Home BancShares Inc

NYSE:HOMB

Earnings Call Transcript 2021-Q1

[Operator]

Good day and welcome to the Home BancShares, Inc. First Quarter Earnings Conference Call. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. [Operator Instructions]. Please note this event is being recorded.

I would now like to turn the conference over to Donna Townsell. Please go ahead.

[Donna Townsell]

Thank you, Alyssa. I am Donna Townsell, Director of Investor Relations, and our management team would like to thank you for joining our first quarterly conference call of 2021.

Reporting today will be our Chairman, John Allison; Tracy French, President and CEO of Centennial Bank; Brian Davis, our Chief Financial Officer; Kevin Hester, Chief Lending Officer; Chris Poulton, President of CCFG; John Marshall, President of Shore Premier Finance; and Stephen Tipton, Chief Operating Officer.

Hopefully, by now, you have had the opportunity to review our proxy and read about the work that we have done in the last year on our ESG initiatives. While our work is not complete, we have made great strides and this will be an ongoing effort at Home.

Another exciting news that I would like to share is, on Tuesday, Home was named to the Forbes' list of World's Best Banks. We made this list last year and we have also named to Forbes' Best Banks in America every year since 2015.

One aspect of this is the performance metric and the other aspect is driven by customer service. And because of that, that makes us very proud that we continue to excel in both of these categories.

Now, for our first report on the quarter, we will hear from our Chairman, John Allison.

[John Allison, President and Chief Executive Officer]

Thank you, Donna. That was a nice award. We continue to stack them up over a period of time.

Welcome to Home BancShares' first quarter earnings release and conference call. My name is John Allison and I have the honor to serve as your Executive Chairman, President, Chief Executive Officer, and I'm also the co-founder of the company.

We're here to discuss the results of our first quarter 2021 performance. Donna mentioned the press release. You've probably seen it. The first quarter from a pure net profit and revenue perspective was the most powerful quarter in the company's almost 22-year history, resulting in a record net income of $91.6 million. That's another world record for our company as one of our former teammates would say.

Home BancShares is known for being one of the top performing banking corporations in America for the last 10 to 15 years, and this quarter was no different.

Sales revenue was off the charts, with total revenue of $207,927,000, a best ever. That's total revenue. But what's more important is how much of the total revenue we bring down to the bottom line after tax for our shareholders. I want you to know that, of the gross $207 million, we brought 44.05% to the after tax bottom line or $91.6 million that is available to our shareholders.

In addition to total revenue, our net revenue was also the highest it had ever been at $193.4 million. I think that's a beat on the Street. But our company also brought 47.36% of the net revenue after tax to the bottom line.

These numbers reflect the earnings power of your company through the low cost of funds, strong yields, and best-in-class efficiency. It resulted in another high watermark for our shareholders of $0.55 earnings per share for the quarter.

PPRN (sic) [PPNR] also hit a new record high of $120.5 million, representing a P5NR of 62.32%. That means that we brought 62.32% of the net revenue to the pre-tax pre-provision shoe box, as our longtime director Alex Lieblong has labeled it.

Here's some additional highlights. Pre-tax pre-provision ROA was 2.92%. I think that's a record. I think that's the best. After-tax ROA, 2.22. Return on tangible common equity, 22.90. That's one of the best ever. I don't think we've had one better than that.

Earnings per share, $0.55. That is the best. And on the NIM, interestingly enough, we increased our NIM by 2 basis points to 4.02 from 4 basis points. Reserve to loans, without the PPP loans, remains at 2.40.

Stable asset quality. Overall, yields have remained strong at 5.56. Now that includes accretion of net income and PPP. And without those, the yield was 5.16.

Mortgage produced another strong quarter, with $8,167,000 versus last year at $2.6 million. Efficiency ratio of 36.6%. That's got to be best in class or right at it. Are you happy with that, Donna? Are you happy with the 36%? You're the efficiency lady.

[Donna Townsell]

Considering the size of the bank and the regulatory hurdles we've overcome in the last few years, I'm happy to be below 40%. But I know that we will probably be challenged to continue to push that downwards.

[John Allison, President and Chief Executive Officer]

I agree with that. That sure is fun to talk about when you get it.

First quarter on originations were $671,650,000 at 5.10. We only funded 250 – kind of came late in the quarter. March origination was the highest by the way of the quarter. It was right at $320 million. 75% of the originations came from the community footprint. But $671 million, we needed a little more than that. But it happened mostly in March. That appears to be continued into April also. Last quarter, I said I thought long growth would come in the second half of the year, but it might be coming a little sooner than I expected.

Negative side, we had payoffs of about $800 million in Q1. That's pretty much in line with what we had in Q4. Hopefully, that will slow down at some point in time or we'll be able to match on the origination side.

We had a $2 million charge-off. I just want to – don't remember reporting on this $2 million charge-off was – I made the statement to you all when we did our first fireside chat that I don't see any losses as a result of COVID and I'm still saying that. This was a problem credit before the COVID-19. And I'm optimistic, we're going to recover here. But the conservative nature of our group is that we charge it off. And that was $2 million of the – $2.6 million net or something. $2.5 million net.

Your team's also done a really good job. I found these numbers and I hadn't been tracking them in the past. I mean, I track them, but not like year-over-year. This is year-over-year cost – your liabilities versus your assets.

Our total interest income for the year over year was down $9,524,000. That doesn't sound very good. But interest expense was down $17,897,000, which resulted in positive net interest income of $8,363,000. That is a nice job by our presidents and Stephen Tipton hawks – Tracy hawks it every day. So, good jobs, guys. That's pretty impressive numbers. That added $8.3 million to earnings. So good job.

Over the year, we have tried to position Home to win. We've made several investments, both long term and short term. And we're continuing to do that again this year with all this excess cash.

Last year, we purchased some underprice good dividend paying bank stocks that have performed very nice for us. We're also in four or five different ventures that likewise have performed nicely for us. This quarter, we picked up several million dollars in income for the company. Now, past performance is no guarantee of future performance, but Home is still in these investments. Our investments produced income of $9.5 million in 2020. And so far this year, they've produced $13.8 million.

Home has continued to work on M&A and presently we have active discussions going on. So stay tuned.

On repurchase, we spent about $8.8 million in the first quarter, repurchased 330,000 shares at a weighted average price of $26.55. And we'll continue to be active through our 10b5-1 even today. And we will remain active the rest of the year.

It certainly looks like Home is off to great start. Business is picking up and I think we're in for a powerful recovery. My concerns are around inflation, which I think may already be out of control.

Couple existing inflation with the new 2.73 in fiat money printing coming down the road and we could be back to March '80 during the Carter administration. They also thought they could control inflation, but had rates close to 20%. I wrote this and then I'm watching TV yesterday, Tracy, and the talking head comes on. And he says, if we're not careful, we'll be back where we were in the Carter administration. So, I may not be the only one saying it that way.

Have you bought in gasoline lately? It's up $0.80 a gallon. Food is straight up. Lumber went from $300 a 1000 board feet to $1050. That's a 350% increase in the cost of lumber. I would hope that the Biden ministration would shut down their discussions on the huge tax increase as we're just starting to recover from a COVID-19 crash. I don't say this as a Democrat or a Republican. I only say this as an American businessman that has the privilege of leading one of the best companies in America. The tax increase makes absolutely no sense to me when we're currently trying just to climb out of one. Instead of trying to suppress American business, the president should be offering ideas to help all businesses. Think about it. This is not the time for tax increase.

The talking heads on business channels say 2.25, the 2.50 on the 10 year by June is going to happen and 3% by the end of the year. If true, if that happens to be the case, and it may be, I personally kind of believe that, coast banks are adding fixed rates and the twos and the threes will pay the price and those investing all of this excess liquidity they have into long-yielding long-term securities will also pay the price.

The risk is absolutely too dangerous for us. This is most of our largest personal asset and I refuse myself, and our executive team does, of putting it in long term fixed rate securities and selling the future of our company.

Though those that remain disciplined, like Home, will win the race. So, when you get to the Winner's Circle, just look for Home standing in the middle of the circle. I want to thank our teammates for an amazing start to 2021 and the investment community for your trust that you've committed many years of that.

Donna, I think it's a pretty good quarter and I will let you have the floor.

[Donna Townsell]

Thank you very much for that report and that is a fabulous revenue and EPS result. So congratulations to all.

Now, we will go to Tracy French for a report on Centennial Bank.

[Tracy French]

Thank you, Donna, and good afternoon to all. The first quarter for Centennial Bank and Home BancShares is without question [indiscernible]. In fact, we might be the safest banking institution in the nation along with being one of the best or top performers in the country.

The results of our group we'll share today are phenomenal and not only show what hard work delivers, but also managing each detail that turned out to be financially rewarding. Our banking company continues to work hard and remain disciplined in all areas of the bank, while putting our customers first.

For the shareholders, the report today is very rewarding. All of our regions had a great quarter. You will hear from Christopher and John in a moment. For Centennial Bank, our total net revenue was $192 million for the quarter, making our old fashioned ROA, Johnny, 2.25%.

Our return on average tangible common equity on GAAP was 21.03% and our efficiency ratio was 35.36, with the last two months in the low 34s.

[Donna Townsell]

Great job, Tracy.

[Tracy French]

And now, what we know as the Allison P5NR was at 63.56 for the first quarter. These numbers are what they are because of all the effort from every single person that works in our bank.

Brian will share with you our capital position, which is very strong with our risk-based capital at 18.76%. Stephen will give the details on the loans and deposits as our excess cash has gone from over $1 billion at the beginning of the year to over $2 billion today, with our liquidity ratio at 27.21%. Kevin will share the latest on our loan portfolio with a reported 0.66 non-performing to total loans, while our while our allowance for loan loss excluding the PPP loans is at 2.4 at the end of the quarter. That makes up to be 383.47% allowance on our loans to non-performing loans. These reports represent a very profitable and safe company.

As always, we're staying in touch with our customers. And I'm glad to report all are doing better. And some have not missed a beat. Our markets and customers have navigated through this past year and we believe the economy is doing fine. Although the cost of operating that Johnny mentioned earlier is certainly up.

Our regional leaders reported that most of our branches are open to full service, with a few that are not should be open by next week.

Our customer activity is increasing in both loans and deposits. Loan production is showing good signs of growth along with our pipelines. Our deposit growth has been great and our managers are working hard on the cost of these deposits.

The loans that have been granted, deferrals are showing much improvement, while summer back full speed. Even our airport hotel loans are feeling very good.

Donna, I've always used the word better, as in getting better every day, every week, every month and so on. And our company will continue those efforts for our shareholders. Thank you.

[Donna Townsell]

I have no doubt that that's true, Tracy. Thank you for that report. Now we will turn to Brian Davis for a finance report.

[Brian Davis, Treasurer and Chief Financial Officer]

Thanks, Donna. I'm pleased to report $148.1 million of net interest income and a 4.02% net interest margin for Q1 2021. Our first quarter net interest margin increased 2 basis points from Q4. Today, I would like to give you some color on the Q1 NIM.

First, during the first quarter, we had $314 million of PPP loans forgiven. This forgiveness saw the acceleration of deferred fee income for the loans forgiven. The deferred fee income increased $3.5 million from Q4 to Q1. The acceleration was 9 basis points accretive to the NIM.

Second, the COVID crisis and the resulting governmental response has created a tremendous amount of excess liquidity in the market. As a result of the excess liquidity, we had $581 million of additional interest-bearing cash in Q1 compared to Q4. The excess liquidity was 16 basis points dilutive to the NIM.

Third, for Q1, we recognized $1.1 million of event interest primarily from large payoffs. The $1.1 million of event interest was 3 basis points accretive to the NIM. In conclusion, the 9 basis points increase for PPP loans plus the 3 basis points for event interest income, less the 16 basis points decline for excess liquidity, results in a net 4 basis points of noise when comparing linked quarters. That said, our net interest margin is actually up 6 basis points on an apples-to-apples comparison.

I'll conclude with a few remarks on capital. Our goal at Home BancShares is to be extremely well capitalized. I'm pleased to report the following strong capital information. For Q1 2021, our Tier 1 capital was $1.7 billion. Total risk-based capital was $2.2 billion and risk-weighted assets were $11.7 billion. As a result, the leverage ratio was 11.1%, which is 122% above the well-capitalized benchmark of 5%.

Common equity Tier 1 was 14.3%, which is 120% above the well-capitalized benchmark of 6.5%. Tier 1 capital was 14.9%, which is 86% above the well-capitalized benchmark of 8%. And the total risk-based capital was 18.8%, which is 88% above the well-capitalized benchmark of 10%.

With that said, I'll turn the call back over to Donna. Donna?

[Donna Townsell]

Thank you, Brian. Those are amazing capital ratios.

[John Allison, President and Chief Executive Officer]

What you're going to do with all that money, Brian. Wow!

[Brian Davis, Treasurer and Chief Financial Officer]

I'm going to sleep with it underneath my pillow if that's okay, Mr. Allison.

[John Allison, President and Chief Executive Officer]

That works.

[Donna Townsell]

Sleep well, Brian. Now, Kevin Hester will update us on our loan portfolio.

[Kevin Hester, Chief Lending Officer]

Thanks, Donna. The accomplishments on the lending side this quarter are very impressive. I'll begin with PPP. Round 3 approval and funding continues with the recent extension of the program through May 31. Applications are certainly slowed down, but we have crossed the 4,000 loan approved mark. Those approved loans total about $350 million. And we have closed and funded just over $300 million of that amount.

Rounds 1 and 2 forgiveness continue, with over $550 million requested from SBA and over $450 million paid. We have initiated round 3 forgiveness as well and we have a push to focus on these two efforts during the next two quarters.

COVID modified loans showed little change during the first quarter. This was not unexpected because a large majority of the $330 million modification balance was placed in an 18 to 24-month interest-only modification just three months ago to provide the runway to weather the remainder of the pandemic. With the majority of these loans being hotels and just coming through the seasonally slow first quarter of the year, I didn't expect much movement in these balances.

Two positive developments did occur, though. First, anecdotally, virtually, all of our hotel operators have experienced a significant pickup in occupancy in March. And in the Florida market, especially, we expect this pickup to continue throughout the year. Even our hotels that were dependent upon airport traffic are showing signs of life. Given that this was a March trend, we do not have hard numbers on these, but we do expect the April reports from our hoteliers to look much more favorable.

In addition, since month-end, the single largest deferred loan of $58 million went back to full payment, showing good occupancy and cash flow. This brings our overall modified loan balance to just below $270 million or 2.5% of the loan portfolio. We are very encouraged by the improvements we're seeing around this segment of loans.

As Johnny said, the mortgage continues their strong showing from last year. First quarter closings were up 50% on a quarter-over-quarter basis, with secondary market loans consisting of over 80% of those [technical difficulty] $100 million in each of the three months of the quarter, indicating a strong second quarter is to be expected.

Lastly, the accomplishments in the asset quality area are certainly worth discussing. Non-performing loans are 59 basis points, up only 6 basis points pre-COVID and down 7 basis points on a linked-quarter basis. Non-performing assets are even better at 38 basis points, down 6 basis points pre-COVID and down 10 basis points pre-COVID and down 10 basis points on a linked-quarter basis. The allowance coverage of non-performing loans is at 384%, up 52% on a linked-quarter basis. Early stage pass-throughs remain very low at 46 basis points, which is below where we were pre COVID. Combined with the encouraging reporting around modified loans, I feel very good about the asset quality of this company.

We are seeing new lending opportunities in our markets. And despite the low pricing and high leverage we're seeing, I'm optimistic that the second half of the year will result in some organic low growth.

Donna, what a quarter. I'll turn it back over to you.

[Donna Townsell]

I agree, Kevin. And that's good information on the hotel occupancy. Next, we have Chris Poulton with our CCFG division.

[Christopher Poulton, President, Centennial Commercial Finance Group]

Thank you, Donna, and good afternoon. The new year brought increased activity during the first quarter. Overall, loan balances were roughly flat and new fundings were offset by increased payoffs and paydowns as loans that would have generally paid off in 2020 were able to finally execute refinancings and sales. During this time, we've been able to maintain margins and returns, while ensuring our asset quality remains high.

New loan commitments total close to $300 million and we ended the quarter with over $300 million of loans that were loans that are approved, awaiting closing or in active underwriting. By comparison, we generated $700 million in originations during all of 2020.

Real estate values in our key New York and California markets appear to have stabilized with sales and leasing activity up significantly in Manhattan and Brooklyn during the quarter. Thus far, that trend has continued into Q2 as well.

With that said, we remain our usual cautious selves and continue to focus on leverage and structure that reflects the post pandemic environment. While many of our Southern and Southwestern markets have thrived over the past few months, we expect the recovery in New York, in particular, to take a bit longer to mature. During this time, we remain focused on our core purpose of building a portfolio that delivers above-average returns for below-average risk.

With that, I'll turn it over to you, Donna.

[Donna Townsell]

Thank you, Chris. And now, John Marshall will update us on Shore Premier.

[John Marshall, President, Shore Premier Finance]

Thank you, Donna. And good afternoon. I'm pleased to offer an update on Centennial's marine finance division. First quarter continued to reflect elevated activity as the 2020 consumer COVID yacht buying frenzy spilled over into the new year, tempered only by limited new boat inventories. We've seen our retail application shift from 80% new, 20% pre-owned to a 65/35 split just because of the lack of new inventory. The quality of our applicants remains strong, with declination rates dropping from 39% in 4Q 2020 to 32% in 1Q 2021. Funded retail loans were $50 million in the quarter, with average FICOs at 780 compared to 776 for full-year 2020.

Our commercial floor plan business was essentially flat in the quarter as shipment of new boats from European factories have been pre-sold prior to arrival. Utilization rates on inventory lines remains at 30%, down from a customary 62%. It may be in mid-2022 before dealer stocks are restored to historical levels.

We're witnessing some pressure on large marine margins as inventory lenders, hungry for assets, are unsatisfied. Dealer financial health is very strong as a result of this conversion of assets.

The health of the consumer and commercial portfolios has been favorable as reflected in our asset quality metrics, achieving the lowest levels of delinquency and default since Shore was acquired by Centennial. Our profit contribution continues to grow and ROA in the quarter was 2.76%.

Cash has emerged as a formidable competitor in the marine lending space. Coffers bulging with stimulus might have continued to accelerate our prepayment speeds, offsetting some organic growth.

The outlook for marine is good. Factories are returning to sustainable production. Dealers are placing optimistic orders and retail buyers are placing larger deposits on their next boat. Industry experts believe that COVID has pushed more consumers on to the water and with a long-term profound impact on pleasure yachting industry.

On that positive note, Donna, I return the discussion to you.

[Donna Townsell]

Thank you, John. And our final report today comes from Stephen Tipton.

[Stephen Tipton, Chief Operating Officer]

Thank you, Donna. I'll give color on deposit activity, repricing efforts and trends and a few additional details on the balance sheet today.

On the deposit side, the wave of liquidity continued in the first quarter of 2021 as total deposits increased $787 million from year end to just over $13.5 billion. That marks a nearly $2 billion increase or 17% year-over-year.

Most importantly, our non-interest bearing account balances increased nearly $600 million on a linked-quarter basis and over $1.4 billion year-over-year. And today, non-interest bearing balances stand at 29% of total deposits.

We have mentioned over the past several quarters how fortunate we are to operate in states that did not shut down, states that have seen an increase in tourism and steady population growth.

Of the increase in the overall deposit base in Q1, $542 million or 69% of the increase came from our four Florida regions, all of which had nine figure increases in total deposits.

While the increase is certainly attributable to the government's response to the pandemic, we believe the growth is also a result of the business development efforts, the customer service our bankers provide and the resiliency of our customer base and geographic footprint.

Switching to funding costs, interest-bearing deposits averaged 33 basis points in Q1, down 11 basis points on a linked quarter basis and exited the quarter in March at 30 basis points. Total deposit costs were 24 basis points in Q1 and were down to 22 basis points in the month of March. We continue to work rates down as liquidity levels persist.

In addition to certain negotiated demand account rates, we have $745 million in time deposits maturing over the remainder of the year at an average rate of just under 1%.

Switching to loans, we saw total production of a little over $670 million in the first quarter, with $400 million coming from the community bank footprint. As Johnny mentioned, only slightly more than one-third of the origination volume of Q1 was funded at quarter-end. Although loan balances declined, this along with the robust origination volume in March gives us optimism going forward.

Pay-up volume was in line with Q4 at $844 million as we saw a number of borrowers monetize large assets or go to the permanent markets. As Brian Davis mentioned in his remarks, when normalizing for the impact from PPP lending, event income and excess liquidity, the NIM would have shown a solid increase linked quarter, and we're extremely pleased with how the NIM has held up over the past year.

The word discipline has been mentioned a number of times today and over the past year. That discipline has put Home in a great position to capitalize on the continued economic recovery, and as Johnny mentioned, the prospects of rising interest rates in the future.

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

[Donna Townsell]

Thank you, Stephen. A lot of good reports today. Johnny, before we go to Q&A, do you have any additional comments you'd like to make?

[John Allison, President and Chief Executive Officer]

It was a great quarter, as you know. Loans are down a little bit, but we'll get our fair share of that if Tracy and Kevin, our group would go out and take that $2.5 billion at 5%. That's another $125 million pre-tax. So, that's what I see in front of us. I see – and if we rolled it forward, which we do, that's $100 million. So, I think that is pretty exciting as this economy picks up with the company hitting on all eights in every area except for that and not doing too bad there in the middle of it.

It's interesting. Even though loan totals have gone down, your non-performing percentages, Kevin, have even gone down with it. So, I remember back in 2008 and 2009 and 2010, as I kind of got a snapshot of our loans, you've really got to look at the book of business because it was a solid book and didn't move too much up or down. And that's the same thing that's going on right now to see our non-performing numbers come down percentage-wise [indiscernible] that's impressive.

So, Donna, I don't have anything else to say. I think we need to hear from Q&A and I'll let you have it and go to…

[Donna Townsell]

Okay, that sounds great. Yes, thank you. I guess, Alyssa, we are going to turn to you now and go to Q&A.

[Operator]

[Operator Instructions]. The first question is from Michael Rose with Raymond James.

[Michael Rose, Raymond James Financial Inc.]

Maybe we could just start on credit quality. Good to see non-accruals come down. Seems like everything's moving in the right direction. Is there any reason to think that you guys would have a provision expense anytime soon, understanding that you don't expect any losses from COVID and the charge-off you had this quarter was previously identified credit? Just seems like all the pieces are there, your reserve levels are really high that you guys wouldn't need to provision kind of anytime soon.

[Kevin Hester, Chief Lending Officer]

This is Kevin. I would say no.

[John Allison, President and Chief Executive Officer]

I'd say the same, Tracy.

[Tracy French]

Yes. Stay the same.

[John Allison, President and Chief Executive Officer]

Back when we had – it was really kind of fad, I asked Chris. I said, Chris, when COVID first hit, he had some snits over there. I said, how much money we lose today if we sell that today. He said, if we sell that today, I think, Chris – correct me if I'm wrong, Chris. I think you said 15 million. And as Chris said today before the call and he said maybe a million. Am I saying that correct, Chris?

[Christopher Poulton, President, Centennial Commercial Finance Group]

Yes, sir. I think that's about right.

[Michael Rose, Raymond James Financial Inc.]

Just curious on the expenses. Looks like expenses were down sequentially. Expense control has always been a hallmark of the company. Any sort of color there on a run rate perspective and any considerations for the year in terms of bonus accruals or incentive compensation that we should be thinking about? Thanks.

[Brian Davis, Treasurer and Chief Financial Officer]

I'll take that one, Mr. Allison. Michael, on the salary and employee benefits, we accrue those salaries on a day by day basis. So, we had 92 days in Q4 versus 91 days in Q1. So, we still had 90 days in Q1. So they're down a little bit there. We did have a little bit of incentive reversal from the end of the year, but it was primarily offset as we always have an increase in the FICA taxes that we have in Q1. We did have some PPE expense in Q4, fogging buildings and doing that kind of stuff. And that was several hundred thousand dollars. So, while it is down a little bit, most of it's really due to the number of days on our salary and employee benefit accrual. Plus, we didn't have really a whole lot of the PPE expenses. Our FDIC assessment was down just a little bit. That was mostly due to a true up on the accrual. So, there's really not any noise other than the PPE from last quarter in the numbers.

[Michael Rose, Raymond James Financial Inc.]

Maybe finally from me. So, there's a big increase in the share repurchase authorization. I guess, given where your stock is and how much capital you have, how active would you expect to be as we move forward?

[John Allison, President and Chief Executive Officer]

We're active. We're going to continue to remain active. And I think our average price was $26.60 that we've bought back about 330,000 shares the first quarter. Our team with the earnings, they hit the Home $2. So, that's going to create a few more shares that will be in the float and which is a good thing. Really is a good thing. But we'll probably buy those shares back, so we don't dilute our shareholders. So, we're active. We've really, Michael, looked at stepping in and buying. We increased our authorization by 20 million shares. And we looked at stepping in there and we decided that probably it was time for us to look at doing some M&A. So, we're buying a little bit and we'll probably buy enough where we don't dilute our shareholders on the Home $2 program.

[Operator]

The next question is from Jon Arfstrom with RBC Capital Markets.

[Jon Arfstrom, RBC Capital Markets LLC]

Can you guys just touch a little bit more on the pipelines. It seems like it's better. It seems like it's materially better. But maybe, I don't know Kevin or Tracy, if you want to touch on it. And then, Chris, can you expand a little bit more on the commitment numbers and why you think it's jumped so much? Thanks.

[Kevin Hester, Chief Lending Officer]

So, yes, pipeline looking right now compared to this time last quarter is definitely stronger than it was. We're seeing some good projects across the footprint, some construction projects that are back on the table. So, I do think we've been talking for a couple of quarters that we think second half of the year is where it looked like things would get better, and I think we still feel that way. It may be that this quarter is even better than we expected, but it is stronger right now for sure. Chris?

[Christopher Poulton, President, Centennial Commercial Finance Group]

This is Chris. With regard to our pipeline, I think what you see and I think we saw in the first quarter, and we're seeing now into the second quarter, is the vast majority of probably what we're looking at closing now were deals that we worked on for the better part of last year. We worked through the summer and the fall and such with the number of our borrowers on transactions that I think we talked during the second half of last year. Things were just taking longer to close, taking longer to get the equity together, et cetera, and part of that is really starting to get to a point we felt like there was a recovery coming and that you could start to see some post-COVID trades, et cetera. So, I think we're seeing that. Majority of what's in our pipeline to close for the second quarter are those types of deals that have been long time coming. We have one closing tomorrow that we worked on all summer with the borrowers just finally gotten to the point where they can get their deal together and close. So, I think we're seeing in our pipeline what the economy is seeing, which is things starting to open up and, therefore, transactions starting to be completed.

Most of our first quarter volume was facilities, which was nice to see. We like that part of our business and seeing a couple of facilities close where folks have gotten money together and they're looking to put that money out over the rest of the year. So, I think we feel good about where we're at now. Last year was only $700 million. That was probably down 30% from what we normally do. So I think that was the anomaly.

[Jon Arfstrom, RBC Capital Markets LLC]

I was just going to say, it seems like some of this is catch up and I guess are lingering projects. Is the new – call it the new new pipeline and new activities that are increasing as well, Chris?

[Christopher Poulton, President, Centennial Commercial Finance Group]

I believe so, yes. Now what starts to come in is new transactions, et cetera. But I think you're still – the market overall was down last year and a lot of projects that were on hold are starting to come through. So, it's going to take – I think it will take some time to get through that backlog.

[Jon Arfstrom, RBC Capital Markets LLC]

Maybe one for you, Johnny, on inflation. Are the borrowers telling you the same thing that you're feeling? Or is that not part of the narrative yet?

[John Allison, President and Chief Executive Officer]

On inflation, you say, asking Johnny?

[Jon Arfstrom, RBC Capital Markets LLC]

Yeah, exactly.

[John Allison, President and Chief Executive Officer]

Kevin's son is a homebuilder. We kind of track a little bit of that and may need to send a special order home for a customer. When we got through adding up all, what it comes, the guy said I can't afford it, I can't do that. So, I don't think there's any doubt about inflation being out there.

And our bet is to sit tight on this $2.4 million as tight as we can sit on it. Tracy is about to rub all the hair off the front of his head because he can't stand it. But he knows it's a smart thing to do is to sit tight and remain disciplined and that's what we're doing. And we'll have an opportunity to deploy this money at some point in time.

We have not done low rates. If we needed to do that, we can do it. We have not done that. We have not entered into those markets. So, there really wasn't a lot of business after the pandemic. Chris is right. He said he worked on those projects all summer long. That's because the uncertainty that was in the market, and we're seeing that now. We're seeing it change. We're seeing it turn over where there is optimism and there is excitement about new projects. And some of the projects, one of our good customer is bringing us, we can't – have brought us, we can't do them all. We could. We just don't go to that level of loan to one customer. But, yeah, he's right customer done well.

I just think we're often running – I think inflation has got to hit us at some point in time. But think about it, the job this team did over the last year by reducing cost of funds by more than the loan yield and increase in profitability, it should be like a roller coaster on a track [indiscernible] track exactly. Doesn't always do that. I know it's better for banks in rising rates environment and I think we're going to get that.

So, I think the Fed has done a hell of a job, and I think they're trying to do that. But I don't know what they're seeing that says inflation is only 1.5% or 1.75% because I see it everywhere I look all the time. Our customers are talking about it. It was a piece of – was it plywood or OBS or what it was the other day that went from 7 to 21. It's just those guys – and supply. Going to get appliances is a problem. I think some of that might impact the economy a little bit. If they keep building houses, these rates there, they'll keep selling them.

[Jon Arfstrom, RBC Capital Markets LLC]

And so the message is, you're being patient, you're going to wait it out and that's the way to kind of take advantage of some of your views on inflation is, let other people make the mistakes and see what happens longer term?

[John Allison, President and Chief Executive Officer]

I think that's exactly. Now, it's come in a little faster. Our comment was, it will be the second half of the year. But Chris has come in pretty strong and Kevin speak with – his report looks much better than – normally, we look at a report like this, we're down $200 million or $300 million at this time. We're not now. So, I might as well forecast loan growth because last time I did it, we went down, but it is much better. I can say that. It is much better. And it's good customers. And there's good equity in the deals. There's not much of funny money stuff. It's the real deal like we underwrite. So, there were some deals that went by us, but they were 80% and 85%. We're not going to do that. So we don't operate that way.

[Operator]

The next question is from Brady Gailey with KBW.

[Brady Gailey, Keefe Bruyette & Woods Inc.]

I wanted to just hit on loan growth from a slightly different angle. And if you listened, a lot of the other Florida banks, everybody is talking about Florida really being on fire right now. They're seeing a lot of population inflow. They're seeing a lot of business relocations down there. I know you guys – I think Florida is now your biggest market, even bigger than Arkansas. But will Florida specifically play a big piece in the loan growth returning? And just maybe any commentary about what you guys are seeing in that state?

[Kevin Hester, Chief Lending Officer]

This is Kevin. I believe it will. Obviously, it is over half of our footprint and it has to play. It always has because there's obviously a lot more economic activity going on in Florida than there will be in Arkansas, and they really never shutdown. And you are coming into, for most of the markets, the busy time of the year. So yeah, I fully expect that it will play a large role in that.

[Brady Gailey, Keefe Bruyette & Woods Inc.]

Just looking at when loan growth returns to Home, what should we expect? Like, excluding any sort of noise with PPP forgiveness, but should we expect Home to be growing at kind of the low-single digit range? Or could it be higher than that as we come out of this?

[John Allison, President and Chief Executive Officer]

I'd saw low. I'd say low. Brady, let's say low. That way, I'll be wrong. Let's say low, but it looks pretty good right now. I think it's sustainable. I think this is sustainable. Tracy talks to our customers all of them.

[Tracy French]

We're getting opportunities for better than we've had in the past year. I guess the question that comes to my mind, when you ask that question, Brady, is really more the payout as we are hearing some customers that are getting some good opportunities to cash in on what they've done over the past few years. So, that's always the question for us is the payoff amounts that trickle in. Primarily what we've seen on the larger payoffs we've seen lately is they have sold their opportunity, and that's a good thing for them. And they'll be back and they'll continue to come back. It's construction type projects. It takes us a little time to bet on the books. Comparative, it's got a good balance and gets paid off today. But we actually feel pretty – I think if you've got the sentiment, it all feels pretty good in all our markets where we are in.

[Brady Gailey, Keefe Bruyette & Woods Inc.]

Finally, I just wanted to ask about the M&A. Johnny, I know you said earlier that you were active having some conversations, but I know you sometimes also give us a little additional color. I think the last time we connected, you were chasing two or three deals, but maybe just an update – a little more detailed update on M&A and if you feel like you're getting closer on anything.

[John Allison, President and Chief Executive Officer]

I don't know the answer that. I've been disappointed in the couple of deals recently where we made an offer that was the highest price offer that a bank had sold for in the US in the past six or eight months and the CEO commented that if he made that offer to his Board, they'd laugh him out the room. I didn't quite know what to say. I was somewhat speechless at that point in time. And I said, let's go lunch. We had the lunch [Indecipherable 47:39] our lip. Tracy had one yesterday that – what they're trying to do, the bankers, get in the way and spruce stuff up most of the time because what they're doing is they know we don't dilute and they know how we operate. So, they back into a price. They take their customer, just back into a price and everybody is still making more money next year and I've started – Tracy, I tell him, you need to sell it next year, you don't need to sell it this year.

Anyway, we have a couple of really good opportunities out there, we feel like right now. We actually have a total of three. We're working on one as we speak and we will see that will resolve itself in the next two to three weeks. And then we'll move to the next one and the next one. And we've taken a couple off the table because they weren't realistic and the bankers were really – I don't know if they bump their head or what they did. But anyway, they were somewhat unrealistic. But when you – what you say, Tracy?

[Tracy French]

Yes, sir.

[John Allison, President and Chief Executive Officer]

Tracy said let me give you what they asked for that bank and he brought it and he showed it to me. And I started laughing. And I said, that's not a joke. He said, no, that's not a joke. They seriously made that. And I said, well, I don't know, maybe they bumped their head on the way to getting it, doing the run. But anyway, you've got to be realistic. It's going to be a fair trade on both sides and you've got to allow room for a stop to breathe. I think we've got two or three deals out there that could take off. So, we're just continuing in the market and we will continue to be really smart about the deals. And you know how disciplined we are, Brady. We're disciplined with everything.

As I tell one seller, I said you'll be proud – you think I'm too disciplined now. Once you become a Home BancShares shareholder, you'll be really proud to be with a disciplined company because we protect your stock as much as we can. So, anyway, it is interesting, as Tracy has not been out here, working on some of these trades. But I think we've got – I think we've got one we can get done and maybe another one.

[Operator]

The next question is from Matt Olney with Stephens.

[Matt Olney, Stephens Inc.]

Sticking with the M&A discussion, we've seen some pretty sizable deals recently that are more MOE like. Would love to hear how Home Bank is thinking about M&A with respect to the size of deals? Are you becoming any more open to larger deals over $10 billion of assets? Or you think you're going to stick with the smaller deals that we've discussed in the past?

[John Allison, President and Chief Executive Officer]

Well, we're primarily sticking with the smaller $2 million or $3 billion deals to $4 billion at this point. We're not afraid to do a $10 billion deal if we understand our asset classes, Matt. One of the larger deals done recently, we just really didn't understand or have the expertise in some of those asset classes, primarily oil and gas. We don't know much about the except it's – for us, oil and gas is going up. I know that. But we've just stayed pretty conservative there. Tracy, you've got any comment on that.

[Tracy French]

It's a combination. We've got some good size banks that would fit well with us and other banks probably wouldn't fit that niche today.

[John Allison, President and Chief Executive Officer]

Kevin talked about some of the asset classes on one of these larger deals a while back and he was right. We don't – we're not a big C&I lender. We're really construction lender. We do a lot of construction. We like it. We've done well in that business. And we will continue doing that. So, it's somehow got a big book, 25% of the book is oil and gas. That's probably not a place we're going to be. So, we'll probably be somewhere else.

[Matt Olney, Stephens Inc.]

And then switching gears over to loan growth, I appreciate the commentary that the loan pipeline, seen a nice inflection kind of late in the quarter. What about on the other side, the payoffs still remain elevated during 1Q? Would love to hear more details around those payoffs and any way to think about the payoff with respect to customer deleveraging or just exiting lower quality credits. And was there any change in the pace of pay-offs during the quarter? Thanks.

[Kevin Hester, Chief Lending Officer]

This is Kevin. I think both Tracy and Chris mentioned that – and for the larger credits, the two biggest things that I saw this quarter were customers taking advantage of selling their project and refi after a project gets completed multifamily, those sorts of things, and the customer taking it permanent, taken it not recourse, things like that. Those were the two biggest things. Sprinkled in there, a little bit of refi for rates, but those other two were the main things this quarter. Just looking at pay-offs for the past several quarters, the last two look pretty much the same at over $800 million. I would anticipate you probably still going to see some of that because we've got – I think we've got more customers, and I know of a few, that are selling that will materialize in this quarter or next quarter. So, I think you're still going to see some of that. We're going to have to outpace that to have loan growth.

[John Allison, President and Chief Executive Officer]

Matt, there is a shot at it now because things have turned. And even Florida, who never shutdown, is those projects that are coming back onstream in Florida. So, I'm optimistic that we're going to see some loan growth, maybe better this quarter than I anticipate. I really wasn't looking forward to the third and fourth quarter, but it may sneak up a little bit up on us. Now, I don't get too optimistic because every time I do that it goes the other way.

[Operator]

The next question is from Stephen Scouten with Piper Sandler.

[Stephen Scouten, Piper Sandler]

Maybe one question just for Brian first. Do you have the number on the remaining PPP – deferred PPP fees that could come through over the next few quarters?

[Brian Davis, Treasurer and Chief Financial Officer]

As of 03/31, we had $20.9 million. And as of today, it's up about $1 million to $21.9 million.

[Stephen Scouten, Piper Sandler]

I don't know if this will be Kevin or who, Tracy maybe. But with your lenders, do you feel like they have gotten distracted at all by PPP lending? Or do you feel like you could actually see better core growth as PPP kind of winds down? Or have they been able to kind of manage both effectively?

[Kevin Hester, Chief Lending Officer]

This is Kevin. I would say they have absolutely been distracted by both the funding and the forgiveness aspects of PPP, without a doubt. Funding has slowed down a lot as I mentioned. We're not doing that many. And we're not really actively looking or responding to requests for funding. But we still have a lot of forgiveness to deal with, particularly round 3.

[Stephen Scouten, Piper Sandler]

Maybe one for Stephen. On the deposit cost side, how much lower do you think you could get deposit costs because you guys have made phenomenal progress, but it seems like maybe still some room to go with CD costs. Could we see deposit costs down in the 10, 15 basis point kind of range in a few quarters?

[Stephen Tipton, Chief Operating Officer]

I think the way we've looked at it here over the last six months at least is kind of where we were prior to the last tightening cycle. I think interest-bearing costs were down in the low 20s, which that was obviously a number of years into that low rate environment. Interest cost today are down in below 30, so that we've continued to move down. We have some under contract that will come up over the course of this year. You mentioned the CD maturities, that will continue to help. So, we'll find a floor somewhere, but given the liquidity that is in the system and in the bank today, I think we will continue to push on it as we go. And whether we can get down below 20, we'll see, but there is still opportunity over the next couple of quarters for sure.

[Stephen Scouten, Piper Sandler]

Johnny, maybe last one kind of for you would be jumping back to M&A. I know you mentioned maybe $2 billion to $3 billion kind of deals would be the sweet spot. But have you broadened the horizon at all in terms of geographies? Or would it still largely be kind of Arkansas, Florida, or do you start looking at Georgia or Tennessee or any other states kind of in between, so to speak?

[John Allison, President and Chief Executive Officer]

Well, I'll just tell you that we've always liked North and South Carolina. We thought that was – those are a lot like Arkansas over the years and we've always liked Texas. There's maybe some opportunity – pretty pricey in Texas. But I think we're just looking for what comes our way right now. And a couple of them have come our way and some of them have fallen by the wayside. So, it's just a misunderstanding. We had probably one deal with one guy when our stock was $21. Now, it's $26 or $27. Had he taken our deal, he left about $50 million on the table. Something we don't understand what can happen to the market and bank stocks are starting to move up, and it would have been a great opportunity for them. And they're a good bank. It was a good bank. It was a nice bank, nice features [ph]. But as usual, the bank was kind of getting in the way, or appears to me that they did, may not be correct.

[Stephen Scouten, Piper Sandler]

Fair enough, fair enough. And we look forward to seeing the next one. We know it will be a good one and congrats on a good quarter.

[John Allison, President and Chief Executive Officer]

Don't count out – I think Brady counted all our extra income. I think he took it all off. You don't need to take it all off, Brady, because we're still in those investments. I want you to understand that. I don't know who will have that kind of return come in the worst year, but we're still in all of those investments. Every one of them that we're in, we're still in. We didn't get in them just to be there. We got in them to make money. And as you can see, we're making money with them. So, we're investing a little bit ourselves, Stephen.

[Operator]

Our next question is from Will Curtiss with Hovde Group.

[Will Curtiss, Hovde Group LLC]

Wanted to kind of piggyback on the Florida discussion just in terms of how well the market is doing. I'm just curious as kind of this recovery moves along, is there anything that that's of concern or you're watching a little closer these days, Johnny?

[John Allison, President and Chief Executive Officer]

Well, from an asset quality perspective, I always keep an eye on our hotels. But the information coming on our hotels is much improved from where it was. So, I've kind of pushed that off to the side. I do worry about inflation. I think inflation is here, Will, and worried about a devaluation of the dollar. I'm scared to death that's going to happen. I listened to a guy who I have done pretty good with on investing, and he says it's coming and he says it's going be quick and severe. He said you've got cash, get rid of it. That just concerns me, the buying power of the dollar goes down and inflation goes up and we have to fight that battle.

And I've said earlier, I think the Fed has done a good job, and I think they're trying to – Powell is the guy to do it. He might do it. I think he can do it. But I just don't believe that – I don't believe – they're not looking where I'm looking. So, the thing that bothers me the most is the inflationary side of it. But that could be good too. A little inflation doesn't hurt us all. And a little kick up in rates wouldn't hurt us. If you think about it, you tap your money you have. We've got $2 billion. We tie them to 1.25% today or 1.30% or 1.40% today and the 10-year goes to 3% by the end of the year and you look so stupid. You think why did I do that. My deal is where the Tracys don't have any hair left on the front of his head because he is rubbing his head. Every day I walk in, he said I know we're doing the right thing, but, damn, it's tough. He said it's hard. It is really hard not to invest some of this money.

We've talked about everything in the world. We've owned some bank stocks that have done extremely well for us. They're paying a good dividend. Some good banks that we all know, know the people that run them and know how well they run their companies and those have done well for us. They're good dividend paying stocks. We might as well sit with those for a little bit.

Other than that, I don't have – I feel, if we go to 31% or 32% – what do you say – what Brian said a while ago, what we go to on the tax rate? What did you say, Brian?

[Brian Davis, Treasurer and Chief Financial Officer]

Well, we were talking before the call and you were asking me what the marginal rate might go to. And the marginal rate that we have right now is 26.135%. And if we get the 28% tax bracket, it would go to 32.68% would be our marginal tax rate, which is an increase of 6.545%.

[John Allison, President and Chief Executive Officer]

Yeah, think about it, you buy something today based on today's tax bracket and then you turn around and get this – get hit with this. So, it's a dangerous – in some respects, it's a dangerous time to be in the M&A business for them to do a deal because they're all going to price it out what todays tax rate is. And if it goes up 6% – we made $300 million a year, right? [indiscernible] something like that. 7 points, that's what? $21 million, $22 million a year comes out of our shareholders pocket. I think that delays a dividend probably for our shareholders. Instead of doing one every year, it might be three years or two years before we're doing another one. That bothers me a little bit. I know my wife is concerned about that because she likes – if you remember, she likes her dividend every month. She likes the amount we pay. She just wants the same amount every month. That's what she said. She said she is going to visit with Tracy and Brian Davis about that.

But I'd like to have – I guess the government would spend it wiser than we'd spend it. So, that concerns me a little bit. Outside of that, the company, you run at 2.92% pre-tax ROA and 2.22% after that and a 36% efficiency ratio and you make the kind of money we make and you've got some good investments kicking in for you, I could not be happier. I'm ready for a little loan growth and I think we'll get it. But you know us, we are not going to push it. And we're not going to chase 2% and 3% loans. We're not going to do that. We're not in that business. We're not going to sell our future. We're looking at one bank right now. The problem is, nice banks, their yield sucks. You've got to pay that price, right? If you going to write low rate, you pay me now, pay me later and that's my fear is – not my fear. We don't do that. But in the future, I hope rates come up a little bit. I think it's time for a little kick in rates, and I don't think it hurts. Might slow mortgage down a little bit. I probably told you more than you wanted to hear, didn't I?

[Will Curtiss, Hovde Group LLC]

No, that was great. I appreciate your thoughts. And nice quarter.

[Operator]

The next question is from Brian Martin with Janney Montgomery.

[Brian Martin, Janney Montgomery Scott]

A couple of things. Maybe one for Brian or for Kevin. Just on those PPP fees. Brian, I think you said they were $22 million. So, the remaining – give the breakdown of what remains on 1 and 2 versus 3.

And then, just maybe for Kevin. Just the forgiveness that you talked about, just the – how to think about that forgiveness particularly for round 3, just how are you thinking about that? Or just how should we big picture? Any thoughts on that?

[Brian Davis, Treasurer and Chief Financial Officer]

I'll go first. Of the approximately $22 million of PPP fees, we have $7 million of it left approximately from round 1 and we started at $30 million at that point in time. And so, that would leave about $15 million from round 2.

[Kevin Hester, Chief Lending Officer]

Brian, I think we're going to see the rounds 1 and 2 slow down. Those have been pretty consistent the last two quarters or really the two quarters that we've been doing it. You're going to see that slow down, but you're going to see 3 pickup. So, I would think that the next quarter or two should be pretty consistent with the last two quarters. And then past that, I'm not sure. I don't know how round 3 will finish up because some of that stuff we won't be able to start on until later in the year. Some of it, we'll get to start now, but some folks will wait as long as they can. So, I do expect a couple of quarters similar to the last two.

[Brian Martin, Janney Montgomery Scott]

Not much bleeding over into next year to 2022?

[Kevin Hester, Chief Lending Officer]

I hope not. I really hope not. I hope to get it done this year from my people's sake.

[Brian Martin, Janney Montgomery Scott]

Maybe just one, I'm not sure for who. But just on the liquidity, I guess, I understand about sitting tight. But just think, I guess your comments about the loan growth funding late in the quarter. But then you have a full quarter impact of the liquidity from the deposit growth. Just kind of wondering how to think about the size of the balance sheet going forward? And then maybe just kind of the margin impact, I guess, particularly as you get to the Q2 here with the full quarter of both those items.

[Stephen Tipton, Chief Operating Officer]

Brian, this is Stephen. To answer the last part first, we had, I think, on average for the quarter about 40 basis points impact to the NIM from the liquidity that we had, and I think it was about 50 basis points in the month of March. So, we really tried to strip all that out and see where would we be on a core basis. I think we're still in that 4% range on a core basis that we've tracked in the past.

Some of the stimulus, the last round of stimulus came early March. That's still – we'll see how some of that gets spent over this period of time and certainly seems like people are saving money. Of interest, our debit card spend in March was up 50% over what it was a year ago and it was probably at 25% or 30% from what it had been the last four or five months in a row. So, certainly some of that money is getting spent and put out in the economy, but maybe some of the – maybe some of the liquidity gets spent over the next few months and maybe some of that gets traded into loan balances. So, earning asset size today to me is probably flattish to maybe down a little bit over the next several months.

[Brian Martin, Janney Montgomery Scott]

Stephen, just the deposit flows, you talked about them. Strong as they were this quarter, I guess, is your expectation, those kind of slow down a bit at this point. I guess now that [indiscernible].

[Stephen Tipton, Chief Operating Officer]

I do. Q1, historically, when you had tax refunds and those kinds of things, is good for us. And then you had PPP funding and you had the latest round of stimulus. That all helps that. So, I wouldn't necessarily expect the deposit increases that we had this past quarter to continue at that level going from here. We'll continue to watch where interest-bearing balances are and what we're paying there and try to mitigate some of the inflows there just from an interest rate standpoint.

[Operator]

The next question is from John Helfst with Voya.

[John Helfst, Voya Investment Management]

I dialed in a little late, maybe you discussed, but in the construction, like your crystal ball, what sub-sectors do you see potential growth or demand, like industrial or medical office? Or maybe it's a bad question. Maybe you only focus on one or two areas, so I apologize. But if there is a few areas, and are you seeing any greenshoots or whatever you want to call it in terms of construction demand? Thanks.

[Kevin Hester, Chief Lending Officer]

Yeah, I think you could – several areas. I think, at least in the footprint and Chris can talk for his group because it may be different for his group. But in the footprint, certainly, multifamily in part of the footprint. Industrial, in that Central Florida area, there is a lot of that to be had, although that's generally pretty cheap. There will actually be probably a little bit of hotel that comes around. And so, it's going to be dependent upon which market we're talking about will determine kind of which asset classes there are. Chris, do you see something different than that?

[Christopher Poulton, President, Centennial Commercial Finance Group]

No, I think that's right. Industrial is hot everywhere. Maybe a little too hot. And so, we're a little cautious, to be honest with you on industrial. But anything residential is doing well. A little bit of mixed use is okay depending on the market. But, yeah, I think it's the stuff you'd expect for the most part. On industrial, it just depends a little bit of what you're taking a look at. Cold storage is really, really in demand as a subset of that. But again, it's everything from single-family homes to condos to rentals, all pretty good in most markets.

[Kevin Hester, Chief Lending Officer]

John, yeah, Chris mentioned single family, and certainly I didn't mention that in my comments, but definitely the single-family construction side is strong in really all of our markets.

[John Helfst, Voya Investment Management]

Okay. And then, ex that – and this is maybe too theoretical. Like, the loan – the cost has got to be coming higher. So, that gives you more comfort. Maybe do you underwrite to higher rents as a result? Or the loan to value – I guess what I'm saying is the loan to cost, loan to value are maybe getting separated a little bit. So, that would seem to me like put upward pressure on rent. Are you underwriting that? And it's not a trick question. It's maybe too theoretical. I just was curious.

[Kevin Hester, Chief Lending Officer]

We're definitely seeing the relationship between cost and value changing in our appraisals, and we are seeing that as costs are going up. It's not normal for us to really try to underwrite to higher rents in the market. That's not something we typically will do, although a lot of our projects do project that. We're sensitive about that and really try to – while we may give them credit for it on one side, we are also conservative and look at what happens if they don't get that premium. So, that's not something that we typically would hang our underwriting on.

[John Helfst, Voya Investment Management]

That makes sense. Good answer. So, it's a little cushion maybe for the underwriting in the future as well.

[Operator]

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Allison for any closing remarks.

[John Allison, President and Chief Executive Officer]

Thank you all for joining today. Thanks for your support. Hopefully, next quarter, we'll have another good one. We're off to a good year and things are picking up countrywide. And I think rates are going to pick up a little bit and I think that's good for banks. So, I'm pretty optimistic that this could be another really good year for Home and we certainly are out to a great start this year. We've never made $90 million in a month. And I don't know if we've ever run a 36.60 efficiency ratio, have we? Somewhere we would get damn close to it.

[Donna Townsell]

Very close.

[John Allison, President and Chief Executive Officer]

Very close? Okay. Anyway, I don't want to say something is wrong. Anyway, thank you. Thank you very much for your support and we'll talk to you in about 90 days.

[Operator]

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.