Greetings, ladies and gentlemen. Welcome to the Home BancShares, Inc. second quarter 2022 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 SEC in July 2022. 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 conference over to Donna Townsell, Director of Investor Relations. Donna, please proceed.
Thank you. Good afternoon, and welcome to our second quarter conference call and our first quarterly conference call as a newly combined company. Today's discussion will follow a slightly different format. In an effort to get to Q&A more quickly, our prepared comments today will come from our Chairman, John Allison, Chris Poulton, President of CCFG, and Stephen Tipton, Chief Operating Officer. The rest of our team is present and available for questions, Tracy French, President and CEO of Centennial Bank, Brian Davis, our Chief Financial Officer, Kevin Hester, our Chief Lending Officer, and John Marshall, President of Shore Premier Finance. You know, it's been a hectic and exciting quarter here at Home BancShares as we have completed the merger of Happy State Bank, while also watching the volatility of the economy fluctuate at the same time.
As you can see from our press release this morning, those distractions didn't hinder our operating performance one bit. To get more into the details of that, I will turn the call over to our Chairman, John Allison.
Thank you, Donna. Welcome everyone to the Home BancShares 2022 second quarter earnings release and conference call. I guess the only thing we know for certain is uncertainty. These times require a steady hand, a disciplined team of managers that provide strong leadership and are willing to go against the grain. I've always said there is no substitute for experience. We have for two years been beating the table about the danger of inflation, and then now suddenly everyone's waking up talking about inflation. Did they just wake up? Where have they been? Home has been planning and taking action for the last year and a half. I think we've called it right when we talk about inflation.
We do not believe that the Fed is likely to back off of their hawkish desire to stop inflation, and they should not because it is killing our seniors fixed that are on fixed income. The reason I think they'll not back up is in the late 1970s, as inflation roared, Volcker made the mistake of backing off rate increases too soon and had to come back in the 1980s and take rates to 20+% to correct the problem that he probably could have fixed the first time. We have to get rates in parity with inflation to even begin to take control of this out-of-control monster. Last quarter, I said it was conceivable that Fed funds could hit 6%, and I'm sticking with that call. Fed Member Bullard is now calling for a 4% number.
The only way to stop this monster is for the Fed to get off their butts and take decisive action. Actually, a 100 basis point shock would be a good thing now, and if they'd stop the puppet show, I think that would be good for us. When you look at the tenure that's below the two-year, why is that? How does that come about? It's gotta be that it's being manipulated. With consumer prices running 8%-20% and PPI running from 11% to whatever, it appears the Biden administration is still trying to raise taxes while Americans are already paying an inflation tax of between 8% and 20%. This group of Keystone Cops don't have a clue and just don't get it. Still appears that the Biden administration naively have virtually no one with business experience in their entire cabinet.
Has anyone ever heard of supply and demand? Has anyone ever heard that there is no substitute for experience? You can't make chicken salad out of chicken waste. It was said during the Clinton administration, it's the economy, stupid, but Ron White says you can't fix stupid. I don't know if he's right or wrong. Our company has deployed some excess funds during this quarter as we planned. They even have had some loan growth. We had, I think, a little over $200 million worth of loan growth, primarily led by Texas and New York. Good job by all. The strong quarter is a result of planning and patience that your company has been exhibiting over the past because of our strong belief that inflation was raising its ugly head.
The Fed has been very late to the table, which may result in higher rates, longer correction time, and a more complicated problem to bring it under control. Interesting fact for all you younger individuals out there, what do you think the average Fed funds rate for the last 50 years are? I'm saying the average Fed funds for the last 50 years. A lot of you have never seen a four or five. You think it was two or three? It was actually 5.44. That illustrates the fact that the world can exist at higher rates as we've done in the past. However, as our U.S. national debt has climbed through the roof, the situation required lower rates to allow Congress to continue to spend like a drunken sailor.
In addition, one of the differences today from the Volcker Times is the world is now awash in an additional $200 trillion in debt. Raising interest rates could affect lots of these small countries. Here's the problem. We're all addicted to the sugar high feeling that we get from zero or low interest rates. You know what? If you're going to dance, you got to pay the piper eventually. Well, the payday is now. I guess we can pay, or we can kick the can down the road and continue this craziness. In addition to a $7 trillion Fed balance sheet created out of nowhere, and by the way, I'm told that the Fed has not cut back on their purchases as of yet. The puppet show continues week after week.
Now, what happens when the Fed cuts back or stops buying our U.S. Treasuries and mortgage backs? Who will buy our bonds? You think maybe our good friends, the Russians, maybe Biden's buddies, the Chinese, or Trump's buddy, Kim Jong-un of North Korea. This is one of the biggest challenges of all this manipulation because we've been buying our own crap with fiat money created out of air. I'm very concerned about the ability to have a soft landing. I fear a crash could be in the making with this bold and crazy experiment. The key for banks is to be very premeditated and cautious with their moves. It does not hurt to play a little defense. Banks that threw money at their securities portfolio in the last 12 months, many have allowed their tangible common equity to fall in the sixes.
That's a number the investment community does not like. They may be forced or could be forced to raise substantial high-priced capital, as you know, Happy may have had to do. Some banks have, and others will be forced to do the same in the future, raise capital. Add to that how much loan markdown they need for those trying to sell their companies that wrote long and low. Any loan with a two, three, or four in front of it today is certainly a loser. The good news is your home company has a war chest of capital. We do not need to raise capital. We have plenty. We did not write long and low because I said we've been preparing for two years. I'd hate to be out there trying to raise capital in this environment. Very expensive.
We just deployed $25 million of our capital into one of the top banks in the country, and we'll be receiving 7.75% on this bond that they had to sell to fix their tangible book problem. While almost all have blindly plowed money into low rate securities and low rate loans, Home was a contrarian and sat patiently, paying off almost $400 million in debt and quietly building a war chest of cash and capital. Your company also refinanced our sub-debt at much lower rates that resulted in over $37 million in savings over the next five years. The conservative moves your company has made should pay dividends for our shareholders in the future because we did not sell our future. We're already seeing the benefits of the work with Happy State Bank, the Happy State Bank deal that was closed on April 1.
Your Home team is playing the long game, not the short game. We did not receive a very warm welcome. Some people called it a mini mutiny in a couple of markets. We hate to see good people go, but that may turn out to be a blessing in disguise with a select group of individuals leaving in a very unprofessional manner without any notice. The way it was executed could have done damage to Happy's local shareholders that are now new Home shareholders. I would hope that was not the intent because they'd be hurting their own customers and their own shareholders. In hindsight, the move appeared that it was in the works for some time. Most employees that left went to some small Texas bank that I'd never heard of, nor do I know anything about the management or the bank.
The good news is that even with the hardship, temporary hardship that it created, it also created many opportunities for those that stay and many new hires that stepped up and took over with lots of enthusiasm and excitement. This will cost a little money over the next couple of years as we use the strength of Home's powerful balance sheet to compete very competitively in that market. It's a long, old road that doesn't turn, haha. This should be a lot of fun. Everybody stay tuned. The impact on smaller competitors' balance sheet can be much more severe than the impact on Home's. I consider this an unfortunate situation that is pretty much in the rearview mirror, except for the competition on loans. I want to personally thank our Texas shareholders on behalf of our entire Home team that traveled to meet all of you.
Thanks for your time, your kindness, and your hospitality that you showed myself and every member of our team. I personally could not be more appreciative of the very cordial and heartfelt welcome you gave us. After all, we share a common goal as partners in Home and Happy. Proudly, we own this outstanding company. For the second quarter, we had one-time merger expenses of $107.316 million. These are non-recurring expenses that would not have happened without the Happy acquisition. I'm referencing numbers today that exclude the $107 million in expenses that allows everyone to see the earnings power of the combination on a go-forward basis. Let's go to the numbers. Net revenue was $243.339 million for Q2. That is a beat over anyone's expectation and a corporate record.
Net operating profit was $97 million, also a beat and a corporate record. We thought we might hit $100 million on a run rate on a quarterly basis in the second or third quarter of 2023. We're very pleased with the early performance of the $97 million. That equated to operating EPS of 47 cents a share, and that would have been a huge beat. According to Zacks, who rates us a buy, they had us at 38 cents, and our own analyst had us at 34 cents. I know that was all across the board. One sign is the margin, a strong sign. The first quarter of 2022, we ended up with a margin of 3.21, and at the end of this quarter, we were 3.64. That's a 43 basis points improvement.
I've been watching the numbers come out on the banks, but I haven't seen anybody with that kind of improvement. Maybe I missed someone. We're watching that on a monthly basis, and we can see the number getting stronger. Just follow me here. March, it was 318. April, 340. May, 365. In June, 387. June had a little juice in it because it had all the quarterly accretion of the loan marks for April and May rolled into June, so that was a little inflated. PPNR, Pre-Tax Pre-Provision Net Revenue, was 50% higher in the second quarter than it was in the first quarter. PPNR, Pre-Tax Pre-Provision Net Profit, was 5,206. Tangible common equity came out almost right at 9%.
We've maintained our powerful loan loss reserves of 2.11% of loans or $294.3 million. That is one of the highest of all banks in the country. Couple that with our top-tier asset quality. If there is a recession, which Wall Street is calling for, we may not have to add as many dollars to reserve as other people do. Some people have used it more like a piggy bank. Pull it in, pull it out, pull it in, pull it out. We didn't do that. We just left it. We like 2.5% reserve. We just believe if we err with too much reserve, we're better off doing that. Significant early improvement in our efficiency ratio as adjusted from 47.33% in the first quarter to the second quarter at 46.02%.
Now think about that just a minute. Before the merger, Happy was over 62% and Home was at 47. That's really nice execution so far. More to come, but it'll be harder to get and take longer to achieve. Take longer to achieve the 40 or better. Donna, you like a 40 or better. We're still sitting on about $2.5 billion in cash deployed when we see the opportunities. We're picking our spots to deploy the cash. We continue to repurchase stock when the market puts it on sale, and during the quarter, we bought back over 1 million shares. Having the desire to meet our Texas shareholders, we held 4 shareholder rallies, one in Dumas, Texas, Amarillo, Lubbock, and Plainview, Texas. The meetings were very well attended, and we estimate approximately 700 shareholders in total attendance.
They were good meetings and covered the Home story and the difference between owning stock in a private bank and a public bank, and the value of being able to convert that to real rainy day money or cash if needed to be. We also talked about the dangers in these volatile times that the banking sector was experiencing and reassured our shareholders in the fortress balance sheet of Home to get us through almost anything they could throw at us. We found our Texas shareholders to be wonderful, hardworking, God-fearing, patriotic Americans. We're looking forward to going back as soon as possible. In the meantime, we're probably gonna go into Central Texas, to Dallas-Fort Worth somewhere and have one. On a marine book, John had a pretty good quarter. I think it's one of his best quarters ever at the Shore Premier.
He's hit the wall since then. Applications are off about 25 or 30%, and I don't know if they'll pick up or not pick up. The dollar volume has gone up. The value of what we're financing has gone up, but the applications are down. This time of the year, they usually have shows and that could have an impact on it, plus people wait to buy at those shows, plus higher interest rates. In conclusion, it was a busy quarter, but one of Happy and Home's best. Not too bad for the first quarter together. I'm very pleased with this successful start and expect more to come in the future. Citigroup's earnings gave a lift to nearly all bank stocks Friday.
Regardless of trend that we all follow in the bank space, I'm hopeful for us to separate ourselves from the pack because Home continues to outperform most of the rest while remaining very defensive in these volatile economic times. The good news is your company saw this coming and certainly attempted to make preparations to protect all our shareholders, our capital and our future together. We together will continue to march forward and enhance the success that Home is known for throughout the entire U.S. as one of the best. Thank you for your support because it takes all of us pulling together to keep the company growing and the dividends coming to each one of us. The more money we make, the more money we pay in dividends. Hope to see you all soon. It's an honor and privilege to serve as your chairman.
Donna, I'll let you have it back.
All right. Thank you. Thank you for those remarks, and congratulations on such a great quarter. Now we will turn to Christopher C. Poulton, and he will share update on CCFG.
Thank you, Donna, and good afternoon to everyone. CCFG continues to see demand for our products. During the second quarter of this year, our portfolio grew by $274 million to just over $2.4 billion on about $450 million of new originations. This growth is part of a portfolio rotation that began in Q3 of last year in preparation for anticipated pay downs during the second half of 2022. Last quarter, I spoke about these expected payoffs and pay downs. For Q2, we received $190 million in payoff pay downs. However, we expect that number to increase significantly in the coming three to four months, especially as pre-pandemic projects are completed, sold, or refinanced. For context, we've already received approximately $200 million of payoffs in July alone.
I expect an equal amount or more in the coming month or months. This level of pay downs is a feature of our portfolio as it allows us to continually rebalance our product mix for changing market conditions. Over the course of the last 6-9 months, we've slowly reduced our level of active construction loans while increasing our originations in multi-asset loans and facilities. Of the $450 million of new commitments in the second quarter, almost 90% were in multi-asset loans and facilities, and 65% were with repeat customers. Historically, periods of market volatility have afforded us opportunities to support our existing roster of clients, as well as add new institutional asset acquirers to our client mix.
One of the strengths of the CCFG platform is our willingness, in fact, our desire, to realize repayments, which allows us to position our portfolio for what lies ahead. This is especially true during times of market disruption. Thank you, and I appreciate the opportunity to share our results this quarter. Donna, back to you.
Thank you, Chris. Now for more operating results of the quarter is Stephen Tipton.
Thanks, Donna. It's a pleasure to get to report on our company today. First, I would like to recognize our bankers on the ground in Texas for their tremendous effort over the past several months. The Happy closing and conversion has been a monumental task for all of our teammates, and thanks to you all. As Johnny mentioned, it's certainly been a busy three months at Home, but our patience and persistence is beginning to pay off. The net interest margin improved nicely to 3.64% for Q2. The addition of the Happy balance sheet, variable rate adjustments across the loan portfolio, and higher earning cash balances all contributed to the increase, and we would expect to see additional improvements as rates continue to rise.
We are keeping a close watch on deposit balances and customer activity in this dynamic rate environment in our new markets in Texas. We took the opportunity in Q2 to make improvements to our funding mix, specifically a subset of broker deposits along with several fully indexed or 100% beta municipal relationships. We will continue to refine the deposit base and navigate this rapidly rising interest rate environment. After peaking at a little over $20 billion early in April, total deposits ended the second quarter at $19.6 billion. As the mix is refined, we believe the result is a more granular core deposit base, highlighted by over $6 billion in non-interest-bearing deposits or 31% of the total base.
Switching to loans, production was strong at $1.6 billion for the quarter, with $1.1 billion coming from the community banking markets in Texas, Arkansas, Alabama, and Florida. Kevin can provide additional color on what he is seeing in the pipeline during Q&A, but the activity in our committees the past few months has been really good. Switching to capital and a few key ratios, we had total risk-based capital of 16.6%, common equity tier one capital of 12.8%, and tangible common equity to assets or a TCE ratio of 9.01% as of June thirtieth. All of these well in excess of our internal targets. John mentioned the strength of Home's balance sheet in his remarks.
Given the capital ratios we just mentioned, top-tier reserve coverage on loans, and the flexibility of having well over $2 billion in cash to invest or to put into loans, we're extremely well positioned to weather any storm or opportunity that comes our way. Donna, with that, I'll turn it back over to you.
Thank you, Stephen. Well, John, before we go to Q&A, do you have any additional questions or comments?
No. Tracy, do you have anything you want to add this morning or before we go to Q&A, you got anything you want to say?
I think y'all covered most of it. Again, it has been an extraordinary quarter for all both Happy State Bank and Centennial Bank staff members. For a shareholder, you couldn't have been prouder with the efforts that's gone out to do that. As John mentioned, being able to go down and meet the West Texas shareholders, what an uplift that was, and just meeting the people and meeting our friends and our new shareholders, and we're looking forward to working for them. As I've committed, all of us here at this company work for the shareholder. We look forward to the next quarter results, Donna Townsell.
Thank you. You know, it was a great trip. It was about six or seven of us that went, eight, maybe. It was really heartfelt. We started and do this, we didn't know what to expect, it was wonderful, shareholders. They got to hear the Home story. Anyway, I hope we sent out information. I hope they're on the phone call today. Hopefully, they can listen to the report, and they're as proud as we are. Donna, I think we can go to Q&A.
Okay, thank you very much. Operator, we'll turn it back to you.
Before we go, I just want to summarize. I thought it was one of the best quarters in the company's history, and I just want to summarize. You got margin up 43 basis points. You got revenue at $243 million. You got $97 million operating profits with $0.47 EPS, good solid loan growth, peer leading asset quality, strong liquidity. We're doing lots of work on our debts, and we're paying off our debts, in which are increased profitability. We've activated our buyback plan. I don't know if it's the best quarter in the company's history. If it's one of the best, it's sure the top three or four in the company's history. We're very proud of the performance of this company during this time. Hopefully, we won't have these one-time expenses next quarter.
still have some dragging around for a while, but not a lot of them. Anyway, I'm ready to go. Thank you.
Thank you. We will now begin the Q&A session. If you would like to ask a question, please press star followed by one on your telephone keypad. If for any reason you would like to remove that question, please press star followed by two. Again, to ask a question, that's star one. As a reminder, 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. Our first question comes from Brett Rabatin with Hovde Group. Brett, your line is now open.
Hey, good afternoon, everyone.
Hey, Brett.
Wanted to, I guess first, just talk about the loan pipeline from here. You know, Johnny, you indicated you still think that interest rates, you know, Fed funds should be 6% and the market obviously isn't taking that in. It would seem like, given your thoughts on rates, maybe you would want to continue to be conservative and not open the spigot, so to speak, particularly with fixed rate lending. I'm curious how you're going to treat the current environment until it becomes more what you're expecting from an interest rate perspective.
I'll comment a little bit and let Kevin talk about that. Kevin, do you want to just go?
Yeah, I mean, from our side, we're going to continue to do what we always do, which is be conservative and make good credits. I think we're going to see an opportunity possibly if things do get volatile, that, you know, we'll have an opportunity to keep doing what we do, and you may see some loan growth. You may not. It'll just be, as Johnny always says, you know, we'll take what's given to us, and we'll make that work. Rates will be a part of that. We're not gonna go out here and do anything out of our norm. We'll continue to work with what we got. Pipeline looks solid.
Texas had good growth in a quarter when, you know, they're just brand new to us, and you know, so I think that looks good too. Chris, I think will probably, you know, won't show the same numbers he showed last quarter, so he'll probably contract a little bit, and then he'll go from there. We're just going to keep doing what we do.
You know, interestingly, I saw more sixes at the loan committee this week than I've seen. I haven't seen sixes on loans in a while, and probably 60% of loans had a six in front of them. A funny thing, that we've asked for. They're just the market recognizing that's what we're doing. Seeing some of those. I mean, we're still writing fives too. We don't write fours anymore, but we're still writing fives. We can. We'll write them in Lubbock and Plainview. We'll write something there, but we, in other markets, we're probably not going to do that. Anyway, who knows what's going to happen. Just be careful. That's the thing. Just be careful. I don't know if we're going into stagflation. I don't know if we're going into recession. I don't know what we're going to do.
You know, it's just cautious times. I'm glad that we've done what we've done to protect our shareholders because it could get really rough. I remember the last time this happened. That's when all the Texas banks blew up. That's when all the failures were in the late eighties. I think every bank, every S&L went broke, as I was sharing with somebody a while back, we bought. I said, "Don't tell me it can't happen in Texas, because we bought as many failed banks in Texas as we bought in Florida." Just stay cautious, be smart, and write good paper, write good loans. That's what we're gonna do, Brett.
Okay, that's a great color. Wanted to ask about the expense savings of $53 million on the Happy transaction, and it sounds like, you know, you had some things happen there, but it sounds like it's actually working out maybe as good or better than expected. Can you talk about the pace of those expense savings and, you know, kind of what we should expect from an expense run rate going forward?
Well, it's obviously I don't have the exact number that for the month, but it's obviously when we were running the 47% the first quarter and Happy State Bank's running north of 62% and we combined through this quarter around a 46%, it is pretty amazing turnaround and expense reduction. Some of that, some people that were probably overpaid helped us as they left. Stephen, Brett.
Yeah. Yeah, I think we modeled, Brett, seventy-five percent of that number to occur over the course of this year. You know, obviously some of the departures helped from a personnel expense standpoint. You know, we're working through contract renegotiations right now. I told Johnny and Tracy yesterday on insurance, I think we're going to pick up about $600,000 or so in improvement there. Yeah, I think we'll continue to work on it over the course of this year and at some point, you know, take a look at facilities and some of those type things too.
Yeah, I think in the insurance, I think Stephen said we were paying about $1.4 million now, and we paid $1.2 million last year, and Happy paid $800,000. Combined, we're gonna pay $1.4 million. That's a nice $600,000 savings. That's $50,000 a month. We'll take that. He's clipping along. It's old Stephen's been just kind of clipping along. It's those savings one after the other as we go through this. Brian, you have any comment on?
No. I thought your analysis of, we've got an improved efficiency ratio kind of sums it up, that we were well down the road on it. For our efficiency ratio to go down from a linked-quarter basis, that's pretty remarkable when you add in Happy at that 60+ efficiency ratio.
That may be certainly one of the highlights of the quarter with that combination doing what it's doing. Thank you for that question.
Yeah. Certainly really strong results this quarter. Maybe just one last quick one. You mentioned marine sales were down 25%, or applications, I'm sorry, were down 25%. I think it's kind of interesting that used RV prices are actually up 5% year-over-year in June. Johnny, are you seeing anything that would tell you that the economy is actually slowing, that there are some pressure points out there, or you just not seeing anything yet?
Well, you know, on the residential side, it's certainly slowing on the residential side. You know, the subdivisions and houses gonna slow down now, just going to. I think rates are about 5.50% now on 30-year mortgages. That's gonna slow some people down. I mean, that's just. I hate this. I hate it for our housing people, because that's been one of the strengths of all of us. All the banks have had good run in housing, financing housing and their mortgage books. That's worked really good. Hate to see that go away, but it's got to. I mean, it just, it's gonna happen. I don't think there's any doubt about it. Kevin, you got any comment on that?
No, I would just say from our perspective, you know, remember, we're in some pretty good states from a housing perspective, and we may feel it less than some others. We keep particularly in our Texas market, because they've historically been stronger in the builder market than we were across our footprint even. They're watching closely not only what we have on the ground, but what other banks have on the ground with our borrowers also. They're watching it closely, looking at, you know, specs and how well they're moving and if it's slowing down. You know, that's what we're gonna do the rest of the way through, is just try to be real close to our borrowers and make sure that we know what's going on.
You know, it's a good having operations in Florida and Texas, the two best states in the nation for business, is such a plus because to comfort our shareholders and their loved ones, having those strong operations in those states, they can absolutely be countercyclical to each other. If one of them is down, the other one can pick up. When we got both those horses pulling together, pulling the wagon together, you see what happens, you see what this month turned out for us. That's what happens. They get together. If Florida slows down, Texas continues on, they can be countercyclical with each other, and that provides some comfort to me and I'm sure to our shareholders out there in the world.
We'll continue to try to grow in those states, by the way. Thanks, Brett Rabatin.
That's great color. Appreciate it, guys.
Thank you.
Thank you. Our next question comes from Brady Gailey with KBW. Brady, your line is now open.
Hey, thank you. Good afternoon, guys.
Hey, Brady. Thank you for joining us.
You know, Johnny, you were active in the quarter, putting some cash to use in the bond portfolio. You're still-
Yes.
Sitting on a pile of cash. Maybe thoughts on kinda how that progresses from here. Do you still slowly drip that cash into bonds? Do you wait and pause here for a second? What's the outlook on your continued cash to bond deployment?
Well, we're sitting on about $2.5 billion now after paying off some deposits. We'll probably start putting some of it in here to work a little bit. I think it's probably. We're gonna wait after the next increase and then, which is 75-100 basis points. I assume probably 75. We'll start deploying a little more. We've been picking our spots, as you probably know. We've picked. Some of these companies are raising capital, and we know the companies, and we've been picking our spots and getting great yields. You know, I don't know whether, you know, as I said earlier, this morning, said Johnny's predicting 6%. I just think it's conceivable we could see 6%.
I like seeing our 6% loans and our securities, we're getting back. On some of the securities, we're getting better than that, as you well know. I think we'll start. We'll watch what happens in the next 2 weeks, and I think we'll probably start putting some more money to work here in the third quarter.
Yep. You know, after you guys put so much reserves in through the pandemic, you know, the core provision has been close to zero for a while now. How do you think about that as we potentially head into a recession? Do you start to have the provision, or do you guys have so much on the reserve side, do you think you could have a zero provision for a while here on out even if we do see some more economic weakness?
Well, I can tell you one thing, we won't have as much to put in as other people will. You know, we've maintained a lot of reserves because we believe in it. You know, a lot of people use their reserves as the piggy bank. They pull it out and put it in the income. We didn't. We just sat disciplined and patient, as we always are, and left the money in reserve so everybody could sleep at night. Well, now then we got what may be a recession coming up. Maybe. If it is, they're gonna be marked reserves. We've seen some of the big banks go in and put in reserves, big amounts of reserves. If Home has to decide to put some reserves in, I don't think it'll be substantial.
If we're going into a recession, I think we're prepared. You know, we like reserves. If we get a one-time free shot at putting $230 million reserve, we'll certainly take it. That's always been our attitude. You know that. We'd rather too much reserves. These people that use it like a piggy bank, they, well, what good does it do us to put it in the income because it's just a one-time deal? Based on what we're seeing, looks like it may be going the other way. Now, Kevin, you got a comment on that? You deal with that every day.
No, I think you said it well. I mean, we didn't take it out as we came through the, you know, the end of COVID. You know, we are, I think, higher than most folks, and if we do have to put some in, it won't be to the levels that some others would have to.
I think that's correct.
Yeah. Finally, for me, just, was there something else?
No, I'm sorry.
Yeah. Finally for me, just on M&A, you know, it's an interesting time to think about M&A for you guys. Happy is closing in the books, and you guys have a ton of capital, and you're confident in your balance sheet. At the same time, you know, we're headed towards economic weakness. I know a lot of times y'all like to buy when things are cheap. You know, bank stocks are cheap right now. How do you think about the dynamics of participating in M&A, you know, in the near term?
You know, we had to mark Happy's book April 1, and that cost us $128 million, and I reported that last time. I'm just shocked at when I think about that. When I think about somebody doing an M&A transaction today, not only have they got to mark the bond book, they got to mark the darn loan book. I mean, these people that wrote at 2% and 3% and 3.5%, I mean, think about the value of that loan book and what that's gonna do. So how in the hell can they pay anything for anybody today in the marketplace? It's gonna, I think it's gonna lower. Average price is 1.50 tangible book right now.
We're still trading over two, but there's only a few of us trading over two times tangible book in the entire United States. My thought is that it kinda I guess it's a long road doesn't turn, but it's pretty interesting to me. Somebody try to sell their bank in this environment based on what they're gonna have to do with their AOCI and then what they're gonna have to turn around and do on their loan mark, the earn back to tangible book could be 42.5 years. You know, it just, it's silly to me. I mean, you're gonna mark that loan book and these rates now, and that's really gonna be pretty disastrous. I mean, I don't know what impact that'll be, but I know what impact it's made on the bond book.
If it makes a similar impact on the loan book, I don't know if M&A can be done. These people that got M&A going on that haven't gotten to the mark date yet, Brady, I don't know what the hell they're gonna do.
Yeah.
You get what I'm saying?
Totally.
Yeah. I just can't imagine.
All right. Thanks.
I mean.
Thanks. Thank you.
We marked $127 million. We didn't mark the loan book. Now we had some, but we had to mark the loan book today. With interest rates, I mean, I guess it could be as much or more than what that was.
Happy State Bank had pretty good rates.
Yeah.
Now, Happy had good rates. Happy stands out by itself. Happy did a good job on their loan rates all the time. They did a good job. They were active. You remember, we were the highest in the country, and they were higher than us. But you take these people that wrote low loan rates, what are they gonna do? I mean, it could be 6, 7. On a deal like Happy, it could be $400 million, $500 million. I don't know what it'd be in today's market. Pretty scary. I'd hate to be raising capital today, I can tell you that.
Thank you.
We got-
Our next question comes from Matt Olney with Stephens. Matt, your line is now open.
Hey, good afternoon, guys. Thanks for taking the question. I wanted to go back to Christopher Poulton. I think Chris mentioned that some of his growth that he's seen has been in that multi-asset facility lending. I know those facilities can have lots of different assets and go different directions. Just curious if Chris has seen any themes from your clients within those facilities.
Hey, Matt, it's Chris. Yeah, no. As you say, there's, you know, different things that facilities do. Sometimes that's loans, right? So folks that have some loans they wanna package together and we'll back leverage. You know, others are acquirers of assets and they put those together. They bought some things, and they wanna put those together. So I'd say it's been probably about half and half, real estate, you know, mortgage assets versus commercial real estate loans.
You know, one of the things we are seeing is that some of the lenders had facilities in place, warehouse facilities in place, and during the last, say, 6 months or so, certainly over the last 3 months, we've seen some of those facilities pull back, those facility providers pull back, and that creates opportunity for us coming at a lower leverage, higher price, because they may be forced to look at whether they put, you know, equity to work to do that or they take a little bit of leverage as they pull some stuff off of those warehouse lines. That's probably been the biggest opportunity is folks that are having to find alternatives.
Mm-hmm. Chris, I think you also talked a while ago, maybe it was a year plus ago, about being patient within New York City just anticipating a slower recovery and I think that's been the right call. I think you pivoted maybe a year ago to some more deals on the West Coast and other parts of the country. Is that where you're seeing some of the pay downs at this point that you expect in the back half of the year on the West Coast and other parts of the country?
You know, we had a couple deals in New York pay off as they finished. Probably three of those are New York deals. I had two on the West Coast, one in Florida. You know, I think it would be what you'd expect it to be, which is pretty representative of where we've lent before. I haven't seen anything really be, you know, where it's all West Coast or all New York, et cetera. I think it's, you know, whatever our portfolio looked like three years ago, you're getting that percentage pay off now. You know, some of this stuff we expected to pay off this, you know, this past quarter.
You know, I mentioned $200 million have paid off in the last couple of weeks, since July 1st. Some of that we kind of expected to probably happen in June. We are finding, like on our side, you know, loans take a little longer to close, and sometimes that means payoffs take a little longer to come too because everybody's still trying to deal with getting third parties done, et cetera. That's been the biggest delay probably a lot of these, is if somebody's refinancing today, getting your third parties finished, you know, getting the appraisals done and getting the legal work done, et cetera. Everything just takes longer today. I don't know that we've seen it be more concentrated or not.
Okay. Appreciate that. I guess I wanna switch gears. I wanna put Stephen Tipton on the spot here. Ask more about deposit pricing. I guess we're hearing across the board about banks moving up deposit pricing rates over the last few weeks to accommodate the higher rates. Would love to hear more about Home BancShares strategy and how much pressure you're getting to move up rates higher and just trying to appreciate where these deposit betas could be for Home BancShares this cycle.
Sure. Hey, Matt. You know, we're seeing the same thing. You know, the first rate increase in March, you know, we were able to be pretty agnostic too. We had to pass a little more along in May and a little more along in June. Certainly it's got customers' attention today. You know, I think you start seeing. Yeah, you start seeing 2% rate, gets everybody's attention. Yeah, I think our ALCO model on the checking account side, we, you know, ballpark about 40% when you blend everything together, and it's something that, you know, we use to try to manage by.
You know, we've got some balances that are contractual, that are tied to treasuries that obviously have moved a tremendous amount over the last three or four months. The negotiated rates and the rate sheets that we have in our regions, we've—you know, I would say we've been in that 20%-40% range of what we've passed along. We're taking it customer by customer and market by market. We, Tracy and I, have had that conversation multiple times on a weekly basis or more frequent here lately just in terms of being on top of some of the movement.
I think some of the outflow you've seen is people spending money, and having to spend their money. You know, it's something that we're watching very closely and are gonna keep every core customer that we have regardless of rate.
In terms of deposit growth from here, I mean, you seem to be in a pretty unique position with the excess liquidity. Would you think you would grow deposits in the back half of the year, or is this now just a time to be careful and just kind of hold on to what you got? Or even contract? Are there any higher rates that could be running off the back half of the year?
I mean, I think it's careful to watch what we've got. I mean, certainly we're gonna always continue to focus on customer relationships and generating new business. You know, I think it's something we'll watch closely. You know, there's always some seasonal movement around municipalities and schools and when money flows in and flows out and some of those kinds of things that you know that may affect those levels in the upcoming quarters. You know, just based on what we've seen over the last couple months, you know, I would think things. I wouldn't expect any material growth from where we're at today.
You know, like we said, we're in a good position with $2.5, you know, $2+ billion in cash that we can pick our spot.
Yeah. Yeah, you guys are in a great spot. Congrats on the quarter, and thanks for taking my questions.
Thank you, Matt. Appreciate it.
Thank you. Our next question comes from Steve Scouten with Piper Sandler. Stephen, your line is now.
Hey, good afternoon, everyone.
Steve, that's Scouten, by the way. Tracy called him Scouten earlier.
That's right. It's all the same. I respond to any and all sorts of names. So guys, feels like, I mean, I think it's pretty clear that y'all are very well positioned. You've talked about it, higher reserves, liquidity you put to work, been more patient. How do you think about using the buyback as well at this point in time? You were still relatively active this quarter, and so just trying to think about how continually active you might be, especially when, you know, like a day like today where the stock is down for purposes I don't really know, to be honest with you.
Neither do we. I figured it'd be up at least $2 today. It's only $0.64. I don't get it. I mean, you have. I don't know if we can do better than we've done, so.
Yeah. Do you think you'd continue to be as active with the repurchase, or?
Yeah, I think we will. As long as they keep it down in here and just put it where we can just pick it up, I mean, we like picking it up. I didn't even realize we bought 1 million shares, but I think we bought a bunch. We may as well buy it when we're down in here. We got the cash to buy it with.
Yeah.
We've just been pecking along. We've got our other securities that went upside. As you can see, there were bank stocks kind of went upside down on us last quarter. Cost us $1.8 million, but they're back this month. They're up. You know, we think bank stocks really, particularly the ones we invest in, are pretty good banks, and they're gonna be around. They're not going out of business. This reminds me.
Yeah.
It was fourth quarter 2018, and we're making more money than we know what to do with, and I said, "Donna," our stock's going straight down, and I said, "Donna, get your bags packed. We're going all over the country, and we're gonna tell everybody how well Home BancShares is doing while they're beating up bank stocks." If you remember that, we probably burned $150,000 worth of jet fuel. We went all over the country, and nobody. Everybody was pessimistic. Nobody believed us. Nobody believed we were doing what we were doing. We were swimming up. You remember the old days, there was a boogeyman, and there was Russians behind every tree, and everybody was scared to death. I mean, banks are actually in pretty good shape today. Finance, at least particularly at home, is in great shape.
I told Donna, "To get your bag packed." She said, "What for?" I said, "We're gonna go tell the world how well we're doing." She said, "They won't believe us this time either." Anyway. I don't know. At home, things are very good here with Home BancShares.
Sounds good. I'm curious. I'd love to hear a little bit more from Chris around what he's seeing in his markets in those larger ticket loans. I feel like I don't know. I feel like Chris kind of hates everything. I feel like it always sounds like he reluctantly does loans in his market, so I'm just kind of curious what he's seeing, if anything worries him in any of those markets.
You got his bag pretty close. Thank you, Chris.
I always thought I was a ray of sunshine, but you know, what I tell our guys is I tell our guys, "Hey, listen, you know, every once in a while we'll reluctantly agree to give some people some money." But I think that's served us well, and it's continuing to serve us well because we could have plowed into some things over the last year thinking, boy, the time's right for us. I think we've had a good origination year so far. I think mostly what we're seeing is, especially on the bank side, you know, bankers aren't that creative generally to begin with. They're not the most creative people to begin with, I think. You know, when things look like they might be, you know, disruptive, they just go home, right?
As far as I can tell, once Memorial Day hit, pretty much every large bank in the country just went home, and they'll come back after Labor Day and see if they feel like doing something. We're seeing opportunities over the summer and through the second, third quarter where people are just saying, "Hey, listen, I got this project. I wanna move it forward." Or, "I'm buying these things and I wanna do that, and we got to get it. You know, we're gonna have to get this done over here." You know, some of the people I'd normally go to for higher leverage and lower costs aren't gonna be there for us right now. Would you look at it? We do, right?
I just think we always do what we do, which is we look at a deal and we find out what we think about it. We find four or five ways out of it, and then we say, "All right, I'd probably do it like here." Sometimes that's disappointing to folks, and sometimes they say, "You know, I can make that math work." We're finding more people now saying, "I think I can make that math work because that might be my best option." It's taken a little while, though. I mean, I would say the last couple of months it's been borrowers readjusting their expectations because they're saying, "Well, you know, I used to get 70% at L plus 275." You say, "Well, you should go do that. That's a good deal. That sounds like a pretty good deal.
I'd do that if I were you." They say, "Well, yeah, but I don't have that right now." Oh, okay. Well, we could talk about what we would do. By the way, what we would do is what we've always done. I mean, be in the 50s on leverage and, you know, we're gonna be five over, and we're happy to keep talking to you about that. So I think our product is useful to people right now. We'll continue to be there. That's why I think we get the phone calls because people know we'll be there. If we say we're gonna do it, we'll close, which is important today because things are a little disruptive.
Yeah. Yeah. Okay. That's super helpful, Chris. Thank you. Then maybe the last thing for me.
Yep.
I'm just curious, Simmons, I think, was talking about overdraft NSF charges. Maybe this is more of a Stephen Tipton or a Brian question, but, I'm wondering what the level is of overdraft NSF fees that you guys had and if you think or if you started to do any of the work on potential pressure on those, given kind of regulatory focus on those charges in general.
Hey, Stephen. It's Stephen. Yes, it's top of mind. You know, we're in conversations with our regulators on a consistent basis. I mean, we operate our system in a I would call it the most compliant, least risk way today. We are seeing a lot of banks announce that they're doing away with NSF fees or overdraft fees or creating caps and cushions and things like that around their program. Yes, we're in conversation on that. No decisions yet, but evaluating data and may look at something like that in the future. You know, we're in discussions, as you know. I'm sure there's not any guidance out there from the regulators.
You know, in a lot of cases, banks are, you know, kind of shooting from the hip on what changes to make. It is something that we're looking at, and you know, may evaluate later this year.
Got it. Okay, great. Sounds good, guys. I appreciate it. Johnny, I think if you go around the country again, you should do it in the RV and do just a bunch of big campaign type events. I think that would be highly entertaining. You can do a little dance like President Trump did at the beginning too. Everybody will love it.
Thanks for that, Stephen. That makes me feel good. I'll see you on the road, buddy.
Thank you. Our next question comes from Michael Rose with Raymond James. Michael, your line is now open.
Hey, good afternoon. Thanks for taking my questions. Just to
Hey, Michael. How are you?
I'm doing well. Surviving. Have a teenager as of Sunday, so things are getting interesting around the Rose household. Let me tell you.
I can't believe that.
Um.
I remember when your children were born.
Me neither.
I can't believe you got a teenager.
I'm glad you remember. I could have blacked it out. Just kidding. Just going back to the comment on marine. Sounds like growth, you know, kind of slowed. Was that more kind of self-inflicted, just kind of given where we are in the market? Or is that just kind of like, you know, the boat sale season is kind of over, we're drifting towards late summer, fall. You know, is it more seasonality, or is there anything more purposeful to read in there to that? Thanks.
Well, there is a little seasonality. I'll let John talk more about that, but this is the time we have the boat shows. A lot of activity happens then. The factories are still all sold out. You remember I ordered my boat, my new boat last August, and I get it for a test run on September the twelfth. That's a year, that's 13 months after. All the factories, I think John can confirm this, are still booked up. John, you wanna talk about that?
Yeah. Thank `you, Mr. Allison, and Michael, thank you for the marine question. I think we've got a record quarter that's now in the rearview. We funded $88 million in retail loans that brought our balance sheet up to just north of $1.1 billion. But there's a confluence of headwinds, rising rates, depleted inventories, Michael, that you spoke to and Mr. Allison spoke to, and it's a seasonal summer lull. People are enjoying boats that they've already recently purchased. This is all in advance of the fall season. Typically, we've seen a seasonal pickup, but as Mr.
Allison said, we've seen a substantial drop off in the month of July, and I don't know if it's related to those any one of those factors that I mentioned, the headwinds or a combination of all of them. Pre-sales, you know, boats are pre-sold all the way out two years from now. As quick as the factories send them, instead of these things hitting the commercial side of our business with funding on inventory lines, they're going straight to a retail closing. I still think we're probably a two-year period out before we start seeing a commercial business build back up. Again, that quarter was a record for us on the retail side.
Good news is, I don't think we spoke to this today, but is that asset quality remains very, very positive. Michael, thank you for the question.
Yeah, absolutely. I'll wait for Johnny to give me an invite when that boat arrives.
Oh, you'll have to do that. You'll have to come.
I'm down. I think at the beginning of the intro comments, you made some comments around Dallas and maybe Houston. Is that something that, you know, over time would be of interest to you, either on the M&A front, or would you actually maybe look to maybe hire some teams just to bolster, you know, what you got from Happy? Thanks.
Well, you know, we look at both. We look at both sides of that opportunity. We really haven't been one that picks out loan teams in the past. However, we are looking at that, something that we think is a possibility. I don't know that I mentioned Houston. I didn't. I don't think I mentioned Houston. I said we'll continue to grow in Texas and Florida. There's not a lot left in Florida. I mean, there's not a lot left in Florida. You gotta take smaller stuff, but there's some opportunities in Texas. The main thing I think, Michael, is and we're getting there with it, obviously, as you can see by the efficiency ratios in the company, is execution on Florida.
You know, this company has always executed. We've done. You've been with us on 25 deals. We've always executed on 25. Our emphasis around here is complete execution, and it's way down the road on the Happy transaction. Once we get that done, we'll go look, because there are an amazing number of banks, particularly in Texas, that are for sale. There'll be good opportunities in there. I think there'll be good opportunities in there. The people are getting realistic on price. The problem is, Michael, you heard my earlier comments about marking the bond book and marking the loan book and trying to get a deal that's not dilutive. I'm not sure that can be done in this market right now. I'm not sure that's possible. Brian, what do you think?
You think it could be done?
If your focus is on the no dilution of tangible book, no.
Yeah.
I mean, you know, you would take such a large interest rate mark on a loan book that it would be pretty painful.
Yeah, that's my point. I really wasn't paying attention to that, Michael. I was thinking about the bond book, and we took that $128 million on Happy, and then I got to thinking about the loan books, and I thought, whoa, these loan books are bigger than the securities books are, and taking a hit like that will just dilute. I mean, if you remember my story, we ended up diluting $120 million by $100 million, whatever it was, about 18-month earn back on the Happy transaction. However, the revenue came in a little stronger from the Happy side than I anticipated, so it may not be that long.
Great. Maybe one just last, quick one. Securities are about 21% of assets at this point. I know you invested some. How should we think about the size? I mean, would you grow it, you know, much more as a percentage of assets from here? Right now, do you feel, you know, more or less comfortable?
You talking about the securities book?
Yes.
I mean, we'd go we as far as I'm concerned, we're sitting on we we've put another $2 billion to work and, you know, maybe look at these rates, see what happens. You know, they shot up. You know, you think we're I think the ten-year got to about 3.50%, and then they brought it down, you know, way too far down, below 3%. Now we'll see what happens. It's kind of ticking back up now a little bit. We can't tell how much money the Fed's gonna spend to buy down the ten-year. I know they're trying to keep housing going. The good news is they're trying to keep housing going, so they're gonna probably try to buy the ten-year down. At some point in time, they're not going to be there to buy it.
I don't know when that is, but it's not real. The problem is it's not real. It's not a real number, and we need to get back to reality and what a real number is. I think probably we could spend $500 million maybe in the next quarter. However, we gave money to our securities expert and took him a while to spend it, didn't he? Because of the volatility of what was going on in the marketplace.
Yeah. One thing we also had a $250 million treasury that matured, and we reinvested it, and it took quite a while to reinvest that.
That's right. We had a $250 million. We got another $250 million-dollar treasury that's about to mature, wasn't it?
Yeah. Like, August the eleventh.
August eleventh. Yeah, we'll probably we'll put some more to work. If I'm right, you know, my fear is you hear the talk today. Well, inflation's over. We peaked. We're on our way down. Fed's got us going down in early 2024 or late 2023. If we do, it's not gonna stay there. I mean, it's just what Volcker did in the late 1970s, and he brought it down. People started screaming, so he backed out, and then boom, he had to go back in the 1980s, take it to 21%. I think that same thing could repeat itself here if we're not careful. Probably $500 million maybe this quarter. If we feel good about it, we might put $500 million to work.
The good news is we'll get an increase in our earnings because the Fed were doing 165 today. If they do 100 basis points, we'll get 265.
That's right. Yeah. That's right. We get a raise either way. Hey, think about that, Michael. This is our bank, and the last quarter increased our income by about $6 million just on interest income. That came from the Fed. Somebody's writing a check for that, and that's just our little bank. You think about the rest of the world out there, all the banks out there are doing, you know, not all the banks have any liquidity, but most banks, the good banks have liquidity, and they're getting lots of money, and that's costing us as taxpayers lots of money. Concerns me a little bit.
Great. Thanks for taking all my questions, guys.
Thanks, Michael.
Thank you. Our next question comes from Brian Martin with Janney Montgomery Scott. Brian, your line is now open.
Hey, good afternoon.
Hi, Brian.
Hey, hey, just most of my stuff's been answered, but just maybe one on the margin for Stephen. Just get a sense for kind of what if you talk about what the loan repricing, what's kind of through their floors, kind of what's moving here with rates. You guys have covered the liquidity part, but just understanding what the loans are and are they through their floors and kind of what's moving today on the loan book would be helpful, Stephen.
Sure. You know, so I guess numbers are about the same today that we covered back in April. We've got about $1.7 billion or so on, you know, the community bank side, we'll call it, that's tied to Wall Street Journal Prime now. Happy State Bank had $1 billion-plus of that on their books.
You know, we're up, what? 125 since that time. We're, you know, functionally the vast majority is at or beyond their floors now, where if we get 75 next week or a hundred, depending on what you think, we'll benefit from that. You know, same on Chris' portfolio, tied to LIBOR or SOFR, should be moving now. You know, there's $4 billion or so that's moving as rates move up here.
Okay. Before.
I think overall, top of the house, I mean, you know, we show, I think net interest income in an up 100 scenario at about 6% increase, and in an up 200 scenario, about a 12% increase. You know, that's obviously gonna wrap everything together between loans and cash and investment cash flows and then the funding side. That's what we, you know, tended to focus on here lately.
Gotcha. Okay. Just the starting point, I think John gave some color on kind of the monthly margin. I mean, the kind of jumping off point for the core margin or the margin as of, you know, June, when you back out some of the, you know, the marks and the juice in there, kind of what was the core margin kind of running in the month of June, you know, on a clean basis or core basis?
Well, if you want me, I'll try to take that one. You know, this month of June, we reported 387. That included about $1.5-$1.6 million of additional accretion income. That was for the whole quarter for the loan book. If you kinda normalize that's about nine basis points, and so you would have about three basis points of that into the quarter. That 387 probably would normalize to about 381.
381. Okay. I appreciate that, Brian. Thanks. Gotcha.
The good news is we're seeing it, we're following it every month, and we're watching it click up. That's been very positive. We're watching the revenue side coming out with record revenue. We're watching it build. I'm seeing July build in over June right now. I like to see those numbers on the revenue side continue to build.
Yeah. Yep, that's powerful. How about, yeah, just Johnny, you talked about you maybe not adding as much as other banks on the reserve side, depending on how things play out, if we go into a recession or there's stagflation. I mean, is kind of the level you're at on the reserve percentage is kind of a floor today in your mind? In that it really kinda holds where it's at and goes higher if we go into a downturn? Or is there more room to bring that down a touch from where it's at, you know, given current, you know, current conditions?
Well, I don't know what current conditions are. As of right now, we're fine. You know, I don't know what current conditions are gonna be in 90 days. One thing as I said for sure we'll know is that we won't be putting as much in as other banks be putting in because we maintain strong reserves. I just always liked the 240, 250. 230. Somewhere in that range. 211's fine. If we went into stagflation or we went into a recession, and if we did anything, you know, I don't know, $10 million, $20 million, maybe $30 million max, I can't imagine us doing. What'd we do last time? $50? $45 or $50? We moved it up. $60.
It's more than that.
Yeah, it was more than that. Talking about the COVID.
Oh, we did 100 and something, didn't we? Yeah, we did $100 and something million in reserves. I, you know, I think we're in pretty good shape right now. I don't know what Moody's is gonna forecast what's gonna happen with the economy. That really, I don't know. I said it last time, I don't know if the Moody's guys ever been to Conway, Arkansas. Anyway, I think that's a different world. We'll pay attention. We'll listen. I think we're in good shape. I would, you know, I wouldn't mind going back to 2.50, I mean, 2.5% reserve. I wouldn't mind that at all. I wouldn't. I mean, it's our money, right? It's our money. It's our shareholders' money. We just got it in a different account.
Just provides more security and safety and more conservative for our shareholders.
Right. Gotcha. Okay. Just Stephen, you talked about doing some refining on the deposits this quarter. I guess is much of that done, I guess? Or is there more to be done there as far as how to think about deposits? I forget what you said earlier about growth, but just trying to understand if there's more things you're doing there or just it's kind of mostly complete now.
No, I think most of it's complete. We had $300 million in wholesale deposits that we moved out early April. You know, same thing there. I think they were top end of the Fed Funds range and, you know, kind of always out of the money. Then we had, you know, some others in the footprint that, you know, we've talked about over the years in certain pockets of Florida, with municipalities and the ability to kind of help plug gaps in the funding base. You know, a lot of that was addressed in Q2, and I think from here we'll be just working on interest rates with, you know, to maintain the balances we can.
Gotcha. Okay, perfect. That takes care of my questions. I appreciate it, and great quarter, guys.
Thank you very much.
Thank you. Our final question comes from Jon Arfstrom with RBC. Jon, your line is now open.
Thanks. Good afternoon.
Hi, John. How are you, my friend?
I'm good. Stephen or Brian, can you help us a little bit on expenses? I know you talked about maybe getting a little bit more out of expenses early, but what kind of a run rate are you thinking about for Q3? You know, give us some parameters.
Well, I don't know if I'm gonna give out an exact number, but we do have some of our people, as we've kinda said all along, it'll be August before we actually see what some of the run rate's gonna be, because we had a lot of people that have been on the payroll all the way through conversion, and those people are dropping off about right now. We got a lot of the expenses already just because of some unexpected attrition. I don't know if you have any specific number, Stephen, that we wanna give out or not.
Yeah, probably 20-25 or so when you factor in comp and benefits and everything.
Yeah. When we get down to this, through this next quarter, that'll be a great start to it because so many people were held on through the conversion, which was the first of June. Does that answer your question, John? Or do you want something more specific?
Not really, but I think what I'm trying to get at is if you peel out the charge, you're at, you know, $110 million or below for a run rate.
I can't hear you. Did you say what?
If you peel out the charge, you're at about $110 million or below, and it gets better from there, just in terms of the core run rate.
He's talking about core run rate.
Oh, core?
Yeah, going forward, what he's
We run about 97. I think 100 is reasonable for us. I would hope we see 100 this quarter.
I think he's talking about non-interest expense.
Oh, non-interest expense. You're talking about the bottom line run rate.
Non-interest expense, yeah. Yeah.
Okay. Okay.
Non-interest expense.
Oh, it just happens to be close to the same number. Okay. It is pretty close.
Yeah, I mean, I think goal would be, you know, would be somewhere in the, you know, to trend over time again, but I think, you know, the goal was to have 75% of the, you know, the $50+ million recognized, you know, by the end of this year, you know, whether we're, you know, close to half there or not, that may give you some direction in terms of, you know, where we would hope to see by December and into the first part of next year.
Okay. Just back on the margin, that 3.81 you talked about, core. I think you guys are saying that's trending up, right? If we get another 75 basis points, that continues to trend up over time.
That's correct.
Yes.
That's correct. It was 387. That was a little. It had a little bit too much in it, so it's probably 381, Brian says, so.
All right. If we get 100 basis points, we should then, you know, approximately according to our models, be up about 6% in net interest income.
I remember we used to run a four all the time. We got our eye on a four again, so.
Yep. Okay. I mean, I know it's late in the call, but I'm just doing my caveman math, and it seems like estimates are too low based on what you're telling us on expenses and earning assets and the margin outlook.
Well, it depends. You're right. It depends on Happy. Depends on what efficiency we get out of that. But I don't know what the next cutoff is, how many dollars in payroll on the next change. Do you know how many people that is or through the conversion and then?
I don't have that number, no.
Okay. Well, that's going to be a pretty significant number, though, I would think so.
Yeah. I mean, just in my group alone in accounting, you know, quite a few of them, all of them were kept through conversion, and then they were kept on for another 30 days after conversion. They were on the payroll in July, but they'll come off the payroll for August.
Okay. Well, you'll see the third, the fourth quarter, John. You'll probably see most of it. Now, however, we got lots of real estate there. I don't know if we're gonna keep that big, beautiful office or not in downtown Amarillo. That's a 240,000 sq ft facility. It's pretty nice. So, Tracy, you gonna plan on keeping that or?
I think all the property there in those markets, we'll evaluate and make sure that we get the biggest bang for our buck. It's you know, when you look at how they manage that, they get some lease income and a lot of things cover themselves on that. There are some spots around those all the markets that could be gotten rid of because if we're looking for future expansion for certain things, but that probably wouldn't happen.
I sure like the corporate office. It's just a little big. Our corporate office is 40,000 sq ft, and that one was 240 sq ft. Jon Arfstrom, I think the biggest thing there, I mean, it's been a very busy quarter for us. You know, the work has been unbelievable by the Texas group and the Centennial Bank group. Huge conversion, always a challenge, we'll just say, and everybody's working through that at this time. Being able to go out and really see some of the things that we could call stage going forward, we have them on our radar screen, but we've been focused on trying to make sure we get the customer taken care of, and that's been top priority. A lot of hard effort work on that part. A lot of good that comes along with that.
The other thing that we're seeing with the two banks together is trying to really take the ideas of what they did and how they did it compared to how we may have been doing it for the last few years and coming up with the best solution. It's really been a good thing for us. We've been working our tail off, but it's been an eye-opener on a lot of things that we're. I think it's going to be a huge benefit for us at the bank. You know, I go back to John's comments at the beginning of the meeting. I mean, if I look at the bank numbers and what we're doing, I would have never guessed the numbers that we produced this quarter.
Take out all the, you know, the merger costs that throws in there. I mean, that's a hats off to every region that we have out there, including the Texas market that's come on. I mean, it's just phenomenal number that I couldn't be more proud of, with everybody involved. Then the extra effort that we're spending that's probably not as driven on revenue, and we're just trying to make sure we get through this, conversion process as smooth, as quick as possible. Some of that revenue will kick back in because, you know, the group in Texas is ready to go. The lenders had to learn how to be CSRs for a long time, that held back on some of their production activity.
When we have their loan meetings, Kevin and I participate in, they've got a good pipeline going. We're working through it. There's a lot of things that are going to happen in the second part of this year that's going to be, I think, even better for the company. Even though when I look at the bank's 2.33 ROA, it's good. I'm not much better at it, John, but I'm going to try.
All right. Thanks for all the help. I appreciate it.
Thank you, John.
Thank you. That now concludes the Q&A session. I will now pass the conference back over to John Allison for any additional or closing remarks.
Thank you. Well, that was a great quarter. Thanks, everyone, for your attendance today. Hopefully, we'll have as good or better quarter next quarter. I think it, as I said earlier, it's one of the best quarters in this company's history, completely in light of the fact that we combined two great companies together, Happy and Home, and have a Happy Home today. The earnings power of the two companies is really pretty significant. As we continue to deploy our funds into the marketplace into both loans and securities, I think you'll see the earnings of the company continue to improve, or at least I hope so. We should see some reduction in expenses. We got more to come. I think Jon Arfstrom was on the right point asking the questions he was asking. Anyway, hopefully we'll get our hands.
It's been so busy, we hadn't been able to see where we are in on our plan, right, Brian?
Right.
We've been working towards it. We knew we were making progress. Thank you all, and we appreciate your support, and we'll talk to you in 90 days.
Thank you. This concludes the Home BancShares, Inc. second quarter 2022 earnings call. Thank you for your participation. You may now disconnect your line.