Home BancShares, Inc.

Greetings ladies and gentlemen, welcome to the Home Bank Shares Incorporated second quarter 2024 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. Please note that if you would like to ask a question during the question and answer session, please press star then 1 on a touch tone phone. If you decide you want to withdraw your question, please press star then 2 to remove yourself from the list. 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 three of their form 10 K filed with the SEC in February 2024. At this time, all participants are in a listen only mode and the conference is being recorded. If you need operator assistance during the conference, please press star then zero. It is now my pleasure to turn the call over to Donna 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, Tracy French, Chairman of Centennial Bank, Chris Fulton, President of CCFG, and John Marshall, President of Shore Premier Finance. To open our discussion on the quarter today, we will begin with some remarks from our chairman, John Allison.

Thank you, Donna. Welcome to the 18th year as a public company and the 26th year for us as a financial institution. This conference call is number 72 for those of you that have been with us since the beginning of years, and I still look forward to presenting our quarterly results. I'm certainly more comfortable today than I was June of 06 when we first reported our quarterly numbers. I could not sleep that night. I was so nervous I had my notes around, but I just had worn them out. We just returned from a two-week trip with Stevens telling our story all over the country. If you remember those times, not many IPOs were getting done. As a matter of fact, the company scheduled in front of us had pulled out and the one behind us had pulled out. I was laughed at, yelled out, and even called a one-trick pony by a Dallas firm. We traveled for two weeks and raised about $50 million, and I was not sure we were going to get it done. One of the investment banking firms that was in our syndicate sold their retail arm and dropped out of the bank space just prior to the offering date. It was a terrible time to bring an IPO. However, we met many wonderful people, and some are still major shareholders of our company. From $2 billion to $23 billion, what a ride. So let's go to the report. So far, so good for 24. As we said in the first quarter, nice start to 24, and home's top-tier performance continues through the second quarter. Last quarter, I said to improve profitability, we simply need to reduce expenses and increase revenue. Easier said than done. So here's what happened. On the expense side, we improved our efficiency ratio from 44.43 last quarter to an adjusted ratio of 42.59 for the second quarter of 24. Add to that a strong profitable loan growth in both first and second quarters allowed us to continue on with what is a great start to 24 in spite of the economic environment. Loans grew in the second quarter by nearly 270 million, while margin was a strong 4.27, up 14 basis points from the first quarter of 24. Non-interest expense for the first quarter of 24 was 111,496,000, and the same quarter last year, expenses were 116,282,000. We made marked improvements of over $5 million after adjusting for, and you'll hear this repeated several times today, I guess we got another letter of invoice from the Fed for $2,260,000 for an additional payment for the FDIC insurance fund. I think we're done with that now. After pulling out the FDIC insurance fund of $2,260,000, actual expenses for the quarter was 110,925,000, a slight improvement from the first quarter of 571,000, but from the first quarter, 5.3 million better. That's 20 million a year in savings if we can continue to do that. Diluted earnings per share were reported at 101,530,000, or 51 cents a share. That's sporting an ROA of 179. When adjusted for the additional $2,260,000 for the FDIC insurance fund, the company actually earned $103,916,000, or 52 cents a share, and that sports an ROA of 1.83. Adjusted earnings for the second quarter actually beat the adjusted earnings for the second quarter of 23, a 24 beat 23 of adjusted earnings. I'm pleased with that. Having a balance sheet that supports superior profitability during this high interest rate environment that runs almost side by side with 2023 is very pleasing to our management team. With analysts projecting all bank earnings to be down 5% to 10% this year, being able to run a top tier ROA allows homes management to be able to pull lots of handles for our shareholders, including dividends and stock repurchases. Quarterly dividends of $36 million, or annual dividends of $144 million, plus we repurchased $1.4 million for $32.5 million during the second quarter, and we repurchased $1,026,000 for $24 million during the first quarter. For a total of $56.5 million and almost 2.5 million shares, it was actually 2,426,000 shares, That's a 1% reduction in shares outstanding in the first six months of the year. As I said, there's an advantage to be able to run a 180 ROI because there's lots of panels that can be pulled to benefit our shareholders. That brings the total outstanding average number of shares for future quarters to below 200 million. Over the past several years, we have repurchased many millions of shares and retired the stock and still improved our tangible common equity in the last 12 months by $1.21 a share, or 11.1%. We always try to do what's in the best interest of the shareholders. Some Wall Street talk is all reasonable banks are in trouble and may blow up. I want to assure the investment community that home is not one of those bad banks we're talking about. Due to the mistakes most banks made, Many of the banks' only way out is to sell. They can't earn the way out. They can't earn enough money to earn the way out of trouble. So they sell at some reduced price or they bring in additional capital. But the dilution to the shareholders is extremely painful, as we've seen in some deals recently where the dilution was as much as 50%. Shocking. They probably would have been better off to sell to a good bank and ride their bank stock up. Your home has a war chest of capital and continues to build month by month and quarter by quarter, having the ability to earn more than $100 million quarterly while maintaining almost $300 million in loan loss reserve. Couple that with a huge capital account and stable margins, and I now present you HomeBank's years. We truly are a reasonable bank, and many reasonable banks are in trouble. So it's our goal to separate ourselves from the pack while maintaining a fortress balance sheet and continuing to be a top tier performer while remaining patient because patient capital is smart capital. I don't think the bank crisis is over. We've just been kicking the can down the road. Not much has changed for a lot of these banks, except more of the same. They have improved their loan to deposit ratio slightly, maybe. by either allowing securities to roll off and or loans to roll off, or they chased high-priced CDs to improve their loan-to-deposit ratio. But either way, the odds of a quick fix is not likely. They may be able to improve their earnings slightly, but not enough to earn themselves out of the problem quick enough. Another dark cloud to me is coming to show up in February and March of 2025. That's when the end of the bank-saving Fed program called Bank Term Funding Program, or BTFP, expires, and the problem banks have to pay the money back on the securities that the program allowed the Fed to loan the face value of the securities that was much higher than the market value was. How are banks going to make up the shortfall? Instead of rates going down, there is a chance that CD rates may go higher. That would not be positive politically for the Biden administration. Odds are against it. But in reality, it's certainly a possibility. If bank liquidity is in question and a bank has to have liquidity or fail, they'll pay whatever they have to pay for the money. That's exactly what happened to the savings and loans in the 80s. I don't think there's been sufficient time between the inception of the Fed lending program and March 25 when the program ends. That's why I call it kicking the can down the road. Many banks have negative tangible common equity and many have less than 3%. I hope I'm wrong, but it could be a bloodbath if the Fed does not extend. Stay tuned. We're back carefully looking for an acquisition that makes sense for our shareholders. We're also looking to March of 25 because we think there will be opportunities that arise as the BTFP comes to an end. I'm sure one thing, that banks will not be able to do, and that is to borrow $100 on something that's worth $50, like securities have turned into. Bingo, that's the problem forcing the bank to recognize loss on securities if they have to sell the securities and couple that with not being able to earn themselves out of the problem. This could get very serious, and many of them may be interested in talking to good banks. At home, we provide safety, security, for our depositors and customers and shareholders. I just have a couple of additional comments here. It's nice to see the bank stocks running and everybody get a little kick in the bank stocks. I just got several random things here. We sold our building that housed Gold Star Trust in Canyon, Texas for a nice profit, and the Gold Star team moved into our large Amarillo facility. We also leased an additional 60,000 square feet in that headquarters building. If you remember, that's a 200, 40,000 square foot facility that kind of was an albatross around our neck. But as gold stars moved in and now we've leased 60,000 square feet and maybe you have an opportunity to lease more. So looks like we're turning a 240,000 square foot albatross into maybe a profit center over time. In conclusion, as I said earlier, the first two quarters were a very nice start to 24 with over $200 million of income. and revenue of over $500 million and improving earnings per share. That means we're bringing 40% of the revenue to the after-tax bottom line. Good job for everyone. I had the privilege of visiting with Arkansas State University head football coach Butch Jones, Tracy and I did, and sharing stories with each other about respective businesses. And he left me with a quote that I've seen come true so often, and let me share it with you. If you lower your standards, you'll lose the winners. If you raise your standards, you'll lose the losers. He had many more quotes, and I've shared those over the years, but that one just stuck home with me. Patient strategy, conservative management, unwavering discipline, good efficiency, hard work, smart investments, strong capital. Defensive reserve allocation, good asset quality, strong liquidity have led our company to be one of the strongest banks in the nation. And as I said, we've been thrown in the regional bank basket. But all banks are not created equal. We'll continue to try to separate ourselves from the pack. And in closing, as I said, there is no place like home. Donna?