Wintrust Financial Corporation (WTFC) Earnings Call Transcript & Summary

Good morning, everybody. This is our last session of the day. It's the Unplugged Panel, and I'd like to thank everybody for attending, especially Ed and Dave and Johnny. The idea -- just a little background here. The idea for this panel started back in 2007 and it was at a Martha's Vineyard conference where Johnny and Ed met and thought it would be a good idea to put them on a panel together. So we tried it in '08 and '09, and they chased away the other participants, but around 2010, Zalman came along and it worked. And he stuck on the panel. So I think this is year 15. And I wanted to maybe create a little disclaimer and just there are too many things to warn about, but I'll just remind the 3 of you guys that it is webcast. And if you remember that it is webcast -- and but these 3, they've earned the right to say what they want. They're owner-operators. They built incredible companies. They employ a lot of people, their lenders, they take deposits, they're additive to their communities. So it's just great to hear from these guys what's really going on, and they really built these companies. And leadership and consistency, I appreciate that in financial services. These guys epitomize it. And it's just been a great joy to cover these 3 leaders and their companies. I'll give you a little on each one, and then I'll let them each describe their companies, and we'll get into Q&A. And I also want to say that we are open for questions as well as if anybody wants to send them in. So Johnny, I covered this company really since its IPO. He is just a great business mind. His life is banking career, just an incredible story, great determination, common sense. And about a year ago, it's $16 billion in assets and with this pending acquisition of Happy Bancshares, it will put them at about $24 billion. And it's not his first time around, he's built and sold a bank before, another great story, but we'll let Johnny explain Home in a bit. And then on Ed, I said this last year, American success story, he built Wintrust from basically nothing, just a business plan to a company that's over $50 billion in assets today, hilarious guy, tough, great leader, just an amazing story. And then on David Zalman, I met him in the early 2000s. Like a lot of small banks who just don't know what to think, he was a couple of billion in assets. We met in a little conference room in Houston. He had just this tight grip on expenses and credit, and that's everything in banking. And here we are 20 years plus later, David runs a $40 billion-plus bank. And sometimes he brings his identical twin brother along. So we want to make sure it's you David, but why don't you describe your company and then we'll move to Johnny and then Ed.

Johnny, I didn't get to see what you were wearing there. In [indiscernible], I liked your pink jacket and your metro pants. I bought some metro pants, however, they're not white. But they do fit, they look good on me, but haven't got the pink jacket yet.

I won't look as good as they do [indiscernible]. So...

No way. Okay. Let me go into introduction.

[indiscernible] wearing pants.

I cannot see you, you may not be wearing any. May be got short pants on or something like that, I don't know. All right. My name is David Zalman. I'm with Prosperity Bancshares. We have 275 locations in Texas and Oklahoma, the center of Western civilization and cultural enlightenment by the way, and our stake continues to grow. We, again, have a very favorable business climate. We have no state income tax. You continue to see companies like Oracle moved their headquarters to Austin, Tesla is moving most of their operations to the Austin area in Texas. Samsung just spent $17 billion in Round Rock, the other side of Austin. You continue to see Apple, HP moved their headquarters to Houston. So there's a lot going on right now. You continue to see even in the Austin area, Facebook, TikTok, Google leasing a lot of properties right in the downtown area. Overall, Texas is in a very favorable position. We continue to have the people to move here for all those reasons. And now we have $125 a barrel oil with us that helps me out a little bit. And so it's a good place. So it's -- that's who we are, and I'll turn it over to you guys.

Okay. Johnny, why don't you run through a Home and give us a good description of the company.

I'll do that quickly. I was on a conference call earlier today with some one-on-ones with your firm, and I told the story about you and I drive through the Florida Keys in a [ White ] and I put $140 worth of diesel in my car, and I went and asked, Jon, I just want you to know that that's more money than I started my business with. So I reflected back on that story today. Jon has been with me a long time and been a supporter. Home is just -- what's the 2 best places in America to operate, certainly not Illinois. So I mean it is Florida and Texas. We're thinking about that. Florida and Texas are the 2 best markets in the United States. And the reason is everybody is leaving those other states and moving to our states. I just hope they leave their politics, where they had it to start because you talk about these states never shut down during the tough time. We never closed them down. Arkansas ever closed down where our corporate headquarters is. Our New York operation did close down, but none of the other states. They're business-friendly. So my newest acquisition is Texas, and I'm in with my friend down there. We -- as it turned out, I was bit against the [indiscernible]. He was on this same transaction. So I'd always said sometime I'm going back to Texas, and we had an opportunity to buy a bank in Texas, and we get about a $6.2 billion trade, and we got approved on that a couple of days ago, and we closed it April Fool's today. We can always change it if we tell them we're just fooling with them, right? So anyway, Home is about -- be about $24 billion. We were just named again best Bank in America by Forbes, that's 3 times out of the last 5 years that Home has been named Best Bank in America that's quite an honor for our people. We're a high-performance bank. We're on top-tier ROIs, extremely efficient, around 40 -- sub-40 efficiency ratio. Just a great bank, a lot of fun. We work our butts off. My team is invested in the stock. It's all about the stock and building the company, and that's what we do. Outside of that, we are well capitalized. I carry big reserves even with CECL, I carry big reserves. That is -- and I don't -- I believe somebody from Moody's who's never been Arkansas always tell me how much reserve we putting in. So I decided I'd put that much money Johnny want to put in. So we carry 2% better reserves because that's always worked, right? It's always work year in and year out and getting -- depleting your reserves down enough, it's not good business. So anyway, very conservative run, lots of capital, lots of reserves, lots of earnings. That's pretty much the story of Home, well, us. And turn it over to my friend Ed or Jon -- back to Jon.

Yes, go ahead Ed.

I'm in Illinois and Wisconsin and Northwest Indiana. And it's a tough market, but you guys couldn't survive up there. I know that.

We probably take it over when we do.

We won the big war, guys, remember that one.

Chicago could be good if Edward would run for Mayor. If he's ever Mayor, it could probably be okay.

Remember, you don't you want to be here. We're 30 years old, started at a card table with some beers and pushed through $50 billion at the end of last year. Basically 15 charters. It works very well for us. We're a growth company. We invest in the markets best in the business, as best we can. Won seventh Greenwich Award last year for [ National ] Awards for our products and services, [indiscernible] Chase, BMO, all the competitors. I touch [indiscernible] I like to call it what we do. Our growth prospects remain very good, very diversified. Johnny, you're going to have to tell me, how are you going to wait with the [indiscernible] because right now, it's formulaic, I can't say a word. But I think the reserve has become how ridiculous sort of counts up anyhow in terms of looking. How well they did with the last one, take it up, bring it down, take it up, bring it down. So [indiscernible] all smooth because [indiscernible]. But anyhow, our portfolio is in great shape, very diversified. The portfolio is basically commercial, commercial real estate. There are niche businesses, of which biggest are insurance premium finance and leasing. Insurance premium finance has 2 divisions, the life division, about $9 billion, didn't loss a penny on that ever [indiscernible]. And the other division is our commercial premium finance, which is about $4.5 billion. Leasing is up about $2.5 billion. We're very diversified. We're the national mortgage company, and we keep putting up with earnings. Again, Johnny [indiscernible] all that is, but we do pretty well in that. Well-positioned for higher rates. Every quarter [indiscernible] [ $50 or $60 million ] for us. A lot of PPP loans and our mortgage business suffers [indiscernible] the pandemic. And then our role was to make sure at the end of the day. And all these analysts tell me -- and when this is over, you want any mortgages, you want any PPP loans, what you are going to do, [indiscernible] bank with help of you guys. We had $3.8 billion of PPP loans to replace those during that 2-year period, they're outstanding and [indiscernible] breaking out. So I like where we sit, our nonperformers are absolute dollar-wise or lower than they've been since 2008. We're an $8 billion bank then. And so credit is pretty good, and our prospects remain very good. So...

Okay. Good. You guys all touched a little bit on the kind of the economic backdrop. But just curious if you've seen any changes recently? I mean, I know this Russia, Ukraine thing is only a couple of weeks old, but you guys all had good growth and good momentum coming out of the fourth quarter into the first quarter. Have you seen any changes at all in terms of that momentum? Or is it pulling through? I mean, Ed, you probably had the biggest growth quarter, are you seeing that pull through?

Yes. On the loan side, we still expect single high to -- mid- to high single-digit growth. That's going to happen. A good shape there. Inflation and supply chain are everybody is buying right now. But people are able to put the pricing through. They have more orders, they know how to do it because they can't get the parts and what have you, but inflation is a big issue for most. We have put the prices who's important. And it's also going to be important for our lines. I mean, our line utilization was below 50%. And I think as inflation kicks in, we already saw in the first quarter where some of the [indiscernible] has been put back in the business to help support it. The lines are starting to move up, and they're going to need more for inventory, what have you. So here in the Midwest, Ukraine is far ways away, but inflation is really what you got to look at and the ability to handle that.

How about you, Dave? What -- I mean that [indiscernible] has been strong, but it feels like it's better, it's getting better.

It is. We probably didn't have as good a growth rate in the fourth quarter as a lot of the others. We had about 2% core. If you add back the structured commercial real estate loans that we were trying to get out from the legacy deal probably add about 6% growth rate. We, like Ed, we're forecasting about mid-single-digit growth for this year. Started off a little slower this -- in the first quarter, I don't know if it's just seasonality, but again, you had the COVID and then you had the Ukraine deal. But also, I think inflation is a big deal, too, at the same time. But overall, I think that if we can get through -- if we can get through this Ukraine deal and inflation, I think inflation is going to take a while, you will probably see them raise rates some time on and then you'll go through a recession and will start growing again. But overall, I think people have a lot of money and the -- at least where we're at, there seems to be a lot of positive things, and there will be some ups and downs, but I think we'll be okay in the long run, for sure.

Okay. And Johnny, you've had you've been cautious on growth. It feels like there's a lot of growth in your markets, but talk a little bit about what you're seeing and you see just kind of that demand pull through.

Well, what we did in [ 2 ], [ 3 ], [ 4 ], [ 5 ] and [ 6 ], what led to [ 8 ], [ 9 ], [ 10 ], [ 11 ]. So sometimes I get frustrated bankers because their memories are short. And I see higher leverage coming back. I hear more talk about nonrecourse than I've heard in the past. That kind of stuff really makes me -- when I start hearing nonrecourse on loans at 70% or 75% leverage, it tells me that there could be something [ growing out ], and that certainly concerns me. We've been in the 55% -- we're 57% overall loan-to-value. I like our book. I like where we are. But I've had 2 loans. I've seen the most egregious loan made in the banking space that ever was seen made in the last 90 days. And the same company took one from me yesterday, the cash out deal just unbelievable. But anyway, I could have kept it either one of those loans for my customers, but I want to be able to go home and lay my head on the pillow [indiscernible] this is Johnny's largest asset. It's my executive team's largest assets. So we're a very conservative company. We continue to like these 2 gentlemen run their companies very conservatively. I'd just like to say it's been really even though Ed and David are not quite as smart as I am, I just wanted to say that it's been really an honor working with these guys over the years and being on this panel, and thank you for that. They really are a lot smarter than I am, quite honestly. But it's Ed said a word. He said, "Johnny, can you get out of jail long enough to do your conference." And I have told him that I have to. So anyway, I concern myself with that, I worry about that a little bit. I don't do silly stuff. We just -- we're good competitors in the marketplace. We don't give our loans away. We don't do low rate loans, and we don't walk on one. And I'm sitting on about $4 billion of liquidity that I plan on deploying. And this one comment to the world is, not many of [indiscernible] always I am, but it was around March '80 [indiscernible] administration rates were 21% and February the 5th of that year of 1982, U.S. Treasury issued a 14.87% 30-year bond. So I just -- I think the Fed was way behind the eight ball then, I think the Fed is way behind the eight ball now. I think we've got rates that are going to run. I don't know if we're going to bring Paul Volcker back, but I think we're going to -- rates are going on run, and I'm sitting on dry powder between myself and Happy Bank with about $4 billion in liquidity, and I plan on deploying that over a period of time. So I want to get -- if one of you will tell me what day the rates are going to be the highest, I will go ahead and spend the whole $3 billion or $4 billion that day. I just think it's time to be real careful and real conservative in the marketplace and plan your entry points when you head into securities because why would you -- so much -- why don't you deploy so much money in securities asset at 1.50% or 1.60%, I'm waiting for 4% or 4.5%. I'm waiting on that. And if they crack rates like I think they're going to have to crack rates, I think we'll all benefit. David is probably the king of investing in securities. But I think we've got good times coming there, and I believe we can invest at higher rates, and that's my plan. That's my bet.

Yes. That's good. It's a good segue. And Johnny, you took us right to it, but you guys -- do you feel like the Fed is behind and talk a little bit about the inflationary pressures you're seeing. Maybe Ed start with you.

Fed is way behind. And they'll continue to be behind. So they're not buying mortgage backs, I see mortgages move up. They're going to keep buying treasuries because they don't want a big deficit out there. Inflation has hit the cycle and started. And it's in the wages now. And cycles will be tough to break without Paul Volcker-type move. You're not going to see it for a couple of years. Meantime, we have been very patient as to how you invest your money. We're sitting on $6 billion, put $1 billion of work last -- this quarter already. No [indiscernible] rates were high enough to do it. That basically cover our runoff for the year of other securities. So we can wait on that, too. We'll have $6 billion or more at the end of this year. So I truly believe they're behind the eight ball. I said earlier, we believe it feels like the 70s are all over go. Johnny actually is wearing bell bottom pants and platform shoes and [indiscernible] disco music again. So I think that -- I think the Fed's way behind is very political, and we just got to be prepared for anything. Inflation is good for banks if we put it right, higher rates. I remember those days too Johnny and made a lot of money [indiscernible] transformational it had your powder dry. The beach ball underwater is going to come up pretty soon [indiscernible], it's been -- he's been there since the first meeting we had in Martha's Vineyard. And I was going to move up very nicely [indiscernible] sitting on the goddamn thing, now we got to go them off of it and go, but we're very well positioned for higher rates.

Ed's analogy is, it's margins like a beach ball underwater, and then eventually, it's going to [indiscernible]. So you heard it here, [ Putin's ] on the beach ball. But David, how about you, what do you think on inflation and the Fed?

I could be a little bit careful because I sat on the Federal Reserve Board on the Houston Branch Board for the Dallas Fed. And again, we're just proxies, our boats don't necessarily count at that point in time. But now -- now I sit on the Federal Advisory count. So where I am with them and meet with the Fed once a quarter in Washington. I would say that I thought they were behind. I voted every time to raise rates more, they didn't. I think that if you talk to them, they hire people and really tell them it was a transitory deal. Allegedly a group of a lot of people that have been right in the past, they were wrong. I think they admitted that they were wrong. So I think this time, everybody knows that we really need to raise rates. I think that you might have saw a 50 basis points increase this time if it weren't for the Ukraine deal and the amount of -- and all of that going on in oil and gas going to $125 a barrel. So that probably is going to help -- it's probably not a good thing, but oil and gas being so strong is probably going to hold things back a little bit. But you'll continue to see higher interest rates. They still believe that it's not completely out of control and that it will get back into control in a period of time. And we like them. We kept a lot, I think, at the end of the year, we had over $2 billion or $3 billion in funds overnight that we weren't invested. We started investing like Ed did probably this month. Again, we've been investing every month, but again, probably picking it up this time. We probably yielded about 2.75%, maybe 2.5% sometimes once in a while, but that's -- so we're starting to invest.

Okay. So you're starting that. How about deposits? Do you feel like they're going to stick around when rates go up? I mean we have a lot of excess deposits and I know that's a challenge. But...

Again, not our bank, all banks probably went up dramatically, double-digit increase in deposits over the last couple of years. And I read this in the morning, I think one of the analysts was going to piece on Comerica and they actually went down about $4.5 billion, I think, it said for the quarter. I haven't seen -- we haven't seen the deposits go backwards, at least in our bank. In fact, they're still up a little bit. I think that there's so much money and the consumer got so much money that -- from all the stimulus programs. And so now since that's run out, and I think that as interest rates rise, you're starting to see the consumer starting to spend their money. I think we've noticed a little bit of an uptick in the insufficient fees and the overdraft charges and stuff like that. So we're starting to see them spend their money. At the same time, I don't see a big pull down into deposits. I think that you're not going to have the growth that you are, but I think that you probably will still see -- you still will see a little bit of growth in deposit this year for us. The second quarter is always a down quarter for us, but then we usually pick up the third and fourth quarter. But I don't see -- I think people like having cash on hand. I think businesses like cash on hand and especially in these kind of times. So I don't see a real big pullback in deposits, I don't.

How about you, Johnny, any thoughts?

No, we're continuing to grow. I mean, like David, like Ed, if you got real banks and real customers, I don't know about the one he mentioned where they have real banks or real customers. We have real banks and we have real customers, and we continue to grow. I mean, it just continues to come in and you see some banks that don't grow that much because they don't have real customers, I think. But it's -- I'm positive on the deposit side. And we'll have the advantage here as rates go up until somebody runs a CD special for 1.5% because they spend all their money, and they don't have any liquidity and they got loans to fill. So that's the downside. We -- and rates will go up and margins will get -- maybe should expand. Margins should expand, we should delay the cost of funds increase then it should expand. And we just need to be smart with that. It's a time we struggled on the way down, right? However, I didn't. I have my bit, I carried $3.5 billion on my backhaul year. And I made $320 million, the best you've ever had. We're on the [ 1 90 ] ROA and carrying $390 billion -- I mean $3.5 billion on my back. So I think I'm keyed up for this year. We get rates up on securities and we get loan growing. I think we deploy the money. Happy is bringing in about another $500 million worth of liquidity, give us about $4 billion worth of liquidity. And I can multiply 4 x 4, that's 4% x $4 billion. I can do that. Even in Arkansas, you may not think with [ Jim ], but they're damn sure can and I [indiscernible] 5 x 4 too if it really got good. So you can see where I'm looking and what I'm thinking about down the road.

Taking the shoes [indiscernible]. Johnny, on deposits, we actually grow about $1 billion a quarter, the fourth quarter is $2 billion. All that was window dressing by clients and late-period sales [indiscernible] they made a lot of money outside [indiscernible]. We shrunk $1 billion, but now we're getting it back. So there'll be probably no growth, but we'll replace that money this quarter. I don't think you're going to see banks start putting big numbers out. I think we project a 10% beta on the first [ 25 ] [indiscernible] up to [ 40 ]. We're all -- we're basically all core funded. That's a good thing. So I am in pretty good shape.

Okay. Headwinds from higher rates, David, maybe you've got a warehouse business, I know your mortgage business is, it's not as large as Ed's relative to the overall bank. But what are the headwinds from higher rates?

I think in our case, again, [indiscernible] on that, I think that our -- I think most of the headwinds are positive for us. I mean if there was any headwind, I mean, unlike Johnny, I don't know that I believe that interest rates are going to go up as much as he does. But if they do, it's easy to do the math even here in the center of Western civilization. So I think that that's a good sign of -- I guess -- yes, I guess if there's any headwinds, the headwinds would be probably on the asset quality side, I guess if interest rates went too high, and you made a lot of these deals in real estate, and you stress them up 300 basis points. And most of the deals, if you stress them 300 basis points, they couldn't, they probably couldn't make the payment, however, with rising rents and everything, maybe they can. But I really see a lot more positive for banks with interest rates going up than I do headwinds. I think that it should help all of us really.

Okay. Ed, how about the mortgage business? I'm assuming you think that higher rates much more of a positive for your company than a headwind?

I mean rates [indiscernible] good, Jon. They're at 0 basically. So about higher rates, maybe mortgage is going to 5% or 6%. Not so bad in the long run. What will happen to the business. I mean, there's -- most of our business have 60% on purchase lately. And we also have a large mortgage warehouse leases signed. They're all under pressure right now. I think that we also have a $13 billion servicing portfolio. That's going to be [indiscernible], so that's good thing. It's all part of the, I know you guys don't count it, but it's all part of the plan. I mean, [ soaking ] up equity. So I think that the cycle is started where homeowners -- home rentals will go up, they go home equity line, refinance it again. You are going to need a good mortgage business. Secret is to be able to fix -- get your fixed variable cost paradigm down. We've done a lot of that lately. We're using a lot of [indiscernible] I guess, now. And we do a lot of work over in [indiscernible], it doesn't touch a customer. That's all transaction makes that variable. So we truly got to get fixed variable paradigm together. And it's a great hedge for us because when that business goes up, then rates are up, which means the balance sheet, get more margin. So [indiscernible] the way down, we have is a little bit of that too much. And it's a great business to have.

Jon, I would say just -- but I thought about this after. It is true our mortgage warehouse is probably down. On the other hand, our own mortgage department within the bank, really, they're telling me our applications are as high or higher than they have been. And I think that's because most of our applications of our mortgage company inside the bank, we do really -- we do loans for our customers. We're not really doing refinancing and so most of them are for new loan applications. So that's good. But overall, as interest rates went up, being able to have the excess money and putting in the securities portfolio has always just been a win-win-win. I mean I just think it will continue to do that.

Yes. Okay. Johnny, what are you -- what risk do you see from higher rates? Dave mentioned credit, but anything else come to mind and you agree with that on credit?

Well, we've seen single-family homes boom. There's still not enough supply out there, and it may carry forward further into the future. But I think that's probably the first impact we're going to see is on that. We don't do a lot of refinancing here, either. It's usually a homebuilder. We're first-time buyers, same-time buyers buying homes. A lot of them are buying at their loan originations. So it's been pretty good for us. We've enjoyed the income off of that. I talked to my friend in Texas about putting some of that in his warehouse, but it -- we like that business. We hate to lose that revenue stream. It's been so good. When there's something bad, there's something good. Rates went down, gave us all a little margin squeeze. But the mortgage side of it was really good and it filled in for us. We had the fee income coming in off of that. It's really been excellent. So what do we do next? We have the PPP, which was the best government program that they've ever done in my opinion. That one worked and saved lots of small businesses and helped lots of families keep their business together. So that was great, but we've lost that source. We've been have paid off on all that. If we lose mortgage, it could be a tough year. So it's got to go [ to a loan ], it's got to go into securities somehow. I think David is probably the expert on the securities side. I wish I could lean on him for some guidance on that. We're not getting [ 2 and 2 4 ] yet at this point in time. But anyway, he's an expert in that field. He's been doing it a long time. I think probably the first thing to hit. I'm not worried about asset quality at this point in time. If we can keep leverage in the 50% -- at a 70% range then we're all going to be all right. If you get leverage up above 70% and you're doing 80%, 85% and 90%, and I'm seeing some of that, then that's a problem. That's going to be -- we remember what happened in '05, '06, '07 because we had to stack a keys on our desk. And they had nothing in the deal. They had nothing. I remember trying to get 5% or 10% down in the deal, and they said, "well so and so is financing 100%." That was a way of life then. The regulators would come in once and a while and they'd say," John, you've got so much construction, you're going to get killed." I said, "No I'm not. I'm not going to get killed. I've never lost a dime in that business. I'm not going to lose a dime now." I said, "The truth is that we didn't have any money in deals in the past, and we do now." So hopefully, bankers will remember that. But some of these bank -- young bankers out there weren't around and didn't see that and didn't experience that. So I think that's a little disappointing and we run into that from time to time. Overall, I think it's going to be a pretty good run for us. We'll just have to figure out where we make our marks. We make our marks -- mortgage is still strong for us, not quite as strong, but I made -- I don't -- what did we make? $21 million last year on the mortgage side, some nice little incremental income, $21 million came in for our company. And PPP was a nice little kick. So what did we do to cover that? We got to do something, guys. Because we don't want to have PPP. And if mortgage holds in there, that would be great. If it doesn't, then we've got to replace that income.

Hey guys. Are you on the rate side? I know you're at the center of Western civilization, but this thing called interest rate swaps, you can use those and banks can fix their rates. I know they've got those down there, but I'm up here in the big city. I'll be happy to teach you about them.

I just want you to look here. This is my -- let me have the audience here. This is my Board of Directors. Can you all see that?

Not real good.

You can't see it real good? This is my more Board of Directors. See it now. This is what Ed sent me. He put a beard on my entire Board and sent it to me. I just wanted you all to see that.

Jon, you may be on mute, I think.

Good hearing, Jon.

All right. Good. Ed, are you seeing anything irrational? Your growth has been good, but I'm just -- you called it the last time around, and I'm just curious if you -- if there's anything you're flagging right now.

Not really. Our market has been so disrupted by the acquisitions of all our major competitors here. We're still doing business on our terms. We're able to grow doing it on our terms. People like the high tech, high-touch approach that we have. They don't know who to call to [ take banks ], they don't know what to do. This is still -- might not be the center of the sports universe like those other 2 guys are, still the 13th biggest economy in the world and it will recover. So we're able to get the pricing we want. We don't change our loan policy, pricing parameters for anything. We're not seeing big exceptions -- exemptions coming through. So I'm not ready call [ rope a dope ] yet but won't be afraid to do it if we have to. On transactional things like the leasing business. Yes, we're seeing some stuff going on. It doesn't fit, we don't do it. So we're not seeing too much [ torrential ] up here. But again, I would defer to the center of the universe in Texas and Arkansas. I don't know what's really going on.

The center of Western civilization and cultural enlightenment.

The answer is not Chicago, I can tell you that.

Sometimes known as the pearl of the prairie.

The pearl of the prairie.

But...

Ed, your governor said it's a matter of private parts the other day.

We better keep you moving along.

Our governor is a big man in stature only.

What do you guys just thinking on the regulatory environment? I mean, it seems to be a little bit unsettled. And Johnny, you got your approval for Happy, but how much is the political environment and some of the regulatory uncertainty factor into how you run your company or how you think about it?

That's a good question. I'm hearing and I don't know -- I don't know if it's correct or not, but I'm seeing people that are trying to do deals that are struggling to get deals done and they're either waiving overdraft fees or doing something. They're doing something different than what we normally do. I didn't do that through this process. I did get a protest. And -- but it was a guy that's -- pretty much protests a lot of banks doing transactions. And I don't know him, but -- I don't know if he's right or wrong, but I think he was wrong in our case. But the Fed went on with us and helped us through this process. If your bank is clean and the target is clean, we're on track, home was on track with the Happy deal to be the fastest deal ever done. Basically, one of the fastest ever done. And then we got the protest, which delayed us for a period of time, but we got that approved. But if, in fact, you're going to have to -- if they're going to bargain -- and I don't think that this is reasonable, them bargaining that you have to do this or do that to get approval. And I don't know that, that ever happened. Our people -- we report to St. Louis and they're excellent people. We have a great relationship with them. And there's probably not 2 cleaner banks doing the deal together, of the home in Happy. So that's Happy's claim. And of course, you know home is. And that made a great marriage for the 2 of us. And I think the Fed just said, this is one that needs to get done, and we'll help them get it done. So I hate to think that we're going to that kind of bargaining, Jon. That's not -- and I'm going to say that that's not correct. I've heard it, but I'm going to say it's not correct. The Fed is above that. So I just don't believe we can do that. I don't think the Fed could do that. I don't think they're doing.

Okay. And David, I know you don't really want to talk about the Fed, but just the political winds have changed. How do you think through some of that in terms of how you run your company and stuff that comes out of Washington?

Well, there's probably 10 larger deals that are still out there that haven't been approved. I'm like Johnny, I do believe the Fed is nonpartisan, at least they have been up to this point. I think that most of those deals will get approved in the event that whenever J. Powell gets confirmed. So I think that will happen. I think going forward, I've talked with the Fed, even in the Dallas Fed on the M&A side. And they do mention it is -- there's going to be more scrutiny in looking at M&A. However, I do believe, like Johnny just said, if you have 2 -- if you have 2 good banks and they're in good positions, I think that -- I think they're going to go ahead and approve it. Especially if it's not over $100 billion, I think if it's under $100 billion and you have 2 good banks, I don't think there's going to be any question. I think they'll move it through probably pretty quick. And again, there are -- right now, they are taking people protesting more serious -- not that they didn't take them seriously in the past, but they really have to watch what they're doing right now. And I think that if you have anything in your past or a track record in your past, you may be required to give a little blood to get the deal done. But for the most part, I think you have 2 clean banks, I think that they will help you and they will help you get it through, although the political, it is definitely more scrutiny now. There's absolutely no question about it.

Ed, anything to add on that?

Well, we don't do big deals. We never have. We have another bank -- full bank deal in 2.5 years. We bought a portfolio that was about $600 million [indiscernible]. But -- we were all [ those you see ] now, and our relationship has never been better, very give and take. Hoping it will last, where they don't [ got'cha ] anymore -- they go. I don't want to think about this and this. This could change as new people come in, I don't know, but been kind of nice lately. We have the outstanding in all the banks' CRAs, which is a good thing. And we actually walk the walk and don't just talk the talk. So I can't see us going out like do a big deal. We look at -- we'll probably raise our sights at maybe $1.2 billion in there, it's never going to be over $1 billion. And the problem -- I don't worry about the regulators from that perspective. I worry about them, I worry about the pricing. Bank pricing is just crazy right now. I'm not going to be able to do the deal. It's just not going to happen. I think what's going to occur is it's going to go up, [ plays ] is going to be here, technology costs and people costs that will drive a lot of these guys to say, "Maybe I should take a little less money and go with somebody bigger." And scale is very important to a lot of these guys, but banks between $0.5 billion and $2 billion, and we talk together, some time the earning assets on the books, sometimes competing technologically with us. And we're the best thing they can merge with. But in the meantime, I don't mind going de novo. I mean, we can do both. Take what the market gives us. That's all I'm going to say about that, as Forrest Gump would say.

All right. It's interesting. I mean, all 3 of you have been acquisitive, but it feels like with the Fed policies and congressional policies, a lot of bad credit was bailed out. And I think all 3 of you probably would have been more active in a downturn, but it's like credit was backstopped. I don't know how you feel about that, Johnny, but you probably would have had a crack at some more banks in Florida if the government hadn't stepped in. Is that fair?

I think that's fair. I certainly think that's fair. I think we would have to crack it at several more banks out there. I just got -- I don't know why that -- we just did a sub debt raise about $300 million. RBC had done one for me 5 years ago. We're going to pay that off in April. And I didn't need the money, but I thought -- I didn't expect to pass -- number one, I didn't expect [ 8 ], [ 9 ] and [ 10 ], and then I didn't expect 2 or 3 pandemics on top of each other. So I thought I'm going to go ahead and raise me another $300 million just in case and just sit on the money. I don't know if something crazy comes down the road. I've made about as much money in the bad times I made the good times, Jon, if you know that. So we take advantage of those opportunities. And if they come up again, I think we'll take advantage of those opportunities again. So I'm not forecasting something terrible happening, but I just got -- picked up the $300 million extra capital just to put -- create a war chest and a fortress balance sheet for Home BancShares in the event that something comes. I told somebody, I said, "If I'm right, I'm going to hit a grand slam," I said, "If I'm wrong, I'm going to hit a triple." So there you go.

David, how are you thinking about M&A? What's going on in your markets? Is it active? Is it pricey like Ed is saying? Or what's going on -- going through your mind?

I've got some guy from Arkansas in my backyard all the time. I don't know what to do with him, wearing pink jackets and white pants with real tight around his ankles. I don't know what to do with that guy. But having said that -- having said that, the M&A market, I think, is -- I did get those metro pants, I'll show them to you one day. My wife is still looking at them. He said, I look good and I don't have all that baggy stuff and everything. But anyway, back to the M&A market. The M&A market, I think, is the M&A market I think, is vibrant. As you know, most of our deals we work on for a number of years before something happens. It doesn't mean that something just doesn't drop in at one given time. But I think that with a Build Back Better plan that got put on hold, it's giving some people that we're really contemplating selling the opportunity to really get out, considering paying a 20% capital gains tax instead of a 40% capital gains tax. So I think you got that. I think going to see -- I think you're going to see a very vibrant -- I know last year was very vibrant. I think this year is going to be as vibrant of a year in M&A. I think you're going to see a lot of it. There's a lot of stuff out there.

Okay. Okay. What are just turnoffs maybe for you, Ed -- turnoffs from potential sellers? Why would you pass on a deal that might make sense? But for one reason or another, you get a bad feeling. Give me an example of that.

That's in culture. The culture doesn't fit, don't bother. The lending culture, the people culture it's got to fit. That's number one. Number two is usually just the price. I mean, [indiscernible] can solve all yields, good right up front. But people -- they just -- they want a lot of money for little banks. It's like which is going to figure out that I'm the only guy around, and they're up right in my stack, but it's -- it's similar to -- well, at least I got [ 1 8 ] or [ 1 9 ], good for him. I'm not going to pay that. So, we keep in touch and here it goes. The thing that turns me off is people who worry about themselves before they worry about their shareholders. I said this our conference calls, I've seen a lot of bigger deals happen in Chicago. The hands would touch their deal and then screw the shareholders. That would be the other way around in my book. I mean, when you start something from scratch like we did. Sure, I had to go raise money. They're betting on me. I didn't get people, they're betting on me, communities we serve that I knew. And the -- some of these deals it's all about -- answering also a ton of money. Shareholders could have done a lot better than they did. It drives me nuts. But maybe I'm just too much of a purist, but you got -- management has to be last in the deal.

Johnny, the AAA, anything that's the pet peeve that turns you off in a deal or a negotiation?

Absolutely. We don't dilute. And I don't believe in 3-year earn back, 5-year earn back, I think that's pure BS because who's ever tracked that? Name me one analyst, Jon, that's ever tracked that. They don't track it. Nobody keeps up with it. And the funds that are in those deals are gone before the sun comes up the next morning. And then they're arming the stock. It's made it difficult. It's made private deals look better to me than public deals have been in the past. And we just don't dilute. I mean when we did the Happy deal, the thing about Texas, Texans are proud and they've got good banks in Texas, but they're all 2x tangible book or better. Well, that didn't work for me. That was diluted to me, even though I carry a stock price that's north of 2x tangible book. That didn't work for me. So I said, here's what we can pay. But you got to think about a deal now with the investment bankers. And with the CECL reserves, you got to take a deal like heck -- you've got to take $100 million out of the deal to start. And then you start telling what you can give them for their buying because that's the way it has to be done if you don't want to lose your shareholders. And the good side about the Happy Bank transaction is Pat Hickman, who was the Chairman and Founder of that organization, understood the deal. So that helped me get the deal across. And I think we paid [ 1 8 ] or something for the trade. And it turned out to be the second bank in the last 18 months, it went up on announcement because most M&A deals do not work, period. They don't work. They haven't worked since 2010 because you dilute the buyer and you just -- a seller comes in and said, "Hell, I got 2.2x tangible book. He's just shooting himself in the foot. That's all he's doing because he's shooting his buyer in the foot and both of them pay the price for it and the stock goes down, and that's what happens. Watching the Happy deal led to a bunch of deals coming back to me that people wanted 2x tangible book and said they wouldn't sell for less than 2x tangible. But suddenly, they saw the Happy deal, and they saw how The Street rewarded that transaction, one of the best rewarded transactions in years. So that gave some life to M&A for David and me in that market. Because he'll tell you, they all want 2x tangible book. But now my phone is ringing from some of those guys that wanted 2x tangible book for less than 2x tangible book because they've seen what happens, they've learned. And I think there was just a piece written by Travillian Group talking about these deals and how they've worked over a period. M&A may be back based on homes deal based on another deal. So anyway, nice complements on the deal, but we do not -- why would I dilute myself? I'm the largest individual shareholder. I'm not going to dilute myself. So I'm not going to dilute my shareholders. So the deal either works or it doesn't work. If they put me in a diluted position, I'm out. Take me out, take my name off the list. Otherwise, we'll try and make the transaction work.

Okay. David, anything from you? I mean, you've done some great deals in your career.

Yes, 40-something of them. Two were bad or not -- socially, financially, they all worked out. But for the most part, I'll say the first thing that the more I pay for the bank, the better the deal was, the cheapest one I gave -- I got, I would give back a couple of times. But the bank is good. I don't mind paying for a bank. But one thing that's really the most important to us, and I think, as Johnny and Ed both said, you can't just take everything out of the bank and not leave anything for the shareholders. And I think the thing that's really helped us a great deal is the people. We have people that have been with us since my first deal. And if you can't get the people to stay with you and help you build it and help build shareholder value, it's meaningless. But from the time we merged with Heritage Bank and gosh, in 2001, Tim is still there. Eddy is still there from the Austin deal, legacy [ W Archive ]. I can go on and on. There are so many people that have been with us and they've helped us build this great organization. And I think -- that's just the most important thing there is to be able to keep these people and help them build it. And then I think on the other side, we -- you probably asked this question, nobody really answered it. What would we ever consider selling and what's the market for us? Sometimes -- I think you kind of implied in there. I'd say we've always been lucky that living in the center of Western civilization and cultural enlightenment as we do, we've always had an opportunity. We've always had an opportunity for people to come in. And I -- and really what they're willing to pay, right or wrong, for a bank like us has always been quite a bit. And I've always told everybody that the bottom line is we wanted to continue to build and continue to build something up. But it doesn't mean someday, but we are lucky that our valuation, for the most part, always does stay pretty high, probably because of where we're at, a lot.

All right. Ed, any thoughts on the big mergers that are going on out there? Does that interest you at all? And do you think these big mergers will work?

No, I don't. I think they will all survive, but they will work. I mean, the cultures are just too hard to get together and -- I don't know. I'm with these guys on dilution. Look at the banks that end up selling -- my competitors end up selling the larger banks, lived on diluted deals off accretion, you're 5 years worth of earnings on the back end make $0.50 more -- $0.50 accretion. Accretion runs only we had to do a bigger deal. If they take in both. I'm not going to do that. These big deals are -- again any discussion we have guys [ trying to marry me with guys ] Immediately what I talked about, what's in it for them? Not the shareholders, what's in it for them? And that drives me nuts. It should be -- well, since you are our shareholders when I talk about. It turns me off right away.

Okay. Ed, what do you think we're going to be talking about in the year? I mean we -- last year was credit, high reserves, no growth, margin pressure. Now we're talking about growth margins going up? What do you think are going to be the top 1 or 2 things that we'll be talking about in a year?

[indiscernible], all this talk about Johnny's Happy Home Bank, right?

Happy Home.

Happy Home.

Johnny's Happy Home Bank. Is that you're going to call it?

Happy, happy home.

You'll be talking about inflation for sure. The cycle is here. It's not transient, never was. I heard it was transient. I was like, my ass it is. Then they way they were give the wages back, the raises back at a given. Inflation is here, it's going to be an issue, supply chain, if this keeps going out over and who knows if this is going to get bigger or smaller, whatever, supply chain is still an issue. So I think that we're talking about good things for banks like us, like the 3 here because -- we don't think we're smarter than the market. I mean take what the market gives you, don't be a fool. I invested at all by $6 billion, $7 billion in liquidity, made more money last year. Yes. But an idiot to do it. Just got to think what the market does. Don't think you're smarter. I think we'll be talking about inflation and -- and Johnny is the Happy Home Bank.

Johnny, anything to add? What are we going to be talking about in the year, almost out of time, but...

I think you hit some bullet points. It's like we're -- somebody will be talking about inflation. I think it's going to be strong. We're going to be talking about interest rates. We're probably going to be talking about cost of deposits, could -- I hope not, but we couldn't be talking about cost of deposits. We'll always be talking about mergers and acquisitions and what's going to happen going forward in the future. I hope we're not talking about World War III. I hope that doesn't get to that point. I don't want to worry about the Ukraine situation, with Putin. And I think it's horrible. What's going on there. I just can't believe that killing those people be tearing that country apart. But life goes on. And hopefully, this will be the end of it. He won't go -- we move on into Poland or somewhere and get us involved in it. Hopefully, it will end at this point in time. They can be disastrous and take all our stops down regardless of how we perform and what we're doing. So I think that's probably the topics. Inflation certainly will probably be #1. I just think it will. Politics will probably be in there, too, because if the Republicans win the house, what your peers are going to in November '22, then it will be a little different world and if the Republicans keep the Senate, too, at that point in time, it will change the world. And I'm glad to Build Back Better bill didn't go through. I'm afraid that would have created massive additional pressure on inflation. And I'm glad that didn't happen. I appreciate the centers from West Virginia for what he did and the other lady from -- I don't remember where she was from, but anyway I'm glad we shut that down and glad that didn't happen because we just -- suddenly, we got people. One the thing I'm seeing, though, we've got people who have never had money. They've never had money and they got all this free money in, and they're not spending it. They're absolutely putting in a bank account and they're protecting it, and they're not spending the money. I read a piece the other day, though, Jon, you'll be -- you'll chuckle what this deal said, but rest assured, Americans will go in debt and be borrowing other people's money pretty soon. So I don't know if that's right or wrong. I don't see it in our organization yet. I see people sitting on the money.

Okay. David, anything to close it out with? Anything you want to add?

Well, yes, Ukraine is going to be the main deal. But if we can ever get through the Ukraine, no question inflation, rising interest rates by the Fed, recession and then building back the economy again, it will start going again. I think you'll see a cycle right in there like that.

Okay. All right, guys. Well, year 15 is in the books. I appreciate this very much from all 3 of you. And thanks for participating. I appreciate it.

It's...

Where did you get that shirt, Johnny. I need to had shirt like that. Where I can get that at?

Like this shirt.

I liked that shirt. What is that? I can't see it.

It's Robert Graham, which is probably over your expense account.

Batteries going out of, Johnny. Little batteries are running on that shirt.

I buy one and send it to you all. What do you all need, smiles? Yes, both big smiles.

No extra large.

This is a man's size. It's probably too big for you. So...

I'm just told you when I leave the meeting it's over. So we'll see you guys later. Meeting adjourned.

Thank you.