Home Bancshares, Inc. (HOMB) Q1 2022 Earnings Report, Transcript and Summary

Greetings, ladies and gentlemen, and welcome to the Home Bancshares Incorporated, First Quarter 2022 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 with 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 April of 2022. At this time, all participants are in a listen-only mode. And this conference is being recorded. [Operator Instructions] It is now my pleasure to turn the call over to Donna Townsell, Director of Investor Relations.

Good afternoon. This is Donna Townsell. I'm Director of Investor Relations. Welcome to our first 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, our 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 would like to turn the call over to our Chairman, John Allison.

Good afternoon. Thank you, Donna. Welcome to Home BancShares First Quarter 2022 Earnings Release and Conference Call. Actually, in spite all that's going on in the world with global and risk inflation resulting in rising wholesale prices, and increasing CPI Index coupled with spiking interest rates, closing our largest acquisition ever, it really was a pretty solid quarter. Pretty plain vanilla, $0.40 EPS with -- I think that exceeded a little bit if I'm not mistaken. With a fortress balance sheet and massive liquidity of $3.8 billion, plus or minus a little more, but it changes every day, Brian, does it?

Yes, sir.

So we decided to use $300 million of our liquidity to totally retire our 5.65 floating rate subordinated notes on April 15th of '22, and that has been completed, Greg?

That's correct. We sent the money out on Friday.

Sent the money out Friday. If you remember, we had issued a new $300 million sub-debt in January at 3.125 floating to fixed Board night and note to either enhance our existing capital over time, this sub-debt. The move will result in a savings of about a $1,875,000 per quarter or $7.5 million per year. That is for the next five years for a total of $37.5 million in savings over the five years. Not as straight, 5% or did the entire transaction and they get it in one week. Nice job, you guys. This resulted in carrying an extra interest expense on the original $300 million for almost entire first quarter. However, we've got out in front of most of the spiking interest rates and believe we made the right call. In addition, Home has received Fed approval to retire approximately $71 million in trust preferred of homes and $23 million of trust preferred API. All of this switches at a variable rate. This will be a second quarter event. I learned that it stretches to the third quarter, did you say one might be July?

Yes. Most June -- I think it's July 24th.

July 24. Okay. So somewhat of running to the third quarter a little bit.

Most of it is June 15th.

Most of it June 15th. The rollout of savings on this will be approximately $3 million per year and that's before [Indiscernible] started going out, as I told you these are variable. I want to congratulate our team members for receiving Forbes Number 1 bank in America for the outstanding performance for '21, of all banks [Indiscernible] small. This marks the third time in five years Home enjoyed this huge honor of best bank in America. And additionally, last week, Home was nine of the banks in the world. Was the third time [Indiscernible]. We're happy to announce the closing of our acquisition of Happy Bancshares on April 1st. We welcome the happy team members to Centennial Bank and look forward to our future successes together. This transaction was part of strategic focus to shift into high-growth Texas markets in a meaningful way, and we're already seeing the benefits of this Texas franchise with strong loan demand and attractive loan yield. This should create real value to put cash to work in a raising rate environment. We have had the opportunity to spend some quality time with their team over the last month and we have certainly enjoyed it. We have some downside and we have some upside as it relates to [Indiscernible] rights. The unforeseen unfortunate impact of closing has been the rapid rate movement that has occurred recently and its impact on purchase accounting. As I've said multiple times, we structured transactions to be tripled [Indiscernible], and that's exactly what we did in this transaction. That being said, what we could not control was the timing of the closing or the fact that inflation has been so significant that Fed fund target for the year has been changed from 25 basis points and a max mode of a [Indiscernible] to 2.5% to 3% today. However, with all that said, $101 million loss is a no risk on that over the securities lab. We have basically always held our bonds to maturity, so we expect to get every penny of our securities portfolio back over time. Primarily due to the change in after-tax unrealized position of the securities portfolio, which moved from an estimating $27 million gain in announcement to $101 million dollars loss. But also, the anticipated change to fair value marks on the balance sheet. We estimate the tangible book value impact to be $0.43 diluted. We simply had to pick a point in time to mark the balance sheet, and that resulted in the loss of value. This includes traceable double-count, which we have not assumed any changes to as of yet, and all transaction costs in the current or later date. This change was an unavoidable instant. In our mind, it's totally a timing issue and consistent with the changes in the AOCI we have seen across the country. If interest rates had value impact on the securities book what do you think they had the impact on the value of the loan book for those competitors virus with loans that are long and low? I can tell you it's huge, thank goodness heavy good loan yield. Many of our competitors have no sense of how much damage they have done to the value of their companies and the street have been rewarding them for just doing that. Rates are going up. It's been a race to the bottom. That's the downside. The upside is, as you know, Home did not fall prey to building securities portfolio and settled on the sidelines, building a cash chest of money. While rocketing interest rates have tightened our reinvestment rates up 125 basis points to 150 basis points in a relatively short three-month period. Our treasuries were up 110 basis points to 120 basis points already this year and looks like they're just warming up with multiple 50 basis point rate hikes forecasted in the immediate future. At the announcement, EPS accretion for '23 was expected to be 9.2% or $0.16. Today, as a result of the mark to the book, estimating '23 accretion is approximately $0.16 or $0.28 per share, 16% or $0.28 per share. We look forward to providing a complete view of the financial position of the combined companies in our second quarter release. To the future, news flash, rates are headed higher and much higher. Anything with a four in front of it is probably a loser. We are facing 100 to 200 basis points in the reminder of the year, which includes 50 in May and 50 in June. We believe the Fed will be forced to continue rising rates at a faster pace in the near future. As a result, we could be forced to start pouring some of our cash in the third and fourth quarters in the securities move. One of the keys to the economy the Fed has used in the past was the ability to reduce interest rates. With 40 basis points Fed fund, there is no room. As a result, they have no power to use to employ that important tool. They will raise rates to allow them to build some pattern and have the ability to stimulate the economy. President Bullard of St. Louis certainly is part of the inflation fighting regime and is a hot for quicker and larger influences. I think his research has led into the conclusion that we are way behind the curve and his leadership is dealing mainly because he is right. I would hope that the politics are not part of this equation because this is not a Republican or a Democratic issue. But if I'm correct, Mr. Powell is the only Republican appointed by the Biden administration. The president needs rates to remain low for the November election. That is 190 degrees from what this country needs. We cannot add this new spending plan that he says will remedy inflation. As [Indiscernible] said, I need to lose some weight so I going to eat more food. Loans are more flat for the quarter, but up slightly in the last three quarters. So we held in there pretty good. If there's any reasonable way for a competitor to come in and we'll try to keep our loans, if we can keep them. But sometimes they get really stupid, give you a quick example; we just had one this quarter that was 6% fixed on the ten year loan with recourse from a good customer with good equity. Our competitor came in, cashed out more money to the customer than it originally had in the loan with non-recourse financing, 4% fixed. I mean, you got to let that crazy stuff go, and it was our displays to let it go. But that's the kind of structure to get banks in trouble. Leverage is certainly the key. Felicity ratio was picked up recently and should be started and declined as we began our consolidation process over the reminder of the year. FX quality is remained and even improves a little bit. You believe that as good as it is over the last quarter. In conclusion, I think we're probably in the best position for our company's future for the fortress balance sheet, disciplined strategy, peer-leading asset quality, setting in America’s best markets will pan out, variance and liquidity, and an interest rate environment that fits our situation perfectly. Remember, the cost of funds are going to go up at some point in time. These low rights will have to go away and the margins will get squeezed. The next several years will separate the long game players from the short-term players. Now I expect Home to remain one of the top banks in America. If you go [Indiscernible] low loans, the [Indiscernible] [Indiscernible] the [Indiscernible] has applauded and rewarded large loan growth. But as you can see, the impact of higher rates have had on the securities book at Happy, the exact impact, in fact into the loan book, which we always see the reality if it's mark-to-market. Yes, we had to do it. To follow that said, I'll turn it back to you, Donna.

That was a very insightful report. Thank you very much. Now, let's turn to Tracy French to hear what's new at Centennial Bank.

Thank you, Donna. And good afternoon to all. Centennial Bank closed out a good first quarter with the sights looking very good for the future with our pace on non-investing our excess funds. In our addition to Happy State Bank. Centennial Bank finished the quarter with $18.6 billion in assets, up from $18 billion or 3% for this quarter. Loans finished the quarter at $10 billion of $9.8 billion or 2% for the quarter. And deposits continued good core solid growth ending the quarter at $15.2 billion up from $14.5 billion or 4.5% for the quarter. Our group here today will have more color on that in a bit. The bank's return on average assets excluding our excess liquidity as John has mentioned ended the quarter at 1.88. Our efficiency ratio, we ended at 43% for the quarter, and our risk-based capital finished March at 16.35%. While most banks would like these performance numbers, we expect better. We believe we are in great position to improve on all these performance metrics that has made us the best bank in America. Asset quality remains strong with our allowance for loan loss to total loans at 2.35% with our non-performing loans at the lowest I can remember 0.44, making our non-performing loans equate to 526% on credit for loan losses to performing -- to non-performing loans. That's a nice feeling with our inflation and the unknown circumstances that Johnny has mentioned. By the way, I'm looking at a plaque on the wall that says, “Johnny said.” If you look back at his comments last year, it's pretty darn scary how close he was predicting the status of our economy today. Total net revenue for the bank this quarter was a $166 million for March, leading over the last five months. As always, we continue to focus on our non-interest income and non-interest expense. A nice move occurred in our service charges and fees, which was up 10% this quarter compared to the same quarter last year. Our team of bankers had a good start this past quarter and we'll give it all in focusing [Indiscernible] working through and meeting our expectations over the next quarter or two. Our bank began planning over 18 months ago that is happening today with interest rates and inflation. While we knew we may not be right, we knew we would not be wrong for what is best for our company. It was tough holding our cash over all this time, sacrificing short-term gains. But we are happy to be in the position we are today. And speaking of Happy, we're pleased to welcome our happy partners, shareholders, customers to Home, BancShares, and Centennial Bank as of April 1st, '22. The team of bankers led by Michael Williamson have been phenomenal to work with in, and the future looks mighty good with our Centennial Bankers joining forces with our friends from Texas. Donna, got my cowboy boot's shine and ready to go.

They look good. Thank you very much for that. And now Brian Davis will give us the financial report.

Thanks, Donna. Today we reported $131.1 million of net interest income and a 3.21 net interest margin for Q1 2022. Our first quarter net interest margin decreased 21 basis points from Q4. Today, I'd like to go over a few NIM items. First, during the first quarter, we had $53 million of PPP loans forgiven. This forgiveness caused the acceleration of deferred fee income for the loans forgiven. Our PPP deferred fee income decreased $3.4 million from Q4 to Q1. The change was 6 basis points diluted to the NIM. Second, as a result of excess liquidity, we had $236 million of additional interest-bearing cash in Q1 compared to Q4. The excess liquidity was 5 basis points diluted to the Q1 NIM compared to Q4. Third, there was [Indiscernible] income in the margin for Q1 of $1.4 million compared to $1.2 million for Q4. This had a negative impact to the Q1 NIM of about half a basis points. Four, accretion income for Q1 was $3.1 million compared to $4 million for Q4. This had a negative impact to the NIM of 2 basis points. From my point of historical reference,

The Q1 excess cash versus the historical normal cash balance has a negative impact to the Q1 NIM of 77 basis points with a lot of basis points. I'll conclude with a few remarks on capital. Our goal at Home BancShares is to be extremely well capitalized. I'm pleased to report the following strong capital information; For Q1 2022, our Tier 1 capital was 1.9 billion. Total risk-based capital was $2.6 billion. And risk-weighted assets were $12.2 billion. As a result, the leverage ratio was 10.8%, which is a 116% above the well-capitalized benchmark of 5%. Common equity Tier 1 was 14.9%, which is a 129% above the well-capitalized benchmark of 6.5%. Tier 1 capital was 15.4%, which is 93% above the well-capitalized benchmark of 8%. And finally, the total risk-based capital was 21.6%, which is a 116% above the well-capitalized benchmark of 10%. With that said, I'll turn the call back over to Donna.

Thank you, Brian. And now Kevin Hester will provide a lending update.

Good afternoon, everyone. Loans grew by $217 million in the first quarter, led by a $242 million acquisition of yacht loans from Lending Club Bank as they exited the business line that they had recently acquired in their acquisition of Radius Bank. The portfolio is very similar in underwriting characteristics compared to our previous two marine acquisitions due to the fact that we had actively competed with them regularly, especially in the over $1 million loan size. The combination of $53 million in PPP forgiveness and organic loan growth of $26 million rounded out the changes in the loan portfolio in the first quarter. Loan production remains strong for second quarter, but payoffs continue to be high with projects stabilization improving as we move past the pandemic. The addition of the vibrant Texas markets from the happy acquisition should provide even more opportunities to post organic loan growth in future quarters. The prospect of significant interest rate increases is something that we have projected to happen for some time. But now that we're here, the possibility for unprecedented change in a short period of time creates a daunting task. Remaining disciplined as it relates to loan pricing and underwriting may be more important than ever and is not something that we're seeing across the industry. The $53 million reduction in PPP loans in the first quarter leaves us with a balance of $60 million, which is about 5% of the original funded amount. COVID -modified loan balances continue to slow decline in the first quarter, reducing $15 million to a $176 million in total. Hotels make up 83% of this balance and significant improvement has occurred across the board, as only 8% of this $176 million balance is classified. As you may remember, we offered a longer-term interest-only modification across the board to ensure that we could see these borrowers through the end of the pandemic. Virtually all of these will expire late in 2022 and will automatically go back to principal and interest payments. I'm not aware of any one at this point that we do not expect to go back to principal and interest when their interest-only period ends. Significant improvement in credit metrics occurred in the first quarter, especially given the strong numbers that we posted at year-end 2021. Non-performing loans and assets dropped seven basis points and four basis points respectively, which was an improvement of 14% in each metric quarter-over-quarter. As Tracy mentioned, the allowance for credit losses coverage improved to 526% of nonperforming loans. The early stage past due number of 36 basis points is the lowest number that I could find historically, even on a monthly basis for us. Overall, the first quarter was a solid one in the face of many headwinds and I appreciate all of our frontline lending and operations folks for their continued hard work. Donna, I'll turn it back over to you.

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

Thank you, Donna. And good afternoon. This month marked CCFG's seventh anniversary. Seventh anniversary is the copper anniversary for those like me that are keeping track. Over these seven years we've consistently grown the portfolio in earnings by maintaining both margins in credit quality through a range of conditions that have included prolonged economic expansion, a rapid contraction, and now high inflation in a rising rate environment. Starting with just over $300 million in assets, we're in our eighth year at Centennial, reporting loans outstanding of just over $2.1 billion on $3.4 billion of commitment. This is the first quarter we've closed above the $2 billion in asset mark. During the quarter, CCFG originated 11 loans for a total commitment of $459 million. You may recall that over the past few earnings calls I've commented on a growing pipeline of deals in underwriting and closing, fourth quarter cleared a good portion of these waiting loans. Looking ahead, we expect to have another solid origination quarter in Q2, though I do expect that this will level out a bit, especially in the later half of the quarter and into the third quarter. I also anticipate that Q2 and Q3 may deliver more pay downs and payoffs than we've experienced over the past few quarters, as borrowers are most likely to move to more permanent financing, given the expected continued rise in interest rates. Over the past year, we've grown the portfolio from $1.6 billion to $2.1 billion, a $500 million or 30% increase. This, coupled with the continued positive outlook on originations gives us significant room to absorb and at times encourage loan payoffs as we further rotate the portfolio for the post-pandemic post rate rise market. Donna, before I hand the call back to you, I do want to point out that the eighth anniversary gift is bronze, just in case you all need a little bit of a head start on my stats, maybe you could see how the rest of the year goes.

I appreciate the time you offered us there, Chris thank you.

We will wait and see how the rest of the year goes.

Good luck, Chris. That's right. Order early. We'll appreciate that report. Now, let's hear from John Marshall on the voting room. John Marshall : Good afternoon. And thank you. Summer of 2022 will mark an important milestone, not 7 years, not 8 years but 4 years for Shore Premier Finance and Centennial Bank. We joined Centennial July of 2018 with $386 million in interest earning assets. Four years later, we're 1.1 billion in assets with core net income of $6 million in the quarter, exceeding budget by about a million dollars. Our national platform provides a complementary overlap with a bank, particularly in Florida our largest concentration of loans at 24%. Now, moving into Texas our sixth largest concentration at $50 million or 4%. We established the guard rails for the new normal. First quarter '22 originations of $87 million. Let me break that down. That's $55 million in retail originations coupled with $32 million of commercial advances. But still at $87 million, they were down slightly from first quarter of '21 of $93 million and only half of 4Q '21 at a $161 million. This reflects a seasonality of the business as buyers scrambled divide their posts before the end of the year. After the fall shows, and new buyers are shopping that the season this year in the first half of 2022. The slight softening of sales, year-over-year, is more a function of supply chain disruption and lack of inventory rather than softening demand. Pre -sales of boats for delivery year-end 2022 and first half of 2023 are up substantially. We do bank consolidation and an accommodating Centennial Bank executive management team have enabled us to opportunistically pick up an additional retail portfolio of luxury yacht loans in the first quarter that Kevin Hester mentioned. It is core of of course supplemented software originations, elevation of prepays. Cash continues to be a formidable competitor for us. Market outlook uncertainties motivated by some buyers to just pay cash for their yacht purchases or pay off their 5% mortgage. Prepays in the quarter erased $50 million of our organic growth. Asset quality remains strong as it has across the bank. Origination FICO s remain prime levels of 7.74, delinquent loans in the quarter were 18 basis points, and non-accrual loans were 13 basis points. Further evidence of origination quality, we witnessed declined applications drop from 30% in 4Q '21 down to 27% in 1Q of '22. The boat show season is open with back-to-back shows coming up in the next couple of weeks in Annapolis in Maryland's eastern shore. Limited stock boats are pushing more buyers into custom purchases and are increasing the pre -order logs for our dealers. Our team is optimistic about the continued opportunity for growth. With that, Donna, let me return the conversation to you.

Thanks John. And now for our final recourse today is Stephen Tipton.

Thanks, Donna. I'll [Indiscernible] you today on deposit activity, repricing efforts and trends, and a few additional details on the balance sheet. Total deposits continued decline in the first quarter, with growth of $320 million or 9% on an annualized basis, and over $1 billion in growth year-over-year, or approximately 8% on an annualized basis. The growth in the first quarter was primarily from the Florida and Alabama regions, again demonstrating the strong economy along the Gulf Coast and throughout the State of Florida. One particular highlight on the growth, core non-interest bearing balances grew $180 million in the quarter. Switching to funding costs, interest-bearing deposits averaged 19 basis points in Q1, down two basis points on a linked-quarter basis. With the recent rise in short-term rates, we saw an uptake on a subset of our interest-bearing deposit and exited the quarter in March at 21 basis points. Total deposit costs were 14 basis points for the quarter and 15 basis points for March, with over 30% of our deposit base now in core, non-interest bearing balances, we believe this to be a great starting point for our funding base as we enter this rising rate environment. Miss Tracy and Johnny have mentioned our patience in deploying liquidity over the past two years has placed us in a great position of strength and flexibility. Switching of lending, the groups are off to a strong start in 2022 with just over $1 billion in origination volume, much improved from the same quarter one year ago. A little more than half of this origination volume was funded at March 31. And of note, our unfunded commitments now stand a little over $3 billion. The highest number that we've seen as spot a few large development projects being completed and accessing the permanent markets, payout volume slowed to approximately $650 million in Q1, down to a level that we have not seen in several years. With much discussion on rising rates, I would like to update you on where we stand today from an asset liability perspective. Variable rate loans with repricing dates this year totaled around $3.3 billion or approximately 1/3 of the loan portfolio at quarter-end. With the most recent increase in Fed funds, along with LIBOR, we now have approximately $1.5 billion at or above their floors. And we expect to see that gap close significantly with the anticipated rate increases in May and June and thereafter. Additionally, the happy loan portfolio will add $1.2 billion to the balances I mentioned above, which similarly as about a third of their portfolio. And today, approximately $1 billion of their 1.2 billion is already at or exceeding those floors. With $3.5 to $4 billion in cash to deploy, the variable rate loans in the portfolio as I mentioned above, along with cash flow from the investment portfolio, we feel the company is very well positioned to benefit from continued increases in interest rates. And now importantly, I'd like to recognize the significant efforts ongoing by our teammates here at Home and Happy as everyone serves the customer base while also working towards a successful systems conversion in June. And with that, I'll turn it back over to you, Donna.

That's a good report. Thank you, Stephen. Well, Johnny, before we go to Q&A, do you have any additional comments?

No, I really don't. Somebody else might have. So I just think we're well-positioned rate wise, based on what Stephen had to say and what we see happening plus the excess cash that we're sitting known. So I'm pretty optimistic. We're seeing these reinvestment rates jump, the way they jumped in the last 90 days. I expect them to continue that. It looks like we're looking straight down the barrel of 250 basis point increases here pretty quick. So we could be in the 2.5-3 Fed fund range by the end of the year. If we are, we may have deployed money too quick. That's what we -- that's the key, is when we start deploying. So hopefully we'll be deploying this year some and more in the next year, both in loans and in securities. And Donna, if you want to go to Operator, we can go back to Operator.

Thank you very much and I will turn it back over to you for last Q&A

Thank you. [Operator instructions] We will pause here briefly as questions are registered. The first question comes from Jon Angstrom with RBC Capital Markets. Please proceed.

Good afternoon.

Hi, John. How are you doing?

Guys hear me? Hey. I'm good.

You're good?

Let's talk about the $3.5 billion. I guess, Johnny, that's not train light money, is it? That's a big number.

Yeah. It's allowed to train down.

Exactly. The question is, what do you need to see to put it to work? I mean, we've seen examples this quarter of companies that put it to work too soon and they're getting -- stocks are getting beat up. And I guess the question is, what will make you guys comfortable to put that money to work?

We need to see something with a four in front of it. On the yields, we need to see something there, we're seeing free thirties now three forties with no risk at all, which bodes pretty well for us. We recorded some of these yesterday and the rates are even up again today. So I think we need to see us in the four, starting to roll some of it out, and we're going to keep -- we're probably going to settle on the bay in anyway, to see where this thing goes to. We probably will deploy over a period -- over the next 18 months to 24 months, probably 2 to 2.5 bay in maybe three and then we're going to sit down, we're going to keep some train rad money, as you call it. We are going to keep some train money in the event that it goes on higher, which it is my call that we're going to see unbelievable rates, high rates. So that's my call. I've been beating the drum as you know, for about a year and a half on this and I thought I was right, I thought I was wrong and we're watching a puppet show with this Fed funds deal. I mean, with the treasuries because we don't know what's behind the box, right? It's just a puppet show and the rates run up. They trying to run up and they're buying them back down and then they run-up and they buy them back down. So some point in time they are going to have to let that go, and I'm not sure where that goes and I don't know if it goes to where it went to in '80, '81 and '82, but I am hearing -- I know Mike was talking about Jimmy Carter's administration before, but I am hearing lots to talk about that today. That's what I remember him say, and I have a figure that we could get there so, setting on a billion dollars, if I'm wrong and it starts coming down we can deploy it at much but I mean pretty close to that, [Indiscernible]. So I think that's important. Long demand is pretty good. We got to keep some money for long. So when you sit with $4 billion, maybe you keep $1 billion set aside for something. You put $1 billion in loans, you can put $2 billion in security. So that's what I'm thinking out loud right now, Jon. And it has been -- you're right. We have remained disciplined and we have so far made the right call. When you see reinvestment rates up 150 basis points since January 1st. I think we did the right thing and I think time will tell how well we did. The key is when we deploy. So I think that's the best I can tell you right now. If we start seeing some fours on that when we start putting some money in there, I think you can see four, five, and sixes is the next 18 months.

That make sense. And then Johnny for you or Kevin or Tracy, Kevin, you used the term unprecedented change when you were describing the lending environment. And I know you want to make loans and the demand is there, but how are you approaching it, how are you protecting yourself, and what's attractive at this point from a lending point of view?

It is top. I mean, we're just sitting right in front of this. We expect to be at least a 100 basis points move in rates. And so that's a challenge and then you've got -- you have asset prices as high as they are. I mean, those two things create a lot of challenges, both on the pricing side and the leverage side. So we're just trying to stay disciplined and do what we have always done and continue to make good -- good loans at a fair rate, that we get stats for the risk and if it's there it's there, if it's not it's not. And then we just keep doing overdoing.

Giann is as though some people didn't see the 25 basis points increase and don't see the 100 base points that's coming in the next 60, around 6o days. It's like they don't see that. I'll I was on the phone when we got along. The credit union alone, their money at 2.65 fix for ten. I mean, remember the last kind of relate item to savings alone. I remember the last one I was in was about 20 years ago and their yield was 7.5% on their loans and our cost of funds was 13%. So of course went broke, went out of business and I like the same thing will happen with some of those people, those -- it's just those you can't fix stupid. I mean it's in front of us, reality, fear rates are going up still think you know. So rates are going up. And then they are still doing 3.5 and 3 and 3 quarters in 399 and all is silly stuff. It's -- it really is frustrating for someone who -- for our company it runs where we run our company and maintain the quality we run, and see the stupidity in the marketplace. It's very frustrating. I could go on with questions, but I'll step back in the queue, but I appreciate your answers.

Thanks, John, for [Indiscernible] forward.

Thank you, John. The next question comes from Matthew Olney with Stephens. Please proceed.

Hey, thanks, guys. Good afternoon.

Thanks, Matt.

I want to go back to this discussion about liquidity and deploying this, and I'm curious what the appetite is to deploy liquidity into another portfolio acquisition similar to the deal you announced in February. If I guess, first off, is there a pipeline of those that you see out there? And second of all, what's the appetite for something like that?

Kevin talked about it and will tell you what it is, but it's bulky looked at a while back, and what they were all for then. And it seemed like it was yesterday, but it's a couple of months ago and now what we can get on that book of business.

Yields have gone up. The rates are -- on the loans are still the same. But the yield has -- the expected yield has gone up, so the price is going down. So maybe there's something out there that -- what we did in February with the Lending Club deal was opportunistic because we got [Indiscernible], a competitor out of the market, and we'll continue to look for opportunities like that. And we're always looking for different angles and portfolios that make sense with what we do. So if we find those, we'll certainly look at it.

So you've got a book, right now, we are looking at about $500 million or $600 million. I don't know how big it is. [Indiscernible] yield about three what?

The loans are in the three's, but the yield in the mid-90s, the yield would be 4.5, somewhere there. 4.5, so that gets a little bit of attention to you. However if you can take it -- put it in a long rest security at 360, you got to look at that so we got to lay those differences and we'll see what happens with the next 100 basis points increase, what that does to the yields. And basically today I looked at the two-year, the five-year, the seven-year, and the ten-year was some up to signage. It's interesting watching this process. That's the pocket cherry was talking about earlier.

Yeah.

And then I guess switching gears, curious what you're seeing more in footprint. You've talked about getting a little bit more aggressive on pricing, just playing some decent for some higher-quality credits. I'm curious what the competitors are doing more recently, especially with higher rates expectations in the footprint. Thanks.

Well, we're busy. Texas has brought a new -- they're very busy. They're busier than we were. So they're bringing lots with me, two, three times a week with them. They're bringing lots of stuff to us that we're looking at. So I'm pretty excited about that. And legacy, starting to bring lots of stuff to us, so that's good. A lot of people are trying to refinance right now, trying to get that refinance, get ahead of this interest rate deal, other people are trying to get locked in on their projects and get ahead of the interest rate increases. Some people recognize what's coming and some people don't. So I think overall loan demand is pretty good. So we'll keep that power to loan demand because that's what we do and we'll do the difference. We looked at our hotel on the other day and it just was marginal as hell. And Kevin said, "Guys, we got all hotel loans we want.” He said, "Just pick -- you want to do -- already on this year, just pick the 30 best out of the entire pack.” He said, "Hotel loans are down with us.” And so that's what we're doing. We're trying to pick based on asset classes where we need to be and get the rate and the terms that we made. And we did -- we had a good $40, $45 million home pop-up the other day. We're still top owners. We did that transaction pretty quick. And we got quite a bit going on. And we looked at a big one yesterday with Texas, $80 million. We didn't do that transaction, but we did look at it. We spend a little of time on it. Just had a few red flags that made us nervous and we did not pull the trigger on it. Somebody will pull the trigger on it, but we didn't pull it. But overall, man, it's pretty good. I mean, I'm pretty optimistic. Actually I'm excited because the rates are going our way and they're going to continue to go our way. Be it on the loan side or be it on the security side. So you see what's happened with AOCI, you seeing what's going on there, and happy is to form cost us $100 million. They did or did not maybe, we'll get our money back but time value money. But overall things at Home are really pretty, I'm pretty happy. Actually, I'm real happy from where we're sitting right now. How about you, Tracy?

I think you hit on the head there. Matt, the only things that we say is like the taxes opportunity. We've only been with them now for 20 days, gotten well over the last nine months and it's pretty exciting to see what avenues they're going to open up, and we're still looking down several avenues that they can do, and I really do think once that time we'll take care of some of that with our existing customer base, the communications going well there. Kind of relate back to some of the Florida markets, how they've done well at times and with south and even jumps area up to the north. It has had a pretty nice pickup, the first 20 days of this quarter. And I think it's just over time, steering and staying disciplined on what we do and our customer relationships and actually picked up some new opportunities along the way. So it's whether, how happy it is, yet time will tell, Johnny, on that part, but the staff and groups are really off to a great start, in our opinion.

Good. Okay. Well, you guys have been patient and that's been the right move so far. So looking forward to see how it all plays at this year. Thanks again.

Those two. Thanks, Matt.

Thank you, Matt, the next question comes from Q - Brady Gailey with KBW. Please proceed.

Thanks. Good afternoon, guys.

Hey, Brady. Good afternoon.

So I wanted to start just on the deposit side, and you guys saw another pretty good deposit growth quarter. I think they grew about 10% annualized near deposit growth is just great for all over the last couple of years. I know we're headed into a different interest rate background. But how do you think deposit growth trends [Indiscernible]? You think you still see some modest growth? Or could deposit balances reverse course a little bit here?

Brady, this figure that I guess I think we've said every quarter for the last two years that we thought the next quarter we might see some outflows and it go down, and it continues to go up that every single quarter. I think we're still obviously seeing tremendous value in the core deposit base trying to continue to grow it. It'll be interesting to see in this tough rate environment how we and all the banks that are liquid are able to kind of control costs there. And I think as long as our focuses continues to be on the core low cost or no cost check-in account will take all we can get. We are in in this quarter with tax payments going out with generally expect to see a little decline there, but so far so good.

What he doesn't know is I wrote my check to IRS, Brady. So I can assure you father is coming down.

We appreciate your contribution. America appreciates you. Biden appreciates you.

That was Stephen when he said -- every day would say, oh, wow. And then the areas that we are, the Texas new market that people are moving in, when you talk to the team down there and use the Gulf Coast region of our bank, they're still picking up opportunities and accounts. A lot of individuals are moving in from other states to those areas and we're getting our fair share of new checking accounts and that type of business. And we feel pretty confident. We know we have some municipal monies along the way. But as I said, my comments, it's just good core relationships that we have, so we're very fortunate. We still like deposits still, even though we're growing as fast as we have. We know it's still what drives a bank. We had -- Stephen purported to me [Indiscernible] credit. We had $145 million for buying, and forecasted that next year this time to have $245 million in the bank. Off the topic too. So it looks like deposit is going to continue to grow here. All banks have enjoyed this, but real banks that have real customers and do real basis are the ones that have done really well. And we built this base on one customer at a time instead of just mass

The audience out there not have any relationships and I think that phased off today and there are many banks out there that operate like we do that have those relationships and they will continue to grow through this cycle. But looks like -- I don't think they're going down. I mean, until it turns out we don't have any taxes we got to pay, but, I don't think they're going down, they will either hold their own or go up. What are you hearing? Are you hearing good or bad there? Is the year going down or?

I think as rates hit higher, there could be some pressure on the positive balances, but if you're in a good market like taxes and you guys maybe you can offset that with growth. I wanted to ask a second question, so I know the rate, the March kind of went against you on Happy. But you'll get it back from higher EPS accretion. I just wonder, what's the update on expected levels of acceptable yield, with Happy now in the mix and with a higher mark than expected when you guys actually close that deal.

Well, we don't really have a number at this point in time. We had originally projected that the mark was going to be a premium on the loans because they had higher rates. But as rates have moved up, we're kind of anticipating maybe a discount on those. So I think we had about $29 million as a premium on the loans from a REITs standpoint and we're probably looking at zero to a discount on that at this point in time. You talked about total raising rate bonds. How much shit do we take a little bonds.

Well, that's probably a whole over $100 million swing.

That's probably a $100 million just on the bond book there. So I don't know what that adds up to. We don't have that yet, but we'll get -- I think what we do, we'll get it for you.

Okay. And then finally, Johnny, with Happy now closed, maybe just an update on how you're thinking about M&A going forward?

Well, we got to execute first ready. We got to execute. We need to put this one under our belt, get the accretion out of it that we want to get out of it. We've never done a diluted deal. This deal turned out to be $0.40 diluted to us, takes us a little less than a year and half earn-back. A fail for those people out there that had a three-year earn-back, or four year earn-back [Indiscernible] is trapped, that we have been infinity earn-back [Indiscernible]. So as close as we played this from to the [Indiscernible], it's still will be 18 months earn-back. So. Stephen, you got a comment on that?

No, I don't have anything to add.

Okay.

Alright, thanks for the [Indiscernible] guys. Thank you.

Thank you, Brady. The next question again, concern Brett Rabatin with Hovde Group. Please proceed.

Hi, guys. Good afternoon?

Welcome, Brett. First-time you've covered us, is it?

No, not all, just back after a sabbatical.

Good to have you back. Do you play baseball, too?

No, I can't throw baseball like my predecessor.

He wasn't that good either.

Wanted to first ask Johnny, what ours covering the last time there was the call or are you talking about Wonder Woman and superman and the bogeyman. And I'm curious on your view on the bogeyman and they recession fears that the market has with the flatter yield curve. Maybe if you could just give us your thoughts on how you think the economy plays out. If I'm reading it right, sounds like you're pretty bullish on a soft landing, regardless of what the Fed does with interest rates, what's your, what's your outlook for the economy? How does that play into? And maybe a more defensive underwriting position. While they are in a box, Fed's in a box. I mean, they do 25, 25, 25, and inflation's going to continue to run at an even faster fueling. It's like fueling a jet. I mean, the rates going to run faster and faster. That's one scenario. What's the other scenario? They're racing too fast and thrown into recession. Can't do that right now, they got 40 basis points -- Fed fund. So how much can they lower, rates? They can lower rates 25, they can't have two 25's, it'll be negative. So they are in a box, they got to rise [Indiscernible], to give them some powder, be ready to be able to kind of rate down the road. Remember during the Clinton administration, Bill Clinton hit rates about two or three times safely.

It got a little overheated, he kicked it up two or three times. I was in a handshake line with him, and he came through and here's the sweet thing about the economy, Johnny, I said, I think you've played it just right, Mr. Fresnius(ph.), I think you could hold your drop in a little bit and you'd see the economy take off again. He winked at me, and I don't know the presence now CFO saying thing to do with the Fed, but two days later, they lowered the rates 25 basis points and economy took off. He has room to do that. There is no room for the Fed with 40 basis points. So they've got to crank it, they've got to get neutrality, I mean, you got, they call it seller 7% or 8% or 9% inflation. It's probably closer to 20%, and I'm not sure, I think they got to crank like hell, so I mean, you could see it's conceivable that you could see Fed funds at 7%. I mean, it's conceivable that can happen. So I'm not predicting that. I'm just saying that's awful conceivable. And by the way I was right about the bogeyman. Donna and I went all over the country, they were under every day and they didn't exist. They were just somebody's imaginary bogeyman, but there is a bogeyman out here right now in interest rates, and they're going to go higher. And if people don't think they're going to go higher they just need to keep loaning this money at low rates and long term and they will be upside down, their liabilities will be higher than their asset rates are. We've seen that happen. I'm just going to protect us that it doesn't happen. And, I'm not right about everything.

But I believe if it looks like a duck and quacks like a duck and walks like a duck, it's probably a duck. May not be a boogeyman, but it's a duck. So it just looks -- actually, smells like Carter administration, the '80s. And if I'm right, it's going to be -- home is going to be a big winner out of this, make the right place, and we'll make lots of money.

I love hearing when you talk about stuff. You guys obviously have gone through all different cycles. And wanted to circle back to the margin, and just thinking about obviously they're some moving pieces with the debt repayment. This quarter, the closing of Happy. It seems to me like if I just take a static balance sheet, snapshot 50 basis points around Happy, it seems like you could have your margin move up 15 -- move back up 15 or 20 basis points. But I'm curious to hear if you do want to take a stab at pushing in one direction or another on that.

Actually, [Indiscernible] 77 basis points right now, which gets us back to about 4% where we belong, where we live forever. And we'll be back to that. It can't be always this run close to 100. Loan deposits will be back at that point sometime in the future. So when that happens, we'll get back there. So it's really covered up the margin a little bit. I don't know what the impact of the fund rise was in January.

Well for every a 100 basis points that we have that goes up on the Fed funds, that's about $35 million, and that would be in the range of about well over 20 basis points to the margin.

I think you'll see as we get this money in Florida, like you'll see us back over forward. Like gets about where we're running it. So, so complicated for its comp k for me, I know it's comp KPL because we're looking at. Brian said and three for this track for that and seven for variances track to hear, add 77, and multiply thousand forward. So it is difficult, but we're really -- the way we see it, we're running our loan yield, net loan yields about [Indiscernible]. I won't set so we're that's about. We're sitting right now. Did that help at all?

Okay. No, that does. I was thinking about the next quarter or two versus longer-term. I definitely see you guys over 4% margin again. Just last one for me, origination rates relative to the existing books? Any color on that?

I think we're in the mid fours in the first quarter. We had a couple of opportunities that Chris and his group had seen an asset. But the Community Bank Group regions, were a little over 5%, which call right in line with what Johnny talked about earlier, on where our core loan rate is.

Okay. Great. I appreciate all the color.

Brett thank you.

Thank you Brett. The next question. I'm sorry, Brett has now disconnected. We can proceed with the next question, if that's fine.

Sure. That's fine.

Next question comes from Stephen Scouten with Piper Sandler, please proceed.

Hey, good afternoon everyone. Appreciate the time.

What you know?

Johnny I didn't know Arkansas State. I've been good but I didn't know Arkansas State has a PhD program in economics. Is it named after you or is it named after a duck blonde? How much money did you gave to that school?

I gave enough, they gave me a PhD. That's all it took, they said you deserve a PhD. I went as far as giving them the money.

Well, at this point -- well, I hear you. At this point, we're going to be taken queues for you about which direction the economy is going to go. So I mean, I guess following up on some of Brett's question, but I mean, you kind of noted, hey, we've got this $4 billion in money to deploy maybe over the next 18 months, 24 months, $2 billion in loans, $2 billion in securities, give or take. I mean, if you think about that outlook in an environment where you could see in your mind maybe 5% or 6% rate. I mean, do you start to worry about credit? Do you start to worry about those recessionary trends and what could happen on the flip side, as you start to put some money to work?

No. Don't give me -- when we got things going our way, don't give me that wet blanket on me with that. We always worry about asset quality here it is. Look at our asset quality, and know that it is superb asset quality. We don't have asset quality problems. And we just -- it's all in leverage, if we can keep the loans leveraged properly, they're going to work, if you got the proper leverage and they got skin in the game is outside in the past, they're going to work, but I forgot what the other part of the question was?

That's it. It just seems like the market is not giving credit, especially to a bank like you that has a lot of funds to put to work, not giving any credit for the higher rate, but penalizing you already for credit issues that haven't even begun to materialize. So just wondering what you guys are seeing, if that's even -

We're 500% to non-performing. They won’t allow this for credit. 500% non-performing and $250 million in reserve. So we're probably in the best shape on the asset quality side of anybody in the country with lots of capital -- a lot of excess capital. And so I think we're in good shape. I think you're right. I don't think the market's recognizing what we're doing. We are -- we have remained patient. You take the $4 billion and you put it out at 4% or 5% and you see what that does, what that creates for us. That's a couple of hundred million -- $160 to $200 million in pretax income. So that's the ploy. That's where we're headed. We may miss it a little bit, but that's our thought at this point in time. I can take that $200 million and not tax it and that's almost -- it's almost a dollar a share. So that's actually pretax dollar share, so that's a lot of money. That's a lot of impact. And I think that we might. We won't get it all, but we'll get a lot of it.

That make sense.

Lower two billion. They won't reward us until we do it. Stephen, if they -- the market won't reward us until we do it. They're rewarding right now loans out there that people are doing in the 2.5 and 3 4/6 percent fixed long-term step, they’re rewards that, They need to take a look at the bond portfolio. I'm happy they went from $27 million up to $101 million loss. I mean, that's exactly what's happening to the loan book. Say what you want to say if you mark that loan book today based on what they are doing, they are upside down. So we're still at 506, we're hanging in and Happy was little higher than us. We like what we're seeing with our book, which I think puts us in the best position ever. That's my PhD report.

No. I mean, that's what I think is interesting, right? I mean, you talked about $2 billion in potential loans, but frankly it doesn't seem like you really even need to do that. I mean, you could obviously if they're there, but I mean, if you could get a 4.5 handle on your bond book with minimal risk that you don't have to provision for. I mean, it seems like -- seems like you've got a long runway in front of you with minimal downtime, is this the way I'm seeing it? I'm just wondering what I'm missing because clearly the market --

I don't know. I don't think you're missing anything. I think like you're seeing exactly what I'm seeing. I like you rad-on with me and this executive team. I think we're rad on with that. We were talking about loans to diverse is -- the difference in the right and wrong was risk-free, was government basically, and brands. And when we do that loan we can just stick around here. We don't have any risk at all. So we will have to manage that as we go forward. But I think you're rad on, I think -- I like we're in this because if history repeats in sale, we are in the catbird sit better than I've been in maybe my banking career.

Yes. Well, that's really helpful. Appreciate it, guys and congrats on what's ahead.

Thank you.

Thank you, Stephen. The next question comes from Brian Martin with Janney Montgomery. Please proceed.

Hi, guys. Nice quarter. Maybe one question, Steve, and I appreciate the color on the happy portfolio. Just wondering the total variable rate loans today, can you give any sense on when do those completely get through their floor so they're moving with rates? Just so we can think about that as we go forward. I think you gave some detail. Maybe you didn't cover that?

Sure. Yeah, I kind of anecdotally in our prepared remarks. Yet some of it is a little bit dynamic depending on the duration of the loan, I know Chris has about half of his loans that are at or above floors now, another 100, 150 basis points, he'll probably get to all of them. But by the time that happens, some of those loans may be at maturity. I think largely over the next 100 basis points or so, we pick up the vast majority of what we're going to.

I got you. Okay. So how --

Your Harpy’s got virtually all of theirs at or moving now, which is great.

Okay. Got you. Okay. And then maybe just, have you guys. I don't know if you -- your thoughts on the deposit betas and I know -- I guess just as you kind of think about all the liquidity in the market, and just kind of -- I know Brian, you gave some color on the rate moves and kind of what it -- what's kind of embedded in your forecast. But just what type of deposit basis are you assuming, and I guess my assumptions are conservative, but just kind of get a sense for what's in that number on the rate increase benefit.

Sure. This is Stephen, a minute. Some of it depends on the account type, whether it's checking or savings, or other. I mean, I would say it's cumulatively average in the mid-to-high thirties.

I tend to think that at least for the first 50 basis points expected high or maybe even the first 100 that there's so much liquidity in the banking system today that your bank should be a little more agnostic to initial change. Obviously, some of what competition is doing will drive that. But I think it may be more around what we do with terms potentially and offerings as opposed to just how much of the rate increase that we pass along. But I think we're optimistic. The first 50 to 100, it's less than the betas that we have modeled in.

That makes sense. As far as maybe just -- I want to try this, payoffs sounded like they were down this quarter. I guess is that a trend you expect to continue here? It sounds like the production was still pretty nice and then the unfunded commitments, I'm not sure the timing of those, but sounds like -- was this something we're going to see maybe a little bit more of on the payoff side being a little bit less when you think about today or too early to set a trend?

And I'll let Kevin take that too. It's probably a little early to set a trend there. I think, obviously, potentially, as rates rise, it may slow some of that potentially. People hold on to assets or whatever, but that bounces around a little bit from month-to-month and quarter-to-quarter. But we've also prior -- over the last year, year and half have had some eight almost $900 million a quarter too. Kevin.

Yeah, Chris made, I think a comment in his remarks about the second and third quarter will have some payoffs that he's not seeing recently and he can answer that if he wants to but, certainly I think he is going to have, in the next six months, some moving around his portfolio but will be some payoffs. And I think the rest of the portfolio, it's hard to tell what rates will do -- the rising rates will do to that. I mean, it could slow that down a little bit for the rest of the portfolio, but Chris does have some that we know were covered.

Got you.

Chris, you got a comment on it?

No, I probably just say we play to remind people, I like payoffs. I like it when people pay me back, it's not the worst thing that can happen when we make a loan. So one of the nice things about having a pretty good couple of quarters of origination is it gives me a little more flexibility to encourage some payoffs as well. So, I'm going to be a little disappointed if we go through four months here with depressed payoffs. I've got some loans that I think it's time for them to go.

Well, the last two for me was just with the credit mark and Happy. Just any thoughts on how their -- the [Indiscernible] is trending at this point, or, I don't know if you have anything on that Brian or not.

No, I don't have anything to update on this point in time. We're still working on it. Kevin is working on his numbers and we got Adam 20 days. Got you. Okay. And then just with the closing of the deal, the third quarter looks like a relatively clean quarter with the expenses kind, the numbers that seem fair virtually?

But we'll have all the purchase accounting down, will we have all the cost savings in? Probably not. I mean we won't get a lot of cost savings and till we get converted, which is in jeans. So it probably Q4 I would think before we can [Indiscernible]

Some of that will bleed in to early earnings, some of that will bleed through July so. We [Indiscernible] clean will probably

It's been interesting watching that process I=as Stephen’s kept me up to date, I want to -- going step by step with the Happy people and there's some significant savings that we're starting to see some of that or we've captured some or we'd actually put it on the books yet, but it looks pretty high right now.

Got you. Okay. We'll call will nice, quarter guys and you can look forward to a better future. So, I appreciate time.

[Indiscernible]. Thank you.

Thank you, Brian, the next question comes from Michael Rose with Raymond James. Please proceed.

Everyone. I think I'm probably last in the queue here, so I'll keep it short. Obviously, the stock is trying to a little bit of water since the deal was announced and then now that it's closed Johnny, any thoughts on the buyback at this point?

We've been -- we can -- we bought a little bit 10-b back. We bought a little bit back. We bought just prior -- we were out for a while and we had two or three days we could buy, I was thinking about 30,000 shares a day or something during that period of time. We'll probably get back in that game at some point, we just got too much to do right now with execution, but, we're not -- I can buy, I mean, I can start buying again pretty quick. I think three or four more days from here.

We are back.

Can Maggie and so -- I like where it is for [Indiscernible]. And I'd like to own it here, so I think it's

We've actually bought more back already this quarter than we did all of last quarter.

We did? Okay. So good. So we've -- we [Indiscernible] We hit all of those numbers already.

[Indiscernible]

That worked out. We're not out of the market. I guess it's [Indiscernible] labor or profited up little bit. And I will always just see where it goes. If they want to take it down, and we'll buy a lot, we'll buy $20 million worth. We got $400 plus million in holding company today. So we got plenty of money. We got plenty of firepower to go do what we need to do. I'm just going to watch it for a little bit, and if the werewolves take it down, I talk for our shareholders, but we'll be there. We are not going to the house. We recognize it's cheap where it is right now, and we'll -- we're not afraid to buy it, as Brady said, we've already bought more this month we did first quarter, so.

Yes, from a cash perspective of the holding companies get. Good for [Indiscernible] today that we --

We have more dry powder we've ever had. So how much cash you got in there? Probably $500 million?

Yeah, $500 million, but we're going to pay off approximately $94 million. So your $400 million number is correct.

Okay.

Yes. Maybe just one for Chris Poulton. Given the concerns out there that we might be in for a little bit of a slowdown in the back half of the year into 2023, any thoughts about pulling back in any of the verticals that you guys operate in? Either by type or geography. And then, obviously I know with Happy coming on, it gives you a little bit more capacity, how does the interplay work between those dynamics? Thanks.

That's a fair question. We've been nervous about a lot of the verticals for a year now. And so I don't know that getting closer to what we think is already going to happen makes me any more nervous because I think I'd just assume that I mean, we, starting last year, we underwrote a recession in 2023. That was already in our number. If it doesn't happen, that's great. Right? But we don't get paid to take the upside, so we continue to do that. But it's sort of like hotels for me, right? I don't like hotels. I don't want to do hotels but, why don't you talk to me about your hotel, right? There might be a way to do it. And just a matter of it's always leverage and liquidity and duration and those types of things. So volatility is good for us. And so if we get into the second half of the year and there's volatility, that's generally a good thing for us, right? Because we're low leverage lender and when everybody can go get high leverage, they tend to go get high leverage. When they can't get leverage, they tend to take the low leverage. So I think periods of instability and transition, usually are our friend, because people start to -- a lot of our clients start to appreciate the fact that we're there. We don't get out of the market, we just adjust a little bit. Others that went high just exit when they get nervous. We don't exit when we get nervous.

We just -- we tell you we were already nervous, and therefore, our pricing and our leverage reflects that. So when times are really good, it's tough for us. When times get tough, I think that's good for us. So we continue to see, I think a lot of interesting things. We had just a lot that needed to close. And so I'd say we focus the first four months of this year or so on getting that pipeline back down to a level that we feel like we can manage. And now we'll start rebuilding that a little bit, but I like -- we like instability. And every day there's not a recession is a surprise to me.

That's a really good point for sure.

You got love it. He looks at times different than we look at them a lot of times [Indiscernible]. One good thing about him, he knows what he's doing. He's got a great team. And he was limited on his role, but he has the ability to grow nearly another couple of billion dollars when he finds loans. That's his call. We don't have a target for him, but he could go up to about $3.8 billion that he plans, the quality, all these loans. And if he find that many, I'm sure they'll be good.

That's good. Well, that's it for me and I look forward to hopefully seeing some of you guys down in New Orleans. Thanks.

Look forward to it. Thanks. Thank you.

Thank you. Michael. That concludes the question-and-answer session. So at this time, I would like to pass the conference over to A - John Allison for closing remarks.

I think we said it all today. Thank you for joining with us today and we'll talk to you in 90 days, and I would assume that our net interest margin will be better than it was now. Because I would hope that we may have deployed some money. May or may not Brian we'll see, right?

We'll probably deploy some and we should get a little bit of kick from the -- nothing else we'll get a kick from the rise in the Fed funds, right?

That's correct. And the refinances --

Yes.

Of our bond books so anyway, thank you very much. And we'll talk to you in 3 months.

That concludes the Home BancShares Incorporated first quarter 2022 earnings call. Thank you for your participation. You may now disconnect your lines.