HOME BANCSHARES INC Q1 FY2024 earnings call

• Net interest margin: Influenced by cash borrowings and event income, with normalization showing a 3-basis-point improvement on a linked-quarter basis. The yield on loans (excluding event income) increased to 7.34% in Q1. - Liquidity and funding: Deposits increased by $78 million, noninterest-bearing balances grew by $30 million (accounting for 24.4% of total deposits), alternative funding sources remained strong (broker deposits 2.2% of liabilities), loan-to-deposit ratio stood at 86% as of March 31. - Loan and expense: Third consecutive quarter of loan growth, with volume impactful. Noninterest expense for Q1 2024 was less than Q1 2023 by over $3 million. - Asset quality: Nonperforming loans marginally increased to 0.55%, centered in a few smaller credits; updates on 3 credits, including Oklahoma Marina note sale closed, Miami property under contract, and progress on California office building with resolved litigation, office relocation, and tenant engagement.

Home BancShares reported first quarter 2024 earnings with net interest income of $205.5 million, revenue of $246.4 million, and EPS of $0.50 per share. Loans originated for the quarter were $954 million at a rate of 9.28%, with approximately 40% funded. Deposits increased by $78 million for the quarter. The efficiency ratio was 44.22%, down from prior quarters. Return on assets was 1.78%, and the margin (apples-to-apples) was 4.21%. Tangible book value was $11.79, and capital was 14.3%.

• Anticipate similar positive results next quarter with trends continuing to look good and improvement in the revenue area in April. - Forecasted initial 1-2 rate cuts, but beginning to believe may be higher; consider raising rates again due to politics and inflation concerns. - Expect continued repricing of loans to boost income, and potential positive impact from leasing up a large office building in Amarillo, Texas.

• Banks offering high-cost CDs may not be able to pay out all uninsured deposits. - Uncertainty in interest rate policy; if Fed stops lending program, may lead to more bank failures. - Legacy credits in Texas market, with a few small credits going nonperforming, though not a huge exposure but need to be cleaned up.

Q: Catherine Mealor asked about credit updates, including classified assets.

A: Kevin Hester said classifieds down nearly $25 million, working through a large credit with $10 million drop in operating line.

Q: Brett Rabatin asked about expense and marine portfolio.

A: John Allison said expense reduction is an ongoing effort, marine portfolio is different with larger loans supported by MSO and repurchase agreements, no weakness seen.

Q: Jon Arfstrom asked about margin if Fed doesn't act.

A: John Allison and Stephen Tipton said loan repricing will boost income, loan side can offset deposit side changes.

Q: Stephen Scouten asked about Texas credits.

A: John Allison and Kevin Hester said legacy and new credits in Texas, not huge exposure but need to be cleaned up.

Q: Brian Martin asked about growth and expenses.

A: Kevin Hester and Christopher Poulton said growth due to having money to loan and cleaning up expenses, expense reduction is a positive run rate.