Home BancShares, Inc.

Good afternoon, and welcome to the Home Bank Shares Incorporated third quarter 2021 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your telephone keypad. To withdraw your question, please press star, then two. Please note, this event is being recorded. I would now like to turn the conference over to Donna Townsall, Director of Investor Relations. Please go ahead.

Thank you, Gary. As he said, I'm Donna Townsall, Director of Investor Relations, and our management team would like to thank you for joining our third quarter conference call today. Reporting today will be our Chairman, John Allison, Tracy French, President and CEO of Centennial Bank, Brian Davis, our Chief Financial Officer, Kevin Hester, our Chief Lending Officer, Chris Fulton, President of CCSG, John Marshall, President of Shore Premier Finance, and Stephen Tipton, Chief Operating Officer. And now I am happy to turn the call over to our Chairman, John Allison, for our first report on the quarter.

Thank you, Donna. I better turn my phone off. We don't want to hear Amarillo in the morning, right? That's what I have on my phone. I'll be in Amarillo in the mornings. Good afternoon. Welcome to Home Bank Share's third quarter earnings release and conference call. I have with me today most of Home's executive committee, and they will be here to present as well as answer any questions that you might have. Home had another very productive and solid quarter with earnings of $75 million, or 46 cents per share. During the first nine months of 2021, Your company earned $245,664,000, or $1.49 a share. As we would have said in the past, that is a world record. Home is again marching towards our $300 million-plus goal for the fourth year in a row. I can't ask much more of that out of our people. You know, if you pull out $3 billion in excess capital, which is virtually earning zero, the company is running right at a 2% ROA. Even though we're running a 168 now, when you pull that out, it runs a 2. We've talked about adding additional earning assets through M&A for several years, and I'm happy to welcome our new partners with Happy Bank, both shareholders and employees, to the home banks of this family. When I think about if I could choose to operate in the two best states in the United States that are both business-friendly and tax-friendly and have the largest incoming demographic movement, it would be Florida and Texas. Panhandle to panhandle. Well, you can check those boxes. Florida, check, and Texas, check. The happy deal will continue to propel the future of home and build long-term shareholder value of our combined companies, and we're certainly more valuable together than we are apart. As I said on the deal announcement, if this deal doesn't work, none work. The complexities of making a bank transaction triple accretive in today's environment is not easy. If the acquiring bank is not patient and disciplined and badly wants a deal, that's probably what they're going to get, a bad deal. Doing a deal for the sake of doing a deal is not in our DNA. As home's single largest individual shareholder, I can assure you if it works for me, it works for our shareholders and employees of both banks. This transaction checks those box. We'll come back to the happy deal later in the presentation. Let's go to the highlights of Q3. and the first nine months of the year. As I said earlier, we earned $75 million and 46 cents, and through the night, that's for the third quarter. In the nine months, earnings are $245.7 or $1.49, and I said that's a company record. Third quarter showed strong loan recovery. Even though we were down 64 million XPPP for the quarter, September was up 55 million XPPP. Unfunded commitments of loans... and credit lines was up $250 million to $3 billion. This is a confirmation of our earlier statements that we said on our calls that we expected loan growth to pick up in the second half of the year. I don't want to jinx our forecast, but it's certainly nice to have the optimism for good quality loan growth, and I mean quality loan growth. Loan yield is at 5.64%. The excess deposits is putting pressure on our return on assets, creating an embarrassing 1.68. However, without the excess capital, home is churning at a powerful 198. Most companies would be proud of a 168, but that number is unacceptable at home. We could have pushed some money off balance sheet. We could have bought some low yearly investments. Or we could have involved ourselves in the match to the race to the bottom on loan yields. We did none of that or very little of it. Patience in this one was tough. But we're playing the long game, and we're not looking for a quarterly pop. And believe me, we could have played if we wanted to. Actually, as Jamie Diamond said, having excess liquidity could be your friend. With $3 billion in excess liquidity, it's not all bad with rates appearing in an upward trend and optimism about loan growth for 2020. Excess liquidity may be an asset. Well, the quarter maintains strong asset quality, strong ratios to non-performing, and I think record low past dues. Very strong capital ratio, and even with a bulging capital ratio, Holmes ROTCE was 17.39. We beat on revenue and efficiency ratio of 42.29. That's okay, but not our best. Non-interest expense was up 8 million year-over-year. Four million of that was basically a data processing system for our loan program. One million of that was merger expense and a million three and others. On a late-quarter basis, we're up $2.7 million. As I said, a million in merger and $1.3 and other expenses. Back to Happy. Excuse me. Happy has a great senior leadership team led by their founder and backbone of the company, Pat Pittman. Pat will be joining the Home Bank Shares Board, and we're looking forward to seeing him. The CEO of the company is a great operator, Michael Williamson, and we look forward to having him head up Happy Bank for us in Texas, wherever we might go in that state. He will be the guy. In addition to a very strong loan team and a very experienced president group throughout the entire network, don't forget the quality of HR, investments, trust, marketing, BSA, CRA, ERM, and compliance. They are all top drawer. It is our goal to keep as many of their people as we can. The quality of Happy's people is even better than we thought. Many of their people are more impressive even than ours. Asset quality, however good, is not as clean as Holmes' asset quality, but it's certainly better than most we've seen. With yield on loans better than Holmes', which is highly unusual and the hardest part of the equation to achieve, we think getting Happy's expense in line closer to Holmes' is the challenge at hand. Demographic movement of people and companies are favoring Texas and Florida from Panhandle to Panhandle. After this acquisition completes, we'll have 222 branches from Key West to Pensacola, including Orlando, Miami, Fort Lauderdale, Tampa, Destin, Palm Beach, and in Texas to mention a few, Austin, Round Rock, Dallas, Fort Worth, San Antonio, Amarillo, Lubbock, Tampa, Plainview, Dumas, and, of course, Happy Texas, to mention a few Texas branches. We're poised to continue the growth of our company as we have come from $24 million in 1999 to when this transaction completes to $24 billion in assets. That is providing it all goes well. Let's talk about deals in general. You know, as we looked at these M&A deals over a period of time, they just haven't worked. Just virtually none of them work. Actually, there's only been a few work in the last 10 years, and I mean a handful, outside of merger of equals, whatever the hell that means. I'm not sure what that is, but there's been very few work. Why don't they work? You know, most acquirers have not fixed themselves. I mean, they were poor performers before, and they go buy another poor performer, and they just make a bigger pile of poor performers. Okay. I think the group thought I was going to say something else. But anyway, and the buyers pay too much for a deal. They pay too much, and they dilute their own tangible book value, creating years of earnings to get back to just even. You've all heard the statement, two-year earn back, three-year earn back the tangible book. Well, I can assure you there is no dilution in this transaction. It becomes accretive to both shareholders on both teams, which will be our shareholders day one. Buyers cannot execute on cost saves and do not have the knowledge, experience, or the reputation to do that. Home has all of the above and checks that box. Deal costs and seasonal double accounting costs must be included in the purchase price of the deal. Check that box. Focus on the deal at hand and not try to do multiple deals at once. Regulators frown on that. And you can check that box. Actually, we had just announced the deal when somebody came up to myself and said, I got a deal for you, Johnny. I want you to look at this bank. And Donna said they won't even let the body get cold before they try to bring you another deal, Johnny. And the Wall Street Journal picked up on that, and I was quoted with that. That's actually a Donna Townsend quote. So I want to be sure you feel better about that, Donna, that you got credit for that quote.