Greetings, ladies and gentlemen. Welcome to The Home Bancshares Incorporated Fourth Quarter 2022 earnings call. The purpose of this call is to discuss the information and data provided in the quarterly earning release issued this morning. The company presenters will begin with prepared remarks, then entertain questions. Please note that if you would like to ask a question during the question and answer session, please press star then one on a touch-tone phone. If you decide you want to withdraw your question, please press star then two to remove yourself from the list. The company has asked me to remind everyone to refer to their cautionary note regarding forward-looking statements.
You will find this note on page three of their Form 10-K filed with the SEC in February 2022. At this time, all participants are in a listen-only mode, and this conference is being recorded. If you need operator assistance during the conference, please press star then zero. It is now my pleasure to turn the call over to Donna Townsel, Director of Investor Relations.
Thank you. Good afternoon, and welcome to our fourth quarter conference call. Today's discussion will include prepared remarks from our Chairman, John Allison; Chris Poulton, President of CCFG; and Stephen Tipton, Chief Operating Officer. The rest of our team is present and available for questions. Tracy French, President and CEO of Centennial Bank; Brian Davis, our Chief Financial Officer; Kevin Hester, Chief Lending Officer; and John Marshall, President of Shore Premier Finance. 2022 was quite a year. Home BancShares finished the year, though, with a strong fourth quarter, and to provide you with the details is our first speaker, Chairman John Allison.
Thank you, Donna. Welcome to our 2022 year-end and fourth quarter earnings release and conference call. Properly managing last year was both arduous, stressful, and somewhat exhausting at best. Loan and deposit rates had not been this high since the late 70s and the early 80s. That's when Volcker took rates to the low 20s and finally killed the snake, better known as inflation. This is the second fastest that we've ever raised rates in the history of our country. Our belief is that we have higher rates for longer. We've not even hit the 50-year average yet at 5.44 Fed funds. The pivot crowd will be disappointed because Powell is aware of the early pivot that Volcker did in the 70s. Inflation was not over then, and it's not over now.
We must hold the course, maybe not raise rates as much as in the past, but continue to raise, pause, observe, as it takes almost a year for the impact of what we do today to show up in the economy. We've seen some signs of inflation slowing, but without continued rate increases, this could be no more than a head fake. The naysayers are saying there will be runs on banks. Bad loans will start raising their head. The recession is here. The biggest stock market crash is imminent. There is a financial hurricane leading in this direction. Banks are out of money, and higher interest rates are destroying the value by reducing the value of their securities due to AOCI. I have to agree that some of these risks are certainly out there, but most can be properly managed.
A lot of deposits at much higher rates are finding their way to those that did not show patience and continued on the same path, plowing deposits into low rate loans and securities. It'll be a long road for those companies. They will not catch up for three to five years if that quick or until the low rate loans and securities roll off the books. I've said this before, and I'm going to say it again, there is no substitute for experience. The key is simply have interest income to outrun interest expense to result in an increase in net interest income. Even as conservative as Home is and the position we were in, this is a very trying task during the quarter because those who spent their money were forced to borrow money regardless of the cost, as evidenced by their CD ads everywhere.
There has not been a CD ad run at Home. We let deposits leave the bank only when they hit the stupid point. Otherwise, we attempt to retain the deposits. In good times, these brain-dead banks had a race to the bottom on loan rates. Now they're having a race to the top on deposit rates. As tough as it is to maintain excess cash, we're still hanging in around 80% loan to deposit. Additional cash flows from securities, principal payments, and smaller payoffs are resulting in about $300 million per month in cash flow. February is expected to be about $550 million because we have a $250 million treasury. Put that in where we could get another bite at the apple. We get that in early February.
We have, with 80% loan deposits, virtually no broker deposits, limited borrowing with billions of capacity, plus cash flow, Home is sitting in a great position. In spite of the damage done and more attempted by the West Texas group, it appears the intent was to destroy shareholder value. The strength of the entire franchise has stepped up and delivered three record quarters in a row since we closed that transaction. We're keeping a tally of the unprofessed damage done to our franchise, we'll talk more about that in coming months. I found this pretty interesting. Bill Bonner, described as an underappreciated economic genius, explained that financial innovations always appear brilliant at first, they soon are taken to excess and become a farce, eventually the farce leads to a tragedy. All banks are not created equal.
As all cars, as all land, people, management teams, football teams, we pride ourselves by trying to separate ourselves from the rest of the pack with top-tier performance, being named best bank in America. By Forbes three out of the last five years. It's certainly a great achievement by our team. I don't know of any other bank in the country that has achieved that goal. We just witnessed the Georgia Bulldogs separate themselves from the pack in a very impressive fashion. No doubt about who is the national champion in the U.S. I don't know that Home is the national bank champion, but we're certainly in the playoffs, and the congratulations goes to our team.
We're appreciative of the trading multiple given to us by our supporters, as there are only a handful of banks trading over 2 x tangible book, while 66% of all publicly traded banks are trading at 1.25 or less. That number came from last week. They're taking them all down this way. The conservative management team at Home believes in maintaining a fortress balance sheet with excess capital and sufficient reserves. We do that in the event of a major downturn in the economy, all while continuing to report record profits and top-tier performance. We'll continue to carry these conservative balances. Regardless of the situation, Home will be open in the morning, next week and next month. There is no substitute for strength. You cannot get it when you need it. Therefore, we carry it at all times. Better safe than sorry.
Don't worry about Home. We're taking care of your bank. Let's go to the numbers. I'm pretty impressed with these numbers myself. Record fourth quarter income of $115.7 million, or $0.57 a share. I'm sure that's a beat. Record 2022 earnings as adjusted for the one-time second quarter adjustment on the merger expense of $107 million. $375.9 million, or $1.93 EPS. Fourth quarter ROA, 1.98%. A little disappointing. I wanted two, but that's about as close to two as you can get. ROTCE, return on tangible common equity, fourth quarter, amazing, 22.96%. Tangible book grew from $9.82- $10.17, even though we continued to buy back stock. AOCI, [inaudible] reported AOCI improved by $2 million.
That's not much, but it's certainly moving in the right direction. ROE, 13.26%. Revenue, record revenue, $272.3 for the fourth quarter. Fourth quarter margin, 4.21%, up from 4.05%. That's up 16 basis points. I think at the end of the first quarter, we said we'll continue to expand the margin in the second quarter, but not as much. It was a pretty good battle, somebody better be managing their bank every day to grow that margin. Non-performing assets were 0.27%, non-performing loans were 0.42%, same or about the same or lower than last quarter. Fourth quarter loan growth was $580 million, I think Stephen's gonna report on how that ratio that was on.
I think overall portfolio was up 60 basis points in the fourth quarter. We added $5 million to reserve. That puts us at 475.99 times classified assets. I guess that's what it'd be. Reserved, reserve is 475.99 to performing loans, I'm sorry, non-performing loans. That's a 2.01. Number is $289.7 million. Efficiency ratio, 42.44%. We repurchased 840,000 shares for $20 million during the quarter. We didn't make any change in dividend. We'll be discussing that at the meeting on Friday. We received $15 million from our lawsuit against First Service on a lawsuit settlement. Next quarter, I'm gonna introduce a very exciting and profitable portion of our company that has never been properly recognized or promoted.
Stay tuned for that. I think you'll enjoy that. It's taken a lot of my attention recently. Strong capital levels, and I think Stephen's gonna go over those in his presentation. These are some of the best numbers that we've ever produced, and probably the best that anyone's ever produced. We didn't win the national bank championship, but I can guarantee you we're in the playoffs. During all this time, we get downgraded with these numbers. I find that really totally unbelievable. Anyway, it is what it is. Donna, I think that pretty much wraps up what I've got to say. If you wanna take it from here.
Okay. Thank you for that. I know that all of our listeners always appreciate your insight. Congratulations on another great year. Our next update will come from New York, from Chris Poulton with CCFG.
Thanks, Donna. Johnny, I appreciate the shout-out to UGA. Go Dawgs. Q4 capped off what turned out to be a solid year for CCFG. For the quarter, loan balances grew by just under $200 million at $197 million on just over $500 million in new originations. This growth was despite a robust $320 million in payoffs and pay downs for the quarter. Q4 is generally an active quarter as customers look to complete transactions ahead of the year-end. You may recall that our portfolio declined by about $340 million in the third quarter. Much of the growth in the Q4 was simply planned backfill of the portfolio as we took advantage of the chance to redeploy our capital.
Frequent listeners may have heard me say from time to time that getting repaid is not, in fact, the worst outcome for a loan. These repayments provide us an opportunity to redeploy capital on new, usually improved terms. For the full year, CCFG grew $356 million, or about 18%, on just over $1.5 billion in total originations. Looking ahead, volatility in markets generally creates opportunities for our lending strategies as traditional bank financing becomes either unattractive or unavailable. We enter 2023 with our usual sense of caution. Today, our leverage is generally a bit lower and structure a bit tighter, but we remain confident that we will continue to see a number of opportunities to modestly deploy capital in the coming quarters. Donna, back to you.
Thank you, Chris, and congratulations to you and your team on another great year.
Thank you.
Now for our final report, it will come from Stephen Tipton.
Thanks, Donna. As Johnny mentioned, it has been quite a year. It's fun to get to report on such a strong and high-performing company. We look forward to another great year in 2023. I'll start first with the net interest margin, which improved again in Q4 to 4.21%, up 16 basis points from Q3 and up 79 basis points from a year ago. The improvement comes as the earning asset mix improved on a slightly smaller balance sheet. We'll continue with our approach of maintaining healthy cash balances at the Fed and look for opportunities to deploy that liquidity where and when it makes sense. We continue to navigate through customer expectations for interest rates on the deposit side amid such a competitive environment that has already been mentioned. We'll do that on a case-by-case basis.
If we do see additional rate increases and are able to hold the deposit rates at a reasonable level, the current ALCO model projections show about a 3.5% increase to NII in the next up 100 basis point scenario. Switching to deposits, total deposits into the 3rd quarter just shy of $18 billion. The decline in balances slowed from prior quarters, and we actually saw increases in North Arkansas and the Central Florida and Southern Florida markets. Non-interest-bearing deposits accounted for 29% of the total at $5.2 billion, while CDs only comprise less than 6% of the total deposit base. We're focused on our core customer base in the markets we serve and looking to bring in new relationships as we deploy capital into the loan portfolio.
Staying with liquidity for a moment, as Johnny mentioned, our loan-to-deposit ratio ended the quarter at 80%, and our primary liquidity ratio remains strong at over 19%. Switching to loans, origination volume was strong at $1.9 billion for the quarter, with over $1.3 billion coming from the community bank markets we serve. Yields on new production came in at 7.17% and increased each month throughout the quarter. We continue to focus on pulling these rate increases through the current pipeline and as loans mature.
Payoffs moderated in Q4 with a total of $710 million, down from $1.2 billion in Q3, and helped contribute to the average and end-period loan balance increases. Switching to capital and a few key ratios, as Johnny already mentioned, we had total risk-based capital of 16.54%, a leverage ratio of 10.86%, and a tangible common equity or TCE ratio at a strong 9.66% as of December 31st. All of these are well in excess of our internal targets. Donna, with that, I'll turn it back over to you.
Thank you, Stephen. Good report. Well, Johnny and Trcy, before we go to Q&A, do either of y'all have any additional comments?
Yeah, I was thinking when Johnny used all those adjectives when he started his prepared remarks, I came up with the word entertaining. It's certainly been an entertaining year, well, the best ever. You know, it's never been dull with you, Johnny, in the 21 years I've been around, so entertaining is probably the better word. A compliment to all of our markets and regions and the areas for the past year. Certainly, we've seen the rapid increase in interest rates has been something to work with. All of our markets have done an outstanding job managing their balance sheet, which overall makes our balance sheet looks good when you look at numbers for the bank and return on assets are in the 2% range. The return on average tangible common equity is in the 20s.
You've got efficiency ratio that's in the low 40s. We actually hit below that this past month, which is nice. You got net interest margin around 4.25%. That's pretty strong telling about the type of folks we have working out there in our community. You know, one thing you talked about inflation that I think our company does really well at, and we talk to our market leaders on a regular basis, just talking to the customers. We know there's still a lot of things of concern out there, some people have cut back on doing certain things. Some loans that we talked about doing nine months ago that customers called and said they want to put it on hold for a little while, which is just good business.
I think that's the nice thing about our balance sheet that we have in the bank is knowing our customer, our customers are making good business decisions. It's showing up in the numbers. All the performance numbers are good, Mr. Allison, and I hate to say this in front of you, but I think we've got room that we can improve on all of them.
Well, why would you hate to say that?
I mean, I've always been easy. I've never kept raising the bar. Anyway, it's a great quarter. Thanks, everyone, for your support out there. I can't say enough about the quarter. I don't know anybody I'd look for somebody. I'm anxious to find somebody that we may win the national championship, Donna. I'm just anxious to see somebody beat us in this market for the quarter, and I'm not sure they'll do that.
Well, I'll get the pom-poms ready just in case.
Get the pom-pom. Maybe we'll get Slurpee again. You think maybe we can get some Slurpee? What was the horn you had?
We had some kazoos.
Kazoos. Yeah, we'll get us some kazoos. Anyway, I think it's a great quarter. Look forward to the questions, and I'll give it back to you.
Okay. Thank you. We'll turn it back to the operator for Q&A.
Absolutely. We will now begin the question and answer session. If you would like to ask a question, please press star followed by one on your telephone keypad. If for any reason at all you would like to remove that question, please press star followed by two. Again, to ask a question, please press star one. As a quick reminder, if you are using a speakerphone, please remember to pick up your handset before asking your question. Our first question comes from Matt Olney with Stephens. You may proceed.
Hey, thanks, guys. How are you?
We're good. We're happy on this end.
Good. Good stuff. Well, good report. Want to ask about the loan growth, strong trends in the fourth quarter. We got the report from Chris pretty active in his group, but the community bank also had a strong quarter of growth. Any color there? As you think about 2023, what are the expectations for growth there? Thanks.
Hey, Matt, this is Kevin. you know, you heard Stephen talk about lower payoff numbers, so that factored in some. Certainly he mentioned the production across the footprint. You could hear how much of that came out of the footprint. It was a strong quarter for really, you know, a lot of our regions. That's kind of a function of us continuing to do what we do. We're pretty conservative across the board. We stick with that, and sometimes it works in our favor these times where you got competitors that are some out of money and some just choosing to sit on the sidelines in certain asset classes.
We keep doing what we're doing conservatively and, you know, we're getting to go to the dance some now. We'll just continue to do what we do. As Johnny says, sometimes it works in our favor, sometimes it doesn't, and this quarter it certainly did. It looks, you know, we've got folks doing a lot of stuff right now, looking at a lot of things. We're, we like where we're at.
A lot of banks are out of money. I mean, they're loaned up, and gives us a shot, I think, at some of these deals, so. I mean, you think about somebody loaned up 100%+ and they're borrowed out. It's gonna take a while to unwind that before they, before they can get back in the competition.
Yeah. Yep. Okay. I appreciate that. On the credit front, looks like you reported a positive loan loss provision expense for the first time in a while. Anything specific that drove that? I guess kind of stepping back, any specific asset classes you're watching closely or any loan categories, you're more focused on in 2023?
Hey, Matt, this is Kevin again. You know, we're certainly from an asset class standpoint, we're going to watch- a few.
Retail.
You got retail that certainly has stresses and as you see how this economic cycle continues, if we, you know, do truly go into kind of a consumer recession, then that's something we're going to watch. Office obviously is on everybody's mind, and we don't have a ton of office, but we'll look at what we got and continue to watch it like we do anything else. Hotel seems to be doing well in certainly in the markets we're in. So we will watch the asset classes based on, you know, what we're hearing out there in our markets and in the national as a whole.
You know, just from our perspective in the fourth quarter, we had a group of about six ALF properties in Florida that total about $100 million that has struggled to reach stabilization. The equity came from an institutional investor. These loans have always been current, continue to be current, and supported by this investment group. Given the long stabilization runway that they've been on and more challenges ahead, we decided in the fourth quarter to move those loans to substandard. We've been watching them for a while.
Not anything particularly different today than yesterday, but just given the length time watching them, we decided to move them. I think you'll see that as the quarter numbers come out. Again, we'll watch the market and watch our asset classes that we're heavier in and look at particular loans as their annual reports come in, and you know, we'll act accordingly.
Yeah, we've talked about these credits over the years, and their current plan has agreed, but they still bother me a little. I think we underwrote them, you know, when we had the pandemic hit, and they said, "Oh, Home's going to get killed on hotels." Well, we did a fireside chat and showed everybody we underwrote them properly. We underwrote these properly too, so I don't anticipate a loss in these if push comes to shove. It is something we've talked about, and Kevin thought it was time to downgrade them, so we did downgrade them. Outside of that, we had about $100 million of them. Only really the only ones that had a problem was about $60 million of them, so $60 million.
If there was a loss, it'd be small, I would say. I mean, you might lose $10 million maybe not. Anyway, we always like the 2% reserve. You ask about the loan amount, you know, good days, bad days, recession, high rates, low rates, inflation, whatever comes or goes, 2% reserve has worked. That's been a rule for us for many years. We like 2% reserve. We don't want to use our reserve like a piggy bank and pull stuff out, put money in, pull it out, put it in. We have a 2% reserve. We like that. We feel comfortable with that. We went through 2008, 2009 and 2010, the worst financial crisis I've ever seen in my business career.
With a 2% reserve, it paid off for us. We'll continue to maintain strong reserves in the event that something were to pop out there anyway. That's. We've actually fell down below 2%, so we put the money in there. We got a gift from ServisFirst gave us a little gift during the quarter, so we just kind of thought we'd put that money in reserve.
Yep. Okay. Well, I appreciate the disclosure on some of those downgrades. Just to clarify, Kevin, what types of credits were those? I was a little unclear on what those were.
Assisted living facilities.
Okay
It's primarily memory care. One thing we've learned is the memory care struggle. People I'd be glad when they get a pill you can take for memory care, but people struggle with memory care. Sad as it is, the patients don't live very long. You got a lot of turnover. A lot of turnover been really expensive. The staffing has been really a challenge after COVID, so they have a lot of headwinds. I'm sure that asset class will straighten itself out at some point in time because the baby boomers are rolling. You know, they're getting 65 and older. Lots of baby boomers rolling into that. I think that's what was anticipated in this field was that's what would happen. It has been a struggle on the cash flow side.
Particularly people went and got their loved ones when the pandemic hit, they went and got their loved ones and took them out and brought them home. A lot of that happened, and filling them back up. One of those, one of those memory care centers or assisted living centers was hit by a hurricane. We got the insurance. Hopefully, we can sell that one to the insurance company. That would be one of the ones that were in question.
Okay. Okay. Well, thanks for the help, and appreciate you taking my question.
You bet. Thank you, Matt.
Thank you. Our next question comes from Jon Arfstrom with RBC. You may proceed.
Hey, good afternoon, everyone.
Hi, Jon.
Can you guys hear me all right? Hey, Stephen, question for you. You threw out a number 7.17%. Was that the new loan yield production?
Yes, that's correct. Good afternoon.
Okay
That would be coupon on total production for Q4. you know, only a portion of that would have funded by year-end or during the quarter.
Yeah
That was what we wrote. [inaudible] yield was what?
Yeah, I think I mentioned it increased kind of throughout the quarter just as market conditions have changed. I think we wrote it about 740 or so in December. It's got a nice trend towards it, and, you know, it's kind of lining up with what you're seeing from the Fed.
Got it. Okay. What kind of reaction are you getting from clients at those rates? It seems like there's plenty of demand, but just kind of curious on sentiment.
This is Kevin. You know, I think people have recognized that that's where the market is, and you know, their deal either has to work at those rates or, you know, they can't do their deal. We've had a couple. One of our big builders came in, and some of his projects didn't work at those rates, and he just pulled them off the table until he gets... Had inflation, building costs were up, interest rates were up, and it just didn't work. To his credit, he pulled those projects off the table. We'll see him again, I think, because he owns the land. Yep. He won't go forward with the project. Good business.
These people actually, our customers are thinking through this process well, looking at it, analyze it, decide if they need to do it now, do it later. Some need to do it now. Some need to do it maybe as evidenced by the strong home growth for the quarter. Cap rates are still good, if they're building to sell, you know, this is just an increase in their interim cost more than it is a cost of the project. Most will factor that in and take a little less profit and get it built, and get it sold, and move on. You know, our home builders, I just visited with our home builders out of Florida, big home builders.
They had said a softness in and around Houston. Their Florida and Alabama are continuing to run really strong. I think that's Tracy got that information. Is that what they said? Yeah. Yeah. It's, you know, October was good, November was a little dip, December strong. You know, they've adjusted some of their ways they market it over time. You know, margins are still a little bit less than what they were. They're still really good. By the way, we talked about asset quality a while ago, and I mean, everybody's been watching Shore Premier and been talking about Shore Premier.
If you don't mind, I'm going to get John Marshall to talk about Shore Premier and his performance and his past dues. If you could quickly tell us, not stealing your show. I, when we were talking about asset quality, I thought, well, let John present, and I forgot it. John, do you want to talk about what you're seeing out there?
Yeah. Mr. Allison, thank you. I appreciate the question. I'm seeing some forecasts in the market of elevated delinquency and defaults. I also believe, Mr. Allison, what we're gonna do, we're gonna observe that in the smaller boat and trailer retail segment. You all will recall that our marine book is underwritten to a prime credit quality standard. Our average application, Mr. Allison, is $820,000, and our average loan size is $670,000. Our borrowers have verified the liquidity of 66 months. Imagine that. Completely indifferent to their income, their W-2They've got 5 years of average liquidity to cover their obligations. That's all of their obligations, not just their boat loan.
If you consider delinquency as a harbinger of default, at 21 basis points, our delinquency is consistent in the fourth quarter with where we've seen it all year. Again, we feel like that's a very low number. Mr. Allison, I don't know if that answers the question, but it's kind of what we're seeing.
Thank you for that. I didn't mean to steal your thunder, John. I wanted to get that out. Matt asked about asset quality. You probably would've asked about it anyway. You've got the floor, Jon.
Yep. Yep. Yeah, no, I appreciate that. That's helpful. You guys, you alluded to the margin drifting up, but maybe not as much as the quarter, this past quarter. It seems like you've got some pretty good repricing coming, pretty good momentum in loan yields. How do you feel about the margin trajectory, and how are you guys fighting some of the, you know, deposit pricing requests and pressures? Is it just taking the loan-to-deposit ratio up, or is there something else going on?
Well, we're taking loan-to-deposit up a little bit, I think the trough on the deposit, I think we hit that. Interesting, we manage this company, as you know, every day, October was a screaming home run. It was just we knocked It was a grand slam home run for October. November, rates took off as you saw, it was hand-to-hand combat in November. We actually went backwards in November from October. Here comes December, we're booking some loans, we're getting them on the books, they're starting to run nip and tuck with the increase in revenue, the increase in interest expense. Till the 15th or 18th a month, we were actually running backwards, the whole thing turned.
At that point in time, we got enough new loans on the books to outrun the interest expense, and it ended up being a great December. It is hand-to-hand combat, and we're taking them one at a time, but we've dealt with most of it. I'll hush and let Stephen comment on what he.
Yeah, you said it, John. I mean, I think it all hinges on what we do have to do on the deposit side. I mean, we did, as Johnny mentioned, we were a little more aggressive in, you know, October, November, on, you know, on the heels of the 75 basis point rate increases. Had to pass some of that along to, you know, to deal with the customer demands. You know, feel like what we did in December, and then depending on what we see here in a week or two, the first of February from the Fed, we maybe be a little more conservative there.
It's not that we see it every day. We see it. We see it plus or minus, or we'll compare December eighth with November eighth, and how well we're doing there, and with October eighth, and how well we're doing there. How does that compare? Are we winning or are we losing? It was a battle, really. It's a battle. I think that most of the rate increases are done at this point in time. I'm optimistic that we'll have a shot. We have a shot at increasing margin in the first quarter if we can continue to ride where we're riding, and if I'm right, and most of the deposit expenses are behind us.
Okay. Okay. That's helpful. I appreciate it. Thanks.
Thank you.
Thank you. Our next question comes from Stephen Scouten with Piper Sandler. You may proceed.
Hey, good afternoon, everyone. Appreciate it.
Hey, Stephen.
First of all, great quarter. I think it, you know, kind of played out as you guys said it would, getting some of that liquidity to work. I'm kind of curious, John, to dig into the comment you made in your prepared remarks. I think it was around $300 million a month of cash flows and repayments and other things. I'm wondering how much of that specifically is coming off your bond book, in terms of cash flows? Just kind of trying to think about how much loan growth you could fund if, you know, without any incremental new deposit growth.
There's about $30 million, $35 million coming off the bond book, we really haven't de-redeployed that because rates are kind of backed up here a little bit, as you've noticed. We've just sat on that money. We're probably better off growing fed funds on that extra cash. That's what Brian's been doing with that.
Right. Because we're getting 4.4% at the Fed.
Yeah.
You're getting on new investments about five.
Yeah. As we think rates are going to go back up, they're not going to lock in somewhere, but we picked our spots, and rates kind of backed up on the securities. You've seen the 10-year and what's happened there. It is. Is it over? No, it's not over. Are they going to continue to raise? Certainly, they're going to continue to raise. It may not raise at the level that they've been raising, but they're going to continue to raise.
Yeah. The $35 million, that's per month in terms of cash flows. I was more thinking maybe not deployed back in the securities, but could you deploy that into funding the loan growth?
Absolutely. We can put it wherever we want to put it. Yeah, absolutely we can. You know, when you think about it, when you think about it's coming off at 150. If you can put it in at 747 or 40, if you can put it in, that's a pretty good spread. We're still sitting on some cash. We still got cash, and we're generating cash. We got a CD, not a CD, a treasury coming out in February that's $250 million that we'll put to work. We're pretty happy where we are.
Got it.
We don't need to borrow anything right now. We got plenty of room. We don't have any broken deposits. We really don't. We're not borrowed up, not at all. We need to get borrowed up, we can.
Got it. Makes sense. Then you guys, you referenced in the headline of the report despite continued West Texas headwinds, it's hard to see any headwinds in the results. I guess, can you expound on that a little bit of what's coming out of there? Is growth just not what you would want out of those markets yet, it's just been other areas that's just kind of helped kept us from seeing it?
They went after that bunch went after a bunch of our customers, took a bunch of our deposits, and did what they could do to damage the company, I guess. That's what it certainly appears like. Had we not had that, we would have had a much better quarter. We're keeping up with how much that is. I think it's important to know, keep a running tally on how much they got from us or stole from us or took unprofessionally from us. We're as you know, we don't when someone tries to injure the company, as happened with ServisFirst, we stayed after them for years until we got our money. I'm not saying we're gonna do that here either, but I don't like people trying to hurt our shareholders.
Yeah.
That's what I'm talking about.
Absolutely.
I'm done.
Okay, got it. The last thing for me is really just, like you mentioned, you guys have continued to repurchase shares and are one of the few bank stocks trading above 2x tangible any longer. At 2.30x at tangible, does M&A become more interesting than repurchasing your own shares at some point? Is that math just not attractive to you at this point in time?
It does beco me attractive. I mean, I'm appreciative of the support that people have given us to trade at that level and be one of the few to trade there. It is, we're interested in M&A. You know, I don't think. The problem is that a private bank doesn't recognize that their price goes down like the rest of the banks do. The rest of the banks used to be at 1.70x to 1.75 x tangible book, and now they're at 1.25x or less. 66% of them are. Regardless of what they do, theirs is going up the same way. I mean, it's going to be exactly the same. Whether a private bank recognizes or not, they go up and down like we do as a public company.
My thoughts are that we will be acquired here next week. We have two weeks away, and we're going to visit with some people out there. There's some opportunities there. Now M&A is. How do you do an M&A deal today, though, Stephen? I mean, you guys are pretty damn good. You're a great bank good as there is out there at doing deals and are one of the best at doing deals. How do you do one? How do you mark what are you going to mark your loan book at today? You know, with these rates where they are.
Yeah. Yeah. the, the math has gotten hard. Yeah.
It would be extremely difficult.
I agree.
To do it plus. I mean, you got to mark the loan book, and ACLCI has already booked the securities, basically. Can we do a deal, Brian?
Maybe.
I'm afraid the sellers can't take the marks, Stephen.
Yeah. Yeah. Yeah. No, that makes sense. I mean, obviously, the market's appetite has still been relatively tepid towards deals. I think, you know, you guys showed with a Happy deal, if you do the right deal at the right price and the right structure, it still can be perceived well. I appreciate all that color. Congrats on positioning the company well yet again.
Thank you. We appreciate it. We work hard at doing what's in the best interest of our shareholders. you know, as it turned out, Happy ended up being diluted to us because of ACLCI, but I think we overcame that pretty quick. The rest of the franchise jumped up to help us. It was, I'm very proud of the year. I think we had a great year in spite of all this. It is very stressful, though, managing your business with all this going on with the distraction in West Texas, along with all these interest rate changes. We got through it and had a great year.
Thank you. The next question comes from Brett Rabatin with Hovde Group. Please proceed.
Hey, good afternoon, everyone. Thanks for taking the question.
Hey, Brett.
Congrats on the championship as well. Wanted to talk about deposits for a second and just, you know, I think everyone's trying to figure out, you know, how much more they might see operating accounts from a DDA perspective decline and how much more liquidity could drain out from the low-cost core deposits. Just wanted to see if you had any crystal ball thoughts on that for your bank. You know, you've obviously not had to really push too hard on deposit betas versus many peers, but wanted to see if that was something that you might be looking to amp up if loan growth is gonna be there for you from an opportunity perspective.
Hey, Brett, it's Stephen. I guess as you said, that's a crystal ball thought. If we knew, we wouldn't be sitting here. you know, like Johnny mentioned, I mean, you know, if we found a trough yet, I mean, I think certainly in Q four, the decline slowed from the prior two. you know, if I go back and look, we, I think pre-pandemic ran 22%-23% non-interest bearing to total. yeah, I don't think that's necessarily where we go back to. yeah, I think some of that's gonna still be to be determined, I guess, as some of the money that's been in the system over the last year or two, you know, moves around.
You know, we talk around the table here, you know, it's, it's taken a little while, I guess, to kind of spin back up the conversations at loan committee and other places around raising deposits again and having that be a part of the discussion when you've got a new opportunity at loan committee and those kinds of things. You know, I think before we push hard on beta and rates and, you know, CD specials and those kinds of things like you see, I think we stick with the, you know, relationship banking approach and ask for business.
Okay. That's helpful.
Go ahead, Tracy.
I was just gonna say, Brett, the only thing, remember when the pandemic hit, excuse me, deposits really boomed, right? We stayed disciplined, and we didn't lock in a lot of loan opportunities back then at 3% for seven and 10 years. We always knew that the deposits would go away, to some degree. Thought it would take a little bit longer than it did this past six months. It's, you know, we watched. A lot of our customers would give us a call. You know, give us a call if we wanted to match a high rate. We certainly get that opportunity.
It's not that we've lost a customer, but instead of normal deposit rate in the bank, you know, they could take it out and do an investment and do more money. Then we also have some customers that used to borrow a little money that's used their own money. That time will turn back where that deposit money will come back in. Johnny has mentioned about the West Texas. I think we've got a really good call-in opportunity coming down the pipe on regaining some of that that we generally lose whenever you do an acquisition.
As Johnny mentioned, we meet every day and discuss it every day, watch where it's at. I don't have a crystal ball either. Just real pleased with the way our team has managed that challenge over the last four or five months, which has been interesting.
Okay. That's, that's really helpful. Then one, just to go back to the loan pipeline and the loan growth, and, you know, Johnny, last quarter, you said some folks were flying in to see you that weren't able to get, you know, credit from their bigger banks and, you know, wanted to see how much of the growth or the pipeline was tied to stuff like that, maybe market share opportunities, you know, and if that might continue to be something that helps your loan growth going forward, or if maybe you're gonna pull back as well relative to the environment?
Hey, this is Kevin. There was certainly some of that, and, you know, that particular deal hasn't actually materialized yet. I mean, there are other things that were similar to that, you know, opportunities like we said, that other folks are on the sidelines for one reason or another, and we continue to do what we do. We've got money to loan because of the way we managed through this last couple of years, and we will continue to do that. I mean, I think that's the reason we held off like we did, is to be able to take advantage of the situation.
We knew Johnny said three years ago rates were going up. That's the way we managed it. Now we're in a position to be able to take this money and put it in good earning assets at a good rate. We moved on that credit quick enough that customer didn't do that big transaction. He will do it. He'll do lots of transactions. We built a relationship. He said called to wish Merry Christmas and a Happy New Year, they're class people. He said, "I'm impressed with your team and how quick you moved." It was a complicated credit. It went to Chris Holton. I mean, he actually left here and went to see Chris in New York. Chris spent two or three days with him and ironed out the problems.
Don and I met him in Boston, and Chris in Boston. He said, "I'm gonna do business." Matter of fact, KBW Conference is coming up in Florida, and we're gonna go down a day early or stay over a day late to go have dinner with him and meet some more of his people. That's gonna turn out to be, even though we didn't close that transaction, he didn't bill it then, that's gonna turn out to be a good long-term relationship. Your point's well taken. We've picked up some of that business during this time that we'll build some relationships with, as Tracy did in 2008, 2009, 2010, and 2011 with a lot of Florida bars that are still long-term customers with us.
I mean, we charge a little more, but they know that, but they know the money's good, and they can get it done. They don't have to worry about whether the loan will get funded or not or get funded properly. We're a half point or three-quarters of a point higher in lots of instances, but that doesn't seem to bother the projects. Good question, though. I appreciate the question.
Yeah. Thanks for all the color.
Thank you. Our next question comes from Brian Martin with Janney Montgomery Scott. You may proceed.
Hey, good afternoon. Hey, thanks for taking the question. Just, Johnny, wanted to circle back, or I'm not sure who, just on expenses. I know you talked a little bit about them last quarter and some things that were going on, but just kind of the run rate on expenses and just how you're thinking about, you know, that going forward here. Just any changes or how we should think about that prospectively.
Well, we had a, you know, we had a forensics team, and we spent millions of dollars with this forensic team on what happened to us in Texas. You're seeing a lot of that. You saw some of that last quarter, and you saw a bunch of it in this quarter. It is that'll probably continue on the legal side for a while going forward, but most of the forensic is, I'd say is pretty much done. Wouldn't you, Tracy?
Well, I don't know if that ever gets done.
Yeah. It doesn't ever get done. Okay. Anyway, that's where a lot of those expenses came from, the increased expenses. You can see we're, I don't know, $2 million or $3 million this quarter, I think, Brian, is that right?
Around five.
Five?
Yeah.
Okay, five. Excuse me.
That'll come down at some point in time, but we'll be collecting a lot of money. Brian, this is Tracy.
Okay, go ahead, Tracy.
I think with the cost of everything that we're seeing out there in just the real world, you're gonna have to expect there to be some over cost is involved. We also I said earlier in the call that I think we've got room for improvement in some of that too. We'll constantly go there. I think Brian's, you know, working his numbers and budget for next year, and it's gonna be a little bit of increase, but not anything significant.
Well, Michael Rose had to do a GoFundMe deal for us several years ago. I may have to get Michael to do another one now because I don't drink Baileys, I drink Carolans. I went down to buy me a bottle of Carolans the other day that I normally pay $22 or $23 for, and it was $36.50. I said, "Are you sure you have the price right?" She said, "Yeah." She said, "It's correct." She said, "Drink it and enjoy, but drink it slow.
Gotcha. you know, I guess just maybe one other one just on the loan growth this quarter. Can you talk a little bit about now, you know, with the expansion into Texas, maybe just how things played out? Can you give some kind of wrap of the year as far as how Texas contributed, you know, the growth that you started to see there, just some momentum or just how you expect that to continue relative to kind of the other parts of the footprint or just any commentary on how trends are there given kind of some of the issues that have occurred there?
Well, we were treated a little rough in Lubbock, as you remember, some of our accounts left. We were forced to do some low rate loans in those markets, we did. I think I told everybody we'd use the strength of Home's balance sheet to counteract whatever anybody was trying to do to us. I kinda take that stuff personally. You probably didn't know that, I kinda take it personally, and I don't give up. Anyway, I think we've leveled out from that. I think Stephen Scouten said someone asked him about it, he said Home will be fine. They're grinders, and that's true. We don't quit. We don't stop. We don't give up. We work hard. We got the power.
Home's balance sheet, if we need to use it. You know, the people that left went to some little bank over there somewhere, and they can't fund much. I don't know if they're out of money. I just hear they're out of money, and they can't fund anything, and they're pulled up. They're loaned up. I don't know if any of that's correct or not, but if it is, it probably is. You know, it gives us some opportunities to go back and pick up some of those customers that were taken from us. We're going back to try to bring them back home. Some we're getting, some we're not. You know, it's just it was unfortunate, very unprofessional and unfortunate.
It was not done properly. Not that they can't go somewhere else to work. You can work anywhere you want to work. It's just how you go about it.
Right. Are you starting to see the momentum in Texas, you know, kind of gradually pick up here? I guess that's kind of where I was getting at. Just as you kind of look to 2023 and just kind of your outlook on kind of the loan growth in general for the company, you know, just the conversations-
Yeah. Well, the bank in Florida did really good. Robert runs or Lewis runs Central Florida, he never slowed down. He never missed a lick. Never missed a step. Just kept rolling. While we were trying to deal with West Texas, Lubbock, and what was that other place where Willard is? Allison, what is it?
Plainview.
Plainview. While we were dealing with that stuff, I mean, the Dallas-Fort Worth area never slowed down. They just kept moving. They kept growing. They did excellent. A lot of those customers that were in Lubbock were Dallas customers that they'd been assigned, as one loan officer went out to Lubbock, he took them with him, they just brought them back home. It's been. They saved all those big customers, or nearly all of them.
Gotcha. Gotcha. Okay, perfect. Maybe just one last one for Stephen. Just going back to the margin for a minute, Stephen. I guess it just, is your thought, it sounds as though the margin is, you know, at least puts and takes as you look forward based on, you know, if you see a couple more rate hikes here that it's probably flat to up a little bit the near term and then, you know, maybe you see some decline thereafter, or is that just in general, as you kind of look over the next couple quarters, how you're what you're expecting there given some of the liquidity levels and putting that back to work?
Yeah. I mean, I've, I think mentioned just on the deposit side, I think our beta ran the mid-50s or so in Q4 where it was, you know, high 20s in Q3. If we kinda get back to a little more normal levels on what we have to do on the deposit side, you know, our forecasts show we could have a little slight increase too, but I think we'd be pleased with holding the line where we're at now. I mean, make sure I get arm's length away from Johnny. I think we'd be pleased with where we're running right now.
Right. Okay. Perfect. That's all I had. Thanks for taking the questions. A great end to the year, guys. Thanks.
Thanks.
Thanks, Brian.
Thank you. Our next question comes from Brady Gailey with KBW. You may proceed.
Hey, thanks. Good afternoon, guys.
Good afternoon.
Most of my questions have been asked and answered, but just one last one. You talk about the reserve coming down to about 2% now. I think, you know, if you look back a year, a year and a half ago, your reserve was almost 2.5%. You know, it sounds like you're comfortable with the 2% levels. Do you think that that 2% level will be maintained here? It seems like if you're gonna be able to grow loans and you guys have great asset quality, you know, you could see the reserve drift below that 2%. I think consensus has it drifting below 2%, but you're signaling it's at 2% kind of from here on out?
Yeah. I'd like that. I think that's reasonable. I think that's reasonable. You know, Everybody in the country made, due to the pandemic, made the big reserve moves. We made our big reserve move and, I mean, Who knew, right? Who knew what was gonna happen in the pandemic? It was pretty shocking times. We're gonna maintain that reserves up in here. I don't know, I actually thought we might take $20 million or $40 million and put in reserve. You see all the big banks thinking, saying, "We got a recession, we got a recession, we got a recession.
There's gonna be a stock market crash." All the naysayers are out there saying all the negative, negative things. It kind of makes you a little nervous, and you wonder if you're doing the right thing. Is 2% enough, or do we need to put more in there? We'll kind of plow it through the next quarter or two and see what we need to do.
Okay. All right, great. Thanks for the color.
Thank you.
Thank you. Our next question comes from Michael Rose with Raymond James. Your line is open.
You guys pulled me in with the Slurpee comment. I feel like now I have to start a WhistlePig fund given the kind of year we're having.
Hey, I'd like the WhistlePig fund. We'd all be in for that.
I know you do, that's why I brought it up. It'd be a little bit more costly, I think we can get a group together for you, Johnny.
I think we could make a good planning for that.
Exactly. Exactly. I just had one question that was kind of more conceptual in nature. You know, I think we're hearing a lot about, you know, pullback in commercial real estate and construction, you know, kind of especially it seems like a lot of banks are really pulling back in some of those areas just given caution. You guys are in a really good fundamental position from a capital and liquidity reserve standpoint, everything that's been kind of brought up today. I mean, do you see that as an opportunity for you guys to kind of gain some market share here? It sounds like at least in Chris's group, you know, when times are tough like this is an opportunity to grow.
Just in the broader, you know, context of your business, I mean, is this the time to actually, maybe actually gain some market share and get a little bit more aggressive on the loan side? Or is it just, you know, you would continue to be cautious and kind of stick to your underwriting, you know, guidelines that have boded so well for you? Thanks.
I think whenever you have these situations, it is an opportunity. I mean, all the things that we've done through the bank, it's during challenged times, it's turned out to be a great opportunity for us. It's uses Johnny I think said earlier about one of our customers. I mean, they've elected to not do things. We probably would still have participated some with them. They're gonna put a lot of skin in the game. Speaking to all of our markets and regions, as Chris said earlier on his part, they're, you know, redeploy some of this capital that we're doing. We're looking at them. We get to see just as many as we always have. Kevin, don't you agree?
Yeah. Yeah. I would answer, to specifically answer your question, I don't think we have to give one up to get the other in this environment. I think we can continue.
Yep
C onservative and in some cases even more conservative than we have been and still gain some of these market share clients that Johnny was talking about just a minute ago. I think that's gonna happen because of where we're at.
Yeah, it's been... I guess we had money and they thought we were easy. We're not easy, as you know, but it has. We saw what Tracy did in 2008, 2009, and 2010, and Kevin and our bunch built lots of relationships, and we're gonna pull some through this. Some big... We'll pull some big customers through with this run.
Very helpful. Maybe Johnny, you should start a Pappy fund for Chris since he's a Georgia fund, and that's what apparently the Bulldog Champions drink. Thank you, guys.
Chris, you want to comment on that?
Michael, he went to SMU. I don't know where he's from. He's a bandwagon guy.
Well, he's always said he's always said he likes the Bulldogs, Georgia Bulldogs. Steven said he graduated from SMU. I didn't even know he went to SMU. Chris, are you still there? Where'd you go to school?
I did. I had to marry into a decent football school, so my wife's very happy that I got to say, "Go Dogs," on the earnings call.
Oh. Okay. You married into it. That's the key, Michael. He married into it.
There we go. Thanks, guys.
Thank you.
Thank you. There are no further questions at this time. I will pass it back over to the management team for any closing remarks.
I just want to say thank you to everyone, all the supporters at home. It was, it's trying times out there. I have to compliment our management team and our people in the field. It's hard work that they put together to put together this great quarter. I haven't seen anybody turn out these kind of numbers. Probably somebody will turn out as good numbers or better, but I haven't seen anybody turn out these kind of numbers yet. It's, we're proud of our numbers. We're proud of what we did. In spite of all the problems and the difficulties we had getting there, we got it done, and we're set in great position for 23. Our lenders are ready to roll.
Actually, our Dallas lenders wrapped up their year and early on and working on 2023. Overall, it's a great quarter, great year. I'm happy. I think we can get, I think we can run the run rate holds where it is, and we can get +$100 million a quarter to run a 2% auto loan and come in running at $440 million or something next year. I think that'd be great. It'd be good for all of us. Anyway, thank you, and we'll talk to you in 90 days.