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spk03: Greetings, ladies and gentlemen. Welcome to the Home Bank Shares Incorporated 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 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 touchtone 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 notes regarding forward-looking statements. You will find this note on page three of their Form 10-K files with the SEC in February 2021. At this time, all participants are in listen-only mode, and this conference is being recorded. If you need operator assistance during the conference, please press star then zero. It is now my pleasure to turn the call over to Donna Townsall, Director of Investor Relations.
spk01: 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 Steven 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.
spk12: Thank you and 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 the calendar year. The earnings for the fourth quarter of 2021 were $0.45 per share, or $73.4 million, and for the calendar year, a record $319 million, or $1.94 per share, both of which were records. And by the way, this is the fourth year in a row that your company's had adjusted earnings in and around the $300 million mark. While two years or more of that has been in the middle of this pandemic, I'm pretty proud of that. And 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 one and a quarter securities. I can assure you it would have been much easier for us to have not remained disciplined and 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 the excess cash at much higher rates. I guess that's the businessman in me coming out. We believe the Fed cannot continue to print funny money to flood the system without someone paying a huge price. And that's exactly what's 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 bank that held their cash should reap the dividends of higher earnings and 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 70s and the early 80s. When in 1981, the 10-year hit an interday peak rate of 15.84%. Well, the record for the 30-year treasury issued on February the 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 three to six, and I've even heard seven now. So 25 basis points today. for move up to 75 to 150 total. I think the Fed has slayed this game to keep rates down way too long, and they're way behind the curve, just like they did in the early 80s. You're going to dance. You're going to have to play the pipe. 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, 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 on the porn of a night, and it will require very careful corrections and years of high 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 horizon. You know, you think about the strength of the company, we're 471% to non-performing. We ran a 162 ROA, but you pull out the liquidity in your back, it's a 2%. Efficiency kicked up a little bit at 4379. We had some merger expenses in this quarter's operation. Tangible common equity and tangible assets are 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 position today, particularly during this crazy inflationary period. There is no substitute for expense, and my mentor, Kimmons Wilson, the founder of Hall A&M, 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 reduction annually or $37.5 million over five years. Nice win-win. We have not paid off that subdebt. We're looking towards April, Brian? That's correct. So that comes up. We got the money now. We didn't wait until April because we thought rates were running on us and we'd have to pay 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 Leblon told me, he said, you can get the money now, get it. So he's been a Good, strong director for us for many years, and that was what I was looking for. Well, we got it, and I'm glad we did. We're looking forward to closing the Happy Bank pretty soon, Tracy, and 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 Homesides, 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've provided you a happy home. Did you get that, Donna?
spk01: I got that. I got that. I love that. Sounds like a great year. Congratulations to all, and it sounds like more good things to come. Now to drill down to the Centennial Bank level, we will hear from Tracy French.
spk11: Thank you, Donna, and good afternoon to all. It was a happy end in the 2021 for Centennial Bank with new high marks on revenue and net income. Every community bank region, along with our specialty groups, had a suburb view. As you heard Johnny report the powerful numbers for home bank shares, let me share a little color on how Centennial Bank finished going over $18 billion in total assets. Our total revenues had a high mark of $721 billion 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 T5 NR 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. And by the way, the excess liquidity that Johnny mentioned that some regions have developed because of the core relationship didn't hit the 2% mark. When you look at that, Johnny, that's really a good problem. Overall, your bank's loans, deposits, capital, risk management, and asset quality are in pristine position for whatever the future holds. And speaking of the future, Pat Hickman and Michael 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 in what is going to be completed. The two groups, without question, will take our company to the next level. Donna, all's happy at Centennial Bank.
spk01: Good to hear. That's a great report, Tracy. A great year. Now we will turn to Brian Davis for a financial report.
spk10: Thanks Donna. Today we reported 139 million of net interest income and a 3.42% net interest margin for Q4 2021. Our fourth quarter net interest margin decreased 18 basis points from Q3. Today I'd like to go over a few NIM items. First, during the fourth quarter we had 129 million of PPP loans forgiven. This forgiveness causes the acceleration of deferred fee income for the loans forgiven. Our PPP deferred fee income decreased $3.9 million from Q4 to Q3. This change in PPP was seven basis points diluted 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, diluted 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 versus the historical normal cash balances has a negative impact to the Q4 NIM of 78 basis points. I'll conclude with a few remarks on capital. Our goal at Home Bank Shares is to be extremely well capitalized, and I'm pleased to report the following very strong capital information. For Q4 2021, our Tier 1 capital was $1.9 billion. Total risk-based capital was $2.3 billion, and risk-weighted assets were $11.8 billion. As a result, the leverage ratio was 11.1%, which is 122% above the well-capitalized benchmark of 5%. The common equity Tier 1 was 15.4%, which is 137% above the well-capitalized benchmark of 6.5%. Tier 1 capital was 16.0%, which is 100% above the well-capitalized benchmark of 8%. And finally, the total risk-based capital was 19.8%, which is 98% above the well-capitalized benchmark of 10%. With that said, I'll turn the call back over to Don. So do you sleep well at night, Brian? I'm sleeping pretty good with these capital ratios. And I'm sleeping well with all the excess cash, and I'm sleeping well with our reserves, too.
spk12: I think 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, plus and minus, plus and minus. It'll be nice someday to get back to where you can say the NIM before the quarter was said. Right.
spk01: Well, thank you, Brian. I'm glad that you were well rested. And now Kevin Hester will update us on the loan portfolio.
spk09: Thanks Donna and good afternoon everyone. This quarter continued a strong loan production trend that we saw again 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% to 472% of non-performing loans. Early stage past dues remain low at .40%, and Oreo is almost nonexistent. We appreciate our credit positioning heading into a rising rate environment. As we enter the new year, our conversion teams have dusted off their playbooks and are preparing to execute another solid set of plays, this time into Texas. We are actively working with our happy counterparts to lay the groundwork for a successful combination. With that, Donna, I'll turn it back to you.
spk01: Thank you, Kevin. And now from New York is Chris Fulton.
spk00: 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.
spk01: Thank you, Chris. Now we'll have an update on the marine industry from John Marshall.
spk02: Thank you, Donna, and good afternoon, everyone. December closed out an adventurous 2021 voyage. the i finance world punctuated by record industry sales that led to record loan production at shore the resumption of european factory shipments of new boat inventory in late 2021 led to the originations of 160 million dollars for sure in just before q21 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 for early 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. Remarkably, delinquencies were similar or reduced from 18 basis points to two basis points during the year. Sure never originated any PPP loans, and all deferral programs were sunset in 2020 without incident. FICO scores remain super prime at 776, unchanged from the prior year. Last year, as new boat dealer inventories evaporated, we observed a mix of retail loan shift from 50-50 new boats to use to a 40-60 split between new to used. Illustrating the natural affinity to Centennial Bank's footprint, Our largest concentration by state is Florida, with just over 19% of our exposure. And coming in at fifth place is Texas, with just right at 5% of total exposure. Donna, perhaps the best barometer for a 2022 forecast is reflected in North American dealer sentiment, which we've seen new boat orders jump 20% over prior year. We are well positioned to rise with the tides. With that, thank you, Donna, and I'll return the conversation to you.
spk01: Thank you, John. Appreciate that information. And our final report today will come to you from Stephen Tipton.
spk08: 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 the 30th. and 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 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 a continued increase in our deposit base presents short-term challenges for deployment and places pressure on the loan 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 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.
spk01: Thank you, Steven. Well, Johnny, before we go to Q&A, do you have any additional comments?
spk12: Well, this is the exit year, Donna. It was 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. So hopefully 22 will be our year, and the rates keep going up. When I say that, they're supposed to play there. They said when rates went down, it wasn't good for banks, and bank stocks went down. And then now today, they kind of softened a little bit on the rate on the 10-year, and they took bank stocks down yesterday. So I don't get it. I mean, that's kind of funny to me. That's the way it works. But I think it'd be a good year for those who have a lot of powder to fire to have a good year. So I'm ready if you'll take us back to the operator.
spk01: OK. Thank you. So at this time, we'll go back to the operator and open it up for Q&A.
spk03: Thank you for our Q&A. If you would like to ask a question, please press star followed by 1 on your telephone keypad now. If you change your mind, please press star followed by 2. When preparing to ask your question, please ensure your phone is unmuted locally. First question comes from Matt Olney from Stevens Incorporated. Matt, your line is now open. Hey, guys. Good afternoon.
spk12: Good afternoon, Matt.
spk07: Hey, thanks to all the commentary around inflation and home banks' 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.
spk12: I would think that we'd probably start feathering some stuff into securities when we see the 2%. Of course, we're getting pretty close to that right now. I think, Brian, would you say 195, 196?
spk10: Yeah, we're averaging about 196 this particular month for January with a little over 4% duration.
spk12: So, you know, we're kind of hanging in some good opportunities here, I think, for us, and we don't want to deploy it too quick. You put it in too quick and you miss the window. We were, as you know, patient for 18 months almost, and We don't want to put it in too quick, but we want to try to maximize it. I'm not going to try to get the CD at 14.53. I mean, the U.S. government, 30 years at 14.5 or 14.7, but I'd like to get something a little higher.
spk07: Yeah, no, understood. Understood. And I guess changing gears on capital. we talked a few months ago about potentially paying down that $300 million sub debt in April with cash on hand, but it sounds like you, you pivoted essentially, you know, we're going to refinance that debt and listen to the commentary. It sounds like the pivot was based off expectations of, 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?
spk12: Well, we, You're right. We did pivot. We did pivot. We were willing to just pay off the sub-debt and not issue new debt. And we ran around here for a month talking to ourselves 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 until April. We could be back in the 4% range on it or So we thought it was probably smart to go ahead and do that. It saves us $37.5 million regardless. It is our intention to pay off the balance, the old sub-debt in April unless something changes. That's our plans. In addition to that, I think Brian has about $93 million. Brian, is that about right?
spk10: With $71 million of troughs that we have, we're going to inherit $21 million of troughs from Happy to get to the $90 million. Okay.
spk12: So 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 standing on the point of a knife that something's going to break somewhere. I would have liked to have had it in 07, 08, and I would have liked to have had the additional capital in 18, 19, 20 when we hit the pandemic. Are we through all of that? If we need the capital, we'll have it. If we don't need the capital, we'll save $37.5 million. I 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 going to buy value this year. And home bank shares is certainly, if you're looking at strength and quality and the fourth year of $300 million plus in record earnings, I think home is the place to be. And we'll deploy more of this money this year. We will deploy more of the money this year. So you can expect that. to hit the market at some point in time. But we haven't yet, though. We haven't really spent any of it, not a penny of it yet. And we're up to what now?
spk10: Three what? 3.8 billion in cash at the bank.
spk12: We'll be putting some of it to work. Price, are you good with that? Yes, sir. Yes, sir.
spk11: I can get more hair left. It's time to do something.
spk12: Tracy's rubbed all the hair off the front of his head, mad as you know, over this deal.
spk07: Well, understood, and congrats on 2021, guys. Thanks for your help. Yep, thank you.
spk12: I'm sorry. They put Amarillo by morning on my phone, so when it rains and I didn't have it turned off, I apologize.
spk03: 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 KDW. Brady, your line is now open.
spk05: Yeah, thank you. Good afternoon, guys.
spk09: Hey, Brady.
spk05: So we saw ex-PPP, we saw positive loan growth this quarter, which was the first time we've seen that. um in the last several quarters i know cfg 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 um as we head into 2022 so i just wanted y'all to tell me you're in you know great markets there in florida um 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
spk12: Well, I think Happy was up about 10%, weren't they?
spk10: Who was it last year, huh?
spk12: Huh? Yes, sir. Yep, they were up about 10% for the quarter of the last two months, and they had a good growth. And Kevin, you want to talk about what we're seeing?
spk09: Yeah, I mean, it's just challenging with everybody having the same relative liquidity that we have to do that. Then you're just going to have to play at low rates and and the higher leverages than we've historically been willing to do, it's there. There is growth there, but it is at a different level than we've been wanting to do in the footprint.
spk12: We just had a customer been with us five years on two hotels, and he had One of them had $7 million worth of MES money in the deal, and another one had $5 million worth of MES money. You can imagine through this crisis, they haven't paid down their principal very much, but their MES money was due at five years. It was supposed to come out. So they came to us, one of us loaned them the $5 million of MES on one hotel and $7 million of MES on the other hotel. Well, suddenly that takes you to 85%. Well, they got it done. We didn't do it, but they got it done. I don't know if this is the time. That's the scary thing you're seeing out there is, as Kevin said, is the leverage. That's the scary part of it. They're just stepping up, stepping up. And I think I told them the last call, I saw the most egregious hotel loan that I've seen in my banking history in the last quarter. where a hotel, we had $12 million loaned on, and they ended up loaning north of $40 million on the same hotel. So you just gotta be careful. I think it's gonna get better. We'll put more into securities during this period of time. As the rates continue to go up, we'll continue to build that. And from an origination point, Stephen, you wanna talk about how much originated?
spk08: Yeah, we did, I think it was a little over $900 million in Q4. I think we did about a billion in Q3, but then all the prior quarters, the three prior quarters to that, we were in the $600 million to $700 million range. So in the last half of the year, certainly production, both for Chris's group and really all fronts, were stronger than what they were the first half of the year.
spk12: Yeah, you know, we've worked hard to build a good book of business. We built a good book of business. And 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've 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. You're going to see a little more activity out of us trying to keep the loans on the books. We know they're good loans and 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 and Originations are holding in there pretty good. Actually, the first quarter was pretty good.
spk05: All right. My next question is on fee income. I noticed other service charges and fees stepped up pretty nicely. Lend quarter a little over $11 million in the fourth quarter. Was there anything special mentioned in that bucket in the fourth quarter?
spk10: This is Brian. It's mostly 100% related to some additional fees at CCFG, and Chris Poulton's on the phone. So, Chris, that actually is all related to your $3 million of additional income this quarter, if you want to elaborate a little bit on it.
spk00: 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. 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, 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, we took that opportunity. So again, I think it was a little elevated for us for the quarter, but if you look back across the year, I think it's, it's, it's pretty normalized.
spk05: Okay. And then finally for me, I mean, Johnny, you know, the happy deal is about to be closed. So, you know, when, when is the right, and I know happy is a big deal. It's in a new market. I know you want to get it right, but you know, are you starting to think about additional M&A yet? Or do you want to see, you know, happy play out for a little bit longer. And, you know, when you do start to think about additional M&A, your franchise is going to be almost $25 billion in assets. I'm guessing the targets you're going to look at are going to have to be kind of larger, more meaningful deals versus what you had looked at, you know, historically.
spk12: Well, they're out there. There's lots of opportunities out there. We're active. It doesn't mean we'll do anything. It just means we're active. We were active day before yesterday on a video call. Tracy and I were active. Don and I got meetings at Acquire B Acquire. That is going on as we speak. So will any of that come to fruition? We're damn picky. And will it come to fruition? I don't know if any of it will. But we're talking and we're looking. The good thing is they understand how we do business, and if they understand that, then we don't have a long argument going through the pricing process. It either works or it doesn't work, and I think after the happy deal, the world sees that transaction that only the second bank that went up on announcement last year or last 14 months. We did that one right, and that's going to be a good trade for home bank shares, and we'll play off of that. I mean, there is some areas there that we could fill in with happy, but that remains to be seen. We are talking to people, but that doesn't mean we're going to do anything. We didn't do anything for, what, almost five years, four and a half years, until we found the right one, and we did it. We're glad to be in Texas, and it looks like they're forecasting loan growth the first quarter. Their business is good, so pretty excited about hooking up with them. We're also looking at some portfolios to purchase that 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. So I think the street will 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 on some recoveries. So those are pretty good things. So the first quarter looks like it may be shaping up pretty nicely for home.
spk05: All right, great. Thanks for the color, guys.
spk12: All right, thank you, Brady. Appreciate it.
spk03: We now return to Matt Olney from Stevens Incorporated. Matt, please go ahead.
spk04: Matt?
spk07: Yeah. Sorry about that. Had you on mute. I want to ask you a question for Chris. Any more details on the growth this quarter? I think we talked a few months ago, and your sense was that the West Coast had a lot more opportunity than than maybe some of your traditional New York markets. So did we see this in the fourth quarter, or is that still on the come in 2022?
spk00: 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. And so one is, I think we just had a number of things in our pipeline closed. Those were more West Coast oriented than East Coast. I think the second thing is, 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 uh, during the fourth quarter, they did do that. So that was, you know, between 50, $75 million, uh, coming back in, which we, we anticipated. And then, uh, and then, uh, the last bit of it was why we did have quite a bit of paydowns. We had about 250 million or so of, of, of paydowns. Um, we actually had more draws than paydowns. And so we did about 300, a little over $300 million of draws against, uh, maybe 200, 250 of, of, of paydowns. And so, uh, And that's a little bit also a feature of a lot of production this year. Those don't always draw a close. They tend to draw over the course of the year, especially on facilities. And so I think we had those 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 get 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 and Some folks who might have been thinking they could hold on for last dollar, maybe get some more money when it gets more stabilized, etc. 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. And 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 draw as we expect, I think over the course of the year we'll probably end up about where we are, maybe some modest growth. But I do think we're going to see a little bit of elevated pay down between now and then.
spk07: Okay. That's helpful, Chris. Thanks for that. Sure. And I also wanted to ask about, I guess, the markets 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're going to have to see to get above some of the floors of the bank? Thanks.
spk12: $3.7 billion. We're going to reprice that. If folks got in cash, we're going to reprice that.
spk08: Matt, this is Steven. I can give you a little color on the loan side, but Johnny's right. I mean, we talked this morning. I mean, 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. 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. 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, 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. And then, you know, a couple hundred million probably out of the community bank group with the first rate hike. So you need to see a couple, I think, before we begin to see some meaningful volume there. But, 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 100, 105. And so... I think in an up-rate environment, the deposit portfolio acts completely different than it did three, four, five years ago as well. So I think we're all optimistic that we see some improvement in an up-rate environment, just overall.
spk07: And 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?
spk08: Yeah, the entire bank. So it's about $3.3, $3.4 billion or so that repriced within a, I'll call it a six-month or less period, or had the opportunity to reprice.
spk07: Got it. Okay. And then just lastly on the happy deal, I think all you're waiting for at this point is Fed approval. I think the Fed's got a little, you know, 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?
spk11: I think the plan, we're doing it in the first quarter. It still would be our plan today, but you're right. Things seem to be a little bit bogged down, but we're moving forward. I think Johnny mentioned Michael and I have been working in the Centennial Bank Group with the Happy State Bank. It's been extremely busy. in preparation of going forward. So we're all ready for them to give us the green light on that part where we can really get after it. So all good. Just waiting on the Fed. Hopefully soon. Okay.
spk07: Thanks, guys.
spk12: Happy's ready and we're ready. So thanks, Matt. Appreciate you.
spk03: Our next question comes from Brian Martin from Jamie Montgomery. Brian, please go ahead.
spk06: Hey, good afternoon. Hi, Brian. I just wanted to touch on, I just wanted to touch on, I don't know who wants to take it, but just on the excess liquidity. I know Johnny, you said that you're definitely going to put some of the 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 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, uh, as you work to deploy some of the liquidity?
spk12: Well, you know, I guess we'll take what they give us, but we'll put as much in loans as we can. As rates continue to increase, we'll just put it in securities and hopefully not lock it in forever, but lock it in for four or five years. That's about what we're doing right now, about 48 months, where it is right now. So, you know, we'll put it to work, Hopefully, we get half of it maybe this year in either securities or in loans. That's what I'd be optimistic, probably might be a little optimistic, but that'd be pretty nice, I think, at the end of the year with about $1.4 billion more, $1.5 billion, $1.7 billion more, and about $1.7 billion more in securities and loans.
spk06: Gotcha. Okay. That's helpful. Maybe just on the loan growth, I think Last quarter, you know, recently you kind of talked about maybe I thought it was a 3% to 5% type of loan growth number. Just kind of wondering with your position on maybe protecting some of the current loans you have and still seeing what, you know, Stephen highlighted as, you know, better origination activity in the second half of this year, 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
spk09: 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 going to be the key is going to be holding on to what you got i mean steven went through the production numbers and the production numbers are up and you heard chris's commentary around what what he expects for 22. yeah you know 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 the improvement in production can can probably get you know to that that number we've been talking about but i wouldn't i wouldn't look for higher than that at this point ryan i know i hope we can get there sorry tracy i hope we can get there but i wouldn't i wouldn't bet on that you asking brady and
spk11: Matt, have asked him about that. I'm generally the ones that's a little more of a conservative nature. I think we're seeing activity that certainly could make that tick a little better within our regions. The past several months, each region around our existing company today are getting a return customer coming back, which is what we practice, and I think that's something we're going to see with HAPI is Johnny and myself had Scott and Robert and Michael on the phone yesterday. They seem to be pretty positive. They certainly have been customer driven with our balance sheet. It's going to allow them to take some opportunities. Kevin's already worked a large credit with them with Mike's group out at DFW already because of that. So there's the I think that's the opportunity that really comes out, expanding that with them and the way that their credit opportunity, which is Texas, and they're growing. But I have to go back to our David's Market in South Florida and Jim's in North Florida. It seems like their activity has really been better of late. We still get the renegade market. Competitiveness that comes in there, as we've done forever, stayed disciplined on our underwriting. We're going to stay there, but I think this probably has some signs of showing a little bit better growth throughout 22 than in the past. John, I hate to be so optimistic.
spk12: The truth is we might give us a little bit on right to keep some loans, but we're not going to give up on leverage. That's what gets you in trouble. We just can't do that. It's like I discussed those loans a while ago, going from 50 or 55%, 57% loan to value to 80-something in a hotel space. That just doesn't make a lot of sense. But we're seeing that being done. I mean, we're sitting here watching it being done at low rates. So it's not very smart. That'll come... 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 right and keep the business as long as we don't have to change leverage.
spk06: Yeah. I don't think the optimism is going to help the hair grow back, Tracy, but it's good to hear you being a little bit more optimistic than you have been in the past. But maybe the last one for me was just on the core margin. I guess it looked like core loan yields were It may be stabilized here or up a little bit. I don't know, Steven, if that's right. But just kind of thinking on the outlook on the core margin, I guess, could we be at a bottom here with, 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?
spk08: Yeah, I think that's fair. I mean, you heard Brian, you know, put to what was reported, I think, when you add all that up. Yeah, we were up a couple basis points on the core, maybe more than that, when you include purchase accounting accretions. So, I mean, loan yield was stable. We got another couple basis points out of the deposits. I mean, that's getting tougher. But, yeah, I mean, I think prospects are rising right here. And with the cash that we've got, investment securities have improved. So, yeah, I think that's fair.
spk12: If they don't raise rates too fast, I mean, they're behind the curve, but if they don't raise rates too fast and do it over two or three years, I think we'll be all right. If they crank it in a hurry, free of 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. I can't stay there. We know that's going up. So... It's just a matter of time until it does move. But hopefully, I hate to see them play that game because I don't want to spring like it did back in the 80s, just shock. I mean, I listened to one guy this morning. I don't know if it's on Bloomberg or it was CNBC, but he called it could be hyper rate increases. And that's a little scary. We don't need that because that will certainly slow the economy down. Yeah.
spk06: Gotcha. Okay. That's it for me. I appreciate you taking the questions. Thanks, guys. Great year. Thank you. Thank you, Brian. Appreciate it.
spk03: We've come to the end of our Q&A. I want to hand back to Mr. Allison for closing remarks.
spk12: Thank you all for joining us today. I hope you're pleased with the report. We're pleased with the year. We're off and running in 22. I think 22 will be a good year for home bank shares. We're in a raising rate environment that will play well to us in the home bank service, particularly with the liquidity we got. If we don't have to change our leverage, we'll have increased loan growth. And I think we're going to – I said earlier we're going to pick up a book of business, I believe. Kevin's going to announce that before long. Is that right, Kevin? Yes, sir. About $250 million. Is that about right?
spk07: Close. Very close.
spk12: Pretty close. So anyway, we'll have that. And it looks like first quarter's shaping up pretty good. Thank you again. We'll talk to you in 90 days.
spk03: This concludes today's call. We thank you for joining. You may now disconnect your lines.
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