Q4 2023 Home BancShares Inc Earnings Call

Presentation

Operator

Greetings, ladies and gentlemen, welcome to the Home BancShares, Inc. fourth 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. 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 2023. (Operator Instructions) This conference is being recorded. (Operator Instructions)
It is now my pleasure to turn the call over to Dr. Donna Townsell, Director of Investor Relations.

Thank you. Good afternoon and welcome to our fourth quarter conference call. With me for today's discussion is our Chairman, John Allison; Tracy French, President and CEO of Centennial Ban; Stephen Tipton, Chief Operating Officer; Kevin Hester, Chief Lending Officer; Brian Davis, our Chief Financial Officer, Chris Poulton, President of CCFG; John Marshall, President of Shore Premier Finance.
Our team is assembled today to review the fourth quarter results with Steve and we will begin with some remarks from our Chairman, John Allison.

Good afternoon. Good evening. Welcome, everyone to the fourth quarter and Year End 2023 Earnings Release and Conference Call. I personally want to thank you guys, for many years is 40 G given his company, I believe Dan told me that I have put time passes versus our 25th year at the correct 45th year. It hard to believe that Home Bancshares has been around for that like that, that I finally remember, 1999 was our 1st year in business, and we were cash flow positive and would have been profitable. Had we not started building reserves at that time, but you know, our our belief will reserves and we've continued to build them over the years and they pay dividends for us. Year two, the company was profitable and has been every year since the 1st year. We ended 2023 with total assets of 22.7 billion and earnings of almost 400 million and would actually we would have earned over 410 made without the surprise FDA. I think $13 million special assessment that we had to book for other part of the Firebox that occurred during 2023 because of poor management of some of those respective banks I've heard for years, Washington complaining about taxpayers bailing out banks and wind growth in oh eight, oh nine and 10. It was tough Troubled Asset Relief Program and the band was heavily processed through that program. We borrowed 50 million from that. Bayer had a little over 5%. It sounds like during that time we were given lack of 0.4 of memory, how much primal we had known that money, but maybe a point we added were paying 5%. We weren't getting much on it couldn't get much otherwise, I might defer debt are adamant. I think they made money. We did that totally as an insurance policy and never spent a dime of the money. You remember when I said when someone asked me, what do you do with the mining asset? It took it home, put it government fell in late oh three, 57, Magnum or episodic asset. It seemed like it was yesterday. When that happened, we kept the money for several years while becoming the largest buyer of failed banks in the US, our at least one of the largest buyers of failed banks in the U.S., we were building out our Florida franchise that has become a very profitable part of this corporation water.
Great, Ron, that's been I don't know about other banks paying their fair share. But we certainly did and we are not we are having to pay 13 million because of the stupidity of other management teams. I don't like that but it is the best way for banks to repay the Fed. After all the Fed did prompt the money to save many, many, many bikes. I think the prior years would have been enormous. I felt the system was on the edge of collapse and the Fed has stepped in with their new BPFP. back from lending program under this program. The Fed allows banks to borrow 100% of the face value of a security regardless of the market place. So they had a middle school with a $500 for and the market value was 50. I think, if I'm correct brand like bar 100 graph graph so that those that had the major AOCF problems, this kind of lap that out for a lot of them. You know, probably that side, 90% of the banks in the U.S. bank management teams plowed all at funding money, fiat currency and a long term loan, right, sure.
Securities flower in a rising rate environment. It's almost funny if it weren't so serious and you can't make this stuff up. That's why most buyers are not very smart. The small percentage of banks that did not make that mistake have weathered the storm well hole was prepared for failed buying days in oh eight, oh nine 1011 and reap the dividends of the war, chest of capital and huge reserves and strong management team.
Last last, this time home was totally prepared with this bank crisis. We didn't know when it was coming, but we were just getting prepared with more capital, larger reserves, more experienced management team and a fortress balance sheet. But the Monster, we're just too big and many, many banks would have failed. If the Fed did not provide easy access to cash here, the regulators move to provide for a month once again, probably was the best thing the Fed could have done side, the weak banks. I was hoping for another bite at the apple and again was one of the few in the country that properly prepare for whatever was come, how regulators have continually told us to keep our powder dry because they're going to need us to help clean up some of these messages. There are simply too many weight mines cluttering up the bank space with limited capital crazy growth plans, coupled with very weak leadership, Kevin Wilson, the founder, holiday and said good judgment comes from experience and experience comes from bad judgment. And I don't think there is no substitute for experience from banks live percent unless capital 75% to 80% efficiency ratio and loan to deposits of 105% threaten the entire site to the home. By surprise, the regulators are stretched to the Hill. I think it's just too big a job to regulate that many different financial institutions. If my numbers are right, there are nearly 57 hundred buy and another 54 hundred credit unions. And with credit unions banks all over the country. By the way, as you know, credit union pay, no state income tax and no federal income tax. So every time you see a credit union bound by the federal deficit goes up, it needs to be corrected as talk about the results of the quarter in the year, they were pretty good. We'll take the mine for full results that that we can't control, but the VAT assessment was almost $10 million after-tax totally beyond our control.
So our present with you today both why how we reported earnings under GAAP brand correct for it and how they look had we not had the assessments different from the past would have if the Fed would just tell us to pay so much a quarter, we had actually booked the liability this time Remeron subscriber book, the whole 13 million. We booked the whole 13, which ended up about 9.6 million after taxes. If I recall it is our belief at Magic Mountain. We're not going to get into the lawsuit deal today because that's in court. And I think that probably costs us some money for the quarter and we continue dealing with that over a period of time. But that decision of how much money that is will be determined by a court of law at some point in time, and it was 9 million, 739,000 after-tax was mostly assessments. So we reported earnings of 86.2 million without the the Fed charge, we would have had 95 million and almost 96 million. So for the year that put us at three are amounting to mainly manner and 29,000 of them out there, we would have been at 402,000,690 of that. So we hit the EPS was $0.43. And without without the Fed, there would have been $0.05 a share, so would have taken us to $0.48. And that is a beat our return on assets one 55 with the Fed cost and one 73 without And year to date we ran a 1.1 million. A return on tangible common equity was 15.8% with a bad assessment and 17.5 or after the INR5 was 48 20 tailwind in that low. And while that's what the assessment in 53 51 rollout, so that moves is Steve's going to talk more about it in a little bit. The margin the margin was for 17 versus for not paying a little that we created our sales unlike brand with our borrowing than we that one basis point for the month. So actually with pretty much flat.
Nonperforming assets remained stable at 0.42, both in the third or the fourth quarter. And we continue to maintain our reserve at 2% tangible book value because of LCR and Orange kicked up pretty good from $10.90 in the third quarter to 1163 in the fourth quarter. So CK. one continues to grow. We're at 14% last quarter and this quarter were 14.4 we're making good money and we continue to grow those capital ratios. Leverage was 12.4 and respect assets was 18.1. Revenue was a big Q4. Revenue was 245.6 million to lap of that was pretty good. It's interesting watching that and we will have three strong own interest income, but we're almost likewise on interest expense. Unlike the spread, we were up 11 million plus on interest income and were up 11 million plus some interest expense. So hopefully that's going to stop or slow down at some point in time in the future, loans grew by 152 million in the fourth quarter. Ccsg, Hannah, they were down EUR61 million, 61.5 for the quarter. But legacy room total of 214.4 million were the best quarters we had in a while. Deposits also grew by $270 million. Q4, we repurchased 815,000 shares at 21 average price of $21 for 17.3 million. And for the full year of 23, we bought back 2,225,849 shares at an average price of 2169 for a total buyback of 48.3 million. We had 16.7 million shares left available for repurchase. No, it was not a great quarter, but it was not a terrible quarter I'm sure a lot of people have bigger problems than homes.
Got it just was a tough quarter, very frustrating and difficult quarter. We embarked on a year, as I told you last quarter, a cost cutting measure.
I don't know where we are there yet.
I don't see any of it, but I think we'll see it should start seeing it from its schedule for privileged to be in this month next month and the month after that. So if we didn't get enough, we'll go back and get smaller, but it just it's a tough environment from outside of ZoMaxx. I don't really have any break you can have it back is what you want to retain.

Thank you, Johnny. Next we will hear from Stephen kick in with some operational details.

Thanks, Donna. I'll start with the net interest margin. As John referenced in his comments, the reported NIM was down two basis points to 4.17% in Q4. But as mentioned, we carried some additional cash on the balance sheet late in the quarter, which improved in May, but negatively impacted the NIM by one basis point for the quarter. We continue to closely monitor asset repricing against the increasing costs on the funding side, when adjusting for the excess cash in December, the monthly net interest margin would have calculated at 4.17%, nearly matching the quarterly average during the quarter. Total deposit costs increased 22 basis points to 2.09% while the yield on loans, excluding event income increased 20 basis points to 7.19% on a monthly basis, total deposit costs increased six basis points in December to end the year at 2.16%, while the yield on loans, excluding the income increased four basis points to 7.25%.
Switching to liquidity and funding it was great to see an increase in deposits in Q4, particularly as the rate backdrop continues to be extremely competitive.
Total deposits increased 269 million in the quarter with the majority coming from the Texas and Arkansas regions. And the deposit mix movement was similar to prior quarters as interest bearing balances increased and CDs continue to be in focus for the consumer. We still remain just under 10% of total deposit balances in that CD category, non-interest bearing balances and account for 24.3% of total deposits down to 26% in Q3. Alternative funding sources remain extremely strong, with brokered deposits still only comprising 2.3% of total liabilities and a loan deposit ratio was in line with prior quarter standing at 85.9% a year. And the focus in loan committees and discussions amongst all of our presidents continues to be on deposit gathering, core customer growth and runoff.
On the asset side, Johnny mentioned in period loan balances increased $153 million with the Texas region increasing $160 million and Florida increasing 31 million, offset by a decline in the balances at CCFG on loan originations, volume picked up in Q4 with approximately $1.17 billion in commitments. Ccsg finished the year strong with nearly half of their full year production coming in Q4. The community bank groups accounted for two thirds of the loan production in Q4 with the Texas regions closing nearly 400 million in volume. And overall yield on originations continues to improve with an average coupon of 9.18% in Q4 closing, with the previously mentioned strength of our company, all capital ratios improved in the quarter, notably with the tangible common equity ratio of 11.05%, a leverage ratio of 12.4% and a total risk-based capital ratio of 17.8%.

With that, Don, I'll turn back over to Stephen And now Kevin Hester will provide us with an ending.

Thanks, Dan, and good afternoon, everyone. I'm happy to be able to talk about the very challenging year of 2023 and begin to look forward to a new year, even with the unprecedented challenges that we faced as an industry in 2023, we at home, we're in a very good position to take advantage of whatever this year brings. Our asset quality remained solid with low past dues and nonperforming loans combined with a very strong capital position, which includes a 2% loan loss reserve. I will provide details on that in a moment. But first, I would like to give you an update on the three credits that we discussed in detail last quarter. We have agreed in principle on the sale of the Oklahoma Marina note at par and hope to have it closed very soon. We are finalizing the note sale documents at this time and would anticipate payoff to occur shortly after. We also have a signed offer with a short due diligence period on the Miami property at a number that would result in a full payoff of the OREO balance with a small recovery. This buyer is familiar with the property in the areas that we think it is a good buyer for this asset.
Regarding the third asset, which is the office property in California. I will pass it to Chris Poulton for an update.

So the subject property is a 95,000 square foot office buildings, subject to a ground lease located at the 1733 Ocean Avenue in Santa Monica, California. During the quarter, we completed a deed in lieu foreclosure in October. During the fourth quarter we expensed just over 300,000 in transaction costs to bring the property into REO. As part of that transaction, we received just over $5 million from our borrower from this was reduced used to reduce our basis in the property to just under 23 million. The current as-is appraised values just over $32 million, putting our carrying value of approximately 7% LTV building. Currently 50% occupied operates just above breakeven where the lease income or sorry, our lease income is at or just above our buildings. So expenses which includes ground lease, tax insurance and other operating costs. We're planning to occupy space in the building. We started moving our West Coast office into the building this week. Our prior lease in L.A. expires this month. Our media focus on the building is in three areas, first, stabilizing the rental income through extensions and new leases. Second, there's some cleanup remaining on the existing ground lease.
And then third, we're preparing to market the property for sale. Bad news is that this is an office building, the good news that it's very well located we've been paid down by 50% against our original loan. We have an immediate use for a portion of the space and the current building income sufficient to operate at a breakeven today. With that, I'll turn it back to Kevin.

Thanks, Chris.

Going back to the asset quality numbers, nonperforming assets remain unchanged on a linked quarter basis at 42 basis points from early-stage past-dues at 1231 23 were 61 basis points, which is down 23 basis points on a linked quarter basis and flat when compared to a year ago. Net charge-offs for the year of 2023 were nine basis points of average total loans. As a further note, we have completed a detailed review of our 2024 maturing loans over 3 million with an interest rate below 7%. And I've noted very few loans for which an increase to current interest rates would create any significant default concerns. This is due to a combination of strong borrower or guarantor support, low overall leverage and the majority of our lending taking place in growing Southern U.S. geographies. We will continue to monitor this subset of loans, but are encouraged in what we see at this time.
In conclusion, I'd like to thank our lending staffs across the footprint for doing the hard things asking to be paid for the risks that we take and pushing for the equity and structure needed to make sure that the borrower's interest are aligned with ours it's not easy work, but it's the difference between an average performing bank and a best in class financial institution.
Now that's all I have, and I'll turn it back to you.

Thank you, Kevin.
Joining before we go to Q&A, do you have any additional closing comments to those?

Question and Answer Session

Well, first of all, congratulations on 25 years and I could have short long and have not a lot more from you from 40. So Ford is yes for other working for that.
Congratulations.

John.

In 2000 and Pelephone help store, you've created good reports us nice to see 23 closed the books on it. It was an interesting year. Last quarter seemed to show the turn and the loans and deposits. And as you've indicated our noninterest income, noninterest expense, I think there's certainly room for improvement there, and we'll continue to do that. There's also a compliment the entire management team of the bank, all across this company have all the things that they've done to get us through this year and look forward to 2024?

I think, John, if you don't have the margins been able to maintain that margin to Stephen is pretty important right now and looks like you think we're through.
With that, I ask Donna, Vishal global, reduce warehouse Velasquez. I'm sure next time you think you can maintain that margin and that total amount up?
We could we certainly intended to track to do so what he said?

Yes, I think certainly the on a monthly basis over the last quarter or two. I mean, we've operated in a pretty tight range. We still have we have the maturing loans that we've previously talked about that will continue to come through over the course of 24. And if we continue to be able to reprice those upwards, I think prospects for that are good. That's certainly what we're working for.

So Cameron, our EC and Atlanta remain fairly strong.

Here are cleaning up, get shorter pipeline, even though they're not think it depends on the geography, but we certainly have some folks that have some good opportunities in some good areas. So looks like first quarters holding in there, and I feel pretty good about 24 for on the eastern fleet and your budget for 24?
Well, yes, we're going to have it presented for the Board meeting this week.

So how much did you write a digital or a range, what you did?
Well, it's down a little bit better than expectations, and we've challenged them to be better than what the expectations are out there right now, as Dan highlighted, we've got Joe forecasted to be down next year and ask what do you think about us and I don't think about that. That's not how I think I don't think that we're going to be down. I think we've got a shot. There might be some opportunities out there and you saw were of HomeStreet solved today or yesterday, we see some activity out there. It may be some opportunities for us out there at some point in time we can pick up, but we're we haven't really addressed much M&A in the last couple of months route. We go down the deal out in Texas at one point in time, and that counts one aligning for us. And we really hadn't, I think, by the way I looked at it like we did with Gallagher head down running their own business and trend might get to year end. So anyway, I think that I will turn it back to you. And I guess, where I'm ready for a bunch of Q&A with Q&A, if we're ready for questions, we want to begin the question and answer session.

Once again, if you would like to ask a question. It is star one on your touch-tone keypad To remove your question. It is star two. We do ask if you are using a speakerphone to please pick up your handset before asking your question.
Our first question comes from the line of Brett Rabatin with Hovde Group. Your line is now open.
Hey, good afternoon, everyone. And congrats, Tony, on 25 years, it's been it's been a run, right?

Yes, that's a Alan realizing between one and two Bhaskar.
I wanted to first go just talk about the margin a little more. You talked about being able to maintain it. Can you talk maybe about the dynamic with NII. in the margin? It would seem like you might manage the balance sheet up fairly flat or have an opportunity to. And while you're growing loans, which could mean the margin is better later this year. And so just wanted to get an outlook for the margin at the Fed does cut rates, how you feel about that the margin trend up later this year?

Hey, Brett and Steven, good afternoon. I think our view today is while we continue in this rate environment that we're in, now that we're able to kind of tread where we are, like we said we've traded in a pretty tight range here over the last couple of quarters. And we do have the opportunity from a loan repricing standpoint. I think we talked last year we had $1 billion over the over the next five quarters. Russia, we have about 780 million. That is under 6% that will mature this year and give us the opportunity to reprice. We've got a little over $1 billion of that yield at or below kind of our spot rate at the end of December, which was seven a quarter on the loan book. So we still have some some upward pressure on the deposit side. That seems to maybe have slowed a little bit. We had a lesser increase in December than we'd seen on a monthly basis in the back half of the year. And so I think our view is that and the ability to reprice loans can can offset what we continue to have to do on the deposit side in this rate environment that we're in. I think our view is if we do see some cuts and at some point in 24 that that gives us the opportunity and you have to pare back on the deposit side, what we've done, we've got 11 billion and interest-bearing checking. And yes, really short CD book at looking here are our total CD book is about 1.6, and I think 80 80 plus percent of that matures in 2024. So even as some of these come through. We may be able to fine-tune some of that.

If we see rate cuts actually materialize, we watch it every day and we look at it every day and we look at the what the revenues generated from that day and basically what the margin is for that day. So we I mean, we live it 24, seven around here. So I actually don't think there's not as much room. I don't think interest expense will go up as much as interest revenue is going to go up. So we got, as you heard from Stephen, we've got some repricing opportunities coming out about a billion bucks or so. I think we'll continue to do that. We'll monitor it on a daily basis as we have been doing, we can see we basically won a little bit in the fourth quarter. The third quarter we were getting paid. The interest expense was out running revenue and was disappointing, and we made some adjustments there. So in my last call, as said, only two ways to increase profitability and that's to cut expenses or increase revenue and we did both, which you have seen the cost curve effects of the company yet, to my knowledge, I appreciate the compliments about good expense control, but that is not where we are not where we wanted it to be. We just got a little fat over the years and it happens. It's just natural to do that. And we went back in and we went to work on it. And if we didn't get enough, we'll go back and get some more. So we're committed to the cost saves that at this point in time, and we're committed to the revenue side. So we'll continue to monitor on a daily basis. But deposit costs, I think they I don't know the trough, but they've certainly gotten gotten to a point where we're still seeing these 5% and 6% CDA. is run by these banks that are out of money completely out of money. So a person would certainly want to be careful about putting money and World Bank's rules kind of hands because what that essentially says is we bought out of money, we can barcode, you can borrow from the Fed, a lot less than that. And we're just to help with profitability. We're going to do. We're trying to say we're going to save the Company somehow. So you'll see us, I suspect I would have really thought that our margin would have been up. We did a low bar and we bought about 500 million from BTFP. program, we bought an extra $500 million bar an extra 500, and we're getting a spread only about 45 basis points and it's actually up to 64 basis points today, 64 basis points. So anyway that I don't know how I feel about doing that. We bought it and then put the money there with the Fed. I don't know how I feel about that, but wondering what the intention of the program was for the intention.
The problem was the slide, these banks that are broke and they do it well and it saved them well, we didn't we were in that deals, but we want to get something out of this deal. So we're getting some spread on that. So that lowered our margin for the month a basis point for the quarter for the quarter by a basis point or we would have been within one basis point of the third quarter had a little juice in it that the fourth quarter didn't. So actually margin was flat. And I'm pretty proud that during the quarter. So we'll continue to monitor that is not a long winded answer, but there's a lot entailed in this company to manage the margin. If we have the $500 million for the whole quarter, will be that itself will be profitable to the bank, but it will be dilutive to the margin about 10 basis points. But yes, we keep in our next quarterly, it will be diluted to the margin, but can but it will increase profitability by about 1 million for the quarter. So that's right.
That's helpful. I was going to ask about that. Looked like that was what does that increase in borrowing was in fact.
Just on my other question, my follow-up question was just around loan growth. And it sounds like the pipeline suggests you can continue to add some growth. Last year, you kind of manage to flattish growth if we were penciling in mid-single digit for the year. Would that seem fair to you guys or would a different number be more appropriate?

Hey, Brad, this is Kevin. So and when I think we gained some traction last quarter in production, I think you'll I feel good that that's that still continuing in at least some of our markets. I think the question is going to be really payoffs, and that's even more as we get into the middle of the year.

So it is, I think probably low single digits is more something that I can get on a little bit more than mid, but a lot of that will depend on, I think payoffs, we wish him a slow somewhat in different markets because they can't yet finance where we're blessed with the fact that we didn't make the mistake that 95% of the mindset and we have money alone. So we're in a position to loan money as a result of that. And that's where you saw the loan growth coming in in the quarter was because of the fact we had money to loan and not many banks in the country had managed loan supply chain team that found us came to us and we made some very good relationships. Hopefully, relationship loans at a low been with us for a long time or so.
But early on, I don't know, maybe you know the color.
There's lots of loan business out there because there's not many people owning. I mean this we could roll into a recession pretty quick here because these banks at 105 or 90% loan to deposit cable only the money that is shut down.
Great.
Thanks.
Thanks so much, guys.
Well, thank you.

Thank you. The next question comes from the line of Jon Arfstrom with RBC. Your line is now open.

Thanks. Good afternoon, Ron, and thanks and congrats on the 25 years, John?

Yes, yes, I'm only covered you for 16 years.

So I'm still of training and he said he just gets you been with us since the previous Bill, you got it.

Can you talk a little bit more about the expense expectations. You keep hinting at a little bit that it didn't show up in the first quarter or didn't show up in the fourth quarter. What can we expect.
I know Brian Davis, you touched on a little bit as well, but what what's coming?

John, there's there were some reduction was staff done third for both core and most of that. It happened in November, December. So some of that moved fill up and started now that every market and we've talked to every region and every manager that for office type stuff. And it's just making sure we're content and everything. So there's still room to improve. We always want to do that and always have been able to do that so a lot. I think there will be more that after the first quarter should kick in a little bit.

I had it done, Tracy, as you get the cost down and PCM will give them down as willing yet to blanket Zyga towns of downtown warming up on the sidelines as he or she said, she was efficiency gains were able to get it down and said in her. And again, actually we didn't I can't there's one that the right order.

Are you guys still in Texas where you know, there are some things that were drug out and Scott Lewis and the team out there picked them all up and running extremely well. So well, I think I think you'll certainly see some of that effect in the first quarter. And some of that will because we're actually closed branches or and then and so that happened in the first quarter. So we may not see some of that to second quarter, but people kind of fine tune in every everything all the managers that are picking them all and doing the job within that, we didn't get the savings out of happy that we expected, which didn't get up now.

This management team is working on getting those expense cuts work. We'll see that will be a land uplink in the second quarter. So first quarter somewhat in the first quarter, but somebody branches refunds and there'll be a second quarter event.
Yes, I was the number Russian, but let me point out that the main answer number, I didn't say that.

Okay, Paul, you're welcome.

I'm glad you brought it up. I hope that, John, you got you.
Got you got expenses go into I mean, our group insurance went up a couple of million dollars. You just got everything going to everything's going to. So to say that you're going to reduce expenses in 24, if you could, if you can hold expenses in 24 with all of these things that are beyond our control would be great.
Yes.
Okay.
Okay.

Fair enough. I'm just dumb. Wanted to ask a question on credit on it kind of dominated the call last quarter and you're pretty quiet on it this time around. But anything new on credit and any newer emerging concerns we should be aware of?
And then for Chris, just anything on the potential time line for resolving the California office property?

Hey, John, it's Kevin. I'll take the first one that thing of any significance at this point, but we're working through those those three we talked about. And as I said, we've we've looked at what's maturing that's at low rates and don't really see any significant issues there. Past-dues are, oh, they're flat from last year below where they were a quarter ago. So and I think that's why you saw that there was less less emphasis on it this quarter, and it was more of a more of a focus last quarter.

Yes, fair enough for us here now Yes, John, um, you know, I would say we're going to be pretty patient on this one on. It's an office building. It's a tough, tough market for office. I can liquidate it, but I don't think that's the best result for our shareholders here. It's breakeven. I can use it on a need for it. And I think if we put a little elbow grease into this and stabilize it. We we drive a higher value for it. So from my point of view is that I think we can enhance the value of this I think that this was not well managed by the previous borrower. Once they realized they weren't going to be able to recoup their money. And it took us a little time to get control of it. Now that we have it, I think we should do some work on it. Let's get the we're doing some work on leasing, et cetera. Let's get that done and put it in a good position for a buyer. We're not the right long-term owner of it, but I think it might be the right short term on it Okay.

All right.

Thanks for the help.

Appreciate it.
Not happening, John, I've been flat because we've sold two of the three or so in.
Oh, yes, hopefully they close friends as close to losing money on. So we underwrote around personalized Thank goodness, attains, its Kevin Bratton, our team's really done a good job. They did a good job underwriting in times like this a lot of a lot of people do 80 20 loan lending. You put 20% down and they'll only IT and Eskom becomes a rule. But in times like this you get and you've got no equity because the values of some of those properties have deteriorated and there's no value in them. So good. Tough underwriting at home is maintained over the years is certainly paying off for us and there might be some hiccups in the field. Some people may have some hiccups, but I don't think there's going to be substantial hiccups. It's not an oh five, oh six is we made or seven when we made that tour through the Florida Keys and it's not one of those periods. So it feels different now because most of the stuff we've got it, we're at a loan to value of 65, 70%. So instead of having no money or lose money in the deal, we got 25, 30, 40% of deals. So I think it will be I think we'll have some but not a lot. So that's recognized platforms. I'm pretty happy the fact we had three pieces of property we can certainly and we've sold two of the three. So yes, it's good progress.
Okay. Thanks a lot.
Thank you.

Thank you. Our next question comes from the line of Brady Gailey with KBW. Your line is now open.

Hey, good afternoon, guys. I'm ready. I wanted to start with your sensitivity to interest rates. I mean the forward curve suggests have a decent amount of rate cuts this year. If that plays out, will there be much of an impact to your net interest margin?
I feel like you guys tend to be somewhat rate neutral, but what's the impact?

So the margin if we do see rate cut Brady to Stephen, you know, we're looking at our Alco model assumptions now. But to your point, I think we've been plus or minus 5% on both sides and for down in the past, I mean, as I said to Brett, you know, kind of at the outset of the call and you I think our view today is that in a in a down rate environment, if we see short-term rates come down this year, we'll be able to kind of attack that the interest bearing checking side of things and see a little margin improvement. I think our budget, if I remember right has four rate cuts potentially in it next year and just some margin improvement throughout the year. So in terms, I don't know and don't know what the model shows today I think as we work through our assumptions, that's our belief in terms of being able to improve in a down rate scenario, right, if we have six rate cuts this year, we're going to be a lot strong.

I hope that's not correct, because I hope it's not politically motivated banded, but if we have six rent cuts, it's a sign that we're in trouble. So I'll kind of countries in trouble, not how the calculation from. So that is that's pretty scary to think that we can have six rate cuts. And I understand or perhaps another six rate cuts. And I'm staying higher for longer or guide us believe that we may see 25 or 50 basis points wouldn't hurt us, but we've got four major radio spectrum rights going to we got big problems and it reminds me of the late 70s when when are pivoted because the pressure and we had to come back to 21% rates in the early 80s to Gilles, not. So you know, I've been a long, but I think it's going to be hopefully week. Hopefully we're not and we don't end up in a recession.
Yes, I agree with KBW only as I think two cuts in our economic baseline, I'm sorry.
Yes, but I agree with you, but my last question is just on bank M&A. Johnny, I know you've been you were very active in that over the years. Any you see banks like traditional bank M&A, unassisted bank M&A do you see that the sign at all anytime near term, the following it?
Yes, like you're probably more active.
Yes.
Yes, we will talk about it around here. It's just the expectations of the sellers in the cost of the deals and the marks we saw where HomeStreet golf ball had probably a pretty good trade. There might be some price like that out there that make some sense than I really need to banks that need to be in stronger hands. But outside of that, I'm afraid M&A, you know me, I like to do M&A trades and we've done one and this afraid we can't get them done, I'm afraid they won't. They won't work. We have been involved in M&M. I've been involved in M&A really around here lately because it's just been we've been trying to wrap the year up, do what we're doing of the year. We wanted our ZAR400 million was totally we had to book our exposure to the Fed deal. But that's okay. I mean we would have made we would have done it without it. So I don't know if I've answered your question or not, but at that, it's about as good as I can do.
Okay, great.
Thanks for the color, guys.
Thanks, Bert.
Thank you.

The next question comes from the line of Matt Olney with Stephens.

Your line is now open to Boeing's grabbing everybody.
Definitely, Matt.
Hey, John, you mentioned the market expectations for HomeBanc was for net income to be down in 24 versus 23. It sounds like you don't agree with this.
So I'm just curious if you want to give you a chance to talk about your your targets for 24 with the with the Johnny mile for HomeBanc in 24, it's certainly not down is not a down scenario, have never budgeted a down scenario in my life. So they're not if they go up, I guess going to the Board for approval and we'll vote against it, covers it. And I hope you know, we're wanting to eat. When you think about taking advantage of this opportunity when all these banks or broker in the country and can't loan any money at all, be a great time for us. I mean, we had revenue was strong. We got growth in growth and revenue growth with high interest times led growth and revenue growth in deposits, loans, margins hanging in really good asset quality is wonderful, and we got lots and lots of capital and one of the few banks in the country, they can pay out all uninsured depositors. So in I like where we're sitting now outperform by two years. As I said, we have built this addbacks that we built a dislike. So it is one of the strongest banks in America we'll get we'll get a fair share. We'll get our fair share, but I'm north to north of $400 million without a settlement on the West Texas deal that bothered us north of 420. That's where I want to be. That's a Johnny number NORTON.
Okay. Okay. Well, I appreciate that.
And I wouldn't be surprised you guys ultimately get there this year.
Tom, what about on the loan growth front? I think you guys mentioned a while back you were looking at doing an energy loan on didn't know if you got that deal done and funded it. That's still on the drawing board we did.
It is done so on the books sold books going well, phone books going well. So we're we got an opportunity of another energy loan. We're not afraid to energy loans. So I thank you like you've seen the gas boom table trying to run into electric cars down QoQ at some certain tail beyond gas going to be here for a long time, Glenn, like Hertz and certainly my 45,000 electric cars has been taking a beating on the runoff. And I believe they've only gas going to be here for a while. So we're not afraid to own gas. We would do more oil and gas.
Yes.
Okay. And then just lastly, I think Kevin mentioned in his prepared remarks that you did a deep dive in some of the CRE properties that will be reset higher. The loan pricing I think you mentioned this in prepared remarks, but I missed this. Was this any specific segment or any or any region on or just kind of a more broad deep dive Thanks And Matt, this is Kevin.

So it was it was all loans that are maturing in 24 over $3 million and had an interest rate less than I think it was 7%. And so just really across the board, just trying to get ahead of anything that's going to have a pretty big rate shock and make sure that and we understand what that looks like and that there's not any issues if there's going to be an issue. We want to know it now rather than in Q3 when it matures So yes, that that review there. May there was just a handful of things that none of any of any great size that it looked like it can be a challenge to the project. And the good news is almost everything we saw had either a really, really strong guarantors, a lot of liquidity or a lot of very, very low leverage. Those sorts of things. So again, John is talking about the underwriting that we that we feel like that we've done well over the past several years. I think that's where this comes into play is when you're looking at a several hundred basis point increase in rates and still everything looks like it's going to work out and added knowing who's doing that, any debt and now it's grinding.

Carl may decide, hey, I want that everything to remain unless it matures in the mix 12 months that is 7% or less. And each agenda out and find or anything which gave me real comfort. So appreciate the blue and the depreciating doing that makes me feel good because it makes you feel good that that will be representing us to investors.
Yes, no, that's definitely good news. Glad you guys are doing something like the home, guys.
Thanks for your help.
Congrats on the year.
Thank you. Appreciate it.

Thank you.
The next question comes from the line of Stephen Scouten with Piper Sandler. Your line is now open.

Hey, good afternoon, everyone. I'm a little scared to know what a good year. Looks like it's this is supposed to be a value. Johnny, would you put at 1.18 ROA, 17% ROTC., I got scared when I read the first lot of the press release and then I looked at the numbers there. I think we would have had good results them. We run not just this quarter last quarter and well like we ranked in the top three or five of every category ROA, ROE and ROIC. So we're getting this kind of performance. And that said, we don't care. If we don't pay attention to other people's performance, it's what we're going to do. We're going to do better than it would be better than everyone. So we're getting we're getting good performance. The numbers looks good, but I appreciate the comments you might hear, Mike and Stephen and Tracy and brand, although we're just taking that forgone vacations and even as all of you know, I'm not aware of that. So I the area I'm most interested in is really the strong loan growth you guys had. I mean, so far this quarter we haven't seen much in the way of loan growth from a from a lot of peers and a lot of the industry as a whole. So 4.3% you may not feel like a lot, but on a relative basis, it looks like a time. And I'm just wondering if you think that's sustainable.
And maybe going back to Brett's question earlier on and then if there's any kind of geographic dispersion or any segments and any additional color, Kevin, you might be able to land of where that's coming from and how you did, hey, this, Kevin.

So geographically, certainly you got Texas and Florida who who are and we're poised to provide that because you've got so many people still move into those two geographies and particularly the southern Florida part. So that's always helpful.
Yes.
Do I think it can continue? It certainly can do. I think it's Johnny mentioned it earlier. I think you've got a lot of banks who have pulled back and either by choice or because they don't have any in the liquidity and ability to loan so that that bodes well and we're still going to we're trying to fight the right issue because some deals just don't work at these rates. Are they yet that so much equity that it is a challenge to get people to to put that much. And so that that's still a challenge. But there's from a competitive standpoint, we have a little bit of a break here. It feels like and the ability to do that. So to the degree that we can still get what we want to get from a yield standpoint and get the leverage points we want there are opportunity. That's what we're that's what we're working into.

Stephen, if I can add, I mean, a lot of it is the referrals that we're getting. I'll use the example, Johnny has a customer a great customer that he get introduced to someone lines that are visiting with a customer that's turned into a several opportunities for us in Texas. We've made some relationships that are getting customers call and referring us to help them on opportunities. And we're seeing that in Arkansas to some of the banks that have changed or done something different have you on our Northeast Arkansas, Oregon opportunities, look at Lilly new mall, I don't know, but we're just coming back to just grow fashion deferrals have ever gotten from other keeping a handshake that Cyan.

Hello, that's exactly right. It's kind of referral to referral to referral. And it's understandable that came in aces, straights and flushes. His banks in trouble as 95% of market sites in trouble. And sometimes you wonder if you're doing the right thing and you just keep building your company that you are crossing the T's and we see a crisis like we've seen, you know, you're doing the route planning and people are common across the country to country to do transactions with you because you have good reputation because you got the money and the gallop domains and what's the cost that is 10% plus support. And he said effort, and that's what she is going to site and that's what it was. That's what the price of the day. It was 10% plus some point. So, you know, you will have that opportunity right now. Hopefully we'll be able to continue to we're able to do everything at 10% plus customers. We have the opportunity to do. Some of those transactions are playing and some some reasonable Write the Future. So one of our big customers and company-wide was in Florida and his resources and heavily come down and meet the scale and help them with Cameron and his referral deal and it was the right credit write $50 million credit. We did it just one plant to another and another he said, yes, and I had a problem getting this done. He said he talked my banker. So anyway, because we got the availability of money because we got the strength to do it, it has it is that's why you're seeing the loan growth?
Yes, yes, that's great. And you mentioned that 10% plus and point, I mean, what sort of yield on average?

I don't know if you have that number but average new young yields in the quarter.

What's kind of what you're seeing and how much pushback is there from from customers on those yields, whether it's renewals or new customers Hey, Stephen, Stephen, the new coupon on new originations in Q4 was nine 18, I believe.

So, yes, Johnny mentioned there's been a mix of have some tailwinds and some prime drive But largely, we've been able to improve on that. I think every quarter this year, Kevin may have some color in terms of just because you asked why.

Yes, I mean, there's obviously, there's pushback in China. As that part of why I made the comment in the earlier remarks is, I mean, our guys fight that every day, every loan box, every situation and trying to get all I can out of it. So it's it's a it's one of the things that we do and just part of working here at home. I mean, you got to do that and it's very important and there's obviously pushback.

Yes, makes sense, guys. Appreciate the time and congrats on a great year. Plus you should thank you very much.

Thank you.
Our next question comes from the line of Michael Rose with Raymond James. Your line is now open.

Yes, please ensure you are unmuted, but we lose macro must be too excited and beauty offer.
Let's just move on if there's another question, and we'll come back to Michael. So if he's back owner, certainly.

Our next question will come from the line of Brian Martin with Janney. Your line is now open.
Good afternoon, guys, and congrats, Johnny on 25 great years.

Thank you very much for.
I should say just a couple for me. Just on the on the fee income side, it looks like the last two quarters have been a little bit lower. And I think Tracey maybe mentioned that there is somebody mentioned earlier, I think there's some opportunity for upside. Just kind of wondering where there's some opportunity there and work with the current levels eight, you're kind of at a rate of run rate to think about as you go into next year, just kind of where where the puts and takes could be there.
We do we think there's there's certainly opportunity to improve material in the mortgage business.

Operations been interesting with them, interest rate increases over the year. You know, that's a fine tuning, making sure we've got the right people the right place and the cable runs, that does a really good job of handling that. So we think that can probably pick back up and smooth out a little better you know, we've also tried trying to trying to figure out we've analyzed all our accounts on a lot of things to keep see. There's not a whole lot of room that we can improve on some of the account fee type stuff today. And that's and I thought there would be on that. But we're again, we're just taking a look at every noninterest income, noninterest expense category and identifying what could be out there, but just the way the year was in some of our service industries. I think that hopefully that opportunity comes back, if not, you know, our we've been very, very fortunate with the trust business. Kevin or his team have done a really, really good job of joining them with our Texas opportunity and we have the Goldstar trust out there. That's been it's been a nice pickup. And I think that has opportunity to continue to go and grow with the staff that is that we've got to go there. So it's always been a little player in our field in the past.
So it's a line item to that again, I mean also equity investments have been glad to say that I'm pretty pleased with the election does start for us and how they how they progress.

That's a pretty sweet little organization that we I gave it at no value when we did the transaction goes out and understand it. But it is they do a really good job.
And we're pretty we're pretty pleased where we may have him on one of these conference calls to him tell you what only does I think could be good, have him join and explain what he does something and maybe just the on the equity investments have been down a little bit, and that's another area, I guess I would presume that's more and more more more volatile or is when that lumpy when that would come in?

Yes.

I mean, to be honest with you for this particular quarter, the equity investment income was down about 2.2 million. And when I say that we booked about 858,000 in income for Q2 three. But unfortunately, we had a couple of those equity investments that had a decline in their capital balance.

And so we took a loss of $1.3 million, which is sitting in the reduction in our other income line item on site.

That's about a 2.2 million for Q3 and Q4?
Yes, we anticipate that has been forgotten Channel One Q1.
Yes.
And then just on the expenses, I think maybe you said Johnny, but to persistency now like we should expect a reduction per se on an absolute basis and expenses as you look from 4Q to 1Q, given some of the initiatives you've got, but maybe better to think about it for now that you're holding holding that full year to full year is at a stable level? Is that a way to think about it until you are further along?
Yes. No, we from this inflation is now lower than its contagion. So it is we're seeing the expense go up. So if we can cut 20, I don't think our expenses have gone up 25 million. When looking at 25 million out, we should get some benefit on that front and if inflation lowers its head and then I think we'll get some benefits. But if not, we'll have to go back to it again, we have to do what we go do. We have a responsibility to the shareholders of this corporation to be profitable and they're the ones that own us, we work for them. So we're going to do what we need to do there, whatever types, whatever it takes we'll do so hopefully right now we'll see what comes out the end of the quarter, what the expense reduction is and compare that to the you won't see it all because like I said, insurance, all these different expenses were up about a year or so. We'll get a little of it.
Okay. And first quarter should be is typically impacted seasonally a little bit higher anyhow. So it seems as though it's probably and the second, third and fourth quarter actually be a little bit lower than the 1Q given the timing of the savings and some seasonality in 1Q anyhow.
So.
Okay. And then maybe just and then maybe just Quest was only the timing of the borrowing program. Just maybe I missed what you said earlier as far as the timing and the impact to your $1 of net interest income and margin, but it was what a basis point in the quarter. I mean, I guess, timing-wise, when was the borrowing implemented and just kind of run back through what the timing impact of it was for four clear was about we did start to about mid month of December, we started, Matt.
So what you see is about 15 days of the barn for about 15, 16 days. We didn't start. We talked about a three or four times when we didn't need to. We didn't have to have that.

Just the opportunity came spread.

We missed Pat and Brian had the Fed not put to bed the pent-up Autobarn program than you would have had multitudes of biobank. And as you know, we were the largest buyer in the country last time and we would have been this time even better buyers because of the strength of our balance sheet and the equity in this corporation. So we missed that opportunity because the Fed came in with free money again, which was probably the right thing to do. That was probably the right thing to do. And then they come back and gets us profitable banks and we pay our fair share. So I believe that was I think it was the right thing to do over a period of time, we'll see.
Okay. And the total borrowings on that program as you're getting the spread on what you said, spread 64 basis points, how much were the borrowings?
500 million?
There's another we've got 500 million that we took out in December kind of as a special borrowing. So we already had 200 million outstanding when we did it. We were kind of high in our money back and everybody trying to keep about 150 million in the checkbook. And today we're at the $711 million.
So that's all $700 million and at 64 basis points Okay now and that impacted us Orion within the M&A impacts about $10,000 a day.
And it's I don't know if I feel good about was still bad about us doing it, but we would have been if we didn't have this opportunity to do that now we would have certainly they haven't brought program OEMAC. 150 banks out of business today. So probably probably I would say 150 banks out of business today. They got run zone. They'd be out of business, some day, the big bad will show a bunch of the banks around the space would be out of business. So I thought we ought to get something out of it. So our group executive committee meeting said less bar, some money in it, though.
Okay. So where Bard inverted 37 and 42 and 50 and now 64, 64. So it's in that low income base for us, it does hurt the margin. So when you say our margins, we leave it in the entire for next quarter, brands that will be about 10 basis points, but it will be more money. So you'll understand you can adjust the margin for 10 basis points in the next quarter. But I guess the real question is do you want an extra million to have a 10 basis point dilution to your margin?
I mean, it's real money, right?
And you guys right now expect to keep it is that the plan or is it is that kind of a fair debate or the timing on that?
Because it really depends on what happens with first one drug, not a drop compared to Android and also and we have a 14 basis point spread on the margin than it probably doesn't look very attractive because we have some opportunities through that earlier in the quarter, it is passed on.
Got you. Okay. And just remind me, I mean, Europe, your outlook or just expectations, I mean, do you expect this benefit to be able to grow the dollars of and I year over year. Is that kind of baked into the outlook here as far as with the sensitivity from the margin and the growth outlook?

Yes, I mean, I think that's certainly the goal. We talked about your thoughts on loan on loan increase and the outlook there. And if we're able to even in this environment, we're able to hold margin in where it's at. We'll see little balance sheet growth. It follows Okay.
Okay. That's that's all I had, guys. Thanks for taking questions.

I thank you for your support. I see a macro world has gotten back. Operator.

Thank you.
There are no additional questions in the queue at this time. So I would now like to turn the call back over to Mr. Allison for closing remarks.

Thank you for your time and patience with us. And it's been a trying year. Last year was extremely stressful. The most stressful year of my banking career when you see banks going broke in 24 hours and all the electronic transfers were projects run at high rates. And it was it was actually very stressful for all of us spend when home came through it and see how well we came through. You know, you heard Stephen Scouten. So you say one very good years right here. Well, it was weak. We set it up for that to happen, and it's happened that way. So appreciate your support. And hopefully, we'll have a good 24 work and we maybe will mass up work the money for to add to that, what we already have.
Thank you very much for your time and use for.

This concludes today's conference.
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