Home BancShares, Inc.

greetings ladies and gentlemen welcome to the home bank shares incorporated first quarter 2023 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 if you would like to ask a question during the question and answer session please press star then one on a touchstone 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 2023. 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 first quarter conference call. Today's discussion will include prepared remarks from our Chairman John Allison, Stephen Tipton, Chief Operating Officer, and Kevin Hester, Chief Lending 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. Chris Poulton, President of CCFG. And John Marshall, President of Shore Premier Finance. 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.

Good afternoon. Thank you, Donna. We usually open with profitability as 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. The strength of home's liquidity and availability provides more than 100% coverage for all uninsured and uncollateralized depositors. as of March 31st, 23, and that carries through today. 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. 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 uncollateralized deposits. 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 about from our depositors, I think this will comfort them. In the press release, there's also a table showing how the availability 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 homes 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 and the performance of a company that has stood the test of time again during a new and different bank crisis. What can possibly go wrong? I think we've seen about everything that could happen. What are the key factors that have not only contributed to the strength of our bank, but allow top tier results quarter after quarter, as well as year after year? Liquidity. Capital. asset quality, loan reserves, profitability, and management experience. 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 homes 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 spent 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 and what I call a race to the bottom on loan rates. After we were in basically a low or zero rate environment for a long time. That lasted several years until the drunken sailor spending created something called inflation. It raised its ugly head. called from 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 loan rates. This was a critical decision that the leaders of the respective banks made that created this crisis. I've said for years that bankers who do not have Any businesses experienced are not the guys you want handling your money. Nearly all banks, acting like a pack of animals, they took their employees, shareholders, and depositors straight to the slaughter because they built their houses out of straw. 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, security 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, many banks. 100% or greater loan to deposit with 8% capital left is a recipe for disaster. When cash runs out and banks deplete their bonds, they have no choice but to go to broker deposits and high-rate CDs. Whether it kills their margin and profitability or not, they turn into the survival mode. Watch the CD ads. You've seen all these CD ads hit in 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 comfort all our depositors. Home has the cash liquidity 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 as 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 90% 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 seat. Well, welcome to Home Bank Shares. Home Bank Shares 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 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. And when I told her about the bank crisis, she said protect the chuck wagon at all costs. Circle a wagon with iron. 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 the same goal. Asset quality. While maintaining one of the highest loan loss reserves in the country, Rather than play jack in the box, raising and lowering quarter after quarter because all the factors we faced over the last 23 years, we know what has worked for the last 40 years, and that is a 2% reserve 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% 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 worth of 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 somewhat. 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 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 5.4% from the first quarter. Tangible common equity as a percent of tangible total equity was 10.33 at 3.1 versus 9.66 at 12.31.22. And if we took the held of maturity loss of $86 million after tax, we would still remain almost 10%. We actually would be 9.97. Pretty damn strong stuff. P5 NR is 53.91. Total interest income was $284,939,000. I think that's a record, Brian. I don't think we've ever hit that number on total interest income.