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Home BancShares Inc
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Greetings, ladies and gentlemen. Welcome to the Home Bancshares Incorporated First Quarter 2023 Earnings Call. The purpose of this call is to discuss the information and data provided in the quarterly earnings release issued this morning. The company presenters will begin with prepared remarks and then entertain questions. [Operator Instructions]
The company has asked me to remind everyone to refer to their cautionary note regarding forward-looking statements. You will find this note on page three of their Form 10-K filed with the SEC in February 2023. At this time, all participants are in a listen-only mode and this conference is being recorded. [Operator Instructions]
It is now my pleasure to turn the call over to Donna Townsell, Director of Investor Relations.
Thank you. Good afternoon and welcome to our first quarter conference call. Today's discussion will include prepared remarks from our Chairman, John Allison; Stephen Tipton, Chief Operating Officer; and Kevin Hester, Chief Lending 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; Chris Poulton, President of CCFG; and John Marshall, President of Shore Premier Finance.
And it’s been an interesting 90-days in the banking sector. However, Home is still standing strong and to provide you with more color on this, it our first speaker Chairman, John Allison.
Good afternoon. Thank you, Donna. We usually open with profitability is the first thing. But during these times, we thought it was probably be more appropriate to talk about the strength of the company and the strength of Home Bancshares, our strategy and patience has paid off for our customers, our employees, our depositors and our shareholders. The strength of Home's liquidity and availability provides more than 100% coverage for all uninsured and uncollateralized deposits as of March 31 ‘23, and that carries through today.
So I want to say that again, Home has the ability and liquidity to cover all uninsured and un collateralized deposits for any customer that we have in the company. We're very proud of that. The strong liquidity of Home have allowed Home to pay all collateralized depositors with deposits in excess of FDIC limits of $250,000 and still have $1.7 billion of money, that really equates to the fact that Home [Indiscernible] to cover 133% of all un collateralized deposits.
We're very proud of the fortress balance sheet we have built. Home Bancshares, Happy Banks, Centennial Bank is one of the strongest banks in America. There are only a handful of banks in the country that can be trusted to make this statement. And I think if there was any concern about from our depositors, I think this will comfort them. In the press release, it's also a table showing how the availability is available. I said last quarter, that all banks are not created equal. Our goal was not just to say we were better, but prove after years of excellent performance that Home should be separated from the pack as a very safe, strong and well managed financially institution.
I hope you all agree that we have proven the strength of Home balance sheet and the performance of the company that has stood the test of time again during a new and different bank crisis. What can possibly go wrong? I think we've seen about everything that could happen. One of the key factors that have not only contributed to the strength of our buy, but allowed top tier results quarter-after-quarter, as well as year after year. Liquidity, capital, asset quality, loan reserves, profitability, and management experience. Liquidity was not important until it was. Bank skip liquidity mainly from deposit -- all forms of deposits, borrowings, security portfolios, as well as selling assets.
During ‘21 and ‘22, the U.S. Government was spending as some people would say, like a drunken sailor. During that time, we grew liquidity deposits basically to over $3 billion in excess liquidity. The great majority of these funds, Homes simply put into Fed funds, because we assume many of these excess deposits would run off as interest rates continue to increase and as consumers expect their free money. If you watch the Wall Street guys, they said cash is trash. How many times did we hear that during the years? Actually cash was king, then and certainly now more than ever. Banks with this new found liquidity during that time decided to invest in low rate securities and what I call a race to the bottom of loan rates. After we were in basically a lower zero rate environment for Home time, that lasted several years until the drunken sailor spending created something called inflation. It raised its ugly head.
Call from the Fed to increase interest rates at the fastest rate in the history of our country and attempt to quell the monster. With banks hungry for yield, they blindly piled into low ranked securities and competed with each other what I call creating a race to the bottom of loan growth. This was a critical decision that the leaders of the respective banks made that created this crisis. I've said for years that bankers, who do not have any businesses to experience are not the guys you won't have in your money. Nearly all banks acting like a pack analyst, they took their employees, shareholders, and deposits straight to the slaughter. Because they built their houses aren't strong.
Pull a list of banks over 100% deposit, coupled with a capital ratio of [Indiscernible], and you'll find those bankers that hope the big bag wolf doesn't show up and blow the houses down. Many banks would fail, actually only a few would survive Home built their house with bricks and steel. The truth is many would have negative capital ratios if they had to mark to market their securities portfolio, [Indiscernible], if Home owner take the March to mark to market, we would remain one of the best capitalized banks in America. Different from many, many banks.
A 100% or greater loan to deposit with 8% capital less is a recipe for disaster. When cash runs out and banks deplete their bonds, they have no choice, but to go to broker deposits and high rate CD, whether it kills their margin in profitability or not, they turn it into the survival mode. Watch the CD ads, you've seen all these CD ads hitting the paper. That'll you who is in dire need for money. You've not seen one CD ad from Home Bancshares, Centennial Bank or Happy Bank, that should comfort all our deposits.
Home has the cash liquidity and availability as I said to pay all deposits assuming Home was forced tomorrow to do that and had no liquidity and had to borrow $5 billion as an interest rate of 5% freed an additional $250 million in interest expense, Home would still run a 1.2 ROA and that's better than 90% of banks in the country run today. We have provided the chart to show you our availability of bonds. If a bank can pay out all uninsured deposits, and still make a 1% ROA or the top bank analyst in the country said, banks that can do that are in the cat bird seat. Well, welcome to Home Bancshares.
Home Bancshares capital ratios are in the top tier of all banks. The conservative management team will always maintain strong capital, because you can't get capital when you have to have it. Prime example is Silicon Valley Bank SVB, not said about that. As your largest individual shareholder Home and with this company being my largest personal asset, certainly have a vested interest in protecting what my wife calls the Chuck Wagon and Home is the Chuck Wagon that feeds all of us. Most of you know she's very protective of her dividend and when I told her about the bank crisis, she said protect the Chuck Wagon at all costs. Circle Wagon with our strong employees, our partners, our shareholders, our customers and depositors that is exactly what we've done, good liquidity, strong capital, huge loan loss reserve, strong asset quality coupled with peer leading profitability.
By the way it’s also the largest asset of our executive committee and some of our directors. So we're all focused on the same goal. Asset quality, while maintaining one of the high loan loss reserves in the country rather than play Jack in the box, raising and lowering quarter-after-quarter, because all the factors we faced over the last 23-years, we know one has worked for the last 40-years and that is a 2% reserve balance. The company's reserve is $287.2 million or 2%, compared to December 31 when it was 2.01%. The allowance on credit losses on loans represents 383% of non-performing loans.
What that means is if we have $100 worth of non-performing loans, we have $388 worth of reserve to cover that $100 worth of loan. Stockholders equity grew for the quarter $104 million that was a combination of retained earnings at $66.3 million plus $49.2 million reduction in ALCI as interest rates softened somewhat.
Let's go talk about the earnings. Earnings for the quarter were $103 million or $0.51 per share and adjusted earnings of $0.54 per share. Return on assets was 1.84%, adjusted at 1.95%. Return on tangible common equity was 19.75% or adjusted to 20.90%. Tangible book value of $10.71, that's $10.71 that's an increase of 5.4% from the first quarter. Tangible common equity as a percent of tangible -- a total equity $10.33 at 31 versus $9.66 at 13/31/2022. And if we took held a maturity loss of $86 million after tax, we would still remain almost 10%, which actually would be 9.97%, pretty damn strong stuff.
P5NR is $53.9 million total interest income was $284,939, up like it's a record, Brian, I don't think we've ever hit that number on total interest income.
No, I think that is a record, you're right.
Net interest income was $214,595 versus the fourth quarter of last year $215,666 that was remarkably flat. Total revenue was $248,759. The difference there is the fair market adjustment on holding company bank stocks and preferreds, which hit us for about 11.3%.
11.4%.
About 11.4%, we didn't sell them, so we hadn't lost that money we expect and we see -- I'm seeing a recovery in those coming back today, so that's good. We'll keep them we bought them for the dividends and we'll hold them. Margin improved again to 4.37% from 4.21%. But I would listen this from a year ago, a year ago this time we're at 3:21% and now we're at 4:37%, that's 116 basis points, that's pretty impressive.
Non-interest expense great job guys, the $114 million versus $118 million, we're down about $4 million over last quarter. Efficiency ratio 44.80% adjusted to 43.42%. Tangible common equity as a percent of total equity was 10.33% versus 9.66%. Common equity Tier 1, I've got -- I don't know you -- I had Brian run this for me, I said Brian run this. Show me our capital ratios and then take the entire loss of the ALCI and the HTM both HTM and AFS, add those together and tell me where we would rank. So when you hear -- you'll hear common equity Tier 1, you're going to hear two numbers. One number is before and one number is after. So it's 13.2% and I'll talk a little more about that in a minute ago. 13.2% now and 11.4% if we take all of the losses, which we've not have no reason to do.
Leverage ratio from 11.4% to 9.8%. Tier 1 capital from 13.2% to 11.4%, risk based capital from 16.8% to 15%, that's pretty amazing numbers. That puts us those second numbers of each one of those categories puts us in top class in the country. The yield on our securities book I'm very proud of is 3.30% good job my guys there. That's probably about what both banks loan yields are.
Yield on our book is 6.64%, our loan book that's 6.64% versus 6.23% that's pretty nice increase. But from this time last year, it was 5.29%, that's 135 basis point increase. We bought back 590,000 shares during the first quarter and we've repurchased over 250,000 shares, so far this quarter mostly through our 10b5 filing. It's been on sale, so we thought it was a good time. I've not seen another bank present their ability to pay out all our uninsured deposits, including the big money Center Bank that everyone's raving about. This does not mean they can't. But why would a bank not disclose their ability to pay out all insured deposits if they can.
I would imagine the difference is buried in the security book. If we were forced to liquidate our securities book today, which we're not, Home's loss would be pretax of $454,675 based on a $5.4 billion security book that equates to 8.42% pretax or after tax 6.34%. Many banks have 30%, 40% and 50% haircuts to take and that's I assume that's why they won't be wanting to disclose that. As I showed earlier, Home would still remain one of the best capitalized banks in America. Home's customers can take their money out of the mattress and put it back in the bank.
Talk a little bit about the lawsuit we did. We had some West Texas headwinds. That is in the situation has improved some. We filed a lawsuit against 17 individuals March 3 of ‘23 that we derived through our forensic investigators had improperly transferred Happy data. We're not going to say anything else about that. Some of those offices have been closed. There have been some changes out there. But until we're fully compensated in this suit, we'll continue against all those parties.
Conclusion, everyone says they're worried about Regional Banks or you don't need to worry about Home. I think Home is in the best position of any bank in the country. So I hope that [Indiscernible] all of you. In addition to that, we had a great quarter. I really don't have much to say negative about the quarter other than deposits went down some as we expected. But outside of that, we're hanging in really good.
I think I've said I want to grow $100 million -- continue our $100 million run rate per quarter. I think we can do that. We can do that. We're going to earn $400 million plus and in the middle of a crisis like this, I think that's pretty darn good. Tracy French, our CEO who's had his head down and been pretty darn busy lately. I thought I've just see if he had a comment.
Well, John, you made me feel comfortable just listening to your numbers and write it off how safe and sound we are, which we've always known that. And I'll complement you and the board on that. It's pretty simple to state the basic banking. And I heard Donna say the last quarter has been crazy, I've been working for you for 84 quarters it’s been entertaining every damn quarter. It really is coming back to just the basics of banking and that's stay in the courses we've done through several curveballs has been thrown at us, but it's a compliment to our team. I know Stephen and Kevin are going to give a little color on loans and deposits we talk about the loan deposit ratio, I've been doing deposit to loan ratio over the last two years and it turns out to be in pretty good shape. Our deposit that you mentioned, Steven, to give a color on.
In the past, since the first of this month, we've seen a nice increase now Uncle Sam's going to get his fair share over the next few weeks that we anticipate. And I'm proud to say in the banking part, we've got another line item that's coming to be and after our trust company. We've got Kevin Ore and Jobi Mills and Jeff Kelly with the gold star, they're going to become a line item for us and that's positive for our company as we see other areas that can step up and pick the ball up for us along the way.
Performance metrics you gave, Johnny, and I just want to mention some of this is on the regional bank and the bank ROA when you say it's a 2:09% that’s pretty damn good and there's been a constant improvement. And I can tell we got three regions that did over 3% and you got one region cat this did over 4% the past quarter, that's a complement to our regional managers, our retail leaders, our loan officers and everything that deals with that, because they've been working this all the time. It's not just been the last month, it's not in the last quarter. It’s not been the last half a year, it’s been constantly working and the proofs in the numbers on that.
And to finalize comment John and I heard you know we focus a lot on our margin, and our margin in the bank has gone from $3.74 to $4.13 to $4.29 to this quarter, $4.46, 16 basis point increase in the quarter you can probably come give me a paddle to back on that, but..
I think it's okay.
It's okay. Johnny said it's okay for all the regional and retail folks, but outstanding jobs so thank you for all the support that our team has given us every single one of them.
Well, there are some very powerful statements in both of those messages. Thank you very much and I would say, I'm for one proud to be on the Chuck Wagon. So thank you for those comments. Our next update now will be from Stephen Tipton.
Thanks, Donna. I'll start with the topics of liquidity and funding. As we have mentioned over each of the past three quarters, we've seen a shift to deposit balances going to investment firms, money market mutual funds and some banks with an obvious need for funding. The first quarter of 2023 was no different.
Total deposits declined slightly less than $500 million in the quarter, and was spread fairly evenly across each of the past three months. The quarterly decline in total deposits was the lowest since the Happy Acquisition one year ago.
So absent outflows this month related to tax filings as Tracy mentioned maybe we'll begin to see that level out. Johnny mentioned the analysis we recently completed on uninsured balances relative to our borrowing capacity. Adjusting for collateralized deposits, which are generally the municipalities, local school districts and higher end relationships with Long Bank. The calculated uninsured balances are 29.9% of our total deposits.
While our company's size strength today allows us to expand and take on larger relationships both on the loan and deposit side. We still believe in the franchise value of having core relationships in a granular deposit base. Currently, broker deposits comprised 2.6% of total liabilities and our internal limits will allow us to grow that by over $1.3 billion, if we ever needed to. Our top 10 list of depositors account for only 6% of our total deposits and only two of those customers considered uninsured or uncollateralized.
An updated review of our deposit base shows nearly 500,000 deposit accounts, with over 70% of those having been open and active for at least three years and over 25% of those active over a decade. The mix and balances stands at approximately two-thirds commercial or business and one-third retail today, while the number of deposit accounts is approximately 80% retail. New account opening activity continues to be strong with over 14,000 new accounts opened in Q1. And March actually was a bit more active than we've seen in the past.
Switching to capital, as Johnny mentioned, the parent company total risk based capital ratio ended at a very strong 16.8% and a TCE or tangible common equity to total assets ratio of 10.33%. As he mentioned, we repurchased 590,000 shares of stock during the first quarter and continue to be active under our 10b51 plan, that's in place now.
On the asset side, coming off a very strong fourth quarter, loan origination volumes softened to $1.09 billion with over 75% of the volume coming from the Community Bank regions and that was split fairly evenly between Arkansas, Florida and Texas production.
Finally, the net interest margin improved 16 basis points in Q1 to 4.37% as our bankers continue to do a great job managing this interest rate environment. Interest-bearing deposits averaged 1.90% in Q1, which was up 45 basis points from Q4 and exited the quarter in March at 2.01%. The core loan yield excluding accretion and event income averaged 6.49% and was up 39 basis points from Q4 and exited the quarter in March at 6.54%.
With that, Donna, I'll turn it back over to you.
Thank you, Stephen. And now Kevin Hester will provide us with a lending report.
Thanks, Donna, and good afternoon, everyone. As Johnny appropriately stated earlier, one of the key factors that has contributed to the strength of Home Bancshares has been our compelling asset quality. I believe that the following color on the activities of the first quarter will bear out that this continues to be a strength of our company. Non-performing loans and non-performing assets remain at very low levels of 0.51% and 0.33% respectively.
A detailed review of the increase in non-accruals of $13 million this quarter reveals two CCFG C&I credits totaling about $6 million. Our internal analysis of the entirety of CCFG C&I portfolio indicates a potential loss of only $5 million, which is all within its shared national credit portfolio. We shifted away from [Indiscernible] sometime ago and this part of their C&I portfolio has been winding down accordingly. The remaining $7 million is spread across a few credits in the Community Bank footprint and based on payments that have been made to-date or renewals that are in process at least the same amount will be returned to accrual in the second quarter.
For those of you that may not remember, Arkansas state banking law requires automatic non-accrual at 105 days past due regardless of whether it is in the process of collection. The timing of these payments and renewals will allow the reversal of most of these new additions. As Johnny stated, the allowance for credit losses remains 2% of loans and provides 388% coverage of non-performing loans, both stellar measures.
Past dues totaled only 0.62% of loans, even with a total of $30 million in ALF and memory care loans added to the total this quarter. We have discussed these loans previously, and I'll give you an update on that portfolio momentarily.
At this time. I would like to turn it over to John Marshall, who will provide you some information on the asset quality for Shore Premier Finance John.
Yes, Kevin, thank you. I think you Centennial Bank enjoys very-high asset quality, the division Shore Premier Finance in the marine finance space also enjoys very good asset quality. Because of our underwriting standards, and we have it through this cycle, seen any deterioration in fact our delinquency, which normally runs this is for 30-plus days delinquent, around 11 basis points to 14 basis points. Kevin, at the end of the first quarter, we saw improvement. So that was under $800,000 and about 8 basis-points on a $1 billion book. So I'm very pleased with the way asset quality in the marine space is holding up. Thank you.
Thanks, John. That's impressive and is directly related to your grids rigorous underwriting practices. As I mentioned, we've been working through a portfolio of about $100 million in ALS and memory care loans in Florida for some time. And in January, the equity partner, disclosed that they were wanting to exit some of these properties. We have been negotiating a soft landing for these assets. And I'm pleased to report that there are multiple buyers for this equity position. We have always contended that we underwrote these assets conservatively with a low leverage position.
Based on the ongoing negotiations which are nearing finality, we do not expect any loss in this portfolio. And expect all to be resolved by the time we report again in 90 days. Finally, I wanted to mention that due to the concerns of some regarding certain asset classes, we chose to refresh the deep dive into the office portfolio that we performed back in 2020. This analysis was completed during the first quarter using balances of the portfolio at 12/31/22. And the results were included in this quarter's press release.
I would like to point out that rolling forward to 3/31/23, there is no change in the asset quality of this portfolio, which continues to exhibit low problem loan totals and less than 1% past-due. Notably, nearly 60% of the portfolio is located within our community bank footprint with most of that in Texas in Florida, which are states that should be less impacted by changes in how office space is utilized post COVID. Even within these states the majority of these balances are in the very strong geographies of DFW in Miami, which continue to experience high levels of population and company headquarter inflows.
Positive attributes such as low leverage, high occupancy and predominantly low-rise come to mind as a result of this analysis. Outside of a couple of instances within the community bank footprint. Most of our recent additions to this asset class have come through CCFG as a part of a multi-asset facility. For most of these additions office is not the highest and best use, nor is it what the valuation is based on. We continue to be very positive about our exposure in this potentially fragile asset class.
Donna, that's all, I got and I will turn it back to you.
Thank you, Kevin. Johnny, before we go to Q&A, do you have any additional comments.
I think it was a great quarter overall. I said what can possibly go wrong. You think about the worst financial crash since the Great Depression and ‘8, ‘9, ‘10 and ’11, we weathered that really didn't see this liquidity crisis coming. We call the shot to maintain lots of liquidity, and we certainly call the right shot. So I'm sure there's a lot of MBS buying so Home BancShares today, but those who spent their money and put it in different asset classes.
What we did when it ran off, we have the cash to let it go. So anyway, it was -- I hope, everybody thinks is good as, I think it was based on what we saw what happened in the marketplace. I also think there might be some opportunities on the buy side to maybe to pick-up some assets over a period of time, we'll be looking, we bid on both Signature and pieces of Signature, as well as pieces of SVB, we were not successful, but you're still some stuff lab so we'll see about that centers something there that makes sense for us.
Outside of that John good report on asset quality on the marine book. Proud of you guys and what you've done and Kevin said that you're exhausted underwriting and that is certainly paid off for this cooperation and congrats on that. Seems to be a world out there scared to death of marine stuff and our key benefit we miss and something, but you keep producing the great numbers. So thank you for that.
And good report ever will -- Donna, I'm ready to go to Q&A if you're ready.
Alright. We're all ready. We'll turn it back to the operator and open it up for questions.
Thank you. [Operator Instruction] The first question is from the line of Jon Arfstrom with RBC. You may proceed.
Hey, good afternoon, everyone.
Hi, Jon.
Hear me all right? Okay. Good, good quarter. I agree. Good.
Thank you.
Good numbers. In terms of the liquidity that you lay out, you clearly have a lot of it and you're prepared for, I think, any level of deposit outflows. But I'm just curious if things are settled down from your point of view. And are you starting to see some of these deposits that may have left flow back into the bank?
Yes, some of that, it -- we were prepared for that. I think some people got -- I never got asked, I never got one question many customer period. And Tracy got a few and I think Stephen got some, but overall, we didn't -- I didn't feel it. I saw we're losing a little bit, but I think that's naturally you see these people offering 5%-plus for on CDs, that says we borrowed all money -- we need to barrow from the Fed in the fours, that tells you something. If they're offering 5%, they're asking to pay any 5%, so that means we borrowed -- that means we spent on our money, we borrowed up and now we're trying to doesn't matter whether they're profitable or not. But I think we're good, I actually think we're good. We'll go through this tax time. If we get through the tax time, I think we'll be fine.
From the loan perspective, we're not aggressive on loans. So you remember back in ‘8, ‘9 and I think you asked me question what we think about loans and I said I don't think much about them. I don't care right now. The key is to decide to make sure the company is strong. That's the most important thing that we've done. So and that's what we're going to any to do. So we're not aggressive on loans. We've got a little tougher on the loan side. We're seeing pretty good loan demand. We're seeing some squarely loans that are running around out there. So we -- I don't know that we got the lines to pull up if we need it. As Brian says, but I don't know if we need it, we'll use it. We're in borrowed a penny this year. I mean, we've borrowed 1 nickel.
So we got ourselves set up for it, but we haven't had to use it and that's a blessing for us for the entire price money. But I'm pretty optimistic we may slide on two. It depends on how bad tax season is. I think that's really the point. Any comment on that? Brian, even.
Steven, you had a comment about how there was deposit outflows, but it was the lowest that you've seen in a while. Did I hear that correctly?
That's right. Yes, I think deposits were down about 4.90% through the quarter. They were -- those were higher levels in Q3 and Q4 last year just, kind of, on the heels of the acquisition. And Tracy mentioned through this point in April, we bounced around in a positive position so far. So we saw a little bit of inflow in March. We actually had a couple of surprise deposits from customers of ours that had money maybe out West that wired money in and said, we were told by our treasure to park in at Centennial Bank. So we saw a few of those instances, but I think overall maybe just -- maybe focus more on strength and quality instead of -- so where the highest rate may be.
We're not going to solicit the big deposits. We've managed this thing properly where we've had the ability to cover our uninsured deposits and un collateralized deposits. So I think we're not out. We'll control those as they come in I'm sure a lot of people like to put their money here. We like to have some money from everybody maybe, but we don't -- it's not our goal. So end up like SVB would allow lumpy, lumpy deposits in the bank. So…
Yes, okay.
Yes, this is a reflection of the different deposits.
[Multiple Speakers] not will be in the half right, but we're damn sure the cycle.
Yes. Well, it gets to my next question, but this is like it's a good discussion, because it doesn't feel like you're that concerned about deposit outflows, which is good. And I guess the next question where you're saying you're not going to be the highest rate and you're being a little bit more cautious on lending, but seeing some opportunities. How do you guys feel about the margin from here? Can you keep pushing this margin higher?
Like he's like at Home, [Indiscernible] like he is being at home. You have a…
Jon, I mean, that's our goal, right? I mean, that's the fun part not just over the past year, forever in this company. We always want to try to get a little better for can. We have to adjusted go with where the market steers us. But we're just making good business decisions and right now the markets worked in our favor and we haven't had the -- we weren't in the position where we had to go out there and pay high interest rates on deposits. And great core customers and that's what's -- as we watch the deposits every day and not just me, it's every region out there in the market. It's just cool how much of pay attention to that. So we've been able to bring some stuff in.
But to answer your question, I'd probably say, I'm always nervous about the margin, but Johnny make sure we get it better and the great part about our company is everybody out there in the region want to do the same thing. So just go with the flow. Loan rates are this today and deposit rates are this. And long as that holds good and we'll swing. We didn't bet on the future. We thank, gosh, we didn't lock in a lot of the assets at 3.5% for 10-years. And because I didn't have anybody doing a 0% CD for 10-years.
We had a payoff this week $80 million payoff the loan rate was [9,845] (ph) and the prepayment penalty is $420,000. So I told them we got to get something going to replace that, maybe something million dollars at roughly 10% with the prepayments. So anyway, we weren't -- we didn't cry about the prepay that was they asked for different things and we weren't going to do that. We're not going to stretch. So we don't stretch. So we didn't stretch and they were able to refinance it paid us off. But I thought it was fixed, I've forgotten it was floating and I thought it was fixed at like six or seven. Now I said, what was the rate on when I got paid off and they sent it to me, but wow, but replace that, Tracy.
Kevin for $4:46 in the bank. They're not make users, they're more happy. I mean, come on.
All right. Well, thanks everybody. It's a good message on that. Thank you.
Thank you.
Thank you, Mr. Arfstrom. The next question is from the line of Matt Olney with Stephens. You may proceed.
Hi, thanks guys. Good afternoon.
Thank you, Matt.
Want to start on the M&A side. You mentioned being opportunistic. Any color on what's in the marketplace today that you're looking at? I mean, perhaps it's too soon, but just curious about this? And then specifically within the Signature and [SIPPI] (ph) commentary that you mentioned, any more color on the types of businesses from them that you were attracted to?
Well, we're looking at some of their assets, that they have. I don't want to get specific here, but we're looking at some of those assets to bid on. From the M&A perspective, the problem is that most banks are loaned up and they're -- I mean they're in the 100% majority of them is 100% -- one that won't sell particularly more -- let me say that. They're 100%, they're tired, and worn out and they're running lower capital ratios. And if you mark ALCI, it's even much worse. And I don't think we're in the mood, I don't think Home is in the mood in this cycle to stretch. Don and I looked at one we're in Dallas a while back. The bank went to Dallas, but the bank was somewhere else. And met with the owners and they're 108% loan to deposit and their margins going straight in the tank, because around money and they hadn’t pay half prices for money. And they're getting killed.
And the point is, so they -- I said let me get this straight, you want me to pay your premium for that. And I said, I'm struggling why I want to do that and why I want to take your mess that you've created and put on my balance sheet and put my balance sheet that is not stressed under any conditions and put my balance sheet under stress. So in joking, I said if you pay me $100 million, I'll take it. But that didn't go very well. But that's kind of my attitude right now, I've never seen this kind of crisis before and it's pretty damn serious and you see how fragile banks are. Banks are very fragile and there's not 20 banks in the country to take a run. I don't believe maybe 50, maybe 100 that could take a run tomorrow.
Home Bancshares can take one, but there's not many banks that could take a run. So I don't know that I want to buy some pay somebody a premium to buy their problem, that's kind of where my stance is right now. We're doing fine. We're going to be fine Home Bancshares will be open. Home Bancshares will be operating and Home Bancshares will be profitable. So you've never heard that top out of me before like that. But I think it's time to be -- protect the Chuck Wagon. I think it's -- I don't think you stretch, I don't think it's time to stretch, I don't think this is over and I think it could be a while before it's over. So I think we're just going to sit here and protect the Chunk Wagon for a while. We'll take care of our customers. Our customers have no fear, where the ability to continue to finance our new customers, new customers will be difficult to get in the door. But we'll take care of our existing customers. They've been good to us. We'll be good to them. We'll be here to take care of their needs. So I think that's the same way to plant right now, [Matt] (ph).
Okay. That makes the commentary there. Yes, no problem.
That doesn't sound like the regular Johnny does it.
On the office front, you guys gave some great details there in the press release as far as geographies and amounts and LTVs and I think you did disclose about $45 million was criticized, which I guess is what 4% relatively small amount. Anything more notable in that smaller -- that $45 million Kevin to speak of as far as a trend or anything more notable there?
Yes, probably the most notable thing is that the majority of that is in the Texas market and it is stuff that we marked criticized in due diligence. And not classified, but an OEM. And as we get that happens a fair amount when we do due diligence on stuff that could be a 4 or 5 or a 6 and we usually are pretty conservative and then take the next year or two to look at it closer. And so I wouldn't be surprised if the majority of that when we do an annual review looks better than we thought it did to due diligence. So that is the vast majority of that $45 million is in what I would call that bucket.
Okay. Got it. That's good news.
About 65% loan to deposit -- about 65% percent loan to value and most of it matures in ‘23 and ‘24, so we'll get to look at it this year or next year. And I'm not particularly concerned about any of that.
And I guess Kevin just taking a step back and thinking about this office deep dive that you guys did over the last few months. I'm curious about how what you think about loss potential to Home Banc on this portfolio as it compares to a few years ago when you guys did a similar deep dive on the hospitality book back in 2020. You guys carried some larger hospitality loans few years ago came out with no losses. How would you compare this office deep dive and potential losses to what you saw back then?
Yes, we actually looked at this portfolio around that same time. We did the same deep dive and it looks very similar to what looked like then. I would say and I think, I said it in my remarks that the majority of what we put on the last year, year and a half has really not been traditional office. Even though it is coated office, it's not what you would expect the ultimate disposition to be of that asset and most of that's in the New York portfolio in a multi-asset facility. So you would look at that completely differently than you would an operating office building that's going to be an office building now and forever.
So I feel really good about the deep dive. I like the fact that the majority of our balances are in our footprint and even within that footprint in two of the strongest geographies, particularly for office. So I think that bodes well. I feel really good about the exposure and any potential loss for that group wants.
Okay. All right, guys, that's all from me. Great report. Thanks.
Thanks, Matt.
Thank you, Mr. Olney. The next question is from the line of Brady Gailey with KBW. You may proceed.
Hey, thank you. Good afternoon, guys. I wanted to start on loan growth John, you mentioned a lot of your peers don't have money to lend. They're loaned up, but that's not the case at Home. You guys have money to lend. And relatively low loan to deposit ratio. Is now or is today's backdrop of time where you could see loan growth pick up for Home?
Well, I said earlier we're going to service our customers, we're going to take care of our customers. Kevin is seeing some credits that from the outside that we don't feel -- he doesn't feel comfortable in doing at this point in time. And I think that's probably a good time. The key is we've got some great customers, who've been with it for many years enabled us to grow this company and the point is take care of them. Just say we won't do somebody that comes from the outside, we probably will under our terms and conditions and we can build a long-term relationship with those people.
If that is -- if that's available, but there's -- we're not interested in one timers and we're not interested anybody can't bring deposits. We're just -- we're interested in relationships and long-term relationship. And we built Tracy built a bunch, and Kevin camera built a bunch in ‘08, ‘09 and ‘10 when we were in that crisis. So that worked well for us during that period of time. And there's an opportunity, I mean, we'll look at about anything. But it's not the time -- it is not the time, I don't think ready to be aggressive. I think it's to be real conservative and take your time, because I don't know here to think about this. There's going to be opportunities come out of this, right? And where do you spend your money?
You have some real opportunities to spend some money in different areas and that could make a lot more money. So we think those opportunities, we have the opportunity to build some stuff now. We think those opportunities are out there. We've chosen to take a shot some of those and hopefully can increase profitability with those. So we're just being real careful. Very, very careful. I'm just afraid this is not over, I'm just afraid this cycle is not over. And those who survive this cycle may have real opportunities. I remember ‘8, ‘9, ‘10 and ‘11 how well Home did became one of the biggest buyers in the country that fell back to opportunities. That those opportunities could happen again.
So we're just going to remain concerned to say we won't do a new loan, we will. We'll just look at it, but we'll -- we're not looking at M&A right now. We're not interested in M&A. I mean, I think banks are trading, I think average multiple on bank now they're trading about $120 a book. I think that's about where they're trading. That sounds pretty enticing to me with us. It's 2 plus times book, but I just don't want to buy somebody else's headaches and problems at this point in time. And then [Multiple Speakers] so I'd like to go on Johnny Allison, you've already dealt with that's just a conservative side, right?
That makes sense, though. And then you look at credit quality, it's still pristine at Home Banc. The reserve is still 2%, which is pretty high relative to where your metrics are running. Do you think the reserve percentage continues to go lower here or do you kind of draw a line in the sand and say, hey, considering the backdrop, we need to keep this reserve at 2%?
I'm a 2% guy. I'm a 2% long guy. It's -- I don't care what they say. I'm a 2% loan guy, it’s always worked. 2% loan is always worked. And then I understand we go through all the calculations. We do all that stuff I understand the importance of all that. And I compare I watch that and look at that. But I know the 2% worked. So it doesn't matter to me. I know 2% works.
And then lastly for me, you guys -- sorry what did you say, Johnny?
I didn't hear that. What do you say?
My last question is just on the buyback, you guys have been active on the buyback, is there any reason why that would stop or do you think the stock is at a good value you still buy it back here?
Well, we bought back 250,000 shares on our 10b5, so far because they've been hammered the stock. So one other -- I mean it's kept on all the banks, but we just think it's time to buy. So when we - Stephen put in the 10b5 and we're pleased with what we're doing as we've got to stop. So and we've bought 590,000 shares before, so we've got the ability to buy more. I say we get out for a little bit, but then the stock gets cheap and we spot.
Great. Thanks guys.
Thanks, Brady.
Thank you, Mr. Gailey. The next question is from Michael Rose with Raymond James. You may proceed.
Hey, guys. Good afternoon. Just wanted to touch on Chris Poulton’s business. I would expect that in this environment a lot of the competitors in the space are going to pull back. Do you guys kind of see that as an opportunity? For you to grow that business. I know, you know, you have some capacity there. I think the threshold is, you know, right 10 of loans. If we could just get an update there and kind of how you holistically would view this environment so we think that pricing power would kind of play in your hands as other people pull back? Thanks.
We don't put…
Hey Michael.
Chris, I'm going to let Chris take that and answer for himself.
Yes, Michael. And thanks Johnny. I think in theory that's true, I'm a little in Johnny's camp right now, which is I think the loan we make tomorrow is better than the loan we can make today. Certainly betting the loan we can make yesterday. And so the phone is ringing a lot and we're talking to people, we're taking care of our customers too and that, I asked my team to create a list of different ways you can say no, because I was getting tired of the ways we were saying no to things. So we're up to about 27 different ways to say no and that will probably grow.
But we'll start saying yes at some point. And we are, I mean, we did 200 and something million in the first quarter. We'll probably do about the same this quarter and we continue to get payoffs and pay downs. I like to see that right now too. One of the things I've been concerned about is what's exit look like and we just got paid off on one. In the last week or so that was a CMBS takeout that I kind of wanted to see how that was going to go before we kind of think about some other things, because if the CMBS market is there to take that out, it's great loan and such that's good. And if it's not, well that was a really good loan can't take that 1 out of CMBS, so there might not be much.
But that went off well. It was good for our customer. They executed well and we'll do more with that customer what we're probably a little more focused on to be on right now is getting ready for what comes next and for us, that's facilities business. That's institutional buyers and institutional lenders that are getting ready. They've raised money. They're getting ready to go buy assets, buy loans, make loans, et cetera. And so that's really where our focus has really probably been over the last couple of months. We've been gearing up or putting facilities in place with those folks, et cetera, because when they see opportunities, it’s opportunities for them. It's opportunities for us. And so that's how we built this business and we'll stay focused on that. So I think that's probably where I'd see a little more opportunity then just going out and finding that. We're starting to get the phone calls from people saying I had a deal, but my bank's not there, that’s an interesting discussion sometimes, but I think the facilities and backing folks that are going to put new fresh capital in is a little more interesting.
That's great color. I appreciate it, Chris. And then maybe one for Stephen Tipton, the DDA mix is at about 28%. Any thoughts around where that could potentially bottom or do you think we've kind of seen the worst of it?
I think if we go back pre-pandemic levels, we were in ‘20 -- I think mid-20s or so range. I think in our just looking back over the last several quarters, it's drifted down, kind of, in step with some of the other categories on the interest bearing side. So it’s certainly our focus, I think as it goes, as we mentioned, tax payments and some of those things may pull it down near-term. But that's our focus and conversation with all of our bankers and presidents on those operating balances and those real core customers that are out there. So it's certainly the focus.
All right. Thanks guys. And if you guys are -- Johnny, if you've taken applications for that Chuck Wagon, let me know where I could sign up. Thanks, guys.
Okay. I want to be one of your darks. Did you hear me?
I did. I hear you. I hear you. Well, if you get cheaper, we'll see. Hope not so. Hope not. Thanks, guys. Appreciate it.
Thank you, Mr. Rose. The next question is from Brett Rabatin with Hovde Group. You may proceed.
Hey, good afternoon, everyone. Wanted to start on expenses and I'm not sure if all of the Happy expense savings have been pulled out, but was hoping for some color maybe on where you are on that. And if the first quarter run rate is a good level to think about going forward?
I mean at this point in time, for our plans on Happy, we're pretty much there on what we're going to be having in savings. I think it's a pretty good run rate. We had a little bit of a reversal in some accruals that we had in the first quarter, which was about $1.6 million. But then on the flip side, salaries and stuff could go up, because where everybody will start max on VICO and stuff, but it's not far from the regular run rate.
Okay. That's helpful. And then Johnny earlier in the conversation, you said we weren't done with this turmoil that maybe there was more to come. And a quarter ago, you were talking about people flying in planes to see you and talk about credit and it sounds like you've pulled the horns in somewhat. Can you talk maybe and I've noticed that the one month T-bill is back down even lower than where it was with those failures. Can you talk maybe about what you're focused on in terms of additional potential turmoil? Is it liquidity oriented or other things? And just it sounds like you're buckled down for a recession? So, I was just curious if you had some thoughts on what that might look like for the industry or what you were focused on?
Well, I think we're going to be higher for longer. The Fed cannot pivot, I don't think they can pivot. If they do, we'll be back in the ‘70s and with Voker and then we'll have to come back at a later date and fix it. It does look like things are slowing down, which is positive. I think it's positive. I think that's good. There is a chance that they can hold interest rates maybe another quarter and then just pause and not do anything for a while and watch it. And that's probably the smart thing to do. I think another 25 basis points could be cooked in right now. It kind of depends on what the Fed thinks as a result of what they're seeing. They just push rates at the fastest rate till the stick broke. I mean they pushed it and pushed it and pushed it till it broke. And that's really sad as it is. That needed to be done, because we got to stop this inflation monster and it's not over yet. So it may be coming back, it may be coming down certainly appears that way.
So I think we're going to be higher for longer. And I think we're about in an environment here where we're going to be for a while. So maybe 25 up, maybe flat maybe 50 up, but I don't think any more than that. So these people that the banks are in trouble will remain in trouble for a while. They'll continue to have to pay higher and higher rates for money and they'll struggle through this process. So you just got to figure out when it's about to end and when it's going to be over and then maybe that point in time we could get more aggressive on the acquisition side to think about Home maybe the only bank in the country that bet the way we bet, on rates the way we bet, to go out and buy somebody today that didn't do that, they spent their money and leverage the hell out of their balance sheet.
And for us to buy them, I mean, of course, they want a premium right. So they don't sell up much premium, but point is I'm not willing to leverage my balance sheet in this crisis right now. I've never seen a liquidity crisis. This is my first time to really see one. So I mean, Bunny and I talked about it earlier, we did see some similar summit back in the ‘70s when all the asset areas went broke. I'm surprised the credit union are hanging in. I don't have those credit engines are hanging in today. They did low rate loans and they're not guarantee they're paying higher rates than what their loan book is. And that's what broke all the savings loan and I wouldn't be surprised. It doesn't break a bunch of credit unions. So I'm not predicting that and I'm just saying it certainly appears when you look the way things are lined up. I mean, you see some bikes out there. I know some bikes out there that are really, really tight right now, really struggling. And it's going to be years before they unwind.
I mean, they're not going to solve this deal next week, next month. That they've got two or three, four years of this maybe, maybe as strongly as for it. [Indiscernible] I remember the guys walking in doing 370 fixed 10, toll pricing. Now that's the number that I've worked forever, right? And what they told us? I want to sell it back to us. Well, I hate to look at his book today. Because he's paying 4.5 percent 5 percent 5.5 percent for money. So I think it's cautious times And I think just be smart and be careful because home hasn't -- I don't know what that opportunity is yet. I don't know where it is, but I believe it's there. And I believe Home has the opportunity and the liquidity and the ability to step up and buy something, it makes some sense for a bit pieces of assets or be it another financial institution. But how big do you want to buy how much risk will you take when you do that? And then what does it do to our liquidity at that point in time? So those would be the questions.
I can't add really that's about as good as I can do. I don't know where it is, but I don't know what going to see it. That makes sense. We've been pretty good at knowing it when we see it. So thank you for that, Brett.
Thank you, Mr. Rabatin. The last question is from the line of Brian Martin with Janney. You may proceed.
Hey, guys. Good afternoon. Just maybe just a couple of things just at the end. Just the -- on the I guess within the last quarter, I guess in the December quarter, I'm not sure where it stands now, but just kind of level of stuff standard loans or kind of classified loans. Can you give any color? It looked like they increased a little bit at year-end and just kind of wondering where that trend is today and just in conjunction with kind of the dive you did on real estate in the office book?
Hey, this is Kevin. So yes, we had a little bit of an increase year-end, there was one pretty large relationship that the timing of the review just came at a bad time for them. And things have turned back around for them. They're in the energy business and time has turned back around for them expect that either this quarter or next we'll probably see them come out of the classification. So other than that, I've not seen a lot of movement downward.
Okay. So no real change from that fourth quarter level to today, not a whole lot on either the criticized or classified levels from on that base?
Not materially. No.
Yes. Okay. All right. And then how about just any a lot about M&A, just the opportunities, but how about just some of these banks that are struggling out there, Johnny, I guess, is a lift outs of possibility I guess that's something I know you're looking at the FDIC or just the banks have bailed but outside of that just lift out to people as opposed to acquisitions. Is that something that's realistic to think about or probably not?
Yes, I don't like -- I'm not a I'm not a lift out guy. I don't like to lift out, so I don't like to be lifted out. I don't let stuff. I mean, I think it's chicken, you can drink the rest of it, but…
I got you.
Brian, you're trying somebody, you bring them in, you teach them, you give them lots of business and suddenly they go home inside their hero and they're going to go -- some might go given $100,000 signing bonus and they're going to walk out on you. So I'm not watching. We had that happen to us as you know in West Texas. And she saw what happened to us out there with those guys. And that has not worked out for those people. Let me explain that. That has not worked out very well. I think, I don't know if what I got back is told correct or not, but I understand nearly every one of those people that left that we have found that may have moved some information improperly or unemployed now.
So I don't know how well that works out really. So it is -- I think they've closed branches and those people are gone, but a lot of those people are gone. So what they did was not was not right. So I don't want that -- I don't do that to other people. I don't want them doing it to me. So…
hey Johnny, I'll remind you, we actually talked to a group a while a few months ago and really liked them. Great, I think it'd been great opportunity and we just put on hold and pass for now because it makes sense, as Johnny said, we're going to take care of our customers and take care of new opportunities that are going to be significant relationships. That's more important to us right now than lifted out. Kevin exactly right. And I was at a bank conference shortly thereafter and I saw that CEO. And I just thought, here I am talking to his people behind his back. And I wouldn't want somebody doing that to me. And I just really felt bad. I don't -- if I'd hired this guy, I don't know how would have -- how felt about looking him in the eye. Some people have no conscience and they are able to do what they want to do. I mean, service first mistreated us what they did and they paid for it. And that's their style of operation that just happens not to be ours.
Got you. That's helpful. And maybe just one for Stephen, I guess Stephen, I guess where did the -- I know you gave some ending points for the rates. Where did the margin end in March, kind of, end of period and just kind of with where -- with Johnny's kind of alluding to as far as maybe one more hike and stopping, just kind of wondering feels like we're kind of near a peak on the margin. Just wondering if that's kind of consistent with how you're thinking about it. I understand that the thought you want to take it higher and loan yields are going higher, but just trying to understand where it ended and then just maybe if we are ending the tightening cycle here.
Sure. So we ended March at 4.40% on the NIM. I think there may have been a little bit of event income in there, but it was fairly consistent with where the quarter averaged that echo Tracy's comments. I mean, it's everybody's focused around here every day. If we see rates continue to go up, our Alco model shows that we benefit slightly from another -- I don't know if we get another 100% from here, but as rates go up that we still benefit slightly, like to think that with the events over the last month that the world focuses on strength and flight to quality maybe instead of where the highest interest rate might be. So that's our focus, we've got the investment portfolio, cash flows come in. We've got variable component to that. We've got the loan portfolio that will move as either as rates go up or as loans mature and have the opportunity to reprice. So whether or not we see rates go and how far we'll continue to have the opportunity on the asset side to offset what we had to do on deposits.
Got it. And you said…
So suspect there will be lots of people, looking around for opportunities with different banks in the future, because so many of these banks are longed up and if they're on a commission scale, they're going to struggle for a period of time, because as some of the lenders have told our lenders, they're buying said we're out of the lending business. We're totally out of the lending business. So that hurts some of those lenders, I'm sure, the income of some of those lenders. You may see some of that moving around.
Yes, that's true. And Stephen, just the deposit beta kind of where you think could you have any sense on kind of where you think that may end the year as you kind of get through the next couple of quarters kind of the cumulative beta all in?
No. I mean, I think we've been in the 50 % range each of this past quarter and in Q4 and absent something changing on the funding side. I think that's where we would target that to be.
The key is can we outrun the deposit cost. Yes, and we've been fairly successful as out running the deposit cost. So that's -- the daily report shows that we're a little behind shortly a little behind this month. But overall, the last quarter was fairly we won some and lost some on different days I guess immediately. But overall, we won. So, hopefully, we can hold that together.
Yes. Well, thank you for taking the questions and thanks for all of the added disclosure on the office book and the liquidity. It's very helpful. Definitely stand out.
Thank you.
Thank you, Mr. Martin. We have one additional question from the line of Stephen Scouten with Piper Sandler. You may proceed.
Hey, good afternoon, everyone. Sorry, I hopped on a little late. But I did want to ask what you're hearing from regulators currently, if it hasn't been covered? And I just remember when you guys crossed through $10 billion in assets and felt like you were required to add people you probably didn't need at the time. And I'm just kind of wondering if you think those sort of incremental oversight and headcount additions might get pushed down due to all of this that's transpired as well?
Stephen, I think it could get pushed up. I think, I worry about new regulations coming down on the banks as a result of SVB and Signature. We didn't -- that wasn't what we needed. That's not what we need. We just need to regulation been forced. I promise you one thing that wouldn't have happened out of Saint Louis region. That wouldn't happen with our regulators. That what happened in California. That would have not happened here. Our regulators are on top of the game. They do a great job. We have a great relationship with them, they keep us in line and we stay in line. So I think that was -- I think if you want throw stones at somewhere, I think that was -- I think that may have been somebody else's responsibility that was not properly attending the store, because I can promise you one thing, if closest, Saint Louis stays with us, of what we're doing, that would have never happened here.
And Arkansas too, I mean the Arkansas State Bank department, good offerings to keep us and we don't get too far out of line ever, but I think that was some stock. But I fear they're going to come down some more regulations and more and more and more think it will fix it. But I think that was a lapse in judgment in those liberal communities out there that I mean we've been -- some of that stuff didn't look very good. They only had -- they only have one guy I think on the bank board that appeared to have lots of banking experience. That was a former member of the Fed, I think.
So they just didn't pay attention. To me, they didn't pay attention. So it was a mismatch with the balance sheet and it lasted two days and it is over, bam, that's how fragile that thing was. So that's what that gets your attention as a banker and as a large shareholder in a financial institution, when you see one go bam, it blows up in 48 hours. So it tells you it's time to be conservative.
Yes. For sure. Well like we discussed, no bank is really built to withstand the bank run. So that's kind of -- yes, you got to prevent that in the first place, I suppose. So congratulations on a great quarter. One of the few green tickers on my screen right now. So the market appears to agree that you're in that catbird seat, well done.
All right. Well, thank you very much for your support. Great report. Thank you, John Allison.
Thank you, Mr. Scouten. That concludes the question-and-answer session. So I will turn the call back over to Mr. Allison for any closing remarks.
I think we've said it all. I don't think we have anything else to say today. I think we've said it all at our shareholders meeting today. And then we move from there to our conference call and we have our -- we're in line for our Board meeting that starts 10 minutes ago, that's right. It starts 10 minutes ago. So look forward to talking to you all in 90 days and thanks for everybody's support.
That concludes today's call. Thank you for your participation. You may now disconnect your lines.