Home BancShares Inc (HOMB) 2022 Q4 法說會逐字稿

Greetings, ladies and gentlemen. Welcome to the Home Bancshares, Inc. 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. (Operator Instructions) 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 2022. (Operator Instructions). This conference is being recorded. (Operator Instructions). It is now my pleasure to turn the call over to Donna Townsell, Director of Investor Relations.

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 CCFG; and Stephen Tipton, 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 Bancshares 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 and 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 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 higher 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 company. We've seen some signs of inflation slowing, but without continued rate increases, this could be no more than a hearsay. The naysayers are saying, there will be [runs on] the banks. Bad loans will start raising their hand. 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 the 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 the 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 will be a long road for those companies. They will not catch up for 3 to 5 years if that quick or 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 expense.

The key essentially 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 were in. This is a very [trying task] during the quarter because those who spend 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 branded 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 at around 80% loan to deposit, additional cash flow 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 million because we have a $250 million treasury put that in where we could get another bite at the apple. We get back in early February.

We have -- with 80% loan to deposits, virtually no broker deposits, limited borrowing with billions of capacity plus cash loan, only sets us 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 3 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 the coming months. I found it's pretty interesting. Bill Bowler described as an underappreciated economic genius, explained that financial innovations always appear brig at first, but they sooner take you to access to become a forest. And eventually, the forest 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, 3 out of the last 5 years. It's certainly a great achievement by our team. I don't know if any other bank in the country that has achieved that goal.

We just witnessed the Georgia Bulldogs separate themselves in 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 a national bank champion, but we're certainly in the playoffs, and congratulations goes to our team.

We're (inaudible) of the training given to us by our supporters, as there are only a handful of mines trading over 2x tangible book, while 66% of all publicly traded banks are trading at [125] or less. And that number came from the last week and were taking them all down this week. 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 performance.

We'll continue to care these conservative balances. But regardless of the situation, Home will be opened 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 buying.

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 onetime second quarter adjustment on the merger expense of $107 million, $375.9 million or $1.93 EPS. Fourth quarter ROA 1.98%, a little discipline I wanted to, but that's about close to 2 (inaudible) here. ROTCE, return on tangible common equity in the fourth quarter (inaudible) 22.96%. The tangible book grew from $9.82 to $10.17 even though we continued to buy back stock. AOCI (inaudible) reported AOCI improved by $2 million. That's not much, but it's certainly moving in the right direction.

ROE, 13.26% (sic) [13.29%]. Revenue -- record revenue, $272.3 million 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 the bank every day to grow that margin. Nonperforming assets were 0.27% and nonperforming 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 is going to report on how that rate that was -- I think overall portfolio was up 60 basis in the fourth quarter.

We added $5 million to reserve, puts us at 475.99x classified assets. I guess that's what it be reserve is 475.99% to performing loans -- I'm sorry, nonperforming loans. At the 2.01% 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 want 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 will go over those in his presentation. These are some of the best numbers that we've ever produced and probably the best that anyone has ever produced. We didn't win the National Bank championship, but I can guarantee we're going in to playoffs. And during all this time, we get down [green] 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.

Okay. Thank you for that. I know that all of our listeners always appreciate your insight and congratulations on another great year. Our next update will come from New York from Chris Poulton with CCFG.

Thanks, Donna. And Johnny, I appreciate the shoutout to UGA, Go Dawgs. Q4 capped off what turned out to be a solid year for CCFG. 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.

Q4 is generally an active 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. Much of the growth in the Q4 was simply planned backfill of portfolio as we took advantage of the chance to redeploy our capital. Frequent listeners may have heard me say from time to time that getting repaid is not, in fact, the worst outcome for a loan. These repayments provide us an opportunity to redeploy capital on new usually improved terms.

For the full year, CCFG grew $356 million or 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 with our usual 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. Donna, back to you.

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

Thank you.

And now for our final report, it 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 4.21%, up 16 basis points from Q3 and up 79 basis points from a year ago. The improvement comes as 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 amidst such a competitive environment that has already been mentioned, and 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 3.5% 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 the Central Florida and Southern Florida markets. Noninterest-bearing deposits accounted for 29% of the total at $5.2 billion, while CDs only comprised 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 remains strong at over 19%.

Switching to loans. Origination volume was strong at $1.9 billion for the quarter, with over $1.3 billion coming from the community bank markets we serve. Yields on new production came in at 7.17% 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 end period loan balance increases. Switching to capital and a few key ratios. As Johnny already mentioned, we had total risk-based capital of 16.54%, a leverage ratio of 10.86% and a tangible common equity or TCE ratio at a strong 9.66% as of December 31. All of these are well in excess of our internal targets.

And Donna, with that, I'll turn it back over to you. .

Thank you, Stephen. Good report. Well, Johnny or Tracy, before we go to Q&A, do either of you have any additional comments? .

I was thinking what Johnny used all those adjectives when he started his prepared remarks. I came up with the word entertaining. It's certainly been an entertaining year, but well, the best ever. It's never been dull with you, Johnny, in the 21 years I've been around. So entertaining is probably the better word.

But compliment to all of our markets and regions and the areas over the past year. Certainly, we've seen rapid increase in interest rates has been something to work with, but 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 our numbers, for the bank and return on assets are in the 2% range of return on average tangible common equities in the 20s. You've got the efficiency ratio that's in the low 40s. We actually hit below that this past month, which is nice, and you got net interest margin around 4.25%. That's pretty strong telling about the type of folks we have working out there in our community.

One thing you talked about inflation that I think our company does really well and 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 of concern out there, some people that cut back on doing certain things, some loans that we talked about doing 9 months ago that customers called and said they were putting 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 is knowing our customer. Our customers are making good business decisions. It's showing up in the numbers. But all 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 on all of them.

Well, I would say that (inaudible) always been easy. I've never kept raising the (inaudible).

Anyway, it's a great quarter. Thanks, everyone, for your support out there. I can't say enough about, I don't know anybody have looked for somebody -- I don't just find somebody that we might win the national championship, Donna. I am actually see somebody beating us in this market for the quarter. I'm not sure they'll (inaudible) that. .

Well, I'll get the pompoms ready just in case.

Get your pompom. Maybe get Slurpees again. We can get some Slurpees or what was the (inaudible) we had?

We had some (inaudible).

We'll get us some (inaudible). Anyway, I think it's a great quarter. I look forward to the questions, and I'll give it back to you.

Okay. Thank you. We'll turn it back to the operator for Q&A.

(Operator Instructions)

Our first question comes from Matt Olney with Stephens.

Well, good report. I want to ask about the loan growth, strong trends in the fourth quarter. We got the report from Chris, pretty active in his group, but the Community Bank also had a strong quarter of growth. Any color there? And as you think about 2023, what are the expectations for growth there? .

Matt, this is Kevin. You heard Stephen 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 really 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've got competitors that are some out of money and some just choosing to sit on the sidelines in certain asset class, we keep doing what we're doing conservatively and we're getting to go to the (inaudible) 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. And this quarter, it's certainly been. And it looks -- we've got folks doing a lot of stuff right now looking at a lot of things. So we like where we're at.

There's a lot of banks have money. I mean they're loaned up and puts us -- gives us gives us a shot. I think in some of these deals. So I mean you think about somebody loaned up 100-plus percent, and the they're borrowed out. It's going to take a while to unwind that when they get back into the competition.

Okay. I appreciate that. And then on the credit front, it looks like you pulled a positive loan loss provision expense for the first time in a while. Anything specific that drove that? And then I guess kind of stepping back, any specific asset classes you're watching closely? Or any loan categories you're more focused on in 2023? .

Matt, this is Kevin again. So we're certainly from an asset class standpoint. We're going to watch a few. You got retail that certainly has stresses. And 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 off this, obviously, is on everybody's mind. And we don't have a ton of office, but we'll look at what we got and continue to watch it like we do anything else -- hotel seems to be doing well and certainly in the markets we're in. And so we will watch the asset classes based on what we're hearing out there in our markets and in the national as a whole.

Just from our perspective, in the fourth quarter, we had a group of about 6 ALF properties in Florida that total about $100 million that 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. But given the long stabilization runway that they've been on and the more challenges ahead, we decided in the fourth quarter to move those loans to substandard.

We'd watch them for a while, not anything particularly different today than yesterday. But just given the late time watching, we decided to move them so you'll see that as the quarter numbers come out. But again, we'll watch the market and watch our asset classes that we're heavier in and look at particular loans as their annual reports come in, and we'll act accordingly.

Yes. We've talked about these credits over the years. And the current plan has agreed, but they still bother me. I think we're on the road when we had the pandemic hit and they said, oh, Home is going to get killed on hotels. Well, we did a fireside chat showing everybody we underwrote properly -- we underwrote these properly too. So I don't anticipate a loss (inaudible), but it is something we've talked about and Kevin thought it was time to downgrade them. So we did downgrade them.

Outside of that, we had about $100 million of them, only really -- the only ones that probably is about $60 million of them, so -- $60 million. So if there was a lot to be 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, it goes, 2% reserve has worked and that's been a [rule] for us for many years. We like 2% reserves. We don't want to use our reserve like a piggy bank and pulled stuff out, put money in, pull it out, put it in. We have a 2% reserve. We like that. We feel comfortable with that.

We went through '08, '09 and '10, the worst financial crisis I've ever seen in my business career. -- with a 2% reserve and it paid off for us. So we'll continue to maintain strong reserves in the event that something were to pop out there anywhere. So that's -- we actually fell out below 2%. So we put the money in there. We got to get from service first gave us a little gift during the quarter. So we just kind of thought we'd put that money in reserve.

Okay. Well, I appreciate the disclosure on some of those downgrades. And just to clarify, Kevin, what types of credits were those? I was a little unclear on what those were.

Assisted living -- assisted living facilities. .

It's primarily memory care. One thing we've learned is the memory care people -- I'll be glad to get a pill we can take for memory care, but people struggle with memory care. And (inaudible) it is the patients don't live very long.

A lot of turnover and really expensive. The staffing has been really a challenge after COVID, so there were a lot of headwinds.

I'm sure that asset class will spread itself out at some point in time because the baby boomers are rolling, they're getting 65 and older. A lot of baby boomers rolling into that. And I think that's what was anticipated in this field was that's what would happen. But it has been a struggle on the cash flow side. And particularly, people wouldn't got to loved ones when the pandemic hit, they wouldn't got to loved ones, and took them out. They brought it home and a lot of that happened and filling them back up. One of those memory care centers or safety living centers was hit by hurricanes. So we should -- we got to ensure hopefully, we'd sell that on to the insurance [capital]. That would be one of the ones that were in question.

Our next question comes from John Arfstrom with RBC.

Stephen, a question for you. You threw out a number 7.17, was that the new loan yield production?

Yes, that's correct. That would be the coupon on total production for Q4. Only a portion of that would have funded by year-end or during the quarter, but that was we wrote.

In December yield was what?

Yes. I think I mentioned, it increased kind of throughout the quarter, just as market conditions have changed, and I think we wrote about 7 40 or so in December. So it's got a nice trend towards it and just kind of lining up with what you're seeing from the Fed. .

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

This is Kevin. It's -- I think people have recognized that that's where the market is and their deal leader has to work at those rates or they can't do their deal.

And we've had a couple -- we've big builders came in and some of these projects didn't work at those rates, and he just pulled them off the table until get an inflation. Building costs were up, interest rates were up (inaudible) didn't work. So to his credit pull projects off the table. We'll see them again. I think it was the one of the land -- we won't go forward with the project. Good news. Actually, our customers are thinking through this process well, looking at it, analyze it, decide if they need to do it now or do it later, some need to do it now, so need to do it as evidenced by the strong loan growth for the quarter.

Cap rates are still good. So they're billing to sell, 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 sold and move on.

Our homebuilders we did -- they just visited with our homebuilders out of Florida, big homebuilders, you had set a softness in and around Houston. But there in Florida and Alabama are continuing to run really strong. I think it's -- Tracy got that information. What do you say?

Yes, yes it is. October was good. November was a little dip, December was strong, but they've adjusted some of their whereas they market it over time, but margins are still a little bit less than what they were, but they're still really good. .

And by the way, we talked about asset quality, we're all going in some people. Everybody has been watching Shore Premier. I've been talking about Shore Premier. If you don't mind, I'm going to get John Marshall to talk about Shore Premier, his performance and his past dues. If you could quickly tell us not stealing your share, we're talking about asset quality, I thought we'll let John (inaudible) and I forgot it. John, do you want to talk about what you're seeing out there?

Yes. Mr. Allison. Thank you. I appreciate the question. I'm seeing some forecast in the market of elevated delinquency and defaults. But I also believe Mr. Allison, what we're going to do, we're going to observe that in the smaller book and trailer retail segment. You all will recall that our marine book is underwritten to a prime credit quality standard. Our average application, Mr. Allison, is 820,000. And our average loan size is $670,000. Our borrowers have verified liquidity of 66 months. Imagine that.

So completely indifferent to their income, the W2. They've got 5 years of average liquidity to cover their obligations. That's all of their obligation, not just their boat loan. If you consider delinquency as the harder of default, at 21 basis points, our delinquency is consistent in the fourth quarter with where we've seen it all year. And again, we feel like that's a very low number.

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

Thank you for that. I don't mean to steal your time, Jon, but I don't want to get that as Matt asked about asset quality, and you probably would ask about it anyway. So you've got the floor, Jon.

Yes. 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 coming, pretty good momentum in loan yields. How do you feel about the margin trajectory? And how are you guys funding some of the deposit pricing requests and pressures? Is it just taking the loan-to-deposit ratio up? Or is there something else going on? .

Well, we're taking loan-to-deposit up a little bit, but I think the trough on the deposit. I think we hit that interesting. We manage this company, as you know, every day. And October was a screaming home run. It was just we knock is grand slam home run for October. November, rates took off, as you saw, and it was a -- it was hand-to-hand combat in November. We actually went backwards in November from October. And then here comes December, and we're booking some loans and we're getting them on the books and they're starting to run nip and tuck with the increase in revenue, the increase in interest expense until the 15th or 18th of the month, we're actually running backwards and it turned -- the whole thing turned at that point in time, we got enough new loans on the books to outrun the interest expense and it ended up being a great December.

So it is hand-to-hand combat, and we're taking them one at a time, but we've dealt with most of it, and I'll let Stephen comment on what he...

Yes. You said it, John. I think it all hinges on what we do have to do on the deposit side. I mean we did -- as Johnny mentioned, we were a little more aggressive in October, November on the heels of the 75 basis point rate increases had to pass some of that along to deal with the customer demand. But feel like what we did in December and then depending on what we see here in a week or 2, the first of February from the Fed, we maybe be a little more conservative there. .

It's not that we don't -- we see it every day. We see it. We see it plus or minus or we'll compare December 8 with November 8, and how well we're doing matter. And with October 9 and how well we're doing there? How is that compare, we win it and we lose it. It was a -- really it's a battle. I think that most of the rate increases are done at this point in time. So I'm optimistic that we'll have a shot -- we have a shot at increasing margin in the first quarter. If we can continue to write what we're writing and if I'm right, most deposit expenses are behind us.

Our next question comes from Stephen Scouten with Piper Sandler.

First of all, great quarter. I think it kind of played out as you guys said, it will get some of that liquidity to work. I'm kind of curious, Johnny, digging 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 your bond book in terms of cash flows. Just kind of trying to think about how much loan growth you could fund without any incremental new deposit growth? .

There's about $30 million, $35 million coming off the bond book, and we really haven't redeployed that because rates have kind of backed up here a little bit, as you've noticed. So we've just settled that money, and we fairs better off growing fed funds on that extra cash that's what Brian has been doing with that.

So -- because we're getting 4.4 in the Fed.

And you're getting on new investments, about 5. .

Yes. So as rates -- as we think, we go back up, we walk in somewhere, we picked our spots and rates kind of backed up (inaudible) seen the tenure what's happened there. So is it over now? It's not over, (inaudible) continue to raise, certainly, they're going to continue to raise. It may not raise at the level that they've been raising, but they're going to continue to raise.

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

Absolutely. Where we want to put it, yes. Absolutely, we can. When you think about it, it's coming off of 150, you can put it in at 47 or 40. If you put it in, that's a pretty good spread. So we still have enough cash -- we still got cash and we're generating cash and we got a CD treasury coming out in February, it's $250 million that we'll put to work. So we're pretty happy where we are. We don't need to borrow anything right now. We've got plenty of room. We don't have a broker deposits. We really don't -- we're not barred at all. We need to get barred up if we can.

Got it. Makes sense. And then you referenced in the headline of the report despite continued West Texas headwinds, but hard to see any headwinds in the results. I guess can you expound on that a little bit? Or what's coming out of there? Or is growth just not what you would want out of those markets yet, and it's just been other areas that just kind of kept us from seeing this.

They went after -- that bunch went after a bunch of our customers to a bunch of our deposits and did what they could do to damage the company, I guess, is what it certainly appears like -- and had we not had that, we would have had a much better quarter, and we're keeping up on how much that is. So I think it's important to know, keep a running tally of how much they got from us or stole from us or took unprofessionally from us. So we're -- as you know, we don't -- when someone tries to injure the company as happened with Service First, we stayed after them for years until we got our money. And I'm not saying we're going to do that here either, but I don't like people trying to hurt our shareholders. So -- that's what I [talk].

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 bank stocks trading above 2x tangible any longer. So at 2 30 in tangible, 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? .

No, it does become attractive. I mean I'm a first step of our support that people have given us to trade at that level and be one of the few to trade there. But it is -- we're interested in M&A. I don't think the problem is that a private bank don't recognize that their price goes down like the rest of the banks do. Rest of the banks used to be at 170, 75x tangible book, and now they're at 125 or less, 66% of them are. And regardless of what they do, theirs is going up the same way. I mean it's going to be exactly the same.

So whether private bank recognized is not, they go up and down like we do as a public company. So my thoughts are that will be acquired, we have 2 weeks away, and we're going to visit with some people out there, there's some opportunities there. So now M&A is -- how do you do an M&A deal today, though Stephen? I mean you guys are pretty damn good. Your group is good or is out there doing deals or one of the best in doing deals. How do you do want to -- how do -- what do you go to market loan book at today with these rates where they are.

Yes. The math has gotten hard. Yes. I agree.

It would be extremely I mean you got to take a mark the loan book -- and AMC has already booked the securities basically. Can we do a deal, Brian?

Maybe.

I'm afraid of the seller (inaudible) Stephen?

No that makes sense. And obviously, the market's appetite has still been relatively tepid towards deals. But I think 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. And -- as it turned out, we ended up happy, ended up being diluted to us because (inaudible), but I think we retain that pretty quick. And the rest of the franchise jumped up to help us. So -- 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 while managing your business with all this going on with the distraction in West Texas, along with all these interest rate changes. So -- but we got through it and had a great year.

The next question comes from Brett Rabatin with Hovde Group.

I wanted to talk about deposits for a second. And just -- I think everyone is trying to figure out how much more they might be operating now from a DDA perspective decline and how much more liquidity could drain out from the low-cost core deposits. And just wanted to see if you had any crystal ball thoughts on that for your bank, and you've obviously not had 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.

Brett, this is Stephen. I guess as you said, that's a crystal ball thought, if we knew, we wouldn't be sitting here. Like as Johnny mentioned, I mean, if we found a trough, yes. I mean, I think certainly in Q3 -- excuse me, Q4, the decline slowed from the prior 2. If I go back and look, we -- I think pre-pandemic ran 22%, 23% noninterest-bearing to total.

Yes, I don't think that's necessarily where we go back to. But yes, I think some of that is going to still be to be determined, I guess, as some of the money that's been in the system over the last year or 2 moves around. We talk around the table here. It's taken a little while, I guess, to kind of spin back up the conversations that loan committee and other places around raise in deposits again and having that be a part of the discussion when you got a new opportunity at loan committee and those kinds of things. So I think before we push hard on beta and rates and CD specials and those kinds of things like you see, I think we stick with the relationship banking approach as a business.

Brett, the only thing...

Go ahead, Tracy.

I was just going to say, Brett, the only thing, I remember when the pandemic hit, deposits really boomed, right? And we stayed disciplined and we didn't lock in a lot of loan opportunities back then at 3% for 7 and 10 years. We always knew that the deposits would go away to some degree. I thought it would take a little bit longer than it did this past 6 months. But as we watch a lot of our customers would give us a call. Give us a call if we wanted to match a 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 bank, they could take it out and do an investment and do more money.

And then we also have some customers that used to borrow a little money that choose their own money. So that time will turn back with that deposit money will come back in. Johnny has mentioned about the West Texas. I think we've got a really good calling opportunity coming down the pipe on regaining some of that we generally lose whenever you do an acquisition. So as Johnny mentioned, we talk -- we meet every day and discuss it every day, watch where it's at. So I don't have a crystal ball either, just real pleased with the way our team has managed that challenge over the last 4, 5 months, which has been interesting.

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 that weren't able to get credit from the bigger banks. And we wanted to see how much of the growth or the pipeline was tied to stuff like that, maybe market share opportunities and if that might continue to be something that helps your loan growth going forward? Or if maybe you're going to pull back as well relative to the environment.

This is Kevin. There was certainly some of that, and that particular deal hasn't actually materialized yet. But I mean, there are other things that were similar to that, opportunities like we said, that other folks are 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 last couple of years, and we will continue to do that. I mean, I think that's the reason we held off like we did is to be able to take advantage of the situation. Johnny said 3 years ago, rates were going up. And that's the way we managed it. And now we're in a position to be able to take this money and put it in good earning assets at a good rate.

We moved on that credit quick enough that customer didn't do that big transaction. He will do -- he will do lots of transactions. We built a relationship. He said -- called and wished Merry Christmas and Happy New Year, and they're class people and he said, I'm impressed with your team and how quick you moved. It was a complicated credit and it went to Chris Poulton. I mean he actually left here and went to see Chris in New York and Chris spent 2 or 3 days with him and ironed out the problems, and then we, Donna and I met him in Boston and Chris in Boston. And he said when will do business a matter of fact, KBW conference is coming up in Florida, and we're going to go down a day early or stay over a day late to go have dinner with him and meet some more of those people.

So that's going to turn out to be -- even though we didn't close that transaction, he didn't build it in that's going to turn out to be a good long-term relationship. Your point is well taken. We picked up some of that business during this time that we'll build some relationships with as Tracy did in '08, '0'9, '10 and '11 with a lot of Florida borrowers there are still long-term customers with us. So I mean we charge a little more, but they know that, but they know the money is good, and they get it done. They don't have to worry about where the loan gets funded or not or get funded properly. So we're half quarter -- or three quarters a point higher and lots of instances, but that doesn't seem to bother the project. Good question though. I appreciate the question.

Our next question comes from Brian Martin with Janney Montgomery Scott.

Just Johnny, 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 you're thinking about that going forward here, just any changes or how we should think about that prospectively? .

Well, we had -- we had a forensics team, and we spent millions of dollars with this forensic team on what happened to us in Texas. So you're seeing a lot of that in -- 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 forensic is, I'd say, is pretty much done. What about you, Tracy?

I don't know if that ever gets done.

Yes, yes, they never get done. Okay. So anyway, that's where a lot of those expenses came from. The increased expense, you can see where -- I don't know, $2 million or $3 million this quarter, I think, Brian?

It's about (inaudible).

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

Brian, this is Tracy. I think with the cost of everything that we're seeing out there in just the real world, you're going to have to have to expect there will be some cost is involved. Now we also I've said earlier in the call that I think we've got room for improvement in some of that, too. So we'll constantly go to that. I think Brian work in his numbers and budget for next year, and it's going to be a little bit of an increase, but not anything significant.

Well, Michael (inaudible) has had to do a GoFundMe deal for us several years ago. And I may have to get Michael to do another one now because we had -- I don't drink Baileys, I drink Carolans and I want them to buy me a bottle of Carolans the other day that in order to play $22 or $23, and it was $36.50. And I said, "Are you sure you have the price right. And she said, yes. She said, it's correct. She said, drink it and enjoy, but drink it slow.

Got you. And I guess just 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 expansion in the Texas, maybe just how things played out. Can you give some kind of wrap up of the year as far as how Texas contributed, the growth that you started to see there? Is there some momentum? Or just how you expect that to continue relative to kind of the other parts of the footprint? Or just any commentary on how trends are there given kind of some of the issues that have occurred there? .

Well, we were treated a little rough in (inaudible), as you remember, and a lot of our -- some of our accounts left. We were forced to do some low-rate loans in those markets than we did. And I think I told everybody would use the strength of the Home's balance sheet to counteract whatever anybody was trying to do to us. So we -- I kind of take this stuff personally. You probably didn't know that, but I kind of take it personally, and I don't give up.

So anyway, I think we've leveled out from that. I think Stephen Scouten said, someone asking about home will be find their grinders. And that's true. We don't stop. We don't give up. We work hard. We've got the power of Home's balance sheet. We need to use it. And the people that left went to some little bank there somewhere, and they can't find much. I don't know if they're out of money. I just heard that they're out of money and they can't fund anything and they're pull up, they loaned up. So I don't know if any of that's correct or not, but if it is, it probably is.

And so it gives us some opportunity to go back and pick up some of -- we're going back to some of those customers that were taken from us. We're going back to try to bring them back home. Some were getting, some were not. So just -- it was unfortunate -- very unprofessional and unfortunate. It was not done properly. Not that I can't go somewhere else to work, work anywhere, we want to work. It's just how you go about it.

Right. Are you starting to see the momentum in Texas kind of gradually pick up here? I guess that's kind of what I was getting at. Just as you kind of look to '23 and just kind of your outlook on kind of the loan growth in general for the company...

Well, the final quarter did really good. And Robert runs or (inaudible) runs Central Florida, and he never slowed down. He never missed a step. He just kept rolling. So while we were trying to deal with West Texas Lubbock and another place where it is, Also, what is -- we were -- while we're dealing that stuff, I mean the Dallas-Fort Worth area never slowed down. They just kept moving and they kept growing. They did excellent. Adding a lot of those customers that were in love were Dallas customers that they've been signed is 1 loan officer went out to love it, he took them with him. And so they just brought them back home. So it's -- they -- all those big customers -- they saved all those big customers (inaudible) all of them.

Got you. Okay. Perfect. And maybe just one last one for Stephen. Just going back to the margin permit, Stephen. I guess is your thought -- it sounds as though the margin is at least 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 in the near term and then maybe you see some decline thereafter? Or is that just in general, because look over the next couple of quarters, how you're -- what you're expecting there given some of the liquidity levels and putting that back to work?

Yes. I mean I think mentioned just on the deposit side, I think our beta ran mid-50s or so in Q4, where it was high 20s than 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, our forecast show we could have a little slight increase to it. But I think we'd be pleased with holding the line where we're at now. I mean I try to get arms length away from Johnny, I think I'd be pleased where we're running right now.

Our next question comes from Brady Gailey with KBW.

Most of my questions have been asked and answered, but just one last one. So you talked about the reserve coming down to about 2% now. I think if you look back a year, 1.5 years ago, your reserve was almost 2.5%. But it sounds like you're comfortable with the 2% level. Do you think that, that 2% level will be maintained here? It seems like if you're going to be able to grow loans and you guys have great asset quality, you could see reserve drift below that 2%. I think consensus has it drifted below 2%. But you're signaling it's a 2% kind of from here on out? .

Yes. I think that's reasonable. I think that's reasonable. When we -- everybody in the country made due to the pandemic major big reserve moves, we made our big reserve moves and who knows, right? Who knew what was going to happen in the pandemic. So it's pretty shocking times. And we're going to maintain that reserves up in there. And I don't know, I actually thought we might take $20 million or $40 million put in reserve.

You got -- you see all the big banks thinking saying we've got a recession. We've got a recession, we've got a recession. There's going to be a stock market crash. All the naysayers are out there saying all the negative, negative, negative things and kind of makes you a little nervous and you wonder if you're doing the right thing, 2% enough or do we need to put more in there. We'll kind of follow it through the next quarter or 2 and see what we need to do.

And our next question comes from Michael Rose with Raymond James.

Well, I just had 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 given caution, but you guys are in a really good fundamental position from a capital and a liquidity reserve standpoint, everything that's 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' 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 gain some market share and get a little bit more aggressive on the loan side? Or is it just some you would continue to be cautious and kind of stick to your underwriting guidelines that have voted so well for [you].

I think whenever you have these situations, it is an opportunity. I mean all the things that we've done through the bank is during challenge times, it's turned out to be a great opportunity for us. And it's -- as Johnny, I think said, I heard about one of our customers. I mean they've elected to not do things. It's -- we probably would still have participated some with them. They're going to put a lot of skin in the game. And speaking to all of our markets and regions, as Chris said earlier on his part to redeploy some of this capital that we're doing.

So we're looking at them. We get to see is just as many as we always have. Kevin, don't you...

Yes. I would answer -- to specifically answer your question, I don't think we have to give one to get the other in this environment. I think we can continue to be 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.

Yes. It's been -- I guess we had money and they thought we were easy. We were not easy, as you know, but it has -- we saw what Tracy did in '08, '09 and '10 and Kevin, in our (inaudible) loss relationship, and we're going to pull some through this big -- we'll put some big customers through this run.

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

I just want to say thank you to everyone, all the supporters of Home. It was trying times out there. I have to compliment our management team and people in the field, the hard work that they put together and put together in this great quarter. I don't know if you could -- I don't know -- I didn't say if I turn out these kind of numbers, probably somebody will turn out as good numbers or better, but I didn't see 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 getting there, we got it done, and we're set in a great position for '23. And our lenders are ready to roll.

Actually, our Dallas lenders wrapped up their year and early on working on '23. So overall, it's a great, great quarter, great year. I'm happy. I think we can get -- I think we can run the run rate holds where it is, and we can get $100-plus million a quarter to run a 2% ROA incoming running at $440 million or so. Next year, I think that would be a great be good for all of us. So anyway, thank you, and we'll talk to you in 90 days.

This concludes the Home Bancshares, Inc. Fourth Quarter 2022 Earnings Call. Thank you for your participation. You may now disconnect your lines.