Q4 2021 Home BancShares Inc Earnings Call
[music].
Greetings, ladies and gentlemen, welcome to the home Bancshares incorporated 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.
Presenters will begin that patch remarks, then entertain questions. Please note that if you would like to ask a question. During the question and answer session. Please press Star then one on a touchtone phone. If you decide you want to withdraw your question. Please press Star then two to remove yourself from the list Company has asked me to remind everyone to refer to the cautionary notes regarding.
Forward looking statements you will find this note on page three of their Form 10-K filed with the SEC and trade.
February 2021 at this time all participants are in listen only mode and this conference is being recorded.
Operator assistance during the conference. Please press Star then zero.
It's 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 FCC, FG, John Marshall President of Shore Premier Finance, and Stephen Tipton, Chief operating officer at <unk>.
This time I will turn the call over to our chairman John Allison to share about another record setting year.
Thank you.
Welcome and thank all of you for joining our 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 were often running on 2022.
The fourth quarter and the full calendar year of 2021 earnings were both records for our company.
Strong together four quarters earlier that added up to $2, but not in the calendar year.
The earnings for the fourth quarter of 2021 were 45 cents 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 youre companies had adjusted earnings and at or around the <unk>.
$300 million more most two years or more of that has been in the middle of this pandemic I'm pretty proud of that and well carry an extra three $4 billion in excess cash that's earning virtually nothing in spite of that we beat on total revenue quarterly EPS in total EPS and earnings for the year.
We did not sell our future by deploying excess cash and the 2% loans and one in the quarter Securities I can assure you it would've been much easier for us to have not remain disciplined investing the cash. We believed if we were at this may be a generalized opportunity and I'll talk more about that in a little bit.
I've said, a huge generational opportunity to deploy all of the excess cash at much higher rates.
Yes, that's a businessman and may come in as well.
We believe the fed cannot continue to print money to flood the system without some onetime a huge price and that's exactly what's happening in the American Sumer is getting killed with pricing today.
Do you agree and it appears we were correct on the call and hope will be vindicated over the next three years as we put the money out at much higher rates.
The bonds that held cash of reap the dividends of higher earnings translate into higher stock prices for those that show patients those who are invested in long term low rates and made loans at much lower rates and just what's the show Google Linda It's Karl inflation and likely could be a runaway inflation.
Like it was in the life certain things in the early eighties when in that $2 81 in the 10 year hit our inter day peak rate of 15 eight forward.
While the record for the 30 year Treasury issued on February 5th 19, AEP was 14, 5%.
Fed was certainly asleep at the switch them in these times are similar and remind me are those days I guess, you say if it looks like a duck walks lots of the in class lack of but it's probably a bit.
For the year 2022, the expectations of three to six and I've, even heard some of them now so 25 basis points.
For move up 75 to 150 total.
The fed has slide this game to keep rates down late June loan and they're way behind the curve just like they did in the early eighties. Diane. So you don't have to play the pump having not invested the excess debt.
Home has been really really strong position for many years to come that is if history repeats itself and if it doesn't we still have a fortress balance sheet to look for opportunities, having a billion or two investors at those high rates could pay dividends for our shareholders for a long time.
I believe we've been dancing around the port.
And it will require a very careful corrections in 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 us our company when the opportunities come out on the road.
Do.
When you think about the strength of the company were 471% of nonperforming. We ran a 162 Roy you pull out the liquidity in your back Thats, a 2% efficiency ticked up a little bit at $43 79, and we had some merger expenses in this quarter's operation.
Tangible common equity and tangible assets of $10, three six and a 243% reserved loans equates to $236 million.
Home is ready for whatever happens good or bad we did not get into its great financial position overlap overnight, but I like our balance sheet position today, particularly during these crazy inflationary period, there is no substitute for experience.
Mentor Kemmons Wilson, the founder of holiday and would say that.
The calculator knows 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 five six to five.
So our rate of three one things that say two 5% annually over $300 million for five years at <unk>.
$705 million reduction annually or $37 $5 million over five years mass win win we have not paid off that sub debt. We're looking towards April Bryan. That's correct. So that comes up we got the money now we didn't wait till April because we thought rates were run at owners and we'd have to pay a higher price.
These were some of the thoughts that we discussed with our executive team and board that led to this season to issue the new $300 million sub debt.
Don't feel bullish growth, we're pretty darn close there is no substitute for having financial strength, if you need demand in tough situations, it's hard again.
<unk> expenses as.
Alex laid long told me. He said you can get the money now get it. So he has 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 by pretty soon pricing and I think you are not we're way down the road and closing and ready to execute once the deal closes if I understand correctly, we have shareholder approval from both happy and Homesites plus the Arkansas State Bank Department, just waiting on fed approval.
Hopefully not too long from now the combination will tie dressed to almost $45 billion in total assets with close to 2500 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 employee shareholders.
Thank you and I hope, we provided you a happy home.
And then you get that done.
I got a lot of that sounds like a great year, congratulations to all it sounds like more good thanks, Ken.
Now, let me drill down to the Centennial Bank level, we will hear from Tracy branch.
Thank you Donna and good afternoon to all it was a happy end into 2021% annual 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 shed a little color on how Centennial Bank finished going over $18 billion in total assets.
Total revenues at 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 banks are away on average assets, excluding intangible amortization non-GAAP finished the year at 2.0% to 7%.
The bank's efficiency ratio ended 2021 at 38, 33% and the.
Allison <unk> NR wrapped up the year at 65, 1%.
Noninterest income remained steady throughout the past three months of the fourth quarter and actually finished steady for the year that took a lot of effort all centennial bankers to make that happen non.
Noninterest income was up 14% year over year.
Noninterest expense was up just a tick with our continued efforts to maintain our data integrity effectiveness and 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 two 3%.
Seven of our 12 regions finished the year with over 2% on core ROA with Central Florida, and northeast, Arkansas, leading their respective states.
By the way the excess liquidity that Jonny mentioned that some regions regions have developed because of the core relationship didn't hit the 2% Mark when you look at that Jonny Thats really a good problem.
Overall, your bank's allowance composites capital risk management asset quality of earnings pristine position for whatever the future holds and speaking of the future pads Hickman and Michael Williams with happy State banks 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 two groups without question, we will take our company to the next level.
Not all happy at Centennial.
Good to hear that's a great report Tracy great year, now, we will turn to Brian Davis for his financial report.
Thanks, Tom Today, we reported 139 million of net interest income and a 342% net interest margin for Q4 2021.
Our fourth quarter net interest margin decreased 18 basis points from Q3 to date I'd like to go over a few 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 GDP was seven 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 seven four basis points dilutive to the Q4 NIM compared to Q3.
Third there was a in income and the margin for Q4 of $1 2 million compared to $3 5 million for Q3.
This had a negative impact of the Q4 NIM of five seven basis points.
Accretion income fourth item.
<unk> 4 million compared to $4 9 million for Q3.
This had a negative impact to the NIM of $2 one basis points.
Finally on them from a historical reference point.
Q4, excess cash margins the historical normal cash balances as a negative impact to the Q4 NIM was 78 basis points.
Ill conclude with remarks on capital.
Our goal at home Bancshares is to be extremely well capitalized and I am pleased to report the following very strong capital information.
For Q4 2021, our tier one capital was $1 9 billion.
Total risk base capital was $2 3 billion in risk weighted assets were $11 8 million.
As a result, the leverage ratio was 11, 1%, which is 122% above the well capitalized benchmark of 5%.
Our common equity tier one was 15, 4%, which is 137% above the well capitalized benchmark of six 5%.
Tier one capital was 16.0%, which is 100% above the well capitalized benchmark of 8%.
And finally, the total risk base 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 Don So do you sleep well at night.
Pretty good with these capital ratios.
And I am sleeping well with all the excess cash and I am sleeping well with our reserves do so.
That's great I'll be glad when we get back some days, where we can tell what the number of <unk> plus or minus plus Atlanta cluster model. So it will be that.
Somebody to get back to where we can say you can say the name before the quarter was.
Right.
Thank you, Brian I'm glad that you were well received.
And now Kevin Hester will update us on the loan portfolio.
Thanks, Sean and good afternoon, everyone.
This quarter continued the strong loan production trend that we saw began late in the third quarter, which resulted in organic loan growth of $64 million ex PPP forgiveness.
Pay offs continue to be elevated which offset 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 loan forgiveness slowed to $129 million in the fourth quarter and that leaves us with only $116 million remaining are less than 10% of our total fundings from all round.
Covid modified loan balances dropped about $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 showed solid improvement across the board in 2021, and we feel very positive about the prospects for these credits in 2022.
Movement backed P&I payments will be required before any distributions can occur and we see many with a pathway to that occurring with a solid spring season <unk> increased travel.
Our credit metrics were largely unchanged in the fourth quarter with non performing 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 four 1% and Oreo was almost nonexistent.
We appreciate our credit positioning heading into a rising rate environment.
As we entered the new year, our conversion teams are ducks adopter playbooks and are preparing to execute another solid set of place 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.
Kevin.
Now from New York is Chris Thank.
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.
We do expect to see payoffs accelerating 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 size. 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 Don.
Thank you Chris.
Now we will have an update on the marine industry from John Marshall.
Thank you Donna and good afternoon, everyone December closed down and adventurous 2021 voyage in the finance world punctuated by record industry sales led to record loan production is sure.
The resumption of European factory shipments of new boat inventory in late 2021 led to the originations of $160 million for sure and just <unk> 21.
Split evenly between commercial and consumer mortgages.
This $160 million in originations compares to quarterly production of $90 million since the pandemic began.
$50 million quarterly production pre pandemic.
Asset quality has only improved in this environment with non accruals beginning of the year at 21 basis points and concluding the year at 17 basis points.
Arguably delinquencies were similar were reduced from 18 basis points to two basis points during the year.
Sure never originated any PPP loans, and all deferral programs, where sunset in 2020 without incident.
FICO scores remained super Prime at 776 unchanged from the prior year.
Last year as new boat dealer inventories evaporated.
The mix of retail loan shift from 50 50, new boats to used 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.
Perhaps the best barometer for our 2022 forecast as reflected in North American dealer sentiment, which we've seen new boat orders jumped 20% over prior year.
We are well positioned to rise with the tide.
With that thank you Donna and I'll return the conversation Q.
Thank you John .
And our final report today will come from Stephen Tipton. Thanks.
Thanks, Donna I'll give the standard fare on deposit activity repricing efforts and trends and a few additional items we.
We saw continued increases in total deposits during the fourth quarter of 2021 within period balances increasing $257 million from September the 30th at a year over year increase of 153 billion or 12%.
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 of our Florida footprint.
Switching to funding cost interest bearing deposits averaged 21 basis points in Q4 down two 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.
Presents short term challenges for deployment and places pressure on our 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 income and the excess liquidity, we would've 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 prepare for a systems conversion mid year.
Congratulations to all of our teammates on a solid quarter and another great year and 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.
Yes.
Exit year Donna.
Congratulations to everyone and hope that our shareholders are happy we end the year strong financially of his company has ever been in the history of it you heard Kevin talking about asset quality and try to tell them about the operations and Brian talked about the capital strength, it's been you heard Chris.
<unk> fourth quarter, John Marshall to report I mean, the company is hitting on all eight and I'm really proud of that so hopefully 'twenty to be higher year end right.
<unk> keep going up.
Say that they're supposed to play there and you say where rates went down.
Bonds and bank stocks went down and then now.
Today, they kind of softened a little bit on the right on the turn here and they took bank stocks down yesterday.
I don't get it.
Kind of funny to me that's the way it works, but I think it would be a good year for those who have had a lot of powder to fire will have a good year. So I'm ready if you will 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.
Thank you for our Q&A, if you would like to ask a question. Please press star followed by one telephone Keith I don't know if you change your mind. Please press star followed by chicken.
When preparing to ask a question. Please ensure youll find newsy and muted locally.
So last question comes from Matt Olney from Stephens incorporated.
Your line is now open.
Hey, guys good afternoon.
Afternoon, Matt.
Yes.
Hey, Thanks for 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 open liquidity.
10 year Treasury yield hits that too.
2% level do you think that the.
Signal for a green light to start up point of a portion of this I'm just trying to get a better feel for how how close you are to doing something on that on that front. Thanks.
Okay.
Well I would think that we can.
Probably start presence and stuff and securities when we see the 2%, but we're getting pretty close to that right. My I think Brian .
190 596.
Average and about 196.
<unk> for January .
Over 4% duration.
So.
We're kind of hanging in there is good opportunities here I think for us.
We don't wanted to deploy two quick.
And when you put it into quick and you Miss you missed but missed the window. We were as you know patient for 18 months almost.
We don't want to put it into quick, but we want to try to maximize I'm not going to try to get the same day at $14 five three I mean, the U S. Government 30 years at 14.5 to $14 seven I'd like to get something a little higher.
Yeah, No I understood I understood.
And I guess changing gears on capital, we talked a few months ago about potentially paying down debt $300 million sub debt in April with cash on hand, but it sounds like you pivoted and essentially.
Or refinance that debt in let's say in the commentary it sounds like the pivot with based on the expectations of higher rates anything else, we should be mindful of what that strategy does it speak to M&A or.
Anything else that youre seeing out there besides interest rates.
Well.
Youre right. We did pivot we did pivot where we're already just paid off some debt and not issue new debt.
We ran around here for a month.
Looking 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 we wait till April we could be back in the 4% range millimeter are higher so we thought it was probably smart to go ahead and do that.
This is $37 5 million regardless.
It is our intention to pay off the balance all sub debt in April unless something changes thats our plans.
In addition to that I think Brian is about 93 million, Brian is that about right.
$71 million of Trups that we have and we're going to inherit $21 million of drops from happy to get to the $90 million okay.
So it wasn't it wasn't changed and it was after much deliberation around our board table on our executive team and disc.
Discussions with them.
Several of our board members that let us let us to that decision.
I think it really has to do with strength in this market I'm not sure.
If you believe if you believe we are advancing.
And on the point of an App.
Break somewhere.
<unk> had it in <unk> seven in light and I would like to have had additional capital in.
18, 1920, when we hit the pandemic so.
Are we through all of that are we if we may.
Made the capital will we will have it and if we don't meet the capital, we'll say $37 $5 million. So I kind of looked at it as 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 a little by value. This year and the home Bancshares is certainly if youre looking at strength and quality in the fourth year.
$300 million, plus and record earnings I don't think homes placed debate and will require more or less money. This year, we will deploy more of the money this year. So.
Spect that.
Hit the market at some point in time, but we haven't yet we haven't really spent any of it yet and we're up to what that three months.
$3 8 billion in cash at the bank.
<unk>.
We'll be putting some of its work price you're good with that.
Sir.
On a more higher level.
Sure.
Okay.
Prices dropped all the hair of product has had my head as you know over this deal so.
Well understood and congrats on 2021 Guy's Thanks for your help.
Yep. Thank you.
Yes.
Yes.
I'm sorry.
But I am a robot morning on my phone so when it rains and I Didnt Havent turned off I apologize.
As a reminder to ask any questions. Please press star followed by one on your telephone keypad now.
Yes.
We now go to Brady Gailey from K DW Brady Your line is now open.
Yes. Thank you good afternoon guys.
Hey, Brady.
Yeah.
So we saw ex PPP, we saw positive loan growth this quarter, which was the first time, we've seen that.
And the last several quarters I know <unk> 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 I head into 2022, so I just wanted to ask.
Great markets they are in Florida.
Soon to be 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 heavy had a heavy was up about 10%.
Last year Huh pump, yes, yes, they were up about 10% for the quarter over last two months they have been having good growth.
Kevin <unk>, who will talk about what we're what we're seeing.
It's just challenging with everybody, having the same relative liquidity, but we have to do that then.
Just going to have to client at low rates.
And the higher leverages than we are.
Did we have historically been willing to do.
There.
There is growth there, but it is at a different level than we've been.
That we've been wanting to do in the footprint.
We just had a customer event one of those five years on two hotels.
And he had.
One of them had $7 million worth of managed money in the deal and another $105 million managed money are you can imagine through this process. They haven't paid down their principal very much but they're managed money was do it at.
Five years to come out so they came to US we'll dust alone one one this loan with a $5 million of Mezz on one hotel and $7 million of medical and the other wholesale was suddenly that takes you to 85%.
They got it done.
But they got it done I don't know if this is Tom that's a scary thing youre seeing out there.
As Kevin said, it's a lever that's the scary part of it.
Stepping up stepping up.
Total in the last call we have solved the most egregious hotel loan that I've seen in banking.
Banking history.
Last quarter, where our hotel was we had $12 million long known and they ended up alone is north of $40 million over the same selling whole China. So you just got to be careful I think that's going to get better we will put more into securities. During this period of time as rates continue to go up we will continue to build that.
And from origination point, Stephen you won't talk about.
How much risk side, 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.
Three prior quarters to that we were in the $6 million to $700 million range.
Last half of the year certainly production both for Christmas Group and really all fronts were stronger than they were the first half of the year.
Work hard to build a good book of business, we built a good book of business and I told Kevin assets stopped losing loans, let's don't lose any loans from hereon will assist us if we got to step up anywhere near reasonable just step up unless keep those loans will put new stuff on it.
So that's part of what you're going to see and Youll see a little more activity out of us trying to keep the loans on the books, but we know theyre good loans and their paper to stay live alone. So we will see us youll see us get a little more active on that side I think that's a plus for us hopefully, we'll be able to put a little more money in investments here before long.
Originations are holding in there pretty good actually the first quarter was pretty good.
Yes.
Alright.
My last question is on fee income I know, there's other service charges and fees stepped up pretty nicely linked quarter, a little over $11 million.
In the fourth quarter was there anything special mention in that bucket in the fourth quarter.
Yes.
This is Brian it's mostly 100% related to some additional phase that CCF G and Chris Poulton XOMA phones. So Chris I'd actually is all related to your $3 million of additional income this quarter. If you want to elaborate a little bit on it.
Sure good afternoon.
Fourth quarter, we generally have pretty good fee income.
Quarter end of the year 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 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 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.
Okay, and then finally for me I mean, Johnny happy deals about to be closed.
So when is the right.
Happy is the big deals 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 and your franchise is going to be almost 25 billion in assets. So I'm guessing the targets youre going to look at are going to have to be kind of a larger more meaningful deals versus what you had looked at.
Historically.
Well there are out there there is lots of opportunities out there we have.
We're active.
We will do anything it just means we're active.
We were active yet for yesterday on a video call it pricing hour.
<unk>.
We're active.
Got meetings that acquire or be acquired.
That is going on as we speak so.
Will any of that come to fruition.
Peggy.
Will it come to fruition I don't know of any of it will but we're talking and we're looking.
The good thing is they understand how we do business I understand that.
I don't have a long argument.
Through the pricing process and either works or doesn't work and I think after the happy deal world sleeves that transaction.
Only the second bank went up.
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 will play off of that.
There are some areas that we could parallel with happy.
But that remains to be seen but.
We are talking to people, but that doesn't mean, we're all doing fine.
We didn't do anything for.
Almost five years, four and a half years do we found the right one and we did it and we're glad to be in Texas.
Looks like they're forecasting loan growth the first quarter.
Their businesses is good so pretty excited about that.
With them we're all.
Also looking at some portfolios to purchase.
<unk>.
Kevin has completed his due diligence.
And we like the book and I think Youll see that announcement coming out fairly rapidly.
Hello piece of business for the for the loan sat in a market that we understand.
And so I think youll like Australia like that so that will give us a little kick start going into the year. We've got some good things going to happen in January and February with some recovery. So those are pretty good thing so the fourth quarter. It looks like it might be shaping up pretty nicely for home.
Okay.
Alright, great. Thanks for the color guys.
Hi, Thank you Barry.
We now turn to Matt Olney from Stephens incorporated.
Please go ahead.
Matt.
Yes.
Yes, sorry about that had you on mute.
Wanted 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.
The West Coast had a lot more opportunity than than maybe some of your traditional New York market. So do we see this in the fourth quarter or is that still on the come in 2022.
So there are really three things in the fourth quarter. One was we did see some good production out of the West Coast I think I'd 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 close those were more west coast oriented.
The East Coast I think the second thing is as you 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.
And that of revolvers. They repaid we expected that they would they would redraw during the fourth quarter. They did do that so that was between $50 million to $75 million coming back in which we anticipated.
And then.
And then the last bit of it is while we did have quite a bit of pay down to about $250 million or so of paydowns.
We had more draws the paydowns and so we did about 300, a little over $300 million.
Draws against maybe 200 $250.
Paydowns and so.
And Thats a little bit also feature.
<unk> a lot of production this year those don't always draw at close.
They tend to draw over the course of over the course of the year, especially on facilities and so I think we had those three things come in during the quarter.
Because we get into this year.
We expect production to continue as we start with a nice we start with a nice pipeline.
A number of really interesting transactions, hopefully bill will be able to go all the way to the finish line on those but.
We're very active at least in think were working hard towards that I think that'll continue.
I mentioned in my comments I do expect a little more elevated payoffs in the first half of the year.
But it's been anticipating rising rates and now you're starting to see the rates rise and some folks who might have been thinking that could hold on for the 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 us a little a little less proceeds right now, but that lock in the lower rate and then and then I think we'll see drops come over.
Over the remainder of the year so.
I think if we do our job and we execute on the originations and and and and we kind of get the draws we expect I think over the course of the year will probably <unk>.
End up about where we are maybe maybe some modest growth.
But I do think we're going to see a little bit of elevated pay down between now and then.
Okay. That's that's helpful. Chris Thanks for that.
Sure.
And then also wanted to ask about.
Yes.
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 we would have to see to get above some of the floors at the bank.
Three 7 billion.
Is that cash will reprice.
Matt This is Steve and I'll give you a little color on the on the loan side with John is right. I mean, we talked this morning, I thought I know everybody's going be focused on the variable rate loan side, we've got more cash today than we have in and variable rate loans.
We've got about a third of the loan portfolio in total is variable rate, we've talked before all of Christmas balances at CFT are variable rate.
We have about 700 million or so in total that's tied to Wall Street Journal.
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 to begin to see any any meaningful increase from from that loan portfolio I think.
Maybe 30% or so of Chris's will move as LIBOR.
Begins to move which all is LIBOR based and then cut.
A couple of hundred million, probably out of the community Bank group with the first rate hike. So.
Need to see a couple I think before we began to see some some meaningful <unk>.
Volume there, but on the flip side.
We're at 68% loan to deposit ratio today, you go back five years ago, We were a 100 105, and so I think in an up rate environment the deposit portfolio.
Completely different than it did.
345 years ago as well so I think we're all optimistic that we see some yes.
Some improvement in an up rate environment just overall.
Alright.
And just to clarify Stephen I think you said a third of the 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, $3 4 billion or so that that reprice within a I'll call it six months or less period or had the opportunity to reprice.
Sure.
Got it okay.
And then just lastly on the on the happy deal I think all you're waiting for at this point is that approval and I think that Thats got a little.
The key is getting a little bit backed up any indication on when the happy deal could be approved or where they are in the queue.
I mean, I think the plan doing it in the first quarter, we're still it's still it would be our plan today, but you are right things to be.
Bob down but.
Sure thing.
We're geared we're moving forward I think Johnny mentioned, Michael and I have been working in.
Centennial Bank group with the happy State Bank has been extremely busy.
Preparation going forwards and we're all ready for them to give us the green light on that part.
Can.
And really get after it so all good.
Great.
Yes.
Hopefully soon okay.
Thanks, guys.
Abbvie is ready and were ready.
First safety.
Yes.
Our next question comes from Brian Martin from Jamie Montgomery, Brian . Please go ahead.
Hey, good afternoon.
Hey, Brian I guess I wanted to touch on 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 youre 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 growth to or we think about that as you as.
As you work to deploy some of that liquidity.
Well.
I guess, we'll take what they give us but it will 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.
But hopefully not locked in forever, but lock it in for five years is that what we didn't have that wrap around about 48 months, where it is right now.
So we'll put it to work.
Hopefully, we'll get half of it might be this year.
Either securities or loans, that's what I'd be optimistic.
Might be a little optimistic.
I think the end of the year with about $1 billion for more billion Fabien seven more and be about being 7 billion seven more in securities and loans.
Got you Okay. That's helpful.
Maybe just on the on the loan growth I think last quarter or recently that you've 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 with Steven highlighted better origination activity in the second half of this year of last year.
Just kind of how youre thinking does that loan growth outlook, maybe and the combination of happy in better markets, maybe bump up that previous outlook for what 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 once you got I mean, Stephen went through the production numbers in the production numbers are up.
And you heard chris's commentary around what he expects for 'twenty two.
I think the challenge is going to be keeping keeping what we got and if we can if we're successful at that then the improvement in production can can probably get.
To that that number we've been talking about but I wouldn't.
Wouldn't look for higher than that.
At this point.
Ron I know.
Hope, we can get there sorry trying to hope we can get there, but I wouldn't I wouldn't bet on that.
You ask radian.
My head of asking about that.
One is it's a little more of a conservative.
<unk> of nature, I think we're seeing activity that certainly could make that take a little bit better.
Within our regions over the past several months.
Each region around our existing company today.
Getting our return customer coming back.
What we practice and I think that's something we're going to see what's happening.
Johnny and myself.
Scott Robert Michael on the phone yesterday.
They seem to be pretty positive now you certainly have been customer driven with.
With our balance sheet is going to allow them to take some opportunities to kevin's already worked.
A large credit with them.
With Mike's group.
Yes.
Alright.
<unk> of that so there is that there is the I think that's the opportunity that really.
Comes out.
Expand on that with them and the way that their credit opportunities, which is Texas is growing but I have to go back to our <unk>.
David market in South, Florida, and Jim's north broaden it seemed like their activity has really been better of late we still get the renegade.
Competitiveness that comes in there is we've done forever stay disciplined on our our underwriting we're going to stay there but.
I think this probably has some signs of showing a little bit better growth throughout 'twenty. Two then.
Pat.
I hate to be so optimistic.
I agree the internet of things, which might give us a little bit on right to keep some loans, but we're not we're not going to give up on leverage.
That's what gets you in trouble so we.
We just can't do that.
<unk> discussed those loans, while ago going from 50% to 55%, 57% loan to value. The 80, something in a hotel space. So it just doesn't make a lot of sense, but we're seeing that being done.
Sitting here watching it being done at low rates. So it did not very smart.
That will come.
Market stays good we don't have another pandemic they might be okay, but.
We're just not really de risk our balance sheet.
We're better off to lower the rate.
Keep the business as long as we don't have to change leverage.
Yeah.
I don't think the optimism there is going to help the hair grow back Tracy, but it's good to hear you being a little bit more optimistic than that.
Yeah.
<unk> been in the past, but maybe last one for me was just on the on the on the core margin I guess, it looked like loan yields core loan yields.
It 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.
Maybe at a bottom here with given the liquidity and what the plans are going forward and the loan growth is that that's the way to think about that margin outlook.
Yes, I think Thats fair I mean, you heard Brian .
But.
To what was reported and 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.
Loan yield was stable we got another couple of basis points out of the deposits I mean, that's that's getting tougher but.
But yes, I mean I think okay.
Prospects of rising rates here and what the cash that we've got investment securities.
<unk>.
It improves.
I think Thats fair.
If they don't raise rates too fast.
There are behind that behind the curve, but if I don't raise rates too fast and do it over two or three years, I think will be around and crank.
Get in a hurry.
Question.
And all for naught, but hopefully that won't happen I mean they are.
Obviously, you're still buying the game here as you see today I think it's now so.
That makes total sense I can't stay there, we know thats going up so it's just a matter of time till 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 80 just shop I mean.
Listen one Guy this morning, I don't know, if it's on Bloomberg or CNBC, but he colleague.
Could it be half on half of rate increases.
That's a little scary.
That's it.
We don't need that.
That will certainly slow the economy there.
Gotcha Okay.
That's it for me I appreciate you taking the question thanks, guys great year.
Thank you. Thank you Brian appreciate it.
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.
Hope you are pleased with the report we're pleased with the year, we're often running in 2002, I think 'twenty two it will be a good year for home Bancshares.
Right. We're in a rising rate environment that will play well to us. So I went back to the particular liquidity. We got if we don't have to change our leverage we will have increased loan growth and I think it's a little.
I said earlier, we're going to pick up a book of business our blade Kevin.
Announced set for loans Kevin.
Yes, $250 million is about right close very close pretty close so anyway, we'll have that and it looks like first quarter shaping up pretty good and 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.
Okay.
Okay.