Home BancShares, Inc.

Greetings, ladies and gentlemen. Welcome to the Home Bank Shares Incorporated Fourth Quarter 2022 Earnings Call. The purpose of this call is to discuss the information and data provided in the quarterly earning release issued this morning. The company presenters will begin with prepared remarks, then entertain questions. Please note that if you would like to ask a question during the question and answer session, please press star, then one on a touchtone phone. If you decide you want to withdraw your question, please press star, then two to remove yourself from the list. The company has asked me to remind everyone to refer to their cautionary note regarding forward-looking statements. You will find this note on page three of their Form 10-K filed with the SEC in February 2022. At 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 Townsville, Director of Investor Relations.

Thank you, good afternoon, and welcome to our fourth quarter conference call. Today's discussion will include prepared marks from our chairman, John Allison, Chris Poulton, president of CCFG, and Stephen Kitton, chief operating officer. The rest of our team is present and available for questions. Tracy French, president and CEO of Centennial Bank, Brian Davis, our chief financial officer, Kevin Hester, chief lending officer, and John Marshall, president of Shore Premier Finance. 2022 was quite a year. Home Bank shares finished the year, though, with a strong fourth quarter, and to provide you with the details is our first speaker, Chairman John Allison.

Thank you, Donna. Welcome to our 2022 year-end and fourth quarter earnings release conference call. Properly managing last year was both arduous, stressful, and somewhat exhausting at best. Loan and deposit rates have not been this high since the late 70s and the early 80s. That's when Volcker took rates to the low 20s and finally killed the snake, better known as inflation. This is the second fastest that we've ever raised rates in the history of our country. Our belief is that we have high rates for longer. We've not even hit the 50-year average yet at 5.44 Fed funds. And the pivot crowd will be disappointed because Powell is aware of the early pivot that Volcker did in the 70s. Inflation was not over then, and it's not over now. We must hold the course, maybe not raise rates as much as in the past, but continue to raise, pause, observe, as it takes almost a year for the impact of what we do today to show up in the economy. We've seen some signs of inflation slowing, but without continued rate increases, this could be no more than a headache. The naysayers are saying there will be runs on banks. Bad loans will start raising their head. The recession is here. The biggest stock market crash is imminent. There is a financial hurricane leading in this direction. Banks are out of money, and higher interest rates are destroying the value by reducing the value of their securities due to ALCI. I have to agree that some of these risks are certainly out there, but most can be properly managed. A lot of deposits at much higher rates are finding their way to those that did not show patience and continued on the same path, plowing deposits into low-rate loans and security. It'll be a long road for those companies. They will not catch up for three to five years if that quick or until the low-rate loans and securities roll off the book. I've said this before and I'm going to say it again, there is no substitute for expense. The key is simply have interest income to outrun interest expense to result in an increase in net interest income. Even as conservative as home is and the position we're in, this is a very trying task during the court because those who spent their money were forced to buy money regardless of the cost as evidenced by their CD ads everywhere. There has not been a CD ad run at home. We let deposits leave the bank only when they hit the stupid point, otherwise we attempt to retain the deposits. In good times, these brain-dead banks had a race to the bottom on loan rates, and now they're having a race to the top on deposit rates. As tough as it is to maintain excess cash, we're still hanging in around 80% loan-to-deposit. Additional cash flows from securities, principal payments, and smaller payoffs are resulting in about $300 million per month in cash flow. February is expected to be about $550 because we have a $250 million treasury. Put that in where we can get another bite at the apple. We get that in early February. We have with 80% loan deposits, virtually no broker deposit, limited borrowing with billions of capacity, plus cash flow, the home is sitting in a great position. In spite of the damage done and more attempted by the West Texas group, It appears the intent 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'll talk more about that in coming months. I found this pretty interesting. Bill Bonner, described as an underappreciated economic genius, explained that financial innovations always appear brave at first, but they soon are taken to excess and become a farce, and eventually the farce leads to a tragedy. All banks are not created equal. It's all cars, it's all land, people, management teams, football teams. We pride ourselves by trying to separate ourselves from the rest of the pack with top tier performance. Being named best bank in America by Forbes three out of the last five years is certainly a great achievement by a 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 in a very impressive fashion. No doubt about who is the national champion in the U.S. I don't know that home is the national bike champion, but we're certainly in the playoffs, and congratulations goes to our team. We're appreciative of the training multiple given to us by our supporters, as there are only a handful of banks trading over two times tangible books. while 66% of all publicly traded banks are trading at 125 or less. And that number came from last week, and we're taking them all down this way. The conservative management team at Holmes 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 performances. We'll continue to carry these conservative balances, but regardless of the situation, home will be open in the morning, next week, and next month. There is no substitute for strength. You cannot get it when you need it. Therefore, we carry it at all times. Better safe than sorry. Don't worry about home. We're taking care of your bank. Let's go to the numbers. I'm pretty impressed with these numbers myself. Record fourth quarter income of $115.7 million or $0.57 a share. I'm sure that's a beat. Record 22 earnings as adjusted for the one-time second quarter adjustment on the merger expense of $107 million. $375.9 million or $1.93 EPS. Fourth quarter ROA, 1.98. A little disappointed I wanted two, but that's about as close to two as you can get. ROTCE, return on tax of common equity fourth quarter, amazing, 22.96%. Tangible Book grew from $9.82 to $10.17, even though we continued to buy back stock. AOCI, Brian Davis reported AOCI improved by $2 million. That's not much, but it's certainly moving in the right direction. ROE, 13.26. Revenue, record revenue, 272.3 for the fourth quarter. Fourth quarter margin, 4.21 up from 4.05. That's up 16 basis points. I think at the end of the first quarter, we said we'll 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 bank every day to grow that margin. Non-performing assets were 0.27, and non-performing loans were 0.42. Same or about the same or lower than last quarter. We did fourth quarter loan growth was $580 million, and I think Stephen's going to report on how that was over. I think overall portfolio was up 60 basis points in the fourth quarter. We added $5 million to reserve. It puts us at 475.99 times classified assets. I guess that's what it would be. Reserve is 475.99 to performing loans. I'm sorry, non-performing loans. That's a 2.01. The number is $289.7 million. Efficiency ratio, 42.44. We repurchased 840,000 shares for $20 million during the quarter. We didn't make any change in dividend. We'll be discussing that at the meeting on Friday. We received $15 million from our lawsuit against First Service in a lawsuit settlement. And next quarter, I'm going to introduce A very exciting and profitable portion of our company that has never been properly recognized or promoted. So stay tuned for that. I think you'll enjoy that. It's taken a lot of my attention recently. And strong capital levels, and I think Stephen's going to go over 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 didn't win the National Bank Championship, but I guarantee you we're in the playoffs. And during all this time, we get downgraded with these numbers. I find that really totally unbelievable. But anyway, it is what it is. Donna, I think that pretty much wraps up what I've got to say. And if you want to take it from here.