Q3 2022 Home BancShares Inc Earnings Call

Excuse me everyone. Please remain holding the conference will begin shortly.

Again, please remain holding the conference will begin momentarily.

[music].

Greetings, ladies and gentlemen, welcome to the home Bancshares incorporated third quarter 2022 earnings call. The purpose of this call is to discuss the information and data provided in the quarterly earnings release issued this morning. The company presenters will begin with prepared.

Remarks, then entertain questions.

Please note that if you would like to ask a question during the question and answer session. Please press Star then one on a touchtone phone. If you decide you want to withdraw your question. Please press Star then two to remove yourself from the list. The company has asked me to remind everyone to refer to their cautionary note regarding forward looking statements you will find.

This note on page three of their Form 10-K filed with the SEC in February 2022 at.

At this time all participants are in a listen only mode and this conference is being recorded if you need operator assistance. During the conference. Please press Star then zero. It is now my pleasure to turn the call over to Donna Townsell director of Investor Relations.

Thank you good afternoon, and welcome to our third quarter Conference call. Today's discussion will include prepared remarks from our chairman John Allison, Kevin Hester, Chief lending Officer, Chris Poulton President of C. C F G and Stephen Tipton, Chief operating officer.

The rest of our team is present and available for questions Tracy French President and CEO of Centennial Bank, Brian Davis, Our Chief Financial Officer, and John Marshall President of Shore Premier Finance.

In a year that continues to produce while market swings and economic uncertainty. The third quarter was no exception, however, with a fortress balance sheet condition.

Home remains strong and with a positive outlook and to provide more color on that I will turn the call over to our chairman John Allison.

Thanks, Tom and welcome everyone to the third quarter earnings release and conference call.

For the quarter similar to the statements we made last quarter about uncertainty.

Actually we're basically in the same place we were last quarter and separates are higher and odds are they're going to go higher for longer.

If you remember what I said last time about Volcker and the 70 took rates to 14% in the late <unk>, but he didn't kill snide, but boy parity in.

We pivoted under pressure because people said, we've got to turn it around.

As a result, we had to come back in the eighties and.

And take rates to 21% to cut the head office.

Thats exactly where we are today and most everyone is hoping for a pivot and it's absolutely the wrong time to do that but we are not kill the spike yet another 150 to 225 basis points, I mean, how old and observe might get the job done.

So certainly much higher than most of us thought.

There is still room for them to run core CPI is certainly the highest in four years and this administration is still trying to continue the inflationary spiral I said last quarter, they're either naive in comps that are playing specific or maybe their break which I doubt, but time will tell.

I will say there is no substitute for experience I heard Nancy Pelosi say that this morning, and it may take that out of my vocabulary, because I always say there is no substitute for sure.

There is no one in this administration with any benefits experience you cannot take a bunch of phds that got their expertise add some book.

The water business is much different than that.

Think of decision, making opinion from an experienced person much quicker been I'll take some inexperienced politician and I don't care, how many degrees.

I'm still sticking to the possibility of a 6% fed funds rate as I've said, the last two quarter because the topic Joe is continuing on by Paul and his group.

This is really not a time to panic and I like the world is not coming down land because of high rise remember the average fed funds, we talked about last time.

Last 50 years has been filed for we got along fine with those high right and the world and correct the sugar habit with all <unk> and <unk>.

Joined at Crazy low rate is nothing but an accommodation to allow Washington legislature to spend primarily year after year.

I said last quarter, the key for the borrowing base to be pre meditated and cautious with their moves and Plano.

Not all bad.

When you see banks being absolutely right in the newspaper.

No.

Put all our money to work and lower rated securities and this will result in higher cost of funds and lower margins familiar.

Getting looked at lots of stuff right now that we normally don't get to look at I don't know if that's good or bad but banks are tightening up we just had someone fly in just Tracy.

Mm one point came in from Florida, and one came from California, and I said why are you in Conway, Arkansas.

Those are big.

But we won't do this deal.

Good news and one bad deal, we might be able to structure and make it make a good deal of it but.

Obviously, there is some tightening going on outside with other buyers.

The good news is home was prepared for the right side of what has happened as you see from these quarterly results are very good.

We did this in spite of the damage that was done to us rather unprofessional actions of the West Texas former employees.

Here's the good mix, we've talked enough about the bad news.

Hope we'd be at $100 million run rate sometime in 'twenty three but the good news is we had almost 110 for the third quarter actually 108, seven profit or non-GAAP was 109, nine last stark and a record adjusted nine months earnings or 268 4 million or $1 40.

This year and that's also a record.

Q3 revenue was 253.

<unk> 3 million and that is a record pretax income of $142 million or 55% of the <unk>.

Net revenues another record for the company, we ran a 181 all I need.

<unk> for the third quarter was four five versus the second quarter at $3 64, that's up 41 basis points and hear how that's picked April was 335 90 was 357 June was $3 71 July was 383 all of this was 398 in September was.

So that has crept up so far and hopefully.

Hopefully it will continue.

Please see <unk> was not a record but it was close to 29, three and EPS was <unk> 53 cents or adjusted non-GAAP was 54. After tax net profit was $42 three 7% of net revenue, that's what I call <unk>, our pre tax pre provision profit percentage of net revenue.

He was $42 <unk> I don't know many industries or companies get pulled out 42% of the net revenue in the profitable after tax profit.

Asset quality remains excellent non performing assets were <unk> seven.

Nonperforming loans loans were 40 45 charge offs were $5 1 million as we charged off the final reports of a professional athlete alone already we'd already allocated 100% for but we have not charged off until this quarter. We had hoped but it didn't work out we held off making any loan loss allocation because of that.

Hurricane damage, we're evaluating our customer damage well, Mike estimated allocations when we make a final determination expect a reserve allocation of somewhere between 10 and $15 million to $20 million I would expect maybe maybe not Kevin will talk more about that he's more up to speed or deny an allowance for credit losses were 2.0.

INR $289 million.

Combined efficiency, that's pretty proud of the combined efficiency dropped from 46 last quarter to $42 97, this quarter thats not a record dollar but not improving.

Maintaining strong capital ratios and Stephen will talk more about those later and tangible book value dropped a dime from 992 to 982.

During the quarter, we repurchased over a million shares of stock and we had ALC.

Our TCE is still standing travel strong as we continue to maintain strong profitability, regardless of what they throw at us.

Loans were down $94 6 million for the quarter led by <unk> like they were down a statement you said they were down about $500 million, but they had the net was about $342 million balances were down $3 40, I think they had about 500 in pay offs.

Chris will tell you, there's nothing wrong with the pay off and I agree with him.

In the legacy footprint, though we grew $273 million for the quarter end, we had $26 4 million in PPP loan which paid out.

I had expected loans to be flat or up for the quarter, but.

We didn't get we got a new loan system. We put in is kind of complicated I'm not sure if we like it or don't lack EGF, but.

Apparently currently provides no one else aware of to get third parties to help us. So I think that was new to us and kind of we stumbled will lag a little bit and then the hurricane impact alone closing as of this date, we're up over $100 million.

That we've closed that would've closed we had the hurricane last year anyway were fairly close enough to upset about that.

We repurchased $24 $3 million of home Bancshares that was $1 million and 32.

$732.

That's a lot of stock we bought back a million I think last quarter, Brian that about EMEA this quarter that's correct.

Our holding company has about $55 million in bank stock and buy securities investments yielded about sexual happened that show a loss of $2 6 million because we have to mark that to market. These securities were purchased for the dividend yield at the holding company and they produce about $3.6 million a year in dividends. So we'll continue to have.

<unk> Securities they'll go up and down as you know bank stocks do well.

Really the only extra ordinary items unless somebody got something for the quarter was we spent $2 million in costs due to the professional departure of some west Texas employees.

That's number one number two we have as I said fair market loss only securities of $2 $6 million and number three if I read correctly, Brian we had a $1 $1 million recovery element historic losses that were written off.

Prior acquisition that was from a prior acquisition you are correct.

So going forward loan demand is staying strong investment yields are very attractive.

So we'll continue to pick our spots so high yielding investments and on the M&A side. The only thing we've really done.

I met with the CEO of about $1 billion, a bike for lunch and directs earlier this month.

We had a preliminary discussions about possibly doing something together, but yes, how much he wanted two times book.

As always the story and that didn't work <unk> deal access, so who knows where that will go.

And that's about it for me Tracy you got any comments that you or Mike for the quarter are you happy or unhappy.

For Ya Gotta be happy.

When you look at the performance numbers of the bank. There certainly are better than they have been on a long time. So it's good to see that 2% ROI out there on the bank side no. We will get that pretty quick on that aspect you mentioned the hurricane all our locations turned out to be safe and sound Mac opened already so fast on above and beyond to get net ARPA.

<unk> go on Kevin to give you a report on some of the lending aspects of that.

We certainly are watching the interest rates.

I like baseball season, with all of you the curve ball thrown at us sort of an upper Bolivar Mega hit by the pitch I don't know.

The other John just had double some additional head novels and people around the bases and doing the right thing.

What's thrown Edison.

Also I'll say, the Texas operation has turned the corner tremendously the changes that have been made have just turned out to be great people and.

Leadership, there has done a good job of bringing in the right folks in support of Arkansas has made that.

Doing well right now so ready for the next quarter that's good.

Well thank you.

Kind of in a challenging quarter, it's been basically in rates up and down not up up up in.

It is.

For our shareholders. It is one bse place I'm, telling you. It's very I don't know if were accomplished anything but were certainly busy everybody has got their hands full with everything they're doing so donna with that I'll, let you have it right it.

It sounds like in a quarter it with some more fantastic numbers. So congratulations to all there as you know the quarter did in with the unfortunate landfall of hurricane in and I'm sure. Many of you are curious about the lending portfolio in this market. So Kevin Hester is here to provide you an update.

Thanks, Donna and good afternoon, everyone. I know everyone is anxious to hear about how hurricane and impacted the bank southwest Florida footprint.

<unk> was an incredible storm that had a tremendous impact on a large number of people in Florida, including several of our own employees.

Our hearts and prayers go out to all those affected by the storm.

We have about $1 6 billion in loans in the 20 plus counties in the designated disaster area.

We had an established disaster deferral program that we were ready to implement in our Florida lenders are very experienced in this process.

I'm very pleased to report that we have only about $9 million in deferrals executed at this time based.

Based on lender reports have been reaching out to those borrowers we see this balance growing possibly to $45 million in total which is much lower than the deferral balances, resulting from Irma in 2017 are Michael in 2018.

Asset quality continued to be very strong with nonperforming loans and nonperforming assets down six basis points to two basis points, respectively on a quarter over quarter basis.

Those numbers remain near all time lows for the company.

Early stage past dues improved seven basis points to 0.50% as we completed our first full quarter after the happy conversion.

Loan opportunities continue to be plentiful as Johnny mentioned as we continue to be diligent in evaluating both credit and interest rate risk. It is our experience through both CCF G. In our community bank footprint that volatility often reveals more opportunities as the overall market becomes disruptive.

We will continue to evaluate those opportunities as we move deeper into this fed tightening cycle.

Don I will turn it back over to you.

Thank you Kevin.

Nick I just want to make one comment we have delayed it runs are tired of olive branch. She was cut off from the mainland.

And she was taking her deposits and money back and forth by boat pretty remarkable they've got the bridge and the temporary bridge in now.

CEO pretty that's pretty good start Brad and we've done a branch manager.

That's amazing and the early reports that you have Kevin from customers are reassuring case. So hopefully they are all going to make it through better than we would imagine.

So next we will turn to Chris Paul Kim share an update with the CMG.

Thank you Donna and good afternoon.

Since the beginning of the year.

We've been talking about a number of payoffs are expected in our CRE portfolio Johnny.

Johnny mentioned this earlier in his comments the headline number for <unk>. This quarter is the payoff number during Q3, we were able to realize about $500 million of these payoffs with the four loans representing the bulk of this number.

As a result, our portfolio reduced by $341 million to $2 1 billion.

These were expected however in year to date the portfolio has positive growth of about $150 million.

So many of you have heard me say this before as a reminder, payoffs are not only a natural part of our portfolio of lifecycle, but we view these events as a sign of a healthy portfolio. A majority of these payoffs were refinances to the permanent market at significantly higher dollars versus our outstanding loan amount.

This quarter <unk> originated just over $300 million in new loan commitments, bringing our 2022 totaled well over $1 billion as we.

Roche year, and we're working towards closing out our existing loan pipeline.

And at the same time, we're seeing an increase in demand starting to build for 2023 origination opportunities should we so choose.

And I'll hand, it back to you.

Thank you Chris.

And now for our final report with attorneys Stephen Tipton. Thanks.

Thanks, Dana it's a pleasure to get to report on our company today as Johnny mentioned, our company's patience and persistence over the past couple of years continues to pay off today.

Net interest margin improved again in Q3 to four 5% our intentional approach to maintaining cash balances at the fed variable rate loans and variable rate securities all helped contribute to that increase.

We are cautious around customer expectations for interest rates on the deposit side, we could see additional improvement if rates continue to rise our current Alco model projections. So show a four 5% increase to net interest income in the next 100 basis point scenario.

We continue to keep a daily watch on deposit balances and customer activity and this dynamic rate environment, and our new markets in Texas.

We continue to refine the deposit base and navigate what has been a rapidly rising interest rate environment.

Total deposits ended the third quarter at $18 5 billion.

Nearly half of the $1 billion decline came from our Florida markets, while the other half was mix between Texas and Arkansas, respectively.

We've analyzed the changes we saw in a number of large customers opting to take advantage of treasury rates front running bank deposit rates and the fed as well as real estate investment projects and other opportunities.

Chris We may call on you to spin up the deposit machine in New York at some point, if we need to.

Right.

Hi, Chris.

With over five $5 billion in noninterest bearing deposits what comprises 30% of the total today, we continue to like our core deposit positions in the markets. We are pleased to see account opening activity remained steady over each of the past three months.

Staying with liquidity for a moment.

Loan to deposit ratio ended the quarter at 74, 6% or.

Our primary liquidity ratio stands now at 23, 7% and 4%, which is more than double our historical pre pandemic levels.

Switching to loans production was strong at $1 $5 4 billion for the quarter with $1 2 billion coming from the community Bank markets in Texas, Arkansas, Alabama, and Florida Yeas.

Yields on new production have continued to increase each month throughout the quarter now seeing seven and even a few eights and committee recently.

The unfunded commitment pipeline increased by nearly $200 million in Q3, and now stands at $4 4 billion.

Kevin can provide additional color on what he's seeing in the pipeline during Q&A, but the activity in our committees. The past three months has been strong.

The gating a portion of the production in the third quarter payoff volume increased to a little over $1 2 billion as Chris mentioned is payoff volume was elevated at around $500 million, while the community bank footprint for more at more normal levels. We.

We still see this as a sign of overall health of our markets and with the projects that are coming online.

Finally switching to capital on a few key ratios, we had total risk based capital of $16 seven 5%.

Leverage ratio of 10, 39%.

And as Johnny mentioned, the strong TCE ratio of tangible common equity to total assets of $9 two 4% as of September 30th all well in excess of our internal targets.

It's times like these where our balance sheet sure feels like a good place to be and Donna with that I'll turn it back over to you.

Thank you Steven Johnny and Tracy before we go to Q&A do you guys have any additional comments.

I'm good obviously it was a great quarter.

The best quarter ever in the company's history I don't know how do we keep saying that we've hit a bunch of these deals but.

Texas has worked out pretty well for us in spite of what we got hit with out there in west, Texas, but it's been.

We've overcome this cost us some money, but were flat in that battle. So.

Other than that.

Couldn't ask for much much better.

Things are going very well for us so.

Dominic will go here ready to go to Q&A and operator, we will turn it back over to you.

Yes.

We will now begin the question answer session.

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The first comes from Matt Olney with Stephens Bank. Please proceed.

Uh huh.

Hey, guys. Good afternoon, how are you.

We're good Matt.

Quarter like this you've got to feel pretty good.

Absolutely well thanks, Thanks for your commentary always colorful and.

Johnny everything that maybe Nancy Pelosi has been listened to your home Bank conference calls and stealing some of your clients.

Okay.

Bobby.

We are thinking right now.

[laughter].

She will get too much of a downward I'm afraid.

Yes.

Well I want to hit on some questions and thoughts on the third quarter results, but first I came across a press release that home bank, Pat a few minutes ago and it sounds like there was a lawsuit settlement with service first and some formula employees of yours.

If im reading this right it looks like you'll be receiving $15 million in the settlement.

Any more context, you can give us on this deal it's been a few years since we've talked about this I can't recall, the puts and takes around it.

Yes.

Well, it's been a it's been wrong.

<unk> is the right way to do something in a wrong way to do it.

As evidenced with our they did it in the wrong way or at least update is the right way, but it's such a fine lines really is a fine line and we're just glad to have it behind us Kevin has been with it.

Kevin you got a comment on what.

You said, it's been a long long road.

Almost seven years, it's good to get it behind US we're pleased with the outcome and that's probably all we can.

Sorry about it.

Anyway, it's done over and we'll get our money in a few days and.

We got it resolved.

My question.

And as far as the results and the outlook here loan growth you gave some good commentary on that you mentioned some challenges near term the higher pay downs you saw the new loan system and the Hurricane obviously curious about the ethane or thoughts about loan growth from here you think some of those.

Headwinds will continue or.

Or do you think some of those haynesville kind of use that produces some loan growth here. Thanks.

Actually we just didn't get them all closed.

Actually up 162 million as of today.

That's pretty good we just didn't get them closed and as I've said, we've got a new loan system and that's low more comp case create some problems. So.

I will call the name of the loan company.

Got.

It has creates problems throughout the system and the <unk>.

I guess the jury is still out front, we're trying to stay with it the best we can but it is it.

It is different and more complicated.

But as of right now, we're up 162 million Brian did.

That's correct.

So we have had the loan demand the hurricanes slowed us down in the loan system slowed it down.

But I'm proud to say, we are up $162 million I hope that holds and continuous zone.

And anything specific from from Chris Holden I know, Chris called out some higher pay downs that were likely to happen in the third quarter and we saw that just anything from Chris on the loan growth outlook from here.

Take care Chris.

Okay, Thanks, Hey, Matt.

No I think we continue to see good demand I think we're still up for the year right. I think last two quarters, we kind of said look we've wrapped on some of these these pay downs.

Probably would have normally expected to have you know one of those in the first quarter one of the second quarter, maybe two in the third quarter type of things.

We are seeing secondary market and take home markets are a little choppy I think what ultimately happened on on these four in particular has at least on three of these I think they were waiting around hoping the market got better four months ago.

Finally decide to pull the trigger it's where they all happened at once.

I think that probably made the right choice two of those in particular they were they would take a large cash outs in there and then refine that may have been this past quarter, maybe the last time they can do that.

And we're seeing conditions tighten, especially I would take out financing with cash cash out et cetera. So I mean, we always we'd like to have pay downs I mentioned that a lot. These these were projects that we help people achieve and they got through and they were able to put some cash in their pocket and reduce their rates and I think thats good for having done that they'll come back and borrow from us again.

Yep Okay.

We're seeing Chris Thanks for that.

Scares you a little bit we're seeing.

We're seeing people come in here more so than we've seen in a while people, we don't know which ties to what Chris is saying where they've been getting their money they can't get it.

Sure.

We're not alone in that asset class anyway, it's Ben.

It's interesting watching it like in my commentary I said that.

Fluid and we're flying from California, and one from Florida, and yes. It was.

Uh huh.

So why are you here one in Conway, Arkansas, So we can't get it from our normal sources so anyway.

It's interesting watching the us and this is a good time for Chris who will see does very well in volatile times and I guess this is volatile times that worked so well, we'll do any of those or not it is interesting.

The change in the air when it hit because all of these favourable reply and send applying to pick you up or whatever.

Wow, what's going on with something something change and I guess thats. It so.

Interesting times Matt.

Yes.

It sounds like it definitely.

Well I guess switching gears over to the on the on the fee side fees were.

Especially strong this quarter I know those can be volatile a little bit chunky, sometimes anything you didn't call out in the third quarter fees or any kind of outlook you can provide.

On other service charges and fees were up about $1 4 million.

One 3 million of that is all related to <unk>.

Chris CCF G. So if he wants to provide a little color on that would be probably can.

Yeah.

Yes, sorry.

Sorry on which piece.

Your fees for the quarter were up about $1 3 million.

Oh, yes, that's always thought yes, sorry about that yeah, I understand I just had a question sorry, yeah, that's always tied to well we get pay downs. We also collect fees and so big pay down quarter is always a big fee quarter.

Yep Okay.

That's right.

Okay, guys Thats all from me congrats on the quarter.

Thanks, Matt appreciate it.

Thank you. Our next question comes from Stephen Scouten with Piper Sandler. Please proceed.

Hey, good afternoon, everyone.

Good afternoon.

Yes.

I was kind of curious what your.

Plans are and thoughts around continued liquidity deployment and kind of what what you saw on new yields in the quarter, both in loans and securities. What you were able to obtain.

Well we saw some.

We're seeing seven Tonight, so on the loan side.

We're seeing some seven six <unk> one the.

Australia side.

We're just kind of picking our spots when we see an opportunity.

The gentleman, who runs that area for US said, there was kind of in our balance daily Overdye and sometimes that happens and there are some opportunities to pick up some 7% range Triple AAA securities and they did.

So we're just kind of picking our spots.

So Brian and Brian is going to comment on there.

No you hit on the loans I don't have the securities yield Sandy, but it's like.

Like you said it brands brought great houses sounds good opportunities here over the last couple of months.

He has the authority to go by and if he sees an opportunity to go back and that's what he did a while back when he found that security at seven blocks.

So he picked that up so.

These on top of gaming were to pull out what it was set for a little bit here.

The deployment side.

I think we got another 75 basis points. Another set of the monarch. We've got another 150 basis points before the end of the year. So we're just tightening on the Feds fund side.

And then ask Brian warehouse too if he finds an opportunity to.

Go ahead.

Exercise that opportunity yet.

Best way to play it right now I don't want I'm not sure where this is going.

They're trying to get everybody starts talking about pivot favorite pivot.

As I've said in the commentary I don't think it's time to pivot.

We hold at where we are right now.

Uh huh.

We operate.

Forever. This is people young people, but this is awful, but it's not an awful.

James We just have to.

Just where we are.

4%, we're not the 544, we're not to the 50 year average yet so.

Anyway, I think we're going to be filing overall, it's going to be.

The adjustment period, but those that have done.

So good asset quality and they have done proper loans in those.

Not spend all of our money those are the spectrum and I don't have a tough time, but those that have liquidity the ability to deploy liquidity and pick their spots I think theyre going to do very well as evidenced by the increase in margin you saw it at home.

No the answer to your question Steven Yes.

Absolutely.

Okay.

Also kind of Conversely, how should we think about the balance sheet mood Board I know there was maybe about $1 billion reduction in deposits this quarter.

Do you think we'll see the balance sheet shrink a little bit as you, let the higher cost deposits run off or was that an aberration at all or how should we think about kind of deposits and the size of the balance sheet, but once Chris <unk>, Chris Crunch of that big deposit machine and maybe more broadly.

No.

We're trying to keep our deposit but.

I'll split the $50000 on a deal here today ethylene so if I put it in a four quarter or some kind of a deal. So I mean, these banks that are out of money.

Are really stretching out there right now.

Okay.

Good on margin was opened for him to take over that with a goal of ours to get back to almost full when we got the full time a full rate for the quarter. I think we will continue to improve there on the margin side, hopefully we don't get eaten up on the deposit cost, but it's it's a battle out there right now.

So far so good we still got good liquidity and that's one reason I don't want to sit back a little bit despite the fed funds market for wombat.

Brian Greathouse digit spot.

Yes.

We'll go now.

We'll go get another 150 basis points between now and the year or at least that I expect that to happen. So that's a pretty good get the bad.

<unk> 150 basis points, it might not be over but.

<unk>.

They can stop for a little bit we don't need to pivot immediately but think of stop for a little bit and catch their breath.

Watch and observe and see what impact that has.

Let me say this to you we had a big customer that our one of our largest construction customers fruit as Tracy from way back came in and.

Interestingly enough he wanted to talk about his projects.

In the next 12 to 24 months.

Happy as projects were retail and did not work.

It would not work the numbers did not work.

So he said we're going to scrap those are put them put them in the door.

Because those projects don't work you said that.

<unk> costs were so much higher on the retail side that he said that the retail customer.

Second part of that kind of ramp so feedback thanks, Steve Thanks, Matt settle down and get better in the future. He will come back to those projects would you like to see gas out getting estimated costs on projects 12 to 24 months of the future and see if they work.

These are a good charter is not a good characterized for many years.

Large customer.

That's the first thing I really saw.

Of that happening <unk>, absolutely some people coming in with some deals that don't make a lot of sense right now so they're trying to get trying to squeeze all kinds of.

They just don't have to put equity in the deals right now I mean, there is just opportunity out there, but they're going to have to put lots of cash equity in these deals to get financing is as Chris will tell you. It is onsite and so I think thats. The future is that you're going to be able to pick your spots pick your allowance pick your securities right, So but yes.

You will be able make some money for a period of time or ethylene.

Yeah makes sense, Okay, and then just lastly, what are you seeing or what are you how are the M&A conversations going.

May or may not be having I know you mentioned, maybe a larger transaction. This quarter that you had some conversations on I guess, what do you think you know in this rate environment and the related marks is the likelihood of you doing the deal in the next six months 12 months, something like that and when would you rather do a larger deal or a smaller deal if they were.

Both on the table.

Yeah.

Oh.

It really lack the larger deal I'm, just not ready to pull the.

The trigger on a deal that size I mean, I like the people theyre good people are locked.

To them a lot.

I don't think I'm ready to do that at this point I think we'll you'll see us active on the M&A side.

We found the right partner and are at market.

<unk>.

I'll talk to this $1 billion to get a lot I think he knows his business. Thank you runs a good management team, but they all have to get off of that 2% two times tangible book is the same thing.

It doesn't do anything for us I'll active management, he would've been a mass nothing individually bringing over.

Management, IMAX still do and I think we like each other we'll see where that goes but.

We just pulled off a one recently we were invited to be alone.

And the reason, we pull off was because of the culture the anticipated culture.

The bond as compared to our culture and we.

We didn't think that our culture with mix where would that culture.

And we decided not to not to go forward with that transaction.

Other than that.

Yes.

My friends at savings at least some stats label in a show me and I'm sure Scott Clark Gastro stuff, even want to show me so.

Everybody's got to look at.

Absolutely.

Let's do a deal and you guys are excellent.

The next six months.

Got it got it well you're doing something right over there no one sending any planes to come pick me up or no one from California.

It sounds like you're in a good spot.

Well I would just imagine tell you I'll go center, Plano that saves and pick you up.

Come up with sounds great.

There you go.

Okay.

Hi, Steve. Thank you guys appreciate it.

Okay.

Uh huh.

<unk>.

Thank you. Our next question comes from Brett Robinson with Hockey Group. Your line is open.

Hey, guys good afternoon.

Good afternoon, how are you Brian .

I'm doing good fracs.

Wanted to first ask Johnny you've done 100% right on rates and you know in the past year, you've been talking about the fab is going to have to do more and <unk> been aggressive with that and that's proven to be true I'm curious if you think about the outlook from here. If maybe you think now's the time to act.

Battened down the hatches so to speak and maybe tightened.

More than folks have on credit standards and was also just curious if you think about 23, one of the hard things as if rates are.

200 basis points higher what does that do to demand. So just curious on your on your thoughts on each.

Well I think it's I think.

You can see the 200 basis points.

Okay.

Is that the store in a tale about volcker and the seventies and he didn't fit to the almost 50 slowed it down enough, but the pressure came from everybody to pivot and power can we get that same pressures just a matter of whether the pivots too soon or not.

I don't think it's time to pivot.

We think about this again I go back to that the average is 544 for the last 50 years, we're not it's not the end of the world. We can continue to exist with risk adjust now does that inflation.

<unk> calls.

All of these multifamily or office or whatever your Berlin.

It adds a lot to the factory so.

Multifamily is still works I'm not sure retail work signal over multifamily still works, if you want your PS and Qs and getting the right area.

The scary part is you are seeing as Chris also will tell you. He never has never use is forecasted higher rents above the market.

If the markets.

I'm not going to have on your side, we're going to get to as a stretch.

Because the calls you use in that so you have to be careful it may work you might get two.

But you're much better off price.

At $1 50, if that's the market.

If that works.

Didn't think you're going to get too so.

I think I think we're going to see.

I think what we will see business okay.

There'll be some projects slow down I mean like I told you about our infrastructure got Orlando East campus projects don't work so they don't work.

Yes.

Uh huh.

<unk> gross.

Smart enough data to get upfront in this kind of customers. We have Kevin you got any comment on the loan side I would just comment you asked about tightening underwriting.

<unk> been historically pretty conservative anyway, and we err on the side of more more cash than deals in.

Rates go up that's going to mean that more cash gets into deals. So we see ourselves as.

This is a good time volatility certainly works in Chris's business. It works for us in the community Bank footprint.

So we're.

We're excited with the opportunities, we're looking at and we will underwrite them appropriately for them.

For the rate.

The rate environment, we're in.

He does but we all believe that we're we're not close to the end of this rate cycle, yet theres more.

Probably higher for longer.

Makes more sense to me, so we understand that and that's how we'll underwrite it.

That's that's great color and then Johnny you did mentioned one loan category that you were you grew this quarter multifamily is still working.

I assume that's one loan category you still like to add to what what loan categories look good to you at this point, which which ones are a little bit more scary to you as construction and land development or is that something maybe you might be emphasize going forward to some extent.

Well.

No.

Hotel.

Yeah.

Hotels, where would you go correctly I mean, you can get you get more of their needs.

We have available cash to do its just picking picking the right hotel loans and we're not afraid of hotel loans I mean, we like we like the Spanish <unk> again, <unk> got to get the proper capital stack in there to make yourself feel come.

We're not sure, but if we do hit a recession how much it flows how much it slows the economy down.

So you just better off getting extra equity in the deal at this point in time, that's county, we've done anytime we've kind of ask everybody will get a little additional equity.

Right so.

I don't want to do any office.

<unk> told you in my God from Orlando said office doesn't work right and our achievement reach out live and work.

I'm not sure about office I guess, there is more to family multifamily and industrial industrial has been really hot.

Cut out out of them.

Play because it has been so hot now that people are getting a little skittish in some areas some of those opportunities or come to us.

Again, the volatility brings us into things that debt.

Sometimes when things are really great were priced out of so.

Moping, Chris's business and for us in the community bank footprint as well.

Interestingly some of our biggest customers.

We have picked up in times like this when other people are not lending and we're containing into land into the markets and I can name a handful of customers that we picked up in <unk>.

Really difficult times lack this so I'm looking for the opportunities there to pick up some of these really good customers and build long term relationships with them.

And I guess is a good time to do that there was a lot of people don't have any money loaned out and they're having to borrow money and the bar fed funds and I.

I think it's a good opportunity for us so.

We're already.

We're already seeing it this week and our loan committees, we had one yesterday that.

Daily habits.

Great.

Right.

Jonesboro operations named Carnival, really great quantity and yesterday with a great customer that we never would have gotten a look at except for some disruption out there in the marketplace. So.

Longtime family very wealthy organization, so that this Brian .

Even though it gets a little tough once in a while but you know how conservative we are we underwrite profitably do the right thing.

Keep ourselves was our property in case, there's a problem.

We will try to continue to do that in the future.

That's great color I'm kind of surprised the stocks not not doing that well today. It feels like the market wants to punish the banks that are already burned through their liquidity. So it's a little unusual but congrats on the quarter anyway.

Well, thanks, I don't know what we're doing.

So again thats down a dollar and a quarter I don't know what we're doing.

We don't observe to be down there is no reason for home Bancshares stock Readouts are full 49, 9%.

And the best earnings and liquidity, we're in great shape, but lots of reserves lower invesco strong balance sheet as we do but it is what it is I just don't like banks desire. So.

Yes.

It seems that way congrats again, thanks Johnny.

I appreciate your home Meridian.

Thank you. Our next question comes from Brady Gailey with <unk>. Please proceed.

Hey, Thanks, good afternoon guys.

Hi, Barry.

So the margin was up I'm doing fine.

Margin was up pretty nicely in the quarter, a 40 basis point move linked quarter I think there are some other banks out there that are talking about NIM.

NIM expansion not being that great going forward, just as maybe your deposit betas catch up so high.

How do you think about what would be a big move in the margin this quarter, but how do you think about the margin going forward do you think theres still some notable upside or does the increase start to.

Decelerate in the quarters to come.

Right.

I look at it every day and right now I'm, a little backwards for the month of about 300000 out of whack that so.

We're going to we're going to correct that around here. If we can so I think theres going to be a little more pressure on the margin than it has been but however, the model I'll, let Steve talk to model what the model shows Yeah, I think mentioned in enough and the next 100 basis points scenario, we show NII up about four 5%.

Yes, I think we've talked in the past that.

<unk> I think 40.

Or so percent deposit beta on checking and savings and then 100 on on CD. So I think all of this ties back that we've got.

Asset yields moving in the right direction I think we've done all the right things there and we continue to see right. We picked up a little bigger percentage of variable rate loans with some of the production this past quarter from Texas. So.

We're doing all the right things there I think it's just a function of.

Being able to control.

Deposit costs on the way up while retaining.

Everything that we want to retain and that's been front of mind with.

Top of mind.

With all of our Presidents every day every week over the last two or three months is really trying to kind of act like 100 basis, 100% loan to deposit ratio bank today, just to keep the deposits that we that we've got and then we will cultivate you were talking.

At loan Committee yesterday.

In some respects it's been a couple of years since we've really focused on on the lending side.

To obtain.

Deposits from these customers and so we're refocusing some of those efforts in these loan committees and making sure that we get.

The deposit opportunities in rice relationships, when we did the lines as well.

If you're asking for will be up 41 basis points. This quarter I don't think so but I would like to be up 20.

Alright, and then my my next question was on the expense base that you all did a good job of holding the quarterly expenses pretty flat or actually down a little bit.

So how do you know what a lot of banks are seeing a lot of inflation pressure on expenses going higher.

As home any different than that.

Expect to see some more meaningful expense increases or maybe not with how efficiency minded you guys are.

Interestingly enough Tracy <unk> Alpha.

Millions do we increase.

In the next 12 months or about $100 a month, we've discussed it yesterday.

Outside of that I mean, we're going to have that where it will have some increases.

Yes.

But I don't think it's still a solid where somebody said we were looking like 12 or 13% increase I don't we don't see that we're not seeing those kind of numbers.

And I think there is more we haven't really refined in Texas, yet only efficiency side.

He has not been refined theres lots lots more room to go again.

Texas over a period of time, particularly on the facility side, we have lots of big facilities will be working now.

I mean <unk>.

You've got 240000 square foot corporate office out there there's lots of low funds that need to be done that we haven't even started doing on the Texas side yet.

We operate the way we operate on the Arkansas side, when you say Tracy.

Yes, I think it's fair I think we are I think theres going to be opportunities. When you look at anything today of the size. We are just the company wanted to.

Texas, we've been focused on the acquisition and focusing on the merger.

Taking care of the customers at this stage of the game. So lot of good opportunities, we will be able to check into.

Okay got it thanks guys.

Thank you.

Thank you. The next question comes from Brian Martin with Janney Montgomery Scott Your line is open.

Hey, guys How're you doing.

We're doing really good set their stocks vanished.

<unk>.

Great.

We report these jet is northeast Canada earnings out.

About as good as we can do so.

Yes.

The Windsor the market itself well you guys are staying patient rollout, we'll see what the stock trends so.

Maybe just a couple of follow ups just unexpected I mean should we think about the expenses given the opportunities you have in Texas, If you can kind.

[noise] outlined there.

The net expense number should trend lower in the next couple of quarters from the current level were at if you're what around $114 million. Today. This quarter should we see them trend down is that your expectation or is that kind of wrong I know it may take some time as you kind of work through the Texas part, but is that the out.

Or just how quickly would you expect to realize some of those benefits you kind of outlined.

Well, we got a little investigating.

Work going on in Texas, We spent a couple million dollars and we will probably spend a little more.

Fair to time as we look into some situations that have arisen.

We are town so.

Hi.

That could have pulled it down this quarter a couple a couple of million dollars, but we don't we.

We don't want to talk much about that right and I accept the fact that we're working on some stuff out there.

That we just need to fine tune it.

Our Texas people don't waste money, but there's a lot of savings so things that we did.

Over the years here that dominant hurricane created and our branch managers came with more and more and more we're just haven't instituted any of that in the early.

Early in the floor of the Texas market as of right now so latest we got enough going on in Denver Tracy.

Clearly going on so let me go largely it's been it's been a busy busy place in Conway, Arkansas.

No.

Our.

All of the country, where everybody's working hard.

Okay, so probably not trending down right.

They had a couple of million you talked about that wasn't something nonrecurring that just comes out to do step down or is it just more just kind of take some time to kind of work through what you're doing there.

Yeah.

That will be that will be recurring for a little bit here as we continue to do our investigations.

Okay Gotcha, Okay, and then maybe just one on the on the back to the margin for a minute your comments about getting half of the pickup you saw this quarter, Johnny and the fourth quarter, but just maybe one more for Stephen just is it bad if the fed does begin to pause or pivot.

As you get later in this year, if you can get your two increases a year.

And how does the margin behave.

Once you get to that that and I mean should we think about the margin may be peaking in the first or second quarter next year, and then maybe it stabilizes or drops is that how you guys are thinking about it you know keeping in mind I guess the liquidity is obviously a wildcard depending on how you deploy that but is that.

How we should kind of be thinking about it today.

Oh hi.

Hi, Brian It's Steven I don't know if quite frankly, if we're out that far in front of it I mean, I think we're focused keenly today on.

Stabilizing the deposit base.

Out in the future, we certainly as as payoffs continue to turn through those that can be reinvested at some of these higher loan rates that we're doing the same on the investment.

Aside as cash flows come in but yeah, I think it's our.

It's our expectation belief today that we're going to see some continued rate increases and are focused on.

We are positioning our balance sheet to take advantage of that.

Gotcha Okay.

Alright, and then maybe just two last questions was just more housekeeping I think Brian you mentioned there was some higher fees from Chris in the quarter was there anything in the other line item in the on the fee income side I think the other.

Other fees were up another couple of million Bucks.

Was that just kind of a core maybe from from the happy deal or is there was there anything unusual there it didn't sound like it if you didn't call. It out so I just wanted to confirm that.

Well, it's up $1.8 million, then we did have.

On item related to <unk>.

Fair value adjustment on our equity investments of $3 $3 million and if you remember last quarter, we had some pretty large recoveries on from acquisitions that have been previously charged off and.

So we're kind of down $1 $3 million on that for this quarter. So thats pretty much the change that you are looking at there.

Okay. That's I think I just want to confirm that and then the last one was just on maybe for Chris was just the payoffs you saw this quarter typically fourth quarter is it.

Heavier payoff quarter, given what we saw this quarter Chris is it.

I guess is your expectation do you still see more payoffs coming into <unk> I know you talked about originations being.

Solid for 'twenty, three or at least the outlook there, but just the payoffs in <unk> are you still expecting.

More to occur or kind of an elevated level in <unk>.

I don't think we're going to see an elevated level at least what we're looking at now we will probably see our we'll probably head back to a normal run rate.

There are a couple of I mean, there's a couple of things that are out there that are that are a little more bridge that.

They're kind of binary right I mean, they'll pay us off at the end of the year or they'll extend off another year type of thing so.

We won't know that until December I mean, I'm I'm up right now I expect our balance to stay up through November and then we have a December surprise every once in a while and some pay down right now I'm forecasting sort of flat to up overall, which would put us at a kind of a normalized.

Pay offs.

We don't have a lot of these large loans left either.

Most of our sub $50 million less in.

We have a few larger ones every once in a while the pop but.

That's not our bread and butter business, either so it's hard to say fourth quarter. Historically, sometimes is quite high for us, but I think we're a pretty good handle on it this time something of a surprise me I'm sure but.

But in general no I mean I think this was these were the these are the loans. We were looking that were expected to pay off and quite frankly at some point if they hadn't paid off I'd have gotten a little worse.

Yeah, Okay. No. That's helpful and last one was just Johnny you talked about or I guess, maybe Kevin you talked about the Hurricane reserve provision the timing of that I guess is your expectation that the fourth quarter event and then just outside of that just kind of how we think about the reserve going forward given given credit and then just how good credit today.

Along with Kennedy.

The counterbalance just kind of a macro environment.

I might have been.

Our estimated what kind of reserve we have to have it based on what I'm hearing.

Better than that anticipated.

Yes.

In my comments, we said, we feel like 40% to $50 million is.

The most that we could see on deferment.

Only one fourth of what <unk> was in less and Michael and Michael was.

Up in the Panhandle so.

I mean at this point I don't see it as a.

As a big event for us, but obviously, it's still early too. So we'll we will continue to track that.

Being able to report it as we go.

Okay, and then just outside of the Hurricane just how to think about the reserve as we go forward I think we're sitting at today, a little bit over 2%.

Is that kind of a line in the sand, we'd like to stay at that your your outlook today.

Well, yeah, I mean think about it.

Has the worst financial crisis, you had the pandemic you've had hurricane and made it look lock up and down up and down up and down a flight with it.

2% Reserve has worked it's always worked for us and I don't know I don't know see some works or not but we're running parallel systems now at <unk>.

We're keeping up with that but you know what I do know there is a 10% reserves work and in this volatile time.

We certainly need to maintain antibody that's running 1% or lastly, just data certainly don't have enough I don't care, how good their asset quality, that's not enough because we don't know what's going to hit US next Brent we never know.

<unk> is going to hit US, we just don't know what it is.

Yeah, Okay perfect. Thank you guys for taking the questions and nice quarter.

Thank you appreciate it.

Thank you our final question comes from John <unk>.

Armstrong with RBC capital markets. Please proceed.

Close enough.

Good afternoon, everyone.

Hi, John .

Can you just I know it's.

<unk> gone a little long, but can you give us a quick update on shore Premier.

And I don't know if it's hurricane related update but just how did the business do this quarter.

How are you thinking about that.

Well I will I'll turn it over John is on the phone and you can hear it from the horses mouth. So.

John I'll tell you what are you seeing it in for the quarter John .

Yeah. This towards is ready to screen.

So John Thank you for the question.

As far as the hurricane.

But folks tell me that so far we've only had one.

That was totally destroyed and the risk to us is that we got 100% pay off of that low.

We haven't had anybody file for any of the hurdles or the deferment program, Kevin Hester was talking about.

And as I was talking to Mr. Allison earlier this week third quarter. It was a good quarter for US we had nearly $100 million that we pushed out the door. Mr. Alex. So I think the number was actually 90 million so on stretching that just a bit.

$55 million and repays in Prepays.

So a $35 million net growth, which is good for us, but as I was telling Mr. Allison. The importantly, the components of that was $12 million on the retail side of our business, but the pendulum seems to be gradually coming back to us on the commercial side of the business so that net $35 million.

The bulk of it $23 million of that was was commercial inventories. So we're happy to see that.

But the outlook is positive we're starting to see.

Some slowing of applications, but as you would expect in this current environment of limited supply.

We're seeing the average application is going up.

Because the inventory values are going up.

And so I think they are they have risen year over year by about $100000.

But the asset quality is holding strong and so our outlook is positive but as were entering this of the boat show season.

We're expecting there perhaps to be a seasonal rebound.

And that application volume.

But but but so far the business has not been negatively impacted by the macroeconomic headwinds.

Okay, Alright, thats good to know thanks Joan.

Just lastly on thank you Johnny.

You talked.

You talked on several calls.

Prior to the rates going up about some of the fixed rate commercial real estate loans that were being made in some of your markets have you seen any of those banks struggle or have problems or come to talk to you above.

Remember how do you think those banks are doing.

Well the database they gathered they said that they put so much money in low rate real estate loans.

Securities.

You'll see them look in lip.

The local newspaper facade. These ads.

Obviously, I mean as Ive just run out of money they spend all their money.

As I've called that over over the use I Couldnt believe it.

And happy to do the same thing to the happy group did the same thing they took excess cash and put it into securities.

Okay.

While we were not doing that but we didn't own them at that time.

Since then a lot of people have done that.

I haven't heard the squealing, yet, but I am confident we will hear the squealing I think from an M&A perspective really makes it tough to do a deal with someone else.

You look at their bond book, and they're down upside down in the bond book.

Like everybody is but I mean, the impacts of that significantly impacts the value of the company and then you look at their loan book and they've got a bunch of twos and threes on their loan book in this market and by the time, you get through market and aftermarket.

I'll hand back really do an M&A deal right now.

You got the phases that are attached to it and the cost to do anymore. It's just tough to do they just there is really really tough to do.

Thank goodness, we didn't do that.

I'd, rather be lucky than smart, we just got lucky and didn't do it and held a line and I think we might.

The Maryland for Pat on the back, but I think we've made the right call.

Yeah.

Is that way so okay. Thanks, I appreciate all the help.

Thank you John I appreciate it.

Thank you there are no further questions at this time, so I will now pass it back to John Alley.

Thank you and we'll go to Tracy French for any closing remarks.

The group did a good job of covering all of the questions that I didnt hear much on the Texas deal. So I thought I'd give you a little short summary of that and how that process and are we talking about some of the challenges that are out there but.

I don't know if Michael Williams Who's listening on the phone, but I will just say they are doing pretty good. If he is in his team that may be listening that they really do an outstanding from what we've seen so far.

You talked about the loan growth I mean, we're seeing activities there come through for us where the first two to three months that there was lifted as we were working on the merger and <unk>.

Conversion challenges and everybody was dealing with customers and so forth so that parts turned out extremely well and internally we do.

We rank them and allow them and our board maintenance to report to the board just like it does here today.

For the first month.

Monday, Texas will go first on the maiden thanks, Robert and his metro team.

The picked up the ball and run extremely well, but overall for the banks Johnny I mean, when I look at all of the states. It's the first time, Arkansas, Florida, Texas, New York Operation has all been above the 2% range in a long time. So I think we have a lot of good amount of malware, yes or ROA.

So I think we have a lot of good momentum and I think.

Michael and Robert put together teams out there that survived and we've got.

Some really great bankers is going to probably be taken my job someday.

It works every day so.

Very pleased with it outside all the chaos that you've mentioned out there.

Kudos to the rest of the Florida operation, which we know what they have done down in Florida, and North, Florida and Arkansas.

So it's a pretty good if the world wants to.

To be curve balls and assist us in the back.

Thank you for that anybody else Gary's comments.

Well I think it was a great quarter.

We're pleased with the quarter I couldn't have asked for much more focus.

When this group we.

We traded up last quarter, telling you that how good last quarter would have been had we not had the.

One time $107 million expense last quarter, but we didn't have it this quarter and the proofs in the program. So we're pretty pleased.

I'd like to get it.

I have another number in mind as we hit one gallon change to another goal would have created another go will go higher than what we thought we got that set up.

A couple of weeks ago, and ask I didn't hear.

How do we get to this number here. So I think we can get to this number relates and do you ever get pushed and Matt no not yet.

We just keep looking ahead to the end of the year to get there.

Ladies and how that changed after 63 63 days.

Hi.

For Q4.

We referred to this board.

No I don't I think we're done.

[laughter].

Tracy some things just never change.

This concludes the home Bancshares incorporated third quarter 2022 earnings call. Thank you for your participation you may now disconnect your line.