Q4 2022 Home BancShares Inc Earnings Call

[music].

Greetings, ladies and gentlemen, welcome to the home Bancshares incorporated fourth 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.

Happy question during the question and answer session. Please press Star then one on a touchtone phone. If you decided 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 for it.

Filed with the S E T. In February 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 then zero. It is now my pleasure to turn the call over to Donna Townsell director of Investor.

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

The rest of our team is present and available for a question Tracy French President and CEO of Centennial Bank.

Brian Davis, our Chief Financial Officer, Kevin Hester, Chief lending Officer, and John Marshall President of Shore Premier Finance.

2022 is quite a year home bancshares finished the year, though with a strong fourth quarter and should provide you with the details is our first speaker Chairman John Allison. Thank you Donald.

Welcome to our 2022 years.

Fourth quarter earnings release conference call.

Properly managed.

Last year was both arduous stressful and somewhat exhausted your face.

Loan and deposit rates have not been there since the late families in the early nineties.

That's what it took rates so low corners, and finally jealous mine better known as inflation. This is the second fastest.

I will raise rates in the history of our country.

And believe me.

We have highlighted strong we've not even hit the 50 year average added five four for fed funds and the pivot will be disappointed if the Gulf Power's aware of their early pivot the broker dealer and the families.

Inflation is not overlapping and it's not overnight.

We must all of course, maybe not raise rates as much as in the past, but continues to rise pauls observe.

It takes almost a year before the impact of what we do today to show up in the comp.

We've seen some signs of deflation is slowing but without continued rate increases because they know more than I have.

Now if I heard you say there'll be wrong Zomax bad language will start raising their hand in the recession.

The biggest stock market crashes and there is a financial hurricane leaning in this direction banks are out of money.

And higher interest rates or destroying the value by reducing to by the securities due to LCR.

I have to agree that some of these risks are certainly out there, but most can be properly managed.

Allow the deposit at much higher rates are finding their way into those who did not show prices have continued on the same path plowing deposits into low rate loans and securities it'll be a long road for those companies. They will not catch up for three to five years, it's that quick alright until the low rate loans and securities roll.

Off the books.

I've said this before and I'm going to say it again, there is no substitute for experience.

He is certainly have interest income to outrun interest expense should result in an increase in net interest income even as conservative at home is in a position where we're in this.

This is a very tried and tested during the quarter.

Because those expense their money were forced to buy money, regardless of the cause as evidenced by their CD everywhere.

There has not been a C D add Ron at home, we let deposits leave the bank only when they hit the stupid point, otherwise and temperature were trying to deposits and good times. These branded batch at a race to the bottom of a loan right now theyre, having a race to the top and deposit rates as tough as it is to maintain it.

Excess cash we're still hanging in around 80% loan to deposit additional cash flows from securities principal payment and smaller payoffs, resulting at about $300 million per month in cash flow February is expected to be about 550, because we have a $250 million treasury, but.

And where would you get another bite at the Apple we get that in early February we have with 80% of all deposits virtually no broker deposits limited borrowing with billions of capacity plus cash flow almost certain that a great utilization and spot the damage done in more tempted by the West Texas grew at apparel.

It was to destroy shareholder value the strength of the entire franchise has stepped up and delivered three record quarters in a row. Since we closed that transaction, we're keeping a tally of the unprofessional damage done to our franchise and we will talk more about that in coming months our.

Foundry is pretty interesting Bill Barr described as our underappreciated economic genius explained financial innovation always appeared right at first but they certainly are taking to become a force and eventually the fars leads to a tragedy.

All banks are not created equal if all cars as all land people management change football teams, we proud ourselves electronic separate ourselves from the rest of the pack with top tier performance mainline Best Bank in America by Forbes three out of the last five years is certainly a great achievement by our team.

I don't know of any other bank in the country that has achieved that goal.

We just witnessed the Georgia Bulldogs separate themselves from the pack and a very impressive fashion no doubt about who is a national champion in the U S. I don't know that home is a national bank.

Certainly in the playoffs, and congratulation goes to our team.

Well firstly from the trading mode given to us by our supporters as there are only a handful of bonds trading over two times tangible book, while 66% of all publicly traded bonds are trading at 125 or less and that number came from last week tightened them all down this way.

The Conservative management team at home believes in maintaining a fortress balance sheet with excess capital and sufficient reserves.

We do that in the event of a major downturn in the economy, all while continuing to report record profits and top tier performers will continue the care of these conservative balances, but regardless of the situation and how it will be open in the morning next week and next moment there is no substitute for Stuart you cannot yet.

You needed. Therefore, we carried at all times better safe than sorry don't worry about home, we're taking care of your body.

Let's go to the numbers.

I'm pretty impressed release numbers my fifth record fourth quarter income of $115 7 million or 57, a share Im sure Thats beat record pointed to earnings as adjusted for the onetime second quarter adjustment all the merger expenses of $107 million.

$379 million or $1 93, EPS fourth quarter Ror one night.

At this point I wanted to but that's about as close to finishing here.

TCE return on tangible common equity for quarter Amazing 20, 296%.

Tangible book grew from $9 90 to $10 17 sites, even though we continued to buy back stock I don't see branded items reported that you'll see improved by $2 million.

That's not much but it's certainly moving in the right direction.

Our away 13, four to six revenue 200 set record revenue of $272 four three for the fourth quarter fourth quarter margin for two one up from 400 Fab, that's up 16 basis points I would like at the end of the first quarter. We said, we will continue to expand the margin in the second quarter, but not as much it was a pretty good battle and somebody.

Better be managing their bike every day to grow that margin nonperforming assets were 22 seven.

Nonperforming loans were <unk> say about the same or lower than last quarter. We did fourth quarter loan growth was 580 million statements don't report them pallet rates that was on the overall portfolio was up 60 basis points in the fourth quarter.

We added $5 million to reserve puts us at 475 nine times.

Classified assets I guess thats, what it made reserved reserve is 175.

Performing loans I'm, sorry, non performing loans.

That's a 2.01 number is 289 7 million efficiency ratio of $42 four four we repurchased 840000 shares for $20 million.

During the quarter.

We didn't make any change in dividend Liberty discussing that at the meeting on Friday, we were.

Say $15 million from our law suit against first service.

On the lawsuit settlement.

And next quarter I'm going to introduce a very exciting.

And profitable portion of our company there has never been properly recognized or promote it.

So I think you'll enjoy that it's taken a lot of my attention right.

And strong capital levels, and I would like to statements going to go with those in his presentation.

These are some of the best numbers that we've ever produced and probably the best that anyone's ever produced we.

We didn't win the National Championship, but I'm just.

Until you were in the playoffs and during all of this we get downgraded with these numbers are fine that really totally unbelievable.

Anyway. It is what it is that pretty.

Pretty much wraps up what I've got to say and if you take it familiar okay. Thank you for that I know that all of our listeners I always appreciate your insight and congratulations on another great year. Our next update will come from New York from Chris Poulton with CST.

Thanks, Donna and Johnny I appreciate the shout out to UGA go dogs.

Yeah.

Q4 capped off what turned out to be a solid year for <unk> for the quarter loan balances grew by just under $200 million at $197 million on just over $500 million in new originations. This growth was despite a robust $320 million in payoffs and paydowns for the quarter Q.

For us generally inactive quarter as customers look to complete transactions ahead of the year end.

You may recall that our portfolio declined by about $340 million in the third quarter.

So the growth in the Q4 was simply planned backfill of the portfolio as we took advantage of the chance to redeploy our capital.

A frequent listeners may have heard me say from time to time that getting repaid is not in fact, the worst outcome for alone. These repayments provides us an opportunity to redeploy capital of new usually improved terms.

For the full year <unk> grew $356 million of about 18% on just over $1 5 billion in total originations looking ahead volatility in markets generally creates opportunities for our lending strategies as traditional bank financing becomes either unattractive or unavailable, we enter 2023, but they are huge.

Real sense of caution.

Today, our leverage is generally a bit lower and structure a bit tighter, but we remain confident that we will continue to see a number of opportunities to modestly deploy capital in the coming quarters.

Back to you.

Thank you, Chris and congratulations to your team on another great year.

Now for a final report that will come from Stephen Tipton. Thanks, Donna as Johnny mentioned it has been quite a year, it's fun to get to report on such a strong and high performing company and we look forward to another great year in 2023.

I'll start first with the net interest margin, which improved again in Q4 to $4 two 1% up 16 basis points from Q3, and up 79 basis points from a year ago.

<unk>, Kansas, the earning asset mix improved on a slightly smaller balance sheet.

We will continue with our approach of maintaining healthy cash balances at the fed and look for opportunities to deploy that liquidity, where and when it makes sense.

We continue to navigate through customer expectations for interest rates on the deposit side.

It's such a competitive environment that has already been mentioned.

We'll do that on a case by case basis.

If we do see additional rate increases and are able to hold the deposit rates at a reasonable level. The current Alco model projections show about a three 5% increase to NII in the next up 100 basis point scenario.

Switching to deposits total deposits ended the third quarter, just shy of $18 billion.

The decline in balances slowed from prior quarters, and we actually saw increases in north, Arkansas, and a central Florida and Southern Florida markets.

Noninterest bearing deposits accounted for 29% of the total at $5 $2 billion, while Cds only comprises less than 6% of the total deposit base.

We're focused on our core customer base in the markets, we serve and looking to bring in new relationships as we deploy capital into the loan portfolio.

Staying with liquidity for a moment.

As Johnny mentioned, our loan to deposit ratio ended the quarter at 80%.

And our primary liquidity ratio remained strong at over 19%.

Switching to loan origination volume was strong at $1 9 billion for the quarter with over one 3 billion coming from the community Bank markets we serve.

Yields on new production came in at 717% and increased each month throughout the quarter.

We continue to focus on pulling these rate increases through the current pipeline and as loans mature.

Payoffs moderated in Q4 with a total of $710 million down from $1 2 billion in Q3 and helped contribute to the average and in period loan balance increases.

Switching to capital on a few key ratios as Jonny already mentioned, we had a total risk based capital of 16, 5% or 4% a leverage ratio of 10, 86% and a tangible common equity or TCE ratio and a strong 966% as of December 31, all of these well in excess of our.

Internal targets.

With that I'll turn it back over to you. Thank you Stephen you guys report.

Johnny and his team before we go to Q&A do either of you all have any additional comments.

Yeah understandable John used all those adjectives when he started his prepared remarks I came up with the word entertaining has certainly been an entertaining year, but.

While the best era.

It's never been done with few Johnny into 'twenty, one years have been around sort of timing is probably the better word but.

As a complement to all of our markets and regions and areas for the past year certainly we've seen the rapid increase in interest rates has been something to work with all of our markets have done an outstanding job managing their balance sheet, which overall makes our balance sheet looks good when you look at the numbers for the banking.

Return on assets or in the 2% range that return on.

And average tangible common equities into 'twenty, you've got an efficiency ratio in the low 40% actually hit below that this past month, which is nice and <unk> got net interest margin around four in a quarter, that's pretty pretty strong telling about the type of folks we have working out there in our community.

One thing you talked about inflation and I think our company does really well when we talk to our market leaders on a regular basis just talking to the customers. So we know there's still a lot of things a concern out there. Some people cut back on we do have certain things some loans that we talked about doing nine months ago customers colleagues, where they work put it on hold for a little.

While which is just good business and I think that's the.

The nice thing about our balance sheet that we have in the bank as knowing our customer our customers are making good business decisions, it's showing up in the numbers but.

All of the performance numbers are good Mr. Allison and I hate to say this in front of you, but I think we've got room that we can improve mahalo.

Oh, Hey, guys.

Yeah.

I've always believed that never kept prices.

Hey, guys great quarter. Thanks, everyone for your support out there I can't I can't say enough about the color I don't know.

We have looked at.

For somebody.

Find somebody that we might win the National Championship.

Thanks, you see somebody beat us business margins for the quarter and I'm not sure that well get the palm palms ready just yet.

<unk>, maybe get sloppy again, maybe we can get some slotting fees or was the whole.

Hudson cases, presumably won't get us some concern.

I think it is a great quarter.

Look forward to the questions.

I'll give it back to you okay. Thank you I'll turn it back to the operator for Q&A.

Absolutely we will now begin the question and answer session. If you would like to ask a question. Please press star followed by one telephone keypad if for any reason at all you would like to move that question. Please press star followed by two again to ask a question. Please press star one as a quick reminder, if you are.

Using a speaker phone please remember to pick up your handset before asking your question.

Our first question comes from Matt Olney with Stephens you May proceed.

Hey, Thanks, guys how are you.

We're good at we're happy all missing.

Oh, good good stuff well good report wanted to ask about the loan growth a strong trends in the fourth quarter. We got the report from Chris pretty pretty active and and his group, but the community Bank also had a strong quarter of growth any color any color there and as you think about 2023.

What are the expectations for for growth there.

Hey, Matt This is Kevin.

You heard Steve talk about lower payoff numbers, so that factored in some but.

Certainly he mentioned the production across the footprint you can hear how much of that came out of the footprint. It was a strong quarter for for really you know a lot of our regions.

That's kind of a function of us continuing to do what we do.

We're pretty conservative across the board.

We stick with that and sometimes it works in our favor. These times, where you got competitors that are so amount of money in some.

So I'm just choosing to sit on the sidelines in certain asset classes, we keep doing what we're doing conservatively and we're getting them to go to the dance I am now. So we'll just continue to do what we do and as Johnny said, sometimes it works in our favor sometimes it doesn't.

This quarter, it certainly did and it looks.

We've got folks do a lot of stuff right now looks at a lot of things so.

We like where we're at.

There's a lot of banks out of the money loaned up.

Puts us gives us gives us a shot I think some of these deals.

I mean, you think about semi loaded up a 100 plus percent.

The BARDA out.

It will take.

While on why that was.

If I can get back to the competition.

Yeah.

Okay.

I appreciate that and then.

On the credit front it looks like you reported a positive loan loss provision expense for the <unk>.

First time in awhile anything specific that drove that and then I guess kind of stepping stepping back any specific asset classes, you're you're watching closely or any loan categories are you more focused on in 2023.

Hey, Matt This is Kevin again, so we're certainly from an asset class standpoint, we're going to watch retail.

You you got retailed at <unk>.

Certainly has stresses and as you as you see how this economic cycle continues if we do truly go into kind of a consumer recession and that's something we're going to watch office, obviously is on everybody's mind and.

We don't have a ton of office, but we'll we'll look at what we got and.

Continue to watch it like we do.

Anything else hotel seems to be doing well.

Certainly in the markets we're in.

And so we will watch the asset classes based on what we're hearing out there.

And in our markets and in the.

<unk>.

National as a whole.

Just from our perspective in the fourth quarter.

We had a group of about six AOS properties in Florida that totaled about $100 million and struggled to reach stabilization.

The equity came from an institutional investor. These loans have always been current continue to be current and supported by this investment group.

Given the long stabilization runway that they've been on and more challenges ahead, we decided in the fourth quarter to move those along with the sub standard.

We've been watching for a while not anything particularly different today than yesterday, but just given the lag time watched them, we decided to move them. So I think you'll you'll see that as the quarter numbers come out but.

Again, we will watch the market and watch our asset classes that were that were heavier in and.

Look at particular loans as their annual reports come in and.

Yeah.

Well, we'll act accordingly.

We've talked about these credits over the years.

The current paying as agreed but.

They still bothers me I believe land around you know when we had we had the pandemic hit and they said Oh home is going to get killed on hotels, well we need to.

Fireside chat.

Shown everybody.

All of them properly we underwrote these properly too so I don't anticipate a loss in these job, but it is something we've talked about and Kevin thought it was time to downgrade them. So we did downgrade.

Out of that.

But we have about 100 million of them only really the only ones that have problems about $60 million of them. So $60 million. So if it wasn't losses maybe.

Small I would say I mean, you might lose 10 million, maybe maybe not so anyway. We just like we always like a 2% reserve you asked about the loan amount.

Good days bad days.

Recession high rates low rates inflation, whatever comes or goes 2% reserve has worked and thats been a rule for us for many years, we locked in for samples or we don't want to use our reserve lack of piggy bag and pulled some put money and pull it out put it in we have a 2% reserve we like that we.

Feel comfortable that we went through eight nine and 10, the worst financial crisis I've ever seen in my business career.

2% reserve and it paid off for US. So we will continue to maintain strong reserves in the event that something were to pop out there anywhere so that's.

We've actually found out below 2%. So we put the money in there we got to get from <unk>.

<unk> gave us a little gift during the quarter. So we discount that we put that money in reserve.

Yes, okay, well I appreciate the disclosure on some of those downgrades and just to clarify Kevin what types of credits where those that was a little unclear on what those assisted living assisted living facilities.

Okay, primarily memory care one thing we've learned is the member care strong.

People.

I'll be glad to get appeal, you can take for memory care, but that people struggle with memory care.

That is it is the patients don't live very long.

Lot of turnover in long term it really expensive.

Staffing has been really a challenge after COVID-19.

A lot of headwinds I am sure that asset class will straighten itself out at some point in time because of baby boomers are Rowan.

65, and older lots of baby boomers rolling into that and I think Thats what was anticipated in this field was that's what would happen but.

It has been it has been a struggle on the cash flow side.

And particularly people went and got their loved ones when the when the pandemic hit they went and got their loved ones took them out and brought it home and lot of that happened in selling them back one of those lovely memory care centers are assisted living centers was hit by Hurricanes. So we should we got the insurers would sell at one of the insurance companies.

That'd be one of the ones that were in question.

Yeah.

Okay.

Okay, well, thanks for the help and I appreciate taking my question.

You bet. Thank you Matt.

Okay.

Thank you.

Question comes from.

John Armstrong with RBC you May proceed.

Hey, good afternoon, everyone.

Hey, John can you hear me, Alright, Hey, Steve.

Stephen question for you.

You throw the number 717 was that the new loan yield production.

Yes, that's correct a good afternoon.

The coupon on our total production for Q4.

That portion of that would have funded.

By year end or during the quarter, but that was road.

Decent review, Okay, Yeah, I think I mentioned it increased kind of throughout the quarter just as market conditions have changed and I think we were at about 740 or so in December So it's got a nice trend towards it.

That's kind of lining up with what you're seeing from the fed.

Got it okay.

And what kind of reaction you're getting from clients at those rates. It seems like there's plenty of demand, but just kind of curious on sentiment.

Yeah.

Okay.

This is Kevin.

I think people have recognized that that's where the market is there.

Their daily there has to work at those rates.

They can't do their deal.

And we've had a couple of one of our big Big.

Builders came in and some of it some of these projects didn't work at those rates. So they just pull them off the table until it gets and inflation building costs are up interest rates are up makes didn't work so to his credit polo projects oftentimes, we'll see them again.

It's a land, but we will.

It won't go forward with the project business.

Actually our customers with 19 through this process well looking at it.

Analyze it decide that they need to do it and how to do it lighter somebody to do it and I also need to do it as evidenced by the strong loan growth for the quarter.

Cap rates are still good. So they are building to sale. This is just an increase in their interim cost.

More than it is a cost of the project so.

Most will factor that in and take a little less profit and get it built and get it so I'll move on.

Our homebuilders homebuilders.

We did.

Visit with our homebuilders out of Florida Big Homebuilders.

Softness in and around Houston.

But they are Florida, and Alabama are continuing to run really strong rapidly gets.

Tracy you got there for Mike what we said.

October was good November was a little dip in December strong.

They've adjusted some of their.

Whereas they marketed overtime, but the.

Margins are still a little bit less than what they were but they are still really good.

We talked about asset quality.

I have been watching shore premier Midtown that shore Premier.

Oh man I won't get John Marshall talk about shore familiar just performance in his past dues. If you can quickly tell us.

Stealing your show on us.

When we're talking about asset quality I thought well I'll, let John present, not forgotten and John you talk about what you're seeing out there.

Yes, Mr. Allison. Thank you I appreciate the question.

I'm seeing some forecast.

And the market of elevated delinquency and defaults, but.

Also believe Mr. Allison, what we're gonna do were going to observe that in the smaller boat and trailer retail segment.

You all will recall that our marine book is underwritten to a prime credit quality standards. Our average application Mr. Allison was 820000 on our App.

Average loan size of 670000.

Our borrowers have verified the liquidity of 66 months imagine that so completely indifferent to their income their W. Two.

But they've got five years of average liquidity to cover their obligations. That's that's all of their obligations not just their boat loan.

We considered delinquency as a harbinger of default by 21 basis points. Our delinquency is consistent in the fourth quarter with where we've seen it all year.

And again, we feel like Thats, a very low number.

Mr. Allison I don't know if that answers the question, but kind of what we're seeing.

Thank you for that I'm interested in just under John but I don't want to get that.

Matt ask about asset quality and you probably would ask about it anyway. So you got the floor.

Yeah, No I appreciate that that's helpful.

You guys you alluded to the margin drifting up but maybe not as much as the quarter. This past quarter. It seems like you've got some pretty good repricing come in pretty good momentum in loan yields.

How do you feel about the margin trajectory.

How are you guys fighting some of the.

Deposit pricing request some pressures as it just taking the loan to deposit ratio up or is there something else going on.

Well, we're taking the loan to deposit up a little bit but.

I think the trough.

I think we hit that interesting we manage this company as you know every day and.

<unk> was a screaming home run it was just we are not.

Grand Slam home run for October November rights took off as you saw and it was a day. It was hand to hand combat in November we actually went backwards in November from October and then here comes December and.

Book, and some loans and we're getting them on the books and they are starting to run starting run Nip and tuck with the increase in revenue the increase in interest expense.

Until the fifth thing is our 18th month were actually running backwards and it turned the whole thing turned at that point in time, we've got enough new loans on the books to outrun the interest expense and it ended up being a great December . So it is it is hand to hand combat and we're taking them one at a time we've dealt with most.

Of it.

Let Stephen comment on what it is.

Yeah, you said it John I mean, I think it all hinges on what what we do have to do on the deposit side. I mean, we did Johnny mentioned, we were a little more aggressive in.

October and November .

On.

On the heels of the 75 basis points.

Rate increases had to pass some of that along to you know to deal with the customer demands but.

Feel like what we did in December and then depending on what we see here in a week or two.

The first of February from the fed.

Maybe a.

A little more conservative there.

Not that we don't we see it every day, we see it we see it plus or minus.

We will compare December .

With November guidance.

How what we're doing there and with October and how we're doing there and how does that compare.

Later, we went in or we lose and it's it was.

It was a bad really is a battle I think that most of the rate increases are done at this point in time, so I'm optimistic that we will we have a shot.

We have a shot at increasing margin.

The first quarter, if we can continue right, where we're writing.

And most of the expenses are behind us.

Okay.

Okay. That's helpful. I appreciate it thanks.

Yeah.

Thank you.

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

Hum.

Hey, good afternoon, everyone appreciate it.

First of all great quarter.

I think it.

You know kind of played out as you guys said it would get some of that liquidity to work I am kind of curious dig into the comment you made in your prepared remarks, I think it was around $300 million a month of cash flows and repayments and other things I'm wondering how much of that specifically is coming off of your bond book in terms of cash flows.

Trying to think about how much loan growth you could fund it.

If you know without any incremental new deposit growth.

Oh, there's about 30 million $35 million coming off the bond book, and we really haven't redeployed that because rates are kind of backed up here a little bit as you can.

Nowadays so we've just set on that money, we'd better off growing fed funds.

Cash is what Brian has been doing the math right because we're getting for fourth fifth.

And you're getting on new investments about five yeah. So.

As Reits.

Rates are going to go back up or not with the market. So somewhere we picked our spots and Reits kind of backed up all this apparel have you seen the 10 year. What's happened there. So it is is it over now it's not over Oregon continue to rise certainly that it will continue to rise it may not rise at the level that they've been rising, but theyre going to continue to rise.

Yeah, so the $35 million per month in terms of cash flows and I was more thinking maybe not deployed back into securities, but could you deploy that into into funding the loan growth.

Absolutely.

Where we worked with it yeah, absolutely we can.

That's about it when you think about it is coming off its coming off of $1 50. If you can put it in at 747 or 40, you put it in and that's a pretty good it's a pretty good spread.

So we're still.

So we got we got to do it.

We still got cash and we're generating cash and we.

We got a C D C treasury.

Treasury coming out in February with $250 million that will put to work so well.

We're pretty happy with where we are we don't need we don't need to borrow anything right now we've got plenty plenty of room, we don't have any broker deposits. We really don't we're not BARDA not at all we need to get more and if we can.

Got it makes sense and then you guys you referenced in the headline of the report the despite continued west Texas headwinds, but.

It's hard to see any headwinds in the results I guess can you expound on that a little bit of what what's coming out of there or is it growth just not what you would want out of those markets yet and it's just been.

Other areas that's kind of.

Kept us from saying it it's just.

They want after that bunch one after that.

A bunch of our customers took a bunch of our deposits and did what they could do to damage. The company I guess, what it certainly appears locked in.

Had we not had that we would've had a much better quarter.

We're keeping up with how much that is so I think it's important to know.

Keep a running tally of how much how much how much they got from us or stove from us or took unprofessionally from us so where.

As you as you know we don't when someone tries to the company as happened with surface burst. We we stayed after him for years until we got our money in.

I'm not saying, we're going to do that here, either but I don't want people trying to hurt our shareholders.

Yeah.

And then.

Okay got it and then.

Last thing for me is really just like you mentioned you guys have continued to repurchase shares.

And are one of the few banks stocks trading above two times tangible any longer so at $2 30, a tangible does.

Does M&A become more interesting than repurchasing your own shares at some point or is that math just not attractive to you at this point in time.

Now it does become attractive.

<unk> of our <unk>.

Support that people give us to trade at that level.

The feed of the strides there, but it is.

Okay.

We're interested in M&A.

I don't think the problem is that a private buyer.

Recognize that their price goes down like the rest of the bonds and the rest of the body. She used to be at 170, 75 times tangible book and now they're at 125 or less 66% up more and regardless of what they do.

Theres is going up the same way.

I mean, it's going to be exactly the same so what are their where their private bank recognized does not they go up and down like we do as a public company. So my thoughts are that.

We.

We'll be acquire or be acquired here.

Next week, we can have two words, why and we're going to visit with some people out there are some opportunities there so now.

How do you do any of an idea of the day, though Stephen I mean, you guys are pretty damn good.

Youre groups.

Or is out there doing deals.

One of the best at doing deals.

And he didn't want any mark what are your go to market loan booked at today.

Yeah, that's right yeah.

The man who's gotten hard yeah.

Yes.

I agree difficulty to do it.

Yes, you got them off the loan book.

I don't see as already booked that book to Securities basically.

If we do the O'brien.

Maybe.

Okay.

The sellers.

Mark.

Stephen Yes, yeah, Yeah, now that makes sense, then I mean, obviously the market's appetite has still been relatively tepid towards deals, but I think you know you guys showed with a happy deal. If you do the right deal at the right price and the right structure. It still can be received well so.

I appreciate all that color congrats on positioning the company well yet again.

Thank you we appreciate it.

We work hard at.

Doing what's in the best interest of our shareholders.

You know as it turned out we ended up happy ended up being dilutive to us because I always say, yes, but I think we are working that pretty quick in.

And the rest of the franchise jumped up to help us.

It was I'm very proud of the year I think we had a great year in spite of all this it is very stressful low managing your business with all this going on with the distraction and West, Texas, along with all of these interest rate changes.

But we got through it and had a great year.

Mhm.

Thank you. The next question comes from Brett Robinson with Happy Group. Please proceed.

Okay.

Hey, good afternoon, everyone. Thanks for taking the question.

And Brian and congrats on the championship as well.

I wanted to.

Yeah.

Wanted to talk about deposits for a second and just I think everyone's trying to figure out how much more they might see operating accounts from a DDA perspective D caught it and how much more liquidity could could drain out from our low cost core deposits and just wanted to see if you had any crystal ball thoughts on that for your for your bank.

And obviously.

Obviously not have to really push too hard on deposit betas versus many peers, but wanted to see if that was something that you might be.

Looking to Amp up if loan growth is going to be there for you from an opportunity perspective.

Hey, Brian it's Steven.

I guess as you said, that's a crystal ball, but I believe if we knew we wouldn't be sitting here.

No.

Johnny mentioned I mean.

If we found a trough yeah, I mean, I think certainly in Q3 excuse me Q4.

The decline slowed from you know.

From the prior two.

Yeah, if I go back and look we I think pre pandemic ran 22, 23% noninterest bearing to total yeah. I don't think that's necessarily where we go back to but.

Yeah, I think some of that can still be to be determined I guess is some of the money.

Then in the system over the last year or two you know moves around.

Yeah, we talk around.

The table here.

It's taken a little while I guess, it kind of spin back up the conversations at loan Committee and other places around around raising deposits again, and having that be a part of the discussion when you got a new opportunity alone committee and those kinds of things so.

I think before we push hard on on beta and rates.

CD specials and those kinds of things like you see I think we stick with that.

Relationship banking approach as a business.

Okay.

Go ahead. Please I was just going to say Brett the only thing.

When the pandemic hit.

Excuse me.

Deposits really boom drag.

And we stay disciplined in la.

Lock in a lot of loan opportunities back then at 3% for seven and 10 years.

We always knew that the <unk>.

<unk> would go away.

To some degree I thought it would take a little bit longer than that.

As it did this past six months, but it's.

We watch a lot of our customers would give us a call and I'll give us a call. If we wanted to match you have high rate, we certainly get that opportunity. So it's not that we've lost a customer but instead of.

Normal deposit rate in the bag they can take it out and do an investment.

Do more money and then we also have some customers that used to borrow money to choose their own money. So that Tom will turn back with that deposit money will come back in Johnny.

Johnny just mentioned about the West, Texas, I think we've got a really good collyn opportunity coming down the pipe on regaining some of that that we generally lose whenever you do an acquisition.

So this.

As Johnny mentioned, we met we talked we've made every day and discuss it every day I watch.

Where it's at so.

I don't have a crystal ball either.

Just.

Real pleased with the way our team has managed.

Challenge over the last four or five months, which has been interesting.

Yeah.

Okay. That's really helpful. And then one just to go back to the loan pipeline and the loan growth and Johnny last quarter. You said some folks were flying in to see you there werent able to get credit from the bigger banks.

And wanted to see how much of the growth of the pipeline was Todd and stuff like that maybe market share opportunities.

That might continue to be.

Something that helps for loan growth going forward or maybe youre going to pull back as well relative to the environment.

Okay.

Uh huh.

Hey, this is Kevin.

There was certainly some of that in that particular deal hasnt actually materialized, yet, but I mean, there are other things that were similar to that you know opportunities like we said that.

Other folks are on.

On the sidelines for one reason or another and we continue to do what we do we've got money loan because of the way we manage through this this last couple of years and we will continue to do that.

That's the reason we held off like we did is to be able to take advantage of.

The situation, we need Johnny said three years ago, when rates were going up and that's the way we managed it now we're in a position to be able to.

Take this money and put it in.

Earning assets at a good good rate, we moved on that credit clicking up that.

That customer.

It didn't do that big transaction. He will do it will do lots of transactions. We built a relationship. He said he said, it's called wish Merry Christmas and a happy new year and their class people and he said I'm impressed with your team and how quick you moved it was accomplished.

Katie credit, which Chris Poulton.

I mean, he actually left here went to see Chris in New York, and Chris spent two or three days with them and ironed out the problems down in our meeting in Boston and Chris in Boston.

And he he's got he said one will do this as a matter of fact that'd be conferences coming up in Florida, and we're going to go down a day early.

Stay over a daylight to have dinner with him and made it some more of his paper so that.

That's going to turn out to be even though we didn't close that transaction. He didn't bail in debt that's going to turn out theyre good long term relationships.

Well take it we've picked up some of that business. During this time it will be also relationships with as Tracy did in eight 910, and 11 with a lot of Florida borrowers there still long term customers with us so.

I mean, we charge a little more but I know that but they know the money is good and I would get it done and they don't have to worry about whether the loan would get funded or not or get funded properly. So.

We have four or three quarters report higher lots of instances, but.

That doesn't seem to bother the project's good question no I appreciate the question.

Yeah. Thanks for thanks for all the color.

Okay.

Okay.

Thank you.

Our next question comes from Brian Martin with Janney Montgomery, Scott You May proceed.

Hey, good afternoon. Thanks for thanks for taking the question.

Tony I wanted to circle back or I'm, not sure who just on expenses I know you talked a little bit about it last quarter and some things that were going on but just kind of the run rate on expenses and just how youre thinking about that going forward here, just any any changes or how we should think about that.

Respectively.

Well, we had a you know.

We had a for instance team and we've spent.

Millions of dollars with this forensic team.

Happy to us in Texas, So that Youre seeing a lot of that in <unk>. You saw some of that last quarter you saw a bunch of it in this quarter. So.

It is.

That will probably continue on the legal side for a while going forward, but most of the forensics is a I'd say, it's pretty much done when you Tracy.

Yeah, I don't know if that ever just.

Don't ever get done okay. So anyway.

That's where a lot of those expenses came from.

The increase in expenses you can see.

Two or $3 million this quarter I think Brian it's about five five fab human.

So that'll come down at some point in time, we will be collecting a lot of money.

Yeah.

That's great.

No.

With the cost of everything that we're seeing out there in the real World you don't have to have expect there'll be some over a call.

Cost is involved now we also.

I said earlier in the call that.

We've got room for improvement in some of that too so.

We'll constantly go there I think Brian .

Market is numbers and budget for next year, and it's going to be a little bit of increase but not anything significant.

Michael Rose had to do a go find me a deal for US several years ago, and I might have to get Michael to do another one now because we had.

I don't drink.

Hi, Lisa Headrick towns and I went down a bomb a bond with caroline's the other day and in order to play $22. A 23 four and it was 36 50 and I said are you sure you have the price spread and she said yeah.

She said, it's correct she said drink it and then Joey but Brexit slump.

[laughter].

[laughter].

Gotcha, and I guess just maybe.

Maybe one other one just on the loan growth this quarter.

Can you guys. Just can you talk a little bit about now with the with the expansion in the Texas, maybe just how things played out can you give some kind of wrap up the year as far as how Texas contributed the growth that you're starting to see there is just some momentum or just how you expect that to continue relative to kind of the other parts of the footprint or just any any commentary.

On how trends are there given kind of some of the issues that have occurred there.

Well, we were trading a little rough in Lubbock as you remember in a lot of our some of our accounts left we were forced to do some some low rate loans in those markets and we did and I think ive told everybody would use the strength of the homes balance sheet to counteract whatever.

Anybody who is trying to do to us. So we I kind of take that stuff, partially you probably didn't know that but I kind of take it personally.

Don't give up so anyway I think.

We've leveled out from that I think to us.

Stephen Scouten said.

Someone asking about it and he said how long we'll be fine there grinders and that's true we don't we don't stop we don't give up and we work hard we got to power homes balance sheet, we need to use it and you know that people that left one some little banks over there somewhere and I can't I can't find much.

I don't know if they're out of money I, just hear that out of money and they can't find anything in their pull up the wound up so I don't know if any of that's correct or not but if it is probably as in.

It gives us some opportunity to go back and pick up somewhat we're going back to some of those customers that were taken from us. So we're going back to try to bring them back home. Some we're getting some are not so.

And it was unfortunate very unprofessional and unfortunately, it was not done properly not the budget go somewhere else to work working where he would work is just how you go about it.

Yeah.

Right and you're starting to see the momentum in Texas kind of gradually pick up here I guess, that's kind of where I was getting at just as you kind of look to 'twenty three and just kind of your outlook on how the loan growth in general for the company.

Yes.

Florida did really good in Robert runs.

I don't do it runs at Central Florida, and he never slowed down he never missed in our midst of lift and they've never missed a step just Ken just kept rolling so while we were trying to.

Here with West, Texas, Lubbock, and Oh that other place wherever it is.

Alex.

Pardon me.

We were up.

While we were doing all that stuff I mean, the the Dallas Fort worth area never slowed down latest can't move, but they can't grow when they did I did I did excellent and a lot of those a lot of those customers that were in Lubbock.

Our Dallas customers that they've been assigned as one loan officer went out to Lubbock, you took with them and so they just brought them back home. So it's been I.

All those big customers Big.

Big customers.

Gotcha.

Got you okay.

And maybe just one last one for Steven just going back to the margin from it even I guess is your thought it sounds as though the margin is.

There's puts and takes as you look forward based on if you see a couple of more rate hikes here that it's probably flat to up a little bit the near term and then maybe maybe you see some some decline thereafter or is that just in general because the book over the next couple of quarters, how youre, what youre expecting there given some of the liquidity levels and putting that.

Back to work.

Yeah, I mean I.

I think mentioned just on the deposit side.

Our beta ever in the mid fifties or so in Q4, where it was high.

<unk> 'twenty, then Q3, and so if we kind of get back to.

A little more normal levels on what we have to do on the deposit side.

Cash so it can have a little slight increase too, but I think we'd be pleased with.

All of them aligned where we're at now I mean, sure I get arm's length away from Jonny.

So that they can be pleased with where we're running right now.

Right Okay.

Perfect. That's all I had thanks for taking the questions and a great end to the year guys. Thanks.

Thanks, Thanks, Brian .

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

Hey, Thanks, good afternoon guys.

Most of my questions.

<unk> been asked and answered, but just one last one so you talk about the reserve coming down to about 2% now.

If you look back a year or year and a half ago your reserves almost two 5%.

But it sounds like you're comfortable with the 2% level do you think that that 2% level will be maintained here is it seems like if youre going to be able to grow loans and you guys have great asset quality.

You could see the reserve drift below that 2% I think consensus has it drifted below 2%, but alright.

You're signaling that the 2% kind of from here on out.

Yeah I.

I think it's reasonable.

I think thats really when.

When we.

Everybody in the country made due to the pandemic major Big Reserve moves we made our big reserve move and I.

I mean, who knows who knew what was going to happen in the pandemic. So it's pretty pretty shocking times and we're going to maintain reserves up in here and I don't know I actually thought we might take 20 or $40 million put in reserve you got.

You see all the big banks like in saying, we got a recession, we've got a recession, we've got a recession, there's going to be a stock market crash. All the nice centers are out there, saying all of the negative negative negative things and.

Makes you makes you a little nervous and you wonder if youre doing the right thing is 2% enough or do we need to put more in there.

Kind of powered through the next quarter or two to see what we need to do.

Okay, all right great. Thanks for the color.

Thank you.

Okay.

Thank you and our next question comes from Michael Rose with Raymond James Your line is open.

Okay.

You guys called me and with the Slurpee comment I feel like now I have to start a whistle Big fund given the kind of year, we're having.

Hi.

Well be in for that.

I know you do so that's why I brought it up.

They're a little bit more costly, but I think we can we've got a group together.

Thanks for that.

Exactly right.

Exactly well I just I just had one one question that was kind of more conceptual in nature.

I think we're hearing a lot about.

Pullback in commercial real estate and construction kind of especially it seems like a lot of banks are really pulling back in some of those areas. Just just given caution but you guys are in a really good fundamental position from a capital liquidity reserve standpoint, everything thats been.

Kind of brought up today I mean, do you see that as an opportunity for you guys to kind of gain some market share here. It sounds like at least in Chris's group when times are tough like this this is an opportunity to grow but just in the broader context of your business. I mean is this the time to actually.

Maybe actually gained some market share and get a little bit more aggressive on the outside or is it just.

Yes, you you would continue to be cautious and kind of stick to your underwriting.

Advisor to bodes so well for you.

I think whenever you have these situations. It is an opportunity I mean, all the things that we've done to the bank.

Her challenge times, it's turned out to be a great opportunity for us.

It's you uses Johnny I think said heard about one of our customers I mean, they've elected to not do things that we probably would still have participated some with them, they're going to put a lot of skin in the game and speak speaking to all of our markets and regions as Chris said earlier on his partner.

Redeploy some of this capital that we would do and so we're looking at them we get to see is just as many as we always have Kevin.

Yeah, Yeah, I would answer and to specifically answer your question I don't think we have to give want us to get the editor in this environment I think we can continue to be.

Our conservative and in some cases, even more conservative than we have been and still gain some of these market share clients that Johnny was talking about just a minute ago I think that's going to happen because of where we're at.

Yeah, it's been.

Yes, we had money they thought were easy not easy as you know, but it has.

We saw what Tracy did 99, and 10 and Kevin and our box built long term.

License here and we're going to pull some sort of they have some big big big customers do with this one.

Okay.

Very helpful and maybe John you should start a I'm happy fun for progressing through the Georgia fan and that's what our apparently are the Bulldogs champion strength. Thanks.

Thanks, guys.

Chris you want to comment on Michael He went to SMU.

Bandwagon.

Yeah.

Oh no.

Statements that he graduates mastering the Harvey knowing what they actually mean, Chris Houston, a landmark you don't stoop.

I did I had to marry into a decent football school. So my wife's very happy that I got to say go dogs on the earnings call.

Oh.

Okay Meredith.

That's the game right when he married into.

Thanks, guys.

Thank you.

Yeah.

Thank you there are no further questions at this time I will pass it back over to the management team for any closing remarks.

Yes.

I just want to say thank you everyone. All the supporters of home. It was a it's trying times out there.

I have to compliment our management team and our people in the field is hard work that they put together put together this great quarter I don't know.

If you could I don't know if I'm thinking about turn out these kind of numbers, probably somebody off turn out as good.

Numbers are better, but I haven't seen anybody turn out these kind of numbers yet.

We're proud of our numbers, we're proud of what we did in spite of all the problems and the difficulties. We had there we got it done and were set in a great position for 'twenty, three and our lenders are ready to roll.

Actually our Dallas lenders wrapped up their year end.

We're really only working on 23 so.

Overall, it's a great great quarter, great year, I'm happy I think.

Would you get a I think we can run the run rate holds where it is and we can get 100 plus million dollars a quarter run.

We're on a 2% royalty income in running a 440 million or so messages I'm going to give me a great I think it'd be good for all of us.

Anyway. Thank you and we'll talk to you in 90 days.

Sure.

Yeah.

Yeah.

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