Home Bancshares, inc (NASDAQ:HOMB)
Q2 2021 Earnings Call
Jul 15, 2021, 2:00 p.m. ET
- Prepared Remarks
- Questions and Answers
- Call Participants
Good day, and welcome to the Home BancShares, Inc. Second Quarter Conference Call. [Operator Instructions]
I would now like to turn the conference over to Donna Townsell, Director of Investor Relations. Please go ahead.
Donna J. Townsell — Senior Executive Vice President and Director of Investor Relations
Thank you, Rocco. I am Donna Townsell, Director of Investor Relations. And our management team would like to thank you for joining our second quarter conference call.
Reporting today will be our Chairman, John Allison; Tracy French, President and CEO at Centennial Bank; Brian Davis, our Chief Financial Officer; Kevin Hester, Chief Lending Officer; Chris Poulton, President of CCFG; John Marshall, President of Shore Premier Finance; and Stephen Tipton, our Chief Operating Officer.
Before we jump into the numbers, I wanted to highlight a couple of developments that occurred in the second quarter. First, you may have seen our announcement earlier this week, where Home’s wholly owned subsidiary Centennial Bank announced the appointment of a new Director of Corporate Social Responsibility. This news highlight our intention to enhance the development of strategic initiatives supporting Centennial Bank focus on environmental, social and governance topics.
While these pillars of corporate citizenship have always been important at Centennial, we feel like a more formalized programs will ensure that we continue to keep ESG top of that. Also there continues to be discussion around Fintech partnerships. Home recently joined in with 65 other banks to form an investment fund designed to help accelerate technology adoption at community banks across the United States. The partnership brings together seasoned Fintech entrepreneurs and banking experts to invest in the next generation of companies, changing the way, financial institutions and their customers move, track and interact with money. These are just a couple of examples, that show Home’s desire to continue to be one of the best banks in America.
Now to transition to what you called in for, our first report of the quarter will come from our Chairman, John Allison.
John W. Allison — President and Chief Executive Officer
Thank you, Donna. That’s pretty exciting about the Fintech, it’s a good — somebody to hit ESG for us. I think those are positive developments for our Company. Good afternoon, everyone. Thank you, Donna, and again welcome to Home Bancshares second quarter 2021 earnings release and conference call.
The performance of the second quarter was another solid quarter for our Company with $0.48 of EPS and $71.9 million in profit, net asset quality and decent expense control. Loan demand is the frustrating part of the equation, while sitting on $2.7 billion in cash, in a reasonable place to invest for a decent return, we’ve decided to hold close and be patient, and do not set our future. We might be wrong, but it is a decision that we made and we’re holding tight.
If we’re right, we think we’re only six months away from rising rates, which may include an earlier period of time of tapering in purchases by the Fed. I pay a lot of attention to Jamie Dimon, and I agree with what he said. He’s sitting on $500 billion and he says, patience is certainly the key here, because rates are going up. As I said in the first quarter, we have the wind on our back and a lot of things that we’ve been working on came home to us amid, that is upon Home.
During the second quarter, we had the breeze to our back, with continued income from investments we made last year. Since going public in mid-’06 [Phonetic] we together have been through the worst financial collapse — worst financial collapse, it’s a Great Depression. And the worst pandemic, the world has ever known might be worse than the one in 1970. My other way as you well know, throw in a couple of hurricanes in Florida during that time. These huge events created fear, uncertainty and lots of anxiety for all Americans as well as people throughout the rest of world.
I want to thank you all for your support during these very difficult and stressful times. In addition to that — to all the events that happened, we were going over $2 billion — $10 billion and incurred addition of $2 billion, that one itself, with more than $2 billion, but $10 billion was a big mark for us. And all the associated expenses, the adjustment for $10 billion, took us longer and cost more than we ever anticipated. New terms to our vocabulary last year, infra’s risk management, CFPB say, just to mention a few. Actually wanted less than five minutes was spent on capital earnings, asset quality, margin and liquidity. I thought, these were the most important components to running a successful and profitable banking-mortgage say.
The other 15 minutes, finds very hard over for the last four, five years. Through all we have seen in crazy times, Home has continued to produce peer leading results with always run it from what 180 to 190, and some over 2%. We’ve managed, held through the process regardless of pandemic, hurricanes or COVID-19 viruses, where the business was good or bad regardless of interest rates going up or going down. Our adjusting to what plan of attack than are managing the size, that’s what good management teams should be doing.
Let’s take a walk back over the last 3.5 years, 2018, 2019, 2020 and the first half of ’21, and I think you’ll agree with me, that’s a consistently of Home’s earning is impressive even without all the unusual circumstances we found around us. And risk in 2018, ’19, ’20 and ’21. So in 2018, we did a tool non-ROI, these are adjusted numbers. We did until now in 2019, a 196; and 2020, 192; in the first six months of this year, 197. That converted into income of — in 2018, $303 million, in ’19, $294 million, in ’20, $309 million, and the first six months of this year $167 million.
The total revenue — total revenue mix after interest expense experiences was $663 million in 2018, $662 million in ’19, $694 million in ’20, and $365 million in ’21. I think you have to agree with me that these numbers are pretty impressive and shows the stability of this corporation and how the management team adjust those situation that’s in front of us. I cannot ask for much more performance than those impressive numbers. As a result, we decided to pick-up our M&A ahead. M&A too allowed the toolbox.
We worked on a couple of interesting opportunities, but to know well so far, I was visiting with a very small good friend in the money management space. And I was telling the difficulties we were gone through, I told him as it appears, that the bankers are screening all by to see who can pay the highest price. And then they go out to potential sellers and say, hi, look on which Home can pay for your buy or someone lack on. There’s not many lack on, but there is a few of us that trade in a pretty high multiple tangible book. It’s almost like a pocket listing, in a real dress when the potential sellers — my hands not foreseeable, if you can get somebody its pricing up by this price. He said, then my house would be for sale and you can sell it, like a real estate pocket list.
My friend laughed and said, they don’t work, and has a lot done more, he said the M&A deals just don’t work. He went back to 2010, looking at all transactions and there were very few that worked, very interesting comments. He said, own announcement of the deal bank A and bank B, he sells the seller immediately, and shorts the buyer. I asked why would you do that, and he said that’s probably the highest perhaps the seller is going to have, and expect it to go up, because it has — it’s tied to the buyer’s price. And he subsides that, I don’t get paid until our sale in cash, the money, he said 98% of the deals are dilutive to the buyer if it’s a three or four-year earn back to tangible book.
Why would ask around for four, five years, waiting for that our own back, to come back to get someone back to EBIT. The only deals that make good sense are non-dilutive transaction, that had all the deal cost calculated into the transaction and experience acquirers, he said you will now hear this from an investment banker. But remember they don’t get paid — they get paid whether it works or…
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