Home BancShares Inc (HOMB) 2026 Q2 法說會逐字稿

Greetings, ladies and gentlemen. Welcome to the Home BancShares, Incorporated, second-quarter 2026 earnings call. The purpose of this call is to discuss the information and data provided in the quarterly earnings release issued after the market closed yesterday. The company presenters will begin with prepared remarks, then entertain questions. (Operator Instructions)

The company has asked me to remind everyone to refer to their 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, 2026.

(Operator Instructions) This conference is being recorded. (Operator Instructions)

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 second-quarter conference call. With me for today's discussion is our Chairman, John Allison; Stephen Tipton, Chief Executive Officer of Centennial Bank; Kevin Hester, President and Chief Lending Officer; Brian Davis, our Chief Financial Officer; Chris Poulton, President of CCFG; and Scott Walter of Shore Premier Finance.

Home BancShares reported another solid quarter, generating a record net income as adjusted of $128 million, while significantly expanding our balance sheet and maintaining strong profitability, loan growth, stable margins, and improving book value, underscoring the strength of our franchise. Most importantly, we accomplished all of this while maintaining strong credit discipline and preserving the profitability that has long differentiated our company.

Our team is prepared to provide you with more details about the quarter with our opening remarks today coming from our Chairman, John Allison.

Well, thanks, Donna. It's been another quarter come and go. Second quarter of '26 was sure full of records for the record -- shared lots of records for the record, excuse me. There were a couple of items that I think we should talk about. Number one is our merger with our friends with Mountain Commerce. It's evident that some of our merger earnings came through a little earlier and a little stronger than we anticipated as we felt some of the earnings impact in the first quarter.

We got to like that. Because this trade was non-dilutive and therein lies the benefit of a non-dilutive trade, a successful merger is where the two companies should be creating more value together than either company can achieve separately.

In our view, the meaning of that is 1 plus 1 should equal 3, not 1.75. With our deal being a 3, both groups immediately start sharing the benefits of their union. And this merger, Mountain Commerce and Home Banc shareholders will equally enjoy the ride together.

Perhaps the biggest surprise of the quarter, though, was a surprising loan growth for the legacy footprint. We were forecasting a negative $600 million in loans and actually had a plus $26 million. That's a $626 million swing on the loan side. As a result, we will no longer forecast next quarter's loan growth.

Obviously, we don't do a very good job of that. The problem is that our customers are really a group of outstanding little entrepreneurs that are constantly looking for opportunities that we only learn about most of the time they need a funding request. Many of them do a deal on the spot, commit to do a deal on Monday, and say, we'll close on Thursday with cash. The good news is, we know their limits and may know our limits.

The second quarter performance speaks for itself. During the quarter, we incurred approximately $12.7 million of merger-related expenses. Excluding these expenses, the earnings were -- and you're going to get to hear it again, EPS is $0.64 and earnings of $128.1 million after tax. That's an 8.4% increase from quarter -- the last quarter and almost 12% from 6/30 of '25.

In addition, revenue $295 million, up 10.6% from the prior quarter from $266.7 million. Adjusted pretax pre-provision net revenue reached a company record of $171 million. When you adjust for the efficiency ratio, it came out 40.46%. Good job by both teams, Mountain Commerce and Home BancShares on the expense side, and an adjusted ROA of 2.09% Stable margin of 4.51%, same as last quarter, up 6 basis points from 6/30 of '25. And I said good job for MCB and Home on the expense side.

On an adjusted basis, these performance numbers are some of the best our company has ever run. I want to thank all our associates for an amazing quarter, and that includes our new partners, Bill Edwards and his outstanding Tennessee team. We have completed the conversion of our legacy company in June, and I think it went as smooth and as good as it could be expected.

Now on to Mountain Commerce. We stepped up stock repurchases during the quarter. From the first quarter, we repurchased 500,000 shares and this quarter, we repurchased 1.5 million. I said our goal was to repurchase over a short period of time the shares that we issued in the Mountain Commerce transaction, and we are already approaching the halfway mark.

On M&A, we're looking at some other opportunities. But with the non-performing loan that we told you about last quarter, our stock took a drop even though it was a 2%-plus ROA, and again, repeating as one of the top -- most profitable banks in America in the top 10. We bid on a group -- we bid on a good opportunity, but because our stock was temporarily depressed and we hold our standards high because we do not dilute our shareholders, our bid was not acceptable to the other opportunity. We will hope to revisit that company soon as our stock has reco

vered. As to the large non-performer, there has been significant movement from last quarter's report, but we stand by our comments that we expect no further loss. The loan was non-performed, and no income was recognized in this quarter for the loan, or this would have even been a stronger quarter.

While work remains, we're encouraged by the progress that has been done this quarter. I have to say here that Kevin Hester, Davy Carter, and Mike Cook, I want to thank -- a special thank for them. They spend a lot of time on this non-performer. They took the bull by the horns and protected the shareholders of Home BancShares, and thank you, guys, for a great job.

That's a solid testament to the quality and commitment standards of our people. Mike Cook now taking over the leadership a while back, took over the leadership of the Dallas region. That region now reflects the credit culture of Home's operating and underwriting standards. It's certainly nice to have those loan problems for the most part behind us now, but there is some work to be done. However, we think we see the light at the end of the tunnel.

In our environment where industry loan growth remains challenging, exceptional loan growth should always be examined carefully. Growth generally comes from a combination of pricing structure, terms of credit standards, and when there is robust, standout, extraordinary loan growth in an environment that does not support that kind of loan growth, one should look closely at the right structure and terms.

It's extremely important that your team from the top down to the junior lender must have lending experience. And not only lending experience, but quality lending experience was skin in the game. At Home, that starts with me at the top as an asset quality hawk, who's spending my sixth decade in the lending process.

We believe in quality lending. I have been involved in over 50 M&A deals, Happy was certainly the most difficult. But even with all the problems associated with the acquisition, we have worked our way through those problems with a good partnership of Happy and Home employees together. We opened a new break in Rockwall, Texas, led by Kane Pierce. We're excited about that. Glad to be in Rockwall, and this is a new branch, not a replacement.

New events included hiring our first in-house counsel, Mr. Jeff Campbell, who will fill the role of Corporate Counsel. We want to welcome Jeff to the family and look forward to working with him.

Donna, I just want to make a quick recap to the quarter, if you will allow me to do that. And I want to leave this with the investment community.

Record adjusted income, record revenue, loan growth from a negative $600 million and a $626 million swing; stepped-up repurchases from 500,000 to 1.5 million; PPNR, a record $171 million; and adjusted efficiency ratio of 40.46%; stable margin of 4.51%; and Mountain Commerce already been a contributor sooner than expected. That has gone well, continued confidence in Home's credit culture.

So when you look at the adjusted earnings, the profitability metrics, the efficiency ratio, the stable margin, elevated share repurchase, and strong balance sheet growth, I believe Home's second quarter once again produced one of the strongest banking performances in America. Your Honor, I rest my case.

Back to you, Ms. Donna.

Okay. Well, thank you, Johnny. It was another amazing quarter. And our next report will come from Stephen Tipton.

Thanks, Donna. As Johnny mentioned, the second quarter of 2026 was a strong showing with the inclusion of Mountain Commerce Bank in Tennessee and a little organic loan growth from legacy Centennial Bank. Adjusted earnings, particularly excluding merger expenses, were $128.1 million, producing a 2.09% return on assets, the same as last quarter, and a 16.82% return on tangible common equity, which is on a TCE ratio of 13.22%. The reported net interest margin was 4.51%, in line with Q1, all while adding $1.5 billion in loans and deposits from Tennessee.

The core margin, excluding event income, was 4.47% and in line with where we guided to on the call in April. The overall loan yield, excluding event income, averaged 6.96% and exited the quarter at 6.99%, while interest-bearing deposit costs averaged 2.38% and exited the quarter the same at 2.38%.

Total deposit costs were 1.85% in Q2 and exited the quarter at 1.84%. Strong non-interest income was a highlight for the quarter at over $53 million. Higher loan recovery income, fee income at CCFG, and increases from our SBIC investments were the primary drivers and got us back to levels we saw in quarters two, three, and four of 2025.

Switching to the balance sheet. Legacy deposit balances declined in Q2 by $179 million as a result of tax payments and seasonal outflow in April. Worth noting, deposit balances increased by $86 million in May and over $200 million in June to end the quarter at $19.1 billion.

Loan production rebounded in the second quarter to just over $1.4 billion, with nearly $1 billion of that production coming from the community bank footprint.

Switching to capital. We repurchased 1.5 million shares of stock during the quarter for a total of $40.4 million. As of June 30, we have over 15 million shares remaining available for repurchase under our current authorization and nearly $450 million in cash at the parent company. Tangible book value per share grew $0.45 to $15.32, or an annualized increase of 12.1%.

Capital levels remain extremely strong with common equity Tier 1 capital ending at 16.4% and total risk-based capital at 19%, and reserves to total loans of 1.92%.

We're proud of the second quarter results here at Home, particularly with the inclusion of our partners at Mountain Commerce and look forward to the second half of 2026.

With that said, I'll turn it back over to you, Donna.

Thank you, Stephen. And to close out our prepared remarks, Kevin Hester has the lending report.

Thanks, Donna. As Johnny noted, we found a way to post marginal organic growth in loans in the second quarter, which looked very difficult when we talked 90 days ago. This included flipping what was an anticipated large payoff early in the quarter into a hold with even a slight increase, which put us on a good path for the rest of the quarter. In last quarter's remarks, I mentioned that Q3 payoffs appeared high as well, and that is still the case. In fact, the gap is higher now than it was 90 days ago.

Johnny joked about us not being very good at forecasting, and we discussed on the last call some of the reasons why early projections can be skewed toward declines. That said, we have work to do in order to post loan growth in this quarter.

Regarding Johnny's comments about loan growth in general, we are seeing loan rates from the competitors creep lower and lower while probabilities for the next Fed interest rate move are up rather than down. We will continue to maximize loan opportunities while trying to protect our strong NIM so that we can continue to post best-in-class profitability.

Asset quality remains solid with an 8-basis point drop in non-performing loans and a 4-basis point drop in non-performing assets. Early stage past dues remained under 50 basis points and loan loss reserve coverage of non-performing loans improved to 177%.

As others have said, we began the quarter with the Mountain Commerce Bank acquisition. And from a lending perspective, the combination has gone very smoothly. The similarity of their markets and their lending philosophy to ours will result in a shorter learning curve and earlier meaningful contribution.

On that note, Donna, I'll send it back to you.

Thank you, Kevin. Johnny, unless you have additional comments, I think we're ready for Q&A.

Well, I do want to talk about loans a little bit. On Wednesday's loan committee, we approved about $350 million worth of loans. So that's our -- primarily the hits coming from our South Florida group that really have a lot of things going on. J.C. and David and their teams are doing an outstanding job in Florida. So there's $350 million worth of just you think -- I knew those were coming. I didn't know that we're coming this quarter. So one of them we've been working on for several years, and it's going to be the best and most fabulous projects ever built or Miami, Florida.

So we're excited about being in that loop with that team of people and it's a fantastic facility that's being constructed, and it is one of our customers. So we just have more of that. They have lots -- probably, the second -- as I said, the second half they're going to bring even more. So that's pretty exciting for that aspect. Some of this is construction. So they put their money in first, but it is loan growth that's coming down the pipe for us before long.

So anyway, you never know from on one way or the other. As I said our FBL guy bought another FBL thing, we didn't know what was on that transaction. Kevin just visited with another one. And so anyway, we're working on it. It's hard to -- as I said, it's like catching a greased pig in a ditch. You think you got him and he gets away from you.

So maybe we'll catch it this quarter. So that's all I got to say, Donna, I'm ready for Q&A if the rest of you are.

Okay. Operator, we'll turn it back over to you.

(Operator Instructions) Jon Arfstrom, RBC Capital Markets.

Thanks. Good afternoon.

Good afternoon, John.

You guys just gave us a bunch of information on loan growth or not loan growth. So I'm a little bit confused on it. But what does your gut tell you today on it? Kevin, you talked about maybe more paydowns expected in Q3 than you expected in Q2. So maybe the indication is down, but then, Johnny, you're talking about a bigger pipeline. So I know you said it's hard to predict, but what does your gut tell you for loan balances in the near term?

Well, we have probably more going on in the Florida market right now than we've ever had going on in that market. It is quite explosive. We have been working on some of the projects. We had basically billions of dollars' worth of opportunities that are going to come our way. It may be the next 60 days, it may be six months, but they're coming. Those projects are coming from our long-term customers in that market. So it's just hard to tell when they pull the trigger.

But overall, I'm pretty optimistic. We were down -- going to be down $600 million. We ended up moving up $26 million. And that happened just all of a sudden, it just -- it came in and it -- it's surprising. So we're not very good at projecting future loan growth.

It seems like when I say we're going to have it, we don't. When we say we're not going to have it, we do. So I'm pretty much -- I think it's going to be -- to keep it where it is, I think we're going to work hard, but I don't think it's a problem with that. We had our lenders conference in Florida recently and I told the group, I said, we're down -- projected to be down X number of dollars. I need you all to step up.

So I don't know if they just reached in their pocket and brought some stuff that they were going to bring next quarter in. But it all came in pretty fast, pretty quick, including the $100 million piece of credit, another $40 million piece of credit, some really good customer credit.

We didn't sacrifice -- we don't sacrifice quality and margin for loan growth. So we're not going to do that. And we didn't in this cycle. Kevin, you got a comment?

No, it's all fair. I mean, payoffs are where they are. And we outran them this quarter, and we'll continue to try to do that. Will that happen every quarter? We don't know until it happens.

So the answer is you're still confused, right? We did our job.

Yeah. I'll probably hold it flat in the model. That's my guess. Chris Poulton, I think last quarter, you also talked about maybe some paydowns in Q2 and Q3. Those balances are a little bit lower, but any help on what you're seeing in the pipeline there and expectations for activity in your business?

Sure, Jon, it's Chris. Well, we did get the pay downs this quarter that we had anticipated and yet we were still flat, which means we had good production originated $800 million, $900 million so far this year. I think that still looks pretty good for us as we continue. That's a pretty good number run rate for us. So I think like Johnny said, things -- we work on some things that go away. Sometimes we let them go away. And sometimes they come back. We're seeing a number of things come back our way.

As we say, if you love somebody set them free. We let them go and test out the market and come back and sometimes we can work a transaction out. I'll be making a West Coast swing, I think, next week. And a couple of -- whole bunch of things lined up that were things we probably worked on several months ago that now they want to sit down and talk.

So I feel good about there being opportunities out there. Like Johnny said, will they come in in the next couple of weeks or the next couple of months, I think we'll see. I don't see anything different now than I did before about our opportunity to be able to get transactions that are on our terms if we're patient.

I just think it's always about being patient here. It's hard to predict loan growth when your goal wasn't loan growth.

Okay. All right. I'll step back. Thanks, guys.

Thanks, Jon.

Brett Rabatin, StoneX Group.

Hey, guys. Good afternoon.

Hey, Brett.

Wanted to start -- hey. I wanted to start on the margin. And just -- it sounds like you're being able to --everyone's concerned about competition and funding costs moving higher. But it sounds like you're being able to grow core deposits. So I wanted to see if all those were sticky.

And then just if you can hold the loan yields and not see too much marticulation on the deposit side, would feel like the margin, at least on a core basis, could hold up pretty well, but I wanted to get some additional color on how you guys see things playing out? And then obviously, you've typically been a little bit asset sensitive. If we get a rate hike, what does that mean for you?

Hey, Brett, this is Stephen. I just take the last, first, yes, we -- I guess our ALCO model shows almost a 6% increase in a 100-basis point environment. So if the Fed did move 1.5 quarters, I think it's a net positive for us. On the deposit side, our folks have done a great job in negotiating rates on money markets and CDs. we're seeing competition in the 4%-plus range.

And I think most recently, half of our CD maturities automatically renewed at our lower rates and the other half, they negotiated in about the 3.5% range. So they've done a good job there, working relationships to keep what we have. And then through loan committees and our presidents have folks out pushing opportunities for deposit growth to the loan side. I mean, at $451 reported $447 without an income, I think we can keep it in that range, we would be pleased.

Okay. That's helpful. And then just around the -- you had really strong growth in fees, particularly service fees, trust and mortgage, or any of those, do you think impacted by any seasonal factors? Or can those levels be sustained? And any thoughts on just if the outlook there is for growth, or if maybe those numbers were a little bit high for 2Q?

Hey, Brett, this is Stephen again. Yes, as I mentioned in my comments, there are a handful of items that were up in Q2 from Q1. I think on the call last quarter, we talked about non-interest income, it was about as low as it could be at $44 million adjusted for the marketable securities when we're about $52.5 million, $53 million adjusted for that this quarter.

Some of that's wealth management, like you said, trust, financial services, aour alignment with Ameriprise, they're hitting their stride and both of those areas are doing well. So some of that should continue.

The loan recoveries, some of Chris' fee income at CCFG that comes when payoffs are a little higher. Some of that is going to bounce around. I think our view is, if you look at -- if you look at the last five quarters, it averages about $50 million over the past five quarters, and that's where we would expect things to be over the long term.

Yeah. Well, last quarter was -- first quarter was an anomaly. We normally have much more income there. We just didn't -- we didn't get it. We didn't get the kick that we normally get. That happens maybe one quarter out of four annually. So -- and sometimes not, but that was just -- revenue was down as a result of that. We didn't get -- we got no kick. Just nothing. But $50 million is a good number, somewhere in that number, that give or take $50 million.

Okay. Great. Appreciate all the color. Congrats on the quarter.

Thank you.

Michael Rose, Raymond James.

Hey. Good afternoon, guys. Thanks for taking my questions. Johnny, just as it relates to Mountain Commerce, you said that -- I think, in the press release, too, that it's contributing earlier and stronger than what you expected. Can you just give us some greater color there on what you mean maybe just in terms of expense savings, revenue synergies, or just any other color broadly you have on what would qualify that statement from your view? Thanks.

As we're going through the quarter, first month, second month, and third month together, I could feel the income by looking at the income statement, that we're going to extra income from somewhere and it had to be coming from there basically. So some of it was improvement at Home, but a lot of it was coming from them. I really didn't expect that. I guess I was shocked by the fact that I didn't expect that kick that quick.

We convert in November, and that's about a $5.5 million, $6 million savings to the company that we'll pick up at that point in time. So I just want -- I think I wasn't prepared for it that quick and I saw the numbers and the revenue numbers and all of that coming together and just was extremely pleased with what I was seeing on the data reports. I mean, if you remember, we run a -- we get a daily P&L statement here, and you begin to see it and you think where did that come from? How did that happen? And it was just all positive. That's basically it, Michael. Just so I felt it over the quarter day by day as we operate.

No. Certainly, I appreciate that color. It's obviously a good deal for you guys. Maybe just going back to loan growth. I know we've already talked about it a fair amount. But you do have pretty good momentum here, as you mentioned, $350 million recently approved loans.

I guess, do you think with Mountain Commerce in the fold and maybe some bridging into some higher growth economies now that Dallas is back in a bigger way and what's going on in Texas. I mean, could we think about structurally better loan growth from Home than we've seen in recent years? Or is this the competitive environment, particularly given that some of those markets are more competition just going to be harder?

I can agree with that we could have better loan growth. I don't want to get talk about what other people are doing because it sounded like I'm throwing stones, but we're seeing some ridiculous stuff being done by some people in the marketplace. And it's just really frustrating. We're not going to do that. We got all the capital. We've got tons of capital.

We've got -- it's a powerful earnings machine, and we're going to continue to do what's right, and we're not going to get off into chasing rainbows. So we've never done that. We're not going to start doing it now. But I mean, we're seeing structure and terms that I mean, they're just ridiculous. We're seeing that.

So we're not going to do that. We're going to continue to, as I said, keep the quality, the margin, and stability, we're going to price that over loan growth. Could we get loan -- it might get loan growth. It's nothing to loan growth.

You can get all you want, give it away, change the terms of the structure, and you load the wagon. You can just absolutely load the wagon. And that doesn't mean that it's going to long term be good. You can look at the asset quality of Home over the past -- since we've been public, basically and look at the quality of what we produce and we'll continue to do that. We're not going to change. We're not going to run off into the sunset.

I got people pushing me to lower our standards and go do that and they can do that after I'm gone. After I retired, I go in the house. They can do that. They're not going to do it while I'm here.

Totally understand, Johnny.

I don't plan on going anytime soon. What was it we had? What was the drink we had here before with Michael?

It was Slurpees.

Slurpees. The quarter was so good. I told them before, I said, we should've had Slurpees this quarter with Michael. He should've bought us Slurpees. Anyway.

I'll line it up for you next quarter. How about that?

That'd make for a great quarter for us. Go ahead.

Yes. Just one follow-up on that. Just one follow-up on that. Just in the absence of loan growth, just assuming that the competition does remain intense here in the nearer term, how should we think about the pace of buybacks is what you did this quarter? What we should kind of contemplate? Or is there room to maybe even move that higher, just given what's out there and how profitable you guys are?

We do what we say we're going to do, and we said we're going to buy back the number of shares that we issued in Mountain Commerce. So you probably will look for opportunities. They gave us a great opportunity last quarter. That's when we stepped up and bought $1 because they took us down and gave us, I think, our average $25 or something, Stephen, $25?

$26.

$26. So that was a great opportunity for us. So if, in fact, we get an opportunity, we'll be extremely aggressive. But it is our intention to buy that back because it is our intention to do another M&A deal on the heels of Mountain Commerce.

All right, makes sense. I'll step back. Thanks, guys.

Thank you. Appreciate it.

Stephen Scouten, Piper Sandler.

Who we got, man?

It's Stephen.

Hello? Can you guys hear me? Sorry about that. Appreciate it, guys. I'm curious, just following up on those M&A comments, Johnny, what you guys are -- what you're seeing in the market right now with bank stocks up across the board, if that's making it the conversations more palatable or if sellers' expectations just continue to go higher because the group trades up? So just wondering how those dynamics are playing out and the conversations you're having.

Well, raising tide raises all ships or whatever they say, rising tide raises all ships. We're seeing that in the marketplace right now. it's pretty good space. Bank space is a pretty good place to be. If we -- the last deal when our stock was down and we bid on and I understand they wanted a better trade, had they taken that, they'd be up 25% today.

So it's almost basically the same. It's how many of their shares for our shares and what that trade means. And we're not seeing a lot of M&A out there right now. People are being -- they're looking at their balance sheet and they're thinking about, is this a diluted transaction?

So we're not seeing a lot of that. and we're not certainly not going to do that. I'm having people say, well, Johnny, with your current sheet right now, you could go buy this and that, if you just take a little dilution. Well, we don't dilute. That's what the world would like for us to do. And then they can say, well, they diluted that last deal.

So anyway, we don't do that. We'll continue to do what we're doing. I think there's opportunities out there in the marketplace. But the deals either work they don't work, as I've said in the past. They're either accretive, accretive, accretive, or they our stocks back up close to 2 times tangible book now. So that gives us the ability to move up and make somebody happy if they want a better price.

It could be -- you trade with somebody last month, and it they get to stock and it's up, I don't know, 30% since in. So it just depends -- timing means so much, as you know. Timing is the key to where their stock is, where our stock is, and if it works or it doesn't work. We'll just hold tight. We hold tight on it. It's worked for this company for the last 25 years, the hold tight on underwriting and hold tight on acquisitions and do the right thing.

So I think we could see a stock market turnaround here for too long. We got -- things are not as strong as they have been, but I don't think it will be bank stocks. I don't think it will be Home. I went around the horn there, but I don't know if I answered anything that you asked about.

Yeah. No, that's -- yeah, that's helpful context for sure. I appreciate that. And maybe thinking about expenses for a minute. I feel like last year, into the beginning of this year, you were pinging around $113 million, $114 million a quarter range that you were hoping to hold everyone to. What's the number in your mind today, Johnny, where you like expenses to stabilize, and what you guys think you can achieve there?

Well, I think you had somewhere in that range is fair. We got -- what do we have? $12 million, what would come out of?

If you take the $12.7 million out, it's about $122.7 million, which I think is last quarter where we said with Mountain Commerce, their current expense run rate where we would land and then once we get converted in November, we'll begin -- or we will get a good portion of those cost savings out at that time. So we'll see a little benefit from that in Q4, and then obviously, all of the next year.

Think about how efficient Home operated and then you add Mountain Commerce, how efficient Bill operated his group. And then we're going to get some additional savings, we'll get some income and we should get some additional savings coming up here pretty quick. So I'm optimistic we can hang in that range in the $120 million. That's fair.

Got it. That's great. And then maybe just one last clarifying question back on the previous conversation around loan growth and payoffs and whatnot. I think on last quarter's call, you guys have talked about thinking there could be maybe $1 billion in payoffs. Curious where you actually ended up seeing that number come in if it was -- it sounds like maybe it was slightly better than what you're projecting there.

And then as you think about third quarter and beyond, if it's north of that $1 billion a quarter number or just framing that payoff dynamic conversation up a little bit?

Hey. This is Kevin. Last quarter's number was $1 billion, a little bit over $1 billion. This quarter could be there. It's a little early, but it's -- it can be scheduled for that.

Okay. So that magnitude is the same. And then if you're doing $1.4 billion of production, it just depends on how it all funds up and the timing of everything of when and if you can see loan growth. Is that the right way to think about it again?

That's exactly the way. This is the toughest time in the bank space as rates are going down or going up. They were better for us, they go up. But when they start down, when the rates start down, then people try to jump ahead of a loan rate and go in and cut the rate 1.5% or so and cut a deal with somebody and tie it up. And that's -- this is the toughest going up is a lot easier than going down.

So this is a battle that takes one customer at a time, and you fight the battle. And this is -- in our history, third or fourth time, we've fought that battle and we'll continue to fight the battle this time. But you got -- it's not necessarily all right. I mean, the structure of some of these deals and the loan-to-cost and loan-to-value ratios have gone out of whack. It reminds me of around late 2000, 2004, 2005, '04, '05 when people are doing stupid stuff. So we're seeing some of that in the marketplace.

And that will come home to haunt people. I believe we're just not going to play the game. We don't have to -- we got a good machine that's generating really good solid income. And the difference between a record month and not a record month is what -- how much risk we want to take. And we're not big risk takers.

Yes, makes sense. That's really helpful color, and congrats on another great quarter. Appreciate it, everyone.

Thank you very much. We appreciate it.

Matthew Olney, Stephens.

Hey. Thanks, guys. I guess going back to the discussion around the competition for loans. Kevin, I think you mentioned pricing is getting tighter. Any more numbers you can put behind us in the market? And then for Home Banc, any color on just the production yields you guys have seen more recently?

I'll let Stephen cover the yields. He had those in his -- we were talking about those before the meeting. I think he's got those written down. I'll let him cover those. But I mean, we are seeing some things in the 5%s, the high 5%s, the mid-5%s.

And as Johnny said, it's not just rate, it is rate and structure in the same deals. You can get by with given rate, or you can give a little structure, you get your rate and get your risk covered. We're seeing it in both ways. And that's the challenge that you give rate and structure away, like Johnny said, it's easy to grow if you're willing to do that. That's simple. Anybody can do that.

Matt, this is Stephen. We were about [6.75%, 6.75%, 6.76%] on production in the second quarter.

Okay. Great. Thanks for that. And then I guess -- maybe a similar question, Chris Poulton, I know your borrowing base is very unique and differs a lot from what Kevin was talking about. But curious what you're seeing on the competitive side as far as pricing and structure as well.

We don't see much on structure because I think the deals tend to be a little bit more bespoke. And so we do see -- we see price -- over the last couple of years, we've seen price probably come down 50 basis points or so overall, I think, in the market. Sometimes it comes down a little more.

We see price, I would say, a lot more in two areas: one, construction. Every once in a while, you get some folks step in and just get really aggressive on construction. Again, not necessarily on a lot higher leverage the non-recourse side, but you do see every once a while somebody will step up and get pretty aggressive on price for a few months. And they generally do that and then they fill up and they go away for a little while.

And then on the facilities side as well. I think that's where we probably see most of the structure piece where I think folks that are getting into that facility space might underestimate how much structure they're going to need. But otherwise, I think it's just a normal kind of thing where every one so while somebody has got to put some money out and burn a hole in their pocket and they get aggressive.

All right, guys. That's all for me. Thank you for the color.

Thanks, Matt.

Brian Martin, Brean Capital.

Hey. Good afternoon, everyone.

Hey. Brian, how are you?

Hey. Good. Thanks, Johnny. Maybe just one last one on the expenses, Stephen. I think you talked about the conversion in November and the pace holding where it's at today. I mean, if we think about '27 and you get the savings post conversion, I mean, is it best to look at that run rate where you're ending the year, similar to what we look like going into '27? Or given that you've got inflation, obviously, but you're going to get the savings coming out in the fourth quarter.

So maybe not much change in the run rate from 4Q heading into 1Q. Is that a fair way to think about it? Or is that not the right way?

No, I think that's fine. Again, we're within a benefit, call it $0.5 million a month, give or take, post conversion with MCB. And Bill has done a great job with Bill and Kevin both and have seen some cost savings opportunities along the way already. But the bulk of that comes out November, December, and then we'll have our typical beginning of the year, merit raises, and those kinds of things, but that will help offset.

Got you. Okay. Just remind me the savings you expect from the transaction in terms of, I guess, what dollars or I guess how do you frame up the savings you're anticipating coming from the --

We're borrowed 20%, which was about $5.5 million annually.

Okay. And the bulk of that comes in the fourth quarter or post-fourth quarter?

Correct.

Correct. Okay. Got you. Thanks, Stephen. And then maybe, Johnny, just on the M&A. I mean, it sounded like there was a trade you guys were on. Now you're off it, maybe come back to it. But just in terms of then your comments about the conversations maybe being a little bit less today. I mean, it sounds like -- not putting words in your mouth, maybe there's nothing imminent, but your discussions are ongoing. And maybe if that's accurate, you can confirm that. And then just in terms of sizing or geography, where you're -- any change in terms of what the interest is.

I'm not going to do that. I'm not going to do sizing or geography. But I like the people and I like the company, and I like their geographies. So I'm going to go back and revisit that. I've set them the information for the call and actually, I called them afterwards.

I said I couldn't get there because I would have alluded myself because they had my stock down to what, [$1.70] or something, Stephen, some number. So I think it wouldn't work for me.

So he saw that didn't work for us, and I said, I understand. But we're going to go back and revisit that if they're interested and see if we can put something together that makes some sense. So it's another nice, nice trade it appears to me, a good little bank and similar to Mountain Commerce to me and lots of respects. Not the same geographic area, but --

Yeah. I got you.

Yeah. The way they operate their business. So they're just good operators. They run a good number.

Yeah. Okay. That's helpful. And then maybe just one on non-performing or just credit quality. I know you mentioned some improvement there, all the hard work that Kevin and team had done.

So can you just frame up the outlook or how you're thinking about the pace of NPAs and charge-offs as you look in the coming -- maybe just the pace of NPAs or just how you see some of the improvement unfolding here in the next 12 months or 6 to 12 months, however you want to frame it up? Just to see a path of improvement.

I don't see any difference. We stand by what we said before, there's no longer -- no more on the larger one. There's no loss coming. We're not going to take any loss. So we stand by that.

And outside of that, we cleaned up a little stuff this quarter, and we just tend to pack out a little bit if there's one or two that are head up. We're mostly through that. I'm not looking for anything any different on the charge-offs. Maybe better from here on than what it has been. But it's where it is or a little better, what -- there's nothing coming that anybody is concerned about. It's good -- it's actually good -- it's actually good.

Okay. And just in terms of how much improvement in non-performing given what you -- the lifting you've already done, I mean what could we see over the next 6 to 12 months? I mean, could we see a significant decline non-performing it -- is it more of a slow grind, I guess, however you frame it up?

That's really up to the other side of the fence sometimes. It's not -- we can see that, but we're not we're not walking away. So we expect to collect everything that we have out there. And we're not going to accept anything different. I really don't see any changes. It may get better here, quite honestly, the charge-offs. We had, I don't know, $5 million this quarter.

Okay.

This quarter, Kevin, how much?

Yeah, it's closer to $6 million. So we had almost $3 million of that was specific reserves on loans that we charged off. We had matched up to specifics. So if you take that out, then it was really just a normal quarter.

We're actually it's really a marked improvement in asset quality here. There's no -- they have no concerns about asset quality.

Okay. Yeah. And remind me the size of the largest credit that you talked about last quarter, where does that stand today? Or what level is that at?

It's where it was. It's a little less than $100 million. It's still where it was, but that's one that we're we have seen some movement on. And if reasonable heads stay together, we'll wrap that up. And if they don't, then we'll fit the battle. So there you go.

Got you. Okay. And last one for me, sorry, was the -- just on the margin, Stephen, can you just frame up like I know you said that your hope is to see the margin maintain its current core level, if you will. But just the puts and takes, what could take that better or worse? And then just maybe the opportunities you have on the Mountain Commerce book in terms of loans and deposit where there's opportunities to pick up there?

Yeah, there's certainly opportunity on the deposit side with Tennessee. They've got about $300 million in CDs that mature in the second half of the year that we should get some market improvement yield there more potential at some roll off. Yeah, as we've always said, I would say competition is probably the biggest threat particularly on the deposit side.

We've got $1.25 billion in CDs that mature in the second half of this year. That's in the mid-3%s like said earlier that's -- we've done a good job and then enter below that range on where we renewed, but competition forces that higher. That's probably a risk. But our folks have done a great job and expect that to continue.

Okay. So not a whole -- I mean, not much pressure on the asset side. I guess, I mean, I know you talked about the loan yields and what you're seeing in the market. So maybe it's just you're not going to push forward with some of those loans at those rates, it sounds like?

That's right.

Yeah. Okay. All right, I think that's it for me, guys. Thanks, and congrats on a great quarter.

Thank you very much.

Catherine Mealor, KBW.

Thanks, everyone. Good afternoon.

Good afternoon, Catherine.

Two last questions, just mainly model questions. Maybe first on fees. These were a big beat relative to our expectations. And I think you mentioned there was a bully gain and higher SBIC investment income. Can you quantify maybe how much that increase was in SBIC and how we should think about a normalized run rate going into next quarter?

Yeah. That increase was about $2.4 million for those equity investments that we have.

Okay. Okay. Great. And then anything else in the fee line that you felt like was artificially elevated?

Well, we did have our purchase accounting accretion go up $2.5 million and $1.5 million of that was just related to Mountain Commerce. The rest of it would have been from older stuff paying off.

Got it. So do you think that PAA comes down from the $3.6 million?

If the payoffs stop, Mountain Commerce would be the same next quarter, I guess, as were this quarter. The other -- if we get to pay off, that's the key about $900,000 that was payoffs early payoffs on loans that we generate the income.

So it does happen periodically, that might happen next quarter, too.

Yeah. You never know. Usually, there's always something paying off.

Yeah. No, that's helpful. About $900,000 of it was from early payoffs, not just your scheduled PAA accretion.

Correct.

Okay. That's great. That's helpful. Okay. Great. That's all I got. Everything else was asked and answered. Thanks. Great quarter.

Thank you very much. Appreciate it. It was a great quarter for us. Thank you.

We have reached the end of the Q&A session. I will now turn the call back to Mr. Allison for closing remarks.

Thanks, everyone, for your participation today. Thanks for supporting Home BancShares. We work -- we work at it, we're a little -- even though we had a 2% ROA and 1 of the top 10 in the nation in the first quarter, we felt like we didn't do a very good job. So we work hard at it, and we'll continue to work hard at it.

As you know, hopefully, things will settle down in the marketplace, and we'll have more loans and generate more income. And that's our game is to continue to grow the company over a period of time through, both growth, organic growth and M&A and we hope to be able to tell you about another deal before long. So thanks, everyone. We look forward to visit with you in the future.

This concludes today's call. Thank you for attending. You may now disconnect.