Home BancShares Inc (HOMB) 2022 Q1 法說會逐字稿

Greetings, ladies and gentlemen, and welcome to the Home BancShares, Inc. First Quarter 2022 Earnings Call. The purpose of this call is to discuss the information and data provided in the quarterly earnings release issued this morning. The company presenters will begin with prepared remarks and entertain questions. (Operator Instructions)

The company has asked me to remind everyone to refer to the cautionary note regarding forward-looking statements. You will find this note on Page 3 of their Form 10-K filed with the SEC in April of 2022. (Operator Instructions) And this conference is being recorded. (Operator Instructions)

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

Good afternoon. This is Donna Townsell. I'm Director of Investor Relations. Welcome to our first quarter conference call. Reporting today will be our Chairman, John Allison, Tracy French, President and CEO of Centennial Bank; Brian Davis, our Chief Financial Officer; Kevin Hester, our Chief Lending Officer; Chris Poulton, President of CCFG; John Marshall, President of Shore Premier Finance; and Stephen Tipton, Chief Operating Officer.

At this time, I would like to turn the call over to our Chairman, John Allison.

Good afternoon, and thank you, Donna. Welcome to Home BancShares' First Quarter 2022 Earnings Release and Conference Call. Actually, despite all that's going on in the world with global unrest, inflation resulting in record home sale prices an increasing CPI index, coupled with spiking interest rates, closing our largest acquisition ever, it really was a pretty solid quarter. Pretty plain vanilla, $0.40 EPS, with -- I think that exceeded a little bit, if I'm not mistaken.

With a fortress balance sheet and massive liquidity of $3.8 billion, plus or minus a little more -- it changes every day, Brian, doesn't it?

Yes, sir.

So we decided to use $300 million of our liquidity to totally retire our 5.625% floating rate subordinated notes on April 15 to 22, and that has been completed. Correct, Brian?

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

Sent the money out on Friday. If you remember, we had issued a new $300 million sub debt in January at 3.125% floating to fix subordinated note to either enhance our existing capital or retire the sub debt.

Move will result in a savings of about $1.875 million per quarter or $7.5 million per year. That is for the next 5 years for a total of $37.5 million in savings over the 5 years. Nice trade, Piper Sandler did the entire transaction, and they did it in 1 week. Nice job, you guys.

This resulted in carrying an extra interest expense of the original $300 million or almost entire first quarter. However, we got out in front of most of the spiking interest rates and believe we made the right call. In addition, Home has received Fed approval to retire approximately $71 million in trust preferred of Home's and $23 million of trust preferred as Happy. All of this switches at a variable rate.

This will be a second quarter event. Maybe that stretch into the third quarter? Do you say, Stephen, go what might be July.

Yes, most June.

I think it's July 24.

July 24. Okay. So some will run into the third quarter a little.

Most of it is June 15.

Most of June 15. The realized savings on this will be approximately $3 million per year, and that's before rates started going up, as I told you, these are variable. I want to congratulate our team members for receiving Forbes #1 bank in America for the outstanding performance for '21 of all banks, big or small.

This marks the third time in 5 years Home enjoyed this huge honor of Best Bank in America. And additionally, last week, Home was named one of the best banks in the world was the third time by Forbes. We're happy to announce the closing of our acquisition of Happy Bank shares on April 1. We welcome the Happy team members to Centennial Bank and look forward to our future successes together. This transaction was part of a strategic focus to shift into high-growth Texas markets in a meaningful way, and we're already seeing the benefits of this Texas franchise with strong loan demand and attractive loan yield.

This should create real value to put cash to work in a raising rate environment. We have had the opportunity to spend some quality time with their team over the last month, and we have certainly enjoyed. We have some downside and we have some upside as it relates to higher rates. Unforeseen, unfortunate impact of closing has been the rapid rate movement that has occurred recently and its impact on purchase accounting. As I've said multiple times, we structured transactions to be triple accretive, and that's exactly what we did in this transaction.

That being said, what we could not control was the timing of the closing or the fact that inflation has been so significant that Fed fund target for the year has been changed from 25 basis points at announcement of the Happy deal to 2.5% to 3% today. However, with all that said, $101 million loss is a no-risk earn back over the securities line.

We have basically always held our bonds til maturity, so we expect to get every penny of our securities portfolio back over time, primarily due to the change in after-tax unrealized position of the securities portfolio, which moved from a (inaudible), an estimated $27 million gain in announcement to $101 million loss. But also the anticipated change to fair value marks on the balance sheet. We estimate the tangible book value impact to be $0.43 diluted.

We simply had to take a point in time to mark the balance sheet, and that resulted in a loss of value. This includes CECL double count, which we have not assumed any changes to as of yet and all transaction costs, even as they occur on a later date. This change was an unavoidable (inaudible). In our mind, it is solely a timing issue and consistent with the changes in the AOCI we have seen across the country.

If interest rates had an impact on the securities book, what do you think, they had the impact on the value of the loan book for those competitors and buyers with loans that are long and low. I can tell you it's huge, it good and happy to have a good loan yield. Many of our competitors have no sense of how much damage they have done to the value of their companies and the Street have been rewarding them for just doing that rates are going up. It's been a race to the bottom. That's the downside.

The upside is, as you know, Home did not fall prey to building securities portfolio and settle on the sidelines, building a cash chest of money, while rocketing interest rates have taken our reinvestment rates up 125 to 150 basis points in a relative short 3-month period. While treasuries were up 110 to 120 basis points already this year and looks like they're just warming up with multiple 50 basis point rate hikes forecasted in the immediate future. At the announcement, EPS accretion for '23 was expected to be 9.2% or $0.16. Today, as a result of the mark to the book, estimated '23 accretion is approximately $0.15 or $0.28 -- 15% or $0.28 per share.

We look forward to providing a complete view of the financial position of the combined companies in our second quarter release to the future. News flash, rates are headed higher and much higher. Anything with a forefront of it is probably a loser. We are facing 100 to 200 basis points in the remainder of the year, which includes 50 in May and 50 in June.

We believe the Fed will be forced to continue raising rates at a faster pace in the near future. As a result, we could be poised to start deploying some of our cash in the third and fourth quarters in the securities book.

One of the keys to the economy the Fed has used in the past was the ability to reduce interest rates. With 40 basis points Fed fund, there is no room. As a result, they have no powder to use to employ that important tool.

They will raise rates to allow them to build some pattern and have the ability to stimulate the economy. President [Board] of Saint Louis certainly is part of the inflation fighting regime is a hot for quicker and larger increases. I think his research has leading to the conclusion that we are way behind the curve and his leadership is dearly needed because he is rack.

I would hope that the politics are not part of this equation because this is not a Republican or a Democratic issue. But if I'm correct, Mr. (inaudible) is the or Republican appointed by the Biden administration. The President needs rates to remain low for the November election. That is 180 degrees from what this country needs. We cannot add this new spending plan, but he says will remedy inflation. I like the guy that said, I need to lose some weight, so we eat more food. Loans are -- were flat for the quarter, but up slightly in the last 3 quarters. So we've held in there pretty good. If there's any reason way for a competitor to come in and we'll try to keep our loans if we can keep them, but sometimes they get really stupid give you a quick example.

We just had one this quarter that was 6% fixed on a 10-year loan with recourse from a good customer with good equity. Our competitor came in, cashed out more money to the customer than we originally had in the loan with nonrecourse financing 4% fixed. I mean you got to let that crazy stuff going. It was our decision to let it go, but that's the kind of structure to get banker.

Leverage is certainly the key. Efficiency ratio has ticked up recently and should be starting to decline as we begin our consolidation process over the remainder of the year. Asset quality has remained and even improved a bit you can believe that as good as it is over the last quarter. In conclusion, I think we're probably in the best position for our company's future for the fortress balance sheet, disciplined strategy, peer-leading asset quality sitting in America's best markets for (inaudible), (inaudible) through liquidity and an interest rate environment that fits our situation perfectly. Now remember, the cost of funds are going to go up at some point in time. These low rates will have to go away and their margins will get squeezed.

The next several years will separate the long-game players from the short-term players, and I expect Home to remain one of the top banks in America. If you're going to write low loans, you better make them -- the Street has applauded and rewarded large loan growth. But as you can see, the impact of higher rates have had on the securities book at Happy, the exact impact is happening to the loan book. but you only see the reality if it's mark-to-market as we had to do. With all of that said, I'll turn it back to you, Donna.

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

Thank you, Don, and good afternoon to all. Centennial Bank closed out a good first quarter with the sites looking very good for the future with our patience only not investing our excess funds in our addition to Happy State Bank. Centennial Bank finished the quarter with $18.6 billion in assets, up from $18 billion or 3% for this quarter. Loans finished the quarter at $10 billion, up $9.8 billion or 2% for the quarter. and deposits continued good core solid growth ending the quarter at $15.2 billion, up from $14.5 billion or 4.5% for the quarter.

Our group here today will have more color on that in a bit. The bank's return on average assets, excluding our excess liquidity that John has mentioned, ended the quarter at 1.88. Our efficiency ratio ended at 43% for the quarter. Our risk-based capital finished March at 16.35%.

While most banks would like these performance numbers, we expect better. We believe we're in a great position to improve on all these performance metrics that has made us the best bank in America. Asset quality remains strong with our allowance for loan loss to total loans at 2.35% with our non-performing loans at the lowest I can remember 0.44, making our non-performing loans equate to 526% on credit for loan losses to performing to non-performing loans.

That's a nice feeling with our inflation and the unknown circumstances that Johnny has mentioned. By the way, I'm looking at a (inaudible) on the wall that says, Johnny said, if you look back at his comments last year, it's pretty darn scary, how close he was predicting the status of our economy today.

Total net revenue for the bank this quarter was $166 million for March, leading over the last 5 months. As always, we continue to focus on our non-interest income and non-interest expense. A nice move occurred in our service charge and fees, which was up 10% this quarter compared to the same quarter last year. Our team of bankers had a good start this past quarter, and we'll give it our all and focusing on working through and meeting our expectations over the next quarter or 2.

Our bank began planning over 18 months ago what is happening today with interest rates and inflation. While we knew we may not be right, we knew we would not be wrong for what is best for our company. It was tough holding our cash over all this time sacrificing short-term gains, but we are happy to be in the position we are today.

And speaking of happy, we are pleased to welcome our Happy partners, shareholders, customers to Home BancShares and Centennial Bank as of April 1, '22. The team of bankers led by Michael Williamson have been phenomenal to work with. And the future looks mighty good with our Centennial bankers joining forces with our friends from Texas. Donna, I've got my cowboy boot shined and ready to go.

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

Thanks, Donna. Today, we reported $131.1 million of net interest income and a 3.21% net interest margin for Q1 2022. Our first quarter net interest margin decreased 21 basis points from Q4. Today, I'd like to over a few NIM items. First, during the first quarter, we had $53 million of PPP loans forgiven. This forgiveness caused the acceleration of deferred fee income for the loans per given. Our PPP deferred fee income decreased $3.4 million from Q4 to Q1.

The change was 6 basis points dilutive to the NIM. Second, as a result of excess liquidity, we had $236 million of additional interest-bearing cash in Q1 compared to Q4. The excess liquidity was 5 basis points dilutive to the Q1 NIM compared to Q4.

Third, there was a (inaudible) income in the margin for Q1 of $1.4 million compared to $1.2 million for Q4. This had a negative impact to the Q1 NIM of about 0.5 basis point.

Fourth, accretion income for Q1 was $3.1 million compared to $4 million for Q4. This had a negative impact to the NIM of 2 basis points. From my point of historical reference, the Q1 excess cash versus the historical normal cash balance has a negative impact to the Q1 NIM of 77 basis points, a lot of basis points.

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

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

Thanks, Donna, and good afternoon, everyone. Loans grew by $217 million in the first quarter, led by a $242 million acquisition of yacht loans from Lending Club Bank as they exited the business line that they had recently acquired in their acquisition of Radius Bank. The portfolio is very similar in underwriting characteristics compared to our previous 2 marine acquisitions due to the fact that we had actively competed with them regularly, especially in the over $1 million loan size.

The combination of $53 million in PPP forgiveness and organic loan growth of $26 million rounded out the changes in the loan portfolio in the first quarter. Loan production remained strong for the second quarter, but payoffs continue to be high with project stabilization improving as we move past the pandemic.

The addition of the vibrant Texas markets from the Happy acquisition should provide even more opportunities to post organic loan growth in future quarters. The prospect of significant interest rate increases is something that we have projected will happen for some time. But now that we're here, the possibility for unprecedented change in a short period of time creates a dawning task, remaining disciplined as it relates to loan pricing and underwriting may be more important than ever and is not something that we're seeing across the industry.

The $53 million reduction in PPP loans in the first quarter leaves us with a balance of $60 million, which is about 5% of the original funded amounts. COVID-modified loan balances continued a slow decline in the first quarter, reducing $15 million to $176 million in total. Hotels make up 83% of this balance and significant improvement has occurred across the board as only 8% of this $176 million balance is classified.

As you may remember, we offered a longer-term interest-only modification across the board to ensure that we could see these borrowers through the end of the pandemic. Virtually all of these will expire late in 2022 and will automatically go back to principal interest payments. I'm not aware of anyone at this point that we do not expect to go back to principal and interest when their interest-only period end. Significant improvement in credit metrics occurred in the first quarter, especially given the strong numbers that we posted at year-end 2021. Non-performing loans and assets dropped 7 basis points and 4 basis points, respectively, which was an improvement of 14% in each metric quarter-over-quarter.

As Tracy mentioned, the allowance for credit losses coverage improved to 526% non-performing loans. The early stage past due number of 36 basis points is the lowest number that I could find historically, even on a monthly basis for us. Overall, the first quarter was a solid one in the face of many headwinds, and I appreciate all of our frontline lending and operations folks for their continued hard work. Donna, I will turn it back over to you.

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

Thank you, Donna, and good afternoon. This month marks CCFG's seventh anniversary, seventh anniversary is the copper anniversary for those like me that are keeping track. Over these 7 years, we've consistently grown the portfolio and earnings by maintaining both margins and credit quality through a range of conditions that have included prolonged economic expansion, a rapid contraction and now high inflation in a rising rate environment.

Starting with just over $300 million in assets we're in our eighth year at Centennial, reporting loans outstanding of just over $2.1 billion on $3.4 billion of commitment. This is the first quarter we closed above the $2 billion in asset mark. During the quarter, CCFG originated 11 loans for a total commitment of $459 million. You may recall that over the past few earnings calls, I've commented on a growing pipeline of deals in underwriting in closing. (inaudible) a good portion of these waiting loans.

Looking ahead, we expect to have another solid origination quarter in Q2, though I do expect that this will level out a bit, especially in the later half of the quarter and into the third quarter. Also anticipate that Q2 and Q3 may deliver more paydowns and payoffs that we've experienced over the past few quarters as borrowers are most likely to move to more permanent financials given the expected continued rise in interest rates.

Over the past year, we've grown the portfolio for $1.6 billion to $2.1 billion, a $500 million or 30% increase This, coupled with continued positive outlook on originations, gives us significant room to absorb and at times encourage loan payoffs as we further rotate the portfolio for the post-pandemic post rate rise market.

Donna, before I hand the call back to you, I do want to point out that the eighth anniversary gift is bronze, just in case you all need a little bit of a head start on my statute maybe to see how the rest of the year goes.

I appreciate the lead time you offered us there, Chris. Thank you.

We'll wait and see how the rest of the year goes.

No, that's right. That's order early. We appreciate that report. Now let's hear from John Marshall on the (inaudible) room.

Good afternoon, and summer of 2022 will mark an important milestone, not 7 years, not 8 years, but 4 years for Shore Premier Finance and Centennial Bank. We joined Centennial (inaudible) 2018 with $386 million in interest-earning assets. 4 years later, we're $1.1 billion in assets with core net income of $6 million in the quarter, exceeding budget by about $1 million. Our national platform provides a complementary overlap with the bank, particularly in Florida, our largest concentration of loans at 24%.

Now moving into Texas, our sixth largest concentration at $50 million or 4%. As we established the guardrails for the new normal. Our first quarter '22 originations of $87 million, let me break that down. That's $55 million in retail originations, coupled with $32 million of commercial advances, but still at $87 million. They were down slightly from first quarter of '21 of $93 million and only half of 4Q '21 at $161 million.

This reflects the seasonality of the business as buyers scramble to buy their boats before the end of the year. Now after the fall shows and new buyers are shopping the season this year in the first half of 2022. The slight softening of sales year-over-year is more a function of supply chain disruption and lack of inventory rather than softening demand. Presales of boats for delivery year-end 2022 and first half of 2023 are up substantially.

Regional bank consolidation and an accommodating Centennial Bank executive management team have enabled us to opportunistically pick up an additional retail portfolio of luxury yacht loans in the first quarter that Kevin Hester mentioned, at this core of course, supplemented softer originations and elevated level of prepays. Cash continues to be a formidable competitor for us.

Market outlook uncertainties motivated by some buyers to just pay cash for their yacht purchases or pay off their 5% mortgage. Prepays in the quarter are raised to $50 million of organic growth Asset quality remains strong as it has across the bank. Origination FICOs remained prime levels of 774.

Delinquent loans in the quarter were 18 basis points and non-accrual loans were 13 basis points. Further evidence of origination quality, we witnessed declined applications dropped from 30% in 4Q '21 down to 27% in 1Q of '22. The boat show season is open with back-to-back shows coming up in the next couple of weeks in Annapolis and Maryland Eastern Shore. Limited stock boats are pushing more buyers into custom purchases and are increasing the preorder logs for our dealers. Our team is optimistic about the continued opportunity for growth. With that, Donna, let me return the conversation to you.

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

Thanks, Donna. I'll update you today on deposit activity, repricing efforts and trends and a few additional details on the balance sheet. Total deposits continued to climb in the first quarter with growth of $320 million or 9% on an annualized basis, and over $1 billion in growth year-over-year or approximately 8% on an annualized basis. The growth in the first quarter was primarily from the Florida and Alabama regions, again demonstrating the strong economy along the Gulf Coast and throughout the state of Florida.

One particular highlight on the growth, core non interest bearing balances grew $180 million in the quarter. Switching to funding costs. Interest-bearing deposits averaged 19 basis points in Q1, down 2 basis points on a linked-quarter basis. With the recent rise in short-term rates, we saw an uptick on a subset of our interest-bearing deposits and exited the quarter in March at 21 basis points.

Total deposit costs were 14 basis points for the quarter and 15 basis points for March. With over 30% of our deposit base now in core noninterest-bearing balances, we believe this to be a great starting point for our funding base as we enter this rising rate environment.

As Tracy and Johnny have mentioned, our patience in deploying liquidity over the past 2 years has placed us in a great position of strength and flexibility. Switching to lending. The groups are off to a strong start in 2022 with just over $1 billion in origination volume, much improved from the same quarter 1 year ago. A little more than half of this origination volume was funded at March 31. And of note, our unfunded commitments now stand at a little over $3 billion, the highest number that we've seen.

Despite a few large development projects being completed and accessing the permanent markets, payoff volume slowed to approximately $650 million in Q1, down to a level that we have not seen in several years. With much discussion on rising rates, I would like to update you on where we stand today from an asset liability perspective. Variable rate loans with repricing dates this year totaled around $3.3 billion or approximately 1/3 of the loan portfolio at quarter end.

With the most recent increase in Fed funds along with LIBOR, we now have approximately $1.5 billion at or above their floors. And we expect to see that gap close significantly with the anticipated rate increases in May and June and thereafter.

Additionally, the Happy loan portfolio will add $1.2 billion to the balances I mentioned above, which similarly is about 1/3 of their portfolio. And today, approximately $1 billion of their $1.2 billion is already at or exceeding those floors. With $3.5 billion to $4 billion in cash to deploy, the variable rate loans in the portfolio, as I mentioned above, along with cash flow from the investment portfolio, we feel the company is very well positioned to benefit from continued increases in interest rates.

And now importantly, I'd like to recognize the significant efforts ongoing by our teammates here at Home and Happy as everyone serves the customer base while also working towards a successful systems conversion in June. And with that, I'll turn it back over to you, Donna.

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

No, I really don't. Somebody else might have some. I just think we're well positioned. Rate rise based on what Stephen had to say and what we see happening in both the excess cash that we're sitting on. So I'm pretty optimistic we're seeing these reinvestment rates jump the way they've jumped in the last 90 days, and I expect them to continue that. It looks like we're looking straight down the barrel of 250-foot -- 250 basis point increases here pretty quick. So we could be in the 2.5, 3 Fed funds range by the end of the year. If we are, we may have deployed money too quick. That's what we -- that's the key is when we start to pull in.

So hopefully, we'll be deploying this year some and more into next year, both in loans and in securities. And Donna, I do want to the operator. We can go back to the operator.

Thank you very much. I will turn it back over to you for (inaudible) Q&A.

(Operator Instructions)

The first question comes from Jon Arfstrom with RBC Capital Markets.

Let's talk about the $3.5 billion. I guess, Johnny, that's not train-riding money. Is it? I mean, that's a big number.

Slowed the train down.

Exactly. The question is what need to see to put it to work. I mean we've seen examples this quarter of companies that put it to work too soon, and they're getting -- stocks are getting beat up.

And I guess the question is, what will make you guys comfortable to put that money to work?

We need to see something with a [4] in front of it on the yields. We need to see something there. We're seeing 3.30s now, 3.40s with no risk at all, which bodes pretty well for us. We recorded some of this yesterday and the rates are even up again today. So I think we see us in the [floor] starting to roll some of it out. And -- but we're going to keep -- we're probably going to settle on $1 billion anyway to see where this thing goes to. We probably will deploy over a period -- over the next 18 months to 24 months, probably $2 billion, $2.5 billion, maybe $3 billion.

And then we're going to sit on. We're going to keep some train-ride money, as you call it. We will keep some train-riding money in the event that it goes on higher, which it is back, it's my call that we're going to see unbelievable rates, high rates. So that's my call. I've been beating the drum as you know, for about 1.5 years on this and I thought I was right. I thought I was wrong.

And we're watching a puppet show with this Fed funds deal, I mean, with the treasuries because we don't know what's behind the box, right? It's just a puppet show. And the rates run up, they're trying to run up and they're buying them back down, and they run up and they buy them back down. So at some point in time, they're going to have to let that go, and I'm not sure where that goes. And I don't know if it goes to where it went to in '80, '81 and '82. But I'm hearing -- somebody was talking about Jimmy Carter's administration before, but I'm here lots of talk about that today. That's what I remember and say, and I have a fair that we could get there.

So sitting on $1 billion, if I'm wrong, and it starts coming down, we've deployed it at much -- I mean, pretty close to that, maybe [$4 billion, $4.5 billion], less. So I think that's important. Loan demand is pretty good. We've got to keep some money for loans. So when you're sitting on $4 billion dollars, maybe you keep $1 billion sitting aside for something, you put $1 billion in loans and you put $2 billion in securities. So that's kind of what I'm thinking out loud right now, John.

And it has been -- you're right. We have remained disciplined and we have so far made the right call. When you see reinvestment rates up 150 basis points since January 1. I think we did the right thing. And I think time will tell how well we did. The key is when we deploy. So I would like to add that's the best I can tell you right now. If we start sending some floors on that, we will just start putting some money in there. I think you can see [4, 5 and 6s] in the next 18 months.

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

Well, it is tough. I mean, we're just sitting right in front of this, what we expect to be at least 100 basis point move in rates. And so that's a challenge. And then you've got -- you have asset prices as high as they are. I mean, those 2 things create a lot of challenges, both on the pricing side and the leverage side. So we're just trying to stay disciplined and do what we have always done and continue to make good loans at a fair rate that we get charged for the risk and -- if it's there, it's there. If it's not, it's not. And we just keep doing what we're doing.

Jon, it is though some people didn't see the 25 basis point increase, and don't see the 100 basis what's coming in the next -- around 60 days. It's like they don't see that. I was on the phone where we got a lot to go, the credit union loan their money at [2.65 fixed for 10]. I mean, I remember the last -- I kind of relate them to savings alone. I remember the last point I was in was about 20 years ago and their yield was 7.5% on their loans and their cost of funds was 13%. So they -- of course, they went broke and went out of business, and I [like] the same thing will happen with some of those people.

It's just the -- you can't fix stupid. I mean it's in front of us. Reality is here, rates are going up -- so rates are going up. And then they're still doing [3.5%, 3.75% and 3.99%] and all this silly stuff, it really is frustrating for someone who -- for a company that runs the way we run our company and maintain the quality we run and see the stupidity in the marketplace. So it's very frustrating.

The next question comes from Matt Olney with Stephens.

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

Kevin, Kevin talk about it, I won't tell what it is, but it's booked he looked at a while back and what they were offering then. And it seemed like it was yesterday, but it's a couple of months ago and now what we can get on that book of business.

Yes. I mean, yields have gone up. The rates are on the loans, they're still the same, but yield -- the expected yield has gone up. So the price has gone down. So maybe there's something out there. What we did in February with the LendingClub deal was opportunistic because we got to take a competitor out of the market. And we'll continue to look for opportunities like that. And we're always looking for different angles and portfolios that make sense with what we do. So if we find those, we'll certainly look at it.

I think they had a book right now we look at, it's about $500 million or $600 million, $800 million. They don't have big deals. That yield about 3 what?

Loans are in the 3s, but the yield -- in the mid-90s, the yield would be 4.5%.

4.5%. So that gives a little bit of attention to you. However, if you can take -- put it in (inaudible) where security at (inaudible), you're going to look at that, too. So you got to kind of weigh those differences. And -- we'll see what happens with the next 100 basis points increase what that does to the yields. And I mean basically, today, I looked at them, the 2-year, the 5-year, the 7-year and the 10-year was (inaudible) signage, it's kind of interesting watching this process. That's the puppet show I was talking about that earlier.

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

Well, we're busy. Texas has brought a new -- they're very busy. That's -- they're busier than we were. So they're bringing lots. We meet 2 or 3x a week with them. And they're bringing lots of stuff to us that we're looking at. So I'm pretty excited about that. And legacy starting to bring lots of stuff to us. So that's good. A lot of people are trying to refinance right now. I'm trying to get out and refinance, you get ahead of this interest rate deal. Other people are trying to get locked in on their projects and get ahead of the interest rate increases. I mean some people recognize what's coming and some people don't.

So I think overall loan demand is pretty good. So we'll keep dry powder for loan demand because that's what we do. And we'll do the good ones. We look at a hotel on the other day and it just was marginal as hell, and Kevin said, "God, we get all hotel loans we want. "He said, "Just pick, you want to do 30 of them this year, just pick the 30 best out of the entire pack." He said, hotel loans are (inaudible) with us. So that's kind of what we're doing. We're trying to pick based on asset classes where we need to be and get the rate and the terms that we need and -- we did -- I don't know. We had a good $40 million, $35 million loan pop-up the other day, just jumped up on this, and we did that transaction pretty quick and we got quite a bit going on.

We looked at a big one yesterday with Texas $80 million. We didn't do that transaction, but we did look at it. We spent quite a bit of time on it. Just had a few red flags that made us nervous. And we did not pull the trigger on it. Somebody will pull it trigger on it, but we didn't pull it.

Overall, Matt, it's pretty good. I mean I'm pretty optimistic. I'm pretty -- actually, I'm excited because the rates are going our way, and they're going to continue to go our way, be it on the loan side or be it on the security side. So you see what's happened with AOCI. You see what's going on there. And the Happy's deployment cost us $100 million, they did or did not, maybe, and we'll get our money back, but time value of money. But overall, things at Home are really pretty -- I'm pretty happy. Actually, I'm really happy (inaudible) sitting around there.

How about you, Tracy.

No, I think you hit it on the head there. Matt, the only -- the things that we see is like the Texas opportunity. We've only been with them now for 20 days, gotten the norm well over the last 9 months. And it's pretty exciting to see what avenues they're going to open up. I mean we're still looking down several avenues that they could do -- and I really do think once that time will take care of some of that with our existing customer base. The communication is going well there, kind of related back to some of the Florida markets, how they've done well at times.

And the South and even Jim's area up in the north has had a pretty nice pickup in the first 20 days of this quarter. And I think it's just over time, steering and staying disciplined in what we do in customer relationships and actually picked up some new opportunities along the way. So it's whether -- how happy it is, yet, time will tell. Johnny, on that part, the staff and groups are really off to a great start in our opinion.

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

The next question comes from Brady Gailey with KBW.

So I wanted to start just on the deposit side. You guys saw another pretty good deposit growth quarter. I think they grew about 10% annualized. The deposit growth has just been great for you over the last couple of years. I know we're kind of headed into a different interest rate background. And how do you think deposit growth trends from here? Do you think you still see some modest growth? Or could deposit balances reverse course a little bit here?

Brady, this is Steven. I guess, I think we've said every quarter for the last 2 years that we thought the next quarter, we might see some outflows and it go down, and it continued to go up about every single quarter. So I think we still obviously see tremendous value in the core deposit base, trying to continue to grow it. It will be interesting to see in this up rate environment, how we and all the banks that are liquid are able to kind of control costs there. And I think as long as our focus continues to be on the core low cost or no cost checking account, we'll take all we can get. We are in this quarter with tax payments going out. We generally expect to see a little decline there. But so far, so good.

What you didn't know is I wrote my check, the [IRS], Brady, I can assure you deposits are (inaudible). We appreciate your contribution.

America, appreciates it. Biden appreciates it.

Brady, I also have had that with Stephen if he said is just every day, we kind of say, oh, wow, And then the areas that we are, you have the Texas new market that people are moving in, when you talk to the team down there and you use the Gulf Coast region of our bank, I mean, they're still picking up opportunities and accounts, a lot of individuals are moving in from out of state to those areas, and we're getting our fair share of new checking accounts and that type of business. And we feel pretty confident. We now have some municipal monies along the way, but as I said in my comments, it's just good core relationships that we have. So we're very fortunate with that. And we still like deposits, too, even though we're growing as fast as we have. We know it's still what drives the bank.

We had Stephen reported to me, they analyze the credit, we had to had $145 million in the bank. We forecasted their next year at this time, they have $245 million in the bank. I have been talking to them. So it looks like deposits are going to continue to grow here. I mean, all banks have enjoyed this, but real banks that have real customers and do real business are the ones that have done really well. And it's -- we've built this space on 1 customer at a time instead of just mass hitting the audience out there and not have any relationships.

And I think that pays off today. And there are many banks out there that operate like we do to have those relationships and they'll continue to grow through this cycle. But looks like they're -- I don't think they're going down. I mean they don't have any taxes we've got to pay, but I don't think they're going down. They'll either hold their own or go up. What are you hearing? You're hearing good or bad there? You're going down?

I think as rates head higher, there could be some pressure on deposit balances. If you're in a good market like Texas and you guys, maybe you can offset that with growth. I wanted to ask a second question. So I know the rate -- the marks kind of went against you on Happy, but you know you'll get it back from higher EPS accretion. I just wonder what's the update on expected levels of accretable yield with Happy now in the mix and with the higher mark than expected when you guys actually closed that deal.

Well, we don't really have a number at this point in time. We had originally projected that the mark was going to be a premium on the loans because they had higher rates. But as rates have moved up, we're kind of anticipating maybe a discount on those -- so -- and I think we had about $29 million as a premium on the loans from a rate standpoint, and we're probably looking at zero to a discount on that at this point in time.

You're talking about (inaudible) with the bond. How much hit will we take on the bonds?

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

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

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

Well, we've got to execute first, Brady. We've got to execute. We need to get this one under our belt. Get the accretion out of it that we want to get out of it. We've never done a dilutive deal. This deal turned out to be $0.40 dilutive to us, takes us a little less than 1.5 years earn-back. I feel for those people out there that had a 3-year earn-back or a 4-year earn-back (inaudible) trap. They'll have an incentive to earn-back. They'll never earn it back. So as close as we play this into the basket, still will be 18 months earn-back. So Stephen, do you have a comment on that?

No, I don't have anything to add.

Okay. Tracy?

No, sir.

The next question comes from Brett Rabatin with Hovde Group.

Welcome, Brett. First time you've covered us, isn't it?

No, no -- it's -- I'm back after a sabbatical.

Well, -- good to have you back. Do you play baseball too?

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

He wasn't that good either.

Wanted to first ask, Johnny, when I was covering you last time, there was a call where you talked about Wonder Woman and Superman and the Boogie Man. And I'm curious on your view on the Boogie Man and the recession fears that the market has with the flatter yield curve. Maybe if you could just give us your thoughts on how you think the economy plays out, if I'm reading it right, it sounds like you're pretty bullish on a soft landing regardless of what the Fed does with interest rates. What's your outlook for the economy? How does that play into maybe a more defensive underwriting position?

Well, they're in a box -- Fed is in a box. I mean, they do 25 bps, 25 bps, 25 bps, and inflation is going to continue to run at even a faster -- fueling. It's like fueling a jet. I mean, the rate is going to run faster and faster. So that's one scenario. What's the other scenario? They raise it too fast and throw it into a recession. Can't do that right now. They got 40 basis points Fed funds. So how much can they lower rates? They can hold rates 25 bps -- they can't have two 25 bps, they'll be negative. So they're in a box. They've got to raise rates high enough to give them some powder, be ready to be able to kind of rate down the road.

You remember during the Clinton administration, Bill Clinton kicked rates about 2 or 3 times -- he got a little overheated. He kicked it up 2 or 3 times. I was in a handshake line with him, and he came through, and he's, "What do you think about the economy, Johnny?" I said, "I think you played it just right, Mr. President. I think you should hold it here or drop it a little bit, and you'd see the economy take off again". He winked at me, and I know the President is not supposed to have anything to do with the Fed, but 2 weeks later, they lowered rates 25 basis points, and the economy took off. So he had room to do that. There is no room for the Fed with 40 basis points. So they've got to crank it. They've got to get neutrality. They got to get -- I mean you got -- they call it 7% or 8% or 9% inflation. It's probably closer to 20%.

And I'm not sure -- I think they got to crank like hell. So you might say, I mean, you could see it's conceivable that you could see fed funds at 7%. I mean, it's conceivable that, that could happen. So I'm not predicting that. I'm just saying that's awful conceivable. And by the way, I was right about the Boogie Man. Donna and I went all over the country, they were under every desk, behind every tree. They didn't exist. They were just somebody's imaginary Boogie Man, but there is a Boogie Man out here right now, these interest rates, and they're going to go higher. And if people don't think they're going to go higher, they just need to keep loaning this money at low rates and long term, and they'll be upside down -- their liabilities will be higher than their asset reqs are.

So we've seen that happen. I'm just going to still protect us if it doesn't happen. And I'm not right about everything, but I believe that if it looks like a duck, it quacks like a duck, and walks like a duck, it's probably a duck. It may not be a Boogie Man, but it's a duck. So it just looks, acts and smells like the Carter administration in the 80s.

And if I'm right, it's going to be -- Home is going to be a big winner out of this if we make the right plays, and we'll make lots of money.

Okay. I love hearing you talk about stuff. You guys obviously have gone through a lot of different cycles. So -- and I wanted to circle back to the margin and just thinking about, obviously, there's some moving pieces with the debt repayment this quarter, the closing of Happy. It seems to me like if I just take a static balance sheet, snapshot and add 50 basis points and add Happy, it seems like you could have your margin move up -- move back up 15 or 20 basis points. But I'm curious to hear if you'd be willing to take a stab at pushing me in one direction or another on that.

I mean, the excess funds of 77 basis points right now, which gets us back to about a 4% where we belong, where we live forever, and we'll be back to that. I mean this company always has run close to 100% loan to deposits. We'll be back at that point sometime in the future. So when that happens, we'll get back there. So it's really covered up the margin a little bit. I don't know what the impact of the fund raise was in January, was that...

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

I think you'll see -- I mean we get this money [in Florida,] I think you'll see us back going forward. That's about where we're running. It's so complicated for -- it's complicated for me, too. I know it's complicated for you all because we're looking at that and Brian said, add 3 for this, subtract 4 for that, add 7 for this, subtract 2 here, add 77 and multiply times 4. So it is difficult. But we're really -- the way we see it, we're running our loan yield, net loan yield is about 50...

506.

506, so we're -- that's about where we're sitting right now.

Okay. And talk about the -- no, that does. I was thinking about the next quarter or 2 versus the longer term, I definitely see you guys over 4% margin again. Just last one for me. Origination rates relative to the existing book? Any color on that?

Yes. I think we're in the mid-4s in the first quarter. We had a couple of opportunities that Chris and his group have kind of C&I side, but the Community Bank group regions were a little over 5%, which -- call it right in line with what Johnny -- what we talked about earlier on where our core loan rate is.

The next question -- I'm sorry, Brett has now disconnected. We can proceed with the next question, if that's fine. The next question comes from Stephen Scouten with Piper Sandler.

Johnny, I didn't know Arkansas State -- I've been good, but I didn't know Arkansas State had a PhD program in economics. Is it named after you? Or is it named after a [duck blot]? How much money did you give to that school?

I gave enough. They gave me a PhD. It just takes money. That's all it takes. They said, "You deserve a PhD, as smart as you are." I wasn't that smart since I gave them the money.

[Well, I mean, at this point.]

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

Don't give me -- when we got things going our way, don't give me that -- throw that wet blanket on me with that. We always worry about asset quality here. It is -- you can look at our asset quality and know that it is superb asset quality. We don't have asset quality problems. We just -- it's all in leverage. If we can keep the loans leveraged properly, they're going to work.

If you got the proper leverage and they got skin in the game, as I've said in the past, they're going to work. But I forgot what the other part of the question was, was...

(inaudible)

No, that's it. Yes, I mean, it just seems like the market is not giving credit, especially to a bank like you that has a lot of funds to put to work -- not giving you any credit for the higher rate but penalizing you already for credit issues that haven't even begun to materialize. So just kind of wondering what you guys are seeing, if that's even...

While we're 500% to nonperforming, they want to penalize us for credit -- were 500% nonperforming and $250 million in reserves. So we're probably in the best shape on the asset quality side of anybody in the country with lots of capital, a lot of excess capital. And so I think we're a good shape.

I think you're right. I don't think the market is recognizing what we're doing. We are -- I mean, we have remained patient. You take the $4 billion and you put it out at 4% or 5%, and you can see what that does, what that creates for us. That's a couple of hundred million -- $160 million to $200 million in pretax -- pretax income. So that's the play. That's where we're headed. That's -- we may miss it a little bit, but that's our thought at this point in time. I can take that $200 million and I can tax it and that's almost $1 a share. So that's -- actually pretax dollar share. So that's a lot of money. That's a lot of impact that I think that we may -- we won't get it all. We won't get it all, but we'll get a lot of it.

Yes, that makes sense. The $2 billion (inaudible).

They won't reward us until we do it. Stephen, the market won't reward us until we do it. They're rewarding right now loans out there that people are doing in the 2.5%, 3% and 3.25% fixed long-term stuff, they're rewarding that. They need to take a look at the bond portfolio at Happy that went from $27 million up to $101 million loss. I mean that's exactly what's happening to the loan book. Say what you want to say, if you mark that loan book today based on what they're doing, they're upside down.

So we're still at 506. So we're hanging in and Happy was a little higher than us. So we like what we're seeing with our book, which I think puts us in the best position ever. That's my PhD report.

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

I don't think you're missing anything. I think you're seeing exactly what I'm seeing. I think you're right on with me and this executive team. I think we're right on with that. I don't -- we were talking about loans today versus the difference in the rate and one was risk free, was a government basically. And Brian said, why would we do that long when we can just stick it right here, we don't have any risk at all. So we'll have to manage that as we go forward. But I think you're right on. I think we're in this -- because if history repeats itself, we're in the catbird seat better than I've been in maybe in my banking career.

The next question comes from Brian Martin with Janney Montgomery.

Nice quarter. Maybe 1 question, Stephen, and I appreciate the color on the Happy portfolio. Just kind of wondering the total variable rate loans today, can you give any sense on when do those completely get through their floors, so they're moving kind of with rates? Just so we can kind of think about that as we go forward. I think you gave some detail on it or maybe you can cover that.

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

And Happy got virtually all of theirs at or moving now, which is great.

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

Sure. This is Stephen. I mean some of it depends on the account type, whether it's checking or savings or other. I mean I would say it's cumulatively averaging in the mid- to high 30s. I tend to think that, at least for the first -- this 50 basis point expected hike or maybe even the first 100 that there's so much liquidity in the country and the banking system today that the bank should be a little more agnostic to initial change.

Obviously, some of what competition is doing will drive that. But I think it may be more around what we do with terms potentially and offerings as opposed to just how much of the rate increase that we pass along. But I think we're optimistic the first 50 to 100, it's less than the betas that we have modeled in.

Yes. No, that makes sense. So -- okay. And as far as -- maybe just 1 or 2 others, just payoffs sounded like they were down this quarter. I guess is that a trend you expect to kind of continue here? It sounded like the production was still pretty nice. And then the unfunded commitments, I'm not sure the timing of those. But it sounds like it was just I guess, something we're going to see maybe a little bit more of and the payoff side being a little bit less as you think about today? Or too early to set a trend?

I'll let Kevin take that too. It's probably a little early to set a trend there. I mean I think, obviously, potentially, as rates rise, it may slow some of that potentially -- people hold on to assets or whatever. But that bounces around a little bit from month-to-month and quarter-to-quarter. But we've also prior -- over the last 1.5 years have had some $800 million -- almost $900 million quarters, too. So. Kevin?

Yes. Chris made, I think, a comment in his remarks about the second and third quarter would have some payoffs that he's not seeing recently, and he can answer that if he wants to. But certainly, I think he's going to have, in the next 6 months, some moving around in his portfolio, there will be some payoffs. I think the rest of the portfolio, it's hard to tell what rates will do, the rise in rates will do to that. I mean it could -- it could slow that down a little bit for the rest of the portfolio, but Chris does have some that we know are coming.

Chris, you've got a comment on that?

No, I'd probably just say -- I always like to remind people, I like payoffs. I like it when people pay me back. It's not the worst thing that can happen when we make a loan. So one of the nice things about having a pretty good couple of quarters of originations is it gives me a little more flexibility to encourage some payoffs as well. So I'm going to be a little disappointed if we go 3 or 4 months here with not -- with depressed payoffs. I've got some loans. I think it's time for them to go.

Got you...

That's Chris.

Well, last 2 for me was just the -- with the credit mark on Happy. Just any thoughts on the -- how the day 2 CECL is trending at this point? Or I don't know if you have anything on that, Brian or not?

No, I don't have anything to update on this point in time. We're still working on it. Kevin is working on his numbers, and we've only had them 20 days. So.

Got you. Okay. And then just the -- with the closing of the deal, the third quarter looks like a relatively clean quarter with the kind of the expenses kind of in the numbers. Does that seem fair, largely?

Well, we'll have all of the purchase accounting done. Will we have all the cost savings in? Probably not. I mean, we won't get a lot of the cost savings in until we get converted, which is in June. So it's probably Q4, I would think, before we...

Some of that will bleed into early -- some of that will bleed through July (inaudible).

It's been interesting watching that process as Stephen has kept me up to date on -- he's going step by step with the Happy people and there are some significant savings that we're starting to see some of that -- or we captured some of -- we hadn't actually put it on the books yet. But it looks pretty good right now.

The next question comes from Michael Rose with Raymond James.

I think I'm probably last in the queue here, so I'll keep it short. So obviously, the stock has treaded a little bit of water since the deal was announced. And now that it's closed, Johnny, any thoughts on the buyback at this point?

We've been -- we've kind of -- we bought a little big pile of 10b-5s. We bought a little bit back. We bought just prior -- we were out for a while, and we had 2 or 3 days we could buy. I think Stephen bought, I don't know, 100,000 shares a day or something during that period of time. We'll probably get back in that game at some point. We just got too much to do right now with execution. But we're not -- I can buy. I mean, I can start buying again pretty quick. I think 3 or 4 more days from here I can get...

We're back (inaudible).

Can buy in. So I like it where it is right now, and I'd like to own it here. So I think it's...

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

We did? Okay. So good. So we bought -- we had a 10b-5 -- the 10b-5 bought, we had...

Those numbers (inaudible) from the 10b-5, yes.

Okay. That worked out. We're not out of the market. I get to thinking, Michael, maybe we're propping it up a little bit, and we let's just see where it goes. If they want to take it down, take it down and we'll buy a lot. We'll buy $20 million worth. We've got $400-plus million in the holding company today. So we've got plenty of money. We've got plenty of firepower to go do what we need to do. So I think I'm just going to watch it for a little bit.

And if the world wants to take it down, I hate that for my shareholders, but we'll be there. I mean, we're not going -- we're not going to the house. We recognize it's cheap where it is right now, and we're not afraid to buy it as Brian said, we've already bought more this month, we did in first quarter so.

Yes, from a cash perspective, the holding company has got -- we've got more dry powder today than we probably have ever had.

Yes, we've got more dry power we've ever had. So how much cash you got in there today -- probably $500 million?

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

Yes, that's what I was asking. Yes, that's -- maybe just one for Chris Poulton. Given the concerns out there that we might be in for a little bit of a slowdown in the back half of the year into 2023. Any thought perhaps on pulling back in any of the verticals that you guys operate in, either by type or geography? And then obviously, I know with Happy coming on, it gives you a little bit more capacity. So just how does the interplay work between those dynamics?

Yes. No, that's a fair question. We've been nervous about a lot of the verticals for a year now. And so I don't know that getting closer to what we think is already going to happen makes me any more nervous because I think I just assumed that. I mean -- we under -- starting last year, we underwrote a recession in 2023. That was already in our number. If it doesn't happen, that's great, right? But we don't get paid to take the upside. So we continue to do that.

It's -- but it's sort of like hotels for me, right? I don't like hotels. I don't want to do hotels, but why don't you talk to them about your hotel, right? There might be a way to do it. And it's just a matter of -- it's always leverage and liquidity and duration and those types of things. So volatility is good for us. And so if we get into the second half of the year and there's volatility, that's generally a good thing for us, right? Because we're a low leverage lender, and when everybody can go get high leverage, they tend to go get high leverage. When they can't get leveraged, they tend to take the low leverage.

So I think periods of instability and transition usually are our friend because people start to -- a lot of our clients start to appreciate the fact that we're there, right? I mean, we don't get out of the markets. We just adjust a little bit. Others that went high just exit when they get nervous. We don't exit when we get nervous. We just -- we tell you we were already nervous. And therefore, our pricing and our leverage reflects that. So when times are really good, it's tough for us. When times get tough, I think that's good for us. So we continue to see, I think, a lot of interesting things.

We had just a lot that needed to close -- and so I'd say we focused the first 4 months of this year or so on getting that pipeline sort of back down to a level that we feel like we can manage and now we'll start rebuilding that a little bit. But we like instability. And every day there's not a recession is a surprise to me.

That's it, it's a really, really good point for sure. For sure.

Yes, you got to love it. You know what the -- how he looks -- yes, I mean he looks at things different than we look at them a lot of times but he's right. So -- one good thing about him, he knows what he's doing. We've got a great team, and he was limited on his growth, but he has the ability to grow nearly another couple of billion dollars if he finds the right loans. That's his call. We don't have a -- we don't have a target for him, but he could go up to about $3.8 billion if he finds the quality loans. If he finds that many, I'm sure they'll be good.

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

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

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

That's correct. And the refinancing on our bond book. So anyway, thank you very much, and we'll talk to you in 3 months.

That concludes the Home Bancshares, Inc. First Quarter 2022 Earnings Call. Thank you for your participation. You may now disconnect your lines.