Home BancShares, Inc. (HOMB) Earnings Call Transcript & Summary

Good afternoon, and welcome to the Home BancShares investor presentation. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Donna Townsell. Please go ahead.

Hello. I am Donna Townsell, Director of Investor Relations, and we are happy that you're here. We are joining you live today from sunny Amarillo, Texas, home to Happy State Bank. Today, Home shared the exciting news to partner with Happy State Bank. To talk about the transaction today is Home's Chairman, John Allison; Centennial Bank's President, Tracy French; and Chief Operating Officer, Stephen Tipton. Alongside with us today, we also have Chairman of Happy Bancshares, Pat Hickman; and President of Happy State Bank, Mikel Williamson. We have a slide deck on our Home Bancshares' website with transaction details. And I would now like to turn the call over to John Allison.

Thank you, Donna, and welcome. A pretty exciting day for Home BancShares. We have been in the acquisition mode, as you know, for a period of time. And we've looked around at several institutions. And we've always talked about going back to Texas. Remember, I used to be in Texas, we have about $600 million of loans in Texas now. But I think it's an opportunity like this doesn't come along, but once in a lifetime. I really like this trade. It is accretive, accretive, accretive to our shareholders. That includes $55 million worth of deal costs and also a $27 million CECL adjustment. So in today's market, to get a deal done with CECL and the cost of putting one together has still come out accretive, accretive, accretive. I think it's a great trade for our partners as well for us, and it looks -- appears that the market has liked it. I want you to know that we look -- we've looked at lots of banks in our tenure, as you well know. This is the cleanest one we've ever looked at. I'm talking about from a compliance perspective, from enterprise risk management, from CRA, from the loan files. The loan files are macular. You don't have to look somewhere for the loan files. All the information is in the file. I've read every classified loan that the bank had, spent my time really looking at the worst-case scenario and really enjoyed how it's laid out. I mean you can read it, you can understand it. So not only is it a great opportunity for us to partner with a fabulous bank out of Amarillo, Texas, but it's also a good financial institution, a really good financial institution. So of all the transactions I've looked at in my career, I'll have to put this one in the top 5 of those transactions. So this is a real deal. There'll be naysayers, but I don't know how or why others may just have a bad attitude. But overall, this is a great trade. With us today, if you want to ask some questions about the market and what goes on, we have the 2 top executives from Happy Bank with us today. Pat will be joining us on the Home BancShares' Board. And Mikel will be joining Tracy and his team on Executive Management of Centennial Bank, and we're looking forward to that. They're a lot like us and lots of respect. They have an amazing culture called Happy Bank, and it is really a culture. It is an amazing culture. They've done an outstanding job. They have 1,300 individual shareholders, privately owned individual shareholders. They've never paid a dividend. We spent this morning having an opportunity to visit with their employees on the phone, all our employees that could get up -- we did 3 different calls. And we talked about dividend. I had explained to Pat what a dividend was. Pat really didn't know that. He said, what is that? What is the dividend? So that will be good for their shareholders. Everybody seems to be excited on both sides of the fence and this truly is a great opportunity to get into Texas, to get into these good markets and have an opportunity to get in at a fair trade back and forth. I can see one of the stocks up because it makes lots of sense. That's our first base here. We'll be playing off of this foundation. Mikel will be helping us as we go forward in the state of Texas for other opportunities. But right now, the most important thing is to get this transaction under our belt and go forward with it from there. I'm going to hush at this point in time, Tracy. I'm going to turn it to Tracy and see if you've got any comments or, Stephen, you all want to make a comment. And then we'll turn it to our new partners and see if they have something they'd like to say.

Well, first, again, like to say congratulations to Happy making us happy today. And being around the groups for the past few months that Mikel and Mr. Pat has taken me around through and then meeting them over the last several weeks. It's going to be a good team put together, and we look forward to building Texas. We look forward to continue adding to the value of Home BancShares and the Centennial Bank that we have. But it's really just a complement to the Happy group that you've done, Pat. It's been phenomenal to be congratulated and we're anxious and looking forward to the future of where we can take your company that you started here and going forward. We know it's Texas. We know it's West Texas. I can remember when we went to the Panhandle, everybody kind of thought why are you going to the Panhandle for. But John asked, Pat, I love the headline, Donna, that you came up with Panhandle to Panhandle. Because I promised the Panhandle of this market if you can do as well as the Panhandle in Florida did for us, we're going to kick some tail and do extremely well. We also have the DFW markets, and we also have the Austin markets. We have the San Antonio markets. We met with several directors down in those areas throughout this process and look forward to earning their support through this process and growing the expansion down in those areas. But it's also nice. I've been a farm boy my whole life. It's pretty nice to go around with Mr. Hickman for a few days and meet some of the banks that we've seen over the past few months. And I guess, Johnny, when you're a farm boy, farm boy, and I know you're a big farmer now. You have your -- we've got to start calling them ranches, though, is what I understand...

They're ranches, yes.

[indiscernible] ranches. We're as excited as we've been in some time and look forward to -- we've always, when we would go places, they'd always ask us, are you from Texas? So Mr. Hickman, I hope that after this deal, I can partly say, yes, I'm from Texas because I'm proud that we've got to meet you and your staff and Mikel and move forward to what they can do. And then the DFW group was able to -- meet with Robert and his group down there and look forward to the expansion of opportunities there. Stephen probably knows more of the details of the numbers, Johnny.

Hey, good afternoon. I think, as Tracy and Johnny both mentioned, we're extremely excited about the ability to work with 1,300 private shareholders to gain their trust and their business -- and additional business over a period of time. It took to structure something here that's fair to both sides that we hope that they see the value. And as Johnny mentioned, the cash dividend that we pay. We're just really excited about the opportunity to enter Texas. Tracy mentioned, I think Johnny did, too. We've worked with Texas relationships for probably 8 or 10 years now. We've got several of our senior lenders that have relationships there, and we've already, I think, talked through last night at dinner, some familiar names with the lenders that we've met with. So we're looking forward to pairing our folks up and moving down.

Well, I'm going to turn it at this point to Pat Hickman who is the founder, the backbone who started -- he bought the bank of Happy 30-something years ago, and total footings were $10 million. So his story -- $10 million, not billion. His story is similar to mine and we compared notes and mine was -- we started in Holly Grove with $25 million. Pat, would you like to say something to the group about Happy Bank and any comments you have?

Sure, Johnny, thank you so much. This is Pat Hickman. And yes, this is Happy as a family member. I've got a daughter that's expecting her third child. She was born a week after I went to work at Happy Bank 32 years ago. So Happy has been a member of our family throughout this time. And it's been a great family. We know that we're approaching the $10 billion mark. We know that, that can sometimes create a wall of regulatory intensity. We are privately owned. We've done private placement offerings each year and, quite honestly, have asked ourselves how long can we maintain that model and decided that we needed to kick the tires and see if there was a suitable match out there. And I first met Johnny Allison. He and I were both speakers at an investor meeting several years ago down in New Orleans and I met Johnny for the first time. And so I've kind of had an eye on Centennial Bank ever since that time. And I have always been amazed at their performance. And we were tickled when they expressed an interest in our company. And they are -- we very much are a community bank and they are very much a community-minded bank as well. They're in a lot of small markets with the strong core deposit base as we have. They're also in the larger city markets, where we have had some great success just in these last few years in Fort Worth, Dallas. And now just last year through acquisition, moved into the Texas Hill Country, the Austin area. I ran -- I think I ran a pretty good bank for 30 of those years. The one thing I never could seem to get my arms all the way around was the efficiency ratio. Mikel Williamson took over as CEO a couple of years ago, almost 2 years ago now, and Mikel has been sizzling away at the efficiency ratio and doing a lot of good things there. And we just feel like this is a perfect match for us. Culturally, geographically, we're excited. Right now, Florida is their best operating market, and we look forward to passing Florida with this company and making some things go. Things are bigger in Texas, and we plan on getting it that way, keeping it that way.

Johnny, I want to tell you it was 100 degrees in Arkansas last week. You know how hot it was here?

101.

You know it's a little bit big, a little bit bigger. It also brought the Texas Longhorn and Arkansas, that game along the ride.

Mikel?

Yes, sir. I'm going to start off by just saying, I'm happy. I am happy. And I'm also all in. This is really 2 great banks that understand bread-and-butter banking, understand taking care of customers, understand core earnings and how to grow and understand efficiency and where we need to go in that space here, all while growing. And Texas is such a great growth market. And I know combined, we can put that to work and really grow in this state. And we will take care of our shareholders as we move forward.

Thank you for that. Interestingly, you know how our strong margin Home runs. Home runs a very strong yield on loans. It was -- excuse me, yield. And Happy's yield is better than ours. So the revenue side here is strong. The expense side is a little high. It's a big term some, but the revenue side is there. So we don't have to work on the revenue side, which we always have to do. We always have to work on the revenue side, but they've covered that base for us and have a better yield on loans than we have. So you don't see that very often. And we -- that's one thing that got me excited. The quality of the bank got me excited. Being in Texas got me excited. It was just a combination of factors that we looked at that we thought made lots of sense for us. So this is our platform. Mikel is the guy is going to be running Texas for us. It's our platform, and we'll be going forward here with -- probably won't do anything for a little while until we get our arms around what we're doing right now. So I think at that point, you guys, all you -- I hope all analysts on? I think I'll let them ask the question. Donna?

Can you open up our Q&A line, please?

[Operator Instructions] And our first question will come from Stephen Scouten of Piper Sandler.

Congrats on the deal. Happy to see you, guys, being able to get one across the finish line. I know that's never an easy task. So congratulations there. And finally getting to see a stock actually move higher when a deal is announced. So that's a welcome change from what's been the norm. So congratulations.

Let me tell you something. If this deal doesn't work, none of them work. I can tell you that. If this deal does not work, there is not a bank deal in the country that works.

Yes. I think you're probably right. I think you're right. So I guess my one question is just kind of how the deal may be -- one of my questions, how the deal came together? I mean I would imagine it's a price that I think was really palatable to people when they saw it at 166% tangible and just would assume there were other kind of in-state buyers that would have taken a look as well and maybe would have had more cost saves or others. So I'm just kind of wondering how it came together and how you were able to get this across the finish line and be kind of the winning bidder there?

Well, I can tell you from our perspective, and then we can let Happy talk from their perspective because everybody is in the room as -- in the room today. But anyway, we came out a banker brought to us, Stephen's banker brought it to us and said, you need to look at this bank, and we said we'd be glad to look at it. And one thing led to another, and Tracy and I flew out and met Mikel and Pat. We spent about 4, 5 hours together and telling them about Home and talked to them about what the future could yield for both of us. And the next thing I know, the bidding process started. I don't know if we were the highest or we're in the middle. I don't -- I told Pat that day, I said, we may not be your highest price, but we'll be your best deal in the transaction. And that led to an opportunity to do due diligence. And the further we got into it, the better we like it. I mean that we've done due diligence. So as you know, Stephen, on lots of banks, this one was the best. All across the board, the quality of the loan book, the underwriting, it was the best. So it really got us excited about the opportunity. And I think Pat like this, I think Mikel like this. When you run one of the best banks in the country as Home has, I saw where somebody said today, they said, "Well, some people come and some people go and some Arkansas bank bought a Texas Bank." I didn't think that was very respectful for us coming into town. But who that bank is, is one of the best banks in America that runs from the top-tier performance of all banks in the country. So if you don't know who we are, then you might want to look at up and see who we are because we run a great financial institution, as you know. So I think it's one thing led to another, and I'll let -- I'll turn the mic over to Pat right now, and see if he wants to comment on why he chose us.

I said it really a while ago, we really did feel like they -- that we matched up well with them. Any time that -- we've done several small acquisitions ourselves over the years. And any time that happened, there were -- you have personnel changes, personnel losses, system changes. And -- but it also works well. Those employee losses and things -- those intangible kind of things that are tangible to your heart, especially when you're community bank, they matter. Knowing that this was going to be their first foray into Texas gave us some peace of mind that they were going to need our staff a little better. So that kind of helped us some. No promises made. We like our brand, we like our name. The fact that they said we could keep that name meant a lot to us. No promises again. They may change that next week. They may change it in 10 years, but that still matters to us now. And they're a good bank. I mean, I think Johnny said, we like each other. That matters. I am an old country boy, I was raised on a small farm, small dairy and I like to do people -- business with people a lot. I think they might have paid just a tad more than they wanted to pay and I think we may have accepted a little less than we wanted to accept. And I think a lot of times when that happens, when both sides give in a little bit here and there, that turns out to be a pretty damn good deal for everybody around. And so we feel good. I'm -- I've been telling for 5 days, 10 days, I've been telling folks that the only emotion I've ever gotten close to before that matched this one was when I walked my 2 daughters down the aisle. You didn't like that heartstring of it, so a hairy-legged boy come in and taking my daughter. But then when I got to know that hairy-legged boy and especially after they give you a couple of grand babies, you find out they're really good folks and you like that match up. So you've got the bittersweet of watching your daughter go to another house, but the -- going to and get the hold in family. So that's exactly how this is built, and we feel very good about it.

Yes, that's extremely helpful. And then I guess, maybe following on to that, just maybe this could be for Pat to start and then maybe the Home team after that, is just can you give us some insights into how the Amarillo markets and Lubbock, how those markets have been growing for you all? Maybe the potential for your footprint from an organic loan growth potential perspective? I know you've had like an 11.5% loan growth CAGR over the last 7 years, but obviously, some deals in there as well. So just kind of curious what you think the growth potential is on the Texas footprint? And for the Home guys, what do you think that can do for organic growth potential for the franchise as a whole?

Sure. If you look back, we bought Happy in 1990. We didn't do another acquisition until 2004. If you go back and look at all of our acquisitive growth and our organic growth since 2004, 62% of our deposit growth has been organic. And I'll pretty much put that up against anybody any way that you want to do it. And the vast majority of that's been here in the Panhandle and South Plains and Lubbock. These are growing areas. Amarillo has the highest unemployment rate in the state last I checked -- I'm sorry, the lowest unemployment in the state, lowest. And last time I checked, Texas still has one of the lowest, if not the lowest unemployment rate in the nation. The economy is good here. We have a few very strong businesses, still very accented. 25% of the world's beef comes out of this market. And Amarillo and the surrounding small towns have provided us a very strong low-cost deposit base and a very stable loan growth. Lubbock has done the same thing. They -- with Texas Tech University now up to around 50,000 students. 25% of the world's cotton comes out of Lubbock, Texas. So they have a very strong base. And so we love the Panhandle. They're straight shooting people like we are. They take care of the business, and it's been a wonderful place to be.

Thank you for that, Stephen. We answered your question there do you think?

Yes. I mean, I guess, just obviously, Johnny, I think loan growth has been hard for you guys on an organic basis. I guess the opportunities haven't been that attractive to put the money to work. So I'm just kind of wondering do you think you'll have more opportunities in these new footprints? And could we start to see, once this deal is closed, some more upside to the organic loan growth's front? And I guess, in tandem with that, are the loan yield sustainable in your mind?

Let me -- I'll let Mikel talk to that, and then I'll wrap up when he finish.

We look at our footprint and say it's right now, it's got a good balance. But we definitely can experience more loan growth in the metropolitan areas. We have been very selective in our loan growth because like Johnny said, we're not going to give the money away. We're going to get the yield. We're going to do the right loans to the right customers at the right time, and we're going to get paid for doing that. We've also had constraints as a privately-owned company that you guys making our Home actually gets to open us up a little bit some of those constraints, and we can go out and we can lend in a much larger scale in those metropolitan areas. Our growth in the Fort Worth and Dallas area over the last 5 years has been tremendous. We're seeing that same growth in Round Rock and in Austin, and we expect that not only to continue but to accelerate with those lenders that we have in place.

Thank you for that. I take opposition to your statements. We're not going to sell the future of this company. And people are getting loan growth -- big loan growth in these markets, look at the rates, just look at the rates. I mean anybody -- it doesn't take a moron can give it away. It doesn't -- I mean anybody can give it away. We ought to be getting accolades for being as disciplined as we are. And I found another company that was a disciplined as we are, and it's called Happy Bank, and I'm excited about that. So I mean, we -- believe me, we can fill up an 18-wheeler if we want to give away the company. But I'm not going to do that. And you guys are pushing for loan growth and when you get loan growth, believe me, we've been doing due diligence on other banks and they're stealing from each other and then they're beating themselves on the chest. I mean we see it. We see it on the due diligence. And they're giving the stuff away. So when you lock yourself in for the next 4, 5 years, I guess it's -- what do you believe is going to happen? If you believe we're going to continue putting -- funding money and nothing's going to happen. I mean inflation is 5.4% August over August. We understand $100 bill is worth $94.60. Somebody's getting whacked. And they -- how they stopped it in the past by raising rates. They may not do it this time. It may be different this time. But usually, when they say it's different in these run for the house. So I don't think it's different this time. And I think they're going to slow down on tapering. When they do, I think you're going to see rates move. Hey, we've been sitting disciplined here for about 18, 20 months. We're close to the end of this year. And I think they're talking about stop -- slowing down on tapering. I think we're right, and we'll find out. I'd much rather -- Stephen, I'd much rather put -- we got about $4 billion in cash. I'd much rather put that $4 billion to work at 5% than I had at 2.75% than 3%. So if that tell you...

Yes, that's good math. No, that's good math. I think that was one of the most exciting things to see in the deal. There's not many banks with higher loan yields than you guys. So that was pretty exciting. So congrats again and thanks for the color.

The next question comes from Matt Olney of Stephens.

Congratulations to everyone in the room. It's an exciting day for the Home Bank and Happy families. So I want to ask about M&A in Texas from here. It seems like the Happy platform could be a launching point for Texas M&A for Home BancShares. Is that right? And I'm also curious how the Texas M&A market at this point compares to what you've seen in the last few years in Florida and in Arkansas?

Well, you know I was in Texas before, Matt, and we're back today with a great bank. So I think that in front of us right now is getting these banks consolidated and I think that's the most important thing we can do. You know that we're constantly looking for M&A. We've had 4, 5 different banks in Conway, Arkansas, wanting to do a trade, Texas banks wanting to do a trade. The truth is that we had to make a decision on our part who that person was, who that company was. And I really -- this is a real trade. This is a real deal in a real market. So I'm as happy as I can be with this opportunity right now, and I see great savings. I mean we're projected to make $68 million out of Happy in '22. They run a 65% efficiency ratio. Just think about that. Home runs sub-40, most of the time. So if we can trim around the edges over a period of time, that could really be good for Home BancShares and our shareholders are happy as well as -- Happy shareholders as well as Home BancShares' shareholders. They almost -- their earnings go up about 70%, 80%, just going to a 45% efficiency ratio. So 50% is a marked improvement. We'll probably look at 50% and see if we can get there over a period of time. We'll try to get there. But we're expecting much more out of Happy than what we modeled. We modeled it at 33% because we model everything at 33%, so we can compare deal 1 with deal 12 with deal 20. So how does it stack up and how does it shake out at the end of the day? So that's why we used the 33%. We have always -- be it 33%, as you well know, over the years. We have always done much better than that. But we will look at additional opportunities. We had to pick the horse to ride on, and they picked us to ride with us and we picked them to ride with us. So that's kind of what happened, and we'll go from here. We'll look at opportunities. But right now, we're going to be focused on consolidation. We're going to be focused on -- we got a trust preferred -- I mean bond comes up when? April?

April 1.

We've got a $300 million bond coming up April 1. We've been putting back $5 million a month on that. So we haven't raised our dividend in a while. We'll be focusing on those things right now rather than another M&A deal. So M&A right now is -- we're going to talk, and we'll visit and we'll see if we can put something together that makes some sense. But probably, won't see another M&A deal for at least -- I don't think the regulators let us do another one right now. Now it's a pretty good size trade, $6 billion. I'm not sure they would allow us to do another one right now. But they might. They may give us that clearance. But we've got enough work to do with each other right now to get it lined out for earnings for our shareholders.

Yes. And Johnny, now that you've explained that dividend deal to me, I kind of like you to keep concentrating on that a little bit more.

That's right. I did. And we were talking to our employees today, Pat's people and Mikel's people, and I mentioned dividend. I had to explain to him what that was. Anyway, I know he has 1,300 shareholders. They have raised the money from 1,300 shareholders over the 20, 30-plus years and never paid a dividend. So I know those shareholders will be happy people.

Thanks for the commentary on that, Johnny and Pat. I want to also ask about Home Bank's stock buyback program more in the near term. I think we typically see buyers pause their buyback program. But at the same time, it also looks like the pro forma capital ratios remain pretty robust. So I'd love to hear any kind of commentary about the buyback program more in the near term.

We are -- we buy back when they put Home BancShares on sale. And we were -- most of these trades don't work. Most of these acquisitions, I don't know of any of them that worked since 2010. If any of them will ever work, this one works. So we are prepared to step in the market. We're prepared to buy. And we will buy along. We're not -- if we need to buy, we'll buy. So that's kind of our attitude right now. We like buying our stock. They took us from $29 to $20 or $20.50 or $21 because they thought we're going back to do an M&A deal. We've done an M&A deal. We've done a damn good M&A deal. So we are always in the market. We're going to find out regulatory-wise. I think Stephen is working on that with Brian Davis how much we can buy back in the middle of this transaction. Steve, any comment on that?

Yes. Matt, we're working through that now. I mean, as Johnny mentioned, we'll kind of circle in on a number, but I think we'll continue with the opportunity to be active, I think, all the way up until the proxy's mail later this year. So...

Yes, because deals don't work, we were prepared to roll in, to support the stock and buy a bunch of it right quick and continue buying. So I mean, you know as well as I do not many of these deals have worked. But if there ever was 1 or 2 work, there is nothing wrong with this deal. This deal is as good as they get. When you can put $55 million worth of cost in the deal, when you can make both CECL adjustments to the transaction and you come out accretive, accretive, accretive, my shareholders and Happy shareholders don't have to wait 2.5 years to earn back the tangible book. And you know what I think about that, I think that's BS. So putting together a transaction in this market that is accretive, accretive, accretive and swallowing up short of $100 million worth of transaction and CECL cost is pretty difficult, and it's done. And it's not smoke in mirrors, it's really done. It's the real deal. So I think that will be -- and I think we've got more savings coming from the Happy side and the Home side. So I'm excited about what we can do together. I think we're pretty good on getting the efficiencies.

Yes, that's right. Good track record of that. All good points you made.

The next question comes from Brady Gailey of KBW.

I'm happy.

We're happy. We're in Amarillo at the corporate office of Happy. And it is -- it's really been -- it's been -- someone said, it wasn't the name is a call. I mean these people -- it's amazing now. They have a Happy University here where they train or put new employees that come in, they do some really good things. We'll learn from them.

Yes, great. So Johnny, I know you used the 33% cost save, just kind of the standard so you can compare deals to all your other deals. But have you gone back and looked at where cost saves generally run for you guys? And if 33% is conservative, I know Texas, this is going to be kind of a new market for you all, so maybe you're not going to get the cost saves that you normally do. What's the more -- I guess to ask you definitely, what's the average cost saves really realized over all the M&A you've done over the years?

Well, it's been north of 50%, no doubt. So -- but the fact that we don't have anything to lay off on here, we don't have any consolidations to make. It's good for their employees, it's good for Happy's employees because we're going to meet their people. We met with a bunch of their executives last night, and they -- I mean, they've got a guy that runs their bond book is outstanding. They got a couple of billion-dollar trust department that's outstanding. They've got some thing. They can help us with some stuff. I like the combination of our trust department and their trust department. So there's going to be a lot of people get to stay and employed at Happy Bank that might not have it -- made the cut if it'd been a Texas bank buying it. So -- but we'll play off of that. But we normally run 50%, and you know we've run as high as 70%, 80%, 90% on some of these deals. So this is one that will not get as deep, but if we get to 45% efficiency out of here, that takes them to $110 million in earnings versus $68 million. That pulls out based on the shares issued. I don't know, what's it, Stephen, $2.40, $2.50 a share, roughly that they're earning, that they'll be earning for their shareholders and our shareholders, so that pulls the EPS up. And that -- that's better than 33%. So I think Mikel and Tracy have worked diligently. We didn't just pick it something out there, and Mikel and Tracy worked diligently on the things they need to do. It won't be as good as -- I mean, the next transaction will be better than this one, efficiency-wise. But I think this will be awfully good. This is a great bank. This -- I'm telling you, this is a real deal and a good deal.

Yes. And Johnny, I know near term, you're really going to be focused on this transaction and not really announcing new M&A in the near term. But after you get this one closed and integrated and somewhat settled, do you envision that Home's forward M&A strategy will really focus more on Texas? Like I know Florida is still an opportunity, but there's just honestly not many banks left in Florida that will really move the needle for you all anymore. So Texas has a better growth profile than Arkansas. So would you really say Texas is kind of the future path of M&A for Home?

Well, we'll take what they give us. We'll take whatever they give us. We're continuing to look in Florida, and we'll continue looking in Florida. Hey, Brady, what's the 2 best states in the nation? What are the 2 best states? Florida and Texas. Where people are moving? Florida and Texas. So we get it. I mean the Panhandle to Panhandle makes a good story, but the reality of it is that Texas and Florida, now this franchise has Texas in it. And this franchise will continue to grow in Texas. So I think that you have those 2 states. That's where people are moving. Demographically, where they going? They're going to Texas and Florida. They're leaving California, they're leaving New York, they're leaving those markets and they're headed south. So to have the opportunity -- I'm telling you, it's the cleanest bank we've looked at. To have the opportunity to partner with great managers that run great businesses is a real plus. This is not a flaky deal. This is -- I'm telling you, this is a great trade for Home BancShares. And to get a bank that is accretive, accretive, accretive, as I said earlier, with almost $100 million worth of CECL and deal cost is pretty amazing. It's hard to do one anymore. But let me explain to you the day we closed this deal, the next day, we started accreting to tangible book. So I don't know how you could do one any better. But the question is on M&A, and we will -- we are focused on M&A with Mikel's leadership and Pat's leadership in this state to help us. And Pat's already been approached by 2 banks. They want to do a deal. So we're not ready to do a deal with another bank now. But we're...

They're a little busy. They wouldn't stretch it to hold up.

Well, they're well-known in Mikel's history was with Capital One is what you call it?

Yes, Capital One.

Capital One, and he helped build Texas for Capital One. So I mean he knows where some bodies are buried, where some people are and could help us carry through with that, and that's one of the reasons that we are so excited about doing a deal with Happy Bank. We're in the game all the time, but people get silly. You see some silly stuff being done out there. And how many deal you see ever deal rock -- how many deals have worked since 2010? How many deals have been accretive, accretive, accretive and moved into Texas? I mean this is a revolutionary deal for Home BancShares and for Happy Bank.

Yes. Well, it's also rare to see the buyer's stock price do so well. I mean you guys are outperforming the KRX by 500 basis points. You're up almost 7%. I mean that's -- I hope that's a start of the trend here in bank M&A.

Well, let me accept this, Brady. if this deal doesn't work, we need to all get out of the bank space because there is no deal that will work. I mean there are none of them that will work. If this trade with Happy and Home doesn't work, then there are no deals that work. And I think that's being recognized in the marketplace. This is a real, real transaction. That makes us feel good. It makes us really feel good to see the stock up the way the stock is up. That's great. We worked hard on it. I'm telling you, the Happy people, Stephen Tipton led this deal primarily. I got to give him accolades. He was tied on that. I mean it was tied. We were just right on the bubble. It's got to be positive. We told the Street, it's got to be positive. It's got to be positive, and we kept it positive all the way through. Pat and I -- with Pat, I wanted it to be positive. And Mikel wanted it to be positive. They didn't try to get the last nickel and dime out of us. They didn't try to milk the cow and get the last bit of milk. They understand, and as a result, they can see what's happening for their shareholders as of today. I mean their shareholders get 2.17x Home Bancshares' stock in the transaction. So their shareholders are having a big day. Good for them. They deserve it.

The next question comes from Michael Rose of Raymond James.

Are you mad at me? Are you mad at me?

Not at all. Not at all. Never mad at you, Johnny, never mad at you. Not at all.

Well, now you can see what we did and why we did it. You get it, right?

Well, now you owe me. So...

Okay. I agree with that. I agree with that. I agree with that.

All good. So I just want to dig into some of the potential revenue synergies that you have. They've got $3 billion in AUM and just with the larger balance sheet and growth perspective, can you talk about where you guys could see some upside, some cross-sell? Obviously, it's not built into the numbers, but just trying to get a flavor for what you guys see from the revenue side.

Michael, this is Tracy. We certainly see the opportunity there. I mean we talked about the efficiency side with Mikel and Pat for the last 3 months. And with the revenue side from some of the producers and what the opportunities are going to have, they have great mortgage group here that operates. They had -- as Johnny had mentioned earlier, the trust opportunities. And then the investment side that they have, we do see opportunities there. In speaking with the central part of Texas over the last few days, I mean, having dinner last night with the group at the table. And one was just already knowing the customers, he's going to reach out to expand this portfolio. So there certainly is the revenue side that we see that we can use in a lot of these markets that we earn in today.

Okay.

Now Tracy, just so on the wealth management and trust aspects, we've built that out at Home over the last several years. But certainly, this gives us scale in a big way in Texas, and I think we'll be able to expand on that.

Okay. And then I guess just as a follow-up, if I look at the deposit market share, at least it looks like 9% is in Dallas, but I assume that's where a good portion of the loan growth is. Can you just walk through some of the assumptions that build into kind of that 5% year-over-year net income growth for Happy that's in the slide deck? What's the -- what are the components of that growth? I assume some of it's loan growth, though, in some of those higher-growth markets like Dallas.

I'll let Mikel speak to that. And if he only gets 5%, I'll really be disappointed. That's for publication, but I can assure you that I'm expecting more than 5%. And I think Tracy is, and I think Mikel is, too. So Mikel, I'll let you take that one and run with it.

I'll go back and talk a little bit about the revenue piece. And that is, if you look at us in mortgage, what you've seen is over the last 5 years, a tremendous amount of growth in not only revenue, but net income out of that group. And it's not stopping. It's not slowing down. It's not like it's plateaued. You see the same thing from our trust and wealth department. You've seen good, steady growth under management. You've seen good, steady growth in revenue and net income and it's still growing. Then you put on the low cost of funds that we have from our markets in which we are just entrenched, and we are truly the community hometown bank. And you're able to put those to work not only in that community, but then also put them to work in the Dallas-Fort Worth Metroplex, go into Austin and Round Rock, one is an acquisition and one is the de novo, and see the amazing amount of loan growth in the first year in those 2 markets, all of which meet our yield. We do not sacrifice quality or yield going into those markets, and we're getting that growth already. So you combine that with some of the efficiency that we know we can get out of this, and it's a home run.

Okay. Maybe just one technical question for me. Just to be clear, the CECL double count and then the CECL reserve against the unfunded commitments, that will go through the provision line, correct?

Brian Davis?

I hope Brian Davis is on.

Yes, I'm on. The CECL double count, the $28 million, it does go through the provision. And the $11 million, I believe, it's going to go through goodwill because it's an unfunded commitment that is not properly evaluated at the CECL level.

Is that the way you understand it, Michael? Is that the way you understand it, Michael? Michael, is that the way you understand it?

You mean Michael Rose?

Yes, Michael Rose, yes.

Yes. I just want to clarify.

You know what, when you look at that and you swallow $27 million there and $55 million of deal cost, it still gives an accretive transaction. They're getting tougher to do. I guess you'd have to agree with that. Would you not?

Indeed, I would.

Good. You really -- okay, thanks for your support. I'm glad -- I'm sorry we missed your conference, but we'll be there next year if you invite us.

Of course, always.

All right. Thank you. I think I'm going to wrap up. A couple of our analysts were on the road, had other plans today and didn't make it. But thank you very much for your support. The Street has rewarded us. It appears as of right now, is there anybody else up to --- oh, it's Brian? It's Brian Martin. Okay let's get Brian.

Brian Martin, your line is open for questions.

Congratulations to whoever in the room and delivering exactly, as you kind of noted, Johnny. So it worked out for us, and I'm sure there's other deals you've looked at that are little disappointed, seeing the great trade today. So I just wanted to ask you, maybe just 2 things. Just the growth outlook, and I know you mentioned, Johnny, about your discipline on pricing. But just as you look at the opportunities in Texas, I guess, is it fair to assume that the largest or the greatest opportunities for growth at the right pricing is kind of going to come from the Dallas and Austin markets, kind of leading the growth going forward?

Mikel, will you give a read to that?

I would say, yes, the majority, but we're seeing good, strong loan growth in Amarillo, Texas. We're seeing double-digit loan growth in Lubbock, Texas. And we're able to capitalize on those markets and get the same yield that we've got up in some of the other areas. So we don't expect any of our communities to lag behind. We lend in all our communities, and we do it really well. Now if you're talking about that supercharged nitro growth, yes, that's going to be in the DFW market, and that's what we're seeing.

Yes, let me add there. I was fortunate enough, 3 years ago, Governor Abbott appointed me to the Texas Economic Development Board. Anywhere in Texas is good. And Johnny and Tracy are telling us that they want to be everywhere in Texas long term, and that's a good move. There's not a poor market in Texas.

It is pretty impressive here. I haven't spend much time in Amarillo, but I mean, there's a new -- there's a lot going on in Amarillo. I mean a lot more than I ever thought about. And by the way, I'm going to get all you analysts together all these days. And we all are going to meet for a week before you come out, and I'm going to feed you. If you eat that 72-ounce steak here, you get it free. So I'm going to load you up and to get and bring you all out here and feed you that steak. So I don't want -- I won't bring enough money to pay for it if you all don't eat it all. Brian, we'll bring you out. Brian, can you go hungry for 3, 4 days and eat the 72-ounce steak for free?

I'll do it, Johnny. You'll have to play the grain at outdoors, and we can check out the old 96 and see you can finish it, but I'm up for the challenge, I guess. Maybe just one last one. Just on the -- Kevin, you guys talked about the great loan yields and the -- obviously, the really low-cost deposits. Maybe just for Steve and how we -- if there's any change or how we think about the margin, the combined margin here as you put the 2 banks together?

Yes. I mean, obviously, there'll be some purchase accounting adjustments that we'll have to work through between now and close. I mean, I think the highlight is we talk about the loan yield. It's just the culture between the 2 companies. And we talked in the past, one of the hardest things to fix or deal with in an acquisition is how they're accustomed to loan money and particularly around yield. So I think to come in here and find a company and work with the company here that has a similar approach and a similar culture just gives us such comfort that at closing, we're all off and running on the same page.

Well, there's our man. Jon was on the road with RBC Capital, and he just popped in. Hey, Jon, get here and...

The steaks got me excited.

That's it. I'd say what you like a good steak. That's what got you fired up.

That's right. Somewhat non-deal related, but maybe so. The larger balance sheet, Johnny, does that open up some room for CFG or any of your other businesses and allow you to do anything different?

Well, of course, it does. We allow CFG to go to 15% of total assets and total assets are going to be about $24 million. So that gives CFG a big runway. But if you remember, we don't press lamb. We don't give them a go. We don't force -- they take what they get, right? They take what they get that they think it's reasonable to do. We -- they're doing pretty good right now, by the way. They've got a lot in the pipeline. They got about a bigger pipeline as I've ever seen them have, and we've approved some today for the big loans today at the executive loan. We had an employee meeting, and I had to break out for just a few minutes ago because I knew the company that one of those companies that was in, there was $100 million credit today for a large company. It worked out really pretty well. So we approved that credit today. We're excited about that. And I think it does. But you know how conservative Chris Poulton to me is. You get it. I mean we're loaning money nonrecourse, and Chris is not going to be -- still never had a pass to do. He still never had a loss, and you know how conservative he is. And I'm not going to push him. I was wondering if he'd say, the year of the lender is followed by the year of the collector. So we don't want to get into that. I think they've got as big a pipeline. Am I right, Tracy?

Yes.

If they've ever had? I mean we'll get them all, we'll close them all, but I think their pipeline is really positive. If they can come on for us, that will be a big kit. But we're not going to force them to do that. But you know what kind of money they make, and that would be -- that could change the world.

Jon, this is Tracy, just all of a sudden. I just said you're thinking about [indiscernible]. If ever you want to know about the Panhandle of Florida, you wanted to know about it. You came down and we drove across it and spent about 3 days. I want to invite you back to Texas. It's just going to take a hell of a lot longer than 3 days.

I drilled across the Panhandle in November of 2020. I get it. I've been there. Yes. Just one -- and by the way, they weren't lockdown in the Panhandle during COVID. They were out and moving. The one other thing I wanted to ask is you always talk about how it's hard to fix a margin in a bank, and it's maybe a little easier on expenses. Why do you think the yields are higher? How do they do that? Did you learn anything through that process? And that's all I have.

I'm really impressed with their lenders. Some lenders, you say, will give you a floor of 3.5%. We don't want to deal below 3.5% and everything they write is at 3.5%. And then on everything they write is at 3.5%. These are quality lenders here that they've developed over a period of time. And they land -- I mean, I was visiting with the Dallas guy. He's a horse. And I said, what -- I see your rates, your rates are really, really good. Well, sometimes people need something in a hurry, Jonny. And he said, "I have to stop what I'm working on." Maybe they need to close it in 10 days. And he said, it's all hands on deck with our people. And we get in there and say, so sometimes they don't ask, they just treat me fair. And he said, that's how they do it. And he's got a following, a relationship that is following that is strong, and he does a great job. I'm glad to have him look forward to working with them. And beside that, he's a hunter. So we're going to get him up duck hunting before too long. But I think -- I'll let Mikel address that himself now with the rates. But I'm really impressed with the rates. So you think about the revenue side, we don't have to work on the revenue side, we got it.

Yes. The way we look at it is this has been a process, not an event, and we've moved to this position over several, several years. And underwriting, it's speed-to-market and asset quality. And I think we do both exceptionally well. We refuse to place ourselves as a commodity lender in any market. We're not competing on rate. We're competing on value, which is time and effort of the lender that's there. And we hire good long-term lenders if they're new to us or we grow them internally, where they have the relationships with customers, that those customers keep coming back because they know the speed, service and dependability of what we're doing. And as Johnny said something earlier that just stuck with me, and it's something we've said for a long time. We're not going to cheapen ourselves by making low-cost loans. We know the value that we bring to the table, we demand asset quality and we want a relationship with our lenders. And when that is the overall organizational view, you get lenders that thrive in that, and that's what we've got.

It is -- if I may add, the leadership team within that loan group with Mikel's full encouragement and backing, but the leadership team in working with those lenders doesn't compromise. And it builds that throughout the lending step. So many tests goes down to leadership.

You can't -- how refreshing to my ears to hear that kind of talk and when visiting one of their big lenders. He said, what are these other lenders do? He's what do you think it is, Johnny? I said, I know what they do? He said, yes, they leave with right, don't they? I said exactly right because they don't act like they don't have anything else to offer. It's just rate, rate, rate. And then they walk out the door with a 2.75% rate beating their chest like they did something, 5-year fixed or 10-year fixed, with high leverage. They don't do it here. We don't do it here. I'm going to say it one more time, this is a real deal, Jon. This is a real transaction. It's going to turn out to be very good for their shareholders as well as our shareholders. So I'm pretty -- I'm really excited about this transaction. The more I'm around the guys and the more I'm seeing what's happening, the more excited I get. So it is so refreshing to hear. Believe me, we've been on some due diligent stuff recently, a bunch of it. And you can see where we're just buying business. We're just buying business at higher leverage and longer fixed terms. I mean it's 10-year fixed and cheap rights, it's silly stuff. So what is not going to do it and when we find somebody is refreshing it as this bunch at Happy Bank, it gives -- it can be -- what my point is, it can be done. That's my point. It can be done for those people who know how to sell. What is it, they -- most people have never been -- what is it 5x -- you get asked 5x before you make the sales sometimes. Anyway, this bunch has done an outstanding job, I have to salute it.

Yes. Okay. All right. And I'm glad I made it to hear this. So appreciate it.

Yes. Well, the steak got you. So we'll do that. We'll fly you. We'll let you in the convoy, we'll fly you out here. You don't eat now for 2 or 3 days...

All right, all right.

Look, no need to [indiscernible].

You're meeting with me, you get it. I'll be there.

Yes, got you. All right. Thanks for the call, Jon. Glad to get everybody. I think it's wrap-up time, and I don't have anything else. Anybody got anything else they'd like to say? I think it's been a great day for Home BancShares and Happy Bank. I think we've been -- the deal has been received the way we thought. We wanted to see -- it's good to see a deal get received well in the market. But you got to really work your butts off to get a deal that works as well as this will work. And we got it done, and it looks like it's been well received, and we thank you for that. And hopefully, the next one we bring will be as good or better. And we're going to wrap up for the day. And again, thank you.

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