Home Bancshares, Inc. (HOMB) Q4 2021 Earnings Report, Transcript and Summary

Greetings, ladies and gentlemen. Welcome to the Home Bancshares, Inc. Fourth Quarter 2021 Earnings Call. The purpose of this call is to discuss the information and data provided in the quarterly earnings release issued this morning. The company presenters will begin their prepared remarks then entertain questions. [Operator Instructions]. The company has asked me to remind everyone to refer to the cautionary note regarding forward-looking statements. You will find this note on Page 3 of their Form 10-K filed with the SEC in February 2021. [Operator Instructions]. This conference is being recorded. [Operator Instructions]. It is now my pleasure to turn the call over to Donna Townsell, Director of Investor Relations.

Thank you, and good afternoon, and welcome to our fourth quarter conference call. Reporting today will be our Chairman, John Allison; Tracy French, President and CEO of 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, Chief Operating Officer. At this time, I will turn the call over to our Chairman, John Allison, to share about another record-setting year.

Thank you. And welcome and thank you all of you for joining the fourth quarter and full year 2021 earnings release and conference call. The fourth quarter along with the year of 2021 is now in the record books, and we're off and running on 2022. The fourth quarter and the full calendar year of 2021 earnings were both records for our company. We had strung together 4 quarters earlier that added up to $2, but not in the calendar year. The earnings for the fourth quarter of 2021 were $0.45 per share or $73.4 million, and for the calendar year, a record $319 million or $1.94 per share, both of which were records. And by the way, this is the fourth year in a row that your company has had adjusted earnings in and around the $300 million mark, while most 2 years or more of that has been in the middle of this pandemic. I'm pretty proud of that. And while carrying the extra $3.4 billion in excess cash, that's earning virtually nothing. In spite of that, we beat on total revenue, quarterly EPS and total EPS and earnings for the year. We did not sell our future by deploying excess cash in the 2% loans and 1.25 securities. I can assure you it would have been much easier for us to have not remained disciplined invested the cash, but we believe if we were right, this may be a generational opportunity, and I'll talk more about that in a little bit. I set a huge generational opportunity to deploy all of the excess cash at much higher rates. I guess that's the businessman in me coming out. We believe the Fed cannot continue to print funny money to flood the system without someone paying a huge price and that's exactly what's happened. The American consumers getting killed with pricing today. I think you'll agree, and it appears we were correct on the call and hopefully will be vindicated over the next 3 years as we put the money out at much higher rates. The bank that held our cash that reaped the dividends and higher earnings has translated into higher stock prices for those that show patience, those that invested in long-term low rates and made loans at much lower rates can just watch the show through the window. It's called inflation and likely could be a runaway inflation, like, it was in the late '70s and the early '80s. When in 1981, the 10-year hit a interday peak rate of 15.84%. While the record for the 30-year treasury issued on February 5, 1982, was 14.56%. The Fed was certainly asleep to switch then, and these times are similar and remind me of those days. I guess you'd say, if it looks like a duck and walks like a duck and quacks like a duck, it's probably a duck. I am hearing for the year 2022 the expectations of 3% to 6%, and I've even heard 7% now. So 25 basis points per move up 75 to 150 total. I think the Fed has played this game to keep rates down way too long, and they're way behind the curve just like they did in the early '80s. They're going to dance, you don't have to pay the price. Having not invested the excess debt, I believe Home is in a really strong position for many years to come, that is if history repeats itself. And if it doesn't, we still have the fortress balance sheet to look for opportunities. Having $1 billion or $2 billion invested at those high rates could pay dividends for our shareholders for a long time. I believe we've been dancing on the point of a knife, and it will require very careful corrections and years of higher rates to stem the tide of inflation. Having a fortress balance sheet with lots of capital, best-in-class asset quality, tons of liquidity will certainly be a blessing for our company when the opportunities come out on the rise. When you think about the strength of the company, we're 471% to nonperforming. We ran a 1.62% ROA, but you pull out the liquidity and you're back to 2%. Efficiency kicked up a little bit at 43.79%. We had some merger expenses in this quarter's operation. Tangible common equity and tangible asset of 10.36% and a 2.43% reserve to loans, that equates to $236 million. Home is ready to whatever happens, good or bad. We did not get into this great financial position overnight. But I like our balance sheet's position today, particularly during this pricey inflationary period. There is no substitute for experience, and our mentor, Kemmons Wilson, the founder of Holiday Inn, would say that. The calculated moves that we have made over the past period of time could be powerful for us in the future. If not, we refinanced our sub-debt from a fixed rate of 5.625% to a rate of 3.125%, say, 2.5% annually on $300 million for 5 years. That's a $7.5 million reduction annually or $37.5 million over 5 years. That's win-win. We have not paid off that sub-debt. We're looking towards April, Brian?

That's correct.

So that comes up -- we got the money now. We didn't wait until April because we thought rates were running on us, and we'd have to pay higher price. These were some of the thoughts that we discussed with our executive team and Board that led to the decision to issue the new $300 million sub-debt. I don't feel bulletproof. I'm pretty darn close. There is no substitute for having financial strength. If you need the money in tough situations, it's hard to get or very expensive. As Alex Lieblong told me that if you can get the money now, get it. So he's been a good strong Director for us for many years, and that was what I was looking for. Well, we got it, and I'm glad we did. We're looking forward to closing the Happy Bank pretty soon Tracy and Happy's Mikel are way down the road on closing and ready to execute once the deal closes, if I understand correctly. We have shareholder approval from both Happy and Home sides, plus the Arkansas State Bank Department, just waiting on Fed approval, hopefully, not too long from now. The combination will take us to almost $25 billion in total assets or close to 2,500 associates. Many of you have been on this journey since the start, and many of you joined us in 2006 when we did our initial public offering. To all our supporters, employees, shareholders, thank you, and I hope we provided you a Happy Home. Did you get that Donna, Happy Home.

I got. I love that. It sounds like a great year. Congratulations to all, and it sounds like more good things to come. Now to drill down to the Centennial Bank level, we will hear from Tracy French.

Thank you, Donna, and good afternoon to all. It was a happy end into 2021 for Centennial Bank with new high marks on revenue and net income. Every community bank region, along with our specialty groups had a superb year. As you heard Johnny report the powerful numbers for Home Bancshares, let me share a little color on how Centennial Bank finished going over $18 billion in total assets. Our total revenue set a high mark of $721 million for the year. With our continued focus on interest income and interest expense, along with our noninterest income and noninterest expense, the bank's ROA on average assets, excluding intangible amortization, non-GAAP, finished the year at 2.07%. The bank's efficiency ratio ended 2021 at 38.33% and the Allison P5NR wrapped up the year at 60.51%. Noninterest income remained steady throughout the past 3 months of the fourth quarter and actually finished steady for the year. That took a lot of effort by all Centennial Bankers to make that happen. Noninterest income was up 14% year-over-year. The bank's noninterest expense was up just a tick with our continued efforts to maintain our data integrity, effectiveness in staffing, both of which have us set for future growth. All in all, our return on average assets, excluding excess liquidity, was constantly above 2% and ended the year at 2.23%. 7 of our 12 regions finished the year with over 2% on core ROA with Central Florida and Northeast Arkansas leading their respective states. And by the way, the excess liquidity that Johnny mentioned that some regions have developed because of the core relationship didn't hit the 2% mark. And when you look at that, Johnny, that's really a good problem. Overall, your bank's loans, deposits, capital, risk management and asset quality are in pristine position for whatever the future holds. And speaking of the future, Pat Hickman and Mikel Williamson with Happy State Bank have been working well, along with the rest of their staff on our future in Texas. We could not have asked for better team efforts in both Centennial Bank and Happy State Bank and what is going to be complete. The 2 groups, without a question, will take our company to the next level. Donna, all happy at Centennial. Thanks.

Good to hear. That's a great report, Tracy. A great year. Now we will turn to Brian Davis for his financial report.

Thanks, Donna. Today, we reported $139 million of net interest income and a 3.42% net interest margin for Q4 2021. Our fourth quarter net interest margin decreased 18 basis points from Q3. Today, I'd like to go over a few NIM items. First, during the fourth quarter, we had $129 million of PPP loans forgiven. This forgiveness causes the acceleration of deferred fee income for the loans forgiven. Our PPP deferred fee income decreased $3.9 million from Q4 to Q3. This change in PPP was 7 basis points dilutive to the NIM. Second, as a result of excess liquidity, we had $347 million of additional interest-bearing cash in Q4 compared to Q3. This excess liquidity was 7.4 basis points dilutive to the Q4 NIM compared to Q3. Third, there was income in the margin for Q4 of $1.2 million compared to $3.5 million for Q3. This had a negative impact to the Q4 NIM of 5.7 basis points. Accretion income, fourth item, was $4 million compared to $4.9 million for Q3. This had a negative impact to the NIM of 2.1 basis points. Finally, on NIM, from historical reference point, the Q4 excess cash versus the historical normal cash balances has a negative impact to the Q4 NIM of 78 basis points. I'll conclude with a few remarks on capital. Our goal at Home Bancshares is to be extremely well capitalized, and I'm pleased to report the following very strong capital information. For Q4 2021, our Tier 1 capital was $1.9 billion. Total risk-based capital was $2.3 billion and risk-weighted assets were $11.8 billion. As a result, the leverage ratio was 11.1%, which is 122% above the well-capitalized benchmark of 5%. The common equity Tier 1 was 15.4%, which is 137% above the well-capitalized benchmark of 6.5%. Tier 1 capital was 16.0%, which is 100% above the well-capitalized benchmark of 8%. And finally, the total risk-based capital was 19.8%, which is 98% above the well-capitalized benchmark of 10%. With that said, I'll turn the call back over to Donna.

So do you sleep well at night, Brian?

I'm sleeping pretty good with these capital ratios.

I hope so.

And I'm sleeping well with all the excess cash, and I'm sleeping well with our reserves, too. So...

We'll catch on Friday. I'll be glad when we get back to some days where we can tell what the NIM is because you were batting plus or minus, plus or minus, plus or minus. So be nice sometimes to get back to where we can say, you can say the NIM before the quarter was this.

Right.

Well, thank you, Brian. I'm glad that you are well rested. And now Kevin Hester will update us on the loan portfolio.

Thanks, Donna, and good afternoon, everyone. This quarter continued a strong loan production trend that we saw begin late in the third quarter, which resulted in organic loan growth of $64 million ex PPP forgiveness. Payoffs continue to be elevated, which offsets the stronger production. Chasing loan growth is tempting, but we continue to be patient maintaining our conservative underwriting as we know the potential for rising interest rates must be considered in projecting future credit trends. PPP loans forgiven has slowed to $129 million in the fourth quarter, and that leaves us with only $116 million remaining or less than 10% of our total fundings from all rounds. COVID-modified loan balance has dropped by $37 million in the fourth quarter to $191 million. Hotels make up over 75% of that balance, and their overall recovery is still underway. As we said last quarter, our monthly tracking shows solid improvement across the board in 2021, and we feel very positive about the prospects for these credits in 2022. Movement back to P&I payments will be required before any distributions can occur, and we see many with the pathway to that occurring with a solid spring season and/or increased travel. Our credit metrics were largely unchanged in the fourth quarter with nonperforming loans and assets both remaining flat at 51 basis points and 29 basis points, respectively. The allowance for credit losses coverage improved slightly by 3% to 472% of nonperforming loans. Early stage past dues remained low at 0.40% and OREO is almost nonexistent. We appreciate our credit positioning heading into a rising rate environment. As we enter the New Year, our conversion teams have dusted off their playbooks and are preparing to execute another solid set of plays, this time into Texas. We are actively working with our Happy counterparts to lay the groundwork for a successful combination. With that, Donna, I'll turn it back to you.

Thank you, Kevin. And now from New York is Chris Poulton.

Thank you, Donna. Q4 results reflect a successful end to what was a successful year. Net loan growth for the quarter topped $287 million, bringing overall growth for the year to $388 million. We ended the quarter and year with loan balances of just over $1.9 billion. New loan commitments for the quarter were $226 million, putting our total production for 2021 over $1 billion. At year-end, our unfunded commitments stood at $850 million. Looking forward, we expect to continue to selectively originate high-quality loans, and we start 2022 with an active pipeline. I do expect to see payoffs accelerate in the early half of the year as certain borrowers may look to lock in low or lower rate permanent financing in anticipation of higher rates in the future. We remain pleased with the size and shape of the existing portfolio. Over the course of the year, I would anticipate a bit more ebb and flow in the portfolio side, however. In general, we are optimistic about maintaining and moderately expanding our portfolio between now and the end of the year. Back over to you, Donna.

Thank you, Chris. Now we'll have an update on the marine industry from John Marshall.

Thank you, Donna, and good afternoon, everyone. December closed down an adventurous 2021 voyage in the odd finance world punctuated by record industry sales that led to record loan production at shore. The resumption of European factory shipments of new boat inventory in late 2021 led to the originations of $160 million for shore in just 4Q '21, sort of, split evenly between commercial mortgages and consumer mortgages. This $160 million in originations compares to quarterly production of $90 million since the pandemic began and $50 million quarterly production pre-pandemic. Asset quality has only improved in this environment with nonaccruals beginning the year at 21 basis points and concluding the year at 17 basis points. Remarkably, the delinquencies were similarly reduced from 18 basis points to 2 basis points during the year. Shore never originated any PPP loans, and all deferral programs were sunset in 2020 without incident. FICO scores remain super prime at 776, unchanged from the prior year. Last year, as new boat dealer inventories evaporated, we observed a mix of retail loans shift from 50-50 new boats to use to a 40-60 split between new to used. Illustrating the natural affinity to Centennial Bank's footprint, our largest concentration by state is Florida with just over 19% of our exposure, and coming in at fifth place is Texas, with just right at 5% of total exposure. Donna, perhaps the best barometer for a 2022 forecast is reflected in North American dealer sentiment, which we've seen new boat orders jump 20% over prior year. We are well positioned to rise with the tide. With that, thank you, Donna, and I'll return the conversation to you.

Thank you, John. I appreciate that information. And our final report today will come to you from Stephen Tipton.

Thanks, Donna. I'll give the standard fare on deposit activity, repricing efforts and trends and a few additional items. We saw continued increases in total deposits during the fourth quarter of 2021 with in-period balances increasing $257 million from September 30 at a year-over-year increase of $1.53 billion or 12%. The growth in the quarter was led by our Florida regions with over $200 million as some seasonal increases combined with the continued robust economy in all parts of our Florida footprint. Switching to funding costs. Interest-bearing deposits averaged 21 basis points in Q4, down 2 basis points on a linked quarter basis and exited the quarter in December at 19 basis points. Total deposit costs were 14 basis points in Q4. While the continued increase in our deposit base present short-term challenges for deployment and places pressure on the loan-to-deposit ratio, it's great to see the health and resiliency of our customer base and the local economies that we serve continue to grow. As Brian mentioned in his remarks, when normalizing for the impact from PPP accretion, event income and the excess liquidity, we would have seen slight margin expansion, which we're extremely pleased to see. The first half of 2022 will be exciting as we continue to work with our Happy teammates towards a successful closing and prepared for a systems conversion midyear. Congratulations to all of our teammates on a solid quarter and another great year. With that, I'll turn it back over to Donna.

Thank you, Stephen. Well, Johnny, before we go to Q&A, do you have any additional comments?

Well, this is an excellent year, Donna. It was -- congratulations to everyone. Our shareholders are happy. We end the year as strongly, as financially, as this company has ever been in the history of it. You heard Kevin talking about asset quality and Tracy talking about the operations and Brian talking about the capital strength. It's been -- you heard Chris Poulton's fourth quarter John Marshall's report. I mean the company is hitting on all 8 and I'm really proud of that. So hopefully, '22 will be our year and rates keep going up. That's -- when I say that, they're supposed to play there. They said when rates went down and what it did for banks, the bank stocks went down. And then now, today, they kind of softened a little bit on the rate, on the 10-year, and they took bank stocks down yesterday. So I don't get it. I mean that's kind of funny to me, that's the way it works. But I think it will be a good year for those who have a lot of powder to fire will have a good year. So I'm ready, if you'll take us back to the operator.

Okay. Thank you. So at this time, we'll go back to the operator and open it up for Q&A.

[Operator Instructions]. Our first question comes from Matt Olney from Stephens Incorporated.

Thanks to all the commentary around inflation and Home Bank's excess liquidity position. Any more thoughts on just how close we are to seeing some deployment of liquidity? I mean if the 10-year treasury yield hits that 2% level, do you think that's a signal for a green light to start pulling a portion of this? I'm just trying to get a better feel for how close you are to doing something on that front.

Well, I would think that we probably start furthering some stuff into securities when we see the 2% that -- of course, we're hitting pretty close to that right now. I think, Brian, would you say 1.95%, 1.96%.

Yes. We're averaging about 1.96% this particular month for January with a little over 4% duration.

So we're kind of hanging in some good opportunities here, I think, for us, and we don't want to deploy it too quick. You put it in too quick and you miss the window. We were, as you know, pace it for 18 months, almost, and we don't want to put it in too quick. But we want to try to maximize. I'm not going to try to get the CD at 14.53%. I mean the U.S. government 30 years at 14.5% or 14.7% but I'd like to get something little higher.

Yes. No, understood. Understood. And I guess changing gears on capital. We talked a few months ago about potentially paying down that $300 million sub-debt in April with cash on hand, but it sounds like you pivoted essentially -- you're going to refinance that debt, and listening to the commentary, it sounds like the pivot was based up expectations of higher rates. Anything else we should be mindful of with that strategy? Did it speak to M&A? Or does this speak to anything else that you're seeing out there besides interest rates?

Well, we -- you're right, we did pivot. We did pivot. We really just paid off that sub-debt and not issued new debt. And we ran around here for a month talking to our sales about it, trying to figure out what was in the best interest of the company. And we decided to go ahead and execute the sub-debt early because if we waited till April, we could be back in the 4% range or higher. So we thought it was probably smart to go ahead and do that. It saves us $37.5 million, regardless. It is our intention to pay off the balance, the old sub-debt in April, unless something changes, that's our plans. And in addition to that, I think Brian has about $93 million, Brian? Is that about right?

It's $71 million of TruPS that we have, and we're going to inherit $21 million of TruPS from Happy to get to the $90 million.

Okay. So it was a change, and it was after much deliberation around our Board table or our executive team and discussions with several of our Board members that led us to that decision. I think it really has to do with strength in this market. I'm not sure if you believe we're dancing on the -- or standing on the point of an app, it's something that's going to break somewhere. I would have liked to have had it in '07, '08, and I would like to have the additional capital in '18, '19, '20 when we hit the pandemic. So are we through all of that? Are we -- if we need the capital, we'll have it. And if we don't need the capital, we'll save $37.5 million. So I kind of looked at it, and it is a win-win and ended up with a fortress balance sheet. I don't know if I should get a better balance sheet. There might be somebody with a better balance sheet somewhere. But I think people are going to buy value this year because Home Bancshares is, certainly, if you're looking at strength and quality and the fourth year of $300 million plus and record earnings, I think Home is a place to be. And we'll deploy more or less money this year. We will deploy more of the money this year. So you can expect that to hit the market at some point in time. We probably haven't yet though. We haven't really spent not a penny of it yet, and we're up to what now, 3 what?

$3.8 billion in cash at the bank.

We'll be putting some of it to work. Tracy, you good with that.

Yes, sir. I'm gaining more [indiscernible] this time to do something.

Crazy for a dollar throughout his head, Matt, as you know, over this deal.

[Operator Instructions]. We now go to Brady Gailey from KBW.

So we saw -- ex PPP, we saw positive loan growth this quarter, which was the first time we've seen that in the last several quarters. I know CFG was a big piece of that with the nice growth that they have. But we're starting to hear a lot of your peers talk about better loan growth as we head into 2022. So I just want to go, Johnny, you're in a great market here in Florida and soon to be in Texas, which I think everybody expects to be kind of above-average growth markets. How are you all thinking about kind of loan growth going forward?

Well, I think Happy was up about 10%, weren't they? Tom?

Yes, sir.

Yes, they were up about 10% for the quarter over the last 2 months, and they had a fairly good growth. And Kevin, do you want to talk about what we're seeing?

Yes. I mean it's just challenging with everybody having the same relative liquidity that we have to do that, then you're just going to have to play at low rates and the higher leverages than we've historically been willing to do. It's there. I mean there is growth there, but it is at a different level than we've been wanting to do in the footprint.

We just had a customer who been with us five years on two hotels, and he had -- one of them had $7 million worth of mez money in the deal and another one had $5 million worth of mez money. Well, you can imagine, through this crisis, they haven't paid down their principal very much. But their mez money was due at 5 years. They supposed to come out. So they came to us, we adjusted the loan in the $5 million of mez in 1 hotel and $7 million of mez on the other hotel. Well, suddenly that takes you to 85%. Well, they got it done. We didn't do it, but they got it done. I don't know if this is the time. That's a scary thing you're seeing out there, as Kevin said, is a leverage. That's the scary part of it. They'll just stepping up, stepping up. And I think I told them on the last call, we saw the most egregious hotel loan that I've seen in my banking history in the last quarter where a hotel was -- we had $12 million of loan, and it ends up loaning north of $40 million over the same hotel. So you just got to be careful. I think it's going to get better. We'll put more in the securities during this period of time as the rates continue to go up. We'll continue to build back. And from an origination point, Stephen, you want to talk about how much were you saving?

Yes, we did -- I think it was a little over $900 million in Q4. We did about $1 billion in Q3, but then all the prior quarters -- the 3 prior quarters to that, we were in the $600 million to $700 million range. So in the last half of the year, certainly, production both for Chris' group and really all fronts were stronger than what they were in the first half of the year.

Yes. We've worked hard to build a good book of business. We built a good book of business, and I told Kevin and I said, "Let's stop losing loans, let's don't lose any loans from hereon. If we got to step up anywhere near reasonable, just step up and let's keep those loans and we'll put new stuff on at higher rates." So that's probably what you're going to see, and we'll see a little more activity out of us, trying to keep the loans on the books. We know they're good loans, and they're just -- people are just stealing the loans. So you'll see us get a little more active on that side. I think it's a plus for us. Hopefully, we'll be able to put a little more money in investments here for loan. And originations are holding in there pretty good. Actually, the first quarter was pretty good.

All right. And then my next question is on fee income. I noticed other service charges and fees stepped up pretty nicely linked quarter, a little over $11 million in the fourth quarter. Was there anything special mentioned in that bucket in the fourth quarter?

This is Brian. It's mostly 100% related to some additional fees at CCFG and Chris Poulton is on the phone. So Chris, that actually is all related to your $3 million of additional income this quarter, if you want to elaborate a little bit on it.

Sure. Fourth quarter, we generally have pretty good fee income quarter. End of the year, a number of things need to happen on loans and sometimes people expect to get things done by the end of the year and they can't and they need a little extra time, and we're usually happy to oblige but for a fee. So I think if you look back historically, fourth quarter has usually been pretty good fee income for us. And then I think as you look back over the last couple of years as well, our fee income doesn't come in kind of regularly by month. There's quarters where it pops up. We had a few opportunities over the fourth quarter to pick up some extra fee income, et cetera, and we took that opportunity. So I think it was a little elevated for us for the quarter. But if you look back across the year, I think it's pretty normalized.

Perfect. And then finally for me, I mean, Johnny, the Happy deal is about to be closed. So when is the rate -- and I know Happy is a big deal, it's in a new market. I know you want to get it right. But are you starting to think about additional M&A yet? Or do you want to see Happy to play out for a little bit longer? And when you do start to think about additional M&A, your franchise is going to be almost $25 billion in assets. I'm guessing the targets you're going to look at are going to be kind of larger, more meaningful deals versus what you had looked at historically.

Well, they're out there. There's lots of opportunities out there. We have -- we're active. That doesn't mean we won't do anything. It just means we're active. We were active day before yesterday on a video call. Tracy and I were -- we were active. Donna and I got meetings that -- be acquired. That is going on as we speak. So will any of that come to fruition? We're damn pretty. And will it come to fruition? I don't know if any of it will, but we're talking and we're looking. The good thing is, they understand how we do business. And if they understand that, then we don't have a long argument going through the pricing process. It either works or it doesn't work. And I think we're -- after the Happy deal the world sees that transaction that only the second bank that went up on an announcement last year or last 14 months. So we did that one right, and that's going to be a good trade for Home Bancshares, and we'll play off of that. I mean there is some areas there that we could fill in with Happy, but that remains to be seen. But we are talking to people, but that doesn't mean we're going to do anything. We didn't do anything for what almost 5 years, 4.5 years until we found the right one, and we did it. We're glad to be in Texas, and it looks like they're forecasted loan growth in the first quarter -- their business is good. So pretty excited about hooking up with them. We're also looking at some portfolios to purchase that where Kevin has completed his due diligence on and we like the book, and I think you'll see that announcement coming out fairly rapidly. That's a national piece of business for the loan side in a market that we understand and are in. So I think you'll -- I think the Street will like that. So that will give us a little kickstart going into the year. We've got some good things going to happen in January and February on some recoveries. So those are pretty good things. So the first quarter looks like it may be shaping up pretty nicely for Home.

We now return to Matt Olney from Stephens Incorporated.

Yes. Sorry about that. Had you on mute. I want to ask you a question for Chris. Any more details on the growth this quarter? I think we talked a few months ago and your sense was that the West Coast had a lot more opportunity than maybe some of your traditional New York markets. So did we see this in the fourth quarter? Or is that still onto come in 2022?

I think there are really 3 things in the fourth quarter. One was we did see some good production out of the West Coast. I think I talked over the course of the year, deals were taking a little longer to get done, but we had a big pipeline. Dates tend to focus people. And so as you get towards the year-end, people do actually close transactions. And so one is I think we just had a number of things in our pipeline closed. Those were more West Coast oriented than East Coast. I think the second thing is, and I mentioned this in the third quarter call, at the -- towards the end of the third quarter, we had a number of our corporate structured facilities that repaid, that are revolvers, they repaid. We expected that they would redraw during the fourth quarter. They did do that. So that was between $50 million, $75 million coming back in, which we anticipated. And then the last bit of it was, while we did have quite a bit of paydowns, we have about $250 million or so of paydowns. We actually had more draws than paydowns. And so we did about $300 million, a little over $300 million of draws against maybe $200 million, $250 million of paydowns. And so -- and that's a little bit also a feature of a lot of production this year. Those don't always draw a close. They tend to draw over the course of the year, especially on facilities. And so I think we had those 3 things come in during the quarter. I think as we get into this year, we expect production to continue. We start with a nice pipeline, a number of really interesting transactions. Hopefully, they'll -- we'll be able to go all the way to the finish line on those, but we're very active at least, and I think we're working hard towards that. I think that will continue. I think I mentioned in my comments, I do expect a little more elevated payoffs in the first half of the year. Everybody has been anticipating rising rates, and now you start to see the rates rise. And some folks who might have been thinking they could hold on for last dollar or maybe get some more money when it gets more stabilized, et cetera, we may see a couple of assets come out where they just decided to take a little less proceeds right now but lock in the lower rate. And then I think we'll see draw-ups come over the remainder of the year. So I think if we do our job and we execute on the originations and we kind of get the draws we expect, I think over the course of the year, we'll probably end up about where we are, maybe some modest growth. But I do think we're going to see a little bit elevated pay down between now and then.

Okay. That's helpful, Chris. And then also I wanted to ask about, I guess, the market is getting more focused on how bank balance sheets are going to be impacted by higher Fed funds. So any more color you can give us about the dollar amount of loans that are going to be repricing higher with Fed funds and any more commentary around floors and just how many Fed fund increases would have to see to get above some of the floors of the bank.

$3.7 billion. We're going to reprice that. We got cash and we'll reprice that.

Matt, this is Stephen. I'll give you a little color on the loan side. But Johnny is right. I mean we talked this morning. I mean I know everybody is going to be focused on the variable rate loan side, but we've got more cash today than we have in variable rate loans. We've got about 1/3 of the loan portfolio and total is variable rate. We talked before all of Chris' balances at CCFG are variable rate. We have about $700 million or so in total that's tied to Wall Street Journal program. We've done a good job over the last couple of years in production, origination, in terms of pricing and putting floors in place. And as such, it really takes a couple of rate hikes probably to begin to see any meaningful increase from that loan portfolio. I think maybe 30% or so of Chris will move as LIBOR begins to move, which all of his is LIBOR based, and then a couple of hundred million, probably out of the Community Bank group with the first rate hike. So you need to see a couple, I think, before we begin to see some meaningful volume there. But on the flip side, we're at 68% loan-to-deposit ratio today. You go back 5 years ago, we were 105%. And so I think in an uprate environment, the deposit portfolio acts completely different than it did 3 or 4, 5 years ago as well. So I think we're all optimistic that we see some improvement in an uprate environment, just, overall.

And just to clarify, Stephen, I think you said 1/3 of loans are variable. Is that in the entire bank or just within the legacy footprint?

Yes, the entire bank. So it's about $3.3 billion, $3.4 billion or so that reprice within, I'll call it, 6 months or last period or had the opportunity to reprice.

Got it. Okay. And then just lastly, on the Happy deal, I think all you're waiting for at this point is Fed approval. I think that Fed's got a little -- the queues are getting a little bit backed up. Any indication on when the Happy deal could be approved or where they are in the queue?

We're -- I mean I think the plans we're doing it in the first quarter, we're still would be our plan today. But you're right, things could be a little bit bogged down, but things -- we're moving forward. I think Johnny mentioned, Mikel and I have been working in the Centennial Bank Group. The Happy State Bank has been extremely busy in preparation going forward. So we're all ready for them to give us the green light on that part and where we can really get after it. So all good just waiting on the Fed.

Hopefully, soon. And Happy is ready and we're ready.

And our next question comes from Brian Martin from Janney Montgomery.

I just wanted to touch on -- I don't know who wants to take it, but just on the excess liquidity. I know, Johnny, you said that you're definitely going to put some to work this year. Just kind of wondering how we think about maybe how much of that you would expect to get deployed over the course of the year? And then maybe just how -- given your comments on loan growth and securities, just maybe how big you'd be willing to let the securities portfolio grow to or we think about that as you work to deploy some of the liquidity?

Well, I guess we'll take what they give us. But we'll take as much -- we'll put as much as long as we can. But as rates continue to increase, we'll just put it in securities, and put it hopefully not lock it in forever, but lock it in for 4 or 5 years is about what we do. Brian, about 48 months, where it is right now?

Yes.

So we'll put it to work. Hopefully, we get half of it, may be this year, in either securities or in loans. That's what I'd be optimistic -- probably might be a little optimistic, but that would be pretty nice, I think, to end the year with about $1.4 billion or more, $1.5 billion, $1.7 billion more and about $1.7 billion or more in securities and loans.

Got you. Okay. That's helpful. And just maybe just on the loan growth. I think last quarter, recently, you kind of talked about maybe I thought it was a 3% to 5% type of loan growth number. Just kind of wondering with your position on maybe protecting some of the current loans you have and still seeing what Stephen highlighted as better origination activity in the second half of this year -- of last year, just kind of how you're thinking, does that loan growth outlook maybe -- and the combination of Happy and better markets, maybe bump up that previous outlook for what loan growth could be -- could look like in 2022?

Yes, this is Kevin. I don't know that I would bump that up any. I mean the challenge is going to be -- the key is going to be holding on to what you got. I mean, Stephen, went through the production numbers and the production numbers are up. And you heard Chris' commentary around what he expects for '22. I think the challenge is going to be keeping what we got. And if we can -- if we're successful at that, then the improvement in production can probably get to that number we've been talking about. But I wouldn't look for higher than that at this point. Brian, I don't know. I hope we can get there. Sorry, Tracy. I hope we can get there, but I wouldn't bet on that.

You asked and Brady had asked about that. And I'm generally the ones that's a little more of a conservative nature. I think we're seeing activity that certainly could make that tick a little better within our regions. The past several months each region around our existing company today are getting the return customer coming back which is what we practice. And I think that's something we're going to see with Happy as Johnny and myself, Scott and Robert and Mikel on the phone yesterday. They seem to be pretty positive. They certainly have been customer-driven with our balance sheet. It's going to allow them to take some opportunities. Kevin has already worked large credit with them with Mike's group out of DFW, already, because of that. So there's that -- there's the -- I think that's the opportunity that really comes out, expanding that with them, and the way that they're credit opportunistic towards Texas, and they're growing. But I have to go back to our David's market in South Florida and Jim's North Florida. It seems like their activity has really been better of late. We still get the Renegade competitiveness that comes in there, as we've done forever, stayed disciplined on our underwriting. We're going to stay there. But I think this probably has some signs of showing a little bit better growth throughout '22 than the past. Johnny, I hate to be so optimistic.

The truth is, we may give us a little bit on rate to keep some loans, but we're not going to give up on leverage. That's what gets you in trouble. So we just can't be that. It's like I discussed those loans will go, going from 50% or 55%, 57% loan-to-value to 80-something in a hotel space. That just doesn't make a lot of sense, but we're seeing that being done. I mean we're sitting here watching it being done at low rates. So it's not very smart. That will come -- the market stays good. If we don't have another pandemic, they may be okay. But if -- we're just not willing to risk our balance sheet. We're better off to lower right and keep the business as long as we don't have to change leverage.

I don't think the optimism is going to help the hair grow back, Tracy, but it's good to hear you being a little bit more optimistic than you had been in the past. But maybe last one for me was just on the quarter margin. I guess, it looked like loan yields -- core loan yields may be stabilized here or up a little bit. I don't know, Stephen, if that's right. But just kind of thinking on the outlook on the core margin, I guess, could we be at a bottom here with -- given the liquidity and what the plans are going forward in the loan growth? Is that the way to think about that margin outlook?

Yes, I think that's fair. I mean you heard Brian to what was reported. I think when you add all that up, we were up a couple of basis points on the core, maybe more than that when you include purchase accounting accretion. So I mean, loan yield was stable. We've got another couple of basis points out of deposits. I mean that's getting tougher. But yes, I mean, I think prospects of rising rates here and what the cash that we've got investment securities are -- have improved. So yes, I think that's fair.

If they don't raise -- if Fed don't raise rates too fast, I mean they're behind the curve, but if they don't raise rates too fast and do it over 2 or 3 years, I think we'll be all right. If they crank it in a hurry, create a recession, than all for not. But hopefully, that won't happen. I mean they're obviously still buying the 10-year as you see today, I think it's down. So that makes no sense. I can't stay there. We know that's going up. So it's just a matter of time until it does move. But hopefully, I hate to see them play that game because I don't want to spring like it did back in the '80s, just shocked. I mean I listened to one guy this morning, I don't know if it's on Bloomberg or at CNBC, but he called it, "Could be hyper rate increases," and that's a little scary. We don't need that because that will certainly slow the economy down.

We've come to the end of our Q&A. I will now hand back to Mr. Allison for closing remarks.

Thank you all for joining us today. I hope you're pleased with the report. We're pleased with the year. We're off and running in '22. I think '22 will be a good year for Home Bancshares, right? We're in a raising rate environment, that will play well to us, Home Bancshares, particularly with the liquidity we got. If we don't have to change our leverage, we'll have increased loan growth, and I think -- I said earlier, we're going to pick up a book of business. I believe, Kevin, just going to announce that before close. Is that right, Kevin?

Yes, sir.

About $250 million. Is that about right?

Pretty close.

Pretty close. So anyway, we'll have that. And it looks like first quarter is shaping up pretty good. Thank you, again. We'll talk to you in 90 days.

This concludes today's call. We thank you for joining. You may now disconnect your lines.