liquidity, then they can go into the market and, you know, pay whatever for it just to exist. At that point, it's screw the margin and to hell with everything else. I think because of the inefficiencies of the rest of them, it's going to put pressure on us. Does that make sense?
Brett Rabatin (Director of Research)
Yeah, no, that's helpful, and I've heard that.
John Allison (Chairman)
Long-run security.
Brett Rabatin (Director of Research)
Yeah.
John Allison (Chairman)
Yeah, they spent their money putting long-run security...
Brett Rabatin (Director of Research)
Yeah.
John Allison (Chairman)
They ain't choice. I mean, they borrow all they can borrow. You know, we got 2% broker deposits. You want deposits, we got room to put $1 billion, almost short of $2 billion in broker deposits on the books we want. You know, we try to balance that, is what we try to do. I think it's the fact that everybody.
Brett Rabatin (Director of Research)
I...
John Allison (Chairman)
-spent their money before. Remember in the S&L days, let me tell you something: If the big, bad wolf shows up at a bunch of these banks, they're gone. They're gone. They're history. I'm not going to let Home BancShares get in that position. I'm not me. My entire executive committee, the board, and everybody else, we're proud of the position we sit in. Cost us a little income. That's okay. Does that make sense to you?
Brett Rabatin (Director of Research)
Yeah, no, that's helpful. You know, just wanted to follow on the loan pipeline commentary. One of the things that I thought would happen, you know, you've been so conservative and kept your powder dry. I kinda thought when rates went up, it would be, you'd see, you know, stronger growth on the balance sheet. I'm curious to hear if loans just aren't penciling enough or well enough for you to get interested. Maybe you need too much cash upfront for the deals to work for you, or just what you're seeing that's keeping you from being more aggressive than you have been with bringing customers over from banks that may not be able to service them?
Kevin Hester (Chief Lending Officer)
Hey, Brad, this is Kevin. I mean, the community bank footprint on some of the smaller stuff, you still got some local banks that are doing things in the sevens that just don't make a lot of sense. We're not, you know, we're not gonna play in that game. On the, on the larger stuff, to some degree, I think you're right. I think that's why you've seen some growth in the community bank footprint is because there are some folks that are out of the game. It is still difficult to make some of these things work at. Like Chris said, at a, you know, we're in the nines now to make things work, right? It's difficult to make some of these things pencil out.
When you start talking to people about 50% equity and sometimes more, sometimes they just don't, either the deal doesn't get done, or they go somewhere that they can get it done a little less than that.
John Allison (Chairman)
You know, it's just not the time.
Brett Rabatin (Director of Research)
Okay
John Allison (Chairman)
... to be stretching. It's not the time to stretch. It is the time to be careful because, as I said in my remarks, lots of banks got some bad assets on their books, and they're doing everything they can to get rid of those assets. It is a time, it is a dangerous time to me. You got to be real careful, real smart. Stay with your customers. Know your customer. Don't be taking any risks. Don't be taking any chances. Just sit tight. I think Mike Rose said something a while back. He said, "It doesn't hurt to shrink a little bit," and it doesn't hurt to shrink a little bit and be lean and mean. Tracy, you got any comment on that?
Tracy French (President and CEO)
No, I think the pencil part's the biggest part that we see there. This bank could grow if we wanted to open that door, the numbers just don't add up when you're doing 8%, 9% credits.
Kevin Hester (Chief Lending Officer)
Anecdotally, you know, for on multifamily, for example, we're in some really, really strong markets, but we're not, we're not writing to trended rents. We're looking at historical rents, and we're seeing rents slow down, and in some cases, turn south a little bit. Hotel, we're seeing some things... Even in our really good markets, we're seeing some things trend back towards 2019 levels in some of our hospitality. We've underwritten that way all the way through the pandemic. We went back to 2019 levels rather than 2021 levels. Yes, you would think this would be the time you would see growth, but as Johnny said, it's not the time to stretch. You know, that's where you are. You end up, you take what the market gives you, and you continue to write conservatively, and if you grow, you grow.
John Allison (Chairman)
Yeah. You don't need to come in with a policy exception, right? You don't need to come in with a policy exception on a loan to us at this point in time. We're just not gonna do that. We don't have to. We're in a good enough position, we don't have to. We've got a good margin. We'll grow, we'll do some new loans, and we'll remove that $760 million, and we'll save some of that other $700 million coming off. We don't have to do that right now. There's nothing wrong with keeping your head down. Kind of reminds me of 2005, 2006, and 2007 right now. When I saw that liquidity crisis kill those three banks basically overnight, that really got my attention.
You know, I don't run scared, you know that, but I get... That, that one made me nervous. That, that has my attention. The fact we will not get ourselves in a position we can't pay our uninsured depositors. That's the most important. To me, that is the most important thing right now, because if they're having to be bank runs start rolling, it wouldn't be good in the country and Home would survive. That-- I think that's the most important. I wasn't sure where this was going early on, but I think it is extremely dangerous time, and I see people at 108%, 109%, 110% loan to deposit. I wouldn't be able to sleep at night. I just would not be able to sleep at night.
You got 8% capital and 109% loan to deposit, and the big bad wolf shows up, turn out the lights because it's over.
Kevin Hester (Chief Lending Officer)
Brett, just, and on the positive side, we're seeing opportunities that we're making approvals on and working today, so. That's with good businesses that other banks may have tightened down a little bit in some areas, but we're. I don't ever go too positive in front of Johnny, but I think there is some opportunities out there that's gonna make our loan.
John Allison (Chairman)
We're working on some really good opportunities right now. We don't have them yet, but I think they're coming, and they're priced right, and they work. They appear to work at this point in time. The committee hadn't approved them yet, but we're working on some pretty good-sized loans that make some pretty good sense with some customers that our people know.
Kevin Hester (Chief Lending Officer)
That's in Florida, and Arkansas, and Texas.
John Allison (Chairman)
Yeah, that's true, and Florida.
Brett Rabatin (Director of Research)
Okay. Yeah, I'm guessing you guys sleep a lot better at night than. Go ahead, I'm sorry.
John Allison (Chairman)
No, go ahead. We do-.
Brett Rabatin (Director of Research)
I was just gonna say, I bet you guys sleep better than most bankers at night. Thanks for all the color.
John Allison (Chairman)
We do. Thank you. We are sleeping. It's a good time to sleep good. Thank you for that. We lose our operator next? We got more people in the queue.
Operator (participant)
Apologies for the delay. Thank you for your question. The next question comes from the line of Stephen Scouten with Piper Sandler. Your line is now open.
Stephen Scouten (Managing Director)
Great. Good afternoon, everyone. Thanks for the time. Johnny, you always have a really good pulse for the environment. You were saying rates were going where they are today, long before anyone thought that was possible. I guess I'm kind of surprised to hear you be what sounds a lot more negative than what I've heard kind of so far through the quarter. It feels like, you know, the sentiment has improved a bit since early May. Maybe what are you seeing? I mean, I know you've talked about competitive pressures, where are you seeing stress? Is it smaller banks that you're looking at? I guess I'm just kind of curious, what gives you this level of concern when things seem to be kind of normalizing a little bit?
John Allison (Chairman)
It's... Well, I mean, Tracy pulled a list of those banks that were 105% loan to deposit or greater, and with an 8% or less capital ratio, and it was a pretty good list. That's where the big bad wolf, if he goes there's going to be serious problems. I think the thing. I'm not negative about banking right now. I'm just concerned about the liquidity of these people that are 110% loan to deposit. If they stump their toe and one, the dominoes start falling, and maybe they're not going to fall, maybe that doesn't... I hope they don't. If they start falling one after the other, after the other, then I want Home BancShares to be one of the survivors.
I'm not saying that's going to happen. I hope that doesn't happen. I did call the fed funds rate. I said it's going to be six, I think it's going to be right at six before it's all said and done. That was just the experience. I have no experience, let me say that, I may be overreacting. I have no experience with liquidity crisis up until now. It really got my attention. Liquidity in the financial system really got my attention when they moved all that money from SVB overnight. I mean, just boom! They didn't know what hit them. I think it's just time to be safe and careful and smart.
I mean, maybe so. We still might probably will have the best year in this corporation's history, that ain't all bad. I mean, I'm positive about that. I mean, we've $400 million, I think all our investors will be happy, I think you'll be happy with $400 million, Stephen. We're at $208 million the first six months, I think we're going to see more pressure on rates going forward. If we can get repriced and we can get the $760 million up 3 or 4 basis points on those $300 million or $400 million, I think we're going to be able to have a good third quarter and a good fourth quarter. With Kevin and Chris and John will bring some more business.
They'll bring business. We got probably $1 billion out there working right now. We know these people. I'm probably not going to do a lot of stretching to go outside looking for people I don't know, which we've done in the past. It'll have to hit us in the face. I just think it's time to be careful. When you got the balance sheet Homes got right now.
Tracy French (President and CEO)
Yeah. No, I mean. You don't want to mess it up.
Stephen Scouten (Managing Director)
Yeah. Well, yeah, to your point, I mean, the market's rewarded you for it. You're outperforming by 25%, what's that? $1 billion in market cap, give or take, you know? Yeah. No, I mean, that's played out in your favor for sure. How do you think this might materialize in the M&A environment? I mean, you've always done a great job at capitalizing when there's opportunities. Do you think we see a wave of opportunities anytime soon? I mean, are you thinking it's more of a 2024 sort of environment? How are you thinking about that potential?
John Allison (Chairman)
I think we should. I think we should. I mean, a lot of boards of directors that are sitting there looking at their balance sheets today, if they understand the balance sheets, they understand what they're looking at, have to be kind of puckered up, so to speak, looking at 110%, 112% loan to deposit and not making any money and margin going down, margin going straight down. I mean, if you haven't made the right moves, it's not a good place to sit. If you've made the right moves, like Home did, it's a great place to sit. I'd rather be lucky than smart. We got lucky and made the right call on what to do with our reserves, our deposits.
We made the right call. I'm not trying to scare the world. I told somebody I spoke at a conference a while back, and I saw one of our investors sitting there, and I said, "I know this lady. She's going to call me," and say, "What are you badgering the banking industry for?" I'm not badgering the banking industry. I just think some of the bankers got themselves in trouble. They've got themselves in trouble, and they can't make any loans. I mean, they can't make a loan. They don't have any liquidity to make a loan with. It's about as tight as I've ever seen it.
Stephen Scouten (Managing Director)
Yeah.
John Allison (Chairman)
Tells you there are some opportunities for people like us, I understand that. We'll take advantage of a few of those. We'll always keep enough money in our pocket to pay out our uninsured deposits.
Stephen Scouten (Managing Director)
Yep. Yep. No, that's good. I guess the last question I had is just, actually, around kind of Shore Premier or maybe just in general, kind of the marine and RV space. You know, I'm seeing some weakening there in terms of values on those types of products as demand kind of seems to normalize to pre-COVID levels. What do you guys see in there in terms of value, valuations, and demand and so forth in those spaces?
John Allison (Chairman)
I think it's holding fine. I'm not seeing a lot of slippage there. John's on the phone. I don't think he's got any slippage. I saw a couple of past dues he had on boats, but, I mean, that, you have those from time to time, but I think we got one repo boat that's in the Virgin Islands somewhere, so we think we got it... I think we're fine with it. Outside of that, we haven't seen anything. John, you got any comment?
John Marshall (President)
Stephen, thank you for the question. No, I think valuations, boat values are holding up nicely. There's still limited supply of new boat inventory, I think that's also driving up the values just a bit. Our average loan size now has crept up from $600,000 to about $800,000. And again, we're still bringing in, I think, our average loan-to-value is somewhere around 65%-70%. We're still requiring a lot of equity, but the values seem to be holding.
John Allison (Chairman)
I think the inventory is caught up with the RV sector, Stephen.
John Marshall (President)
Yeah.
John Allison (Chairman)
I think that on the RV side, I think that the inventory is catching up there. I'm seeing a lot as I drive, I see these lots, these huge lots. I think, you know, we had such demand during the pandemic. I think that's waned a little bit. RV side, we don't have, we don't have any to speak of, you know, RVs. I think that side is due for a little slowdown. I think you're probably right if you're seeing it.
Kevin Hester (Chief Lending Officer)
I mean, the key is our, both of those.
John Marshall (President)
Got it.
Kevin Hester (Chief Lending Officer)
what we do, mostly large credits or not.
John Allison (Chairman)
Yeah.
Kevin Hester (Chief Lending Officer)
Not the consumer credits.
John Allison (Chairman)
We don't finance. You remember, we don't finance a 14 ft flat bottom with a 25 horse Mercury. We don't do that. If you come back out.
Stephen Scouten (Managing Director)
Yeah, you're probably not seeing the things that I'm seeing. I'm not seeing these, I'm not seeing these $800,000 boats. Yeah, that's out of my wheelhouse. No, that's helpful. I appreciate it.
John Allison (Chairman)
I may try to get this.
Stephen Scouten (Managing Director)
Keep your boat in the duck wagon, you know.
John Allison (Chairman)
I'm gonna put it in the duck woods, when you come in, we'll go in here.
Stephen Scouten (Managing Director)
There you go. Sounds great. I appreciate it, guys. Thanks for all the color.
John Allison (Chairman)
Yeah, thank you.
Operator (participant)
Thank you. The next question comes from the line of Michael Rose from Raymond James. Your line is now open.
Michael Rose (Managing Director)
Hey, good afternoon, guys. I think I'm gonna have to frame this transcript given there's words in this on this call, I don't think I'll ever hear on a conference call again. I appreciate the dialogue.
John Allison (Chairman)
I read your stuff, you said, "There's nothing wrong with drinking a little bit. If you want to drink a little bit, get lean and mean, there's nothing wrong with that." I thought that was a pretty good comment from you.
Michael Rose (Managing Director)
I appreciate you bringing that up, Johnny. I just had a couple kind of questions. Maybe just back, you know, to kind of M&A. Just, Johnny, how do you think this all plays out? You know, I think, you know, some of the rhetoric that's out there on the Hill is that, you know, they're more open to kind of M&A, but there's clearly some, you know, near-term components that make the math pretty challenging. Just given how competitive it is out there and how many banks we still have, it looks like there will be a lot of consolidation at some point. You've been doing this a long time. You've done a lot of deals. Just wondering, more broadly, you know, how you see this all playing out over the next, you know, five, maybe 10 years? Thanks.
John Allison (Chairman)
Michael, I think you're going to see boards of directors, if they, as I said earlier, if they recognize the shape that they're in and their investment in those banks, I think you're going to see them coming out. I think management's gonna come out in some of them, and I think the boards are gonna want to come out. I think they're gonna want to: "Look, let's turn this, let's turn this into train ride money, if we can turn it into train ride money." I think that's gonna happen. The problem's gonna be with the buyers. That's gonna be the problem, is with people like us that are acquirers. Are we willing to take a chance?
Is the economy gonna turn around enough to where we feel comfortable with it and not be afraid of a liquidity crisis? I mean, I think something's gonna have to be done for the good premium banks of the country if they want consolidation to continue with some kind of Fed line that allows the good banks, the good operators, to go clean up some of the other stuff. Because you think about it today, we're gonna buy something. Home, as you know, is in great shape, and we go buy something today that gets us in not as good a shape, that's the scary part. If the economy rates still stay high, and things still stay sketchy, I don't believe you're going to see a lot of M&A. I don't believe it can be done.
I think I've told you, I don't know if I told you, Donna and I looked at a bank in Dallas area, oh, two months ago. They're 110% loan to deposit, and their margin is going straight in the tank. I said, "You want me to pay you a premium for that?" I mean, think about it. I mean, you I don't have... I said, "What you want is your problem to become my problem." I said, "I don't want your problem. I don't have your problem.
I've stayed out of that, and I don't have your problem, so I don't want to get our bank in there." I think you're going to see real, particularly the good banks that run the top 15 or 20 banks that are acquirers, I think you're going to see them be very conservative, and there's going to have to be some kind of backup with there's going to have to be some kind of backup, have the ability in the event that they get You do a transaction, it and you get a run on that bank, that could scare, that could take Home down, right? Where we sit, that's why we're so damn conservative on doing anything on M&A. We might buy some loans. We're looking at loan packages. We may buy some. We may do that.
We may buy some loans, but. Would we do an M&A deal? We would with some people that have the quality of balance sheet that we have, but those are traditionally the acquirers. You got these weak sisters out here who've been up for money and have run their margin in the ground. That's not going to get fixed in 45 days or 90 days. It's going to take a while to fix that. You go to the securities book, and it depends on how long the duration is. It may be years before a lot of these things turn around. I'm not being a naysayer. You are, you're usually the most conservative in the, on the street. I'm just being realistic and conservative about what I see.
Michael Rose (Managing Director)
Totally get it. Appreciate the comments. Just two quick ones for me. Just, you know, given some of your comments, and I agree with them, just, you know, consumer may be a little bit stretched, but, you know, you're seeing kind of occupancy levels at hotels being really strong again this summer, maybe more of it's in Europe. But any sort of, you know, fears and, are you guys taking a closer look in places that you did during COVID, whether it be, you have restaurants, hospitality, tourism type stuff, hotels, et cetera, and, you know, are you starting to classify, you know, some of those properties at this point? Thanks.
Kevin Hester (Chief Lending Officer)
Hey, hey, Michael, this is Kevin. No, well, I'm not seeing any weakness, particularly. My comments were really around just seeing the markets begin to normalize a little bit. We all kind of expected, you know, particularly in Florida, with all the hospitality, that 2021 and 2022 couldn't be, you know, real and long lasting, and we knew that when Europe opened up, that there was probably going to be a normalization. We've expected that and anticipated it. I'm not saying that Florida is going into a recession. That's not. My comments were really that we just see a little year-over-year softening and kind of heading back towards a 2019 kind of scenario more than continuing to move upwards. Not any weakness.
Michael Rose (Managing Director)
Got it.
Kevin Hester (Chief Lending Officer)
It's not creating any weakness in our portfolio that I've seen at this point.
John Allison (Chairman)
Actually, our hotels have really held up...
Michael Rose (Managing Director)
Got it.
John Allison (Chairman)
pretty well. You think about it, you remember when we did that deep dive, and we found those water hotels, and extended stays were just really, they never missed a step. It's been really pretty amazing. They continue to raise prices on those hotels, and they just keep, people keep going.
Michael Rose (Managing Director)
I knew we could get a little optimism out of you on this call. That's good. One last question. Just the other income was up exactly. Just talking to my wife. Just on the other income was up a couple million bucks, I think about $4 million. I know it's bounced around the past couple quarters, but anything of note I should be aware of in there? Thanks.
John Allison (Chairman)
Now, our securities, Brian, do you got cover?
Brian Davis (CFO)
I mean, we have some equity investments that are accounted for under the equity method. During Q1, we had $3.8 million of income on those investments. We had $7.5 million of income on those investments for Q2. Probably the $3.8 million, $3.5 million, is probably more of a normal run, right? We had a kind of a windfall from one of our investments.
John Allison (Chairman)
We invested in-
Michael Rose (Managing Director)
Fair enough.
John Allison (Chairman)
SBICs. We invested in some SBICs, and they really we've been in them several years now, and they have been really good performers. Very, very good performers. We bank these people, and we invest with them, and it's, they've been one of the better investments of my life, looking at it over time. We expect them to continue. There's no guarantee they'll hit that next quarter, but I think Brian's around a $3 million-$5 million run-rate is probably good.
Michael Rose (Managing Director)
Great, guys. Thanks for taking my questions.
John Allison (Chairman)
You bet. Thank you, man.
Operator (participant)
Thank you. The next question comes from the line of Brady Gailey from Stifel. Your line is now open.
Brady Gailey (Managing Director)
Hey, thanks. Good afternoon, guys. Most of my questions have been answered. I just had one quick one on the margin. I mean, the margin has seen a nice level of expansion for over a year. You know, this quarter, it kind of leveled off around that 4.3% level. How are you thinking about the margin outlook going forward? I know, Johnny, you're pretty skeptical on the back half of the year with the rate environment, some deposit promos from some of your peers. How are you all thinking about the margin outlook from here?
Stephen Tipton (COO)
Hey, Brady, this is Stephen. Yeah, we posted 4.28% for the quarter. I think our June margin was 4.29%, but had about 4 or 5 basis points of event income in it. You know, it was off 4 or 5 basis points. I think I told John on the outset of the call, you know, I think, you know, something in those single digit decline going forward is what is likely. We've got the opportunity on the loan side in terms of repricing. You know, on the deposit side, we were pretty aggressive in April and May on the heels of everything in March, in terms of passing on rate adjustments and those kinds of things. We may can fine-tune some of that.Yeah, I think we'll fare better than most in, on the back half of the year.
John Allison (Chairman)
We're going to have double-digit increase in margin. I'm watching them fight around this table, friends. I'm watching them fall underneath the table. Brady, it's going down. Let me tell you, we're all hands on deck. Let me tell you, we're all hands on deck, and I'm going to be disappointed if we don't maintain a strong margin. I mean, the three quarter, $750 million repricing, we have those are our customers. We ought to be able to get 300 basis points or more on those deals. We've talked to our regional presidents, and regional presidents are aware, and they've talked to their people. You know, we ought to be able to continue to do that. And we have about $750 million scheduled to pay off, and maybe, you know, instead of...
It may be at 5, average, maybe they're at 5 or 5.5, and we ride them at 9 or 8.5. We'll see what we can do to keep some of those. I think it's got downward pressure, but I think we've got a good shot at holding it within range. Somewhere in this, give or take, 6 or 7 to 10 basis points.
Brady Gailey (Managing Director)
Okay, great. Thanks for all the color today, guys.
John Allison (Chairman)
Thank you.
Operator (participant)
Thank you. The final question comes from the line of Brian Martin with Janney. Your line is now open.
Brian Martin (Director and Equity Analyst)
Hey, guys. I appreciate the taking the question here. Just one follow-up to Brady's question. Just on the margin, Stephen, I guess, would your expectation be that it does begin to kind of track fourth quarter, maybe first quarter? Is that kind of what you're thinking time-wise? I don't recall the timing of what those loans repricing were, but is that kind of a fair outlook at this point?
Stephen Tipton (COO)
The loan repricing is over on the second half of the year. It's pretty consistent at, you know, $100 million-$150 million a month that come due. Yeah, I think some of it just depends on, you know, balance sheet size and what we see in terms of the interest rate environment, both, you know, competitively and just the shape of the curve, too, right? You know, the length of time we've been inverted here and then what we've seen from competition.
you know, I've been reading, you know, seeing some of the earnings releases so far and seems like some of the banks that have already reported say they may not be as aggressive, you know, in the second half of the year on deposit pricing as they had been in the first half. We'll see.
Brian Martin (Director and Equity Analyst)
Gotcha. Okay. Just, Stephen, just or whoever, just on kind of deposit outflows, you know, you talked about the seasonality this quarter with the taxes. You know, I guess, how are you thinking about deposits if the loan growth or the loan demand isn't robust at this point? It sounds like the, you know, the pipelines are okay there, but in your comments about shrinking maybe a bit, is that how to think about the deposits as we look in the back half of the year?
John Allison (Chairman)
Well, we're going to balance those based on need for loans. We're going to balance those. I mean, there's no need, as I said earlier, carrying $1 billion.
Brian Martin (Director and Equity Analyst)
Right.
John Allison (Chairman)
of extra deposits in our pocket today. We're not doing that. You can get all the deposits you want. They're expensive. You can get all the deposits you want. You know, we got room to go in any direction to get deposits. That's. Someone said we lost deposits. We, part of that's purposely, right? You know, we're just balancing.
Brian Martin (Director and Equity Analyst)
Right.
John Allison (Chairman)
the deposits with the loans. you know, at, we'll play the deposit side with the loan side. If the loan side goes up, we'll go up on the deposit side, and it, or vice versa. you know, I think we've played it.
Brian Martin (Director and Equity Analyst)
Okay.
John Allison (Chairman)
pretty well thus far with about, we're about 82% loans and deposits, somewhere in there. I think that's fine for us, and if we need more, you know, we can get them, they're just expensive. You, you don't want to carry around something in your pocket that costs you money, that is of no value to you whatsoever today, when you know you can go get them tomorrow.
Brian Martin (Director and Equity Analyst)
Right.
John Allison (Chairman)
two-year, or three-year, or five-year money, so if you wanted to, or you could do some... I don't know. How much room we got on broker, Stephen?
Stephen Tipton (COO)
Our internal limits give us about $1 billion forward runway.
John Allison (Chairman)
Yeah.
Stephen Tipton (COO)
We're at, like, 2% on broker deposits to liabilities today.
John Allison (Chairman)
We haven't done any borrowing so to speak. We're keeping our powder dry. That's the thing, keep your powder dry. I don't want to get overreacted here. I want to get past all of this concern over bank runs. I personally want to get that behind us, because that could happen. It could get ugly, and it could get ugly overnight.
Brian Martin (Director and Equity Analyst)
Right. Okay, perfect. Just last one for me, Johnny. You know, you talked about the liquidity scare, just talking about, you know, the soft landing and potential recession and credits still continuing to hold up really well. I know you had the one credit you talked about, but, you know, where is the biggest area? I mean, do you see a big, you know, credit, you know, related recession, if you will, you know, as you get into next year? Is that kind of what you're thinking at this point, or do you think it's more of a soft landing and, you know, you can kind of manage through this? Just kind of big picture, your outlook on how that plays out?
John Allison (Chairman)
Well, we had that discussion yesterday, Kevin and Donna, myself, and Stephen, and Tracy yesterday, Brian, we had that discussion in here. You know, he might have a shot. I didn't think he had a shot at a safe landing. I didn't think he had a chance. You know, they've On one side, the inflation is better. I've got to give this administration credit for that. This inflation is better. One thing they've done, and it's I don't know how the hell Powell did it, to tell you the truth, with Trump spending money and Biden spending money, I don't know how in the heck they did it. I worry about the US dollar. I know that's getting far-fetched.
I worry about the value of the US dollar and what they're going to do with it. I worry about this Fedcoin they're bringing out. I mean, Roosevelt did it back, what, in the '20s. We came back. Nixon messed with it, the money and the gold in the '70s. I hate to see them mess with it again right now. I don't know what's going to happen. I saw gold jump $40 yesterday. I'm not the only one thinking that, you know, that something could be array out there somewhere. Usually we get devalued when they start messing with gold and coins. That's really it. I don't really have. I don't have a. I can't put my arms around it right now.
Kevin, you talked, we talked about it yesterday, about whether we can land safely or not. If we can land safely, that's fine, but something has to give somewhere. I mean, as Kevin said, commercial real estate prices really have not come down. The assets, the home prices are up. There really needs to be somewhat of a little bit of adjustment somewhere. I don't know if that is a slowdown. I think we could see a slowdown for five or six months, call it a mini recession. I don't know that that would hurt anybody if we did that and maybe get some price adjustments, but we really haven't seen a lot of price adjustments. Kevin, you?
Kevin Hester (Chief Lending Officer)
As we were talking yesterday, I mean, rents are so high and prices for homes are so high. The one thing we don't have today is an overhang of housing, so that's a positive, I guess, in the direction that maybe there could be a soft landing. We talked about it for, what, an hour yesterday, and I don't think we came up with any answers, one direction or the other. The best thing I think we can do is continue to block and tackle and make the right calls daily here and let the rest of that play out and be prepared for whichever way it happens to go.
John Allison (Chairman)
You know, it's you got to think about where we're going to be in a year, or where we're going to be in two years, and where we're going to be in three years. What impact and the different variables there, and what if this, and what if that? That's, that's the process that goes on around here, and we don't know what that is yet, but we'll try to protect ourselves. You can't protect yourselves on all wings, but we'll try to protect ourselves on most of the wings. I know I didn't give you the answer that you want, but we don't have it yet. You know what?
Brian Martin (Director and Equity Analyst)
Yeah.
John Allison (Chairman)
You'll get it when you get it. You walk around, work on it'll hit, it'll hit. As everything that happened over time with this company, it hits. We walk around sometimes and don't have the answer, but we never quit thinking about it till we finally get the answer. Hopefully we'll get the answer on this one before too long. Thanks for your support. You've been a big supporter for a long time. Thank you.
Brian Martin (Director and Equity Analyst)
Yeah, I appreciate it, guys. Thanks.
Operator (participant)
Thank you. There are no additional questions at this time. I would like to pass the conference back to Mr. Allison for closing remarks.
John Allison (Chairman)
It's been a long call today. Thank you for your interest and your time. We'll talk to you in 90 days, and maybe things will be a little brighter in 90 days than they are today. It's time to be careful and smart, premeditated with the moves, and make good loans, protect the Chuck Wagon. Thanks, everyone. Goodbye.
Operator (participant)
That concludes today's call. Thank Thank you for your participation. You may now disconnect your lines.