Greetings, ladies and gentlemen. Welcome to the Home BancShares, Inc. Fourth Quarter of 2021 Earnings Call. The purpose of this call is to discuss the information and data provided in the quarterly earnings release issued this morning. The company presenters will begin their pre-prepared 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 touch-tone phone. If you decide you want to withdraw your question, please press star, then two to remove yourself from the list. 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 three of their Form 10-K filed with the SEC in February 2021. At this time, all participants are in listen-only mode, and this conference is being recorded.
It is now my pleasure to turn the call over to Donna Townsell, Director of Investor Relations.
Thank you, and good afternoon, and welcome to our Fourth Quarter Conference call. Reporting today will be our Chairman, John Allison, Tracy French, President and CEO of Centennial Bank, Brian Davis, our Chief Financial Officer, Kevin Hester, Chief Lending Officer, Chris Poulton, President of CCFG, John Marshall, President of Shore Premier Finance, and Stephen Tipton, Chief Operating Officer. At this time, I will turn the call over to our Chairman, John Allison, to share about another record-setting year.
Thank you. Welcome, and thank all of you for joining the Fourth Quarter and Full Year 2021 Earnings Release and Conference Call. The fourth quarter, along with the year of 2021 is now in the record books, and we're off and running on 2022. The fourth quarter and the full calendar year of 2021 earnings were both records for our company. We had strung together four quarters earlier that added up to $2, but not in a calendar year. The earnings for the fourth quarter of 2021 were $0.45 per share or $73.4 million, and for the calendar year, a record $319 million or $1.94 per share, both of which were records.
By the way, this is the fourth year in a row that your company's had adjusted earnings in and around $300 million. While most two years or more of that has been in the middle of this pandemic. I'm pretty proud of that while carrying an extra $3.4 billion in excess cash that's earning virtually nothing. In spite of that, we beat on total revenue, quarterly EPS, and total EPS and earnings for the year. We did not sell our future by deploying excess cash into 2% loans and 1.25 securities. I can assure you it would have been much easier for us to have not remained disciplined, invested the cash, but we believed if we were right, this may be a generational opportunity, and I'll talk more about that in a little bit.
I said a huge generational opportunity to deploy all of the excess cash at much higher rates. I guess that's the businessman in me coming out. We believe the Feds cannot continue to print funny money to flood the system without someone paying a huge price, and that's exactly what's happening. The American consumer is getting killed with pricing today. I think you'll agree it appears we were correct on the call and hope we'll be vindicated over the next three years as we put the money out at much higher rates. The banks that held their cash have reaped the dividends of higher earnings which translate into higher stock prices for those that showed patience. Those that invested in long-term low rates and made loans at much lower rates can just watch the show through the window.
It's called inflation and likely could be runaway inflation like it was in the late 1970s and the early 1980s, when in 1981, the 10-year hit an intraday peak rate of 15.84%. Well, the record for the 30-year Treasury issued on February 5th, 1982 was 14.56%. The Fed was certainly asleep at the switch then, and these times are similar and remind me of those days. I guess you say if it looks like a duck and walks like a duck and quacks like a duck, it's probably a duck. I am hearing for the year 2022 the expectations of 3%-6%, and I've even heard 7% now. So 25 basis points per move, up to 75-150 total.
I think the Fed has played this game to keep rates down way too long, and they're way behind the curve. Just like they did in the early eighties. You're gonna dance, you're gonna have to pay the piper. Having not invested the excess cash, I believe Home is in a really strong position for many years to come. That is, if history repeats itself. If it doesn't, we still have a fortress balance sheet to look for opportunities. Having $1 billion or $2 billion invested at those high rates could pay dividends for our shareholders for a long time. I believe we've been dancing on the point of a knife, and it will require very careful corrections and years of higher rates to stem the tide of inflation.
Having a fortress balance sheet with lots of capital, best in class asset quality, tons of liquidity will certainly be a blessing for our company when the opportunities come out on the rise. You know, you think about the strength of the company, we're 471% to non-performing. We ran a 1.62 ROA, but you pull out the liquidity and you're back into 2%. Efficiency ticked up a little bit at 43.79. We had some merger expenses in this quarter's operation. Tangible common equity and tangible assets of 10.36 and a 2.43% reserve to loans. That equates to $236 million.
Home is ready for whatever happens, good or bad. We did not get in this great financial position overnight, but I like our balance sheet's position today, particularly during this crazy inflationary period. There is no substitute for experience, and my mentor, Kemmons Wilson, the founder of Holiday Inn, would say that. The calculated moves that we have made over the past period of time could be powerful for us in the future. If not, we refinanced our sub-debt from a fixed rate of 5.625% to a rate of 3.125%, say 2.5% annually on $300 million for five years. That's a $7.5 million dollar reduction annually or $37.5 million dollars over five years. Nice win-win. We have not paid off that sub-debt, but we're looking towards April, Brian?
That's correct.
That comes up. We got the money now. We didn't wait till April because we thought rates were running on us, 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 the decision to issue the new $300 million sub-debt. I don't feel bulletproof, but pretty darn close. There is no substitute for having financial strength. If you need the money in tough situations, it's hard to get or very expensive. As Alex Lieblong told me, he said, "You can get the money now, get it." He's been a good, strong director for us for many years, and that was what I was looking for. Well, we got it, and I'm glad we did.
We're looking forward to closing the Happy Bank pretty soon, Tracy, and I think you and Michael are way down the road on closing and ready to execute once the deal closes, if I understand correctly. We have shareholder approval from both Happy and Home sides, plus the Arkansas State Bank Department, just waiting on Fed approval, hopefully not too long from now. The combination will take us to almost $25 billion in total assets with close to 2,500 associates. Many of you have been on this journey since the start, and many of you joined us in 2006 when we did our initial public offering. To all our supporters, employees, shareholders, thank you, and I hope we provided you a happy home.
Well,
You get that, Donna? Happy home.
I got that. I love that. Sounds like a great year. Congratulations to all, and sounds like more good things to come. Now to drill down to the Centennial Bank level, we will hear from Tracy French.
Thank you, Donna, and good afternoon to all. It was a happy ending to 2021 for Centennial Bank with new high marks on revenue and net income. Every community bank region, along with our specialty groups, had a superb year. As you heard Johnny report the powerful numbers for Home BancShares, let me share a little color on how Centennial Bank finished going over $18 billion in total assets. Our total revenue set a high mark of $721 million for the year. With our continued focus on interest income and interest expense, along with our non-interest income and non-interest expense, the bank's ROA on average assets, excluding intangible amortization non-GAAP, finished the year at 2.07%.
The bank's efficiency ratio ended 2021 at 38.33%, and the Allison P5NR wrapped up the year at 60.51%. Non-interest income remained steady throughout the past three months of the fourth quarter and actually finished steady for the year. It took a lot of effort by all Centennial bankers to make that happen. Non-interest income was up 14% year- over- year. The bank's non-interest 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 2.23%.
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 Johnny mentioned that some regions have developed because of the core relationship didn't hit the 2% mark. When you look at that, Johnny, that's really a good problem. Overall, your bank's loans, deposits, capital, risk management, and asset quality are in pristine position for whatever the future holds. Speaking of the future, Pat Hickman and Mikel Williamson with Happy State Bank have been working well, along with the rest of their staff, on our future in Texas. We could not have asked for better team efforts in both Centennial Bank and Happy State Bank and what is going to be complete.
The two groups, without question, will take our company to the next level. Donna, all's happy at Centennial Bank.
Good to hear. That's a great report, Tracy. A great year. Now we will turn to Brian Davis for a financial report.
Thanks, Donna. Today, we reported $139 million of net interest income and a 3.42% net interest margin for Q4 2021. Our fourth quarter net interest margin decreased 18 basis points from Q3. Today, I'd like to go over a few NIM items. First, during the fourth quarter, we had $129 million of PPP loans forgiven. This forgiveness causes the acceleration of deferred fee income for the loans forgiven. Our PPP deferred fee income decreased $3.9 million from Q4- Q3. This change in PPP was 7 basis points dilutive to the NIM. Second, as a result of excess liquidity, we had $347 million of additional interest-bearing cash in Q4 compared to Q3. This excess liquidity was 7.4 basis points dilutive to the Q4 NIM compared to Q3.
Third, there was event income in the margin for Q4 of $1.2 million, compared to $3.5 million for Q3. This had a negative impact to the Q4 NIM of 5.7 basis points. Accretion income, fourth item, was $4 million compared to $4.9 million for Q3. This had a negative impact to the NIM of 2.1 basis points. Finally, on NIM from a historical reference point, the Q4 excess cash Stephen the historical normal cash balances has a negative impact to the Q4 NIM of 78 basis points. I'll conclude with a few remarks on capital. Our goal at Home BancShares is to be extremely well capitalized, and I'm pleased to report the following very strong capital information.
For Q4 2021, our Tier 1 capital was $1.9 billion, total risk-based capital was $2.3 billion, and risk-weighted assets were $11.8 billion. As a result, the leverage ratio was 11.1%, which is 122% above the well-capitalized benchmark of 5%. The Common Equity Tier 1 was 15.4%, which is 137% above the well-capitalized benchmark of 6.5%. Tier 1 capital was 16.0%, which is 100% above the well-capitalized benchmark of 8%. Finally, the total risk-based capital was 19.8%, which is 98% above the well-capitalized benchmark of 10%. With that said, I'll turn the call back over to Donna.
Do you sleep well at night, Brian?
I'm sleeping pretty good with these capital ratios.
Okay.
I'm sleeping well with all the excess cash, and I'm sleeping well with our reserves too.
Well, that's great. I'll be glad when we get back someday where we can tell what the NIM is, because you were adding plus and minus. It'll be nice someday to get back to where we can say the NIM before the quarter was said.
Right.
Well, thank you, Brian. I'm glad that you are well rested. Now Kevin Hester will update us on the loan portfolio.
Thanks, Donna, and good afternoon, everyone. This quarter continued a strong loan production trend that we saw begin late in the third quarter, which resulted in organic loan growth of $64 million, ex-PPP forgiveness. Payoffs continue to be elevated, which offsets the stronger production. Chasing loan growth is tempting, but we continue to be patient, maintaining our conservative underwriting as we know the potential for rising interest rates must be considered in projecting future credit trends. PPP loan forgiveness slowed to $129 million in the fourth quarter, and that leaves us with only $116 million remaining, or less than 10% of our total fundings from all rounds. COVID-modified loan balances dropped by $37 million in the fourth quarter to $191 million.
Hotels make up over 75% of that balance, and their overall recovery is still underway. As we said last quarter, our monthly tracking shows solid improvement across the board in 2021, and we feel very positive about the prospects for these credits in 2022. Movement back to P&I payments will be required before any distributions can occur, and we see many with a pathway to that occurring with a solid spring season and/or 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%- 472% of non-performing loans. Early stage past dues remain low at 0.40%, and OREO is almost non-existent.
We appreciate our credit positioning heading into a rising rate environment. As we enter the new year, our conversion teams have dusted off their playbooks and are preparing to execute another solid set of plays, this time into Texas. We are actively working with our Happy counterparts to lay the groundwork for a successful combination. With that, Donna, I'll turn it back to you.
Thank you, Kevin. Now from New York is Chris Poulton.
Thank you, Donna. Q4 results reflect a successful end to what was a successful year. Net loan growth for the quarter topped $287 million, bringing overall growth for the year to $388 million. We ended the quarter and year with loan balances of just over $1.9 billion. New loan commitments for the quarter were $226 million, putting our total production for 2021 over $1 billion. At year-end, our unfunded commitments stood at $850 million. Looking forward, we expect to continue to selectively originate high-quality loans, and we start 2022 with an active pipeline. I do expect to see payoffs accelerate in the early half of the year, as certain borrowers may look to lock in low or lower rate permanent financing in anticipation of higher rates in the future.
We remain pleased with the size and shape of the existing portfolio. Over the course of the year, I would anticipate a bit more ebb and flow in the portfolio 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, Donna.
Thank you, Chris. Now we'll have an update on the marine industry from John Marshall.
Thank you, Donna, and good afternoon, everyone. December closed out an adventurous 2021 voyage in the yacht finance world, punctuated by record industry sales that led to record loan production ashore.
The resumption of European factory shipments of new boat inventory in late 2021 led to the originations of $160 million for Shore in just 4Q 2021, sort of split evenly between commercial and consumer mortgages. This $160 million dollar in originations compares to quarterly production of $90 million since the pandemic began, and $50 million quarterly production pre-pandemic. Asset quality has only improved in this environment with non-accruals beginning the year at 21 basis points and concluding the year at 17 basis points. It's remarkable. Delinquencies were similarly reduced from 18 basis points to 2 basis points during the year. Shore never originated any PPP loans, and all deferral programs were sunset in 2020 without incident. FICO scores remained super prime at 776, unchanged from the prior year.
Last year, as new boat dealer inventories evaporated, we observed a mix of retail loans shift from 50/50, new boats to 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. Coming in at fifth place is Texas, with just right at 5% of total exposure. Donna, perhaps the best barometer for a 2022 forecast is reflected in North American dealer sentiment, which we've seen new boat orders jump 20% over prior year. We are well positioned to rise with the tide. With that, thank you, Donna, and I'll return the conversation to you.
Thank you, John. Appreciate that information. Our final report today will come to you from J. Stephen Tipton.
Thanks, Donna. I'll give the standard fare on deposit activity, repricing efforts and trends, and a few additional items. We saw continued increases in total deposits during the fourth quarter of 2021, with end period balances increasing $257 million from September 30th at a year-over-year increase of $1.53 billion or 12%. The growth in the quarter was led by our Florida regions with over $200 million as some seasonal increases combined with the continued robust economy in all parts of our Florida footprint. Switching to funding costs, interest-bearing deposits averaged 21 basis points in Q4, down 2 basis points on a linked-quarter basis and exited the quarter in December at 19 basis points. Total deposit costs were 14 basis points in Q4.
While a continued increase in our deposit base presents short-term challenges for deployment and places pressure on the loan-to-deposit ratio, it's great to see the health and resiliency of our customer base and the local economies that we serve continue to grow. As Brian mentioned in his remarks, when normalizing for the impact from PPP accretion, event income, and the excess liquidity, we would have seen slight margin expansion, which we're extremely pleased to see. The first half of 2022 will be exciting as we continue to work with our happy teammates towards a successful closing and prepare for a systems conversion midyear. Congratulations to all of our teammates on a solid quarter and another great year. With that, I'll turn it back over to Donna.
Thank you, Stephen. Well, Johnny, before we go to Q&A, do you have any additional comments?
Well, this has been an excellent year, Donna. Congratulations to everyone. I hope our shareholders are happy. We end the year as strong financially as this company has ever been in the history of it. You heard Kevin talking about asset quality and Tracy talking about the operations and Brian talking about the capital strength. It's been. You heard Chris Poulton's fourth quarter, John Marshall's report. I mean, the company's hitting on all eight, and I'm really proud of that. Hopefully 2022 will be our year and the rates keep going up. That's. When I say that, they're supposed to play there. They said when rates went down, that wasn't good for banks and bank stocks went down.
Today they kind of softened a little bit on the rate on the 10-year, and they took bank stocks down yesterday. I don't get it. I mean, kind of funny to me, that's the way it works. I think it'll be a good year for those who have a lot of power to hire, will have a good year. I'm ready if you'll take us back to the operator.
Okay, thank you. 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 on your telephone keypad now. If you change your mind, please press star followed by two. When preparing to ask your question, please ensure your phone is unmuted locally. First question comes from Matt Olney from Stephens Inc. Matt, your line is now open.
Hey, guys. Good afternoon.
Afternoon, Matt.
Hey, thanks for all the commentary around inflation and Home BancShares' excess liquidity position. Any more thoughts on just how close we are to seeing some deployment of the liquidity? I mean, if the 10-year Treasury yield hits that 2% level, do you think that's a signal for a green light to start deploying a portion of this? I'm just trying to get a better feel for how close you are to doing something on that front. Thanks.
Well, I would think that we'd probably start feathering some stuff into securities when we see the 2%. That. Of course, we're getting pretty close to that right now. I think, Brian, would you say 1.95, 1.96?
Yeah, we're averaging about 1.96 this particular month for January with a little over 4% duration.
You know, we're kind of hanging in some good opportunities here, I think, for us. We don't want to deploy it too quick. You know, you put it in too quick and you miss the window. We were, as you know, patient for 18 months almost, and we don't want to put it in too quick. We want to try to maximize it. I'm not gonna try to get the CD at 14.53. I mean, the US government's 30 years at 14.7, but I'd like to get something a little higher.
Yeah. No, understood. I guess changing gears on capital, we talked a few months ago about potentially paying down that $300 million sub-debt in April with cash on hand. It sounds like you pivoted and essentially, you know, gonna refinance that debt. Listening to the commentary, it sounds like the pivot was based off expectations of higher rates. Anything else we should be mindful of with that strategy? Did it speak to M&A, or did it speak to anything else that you're seeing out there besides interest rates?
You're right. We did pivot. We were gonna just pay off the sub-debt and not issue new debt. We ran around here for a month talking to our board about it, trying to figure out what was in the best interest of the company. We decided to go ahead and execute the sub-debt early because if we wait till April, we would could be back in the 4% range on it or higher. We thought it was probably smart to go ahead and do that. Saves us $37.5 million regardless. It is our intention to pay off the balance, the old sub-debt in April, unless something changes. That's our plans. In addition to that, I think Brian has about $93 million. Brian, is that about right?
Is it-
Well, it's $71 million of trusts that we have, and we're gonna inherit $21 million of trusts from Happy to get to the $90 million.
Okay. It was a pivot, it was a change, and it was after much deliberation around our board table and our executive team and discussions with several of our board members that led us to that decision. You know, I think it really has to do with strength in this market. I'm not sure. If you believe we're dancing on the or standing on the point of a knife, that something's gonna break somewhere, you know, I would've liked to have had it in 2007, 2008, and I would liked to have had the additional capital in 2018, 2019, 2020 when we hit the pandemic. It. Are we through all of that? Are we.
If we need the capital, we'll have it, and if we don't need the capital, we'll save $37.5 million. I kind of looked at it as a win-win and ended up with a fortress balance sheet. I don't know if banks get a better balance sheet. There might be somebody with a better balance sheet somewhere, but I think people are gonna buy value this year, and Home BancShares is certainly, if you're looking at strength and quality and the fourth year of $300 million plus in record earnings, I think Home's the place to be. We'll deploy more of this money this year. We will deploy more of the money this year. You can expect that to hit the market at some point in time. We haven't yet, though.
We haven't really spent any of it, not any of it yet. We're up to what now? Three what?
$3.8 billion in cash at the bank.
We'll be putting some of it to work. Tracy, you good with that?
Yes, sir. I ain't got any more hair left. It's time to do something.
Tracy's rubbed all the hair off the front of his head, Matt, as you know, over this deal, so.
Well, understood, and congrats on 2021, guys. Thanks for your help.
Yep. Thank you. I'm sorry. They put Amarillo by Morning on my phone, so when it rings, and I didn't have it turned off. I apologize.
As a reminder, to ask any questions, please press star followed by one on your telephone keypad now. We now go to Brady Gailey from KBW. Brady, your line is now open.
Yeah. Thank you. Good afternoon, guys.
Hey, Brady.
We saw, you know, ex-PPP, we saw positive loan growth this quarter, which was the first time we've seen that in the last, you know, several quarters. I know CCFG was a big piece of that with the nice growth that they had, but, you know, we're starting to hear a lot of your peers talk about better loan growth,
Right
... as we head into 2022. I just wanted y'all's take. You're in, you know, great markets there in Florida, and soon to be Texas, which, you know, I think everybody expects to be kind of above average growth markets. How are y'all thinking about kind of loan growth going forward?
Well, I think Happy was up about 10%, weren't they?
Boosted last year, huh?
Huh?
Yes, sir.
Yep. They were up about 10% for the quarter, the last two months. They had a good growth. Kevin, you want to talk about what we're seeing?
Yeah, I mean, it's just challenging with everybody having the same, you know, relative liquidity that we have. To do that, then you're just gonna have to play at low rates and the higher leverages than we've historically been willing to do. It's there. I mean, there is growth there, but it is at a different level than we've been
that we've been wanting to do in the footprint.
We just spread it. We just had a customer been with us five years on two hotels, and one of them had $7 million worth of mezzanine money in the deal, and another one had $5 million worth of mezzanine money. Well, you can imagine through this crisis, they haven't paid down their principal very much, but their mezzanine money was due at five years. It was supposed to come out. They came to us, wanted us to loan them, one wanted us to loan the $5 million in mezzanine on one hotel and $7 million in mezzanine on the other hotel. Well, suddenly that takes you to 85%. Well, they got it done. We didn't do it, but they got it done. I don't know if this is a time.
That's a scary thing you're seeing out there, is this, as Kevin said, is the leverage. That's the scary part of it. They're just stepping up. I think I told them the last call, we had saw the most egregious hotel loan that I've seen in my banking history in the last quarter, where we had $12 million loaned on, and they ended up loaning north of $40 million on the same hotel. You just got to be careful. I think it's going to get better, and we'll put more into securities during this period of time. As the rates continue to go up, we'll continue to build that. From an origination point, Stephen, you want to talk about what, how much originating and
Yeah, we did. I think it was a little over $900 million in Q4. I think we did about $1 billion in Q3, but then all the prior quarters, the three prior quarters to that, we were in the $600 million-$700 million range. In the last half of the year, certainly production, you know, both for Chris's group and really all fronts were stronger than what they were the first half of the year.
Yeah. You know, we've worked hard to build a good book of business. We built a good book of business. I told Kevin, I said, "Let's just don't lose any loans. Let's don't lose any loans from here on. Let's just If we got to step up anywhere near reasonable, just step up, and let's keep those loans, and we'll put new stuff on it at higher rates." That's probably what you're going to see, and you'll see a little more activity out of us trying to keep the loans on the books because we know they're good loans, and they're just people are just stealing the loans. You'll 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.
All right. My next question is on fee income. I noticed other service charges and fees stepped up pretty nicely linked quarter, a little over $11 million in the fourth quarter. Was there anything, you know, special mentioned in that bucket in the fourth quarter?
This is Brian. It's mostly 100% related to some additional fees at CCFG. Chris Poulton's on the phone. Chris, that actually is all related to your $3 million of additional income this quarter, if you want to elaborate a little bit on it.
Sure. Good afternoon. Fourth quarter, we generally have pretty good fee income, quarter. End of year, a number of things need to happen on loans, and sometimes people expect to get things done by the end of the year, and they can't, and they need a little extra time, and we're usually happy to oblige, but, you know, for a fee. I think if you look back historically, fourth quarter's usually been pretty good fee income for us. I think as you look back over the last couple of years as well, you know, our fee income doesn't come in kind of regularly by month. There's quarters where it pops up. We had a few opportunities over the fourth quarter to pick up some extra fee income, et cetera, and we took that opportunity.
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.
Finally for me, I mean, Johnny, you know, the Happy deal is about to be closed. I know Happy is a big deal. It's in a new market. I know you want to get it right. You know, are you starting to think about additional M&A yet, or do you wanna see, you know, Happy play out for a little bit longer? You know, when you do start to think about additional M&A, your franchise is gonna be almost $25 billion in assets. I'm guessing the targets you're gonna look at are gonna have to be kinda larger, more meaningful deals Stephen what you had looked at historically.
Well, they're out there. There's lots of opportunities out there. We're active. That doesn't mean we'll do anything. It just means we're active. We were active yesterday, day before yesterday on a video call. Tracy and I were. We're active. Don and I got meetings at Acquire or Be Acquired. That is going on as we speak. Will any of that come to fruition? We're damn picky. Will it come to fruition? I don't know if any of it will. We're talking and we're looking. You know, the good thing is they understand how we do business. If they understand that, then we don't have a long argument going through the pricing process. It either works or it doesn't work.
I think we're after the Happy deal, the world sees that transaction as only the second bank that went up on announcement last year or last 14 months. We did that one right, and that's gonna be a good trade for Home BancShares, and we'll play off of that. There is some areas there that we could fill in with Happy, but that remains to be seen. We are talking to people, but that doesn't mean we're gonna do anything. We didn't do anything for almost four and a half years till we found the right one, and we did it. We're glad to be in Texas, and looks like their forecast in loan growth the first quarter, their business is good.
Pretty excited about hooking up with them. We're also looking at some portfolios to purchase that Kevin has completed his due diligence on, and we like the book, and I think you'll see that announcement coming out fairly rapidly. That's a nice little piece of business for the loan side in a market that we understand and are in. I think the street will like that. That'll give us a little kick start going into the year. We've got some good things gonna happen in January and February on some recoveries, so those are pretty good things. The first quarter looks like it may be shaping up pretty nicely for Home.
All right, great. Thanks for the color, guys.
All right. Thank you, Brady. Appreciate it.
We now return to Matt Olney from Stephens Inc. Matt, please go ahead.
Matt?
Yeah. Sorry about that. Had you on mute.
Of course.
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 West Coast had a lot more opportunity than maybe some of your traditional New York markets. Did we see this in the fourth quarter, or is that still on the come in 2022?
I think 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 talked over the course of the year, deals were taking a little longer to get done, but we had a big pipeline. You know, dates tend to focus people, and so, you know, as you get towards the year-end, people do actually close transactions. One is, I think we just had a number of things in our pipeline close. Those were more West Coast-oriented than East Coast. I think the second thing is, I mentioned this in the third quarter call. Towards the end of the third quarter, we had a number of our corporate structured facilities that repaid, that are revolvers. They repaid.
We expected that they would redraw during the fourth quarter. They did do that. That was, you know, between $50-$75 million coming back in, which we anticipated. Then the last bit of it was while we did have quite a bit of paydowns, we had about $250 million or so of paydowns, we actually had more draws than paydowns. We did about $300, a little over $300 million of draws against maybe $200-$250 of paydowns. That's a little bit also a feature of a lot of production this year. Those don't always draw at close.
They tend to draw over the course of the year, especially on facilities. I think we had those three things come in during the quarter. I think as we get into this year, we expect production to continue. We start with a nice pipeline, a number of really interesting transactions. Hopefully, we'll be able to go all the way to the finish line on those. But we're very active at least and think we're working hard towards that. I think that'll continue. I think I mentioned in my comments, I do expect a little more elevated payoffs in the first half of the year. Everybody's been anticipating rising rates, and now you start to see the rates rise.
Some folks who might have been thinking they could hold on for last dollar, maybe get some more money when it gets more stabilized, et cetera. We may see a couple assets come out where they just decide to take a little less proceeds right now, but lock in the lower rate. Then I think we'll see draw ups come over the remaining of the year. I think if we do our job and we execute on the originations and we kind of get the draws we expect, I think over the course of the year, we'll probably end up about where we are, maybe some modest growth.
I do think we're gonna see a little bit of elevated paydown between now and then.
Okay. That's helpful, Chris. Thanks for that.
Sure.
Wanted to ask about, I guess, you know, the market's getting more focused on how bank balance sheets are gonna be impacted by higher Fed funds. Any more color you can give us about the dollar amount of loans that are gonna be repricing higher with Fed funds and any more commentary around floors and just how many Fed fund increases we're gonna have to see to get above some of the floors at the bank? Thanks.
$3.7 billion. We're gonna reprice that. If folks got in cash, we're gonna reprice that at some point.
Matt, this is Stephen. I can give you a little color on the loan side, but Johnny's right. I mean, we talked this morning. I mean, you know, I thought I know everybody's going to be focused on the variable rate loan side, but we've got more in cash today than we have in variable rate loans. We've got about a third of the loan portfolio in total is variable rate. You know, we talked before all of Chris's balances at CCFG are variable rate. We have about $700 million or so in total that's tied to Wall Street Journal Prime. You know, we've done a good job over the last couple of years in production origination in terms of pricing and putting floors in place.
As such, you know, it really takes a couple of rate hikes probably to begin to see any meaningful increase from that loan portfolio. I think, you know, maybe 30% or so of Chris's will move as LIBOR begins to move, which all of his is LIBOR-based. Then, you know, $200 million probably out of the community bank group with the first rate hike. You need to see a couple, I think, before we begin to see some meaningful volume there. You know, on the flip side, you know. We're at 68% loan-to-deposit ratio today. You go back five years ago, we were 105.
I think in an uprate environment, the deposit portfolio acts, you know, completely different than it did, you know, three or four or five years ago as well. I think we're all optimistic that that we see some, you know, some improvement when in an uprate environment, just overall.
Just to clarify, Stephen, I think you said a third of loans are variable. Is that in the entire bank or just within the legacy footprint?
Yeah, the entire bank. It's about $3.3 billion-$3.4 billion or so that, you know, reprice within a, I'll call it six-month or less period, or had the opportunity to reprice.
Got it. Okay. Just lastly on the Happy deal, I think all you're waiting for at this point is Fed approval. I think the Fed's got a little, the queue's 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 was, you know, doing it in the first quarter, and we're still, it still would be our plan today. You're right, things seem to be a little bit kind of bogged down, but everything's, we're moving forward. I think Johnny mentioned Michael and I have been working, and the Centennial Bank group with the Happy State Bank has been extremely busy in preparation of going forward. We're all ready for them to give us the green light on that part where we can really get after it. All good. Just waiting on the Fed.
Hopefully soon.
Okay. Thanks, guys.
I think Happy's ready, and we're ready. Thanks, Matt. Appreciate you.
Our next question comes from Brian Martin from Janney Montgomery Scott. Brian, please go ahead.
Hey, good afternoon.
Hi, Brian.
Just wanted to touch on, I don't know who wants to take it, but just on the excess liquidity. I know Johnny, you said that you're definitely going to put some to work this year. Just kind of wondering how we think about maybe how much of that you would expect to get deployed over the course of the year, and then maybe just, you know, how, you know, given what you, your comments on loan growth and securities, just maybe how big you'd be willing to let the securities portfolio grow to, or we think about that as you work to deploy some of the liquidity.
Well, you know, I guess we'll take what they give us. If we'll take as much, we'll put as much in loans as we can, and as rates continue to increase, we'll just put it in securities and put it, and hopefully not lock it in forever, but lock it in for four or five years is about what we do. Isn't that about right, Brian? About 48 months is where it is right now.
Yeah.
You know, we'll put it to work. Hopefully, we'll get half of it maybe this year in either securities or in loans. That's what I'd be optimistic that probably might be a little optimistic, but that'd be pretty nice. I think the end of the year with about $1.4 billion more, $1.5 billion, $1.7 billion more, and be about $1.7 billion, with about $1.7 billion more in securities and loans.
Gotcha. Okay. That's helpful. Just maybe on the loan growth, I think last quarter or, you know, recently, you kind of talked about maybe I thought it was a 3%-5% type of loan growth number. Just kind of wondering with your position on maybe protecting some of the current loans you have and still seeing what, you know, Stephen highlighted as, you know, better origination activity in the second half of last year, just kind of how you're thinking does that loan growth, you know, outlook maybe and the combination of Happy and better markets maybe bump up that, you know, previous outlook for what, you know, what loan growth could be, could look like in 2022?
Yeah. This is Kevin. I don't know that I would bump that up any. I mean, the challenge is gonna be, the key is gonna be holding on to what you got. I mean, Stephen went through the production numbers, and the production numbers are up. You heard Chris' commentary around what he expects for 2022. You know, I think the challenge is gonna be keeping what we got, and if we're successful at that, then the improvement in production can probably get, you know, to that number we've been talking about. I wouldn't look for higher than that at this point.
Brian, I know.
Got it.
hope we can get there. Sorry, Tracy. I hope we can get there, but I wouldn't bet on that.
You asked, and Brady and Matt have asked about that, and I'm generally the one that's a little more of a conservative nature. I think we're seeing activity that certainly could make that tick a little better within our regions. You know, the past several months, each region around our existing company today are getting the return customer coming back, you know, which is what we practice, and I think that's something we're gonna see with Happy as Johnny and myself had, you know, Scott and Robert and Mikel on the phone yesterday. They seem to be pretty positive. You know, they certainly have been customer driven with our balance sheet. It's gonna allow them to take some opportunities.
Kevin's already worked a large credit with them, with Mike's group out of DFW, already, you know, because of that. There's that. I think that's the opportunity that really comes out, is expanding that with them and the way that their credit opportunity, which is Texas, and they're growing. You know, I have to go back to our David's market in South Florida and Jim's in North Florida. It seems like their activity's really been better of late. We still get the renegade.
Competitiveness that comes in there as we've done forever, stayed disciplined on our underwriting. We're gonna stay there. I think this probably has some signs of showing a little bit better growth throughout 2022 than in the past. John, I hate to be so optimistic. No, I think that's good. You pay me to be the truth is, we may give up a little bit on rate to keep some loans, but we're not gonna give up on leverage. That's what gets you in trouble. We just can't do that. It's like I've discussed those loans a while ago, going from 50% or 55% or 57% loan-to-value to 80-something in a hotel space. That just doesn't make a lot of sense. We're seeing that being done.
I mean, we're sitting here watching it being done at low rates, so it doesn't. It's not very smart. That'll come. You know, if the market stays good, we don't have another pandemic, they may be okay. But if. We're just not willing to risk our balance sheet on this. We're better off to lower the rate and keep the business as long as we don't have to change leverage.
Yeah. I don't think the optimism is gonna help the hair grow back, Tracy, but it's good to hear you being a little bit more optimistic than you have been in the past. Maybe last one from me was just on the core margin. I guess it looked like loan yield, core loan yields, maybe stabilized here, you know, or up a little bit. I don't know, Stephen, if that's right. Just kind of thinking on the outlook on the core margin, I guess is could we be at a bottom here with, you know, given the liquidity and what the plans are going forward in the loan growth? Is that the best way to think about that margin outlook?
Yeah, I think that's fair. I mean, you heard Brian, you know, but to what was reported, I think when you add all that up, you know, we were up a couple basis points on the core, maybe more than that when you include purchase accounting accretion. I mean, loan yield was stable. We've got another couple basis points out on deposits. I mean, that's getting tougher. But yeah, I mean, I think, you know, prospects of rising rates here and what cash that we've got, investment securities have improved. Yeah, I think that's fair.
If they don't raise rates too fast.
Yeah.
I mean, they're behind the curve, but if they don't raise rates too fast and do it over two or three years, I think we'll be all right. If they crank it in a hurry and create a recession, then all for naught. But hopefully, that won't happen. I mean, they're obviously still buying the 10-year, as you see today, I think it's down. So that makes no sense. That can't stay there. We know that's 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 eighties, just shock. I mean, I listened to one guy this morning on.
I don't remember if it's on Bloomberg or it was CNBC, but he called it could be hyper rate increases. That's a little scary. We don't need that because that'll certainly slow the economy down.
Yeah. Gotcha. Okay. That's it for me. I appreciate you taking the questions. Thanks, guys. Great year.
Thank you. Thank you, Brian. Appreciate it.
We've come to the end of our Q&A. I want to hand back to Mr. Allison for closing remarks.
Thank you all for joining us today. I hope you're pleased with the report. We're pleased with the year. We're off and running in 2022. I think 2022 will be a good year for Home BancShares, right? We're in a rising rate environment. That'll play well to us at Home BancShares, particularly with the liquidity we got. If we don't have to change our leverage, we'll have increased loan growth. I think we're gonna pick up a book of business, I believe. I said it earlier. Kevin's gonna announce that before long. Is that right, Kevin? Yes, sir. About $250 million. Is that about right? Close. Very close. Pretty close. Anyway, we'll have that. It looks like first quarter is shaping up pretty good. Thank you again, and we'll talk to you in 90 days.
This concludes today's call. We thank you for joining. You may now disconnect your lines.