Home Bancshares Inc. (Conway AR) Q1 2023 Earnings Call
Speaker 2: Ladies and gentlemen, please remain holding. The call will begin momentarily. Again, please remain holding. The call will begin momentarily.
Speaker 1: Thank you.
Speaker 2: Greetings, ladies and gentlemen. Welcome to the Home Bank shares incorporated first quarter 2023 earnings call.
Speaker 2: 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 and entertained questions.
Speaker 2: Please note, if you would like to ask a question during the question and answer session, please press star, then 1 on the touchtone phone. If you decide you want to withdraw your question, please press star, then 2 to remove yourself from the list. If you would like to ask a question during the question and answer session, please press
Speaker 2: 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 3 of their Form 10-K filed with the SEC in February 2023. At this time, all participants are in a listen-only mode and this conference is being recorded.
Speaker 2: If you need operator assistance during the conference, please press star then zero.
Speaker 2: It is now my pleasure to turn the call over to Donna Townsend, Director of Investor Relations.
Speaker 3: Thank you. Good afternoon and welcome to our first quarter conference call. Today's discussion will include prepared remarks from our Chairman John Allison, Steven Tipton, Chief Operating Officer, and Kevin Hester, Chief Lending Officer. The rest of our team is present and available for questions.
Speaker 3: Tracy French, President and CEO of Centennial Bank. Brian Davis, our Chief Financial Officer. Chris Polton, President of CCFG. And John Marshall, President of Shore Premier Finance.
Speaker 3: It's been an interesting 90 days in the banking sector. However, home is still standing strong. And to provide you with more color on this is our first speaker chairman, John Allison.
Speaker 4: Good afternoon. Thank you, Donna.
Speaker 5: We usually open with profitability is the first thing, but during these times we thought it would probably be more appropriate to talk about the strength of the company and the strength of home bank shares. Our strategy and patience has paid off for our customers, our employees, our depositors, and our shareholders.
Speaker 5: The strength of home's liquidity and availability provides more than 100% coverage for all uninsured and uncollateralized depositors.
Speaker 5: as of March 31, 23, and that carries through today.
Speaker 5: So, I want to say that again, Home has the ability and the liquidity to cover all uninsured and uncollateralized deposits for any customer that we have in the company. We're very proud of that.
Speaker 5: The strong liquidity of home have allowed home to pay all collateralized depositors with deposits in excess of FDIC limits of $250,000 and still have $1.7 billion remaining. That really equates to the fact that home has the ability to cover 133% of all un-collateralized deposits. You will not see a Re Mad High potential move that could provide additional money fromRobin Telescope, Balanced
Speaker 5: We're very proud of the fortress balance sheet we have built. Home Bank shares, Happy Bank, Centennial Bank is one of the strongest banks in America. There are only a handful of banks in the country that can be trusted to make this statement. And I think if there was any concern from our depositors, I think this will comfort them.
Speaker 5: In the press release is also a table showing how the availability.
Speaker 5: is available. I said last quarter that all banks are not created equal. Our goal was not just to say we were better, but prove after years of excellent performance that home should be separated from the pack as a very safe, strong, and well-managed financial institution. I hope you all agree that we have proven the strength of home balance sheet.
Speaker 5: and the performance of a company that has stood the test of time again during a new and different bank process.
Speaker 5: What can possibly go wrong? I think we've seen about everything that could happen.
Speaker 5: One of the key factors that have not only contributed to the strength of our buying, but allowed top tier results quarter after quarter as well as year after year. Liquidity.
Speaker 5: not only contribute to the strength of our buying, but allow top tier results, quarter after quarter, as well as year after year. Liquidity, capital.
Speaker 5: asset quality.
Speaker 5: loan reserves, profit building, and management experience.
Speaker 5: liquidity was not important until it was.
Banks get liquidity mainly from deposits, all forms of deposits, bonds, security portfolios, as well as selling assets.
During 21 and 22, the US government was spending, as some people would say, like a drunken sailor. During that time, we grew liquidity deposits, basically, to over $3 billion in excess liquidity. The great majority of these funds home simply put into Fed funds.
Because we assume many of these excess deposits would run off as interest rates continue to increase and as consumers spend their free money.
If you watch the Wall Street guys, they said cash is trash.
How many times did we hear that during the years? Actually, cash was king, then and certainly now more than ever. Banks with this newfound liquidity during that time decided to invest in low-rate securities in what I call a race to the bottom of low rates.
after we were in basically a low or zero rate environment for a long time. That lasted several years until the drop in solar spending created something called inflation. It raised its ugly head, causing the Fed to increase interest rates at the fastest rate in the history of our country in an attempt to quell the monster.
With banks hungry for yield, they blindly piled into low-rate securities and competed with each other, what I call creating a race to the bottom on low-rate.
This was a critical decision that the leaders of the respective banks made that created this crisis.
I've said for years that bikers who do not have any business experience are not the guys you want handling your money. Nearly all banks acting like a pack of animals, they took their employees, shareholders, and imposters right to the slaughter because they built their houses and strong.
Pull a list of banks over 100% deposit coupled with a capital ratio of 8 or less and you'll find those bankers that hope the big bad wolf doesn't show up and blow their houses down.
Many banks would fail, actually only a few would survive. Home built their house with bricks and steel.
The truth is many would have negative capital ratios if they had to mark to market their securities portfolio. Scary stuff. If home were to take the marks to mark to market, we would remain one of the best capitalized banks in America. Different from many banks. The truth is many would have negative capital ratios if they had to mark to market.
100% or greater loan to deposit with 8% capital less is a recipe for disaster.
When cash runs out and banks deplete their barns, they have no choice but to go to broker deposits and high rate CDs. Whether it kills their margin in profitability or not, they turn it into the survival mode.
Watch the CD ad, you've seen all these CD ads hitting the paper. That'll tell you who is in dire need for money. You've not seen one CD ad from Home Bank, Home Bank shares Centennial Bank or Happy Bank. That should come for all our deposits.
Home has the cash for quidacy and availability, as I said, to pay all deposits, assuming home was forced tomorrow.
to do that and had no liquidity and had to borrow $5 billion at an interest rate of 5% for an additional $250 million in interest expense, home would still run a 1.20 ROA. And that's better than 9% of the banks in the country run today.
We have provided a chart to show you our availability of bonds. If a bank can pay out all uninsured deposits and still make a 1% ROA, one of the top bank analysts in the country said, banks that can do that are in the catbird suit. Well, welcome to Home Bank. Cheers.
Home Bank's capital ratios are in the top tier of all banks. The conservative management team will always maintain strong capital because you can't get capital when you have to have it. Prime example is Silicon Valley Bank, SVB. Enough said about that.
As your largest individual shareholder in the home, and with this company being my largest personal asset, I certainly have a vested interest in protecting what my wife calls the Chuck Wagon.
and home is the Chuck Wagon. It feeds all of us. Most of you know she's very protective of her dividends. When I told her about the bike crisis, she said, protect the Chuck Wagon at all costs.
Circle a wagon with our strong employees, our partners, our shareholders, our customers and depositors. That is exactly what we've done. Good liquidity, strong capital, huge loan loss reserves, strong asset quality coupled with peer-leading profitability. By the way, it's also the largest asset of our executive committee and some of our directors, so we're all focused on...
balance. The company's reserve is 287.2 million or 2% compared to December 31 when it was 2.01.
The allowance on credit losses on loans represents 383 percent of non-performing loans. What that means is if we have $100 worth of non-performing loans, we have $388 worth reserved to cover that $100 with a loan.
Stockholders' equity grew for the quarter $104 million. That was a combination of retained earnings at $66.3 plus $49.2 million reduction in AOCI as interest rates softened some more.
Let's go talk about the earnings. Earnings for the quarter were $103 million or $0.51 per share and adjusted earnings of $0.54 per share.
Return on assets was 1.84 or adjusted at 1.95. Return on tangible common equity was 19.75 or adjusted to 20.90.
tangible book value of $10.71, that's an increase of 4% from the first quarter. Tangible common equity as a percent of tangible total equity was 10.33 at 3-1 versus 966 at 12-31-22. And if we took the hell of maturity loss of $86 million after tax...
on total interest income. Now I think that is a record dry.
Net interest income was $214,595,000 versus the fourth quarter of last year at $215,666. That was basically flat. Total revenue was $248,759,000. The difference there is the fair market adjustment on holding company bank stocks.
and preferreds, which hit us for about 11.3, 11.4, about 11.4. We didn't sell them, so we haven't lost that money, we expect, and we see, I'm seeing a recovery in those coming back today, so that's good. We'll keep them, we bought them for the dividends and we'll hold them.
Margin improved again to 437 from 421. I was listening to this from a year ago.
A year ago this time we were at 321 and now we're at 437. That's 116 basis points. That's pretty impressive. Non-interest expense, great job guys. It's 114 million versus 118. We were down about 4 million over last quarter. Efficiency ratio 4480 adjusted to 4342.
Tangible common equity as a percent of total equity was 1033 versus 966. Common equity tier one, I don't know, I had Brian run this for me. I said, Brian run this, show me our capital ratios, and then take the entire loss of the AOCI and the HTM.
Both HTM and AFS, add those together and tell me where we would rank. So, when you hear Common Equity Tier 1, you're going to hear two numbers. One of them is before and one of them is after. 13.2% now and 11.3% in 2013, 12.2% in 2013, 12.3% in 2013.
4% if we take all the losses.
which we have no reason to do. Leverage ratio from 11.4 to 9.8, tier 1 capital from 13.2 to 11.4, risk-based capital from 16.8 to 15%. That's pretty amazing numbers. That puts us, those second numbers of each one of those categories, puts us in top class in the country.
The yield on our securities book I'm very proud of is 3.30. Good job by our guys there. That's probably about what most banks loan yields are. The yield on our book is 6.64, our loan book, that's 6.64 versus 6.23. That's a pretty nice increase, but from this time last year it was 5.29. That's 135 basis point increase.
ability to pay out all our uninsured deposits.
including the big money center bank that everyone's raving about.
This does not mean they can't, but why would a bank not disclose their ability to pay out all insured deposits if they can? I would imagine the difference is buried in the security book. If we were forced to liquidate our securities book today, which we're not, Holmes' loss would be pre-tax of $454,675,000.
based on a $5.4 billion security book. That equates to 8.42% pre-tax or after-tax, 6.34. Many banks have 30, 40, and 50% hurricanes to take, and I assume that's why they won't be wanting to disclose that. As I showed earlier, home would still remain one of the best capitalized banks in America.
of 23 that we derived through our forensic investigators had improperly transferred HAPI data. We're not going to say anything else about that. Some of those offices have been closed. There have been some changes out there. But until we're fully compensated in this suit, we'll continue against all those parties.
conclusion everyone says they're worried about regional bikes well you don't need to worry about home.
I think home is in the best position of any bank in the country. So I hope that eases all of you. In addition to that, we had a great quarter. I really don't have much to say negative about the quarter other than deposits went down some as we expected, but outside of that we're hanging in really good.
I think I've said I want to continue a $100 million run rate per quarter.
I think we can do that. If we can do that, we're going to earn $400 plus. And in the middle of a crisis like this, I think that's pretty darn good.
I'm going to Tracy French, our CEO , who's had his head down and been pretty darn busy lately. I thought I'd just see if he had a comment. Well, Johnny, you made me feel comfortable just listening to your numbers and rattled off how safe and sound we are, since we've always known that.
I'll compliment you and the board on that. It's pretty simple, just state of basic banking. And I heard Donna say the last quarter's been crazy. I've been working for you for 84 quarters. It's been entertaining every damn quarter. But it really is coming back to just the basics of banking and us staying the course as we've done through several curveballs that's been thrown at us. But it's a compliment to our team.
I know Stephen and Kevin are going to give a little color on the loans and deposits. We talk about the loan deposit ratio. I've been doing deposit to loan ratio over the last two years and it turns out to be in pretty good shape. Our deposit, as you mentioned Stephen, we give a color on. In the past, this is the first of this month, we've seen a nice increase. Now, Uncle Sam's going to get his fair share over the next few weeks and we anticipate it.
metrics you gave Johnny and I just want to mention something this is on the regional bank and the bank ROA when you say it's a 209 that's pretty damn good and that's been a constant improvement and I can tell you got three regions that did over 3% and you got one region CABIT that did over 4% the past quarter that's a compliment to our regional managers
our retail leaders, our loan officers, everything that deals with that because they've been working this all the time. It's not just been the last month, it's not been the last quarter, it's not been the last half a year, it's been constantly working and the proof's in the numbers on that. And to finalize that comment, Johnny, I heard we focus a lot on our margin, our margin in the bank.
has gone from 374 to 413 to 429 to this quarter, 446. 16 basis point increase in a quarter. You can probably come give me a pat on the back on that. I think it's okay. It's okay. Johnny said it's okay for all the regional and retail folks, but outstanding job. So thank you for all the support that our team has given.
funding. Thank you.
As we have mentioned over each of the past three quarters, we've seen a shift of deposit balances going to investment firms, money market mutual funds, and some banks with an obvious need for funding.
The first quarter of 2023 was no different.
Total deposits declined slightly less than $500 million in the quarter and was spread fairly evenly across each of the past three months.
The quarterly decline in total deposits was the lowest since the Happy acquisition one year ago.
So absent outflows this month related to tax filings, as Tracy mentioned, maybe we'll begin to see that level out. Johnny mentioned the analysis we recently completed on uninsured balances relative to our barn capacity.
Adjusting for collateralized deposits, which are generally the municipalities, local school districts and higher ed relationships we've long banked, the calculated uninsured balances are 29.9% of our total deposits.
While our company's size and strength today allows us to expand and take on larger relationships, both on the loan and deposit side, we still believe in the franchise value of having core relationships in a granular deposit base.
Currently, broker deposits comprise 2.6% of total liabilities.
and our internal limits would allow us to grow that by over 1.3 billion if we ever needed to.
Our top 10 list of depositors accounts for only 6% of our total deposits, and only two of those customers considered uninsured or uncollateralized. An updated review of our deposit base shows nearly 500,000 deposit accounts.
with over 70% of those having been open and active for at least three years, and over 25% of those active over a decade.
The mix and balances stands at approximately two-thirds commercial or business and one-third retail today, while the number of deposit accounts is approximately 80% retail.
New account opening activity continues to be strong, with over 14,000 new accounts open in Q1.
And March actually was a bit more active than we've seen in the past. Switching to capital, as Johnny mentioned, the parent company total risk-based capital ratio ended at a very strong 16.8% and a TCE or tangible common equity to total assets ratio of 10.33%.
As he mentioned, we repurchased 590,000 shares of stock during the first quarter and continue to be active under our 10b51 plan that's in place now.
On the asset side, coming off a very strong fourth quarter, loan origination volume softened to $1.09 billion, with over 75% of the volume coming from the community bank regions, and that was split fairly evenly between Arkansas, Florida, and Texas production.
Finally, the net interest margin improved 16 basis points in Q1 to 4.37% as our bankers continue to do a great job managing this interest rate environment. Interest-bearing deposits averaged 1.90% in Q1, which was up 45 basis points from Q4, and exited the quarter in March at 2.01%.
The core loan yield, excluding accretion and event income, averaged 6.49% and was up 39 basis points from Q4 and exited the quarter in March at 6.54%.
With that, Donna, I'll turn it back over to you. Thank you, Steven. And now Kevin Hester will provide us with a lending report.
Thanks Donna and good afternoon everyone. As Johnny appropriately stated earlier, one of the key factors that has contributed to the strength of home bank shares has been our compelling asset quality.
I believe that the following color on the activities of the first quarter will bear out that this continues to be a strength of our company.
Non-performing loans and non-performing assets remain at very low levels of 0.51% and 0.33% respectively.
A detailed review of the increase in non-accruals of $13 million this quarter reveals two CCFG C&I credits totaling about $6 million. Our internal analysis of the entirety of CCFG C&I portfolio indicates a potential loss of only $5 million.
which is all within its shared national credit portfolio. We shifted away from SNCCs some time ago, and this part of their CNI portfolio has been winding down accordingly.
The remaining $7 million is spread across a few credits in the community bank footprint, and based on payments that have been made to date or renewals that are in process, at least the same amount will be returned to accrual in the second quarter. For those of you that may not remember, Arkansas state banking law requires automatic non-accrual at 105 days.
of non-performing loans, both stellar measures.
Past dues totaled only 0.62% of loans, even with a total of $30 million in ALF and memory care loans added to the total this quarter.
We have discussed these loans previously and I'll give you an update on that portfolio momentarily.
At this time, I would like to turn it over to John Marshall, who will provide you some information on the asset quality for SURE Premier Finance. John .
Yeah, Kevin, thank you. You know, I think Centennial Bank enjoys very high asset quality. The Division of Shore Premier Finance in the marine finance space also enjoys very good asset quality because of our underwriting standards.
and we haven't, through this cycle, seen any deterioration. In fact, our delinquency, which normally runs, this is for 30-plus days delinquent, around 11 to 14 basis points, given at the end of the first quarter, we saw improvement so that it was under $800,000.
and about eight basis points on a $1 billion book. So I'm very pleased with the way asset quality in the marine space is holding up. Thank you.
Thanks, John . That's impressive and is directly related to your group's rigorous underwriting practices.
As I mentioned, we've been working through a portfolio of about $100 million in ALF and memory care loans in Florida for some time.
and in January the equity partner disclosed that they were wanting to exit some of these properties. We have been negotiating a soft landing for these assets and I'm pleased to report that there are multiple buyers for this equity position.
We have always contended that we underwrote these assets conservatively with a low leverage position. Based on the ongoing negotiations, which are nearing finality, we do not expect any loss in this portfolio and expect all to be resolved by the time that we report again in 90 days.
Finally, I wanted to mention that due to the concerns of some regarding certain asset classes, we chose to refresh the deep dive into the office portfolio that we performed back in 2020. This analysis was completed during the first quarter using balances of the portfolio at 12-31-22.
and the results were included in this quarter's press release. I would like to point out that rolling forward to $331.23, there is no change in the asset quality of this portfolio, which continues to exhibit low problem loan totals and less than 1% past due.
Notably, nearly 60% of the portfolio is located within our Community Bank footprint, with most of that in Texas and Florida.
which are states that should be less impacted by changes in how office space is utilized post-COVID. Even within these states, the majority of these balances are in the very strong geographies of DFW and Miami, which continue to experience high levels of population and company headquarter inflow.
Positive attributes such as low leverage, high occupancy, and predominantly low rise come to mind as a result of this analysis.
Outside of a couple of instances within the Community Bank footprint, most of our recent additions to this asset class have come through CCFG as a part of a multi-asset facility.
For most of these additions, office is not the highest and best use, nor is it what the valuation is based on.
We continue to be very positive about our exposure in this potentially fragile asset class.
Donna, that's all I got and I'll turn it back over to you. Thank you, Kevin. Johnny, before we go to Q&A, do you have any additional comments? I think it was a great quarter overall.
said what could possibly go wrong. You think about the worst financial crash since the Great Depression in 8, 9, 10, and 11, and we weathered that. We really didn't see this liquidity crisis coming. We called the shots to maintain lots of liquidity.
and we certainly called the right shop. So, I'm sure there's a lot of envious banks at home bank shares today because they spent their money and put it in different asset classes. Well, we didn't. And when it ran off, we had the cash to let it go. So, anyway, it was...
I hope everybody thinks it's as good as I think it was. Based on what we saw, what happened in the marketplace.
I also think there might be some opportunities on the buy side to maybe pick up some assets over a period of time. We'll be looking, we bid on both signature and pieces of signature as well as pieces of SBB. We were not successful but there's still some stuff left so we'll see about that. That's it, there's something there that makes sense.
Seems to be the world out there is scared to death that Marines stopped and...
I keep asking, are we missing something? But you keep producing the great numbers. So thank you for that. And good report, everybody. Donna, I'm ready to go to Q&A if you're ready. I think we're all ready. We'll turn it back to the operator and open it up for questions.
Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad. If for any reason you would like to remove that question, please press star followed by two. Again, to ask a question, press star one.
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We will pause here briefly as questions are registered. The first question is from the line of John Arfstrom with RBC. You may proceed. Next question comes out of
Good afternoon everyone.
Good afternoon everyone. Hi John . Hear me all right?
Okay good good good quarter I agree. Good numbers. In terms of the liquidity that you lay out you clearly have a lot of it and you're prepared for I think any level of deposit outflows but I'm just curious if things are settled down from your point of view.
Are you starting to see some of these deposits that may have left flow back into the bank? Yeah, some of that. You know, it...
We were prepared for that. I think some people got, I never got asked, I never got one question from any customer period. And Tracy got a few and I think Stephen got some, but overall we didn't, I didn't feel it. I saw we're losing a little bit, but I think that's natural. You see,
you see these people offering 5 plus percent on CDs, that says we've barred all the money. We need to bar for the Fed in the 4s. That tells you something. If they're asking to pay any 5s, that means we've barred it. That means we spent all our money, we've barred it up, and now we're trying to... It doesn't matter whether we're profitable or not. But I think we're good. I actually think we're good. We'll go through this tax time.
So, that's what we're going to continue to do. We're not aggressive on lawns. We've gotten a little tougher on the long side. We're seeing pretty good lawn demand. We're seeing some squirrely lawns that are running around out there. I don't know that we've got the lines to pull up if we need it, as Brian says, but I don't know if we need it, we'll use it.
Any comment on that? Okay.
Stephen, you had a comment about how there was deposit outflows, but it was the lowest in the UK coming next month and Cooper is being fuelsrised No more of this.
that you've seen in a while. Did I hear that correctly? That's right. Yeah, I think deposits were down about $490 for the quarter. Those were higher levels.
Q3 and Q4 last year just kind of on the heels of the acquisition. Tracy mentioned through this point in April we bounced around in a positive position so far. I won't let anybody in on whatIV is.
We saw a little bit of inflow in March. We actually had a couple of surprise deposits from customers of ours that had money.
maybe out west that that wired money in and said you know we were told by our treasurer to park it at Centennial Bank so we we saw a few of those instances but you know I think overall maybe just maybe focus more on strength and quality instead of where the highest rate may be.
We're not going to solicit the big deposits. We've managed this thing properly where we've had the ability to cover our uninsured deposits and un-collateralized deposits. So I think we're not out. We'll control those if they come in. I'm sure a lot of people would like to put their money here.
We'd like to have some money from everybody, maybe, but it's not our goal to end up like SBB with a lot of lumpy deposits in the box.
Yeah, okay. Yeah, this is refreshing the different deposits. I'll tell you that, John . We're not going to be the hass right, but we're damn sure of the cycle.
Yeah, well, it gets to my next question. But this is a it's a good discussion because it doesn't feel like you're that concerned about deposit outflows, which is good. And I guess that it's the next question where you're saying you're not going to be the highest rate. And you're being a little bit more cautious on lending but seeing some opportunities. How do you guys feel about the margin from here? Can this can you keep
year. Forever in this company we always want to try to get a little better if we can.
adjust and go with where the market steers us. We're just making good business decisions and right now the markets are working in our favor and we weren't in the position where we had to go out there and pay high interest rates on deposits. We've got great core customers and that's what's, as we watch the deposits.
Not just me, it's every region out there in the market. It's just cool how we watch and pay attention to that. So we've been able to bring some stuff in. To answer your question, I'd probably say I'm always nervous about the market, but Johnny wants me to make sure we get it better. The great part about our company is everybody out there in the region wants to do the same thing.
just go with the flow. Loan rates are this today and deposit rates are this. As long as that holds good, we'll swing. We didn't bet on the future. Thank gosh, we didn't lock in a lot of the assets at 3.5% for 10 years because I didn't have anybody doing a 0% CD for 10 years.
We had a payoff this week, $80 million payoff. The loan rate was $9845, and the prepayment penalty was $420,000. So, I told them we got to get something going to replace that $80 million.
I thought it was fixed. I'd forgotten it was floating and I thought it was fixed at like six or seven. I said, what was the rate on that got paid off? And they sent it to me and I said, wow, I've got to replace that Tracy. Number 446 in the bank. 446 in the bank, does that not make you as a shipper or a happy? No.
All right, well thanks everybody. It's a good message on that. Thank you.
All right, well thanks everybody, it's a good message on that. Thank you. Thank you. Thank you.
Thank you, Mr. Arstroom. The next question is from the line of Matt Olney with Stevens. You may proceed.
Thank you, Mr. Arstrom. The next question is from the line of Matt Olney with Stevens. You may proceed. Hey, thanks guys. Good afternoon.
Thank you, Matt. I want to start on the M&A side. You mentioned being opportunistic. Any color on what's in the marketplace today that you're looking at? Perhaps it's too soon, but just curious about this. And then specifically...101 Join the group
within the signature and SIPI commentary that you mentioned. Any more color on the types of businesses from them that you were attracted to?
and SIPI commentary that you mentioned. Any more color on the types of businesses from them that you were attracted to? Well.
We're looking at some of their assets that they have. I don't want to get specific here, but we're looking at some of those assets to bid on. From an M&I perspective, we're looking at some of their assets that they have.
The problem is that most banks are loaned up and they're in the 100%, the majority of them, the ones that want to sell, let me say that, they're 100%, they're tired, worn out, they're running lower capital ratios.
And if you mark AOCI, it's even much worse. And I don't think we're in the mood, I don't think home is in the mood in this cycle to stretch.
Don and I looked at one, we were in Dallas a while back. The bank wasn't in Dallas, but the bank was somewhere else.
and met with the owners and they're 108% loan with deposit and their margins going straight to the tank calls. They're out of money and they're having to pay high prices for money and they're getting killed.
And the point is, so I said let me get this straight, you want me to pay you a premium for that? And I said, I'm struggling why I'd want to do that and why I'd want to take your mess that you've created and put on my balance sheet and put on my balance sheet that is not stressed under any conditions and put my balance sheet under stress.
So in joking I said if you pay me $100 million I'll take it. But that didn't go very well. That's kind of my attitude right now. I've never seen this kind of crisis before. And it's pretty damn serious and you see how fragile banks are.
Banks are very fragile and there's not 20 banks in the country that could take a run. I don't believe. Maybe 50, maybe 100 that could take a run tomorrow. Home bank shares can take one, but there's not many banks that could take a run. So I don't know that I want to pay somebody a premium to buy their problem.
That's kind of where my stance is right now. We're doing fine. We're going to be fine. Home bank shares will be open. Home bank shares will be operating and home bank shares will be profitable. You've never heard that talk out of me before like that, but I think it's time to be...
is protect the chuck wagon. I don't think it's time to stretch. I don't think this is over. I think it could be a while before it's over. So I think we're just going to sit here and protect the chuck wagon for a while. We'll take care of our customers. Our customers have no fear. We have the ability to continue.
to finance our customers. New customers will be difficult to get in the door, but we'll take care of our existing customers. They've been good to us. We'll be good to them. We'll be here to take care of their needs. I think that's the safe way to play it right now, John . Okay. That makes me appreciate the commentary there. That doesn't sound like the regular Johnny, does it? No, it doesn't.
will be difficult to get in the door, but we'll take care of our existing customers. They've been good to us. We'll be good to them. We'll be here to take care of their needs. So I think that's the safe way to play it right now, John . Okay, that makes me appreciate the commentary there. So yeah, no problem. That doesn't sound like the regular Johnny, does it? worth it CAROLINE THE HEART
On the office front, you guys gave some great details there in the press release as far as geographies and amounts and LTVs. And I think you did disclose that about $45 million was criticized, which I guess is what, 4%, relatively small amount. Anything more notable in that smaller, that $45 million, Kevin, to speak of as far as a trend or anything more notable there? Yeah, probably the most notable thing is that the majority of that
is in the Texas market and it is stuff that we marked criticized in due diligence and not classified but an OLEM. And as we get, that happens a fair amount when we do due diligence on stuff that you know could be a four, a five or a six and we usually are pretty conservative and then take the next year or two to.
That's good news. About 65% loan to value and most of it matures in 23 and 24 so we'll get to look at it this year or next year and I'm not particularly concerned about any of that.
And I guess Kevin just taking a step back and thinking about this office deep dive that you guys did over the last few months. I'm curious about how, you know, what you think about loss potential at Home Bank on this portfolio as it compares to a few years ago when you guys did a similar deep dive on the hospitality book back in 2020.
You guys carried some larger hospitality loans a few years ago, came out with no losses. How would you compare this office deep dive and potential losses to what you saw back then? Yeah, we actually looked at this portfolio around that same time. We did this same deep dive and it looks very similar to what it looked like then. I would say, and I think I said it in my remarks, that
the majority of what we put on the last year, year and a half, has really not been traditional office, even though even though it is coded office, it's not what you would expect the ultimate disposition to be of that asset, and most of that's in the New York portfolio in a multi-asset facility, so you would look at that completely differently than you would an operating office building that's going to be an office building now and forever, so
I feel really good about the deep dive. I like the fact that the majority of our balances are in our footprint and even within that footprint in two of the strongest geographies particularly for office.
So I think that bodes well. I feel really good about the exposure and any potential loss for that group of ones. Okay. All right guys, that's all for me. Great report, thanks. Thanks for watching the B
I think that bodes well. I feel really good about the exposure and any potential loss for that group of ones. Okay. All right, guys, that's all for me. Great report. Thanks. Thanks, Matt. Thank you, Mr. Olney.
The next question is from the line of Brady Gailey with KBW. You may proceed. Hey, thank you. Good afternoon, guys.
I wanted to start on loan growth. Johnny, you mentioned a lot of your peers don't have money to lend. They're loaned up. That's not the case at home. You guys have money to lend and relatively low loan to deposit ratio. Is now or is today's backdrop a time where you could see loan growth pick up for home? Well,
I said earlier we're going to service our customers. We're going to take care of our customers.
Kevin is seeing some credits from the outside that he doesn't feel comfortable in doing at this point in time. And I think that's probably a good time. The key is we've got some great customers who've been with us for many years, enabled us to grow this company. And the point is to take care of them. We say we won't do somebody that comes from the outside.
we probably will under our terms and conditions if we can build a long-term relationship with those people. If that's available, but we're not interested in one-timers, or we're not interested in anybody can't bring deposits, we're interested in relationships and long-term relationships. Tracy built a bunch, Kevin built a bunch, and I waited 9 and 10 when we were...
in that crisis. So that worked well for us during that period of time. And there's an opportunity, I mean, we'll look at about anything, but if...
It's not the time, it is not the time I don't think Brady to be aggressive. I think it's to be real conservative and take your time because I don't know, you know, here, think about this. There's going to be opportunities come out of this, right? And where do you spend your money?
You have some real opportunities to spend some money in different areas that could make a lot more money.
opportunities to spend some money in different areas and that could make a lot more money.
We think those opportunities, we have the opportunity to bid on some stuff now, we think those opportunities are out there. We've chosen to take a shot at some of those and hopefully can increase profitability with those. So we're just being real careful.
Very, very careful. I'm just afraid this is not over. I'm just afraid this cycle is not over. And those who survive this cycle may have real opportunities. I remember 8, 9, 10, and 11 how well Home did became one of the biggest buyers in the country that fell back opportunities. Those opportunities could happen again. So, we're just going to remain concerned to say we will.
I just don't want to buy somebody else's headaches and problems at this point in time.
That doesn't sound like the conservative. It doesn't sound like the go-go Johnny Alice you've already dealt with. That's just the conservative side right there. That makes sense, Doc. You look at credit quality, it's still pristine at HomeBank.
The reserve is still 2%, which is pretty high relative to where your metrics are running. Do you think the reserve percentage continues to go lower here, or do you kind of draw a line in the sand and say, hey, considering the backdrop, we need to keep this reserve at 2%? I'm a 2% guy.
still 2%, which is pretty high relative to where your metrics are running. Do you think the reserve percentage continues to go lower here, or do you kind of draw a line in the sand and say, hey, considering the backdrop, we need to keep this reserve at 2%? I'm a 2% guy. I'm a 2% long guy.
I don't care what they say, I'm a 2% loan guy. It's always worked. 2% loan is always worked. I understand we go through all the calculations, we do all that stuff. I understand the importance of all that. I compare, I watch that and look at that. But I know 2% works. It doesn't matter to me, I know 2% works.
Lastly, for me, you guys are acting – sorry, what did you say, Johnny? My last question is just on the buyback. You guys have been active on the buyback. Is there any reason why that would stop? What do you think?
stocks at a good value, you still buy it back here? Well, we've bought back 250,000 shares on our 10b5 so far because they've been hammering the stock. I mean, they're killing all the banks, but we just think it's time to buy.
Stephen put in the 10B5 and we're pleased with what we're doing as we buy the stock. And we've bought 590,000 shares before so we've got the ability to buy more.
I say we get out for a little bit, but then the stock gets cheap and we just buy it. Great, thanks guys.
I say we get out for a little bit, but then the stock gets cheap and we just buy it. Great. Thanks guys. Thank you Bernie.
Thank you, Mr. Gailey. The next question is from Michael Rose with Raymond James. You may proceed. Hey, guys. Good afternoon. Just wanted to touch on Chris Polton's business. I would expect that in this environment, a lot of the competitors become looking for theonia and say, Yo,man that's awesome.
In the space are going to are going to pull back. Do you guys kind of see that as an opportunity. For you to to to grow that business, I know you have some capacity there. I think the threshold is around 10% of loans. If we could just get an update there and kind of how you holistically. Would view this environment, so we think that pricing power would kind of play in your hands as other people pull back. Thanks.
We don't put a problem on Chris. I'm going to let Chris take that and answer for himself.
Yeah, Michael. And thanks, Johnny. You know, I think in theory, that's true. I'm a little in Johnny's camp right now, which is, I think the loan we make tomorrow is better than the loan we can make today. Certainly better than the loan we can make yesterday. And so, you know, the phone's ringing a lot.
And we're talking to people. We're taking care of our customers too. And I asked my team to create a list of different ways you can say no because I was getting tired of the ways we were saying no to things. So we're up to about 27 different ways to say no. And that'll probably grow. But.
But we'll start saying yes at some point, you know. And we are, I mean we did 200 and something million in the first quarter, we'll probably do about the same this quarter and we continue to get payoffs and pay downs. I like to see that right now too. One of the things I've been concerned about is what's exit look like? And we just got paid off on one in the last week or so that was a CMBS takeout that I kinda wanted to see how that was gonna go before we kinda think about some other things, because you know, if the CMBS market's there to take that out, it's great loan and such.
and ready to go buy assets, buy loans, make loans, etc. And so that's really where our focus is, has really probably been in the last couple of months, we've been gearing up with putting facilities in place with those folks, etc. Because when they see opportunities, it's opportunities for them, it's opportunities for us. And so that's how we built this business. And we'll stay focused on that. So I think that's probably where I'd see a little more.
Interesting.
That's great, Kala. I appreciate it, Chris. And then maybe one for Steven Tipton. The DDA mix is at about 28 percent. Any thoughts around where that could potentially bottom, or do you think we've kind of seen the worst of it? Thank you very much.
Oh, you know, I think if we go back pre-pandemic levels, we were in the mid-20s or so range. I think in our...
Well, you know, I think if we go back pre-pandemic levels, we were in the mid-20s or so range. I think in our...
Just looking back over the last several quarters, it's drifted down kind of in step with some of the other categories on the interest-bearing side. So it's certainly our focus, I think, as it goes. As we mentioned, tax payments and some of those things may pull it down near term, but that's our focus and conversation with all of our bankers and presidents is on those operating balances and those real core customers that are out there. So that's certainly the focus.
All right, thanks guys. And if you guys are, Johnny, if you're taking applications for that chuck wagon, let me know where I can sign up. Thanks guys. Okay, I want to be one of your darts. Did you hear me?
All right, thanks guys. And if you guys are, Johnny, if you're taking applications for that chuck wagon, let me know where I can sign up. Thanks guys. Okay, I want to be one of your darts. Did you hear me? I did.
I hear you. I hear you. Well, if you get cheaper, we'll see. Hope not, though. Hope not.
I hear you. I hear you. If you get cheaper, we'll see. Hope not, though. Hope not. Thanks, guys. Appreciate it.
Thank you, Mr. Rose. The next question is from Brett Robertson with HOVD Group. You may proceed. Hey, good afternoon, everyone. Wanted to start on expenses. And I'm not sure if all of the happy expense savings have been pulled out, but was hoping for some power maybe on where you...
We had a little bit of a reversal in some accruals that we had in the first quarter, which was about 1.6 million. But then on the flip side, salaries and stuff could go up because everybody will start maxing out on VICA and stuff. But it's not far from the regular run rate.
We had a little bit of a reversal in some accruals that we had in the first quarter, which was about 1.6 million. But then on the flip side, salaries and stuff could go up because everybody will start maxing out on VICA and stuff. But it's not far from the regular run rate. Okay. Okay.
That's helpful. And then, you know, Johnny earlier in the conversation, you said, you know, we weren't done with this turmoil that maybe there was more to come. And a quarter ago, you were talking about people flying in planes to see you and talk about credit. And sounds like you've
pulled the horns in somewhat. Can you talk maybe, and I've noticed that the one month T-bill is back down even lower than where it was with those failures. Can you talk maybe about what you're focused on in terms of additional potential turmoil? Is it liquidity oriented or other things? And just it sounds like you're buckled down for a recession. So I was just curious if you had some
thoughts on what that might look like for the industry or what you were focused on.
on what that might look like for the industry or what you were focused on. Well, I think we're going to be higher for longer.
You know, the Fed cannot pivot. I don't think they can pivot. If they do, we'll be back in the 70s with Volcker and they'll have to come back at a later date and fix it. It does look like things are slowing down, which is positive. I think that's positive. I think that's good. There is a chance that they can hold interest rates.
You know, maybe another quarter and then just pause and not do anything for a while and watch it. Probably the smart thing to do.
But I don't, I think another 25 basis points could be cooked in right now. It kind of depends on what the Fed thinks as a result of what they're seeing. You know, they just pushed right at the fastest rate till the stick broke. I mean they pushed it and pushed it and pushed it till it broke.
That's really sad as it is, that needed to be done because we got to stop this inflation monster and it's not over yet.
It may be coming back, it may be coming down, it certainly appears that way, so I think we're going to be higher for longer. And I think we're about in an environment here where we're going to be for a while. So maybe 25 up, maybe flat, maybe 50 up, but I don't think any more than that.
These people that the banks are in trouble will remain in trouble for a while. They'll continue to have to pay higher and higher rates for money. And they'll struggle through this process.
You just got to figure out when it's about to end, when it's going to be over, and then maybe at that point in time we can get more aggressive on the acquisition side. To think about home, maybe the only bank in the country that bet the way we bet on rates the way we bet. You just got to figure out when it's going to end, when it's going to be over, when it's going to be over, when it's going to be over.
to go out and buy somebody today that didn't do that, that spent their money and leveraged the hell out of their balance sheet, and for us to buy them, I mean of course they want a premium right? So they don't sell that much premium.
The point is I'm not willing to leverage my balance sheet in this crisis right now.
I've never seen a liquidity crisis. This is my first time to really see one. So I mean, Bonnie and I talked about earlier, we did see some semblance of it back in the 70s when all S and every S and L went broke. I'm surprised the credit unions are hanging in. I don't have those credit unions are hanging in today. You know, they did low-rate loans and I guarantee you they're paying higher rates than what their loan book is.
That's what broke all the savings loans. I wouldn't be surprised if it doesn't break a bunch of credit unions. So, I'm not predicting that. I'm just saying it certainly appears that when you look at the way things are lined up. I mean, you see some banks out there, I know some banks out there that are really, really tight right now, really struggling. And it's going to be years before they unwind. I mean, they're not going to solve this deal next week, next month.
They've got two or three, four years of this maybe, maybe as strong as four. It depends on how long. I remember the guys walking in doing 370, fixing for 10. I told Tracy, now that's a number and that would work forever, right? That's what they told us. I want to sell it back to us. I hate to look at his book today because he's paying 4.5%, 5.5% for money.
I think it's cautious times and I think just be smart and be careful because home has enough. I don't know what that opportunity is yet. I don't know where it is, but I believe it's there and I believe home has the opportunity and the liquidity and the ability to step up and...
and buy something that makes some sense for it, be it pieces of assets or be it another financial institution. But how big do you want to buy and how much risk will you take when you do that? And what does it do to our liquidity at that point in time? So those would be the questions. I can't answer, really that's about as good as I can do.
I don't know where it is, but I don't know it when I see it. Does that make sense? Yeah, no, that's good color. We've been pretty good at knowing it when we see it. So, thank you for that, Brett.
Thank you, Mr. Robinson.
The last question is from the line of Brian Martin with Janie. You may proceed. Hey guys, good afternoon.
Just maybe just a couple of minutes just at the end.
Just the, on the, I guess within the last quarter, I guess in the December quarter, I'm not sure where it stands now, but just kind of level of stuff standard loans are kind of classified loans. Can you give any color? It looked like they did, they increased a little bit at year end and just kind of wondering where that trend is today and just, you know, in conjunction with kind of the dive you did on a real estate.
You know, in the office book. Hey, this Kevin. So, yeah, we had a little bit of an increase that year in there was 1. It was 1 pretty large relationship that the timing of the review. Just came in a bad time for him and things have turned back around for him. They're in the energy business and time has turned back around for him. I would expect that.
to today, not a whole lot on either the criticized or classified levels from that base.
Not materially, no. Yeah. Okay. All right. And then how about just, I know you talked a lot about M&A, just the opportunities, but how about just with some of these banks that are struggling out there, Johnny, I guess, is a lift out a possibility? I know you're looking at the FDIC or just the banks that failed, but outside of that, just lift out to people as opposed to acquisitions. Is that?
something that's realistic to think about or probably not?
thing that's realistic to think about or probably not? I don't like that. I'm not a lift out guy. I don't like to be lifted out. I don't like that. I mean, I think it's...
chicken. You can figure the rest of it. I got you. You train somebody, you bring them in, you teach them, you give them lots of business, and suddenly they go home inside. They're a hero. Somebody's going to give them a $100,000 signing bonus and they're going to walk out on you. So I'm not, you know, I'm not watching. We had that happen to us, as you know, in West Texas. As you saw what happened to us out there with those guys.
I'm checking, you can figure the rest of it, but I... I got you. You train somebody, you bring them in, you teach them, you give them lots of business, and suddenly they go home and suddenly they're a hero, and they're gonna go, somebody's gonna give them a $100,000 signing bonus and they're gonna walk out on you. So I'm not, you know, I'm not one. We had that happen to us, as you know, in West Texas, as you saw what happened to us out there with those guys, and that happened to us.
That has not worked out for those people. Let me explain that. That has not worked out very well. I don't know if what I got back is totally correct or not, but I understand that nearly every one of those people that left that we have found...
that may have moved some information improperly are unemployed now. So, I don't know how well that works out really. So, I think they closed branches and those people are gone, a lot of those people are gone.
what they did was not right. So I don't want that, I don't do that to other people. I don't want them doing it to me, so. Hey Johnny, I'll remind you, we actually talked to a group a while, a few months ago, and really liked them. Great, I think it's been a great opportunity, and we just put it on hold and pass for now, because it makes sense, as Johnny said, we're going to take care of our customers and take care of.
of new opportunities that are, you know, going to be significant relationships, that's more important to us right now than the lifted out thing. You know, Kevin's exactly right and I was at a bank conference shortly thereafter and I saw that CEO . And I, you know, I just thought, you know, here I am talking to his people behind his back. And I wouldn't want somebody doing that to me. And I just really felt bad. If I'd hired this guy, I don't know how I would have done that.
how I felt about looking him in the eye. Some people have no conscience and they're able to do what they want to do. Service First mistreated us what they did and they paid for it. That's their style of operation that just happens not to be ours.
Gotcha. That's helpful. And maybe just one for Steven, I guess Steven, I guess, would it be any gave some. I'm just wondering, you know, I think, you know, just kind of, you know, just kind of ending points for the rates, where did the margin end in March, you know, kind of end of period and just kind of, you know, with where with Johnny's kind of alluding to as far as maybe one more hike and stopping just kind of wondering.
It feels like we're kind of near a peak on the margin. Just wondering if that's consistent with how you're thinking about it. I understand that you thought you want to take it higher and loan yields are going higher, but just trying to understand where it ended and then just maybe if we are ending the tightening cycle here. Sure. So we ended March at 440 on the NIM. I think there may have been a little bit of event income in there, but it was fairly consistent with where the quarter averaged.
Yeah, that echoed Tracy's comments. I mean, it's everybody's focus around here every day. If we see rates continue to go up, our alco model shows that we benefit slightly from another, I don't know if we get another 100 from here, but as rates go up, that we still benefit.
slightly. I'd like to think that with the events over the last month that the world focuses on strength and flight to quality maybe instead of where the highest interest rate might be. So that's our focus. We've got...
slightly. I'd like to think that with the events over the last month that the world focuses on strength and flight to quality maybe instead of where the highest interest rate might be. So that's our focus. We've got...
you know, the investment portfolio, cash flows come in, we've got variable component to that, we've got the loan portfolio that'll move as either as rates go up or as loans mature and have the opportunity to reprice. So whether or not we, you know, see rates go and how far, we'll continue to, you know, have the opportunity on the asset side to offset what we have to do on deposits.
I suspect there will be lots of people looking around for opportunities with different banks in the future because so many of these banks have loaned up. If they're on a commission scale they're going to struggle for a period of time. Some of the lenders have told our banks that they're going to struggle for a period of time.
We're out of the lending business. We're totally out of the lending business. So that hurts some of those lenders, I'm sure, the income of some of those lenders. You may see some of that moving around. Yeah, that's true. And Stephen, just the deposit beta, kind of where you think, do you have any sense on kind of where you think that may end the year as you kind of get through the next couple quarters? The cumulative beta all in.
No, I think we've been in the 50% range this past quarter in Q4 and absent something changing on the funding side, I think that's where we would target that to be.
The key is can we outrun the deposit costs? We've been fairly successful with outrunning the deposit costs. So the daily report shows that we're a little behind this month.
Overall, the last quarter was fairly, we won some and lost some on different days, I guess it will be. But overall, we won. Hopefully, we can hold that together. Yep. Well, thank you for taking the questions and thanks for all of the added disclosure on the office book and the liquidity. It's very helpful. Definitely stand out.
Thank you. Thank you, Mr. Martin. We have one additional question from the line of Steven Scouton with Piper Sandler. You may proceed. Hey, good afternoon, everyone. Sorry, I hopped on a little late. Sorry, we've been doing it too long.
And if you think those sort of incremental oversights and headcount additions might get pushed down due to all of this that's transpired as well. Steven, I think it could get pushed up. You know, I think that I worry about new regulations coming down on the banks as a result of SVB & Signature.
Our regulators are on top of the game. They do a great job. We have a great relationship with them. They keep us in line and we stay in line. I think if you want to throw stones at someone, I think that may have been somebody else's responsibility.
was not properly tending the store because I can promise you one thing, if St. Louis stays with us on what we're doing, that would have never happened here. And Arkansas too. I mean the Arkansas State Bank Department. Good operators that keep us, we don't get too far out of line ever, but I think that was some state. But I fear they're going to come down with some more regulations and more and more and more, I can't fix it.
I think that was a lapse in judgment in those liberal communities out there. I mean, we've been, some of that stuff didn't look very good. They only had one guy, I think, on the bank board that appeared to have lots of banking apprentices. He was a former member of the Fed, I think.
they just didn't pay attention. To me, they didn't pay attention. So it was a mismanagement of the balance sheet and it lasted two days and it was over. Bam! That's how fragile that thing was. So that's what gets your attention as a banker and as a large shareholder in a financial institution when you see one go bam!
It blows up in 48 hours, so tells you it's time to be conservative. No bank is really built to withstand a bank run.
That's kind of, yeah, you got to prevent that in the first place, I suppose. So, congratulations on a great quarter. One of the few green tickers on my screen right now. So, Mark, it appears to agree that you're in that catbird seat. So, well done. All right. Well, thank you very much for your support. Great report. Thank you, my friend.
Thank you, Mr. Scouten. That concludes the question and answer session, so I will turn the call back over to Mr. Allison for any closing remarks. I think we've said it all. I don't think we have anything else to say today. I think we've said it all at our shareholders meeting today.
Then we move from there to our conference call and we have our we're in line for our board meeting that starts 10 minutes ago 10 minutes ago, so look forward to talking to y'all in 90 days and thanks for everybody's support That concludes today's call. Thank you for your participation. You may now disconnect your lines