Home Bancshares, Inc. (Conway, AR) (HOMB) Earnings Call Transcript & Summary

Hello, everybody, and welcome to the Home BancShares Announces Acquisition of Mountain Commerce Bancorp Inc. My name is Elliot, and I'll be coordinating your call today. [Operator Instructions] I'd now like to hand over to John Allison, Chairman of Home BancShares. Please go ahead.

I guess I'm live here, Brad. Thanks, everyone, for joining with us today. It's an exciting day in the history of Home BancShares and for Mountain Commerce. With me today is, of course, Donna Townsell, David Carter, Stephen Tipton, Kevin Hester and Bill Edwards is with us today, is the founder of the bank. He's the Johnny Allison of this banking. We're pleased to have him join us -- his group join us. We're excited about the opportunities. You read the quote, I think Tennessee, Texas and Florida are the 3 best states in the nation. And now we're in the third one. So this will be our base operation coming out of here. Bill will be looking for opportunities, and we'll be helping them with our balance sheet, they'll have the Home BancShares balance sheet to go forward with. So I think that would be a plus for him and his team. We had a meeting last night with all the -- several members of the team, it was a great evening. We spent about 3 or 4 hours together. They're very conservative bank. There are a lot like Home BancShares. So I think it -- I think it's good opportunity for Mountain Commerce shareholders as well as Home BancShares shareholders and we're pleased to do the transaction. And we are in Tennessee, as you speak, we're in this beautiful office in Knoxville, Tennessee. What's its address.

6101, Kingston Pike.

It's beautiful, beautiful facility, and we're here in the board room, and we're going to probably open it up for questions. Stephen, any comments, anything you want to say this morning?

No, glad to be here. I mean, I think we've talked before about when we enter a new market, we're going to do it with some scale and do it with the management team. And I think we're pleased to get to know Bill and Kevin and their team and look forward to working together going forward.

Kevin, any comments?

I'll just echo what you guys said. I think it's a great opportunity for both us and for them and looking forward to get started.

Donna, any comments?

Well, glad to be in Tennessee here with Bill. And I would also like to remind us on the phone that there is a slide deck on our Home BancShares website with some additional information, if you like to review that.

Just a few comments. This was a triple accretive transaction on EPS, book value per share and tangible book value per share. Both Mountain Commerce and Home BancShares will start creating income as soon as the deal closes. It won't be dilutive like a lot of these deals have been done in the past. It's a meaningful entrance into high-growth Knoxville, Nashville and Johnson City, and Mountain Commerce has a long history strong performance, and we're going to lend our balance sheet. You'll see we've marked the balance sheet. So we think Mountain Commerce will come out strong out of the gate. So it's financially compelling. It's a low-risk transaction. They're about as conservative as we are, and we like that. So as I said earlier, this Mountain Commerce will operate as a base for future expansion in these areas. That will be up to Bill. Bill is going to run the operation if he's in charge, and he will find something, we'll take a look at it see we put it together, Bill.

Look forward to that.

I think, Donna, let's just into Q&A, and I kind of get it rolling here, if that's all right.

Definitely, we're ready for questions.

[Operator Instructions] First question comes from Brett Rabatin with Hovde Group.

Congratulations on the deal.

Yes. Thank you. Thank you. We're excited.

I wanted to ask, Johnny, on this franchise, will you be adding branches? Do they need additional locations to grow -- what do you think in terms of organic growth for the franchise? And how do you get there?

I'll let Bill answer that. This is his baby. He knows this market inside out backwards and forwards, and he's our leader here. So if he finds it's appropriate, that's what we'll do. So it's really -- he's going to be driving the bus and we're excited about him driving. Bill?

Yes, Brett. I would say, first off, we have a very talented team, and we've been constrained with our deposit growth as well as our capital. And so just our team will have tremendous organic growth with the Home balance sheet. I think branches will be one consideration, but I think, obviously, additional hires could be in play with the disruption in Tennessee. But I think out of the gate, we don't need much to really turn up to the growth engine.

Okay. And then my other question was just around the deposit base and your cost of deposits, Bill, I think, was a little over 3%. Johnny, you obviously have a pretty low cost deposit base. Is the cost of deposits and opportunity in Tennessee for you, Bill? Or do you think that it's just more competitive than other places and so it's going to be tough. Just any color on maybe the opportunity to lower the cost of funds from here for the pro forma franchise.

Yes. I think the deposit cost is a little bit misleading in that our customer deposit cost is about [ 250 ]. We have the wholesale funding that takes the cost up to the 3% number you spoke of. Now if you look ahead for maturities over the next 12 to 15 months, many of those reprice lower, obviously lower, some are in the 5s now. Our last NCBI press release calls that out as far as our deposit price and there's a good schedule that you can see, Brett. But customer deposits -- I think we're in line. It's the fact we had to fund the balance sheet with wholesale money, again, speaking to the ability to grow, we just couldn't fund it.

We now turn to Matt Olney with Stephens.

Congrats on the deal. I was just looking for more background or history from Johnny as far as just how well you've gotten to know Bill over the years and the team at Mountain Commerce. And just remind us of any background you have of banking in the Tennessee market.

Well, we've had of eye on Mountain Commerce for a while in Bill's operation. We just -- we didn't move earlier because we had to get our arms around all the Texas stuff that we had. We finally got our arms around the Texas stuff. I told you we're ready to move at that point in time. And this is where we landed right here. So with Bill and I've visited with him, flew over here and had lunch with him, and we had a lot of common interest. And we had -- we would have been here before because we like Tennessee. But as a result of the mess we had in Texas, we had to get that. We had to get -- we had to know what we have and we got our arms around it. Now we are ready to move, and we moved this was the first opportunity that looked like it's made -- I mean he runs this conservative organization as we do. So we have a lot of capital. We fixed this balance sheet. It's already fixed, I guess, once this deal is done. So Stephen, you got a comment?

No. I mean, Matt, you asked about some history in Tennessee. I mean, we -- with our platform, both CTFG and just the Community Bank Group, we've done some stuff in Tennessee over the years. We've got an LPO in Memphis today and have done some projects and in Nashville and the East over time. So it's not unfamiliar to us. And I think Bill may can tell you, but I think he's followed Home and Johnny in the company for years. And I think you can sit next to Donna 10, 15 years ago at an investor meeting. So I think it goes back a good way.

Yes. We obviously had tremendous respect for Johnny and the whole Home team and what they've built. And as I told him, it's kind of most CTV at investor conferences to listen in to read the quarterly transcripts to see if we could adapt anything they may be doing or what their view of the world was. So I mean, it was logical for us when Johnny and I first met that this could be a good partnership. That's how it happened, Matt.

Well, it looks like a great combination, and I appreciate you taking my question.

We now turn to Stephen Scouten with Piper Sandler.

I guess I'm kind of curious just kind of -- maybe Bill can answer a little bit more about Mountain Commerce just not as familiar with the bank, kind of what really the core focus has been in those markets and how that fits kind of with the Home business model at a high level?

Sure. We focus on the professional market. I think doctors, lawyers, accountants, private banking ish, I would say, we try to bank the influencers in the market as well. We're not shy of the real estate piece of the business. All of our bankers have been with us for a long term and some with me prior to Mountain Commerce when we started the bank. So really just banking those that desire relationship, right? We're not trying to compete with the credit unions and some of those type transaction-oriented entities. And it's been successful over the last 18 years.

Great. That's very helpful. And then just kind of from a balance sheet perspective, is there anything from a Home viewpoint that needs to be tweaked or any components that you want to pare back from at all? It doesn't sound like it. It sounds like it might be kind of full speed ahead once you get the benefit of the deposits and the capital in those markets. But just curious if I'm hearing that the right way, and we can expect to see kind of faster loan growth from that Mountain Commerce platform right out of the gate?

Stephen, it's Stephen. Yes, I think that's exactly the way to think about it. As Johnny mentioned, I mean we'll mark the balance sheet and earnings will kind of lift off from here and I think the conversations we had last night with Bill and their team are just excited about the $25 billion balance sheet to be able to grow on from here in these markets.

He's actually been a little constrained due to his AOCI, and he's had to sell some loans every once in a while. Occasionally, and this will give them some additional liquidity to go in. I think we learned last night at dinner with his team that they're all excited about the opportunities going forward and they can do much bigger loans -- much, much bigger loans. So we're -- I mean, Tennessee is a great state. He's got great people. He's got beautiful facilities. He's conservative run. It just fits us. I mean it just -- he's a founder. By the way, as we go through all this, it will help the fact that Home BancShares can pay out all uninsured deposits. Uninsured deposits won't hurt the promotion in this market either. So we continue to bring lots of strength to the team.

Yes, I would just say that the strength is actually going to be helpful on the deposit gathering. As Johnny said, strength is no accident. And as you open up to larger depositors, think municipals or what have you, it's going to be incredibly powerful to have that balance sheet and the core strength of Centennial to solicit deposits. And when times get tough, it's even better, right? They're looking for the strong bank. And our team has just been constrained with again, capital CRE buckets and deposits to fund their growth. So this takes the limitations to off our team.

Glad to see Home BancShares in the [ Tennessee ].

Thank you. Steve, Kevin's got some here to say.

Stephen, I was just going to say talking about CRE, we both have a similar focus on real estate, and we'll give them some room on the construction side and still have a lot of room on the improved property side. So I think we'll have a good fit there and these markets are really good for that asset class. So we're excited to work with them.

We now turn to Dave Rochester with Cantor.

Congrats on the deal. You mentioned earlier that there's an opportunity to take advantage of disruption in the market. And it seems like that can be a pretty meaningful opportunity just given the recent deal activity. Do you think that could be a real needle mover for you guys now that you have the Home BancShares balance sheet coming to bear there now? And what does that disruption mean for you from both maybe a talent perspective and a banking business perspective.

Obviously, I'm very optimistic with that, that there are -- there's a lot of disruption with some of the larger market share players in Tennessee. There are a lot of smaller banks in Tennessee that if you look at fatigue boards and opportunities, and I'm sure our phone will ring about how we thought about this transaction and relationship. But talent, again, when they see the resources that we have from a balance sheet standpoint, I think our phone is going to ring for that as well. And importantly, I think as some of our top producers, their phone will ring, they've all partnered and entered into contracts, which they're excited with the deal. And so I think we've prevented anything leaving the bank.

We were working on this. The Synovus-Pinnacle deal is not the reason we did this transaction. We were moving on this deal. We had this transaction in mind for some time and that just was icing on the cake for us, the disruption that was created in the market. So we think -- we didn't do it because of that, but if there are good things come out of that, then so be it.

And obviously, not having the balance sheet. There's other markets in Tennessee that are really good markets. And to the earlier question as well, if we identify locations that would be suitable for a new branch, we have the balance sheet to do that.

Yes. Well, how about it from just an inorganic perspective, would you say this, Johnny, would this be your highest priority market for future M&A at this point as you try to get more scale in Tennessee and maybe enter some of those other new markets?

Well, of course, we're always looking for opportunities. You know what, we're an opportunistic company. And I'm going to -- I'm not going to press that is we don't press our regions. I'm not going to press Bill to go buy another bank tomorrow. But if he finds one of them, by the way, somebody already said us one this morning. So I think we announced deal and 30 minutes later, she gets the lead on the bank. So it will be up to Bill. We're not -- we don't foresight -- I don't know Tennessee as well as Bill does. We'll let him call that shot. If he finds something, we'll be there right beside to help him do it. So that's our game plan. When you got guys experience...

I know you're going to -- no, go ahead. Sorry, didn't mean to interrupt.

If you got to manage his experience as he has in Tennessee and knows the market and further east from here, then I think that he's the guy that needs to look at it and call it shot. So that's kind of how we run our deal. We got 16 regions and they all report up stream and those guys run their regions. They know the regions and they run it. So that's a plus for us. And having a man of his experience come in, we're blessed to have it. So we look forward to working with him and follow his guidance.

Yes. Sounds good, maybe just one last one. I know you're going to take the normal care with closing and integrating the transaction, but I was just curious if you'd be open to announcing others before you actually close the deal earlier next year.

Well, yes, the answer to that is yes. We have -- if it's something Bill likes and brings to us, we'd be open to that. If it's in another market where we already are located, we'd be open to that. So I mean we've got a couple right now that are out there. I think you can do another one -- this mature will close in 90 days or so. And while that's happening, we'll be working on somewhere else, maybe unless Bill brings us something from his Tennessee or East here. So we're open to that. We got -- we have a war chest of capital, as you know, a fortress balance sheet. So this was a perfect. We use some of our capital here to help mark his balance sheet and get it cleaned up, ready to grow. And that's what we plan to do. That's one of the reasons we carry so much capital. As you know, we'll err with too much capital and too much reserves. But when you need it, you need it. And when you need it and a lot of times, you can't get it. When you're forced to go for it, you can't get it. So we sit pretty nice. You've seen our balance sheet. It has -- we have lots of capital. So we pride ourselves with that, Dave.

[Operator Instructions] We now turn to Catherine Mealor with KBW.

Congrats. Just one follow-up on the capital conversation. You've got a ton of capital, and obviously, deals have been a piece of this of the story there, but you've also been actively repurchasing shares. And so I guess my question is, even with the deal pending, do you think you can -- you'll still plan to be actively repurchasing stock? Or is kind of M&A going to shift to more of a use of capital proceeds over the next few quarters?

Well, wherever they put it on sale, we'll buy. So we haven't changed from that stance at all. And I don't know -- Stephen, you got how much -- I don't know we bought...

I agree. We've been active this quarter, kind of similar amount to where we were in Q3. But to Johnny's point, I mean we watch it every day and are active when it's on sale.

When you -- the good news is when you run a 2% ROA, you buy back stock and you can grow tangible common equity and even increase your dividend. So if you're running 1%, you don't do half of what we do. When you run at 2%, you can double up on that. So that having a company that generates those kind of return on assets gives us the ability to pull every capital handle out there and pull it as hard as you want to pull it too, Catherine, you know that.

That's great. All right. Good. Yes, well we buy back from the [indiscernible] then. Great. And congrats on the deal. Glad to see it.

We now turn to Brian Martin with Itau BBA.

Congratulations on the transaction. Just wanted to ask one follow-up, and that is just in terms of the -- your outlook and just in terms of organic growth and how to scale the Tennessee markets. With Mountain being in 3 different markets in Tennessee, can you just talk about the opportunity to scale over time? Where do you think the market -- how much scale you can get in each market and just how you're thinking about the priorities there as we move forward?

Well, I mean, that's -- it's all about timing, right, Brian, how fast can you do what? Obviously, the Nashville, South Nashville market in Williamson County is extremely large, one of the best counties in MSAs in the U.S. But I think the point that a lot of folks don't appreciate is Knoxville is a very good market as far as moving into this area. It really depends on whether we go after from organic growth or from talent acquisition or we're able to find another franchise that fits the culture and parameters that Johnny and Stephen would have.

Brian, in the world of 3-, 4-, 5-, 6-, 7-, 10-year dilution, we -- all we got to do is keep our nose clean and be above ground and do what we need to do in this market. So we think we found the right partner to do it with. And that's -- they chose us and we chose them. So it's -- we have a common goal here to build the company. Bill will be a large shareholder and -- which is a plus for us. He's an owner operator like I've been, and we've been in this company for years, and it's a perfect fit, and we just hit it off. I mean, it's just -- we see things a lot like. You can say what you want to about the founder, but the founder is just different how he looks at it. And having somebody that reels his numbers off, he doesn't have to have a notepad. He just -- he tells it like it is and he knows his numbers. He's got them like we know our numbers. That's extremely impressive to me from my side to see somebody a founder number one, knows is actively involved in the bank and leading the bank and he's got really good people. So I didn't know if please come to us, it's not one more time.

Well, it sounds like there's a lot of runway for future growth, and it sounds like a great combination guys. Congratulations again.

We now turn to Jon Arfstrom with RBC. We have no further questions. I'll now hand back to the management team for any final remarks.

Well, again, I said it earlier, we're excited to be in Tennessee with Bill and his team today, and we look forward to working with them and their guidance. We will go back to Arkansas today. He's got work to do, and we got work to do, we'll get back to Arkansas. So first, we want to thank everybody for joining us today, tell you how much we appreciate it. And any final remarks? Stephen, you good.

Yes. No, I'm good. I'm good. Glad to be here. Looking forward to getting this thing closed as quickly as possible and getting work.

Likewise.

We are excited, but we're still going to wear red.

Yes.

Yes. We're going, have to get...

We will wear some orange as well.

We'll have to get orange shirt somewhere maybe we can get Bill, we have one with his name somewhere in...

That's a must have.

Rocky Top?

Yes, Rocky Top. But from the MCV side, look, it couldn't be a better partnership with shared principles and cultures we've had a chance to meet many of the executive management team, and it's just a good fit culturally, too. And that's what makes these deals work -- willingness to work together. And I think we all know that Tennessee is a great market, and they're hitting the ground with a very talented team that's fairly excited.

Donna, wrap it up for final comments?

I think that's all we have, Elliot.

Thank you for doing. We're done, Elliot.

Thank you, ladies and gentlemen. Today's call has now concluded. We'd like to thank you for your participation. You may now disconnect your lines.