Please note this event is being recorded. I would now like to turn the call over to Donna Townsell. Please go ahead.
Hello, I am Donna Townsell, Director of Investor Relations, and we are happy that you are here. We are joining you live today from sunny Amarillo, Texas, home of Happy State Bank. Today, Home shares exciting news to partner with Happy State Bank. To talk about the transaction today is Home Chairman, John Allison, Centennial Bank President, Tracy French, and Chief Operating Officer, Stephen Tipton. Alongside of us today, we also have Chairman of Happy Bancshares, Pat Hickman, and President of Happy State Bank, Mikel Williamson. We have a slide deck on our Home Bancshares website with transaction details, and I would now like to turn the call over to John Allison.
Thank you, Donna, and welcome. A pretty exciting day for Home Bancshares. We have been in the acquisition mode, as you know, for a period of time. We've looked around at several institutions. We've always talked about going back to Texas. You remember I used to be in Texas. We have about $600 million worth of loans in Texas now. I think an opportunity like this doesn't come along but once in a lifetime. I really like this trade. It is accretive, accretive to our shareholders. That includes $55 million worth of deal cost and also a $27 million CECL adjustment. In today's market, to get a deal done with CECL and the cost of putting one together has all come out accretive, accretive.
I think it's a great trade for our partners as well as for us. It appears that the market has liked it. I want you to know that we've looked at lots of banks in our tenure, as you well know. This is the cleanest one we've ever looked at. I'm talking about from compliance perspective, from enterprise risk management, from CRA, from the loan files. The loan files are immaculate. You don't have to look somewhere for the loan files. All the information is in the files. I read every classified loan that the bank had, spent my time relooking at the worst-case scenario and really enjoyed how it's laid out. You can read it. You can understand it.
Not only is it a great opportunity for us to partner with a fabulous bank out of Amarillo, Texas, but it's also a good financial institution, a really good financial institution. Of all the transactions I've looked at in my career, I'm going to have to put this one in the top five of those transactions. This is a real deal. There'll be naysayers, but I don't know how or why other than they just have a bad attitude. Overall, this is a great trade. With us today, if you want to ask some questions about the market and what goes on, we have the two top executives from Happy Bank with us today. Pat will be joining us on the Home Bancshares board, and Mikel will be joining Tracy and his team of executive management of Centennial Bank, and we're looking forward to that.
They're a lot like us in lots of respects. They have an amazing culture called Happy State Bank. It is really a culture. It is an amazing culture. They've done an outstanding job. They have 1,300 individual shareholders, privately owned individual shareholders. They've never paid a dividend. We spent this morning having an opportunity to visit with their employees on the phone, all their employees that could get up. We did three different calls. We talked about dividend. I had to explain to Pat what a dividend was. I really didn't. She said, What is that? What is a dividend? That'll be good for their shareholders.
Everybody seems to be excited on both sides of the fence. This truly is a great opportunity to get into Texas, to get into these good markets and have an opportunity to get in at a fair trade back and forth. I can see why the stock's up because it makes lots of sense. That's our first base here. We'll be playing off of this foundation. Mikel Williamson will be helping us as we go forward in the state of Texas for other opportunities. Right now, the most important thing is to get this transaction under our belt and go forward with it from there. I'm going to hush at this point in time.
Tracy, I'm going to turn it to Tracy and see if you've got any comments or Stephen, y'all want to make a comment, and then we'll turn it to our new partners and see if they have something they'd like to say.
Well, first, we'd again like to say congratulations to Happy for making us happy today, and being around the groups for the past few months that Mikel and Pat has taken me around to, and in meeting them over the last several weeks, it's going to be a good team put together, and we look forward to building Texas. We look forward to continuing to add into the value of Home Bancshares and the Centennial Bank that we have. It's really just a compliment to the Happy group that you've done, Pat. It's been phenomenal, to be congratulated, and we're anxious and looking forward to the future of where we can take your company that you started here and going forward. We know it's Texas. We know it's West Texas.
I can remember when we went to the Panhandle, everybody kind of thought, what are you going to the Panhandle for? John Allison, I love the headline, Donna, that you came up with, Panhandle to Panhandle, because I promise the Panhandle of this market is going to kick into as well as the Panhandle in Florida did for us. We're going to kick some tail and do extremely well. We also have the DFW markets. We also have the Austin markets. We have the San Antonio markets. We've met with several directors down in those areas throughout this process and look forward to earning their support through this process and growing the expansion down into those areas. It's also nice.
I've been a farm boy my whole life. It's pretty nice to go around with Mr. Hickman for a few days and meet some of the banks that we've seen over the past few months. I guess, Johnny, when you're a farm boy, you're a farm boy. I know you're a big farmer now. You got to start calling them ranches, though, is what I understand.
They're ranches, yeah.
We got to get to know the ranches. We're as excited as we've been in some time and look forward to Always when we would go places, they'd always ask us, are you from Texas? Mr. Hickman, I hope that after this deal, I can proudly say, yes, I'm from Texas, because I'm proud that we got to meet you and your staff, and Mikel, look forward to what they can do. The D.F.W. group was able to meet with Robert and his group down there, and look forward to the expansion of the opportunities there. Stephen probably knows more of the details of the numbers than I am.
Good afternoon. I think as Tracy French and John Allison both mentioned, we're extremely excited about the ability to work with 1,300 private shareholders to gain their trust and their business and additional business over a period of time. To structure something here that's fair to both sides that we hope that they see the value in, as John Allison mentioned, the cash dividend that we pay. We're just really excited about the opportunity to enter Texas. Tracy French mentioned, I think John Allison did, too, we've worked with Texas relationships for probably eight or 10 years now. We've got several of our senior lenders that have relationships there, and we've already, I think, talked through last night at dinner some familiar names with the lenders that we have met with. We're looking forward to pairing our folks up and moving down.
Well, I'm going to turn it at this point to Pat Hickman, who is the founder, the backbone, who bought the Bank of Happy 30-something years ago. Total footings were $10 million.
$10 billion.
$10 million, not billion, $10 million. His story is similar to mine, and we compared notes, and mine was, we started in Holly Grove with $25 million. Pat, would you like to say something to the group about Happy Bank and any comments you have?
Sure, Johnny, thank you so much. It's Pat Hickman, and yeah, Happy is a family member. I've got a daughter that's expecting her third child. She was born a week after I went to work at Happy State Bank 32 years ago. Happy's been a member of our family throughout this time. It's been a great family. We know that we're approaching the $10 billion mark. We know that that can sometimes create a wall of regulatory intensity. We are privately owned. We've done private placement offerings each year, and quite honestly, have asked ourselves how long can we maintain that model? Decided that we needed to kick the tires and see if there was a suitable match out there.
I first met Johnny Allison, he and I were both speakers at an investor meeting several years ago down in New Orleans, and I met Johnny for the first time. I've kind of had an eye on Centennial Bank ever since that time, and have always been amazed at their performance. We were tickled when they expressed an interest in our company. We very much are a community bank, and they are very much a community-minded bank as well. They're in a lot of small markets with the strong core deposit base as we have. They're also in the larger city markets where we have had some great success just in these last few years in Fort Worth, Dallas, and now just this last year through acquisition, moved into the Texas Hill Country, the Austin area.
I think I ran a pretty good bank for 30 of those years, but one thing I never could seem to get my arms all the way around was the efficiency ratio. Mikel Williamson took over as CEO a couple of years ago, almost two years ago now, and Mikel has been chiseling away at the efficiency ratio and doing a lot of good things there. We just feel like this is a perfect match for us culturally, geographically. We're excited. Right now, Florida is their best operating market, and we look forward to passing Florida with this company and making some things go bigger in Texas, and we plan on getting it that way and keeping it that way.
Johnny, well, I told them it was 100 degrees in Arkansas last week. You know how hot it was here? Iron one. You know it's a little bit bigger. A little bit bigger. I also brought the Texas Longhorns Arkansas game up along for that. Mikel?
Yes, sir. I'm going to start off by just saying I'm happy. I am happy, and I'm also all in. This is really two great banks that understand bread and butter banking, understand taking care of customers, understand core earnings and how to grow them, and understand efficiency and where we need to go in that space here, all while growing. Texas is such a great growth market, and I know from mine, we can put that to work and really grow in this state. We'll take care of our shareholders as we move forward.
Thank you for that. Interestingly, you know how our strong margin Home runs. Home runs a very strong yield, low loans. Excuse me, yield. Happy yield is better than ours. The revenue side here is strong. The expense side is a little high, needs to be trimmed some. The revenue side is there. We don't have to work on the revenue side, which we always have to do, always have to work on the revenue side. They've covered that base for us and have a better yield on loans than we have. You don't see that very often. That's one thing that got me excited. The quality of the bank got me excited. Being in Texas got me excited. It was just a combination of factors that we looked at that we thought made lots of sense for us.
This is our platform. Mikel Williamson's the guy that's going to be running Texas for us. This is our platform, and we'll be going forward here with, probably won't do anything for a little while till we get our arms around what we're doing right now. I think at that point, you guys, are all analysts on? I think I'll let them ask the questions. No?
Can you open up our Q&A line, please?
We will now begin the question- and- answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. Our first question will come from Stephen Scouten of Piper Sandler. Please go ahead.
Hey, good afternoon, everyone.
Hey, Stephen, how are you doing?
Doing well. Congrats on the deal. Happy to see you guys be able to get one across the finish line. I know that's never an easy task, so congratulations there. Finally getting to see a stock actually move higher when a deal is announced, so that's a welcome change from what's been the norm, so congrats.
Let me tell you something. If this deal doesn't work, none of them work. I can tell you that. If this deal does not work, there is not a bank deal in the country that works.
Yeah, I think you're probably right. I think you're right. I guess my one question is just kind of how the deal or one of my questions, how the deal came together. I would imagine, the price that I think was really palatable to people when they saw it at 1.66 intangible, and just would assume there were other kind of in-state buyers that would've taken a look as well, and maybe would've had more cost saves or others. I'm just kind of wondering how it came together and how you were able to get this across the finish line and be kind of the winning bidder there.
Well, I can tell you from our perspective, then we can let Happy talk from their perspective, because everybody's in the room today. Anyway, we came out, a banker brought it to us, Stephen's banker brought it to us and said, you need to look at this bank. We said, we'd be glad to look at it. One thing led to another, Tracy and I flew out and met Mikel and J. Pat. We spent about four or five hours together and tell them about Home and talked to them about what the future could yield for both of us. The next thing I know, the bidding process started. I don't know if we were the highest or we were in the middle.
I told Pat that day, I said, we may not be your highest price, but we'll be your best deal in the transaction. That led to an opportunity to do due diligence, and the further we got into it, the better we liked it. We've done due diligence, as you know, Stephen, on lots of banks. This one was the best. All across the board, the quality of the loan book, the underwriting, it was the best. It really got us excited about the opportunity, and I think Pat liked us. I think Mikel liked us. When you run one of the best banks in the country as Home has, I saw what somebody said today. They said, well, some people come and some people go, and some Arkansas bank bought a Texas bank. I didn't think that was very respectful for us coming into town.
Who that bank is one of the best banks in America that runs in the top tier performance of all banks in the country. If you don't know who we are, then you might want to look us up and see who we are because we run a great financial institution, as you know. I think it's one thing led to another, and I'll turn the mic over to Pat right now and see if he wants to comment on why he chose us.
I said a really while ago, we really did feel like that we matched up well with them. We've done several small acquisitions ourselves over the years, and anytime that happened, you have personnel changes, personnel losses, system changes. It also works well, those employee losses and those intangible kind of things that are tangible to your heart, especially when you're community banks, they matter. Knowing that this was going to be their first foray into Texas gave us some peace of mind that they were going to lose our staff a little better. That kind of helped us some. No promises made. We like our brand. We like our name. The fact that they said we could keep that name meant a lot to us. No promises again. They may change that next week. They may change it in 10 years, but that still matters to us now.
They're a good bank. We like each other. That matters. I am an old country boy. I was raised on a small farm, small dairy, and I like to do business with people a lot. I think they might have paid just a tad more than they wanted to pay, and I think we may have accepted a little less than we wanted to accept. I think a lot of times when that happens, when both sides give in a little bit here and there, that turns out to be a pretty dang good deal for everybody around. We feel good. For five days, 10 days, I've been telling folks that the only emotion I've ever gotten close to before that matches this one was when I walked my two daughters down the aisle.
You didn't like that heartstring of it, so hairy-legged boy come in and taking my daughter. When I got to know that hairy-legged boy, and especially after they give you a couple of grandbabies, you find out they're really good folks, and you like that matchup. You've got the bittersweet of watching your daughter go to another house, but the going to and getting a hole in family. That's exactly how this has felt, and we feel very good about it.
Yeah, that's extremely helpful. Thank you. I guess maybe following on to that, just maybe this could be for Pat to start and then maybe the Home team after that is just, can you give us some insights into how the Amarillo markets and Lubbock, how those markets have been growing for you all, and maybe the potential for your footprint from an organic loan growth potential perspective? I know you've had an 11.5% loan growth CAGR over the last seven years, but obviously some deals in there as well. Just kind of curious what you think the growth potential is of the Texas footprint and for the Home guys, what you think they can do for organic growth potential for the franchise as a whole.
Sure. If you look back, we bought Happy in 1990. We didn't do another acquisition until 2004. If you go back and look at all of our acquisitive growth and our organic growth since 2004, 62% of our deposit growth has been organic. I'll pretty much put that up against anybody, any way that you want to do it. The vast majority of that is here in the Panhandle and South Plains of Lubbock. These are growing areas. Amarillo has the highest unemployment rate in the state, last I checked. I'm sorry, the lowest unemployment rate in the state. Lowest. Last time I checked, Texas still has one of the lowest, if not the lowest unemployment rate in the nation. The economy is good here. We have a few very strong businesses, still very ag-centered. 25% of the world's beef comes out of this market.
Amarillo and the surrounding small towns have provided us a very strong, low-cost deposit base and a very stable loan growth. Lubbock has done the same thing. They, with Texas Tech University now up to around 50,000 students, 25% of the world's cotton comes out of Lubbock, Texas. They have a very strong base, and so we love the Panhandle. They're straight-shooting people like we are. They take good care of the business, and it's been a wonderful place to be.
Great.
Thank you for that. Stephen, did we answer your question there, you think?
Yeah. I guess just obviously, Johnny, I think loan growth has been hard for you guys on an organic basis. I guess the opportunity kind of been that attractive to put the money to work. I'm just kind of wondering, do you think you'll have more opportunities in these new footprints until we start to see, once these deals close, some more upside of the organic loan growth front? I guess companion with that, are the loan yields sustainable in your mind?
Let me let Mikel talk to that, and then I'll wrap up when you finish.
We look at our footprint and say, right now it's got a good balance, but we definitely can experience more loan growth in the metropolitan areas. We have been very selective in our loan growth because, like Johnny said, we're not going to give the money away. We're going to get the yield, we're going to do the right loans for the right customers at the right time, and we're going to get paid for doing that. We've also had constraints as a privately owned company, but you guys making our home actually gets to open us up a little bit, us and some of those constraints. We can go out and we can lend on a much larger scale in those metropolitan areas. Our growth in the Fort Worth and Dallas area over the last five years has been tremendous.
We're seeing that same growth in Round Rock and in Austin, and we expect that not only to continue but to accelerate with those lenders that we have in place.
Thank you for that. I take opposition to your statements. We're not going to sell the future of this company. People are getting loan growth and big loan growth in these markets. Look at their rates. Just look at their rates. A moron should give it away. Anybody can give it away. We ought to be getting accolades for being as disciplined as we are. I found another company that was as disciplined as we are, and it's called Happy Banc, and I'm excited about that. Believe me, we can fill up an 18-wheeler if we want to give away the company.
I'm not going to do that. You guys are pushing for loan growth. When you get loan growth, believe me, we've been doing due diligence on other banks, and they're stealing from each other and then they're beating themselves on the chest. We see it. We see it on the due diligence, and they're giving the stuff away. When you lock yourself in for the next four or five years, I guess it's what do you anticipate? What do you believe is going to happen? If you believe we're going to continue printing funny money and nothing's going to happen. Inflation is 5.4% August over August. We understand $100 bill is worth $94.60. Somebody's getting whacked. They have stopped it in the past by raising rates. They may not do it this time.
It may be different this time, but usually when they say it's different, you need to run for the house. I don't think it's different this time, and I think they're going to slow down on tapering. When they do, I think you're going to see rates move. Hey, we've been sitting disciplined here for about 18 months-20 months. We're close to the end of this year, and I think they're talking about slowing down on tapering. I think we're right, and we'll find out. I'd much rather save them. We got about $4 billion in cash. I'd much rather put that $4 billion to work at 5% than have it $2.75 and $3. That'll tell the tale.
Yeah. That's good math. No, that's good math. I think that was one of the most exciting things to see in the deal, is just how many banks with higher loan yields than you guys. That was pretty exciting. Congrats again, and thanks, John .
You bet. Thank you.
The next question comes from Matt Olney of Stephens. Please go ahead.
Thanks, and congratulations to everyone in the room. It's an exciting day for the Home Banc and Happy families. Thanks for all the commentary so far. I want to ask about M&A in Texas from here. It seems like the Happy platform could be a launching point for Texas M&A for Home Bancshares. Is that right? I'm also curious how the Texas M&A market at this point compares to what you've seen the last few years in Florida and in Arkansas.
Well, you know I was in Texas before, Matt. We're back today with a great bank. I think that in front of us right now is getting these banks consolidated, and I think that's the most important thing we can do. You know that we're constantly looking for M&A. We had four or five different banks in Conway, Arkansas, wanting to do a trade, Texas banks wanting to do a trade. The truth is that we had to make a decision on our part who that person was, who that company was. This is a real trade. This is a real deal in a real market. I'm as happy as I can be with this opportunity right now, and I see great savings. We're projected to make $68 million out of Happy in 2022. They run a 65% efficiency ratio. Just think about that.
Home runs sub 40 most of the time. If we can trim around the edges over a period of time, that could really be good for Home Bancshares and our shareholders of Happy as well as Happy shareholders, as well as Home Bancshares shareholders. Their earnings will go up 70%, 80%, just going to a 45% efficiency ratio. 50 is a marked improvement. We'll probably look at 50 and see if we can get there over a period of time. We'll try to get there, but we're expecting much more out of Happy than what we modeled. We modeled it at 33% because we model everything at 33%. We can compare deal 1 with deal 12 with deal 20. How does it stack up and how does it shake out at the end of the day? That's why we use the 33%.
We have always beat 33%, as you well know, over the years. We have always done much better than that. We will look at additional opportunities. We had to pick the horse to ride on, and they picked us to ride with us, and we picked them to ride with us. That's kind of what happened. We'll go from here. We'll look at opportunities, but right now, we're going to be focused on consolidation. We're going to be focused on, we got a trust preferred. Our bond comes up when? April?
April 1st.
We have a $300 million bond coming up April 1st. We can collect that, meet a month on that. We haven't raised our dividend in a while. We'll be focusing on those things right now rather than another M&A deal. M&A right now is, we're going to talk, and we'll visit, and we'll see if we can put something together that makes some sense, but probably won't see another M&A deal for at least I don't think the regulators will let us do another one right now. This is a pretty good size trade, $6 billion. I'm not sure they would allow us to do another one right now. They may. They may give us that clearance. We got enough work to do with each other right now to get it lined out for the earnings for our shareholders.
Yeah, Johnny, now that you've explained that dividend deal to me, I'd kind of like you to keep concentrating on that a little bit more.
That's right. We were talking to our employees today, tax people and finance people, and I mentioned dividend, and I had to explain to them what that was. Anyway, I know these 1,300 shareholders. They have raised the money from 1,300 shareholders over the 30 + years and never paid a dividend. I know those shareholders will be happy people.
Make some commentary on that, what Johnny has had. I want to also ask about Home Bancshares' stock buyback program more in the near term. I think we typically see buyers pause their buyback program, but at the same time, it also looks like the total pro forma capital ratios remain pretty robust. Love to hear any kind of commentary about the buyback program more in the near term.
We buy back when they put Home BancShares on sale. Most of these trades don't work. Most of these acquisitions, I don't know of any of them that have worked since 2010. If any of them will ever work, this one works. We're prepared to step in the market. We're prepared to buy, and we will buy alone. If we need to buy, we'll buy. That's kind of our attitude right now. We like buying our stock. It took us from $29 to $20 or $20.50 or $21 because we thought we were going to break and do an M&A. We've done an M&A deal, and we've done a damn good M&A deal. We are always in the market. We're going to find out running to a rise.
I think Stephen's working on that with Brian Davis , how much we can buy back in the middle of this transaction. Stephen, any comment on that?
Yeah, Matt, we're working through that now. As Johnny mentioned, we'll kind of circle in on a number, I think we'll continue with the opportunity to be active, I think all the way up until the proxy's on there later this year.
Yeah. Because deals don't work, we were prepared to roll in, support the stock, and buy a bunch of it right quick and to continue buying. You know as well as I do not many of these deals have worked, but if there ever was one to work, there is nothing wrong with this deal. This deal is as good as they get. When you can put $55 million worth of cost in the deal, when you can make both CECL adjustments to the transaction. My shareholders, and Happy shareholders, don't have to wait two and a half years to earn back the tangible book. You know what I think about that? I think that's BS.
Putting together a transaction in this market that is swallowing up short of $100 million worth of transaction in CECL costs is pretty difficult, and it's done. It's not smoke and mirrors. It's really done. It's the real deal. I think we got more savings coming from the Happy side and the Home side. I'm excited about what we can do together. I think we were pretty good on getting the efficiencies.
Yeah. Okay. Good background of that. All good points you made. Thanks for my questions. Congrats.
Hey, thank you. We appreciate your support.
The next question comes from Brady Gailey of KBW. Please go ahead.
Thanks. Good afternoon, guys.
Hey, Brady. How are you, my friend?
I'm doing well. I'm happy.
We're happy. We're in Amarillo at the corporate office of Happy. It's really been Someone said if it wasn't the name, it's a cult. These people, it's amazing how they have a Happy University here where they train their new employees that come in. They do some really good things. We'll learn from them.
Yeah. That's great. Johnny, I know you used the 33% cost save just as a standard so you can compare deals to all your other deals. Have you gone back and looked at where cost saves generally run for you guys? I mean, if 33% is conservative, I know Texas is going to be a new market for y'all, so maybe you're not going to get the cost saves that you normally do, but I guess I'll ask differently. What's the average cost saves really realized over all the M&A you've done over the years?
It's been north of 50%, no doubt. The fact is that we don't have anything to lay off on here. We don't have any consolidations to make. It's good for their employees. It's good for Happy's employees because we're going to need their people. We met with a bunch of their executives last night. They got a guy that runs their bond book who's outstanding. They got a couple billion-dollar trust department that's outstanding. They got some things. They can help us with some stuff. I like the combination of our trust department and their trust department. There are going to be a lot of people get to stay employed at Happy Banks that might not have made the cut if it had been a Texas bank buying it. We'll play off of that.
We normally run 50, and we've run as high as 70%, 80%, and 90% on some of these deals. This is one that we won't get as deep, but if we get to 45% efficiency out of here, that takes them to $110 million in earnings versus $68. That pulls out based on the shares issued, I don't know what it is, $240, $250 a share, roughly, that they'll be earning for their shareholders and our shareholders. That pulls the EPS up, and that's better than 33. I think Mikel Williamson and Tracy French have worked diligently. We didn't just pick at something out of the air. Mikel Williamson and Tracy French worked diligently on the things they need to do. The next transaction will be better than this one efficiency wise, but I think this one will be awfully good. This is a great buy.
I'm telling you, this is a real deal and a good deal.
Okay. Johnny, I know near term, you're really going to be focused on this transaction and not really announcing new M&A in near term. After you get this one closed and integrated and somewhat settled, do you envision that Home's forward M&A strategy will really focus more on Texas? I know Florida is still an opportunity, but there's just honestly not many banks left in Florida that will really move the needle for y'all anymore. Texas has a better growth profile than Arkansas. Would you really say Texas is the future path of M&A for Home?
Well, we'll take what they give us. We'll take whatever they give us. We're continuing to look in Florida, and we'll continue to look in Florida. Hey, Brady Gailey, what's the two best states in the nation? What are the two best states? Florida and Texas. Where are people moving? Florida and Texas. We get it. The Panhandle makes a good story, but the reality of it is that Texas and Florida, now this franchise has Texas in it, and this franchise will continue to grow in Texas. I think that you have those two states. That's where people are moving. Demographically, where are they going? They're going to Texas and Florida. They're leaving California, they're leaving New York, they're leaving those markets, and they're headed south. To have the opportunity. I'm telling you, it's the cleanest bank we've looked at.
To have the opportunity to partner with great managers who run great businesses, it is a real plus. This is not a flaky deal. I'm telling you, this is a great trade for Home BancShares, Inc. To get a bank that is accretive. As I said earlier, with almost $100 million worth of CECL and deal costs is pretty amazing. It's hard to do one anymore. Let me explain to you, the day we closed this deal, the next day, we started accretive to tangible book. I don't know how you could do one any better. The question is on M&A, and we are focused on M&A with Mikel Williamson's leadership and Pat Hickman's leadership in this state to help us. Pat Hickman's already been approached by two banks that want to do a deal.
We're not ready to do a deal with another bank now, but they're little bitty. They wouldn't stretch us a whole lot. They're well known, and Mikel's history was with Capital One. Is that what you call it?
Yes, Capital One.
Capital One. He helped build Texas for Capital One. He knows where some bodies are buried, where some people are that help us carry through with that. That's one of the reasons that we are so excited about doing a deal with Happy State Bank. We're in the game all the time, people get silly. You see some silly stuff getting done out there. How many deals you see every day on the rock? How many deals have worked since 2010? How many deals have been accretive and moved into Texas? This is a revolutionary deal for Home Bancshares and for Happy State Bank.
Yeah. Well, it's also rare to see the buyer's stock price do so well. You guys are outperforming the KRX by 500 basis points. You're up almost 7%. That's a sort of trend here within banking today.
Well, let me just tell you this. If this deal doesn't work, we need to all get out of the banks' business because there is no deal that will work. None of them that'll work. If this trade with Happy and Home doesn't work, there are no deals that work, and I think that's being recognized in the marketplace. This is a real transaction. That makes us feel good. Makes us really feel good to see the stock up the way the stock's up. That's great. We worked hard on it. I'm telling you, the Happy people, Stephen Tipton led this deal primarily. I got to give him accolades. He was tight on that. It was tight. We were just right on the bubble. I said, it's got to be positive. We told the streets, got to be positive. We kept it positive all the way through.
Pat wanted it to be positive, and Mikel wanted it to be positive. They didn't try to get the last nickel and dime out of us. They didn't try to milk the cow and get the last bit of milk. They understand, and as a result, they can see what's happening for their shareholders as of today. Their shareholders get 2.17 x Home Bancshares stock in the transaction. Their shareholders are having a big day. Good for them. They deserve it.
Yeah. That's right. Awesome. Hey, thanks, Mikel, and congrats on this one, Johnny.
You bet. Thank you, Brady.
The next question comes from Michael Rose of Raymond James. Please go ahead.
Hey, good afternoon, everyone. Thanks for taking my questions.
Are you mad at me?
Not at all. Never mad at you, Johnny. Never mad at you.
Well, you can see what we did and when we did it. You get it, right?
Well, now you owe me.
Okay. I agree with that.
All good. I just want to dig into some of the potential revenue synergies that you have, like at $3 billion in AUM and just with the larger balance sheet and growth perspective. Can you talk about where you guys could see some upsides in cross-sell? Obviously, it's not built into the numbers, but just trying to get a flavor for what you guys see from the revenue side.
Michael this is Tracy French. We certainly see the opportunity there. We talked about the efficiency side, Michael Rose, and for the last three months and the revenue side from some of the producers and what the opportunities they're going to have. They have a great mortgage group here that operates. They have, as Johnny Allison had mentioned earlier, the trust opportunities, and then the investment sides that they have. We do see opportunities there. Speaking with the central part of Texas over the last few days, having dinner last night with the group at the table, and one was just already knowing the customers he's going to reach out to expand his portfolio. There certainly is the revenue side that we see that we can use in a lot of these markets that we are in today.
Okay.
No, Tracy, just on the wealth management and trust aspects, we built that out at Home over the last several years. Certainly, it's getting to scale in a big way in Texas. I think we'll be able to expand on that.
Okay. I guess just as a follow-up, if I look at the deposit market share, at least it looks like 9% is in Dallas, I assume that's where a good portion of the loan growth is. Can you just walk through some of the assumptions that build into that 5% year-over-year net income growth for Happy that's in the slide deck? What are the components of that growth? I assume some of it's loan growth, though, in some of those higher growth markets like Dallas. Thanks.
I'll let Mikel Williamson speak to that. If he only gives 5%, then we'll really be disappointed. That's for publication, but I can assure you that I'm expecting more than 5%, and I think Tracy French is, and I think Mikel Williamson is, too. Mikel Williamson, I'll let you take that one and run with it.
I'll go back and talk a little bit about the revenue piece. That is, if you look at us in mortgage, what you've seen is, over the last five years, a tremendous amount of growth in not only revenue but net income out of that region, and it's not stopping. It's not slowing down. It's not like it's plateaued. You see the same thing from our trust and wealth department. You've seen good, steady growth under management. You've seen good, steady growth in revenue and net income, and it's still growing.
You put on the low cost of funds that we have from our markets in which we are just entrenched, and we are truly the community hometown bank, and you're able to put those to work not only in that community, but then also put them to work in the Dallas-Fort Worth metroplex, go into Austin and Round Rock. One is an acquisition and one is a de novo, see an amazing amount of loan growth in the first year in those two markets, all of which meet our yield. We do not sacrifice quality or yield going into those markets, and we're getting that growth already. You combine that with some of the efficiency that we know we can get out of this, and it's a home run.
Okay. Maybe just one technical question from me, just to be clear. The CECL double count and then the CECL reserve against the unfunded commitments, that will go through the provision line, correct?
Brian Davis?
I know Brian S. Davis is on.
Yeah.
He's on the line.
The CECL double count, the $28 million, it does go through the provision, and the $11 million, I believe it's going to go through goodwill because it's an unfunded commitment that is not properly evaluated at the CECL level. That's the way you understand it, Michael? That's the way you understand it, Mike? Michael, is that the way you understand it? Did I lose you?
You mean Michael Rose?
Yeah. Michael Rose. Yeah.
Yeah.
Yeah.
I just wanted to clarify. Thanks for taking my question.
All right. You know what? When you look at that and you swallow $27 million there and $59 million of deal costs and still get an accretive transaction, we're getting tougher to do. I guess you'd have to agree with that. Would you not?
Indeed, I would.
Great. Okay, thanks for your support. I'm glad. Sorry we missed your conference, but we'll be there next year if you invite us.
Of course, always. Thanks, guys.
All right. Thank you. I think I'm going to wrap up. A couple of our analysts were on the road, had other plans today and didn't make it. Thank you very much for your support. The Street has rewarded us, it appears, as of right now. Is there anybody else? Oh, there's Brian. There's Brian Martin. Okay, let's get Brian, see what. Go ahead, operator, bring Brian Martin in.
Brian Martin, your line is open for questions.
Hey, guys, thanks, and congratulations to everyone in the room and delivering exactly as you've kind of noted, John. It worked out perfectly, and I'm sure there's other deals you've looked at that are a little disappointed, seeing the great trade today. I just wanted to ask you maybe two things. Just the growth outlook, and I know you mentioned, Johnny, about your discipline on pricing, but just as you look at the opportunities in Texas, I guess is it fair to assume that the largest or the greatest opportunities for growth at the right pricing is going to come from the Dallas and Austin markets, kind of leading the growth going forward?
Mikel, would you agree with that?
I would say yes, the majority, but we're seeing good, strong loan growth in Amarillo, Texas. We're seeing double-digit loan growth in Lubbock, Texas, and we're able to capitalize on those markets and get the same yield that we've got up in some of the one other areas. We don't expect any of our communities to lag behind. We lend in all our communities, and we do it really well. Now, if you're talking about that supercharged nitro growth, yeah, that's going to be in the DFW market, and that's what we're seeing.
If I may add there, I was fortunate enough three years ago, Greg Abbott appointed me to the Texas Economic Development Corporation. Anywhere in Texas is good, and Johnny and Tracy French are telling us that they want to be everywhere in Texas long term, and that's a good move. There's not a poor market in Texas.
That's how it is. It is pretty impressive here. I don't spend much time in Amarillo but there's lots going on in Amarillo. A lot more than I ever thought about. By the way, I'm going to get all you analysts together one of these days, and y'all don't eat for a week before you come out, and I'm going to feed you. If you eat that 72 oz steak here, you can get it free. I'm going to load you all up in the jet and bring y'all out here and feed you that steak. I don't want to bring enough money to pay for it if y'all go and eat it all. I'm going to bring you out. Can you go hungry for three or four days and eat the 72 oz steak for free?
I'll do it, Johnny. You'll have to play The Great Outdoors , and we can check out The Old 96er and see who can finish it. I'm up for the challenge, I guess.
Right.
Maybe just one last one, just on Kevin, you guys talked about the great loan yields and obviously the really low cost of deposits. Maybe just proceed on how we, if there's any change or how we think about the margin, the combined margin here as you put the two banks together.
Yeah, obviously, there'll be some purchase accounting adjustments that we'll have to work through between now and close. I think the highlight is we talk about the loan yield, which is the culture between the two companies. We've talked in the past, one of the hardest things to fix or deal with in an acquisition is how they're accustomed to loaning money, and particularly around yield. I think to come in here and find a company and work with a company here that has a similar approach and a similar culture just gives us such comfort that at closing, we're all off and running on the same page.
Got you. Okay. Well, perfect. That answers my questions, and again, congrats on the announcement.
Hey, thank you. Well, there's our man. Jon was on the road with RBC Capital. He just popped in. Hey, Jon.
Hey, the steak got me excited, that's why.
That's it. I tell you what, you like a big steak. That's what got you fired up.
That's right. Somewhat non-deal related, but maybe so, but the larger balance sheet, Johnny, would that open up some room for CFG or any of your other businesses and allow you to do anything different?
Well, of course, it does. We allow CFG to go to 15% of total assets, and total assets are going to be about $24 million. That gives CFG a big runway. If you remember, we don't press lend. We don't give them a go. We don't force. They take what they get. They take what they get that they think is reasonable to do. They're doing pretty good right now, by the way. They got a lot in the pipeline. They got about as big a pipeline as I've ever seen them have, and we approved some today for them, big loans today at Executive Loan Committee.
We had an employee meeting, and I had to break out for just a few minutes ago because I knew the company, that one of those companies that was in, there was a $100 million credit today for a large company here that worked out really pretty well. We approved that credit today. I'm excited about that. I think it does, but you know how conservative Christopher Poulton is. You get it. We're loaning money, non-recourse. Still never had a past due. He still never had a loss, and you know how conservative he is, and I'm not going to push him. What does he say? The year of the lender is followed by the year of the collector. We don't want to get into that.
I think they got as big a pipeline, am I right, Tracy French, that they've ever had? Doesn't mean we'll get them all or we'll close them all, but I think the pipeline is really popping. If they can come on for us, that'll be a big kick, but we're not going to force them to do that. You know the kind of money they make, and that could change the world.
Yeah. Okay.
Tracy.
John, it's Tracy. It's off the subject here.
Yeah.
I just sit here thinking about when I heard you boys, remember you wanted to know when we went to the Panhandle of Florida, you wanted to know about it. You came down, and we drove across it, and spent about three days. I want to invite you back to Texas. It's just going to take a hell of a lot longer than three days.
Hey, I drove the Panhandle in November of 2020. I get it. I've been there. Yeah. By the way, there weren't lots of y'all in the Panhandle during COVID. They were moving. The one other thing I wanted to ask is, you always talk about how it's hard to fix a margin in a bank, which makes it a little easier on expenses. Why do you think the yields are higher? How do they do that? Did you learn anything through that process? That's all I have.
I'm really impressed with their lenders. Some lenders you say, we'll give you a floor of 3.5, and it wants to go below 3.5, and everything they write's at 3.5. From then on, everything they write is at 3.5. These are quality lenders here that they've developed over a period of time, and they lend I was visiting with the Dallas guy. He's a horse. I said, I see your rates, and your rates are really, really good. He said, well, sometimes people need something in a hurry, Johnny. He said, I have to stop what I'm working on.
Maybe they need to close it in 10 days. He said, it's all hands on deck with our people, and we get in there and say He said, sometimes they don't ask, they just treat me fair. He said, that's how they do it. He's got a following, a relationship that is a following that is strong, and he does a great job. I'm glad to have him. Look forward to working with him. Besides that, he's a hunter, so we're going to get him up duck hunting before too long. I think I'll let Mikel address that himself now with the rates, but I'm really impressed with the rates. You think about the revenue side. We don't have to work on the revenue side. We got it.
Yeah. The way we look at it is this has been a process, not an event, and we've moved to this position over several years.
Underwriting, it's speed to market and asset quality. I think we do both exceptionally well. We refuse to place ourselves as a commodity lender in any market. We're not competing on rate. We're competing on value, which is time and effort of the lender that's there. We hire good long-term lenders if they're new to us, or we grow them internally where they have the relationships with customers, that those customers keep coming back because they know the speed, service, and dependability of what we're doing. Johnny said something earlier that just stuck with me, and it's something we've said for a long time. We're not going to cheapen ourselves by making low cost loans. We know the value that we bring to the table. We demand asset quality, and we want a relationship with our lenders.
When that is the overall organizational view, you get lenders that thrive in that, and that's what we've got.
It is. If I may add, the leadership team within that loan group, with Mikel Williamson's full encouragement and backing, the leadership team in working with those lenders doesn't compromise, and it builds that throughout the lending staff. Many times it comes down to leadership.
How refreshing it is to my ears to hear that kind of talk. When visiting with one of their big lenders, he said, what do these other lenders do? He said, what do you think they do, Johnny? I said, I know what they do. He said, yeah, they lead with rate, don't they? I said, exactly right, because they act like they don't have anything else to offer. Just rate, rate, and then they walk out the door with a 2.75% rate, beating their chest, think they did something. Five-year fixed or 10-year fixed with high leverage. They don't do it here. We don't do it here. I'm going to say it one more time. This is the real deal, John. This is a real transaction that's going to turn out to be very good for their shareholders as well as our shareholders.
I'm really excited about this transaction. The more I'm around the guys and the more I'm seeing what's happening, the more excited I get. It is so refreshing to hear. Lately, we've done some good business stuff recently, much of it, and you can see where they're just buying business, and just buying business at higher leverage and longer fixed terms. It's 10-year fixed and cheap rates. It's silly stuff. We're just not going to do it, and when we find somebody as refreshing as this bunch at Happy Bank, it gives us My point is, it can be done. That's my point. It can be done by those people who know how to sell. What is it? Those people that never been to What is it? 5 x. You get asked 5 x before you make a sale sometimes.
Anyway, this bunch has done an outstanding job. I have to salute them.
Okay. All right. Thanks for taking my questions, and I'm glad I made it to hear this, so appreciate it.
Yeah, well, the state got you. We'll do that. We'll fly you. Get you any time. We'll fly you out here. You don't eat now for two or three days.
All right.
Look, if you don't eat it, you got to buy yourself.
You get me out of here, you get it. Yeah, you get me out of here, you get it. I'll do that.
Okay. All right. Thanks for the call, John. Appreciate it. Glad you got on, buddy. I think it's wrap-up time, and I don't have anything else. Anybody got anything else they'd like to say? I think it's been a great day for Home Bancshares and Happy Bank. I think the deal's been received the way we thought. It's good to see a deal get received well in the market, you got to really work your butts off to get a deal that works as well as this one worked. We got it done, and it looks like it's been well-received, and we thank you for that. Hopefully, the next one we bring will be as good or better. We're going to wrap up for the day. Again, thank you.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.