Q1 2022 Home BancShares Inc Earnings Call
[music].
Greetings, ladies and gentlemen, and welcome to the home Bancshares incorporated first quarter 2022 earnings call. The purpose of this call is to discuss the information and data provided in the quarterly earnings release issued this morning, the company presenters will begin.
With the prepared remarks and <unk>.
Entertain questions. Please note that if you would like to ask a question. During the question and answer session. Please press Star then one on a touchtone phone. If you decide you want to withdraw your question. Please press Star then two to remove yourself from the West. The company has asked me to remind everyone to refer to the cautionary.
Every note regarding forward looking statements you will find this note on page three of their Form 10-K filed with the SEC in April of 2022 at this time all participants are in a listen only mode and this conference is being recorded if you need operator assistance during the conference. Please press star.
Our zero.
It's now my pleasure to turn the call over to Donna Townsell director of Investor Relations.
Good afternoon. This is Donna Townsell director of Investor Relations welcome to our first quarter conference call reporting today will be our chairman John Allison Tracy French President and CEO of Centennial Bank, Brian Davis, Our Chief Financial Officer, Kevin Hester, our Chief lending officer.
Poulton President of C. C F G. John Marshall President of Shore Premier Finance, and Stephen Tipton, Chief operating officer at this time I would like to turn the call over to our chairman John Allison.
Good afternoon, Thank you Donna.
Welcome to home Bancshares' first quarter 2022 earnings release accomplished call actually is not at all whats going on in the world with global unrest inflation, resulting in record wholesale prices and increase in CPI index, coupled with a spike in interest rates closing our largest acquisition ever it really was a pretty solid.
It's a pretty plain vanilla 40 cents EPS.
Best of luck. Thank you.
Our fortress balance sheet and massive liquidity of three 4 billion.
<unk>, plus or minus a little bit more Brian changes overnight.
Yes, Sir.
So we decided to use $300 million of our liquidity to tell we retired five six to floating rate subordinated notes on April 15 to 22 and that has been completely correct. That's correct.
On Friday, so it's money out Friday.
If you remember we had issued a new $300 million sub debt in January at 3.125 floating to fixed subordinated note to either enhance our existing capital overtime they sub debt.
<unk> will result in a savings of about $1.875 million per quarter or $7 $5 million per year that is for the next five years for a total of $37 $5 million in savings over the five years.
<unk> Piper Sandler did the entire transaction.
One way nice job you guys.
This resulted in carrying an extra interest expense from the original 300 million or almost entire first quarter.
We got out in front of most of the Spike in interest rates and believe we may direct call. In addition home has received approval to retire approximately $71 million in trust preferred Av homes and $23 million of trust preferred.
All of this is what you said a variable right.
Second quarter is that what is that stretching into the third quarter.
What might be July .
Yes, most June July 24.
July Okay, so somewhat running.
Third quarter will be most of as June 15th most of it Jamie.
Savings on this will be approximately $3 million per year and thats before rates started going up as I told you the severity.
Want to congratulate our team members, who are receiving forbes' number one bank in America for the outstanding performance for 'twenty one.
Of all box bigger small this marks the third time in five years home enjoy this huge honor our best Bank in America, and Additionally, last week how much.
But one of the best banks in the World for the third time by Forbes.
Happy to announce the closing of our acquisition of happy Bancshares on April one we welcomed a happy team members to Centennial when I can look forward to our future successes together.
Transaction was part of our strategic focus to shift into high growth, Texas markets in a meaningful way and we're already seeing the benefits of this Texas franchise with strong loan demand and attractive globally.
This should create real value to put cash to work in a raising rate environment.
We have had the opportunity to spend some quality time with their team over the last month and we have certainly enjoyed.
We have some downside and we have some upside as it relates to higher rates. The unforeseen. Unfortunately impact of closing has been the rapid rate movement that has occurred recently and its impact on purchase accounting.
I've said multiple times, we structured transactions to be triple accretive and that's exactly what we did in this transaction that being said well we could not control was the timing of the closing or the fact that inflation has been so significant.
Our target for the year has been changed from 25 basis points and the announcement of that.
So two and half to 3% today, however, with all that said.
$1 million loss is a no risk earn back over the security flat.
Basically always held our bonds to maturity. So we expect to get ever Penny of our securities portfolio back overtime.
Primarily due to the change in after tax unrealized position of the securities portfolio, which moved from an.
An estimated $27 million gain an announcements to $101 million loss.
But also the anticipated change to fair value marks on the balance sheet.
Estimated tangible book value impact of the 43 cents dilutive, we simply had to pick a point in time to mark the balance sheet and that resulted in the loss of value.
Loans placed will double count, which we have not assumed any changes to it as of yet and all transaction costs, even as they occur on a later date. This change was an unavoidable.
In our mind is solely a timing issue and consistent with the changes in the Aoc.
We are seeing across the country if interest rates had any impact on the securities book, What do you think they had the impact on the value of the loan book for those competitors of ours with loans that are long and low I can tell you choose like good news happy happy good long wheel.
Many of our competitors have no sense of how much damage done to the value of their companies and the street has been rewarding them for just doing that rates are going up it's been a race to the bottom. That's the downside. The upside is as you know home did not fall prey to billing securities portfolio.
So I don't want to sidelines billing and cash just the money well rocketing interest rates had taken a reinvestment rates up a 125 to 150 basis points in a relatively short three months.
Treasuries were up 110 to 120 basis points already this year and it looks like they're just warming up with multiple 50 basis point rate hikes forecast in the immediate future.
The announcement EPS accretion for twenty-three was expected to be nine 2% or 16%.
As a result of the Mark to the estimated 23 accretion is approximately 16, France or 28 cents per share, 16% or 28 cents per share. We look forward to providing a complete view of the financial position of the combined companies and our second quarter release to the future.
Slash rates are headed higher and much of anything.
Anything with a four in front of it as probably a loser.
We're facing a 100 to 200 basis points in the reminder of the year, which includes 50 50 in June we believe the fed will be forced to continue raising rates at a faster pace in the near future.
As a result, we could be poised to start deploying some of our cash in the third and fourth quarters in the Securities book.
What are the keys to the economy.
Stan has used in the past was the ability to reduce interest rates with 40 basis points Fed fund. There is no room as a result, they have no powder to use to employ that important tool they will raise rates.
All of them to be able some powder and have the ability to stimulate the economy.
Bullard of site will certainly as part of the inflation fatty regime as a hub for quicker and larger increases our branches researchers leading to the conclusion that we are way behind the curve and his leadership is dearly needed because he is right.
I would hope that the politics are not part of this equation because this is not a republican or democratic issue, but.
But if I am correct, Mr powers, all Republican appointed by the by the administration.
It means rates to remain low for the November election that is 190 degrees and what this country needs. We cannot add this new spending plans and he says will remedy inflation at <unk>.
The Guy that said I need to lose Whitestone will eat more food.
Loans were flat for the quarter, but up slightly in the last three quarters. So we pay all in a pretty good idea if theres any reason why.
Our competitor to come in and we'll try to keep our loans, if we can keep them with sometimes they get really stupid.
A quick example, we just had one this quarter that was 6% thats done with 10 year loan with recourse from a good cast with good equity a competitor came man hashed out more money to the customer than you originally had it alone with non recourse financing, 4% fixed I mean, you got to let that crazy.
Got.
It was our decision to let it go but that's the kind of structure would get banks in trouble.
Leverage is certainly the key efficiency ratio has picked up recently and shouldnt be starting to decline as we begin our consolidation process over the remainder of the year asset quality has remained and even improved a little bit. If you can believe it as good as it is over the last quarter.
Closing I think we're probably in the best position for our company's future and our fortress balance sheet.
One strategy pure leading assay quality sitting in America's best markets will pan out billions for liquidity and interest rate environment that fits our situation purposely remember the cost of funds are going to go up at some point in time. These these low rates will have to go away and the margins will get squeezed. The next several years.
Ours will separate the long game players from the short term players now expect home to remain one of the top banks in America.
You can go right now won't be better Michael.
The Street has applauded and rewarded large loan book, but as you can see the impact of higher rates have had on the securities book and happy the exact impact in fact, we can alone, but you only see the reality if its mark to market. Yes, we had to do with all of that said I will turn it back.
That was a very insightful report. Thank you very much now lets turn to Tracy French to hear what you think you might think.
If you Don and good afternoon to all.
Centennial Bank closed out a good first quarter with the sites looking very good for the future with a patient's own non invest interested excess funds in our addition to happy State Bank.
Centennial Bank finished the quarter with $18 6 billion in assets up from $18 billion were 3% for this quarter.
<unk> finished the quarter at $10 billion of nine 8 billion or 2% for the quarter.
And deposits continued good core solid growth and ended the quarter at $15 2 billion up from $14 5 billion.
Or four 5% for the quarter. Our group here today will have more color on that in a bit the bank's return on average assets, excluding our excess liquidity that John just mentioned ended the quarter at 188, our efficiency ratio. We ended at 43% for the quarter and our risk based capital finished March 16th.
Three 5%, while most banks, we'd like these performance numbers, we expect matter. We believe we are in great position to improve on all of these performance metrics. This has made us the best Bank in America.
Asset quality remained strong with an allowance for loan loss to total loans at 235%.
With our nonperforming loans at the lowest I can remember for making our nonperforming loans equates to 526% on credit for loan losses to performing to nonperforming loan that's a nice feeling with our inflation and the unknown circumstances, Johnny as mentioned by the way I'm looking at a plateau on the wall.
That said as Johnny said.
If you look back at his comments last year is pretty darn scary, how closely was predict and the status of our economy today.
Total net revenue for the bank this quarter was $166 million for March leading over the last five months.
As always we continue to focus on our noninterest income noninterest expense a nice move occurred in our service charge and fees, which was up 10% this quarter compared to the same quarter last year. Our team of bankers had a good start this past quarter and we'll give it our all in focus is not working through and meeting our <unk>.
Patients over the next quarter or two.
Our bank began planning over 18 months ago, what is happening today with interest rates and inflation.
While we knew we might not be right. We knew we would not be wrong for what is best for our company.
We're still holding our cash over all this time sacrificing short term games, but we are happy to be in the position. We are today and then speaking of happy we're pleased to welcome our happy partners shareholders customers to home Bancshares and Centennial Bank as of April 22.
But bankers led by Michael Williamson had been phenomenal to work with and the future looks mighty good with our Centennial bankers joined forces with our friends from Texas.
I've got my Cowboy boots shines and ready to go.
Hey look good. Thank you very much for that and now Brian Davis.
Our financial report.
Today, we reported a $131 1 million of net interest income and a 3.21 net interest margin for Q1 2022 .
Our first quarter net interest margin decreased 21 basis points from Q4 did I I'd like to go over a few items.
First during the first quarter, we had $53 million of PPP loans forgiven as forgiveness caused the acceleration of deferred fee income for the loans forgiven.
P P deferred fee income decreased $3 4 million.
From Q4 to Q1, the change was six basis points dilutive to the NIM.
Second as a result of excess liquidity, we had $236 million of additional interest bearing cash in Q1.
Prior to Q4.
The excess liquidity was five basis points dilutive to the Q1 NIM compared to Q4.
Third there was an income and the margin for Q1.
$1 4 million compared to $1 2 million for Q4. This had a negative impact of the Q1.
Of about half a basis point.
Or accretion income for Q1 was $3 1 million compared to 4 million for Q4. This had a negative impact to the NIM of two basis points.
From my point of historical reference.
Q1, excess cash versus the historical normal cash balance as a negative impact to the Q1 NIM of 77 basis points.
Basis points.
I'll conclude with a few remarks on capital.
Our goal at home Bancshares is to be extremely well capitalized.
I'm pleased to report the following strong capital information.
For Q1 2022, our tier one capital was $1 9 billion.
Risk based capital was $2 6 million and.
And risk weighted assets were $12 2 billion.
As a result, the leverage ratio was 10, 8%, which is 116% above the well capitalized benchmark of 5%.
Common equity tier one was 14, 9%, which was 129% above the well capitalized benchmark of six 5%.
Tier one capital was 15, 4%, which is 93% above the well capitalized benchmark of 8%.
And finally, a total risk based capital was 21, 6%, which is 116% above the well capitalized benchmark of 10%.
But that said I will turn the call back over to Don.
Brian and now Kevin Hester, who will provide a lending update.
Thanks, John .
And good afternoon, everyone.
Loans grew by $217 million in the first quarter led by a $242 million acquisition of yacht loans from lending club bank as they exited the business line that they had recently acquired and their acquisition of radius Bank.
The portfolio was very similar in underwriting characteristics compared to our previous two marine acquisition.
Due to the fact that we are actively competed with them regularly, especially in the over $1 million loan size. The combination of $53 million in PPP forgiveness, and organic loan growth of $26 million rounded out the changes in the loan portfolio in the first quarter.
Loan production remained strong for our second quarter, but payoffs continue to be high with project stabilization improving as we move past the pandemic.
The addition of the vibrant Texas markets from the happy acquisition should provide even more opportunities to post organic loan growth in future quarters.
The prospect of significant interest rate increases is something that we have projected what happened for some time, but now that we're here.
<unk> ability for unprecedented change in a short period of time creates a daunting task remaining disciplined as it relates to loan pricing and underwriting maybe more important than ever and is not something that we're seeing across the industry.
The $53 million reduction in PPP loans in the first quarter and leaves us with a balance of $60 million, which is about 5% of the original funded amounts.
Covid modified loan balances continue to slow decline in the first quarter, reducing $15 million to $176 million in total.
Hotels make up 83% of this balance and significant improvement has occurred across the board is only 8% of this $176 million balance is classified.
As you May remember, we offered a longer term interest only modification across the board to ensure that we could see these borrowers through the end of the pandemic.
Virtually all of these will expire late in 2022 and will automatically go back the principal and interest payments.
Not aware of any one at this point that we do not expect to go back to principal and interest when their interest only period and significant improvement in credit metrics occurred in the first quarter, especially given the strong numbers that we posted at year end 2021.
Nonperforming loans and assets dropped seven basis points, and four basis points, respectively, which was an improvement of 14% in each metric quarter over quarter as Tracy mentioned, the allowance for credit losses coverage improved to 526% of nonperforming loans.
The early stage past due number of 36 basis points is the lowest number that I can find historically, even though on a monthly basis for us overall, the first quarter was a solid one in the face of many headwinds and I appreciate all of our frontline lending and operations folks for their continued hard work Dan I'll turn it back over to you. Thank you Kevin.
And now from New York, we have Chris Poulton.
Thank you Donna and good afternoon. This month, Mark <unk> seventh anniversary seventh anniversary as the copper anniversary for those like me that are keeping track over.
Over the seven years, we've consistently grown the portfolio and earnings by maintaining both margins and credit quality through a range of conditions that have included prolonged economic expansion of rapid contraction and now high inflation in a rising rate environment.
Starting with just over $300 million in asset we had our eighth year at Centennial reporting loans outstanding of just over $2 1 billion on $3 $4 billion of commitment.
This is the first quarter, we closed above the $2 billion and asked that Mark.
During the quarter CFT originated 11 loans for a total commitment of $459 million.
You may recall that over the past few earnings calls Ive commented on our growing pipeline of deals in underwriting and closing quarter cleared a good portion of these weighting loan.
Looking ahead, we expect to have another solid origination quarter in Q2, though I do expect that this will level out a bit, especially in the later half of the quarter and into the third quarter.
I also anticipate that Q2, and Q3 may deliver more paydowns and payoffs than we've experienced over the past few quarters as borrowers are most likely to move to more permanent financing given the expected continued rise in interest rates.
Over the past year, we've grown the portfolio for $1 6 billion to $2 $1.500 billion or 30% increase.
This coupled with the continued positive outlook on originations gives us significant room to absorb and at times encourage loan payoffs as we further rotate the portfolio for the post pandemic post rate rise market.
Don and before I hand, the call back to you I do want to point out that the eighth anniversary gift is bronze just in case, you all need a little bit of a head start on my Statued, maybe to see how the rest of the year.
I appreciate the Lee County operators there Chris.
The rest of the year.
Yeah.
Yes.
Okay.
Yeah, that's right.
Well I appreciate that report now, let's hear from John Marshall on the voting room.
Good afternoon, and thank each summer of 2022 will mark an important milestone not seven years eight years, but four years for shore Premier Finance and Centennial Bank, We joined Centennial July 2018, with $386 million in interest, earning assets four years later, we're $1 one.
Billion in assets with core net income of $6 million in the quarter exceeding budget by about $1 million.
Our national platform provides a complementary overlap with the bank.
In Florida, our largest concentration of loans at 24%.
Now moving into Texas, our six largest concentration at $50 million or 4%.
We established the guardrails for the new normal.
First quarter 'twenty to originations of 87 million, let me break that down that's $55 million in retail originations, coupled with $32 million of commercial advances, but still at $87 million were down slightly from first quarter of 'twenty, one of $93 million and only half both for Q2 'twenty one.
$161 million. This reflects the seasonality of the business as buyers scrambled to buy their boats bought before the end of the year. After the fall shows and new buyers of shopping season. This year in the first half of 2022.
Slight softening of sales year over year as more of a function of supply chain disruption and lack of inventory rather than softening demand. Please.
Pre sales of boats for delivery yearend 2022, and first half of 2023.
Substantially.
Regional bank consolidation and accommodate in Centennial Bank Executive management team have enabled us to Opportunistically picked up an additional retail portfolio of luxury yacht loans in the first quarter that Kevin Hester mentioned this pool of course supplemented softer originations and elevated.
Prepays.
Cash continues to be a formidable competitor for us Mark.
Outlook uncertainties motivated by some buyers to just pay cash for their yacht purchases or pay off two 5% mortgage prepays in the quarter erased $50 million of organic growth.
Asset quality remains strong as it has across the bank origination.
Origination fight those remained crime levels of 774 delinquent loans in the quarter were 18 basis points in non accrual loans were 13 basis points.
Further evidence of origination quality, we witnessed declined applications dropped from 30% in <unk> and 'twenty, one down to 27% from <unk> 22.
The boat show season is open with back to back shows coming up in the next couple of weeks in Annapolis, Maryland Eastern shore.
Limited stock boats are pushing more buyers into custom purchases and are increasing the preorder logs for our dealers.
Our team is optimistic about the continued opportunity for growth.
With that Donna let me return the conversation for you.
Thanks, John and now for a final report today Stephen Tipton.
Thanks Donna.
I'll update you today on deposit activity repricing efforts and trends and a few additional details on the balance sheet.
Total deposits continued to climb in the first quarter with growth of $320 million or 9% on an annualized basis and over $1 billion in growth year over year or approximately 8% on an annualized basis.
The growth in the first quarter was primarily from the Florida and Alabama regions.
Again, demonstrating the strong economy, along the Gulf coast and throughout the state of Florida.
One particular highlight on the growth.
Core noninterest bearing balances grew $180 million in the quarter.
Switching to funding cost interest bearing deposits averaged 19 basis points in Q1 down.
Down two basis points on a linked quarter basis.
With the recent rise in short term rates, we saw an uptick on a subset of our interest bearing deposits and exited the quarter in March at 21 basis points.
Total deposit costs were 14 basis points for the quarter and 15 basis points for March.
With over 30% of our deposit base now in core noninterest bearing balances. We believe this to be a great starting point for our funding base as we enter this rising rate environment.
As Tracy and Joe you had mentioned our patience in deploying liquidity over the past two years has placed us in a great position of strength and flexibility.
Switching to lending the groups are off to a strong start in 2022 with just over $1 billion in origination volume much improved from the same quarter one year ago.
A little more than half of this origination volume was funded at March 31.
And of note our unfunded commitments now stand at a little over $3 billion, the highest number that we've seen.
Despite a few large development projects being completed and accessing the permanent markets pay up volume slowed to approximately $650 million in Q1 down to a level that we have not seen in several years.
With much discussion on rising rates I would like to update you on where we stand today from an asset liability perspective.
Variable rate loans with repricing dates this year totaled around $3 3 billion or approximately one third of our loan portfolio at quarter end with.
With the most recent increase in fed funds, along with LIBOR, we now have approximately $1 $5 billion at or above their floors.
We expect to see that gap close significantly with the anticipated rate increases in May and June and thereafter. Additionally.
Additionally, the happy loan portfolio will add $1 2 billion to the balances I mentioned above which similarly is about a third of their portfolio.
And today approximately $1 billion of their $1 2 billion is already at or exceeding those floors.
With three $5 billion to $4 billion in cash to deploy the variable rate loans in the portfolio as I mentioned above along with cash flow from the investment portfolio. We feel the company is very well positioned to benefit from continued increases in interest rates.
Now importantly, I would like to recognize the significant efforts ongoing by our teammates here at home and happy as everyone serves the customer base. While also working towards a successful systems conversion in June and with that I'll turn it back over to you Donna I forget report, Thank you Steven but Johnny before we go to Q&A.
Any additional comment.
No I really don't somebody else might have some other spike we're well positioned right rise based on what Steve and I have to say, what we see happening plus the excess cash we're sitting on them.
I am pretty optimistic we're seeing these reinvestment rates jumped the way they jumped in the last 90 days and I expect them to continue that.
It looks like we're looking for.
Right down the barrel of $2 50 foot to 50 basis point increases here pretty quick so are.
We could be in the two and three.
Fed funds range by the end of the year, if we are.
We may have to put money to quick that's what we that's the key is when do we start in Poland. So hopefully we will be deploying this year some in more into next year, both in loans and securities.
And Donald will go to operator, we'd go laptop or thank you very much and I'll turn it back over to you for Q&A.
Thank you.
If you'd like to ask a question. Please press star one on your telephone keypad. If for any reason you would like to terminate that question. Please press star followed by team again to ask a question for Starwood wine as a reminder, if you are using a speaker phone. Please remember to pick up your handset before asking your question, we will call here briefly ask questions.
Alright, great.
The first question comes from Jon <unk> with RBC capital markets. Please proceed.
Thanks, Good afternoon.
Hey, John Hey, I'm good I'm good.
But <unk> got it let's talk about let's talk about the $3 5 billion.
I guess, Johnny that's not train riding money is it I mean, it's a that's a big number.
Yeah.
It's allowed to train down [laughter] exactly.
The question is what do you need to see to put it to work I mean, we've seen examples this quarter of companies that put it to work too soon and you know they're getting stocks are getting beat up and I guess the question is.
What will make you guys comfortable.
Put that money to work.
Oh, we need to see something with a four in front of it.
Oney yield we need to see something there we are seeing.
Three priorities now three forties with no risk at all.
Which bodes pretty well for us we recorded some of this yesterday and the rates are even up again today. So.
I think you can see in the fold.
We're starting to roll some of it out and.
But we're going to keep we're probably going to settle on a bay in any way.
See where this thing goes to.
We probably will deploy over a period over the next 18 months to 24 months, probably 225 billion maybe three.
And then we're going to sit on and we're going to keep some some some train riding money as you call. It keeps them train riding money in the event that it goes on higher.
<unk>, which it is Matt it's Mike how we're going to see unbelievable right high right. So that's my call I've been beating the drum as you know for about a year and a half on this and I thought I was right I thought I was wrong.
<unk>.
We are watching a public shell with this fed funds.
I mean with the with the treasuries because we don't know what's behind the box rather is just a puppet show and the rates were all happy they're trying to run up and they're buying them back down and then they run out and they buy them back down. So some point in time, they're going to have to let that go.
And I'm not sure where that goes and I don't know if it goes to where it went to.
881, and 92, but I'm hearing nobody was talking about Jimmy Carter's administration before but I'm hearing lots of talk about that today, that's what I remember to say and I have a figure that we could get there so setting all sitting on $1 billion, if I'm wrong as it starts coming down when deployed at much but I mean pretty close to that maybe a point.
So I think thats important loan demand is pretty good we've got to keep some money per ounce. So when you sit with $4 billion, maybe you keep a million set aside for for something you put a billion in loans and you put 2 billion in securities. So that's kind of what I'm thinking out loud right now John and it has been.
Youre right. We have remained disciplined and we have so far made the right call. When you say reinvestment rates up 150 basis points since January one.
Thank you.
We did the right thing and I think.
Time will tell how well we did the key is when we deploy so I think that's the best I can tell you right now.
If we start seeing some fours on that when you start putting some money in there I think you can see four fives and sixes in the next 18 months.
Okay that makes sense.
And then.
Johnny for you or Kevin or Tracy, Kevin you used the term unprecedented change.
When you were describing the lending environment and I know you want to make loans and the demand is there, but how are you approaching it how are you protecting yourself and whats attractive at this point from a lending point of view.
Well it is tough I mean, we're just sitting right in front of this.
We expect to be at least 100 basis point move in rates and so that's a challenge and then you've got.
You have.
Asset prices as high as they are I mean, those two things create a lot of challenges both on the pricing side and the leverage side. So we're just trying to stay disciplined and do what we've always done.
Continue to make good good loans that are better.
Fair rate that we could start for the risk.
If it's there it's there.
If not then we just keep doing what we're doing.
John This is though some people didn't say the 25 basis point increase and don't see the 100 basis points come in the next 60.
Around 69, it looks like they don't say that I was on the phone, we got a while ago a credit Union alone.
Their money at 265 picks for Panther.
And I remember the last kind of relate them savings alone I remember the last one I was in was about 20 years ago and the real was seven 5% on their loans and our cost of funds was 13%. So of course I went broke went out of business and highlight the same thing will happen with some of those people those it's just.
You can't fix stupid.
It's in front of US reality here Reits are going up.
So rates are going up and then there is still doing three and a half from three and three quarters and $3 99, and all is silly stuff. It's it really is frustrating for someone who.
For our company it runs the way, we run our company and maintaining the quality, we run and saved the stupidity of the marketplace. So it's very frustrating.
Okay.
I could go on with questions, but I'll I'll step back in the queue, but I appreciate your answers.
Hi, Thanks, John I appreciate your support.
Thank you John the next question comes from Matt Olney with Stephens. Please proceed.
Hey, Thanks, guys good afternoon.
Thanks, Matt.
I want to go back to this discussion about liquidity and deploying this and I'm curious what the appetite is to deploy.
Deploying liquidity into another portfolio acquisition similar to the deal you announced in February if I could.
First off is there a pipeline of those that you see out there and second of all what's the what's the appetite for something like that.
Kevin Kevin talked about it will tell you what it is but its book he looked at for a while back and what we're offering men and it seemed like it was yesterday there was a couple of months ago and now what we can what we can get.
Book of business.
Yields have gone up the rates are on the loans are still the same but the yield is.
The expected yield has gone up so the prices going down so maybe there is something out there.
What we did in February with the lending club deal was it was opportunistic because we got to take a.
Competitor out of the market and.
We will continue to look for opportunities like that and we're always looking for.
Or different angles in portfolios that make sense with what we do so if we find those we will certainly look at it and he's got a book right now it's about five or $608 million I don't have that yield about three one.
Loans are in the threes with the yield.
In the mid Ninety's, the yield would be four and a half.
So that gets a little bit of attention to it.
However, if you can tighten and put it in a number of security at 360 that will look at that.
So when you got to kind of weigh those differences.
We'll see what happens with the next 100 basis points increase what that does to the yields and I mean they.
Basically today I looked at the two year five year seven year and the tenure was about society. So it's kind of interesting watching this process.
That's the public shallow I was talking about earlier.
Yes, okay.
And then I guess switching gears curious what you are seeing more in footprint.
You've talked about.
Give you a little bit more aggressive on pricing just playing some defense for some higher quality credits.
I'm curious kind of what the competitors are doing more recently, especially with higher rates.
Patients are in.
The footprint.
Sure.
Well, we're busy taxes as well.
New there.
They are very busy.
Yep.
They are busier than we were so they bring in lots were late two or three times a week with them.
Brian lots of stuff to us. So we're looking at so I'm pretty excited about that and at legacy starting to bring lots of stuff to us. So that's good I like paper a lot of people are trying to refinance route and I am trying to get at refinance you can get a handle this interest rate deal. Other people are trying to get locked in on their projects and get ahead of the interest rate increases I mean some.
People recognize what's coming and some people don't so.
I think Alex overall loan demand is pretty good. So we will keep dry powder for loan demand because thats, what we do and will do the difference when you looked at our hotel on the other day and it just was marginal at Haile and <unk>.
<unk>.
Kevin said that when you get all the hotel long as we want he said he wanted the clarity of this year has picked a 30 vast how the entire back.
Hotel loans are down with us and so that's kind of what we're doing we're trying to.
Based on the asset classes, where we lean debate and get the right and the terms that we made in.
We did I don't know I only had a good 40 35 million that won't pop up the other day. He has jumped up bonus and we did that transaction pretty quick.
We got quite a bit going on when we looked at our big one yesterday with Texas $80 million, we didn't do that transaction, but we did look at it.
<unk> quite a bit of time on it.
Just had a few red flags at Midas nervous.
And we did not did not pull the trigger on that somebody will pull the trigger on it but we didn't pull it off.
But overall, Matt it's pretty good I mean, I'm pretty optimistic I'm pretty excited actually I'm excited because the rates are going our way and they're going to continue to go our way being them alongside her being on the security side. So.
You see what's happening.
So we're going there and happy to form it cost us $100 million, they did or did it not maybe well get our money back but time value money, but overall things at home are really pretty.
I'm pretty happy actually I'm real happy from a reset revenue.
How about you know I think you hit it on the.
And on the head there Matt the only the things that we see as like the Texas opportunity. We've only been with them now for 20 days gotten to know them well over the last nine months.
Pretty exciting to see what avenues, they're going to open up and we're still looking down several avenues that they can do and I really do think looks that Tom will take care of some of that with our existing customer base of communications going well there kind of a landmark to some of the Florida markets have done well at times.
The south.
Jumps area up in the north.
Had a pretty nice pick up the first 20 days of this quarter.
I guess just over time staring at staying disciplined in what we do and the customer relationships and actually picked up some new opportunities.
Along the way so.
<unk>.
Weather.
Happy It is yet we will time will tell dwelling on that part.
Snap some groups are really off to a great start in our opinion.
Good Okay, well you guys have been patient and Thats been the right move so far so so looking forward to see how it all plays out this year.
Again.
Thanks, Matt.
Thank you Matt. The next question comes from Brady Gailey with <unk>. Please proceed.
Hey, Thanks, good afternoon guys.
Hi, Brady good.
Good afternoon.
So I wanted to start just on the deposit side. When you guys saw another pretty good deposit growth quarter I think they grew about 10% annualized.
The growth is just a great deal over the last couple of years.
I know, we're kind of headed into a different interest rate background, but how do you think deposit growth.
Or do you think you still see some modest growth or could deposit balances reversed course, a little bit here.
Brady this is Steven.
Yes.
I think we've said every quarter for the land.
Two years that we thought for next quarter, we might see some outflows and they go down and it continued to go up that every single quarter. So.
I think we still obviously see tremendous value in the in the core deposit base trying to continue to grow it.
It'll be interesting to see in this environment.
How we and all of the banks that are our liquid are able to kind of control costs there.
As long as our focus continues to be on.
On the core low cost or no cost.
Checking account will take all we can get.
We are in this quarter with tax payments.
Going out would generally expect to see a little decline there but.
So far so far so good but he doesn't know as I wrote my check the IRS.
So I can assure you deposits dialysis.
Appreciate your contribution yeah.
Fair enough.
America appreciate American furniture, it's bad and fair to say.
Right.
And with Steve and as we said, it's just every day, we kind of say a while and then.
The areas that we are we have the taxes new market that people were moving in when you talk to the team down there.
Use the Gulf Coast region of our bank I mean, there are still picking up opportunities as accounts a lot of.
Individuals are moving in from out of state to those areas and we're getting our fair share of new check in accounts and that type businesses.
We feel pretty confident we know we have some municipal monies along the way.
As I said in my comments, it's just good core relationships that we have so.
We're very fortunate for that.
We still like deposits to even though we are.
<unk> grown as fast as we have we know there's still.
What drives the bank.
Cleveland reported to me Diane allows no credit we had it at $145 million in the bank and forecasted there next year at this time, they have $245 million in the back half of the top Youtube. So.
It looks like deposit is going to continue to grow here I mean, all banks are in Georgia, but real box that have real customers, who do real business are the ones that have done really well in it.
We've built a space on one customer at a time instead of just mass hidden.
Audience out there not have any relationships and I think that pays off today and there are many banks out there that operate like we do have those relationships and that will continue to grow through this cycle, but.
It looks like I don't think they're going down.
In terms of how many taxes, we got to pay but I don't think theyre going down they will either hold or only go up.
What are you hearing I'm hearing good or bad they're here, they're going down or.
So I think as rates.
There could be some pressure on deposit balances.
If you're in a good market like Texas, and you guys can offset that with growth.
But I wanted to ask a second question. So I know the raise the market kind of went against you on happy.
But you know you'll get it back from higher EPS accretion I was just wondering what what's the update or unexpected levels of accretable yield.
Happy now in the mix and with a higher higher mark, but I expected when you guys actually close that deal.
Well we.
Don't really have a number at this point in time, we have.
Originally projected that mark was going to be a premium on the loans.
Because they had higher rates, but as rates have moved up we're kind of anticipating maybe a discount on those.
So I think we had about $29 million as a premium on the loans from a rate standpoint, and we're probably looking at zero to a discount on that at this point in time.
You're talking about totally the reason those bonds.
How much should we take all of the bonds.
That's probably a little over $100 million swing, that's probably a 100 million just on the bond book there. So I don't know what that adds up to it we haven't we don't have that yet, but we will get I think what we're doing will get it for you.
Okay.
Then finally, Johnny Whats happy they'll close maybe give us an update on how you're thinking about M&A going forward.
Well.
We got to execute first Friday.
We got to execute we need to.
We need to.
This one under our belt get the accretion out of it that we want to get out of it we've never done a dilutive deal this deal turned out to be.
40, <unk> <unk> dilutive to us takes us a little less than a year and a half or back I feel for those people out there that had a three year earn back our four year earn back an accomplished track.
That we will have an infinity earn back you'll have earn it back so it is.
As close as we play this winter the vast is still will be 18 18 months earn back so.
Stephen you've got to comment on that.
No I don't have anything to add.
Pricing.
That's fair.
Alright, thanks for the color.
Thank you.
Thank you Brady and the next question comes from Brett Robinson with Hovde Group. Please proceed.
Okay.
Hey, guys good afternoon.
Welcome Brett.
First time, you've covered us.
No no.
Back in after a sabbatical.
Oh well.
Good to have you back what do you play baseball.
No.
No I can't.
I can't throw away fall like my predecessor.
No.
Wasn't that good either.
[laughter] wanted to first ask Tony what hours covering you last time, you know that there was a call where you talked about wonder woman or Superman and the bogey man.
And.
I'm curious on your view on the bogeyman.
Recession peers.
The market has with the flatter yield curve, maybe if you could just give us some.
Your thoughts on how you think the economy plays out is if I'm reading it right. It sounds like you're pretty bullish on a soft landing regardless of what the fed does with interest rates.
What's your outlook for the economy and how does that.
Into maybe a more defensive underwriting decision.
Well they are in a box.
I mean, they do 25, 25, 25 and inflation is going to continue to run at even a faster they're feeling like feeling that they're the right trial run faster and faster. So that's one that's one scenario once the other scenario they raise it too fast and thrown into recession.
Do that right now they've got 40 basis points fed funds, so how much.
Can I look right like if all Reits 25.
They can't have 10, 20 fives it'll be negative so they're in a box, but I got to raise rates high enough to give him some powder being ready to be able to kind of right down. The road you remember during the Clinton administration.
Platinum Cape rates about two or three times.
Got a little overheated and kicked it up two or three times I wasn't a handshake line with him and he came third is what are you thinking about the economy economy Jai.
I think you've played it just right Mr. Brett is that I think you can hold here are dropping a little bit and you'd see the economy take off again. He went at me and I know the president is not as folks had anything to do with the fed but two weeks later, they lowered the rates 25 basis points and economy took off so.
Had room to do that there is no room for the fed with 40 basis points. So they've got to crank that gotta get neutrality, they've got to get I mean, you got it.
Call, it seven or eight or 9% inflation, it's probably closer to 20.
And I'm not sure I think they've got a price lag Hal So you might say I mean, you could say, it's conceivable that you could see fed funds at 7%.
It's conceivable that that could happen so I'm not predicting that I'm, just saying that's awful conceivable and by the way is right about the bogeyman, Don I want all of the countries that were on forever and ever Tori.
They didn't exist they were just at somebody's imaginary bogeyman, but there is a boogeyman out around my own its interest rates and theyre going to go out and if people don't think they're going to go higher they just need to keep loan and this money at low rates and long term and there'll be upside down or liabilities will be higher than their asset right.
So we've seen that happen I must will protect us that it doesn't happen.
And.
I'm not worried about everything, but I believe if it looks like a duck and quacks lacking duck walks like a duck its probably it might not be able bogeyman with its DUC. So.
This low tax and smiles lack of Carter administration to ice.
And if I'm right.
I'll be home is going to be a big winner out of this.
Mike <unk> will make lots of money.
Okay.
No no.
I Love hearing you.
Talk about stuff you guys, obviously have.
Gone through different cycles. So.
And wanted to circle back to the margin and just thinking about obviously, there's some moving pieces with the debt repayment. This quarter closing I'm happy It seems to me like if I just.
A static balance sheet snapshot Mad 50 basis points and happy It seems like you could have your margin move up move back up 15 or 20 basis points.
But I'm curious to hear.
If you'd be willing to take a stab at it.
Pushing me in one direction or the other on that.
Yes, I mean, the excess funds to 77 basis points, we're at now which gets us back to about a 4%, where we belong where we lay them forever and we'll be back to that I mean, this company and always has run close to 100% loan to deposits will be back at that point sometime in the future. So.
That happens we will get back there. So it's really it's really covered up the margin a little bit I don't know what the impact of the.
The fund raised was in January was that.
Well for every 100 basis points that we have that goes up on the fed funds rate, that's about $35 million and that would be.
In the range of about.
Bill over 20 basis points to the margin.
I think youll see as we get this money forward I think youll see us back over forward.
That's about where we're running.
And so it's so complicated it's complicated for me to I know, it's comp caveat, because we're looking at that and Brian said and three for dance with trying to fulfill and seven for Gladstone subtract two <unk> and 77 and multiply it times forward. So it is it is difficult but were really the way we see it we're running our loan yield.
Loan yields about a battle.
I will respect so we're that's about where we're sitting right now.
Okay.
But how about the.
No that does I was thinking about the next quarter or two versus the longer term I definitely see you guys over 4% margin again.
Just last one for me origination rates relative to the existing book any any color on that.
Yes, I think we are in the mid fours.
In the first quarter, we had a couple of opportunities that Chris and his group had kind of C&I side, but the community Bank group.
Regions, we're a little over 5%.
Which Colorado in line with what John what we talked about earlier where are our core.
Loan rate is.
Okay, Great appreciate all the color.
You bet. Thank you.
Thank you the next question.
I'm sorry, Brett is now disconnected. We can proceed with the next question.
That's fine.
Sure. The next question comes on <unk> thousand.
Piper Sandler. Please proceed.
Hey, good afternoon, everyone I appreciate the color.
Johnny I, Didnt know, Arkansas, Patti Bank in Clos Ste.
I've been good but I didn't know, Arkansas State has a ph D program and economics is it named after you or is it named after a duck and.
How much money you give to that school.
I mean, you've been running.
Monopoly gave me a ph D.
Thanks Marty.
They said, yes, our with ph D as smart as you all.
[laughter], that's far Todd gave him the money.
When I hear you at this point, we're gonna be taking cues for you about which direction. The economy is going to go. So I mean, I guess, maybe following up on that.
Hello, Brett question, but I mean, you kind of noted Hey, we've got this 4 billion in money to deploy maybe over the next 18 months 24 months 2 billion in loans $2 billion of securities give or take.
I mean do you if you think about that outlook in an environment, where you could see in your mind, maybe five or 6% rate.
I mean do you start to worry about credit do you start to worry about.
Those recessionary trends in what what can happen on the flip side as you start to put them as money to work.
I don't know.
When we got plenty to do on our why don't give me that they'll let wet blanket on me with that you know, we always worry about asset quality here. It is.
Look at our asset quality I know that it is superb asset quality. We don't we don't have asset quality problems and you know we just it's all in leverage if we can keep the lowest leverage properly there theyre going to work because you got the proper leverage I got skin in the game as I've said in the past they're going to work.
Yes.
I forgot what the other part of the question was.
No that's it.
Yes, I mean, it just seems like the market is not given credit, especially through a bank like you had a lot of.
You know funds to put to work not giving you any credit for the higher rates, but penalize new already for credit issues that haven't even begun to materialize. So just kind of wondering what you guys are seeing.
On the radar yet how we're 500% to nonperforming I wonder if that allows us for Friday, where 500% nonperforming and $250 million in reserve so.
Normally in the best shape.
Asset quality side of anybody in the country with lots of capital lots of excess capital and so I don't think we're in good shape I think you're right I don't think the market's recognizing what we're doing.
I mean, we have remained patient.
You take the $4 billion and you put it out at four 5% and you can see what that does what that creates for us.
Couple of hundred $60 million to $200 million in pre tax pre tax income. So that's the part that's where we're headed.
We might miss a little bit but.
That's our thought at this point in time I can take the $200 million in taxes, and that's almost it's almost $1 a share so.
She was a pre tax dollars shares. So that's a lot of money. That's a lot of a lot of impact because I think that we're not.
We won't get it all we won't we won't get it all but we will get a lot of it.
Yeah, no that makes sense and to bill and Lorie additional they will reward us until we do it Steve.
Steven is that the market will reward us until we do it.
Rewarding right now loans out there that people are doing in the 253, and three and a quarter fixed long term staff their reward in that.
They need to take a look at the bond portfolio and happy they went from $27 million up to $101 million loss I mean, that's exactly what's happening to the loan book. So what you want to say if you Mark that loan book today based on what they're doing they're upside down.
So we're still at five O fit so we're hanging in and happy was little higher than us. So we like what we're seeing with our book, which I think puts us in the best position ever.
Phd report.
[laughter] Yeah, no I mean, that's kind of what I think is interesting right. I mean, you talked about $2 billion in potential loans, but frankly, it doesn't seem like you really even need to do that I mean, you could obviously, if they're there, but I mean, if you could get a four and a half handle on your bond book with minimal risk you don't have to provision for.
I mean, it seems like.
It seems like you've got a long runway in front of you with minimal downside. This is kind of the way I'm seeing it I'm just wondering what I'm missing because clearly the market doesn't agree today I don't know I don't think Youre missing anything I think youre seeing exactly what honestly.
And you're right on with me and this this executive team I think were right on with that I don't think we were talking about loans. The diversity is the difference in the REIT and one was risk free was government basically and Bryan said why would we do that a lot of them. When we can just stick around here, we don't have any risk at all.
So we'll have to manage that as we go forward, but I think you're right I think I like where it matters.
Because if history repeats itself we're in a we're in the catbird seat better than I've been in my view my banking career.
Yeah, Yeah, well, that's really helpful. I appreciate it guys and congrats on whats ahead.
Thank you.
Thank you Steven the next question comes from Brian Martin with Janney Montgomery. Please proceed.
Hey, guys.
Nice quarter.
Maybe maybe one question, Steve and I appreciate the color on the happy portfolio just kind of wondering.
The total variable rate loans today can you give any sense on when do those completely get through their floors. So theyre moving kind of with rates.
Just so we can kind of think about that.
As we go forward I think you gave some detail I don't know maybe maybe you can cover that.
Sure Yeah, it's kind of anecdotally in our prepared remarks.
It is a little bit dynamic depending on.
The duration of alone I know, Chris has about half of his.
Those that are that are at or above floors now another 100 150 basis points.
Really gets all of them, but by the time that happens some of those loans may be at maturity.
Largely.
Over the over the next 100 basis points or so we pick up the vast majority of what we're going to.
I gotcha, Okay. So like I said, okay, I'm happy that virtually all of them.
There is at or or or.
Moving now which is great.
Okay got you, Okay, and then maybe just have you guys.
Your thoughts on the deposit betas and I know.
I guess, just as you kind of think about all the liquidity in the market and just kind of I know, Brian you gave some color on that.
The rate moves and kind of what it was.
What's kind of embedded in your forecast, but just what what type of deposit beta that you're assuming and then I guess my assumptions are conservative, but just kind of get a sense for whats within that number.
The rate increase benefit.
Sure Steve in a minute some of it depends on the.
The account type, whether it's checking or savings are or other I mean, I would say it's cumulatively averages.
Mid to high Thirty's.
Hi, Timna.
I think that at least for the first.
<unk> 50 basis point expected hike or maybe even the first hundred debt.
There's so much liquidity in.
The banking system today that.
Banks should be a little more agnostic.
Initial change.
Honestly.
Some of what competition is doing will drive that but I think it may be.
More around what we do with <unk>.
With terms potentially in offerings as opposed to just how much of the rate increases that we pass along but I think we're optimistic the first.
The first 50 to 100.
It's less than.
The betas that we have modeled in.
Yes, no that makes sense, so okay and as far as maybe just I wanted to try this just payoffs.
Payoffs sounded like they were down this quarter.
I guess is that a trend do you expect to kind of continue here kind of like the production, we still feel pretty nice and then the unfunded commitments and that's sort of the timing of those but it sounded like it was this.
Something we're going to see maybe a little bit more of in the payout side being a little bit less you think about today or.
Too early to set a trend.
Now I'll, let Kevin take that too, it's probably a little early to set a trend there I mean, I think obviously potentially.
Potentially and as rates rise it may slow some of that potentially people hold on to assets or whatever but.
Yeah.
That bounces around a little bit from month to month and quarter to quarter, but.
We've also prior Covid.
Last year and a half.
Eight almost $900 million quarters fee so yes.
Yes, Chris.
You commented in his remarks about the <unk>.
Third quarter would have some pay offs that.
He has not seen recently and that he can he can answer that.
If you want to do that.
Certainly I think he is going to have.
In the next six months some moving around its portfolio there will be some payoffs.
The rest of the portfolio.
It's hard to tell what rates will do the rise in rates will do to that I mean, it could actually we could slow that down a little bit for the rest of the portfolio, but Chris does have some that will you know or Kevin.
Got it Chris you got a comment on that.
No I'd, probably just say.
We would like to remind people I like payoffs I like it when people pay me back if not the worst thing that can happen when we make a loan so.
One of the nice things about having a pretty good couple of quarters of originations is it gives me a little more flexibility to encourage some pay offs as well so I'm going to be a little disappointed if we go through four months here with not with.
Depressed payoff, so I've got some loan, but I think it's time for them to go.
[laughter] gotcha.
Okay.
Well last last two for me was just with the credit Mark.
I'm happy to just any any thoughts on the how the <unk> is trending at this point or I don't know if you have anything on that Brian or not.
No I don't have anything to update on this point in time, we're still working on it Kevin is working on his numbers.
We've only had him 20 day so.
Got you, Okay, and then just with the closing of the deal.
Third quarter, it looks like a relatively clean quarter with the kind of the expenses kind of in the numbers that seem fair largely.
Well, we will have all of the purchase accounting down when we have all the cost savings in probably not I mean, we won't get a lot of the cost savings and so we get converted which is in June so it brought.
Q4, I would think before we can elevate a bleed into early.
Some of that to bleed through disciplined portfolio, you'll be pretty clean it's been interesting watching that process as the Stephens kept me up to date on our age going step by step with the happy people and there is some significant savings that we're starting to see some of that or are we captured some of it we had actually put it on the books yet but it.
Looks pretty good right now.
Got you, Okay, well cool well nice quarter, guys and I look forward to a better future. So I appreciate the time.
You bet. Thank you.
Thank you Brian . The next question comes from Michael Rose with Raymond James. Please proceed.
Everyone. Thank him probably last in the queue here, so I'll keep it short.
So obviously.
The stock is.
Try it a little bit of water since the since the deal was announced today now that it's closed Johnny any thoughts on.
On.
The buyback at this point.
Oh, we've been we've kind of we bought or will be filed with <unk>.
<unk>, we bought a little bit back we bought.
Prior.
We're out for a while and we had two or three days when combined I think Stephen I don't know 100000 shares a day or something during that period of time.
Well, we'll probably get back in that game at some point, we just got too much to do right now with execution.
But we're not.
I can back I mean, I can start again.
Pretty quick I think three or four more days from here.
We're back.
We can come back and so I like it where it is we are at now.
I would like to own it here so.
I think it's.
We've actually bought more back already this quarter than we did all of last quarter. We did okay. So good.
So we bought when attending it can be bad about we have all those numbers are pretty much all of them from attending five yeah. Okay that worked out we're not out of the market.
Thank you Michael My we're propping it up a little bit.
Just see where it goes.
<unk> taken it down take it down.
Not a lot.
With that.
$20 million worth, we got 400 plus million dollars and holding.
Holding company today, so we got plenty of money, we have plenty of firepower to go do what we need to do so.
I think I'm, just going to watch it for a little bit and if the world wants to take it back.
For my shareholders, but.
We'll be there I mean, we're not don't want we're not going to the house, we recognize it's cheap where it is right now and we're not afraid to buy.
Brian said, we've already bought more of this month, we did first quarter. So yeah from a cash perspective at the holding companies get.
Sure.
Dry powder today.
Okay.
Yeah, we got more dry powder, we've ever had so how much cash you got into it you'd probably 500 500, but we're going to pay off approximately $94 million. So your $400 million numbers correct. Okay.
Yeah, that's why was that.
Yeah.
Maybe just one for Chris Bolton.
Yes, given the concerns out there that we might be in for a little bit of a slowdown in the back half of the year into 2023.
Hey, Tal class on pull back in.
And any of the verticals that you guys operate in either.
By type or geography, and then.
I know with happy coming out and it gives you a little bit more capacity. So just.
How does the interplay work between those dynamics. Thanks.
Yeah, No that's fair question.
We've been nervous about a lot of a lot of the verticals.
You know for a year now and so.
So I don't know that getting closer to what we think is already going to happen makes me any more nervous because I think I would just assume that I mean, we under.
Starting last year, we underwrote a recession in 2023.
That was already in our number.
If it doesn't happen that's great right.
But we don't get paid to take the upside so.
We continue to do that but.
But it's sort of like hotels for me right I don't like hotels, I don't want to do hotels, but why don't you talk to me about your hotel right.
There might be a way to do it.
It's just a matter of it's always leverage and liquidity and duration and those types of things. So volatility is good for us.
And so if we get into the second half of the year and Theres volatility. That's generally a good thing for US right because we're a low leverage lender and when everybody can go get high leverage they tend to go get high leverage when they can't get leverage they tend to take the low leverage so I think periods of instability in transition usually our friend because.
People start to.
A lot of our clients start to appreciate the fact that we're there right I mean, we don't get out of the markets, we just adjust a little bit.
Others.
When tie just exit when they get nervous we don't exit when we get nervous.
We would tell you we were already nervous.
And therefore, our pricing and our our.
Our leverage reflects that so when times are really good it's tough for us when times get tough I think thats good for us so.
We continue to see I think a lot of interesting things, we had just a lot that needed to close and so I'd say, we focus the first four months of this year, so on getting that pipeline sort of back down to a level that we feel like we can manage and now we'll start rebuilding that a little bit but.
<unk>.
I like we like instability in everyday there is not a recession as a surprise to me.
Got it.
Really really good Robert shore, Yes, you got to love it.
Hey, Luke.
I mean, you look at things different than we look at them a lot of times, what he's right. So one of the thing about it he knows what he's doing it we've got a great team.
It was limited on this growth, but he has the ability to grow nearly another couple of million dollars of <unk> loans.
We don't have we don't have a target for him, but he could go up to about three 8 billion <unk> the quality quality loans.
If he finds that many I'm sure there'll be good.
That's good that's it for me and I look forward to hopefully seeing some of you guys that in New Orleans.
Yeah look forward to it thanks. Thank you.
Thank you Michael.
That concludes the question and answer session. So at this time I would like to pass the conference over to John Allison for closing remarks.
I think we said it all today thanks.
Thank you for joining with US today, and we will talk to you in 90 days.
I would assume that our net interest margin will be better than it was now.
That would help that we might have deployed some money may or may not Brian will say Brian .
We'll probably deploy Simon.
We should get a little bit of kick from the nothing else will get a kick from the rise in the fed funds rate, that's correct and the refinancings.
Our bond book, So anyway. Thank you very much and we'll talk to you in three months.
That concludes the home Bancshares incorporated first quarter 2022 earnings call. Thank you for your participation you may now disconnect your lines.
Yeah.
Okay.
Okay.
Okay.