Good afternoon, and welcome to the Home Bancshares Incorporated Third Quarter 2021 Earnings Conference Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. I would now like to turn the conference over to Donna Townsville, Director of Investor Relations.
Please go ahead.
Thank you, Gary. As he said, I'm Donna Townsville, Director of Investor Relations, and our management team would like to thank you for joining our Q3 conference call today. Reporting today will be our Chairman, John Allison Tracy French, President and CEO of Centennial Bank Brian Davis, our Chief Financial Officer Kevin Hester, our Chief Lending Officer Chris Fulton, President of CCFG John Marshall, President of Shore Premier Finance and Stephen Tipton, Chief Operating Officer. And now, I am happy to turn the call over to our Chairman, John Allison for our first report on the quarter.
Thank you, Donna. I'm going to turn my phone off. We don't want
to hear Amarillo in the morning, right?
That's what I have on my phone. I'll be in Amarillo in the morning. Good afternoon. Welcome to Home Bancshares' 3rd quarter earnings release and conference call. I have with me today most of Home's Executive Committee And they will be here to present as well as answer any questions that you might have.
Home had another very productive and Solid quarter with earnings of $75,000,000 or $0.46 per share. During the 1st 9 months of 2021, Your company earned $245,000,000 or $1.49 a share. As we would have said in the past, that is a world record. Home is again marching towards our $300,000,000 plus goal for the 4th year in a row. I can't ask much more of that out of our people.
If you pull out $3,000,000,000 in excess capital, the company is which is virtually earning 0, The company is running right at a 2% ROI. Even though we're running a 168% now, when you pull that out, it runs at 2%. We've talked about adding additional earning assets through M and A for several years and I'm happy to welcome our new partners With Happy Bank, both shareholders and employees to the Home Bank's family. When I think about if I could choose to operate in the 2 best States in the United States. They're both business friendly and tax friendly and have the largest Incoming demographic movement, it would be Florida and Texas, Panhandle or Panhandle.
Well, you can check those boxes, Florida checked and Texas The Happy Deal will continue to propel the future of Home and build long term shareholder value of our combined companies and we're certainly More valuable together than we are apart. As I said on the deal announcement, if this deal doesn't work, none work. The complexities of making a bank transaction triple accretive in today's environment is not easy. If the acquiring bank is not patient and disciplined And Badley wants a deal. That's probably what they're going to get, a bad deal.
Doing a deal for the sake of doing a deal is not in our DNA. As home's single largest individual shareholder, I can assure you if it works for me, it works for our shareholders and employees of BOLT BOLT BOLT BOLT BOLT BOLT BOLT BOLT BOLT BOLT BOLT BOLT BOLT. This transaction checks those box. We'll come back to the happy deal later in the presentation. Let's go over the highlights of Q3 and the 1st 9 months of the year.
As I said earlier, we are $75,000,000 and That's for the Q3. In the 9 months, earnings of $245,700,000 or $1.49 and I said that's a company record. 3rd quarter showed strong loan recovery even though we were down 64,000,000 ex PPP for the quarter. September was up 55,000,000 Unfunded commitments of loans and credit lines was up $250,000,000 to $3,000,000,000 This is a confirmation of our earlier statements that we said on our calls that we expected loan growth to pick up in the second half of the year. I don't want to jinx our forecast, but it's certainly nice to have the optimism for good quality loan growth, and I mean quality loan growth.
Loan yield is at 5.64. The excess deposits is putting pressure on our return on assets Creating an embarrassing 1.68. However, without the excess capital, Home is turning at a powerful 198. Most companies would be proud of $168,000,000 but that number is unacceptable at home. We could have pushed some money off balance sheet.
We could have bought some low yielding investments or we could have changed involved ourselves in the match to the rise to the bottom of loan yields. We did none of that or very little of it. Patience and discipline was tough, but we're playing the long game and we're not looking for a quarterly pop And believe me, we could have played if we wanted to. Actually, as Jamie Dimon said, having excess liquidity could be your friend. With $3,000,000,000 in excess liquidity, it's not all bad with rates appearing in an upward trend and optimism about loan growth for 2020.
Excess liquidity may be an asset. For the quarter, we maintained strong asset quality, strong ratios to non performing And I thank record low past dues. Very strong capital ratio and even with the bulging capital ratio, Homes ROTCE was 17.39. We beat on revenue and efficiency ratio of 42.29. That's okay, but not our best.
Non interest Expense was up $8,000,000 year over year, dollars 4,000,000 of that was basically a data processing system for our loan program. $1,100,000 of that was merger expense and $1,300,000 in other. On a late quarter basis, we're up $2,700,000 as I said, dollars 1,000,000 in merger and one Lead by their founder and backbone of the company, Pat Hickman. Pat will be joining the Home Bank's Sheriff's Board and we're looking forward to seeing him. The CEO of the company It's a great operator, Michael Williamson, and we look forward to having him head up Happy Bank for us in Texas wherever we might go in that state.
In addition to a very strong loan team and a very experienced President Group throughout the entire network, don't forget the quality of HR, Investments, Trust, Marketing, BSA, CRA, and compliance, they are all top drawer. It is our goal to keep as many of their people as we can. Quality of Happy's people is even better than we thought. Many of their people are more impressive even than ours. Asset quality, however good, is not as clean as home's asset quality, but it's certainly better than most we've seen.
With YOLO loans better than homes, which is highly unusual and the hardest part of the equation to achieve, we think getting Happy's expense In line closer to homes is the challenge at hand. Demographic movement of people and companies Our favorite Texas and Florida from Panhandle to Panhandle. After this acquisition completes, we'll have 2 22 branches from Key West to Pensacola, including Orlando, Miami, Fort Lauderdale, Tampa, Destin, Palm Beach and in Texas to mention a few Austin, Round Rock, Dallas, Fort Worth, San Antonio, Amarillo, Lubbock, Tampa, Plainview, Dumas and of course Happy Texas to mention a few Texas branches. We're poised to continue the growth of our company as we have come from $24,000,000 in $29 to when this transaction completes to $24,000,000,000 in assets that is provided in all those well. Let's talk about deals in general.
As we looked at these M and A deals over a period of time, they just haven't worked, just virtually none of them worked. Actually, there's only been a few work in the last 10 years and I mean a handful outside of merger of equals whatever the hell that means. I'm not sure what that is, but there's been very few work. Why don't they work? Most acquirers Have not fixed themselves.
I mean, they were poor performers before and they go by another poor performer and they just make a bigger pile of For performers, I think my group thought I was going to say something else. But anyway, and the buyers pay too much for a deal. They pay too much And they dilute their own tangible book value creating years of earnings to get back to just even. You've all heard the statement, 2 year earn back, 3 year earn back to tangible book. Well, I can assure you there is no dilution in this transaction.
It becomes accretive To both shareholders on both teams, which will be our shareholders day 1. Buyers cannot execute on cost saves and do not have the knowledge, Experience or the reputation to do that, home has all of the above and checks that box. Deal cost And CECL double accounting costs must be included in the purchase price of the deal. Check that box. Focus on the deal at hand and not try to do multiple deals at once.
Regulators frown on that. And you can check that box. Actually, we had just announced the deal when somebody came up to Myself has said, I got a deal for you, Johnny. I want you to look at this bank. And Donnick said they won't even let the body get cold before they try to do another bring you another deal, Johnny.
The Wall Street Journal picked up on that and that I was quoting with that. That's actually a Donna Townsend quote. So I want to be sure you feel better about that Donna that you got credit for that quote? Well, I'm not sure, but thank you for the credit. Home remains focused.
The buyer has Almost have a premium in their bank stock for any deal to have a chance to work and to be fair to the seller or it certainly will be diluted for sure. Home has that. Home has had a powerful bank stock, large enough to make scale to make a difference and impact earnings. Happy Bank is $6,200,000,000 will be 20% of our assets and that checks that box. You need to pay lots of attention Who the owners of the bank are?
Is it hedge funds, mutual funds, long term holders, flippers? What is it? What is it that's the makeup of the shareholder? Because you know as well as I know, a lot of these funds will be sold they'll sell the stock before the sun comes up in the morning And short to buyer. Well, in this case, we're acquiring Happy is Private with 1300 individual local shareholders and we're proud of that And we think that private is better and they can't harbor deal.
They can short home if they want to, but they can't harbor deal. Remember that investment bankers get paid regardless if it's a good deal or bad deal, creative or dilutive. Tell your banker, tell your investment banker, Be sure who you hire and who you're doing business with first and then tell your banker your limits and stick with that. Experience of M and This is Home's 25th deal and probably for Happy, I think it's 7 or 8 deals. So both having experience on both sides worked out well for us And that checks that box.
Good buyers have to remain disciplined and have to have the ability to walk if the seller pushes them into dilution Because unbeknownst to the seller, he's shooting himself in the foot and the buyer at the same time. Home is disciplined and will walk and have walked on several transactions in the last year or 2. A fund investor said to me, fund not a And FUMD investors said to me, why should I hang around and see 3 years or 4 year earn back? He said, I get paid now And only reason I'd stay around if I can arm the deal. We can't do this.
They can't arm the deal in this deal. So check that box. Not only I give credit for saying that Home he is the analyst that said Home threaded the deal perfectly. You can see the complication of the process that both investment bankers, Sandler and Stephens understood the limits and work towards achieving the ultimate goals of creating one of the most outstanding deals of the last 10 years. That is evidenced by one of the few stocks Donna, I guess I've given talked about the quarter and I've talked about what made the deal work With Happy Bank and I'm getting a little windy today.
I apologize for that, but I will It was a lot of work and as things moved, it was a fluid situation and I have to give Stephen Tipton credit. He ran this book on this deal and did an outstanding job for our company, but it just kept moving. It just like water flowing. It is sometimes good, sometimes bad days. But overall, it worked out to be a great transaction for our shareholders, for the happy shareholders, and they should be one, I think, one of the best deals been done in a while.
So I'll hush now and let you have it back.
Thank you, Johnny. It's always nice to hear your thoughts on things and to hear about setting new records And the excitement that's building panhandle to panhandle on our acquisition. But I think the criteria for a successful acquisition is And now we will hear from Tracy French with results for Centennial Bank.
Thank you, Donna, and good afternoon to all. Johnny said he was a little windy. So we'll try to give a little color behind the numbers as he did a while I'm going to speak about Centennial Bank for the 1st 3 quarters 9 months of the year. The rest of our team here We'll share some continued strong numbers that Johnny has mentioned in his comments earlier. Again, back to Centennial Bank.
Total revenue for Centennial Bank was $178,000,000 this past quarter to make that year to date $546,000,000 when said numbers, I'm really proud to be associated with. The strong revenue number With our efficiency ratio coming in at 37.54 year to date, still has the bank over 2% ROA and that's The bank's return on average tangible common equity non GAAP closed the 1st 9 months at 19%. Johnny, that kept the P5NR Allison ratio for the bank above the 60% level for the year at 61.31%, which is really proud of. Net interest income has remained steady due to the efforts of all of our regions managing their loans and deposit rates and terms Along with the excess funds and a low cost today, something that is extremely important for our company, Centennial Bank's non interest income has increased by 16% with the great work of the service charge area, our mortgage and all other Managers of the bank. Brad said that our bank's core ROA for the 1st 9 months is over 2.59% And that I think all of our regions were well above the 2% and I'm talking about the community banks with our New York operation and marine operation, they get a little bit better than that, so exceptional numbers.
All of our community bank regions We've shown phenomenal growth in core deposits with 4 regions over 20% growth compared to this time last year With our Alabama region leading the growth percentage over the year of 44 excuse me, 43%. As we continue to stay disciplined and committed to not make short term gains that could affect our company's long term shareholders, Should feel very comfortable at this stage. Our company is well positioned with strong capital, The best asset quality we've seen as we deal with the potential inflation challenges going forward. As Johnny has mentioned, We are excited and happy and we're glad that we have met and worked with Mr. Pat Hickman, the Chairman of Happy State Bank We have built an outstanding bank in Texas over the years and made one heck of a successful story in our banking world.
We do look forward to working with Michael Williamson, the CEO as he heads our expansion into Texas. As he joins our regions, I look forward to him Going up the notches along the way to be the top region, Johnny, soon as he possibly can. Who said? Michael. Get him in the mail there.
I'll be glad when he gets there.
But we have met a lot of their directors, Great, great staff that we've been able to meet and we look forward to these people taking our company to the next level.
Thank you, Tracy. Appreciate that. Now Brian Davis will give us the financial report.
Thanks, Donna. Today, we reported $144,600,000 of net interest income and a 3.60 net interest margin Our 3rd quarter net interest margin decreased 1 basis point from Q2. Today, I'd like to go over a few net interest margin items. First, during the Q3, we We had $232,000,000 of PPP loans forgiven. This forgiveness causes acceleration of deferred fee income for the loans forgiven.
Our PPP deferred fee income increased $3,000,000 from Q3 to Q2. This increase was 7.3 basis points accretive to the NIM. 2nd, as a result of the excess liquidity, We had $338,000,000 of additional interest bearing cash in Q3 compared to Q2. The excess liquidity was 7.6 basis points dilutive to the Q3 NIM compared to Q2. 3rd, there was event income in the margin for Q3 of $3,500,000 compared to 942,000 for Q2.
This had a positive impact to the Q3 NIM of 6.3 basis points. 4, accretion income for Q3 was $4,900,000 compared to $5,800,000 for Q2. This had a negative impact to the NIM of 2.3 basis points. One other item from a historical point of reference, The Q3 excess cash versus the historical normal cash balances has a negative impact To the Q3 NIM of 72 basis points, that's a big difference. I'll conclude with a few remarks on capital.
Our goal at Home Bank shares is to be extremely well capitalized and I'm pleased to report the following strong capital information. For Q3 2021, our Tier 1 capital was 1,800,000,000 Total risk based capital was $2,300,000,000 and risk weighted assets were $11,700,000,000 As a result, The leverage ratio was 11%, which is 120% above with a well capitalized benchmark of 5%. Common Equity Tier 1 was 15.2%, which is 134% above the well capitalized benchmark of 6.5%. Tier 1 capital was 15.8%, which is 98% above the well capitalized benchmark of 8%. And finally, the total risk based capital was 19.6%, which is 96% above the well capitalized benchmark 10%.
That said, I'll turn the call back over to Donna.
Thank you, Brian. And now for an update on loans is Kevin Hester.
Thanks, Donna. My comment 90 days ago was that the first half of twenty twenty one was much like we anticipated. Same still applies after the Q3 with continued declines in PPP loans through forgiveness coupled with even better Credit metrics. We discussed the possibility for loan growth in the second half of twenty twenty one and while non PPP loan balances dropped in Q3, The amount was less than previous quarters and the month of September reflected an increase in loan balances. Pipeline for the Q4 is still solid and reflects what we expected to see when we said that loan growth could return in the last half of twenty twenty one.
As Brian indicated, PPP balances were reduced by $232,000,000 in the 3rd quarter and that leaves us with COVID modified loan balances dropped by $36,000,000 in the 3rd quarter to $228,000,000 overall. Hotels make up 2 thirds of that balance and their overall recovery is still underway. Our monthly tracking shows solid improvement across the board We feel very positive about the prospects for these credits in 2022. Movement back to P and I will be required before any distributions can occur And we see many with a pathway to that occurring with a solid spring season and or continued improvements in travel. Credit metrics continued to improve in the 3rd quarter to record setting levels.
Non performing loans improved to 51 basis points, which is 2 basis points below pre COVID levels and down 7 basis points on a linked quarter basis. Non performing assets are even better at 29 basis points, down 15 basis points below pre COVID levels and down 6 basis points on a linked quarter basis. The allowance coverage of non performing loans is at 4 69%, that's up 61 percentage points on a linked quarter basis. As Johnny said, early stage past dues reached a new low at 39 basis points, which is 40% below where we were pre COVID. There's no substitute for excellent asset quality and nothing creates more distraction or will get you in trouble faster than poor asset quality.
This has always been the highest of importance at home, but our folks have taken this to a new level. I appreciate their diligence and commitment to a pristine loan book. The pilot program for our new end to end loan origination system was rolled out this week and about 25% of our lenders are working in the system as we speak. I want to thank those lenders for being on the leading edge of the project. I also want to thank our design and implementation staff for All the effort over the last 18 months.
It seemed like we would never get here, but they've done a great job and are supporting the frontline impeccably this week. I'm very proud to work with this great bunch of people across our footprint. Thanks again for all your efforts in making Home Bancshares a top performing company. With that, Donna, I'll turn it back over to you.
Thank you, Kevin. I know the Street is happy to hear about loan growth in September, so hopefully that's kicking off a positive trend. Now we will turn to Chris Olson for an update for CCFG.
Thank you, Donna, and good afternoon. CCFG achieved solid growth in originations during the Q3. Portfolio grew approximately $75,000,000 to $1,630,000,000 on originations of $320,000,000 In particular, commercial real estate portfolio grew by over 100,000,000 We saw modest declines in the C and I book as several corporate borrowers paid down facilities with excess cash during the quarter. We would expect to see the C and I facilities redraw in the coming quarter or quarters. As a result of the originations performance this year, Our unfunded commitments have grown to just under $1,000,000,000 which is up about $100,000,000 from the beginning of the year.
In the past few calls, I've spoken about delays in the closing process. Supply chain disruptions continue to impact our market. We did see an increase in closings during Q3 as several transactions cleared the pipeline during the quarter. We do expect the delays in the deal process will persist however And I remain pleased with the demand for our products and with the overall pipeline.
Thank you, Chris. I appreciate the report there. Now for an update on boating is John Marshall.
Thank you, Donna, and good afternoon. The boat business in the 3rd quarter seemed to offer Something for everyone in terms of soundness, profitability and growth as the COVID cloud lifts and our business tests the post COVID guardrails that are defining our new normal. Importantly, COVID has had no detrimental impact on the asset quality in our book. Delinquency is down to 20 basis points and If a harbinger of default, non accruals are similarly down to 22 basis points. Both are personal bests, if you will, Since we joined Centennial 4 years ago, consumer originations of $155,000,000 year to date Maintain super prime status with average FICO's of 780.
Recall that we closed on the $400,000,000 position of LH Finance in the Q1 of 2020. While COVID has shrunk our balance sheet as inventory for sale has been difficult to replace, We are still larger now than we were in early 2020. The result is that our year to date pre tax Profit contribution is $23,000,000 already exceeding full year 2020 of $21,000,000 That achieved a core ROE of 3.39% and an efficiency ratio of 19.4%. To recap, we started 2020 with a $500,000,000 balance sheet. L.
H. Finance took us to $900,000,000 And COVID cash and stimulus prepays have reclaimed $60,000,000 With this backdrop, there is evidence of rebuilding commercial inventories, Steady consumer demand and a continued reduction in prepays, a recipe in my mind Donna to growth in the future. Based on the buyers trolling the docks and recent shows in Canton, Newport, Annapolis and pre ticket sales for the Fort Lauderdale show next week, Retail activity will remain elevated. We're well positioned to rise on the returning tide. On that positive note, Donna, let me turn the conversation back to you.
Thank you, John. And our final report today comes from Stephen Tipton.
Thank you, Donna. First, Since our last call, as everybody knows now, tremendous effort was put forth by many involved in our M and A process, Long days and nights by a lot of people and I'd like to thank all of our teammates who participated in those due diligence efforts. As Johnny mentioned, we're enjoying getting to know our friends at HAPI and look forward to
the future.
Since the announcement, we have filed the proper regulatory applications It should have the S4 SEC documents filed any day now. Now I'd like to give the standard color on deposit activity, repricing efforts and trends and a few additional details on the balance sheet. On the deposit side, Balances continue to climb during the Q3 of 2021 as total deposits increased $112,000,000 from 6.30 And it appears we now have solid footing north of $14,000,000,000 in total deposits. Growth in the quarter was led by our New York office
You mean Chris led the chart in deposit growth?
That's correct.
My gosh.
There must be some hot money if Chris led deposit somewhere. Chris, what do you do?
It turns out if we don't need deposits, I'm good at getting them.
Touche.
Focusing on our core base, Non interest bearing balances increased over $60,000,000 on a linked quarter basis and now stand at over $4,100,000,000 or 30 percent of the total deposit base. Switching to funding costs, interest bearing deposits averaged 23 basis points in Q3, down 3 basis points on a linked quarter basis and exited the quarter in September at 22 basis points. Total deposit costs were 16 basis points in Q3. While CDs are at an all time low at 7.5% of total deposits, we still have opportunity near term to lower Those maturing time deposits. Looking in Q4, we have $335,000,000 maturing at nearly 1%.
So there'll be opportunity to lower those or see those exit. Switching to loans, total production picked up in Q3 with over 1,000,000,000 with $700,000,000 of the total coming from the Community Bank footprint. As Tracy and Johnny mentioned, we continue to maintain our disciplined approach to pricing and underwriting that has long served us well. Payoff volume was lighter in Q3 at $751,000,000 which included 1 large multifamily project with a legacy borrower move into the permanent market. A proper structure there generated a nice event income for us as well.
As Brian Davis mentioned in his remarks, when normalizing for the impact for PPP, event income and excess liquidity, We're pleased with how the net interest margin continues to hold up. In closing, Tracy mentioned the improvement we have made in several areas of the service charge set We're now seeing the impact. I would like to recognize our wealth management group Centennial Financial Services and crossing the threshold of $1,000,000,000 in assets under management. That group is beginning to generate strong revenue and helping to build a comprehensive relationship with our customer base. Congratulations to that group again.
And with that, I'll turn it back over to you, Donna.
Thank you, Stephen. Johnny, before we go to Q and A, do you have any additional comments?
John, are you doing the boat show in Fort Lauderdale?
Yes, sir. I'll be there next week, Wednesday through the weekend. I'm disappointed to learn that it sounds like you may not have occasion to join us.
And I hate that. I have a conference and I hate the fact that I'm not going to be there that I've ordered me a new Foreign Livot as you know and they have one on display there. So I was going to go by and look at that. But anyway, I won't be able to make that. I guess overall asset quality is the key to everything and you heard Kevin Hester's report on asset quality And you heard the earnings.
Our earnings were good, strong as usual, 4th year on the run for $300,000,000 plus. As I said, I can't ask much more of our people than that because that's awfully strong ROI to get that Kind of income out of the assets that we have. And now we picked up hopefully we get the conclusion of Happy Bank And welcome those people to Home Bancshares family, as I said earlier. And that should give us the extra assets that we need, the earning assets to increase the profitability. Brian talked about capital ratios.
They're about as strong as you can get. And I guess the highlight of all of this, Everything is good, but what makes me smile is the possibility of loan growth and we're seeing our unfunded commitments going up And we had a September loan growth and the book looks good. So I don't want to tell you that we're going to have loan growth because last time I told you we're going to have loan growth, we didn't. So I don't want to jinx it. I'm going to leave that alone and just say it will be it is what it is.
How about that? So Tracy, you got anything in conclusion to say?
On to the next quarter. Here we go.
Next quarter.
Anybody else? Brian, Kevin, Stephen? No, sir. No, sir. Well, I'll turn it back to you and let you go over to Q and A.
Okay. Thank you, Gary. We'll turn that over to you.
We will now begin the question and answer Our first question is from Jon Arfstrom with RBC Capital Markets. Please go ahead.
Hey, thanks. Good afternoon, everyone.
Hey, Johnny.
On the growth question, maybe your least favorite question, Johnny, What do you all think changed between August September in terms of some of the demand that you're seeing and some of the growth that you're seeing?
Hey, John, this is Kevin. I don't think anything changed. I think we've said all year that we felt like the second half of the year is When we thought some things could happen and we felt that way 90 days ago, we saw that in our pipeline. If you Listen, Chris has said it, I think at least once or twice this year that it's taking longer to get things done, the municipalities, All of these, all of our 3rd party providers, it's just taking longer to get deals done. And I think that was part of What we saw in September, we're just seeing some things happen that we've been working on for a while and seeing happen.
Okay. I think the point there is the difference in loan growth and our statement was quality of loan growth. Right. We didn't see we saw a lot of people just stealing from each other for a period of time and it truly was a race to the bottom. And as I looked at margins, company margins over the last firstly, I'm looking at them yesterday, actually, Different corporations and they've sold or sold in lots of respect and we haven't.
So When I say quality loan growth, I'm talking about stuff that we can make money on. So we haven't caved in It's hard not to, let me say that. It's really hard enough to. We've been forced and submittance to match some stuff and we've done that. We don't like that, but we've been forced to have to do that.
But overall, I think, Stephen, we're about what, 5.13?
Yes. When you strip out the VIN income and PPP and The purchase accounting increase in the core loan yields about 5.13. We look over 4, 5 quarter period, it's been plus or minus.
We haven't changed that. A lot of people in these cycles, you see rates go to nothing And terms change and lower equity on the front end and non recourse. And it gets really frustrating as they chase. The harder they chase, the more you see those things coming up. And we're seeing that stuff.
Don't like it and we can't we don't play. As I said, we could have had lots of loan growth. We just don't do that. We just pass.
Yes. Yes, I think back to the Sims comments about running it hot and now you're at a 70% loan to deposit So it's encouraging to hear that you're seeing the quality opportunities. I guess, Chris touched on Redraws in the C and I business, John talked about some evidence of rebuilding inventories. And on the same topic, are you this quality loan growth, are you seeing it broaden out? Or is it mostly Chris' business where you're seeing it?
No, I think it's Kevin again. I think obviously Chris can tell you what he's seeing, but we're seeing within In the last 90 days, what was produced internally in the community bank footprint plus what we see in the pipeline, A lot of activity in those three regions and southern regions in Florida from Central, Southeast and South. There's a lot of activity down there as you can imagine. It's a lot of folks moving to Florida and a lot of activity down there. So that's I think where a lot of the activity is coming from on the Community Bank side and then Chris has got his group as well.
Bruce, you got a comment?
No, I don't know that I do. I think it's been Pretty similar for us story for the last couple of quarters. We continue to see demand for our product across all our markets and the challenges are Finding good deals and then getting those deals across the finish line, everything takes a little longer than we'd like, but we continue to refill the pipeline. So continue to feel pretty good about things.
Okay, good. Good, that's helpful. And then just one on deposits, Stephen, for you. You like a lot of banks, you have this high class problem of A lot of deposits, how do you expect the deposit base to react if we see interest rates continue to move higher?
I think absent the move from the Fed, I mean, I think we'll be able to keep our foot on them and there's still some opportunity As some things that we have on contract come due to get to where rates should be today. And then I think one of the Like you said, it's a high class problem. To see our non interest bearing base grow like it has over the last year and a half is fantastic, 30% today that The more we can add to that customer base, the less fear we have About rates going up.
We've seen a race to the bottom on rates. I hope we don't see a race to the top on Deposit costs in the future, but there'll be somebody who'll come out with some big CD special as you know in the past, but hopefully that'll be a while. Looks like Looks like maybe, maybe, we're hearing that it could be this year, it could be next year before we start to see rates go up. But I think it's going to happen.
Yes. Okay. All right. Thanks for the help. I appreciate it.
Thanks, John. Yes. We'll see you at your conference. Looking forward to it.
All right. Sounds good.
The next question is from Brady Gailey with KBW. Please go ahead.
Just one more on loan growth. But when I look at your pro form a Franchise, you guys are going to be in 2 of the best growth markets in the South and Florida and in Texas. In a normalized environment, what do you think is a good longer term growth rate to consider for home?
Well, during normal times, I think 3% to 5% is a good I think 5% probably is a good normal growth rate, But we just haven't seen it. I guess we've been so picky lately. We've been through some crazy times, right? 8, 9, 10, 11, 12 And that fiasco and then into the pandemic, I just think we're all forces We didn't know what was going to happen at that time, but it is pretty exciting out there today looking at the opportunities On the loan side, I don't want to talk too much about it because last time I said loans were going up, they went down. And I was confident.
I was reading off the sheet, but we had some big payoffs right at the end and we went down. But that part's The rest of it, as you can see, I mean, the cost of funds is excellent. The asset quality is excellent. The addition of Happy Bank is going to be great. I think they had loan growth for the quarter.
That's good. I haven't seen all the numbers on them at this point in time. I guess, they'll be on the FDIC website here before long. But we're I mean, you can't ask for much more than what the company is doing. We just need to we just need some additional assets and we get those.
And I can take companies run about 2% ROA and I can look at $24,000,000,000 worth of assets and imagine the 2% ROA I can multiply that in my head. I don't have to get a calculator. So at some point, our big goal is getting Happy's expenses in line with homes and I'm kind of running off here a little bit, but you asked about it's really loan growth is the key. As you see, there's not Anything else that I know of inside the company that needs to be finished.
Yes. And, man, I know you guys have Talked about possibly redeeming the $300,000,000 of sub debt, the things like 5 and 5.8s That becomes callable in April. Now you have Happy in the mix. Maybe just your updated thoughts on Potentially redeeming a portion or all of that subject. If you were to redeem all of it, I think it is a nice benefit to earnings there.
I agree with that and we're working on that and we're looking at that. We have put back how much we got now Brian?
We've got $125,000,000 put back today And we'll have $150,000,000 by the
time we get to the payoff date.
I think Steve is going to kick that up a little bit between now and payoff date if we can. And We have one of our customers, friends, whatever has offered to loan us some money on that, so we wouldn't have to Go back on another 5 year no call, I guess we'll get this refinance where we are. We would like to pay that off. We will pay at least half of it off, but we would like to pay the entire balance off. And even if we don't Get the ability to pay it all off.
We'll try to borrow some money and pay it off on a $5,000,000 a month to get rid of it. So At least that's what it looks like. Brian, you got any comment on that?
No. I think what you said is pretty much accurate to what we've been talking about.
That's a pretty good that's about a dime, isn't it? That's close to a dime?
It's a dime with our current share count. When our share count goes up About 20% of it, probably closer to $0.08
Well, we just want to keep plenty of capital In the chest, Happy Deals is an important transaction for us. I don't think they don't really impact our capital ratios very much.
No, it's all Tier 2 capital. We're basically double Tier 2 capital and well capitalized.
So it makes sense for us to Take that opportunity and pay hopefully pay it off in full and get rid of that $18,000,000 pre tax deal. So that's a pretty good gain for us. We'll be pushing in that direction.
Okay. And then finally for me also on the capital theme. It looks like you repurchased Some stock this quarter, the stock still trades pretty attractively. Do you think you'll continue to be active on the buyback from here?
Well, we've always been active on the buyback side. We like to buy the stock. We're generating This company generates lots and lots of capital. So we owe our shareholders a dividend. There's going to have to be patient dividend increase.
We're going to have to be a little patient here We get through these processes into next year. We're due for a dividend increase and we have the money to do that, but I think The 2 top priorities for the company right now, but we'll continue to be in the market buying stock. We're limited to the amount we can buy though Based on a rule that 10b18? That's right.
The daily average from 3 months prior to The announcement of PAPI is kind of where we're capped at, but we're able to do that on a daily basis and have been and we plan to continue to.
Got it. Thanks guys. You bet. Thank you.
The next question is from Stephen Scouten with Piper Sandler. Please go ahead.
Hey, good afternoon, everyone.
Good afternoon, Stephen.
I guess one thing I was curious about Because it's just the loan loss reserves, obviously, you have one of the highest reserves in the industry. So not only do you You have high capital ratios, but you've got other capital sitting there
in your reserve as well. So how do
you think about that today? I know you like to have higher reserves, But at some point, do the accountants make you take this down to a much lower level from here? Or how can we kind of think about that? I
don't I would think so. But however, we just we're buying a $6,000,000,000 company and happy. And even though we did our due diligence, things look different sometimes when you get inside 1. So I think We're going to try to maintain that reserve, particularly in line with the fact that we're picking up $3,000,000,000 or $4,000,000,000 worth of loans here. We think that's prudent for us After that point in time, if the asset quality turns out to be where we think it is, we may be forced to do something.
But as of right now, I think we'd like to try to hold on to that. I think it's prudent for us to do that is to hang on to that for at least into Hopefully, we will close happy probably next year. Hopefully, we can carry it through next year. And if we don't have any hiccups, then we will move on. I don't know if they'll let us do that.
That's just me speaking.
Got it. Okay, great. And then I guess thinking about CCFG And that book of business and I know you got asked this on the deal announcement call, but as the balance sheet grows, how aggressive do you think You would let that team be and Chris' group be in terms of growing a little bit more rapidly if that opportunity set is out there?
Well, I want Chris to do what Chris does. Chris does one hell of a job for this company and his team does. And we haven't had any loan problems and we were before the call, we were all best and Chris said, I can do a billion in the next 90 days if you want it. He said, but I'd like you to pay me upfront. So I'll let Chris talk to that.
I'll let him make that comment. We he has all the rope in the world. I mean, he has the ability, he has the authority to do pretty much what he wants to do because of his track record with us. And they've done it. You know how well they've done for us and how well that's worked for us.
So I don't think Chris is I don't think he likes to collect too much. So I'll let him comment. Chris, you want to make a comment?
Yes, sir. Thanks.
Well, I
think as Johnny said, I don't think we've been that limited. With that said, Excuse me, I do think we felt like we were probably about a reasonable size given the rest of the balance sheet. And so given the fact the balance sheet get larger, I think that I'll be honest with you, I don't think we're going to rush out and do that. Johnny didn't take me up on the offer of paying me in advance or right away. So But certainly over the coming periods, whatever that is, over the next quarters or year, years, etcetera, there's certainly opportunity out there to do that.
Just as a way of reference, prior to joining Centennial, this group was running well over $3,000,000,000 So the size doesn't scare me. I think it's just a matter of being able to pick the right things and do it in our time. And as Johnny said, I think we do it in ways that we feel most comfortable with. So I would say I don't see any reason why we wouldn't grow over that period of time, but I certainly don't feel the pressure to do it, but it's nice to be able to.
The next question is from Brian Martin with Janney Montgomery Scott. Please go ahead.
Hey guys, good afternoon.
Hey Brian.
Hey, just maybe one question and just back to the loan, not the loan growth, but just the loan yields and maybe Stephen can comment or just somebody. But Your expectations given kind of the competition in the market with all the liquidity out there to find your well priced deals and kind of sustain That loan yield, where is that in conjunction with the growth?
Yes. I mean, if you look at our production For the quarter, I think the Community Bank Group, which is the biggest component of the total was in the 4.89 $4.80 $4.90 range on coupon before origination fees. So it's a little lower than where you call the net yield is today. But Back to what this whole group has mentioned, we'll continue to maintain the discipline there And find our spots where we can originate volume.
Well, we originated $1,000,000,000 what? 1.07000000000 dollars I think. 1,070,000,000 for the quarter. So it hadn't gone away. The opportunities are still there for us.
So we're encouraged by that. We've been running a lot less than that and it's really picked up. A lot of things we've been working on for a period of time are kind of beginning to come around. As Kevin talked about, they're slow. And some of our credits have just taken a while to come to fruition.
So I'm pretty optimistic. I don't want to be too optimistic because I don't want to be disappointed. I don't want to disappoint the Street. As you know, we tell it pretty much like we see it. Yes.
Okay. And then how about just maybe back to that kind of origination volume was a pretty big jump this quarter in that origination volume number and In conjunction with a little bit of a decline in the payoffs, I mean, do you think these levels when you look at the jump this quarter, I mean, do we kind of see Maybe a step back down a little bit on the origination side and I guess how are you feeling about kind of the payoff levels given maybe some of the potential Tax law changes out there, I mean, I guess, is a lower level, more in the sites now as you get into next year possibly?
Hey, Brian, it's Kevin. I mean, I think from the payoff side, I mean, you could see some stuff here before year end If people feel like that there's a chance that the tax law is going to change, that certainly could happen. On the production side, I mean, I think it's a function of a lot of the deals that we're doing are our construction type acquisition bridge type stuff between Chris' group and our group. And those take longer to develop and they draw up over time. So you're going to see some of the fruition of the stuff we've closed over the next 6, 9, 12 months, Both on the Community Bank side and on Chris' side.
So I think it's we just have to kind of Take it as it comes and I feel good about we still feel good about second half of the year. We feel good about 'twenty two. We think we're in good markets that are going to grow and that's where we want to be.
And you think about Texas, hopefully, we get that's been a good market. Texas has been awfully strong. If we can take the assets, that $6,000,000,000 with assets, we can get the kind of returns or anywhere close to kind of returns We're getting out of home bank shares. It ought to really be a plus for us. And we're just going to have to work on that, Bring their cost more in line with home because they got the revenue side, they do the revenue side.
You think about it, that's the toughest part of 1, is the revenue side. As I said earlier, getting the revenue and getting the rate is the toughest part, And Happy is doing that. So we don't have to work on that side of it. We just need to work on the other side of it. So, Traci, you got
to comment on that, Looking
at the potential growth piece of it, I mean, we've got we've been working with Scott and Robert and Jeff of Central Texas and already they're communicating with us on some opportunities that they've had and to increase some of the BARS relationship. So some of the periods of time that they've managed and down there with their capital position, they've had to Tone it down a little bit, but as Johnny mentioned in his opening remarks, their rates are a little bit better than ours over time. So we think The customer relationship there and our size is going to certainly give those staff members opportunities to Take us to the next level as I've said.
It could be really nice. I mean, you begin in 4 or 5 days here, Just in the last 4 or 5 days, David Drury has called. He wants us to be in Florida with 2 huge Projects that are coming out of the ground are people from happy are calling us to meet with some customers that they have that want to Upsize what they're doing. It's been it's pretty encouraging here at this right now. It's encouraging.
I hope that continues And I kind of feel like it may, it may. And they're price wrapped. The deals are not giving stuff away and you're not having to do non recourse. So You're not doing 80% leverage in non recourse in a 3.5% note fixed for 10.
Okay. I appreciate the color. Maybe just one housekeeping one for Brian. Brian, the PPP forgiveness, I guess, Maybe has your outlook changed from what you kind of talked about last quarter given the performance this quarter as far as when that it sounds like most of that probably wraps up this year, is that Is that fair?
Yes. Here's kind of the numbers. I mean we had it has to be down from next for this quarter because we had 9 point $3,000,000 of PPP income this quarter. There's only $8,900,000 of
the PPP income left period.
So we're off to a pretty good start in the 1st couple of weeks on payoffs, but as Kevin and I were talking Earlier this morning, that's drastically slowed down. So we recorded about $1,000,000 of PPP income in the 1st few weeks of October, but that's going to slow down drastically. So we'll make $3,000,000 this month, doubt it very seriously and it's probably going to Trickled down. There's only $8,900,000 of it last period.
Yes. That's pretty negligible to next year. So that's really the point. So okay. I appreciate the update, guys.
Thanks.
Thank you.
The next question is from Matt Olney with Stephens. Please go ahead.
Hey, guys. Thanks for taking the question. I want to ask about the excess liquidity position at the bank, and I'm sure there's a preference to Deploy that into loans over time, but it seems like there's plenty of liquidity to deploy elsewhere. So love to hear more about the appetite To deploy that into securities today and if there's not much appetite, just give us some more color about what kind of environment you're looking for to get more constructive on Point that into securities portfolio. Thanks.
What we're going to do
is let you be with your guys at Stephens, give us a 4
Just 4% that's it.
That's pretty easy. It's too easy,
Too easy. We don't have a big desire to put it in securities at this point. We just don't have that desire. We put a little bit in securities More than I wanted to put in securities, but we just don't have that desire to lock it in. We keep saying we're right.
We've been saying that for about 4 quarters and may continue. We may be 4 years now, we're saying when we're right. Well, if we live long enough, I guess, we will be right and rates They're just with this however, the Biden tax plan, I mean the Biden spending plan may not pass. That deal may have 3.73 and it turned into 5 or 6. That may not pass.
And that might be able to hold rates at a lower rate. If that happens, we may be forced to look at something else. Kevin was reporting about one of our competitors' friends had done recently bought a bunch of mortgage loans Just buying bulk of them, I'd rather do that than put them in long term securities. So We're constantly looking for opportunities to deploy those funds. But if you we're not going to put it in 1.5% securities, we're just not going to do that.
We just think there's a better way. I'd rather go buy $1,000,000 worth of mortgage loans that are yielding net $2.50,000 $2.60,000 $2.70 So, I saw our Mortgage rates are up 3.15 is right on 30 here today. They're up. Maybe, Kevin, those will come up a little bit for us Over a period of time. Kevin, we were looking at that yesterday about a thought process on that.
We're not going to put it in 1.5% and 1.6% securities.
Yes. Okay. Certainly is a tricky environment. Okay. Well, thanks for the commentary, guys.
That's all for me. Great quarter.
Thank you. Thank you very much.
This concludes our question and answer session. I would like to turn the conference back over to Mr. Allison for any closing remarks.
Thank you, Gary. Thank you for joining today. Thanks for your support of Home. I want you to know that this team works hard every day and every night most of the time. As we have an Never go home.
You can go HOMB, but never leave HOMB. So we work very hard at it and we're extremely serious about Being one of the best banks in the country and we have been for many years and hopefully with the addition of Happy Bank and their great team of people That will give us another $6,000,000,000 worth of assets to I mean, as I said before, they got the revenue side. We got to work with That's sad. And hopefully, we can do that. We can't do it now, but hopefully, it will close in January.
And I'd like Tracy and Michael are Way down the road on their plan, am I right, Tracy?
Doing well, very well. Doing well. All the teams are working extremely well together. Best I think ever out of 25 outside me Johnny when you bought that.
So Tracy said, oh, we're working together better than Except for I bought him years ago, he'll tell all of you that he is the best acquisition that I ever did.
That's only because he The first one, right?
Yes. She's the first one. Anyway, thank you for your support. And anybody else have anything else to comment about?
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.