Q3 2019 Earnings Call
Greetings, ladies and gentlemen, welcome to the home Bancshares incorporated third quarter 2019 earnings call. The purpose of its costs you discussed the information 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 he would like to actually question asked on the question and answer session. Please press Star then one on your Touchtone phone. If you decide do you want to withdraw your question. Please press Star then too to remember yourself from the list. The company has asked me to remind everyone to refer to their costs.
Cash and every note regarding forward looking statements you will find its not all pastry of their Form 10-K filed with the FCC.
February 2019 at this time, all participants will be I'll listen only mode and this conference is being recorded if you need it operator assistance during the conference. Please press Star then zero. It is now my pleasure to turn the call over to Mr. Allison.
Thank you Chuck.
Good afternoon, everyone and welcome home Bancshares third quarter 29 thing earnings release in conference call.
During today's Tracy and Christian John or older follow.
Yeah for Randy, Kevin and Steven and they all they'll all be available after the presentation someone will be presenting to that.
Orders no noise.
Lot of moving parts, including.
We chose to call a 47 million dollar Boeing the results of which we had a one time freeport $7 million tax associated with it the yield was up I don't remember that trade once they stay one last thing. So we decided to call. We think we can do better with them on the money.
There were elevated pay offs in this quarter and will continue into the next several several years ago, we instituted prepayments on many of our credit and that decision has elevated or income for this quarter and will continue in the future.
My endeavor.
Loan rates in terms and not Oh in the trap of being categorized categorized as stupid binder.
You are correct, we think there's a little slow down in the market and we're not opposed to that we normally originated about $852 billion per quarter. This quarter. We only originated 710 made with New York due in 248 million Atlanta that 6.52% and legacy given 462 million it.
5.63, there were less opportunities in most of our markets in many banks are rising after those few deals that are out there. It appears it appears to be erased as it does.
Calls or just given the stuff away.
With rights from both banks in China by offering sub force.
Well that was 10 your interest only add low non recourse and give an 80% leveraged anyone that deal congratulation do you have just wanted to speak but award.
Excuse [laughter] wait banks in bankers are collapsing or rights in terms like Oh <unk> into her because we're going to do the route thing here and not sad sacrifice our future for short term bragging rights. We have made the decision to let three to 400 million walk because the right term and leverage our not conducive to.
Long term profitability of our company our leverage longer term low right. It's a recipe that most of the crowd appears to be filing Warren Buffett said.
Yes, the tendency other executives demand mindlessly imitate the behavior of others no matter, how foolish it might be.
Jamie damage quote was one of the toughest jobs will see he also has is to look at the stupid stuff that other people are doing not do it himself.
These statements come from two American icons that have proven.
Proven business and then besting skills, we should all list lease experts I just wanted to give you feel Matt.
When it was never quit in quarters never when when it going gets tough tough get but don't leave file or get Abu I remind us it's heartiest <unk> that's already as it may be.
These are really dangerous times from buying the straight analysts shareholders. All clap pressure from broke broke through this is it's time to move cautiously bikes has spent the last 10 years building their balance sheet quality high yielding assets and we could destroy all the good we've built and much less time it took to bill.
The factors drop right 50 basis points, but the market has dropped 150 is a 200 basis points I can assure you that caused the bonds have not fallen as fast as long right. So we know what happens to profit it's pretty simple.
I actually did not sell or future for short term brag a rat. However, it appears that banks are dropping their rights much much faster than they want to this is a major signed a witness in the quality of the producers and their relationship. They have other customers relationships are the most important agreed and keeping casters customers in times like this.
Some customers were disappointing, regardless, but most will stay with you.
This is a path at home has chosen we will not so our future because the short run in the market short downturn in the market quite the contrary we made this decision to build additional capital for the next year or do they meant that there really has a downturn probably 150 to 200 million dollar rise.
That is if we're able to maintain our best in class profitability will be working on continued to improve our asset quality as good as it is improve our operations service our customers about spending more face time with them and work on efficiency.
Hello slowdown pass.
But if you sell you sold the Devil now.
On a long time to get back just Steven.
Much less produce the best in class numbers as this company is no nationally for let's talk about the quarter I'm pretty proud the core EPS of 44 cents return on assets 1.93, and efficiency, a 39 cents thing and the net interest margin for 32.
Hello juice in it as a $42.8 million and pretty price it kind of used it up a little bit I was telling Jimmy Hana about that he said well yes.
He said don't take that away can you just don't give yourself credit for that because you had to force had pre buys them. So he said good job. So we got lot of those and you don't see allow that rolling in over the next period of time deposit rates are coming down slowly and asset quality is good it's been nonperforming loans loans at <unk> five four and not.
Performing assets at that 0.4, or five I don't remember when they've done that level.
Good expense control loan meal and stay as loan yields six or white from 6.6, and we grew tangible book by 15% year, we are.
Yes looked over the last five years and I wanted to share with our shareholders over the past five years, we've grown tangible book from $4, a 95 cents to $8.93, that's a 78.38% increase.
Like the same time buying back our stock where the value of $212 million and that represents 10.842 million shares.
Had we not bought back stock.
It would have increased our tangible book to 91.51% over the five years.
We're paying dividends to our shareholders or 320 million and Weve earned over a billion dollars.
We have returned to profit 50% of our income to our shareholder to stop stock repurchase and dividends not many banks could have accomplish these amazing path while at the same time improving capital ratios.
Yes, thanks to the amazing profitability. This company good job now that's why home is named best Spike in America by Forbes for the second year in a row.
Nine backstop Roaring tangible book.
Your spray Devon and growing capital all just like same time certainly this company has made the proper decisions for the long term for all involved and I can assure you will continue to do that in the future.
For your support and Brian Davis is going to cover more in depth on margin fourth Brian .
Thank you Mr. Allison the third quarter was a good quarter for our net interest income and net interest margin I'm pleased to report for third quarter net interest margin, a 4.32% was up four basis 0.4, 0.28% or the second quarter, our tax equivalent basis, we recorded net interest income of 144.2.
In Q3, 2019, compared 142.3 million for Q2 2019.
During the second quarter of 2019, the interest rate environment again to decline for example, the 10 year Treasury went from 2.50% on March 31st the 1.64% on September Thirtyth. This decline has increased the prepayment speeds on our investment securities.
As a result, we saw an increase in premium amortization.
Hundred 15000 from Q1 Q2, then we saw an additional increases the premium amortization of 373000 from Q to Q3, the premium amortization type remained flat from Q1 Q3, our Q3 margin would have been an additional three basis points higher.
Last year, we had a few large pile of math, which increased our margin. The first six months of 2019 to not including additional income for large by off advance. However, the third quarter of 2019, we had several interest income advanced primarily related to large by all these events totaled.
2.8 million of interest income and increased net interest margin by 8.4 basis points for the third quarter of 2009 thing.
Accretion income for the fair value adjustments recorded in purchase accounting was 8.5 million during Q3 compared to 9.2 million. During Q2 for a decrease of 778000. This decrease lowered our NIM bought two and a half basis points.
Other positive for Q3 was that we were able to keep the yield on interest, earning assets flat, while lowering the cost of bonds on interest bearing deposits by four basis points from June to as a result, we reported an improvement of approximately $4000. Additional net interest income heard day for Q3 2019.
Parents due to.
But that said I'll turn the call back to Mr. out.
Thank you Brian has good stuff.
Next we'll hear from Chris potent Chris how are you.
Oh, yes, sorry, good afternoon. Thank you.
As noted our third quarter was highlighted by a lower ending loan balance and higher fee related revenues for the quarter assets fell in what has become a bit of a seasonal trend after positive net growth in Q2 and $171 million in that portfolio decline you may recall, we had similar results in Q2 in Q3 of too.
Thousand 18 with declined this quarter, specifically driven by largely by not pay off which total approximately $350 million specifically pay off on facilities than revolving line made up about 40% of the total these facilities typically increase in decrease over time, and we expect that at least some if not all of this decrease.
We'll be reversed over the coming month in quarters.
Quarter to quarter increases and decreases in our overall portfolio, our expected and as we've discussed on prior calls they are feature of our product lot larger pay down quarters are also generally accompanied by higher fee related income Q3 was no exception as we collected additional fee interest income as a result of these movements in the portfolio.
On the production side year to date originations have been trending approximately $100 million ahead of last year and remain happy with the pipeline of expected closing between now and the end of the year.
Right now based on transactions in underwriting SIFI, a few is forecasted to have our highest your production since joining centennial bank.
With that Johnny I'll hand, it back over to you.
Thank you Chris.
[noise] Good report John .
Marty you here, yes, Sir you knew that after he.
And thank you Mr. Allison for the opportunity to provide this third quarter update on behalf short Premier Finance net interest, earning assets increased 15 million in the quarter to reach 85 million in total growth since being acquired by Centennial Bank back in July 2018.
The growth in the quarter may be attributed to a nice mix a robust retail originations higher draws on floor plan lines, despite seasonal pullback in utilization rates and slightly reduced prepayment speeds.
Retail application volume was flat compared to the second quarter, but the dollar value was higher we also booked an additional 14 million in floor plan minds, adding four new manufacturers that will result in increased future funding opportunities.
Encouraged with the additional floorplan lines in the higher seasonal utilization in advance of the upcoming boat show season that'll contribute to additional growth.
To further stimulate growth, we're also introducing a new super yacht retail finance program.
After months research in due diligence, we believe there is a financing opportunity in the Super yacht space defined is boats over 80 feet with whole values in excess of 7 million, we've observed a shift in consumer sentiment as the market Bulls charge forward in recession appears to have been averted for consumers to achieve a positive Rb.
Tries between their portfolio returns and the cost of their vote loan.
The falling credit rate environment is also for further fueling that fire.
Additional good news is were favorable to our income goals by 10% lower provision expense in the lean nature of our business within efficiency rate below 30% have helped us is profits.
Cross the 420 million retail portfolio weighted average rates climb three basis points in the quarter.
However, variably priced commercial advances are more immediately react to the vagaries in the market and experienced at 24 basis point pullback in rates.
Our contribution to the bank's net interest income continues to increase each month.
Also favorable to target, where our asset quarterly metrics, both compared to go in prior quarter 30, plus days delinquent loans breach a historical low 20 basis points or 875000 nonperforming loans at quarter end were just under 2 million six basis points favorable to target as a harbinger of.
And your asset quality trends retail originations in the quarter average FICO scores improved to 778, so very high quality paper and we experienced no commercial delinquency overall I'm pleased with the team's performance and encourages move into the fourth quarter with that I'll conclude my remarks, and turn the discussion back over.
Do you Mr. Allison.
Thank you John Gunn report Wackos past dues 20 basis points, that's good stuff.
We're going to go to Tracy and Stephen I guess I'll go heat tracing you've noticed Stephen right all right John Thanks.
A follow up on your outstanding report of home Bancshares numbers and this is Chris Brown, John I'm proud to discuss another strong quarter for Centennial Bank.
For the quarter Centennial banks return on assets was 2.08% ran an efficiency ratio 37%.
And continue with some strong revenue $173 million.
We continue to navigate through a challenging interest rate environment, obviously with the last two rate decreases in the most in the recent quarter and potentially more on horizon.
Our bankers are focused on the long term cultivating relationships, while maximizing return for this company and our shareholders.
Stephen will go over some details next but I like to point out we're pleased with our deposit growth over the year as the focus has been on core deposit relationships on the loan front as Johnny addressed already or our lenders have been busy working opportunities.
Staying with prudent underwriting terms in rights. This has proven to work for our company over time, while not betting our future on near term results.
I like to congratulate our mortgage company led by Keith Love along with his sales staff and his operations team are very strong busy busy quarter.
As I mentioned I'm pleased to see the improvement in an already strong asset quality metrics want to compliment all of our lending team for their continue effort in this competitive landscape.
I'm going to ask Stephen Tipton give little more detail on loans and deposits Steven Thank you Tracy.
I'll give some color on production payoffs and the balance sheet movement for the quarter.
We saw community bank production, a little over $460 million in the third quarter, which includes 47 million in production from shore Premier.
As Johnny mentioned, the community bank footprint loan production slowed somewhat in Q3.
The contribution split remain consistent among the Arkansas, Florida, and Alabama regions.
As it has been mentioned payoff volume increased to 721 million in the third quarter 2019, which is a couple of hundred million in excess of what we have seen in prior quarters.
Chris has already highlighted the CCFG pay down and payoff activity and the increased activity on the community Bank side came primarily from Arkansas as several large development projects stabilized and moved to the permanent market a little sooner than expected.
On the deposit side, we generally see some seasonality in the third quarter with the schools and municipalities we had our footprint.
We also saw customers with insurance money flow out of the as the areas previously affected by Hurricane macula rebuilt.
As such linked quarter balances declined $300 million, while year over year balances increased $422 million the growth in the first half of 2019 has allowed us to take a look at higher tier pricing on interest bearing deposit balances.
As we move forward, we'll continue to evaluate opportunities for pricing improvement, while managing funding needs to kind of [noise].
With that I'll turn it back over you Mr. Allison.
Thank you very much well go to Randy stand for the wrap up Randy. Thank you Johnny well congratulations to everyone for another great, but as you heard very noisy quarter, but even with the mix of transaction as you heard from everyone. The numbers are once again very very.
Good so let me just recap some of those strong numbers from home Bancshares and wrap this quarter up.
We finished the quarter with total assets of 14 Bay and 901.935 million income was 72.8 million, resulting in diluted earnings per share a 44 cents. This compared to 43 cents from the last quarter, which meets our market expectations.
Our our away was very strong up a little at 1.93, but consistent with the last two quarters at 1.92%.
More importantly at quarter end September produced a strong net interest margin at 4.32% up four basis points from the last quarter at 4.28% as you heard from our CFO Bryan Davis. They were very there were several influencing variables on both sides of the equation, but it's safe.
To say, we're very pleased with the consistency of the NIM over the past several quarters that is a key factor in our high performance.
The other side and once again, our profitability was helped by a very strong efficiency ratio of 39.16% as we continue to control our cost.
Average deposits for the quarter were up just a little at 11.17 billion, but down for the quarter on its ending balance at 11.05 billion, resulting in a loan to deposit ratio of 97.5 up a little but consistent from 97.4 at June Thirtyth.
Average loans were down a little for the quarter at 10.9 billion versus 11 billion at June Thirtyth.
However, ending loans were down 291 million for the core at 10.8 billion indicative of our refusal to compromise our terms and right for short term gain.
Our asset quality has and continues to be solid with all ratios at record lows, indicating im very optimistic and secure outlook.
As you heard our chairman our tangible book value per common share non gap was that $8 an 83 cents.
And you heard him talk about the tremendous growth in that value, especially over the last five years.
We now have three quarters behind us.
And our strategy has not changed.
Protect the margin for the future avoid the crazy deals in the market repurchase stock.
Grow tangible book.
Improve asset quality and control expenses.
Consistency in our key metrics.
This is what we do.
And that pretty much wraps everything up and I'll turn it back over to Mr. Allison. Thank you Randy I appreciated that I've got some really interesting charts here, but I really didn't have time to too.
How many banks 69 by 68 bikes and they are.
For the parent is in the U.S. non Puerto Rican bikes, and excluding Raymond James and Sallie Mae and it ranks us over the time over the last two years and net margin return on assets return on equity tangible common equity versus tangible assets dividend yield efficiency ratio.
And just for everybody's benefit at home guess Doesnt stands out in this.
Well hi, writing in everyone of those categories makes me very proud I appreciate and bankers or what they've done and we'll continue work hard I wish I had more time to go with that we may make some travel stage for that when we travel in the future those are pretty pretty important numbers.
I think at this point in time does anybody have anything else.
Doug are you ready for us to go we feel right.
Yes.
Well now begin the Q any session to actually quite she May press Star then one on your Touchtone phone, if you're using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then to at this time, a pause momentarily to assemble our roster.
Yes.
Right.
Correct.
Yes.
The first question will come from Brett.
Rabbits and of Piper Jaffray. Please go ahead Sir.
Good afternoon, everyone.
Afternoon Brett.
I wanted to first ask maybe John can you talk about you talked about stability in the market can you maybe just give us a flavor for what you're walking away from it from a pricing or terms perspective, kinda give us some flavor.
Launch you're not willing to cross and then also wanted just to hear origination rates kind of what you're expecting kind of given where rates have gone relative to the current portfolio.
Well, sometimes it's a good time to look a lot of loans and sometimes it's not a good time to book alone loans, but.
As the as the fed dropped 50 basis points I'm, telling you the lenders dropped 150 to 200, and where does not apply at that level, we're beginning to see.
It is as I said, it's a dangerous time, we're beginning to see loans in the phrase we're seeing 80% leverage we're seeing nonrecourse makes Dan.
It is it isn't time to be very very cautious I mean, as I've said in my remarks banks are probably in the best financial condition that they've been in ever maybe at least we are.
And to take a chance and in these kind of markets and go back to 80% leverage it just doesn't make any sense. We're just not going to do it we made the decision several years ago.
Sounds and Prepays, I mean to put prepayment penalties and I like you'll see over the next quarter to we made the decision like three or 400 million Lee the chair presently right now, but we're not going to go out and I will sell our future. So you're seeing in three ways, you're seeing the nonrecourse, you're seeing on leverage you're seeing.
Things that we saw that before the.
Before the Hawaii crash, where does not apply this is my largest asset and what is going to protect our assets will booked and then loans and we'll let the others go away.
Okay. That's that's good color. The other thing I was curious about your obviously defended the margin while in Threeq you would help their prepays you maybe just talk about the you know kind of go forward outlook, you'll be able to reduce funding costs I assume that's all the higher pace going forward, maybe just talk about how you think about the margin from here.
Hey, Brett this is Stephen Tipton, yeah. Thanks.
Yes.
At our updated alcove models here today, I mean, it's still shows a little.
Downward pressure a in a in a down 25 or down 50 environment, which is consistent with what we said last quarter.
We're constantly working.
Ending side the deposit side on on where where I also saw a report yesterday, where we had another 70 or $80 million and balances that we lowered by 25 basis points as some of it yeah. That's a month.
Post the last right. So some of the timing related on the deposit side, where we communicate the drops to the customers but.
Yes, 96, 97% loan to deposit.
Our mindful of balances to so.
That gives a little color for you I'll add little color on.
Alfalfa perspective and that.
We are asset sensitive when your pricing gaffes about 8.8%, which leaves us about 1.2 billion that is asset sensitive.
We just take the numbers out black box on Alco model that would show that 25 basis points to climb could decrease the net interest income everything held constant about $2 million or quarter or six basis points and if we went down 50 basis points. It begs pretty much double that it would be 4 million for the quarter.
There are potentially 12 basis points.
That's assuming that we did nothing to change the mix coming out one box on Alco model I think when we travel with with you and not an IDE trial will need so the emphasis that we put on margin and it is has been top of mind.
I think we're going to see downward pressure a little bit because of competition on land, where we're trying to do the good ones and let the but demand ones go by our that some of them are good credits you. Just we're just not go right at 3% nonrecourse would not and I.
I mean, this too shall pass will be here forever and the thank you go to lock in I mean were sent a lot of 15 2025 years to some banks lot of shattered bikes, but they're lock in themselves in for a long time with some of these credits and you know we hate to see some of these go but I think.
We will be better all in the long term a little right right the rat at higher rates in the future.
Okay, Great appreciate all the color guys.
Thank you.
Our next question comes from Michael Rose with Raymond James. Please go ahead Sir.
Hey, guys good afternoon.
Just wanted to circle back to the to the margin commentary. So obviously seven basis points of Prepays. It sounds like you expect.
Some level of Prepays going forward to kind of boost the margin. So should we think about.
Well, that's that's something around that for the next couple of quarters. Just in terms of what you guys are expecting for Prepays I'm, just trying to get it.
What's kind of the starting point for the NIM that we should consider and then build and whatever we're going to build out in terms of off in terms of rates. Thanks.
I think you're going to see at pressure on the Nam.
How many and we have the originations thus far this quarter and have not been at the rights that are wondering the base. So that's it obviously, we have not originated a lot this quarter. However, the pipeline.
I'm finding is this is the highest it's ever been it's about 2.6, 0.4 7 billion. It almost two and a half billion dollars and that doesn't include Chris Poelten as you Chris has a very strong backlog. So we have good backlog can give us time to weather the storm I think.
Any other comments on the margin.
We had lot of Prepays and you can call it James if he wants to add.
I was looking for someone to give us credit for having enough for side, but those prepays and Jimmy Hana Dan. So thank you Jamie.
We have.
We had a lot of pre buys you will see a lot you don't see a lot of money Ronan the income.
Pretty quick here in the in the fourth quarter. If all this stuff gets paid off because there's substantial prepayments I'm, Tom substantial until some big loans with some 456% prepayment Sam so.
I will be some substantial income coming in so that kind of takes a little was staying off of their movement.
Right now is absolutely.
Right now, it's actually recurring non recurring income.
Yeah, no I completely understand outside it's a good thing you guys, but.
With that in just had a question yet I don't think you guys address that my prepared comments just wanted to get your thoughts on seasonal so as I step back and I look at it.
You have kind of two buckets of loans that are treated kind of unfairly.
With the.
Unfunded commitments and then the the longer dated marine portfolio can you give us some sort of expectation. It's yet if you habit, what kind of the day one it might be undersea saw and how that might change your appetite to continue to grow cfcs and move forward. Thanks.
Well I'll take the part on almost a full line, where we have run our models and when and where at the point where our.
Auditors BK day or in the process of audit in that they've not given may there thumbs up thumbs down opinion on its I've been here a couple away. We're also going through model validation once again, they're probably going to be done in a couple of weeks, but haven't gotten the final report on that so we're not prepared to actually given number I mean, we doing.
Despite that a triple al will go up a little bit force that'll be a hit capital.
We do anticipate being able to.
Hi, good vantage of the three year phase and from a risk based capital standpoint, and phased in over over that as far as us originating or change in our lending.
Don't think that that's going to impact on why that we're doing our allowance may we'll have to find high triple al has the loan portfolio grows and let's be honest with you for a lot of the history of this company.
We haven't Donald that already as we grew the alone will handle growing loan portfolio.
Our our loss history mindful over.
Analyze shows that type lending, we do we really not lost a lot of money. There I think your question was asking for change any of the different types of loans.
As of what we've seen so far that would happen.
Hey, Michael This is Kevin Hester the.
The weighted average maturities for our portfolio are are shorter than you might think and.
Even in the marine portfolio those those prepayments speeds have been.
In the.
Lets say three and four year range out of that portfolio over time, so it's not going to make as much difference as you might think.
Understood and maybe just just one more just just broadband on loan growth. It looks like you know loans could could end flat to kind of down this year I understand why you you slowed that it's twofold right. Its its prepayments and it's also being more prudent not giving away the.
You know given away the ship, which I understand you asked me as we think about next year.
If this dynamic continues cloud I assume you'll pick same stance and we should probably.
Just kind of project a a lower rate of growth is that a fair way to to kind of think about it. Thanks.
Well I hope not but if the market stays like it is then.
Then I mean, if it's the kind of credits were looking at and the rights were looking ahead at almost credits now if that continues into next year will remain very conservative.
Well, there's a while doing awards to go down so theres lot of that again, if you think about it what broke what happened in I O five six and seven and eight we relied putting money in a day aware that there was no money in any case, they blame construction, but really there was no money him well bikers learned our lesson in eight 910 11 as we got.
Second the tail.
We just want we don't want to go back to that this is we're not interested in that kind of that kind of business that doesn't make incensed loan money at 3%. That's just the.
It's ridiculous so.
We're still an acute as I say does Ho Ho steady here's what we're going to.
No I get it we all like Jive prime better than the alternative. Thanks, Yeah, we might go back down a foreigner no mentioned our mine [laughter].
Thanks, Good work.
[laughter] that's what we then we just wanted one right and so taken away even right.
Worked out pretty good for whereas being conservative, whereas we're just being ultra ultra conservative in a market that is a.
We see when you see the fed dropped 50 basis points and bankers dropped 150 basis points to 200 basis points on loan. It was kind of crazy was almost flat.
They turned out to while animals at one point in time and they were just running a different we gotta quote for this and zones I was going to this in.
Pricing now we're in Orlando talked in this big developer and he's unlocking Saddam getting rid of core 7% I'm in third quarter seven year nonrecourse, three and a half 10 year nonrecourse and he said, though I just looked demand I wrap in asset where we don't do that that's not what we do.
And we're not going to do that so you just have to let them out you're not known play that game. However, we might get back down to five farsi. It I think you're right so anyway.
Yes got to get it.
Relationships are extremely important right now, we're disappointed and some people, but most people's stand up to the relationship [noise].
No I actually color guys. Thanks, Thanks for your questions.
The next question will come from Brady Gailey of KBW. Please go ahead Sir.
Hey, good afternoon guys.
Hey, Brady.
When you look at loan growth in our I guess loan shrinkage for you guys. The pay offs you are they coming out of one specific geography, like CSG, or Arkansas, or Florida or is it kind of across the entire home bank franchise.
Well it let Chris talked to CFG speaks to his CFG, Chris once you spoke to that will speak to legacy.
Sure.
Brady.
Yeah, No I think we're seeing nice for us I think we see our normal level of pay off they come.
In different months right. So I don't know that I don't know that we're seeing anything happened on pay off that we haven't seen happened before you know our challenge is that a convincing our customers to pay off and even 112 fashion over the years little tough to do so some quarters get higher than others, but.
The only maybe a little different this time was some of the elevation and pay off was wasn't visibility.
Which is a little different in that we do have an expectation that those those facilities remain outstanding and borrowers tend to re borrow and so we had one larger pay off a that hit this quarter that facility and we'd have an anticipation that some of that will get refunded backup over the next.
For the facility, which has generally another year or two.
And so that might have been a little different but but in general I think we're seeing kind of the same things we normally.
[laughter] from from from our perspective, we have a multifamily builder that.
It's about a $120 million.
In the decision was the let it go.
Well calls it's during the quarter percent nonrecourse, well do that and we're not going to do that.
And how did you lose it but there's also $4 million worth prepays on it so that takes a little is staying off when you got $4 million Prepays on one side.
Another pay down it happened this quarter was one that we wanted to ask them. It's a multifamily couple of multifamily units that was classified credit that.
We thought was fine with the regulators in lacking so we move.
I was able to get finance and elsewhere with another bye.
Much greater Mike and Oh, I took it out so not only some of this is Matt as I had that we've moved out Oh I think someone asked about the the credits. The two credits we had the two four credits that the mood fives wrapping moved to Fabs.
We went out in may as kevins ready to upgrade it but average fixed pay off it appears and it has a prepayment on so that was gone the other than was up.
A complex and.
In the Panhandle, Florida, and there's been no change on it we're not worried about but credit anyway, but there's been no change.
Some of it was was us in some of what was the market and some up was pricing for us to look it at long term fixed right stuff nonrecourse. We're just we're not ready to do that.
All right so [noise].
So if loan growth is not going to be robust at least in the near term auto jada, you've been able to successfully grow EPS via M&A.
Yes.
You look to M&A, a little more aggressively now that loan growth is slowing here.
I think we do that we have saying that.
I don't know, what's going on variety, but theres lots of bikes lots of banks coming at US more we say more by for the last six weeks and I've seen six or eight months coming at us some I'll make sense on don't make sense, but.
That that could be a plus force down the ROE. We're just we're we're just starting to play will that we'd look we really had been real serious about M&A, but I think we're getting much more serious now when you guys say that Tracy.
Opportunities are definitely more now than what they have been expectation still low leverage for us.
But they are coming down, though that helps not point expectations are coming down with it I don't know verifies afraid lives before is going to win in banks are being big time travel or but theres something going on out there has to generate and I don't know if its regulators I really don't know one of things, but theres something they are coming at us faster than we did we anticipate.
Income ahead, [laughter], Johnny just remind us like I know a lot of the deals you've done in the past had been scratch and dent is that is that still the focus and then what is kind of the size range.
And targets or you would potentially look at and then what geographies are most attractive to you.
Oh no size is important you know we did the stone guy deal and.
From a shareholder value perspective, we've been getting these Diana Matt I was a good lesson for us to learn it is important in some markets to get the blessing of the shareholders on the organization. So I think we probably would be looking at a smaller sized organization that gives us that wholesome local share.
Our flyer that you don't get would that you didn't get with that Whetstone Guy. So not just on that wanted to try reports it turned out to the crop that problem right. We're in great deposit market board, but we didn't get the RA RA off of the shareholders that would get on the smaller transactions I think thats important to the value the company because if it.
Suddenly find down then it's just they're gone overnight rat they don't get paid in Kelway. They don't get there are two in 20 or 20% or fit to whatever their pay us on tail nice sale, the stopping and get paid so it's a good lesson learned.
But the bottom line today is what's one is the most accretive to EPS for home Bancshares and that would probably be one is somewhere around our markets because of the savings that we can generate.
I still like Texas and have all at top demanded lot, but if we don't get a lot of signs out there. If we did a deal or two in and around the Florida I think we can pick up some of that savings and probably picked up some shareholder value.
Great. Thanks, guys.
Thank you.
The next question comes from Jon Arfstrom of RBC capital markets. Please go ahead Sir.
Thanks, Good afternoon, everyone.
Hi, I'm just a quick follow up on that on British question.
Number of banks coming out trying to <unk> I was the quality of those companies in general.
Quality the loan books.
There well I don't know until we get end, but Ah, yes, I'd say I'd say from a link to do that I'd say, there across the board or some of them I'd stop there Tony.
And I guess, they don't want to.
Stuff there are thousands and I guess the is put a little before sale side.
Yeah.
You know, it's it's just a matter of price.
Obviously this team and 15 wells those lots to do with a failed bank. They bought seven right I'm. So it it all has to do with the price of the Mike what it does to two home, but I think overall banks are in the best shape they've been in many many many years. So I think most of our good it just depends on what.
What it does no.
We're not going to do a deal for the sake of doing a deal we won't do a deal it makes sense for our shareholders and that is accretive to EPS for our shareholders and add some and some additional value or maybe a different market, but we can't get much side as we go outside Florida, or Alabama or up Arkansas.
Okay, unless crystals by something New York and I don't think he's interest in doing that so.
[laughter] [laughter] alright.
Also a you've been clear on your view on the fed but.
Big picture thoughts on rates from many of you is there like a directional bias that you're managing to in terms of your company you think we're going lower or Steve.
I think we're going lower.
I don't I don't.
Some people think we're going to go negative Adam maybe maybe it might be a quarter or too I think I think we may see that I don't know they really.
Races points, where it really than stimulate so I think I think another.
Other quarter down or maybe two down will pretty much be the end of it but some of the bankers are already they've already gone there on the rights. They what they drop as I said earlier right up 50 basis points and they dropped to 150 to 200 basis points on the right. So.
It was a.
It was kind of chaos after for a little we just got out sometimes it's good time to how little sometimes it's time to follow this was not as the time there not a good quarter to originate new loan new loans based on compensation and the silliness that was in the market. So even though we didn't resonate 710 million a lot of it never.
Never got up to our executive long committee, because they plus whatever god.
John Ranch, Jim just amazed at a conference last week last month and think that question was ask all the bankers enrollment.
Reevaluated those answers a year later and I were all completely wrong.
Exactly right [laughter] every year that they they ask questions on what our rights kinda do what's the most threatening thing to data not to.
The the best bankers in America, I guess most of them were there and.
Every year, they've been 100% wrong.
The year later [laughter], so I'm I'm kind of the opinion after seeing that two three years, we need to think what we don't want you know right. So if rates are going down maybe rights will go up I don't know yeah, well, you're probably went up right from a year ago. They went out last year, they were going up and test and tell me.
That somebody Collins said, you need to get ready right, you're going to go down.
And I style.
Even by let me ask involved was that data [laughter] warm it was able to just way the guy called <unk>.
I've got to tell you that in this country right now if that nobody really knows things May go rights will probably go down a little bit, but who knows what will happen after that I could just as easily come back up.
Okay.
Well you cannot.
Kind of turn in the needle just a little bit as as they as the rights change in the bad.
So you have a tendency won't twist that now, but we're just tweaking it are doing that and I think thats, probably the best thing to do right now until you get a trend I don't want to trend there appears to me to be down but that doesn't mean it would go down.
Yes, okay.
And then I guess the last question you know, we kind of periodic report to you on home $2 and obviously the rate environment has changed a little bit but.
Big picture goals for 2020, do you have any thoughts on that.
And takes us.
Lack the beta $2 I, just don't need a billion dollars' worth of worth loans and.
It's just tough to get right now it's tough to get at a decent right. So it might push out home $2 by another year in my mind.
But we'll get there. This has been interesting it's been interesting we normally all the goals we set in the past we hit within 18 or 24 months and this has been a absolute battle getting here with all of the changes in the payoffs in the rights and rate movements spend been interesting times.
But overall home has returned to the shareholders.
Over $500 million and the last five years, where are they in dollars and weve running close to 2%. So we've been able to manage our way through this crazy environment and produce sale best in class result, So hopefully we can continue do that the future John .
Well its quality I agree so thanks for the helpful. Appreciate it thank you.
The next question will come from Stephen Scouten with Sandler O'neil. Please go ahead.
Hi, guys have their own doing.
Yes, Stephen had and jarred spending time with your people in Atlanta. The other day I heard that you guys have both been in Atlanta, and not come see me. So we'll have to Atlanta, Yeah. You should have come out that data was really good. They maybe they had the top top people out there may be one weren't [laughter].
Oh, no whole figure that out one day.
Yeah. It was it was it was extremely healthy that was a that was I really enjoyed that hadnt last great problem.
I believe but I would love to state another hour and have that interactions that's faster than bad you absolutely.
Absolutely.
I'm curious what you're thinking on.
Share buy backs from here you said you might build capital I think you mentioned 100 200 million.
Are you thinking if you don't have the loan growth here in the near term that you might just just hold the capital and not not new more more buyback activity here in the near term.
Now, we'll continue to buy back we'll continue to be in a market buying stock. We may we like that may cut back on somewhat the while at the math we've been bad we think it may be prudent to store 150 $200 million and at worst like it happened to us if we do that.
Matt and we've got a sub debt. It's due in 30 months at March 20 to March 22, we could.
By way down the sub debt somehow they've never convince me how that works I counted as capital and it shows up on the balance sheet that so I don't want stand how that works I don't like that so we're we're thinking we're thinking that that might make we might use of cash to pay down on that.
Kind of split Matt if it's 10 dollar bail, we're kind of taken five in buying stock in about five in its sticking back you know is blessed to have the kind of earnings multiple this company has where you have that kind of money to be able to do those signs I mean, we call all handles and I don't know if you heard my presentation, but.
We have we've earned over a billion dollars last five years and we've given back to our shareholders over 500 million in stock buybacks and dividends, so while growing well while growing the growing all but growing tangible book by 78% and up.
Our capital ratios at the same time, so it's a pretty good moneymaker [noise].
Yeah, absolutely no. That's good but is there a way to frame that up I mean, obviously you bought back maybe and it was at 105 million in 2018, you bought back.
Looks like maybe about 70 576 million this year, so far as it is it 100 million a year of the that's probably right. That's probably talking that I think that's probably good for you at probably good.
Okay, and then on the expense side one of their kind of follow up there is is this a good run rate in the quarter was there anything unusual in the salary line in particular, it looks like a jumped couple of million Bucks this quarter.
Well I want to that was was the bonuses paid off of the asset or New York.
Payoffs.
Okay.
So that would remain elevated as long as you continue to see payoffs, but but if pay off decline that number would also come down a bit.
That's that's correct, but the way process is structured that's part of his employee compensation and we don't have the legacy doesn't have are structured that way so.
There will be in if the $120 million worth the most families payoff in the fourth quarter, there will be about $4 million with a phase and there is no associated expense.
Okay got you very helpful very helpful. Okay.
And then maybe just the last thing around the NIM if ive if I'm hearing everything you guys have said correctly looks like maybe loan yields are down a little bit from what you booked already this quarter. So if loan growth does return a little bit that would put more incremental pressure on your NIM.
Then it would if if maybe you just pulled back and then stayed flat is that is that correct way to think about it.
[noise] Hmm live Tim.
[laughter].
Presented here my question statutory [laughter].
Overall for tertiary that'll put more pressure on them.
We're riding at a lower right. That's probably later, yeah, I get it and Thats, probably right and this right environment as we sit right right. Okay. So yeah, it's that push pull between making more money or haven't better margins than better.
Returns so that it makes a lot if that's okay.
Perfect. Thank you guys for all the color.
Hi, Thank you.
The next question comes from Brian Martin with Janney Montgomery. Please go ahead Sir.
Hey, guys.
Right, Brian Hey, Hey, Steven I guess, maybe probably for you, but just going back to the margin for a minute I guess you know I guess, if you get another raider rate cut or two I guess, just kinda talk from the core margin perspective, I mean, I guess do you expect I guess it sounds like you still expect some continued pressure there on the on the way down but I guess.
Do you expect it more rate cuts you get I guess is your expectation that the beta yeah. The deposit beta gets higher so you get.
I guess more benefit I guess or less less impact.
Yeah potentially now we talked this morning, I think you had said on the deposit side you had such a long.
Period of zero rates, and they ran up and gotten a 2% range and.
Everybody.
As excited to earn that I mean, I think it'll take some time that it appears that this may pull back down and we're seeing.
And finally seeing this past month on the deposit side.
CD volumes and those type things below the 2% range. So yes, another rate cut or two that people kind of go back to looking for security over over yield that may help from a.
From a reduction on the right side, but it's still there were still competitive environment on the deposit side to than and all of our areas were run youre seeing you're seeing.
You are seeing two plus percent ads out of competitors, both here in Arkansas and.
In parts of Florida. So this is something we're having done to manage around.
Yeah, Okay numbers that Brian gave.
From from a modeling standpoint, I think are.
Consistent with what we.
So this quarter from a core perspective, if you strip out all the positive things we've talked about.
But as John said I think in an environment that were injured.
Take credit for those and are going to see those continue for.
For the foreseeable future.
Okay, and just see maybe I guess just in general just kind of going in the efficiency ratio candidate I mean, it's a it's a great level I mean, if we're in this environment, where revenues are being pressured I mean is there a lot more that or is there a lot more you can do or do you see other opportunities on the expense side or how should we think about kind of efficiency. As you go into next year I mean is it.
It kind of flattish as it is it up a touch and as a drift up a little bit from worth that and in this in 19 to 20, just kind of how you're thinking about that in general I wish I had this use of foree I like 40 spire.
I mean, we've.
We brought in lots of new people into the company over the last year too and we we've maintained that I think most of that any spending from personnel I don't see it right now Randy you about see any additional major spending not not anything major theres theres still a few areas that need a person here there.
Aaron.
And you know less we have a lot of growth I don't see that.
Increasing I think you are 40% is right on the Mark Yeah. So towns was said if we got to 41, she come back and take it back home so.
[laughter] and then I'll going out in a minute [laughter], so anyway I have different ways.
I'd like is pretty solid around 40 might take a little lower take a little below it but I think it's pretty solid.
Okay and that maybe for Brian just that FDIC credit I guess that that comes back.
But mid next year is that how to think about that I, just kind of ballpark when we should start putting that back in.
Oh, the FDIC credit is like one Tom a onetime advantage for us.
Okay. You saw you saw the negative in the income statement, that's because we were able to reverse the accrual for.
Q2, and I'll have to Mike I'm really much of an accrual for a few Q3. So okay. So its back on that.
It goes back to us normal run right starting in Q4, okay perfect.
Interest that's all I have thanks, guys.
Okay all right. Thank you.
The next question will come from Matt Olney Stephens. Please go ahead.
Hi, guys good afternoon.
Matt.
Hey, most my questions have been a address but on the M&A discussion.
Sounds like you're seeing lots of books out there I'm curious how do you think this is a buyers market right now I'm trying to get better idea of what the pricing could be an M&A transaction I now, let's say, it's much more of a buyers market leave seen in the last three or four years.
John we've actually had some reach out to some time ago that.
Participate and I haven't done anything yet.
Because of the higher price makes things are coming back.
We think that we think they may be coming down a tick.
It it as I've said to you when I look at.
The universe and homes trying to two times tangible.
And we're running a 2% all away and the Guy who wants to do something.
It's running a warm sent ROI and he trades. These trade at 1.8 or 1.9 tangible so it's been frustrating to us to see that the weaker sisters, there's no disparity between the best operators in the poor operators to spike up really unless they stopped their time and what they stopped their told in the then.
Then the market's punish him right now but.
I don't know that you will see a lot more there maybe some more.
Problems with asset quality not been seen many this quarter's thus far I mean people have an asset quality problems.
And so far it hasn't been a as bad as it was last quarter.
But.
You mentioned, the Florida and the market, you're looking at and you've been buying for for several years now and I would think that you already know some of these banks pretty well. So I'm curious are some of these the same banks are you dance with previously or are the books down there that you're seeing these new faces that you're less familiar with.
Actually its little about.
It's a little above.
Okay.
It's some some that we dance with didn't do anything and then some that that.
Actually the last book, we looked at was formed by.
This way grant and.
Trying to thank you the names to we had a.
Two we had.
Danced around with and two we had not.
Oh got happened.
Lastly, I like to perhaps is going to get I don't know why were bodies in a hurry oversight.
I don't I, maybe it's the loan demand and rights in the difficulty of managing 15 or $20 billion assets and this kind of roller coaster economy, maybe they're just going to house. My they think list for is going away and I don't know what's happened, but something something is starting this out there that that.
When you asking why they're thinking about selling I don't know GE always get the route answer.
Got it and then just switching gears more modeling question on the tax line item you had some unusual movements this quarter any change your expectations at that effective tax rate being around 24%.
Yes, it should change little bit our our marginal right headband, 26.1, 35, but with the Florida being a little bit lower we haven't quite a bit of real estate down there in Florida.
Probably the marginal rights now kind of got a 25.8.
819, we had been running on an effective tax rate of about 24.1, I left for that they about 300 basis points lower down to about 23 point I.
Got it.
And then that's what I would it that's what I would I told you in process [laughter] I'd like you did it right I've detailed your assets [laughter] and Brian what about on the purchase accounting accretion well have a step down in the third quarter, what sounds like from here going into fourth quarter.
And then the Cecil treatment for that going into 2020.
Okay.
No. This last quarter, we had 8.5 million of accretion and 6.2 million of that came from what I'll call just normal running off the normal accretion and we had 2.2 million of payoff accretion now what I've been witnessing is that about you know over the last year and a half is that it seems to be trip and down a little love.
For half a million dollars per quarter on average I would not be surprised to see us for total accretion be below 8 million for Q4.
Maybe around 787 9 million for accretion as far as a change once they still comes and it really shouldnt change months, because everything that we have that's out there on that is a trading continues to create.
The little bit of change we might have is that we've had some nonaccretable discount that we've decided that we're no longer native we've been able to move those over two or two accretable and that piece of the puzzle will stop in 2020, but we still have 78.4 million of Accretable discounts on our books as a set.
Timber thirtyth.
Got it.
And then on the Beauly contract that was surrendered what's the ongoing impact of that is that is that a few hundred thousand dollars in fee income that you that you were benefiting from each quarter that will will now stop.
Yes, I mean, obviously in our noninterest income we had a increase in cash by of life insurance and it was 714000 for this quarter 135000 or that was related to the Bali that we cashed in for this quarter that will not be re occurring in Q4 for Q1 or any time in the future after that we get our boat.
The cash six months after surrendered we surrendered at light in September .
So we actually think we should see a pickup there I mean, we really like 1.16 or 7.1 for 1.14 I mean, we've spent over him do better than that so weve that's far away comedy.
Okay.
Okay got you report Thanks your health.
Yeah. Thank you.
This concludes our question and answer session I like to turn the conference back over to Mr. Allison for any closing remarks. Please go ahead.
Nice job.
Yes, we will see in 90 days, we will continue doing what we've done in the past of buying back stock and growing the tangible book value. The company continue paying a strong dividend and growing capital into same time so.
I would say that we're kind of becoming like what is it the maytag damned. If we've never had to just let them go is reliable traveling homes will come in the reliable company. So we continue to hit the numbers and perform probably at least all different kinds of markets and.
We look forward to talk now again 90 days and thanks for your support.
[noise]. The conference has now concluded. Thank you for attending today's presentation you may now disconnect.