Wintrust Financial Corporation (WTFC) Earnings Call Transcript & Summary

Okay. Thank you, everyone. It's our last panel of the day. We're working on getting Ed Wehmer on here, but we have -- we expect them to be on shortly. But we have John Allison from Home BancShares, and David Zalman from Prosperity on. And this is called the Unplugged panel. And a little preamble on this one. I believe, according to my calendar, it's about 14 years old. And it started way, way back in 2008. Johnny and Ed were on this panel together, and we couldn't find a third that would stick, and Zalman came around at about 2009, and he was able to stick on this panel. These executives have earned the right to say what's on their mind. They're all owner operators. They've built great companies really from nothing, and it's just fun to hear what they have to say. And I'll give a little introduction on each one, and hopefully, we can get Ed on as well. But on David, I met David in, I think, 2000. And it was a small conference room in the Galleria at Houston, pie-shaped room with square tables, and I was a little confused by it, but I think it was a future look at the expense control that was to come for the company. And the guy had a vision, and the bank was a little over $1 billion in assets at the time. It's now $35 billion, focuses on expenses and credit and high returns, smart acquisitions. It's just an incredible story. And Johnny. Johnny once told me he finished at Arkansas State with barely a 2.0. And -- but he's one of the smartest people I've ever met. It's just an unbelievable story about grid, determination, common sense and banking. It's about $16 billion in assets. It's not his first time around. He sold a bank before, which is another great story. And we have another high-performing bank as well with John Allison. So what I'll do, David, I'll have you start and maybe describe your company, give us a 30,000-foot view. I'll have Johnny do the same. David, that is you, right? It's not your identical twin brother, which you brought to a conference a few years ago. That's you?

Don't tell Johnny, this is Daniel.

I can't tell you apart.

Aren't you going to ask me to talk about [ my storm ] storm, how [ I hit it up ] completely.

Well, David, you can touch on that. Give us a view of your company first, then we'll get into some of the geographies.

Okay. I started with the bank in 1986 -- June of 1986, and the bank at that time was $40 million in size and had about 10 associates. Again, we started getting -- going through the oil crisis in the '80s and all of that kind of stuff. So we had a lot of money borrowed on the bank, I think $4.8 million and add about $1.6 million in capital. So we knew we had to build the bank and grow it. And so we look at different areas to go through the metro. We were outside of the Metro Houston area, so we were looking at Victoria. We were looking at Houston. But we know we needed to grow. So then the bank started failing, so we started buying bell banks to begin with and started building that way. Anyway, we built the bank up to about $300 million, and in 1998 -- November of 1998, went public. We were only $300 million in size and the guy asked me, how big do you think you guys want to be? And I said, "Well, if we can get to be $1 billion in 10 years, we'll probably be pretty happy." But needless to say, it got a lot better than that. And today, we have, as you said, a $35 billion bank with 275 locations, almost 4,000 people. And that's our story today. It's been truly successful, and there's been [ a lot of it ] primarily located in -- throughout Texas. We're in Houston, Austin, Dallas, San Antonio, East Texas, West Texas, Lubbock, Midland, Odessa, Corpus Christi. Probably the only place -- Tulsa and Oklahoma City, the only area that we're probably not located in is probably toward the Puerto Valle and [ Del Valle ] but that's kind of our story.

Okay. Johnny, give us the 30,000-foot view of Home BancShares?

Well, I saw my last bank in '98 -- January, February '98 and decided to open a small bank in Conway to take care of friends and family. Really didn't have any ambition of building a $17 billion bank, but one thing led to another, and I'm an entrepreneur. I'm a businessman, and I'm a banker, kind of morphed into a banker over a period of time. We run it like a business. We run it like we own it, as David does. We're hands-on operators, as David is and as Ed is. A lot of touch, a lot of touch, know the people, work hard with it, travel, see our customers, shake hands with our customers. It's been kind of a disadvantage not being able to travel recently. The company has grown and performed well. It run $192 million ROA. I think we did last year, we made about $300 million. We run 40 or better efficiency ratios. It's a high-performance bank. We don't give our loans away. We think it's important that we bring value. Most [ loan ] officers give it away. We don't give it away. But we don't back up, we don't -- we're not afraid. We stay in there. We have lots of capital. The company has grown. It's got excess capital of $600 million, been excellent asset quality. We just run a business. It is -- I'm of the largest individual shareholder, and it is my largest asset. We don't do dilutive deals. We do AAA deals, which we call accretive, accretive, accretive. I'm -- as the largest individual who's shareholder, I don't want to be diluted, and I'm sure that my mid-shareholders don't care to be diluted. So it's a high-performance company with a great team of people. The group has been with me, has been with me and is with me, and my executive group has been with me like David's people forever. And we've hoped to continue that and continue to grow. We've been out of M&A for about 3 years as we -- particularly when the pandemic came up, but we were kind of sit in tight as we swallowed a bigger deal like we've done. But we're back in the game now, and we're looking for good opportunities, and we're back playing again. And our currency has responded. As David knows, we've been -- bank stocks have been in the tight. We say, in Arkansas, one from Mississippi, Arkansas will be last in everything. Well, it wasn't for oil and gas, the asset class of banks would be worse and everything, but we've kind of recovered. They've given us a little breathing room and, hopefully, we'll see banks come back. I think they overkilled banks for many years. I mean, look how well David did through the tough times and Ed did and we did. So and many banks did, so not just the 3 of us, but they kept -- I never saw so much pessimism in my life in '18 and '19.

Yes. It feels like there's more -- we have more generalists interested in this space, which is a good thing. And obviously, the steeper curve is another part of this as well. But I know I had to dial it in. So we'll get him in a second. But David, talk to us a little bit about Texas. How are things going? We certainly have the storms there. So maybe give us an update there in terms of the impact on your business. And is there anything material to talk about?

Well, the -- I think the bank did better than I did. I ended up with -- I lost power on Sunday and got power back Wednesday evening. It got as low as 32 degrees in my house, and I stayed the whole time. And my wife thought it was fine. But then when the dog started shivering in, we had to leave on the last day, that I could have died. The dog started shivering, and then we have to move out. But ended up with about [indiscernible] broken puppies, lost all my full equipment. We had no electricity. The bank did much better. We had -- out of 275 locations, I think, we only had about 90 banks open for 2 days. And then we have 13 that really had a lot of damage and other 13, all but 2 are open right now, and those will take about 6 months to get them going again. But Texas -- Texas has been doing really good, Texas and Oklahoma. As you know, we got -- we continue to have people to move their headquarters here. You've got HP announcing that they're moving their headquarters to the Houston area. You have Oracle announcing that they're moving their quarters to Austin. You have -- Tesla is building a big, big facility in the Austin area. Or Samsung has talked about spending another $10 million to $15 million in the Austin area. Some -- I think that you're still seeing more and more people moving to Houston. We never really did shut down. We know you heard some businesses that but were cut back. But for the most part, we never did shut down. I think we're doing extremely good. I think that Texas will probably do more than the rest of -- a lot of the other sites for probably the next 3 years and probably outperform just because we have so many people moving from the California area, and I think that probably on the East Coast, those guys, they're moving from New York to Florida and Chicago. So being in Texas right now is a good place to be. So we also got -- again, we were just ranked #2 on the Forbes Best Banks in America, and we've been on that list since they started. And we've been in the top 10 since we started. So right now, we feel really good. Our bank may -- over 1.6% return on assets, 19% return on tangible capital. Our asset quality continues to improve. We went from -- in December, we -- from $69 million in September to about $59 million in nonperforming assets in December. So it was about a 14% decline. So right now, knock on wood, things look pretty good for Texas and for us.

[indiscernible] the weather, David?

Yes. I wish we'll see Ed. I don't see him. He doesn't want to -- the [ peep Tom ] didn't come out today?

I'm having technical difficulties signing in. But you guys, how can you be living the weather down there? Man, it's 100, 120 this summer, and it freezes in the winter.

Is that Ed?

They don't have cameras, Johnny, over there yet.

I could send him one. He sent me a d*** wind sock. I could send him -- I guess I could send him a camera. Two years ago, he was in the hospital. He might still be in there. I don't know, maybe they're more safe actually.

Send me all those [indiscernible] boxed cameras you got down in Arkansas, will you?

So we have Ed Wehmer via voice. So Ed, Johnny -- as custom, Johnny and David gave us a little background of the company, and I'll give you a little introduction. But just for people that aren't as familiar with Wintrust, I'll have you do it. But Ed, Ed's a real success story. Basically started the bank from nothing, and it's grown it to $45 billion in assets, which is just amazing, over his career. I won't steal your thunder, but Ed, funny, smart, great leader, give us 30,000-foot view of Wintrust, and then we can get right back into Q&A, Ed.

Well, as you said, we started at -- [indiscernible] with some beers, and who would have thought 30 years later, we'd be $45 billion with 50 in our sites and basically have -- our target area is 2 hours from Rosemont. At least, it had been. We're now taking a -- maybe moving out a little bit not because Chicago is bad, just because take what the market gives you, it could give you some nice geographic expansion at low premiums. So we are considering that. We believe in a diverse balance sheet. Our balance sheet is -- since we had our loans really outside of the program, let's say, due to our niche businesses and our local businesses, home business outside of Chicago and Wisconsin. 180 something locations. If everybody else would close 10 that we didn't need, and all of them were acquired. But we still think there is probably room for expansion in Chicago, continue doing that. Like what we said right now, we really run the [ plate ] based upon tangible [ company ] growth, asset growth and earnings growth. Put the 3 together and picture us doing very dilutive deals, and keeps on growing nicely. Our pretax, preprovision is up 10% for the last 10 years. And we believe we're a growth company, which is weird for banks, but we are. We're not very investing in the business and growing the business. We've been consistent. I mentioned the 3 things we run at. We've outperformed our peer group in those areas between 20% and 50% over the last 10 years. And we run right out. We're just conservative guys trying to build a bank, and we've done a pretty good job. So far, lots of opportunities for us. We're well positioned right now. Mortgages have helped us get through this, mortgages and PPP loans. Our technology staff is better than anybody's out there, I think. We set up, from scratch, a portal for PPP loans and opened up that night. We did probably $3.5 billion in round 1, $1.3 billion in round 2, and up [ a quarter again ]. So I think we're very well positioned here at Chicago as Chicago's bank with $10 billion the last year. Out of the halo effect from PPP. It's a big bank [indiscernible] come through. But now we're getting calls from -- we used to hope we'd get a call. Now we get a call from anybody doing [indiscernible]. I like where we sit now. We saw plenty of room to expand and grow in Chicago. Market seems to be giving us some geographic expansion right now, something we're not afraid of. So we're not giving up to go see it, lots of tread on entire [ hearing ]. We think there is a good run room ahead of us. So there you go.

Okay. Good. I want to ask Johnny about Florida in a second here. But Ed, just Chicago health. David just gave us an overview of Texas and it sounds decent. But just your footprint, how is it doing?

Weather is nice roughly, as I said, that is in Texas. Our pipes don't freeze up here. We know how to deal with that, Jack -- or David.

[indiscernible] over there. Yes, 23 broken pipes.

You guys down in Texas, a bunch of woosies. Anyhow, Chicago is opening up. It's still a very -- it's the biggest account. You take Chicago, Northwest Indiana, Milwaukee, still like the 13th biggest economy in the world, very diverse. Plenty of things to do. It's opening up nicely. I think it's going to come roaring out of this. People are just dying to get out. State -- office real estate is obviously in question right now. We don't have a big exposure there, but I still think that people are going to come back to the city. When talking to the big real estate guys, they're saying people are re-upping because rates are so low. And they expect maybe 75%, 80% of the people back, and -- but they're going to need more space because they want to be on top of each other. So I think that Chicago is poised for a great comeback out of this, with the Biden administration. They're going to get bailed out of some stuff, which from the macro standpoint, I don't believe in, but from a micro standpoint down here, not so bad. Chicago is still a great place to work and live. It's got every attribute you'd ever want, and I think we're going to come roaring out of this. Through the PPP process, we even submitted ourselves more in Chicago's bank. And we're getting lots of inbound calls, and it's great. So I said, we grew $10 billion last year, and I think there is nothing staying on our way to continue to grow. As I said, I think we'll come roaring out of this thing, with a lot of money in our pockets. And the supply chains are so empty right now, they're going to come out. And with what happened in Texas, supply chain has got even worse. So I think when it hits, it's going to hit big, and we are going to come roaring out. We're in great position to take advantage of that.

Okay. Johnny, it feels like Florida is already roaring. Is that a good way to say it? Or what's happening in Florida and Arkansas?

Well, the 2 beneficiaries of this pandemic had been Florida and Texas, no doubt. I mean, Texas didn't shut down much. Florida didn't shut down at all, or Arkansas didn't shutdown. So we got some areas we never felt it. And as these people leave these high-tax democratic states and move to more conservative environments, I hope they remember where their vote was, why they left. So Florida is booming. I heard David talking about Texas. It's no doubt booming. People -- companies are talking -- Goldman's talking about moving to Miami. There is lots of action going on. There was already huge movement moving to Florida. So I think, from my aspect, that having the Florida franchise really long term, if you look back, the highest priced banks in America have come from Florida. So I think to build a franchise, we have the low-cost operation in the state of Arkansas, and we have the benefit of the growth that's in the state of Florida. So that's been a -- it is really, really moving in the state of Florida, and things are good. There was 1,000 people a day moving into Florida. I don't know how many we've got, man, moving in but [indiscernible] over there. So I think it's a great place for us to be. And actually, we had some of our hoteliers and had better 20s than they did 19s. So some, just depending on what business you were in, in that area, people are going to get out. People are going to do something. I mean, look at the marine space. We're in the marine space. Look what happened there. I'm looking out my window one day, I'm in Florida. In February last year, there's boats everywhere, and I thought that's the answer. Families can get them boats. They social distance in a boat. They can enjoy each other, and they run around. And marine sales -- marine sales went through the roof, and it was really a good move for us. We've got the marine business back about 3 years ago, 4 years ago, and it's been a great move for us. Accommodating to our environment, right? Boats and Florida kind of go together. So we kind of tied that together. We made boat loans, but you just have to come in Vegas for a boat loan. But now we're big in the space, that's -- we're not talking about a 14-foot flat bottom with a 9 horse Mercury. We're talking about Costar-approved boats that are 28 feet. Most people -- we're not loaning money for the boat. We're just going to liquidity. So it's been a good space, and we like the space. We're generating a little business from it. But Florida is a great place to operate. And Arkansas, in all respects, has been an expensive place to operate. So all our back-office stuff is here, so we don't run-up our overhead.

All right. Just the most surprising to me was your lodging in your marine portfolio. And I guess it makes sense when you look back on the marine portfolio. But it's good to hear that the lodging is doing just as well as it did last year.

Well, at some places -- at some places -- let me make this statement that I thought a hotel was a hotel, but a hotel is not a hotel. There is extended-stay hotels that are running 95%. There is downtown hotels running 35% or 40%. There's interstate hotels running 35% to 40%. But you've got water hotels in Florida, where you can see the water, and they're running 100%, 101%. I mean, they're full. So I mean, when we started seeing what was happening in the Panhandle, Florida, the hotel space, they were full, full, full. And then we had other hotels. So there is a lot of differences in hospitality in the kind of hotel, and I learned that through this process, by the way. But as I told The Street when we first announced our first fireside chat and talked about our hotels publicly, I don't see it finishing with a loss then. That was last year, and I don't see finishing with a loss now.

Got it. Good. David, speaking of stress portfolios, energy isn't a huge piece of your business. But talk a little bit about your thoughts on energy, and even longer-term in terms of lending into that space. It seems like, directionally, people want to move away from it. Do you have any thoughts on that?

Well, it's a lot better today than it was last year, or just even a few months ago. And I think it's probably going to get better. With canceling out the pipeline and buying -- canceling out of the pipeline, and not allowing companies to drill on public lands, you're just going to see more and more -- you're going to see, I think [indiscernible] price of gas and oil go up. So I think for the next, probably 5 to 10 years, that's probably going to be pretty good. I wouldn't make any long-term decisions. I mean, I think most people would read, at some point, whether it's 2030 or it's 2050, that there will be more electric cars, probably half of the cars will be electric. But for the initial term, I think that things look pretty good right now. We probably backed up Prosperity words with Kevin's bank legacy. They had quite a bit of oil and gas, and there was loans in there that we really wanted to try to get out of. So they had about $550 million worth of oil and gas loans, and we stick to about $160 million of their portion. Together, when you add both of ours together, again, it does get bigger. But I think that we're probably -- we're not going to get out of the oil and gas business. We think that it's -- we're here in Texas. I think it's changing. You'll see us change with it to more renewable energy. You'll see us take on more projects that are more renewable. But we still have a lot of oil and gas customers. There's a lot of background noise, I don't know if that's to me or somebody else. But I think that you'll see us continue. I want to think that we're going to jump forward a bunch of new customers, but we have a lot of customers that we've been involved work with for 30 years, and we'll continue to bank those people. And again, Kevin's team, the middle market group, they've got some funds that have raised money lately that they're investing into the oil and gas companies. So you'll probably see us get back into it. But again, I think that what we're looking at is we're probably looking at more short-term lending. I think that oil and gas is still not something you just want to put a bunch of money to and then say, okay, we'll get it back in 10 years. So I think it's going to be a lot different lending to the oil and gas companies. But we'll probably still be in there.

Okay. Okay. Got it. Does it feel like we skipped the credit cycle? I mean, the field -- we both talked about -- you talked a little bit about lodging, Johnny, and energy, and we can -- don't really need to go to the stress portfolios. But it feels like your banks are built for making acquisitions and others are stumbling. And I'm just curious if it's a little frustrating that we didn't see that, and we're not seeing some of the weaker banks come through this. Does it feel like we just skipped over the credit cycle?

Yes. I don't think it's over just yet. I agree with Johnny. I think that we started off when we deferred -- with a soft start, when we deferred about $3.2 billion in loans. And I said, oh my gosh. Then year-end came, and it was only about $100 million left in loans that really didn't pay any P&I. But as they mature, we're putting them back. And then there was about $200 million that were interest-only that were more hospitality and travel types of deals. But it all looks good. But I think the difference, and I think what happened different this time and it could have turned out a lot worse is, believe it or not, I can't believe I'm saying this, the government did the right things this time. I mean the PPP was one of the best -- in my opinion, one of the best things that I've ever seen happened to small business win. I know there was some -- there were some money that went to the wrong people. But for the most part, I would say, 90% plus has made all of the difference in the world. And then you came around with PPP, and that's been real good. And I think the next thing that really changed the whole -- that made the credit cycle work is that the regulators gave us some breathing room. I mean to come in and let us defer those loans knowing that hospitality -- there is no way they could pay it. They -- I remember in the '80s, in the oil -- when the oil prices came, they basically just came in and said, okay, we're close on everything. Well, the whole thing is jammed up like this. And so the regulator got it right. The administration came in with the PPP. So a lot of things went in the right direction, and I would say, for the most part, be avoided a catastrophe really.

Okay. Johnny, anything to add on that?

Well, I have to agree with David that. The government usually screws things up, but the PPP program was absolutely a phenomenal program, and it worked so well. I have to congratulate the administration for that. And it was a little difficult, Dave, as you remember, because the SBA kept kind of changing the rule, but we kept moving forward, forward, forward, and it worked. We saved lots and lots of companies and lots of jobs. Now the good news is that we did about $1 billion -- a little short of $1 billion the first time. We're going to do about $350 million this time. So we don't feel the urgency that we felt back then to -- some of these companies have held out, so to speak. So I don't know how David's numbers are running or Ed's numbers are running, but we're running about 1/3 to 40% what we did last time. Same customers basically coming back, particularly hospitalities coming back and getting the kick. And I think it's been -- I think it's a great program. And overall, asset quality for us has remained very, very strong. And I still -- I don't know if David see any or Ed see any losses. I don't see any losses from this deal yet. We got a guy in the movie theater business. Well, there hadn't been a movie in forever, right? So he's been in it 40 years. What do you think about him, right? He's been in 40 years. He's done everything right. We're not going to foreclose on the guy. It would have hurt him. We got even nonperforming -- he'll come back. This guy -- I mean, his kids are in it. He's in it. The family's in it. They didn't have anything to do with what he did. And at some point in time, this guy will come back. He owes us $4 million, $5 million, and we can charge it off. I will hold it and I won't foreclose on him because he'll come back. This is no fault of the business, people and banks were in the best shape going into this crisis, capital wise and asset quality-wise, than I think they've ever been in my banking career.

I'll comment, Johnny. Our numbers, on a percentage basis, on the PPP loans, they're running almost identical, which is the 30-something percent compared to the first ramp, almost identical, yes.

Yes, we're the same. We did about $3.5 billion in round. We're doing $1.2 billion, $1.3 billion in this round. Amazing thing has been the halo effect that's come off of it. We picked up 500 new customers, prospects we brought in. We've been working on it hard, and they came over. The halo effect has been unbelievable. About half of those have moved their deposit accounts, about 1/3 moved their loan accounts over. They'll all come, over time, but it was a wonderful thing. You're right, the government didn't screw it up. Using the government is a counterparty based on [indiscernible]. You have a dead rat in your mouth and do that. But this time, they kind of came through. Hats off to them. Their treasury had to step in because, obviously, the SBA was overwhelmed They're getting the hang of it now, I guess, but they came through and it was easy. It helped a lot of people, saved a lot of jobs. And on the acquisition side, I think you're going to see the business, it's going to be one of the hangover effects of the whole thing, especially if rates stay low. Because the bank is under $1 billion to figure it out that they really cannot keep up with the technology things. They're going to have to -- investors are going to make a technology. It's huge. And I'll be able to find good earning assets because we're all digging deeper. And I think that the inbound calls have started again, and a lot of the larger banks have -- we had to add 200 something people to our tech staff over the last 7 years. Our technology, we set up our own system for PPP in a week or through out sale. We did -- we opened that night, the night you're supposed to. Same thing this time. I'll put our technology staff up against anybody. I'd take [ bills ] up against anybody. So I think that as these other banks started seeing that and then go, oh man, I don't want to do that, especially in a low rate environment. So I think these low-premium deals are going to come through. And I think that you're going to see acquisitions pick up now towards the second half of the year and into next year.

Johnny, you agree with that? And you're seeing more activity, more people putting their hands up?

Yes. Think about it. I guess, if the Biden tax plan goes through, they're going to reach into home and pull out $25 million or $30 million a year in income. I talked to one of my big customers yesterday, called me to tell me that he sold his business for cash, liquidated it because of the Biden's tax plan because he thinks he's going to reach in and take all of his money. So I think that's going to make an impact. In addition to that, I think the smaller banks are struggling, and I think you need size. So I think that we're going to see more M&A. It may -- you go out and pay a full price for something right now, then you get Biden's tax, it hits it more. You have to wonder, is it still going to be a accretive, accretive, accretive to you as you do a transaction. So as I negotiate a trade with somebody right now, I keep thinking at the back of my mind, thinking what impact that will have. But they're willing to move before the taxes hit, and we're going to be living with it from now on. So it just -- it concerns me a little bit, particularly if you were doing a big transaction. But I think there's opportunities out there, and I think there will continue to be opportunities out there. They may not be as big and they may not be as good or they may be better, who knows at this point in time. But I'm going to have to probably step out of my geographical footprint a little bit as a result of the fact that I'm not coming to Texas. I might make it bad for Prosperity next week, maybe week after next, David.

[indiscernible]

I'm pleased for [indiscernible]. Business is good, and I think banks are pretty happy. They're making good money. I need to buy some. I'm making $300 million in '18. I made $300 million in '19, and I made $308 million in '20, adjustment for CECL. And I'm running $192 million, $195 million ROA, I need more assets. I need to buy me something that's doing -- doing 1% and then take it to a 2% or buy me something doing a 0.9 or 0.8. That to me, that's the upside in the marketplace for Home BancShares as we put our efficiencies into those companies and increase the profitability.

Is there anything less in Florida, Johnny? I mean you mentioned maybe being forced to look elsewhere? Is that the reason why?

No. I like Florida. There's just some opportunities that have stuck their head up here recently. And Tracy and I will be traveling in airplane tomorrow. We're going to look at an opportunity, a clean company, nice people. We just get together on price, we broke up -- we were dating for about 2 months, and we broke up over price. And hopefully, we're more reasonable, we can get together on price here now. So -- but there is still some stuff in Florida. There's 5 or 6 or 7 deals in Florida right now that I think look pretty good. But we're going to -- this is outside of -- this move would be outside of Florida. Good bank, clean operation. We just couldn't get together on price. I haven't done an acquisition in 3 years. It's time for us to do one, right? We make $300 million, $300 million, $300 million, it's time to get some more assets. You can just get so much blood out of the turner, and when -- I can't ask my people to give me better than 2% return on assets on $16 billion worth of assets. I can't do that. That's as good as you can do.

David, what do you think?

What's your tail number, Johnny? So what's your tail number, I want to follow you on flight to where tomorrow.

BR549.

[indiscernible] If it's not going [indiscernible] we're good. But David, what do you think on M&A? What's -- where is your head at?

Well, I said this before, I think that when prices were settled on banks, I don't think anybody wanted to do a deal despite the fact that even if you would have done the deal, you took the other parts of the stock, you would have done just as well. But they didn't want to do that. So prices are being higher, where they're at right now. I think that people are willing to do deals now. As Johnny said, a couple of deals that I think that we're targeting primarily, they are concerned about the new administration. The estate tax, how much can you really give away. The dividend tax, the capital gains tax and all those things are really on those people's minds. I would say that there's a lot of people talking. I've seen it when M&A was really hot. And when M&A is really hot, there is usually 2 or 3 deals on my desk that we didn't really ask for. They just got on the desk. I think right now, there's probably a couple of deals that are in the $2 billion size [indiscernible] but not [indiscernible] set boundaries, properties [indiscernible] cheap. It got cheaper. So we might do something like that if it's in our market, we still want to have some time with it, but they're around a $2 billion deal. We're still focusing on a couple of deals that we have been working on probably the last 3 or 4 years. And again, it's things that we have targeted, and we'll probably still try to do one of those deals in the near future.

Okay. Good. Ed, you touched on it, but is it still the Wintrust philosophy to do the smaller tuck-in deals that fit with your multiple charters? Or would you entertain something larger?

Yes, we'd look at something. I mean, $50 billion with it. I always hear -- I mean I've done bigger deals before in my life, but it always scare me the execution risk at IT. Our IT area now, I think we can -- we bring a lot of value-add to people. We really upgraded our digital capabilities and built a platform. They will do that and save people a lot of money going in to -- and handle that. I think that we would look at bigger deals now, only because the pricing is reasonable. These MOE deals are -- treat them like an MOE, where [ 45 ]. We do [ 10 ] or [ 15 ]. Treat them like an MOE because it's a new market. Give them our presentation, work through it. But if the price can go to 2x booked, no way I can ever make that work. So much goodwill. I hate dilution forever. It's like herpes, right, Johnny?

You can't get rid of. And I heard you quoted me.

I love you, Johnny. Glad I can't see it. You're on your boat, by the way?

I'm on my boat. Yes, I'm sitting on the back of my yacht down in ocean [indiscernible].

Attaboy.

And I got a tax loss [indiscernible], and they said they're going to -- you're going to take cancel because you said people are done to get out of Chicago.

That's like -- literally guys?

Time to get out of Chicago.

No, no, no. People like Chicago.

[indiscernible]

With [indiscernible] all these taxes, I'm going to fix Illinois. And kind of it is going to be interesting to see how that shakes out, but all this -- Illinois will be relatively fixed by a bailout as secretive as it's going to be. But it should buy us some time to work through and maybe get some leadership here to help us. But I just think that we will look at bigger deals, if the pricing is right. I will look at smaller deals. We're not afraid to go de novo. As I said, we grew $10 billion without any sort of acquisition. So I think that our momentum is good. I think our model is right. It's perfect for these guys. Somebody who want to lose all the BS, like talking to all the analysts and just run their bank. Perfect. So I think our multi-charter system works for them. And I'm very excited about where we are right, where we stand right now in that regard.

Do you hear the tax and regulatory issue as well from potential sellers, Ed?

You do. You do. But what are you going to do about it? You got to run the business, you can't be afraid if it's going to come. It's going to come. You have to think about it and price it in and do what have you. But it's going to happen to all of us. And if that pushes somebody to sell, that's great. That's the reason. That's wonderful. But that's just one of the givens. You're always going to have that issue, and they'll go up, and they'll go down, and then go up and go down, saying. Who knows if we'll get it by the way. [indiscernible] I wonder whether it's even going to happen or not. So we'll see how that turns out. But not as much as you guys are hearing down there, some -- a little bit, but not as much.

Johnny, I want to talk a little bit about growth, and you've notoriously been someone who doesn't push growth. You let it come to you. And I know that it's -- you're probably very annoyed getting asked about this quarter after quarter after quarter. But what are you seeing, and what's your attitude on growth? And do you think this economy is going to come back strong enough to generate some core growth for your company?

Well, I do -- and we may have growth -- slight growth of breakeven this quarter. It is the -- what got us in trouble in '05 -- '04, '05, '06 and '07 was leverage. And I'm seeing that come back. We're not going to do high leverage. We -- one today, was probably 20% -- we're putting 20% in. We were in a meeting -- your meeting and someone at the back said 24% and a deal at 3.5. I'm not going to do that. That doesn't make any sense to me at all to do that. And what got us all in trouble, they're talking about construction loans. They want a construction, there was amount of equity that was in that construction loan. And the regulator said, oh, Johnny, you've got so much construction. I said, I'm going to lose any money. I used to have 500%, but now I'm at 286%, and I'd like to be 340%. And my Board says I can go for 360%, but I can't get there yet. But I'm fine with -- look, I got $11 billion worth of loans on the books, yielding 5.17. I don't want to have a gun on my head. I set it up right in the past. We made some really, really good investments in this company and some SBICs that have paid dividends for us. When we're looking around -- we've got $1.9 billion in cash and you look around and say, what are we going to do with this cash growing 10 basis points? Well, I thought it was time to buy bank stocks. So I know some bank stock, some good bank stocks that paid good dividends. They are good banks that got beat up, so we bought bank stocks. It's been very good. Not only did we get the dividends on those, we've got the appreciation from that, appreciation value that's created millions of dollars in profits for this corporation. So we've made some good moves out there. And in the meantime, we know we don't have a gun to our head because you've got $11 billion churning at 5.16, 5.17, and I'm having one of the best quarters Home BancShares has ever had in the middle of this deal. So I'm pretty comfortable we'll get our fair share of loans when the market gets right. What I'm seeing happening right now in the market is somebody getting cute and walking in and offer 3.25 fixed for 7 and 3.5 fixed for this, and we're seeing -- at higher leverage, we're seeing that happen in the market now. If it's a great customer, we just keep it. I don't have to go to 3.5. I keep them with 4. But it costs me money, and they get met and they got a little more shot at. So we deal with that. About 1 every 10 days or so in our bank group, somebody coming in, somebody thinking they're doing something. I mean they're loaning money in the 2s. I don't even know what a 2 looks like. I barely remember a 3. Only time I remember a 2 is on the ROA. I know what it means on our ROA, but I don't know what I mean. Never seen 1 on the loan. I've never seen 1 as a run rate. So they had to draw me a picture of a 2. I had to show my people what a 6 looked like not many years ago. I said this is what they look like. If a 6 looks like this, and I've sent pictures of it out to my people, so they can see what they have never seen one. So they can take what they give us. Mean time, we're making a lot of money. Asset quality is clean as a [ panty ], as you know. And I'm pretty happy. It's time for me to go find something and buy some assets for this great management team that I'm blessed with to run. So that's what we're going to do.

Where does Johnny prime today? What is the Johnny prime level?

4.75.

4.75. Okay.

4.75. It takes executive approval to wrap below 4.75.

Okay. Got it. David, on growth. I don't want to see you change your stripes, but you've been willing to grow a little bit more. And I think, like Johnny said, you probably have or are going to have some larger competitors that are going to be more active in Texas. What are you seeing and what's possible for your company?

Well, first of all, let me congratulate Johnny on his 5.17 yield. That's really impressive. And also congratulate Ed for [ $10 million ]. That's extremely impressive. But for our company, I think that we've taken on probably more of a credit than we did. Kevin's and their team, where they have a middle market group, we took on mortgage warehouse lending where we haven't had that before. So we're taking on -- we've entered into some new lines of business, although I think that we've really watched it closely. We'll continue to watch it closely. I think our credit standards are still pretty good. We're growing. I think that we're going to continue to grow. The industry always gets itself. We're losing some business right now on the loan side. We're like Johnny. I'll give you an example. We took -- we had a mortgage warehouse line for a friend of mine, a real wealthy guy, and Chase was getting out of the business, and we gave them like the $100 million on our credit last year when things were really tightening up. And I think we charged 3.25%. I know it's not Johnny Prime, but that's what you have to do to get the deal we thought that was good. So they came back and said that they're getting other people that are offering them. And I said, well, we'll come down maybe a little under 3%. While the other people offer 2.25%. So we're like Johnny. We're going to walk away from those kind of deals. We're walking away from loans where we can't make any money. It just doesn't make any sense to do that. But I still see a lot of great things for our company. Like I said earlier, we can do 95% from a technology standpoint. Our company can do 95%, plus like Wells Fargo does or JPMorgan Chase on your digital phone. You can take a picture. You can transfer bonds from one to another. You can put alerts on, you can get e-statements. So we can do all that kind of stuff. So we have the technology. And it sound like [indiscernible] got a real good technology. I'm like Johnny, what he says, or [indiscernible] said that I really don't see how people of the smaller banks can really keep up. I mean we spent not only what we spend on our vendor that's consistent every month, we take probably $1 million on top of that just to put into technology. So I see a lot of good things that I think that people want to join. I think that we'll have a bigger company in years to come. And I think it will be a well-run company. We have some real good management, a deep management team. So I'm really excited where we're at. And I think we'll continue to do what we're doing, but we're not going to do really crazy stuff. And even though the market sometimes -- I think they get a little upset because we're not taking on more. They don't see the growth in certain area. I don't see taking on growing loans and growing loans and put them on a 2.75% or 2.5% [indiscernible] your net interest margin. I mean, I'm an owner like Johnny is an owner. I've got -- my families have a little over 1 million shares in this [indiscernible]. So we're here for the long run [indiscernible] really to get the share. I'm really excited with what I see and especially excited. Texas in itself having [indiscernible]. And we have the right political business climate here. So those are good. Like Johnny says, though, we might go to a different market. But if we go to a different market, that market would have to be something that probably is that -- I feel good where we're at and where it is -- we've got [ 78 ] the other day, and I ask myself, where do we want to be in the next 3 years? And like Johnny, we made a little over $500 million last year. We pay about $200 million of that out in dividends. So we're retaining a whole lot of money. We're taking over $300 million a year. So we have 2 things to do with that. One, we can use that when we're buying banks, add some cash to it and add some good accretion. Or if the market ever goes wrong way again, we have enough money to buy our stock back at the same time. So I think that, going forward, we have a real good deal, and I see our company in 3 years or 5 years stock price being much, much higher than it is.

So it's interesting to me that you guys are seeing the cannibalization on the yield side. I've seen like that up here yet. I don't know why it is, but we always -- we saw before, [indiscernible] back on '05, '06. We don't see that happening just yet. I don't know whether because Chicago has laid out of the box or market is, what have you, but we haven't seen any craziness yet. We've been living off of this halo effect now for 6, 7 months, and those people who just want to be with us, understand the good service. I can't get Johnny Prime. I'm with you guys. I'm not going to lock in a crappy margin forever. I think that -- I think it was a money supply move. Rates are going to move in spite of the Fed can twist and shout, do all the c*** they want to do. Rates are going to go up, and that's going to be good for us. We're well positioned for that. But Johnny and Mike, Jon Arfstrom, might actually see that beach ball finally above the water.

We're waiting for that.

And so I've been for 12 years.

[indiscernible] Most of the -- the real cannibalization comes in some of these larger credits. And that's why I like our company. We have probably over 1 million customers. And we have -- I talked about these large spreads, but our average loan is probably a little over $200,000, I think, in size. And we have a lot of customers, and that's what it allows us to keep our yield up the way it does. But again, when you're dealing in these real larger loans, it's just really rate driven.

John, [indiscernible].

Those are pieces of burden. Why bother?

Yes. You take a look at the 10-year was under 50 basis points in August, and it just spiked up to $1.6 billion. So I think that we've said on the $1.9 billion in cash and hadn't put it in securities at 1% because I couldn't do that. I couldn't bring myself to do that. And I think inflation is running ramping out there maybe in 1 of your questions. I'm sorry, but it is running rapid. And this -- the -- I'm not sure the Fed continue to lead on this inflation. And I think they're going to have to do something. And obviously, the market thinks the same thing. So at some point in time, this thing is going to spring, and you load yourself up with 2% loans and 1% securities. I'm just not going to do that. I'm going to sit on the money and wait until the opportunities arise, come back.

And I agree that. [indiscernible] $4 billion exces liquidity. But that is by design. That's an internal hedge by design. Rates go down, mortgages kick in, gives you a chance for the margin to kind of stabilize and then position yourself to catch up. And I'm not going to do it either. We had 2 record quarters, basically. The mortgage business. And the buildup we've had. The PPP has been great. I think what the market gives us, that gets [indiscernible] a bad spread forever.

David, what do you feel like on rates?

Well, I gotta be careful with what I say, I guess [indiscernible]. But I guess that -- I said that when I get asked our opinion, I would say the same thing is that I mean, really, if you just go to the store right now and get [indiscernible], they like to fill their car up with gas. But I fill my car up with gas. I can see the difference in the price. The average house has done a $24,000 just because of building materials. And if you ever order an ice machine for Johnny's scotch or washing machine, it takes -- you might get it in 3 months or so. So there's -- parts are behind and everything else. So I know that they don't take food and oil and gas into the inflation calculation. But having said that, there's definitely inflation. I wouldn't recommend them just to raise the prime rate. But I would highly recommend that they start tapering their bond purchases, and that would give a better yield curve for everybody. That would slow things down. But I think they're going to have to. The stimulus program is just -- it's out of this world. I mean, basically, I agree with the PPP, but the majority of this $1.9 trillion (sic) [ $ 1.9 billion ] is just -- I don't know that most people know where it's going. It's going to bell out a lot of states. That's going to a lot of different places. I mean, the only thing that I really see that really helps really is the PPP program. I think that's the best thing that came out of it, really.

Last question, I just want to ask is on CECL. We obviously, a year ago, we were all doing this panel, and we didn't know what was coming. So we're all -- you're all forced to build big reserves. And the losses haven't come through. Do you think this year is just going to be massive release of reserves. Losses are going to come in lower? And do you think that CECL kind of accomplished what it's set out to do? Or do you think it's just kind of tough accounting to get through?

Those had a tough account to get through. Get through, it is. I mean, who knew? I mean, our credit is better than it was when we started this thing. We had to take a huge reserve. I have no desire to release it. We're going to grow into it, and we still anticipate mid- to high single-digit growth rates in loans, notwithstanding the PPP loans, just core loans. And I hope I can grow into it. But as I said before, the guy at Moody's has hemorrhoids, we all suffer. He starts feeling better, we're okay. It's just -- it's a goofy thing. I guess it did what it's supposed to do. But they certainly -- [indiscernible] as weathermen is they don't know what's going on either.

David, any thoughts?

I have to agree completely. I may even be harder than what Ed said. I think it's the biggest prop I've ever seen. I've been in business in banking for over 30 years. And if you run your bank right, 1%. This deal they made is do is just completely ridiculous. So again, I don't want us to manage earnings by pulling money in and out of the reserve account. I'd be more inclined to Johnny if the model allows us to do it, is to grow into something like that. But I think it was -- it's the most [ cheapest ] thing in the world. I think, it's crazy.

Johnny?

Ed and David, I have to agree. And just -- you got some guy from New York telling me how much money to put on reserve, like we don't have enough sense as bankers. These are the assets we put on the books ourselves. And you know as well as I do, I run -- I've always been a big reserve person. You run a 2% plus reserve, and that's going to settle -- that's going to handle about anything you want to do. And now I've got somebody telling me, I'm watching [indiscernible] I'm not going to do that. It's our money. It's my share -- my money and my shareholders' money, just in a separate account, it's in reserve account, and that provides comfort to the street to see that being reserve account. Well, I intend to try to leave it. I'm going to honor, and I'm going to follow CECL. But I'm going to continue to maintain my 2-plus reserve account because I don't know if this guy in New York knows what he's doing or not, and I'm not handing him keys to my bank to make those calls and those decisions. If it gets screwed up, I'll screw it up. I don't need him to screw it up. So I'm going to maintain a 2-plus reserve. I'm going to parallel with CECL. I have told my accountants. I said, if you -- not to regulators. Regulators don't care. They're all in favor of the more reserve, the better. But the accountant, as if you want to fact, then you're going to get one when you come here and start making me pull $100 million out of my reserve account and put it back into income. I said, if you're looking for a 5, you're going to get one here. So if you see me do that, you know they want the 5.

Well, unfortunately, we're up against the hour, guys. I appreciate this a lot.

You see that? It's what I got for [indiscernible].

I look forward to this live in 2022. These are tough. I know we did the last one at the PF conference call a year ago, and I appreciate that. And Ed, we're going to get your camera figured out. But next year is going to be live, I promise. I appreciate you guys a lot.

[indiscernible] They're great -- these are great bankers. They -- all 3 of us came from nothing to build these banks out of nowhere, and it's -- I enjoy -- we laugh, and we joke and we play with each other. But these are great businessmen. They run great banks. And Jon, thanks for getting us together.

All right, thank you.

Appreciate it, Jon.

I'm not sure I'm going to get a -- I'm going to move up from my [indiscernible] and get a better computer, I guess.

I heard that you all might get technology in Chicago next year. So good luck, Ed.

And I got the thing called the internet. I can't wait to see what it is. I thought it's quite cool.

Thanks, guys.

Thank you.

Bye.