Home Bancshares, inc (HOMB) Q4 2021 Earnings Call Transcript

Home Bancshares, inc  (NASDAQ: HOMB) Q4 2021 earnings call dated Jan. 20, 2022

Corporate Participants:

Donna J. Townsell — Senior Executive Vice President and Director of Investor Relations

John W. Allison — President and Chief Executive Officer

Brian S. Davis — Treasurer and Chief Financial Officer

Tracy M. French — President and Chief Executive Officer

Kevin D. Hester — Chief Lending Officer

Chris Poulton — President of CCFG

John Marshall — President of Shore Premier Finance

Stephen Tipton — Chief Operating Officer

Analysts:

Matt Olney — Stephens Inc. — Analyst

Brady Gailey — KBW — Analyst

Brian Martin — Janney Montgomery — Analyst

Presentation:

Operator

Greetings, ladies and gentlemen. Welcome to the Home BancShares Incorporated Fourth Quarter 2021 Earnings Call. The purpose of this call is to discuss the information and data provided in the quarterly earnings release issued this morning. [Operator Instructions] Company has asked me to remind everyone to refer to the cautionary note regarding forward-looking statements. You will find this note on page 3 of their Form 10-K filed with the SEC in February 2021. [Operator Instructions]

It is now my pleasure to turn the call over to Donna Townsell, Director of Investor Relations.

Donna J. Townsell — Senior Executive Vice President and 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.

John W. Allison — President and Chief Executive Officer

Thank you, and welcome and thank all of you for joining 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 often running on 2022. The fourth quarter and the full calendar year of 2021 earnings were both record for our Company. We had strong together four quarters earlier that added up to $2, but not in the calendar year.

The earnings for the fourth quarter of 2021 were $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 had adjusted earnings in and around $300 million more. Most two years or more of that has been in middle of this pandemic. I’m pretty proud of that. And while sharing the extra $3.4 billion in excess cash that’s earning virtually nothing.

In spite of that, we don’t have revenue, quarterly EPS and total EPS and earnings for the year. We did not sell our future by deploying excess cash in the 2% loans and one in the quarter securities. I can ensure you would have been much easier for us to have not remain disciplined and invest to the cash. But we believe if we will wrap, this may be a generational opportunity, and I’ll talk more about that in a little bit.

As said, a huge generational opportunity to report all of the excess cash at much higher rates. I guess that’s the business, and in coming in. We believe the Fed cannot continue to print foreign money to flood the system without someone find a huge price. And that’s exactly what’s happened and the American consumer is getting killed with pricing today.

Our thanksgiving period — the peers, we were correct on the call and hope we will be indicated over the next three years as we put the money out at much higher rates. The buying to hail the cash should reap the dividends of higher earnings translate into higher stock prices for those that show patients. Those that invested in the long-term low rates and made long-term with low rates can just watch the show is the winner. It’s called inflation and likely could be a runaway inflation. Like it was in the late sendings in the early ’80s. When in 1981, the tenure hit our inter died peak rate of 15.8 forward. While the record for the 30-year treasury issued on February 5, 1982 was 14.56%. The Fed was certainly a sleep at to 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 quack likes a duck, it’s probably of the — I am hearing for the year 2022, the expectations of three to six and having heard seven now. So 25 basis points are moved up 75 basis points to 150 basis points total. I think, the Fed has played this game, the cheap rates down way too long and they are way behind the curve. Just like they did in the early ’80s, you go and dance [Phonetic], don’t have to pay the price, having not invested in the excess cash. I believe, Home is a really strong position for many years to turn that is in history repeats itself. And if it doesn’t, we still have the Fortress balance sheet to look for opportunities.

Having a may in our two investors, those higher rates could pay dividends for our shareholders for a long time. I believe we’ve been dancing on the [Indecipherable] and it will require very careful corrections and years of higher rates to stem the tide of inflation. Having a Fortress balance sheet, 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 think about the strength of the Company where 471% of non-performing. We ran a 162 ROI but you pull out the liquidity into the back at 15%. Efficiency kicked up a little bit at 43.79%, we had some merger expenses in this quarter’s operations. Tangible common equity to tangible assets of 10.36% and 2.43% reserve the 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 pricing inflationary period. There is no stuff to taper expense and I meant to our Kemmons Wilson, the Founder of Holiday Inn would say that. The calculated moves that we have made over the past 2 times could be powerful for us in the future. If not we’ve 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, and that’s win-win. We have not paid that sub-debt, but we’re looking towards April, Brian?

Brian S. Davis — Treasurer and Chief Financial Officer

That’s correct.

John W. Allison — President and Chief Executive Officer

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

Donna J. Townsell — Senior Executive Vice President and Director of Investor Relations

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

Tracy M. French — President and Chief Executive Officer

Thank you, Donna and good afternoon to all. It was a happy ending with 2021 for Centennial Bank with new high marks on revenue and net income. Every Community Bank region along with our specialty groups has the suburb view. 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 revenues stood at the high mark of $721 million for the year, but our continued focus on interest income and interest expense along with our non-interest income and non-interest expense, the bank’s ROI 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 wraps up the year at 60.51%. Non-interest income remained steady throughout the past three months of the full quarter and actually finished steady for the year, that took a lot of that effort from 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 a 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. And when you look at that Johnny, that’s really a good problem. Overall, your bank’s loans, deposits, capital, risk management and asset quality are in pristine position for whatever the future holds.

And speaking of the future, Pat Hickman and Michael Williams 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 happy at Centennial. Thanks.

Donna J. Townsell — Senior Executive Vice President and Director of Investor Relations

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

Brian S. Davis — Treasurer and Chief Financial Officer

Thanks, Donna. Today, we reported $139 million of net interest income and a 3.42% net interest margin for Q4 2021. Our fourth quarter net interest margin decreased 18 basis points from Q3. Today, I’d like to go over a few NIM items. First, during the fourth quarter, we had $129 million of PPP loans forgiven. This forgiveness causes the acceleration of deferred fee income for the loans forgiven. Our PPP deferred fee income decreased $3.9 million from Q4 to Q3. This change in PPP was 7 basis points dilutive to the NIM.

Second, as a result of excess liquidity, we had $347 million of additional interest bearing cash in Q4 compared to Q3. This excess liquidity was 7.4 basis points dilutive to the Q4 NIM compared to Q3. Third, there was 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 of 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 a 122% above the well capitalized benchmark of 5%. The common equity Tier 1 was 15.4%, which is a 137% above the well capitalized benchmark of 6.5%. Tier 1 capital was 16.0%, which is a 100% above the well capitalized benchmark of 8%. And finally, the total risk-based capital was 19.8%, which is 98% above the well capitalized benchmark of 10%.

With that said, I’ll turn the call back over to Donna.

John W. Allison — President and Chief Executive Officer

So do you sleep well at night, Brian?

Brian S. Davis — Treasurer and Chief Financial Officer

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, so.

John W. Allison — President and Chief Executive Officer

That’s great. I’ll be glad when we get back to some days where we can tell you what the NIM is, so you were plus and minus, plus and minus, plus and minus, so we’ll have some time to get back to where we can say even say the NIM for the quarter was this.

Brian S. Davis — Treasurer and Chief Financial Officer

Right.

Donna J. Townsell — Senior Executive Vice President and Director of Investor Relations

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

Kevin D. Hester — Chief Lending Officer

Thanks, Donna and good afternoon, everyone. This quarter continued the strong loan production trend that we saw began late in the third quarter, which resulted in organic loan growth of $64 million ex-PPP forgiveness. 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 flowed through $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 around. COVID modified loan balances dropped about $37 million in the fourth quarter to $191 million. Hotels make up over 75% of that balance and their overall recovery is still underway. As we said last quarter, our monthly tracking showed solid improvement across the board in 2021 and we feel very positive about the prospects for these credits in 2022.

Movement back to P&I payments will be required before any distributions can occur and we see many with the pathway to that occurring with a solid spring season and/or increased travel. Our credit metrics were largely unchanged in the fourth quarter with 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 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 of best adopter playbooks and are preparing to execute another solid set of place this time into Texas. We are actively working with our Happy counterparts to lay the groundwork for a successful combination.

With that Donna, I’ll turn it back to you.

Donna J. Townsell — Senior Executive Vice President and Director of Investor Relations

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

Chris Poulton — President of CCFG

Thank you, Donna. Q4 results reflect a successful into 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 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.

Donna J. Townsell — Senior Executive Vice President and Director of Investor Relations

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

John Marshall — President of Shore Premier Finance

Thank you, Donna, and good afternoon, everyone. December closed down on an adventurous 2021 voyage and out-finance world punctuated by record industry sales led to record loan production at Shore. The resumption of European factory shipments of new boat inventory in late 2021 led to the originations of $160 million for Shore and just for 4Q ’21, sort of split evenly between commercial and consumer mortgages. This $160 million in originations compares to quarterly production of $90 million since the pandemic began and $50 million quarterly production, pre-pandemic.

Asset quality is only improved in this environment with non-accruals beginning the year 21 basis points and concluding the year 17 basis points. It’s very markedly delinquencies were similar were reduced from 18 basis points to 2 basis points during the year. Shore never originated in 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 have operated. We observe the 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 in Texas with just rate of 5% of total exposure. Donna, perhaps the best parameter for a 2022 forecast is reflected in North American dealer sentiment, which we’ve seen new build orders jumped 20% over prior year. We are well-positioned to rise with the tide.

With that, thank you, Donna and I’ll return the conversation to you.

Donna J. Townsell — Senior Executive Vice President and Director of Investor Relations

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

Stephen Tipton — Chief Operating Officer

Thanks, Donna. I’ll give the standard pay of deposit activity, repricing efforts and trends and a few additional items. We saw continued increases in total deposits during the fourth quarter of 2021, since period balances increasing $257 million from September 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 cost. Interest-bearing deposits averaged 21 basis points in Q4, down 2 basis points on a linked quarter basis and [Indecipherable] quarter in December at 19 basis points. Total deposit costs were 14 basis points in Q4. While the continued increase in our deposit base present short-term challenges for deployment and places pressure on the loan to deposit ratio. It’s great to see the health and resiliency of our customer base and the local economies that we serve continue to grow.

As Brian mentioned in his remarks, when normalizing for the impact from PPP accretion of net income and the excess liquidity, we would have seen slight margin expansion which you’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.

Donna J. Townsell — Senior Executive Vice President and Director of Investor Relations

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

John W. Allison — President and Chief Executive Officer

Well, excellent year, Donna, it was. Congratulations to everyone. I hope our shareholders are happy, we end the year, as strong financially, this Company has ever been in the history of it. You heard Kevin talk about asset quality. Tracy, talking about the operations and Brian talking about the capital strain. It’s been. You heard Chris Poulton’s, fourth quarter John Marshall’s report. I mean the Company is hitting on all eight, and I’m really proud of that. So hopefully ’22 be higher year and the rates keep going up, that’s why I say that, there’s both to there. They say when rates when down, and what is it for banks and bank stocks went down, and now working. Today, they kind of softened a little bit on the right on the 10 year and they took bank stocks down yesterday. So I don’t get it. I mean kind funny to me that’s the way it works. But I think it’ll be a good year for those who have had a lot of power to fire, we’ll have a good year. So I’m ready, if you take us back to the operator.

Donna J. Townsell — Senior Executive Vice President and Director of Investor Relations

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

Questions and Answers:

Operator

Thank you. [Operator Instructions] First question comes from Matt Olney from Stephens Incorporated. Matt, your line is now open.

Matt Olney — Stephens Inc. — Analyst

Hey guys, good afternoon.

John W. Allison — President and Chief Executive Officer

Good afternoon, Matt.

Matt Olney — Stephens Inc. — Analyst

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

John W. Allison — President and Chief Executive Officer

We think that we probably start presence and stuff in securities when we see the 2%. Of course we’re getting pretty close right now. I think Brian, did you say 195 [Phonetic], 196 [Phonetic].

Brian S. Davis — Treasurer and Chief Financial Officer

Yeah, we’re averaging about 196, this particular month for January with a lower 4% duration.

John W. Allison — President and Chief Executive Officer

So we’re kind of hanging in this good opportunities here I think for us and we don’t want to deploy too quick. You put it in too quick, 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. I’m not going to try to get to see any at 14.53 [Phonetic]. I mean the US government 30 years of 14.5 and 14.7, I’d like to give up a little higher.

Matt Olney — Stephens Inc. — Analyst

Yeah, I understood, And I guess changing gears on capital, we talked a few months ago about potentially paying down that $300 million sub-debt in April with cash on hand, but it sounds like you pivoted essentially going to refinance that debt and let’s see in the commentary, it sounds like the pivot was based up expectations of higher rates. Anything else we should be mindful of what that strategy, did this speak to M&A or did it speak to anything else that you’re seeing out there besides interest rates?

John W. Allison — President and Chief Executive Officer

Well, we — you’re right, we did pay that we’re really just pay off some and not issued new debt and we round around here for a month talking to our sales about it, trying to figure out what was in the best interest of the Company and we decided to go ahead and execute the sub-debt, ROE [Phonetic], because we write, April we would prompt could be back in the 4% range or higher. So we thought it was probably smart to go ahead and do that. Price is $37.5 million regardless. We get is our intention to pay off the balance, the wholesale debt in April and something changes that’s our plans. And in addition to that, I think, Brian, it was about $93 million. Brian, is that right?

Brian S. Davis — Treasurer and Chief Financial Officer

$71 million of troughs [Phonetic] that we have, we’re going to inherit $21 million of troughs from happy to get to the $90 million.

John W. Allison — President and Chief Executive Officer

So it was pass, it was a change and it was after much deliberation around our Board table, our Executive team and discussions with several of our Board members that led us to that decision. I think it really has to do with strength in this market. I’m not sure if you believe we’re dancing on the, and all of the outstanding on the point of an ad. It’s something is going to break some where. I would have liked of headed it in ’07, ’08 and I would like to have additional capital in ’18, ’19, ’20 when we hit the pandemic.

So, are we through all of that? Are we, if we need the capital, we’ll have it and if we don’t need the capital, we’ll say $37.5 million. So I kind of looked at it is a win-win. And in a with a fortress balance sheet, I don’t know get a better balance sheet. There maybe somebody with better balance sheet somewhere, but I think people going to value this year. And the Home BancShares is certainly if you’re looking at strength and quality and the fourth year of $300 million plus and record earnings. And I think Home is a place to be and we will deploy more or less money this year. We will deploy more of the money this year, so you can expect that to hit the market at some point in time. We haven’t yet. We haven’t really spending any of the and we’re up to what that, 3 [Phonetic].

Brian S. Davis — Treasurer and Chief Financial Officer

$3.8 billion in cash at the bank.

John W. Allison — President and Chief Executive Officer

Will we put some of it to work? Tracy, you good with that.

Tracy M. French — President and Chief Executive Officer

Yes, sir. Yes, sir. I make more [Indecipherable].

John W. Allison — President and Chief Executive Officer

Tracy is rubbed all the hair upfront his head. Had he know, over this deal, so…

Matt Olney — Stephens Inc. — Analyst

Well, I understood. And congrats on 2021 guys. Thanks for your help.

John W. Allison — President and Chief Executive Officer

Yeah. Thank you. I’m sorry. They put that real about morning on my phone. So when it rings and I don’t have it turned off, I apologize.

Operator

[Operator Instructions] We now go to Brady Gailey from KBW. Brady, your line is now open.

Brady Gailey — KBW — Analyst

Yeah. Thank you. Good afternoon, guys.

John W. Allison — President and Chief Executive Officer

Hey, Brady.

Brady Gailey — KBW — Analyst

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

John W. Allison — President and Chief Executive Officer

Well, I think, Happy had — Happy was up about 10% worth.

Brian S. Davis — Treasurer and Chief Financial Officer

Boosted last year. Yes, sir.

John W. Allison — President and Chief Executive Officer

Yeah. They were up about 10% for the quarter in the last two months. And they have very good growth, and Kevin, you want to talk about what we’re seeing.

Kevin D. Hester — Chief Lending Officer

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 call at low rates and the higher leverage is, than we are, than we historically be 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.

John W. Allison — President and Chief Executive Officer

We just had a customer-driven, five years old, two hotels, and he had what I’m had $7 million with the mezz money and the novel had $5 million with the mezz money. Or you can imagine through this process, they haven’t paid down their principal very much but the mezz money was do at five years is suppose to come out. So they came to us what just loan, one loan with the $5 million of mezz, one hotel and $7 million of mezz on the other hotel was suddenly that takes you to 85%.

Well, they got it done. We didn’t do it. That they got it done. I don’t know, this is the time. That’s a scary thing you’re seeing out there is Kevin said is a lever, that’s the scary part of it. They’ll just stepping up, stepping up, and I think I told in the last call we had saw the most greedious hotel loan that I’ve seen in my banking history. And the last quarter where our hotel, we had $12 million, one loan and they end up loan in north of $40 million over the same hotel. So you just can’t be careful. I think it’s going get better, we’ll put more into securities during this period of time is right to continue to go up, will continue to build back. And from a origination point, Stephen you want to talk about, how much we’re resonating?

Stephen Tipton — Chief Operating Officer

Yeah, we did. I think it was a little over $900 million in Q4. If we did about $1 billion in Q3 but then all of the prior quarter, the three prior quarters two that we were in the $600 million to $700 million range. And so in the last half of the year. Certainly production, both for Chris’ group and it really all fronts were stronger than they were the first half of the year.

John W. Allison — President and Chief Executive Officer

Yeah. We worked hard to build the good book of business, we’ve built a good book of business. And I’ve told Kevin, I said let’s stop losing loans. Let’s don’t lose any loans from here on. With this, if we got to step up anywhere near reasonable just step up unless keep those loans will put new stuff on it higher rate. So that’s probably what going to see, and we’ll see a little more activity out of us trying to keep the loans on the books. But we know they’re good loans and there is paper to stay in the loan. So we will see us, you will see us get a little more active on that side. I think it’s a plus for us. After we’ll be able to put little more money and investments for them and the reservations are holding in there pretty good. Actually the first quarter was pretty good.

Brady Gailey — KBW — Analyst

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

Brian S. Davis — Treasurer and Chief Financial Officer

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

Chris Poulton — President of CCFG

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 usually happy to oblige, but for a fee. So I think if you look back historically fourth quarter has usually been pretty good fee income for us. And then I think as you look back over the last couple of years as well, our fee income doesn’t come in, kind of regularly by month there is quarters where it pops up, we had a few opportunities over the fourth quarter to pick up some extra fee income, etc. And we took that we took that opportunity. So I think it’s a little elevated for us for the quarter. But if you look back across the year I think it’s pretty normalized.

Brady Gailey — KBW — Analyst

And then finally from me, I mean Johnny, the Happy deal is about to be closed. So when is the right, and I know Happy is a big deal in a new market and I know you want to get it right. But are you starting to think about additional M&A yet? Or do you want to see happy play out for a little bit longer. And when you do start to think about additional M&A, your franchise is going to be almost $25 billion in assets. I’m just in 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 historically?

John W. Allison — President and Chief Executive Officer

Well, they’re out there — lots of opportunities out there. We have, we’re active and that 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 — we were active. Donna and I got meetings that upon or be required. That is going out as we speak, so does, will any of that come to fruition we’re damn heavy. And will it come to fruition. I don’t know if any of will, but we’re talking and

We’re looking. The good thing, they understand how we do business. If they understand that, then we will have a loan argument going through the pricing process. He will — doesn’t work. And I think we’re after the Happy deal, world leads [Phonetic] transaction, only the second Bank that want up on announcement last year or last 14 months. So we did that and that’s going to be a good trade for Home BancShares. And we’ll play off with that. I mean there is some areas there that we could fill in with Happy, but that remains to be seen, but we’re talking to people. But that doesn’t mean we’re going to doing. But we didn’t do anything for what almost 5 years, 4.5 years till we found the last one and we did it.

And that we’re glad to be in Texas and looks like they’re forecasted loan growth the first quarter, their businesses is good, so pretty excited about that — with them. We’re also looking at some portfolios to purchase that we are someone has completed his due diligence own. And we like the book, and I think you will see that announcement coming out fairly rapidly. That’s a natural piece of business for the loan side in a market that we understand and are in. So I think you’ll — I think it’s pretty like that.

So that will give us little kickstart going into the year. We’ve got some good things going to happen in January and February and some recovery. So those are pretty good things. So the first quarter was like it may be shaping up pretty nicely for Home.

Brady Gailey — KBW — Analyst

All right, great, thanks for the color, guys.

John W. Allison — President and Chief Executive Officer

Thank you, Brady.

Operator

We now listen to Matt Olney from Stephens Incorporated. Matt, please go ahead.

John W. Allison — President and Chief Executive Officer

Matt?

Matt Olney — Stephens Inc. — Analyst

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

Chris Poulton — President of CCFG

So 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. We’re taking a little longer to get done, but we have a big pipeline, dates tend to focus people. And so as you get towards the year-end people do actually close transactions. And so one is, I think we just had a number of things in our pipeline close. Those were more West Coast oriented then East Coast. I think the second thing is, as I mentioned this in the third quarter call at the, towards the end of the third quarter, we had a number of our corporate structured facilities that repaid that are revolvers, they repaid. We expected that they would redraw during the fourth quarter. They did do that So that was between $50 million, $75 million coming back in which we anticipated.

And then the last bit of it was, while we did have quite a bit of paydowns, we have about $250 million or so of paydowns, we actually had more draws than paydowns. And so we did about $300 million, a little over $300 million of draws against maybe $200 million, $250 million of paydowns. And so — and that’s a little bit also a feature of a lot of production this year. Those don’t always draw it close. They tend to draw over the course of — over the course of the year, especially on facilities. And so I think we had those three things come in during the quarter.

I think as we get into this year, we expect production to continue where we start with a nice — 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 will continue. I think I mentioned in my comments, I do expect a little more elevated payoffs in the first half of the year. Everybody has been anticipating rising rates and now you start to see the rates rise.

Some folks who might have been thinking they could hold on for last dollar or maybe get some more money when it gets more stabilized, et cetera, we may see a couple assets come out where they just decide to take us a little — a little less proceeds right now, but lock in the lower rate. And then I think we’ll see draw ups come over the remainder of the year. So, I think if we do our job and we execute on the originations and we kind of get the draws we expect, I think over the course of the year, we’ll probably end up about where we are, maybe some modest growth. But I do think we’re going to see a little bit of elevated paydown between now and then.

Matt Olney — Stephens Inc. — Analyst

Okay. That’s helpful, Chris. Thanks for that.

Chris Poulton — President of CCFG

Sure.

Matt Olney — Stephens Inc. — Analyst

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

John W. Allison — President and Chief Executive Officer

$3.7 billion, we’ll reprice that. If we gotten cash, we’ll reprice that.

Stephen Tipton — Chief Operating Officer

Matt, this is Stephen. I can give you a little color on the loan side, but Johnny is right. I mean, we talk this more than I mean it. I know everybody is 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 and as such, it really takes a couple of rate hikes probably to begin to see any meaningful increase from that loan portfolio.

I think maybe 30% or so of Chris’s that will move as LIBOR, begins to move, which all of his is LIBOR-based and then 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 on the flip side, we’re at 68% loan to deposit ratio today. If 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, or four, five years ago as well. So, I think we’re all optimistic that we see some, some improvement in an up rate environment just overall.

Matt Olney — Stephens Inc. — Analyst

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?

Stephen Tipton — Chief Operating Officer

Yeah, the entire bank. So, it’s about $3.3 billion, $3.4 billion or so that that reprice within a, call it six months or less period or had the opportunity to reprice.

Matt Olney — Stephens Inc. — Analyst

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

John W. Allison — President and Chief Executive Officer

I mean, I think the plan is doing it in the first quarter and still it would be our plan today, but you’re right. Things seem a little bit bobbed out, but nothing to, we’re geared, we’re moving forward. I think Johnny mentioned, Michael and I’ve been working in the Centennial Bank Group with the Happy State Bank has been extremely busy in preparation going forward, so already formed the — give us the green light on that part where we can, really good effort. So, all good. Just waiting on the fed. Hopefully, soon.

Matt Olney — Stephens Inc. — Analyst

Okay. Thanks, guys.

John W. Allison — President and Chief Executive Officer

Happy is ready and we’re ready, so thanks, Matt, for CG.

Operator

Our next question comes from Brian Martin from Janney Montgomery. Brian, please go ahead.

Brian Martin — Janney Montgomery — Analyst

Hey, good afternoon.

John W. Allison — President and Chief Executive Officer

Hi, Brian.

Brian Martin — Janney Montgomery — Analyst

I guess, wanted to touch on — just wanted to touch on, I don’t know who wants to take it, but just on the excess liquidity, I know, Johnny, you said that 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 how, given your comments on loan growth in securities, just maybe how big you’d be willing to let the securities portfolio grow to or we think about that as you, as you work to deploy some of the liquidity?

John W. Allison — President and Chief Executive Officer

Well, I guess, we’ll take what they give us, but we’ll take us much, we will put as much loans as we can. As rates continue to increase, we’ll just put it in securities and put it — helping that lock it in forever, but lock it in for four, five years, it’s that what we do. Is that right about, Brian, about 48 months, where it is right now?

Brian S. Davis — Treasurer and Chief Financial Officer

Yeah.

John W. Allison — President and Chief Executive Officer

So, 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 that probably might be a little optimistic. But I’d be — I think the end of the year with about $1.4 billion more or $1.5 billion, $1.7 billion more and be about $1.7 billion more in securities and loans.

Brian Martin — Janney Montgomery — Analyst

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

Kevin D. Hester — Chief Lending Officer

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 Stephen went through the production numbers and the production numbers are up and you heard Chris’ commentary around what he expects for ’22. I think the challenge is going to be keeping what we got. And if we can, if we’re successful at that, then the improvement in production can probably get to that number we’ve been talking about. But I wouldn’t look for higher than that at this point.

John W. Allison — President and Chief Executive Officer

Brian, I know –.

Kevin D. Hester — Chief Lending Officer

Hope we can get there. Sorry, hope we can get there, but I wouldn’t bet on that.

Tracy M. French — President and Chief Executive Officer

You asked and Matt asking 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. The past several months, each region around our existing company today are getting the return customer coming back, which is what we practice. And I think that’s something we’re going to see with Happy as Johnny and myself 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 that’s going to allow them to take some opportunities. Kevin’s already worked a large credit with them with Mike’s group out in DSW already because of that.

So, there is that — there is the, I think that’s the opportunity that really comes out, expand in that with them and the way that their credit opportunity for Texas and they’re growing. But I have to go back to our David’s market in South Florida and Jim’s is North Florida, it seems like their activity has really been better of late. We still get the renegade competitiveness that comes in there as we’ve done forever stayed disciplined on our underwriting, we are 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.

Johnny, I hate to be so optimistic. I’m [Speech Overlap].

John W. Allison — President and Chief Executive Officer

The truth is we might give us a little bit on right to keep some loans, but we’re not, we’re not going to give up on leverage. That’s what — that’s what gets you in trouble. So, we just can’t do that. It’s like — stress those loans well and go moving from 50% or 55%, 57% loan to value to 80% something, hotel space. They just don’t make a lot of sense, but we’re seeing that being done. I mean we’re sitting here watching it being done at low rates, so it’s not very smart. That will come. 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.

Brian Martin — Janney Montgomery — Analyst

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 bit more optimistic than you have been in the past. But maybe last one for me was just on the, on the core margin I guess, it looked like loan yields, core loan yields maybe stabilized here or up a little bit. I don’t know, Stephen, if that’s right? But just kind of thinking on the outlook on the core margin, I guess, could we be at a bottom here with given the liquidity and what the plans are going forward in the loan growth? Is that best way to think about that margin outlook?

Stephen Tipton — Chief Operating Officer

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

John W. Allison — President and Chief Executive Officer

If they don’t raise — fed don’t raise rates too fast, I mean we’re behind the curve, but if they don’t raise rates too fast and do it over two or three years, I think we will be all right. If they crank it in a hurry, create recession, then all for not, but hopefully, that won’t happen. I mean they’re obviously still buying the tenures as you see today. I think if they own, so that may still sense, I can’t stay there, but we know that’s going up. So, it’s just a matter of time till it does, but hopefully, I hate to see them play that game because I don’t want to spring like it did back in the ’80s, this shock. I mean, listen when you go out this morning, I don’t know if it’s on Bloomberg or it was CNBC, [Indecipherable] could be capital rate increases and that’s a little scary. We don’t believe that because that will slow the economy down.

Brian Martin — Janney Montgomery — Analyst

Yeah, got you. Okay. That’s it for me. I appreciate you taking the question. Thanks, guys. Great year.

John W. Allison — President and Chief Executive Officer

Thank you. Appreciate it.

Operator

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

John W. Allison — President and Chief Executive Officer

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

Kevin D. Hester — Chief Lending Officer

Yes, sir.

John W. Allison — President and Chief Executive Officer

About $250 million, is it about right?

Kevin D. Hester — Chief Lending Officer

Close, pretty close.

John W. Allison — President and Chief Executive Officer

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

Operator

[Operator Closing Remarks]