Q3 2021 Home BancShares Inc Earnings Call

Good afternoon, and welcome to the home Bancshares incorporated third quarter 2021.

<unk> earnings Conference call, all participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.

After today's presentation there'll be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad.

To withdraw your question. Please press Star then two please.

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 as he said I'm Donna Townsell director of Investor Relations.

Thank.

Thank you for joining our third quarter conference call today.

Morning, today will be our chairman, John Allison, Tracy French President and CEO Centennial Bank, Brian Davis, Our Chief Financial Officer, Kevin Hester, Chief Lending Officer, Chris Poulton President of C. C. S G. John Marshall President.

Didn't have shore Premier finance, and Stephen Tipton, Chief operating officer.

And now I am happy to turn the call over to our Chairman John Allison first report on the quarter.

Thank you Donna I'm going to turn my phone off.

We don't sit here and Roland Morris.

That's what I have on my phone I'll be in Amarillo in the morning.

Good afternoon, welcome to home Bancshares third quarter earnings release and conference call I have with me today, most of Holmes Executive Committee and I will be here to present as well as I answer any questions that you might have.

We had another very productive and solid.

Solid quarter with earnings of $75 million or <unk> 46 per share during the first nine months of 'twenty, one 2021.

Your company earned 245.664 million or $1.49 a share as we would have said in the past that is a world record.

I always again marching towards our 300 million plus goal for the fourth year in a row.

I can't ask much more of that out of our people.

If you pull out $3 billion in excess capital the company has which is virtually earning zero.

He is running right at a 2% our way, even though we're running a one.

168, now when you pull that out it runs it too.

We've talked about adding additional earning assets through M&A for several years and I am happy to welcome our new partners with happy by both shareholders and employees to the home Bancshares family.

Think about if I could choose to.

Operate in the two best States in the United States, There are both business friendly and tax friendly and have the largest.

Incoming demographic movement, it would be Florida, and Texas Panhandle panned out well.

Well, you can check those boxes, Florida and Texas.

The happy there will continue to propel the future of home and building long term shareholder value of our combined companies and were certainly more valuable together than they are apart.

I've said on the day of announcement, if there are no more.

The complexities of making a bank transaction triple accretive.

In today's environment is not easy.

If the acquiring bank is not patient and disciplined and badly want a deal that's probably what they are doing again, a bad deal doing a deal for the sake of doing a deal is not in our DNA.

Is home single largest individual shareholder I can assure.

If it works for me it works for our shareholders and employees the bolt bus this transaction checks those boxes.

We'll come back to the happy deal later in the presentation, let's go over the highlights of Q3.

And the first nine months of the year.

As I said earlier, we have a $75 million at 46 cents.

And so that's for the third quarter and the nine months earnings of $245, seven or $1 49, and I say that is a company record.

Third quarter showed strong loan recover even though we were down 64 million ex PPP for the quarter September was up 55 million ex PPP.

Unfunded commitments of loans and credit lines was up $250 million at $3 billion. This is a confirmation of our earlier statements that we said on our calls that we expected loan growth to pick up in the second half of the year I don't want to Jinx, our forecast, but it is certainly nice to have.

The optimism for good quality loan growth and I mean quality loan growth.

Well Neal is at 546 for the excess deposits is putting pressure on our return on assets create an embarrassing 1.68, however, without the excess capital home is churning at.

A powerful 198.

Most companies would be proud of at 168 with that number's unacceptable at home, we've kind of pushed some money off balance sheet kind of bottomed low yielding investments.

We could have chase involved themselves and the match to the race to the bottom of loan yields we did none of that or very little of it.

Patients in this one was tough, but we're playing the long game and we're not looking for a quarterly pop and believe me. We could've played if we wanted to.

Actually the Jamie Dimon said.

Excess liquidity could be here for Ya with $3 billion in excess liquidity, it's not all bad with Reits.

Appearing in an upward trend and optimism about loan growth for 2020 excess liquidity might be an asset.

For the quarter and maintain strong asset quality strong ratios for nonperforming and I think record low past dues.

Very strong capital ratios, even with the bulging.

<unk> capital ratio homes Arent TCE was 17, three now we beat on revenue and efficiency ratio of $42 29, that's okay, but not our best noninterest expense was up 8 million year over year for me that that was basically a data processing system for our own problems, one 1 million of that.

That was merger expense and a million three in other or a linked quarter basis were up $2 7 million as I said a million in merger and one three and other expenses.

Back to happy.

Excuse me happy he has a great senior leadership team led by their founder and backbone of the company Pat Hickman.

Pat will be joining the home Bancshares board and we're looking forward to seeing him. So.

As CEO of the company.

Great Operator, Michael Williams, and we look forward to having him head up happy Bank for Us in Texas wherever we go in that state he will be the guy.

In addition to a very strong team.

And a very experience experienced president group throughout the entire network.

Don't forget the quality of HR investments Trust marketing B S. I C O I E. R M and compliance they are all top drawer. It is our goal to keep as many of their people as we can.

Finally, I'm happy people is even better than we thought many of their people are more impressive even than ours.

Quality. However, good it's not as clean as homes asset quality, but it certainly is better than most was saying.

With yellow lungs, better than homes, which is highly unusual and the hardest part.

Why are you doing to achieve we think getting happy is expense NOI on closer to homes is the challenge at hand.

Demographic movement of people and companies are private in Texas, and Florida from Panhandle of Panhandle with after this acquisition completes we will have 222 branches from key west.

Part of the Pensacola, including Orlando, Miami, Fort Lauderdale, Tampa, Destin Palm Beach, and in Texas to mention a few.

Austin round rock Dallas Fort worth San Antonio Ambarella, Lubbock, Pampa, playing view Dumas and of course happy, Texas I mentioned, a few Texas branches.

First the proposed to continue the growth of our company as we have come from $24 million in 1999 to one this transaction took place to $24 billion in assets that has provided it all goes well.

Talk about deals in general.

We've looked at these M&A deals over a period.

Period of time, they just haven't worked just virtually none of them work.

Actually theres only been a few work in the last 10 years and I mean, a handful outside a merger of equals whatever the hell that means.

I'm not sure what that is but there's been very few work.

Why don't they work.

Most acquirers.

We have not fixed themselves I mean, they were poor performers before and they go buy another poor performer and they just Mike a bigger power for.

Poor performers.

I think the group, who will say something else, but anyway, and the buyers to pay too much for a deal they pay too much and they dilute their own tangible book value.

Create a years of earnings to get back to just Steven you've all heard the statement two year earn back three earn back to tangible book well I can assure you. There is no dilution in this transaction it becomes accretive to both shareholders on both teams, which will be our shareholders day one.

Buyers cannot execute on cost saves and do not have the knowledge experience or the reputation to do their own half of the above and checks that box.

Dale cost and see some double accounting <unk> must be included in the purchase price of the deal.

Check that box focus.

Focus focus on the deal at hand, and not try to do multiple deals at once regulators frown on that.

And you can check that box actually we have just announced the deal when somebody came up too.

Myself and said I got a deal for John what you would look at this Mike and Dana said, they won't even let the body get coal.

Before they try to do another bringing another deal Johnny and the Wall Street Journal picked up on that I was quoting was like that.

Ashley and Donna Townsell quote so I want to be sure you feel better about that data that you guys credit for that.

I'm not sure but thank you.

Stay.

Home remains focus.

You know the buyer.

Higher has to almost have a premium in there buying stock for any deal to have a chance to work and to be fair to the seller or it certainly will be dilutive for sure.

Home has that home has had a powerful bankstown large enough to make to scale them to make a difference and impact earnings happy bank and $6 $2 billion will be <unk>.

100% of our assets and that checks that box.

You need to pay to lots of attention to who the owners of the bank or is it hedge funds mutual funds long term holders flippers. What is it what is it is the makeup of the shareholders because you know as well as Arnaud allow these funds will be.

So they will sell the stock before the Sun comes up in the morning, and short the buyer well in this case were acquired happy as private with 1300 individual local shareholders and we're proud of that and we think that private is better and they came out of our deal making sure at home if they won't do that they can't all of our deal.

Remember that investment bankers get paid regardless, if it's a good deal or a bad deal accretive or dilutive.

Tell your banker tell your investment banker be sure, who you hired who you're doing business with first and until your bank or your limits and stick with that.

Experience of M&A.

Home has done this at homes 25th.

Fifth deal and probably for happy I think it's seven or eight deals. So both have an experience on both sides worked out well for us and that checks that box.

Good buyers have to remain disciplined and happy to have the ability to wall, if the seller pushes Amanda dilution because unbeknown to the seller he's shooting.

Adding himself in the foot and the buyer at the same time homeless discipline and will work and have walked in with several transactions in the last year or two.

Finally investors sent debate fund not a firm <unk> investor say to me.

Why should I hang around and see three years or four year earn back.

You said I get paid now and only reason I'd stay around tobacco harm to deal where you can't do this they can't harm to deal in this deal so check that box.

Man, Oh man I give credit for signed at home Here's the here's the analysts said home threaded the deal perfectly.

You can see the complication of the process.

So both investment bankers Sandler and Stevens understood the limits and work towards achieving the ultimate goal of creating one of the most outstanding deals over the last 10 years and as evidenced by one of the few stocks that went up on announcement.

Donna.

Yes, I have given.

We talked about the quarter and I've talked about what made the deal work with happy Bank.

<unk> got a little wind in the di I apologize for that but I will.

It was a lot of work.

Things move it was a fluid situation and I have to give Stephen Tipton credit PE randomness.

And this book on this deal and did an outstanding job for our company, but it just can't move and it is just like water flowing to just sometimes good sometimes bad days, but overall it worked out to be a great transaction for our shareholders for the happy shareholders and they should be one I think one of the best deals been done in a while so.

Hush now unless you have it back.

Thank you Johnny.

Just to hear your thoughts on things and to hear about setting New records and excitement that's building panhandle, the panhandle on our acquisition.

The criteria for a successful acquisition is definitely important conversations that hopefully everyone enjoyed your commentary there. Thank.

And now we will hear from Tracy, France results for Centennial Bank.

Thank you Donna and good afternoon to all and.

Johnny City was a little windy, so we'll try to give a little color behind the numbers.

You did a while ago, but I'm going to speak about Centennial Bank.

First three quarters.

Nine months of the year.

Rest of our team here.

Sure. Some continued strong numbers that Johnny has mentioned in his comments earlier.

Again back to Centennial Bank. The total revenue for Centennial Bank was $178 million this past quarter to make that year to date 546.

$6 million, which set numbers to us really proud to be associated with.

The strong revenue number with our efficiency ratio coming in at 30 754 year to date still.

It still has the bank over 2% ROI and thats, including the excess evaluated assets. So we've talked about.

With the excess funds.

Nominal numbers for Centennial bank and improve the.

The bank's return on average tangible common equity non-GAAP closed the first nine months of 19% Johnny that kept the P. Five NR Allison ratio for the bank above the 60% level for the year at 60 131.

<unk> percent, which is really proud of.

Net interest income has remained steady due to the efforts of all of our regional managing their loans and deposit rates and terms.

Along with the excess funds and a low cost today.

Something that is extremely.

Important for our.

Company Centennial Bank's noninterest income has increased by 16% with the great work of the service charge area, our mortgage than all other managed to areas of the bank.

Proud to say that our bank's core ROA for the first nine months is over 259% and that I.

I think all of our regions were well above the 2% and I'm talking about the community banks with our New York operation in Marine operation, They get a little bit better than that so exceptional numbers.

All of our community bank regions have shown phenomenal growth in core deposits was four regions over 20% growth compared.

To this time last year.

With our Alabama region late in the growth percentage over the year of 44 excuse me 43%.

As we continue to stay disciplined and committed to not make short term gains that could affect our company's long term shareholders should feel very comfortable at this state.

Our company is well positioned with strong capital.

The best asset quality, we've seen as we deal with the potential inflation challenges going forward.

As John has mentioned, we are excited and happy and we're glad that we have met and worked with Mr. Pat Hickman with chairman of Happy State Bank.

Build.

And outstanding Bank in Texas over the years, we've made one heck of a successful story in our banking world.

We do look forward to working with Michael Williams, the CEO as he heads our expansion into Texas.

Georgia Regents I'll look forward to him.

Gone up a notch as along the way to be the top region Johnny.

Johnny soon as we possibly can.

Michael.

Get him in the mill, there I'll be glad when it yes.

But we have met a lot of the directors.

Great staff that we've been able to meet and we look forward to these people taking our company to the next level.

<unk>.

Thank you Tracy I appreciate that Brian Davis will give us the financial requirement.

Thanks Donna.

We reported $144 6 million of net interest income.

And a 360 net interest margin for Q3 2021.

Our third quarter net interest margin.

Decreased one basis point from Q2.

Today I'd like to go over a few net interest margin items.

First during the third quarter, we had $232 million of PPP loans forgiven.

This forgiveness causes the acceleration of deferred fee income for the loans forgiven.

Our PPP deferred fee income increased $3 million.

From Q3 to Q2.

This increase was seven three basis points accretive to the NIM.

Second as a result of the excess liquidity, we had $338 million of additional interest.

Interest bearing cash in Q3 compared to Q2.

Excess liquidity was seven six basis points dilutive to the Q3 NIM compared to Q2.

Third there was event income and the margin for Q3 of $3 5 million.

Compared to 942000.

For Q2.

This had a positive impact to the Q3 NIM of $6 three basis points.

For accretion income for Q3 was $4 9 million compared to $5 8 million for Q2.

<unk> had a negative impact to the NIM of two three basis points.

One other item from a historical point of reference.

The Q3 excess cash versus the historical normal cash balances as a negative impact to the Q3 NIM of 72 basis points.

That's a big difference.

I'll conclude with a few remarks.

Home capital.

Our goal at home Bancshares is to be extremely well capitalized and I am pleased to report the following strong capital information.

For Q3 2021, our tier one capital was $1 8 billion.

Total risk based capital was $2 3 billion.

On risk weighted assets were.

<unk> 11 7 billion.

As a result, the leverage ratio was 11%, which is a 120% above with a well capitalized benchmark of 5%.

Common equity tier one was 15, 2%, which is 134% above the well capitalized benchmark of six.

5%.

Tier one capital was 15, 8%, which is 98% above the well capitalized benchmark of 8%.

And finally, a total risk based capital was 19, 6%, which is 96% above the well capitalized benchmark.

10%.

That said I will turn the call back over to Donna.

Thank you, Brian and now for an update on lens is Kevin Hester. Thanks.

Thanks, Mike.

My comment 90 days ago was that the first half of 2021 with much like we anticipated.

The same still applies after the third quarter with continued declines in PPP loans.

Through forgiveness, coupled with even better credit metrics.

We discussed the possibility for loan growth in the second half of 2021, and while non PPP loan balances dropped in Q3.

<unk> was less than previous quarters in the month of September reflected an increase in loan balances.

Pipeline.

Line for the fourth quarter is still solid and reflects what we expected to see when we said that loan growth should return in the last half of 2021.

As Brian indicated PPP balances were reduced by $232 million in the third quarter and that leaves us with a total of only $247 million remaining or about 20%.

Percent of our total fundings from all round.

Covid modified loan balances dropped by $36 million in the third quarter to $228 million overall.

And sales make up two thirds of that balance and their overall recovery is still underway our monthly tracking shows solid improvement across.

The board and we feel very positive about the prospects for these credits in 2022.

Movement back to P&I will be required before any distributions can occur and we see many with a pathway to that occurring with a solid spring season, and our continued improvements in travel.

Credit metrics.

To improve in the third quarter to record setting levels.

Nonperforming loans improved to 51 basis points, which is two basis points below pre COVID-19 levels and down seven basis points on a linked quarter basis.

Nonperforming assets are even better at 29 basis points down 15 basis points below pre COVID-19 levels.

Continuing down six basis points on a linked quarter basis.

The allowance coverage of nonperforming loans is at 469% that's up 61 percentage points on a linked quarter basis.

As Johnny said.

Early stage past dues reached a new low at 39 basis points, which is.

<unk> percent below where we were pre COVID-19.

There is no substitute for excellent asset quality and nothing creates more distraction or we will get you in trouble faster than poor asset quality.

This has always been the highest importance at home, but our folks have taken this to a new level.

I appreciate their diligence and commitment to a pristine.

40%.

The pilot program for our new end to end loan origination system was rolled out this week and about 25% of our lenders are working in the system as we speak.

I want to thank those lenders for being on the leading edge of the project.

I also want to thank our design and implementation staff for all the effort over.

Loan book 18 months.

It seemed like we would never get here, but they've done a great job and are supporting the frontline impeccably This week.

I'm very proud to work with this great bunch of people across our footprint.

Thanks again for all your efforts in making home Bancshares, a top performing company with that Don I'll turn it back over to you.

Thank you, Kevin and how the street is happy here about loan growth in September so hopefully that's kicking off a positive trend.

Now, we will turn to Chris.

Any update for PTSD.

Thank you Donna and good afternoon, <unk> achieved solid growth in originations during the third quarter portfolio grew approximately.

$5 million to $1 $63 billion on.

Nations of $320 million in.

<unk> commercial real estate portfolio grew by over $100 million, while we saw modest declines in the C&I book, several corporate borrowers pay down facilities with excess cash during the quarter, we would expect to see the C&I.

<unk> redraw on the coming quarter or quarters.

As a result of the originations performance this year, our unfunded commitments have grown to just under $1 billion, which is up about $100 million from the beginning of the year.

In the past few calls I've spoken about delays in the closing process.

The supply chain disruptions.

Fulfill continued to impact our market, we did see an increase in closings during Q3 at several transactions cleared the pipe line during the quarter.

We do expect the delays in the deal process will persist however, and I remain pleased with the demand for our products and with the overall pipeline.

Thank you Chris I appreciate your appointment.

<unk> can now for an update on voting is John Marshall.

Thank you Donna and good afternoon, the both business in the third quarter seemed to offer something for everyone in terms of soundness profitability and growth as opposed to cloud lifts in our business tests. The post COVID-19 guardrails that are defining a new normal.

Importantly.

It had no detrimental impact on the asset quality in our book delinquency is down to 20 basis point and it's a harbinger of default non accruals are similarly down to 22 basis points. Both our personal best if you will since we joined Centennial for years ago consumer.

Consumer originations.

Totaling $55 million year to date maintained super Prime status with average FICO of 780.

Recall that we closed on the $400 million acquisition of LH finance in the first quarter of 'twenty.

While COVID-19 has shrunk our balance sheet as inventory for sale has been difficult to replace.

And Youre still larger now than we were in early 2020. Due the result is that our year to date pre tax profit contribution is $23 million.

Already exceeding full year, 2020 and $21 million.

<unk> achieved a core ROA of 339% and an efficiency ratio.

<unk>, 4%.

To recap, we started 2020 with a $500 million on the balance sheet, LH finance took up to $900 million and totally cash and stimulus prepays and reclaimed $60 million with this backdrop. There is evidence of rebuilding commercial inventories steady consumer.

Seo of them and a continued reduction in Prepays a recipe in my mind Dana to growth.

In the future.

Based on the buyer's trolling, the docs and recent shows in canton.

Newport, Annapolis and pre ticket sales for the Fort Lauderdale show next week retail activity will remain elevated we are well.

Position to rise on the returning tide.

On that positive note Donald let me turn the conversation back to you.

Thank you John.

And our final report today comes from Stephen Tipton.

Thank you Donna.

Since our last call as everybody knows now tremendous effort was put forth by many involved.

<unk> and our M&A process.

Long days and nights by a lot of people now I'd like to thank all of our teammates who participated in those due diligence efforts as Johnny mentioned, we are enjoying getting to know our friends at happy and look forward to the future.

Since the announcement, we have filed the proper regulatory applications and should have the S. Four.

<unk> documents filed any day now.

Now I'd like to give the standard color on deposit activity repricing efforts and trends and a few additional details on the balance sheet on the deposit side balance balances continued to climb during the third quarter of 2021 as total deposits increased $112 million from.

Saturday.

And it appears we now have solid footing north of $14 billion in total deposits.

Growth in the quarter was led by our New York office with over $70 million in growth.

All about at Arkansas regions accounting for nearly $60 million in growth.

I mean, Chris led the chart in the deposit.

Growth, that's correct Oh gosh.

There must be some hot commodity for escalating deposit somewhere I don't know.

Chris why did you do.

Turns out if we don't need deposits I'm good at getting them.

[laughter] touche.

Our focus.

Focusing on our core base noninterest bearing balances increased over $60 million on a linked quarter basis, and now stand at over $4 1 billion or 30% of the total deposit base.

Switching to funding cost interest bearing deposits averaged 23 basis points in Q3 down three basis points.

On a linked quarter basis and exited the quarter in September at 22 basis points.

Total deposit costs were 16 basis points in Q3.

While Cds are at an all time low at seven 5% of total deposits, we still have opportunity near term to lower.

Those maturing time deposits.

Looking in Q4, we have $335 million maturing at nearly 1%.

So there'll be opportunity to lower those or sito's exit.

Switching to loans total production picked up in Q3 with over 1 billion in originations with $700 million of the total coming from the community Bank footprint.

It.

As Tracy and Jonny mentioned, we continue to maintain our disciplined approach to pricing and underwriting that has long served us well.

Payoff volume was lighter in Q3 at 751 million, which included one large multifamily project with the legacy borrower move into the permanent market and proper structure there.

That provided a nice event income for us as well.

As Brian Davis mentioned in his remarks, when normalizing for the impact for PPP event income in excess liquidity. We're pleased with how the net interest margin continues to hold up.

In closing Tracy mentioned the improvement we have made in several areas of the service charge.

Set and we're now seeing the impact.

I would like to recognize our wealth management group Centennial financial services and crossing the threshold of $1 billion in assets under management that.

That group is beginning to generate strong revenue and helping to build a comprehensive relationship with our customer base congratulations to that group again.

Our general I'll turn it back over to Donna.

Thank you Steven.

Johnny before we go to Q&A, if you have any additional comments.

John are you go into boat show.

Lauderdale.

Yes, Sir I'll be there next week Wednesday through the weekend I'm disappointed to learn that it sounds like you may not applications.

<unk> to join us.

I hate that I.

Have a comfort and a heightened.

The fact that MRO will be there.

I've ordered me a new Formula mode, as you know and they have one on display there ourselves and we'll go back and look at that but.

Anyway, I won't be able to make that.

Overall asset quality.

And with that is the key to everything and you heard Kevin Hester report on asset quality.

And you heard the earnings are earnings were good strong as usual fourth year.

I want to run for $300 million plus.

As I said I can't ask much more of our people than that that's all.

Roy to get that kind of income out of the assets that we have.

And now we picked up hopefully we get the conclusion of happy Bank and welcome those people to home Bancshares family as I said earlier and that should give us the extra assets that we may the earning assets to increase the profitability.

Sure, Brian I'm talking about capital ratios. They are about as strong as you can get and I guess the highlight.

All of this everything is good but what makes me smile as a possibility of loan growth and we're seeing our unfunded commitments going up and we had a September loan growth and the book looks good.

No I don't want to tell you that we're going to have loan growth because last time I told you we're going to have loan growth, we did and so I don't want to jinx it Don I'm going to leave that alone and just say it'll be it is what it is how about that so.

Furniture, you guys hanging in conclusion side.

Over the next quarter.

Alright.

Yes.

Somebody else, Brian Kevin Steven I'm, sorry.

Well.

I'll turn it back to you and let you go over to Q&A. Okay. Thank you Gary will turn that over to you.

We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad.

Yeah.

If you were using a speakerphone please pick up your handset before pressing the keys you withdraw. Your question. Please press Star then two at this time, we will pause momentarily to assemble our roster.

[laughter].

Yeah.

Our first question is from Jon <unk> with RBC capital markets. Please go ahead.

Thanks, Good afternoon, everyone.

Hey, Josh.

Yes.

On the growth question.

Maybe your least favorite question Johnny but.

What do you all think changed between August.

September in terms of some of the demand that you're seeing in some of the growth that you're seeing.

Hey, John This is Kevin not I don't think anything changed I think we said all year that we felt like the second half of the year is when we thought some things could.

It could happen and.

We felt that way 90 days ago, we saw that in our pipeline.

Listen to Chris.

Chris has said it I think.

At least once or twice this year that it's taking longer to get things done municipalities them all of our third party providers.

And get a longer to get deals done and I think that was part of it.

What we saw in September we're just seeing some things happened that we've that we've been working on for a while and see happen.

Okay, I think I'll make the point there is a difference in loan growth in our statement with quality loan growth.

Just taking rate.

We didn't see we saw a lot of people just stealing from each other for a period of time and it truly was a race to the bottom.

I looked at margins.

Company margins over the last inflationary, we're looking at them yesterday actually.

<unk> corporations.

So we're so in lots of respect and we haven't so one asset quality loan growth I'm talking about stuff that we can make money on them. So we haven't we haven't caved into two it's hard not to let me say that it's really hard to we've been forced in some answers to match some stuff and we've done that.

I like that but we've been forced to have to do that but.

Overall I think.

Steven we're about what file 13, but yes, but when you strip out event income and PPP.

This accounting accretion the core loan yields about 513, when you look over a four or five quarter.

We don't read it's Ben.

Plus or minus <unk> haven't changed there a lot of people.

And these cycles you.

You see rates go to naphtha and terms change and lower equity on the front end.

And nonrecourse.

And it gets really frustrating as they chase the.

Peer they chase the more you see those things coming up and we're seeing we're seeing that staff don't like it and we can't we don't fly as I said weaker pads lots of loan growth. We just don't do that we just passed.

Yep Yep Yep.

I think back to the Sam's comments about running at heart.

And.

Now you're at a 70% loan to deposit ratio. So it's encouraging to hear that you are seeing the quality opportunities.

I guess.

Chris touched on.

Redraws in the C&I business, John talked about some evidence of rebuilding inventories.

I'm the.

Same topic or use this quality loan growth are you seeing it broaden out or is it mostly Christmas business, where youre seeing it.

No I think it's this is Kevin again, I think obviously, Chris can tell you what he see in but we're seeing within the last 90 days what was produced.

Internal.

Internally.

Community Bank footprint, plus what we see in the pipeline.

A lot of activity in those those three regions and southern regions in Florida from Central Southeast and South there's a lot of activity there as you can imagine.

A lot of folks moving to Florida, and a lot of activity down there. So that's I think where.

Of the activities coming from all the community Bank side, and then Chris has got his group as well.

Chris you got a comment.

Okay.

No I don't know that I do I think it's it's been pretty similar for our story for the last couple of quarters, we continue to see demand for our products across all our mark.

A lot of them.

The challenges are finding finding good deals and then getting those deals across the finish line everything takes a little longer than we'd like but we continue to refill the pipeline. So.

Continue to feel pretty good about things.

Okay. Good that's helpful. And then just one on deposits Steven for you.

Like a lot of banks you have this high class problem of.

A lot of deposits how do you expect the deposit base to react if we see interest rates continue to move higher.

I think asset.

I'll move from the fed I mean, I think we'll be able to keep our foot on them and.

You have some opportunity.

As some things that we have on contract come due to.

To get to where rates should be today.

And then I think one of the like you said, it's a high class problem to see our noninterest bearing base grow like it has.

Over the last year and a half is fantastic 30%.

Today that.

The more we can.

Can add.

Can I add to that customer base that the less fear, we have about about rates going up.

We've seen a race to the bottom right solid we don't say right at the top.

On.

Deposit costs in the future, but there'll be some.

Baidu will come out with some big ceding, especially as you know in the past, but hopefully that'll be a wireless clock.

Maybe it may be we are hearing we are hearing that it could be this year. It could be next year before we start to see rates go up but I think.

I think it's going to happen.

Yep Yep Okay.

Alright, thanks for the help I appreciate it thanks, John Yes.

We'll see you at your conference and looking forward to alright sounds good.

The next question is from Brady Gailey with <unk>. Please go ahead.

Hey, Thanks, good afternoon guys.

Randy.

Just one more on loan growth.

When I look at your pro forma franchise, when you guys youre going to be in two of the best growth markets in the south.

Florida and in Texas.

<unk> environment, what do you think is a good.

Longer term growth rate to consider for home.

Well.

During normal times, I think 3% to 5% is a good I think five properties had been normal growth rate, but we just haven't seen it I guess, we've been so taking lately we've been through some crazy times.

Channel inventory.

And that element into the pandemic.

Okay.

At this.

I think we're all fortunate still being irrational. It didn't we didn't know what was going to happen at that time, but.

It is pretty exciting out there today look at the opportunities on the loan side I don't want to talk too much about it because.

<unk>.

Loans were going up they went down.

Which confident I was reading off the sheet, but.

We had some big payoffs right at the end and we went down but that part is exciting the rest of it you can say I mean, the cost of funds is excellent asset quality is excellent.

The addition of happy buying is going to be great.

Loan growth for the quarter Thats good.

I haven't seen all the numbers only at this point in time I.

Yes, it will be on the FDIC website here before long but.

I mean, you can't ask for much more than what the company's doing we'd estimate to we just need some additional assets and we get those in.

I can take.

No company has run about 2% on our way and I can look at 44 million.

Dollars worth of assets and imagine that 2% ROI on that I can multiply that in my head I don't have to get a calculator. So.

At some point our big goal is getting happy expenses in line with homes and I'm kind of run it off here, a little bit, but you're asking about it's really loan growth.

Is that how keen as you say theres not anything.

Anything else that envelope inside the company that needs to be fixed.

Yeah.

I know you guys have talked about possibly redeeming $300 million of sub debt.

Five and five eights.

That becomes callable in April now.

Now you have happy and the mix, maybe just your updated thoughts on potentially redeeming a portion or all of that subject. If you were to redeem all of it I think it is a nice benefit to earnings there.

I agree with that and we're working on that and we're looking at that we have put back and much will got now Brian.

We've got $125 million up back Tonight, and we will have $150 million by the time, we get to the payoff night.

Stephen when we kicked that up a little bit between now and payoff date, if we can.

We have we have one of our.

Customers friends, whatever has offered along with some money.

Tony on that so we wouldn't have to go back a little bit over five year no call I guess, we can just refinance where we are.

We would like to we would like to pay that off we will pay at least half of it all but we would like to pay the entire balance off.

Even if we don't.

Get the ability to pay it off.

Well, we don't try to borrow some money and pay it off.

$5 million a month to get rid of it so.

At least that's what it looks like it's Brian again comment on it now.

What sense pretty much accurate, what we've been talking about.

That's a pretty good that's about a dime and that's.

Close to that it's a dime with our current share count when our share count goes up about 20% of them probably closer to eight.

Well, we just wanted to keep plenty of plenty of capital in the chest.

The deal is.

It was an important transaction for us.

Not really.

Impact our capital ratio is very much now its alternative capital and where.

Basically doubled tier two capital and well capitalized.

It makes sense for us to take that opportunity.

And hopefully pay off in full and get rid of that $18 million pretax deal.

So that's a pretty good for us.

We will be pushing in that direction.

Okay and then finally for me also on the capital theme it looks like you repurchased some stock this quarter.

Stock still trades pretty attractively do you think you will continue to be active on the buyback from here.

Well, we've always been active on the buyback side.

We like to buy the stock we were generating company generates lots and lots of capital. So we owe our shareholders a dividend that's going to be patient and dividend inquiries.

A little patient here till we get through these processes into.

Into next year.

We're due for a dividend the inquiries and we have the money to do that but I think it's more important at this point in time to get the happy transaction done and payout for sub debt I think thats.

The two top priorities for the company right now, but we will continue to.

To be in the market buying.

Stop where limit to the amount we can buy though based on a roof that tend to be 18 tetra.

The daily average from from three months prior to the announcement of happy.

It's kind of wherever cap that but we're able to do that on a daily basis and have been in the plant.

Continue to.

Got it thanks guys.

You bet. Thank you.

Again, if you have a question. Please press Star then one.

The next question is from Stephen Scouten with Piper Sandler. Please go ahead.

Yeah.

Hey, good afternoon, everyone.

Yeah.

Planned afternoon Steven.

Okay.

I guess, one thing I was curious about.

The loan loss reserves, obviously you have.

One of the highest reserves in the industry. So not only do you have high capital ratios, but you've got other other capital sitting there in your reserve as well so how do.

You think about that today, I know you'd like to have higher reserves, but at some point do the accountants make you take this down to them.

Much lower level from here or how can we kind of think about that.

I would think so but however, we just.

On a $6 billion company and happy.

And even though we did our due diligence things look different sometimes when you get inside one so I think we're going to try to maintain that reserve, particularly in light of the fact that we're picking up three or $4 billion worth of loans here, we think thats prudent for us to do that after that point in time, if the asset quality turns out to be where we think.

As we might be forced to do something but as of right now I think.

We'd like to try to hold on to that I don't think it's prudent for us to do that is to hang onto that for at least two.

We hopefully will close happy property next year, hopefully we can carry through through next year. If we don't have any hiccups and we'll move on.

Thank you.

Let us do that Thats just me speaking.

Yeah.

Got it okay, great and then I guess thinking about PTSD and that.

That book of business and I know you got asked this on the on the deal announcement call, but as the balance sheet grows how aggressive do you think.

You would let that team being in Chris's group B and in terms of unit.

Growing a little bit more rapidly if that opportunity set is out there.

Wow.

I want Chris to do what Chris does.

Chris does one hell of a job for this company and his team does and we haven't had.

Problems.

We were before the call, we're all Vista and Kristen Oh, I can do at Bay and in the next 90 days do you want it.

But unlikely to pay me upfront [laughter] I'll, let Chris talk to that.

I'll, let I'll, let him and let him make that comment.

He has all.

The loan for the World I mean, he has the ability has the authority to do pretty much what he wants to do because of his track record with us.

And.

They've done and how well how well they've done for us and how well that's worked for us So I don't like Christmas.

I don't think he likes to collect two months, so I'll let him.

Chris you want to make a comment.

Yes, Sir thanks.

Well I think as Johnny said I don't think we've been that limited.

With that said excuse me I do think we felt like we were probably about.

A reasonable size given the rest of the balance sheet and so given the fact the balance sheet get larger I think that probably does give.

Call me a little more.

Room to maneuver and feel more comfortable about that so.

I would think theres opportunities there I I'll be honest with you I don't think were going to rush out to do that Johnny Didnt take me up on the offer of paying me in advance or up right.

Right away so.

But certainly over.

Give us a link periods whatever that is over the next quarters or year years et cetera, There's there's certainly opportunity out there to do that.

Just as a way of reference prior to joining Santana.

Centennial This group was running well over $3 billion.

So the size doesn't scare me I think it's just a matter of being able.

Over the counter right things and do it in our time and as Johnny said I think we do it in ways that we feel most comfortable with so I would say I don't see any reason why we wouldn't grow over that period of time.

But I certainly don't feel the pressure to do it but it's nice to be able to.

Perfect perfect very helpful. Thanks for the color.

The picture at the time.

Thanks, David.

The next question is from Brian Martin with Janney Montgomery Scott. Please go ahead hey.

Hey, guys good afternoon.

Hey, Brian Hey, just maybe one question just back to the alone not the loan growth, but just the loan yields and maybe Steven concomitant.

Guys that for somebody but just your expectations given kind of the competition in the market with all the liquidity out there to find your well priced deals and kind of sustain that.

That loan yield where it's at in conjunction with the growth.

Okay.

Yes, I mean, if you look at our production for the quarter.

Community Bank group, which is that was the biggest component of the total was in the.

489, excuse me $484 90 range on coupon before origination fee. So it's a little lower than where you would call. The net yield is today, but.

Back to you with.

This whole group has.

I think it will continue to.

To maintain the discipline there.

And find our spots where we can.

We can originate volume.

Well, we've originated 1 billion $1 seven 407 billion for the quarter. So.

Why the opportunities are.

As mentioned over here for us so.

We're encouraged by that we've been running a lot less than that.

It's really picked up.

A lot of things we've been working on.

Working on them for a period of time are counted beginning to come around and as Kevin talked about the slow.

Some of our credits that just takes a.

Firstly to come to fruition so.

I am pretty optimistic I don't want to be too optimistic those I don't want be disappointed or I don't want just points history.

We as you know we tell it pretty much like we see it.

Yeah, Okay, and then how about just maybe back to that kind of the origination volume was a pretty big jump this quarter and that originations.

While I am number in <unk>.

Conjunction with a little bit of a decline in the payoffs I mean do you think these levels. When you look at the jump this quarter I mean, do we kind of see here, maybe a step back down a little bit on the origination side and then I guess, how are you feeling about kind of a payoff levels given maybe some of the potential tax law changes out there I mean, I guess is.

<unk> bye.

Is a lower level.

One of the sites now as you get into next year, possibly.

Hey, Brian its Kevin.

From a the payoff side, but you could see some.

Yeah, So Seth here before year end.

People feel like that Theres, a chance that the tax law is going to change with.

Is that what can happen.

On the production side I mean, I think it's a function of a lot of the deals that we're doing are our construction type acquisition.

Bridge type step between Christmas group in our group.

And those take longer to develop and they drop over time, so you're going to see some of the fruition of.

So the stuff we've closed over the next six 912 months, both on the community Bank side and on Christmas side. So.

Thank you.

We just have to kind of take it as it comes in.

Feel good about we still feel good about the second half of the year, we feel good about 'twenty two.

We think.

We're in good markets that are going to grow and that's.

That's where we want to be.

And you think about Texas.

No.

That's been a good market, Texas has been awfully strong so.

We can take the.

Assets at $6 billion of assets when you get to kind of return.

Thanks, Brent and work closely kind of returns, we're getting on our home bancshares and that'll really be.

Be a plus for us.

We're just going to have to work on bringing their costs more in line with hone because laid out the revenues that they do the revenue side. So.

When you think about it that's the toughest par one is the revenue side as.

Turn to earlier.

Getting the revenue and getting the right is the toughest part and happy is doing that so we don't have to work on that side of it we just need to work on the other side of it. So first you got to comment on that.

Looking at the potential growth piece of it I mean, we've got you know we've been working with Scott and Robert and Jeff.

Central.

Texas and alright.

Communicating with us on some opportunities that they've had.

To increase some of their borrowers relationship so.

Some of them here.

Periods of time that they've managed down there with their capital position they've had tone it down a little bit as Johnny.

Johnny mentioned in this opening remarks there.

Rates are low.

A little bit better than ours over time, so we think the customer relationship there and our size has gone up.

Certainly give those.

Staff members opportunity too.

I guess to the next level as I said it could be it could be really nice.

I mean, yeah.

Again.

Days here just in the last four or five days, David Uri is called.

Wants us.

To be in Florida with two huge price.

<unk> they were coming out of the ground are painful from happy are calling us to meet with some customers that they have.

Have they won't.

Upsized, what they're doing it's been it's pretty encouraging here.

At this right.

We're at match encourage I hope that it continues and I kind of feel like it might be at my enterprise scrap the deals are not giving stuff away and youre not going to do non recourse. So.

Youre, not doing 80% leverage and nonrecourse and a three 5% no fix for 10.

Okay. Okay I appreciate the color, maybe just one housekeeping one for Brian Brian.

Forgiveness I guess, maybe has your outlook changed from what you kind of talked about.

Last quarter, given given the performance this quarter as far as when that it sounds like most of that pie wraps up this year is that fair.

Yeah, Here's kind of the numbers I mean, we had it has to be down for next for this quarter, because we had $9 $3 million of PPP income this quarter and there's only $8 9 million of the PPP.

Income left period.

So we're off to a pretty good start in the first couple of weeks on payoffs, but as Kevin and I were talking earlier this morning.

That's drastically slowed down so.

We recorded about $1 million of PPP income in the first few weeks of March.

October.

But that's kind of slowed down drastically so we make $3 million of smart data very seriously and it's probably going to.

Trickle down, but was only $8 9 million of it last period.

Yeah, it's pretty negligible to next year. So that's really the point so okay.

I appreciate the update guys. Thanks.

Thank you.

The next question is from.

Tony with Stephens. Please go ahead.

Hey, guys. Thanks for taking the question wanted to ask about the excess liquidity position at the bank and I'm sure. There's a preference to deploy that into loans over time, but it seems like there's plenty of liquidity to deploy elsewhere. So loved.

Matt or more about the appetite.

To deploy that into securities today, and if there's not much appetite.

Give us some more color about what kind of environment youre looking for to get more constructive on deploying that into securities portfolio.

And what we're going to do is let you be with you guys at Stephens Yoga.

Love to hear what percent returned to resolve that problem [laughter] just 4% that's it.

That's pretty easy two easy ones.

Terry.

We don't have a big desire to put it in securities suggest for it we don't have that desire, we put a little bit in securities more than I.

So can putting securities but we.

We just don't have that desire.

Lock it in.

We keep saying for right, we've been saying that for about four quarters might continue we might be 40 years now we say when we're right where we live long enough I guess will be rent rates will go up but they are just.

With this.

However, the burden tax plan.

And spin spending plan might not pass.

<unk> inventory turn into five or six that may not pass.

And that might be able to whole rights at a lower rate and if that happens.

We might be forced to look at something else we.

Kevin was important about one of our competitor friends and done recently bought a bunch of them.

Mortgage loans.

Just buying bulk seldom I'd, rather do that and put them in long term securities. So.

We're constantly looking for opportunities to.

We walk those funds, but if we're not going to put it in one 5% securities, which now we will do that.

We just think there's a better way I'd rather go back I really go back $1 billion worth of mortgage loans that are yielding net $2 50 to 60 to 70, so mortgage Reits are up 315.

The floor is right on 30 year to date, they're up maybe Kevin maybe those will come up a little bit for us over a period of time, Kevin was where we're looking at that yesterday.

Processing.

Not going to put it in one half and one 6% securities.

Yeah Okay.

Surely is a tricky environment.

Okay, well thanks for the commentary guys. That's all from me great quarter.

Thank you very much.

This concludes our question and answer session I would like to turn the conference back over to Mr. Allison for any closing remarks.

Thank you Gary.

Thank you for joining today, thanks for your support.

<unk>.

I want you to know that this team works hard every day and every night most of the time.

As we have an expression here never go home you can go actually over me, but never leave HOA base. So we work very hard at it we're extremely serious about being one of the best banks in the country and we have been.

How many years and hopefully with the addition of happy bank and their great team of people that will give us another $6 billion worth of assets too.

I mean as I've said before they got the revenue said, we got to work on the expense side and hopefully we can do that.

We can't do it now, but hopefully hopefully that.

When firms in January and I'd like to see a knock or way down the road on their plant in my right Tracy.

Doing well very well.

All the teams are working extremely well together.

That's best I think 25 outside me, Jonathan when you bought it.

Tracy said, all we're working together.

Except where I bought him years ago. He can tell all of you that he is the best the best acquisition than I ever did so because he was the first one right yes.

She is the first one anyway. Thank you for your support and anybody else have anything else to comment about one side, we'll talk to you in 90 days.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

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