Q4 2020 Home BancShares Inc Earnings Call
[music].
Good afternoon, and welcome to the home Bancshares incorporated fourth quarter earnings Conference call, all participants will be in listen only mode.
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Please note this event is being recorded.
I would now like to turn the conference over to Donna Townsell Director of Investor Relations. Please go ahead.
Thank you, Gary and Donna Townsell director of Investor Relations and our management team would like to thank you for joining our fourth quarter conference call.
According to day will be Tracy French, our president and CEO of Centennial Bank, Brian Davis, Our Chief Financial Officer, Kevin Hester Chief lending Officer.
Chris Poulton President of C. C. S T. John Marshall President of Shore Premier Finance, Stephen Tipton, Chief operating officer, and our Chairman John Allison.
Before we dig into another record setting quarter I wanted to provide you with an update on homes ESG efforts in the year 2020.
We have increased our focus on the pillars of ESG and you will be able to read more about that in our upcoming proxy disclosures. We have increased our shareholder engagement through one on one calls as well as hosting a series of fireside chat well, we dug into the different segments of our loan portfolio.
We have also implemented performance metrics for our named executive officers and our chairman that includes both short term and long term incentives as well as peer comparison, our chairman took over the role of President and CEO of the holding company and he liked it to take a reduction in the salary. We are also actively working on our.
Second corporate social responsibility report. These are just some of the activities taking place at home while simultaneously running a great thing.
So our first report on the quarter today will come from Tracy French for Centennial Bank.
Thank you Donna and good afternoon to all per.
A year ago, we did not know what PPP was Johnny did not invented.
Or what we know now is that.
P Bob in our calculations crushed.
Trust me, we all know in this company what that is.
Our talented team of bankers continue to deliver great numbers and our group will share with you today some color following on our announcements this morning.
While some groups across this country seem to work together at all this year all bankers account on associations with banks and regulators have shown what can happen. When you respect from get on the same wagon no matter, where youre headed.
I've been in banking well, let's just say a while now and I've seen a lot. This year is the most impressive and what I see people working together.
It's a proud time to call yourself with bank of America as all banks have stepped up above and beyond to help our style customers of our businesses.
As past year.
Our regions and I mean, all of our regions wrapped up a great year for our company.
Tip of the hat to all of ours that work within this company that we've serviced and supported the customers this past year.
<unk> complement our northeast, Arkansas region for having a great year in Arkansas.
Also we'd like to mention Central Florida region, having its best since joining our company.
Our group here today will give more details on New York and shore and the holding company and a bit but I'd like to share with you some centennial bank numbers with you.
Well I'll call the old traditional Johnny Roy averaged over 2% for the quarter with improvement each month.
The efficiency ratios stay at around 38%, which I think is still a little high for you, but we're getting there.
Our FTE margin was 413% average for the quarter with improvement each month.
The old return on equity stayed right at 12% on average for the quarter with improvements each month.
On the new Allison ratio or the P. Five anr had on average of 67, 2% for the month and ended the year at 60, 153%.
I mentioned improvement each month and Thats, what Youre Centennial Bank team has done this year.
We will continue doing going forward. Thank you Dana. Thank you Tracy another great year for the bank Congratulation now we will turn to Brian Davis for a financial report.
Thanks Donna on.
I am pleased to report on 148 million of net interest income and a 4% net interest margin for Q4 2020.
Our fourth quarter net interest margin increased eight basis points from Q3 today I'd like to give you some color on the Q4 NIM.
First during the fourth quarter, we had $157 million.
Pay loans forgiven. This forgiveness caused the acceleration of deferred fee income for the loans forgiven.
Fee income increased $3 1 million from Q3 to Q4 <unk>.
The acceleration was eight basis points accretive to the NIM.
Second the COVID-19 crisis, and the resulting governmental response has created a tremendous amount of excess liquidity in the market.
As a result of the excess liquidity, we had 102 million of additional interest bearing cash in Q4 to Q3.
The excess liquidity was three basis points dilutive to the NIM.
Bart.
For Q4, we recognized $5 7 million of interest accretion from acquisitions versus $6 9 million of accretion for Q3.
The $1 2 million reduction in accretion income was three basis points dilutive to the NIM.
In conclusion, the eight basis points increase for PPP loans.
The three basis points decline for excess liquidity.
And the three basis points decline for less accretion income.
<unk> two basis.
So of noise when compared on linked quarters.
With that said our net interest margin is actually up six basis points on an apples to apples comparison.
I'll conclude with a few remarks on capital.
Our goal at home Bancshares would be extremely well capitalized on.
I'm pleased to report the following strong capital information.
For Q4 2020, our tier one capital was $1 7 billion.
Total risk base capital was $2 1 billion in risk weighted assets were 12 billion.
As a result, the leverage ratio was 10, 8%, which is 116% above the well capital out benchmark of 5%.
Common equity tier one was 13, 4%, which was 106% above the well capitalized benchmark of six 5%.
Tier one capital was 14.0%, which is 75% above the well capitalized benchmark of 8%.
And the total risk based capital was 17, 8%, which is 78% above the well capitalized benchmark of 10%.
With that said I'll turn the call back over to Donna Donna.
Thank you Brian those are impressive capital ratios for share.
Now for an update on our loan portfolio Kevin Hester.
Thanks, Donna I'm happy to say that 2020 is in the books easily the oddest year of my banking career.
Very proud of all that we've accomplished despite the global global pandemic.
It seems like years ago, but round, one and two of PPP were a big success for Centennial Bank.
Again, I want to thank the over 400 employees that contributed to this truly monumental effort.
We closed over 8500 loans totaling over $850 million and help to save likely tens of thousands of jobs.
We purposely began the forgiveness process slowly in September yes, we have submitted over $410 million or 48% of our round, one and two PPP loans to the SBA for forgiveness.
The response from SBA has been strong with over $285 million forgiven and we are seeing a forgiveness rate that currently exceeds 99, 5%.
The December stimulus Act provides yet a simpler forgiveness process for loans under $150000, which we will implement very soon.
That should provide us the impetus to complete this round of forgiveness from timely manner.
PPP three point O kicked off on Tuesday, it's a bit early to estimate how many loans that we will do but we can definitely tell that the interest from our customers is very strong.
It's targeted at the businesses that were the most affected and it will come at a crucial time as the pandemic drags on.
We finished 2020 on a strong note and the area of loan deferrals, as well, reducing them to only $330 million or 3% of loans at December 31.
Hospitality remains the hardest hit segment of the portfolio and it consists of over 50% of the loans that remain on deferral.
The vast majority of our deferrals, we're able to follow what I considered to be our plan a.
Which was paying all deferred interest up to date and entering into a one to two year interest only modification then converting back to regular P&I from one to two years. They also include financial reviews, no less frequently than quarterly and a moratorium on distributions while their own interest only.
However, the brightest slide 2020, maybe mortgage where we've flirted with $1 billion in loans closed following only $4 million short at the end of the year.
And posted the highest net income ever at over $22 million.
They have set a very high bar from themselves, but I believe that they are poised for another year of success in 2021.
Finally, I am very pleased to share very strong asset quality numbers with you today.
Nonperforming loans were 66 basis points, only at 16 basis points pre COVID-19 and three basis points on a linked quarter basis.
Non performing assets or even better at 48 basis points only up five basis points pre COVID-19 and one basis point on a linked quarter basis.
The allowance coverage of non performing loans is strong at 331%.
And early stage past dues remained low at six 2%, which is very close to where we were pre COVID-19.
We are committed to remaining disciplined in pricing and underwriting given the reasonably low number of quality projects and unprecedented levels of liquidity in the system.
I believe that Oliver Cromwell quote trusting God and keep your powder dry is an appropriate one for today's uncertain times on that Don on I'll turn it back over to you. Thank.
Thank you Kevin here on how many customers we hope to have P. P line.
It's very satisfying and I agree with your credit.
Net is Chris Poulton with our D C achieving.
Thank you Donna.
I'm happy to put Q4 in 2020 behind us into hopes to begin the hard but far more enjoyable work preparing for an emerging recovery in 2021 before.
Before I discuss that topic I'll share a few highlights from this past quarter and year for.
So the most of the year, we directed activities to harvesting the portfolio with specific focus on portfolio composition on pricing as a result of those efforts our returns and margins increased throughout the year, while assets declined loans were down approximately $150 million in Q4 and about $65 million for the full year on.
Our commercial real estate portfolio was flat to slightly up while we continue to reduce exposure to certain C&I credits.
Throughout the year, we remained active in the commercial real estate market, New originations volume was just over $700 million for the year, which is approximately 30% down from what we would generally expect on a normal year.
We estimate the transaction volumes on the overall market were off by about 25% to 50% depending on the product type and geography.
We did see a slight acceleration in activity on the fourth quarter, which is carrying over into the first quarter as projects that were on hold slowly begin to work their way through the pipeline.
<unk> payoffs were down from prior years, but slightly outpaced originations. This year payoffs accelerated in Q4 as we took the opportunity to move a few credits out of the portfolio towards year end.
The benefit of focusing on portfolio composition, while continuing to be moderately active in the market is that we are positioned to benefit from a recovery when that occurs while still early the shape of the recovery is beginning to come into focus recovery may be uneven and will likely be non linear, but having continued to learn through the cycle prepares us for the.
The coming quarters and years.
In particular, our two newest offices, Texas, and Florida are and should benefit from the acceleration in jobs and inward population migration and these two expanding markets, both Texas and Florida will continue to be a priority area for us in the coming quarters and year.
Throughout 2020, I stated that we had built CCF G for just this sort of market.
<unk> built for durability and all weather, thus far our results have proven this out.
While I remain hopeful that we're closer to a recovery we will remain our same cautious and opportunistic selves as we explore the coming post COVID-19 environment.
Don I will turn the call back to you.
Thank you.
Now John Marshall will update us on the boating world.
Thank you Donna and good afternoon to performance of the boat business in the fourth quarter, certainly didn't disappoint and provided a population for a full year of unusual COVID-19 changed activity.
We received $360 million retail applications in the quarter down just a bit compared to 510 in the third quarter. When the boat volume surge was at its peak that resulted in funding $44 million in new retail loans down from $90 million in the third quarter.
Credit standards and asset quality remain high despite the COVID-19 frenzy in the year average FICO score in the quarter was 776 and average loan to value for originated loans was 66%.
Our channel remains prepayment speeds early payoffs totaled $52 million in the quarter up from $46 million in the third quarter totaled $144 billion for the year.
The same time, we were able to add six months to the average duration of our retail loans in 2020 compared to 2019, so as the Covid economy stabilizes. This should help reduce early payoffs and stretch the lives of these on interest earning assets.
As Covid closed both factories around the globe depleted North American inventories did not be replenished our floor plan line utilization at year end was 31% or below the historical average of approximately 60%. This represents $80 million of potential fundings.
Shipments are beginning to resume as manufacturers are able to find space on freighters, but domestic dealer.
<unk> is caused factory Skeptically review, the 2021 order logs.
Certainly the U S political and economic environment is also introduced uncertainty.
I'm curious are accepting aggressive orders for more optimistic dealers, but also demanding more significant non refundable deposits to cover potential cancellations.
An encouraging sign for sure was positive net inventory fundings in the month of December So we closed out with an increased $3 $8 million.
This was the first month of net fundings versus net payoffs since April could point to a commercial lending rebuild in 2021.
The potential for scaling our business through acquisition and rapid growth was realized as our ROA improved to two 8% in the fourth quarter compared to two 7% prior quarter, one 3% in the prior year prior to our acquisition of our largest competitor.
We continue to be a lean organization jaws efficiency was 16% in the fourth quarter compared to 22% in the fourth quarter of 2019.
We delivered $29 million to the bank's bottom line full year 2020.
NIM improved by four basis points in the month of December by 18 basis points quarter over quarter.
The integration of LH finance acquired in the first quarter has also improved our NIM during the course of the year from $2 five 7% to 396%.
Just I'll close with a few milestones for the year, we received 1627 retail loan applications for the full year nearly double the 982 received in 2019 resulted in a record funding of $227 million in retail loans compared to $145 million in 2019.
When we joined the Centennial back in 2018, our goal was to rebuild from scratch our commercial lending platform in 2020, we eclipsed the $100 million Mark on organic non acquired floor plan commitments and enjoy a diversified partnerships of 50 dealers across North America.
15 manufacturers worldwide.
While our combined portfolio contracted $25 billion for the full year I'm optimistic that rebounding commercial inventories will catapult us back to growth in 2021.
So with that optimistic.
Our outlook I'll turn it back to use them.
Thank you John and congratulations on a great year.
Now, Steve and Christian will provide us on that day on deposits and other operational information.
Thank you Donna.
We'll give color on deposit activity repricing efforts and trends and a few additional details on the balance sheet on.
On the deposit side, what a year, we had in 2020 total deposits ended the year up 13% or $1 $45 billion.
Most importantly, our noninterest bearing account balances increased nearly 900 million or 38% from the year end 2019.
While the increase is certainly attributable to the government's response to the pandemic. We believe the growth is also a result of the <unk> business development efforts of our bankers and the resiliency of our customer base and geographic footprint.
On a linked quarter basis total deposits declined $212 million as we allowed a total of $471 million in higher cost time deposits to roll off.
The shift to digital banking continues as transaction volume for mobile Treasury management, and debit card transactions trends higher.
This has allowed our bankers to focus on supporting our customers both in branch in person and virtually.
And we continue to review our product set and look for opportunities to generate fee income at home.
Switching to funding cost interest bearing deposits averaged 44 basis points in Q4 down 10 basis points on a linked quarter basis and exited the quarter in December at 41 basis points.
Total deposit costs were 33 basis points in Q4 and are down to 30 basis points in the month of December.
We continue to monitor liquidity levels and look for opportunities to lower rates in line with the market.
Switching to loans, we saw total production of over $725 million in the fourth quarter with nearly $500 million coming from the community bank footprint.
Payoff volume appears to be a record at $886 million with over $300 million from CCF G.
And Phil this to be a sign of strength in the capital in secondary markets.
And Brian Davis his remarks, he discussed the comparison of the NIM to Q3 for.
For additional color on a linked quarter basis, excluding accretion and the impact from PPP loans.
We are proud to see that that net interest income increased by over $400000. Despite the decline in average loan balances.
Focusing on the proper risk adjusted return on loans and managing interest rates on deposits, our president's and bankers have done a fantastic job in defending the net interest margin in 2020.
And with that I'll turn it back over to you Donna thank.
Thank you Steven vs.
Have all been impressive report on another amazing quarter for home congratulations to all and now our final report 10-Q from our Chairman John Allison.
Thank you all for attending home Bancshares fourth quarter and year end conference call today.
We didn't bring out the slow fees or the <unk> is that what it was Kevin <unk>.
We didn't have any margin bands, but we should have had all three today after the quarter that we had.
C by the numbers produced in the fourth quarter that we certainly raise the bar.
<unk> to a new level the company was almost perfect getting on seven and a half eight seven gross and exceeded our expectations for revenue profit efficiency margin PNR and EPS.
The only downside was loans were down about $160 million as $155 million of PPP about $150 million from.
New York and about $150 million from legacy.
Actually our attitude is probably not that this was the time to be aggressive on commercial side really there's really nothing wrong with sitting tight while this blows over.
Like to thank our long term bank investors that have endured the unfavorable on favorability for banks over the past several years and want you to know that we felt the pain with you.
In spite of all that that has happened in the last three years home has continued to perform with best in class metrics arent around $300 million adjusted.
Adjusted net income per year, 2018 was $310 million 2019 was about $290 million and 2020 was $305 million if you adjust for seasonal.
Speaking of Cecil.
It appears that some people are tight from a mathematical calculation and treating it as a piggy bank I think the jury is still out on this program will continue to evaluate.
Yes.
We will continue to evaluate over time.
Think that we're slightly over reserve, but I'd, rather be on that position and have a cushion and be under reserve that nearly all banks were before the program started I prefer to maintain reserves of two plus percent over the next five or 10 years and let this program C can prove itself out it's my experience that to pursue.
Centers worked over the past 30 years at some number outperformer in good times and bad.
Positioning the company with many potential profit hands has proven debate of course of action for this company, because where there's something bad there is something good you just have to find it.
The bad was the pandemic caused from a number of loans projects to be canceled or postponed as a result of uncertain times.
The goodwill.
Excuse me. The good was two sources of income that have shown on rock star status for our shareholders.
Many of our sources income, particularly new construction in C&I credits slow considerably not that a slowdown really concern to us because sometimes it's better to backup and take a look at what you have and get your arms around it before you do something else, we did that through a series of fireside chats.
And what we said then as a C.
Same as what we would cite now I'd love to take credit for anticipating a health pandemic, but we know that's not true.
I look at the good side of our 2020 performance.
We have to credit Marine finance business on our home mortgage business, because both were much much stronger than ever interest and.
Anticipating recreational vehicles, atvs bass signals marine and home purchases boomed, and we had two of those opportunities on our stable and want to run it has been and are still having every month. The decision the decision to enter the marine business has been a great business decision John and his team are.
Loosing record levels of origination.
Earlier, we purchased an additional platform ex platform number two similar size and once added to our existing platform. We have doubled our size while at the same time, improving efficiency and increasing our yields not only did we purchase a competitor we eliminated one of our biggest competitors.
We entered we entered time exiting home mortgage business after Jamie Diamond said banks cannot be profitable doing home mortgages. However, we found that just the opposite.
Profitability has gone up over 300% last year alone I am glad we stayed with the business I think it was a good decision.
The types of approximately $11 million of quality loans already on the books, yielding over 5% at a few equity investments that paid off handsomely for us in 2020, adding $900 million on PPP loans.
Plus never gave up on charge offs that resulted in a few <unk> recoveries, where 2020 and you add in Iraq stars of Marine and mortgage.
And then go it creates adjusted income for 2020 without <unk> of $305 million for the year or 185 $1.85 per share I guess, it's better to be lucky than smart, sometimes let's go on the performance revenue was 191 nine.
That's an all time record.
<unk> was 100 I don't know.
I've talked to one of our friends in St. Louis works on St. Louis said, we shouldn't use record record record. So I'd like to go back and say there's 181 nine is the best at per house.
Good.
<unk> was 107 Seth.
And I'll watch I ran a research report this morning that went out and some of them was bragging on somebody's PNR and said that their pretax free provision <unk> was two 2% well I'm proud to tell you the home Bancshares was too.
Six 1%.
Also net profit was $81 8 million return on assets, 197% and our first 50 cent quarter ever first time on the Companys history to earn 50 during the quarter and return on tangible common equity of 29, 6% just a hair under 21.
And as you heard on the margin of 4% and Thats increasing.
Plus <unk> five anr.
Tracey gave you the bank while ago. This is the bike and the holding company came in at 50 916. So we brought down 50 916 to the shoe box price.
Thats pretty good and another interesting factor that I can already share with you.
If you take the revenue of 191 9 million and divide that into the after tax net profit of 81 9 million you come out with $44 nine 6%.
Think about that 44 point, our 40 call it 45% of the revenue fell to the bottom line on after tax great job on all the company continues to go.
With profitability of about $300 million in the last three years, our management team has decided it's time for us to acquire some additional assets when we get approximately $300 million on a 197 on ROI three years in a row. That's about all the juice you can get its time for us to make an acquisition and take those new assets.
And turn them into a 197 ROI producer, we will be active in Florida to capture the consolidation savings and huge demographic shifts that Florida is enjoying.
We believe with no state income taxes.
Business friendly environment in warm weather, the Florida franchise, we will continue to be the most valuable franchise in the U S. We're also open to other locations, but it's hard to compete with attributes of Florida with the strong earnings power.
Great asset quality long term profit management team and a more than adequate reserves I think its time to become more aggressive in the M&A. If we can find the right opportunity.
With about $16 $5 million of PPP profit left to harvest in the field and a new Pvp program already in motion. This will give a nice kick to the continued extra profitability for the year.
Not to get over optimistic, but knows exactly where on familiar we approved over 100 million loans $100 million on loans at good rates.
You again for your support as the volume of vaccines begins to flood the market I think by June we will be looking at the crisis in the rearview mirror and back to business as usual and I'm certainly ready from that some good old times again and hope to see all of you soon thank you.
I think we're ready for Gary now.
We will now begin the question and answer session.
To ask a question you May press Star then one on your telephone keypad.
If you are using a speakerphone. Please pick up your handset before pressing the keys to the draw. Your question. Please press Star then two at this time, we will pause momentarily to assemble our roster.
Our first question is from Jon <unk> with RBC capital markets. Please go ahead.
Thanks, Good afternoon.
Hey, John.
Just wanted to.
Last comment Jonny, you made on loan committee approving a $100 million in loans on line.
Kevin.
Some of your comments.
Comments on loan growth.
Whats really going on there or is it just are you seeing increases in activity is it just low quality activity.
When you kind of sit through when you think about what Chris said is well how do you guys think about loan balance trajectory for the year.
Well I'll make a comment.
Kevin talk and Chris on what he sees also presents the people that really see that every day.
We have not been.
Oh, five say, 7% eight assets I don't give a day and by ever statement on the loan I kind of felt that way. This time, sometimes it's good just to catch your breath and we did the deep dive into.
All of our loan book.
Uh huh.
There's a little activity going on out there now, but theres not much so somebody to get loan growth and gotta be stealing it from somebody else because there's really not allowed on construction or development going on so.
And there are steps from the banks are stepping up a little bit which places us we got about a $15 million credit go on out of the bond that theres, probably a loss and probably had good SaaS levels than the other bank committed to it and they are doing it would be closing out of here in a couple of weeks so low.
This is a good time to backup and sit Pat and pick your pick your battles and pick your loans that you want to pick and main time clean up and push out and I'll, let Chris can comment on what he's done we pushed out a few loans here that we're on the marginal side. We've had more focus on that I think that puts us with.
Lots of dry powder and ready to move forward in the future I mean theres not allowed out there to get then what happens.
<unk> got to stay low loan from somebody else on what does that mean that means low rates.
And my comment on low rates and I don't think depends on being able to hold it where it is I mean, we're up 21% on the 10 year or 21, 9% on the 10 year this year alone.
Thanks.
I think where inflation is running much higher than 2% of rats.
At the present time and I think the on why they're going to stop X rays right. So those that are doing long term fixed price at low rates will pay for it on the future I think.
Main time on our own Kevin you on row were in line, Yes, you were going to let.
Chris talk about it I don't really have anything specifically on Ed you said everything that I would say from from the footprint perspective, I would just ask Chris a question on the last day or two Chris you won't comment.
Yes, Sir Hi, its Chris Hey, John.
Yes, I'd say a couple of things one is.
Transaction volume nationally we're down.
Anywhere depending on who you talk to 25%, 30% is a good safe bet over the course of the year. So the fact that we were down a low on volume.
Makes sense, because I think as John said a few.
If you were up in volume and everybody else was down on volume you're taking it from somebody.
The second is.
Jonny mentioned, we moved some credits out we shrink in the fourth quarter, largely because our payoffs were up.
And some of that was expected because early on in the year as we got into the understanding the shape.
The recession on the pandemic, we went to some borrowers who had some credits where it was clear they werent probably going to be able to execute.
Theyre planned strategy and we gave him some time to.
Find and other home go into somebody in in May and telling them. They got to leave right. Then that's not a very good way to handle it.
On a lot of pressure on the system put a lot of pressure on the borrower.
We were very clear with some of our clients that we probably weren't in it for the long haul with them.
<unk> is going to change we get into the end of the year too.
Come to an alternate arrangement and it took until the end of the year for some of those to come to an alternate arrangements and so I think about 40% of our payoffs for the year occurred in the fourth quarter. Many as a result of that talked about harvesting part of that as part of harvesting as crop rotation. So we rotate some loans out creates some opportunity for us to to refill and what.
We think are better times, we did see an acceleration of activity in the fourth quarter that is rolling over into the first quarter for us.
I like where we are on our pipeline, we talked in previous quarters, where we liked where we were on the pipeline, but we thought it would take some time, we're seeing those loans come through now and were seeing those loans close now there is a lag between.
Signing up a deal closing a deal on funding a deal and so we will continue to see a little bit of that lag but.
We've been talking about the fact, we will lean into a recovery here that we expect that stem from the being aggressive, but I think we will lean into the recovery and we will leverage our footprint in Dallas and Florida to take advantage of those two markets, which are exceptional markets.
Okay. Good.
Kevin do you feel like we're we're seeing some recovery in some signs of life.
I think it is going to be a little bit.
Thank you will see it as we go into the rest of the year in.
On the vaccine gets further further implemented in.
We get a little further along on out outside of the pandemic I think you will see particularly in our our Florida footprint I think youll see just as Chris said, it's a.
It's a great market and the inflows are are even better than they've been in the last several years I believe so I believe you will see it but it will take a little while into this year I believe.
Okay.
Alright, Thanks, a lot for the help I appreciate it.
The next question is from will Curtiss with Hovde Group. Please go ahead.
Hey, good afternoon.
Okay well.
Maybe Bryan or Stephen I appreciate your.
Kind of comments about the <unk>.
On the margin I'm just curious.
How are you thinking about the margin.
Excluding PPP on accretion.
That you can provide on kind of the core NIM, how that will trend in the near term that'd be helpful.
Hey will it's Steven.
Take that I mean I think.
On the table here.
Think of it as is.
Stable from here.
We've got on deposit costs down 10 basis point rely on.
Each of the last couple of quarters.
We're down to kind of fine tuning some of that but there is still there's still opportunity there the loan yield C.
<unk> have stabilized.
Somewhat so I think really deposit costs potentially can can offset what happens in the investment portfolio as we go from here.
Okay.
And then I may have missed this Kevin in your remarks, but do you have an update on kind of the timing forgiveness for the remaining portion of PPP that's on.
On the books right now.
Yes, we've submitted have.
Ben we've received back about a third if you take broad numbers.
I kind of put everybody on hold a little bit with forgiveness. As we were approaching this second round or third round of PPP funding and because the.
The December at our stimulus further simplified the $1 50, and under we just got that form yesterday from the SBA. Our provider has to have on time to put.
Put it in a solution so I'm still holding people off of that.
Forgiveness for a little bit here, while we while we take care of that and PPP funding. So.
I would expect that you are probably submitting.
Submitting.
In addition customers have untold if they choose they don't have to submit until sometime around October.
So there are always some folks that kind of hold off closer to the end.
So I suspect, it's going to be kind of linear between.
Here in third quarter, we will keep submitting is as customers are ready.
On.
Once we get this funding phase of.
The three point out on in the forms in the.
Forgiveness portal, we will keep submitting but it'll be it'll take second and third quarter to get there.
Okay. Thank you very much.
The next question is from Matt Olney with Stephens. Please go ahead.
Hey, Thanks, guys good afternoon.
Hey, Matt.
Wanted to start on credit and it looks like the fourth quarter metrics look really good non performers flat net charge offs immaterial.
I'm curious if you guys have some updated thoughts around charge offs in 2021, and we're hearing from other banks. This week that are providing some commentary on some some guidance on their charge offs for the year and for home Bank I'm showing that the consensus forecast is around 60 bps of charge offs in 2020.
One which would be around $60 million for the year.
Any other only clarity you can give us on that I'll give you a little commentary at least from hedge growth 60.
$60 million line.
Yes.
But that's not going to happen.
Yes.
I don't know what was given a 63 basis points or whatever I mean wait on.
No.
What we said to me on <unk>.
We did our day to have is exactly what we say to you that we don't see any losses I mean, we don't see any losses, we expect so.
Yeah.
I don't know where that 63 came from Stephens on how we're talking about it before cabinet statement you all got a comment on that.
Well.
If it's 63 basis points, you probably won't be talking to me in the second or third quarter.
Somebody else's.
[laughter].
There's going to be some fallout as we come to the end of this we don't know exactly what it is but we've got our deferred loans down to 300 million just little over $300 million.
And half of that is hotels.
That are really just needing the vaccine.
To be more widely accepted and get folks moving again and.
Outside of that we really we really don't see.
On the issues.
It's hard for me to C $60 million this year I'm not ready to give you.
Number yet but it.
I just don't see that number.
So when you work with offices.
Yes, I agree with what Kevin said I mean, it's.
Things may pop up in the future that we don't see today, but.
Trying to estimate.
Four or five times, what we've seen on annual basis for the last five years.
Unlikely.
We have been reaching in the next quarter to try to allow us.
I mean.
Our books been so good we've been stretching in the next quarter. The C. What we saw coming up we've been taking those kind of getting that brought really because we didn't really have anything to charge offs.
Hershey getting comment on that and I'll share with all of the volume.
As far as the projected number that wouldn't be on the radar screen today.
We're still.
We've identified we'll call. It is what it is whenever we look at them and low specifically looked at that and there is not anything today again, we don't want to Jinx us there but.
We're comfortable with our position.
Okay, Great that's a great commentary.
And then just I guess shifting over towards M&A.
Taking a step back because the stock has performed well and you've regained a nice premium multiple walk us through how you view M&A for home Bank and just remind us of some of the more important parameters that you're focused on when it comes to your M&A program.
Well.
It's accretive.
Trip lie we're looking for AAA deals, we're looking for people.
Net loss to be part of home Bancshares in the history of home Bancshares and believe in what we believe in.
We look at one <unk>.
You got to pay the path for some time, we looked at one.
This week.
Little operation what day.
Margin is 3%.
And you can fax lots of things you just can't fix it takes a while to fix the monarch, we can't asset quality and the buying good assets in Florida. It makes sense. It's like you get some consolidation savings out of it but.
You just have to put a yield mark on it.
Scott was the low cost low cost operator in the market. So.
But that's a good one there's four five in the Florida market that make some sense and maybe one outside of that but the problem when you get out.
You get outside of arc <unk>.
Florida is we don't get the consolidation savings that's the problem, we can link Duane.
We're running one deal outside of Florida were run it at a 10 or 15% cost reduction closer pretty good bank. They run pretty good but we just don't get any savings out of that where Florida, we modulate at 33%.
We've been on as 50, so we get larger.
Really adds to your bottom line. So my goal is to find the right triad hopefully in Florida that we can do that.
Make some sense.
But it's they're bringing about one four ratine asked about we're buying some bringing about 1314, that's about the price. So hopefully somewhere we can go a little higher net calls are stopped.
We got a limit to where we can go and we're damn share in arguably the highest price buyer in the marketplace. So.
We are looking I can tell you we are aggressively looking for the next opportunity for home Bancshares.
Okay, perfect that's great commentary I'll hop back on the Q.
The next question is from Michael Rose with Raymond James. Please go ahead.
Hey, good afternoon. Thanks for taking my questions just wanted to get an update on some of the at risk exposures.
So on a lot of talk or on the hotel portfolio over the over the past couple of quarters can you give us just an update on kind of where you stand with with things.
Hey, Michael this is Kevin.
Like we said.
<unk>.
Got the deferred loans down to a little over 300 about half of that or 175 ish, let's say of our hotel so.
That's roughly 20% of the book.
On the pharma, which is.
In my mind, there is not a bad number.
At this point.
Where we're at I mean, you're just beginning to come back into the season in Florida. So.
Youll see those areas pick up but.
Since the last quarter would.
It would be the.
Probably the weakest quarter for all of our markets in the hotel business would be the fourth quarter. So I don't think I could expect to.
Reported anything Earth shattering to you.
Since the last 90 days I think.
He has been pretty much where they thought they would be.
You'll begin to see the Florida markets pick up as we can.
Go into.
January February March and then certainly as you get into the summer even in the Panhandle. So.
Our hope is that our expectation is that we're going to see the Florida markets pick up.
Back to their kind of back to where they expect it to be.
Okay and then.
It sounds like you guys generally feel pretty good about credit at this point, but going back to your comments Johnny about keeping the reserve.
Above 2% I mean is the plan really here to just to grow into it at some point when growth picks up.
Spec low levels of provisions going forward, maybe not negative provisions, but do you really plan to keep that reserve under Cecil over 2% I'm. Just wondering how you can tie you can actually do that.
I don't know.
It just.
The program has not proven we don't know that works, we may run a parallel system, but.
10% reserved has worked that has good times and bad times and I think we continue.
If our accounts will allot, where it's on.
On our plans.
Let me back up and say if you see me lowering and bring in profit Chino, They put a gun to my head because.
I'm adamant on not touching on one touch we've taken we've done that we're running fine without it everything's good and what we Miss we'll just leave it alone just let it sit there.
Leave it alone.
We got other things to buy it.
Vintages, there might be some jump on the blood works on this I mean somebody has got a 63 basis points.
Maybe that could happen I guess stranger things have happened, but it does we've got plenty of reserves to handle it and I don't want on him.
Im saying these people pulled 2 million out of our 10 billion out of 500 million I on the reserve stickier on the income we could have done that.
At least that are stuck in I guess I don't want Hamlin.
And the income on this time, we just didn't do that and we're not volume as I as we've already taken the hit on it.
It's there we can report what price would be but maintain its on our call. It our shareholders money, it's not anybody elses power anybody else's shareholders money. It belongs to the investors and the shareholders of this company and they are comfortable with our reserves. So I'm going to try to stay there on another side I appreciate you asking about <unk>.
You were the first analyst day came out and asked about ESG, we've been we've been working diligently on ESG here.
And the company for the last year.
You didn't say on pay last year, if you remember.
Randy Sam for tire in November.
Let me add to throw out the president CEO and chairman.
So they took the multiple of my salary and instead.
You said it wasn't fair one right, but anyway.
We've worked hard on that there's new metrics after the executive committee and metrics out from SaaS.
If we hit.
The numbers are people get paid if they don't hit their numbers and that will get paid so anyway I thought I would comment to you. The first one and ask about ESG.
I appreciate it.
Last follow up question.
You guys still have some buyback authorization I understand where the stock is but you guys have also bought stock when youre. Your currency has been pretty valuable how should we think about that going forward, especially if we don't see a transaction here in the next couple of quarters. Thanks.
We'll continue to buy back stock.
We're in the buyback business I would like to use the money hopefully four on acquisition, we usually use a little cash in on acquisitions. So we try to use as much cash as we can so we don't issue as many shares so I think.
That's probably it Stephen you've got to come in on that I agree we've got.
$3 8 million shares left under the authorization.
On cash balances.
To grow throughout the year. So I mean, there's obviously 17 plus percent capital ratio.
We've got several levers to pull there.
You may see us.
You might see us do something with that shortly here.
Fair enough thanks for taking my questions.
Thank you.
The next question is from Brady Gailey with <unk>. Please go ahead.
Hey, Thanks, good afternoon guys.
Afternoon.
Hey, I wanted to follow up on the other topic of M&A.
Now $16 billion on assets, it's not like.
Little $200 million in asset bank can really move the needle for you guys much anymore. Unfortunately.
Florida feels kind of rolled up already I mean, theres just not that many larger targets of size, especially ones that are for sale right. Now so maybe just update us on other kind of the size range as far as what.
Ideally you'd like how big you'd like your or smaller you'd like your target to be.
Oh, probably in the billion dollar profit and first wanted to wait and doesn't want to allow property first form somewhere in a $1 billion today and $3 billion run somewhere in that market problem would be on us.
Better than other.
And weighted to the small layoffs or if it's an Enphase force, we'll do one but as Kevin said, it's Matt is hard to do a big win there is much work to do if anyone as a level one so something in that range, which can help a little bit.
It has to move the needle if it doesn't move the needle.
Actually we don't.
We're not going to do it for the sake of SaaS, we're not interested in that so.
And everybody. Thanks survey these premier on the other <unk>. So you just have to for the firm first stepping out the first time in several years its going to be home.
Hopefully on D&S tried there'll be extremely accretive to the company.
The stock will go up.
Non-GAAP <unk> acid on we're trying to get the last nickel of everything you could get the last nickel you got to make room for the for the investors to see what kind of transaction. It's.
<unk> got some upside in some some day.
It kept the stock move on so.
And Johnny I know you've considered the idea of an MLP in the past is that still on the table or is that really.
Not very likely for you guys going forward.
We never could figure out what the aim loans.
Clinton ever figure out what the $8 million.
There is no such thing as a merger.
There are some people trying to put some banks together, but somebody is buying somebody else from somebody who's in charge. So I don't think I don't think we have.
I don't know, how well those work capital growth drive a little bit on gas but.
Probably not probably not we looked at some of that will we're probably not ready to do with Emily I was on one of the other day and it was a day SaaS.
Talks about MLA in assets PNM OE.
On the acquisition will be will be that we will be buying.
I mean in reality that happens we're at if somebody got on somebody had any Brady somebody's got to use our stock somebody has got to be in charge.
Alright, and then finally from me you've given some good color.
Uh huh.
What happened in 2020 related to loans.
I mean bigger picture do you think you'll be able to grow loan balances in 2021.
It.
Finally, the last path I don't really don't think I don't think youre going to see a lot of big moves in the first half of this year.
I think we will be able to grow on the second half we will get our fair share we've always got our fair share and we don't chase it.
It depends on how many at the market sell again theyre doing low rate long term fixed up at high leverage we won't we won't get any of it.
I mean, just like Scott and I have talked.
Talking about loan earlier ensco on add on to buy another bank has approved and there was a loss in that low and there are just as happy to get it.
Before we get it.
Right and the only color I can give that Chris gave excellent for the national credit that he works on the community Bank credits I mean, it's.
Our community Bank loans.
Subdivision construction loans, they've done really well this past year has just been good steady they certainly have sold their home not held them.
If you build a house we have solid net.
Real quick a lot of them are ever wait list a lot. So that's more of a steady it's not where they're growing the loans that youre, replacing them on the production side that's been good.
And I think it's fair that Kevin and John and myself from some are we're communicating with customers that are great solid entrepreneurial customers in the past that we've had and they probably had been sitting quietly also for the last six months and are beginning to want to reach out talking come talk to us about the pie on what they wanted to do.
In 'twenty, one when will that happen time will tell.
Maybe there is a spark there but.
Even our great customer base that we have they have all been pretty smart on not jumping out here with the announcement we've dealt with.
I just think it is.
<unk>.
A little scary to be growing our loan book in this market win.
When people are not doing a lot of the projects.
Yes, you have to go back and say where did where they get net loans and what it had a day price.
And if I am right on inflation.
These people that are due on these 3% to 5% loans are going on we're just not going to do that we just absolutely will not do that we're not going to sell our future today just like the bank I was looking at in Florida.
I just don't have any margin I just tried to buy on the market and they don't have any margin and now they are trying to sell it.
And the returns Socs and it's pretty obvious why it sucks. So we're not going to get into that game. We have never done that we've never started it there is no need to start it now we have no intention of doing that I mean, we can do it don't get me wrong, we could we can crank up the press and we can crank up a bunch of loans.
Long term fixed rate cheap prices, but why would you do that on would you sell your future.
Someday, we'll sell this company and I want somebody walking and telling me that.
That while your margin sucks.
Our margins and we work hard on it every day price. If you said I don't say good morning, Julien say whats the margin today so.
We work hard its margins statements on it Ain't working on on the cost to funds every day and the bike so.
We're not we don't work and run the company as well as we run it to give it away.
Got it that's good color thanks, guys.
Thank you.
The next question is from Stephen Scouten with Piper Sandler. Please go ahead.
Hey, good afternoon, everyone.
David.
I'm curious on the liquidity side with loan growth trends it sounded like at least for <unk>. They are probably not going to pick up materially.
What do you do with some of this excess liquidity are there you.
Rethinking about paying down borrowings increased securities, what's kind of the thought process there with.
$1 two in cash.
On the water.
I can take a little of that.
We really don't have any borrowings we can pay down.
We have $400 million at the federal home loan bank.
But unfortunately, they have a significant prepayment penalty that would be punitive for us to do that.
We have talked about.
Increasing the.
Investment but.
We have done that to the tune of about $400 million over the course of the year, but we're not real excited about locking in a lot of the investments at this low rate environment as Mr. Allison has indicated he believes that inflation is common. So we did do about $400 million of that this year.
But we're not eager to lock up the additional billion that we have at the fed I never thought I'd be in a position, where we had over $1 billion at the fed every day in 'twenty 'twenty, one so far so I hear you, but we're just trying to be cautious with it and not lock ourselves into something that we regret later in life.
Yeah that makes sense okay.
On this.
Desperate portfolio yielded one on core wanted to have that can't get excited about that we can do some loans at 2% with one day, but we're not going to do that so.
This too shall pass at some point in time.
Theres not a lot to do with we had bought some trust preferreds.
Okay.
Net debt subordinated debt XR, we bought some subordinated debt in banks that we know so we've done on a little of that.
We bought stock in a bank.
Down on this but the dividend we start out yet so.
It's a tough call.
I don't know if this liquidity is going to stay at this level you got to blame people were very conservative from the first PPP NSA remains conservative and the second PPP, then theres still remain the world's going to be a wash in cash right and all of the bikes are full and what happens at that point in time is it.
Where youre inflation starts popping out and people start chasing asset classes.
Yeah.
That's my favorite.
That's what we got to sit on Europe, 41% ex just scary that commodities were on it.
It's just it all.
All the signs the facts are I think I touched already on the pet owners.
On the dollar is going down is the highest it's been in 10 years.
However, non act and delay the way you would think with that I guess net corn as the new new game.
We're not ready to buy bitcoin as yet so.
I'd say, that's a good that's a good point.
Yeah.
So I guess, maybe one other question for Brian.
It would be just on the expense side it looks like maybe salaries jumped about 1 million and a half in other non interest expense jumped about 1 million of half was there anything unusual there or is this kind of a good expense run rate as we head into next year.
I'll give you a little color on that.
One thing that did happen in Q3, as we were Truing up some of our stock Awards expanse.
And we wound up with about a negative 940000 in Q3. So there was kind of an anomaly in Q3.
As far as what's in Q4 on the salary employee benefits that is probably a pretty good run rate.
There is one item.
Non interest expense down and other expense one things that we did this quarter was that we bought into.
Tax credit.
And so it's profitable overall, but it's got a real funky accounting on it and then we got a tax credit at a discount and we picked up a positive $250000 in income tax expense, but the negative items. It was we had a couple of hundred thousand and.
Expanse for the tax credit and it goes in other experience, it's not a net where you just have a net of 50 so.
Taxes are improved by about $2 50, and other expenses negative about 200, and we had about 200000 in probably a couple of other things that probably mondry occurring in there.
On top of that just kind of miscellaneous things.
Got it perfect. Okay, and then maybe last question from me is.
Johnny you guys showed good pre tax pre provision growth. This quarter do you think that could be sustainable through 2021, and then do we start talking about home $2 again here.
Well, yes, we weren't in Tulsa, we never give up we never give up around here on <unk>.
Home $2 is.
Kind of ran out on us one bit and then we had C. So profit at which Ari. So we're actually go on to adjusted earnings here.
Okay.
We actually made $305 million per the year with the essential that we took out in I guess fleet.
Back to income I guess, where like the 305.
Uh huh.
[laughter].
Okay.
Done with that unless you got something else.
That's it. Thank you guys for the time I appreciate it.
The next question is from Brian Martin with Janney Montgomery. Please go ahead.
Guys good afternoon.
Absolutely Brian.
Hey, just a couple of things from me I guess number one maybe for Kevin just on the asset quality, just kind of the criticized and classified level.
I guess what were the.
I guess it sounds like the trends would have been better this quarter, but just kind of wondering if you can give some color on.
What youre seeing there this quarter.
Yes classified has gone up $30 million to $40 million I think is the number I don't have it in front of me, but I think that's the number.
Criticized has gone up more than that because we've moved a lot of the deferred credits have landed in that.
In that criticized class category for now as we kind of go through the next quarter or so and see how they they matched plan. If you remember in my comments.
Our comments earlier, our plan for those deferred loans.
Our plan was to get deferred interest paid in that and we did that almost.
And almost 100% of the circumstances, we had very very little.
We're carrying some interest going forward so to be able to start into this longer term modification with where the interest fully paid we felt was a real positive.
So a lot of those move down into the criticized category.
For a while while we monitor those both monthly and a quarterly dependent on size.
Gotcha, Okay, and would you and Kevin would you think it peaked at this point the criticized level those removed this quarter on the rest of the portfolio. It sounds like that could be the case, maybe this is an inflection point in <unk>.
We are closed maybe another quarter, because we are going to they're going to be a few other people I think that we see struggled a little bit.
As as they see what what stimulus theyre going to get and what's what's left as far as help goes so I wouldn't say that we're.
We may not be quite there, yet, but I think we're pretty close.
Okay, and then I think Johnny mentioned it earlier, but I guess per whomever just on the on the PPP if that primarily runs out or at least through the first round here run out here on the next couple of quarters. What are the remaining fees the fees to be collected yet. So just so we can have that in the in the model.
Six day and have made it.
Okay.
Okay.
Do you guys.
<unk> has been the health and the application has been thus far and with the new New program I mean, do you anticipate being.
Anywhere near what you guys did before.
Yeah.
Any color on that thus far.
We're 18 hours in and we taken nearly we've sent nearly 3000 applications.
Two are mostly almost all.
Round, one and two customers and we are about a thousand coming back.
That had been returned and that's.
100, and over $100 million so far.
Gotcha, Okay, alright, its probably if I look at that before we came from I came in here and Thats probably stay on now.
So it was pretty quick.
Theyre jump in on that amazingly fast it was a great Karl from that to government debt and hopefully it save lots of small businesses.
From an opportunity to survive.
Yeah, Okay, and then just the last one maybe just for Steven on the on the margin I guess it sounded.
Like last quarter, there was some more likelihood that the margin the core margin kind of ex PPP ex accretion maybe had some more of a downward bias than more stability. If you just kind of wondering the puts and takes from maybe just something thats really changed that it didn't maybe I have it wrong as far as your outlook for net margin of the core margin going forward.
Sure.
Yes, I mean, I think I think deposit costs came down.
Like we anticipate a day might I think really more just the stability of the overall loan yield.
The core loan yield there.
Over the course of the quarter the last really four months or so I think we've talked about kind of the 515 range is really where it's landed.
So I think that was really maybe a little bit of a surprise renewal rates.
Have been good.
And then obviously yield on on production.
Has been solid too.
Okay, Yes.
What are the new yields on production today.
Relative to the existing yield.
On the coupon in Q4.
<unk> was 510.
If memory serves me right and then that doesn't that doesn't account for origination fee income that will amortize over the term of the loans, we're hanging in that net.
In that area, where the core yield is.
Okay, now, where we were when the book yield is about $5 impacted thing yes.
That's good for hanging it yet.
Okay, Alright, Good report guys I appreciate it thank you.
Thank you.
This concludes our question and answer session I would like to turn the conference back over to John Allison for any closing remarks.
Thank you and thank you for your attendance today it was it was.
One quarter I'm glad to have 'twenty 'twenty behind us.
Hopefully hopefully we will all see each other soon some pointer at some conference maybe in June July August.
We get.
Everybody gets their vaccines and <unk>.
We're going to have.
The pent up demand that's out there I think you're going to see some good business coming down the road I don't think it's really going on strong diverse I'd say that we just approved a large apartment complex at loan committee this weight per hour for.
<unk>.
Pretty aggressive individuals does good building.
Anyway, so far so good and we'll talk to you in 90 day.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Okay.
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