Home Bancshares Inc Q4 FY2022 Earnings Call

Greetings, ladies and gentlemen. Welcome to the Home BancShares Incorporated Fourth 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, then entertain questions. 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 February 2022. At this time, all participants are in a listen-only mode and this conference is being recorded. It is now my pleasure to turn the call over to Donna Townsell, Director of Investor Relations.

Thank you. Good afternoon and welcome to our fourth quarter conference call. Today's discussion will include prepared remarks from our Chairman, John Allison; Chris Poulton, President of CCFG; and Stephen Tipton, Chief Operating Officer. The rest of our team is present and available for questions. Tracy French, President and CEO of Centennial Bank; Brian Davis, our Chief Financial Officer; Kevin Hester, Chief Lending Officer; and John Marshall, President of Shore Premier Finance. 2022 was quite a year. Home BancShares finished the year with a strong fourth quarter, and to provide you with the details is our first speaker, Chairman, John Allison.

Thank you, Donna. Welcome to our 2022 year-end and fourth quarter earnings release and conference call. Properly managing last year was both arduous, stressful, and somewhat exhausting at times. Loan and deposit rates had not been this high since the late 70s and early 80s. That's when Volcker took rates to the low 20s and finally killed the inflation snake. This is the second fastest that we've ever raised rates in the history of our country. Our belief is that we have higher rates for longer. We've not even hit the 50-year average at 5.44 fed funds, and the pivot crowd will be disappointed because Powell is aware of the early pivot that Volcker did in the 70s. Inflation was not over then, and it's not over now. We must hold the course, maybe not raise rates as much as in the past, but continue to raise, pause, and observe as it takes almost a year for the impact of what we did today to show up in the comments. We're seeing some signs of inflation slowing, but without continued rate increases, this could be no more than hearsay. The naysayers are saying there will be a run on banks. Bad loans will start raising their hands. The recession is here. The biggest stock market crash is imminent. There is a financial hurricane leading in this direction. Banks are out of money, and higher interest rates are diminishing the value of the securities due to AOCI. I have to agree that some of these risks are certainly out there, but most can be properly managed. A lot of the deposits at much higher rates are finding their way to those who did not show patience and continued on the same path, pouring deposits into low-rate loans and securities. It will be a long road for those companies. They will not catch up for three to five years, if that quickly, or until the low-rate loans and securities roll off the books. I have said this before and I want to say it again: there is no substitute for experience. The key is to keep interest income down to our own interest expense to result in an increase in net interest income. Even as conservative as Home is and the position we were in, this is a very trying task during the quarter because those who spent their money were forced to buy money regardless of the cost, as evidenced by their CD ads everywhere. There has not been a CD ad run at Home. We let deposits leave the bank only when they hit the absurd point. Otherwise, we attempt to retain the deposits. In good times, these branded banks had a race to the bottom on loan rates, and now they're having a race to the top on deposit rates. As tough as it is to maintain excess cash, we're still hanging out around 80% loan to deposit. Additional cash flows from securities, principal payments, and smaller payouts are resulting in about $300 million per month in cash flow. February is expected to be about $550 million because we have a $250 million treasury that could give us another opportunity. We have 80% loan to deposits, virtually no broker deposits, limited borrowing with billions of capacities, plus cash flow only sets us in a great position. In spite of the damage done and more attempted by the West Texas Group, it appears the intent was to destroy shareholder value. The strength of the entire franchise has stepped up and delivered three record quarters in a row since we closed that transaction. We're keeping a tally of the unprofessional damage done to our franchise, and we'll talk more about that in the coming months. I found this pretty interesting. Bill Bonner, described as an underappreciated economic genius, explained that financial innovations always appear grand at first, but they soon take you to excess and become a burden and eventually lead to a tragedy. All banks are not created equal, just like all cars. It's all about people, management teams, and performance. We pride ourselves on trying to separate ourselves from the rest of the pack with top-tier performance. Being named the best bank in America by Forbes three of the last five years is certainly a great achievement by our team. I don't know of any other bank in the country that has achieved that goal. We just witnessed the Georgia Bulldogs separate themselves from the pack in a very impressive fashion, and there’s no doubt about who the national champion is in the US. I don’t know if Home is the national bank champion, but we’re certainly in the playoffs, and congratulations go to our team. We are grateful for the market support as there are only a handful of banks trading over two times tangible book, while 66% of all publicly-trading banks are trading at 125 or less. That number came from last week, and we are taking them all down this week. The conservative management team at Home believes in maintaining a fortress balance sheet with excess capital and sufficient reserves. We do that in the event of a major downturn in the economy, all while continuing to report record profits and top-tier performance. We’ll continue to carry these conservative balances, but regardless of the situation, Home will be open in the morning next week and next month. There is no substitute for strength—you cannot get it when you need it. Therefore, we carry it at all times: better safe than sorry. Don’t worry about Home—we're taking care of you. Let’s go to the numbers. I'm pretty impressed with these numbers myself: record fourth quarter income of $115.7 million or $0.57 a share, and this is sure to be a beat. Record '22 earnings, as adjusted for the one-time second quarter adjustment of the merger expense of $107 million, is $375.9 million or $1.93 EPS. Fourth-quarter ROA is 1.98%, a little below what I wanted to achieve, but that’s about as close to the mark as we can get. ROTCE, return on tangible common equity in the fourth quarter is an amazing 22.96%. Tangible book grew from $9.82 to $10.17, even though we continue to buy back stock. AOCI reported AOCI improved by $2 million; that’s not much, but it’s certainly moving in the right direction. ROE is 13.26%; and revenue is a record $272.3 million for the fourth quarter; fourth quarter margin is 4.21%, up from 4.05%, that’s an increase of 16 basis points. I think at the end of the first quarter, we said we'll continue to expand the margin in the second quarter, but not as much. It was a tough battle, and someone better be managing their bank every day to grow that margin. Non-performing assets are down to 0.27% and non-performing loans were 0.42%, about the same or lower than last quarter. Fourth-quarter loan growth was $580 million, and I think Stephen will report on how that rate was overall; I think the overall portfolio was up 60 basis points in the fourth quarter. We added $5 million to reserves, which puts us at 475.99% reserve coverage of classified assets. The reserve is 475.99% of non-performing loans. At the 2.01% level, the total is $289.7 million. Our efficiency ratio is 42.44%. We repurchased 840,000 shares for $20 million during the quarter. We haven't made any changes in dividends. We will discuss that at the meeting on Friday. We received $15 million from our lawsuit against First Service in a settlement. In the next quarter, I want to introduce a very exciting and profitable portion of our company that has never been properly recognized or promoted. So stay tuned for that; I think you'll enjoy it. It’s taken a lot of my attention recently. Our capital levels are strong, and I think Stephen will go over those in his presentation. These are some of the best numbers that we've ever produced, and probably the best that anyone has ever produced. We didn't win the National Bank championship, but I can guarantee you we are going to the playoffs. And during all this time, we received good responses with these numbers. I find that really totally unbelievable. But anyway, it is what it is. Donna, I think that about wraps up what I have to say. If you want to take it from here?

Thank you for that. I know that all of our listeners always appreciate your insight and congratulations on another great year. Our next update will come from Chris Poulton with COFG.

And Johnny, I appreciate the shout-out to UGA, Go Dogs! Q4 capped off what turned out to be a solid year for CCFG. For the quarter, loan balances grew by just under $200 million at $197 million on just over $500 million in new originations. This growth was despite a robust $320 million in payoffs and paydowns for the quarter. Q4 is generally an active quarter as customers look to complete transactions ahead of the year-end. You may recall that our portfolio declined by about $340 million in the third quarter. Much of the growth in Q4 was a planned increase in the portfolio as we took advantage of the chance to redeploy our capital. Frequent listeners may have heard me say from time to time that getting repaid is not, in fact, the worst outcome for a loan. These repayments provide us an opportunity to redeploy capital on new, usually improved terms. For the full year, CCFG grew $356 million, or about $0.18 on just over $1.5 billion in total originations. Looking ahead, volatility in markets generally creates opportunities for our lending strategies as traditional bank financing becomes either unattractive or unavailable. We enter 2023 with our usual sense of caution. Today, our leverage is generally a bit lower and structured a bit tighter, but we remain confident that we will continue to see a number of opportunities to modestly deploy capital in the coming quarters. Donna, back to you.

Thank you, Chris, and congratulations to your team on another great year.

Thanks, Donna. As Johnny mentioned, it has been quite a year. It's fun to get to report on such a strong and high-performing company, and we look forward to another great year in 2023. I'll start first with the net interest margin, which improved again in Q4 to 4.21%, up 16 basis points from Q3 and up 79 basis points from a year ago. The improvement comes as the earning asset mix improved on a slightly smaller balance sheet. We will continue with our approach of maintaining healthy cash balances at the Fed and look for opportunities to deploy that liquidity where and when it makes sense. We continue to navigate through customer expectations for interest rates on the deposit side amidst such a competitive environment that has already been mentioned, and we'll do that on a case-by-case basis. If we do see additional rate increases and are able to hold the deposit rates at a reasonable level, the current ALCO model projections show about a 3.5% increase to NII in the next up 100 basis point scenario. Switching to deposits, total deposits ended the third quarter just shy of $18 billion. The decline in balances slowed from prior quarters, and we actually saw increases in North Arkansas and the Central Florida and Southern Florida markets. Noninterest-bearing deposits accounted for 29% of the total at $5.2 billion, while CDs comprised less than 6% of the total deposit base. We're focused on our core customer base in the markets we serve and looking to bring in new relationships as we deploy capital into the loan portfolio. Staying with liquidity for a moment, as Johnny mentioned, our loan-to-deposit ratio ended the quarter at 80%, and our primary liquidity ratio remains strong at over 19%. Switching to loans, origination volume was strong at $1.9 billion for the quarter, with over $1.3 billion coming from the community bank markets we serve. Yields on new production came in at 7.17% and increased each month throughout the quarter. We continue to focus on pulling these rate increases through the current pipeline and as loans mature. Payoffs moderated in Q4 with a total of $710 million, down from $1.2 billion in Q3, and helped contribute to the average and end period loan balance increases. Switching to capital and a few key ratios, as Johnny already mentioned, we had total risk-based capital of 16.54%, a leverage ratio of 10.86%, and a tangible common equity (TCE) ratio at a strong 9.66% as of December 31. All of these are well in excess of our internal targets. And Donna, with that, I'll turn it back over to you.

Thank you, Stephen. Good report. Well, Johnny or Tracy, before we go to Q&A, do either of you have any additional comments?

I was thinking of what Johnny used all those adjectives when he started his prepared remarks. I came up with the word 'entertaining.' It's certainly been an entertaining year. It's never been dull with you, Johnny, in the 21 years I've been around. So entertaining is probably the better word. But compliments to all of our markets and regions over the past year. Certainly, we've seen the increase in interest rates has been something to work with, but all of our markets have done an outstanding job managing their balance sheet, which overall makes our balance sheet look good. When you look at our numbers, the return on assets are in the 2% range, the return on average tangible common equities in the 20s, and you've got the efficiency ratio that's in the low 40s. We hit below that this past month, which is nice. And you've got net interest margin around 4.25%. That's pretty strong, telling about the type of folks we have working out there in our community. One thing you talked about inflation—I think our company does really well, and we talk to our market leaders on a regular basis, just talking to the customers. So we know there are still a lot of things of concern out there, some hold for people that are cutting back on doing certain things, some loans that we talked about doing nine months ago that customers called and said they were putting on hold a little while, which is just good business. The nice thing about our balance sheet that we have in the bank is knowing our customers. Our customers are making good business decisions, and it's showing up in the numbers. But all the performance numbers are good. Mr. Allison, and I hate to say this in front of you, but I think we've got room that we can improve on all of them.

Well, I've always been easy. I've never kept raising the topic. Anyway, it's a great quarter. Thanks, everyone, for your support out there. I can't say enough about finding somebody who might win the national championship. I am yet to see someone beat us in this market for the quarter. I'm not sure they'll love that.

Well, I'll get the pompoms ready just in case.

Get your pompom. Maybe get Slurpees again. We can get some Slurpees or what was the item we had?

We had some.

We'll get us some item. Anyway, I think it's a great quarter. I look forward to the questions, and I'll give it back to you.

We will turn it back to the operator for Q&A.

Well, good report. I want to ask about the loan growth, strong trends in the fourth quarter. We got the report from Chris, pretty active in his group, but the community bank also had a strong quarter of growth. Any color there? And as you think about 2023, what are the expectations for growth there?

Matt, this is Kevin. You heard Stephen talk about lower payoff numbers; so that factored in some. But certainly, he mentioned the production across the footprint; you can hear how much of that came out of the footprint. It was a strong quarter for really a number of our regions. That's a function of us continuing to do what we do. We're pretty conservative across the board, and sometimes that works in our favor during times when you've got competitors that are out of money and some just choosing to sit on the sidelines in certain asset classes. We keep doing what we're doing conservatively, and we're getting to go to the dance soon now. So we'll just continue to do what we do. And as Johnny said, sometimes it works in our favor; sometimes it doesn’t. And this quarter, it certainly has been. It looks like we've got folks doing a lot of stuff right now, looking at a lot of things. So we like where we're at.

A lot of banks have money. I mean, they're long up, and gives us a shot. I think in some of these deals. I mean, you think about somebody loaned up 100-plus percent, and they're bearing out; it's going to take a while to find out if they'll get back into the competition.

Okay. I appreciate that. And then on the credit front, it looks like you pulled a positive loan loss provision expense for the first time in a while. Anything specific that drove that? And then I guess kind of stepping back, any specific asset classes you're watching closely? Or any loan categories you're more focused on in 2023?

Matt, this is Kevin again. So we're certainly, from an asset class standpoint, we're going to watch a few. You've got retail, which certainly has stresses. As you see how this economic cycle continues, if we do truly go into kind of a consumer recession, that's something we're going to watch closely, obviously, on everybody's mind. We don't have a ton of office space, but we'll look at what we have and continue to monitor it like we do anything else. Hotels seem to be doing well, and certainly, we will watch the asset classes based on what we're hearing out there in our markets and nationally as a whole. Just from our perspective, in the fourth quarter, we had a group of about six ALF properties in Florida that total about $100 million that struggled to reach stabilization. The equity came from an institutional investor. These loans have always been current and continue to be current, supported by this investment group. But given the long stabilization runway that they've been on, alongside the challenges ahead, we decided in the fourth quarter to move those loans to substandard. We watched them for a while—nothing particularly different today than yesterday. But just given the length of time watching, we decided to move them, so you'll see that as the quarter numbers come out. Again, we will monitor the market and watch our asset classes that we're heavier in and look at particular loans as their annual reports come in, and we will act accordingly.

Yes. We've talked about these credits over the years. And the current plan remains, but they still concern me. Well, I think we were all on the road when we had the pandemic hit, and they said Home is going to get killed on hotels. We did a fireside chat so everybody, we monitored them properly. We underwrote these properly too. So I don't anticipate a lot of pushback, but it is something we've discussed with Kevin, and I thought it was time to downgrade them. So we did downgrade them. Outside of that, we had about $100 million of them; only really the only ones that probably concern me are about $60 million of them. So if there was a loss, it would be small, I would say. I mean, you might lose $10 million, maybe, maybe not. So anyway, we just like to maintain a 2% reserve. You asked about the loan amount; good days, bad days, recession, high rates, low rates, inflation, whatever comes, it goes—2% reserve has worked, and that's been a rule for us for many years. We like a 2% reserve. We don't want to use our reserve like a peak pulling stuff out and putting money in; we have a 2% reserve. We like that. We feel comfortable with that. We went through '08, '09, and '10, the worst financial crisis I've ever seen in my business career with a 2% reserve, and it paid off for us. So we'll continue to maintain strong reserves in the event that something were to pop out there anywhere, we actually fell out below 2%, so we put the money in. We received a settlement from First Service during the quarter, so we thought we’d put that money in reserves.

Okay. Well, I appreciate the disclosure on some of those downgrades. And just to clarify, Kevin, what types of credits were those? I was a little unclear on what those were.

Assisted living facilities.

It's primarily member care. One thing we've learned is the member care properties are difficult—I'll be glad when we have a solution for member care, but people struggle with member care. And even as it is, the patients don't live very long.

There’s a lot of turnover and it’s really expensive. Staffing has been a real challenge after COVID, so there were a lot of headwinds.

I'm sure that asset class was anticipated to boom at some point in time because the baby boomers are rolling into the 65+ age bracket. A lot of baby boomers are rolling into that. And I think that's what was anticipated in this field; that’s what would happen. But it has been a struggle on the cash flow side. And particularly, people weren't comfortable taking their loved ones back when the pandemic hit; they brought them home, which happened a lot.

Our next question comes from Jon Arfstrom with RBC.

Stephen, a question for you. You threw out a number 7.17; was that the new loan yield production?

Yes, that's correct. That would be the coupon on total production for Q4. Only a portion of that would have funded by year-end or during the quarter, but that’s what we wrote.

Yes, I think I mentioned it increased kind of throughout the quarter just as market conditions have changed, and I think we wrote about 7.40 or so in December. So it's got a nice trend towards it and just kind of lining up with what you're seeing from the Fed.

Got it. Okay. And what kind of reaction are you getting from clients at those rates? It seems like there's plenty of demand, but just kind of curious on sentiment.

This is Kevin. I think people have recognized that that's where the market is and their deals have to work at those rates or they can't do their transactions. Some builders came in and some of these projects didn't work at those rates, and they just pulled them off the table due to inflation and building costs, which have risen. So, to their credit, they pulled projects off the table. We will see them again. I think it was one of the land transactions. We won't go forward with the project. The good news is our customers are thinking through this process well, looking at it, analyzing it, deciding if they need to do it now or do it later. Some need to do it now, and some will have to wait, but there’s strong loan growth for the quarter. Cap rates are still good, so they're willing to sell. This is just an increase in their interim costs more than it is a cost of the project. Most will factor that in and take a little less profit and get it built and get it sold and move on.

Our homebuilders did just visit with our homebuilders out of Florida. Big homebuilders—the October performance was strong; November saw a slight dip, but December was strong. They adjusted some of their tactics in what they marketed; however, margins are still lower than what they were, but they’re still quite good. We talked about asset quality. We're all going in, as some people are. Everybody has been watching Shore Premier. I've been talking about Shore Premier. If you don't mind, I'm going to give John Marshall the opportunity to talk about Shore Premier, his performance, and his past dues. If you could quickly tell us what you're seeing out there, John.

Yes, Mr. Allison. Thank you, I appreciate the question. I'm seeing some forecasts in the market of elevated delinquency and defaults. But I also believe, Mr. Allison, that what we're going to do, is we're going to observe that in the smaller book and trailer retail segment. You all will recall that our marine book is underwritten to a prime credit quality standard. Our average application, Mr. Allison, is $820,000, and our average loan size is $670,000. Our borrowers have verified liquidity of 66 months—imagine that. So completely indifferent to their income, the W2—they’ve got five years of average liquidity to cover their obligations, which include all of their obligations and not just their boat loan. If you consider delinquency at the harder default, at 21 basis points, our delinquency is consistent in the fourth quarter with where we've seen it all year, and again we feel like that's a very low number. So, Mr. Allison, I don't know if that answers the question, but that’s what we're seeing.

Thank you for that. I don't mean to steal your thunder, Jon, but I want to get that point across since Matt asked about asset quality, and you probably would have asked about it anyway, so you've got the floor, Jon.

Yes, I appreciate that. That’s helpful. You alluded to the margin drifting up, but maybe not as much as the quarter this past quarter. It seems like you've got some pretty good repricing coming, pretty good momentum in loan yields. How do you feel about the margin trajectory? And how are you guys funding some of the deposit pricing requests and pressures? Is it just taking the loan-to-deposit ratio up? Or is there something else going on?

Well, we're taking loan deposits up a little bit, but I think the trough on the deposit front is here. I think we hit that interesting point. We manage this company every day. October was a screaming home run—it was a grand slam for October. November, rates took off, as you saw, and it was hand-to-hand combat in November. We actually went backwards in November from October. Here comes December, and we're booking some loans and getting them on the books, starting to catch up. It was a battle. We were taking it one day at a time, but we dealt with most of it. I’ll let Stephen comment on the specifics.

Yes, you said it, John. I think it all hinges on what we do have to do on the deposit side. We were a little more aggressive in October and November on the heels of the 75 basis point rate increases. We had to pass some of that along to deal with customer demand. But feel like what we did in December, and then depending on what we see in a week or two, at the first of February from the Fed, we may be a little more conservative there.

It's not that we don't see it every day—We see it plus or minus. We compare December 8 with November and how we did then, while also comparing it to October. We win and lose, and November posed challenges. I think that most of the rate increases are done at this point in time, so I’m optimistic that we’ll have a shot at increasing the margin in the first quarter if we can continue to maintain our loan growth, and if I'm right, most deposit expenses are behind us.

Our next question comes from Stephen Scouten with Piper Sandler.

First of all, great quarter. It seems to be panning out as you guys indicated, getting some of that liquidity to work. I'm curious, Johnny. Digging into the comment you made in your prepared remarks, I think it was around $300 million a month of cash flows and repayments and other things. I'm wondering how much of that specifically is coming off your bond book in terms of cash flows, just trying to think about how much loan growth you could fund without any incremental new deposit growth.

There’s about $30 million, $35 million coming off the bond book monthly. We really haven't redeployed that because rates have kind of backed up here a little bit, as you've noticed. So we've settled that money, and we feel it’s better off growing those bids instead. That's what Brian has been doing with that.

So, because we're getting 4.4% in the Fed and you're getting, on new investments, about 5%.

As rates think we go back up, we plan ahead, we pick our spots because rates kind of backed up on the curve. You've seen the ten-year and what's happened there. So is it over now? It's not overall; they’re going to continue to raise. They may not raise at the level they have been, but they are going to continue to rise.

So the $35 million—that's per month in terms of cash flows, and I was more thinking maybe not deployed back into securities, but could you deploy that into funding loan growth?

Absolutely. We can put that to work—wherever we want to put it. Yes, that’s true. When you think about it, that's coming off at $150, and you can put it in at 4.6 or 40%. If you put it in, that's a pretty good spread. So we’re still sitting; we’ve still got cash and we’re generating cash. We got a CD treasury coming out in February; it’s $250 million that we’ll put to work. So we’re pretty happy where we are. We don't need to borrow anything right now. We’ve got plenty of room. We don’t have broker deposits; we really don’t need to borrow at all. We need to get borrowed up if we can.

Got it. Makes sense. And then you referenced in the headline of the report that despite continued West Texas headwinds, it’s hard to see any headwinds in the results. I guess can you expound on that a little bit? Or what's coming out of there? Or is growth just not what you would want out of those markets yet, and it’s just been other areas that have kept us from seeing this?

They went after our customers and took a bunch of our deposits and did whatever they could do to try and damage the company, which is certainly what it appears like. Had we not had that, we would have had a much better quarter, and we're keeping a run tally of how much they got from us or stole from us or took unprofessionally from us. It’s important to note and we’ll keep that in the balance of how much it costs us. We don’t give people a break in that. We manage our company day-to-day, and we’re taking care of the shareholders.

Okay, got it. And then lastly, one thing for me is really, you mentioned the continued share repurchase, and you're one of the few bank stocks trading above 2x tangible any longer. So at 2.30 in tangible, does M&A become more interesting than repurchasing your own shares at some point? Or is that math just not attractive to you at this point in time?

No, it does become attractive. I mean, it’s the tip of our support that people have given us to trade at that level and be one of the few to trade there. But it is—we’re interested in M&A. I don't think the problem is that a private bank doesn't recognize that their price goes down like the rest of the banks do. Rest of the bunch used to be at 170, 175 times tangible book, and now they're at 125 or less; 66% of them are. Regardless of what they do, they'll go up the same way. M&A could be attractive in the next few weeks. We’re going to visit with some potential opportunities out there.

Maybe.

I prefer the seller to recognize the marks, Stephen.

No, that makes sense. And obviously, the market's appetite has still been relatively tepid toward deals. But I think you guys showed with a happy deal if you do the right deal at the right price and the right structure, it still can be received well. So I appreciate all that color. Congrats on positioning the company well yet again.

We appreciate it. We work hard at doing what's in the best interest of our shareholders. And as it turned out, we ended up happy; it ended up being a dilution to us because of MCI, but I think we retained that pretty quickly, and the rest of the franchise jumped up to help us. I'm very proud of the year. I think we had a great year in spite of all this. It is very stressful managing your business with all this going on, with the distraction in West Texas alongside all these interest rate changes. But we got through it and had a great year.

The next question comes from Brett Rabatin with Hovde Group.

I wanted to talk about deposits for a second. And just think everyone is trying to figure out how much more they might be operating from a DDA perspective decline and how much more liquidity could drain out from the low-cost core deposits. And just wanted to see if you had any crystal ball thoughts on that for your bank. And you've obviously not had to really push too hard on deposit betas versus many peers, but wanted to see if that was something that you might be looking to amp up if loan growth is going to be there for you from an opportunity perspective.

Brett, this is Stephen. I guess that’s a crystal ball thought—if we knew, we wouldn’t be sitting here. As Johnny mentioned, we found a trough. Yes, I mean, I think certainly in Q4, the decline slowed from the prior two. If I go back and look, we think pre-pandemic ran 22%, 23% noninterest-bearing to total. I don’t think that's necessarily where we go back to. But yes, I think some of that is going to still be determined as some of the money that’s been in the system over the last year or two moves around. We talk around the table here; it’s taken a little while to spin back up the conversations around raising deposits again and making that part of the discussion when you've got a new opportunity in loan committee and those kinds of things.

Brett, don’t forget that when the pandemic hit, deposits really boomed, right? We stayed disciplined, and we didn't lock in a lot of loan opportunities back then at 3% for seven and 10 years. We always knew that the deposits would go away to some degree. I thought it would take a little bit longer than it did this past six months. But as we watch, a lot of our customers give us a call—give us a call when we want to match a high rate; we certainly get that opportunity. So it’s not that we've lost a customer, but instead of the normal deposit rate in the bank, they could take it out and invest elsewhere. There are also some customers that used to borrow some money who have chosen to use their own resources. That time will come back with that deposit money. Johnny has mentioned the West Texas issue; I think we've got opportunity coming down the pipe on regaining some of that. We generally lose whenever we do an acquisition. So as Johnny mentioned, we talk—we meet every day and discuss it daily to keep track of our position. So I don’t have a crystal ball either. I am just pleased with the way our team has managed that challenge over the last four or five months, which has been interesting.

Okay. That's really helpful. And then one last thing, just to go back to the loan pipeline and the loan growth. And John, last quarter, you mentioned some folks were flying in to see you who weren't able to get credit from their bigger banks. We wanted to see how much of the growth or the pipeline was tied to stuff like that—maybe market share opportunities and if that might continue to be something that helps your loan growth going forward? Or if maybe you're going to pull back as well relative to the environment.

This is Kevin. There was certainly some of that, and that particular deal hasn't materialized yet. But I mean, there are other opportunities similar to that. As we said, other folks are on the sidelines for one reason or another. We continue to do what we do. We've got money to lend because of how we have managed through these last couple of years. We will continue to do that. I think that's the reason we held off like we did; to be able to take advantage of the situation. Johnny has said this three years ago when rates were going up, and that’s the way we manage it. Now we're in a position to be able to take this money and put it into good earning assets at a good rate.

We moved on that credit, picked up that customer who didn’t close that big transaction. He will do business. In fact, KBW conference is coming up in Florida, and we’re going to go down a day early or stay over a day to have dinner with him and meet some more of those people. So, that’s going to turn out to be— even though we didn’t close that transaction, we built a relationship. He said to all, Merry Christmas and Happy New Year, and he was impressed with our team and how quick we moved. It was a complicated credit, and it went to Chris Poulton, who actually left here and went to see Chris in New York. Chris spent two or three days with him ironing out the problems, and then Donna and I met him in Boston. He’s going to do business with us. Your point is well taken: we’ve picked up some of that business during this time. We’ll build relationships, as Tracy did in '08, '09, '10, and '11 with a lot of Florida borrowers who are still long-term customers with us. We charge a little more, but they know that it’s good money, and they get it done. They don’t have to worry about where the loan gets funded or whether or not it’s funded properly.

There are no further questions at this time. I will pass it back over to the management team for any closing remarks.

I just want to say thank you to everyone, all the supporters of Home. It was trying times out there. I have to compliment our management team and people in the field for the hard work that they put together to achieve this great quarter. I don't know if you could—I didn't say if I turned out these kinds of numbers. Probably somebody will turn out better numbers, but I didn’t see anybody turn out these kinds of numbers yet. We're proud of our numbers. We’re proud of what we did in spite of all the problems and difficulties we encountered to get there. We got it done, and we’re set in a great position for '23. Our lenders are ready to roll. In fact, our Dallas lenders wrapped up their years early and are working on '23, so overall, it's a great quarter and a great year. I’m happy. I think we can run the run rate where it is, and we can achieve $100-plus million a quarter with a 2% RDA incoming running at $440 million or so next year. I think that would be good for all of us. So anyway, thank you, and we’ll talk to you in 90 days.

This concludes the Home Bancshares, Inc. fourth quarter 2022 earnings call. Thank you for your participation. You may now disconnect your lines.