Home BancShares, Inc.

gentlemen welcome to the home bank shares incorporated third quarter 2025 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 and 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 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 3 of their Form 10-K, filed with the SEC in February 2025. At this time, all participants are in a listen-only mode, and this 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 Townsend, Director of Investor Relations.

Thank you. Good afternoon, and welcome to our third 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 Fulton, President of CCFG, and Scott Walter of Shore Premier Finance. The third quarter was another record-breaking quarter for HOME, and our team is excited to share the results with you. Opening remarks today will be from our chairman, John Allison.

Thanks Donna. Welcome to the third quarter. 2025 Home Bank Shares Earning Release and Conference Call. It's really hard to believe it's already mid-October and Home has had another great quarter. I think that's three in a row. We've added some graphs this time, Donna, to our presentation that you're welcome to look at that run from 9-30-24 to 9-30-25, and I think you'll see in those graphs what we're seeing here at the company. Just talk about some highlights for the third quarter. We had record net income of 123.6, record EPS of 63 cents, revenue of 277.7, pre-tax, pre-provision net revenue of 162.8, P5 NR profit percentage of 58.64. That's the best in the last 12 months. That's not 60%, Stephen, but it's pretty close to 60%. Pretty proud of that. Efficiency ratio, some naysayers said was going up, was down, and efficiency ratio was the best in 12 months at 40.21. Margin kicked up a little bit. Some said our margin would go down. Our margin kicked up 12 basis points to 456, and that's the best it's been in 12 months. Our OTCE continues to remain in the 18s, the high teens, at 18.28%. Just some balance sheet strength highlights. Common equity assets is 18.56%. We continue to grow that. Tangible equity, tangible assets, 13.08%. That continues to grow. And loans hit a record level of 15.18 billion for the quarter. Total stockholders' equity is 4.09 billion dollars. More good news, the Texas lawsuit has been settled and we've received our first partial payment of the settlement. We expect most of the balance during the fourth quarter. Hopefully we'll get it all in this year. We'll be lucky if the proceeds will match up with the expensive litigation costs, and that does not include the loss of growth and profits we've suffered over the last couple of years. However, we had no intention of just mildly standing by while damage was being done to our company. Management has a fiduciary responsibility to protect the assets of the shareholder, especially when we didn't do anything to any of those people that participated in this fiasco. I believe because of our conservative nature, we've been criticized by some. I think that home bank shares is not growing fast enough. We don't really argue at that point, but I have to disagree with that discussion point because timing and discipline matters. Moving too fast or scaling too fast can be fatal. I believe in fixing your existing problems before you make a new move. That's exactly what HOME has been doing for the past three years, dealing with multiple, distinct, unusual problems that arose in the HAPI acquisition that led us to filing a 91-page lawsuit coupled with HAPI's asset quality problems. By the way, it's still a work in progress. ALCI, loss of happy private information, defection, and loss of personnel. Don't get me wrong, we have some great people in happy, and happy performance has rebounded. I have been involved in over 45 deals in my banking career, but never anything of this magnitude. Enough of that. Forget the bad guys. The saddest part is what happened to some happy employee shareholders, who during the major with home, in a tax-free exchange, happy shareholders to exchange their private non-liquid happy stock for home stock. That is a New York Stock Exchange publicly traded dividend paying with strong liquidity and a strong balance sheet. And after getting the home stock, they listened to some snake oil salesman who talked them into selling their home and investing the proceeds into another privately held stupid non-liquid investment. There may be where the biggest lawsuit is, misleading or unsophisticated individuals. It may be too late. Excuse me, it may not be too late. If my information is correct, every one of the investors have lost money and home, and we were even forced to use the legal system to protect the assets of our shareholders. As bad as it was, the rest of the company stepped up to help us while we fought Texas lawsuit and was resolving the issues in front of us before moving to another opportunity. In other words, we waited until we had our arms around multiple problems before we moved again. During that time, I feel confident we missed several growth opportunities, but we needed to fix what was in front of us first. Well, you can see from the charts, we're back producing top two best-in-class numbers once again. We would have been there a couple years ago had the annoyances of these unusual situations not come up. More good news. During the first quarter of 2025, for all banks over 10 billion, home ranked number two in the nation in return on assets. During the second quarter of 2025, for all banks over $10 billion, home ranked number one in the nation in return on assets. During the third quarter of 2025, home outperformed both our first and second quarter ROA. It's early to be able to tell But we're expecting to be, once again, one of the best, if not the best, in the market of all banks over $10 billion. With the performance of the company back, producing pure leading numbers, we're ready to move forward and do a large transaction or a couple of smaller transactions. So those of you pushing for growth, the time is right, and we agree with you. I said last quarter I was looking for $500 million in income in 2026. I'm holding that number so far this year through three quarters. Home has earned $357.2 million with one quarter left to go. Add a couple acquisitions and a little growth, and I think the number is achievable and maybe a little better. Last year at this time, we'd earned $302 million. So far, we're up about $55 million this year, or 18.21% from last year. with the third quarter showing even stronger earnings growth, up 23.6% for Q3-25, with $123.6 million in income versus Q3-24 of $100 million. During the fourth quarter, a bank was selling bonds, including a $20 million piece of home bank's sub-debt at a discount and repositioning. They were paying the paper, I guess I say, that they incurred on AOCI losses. and home was given the opportunity to buy. And we did buy that. We bought that $20 million piece of our sub debt and picked up $1.9 million gain. Nice trade. Being as profitable as home is allows us to move quickly on opportunities. During the third quarter, we opened up an exciting new branch in San Antonio, and we met several of the local business people. Great market. We're wishing Michael Rodriguez our team leader and his team in San Antonio market, but success. Strength is no accident. That's our slogan. Another reason home has been hesitant on acquisitions is the hesitancy to take on banks' ALCI problems. We're expecting many more bank failures than what happened. We were told to keep our powder dry. We missed on that call on bank failures. But the big one, the one that most banks got in trouble, we got that one right, the interest rate call. Many banks and their shareholders are and will continue to suffer from an earnings perspective because their management made huge mistakes of investing their liquidity into long-term securities and loans during the low-rate environment that we all experienced, and now they must pay the piper. The problem is, how long does it take to fix it? It relates to how long a bank's duration is on both its loans and security, whether fixed or variable. Five years, 10 years, some shorter, some longer. Making the decision at home not to invest in long-term securities and loans is the single best decision we have ever made or I have ever made in my 50 years of running companies. As I said, when a bank gets in that dilemma, their options are do nothing and ride out the duration until the bonds and loans mature, praying all the time that interest rates come down. Or if they have enough capital, they can sell the bonds and or loans at the market and reinvest the proceeds and recognize loss. This can create a capital problem, forcing banks to raise capital by selling more stock. Since banks trade on a multiple of tangible book value, the losses incurred will reduce tangible book value, thus resulting in a lower stock price. The recovery period can be long and painful, and sometimes a death sentence. as we saw with signature by Silicon Valley and Republic. Regardless of the decision that is made, at this point, there is commensurate damage to the balance sheet based on interest rates, duration, and quality. Regardless of while the bank is trying to recuperate by whatever methods, they are losing years of earnings power. Either way, if they decide to write it out or recognize an unrecoverable loss in income and tangible book, the loss is a loss regardless of how it's presented. It reminds me of the Fram oil filter guy quote, you can pay me now, pay me later. Or another analogy is, it reminds me of losing Park Place while playing Monopoly. You never get it back. The whole time watching others that did not make the same mistake, busy sacking up capital as their ship leaves you at the port. Last option is to find a partner that likes your operation, understands your dilemma, and has lots of capital and is willing to use their capital to mark the balance sheet to take the hit immediately, which allows the company to accrete the mark into income over the duration of the paper. A huge example of this is the latest deal that was just done, CMA, Co-America, who was acquired and the stock shot up $11.77 in one day. That was extremely positive for both the buyer and the seller shareholder. There is no easy answer to resolve these mistakes that were made. But if your shareholders will ride with you, maybe you live to find another day. But regardless, it's not an easy fix. And if they don't want to ride, they sell their stock and invest in companies that are already out there that didn't have the problem stacking up equity. Donna, I think that's pretty much it. Companies humming along pretty good. I told you last quarter that I hoped that we'd have a deal done this quarter. We probably don't have one yet, but we're getting close. Thank you.

Okay. Thank you, Donna. I'm sure when you get a deal, it'll be the right deal. So patience is a virtue, right? Our next report today comes from Steven Tipton.

Thanks, Donna. As Johnny mentioned, the third quarter was another strong performance for Home and Centennial Bank and produced records in several areas. Highlighted by strong revenue and continued net interest margin expansion, we were able to produce an adjusted return on assets of 2.10% and adjusted operating earnings per share of 61 cents. The reported net interest margin improved to 4.56% up 12 basis points from Q2 and up 28 basis points from the same period a year ago. The core margin excluding event income was 4.53% versus 4.43% in Q2, driven by an increase of two basis points in the overall loan yield and a decline in interest-bearing deposit costs of two basis points. Deposits ended slightly lower in Q3, down $161 million, driven largely by customer tax payments made in July. We continue to focus our regions on growing core deposits and relationships evidenced by wholesale deposits only comprising 2.3% of total liabilities. Although the adjusted efficiency ratio improved to 40.95%, our presidents and leadership group are closely monitoring core expense trends and controlling those in a tight range. Loan production was strong this quarter at nearly $1.3 billion, highlighted by $800 million from the community bank footprint. with more than half coming from our Florida regions. Congratulations to our regional and division presidents and all of our bankers on another great quarter. With that, I'll turn it back over to you, Donna.

Thank you, Stephen. Next, we will hear from Kevin Hester on the lending portfolio.

Thanks, Donna. Asset quality improved overall again in the third quarter with improvements in MPLs, MPAs, past dues, and total criticized loans. As you know, there's always good and bad as you work through problem loans. On the good side, I'm pleased to announce that we have the DFW apartment non-accrual loan under an agreement for sale with a hard deposit of over 10% of the purchase price and a closing date in the fourth quarter. However, on the large Texas C&I credit that we charge down at year end, they continue to struggle to recover and it is entirely possible that it moves to non-accrual before it gets to a resolution. At this time, we still do not believe that there is any additional loss in this relationship. Despite the headwinds resulting from heavy payoffs in September, we were still able to post loan growth of $105 million for the third quarter, continuing our recent history of linked quarter loan growth. The third quarter of 2025 marks eight times in the last nine quarters in which we have posted organic loan growth. From time to time, we've been questioned by analysts and investors about our level of loan growth being less than others that they cover or follow. And we always state that we will take what the market allows. Fraughtiness in the overall market generally leads to aggressive pricing and leverage by our competitors, and we will not participate in those situations. On the other hand, periods of volatility lead to banks exiting asset classes or markets and generally results in improved pricing and leverage and we usually fare well during those times. That said, I would like to take a moment to point out that regardless of which situation that we are in, I believe that we are not given enough credit for whatever level of loan growth that we post. Keep in mind that because we are best in class in both net interest margin and efficiency ratio, our loan growth produces greater results than our peers. We have posted year-to-date loan growth of $522 million which results in an annualized growth rate of 4.71%. Not a bad number and certainly more than the percentage increase in GDP over that period. However, we operate at a net interest margin of 4.48% and an efficiency ratio of 40% compared to a net interest margin of 3.59% and an efficiency ratio of 55% for all banks from 10 billion to 50 billion. When you add the effect of our best in class NIM to that nominal loan growth number, the impact feels like loan growth of $653 million or 5.89% annualized in terms of our peers. Layer in the effect of our better than peer non-interest expense and that impact grows even further to 6.73%. The point of this analysis is to highlight that lower performing peers must post much higher nominal loan growth results just to provide the same profitability impact as the 4.71% that we've posted year-to-date. This focus on high performance in all areas when combined with even reasonable loan growth is the formula for a best-in-class ROA. Donna, that's all I have. I'll give it back to you.

Thank you, Kevin. Appreciate the color on that important analysis on loan growth. Now, Chris Poulton will provide an update on CCFG.

Thank you, Donna. Good afternoon. Q3 was quite busy for CCFG, but you might not know it from our asset number. We ended the quarter down about $60 million from Q2 as payoffs slightly outpaced new funding. That masked what was an active quarter for originations with just under $400 million of new loan commitment. There were a couple of loans closed at the end of the quarter that funded post-quarter and a few loans that we had anticipated to close by quarter end that pushed into Q4. All of that to say, we've already seen our loan balances bounce back in the first few weeks of October, and based on what we see in the pipeline, I do expect growth from here. We did and do continue to see positive rotation out of the portfolio, and we have generally been able to replace the loans that pay off with new loans. Through Q3, we originated over a billion dollars in new loans, which is a bit ahead of pace for us, as we generally do not hit that mark until Q4. Look forward to sharing our Q4 results with you all in the new year. Until then, I'll hand it back over to you, Donna.

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

No, I don't. Thank you. I hope everybody looks at the charts. I think you'll see what we're seeing or what we're feeling here at the company. I think the charts speak for themselves, Donna.

Okay. We will turn it over to the operator for questions.

Thank you, Donna. If you would like to ask a question, you can do so by pressing star followed by one on your telephone keypad. If you decide you would like to withdraw your question, please press star then two to remove yourself from the list. And when speaking, please remember to pick up your handset before asking a question. We'll pause here briefly whilst questions are registered. The first question we have on the phone line comes from Dave Oster with Cantor Fitzgerald. You may proceed.

Guys. Hey, John, you highlighted that you guys, hey, how are you? You had highlighted earlier you had some nice NIM expansion this quarter. That looked good. How are you thinking about that trend and the NII trend going forward, just given the September cut we just had and potential for getting another couple of cuts by year end. Are you expecting that lower rates could put some pressure on that, or do you think that you see more expansion going forward? And what's the NIMS sensitivity on that next cut? Thanks.

Well, the world says as rates come down, we're going to reduce our net interest income. But I have to give credit to Stephen Tipton, who deals with that every day, and Kevin Hester, who deals with it every day also as he writes the loans. So I think they're on top of that. We react in a hurry when there's a rate cut. Steven, we were at a conference and he left the conference and lowered rates immediately in our company. So we react in a hurry. And I think you can go back over history and see that home has been able to maintain a margin where a lot of people have not because of reaction and how management looks at it. We have about 13, 15 regions that report upstream, and they move immediately. Those guys know what it is. You don't have to hold their hand. You don't have to rock them in a rocking chair. They know what's going on, and they react. That team reacts. They already know which moves they're going to make immediately. It's already pre-programmed. I probably stole a little Stephen's thunder here, but I'll let him take it from here. But I'm proud of how we react to those situations.

No, I appreciate what... Johnny said and agree, I mean, that credit goes to the presidents that are out in the field. They're dealing with the customers, and we're able to very quickly go through our negotiated accounts and lower those where we can. We've got rate sheets in all the regions that they go through, and then we've got some indexed municipal accounts that are moving as variable rates move. So we screen a little asset sensitive, but as Johnny and group have always said, that kind of goes off the bottle assumptions and our jobs to react to that and try to get rates down to offset the loan side.

Appreciate that color. Hey, maybe just on the deposit side, how are you guys thinking about growth going forward there in a lower rate environment?

Well, we've never, you've never seen a CD ad at a home bank. We don't run them. We just run strength ads online. We have the ability to pay out all uninsured depositors, and we like that position to be in, and we'll continue to do that. This quarter, we paid off sub-debt was $140 million. We had tax times that came up, so deposits are down a little bit. Plus, we had a little loan growth, about $100 million. So some of those factors impacted. Brian, you got a comment? No, we did the $140 million, and then we did another $20 million, too. Yeah, we bought that opportunity to buy a piece of our subdebt back, and we bought that back at a discount. We like that move. So we're not going to be the high guy bidding on money. That's not our game, but there's plenty of money out there if you want it you can get at a reasonable price. So we're not too concerned about it at that point. Anybody got a comment on that?

Yeah, I think just a function of the markets that we're in. Johnny mentioned we just opened the branch in San Antonio a month ago. We've got another location east of Dallas that will be open sometime in the first quarter. I saw the market share data came out a couple of weeks ago, and there's $1.1 trillion in deposits in Texas and $900 billion in deposits in Florida, and we've got a meaningful presence in both.

Great. Appreciate that. Maybe just one last one. How are you guys thinking about the government shutdown? Are you concerned at all about it from a credit perspective? And if not, how long would this have to drag on before you guys get more concerned about it? Thanks.

You know, I don't... You got us plowing new turf here. I don't know what to think about that. I've seen no impact as of yet. I don't... I don't think we've seen or felt anything. So maybe it's good to be in the South and be away from Washington, D.C. You have all those unemployed. I'm sure we've got unemployed people in Arkansas as a result of it. But, you know, I'll tell you more later. You'll probably figure it out. We'll probably all figure it out. It'll be good or bad, right? So I don't know the answer that day, but we'll keep plugging. Kevin, you got any comments? You see anything on your end?

No, I haven't seen it. We've talked about being able to offer deferments to individuals that are hurt by it. We certainly can and will do that where it's necessary. Other than that, I'm not seeing anything. I've not felt any issues from the government being shut down for 20-something days.

We'll call you, Doug. Is that fair?

Sounds good. Appreciate it, guys. Thanks again.

Your next question comes from John Ostrom with RBC. You may proceed with your question.

Okay, thanks. Good afternoon. Hi, John. Hey there. Just, it's probably a topical question. I'm not as concerned about it for you guys, but it's a bloodbath out there in the bank stocks on credit fears. And, you know, obviously, you put up a great quarter, but your stocks off. How are you feeling about credit right now? And maybe what you're seeing on your own credit trends? And then, you know, I know that you guys kick the tires on a lot of other banks, but what you're seeing, you know, broadly in some of the other banks you look at?

Well, interestingly enough, we have an asset quality meeting monthly. And then that asset quality meeting We cover every past due or problem loan in the entire company. As you can imagine, more has been focused on the Texas book than it has been the Florida book or the Arkansas book. But we go down every loan, and we talk about it, where we are and what's happening with it. And it's really pretty interesting. I wrote down, and I write down, John, what I think the loss is on that loan. If I think it's a million dollars to put down a million or five million or 10 million, whatever it is, I put it down. And the rest of the group does it accordingly, too. Stephen does it and Kevin does it. And at the end, we look at each other, what you put down. And I had the lowest amount of dollars in that asset quality meeting that I've had since I started that process. And that's been years ago so from that aspect i'm pretty proud we got that one texas credit that we got our own but outside of that everything's holding together pretty good getting that having a deal on that piece of property in texas that kevin reported earlier i'm glad to have that hopefully that deal gets closed we got a 10 deposit so hopefully that gets done and gets out of the bank so Overall, I could be, other than that one deal in Texas, I'm a pretty happy camper. So I can't say we're the exception. I can't say we're the exception. I think Jamie Diamond said there's cockroaches out there, and there always is cockroaches, but you know. I'm sure there are some cockroaches that we hadn't seen, but I was amazed at the last quality meeting how many dollars I roped in. I used to write from 15 to 30 million, it's possibly not. Don't get me wrong, I exaggerate a little bit, but I just put the maximum amount I think it could be. And we usually always beat that if one of those credits happen. But last time, I think I was less than $5 million, John. Kevin, you got any comments?

Okay. I mean, I can't, that's the best color I can give. And we go through them at a detailed level. and each come up with our own number. I feel like you do. I think we have addressed, we watch all these closely and things come out of left field at times, but we feel pretty good about where we're at at this point. Low leverage helps that a lot.

Yeah. I remember back, John, when we had high leverage and they pitched us the key. Being in a position with low leverage is pretty sweet.

Okay. I'm sure others will ask about M&A, but I'll go to growth quickly. And I hear you guys. I'm probably guilty of pushing you on growth at times. But it sounds like you're more willing to grow. I'm just curious if the pipeline supported and you're seeing the kind of low-demand growth

um that that could push your growth rate a little bit higher here i go again pushing you on growth but are you seeing the pipelines improve and it sounds like you're more willing to grow the balance sheet is that is that right i don't know that it's that we're more willing i think the the pipeline is supporting it particularly right now um i don't know that it's necessarily a willingness more than you know we're finding the right deals we've got people in in the right places in good markets that have kind of hit their niche. The hard thing to project is that we do a lot of construction, and so that means there's a lot of churn in our community bank construction book, and Chris's book is meant to churn, you know, over a three- to four-year period anyway. So there is a lot of turnover on a quarterly basis, and that's the hard thing to project. the pipeline has been really pretty strong for several quarters and continues to look that way.

Yeah, it looks like we just missed, we let the grease pig get away from us in the second quarter. Chris did on a big loan. Looks like that loan's probably going to close. So, Chris, you want to comment on when you think that might close?

Certainly, yeah. We had one that was, Scheduled to close at the end of the quarter. And our borrower just needed to delay their purchase a couple weeks. I think we're scheduled for Monday right now. That may move around a little bit. But again, that's more just sort of timing issues. We continue to see good demand. So I think that one will probably get done.

So anyway, we were prepared. We thought we were going to be up much stronger than we were. Chris didn't get that one closed, but I think it's going to get closed. So we're starting out. We usually start out in the hole. We're starting out ahead. I don't know if that means we'll be behind at the end, but usually when we start out strong, we get behind at the end. We start out slow, we get strong at the end. So we'll just have to wait and see. That's You never know what your customer's thinking. He may be buying, he may be selling, right? You don't know, and he may be working on something for months, and then bang, he just hits it, hey, we gotta do this trade. So that happens, that happens a lot. But we could have a good run here this quarter. It could be a nice quarter. And the well-priced loans, it could give us a little revenue boost.

Okay. All right. Thanks for the help. I appreciate it.

You bet.

Thank you. We now have Brett Rabitin with Hofty Group. Please go ahead.

Hey, good afternoon, everyone. Johnny wanted to start, you know, M&A hasn't really been addressed fully, and I think everybody knows you're out looking for Looking for assets, can you maybe just talk about your experience here the past quarter? What's been the impediment? Is it pricing? Is it culture of a seller? Just pure math. What's been the impediment? And then just how do you think about the outlook with these stocks a little lower? Obviously, seller expectations are not as variable as the market.

Well, you know how conservative we are. We have to find the right target. To say that we are not in the M&A business, we are. We have signed the LOI. We'll be moving forward on that. It's someone that we like and runs a good business and got a good business. And we're excited about that opportunity. And I'll tell you where it is. It's in the United States and it's several billion dollars. You'll be able to narrow that down. You'll be able to narrow that down. So we have signed an LOI and we have his permission today to say that we've done that. So that's about all. You're not going to get anything else out of me other than that.

No, that's ample, Johnny. So it sounds like we got something in the hopper. So that's good to hear.

um well and they just wanted to hear we got we got i mean we had the happy mess to deal with and we we got that behind us pretty well and uh we just don't move until we i mean you just correct if you got a fire out there put it out so we had all those multiple problems in the happy transaction it just didn't we we got that got that under wraps right now so it's time for us to move forward. And I agree, we have not moved forward, and I admit that, but we are moving forward.

Okay. And then the other question I had was just around profitability. You know, in the past two quarters, I think it felt like your profitability topped out, and this quarter it moved up again. You know, are we at the peak, do you think, in terms of,

roa roe rote um just just given you know the efficiency ratio or any any thoughts on profitability and how you see it maybe going into 26. our expenses were up a little bit this quarter so i've already commented to stephen and brian davis and they're going to work on that so our expenses were up we still had some expenses out there that that we didn't need to have. So we've got to work on that. And I don't think we're done. No, I don't think we're done. You get the expenses back to 111, you see what happens, right? So that's more money for us. We've kind of had the wind in our back. We're pretty tough on, if we charge off a loan, we're pretty tough on staying after them until we get our money. So we've had the windfall, the wind in our back. We've had some income. We got some this month, too. this quarter, haven't we, Brian?

Yeah, I mean, we had several things. We had a $2 million recovery. We had 1.75 gain on our lawsuit. And we had 1.9 million gain on our sub-debt pay down.

Yeah, we'll probably have some more recoveries on that lawsuit. I'll probably put it in reserve. So just to build our reserve. We built it a little bit this time. went from 186 to 187, we'll probably take that extra money. We don't have anything that pops its head up to be charged off. We'll probably put that in reserve.

Okay. Appreciate all the color.

Thank you.

Thank you. We now have Steven Scooten with HyperStandler on the line.

Hey, good afternoon. So, Johnny, I kind of want to challenge you that maybe you can't get expenses down to 111 just so you get that personal wrong and get them back there. But do you think there really is two, three million bucks to cut if you continue to go to the bank?

Do I think there's two or three million bucks that we could gather if we – is that what you said?

Any expenses that you could cut. Yeah, and I think you're at – There was $14 million, which is phenomenal still.

Hey, Steven. This is Steven. Yeah, there's a handful of one-time items in this quarter from an expense standpoint. I know we talked a little last quarter around incentives being up in Q2, and they were basically at the same level in Q3 as they were in Q2. There's obviously some revenue that comes along with that to pay those. But like Johnny said, we've got our presidents had a good conversation last week and everybody kind of reviewing their numbers and what opportunities we have to trim where we can.

Hard to beat 41.7% efficiency ratio, but impressive to hear you might be able to get a little better. So that's encouraging. Maybe on loan growth around CCFG in particular, I'm wondering if Chris could comment on just, you know, obviously we've seen a few rate cuts here, and prospectively we're going to get a few more. What he would think that could do to loan demand within CCFG. I mean, I think that book is down maybe 400 million or so from its peak when we were in a lower rate environment. So just kind of curious what we think could kind of transpire there.

Chris, that's yours.

I was curious what you might say.

Yeah, no, I think lower rate environments generally will be beneficial to us because I think people have said on the sidelines on some transactions or some projects that just don't make sense at a higher rate environment. So you'd like to think that there stimulates a little bit of demand on some things that maybe don't pencil out so well in a higher rate environment. And I assume we get our fair share of those. Yeah, in general, I mean, I think demand for us has been good.

know we don't really chase growth but if it comes our way we'll take it and uh i do think in general you know you see a hundred point decline from where we were you ought to see a few more deals pencil out a little better got it yep that makes sense um and maybe just last thing for me i mean i know i think armstrom said it earlier but it's been kind of a bloodbath out here today but y'all stock is outperforming by i don't know 200 basis points which probably doesn't feel that way, but it's great relative to everyone else. How do you think about using that stock in M&A transaction versus, you know, using all this excess capital that you have to buy back your own stock? Is it both and, or do you have a preference on using that currency to buy new assets or just repurchasing your own stock more aggressively?

Well, I think that depends on the stock price, but, you know, we'll be in the market. Let me say this, home will be in the market come tomorrow when we're cleared, right? So we'll be in the market buying stock. So, you know, when there's opportunities, you know, when you look at home, we were second in the nation in ROA in the first quarter and first in the second quarter, and we outperformed the first and the second quarter, and they take us down 3%, you know, if they're going to take us through the rest of the market, it ought to be down 10%. So, you know, if We'll come back, home will come back, home will bounce back. And all the banks will bounce back at some point in time. But right now, we're all trained. They're throwing the baby out with the bathwater and we just have to, as painful as it is when you come off of a, you know, you see the performance of the company for the quarter and you come off of that and you get your ass kicked like this. It's a little frustrating, but it is what it is. There's a lot of people that are in a lot worse shape than home bank shares is today. It's just a little frustrating, but we'll be fine. We'll be fine. We'll continue to use our stock for acquisitions and we'll continue to buy our stock back. The good news is when you run a 212, 217 ROI, you can increase your dividend, you can buy your stock back. you can do pull every capital handle that's out there and still as you see home has done grow your tangible common equity uh pretty strong so these people running a 0.7 or one percent roa they don't have the ability to do what home's doing home has the ability running the two percent roa to pull every capital handle out there so we can we can make the decision of which one we want to pull or we can pull them all don't you agree with that Stephen?

Absolutely. I think you get a chance to buy more cheaper. So to your point, congrats on a great quarter. And I like the new chart too. I like seeing those nice up and to the right lines. Keep up the good work. Thank you. Appreciate it.

We now have Matt Olney with Stevens Inc. You may proceed with your question.

Hey, great. Thanks for taking the question. I was encouraged to hear about the lawsuit settlement. I know that's something you've been looking for for a few years now. As far as the impact that had on expenses, were the legal bills still coming through in the third quarter? Was this one of the headwinds that you mentioned in the third quarter? I'm just trying to appreciate that $111 million goal change.

could be something we could see in the fourth quarter or could we get need a few quarters to get there i'll let let steven answer that yeah this is steve matt um there wasn't much i'm gonna say 100 grand or so in in legal expense uh related to that suit in the quarter um we had a handful of other kind of one-time items some donations we did a nice donation to the city of kerrville um from the flood damage earlier this year. So that was in the quarter and a handful of other things. So we're working through all that now. And like Johnny said, a portion of the settlement proceeds were in revenue this quarter and the rest will be in Q4.

Okay. Our bank in Kerrville raised $250,000 for the tragic flood that killed those little baby girls, and we matched it. So we had about a $500,000 donation. We feel good about that.

Yep. Yeah, nice to see. And then on the M&A strategy, just help us appreciate the size thresholds of those targets. I think, Johnny, you mentioned there could be a larger deal, there could be a few smaller deals. Just help size up for us what a larger deal would be for home bank shares versus what a series of small deals would look like.

Anything from $25 billion down and anything from a billion dollars up. The attorneys are fussing at me. I knew this question was coming. I said, well, I can't handle it. Somewhere between zero and $25 billion, I think. That makes you feel good. I'm not going to go there, and we're going to buy stock. As soon as we can get open, we're going to buy stock. They said, you've got to be careful, and I said, I'm going to be careful, but I can tell you what we're going to do. Wall Street knows we always tell them what's happening, so we're fair with that. We like this operator, I can tell you that. We like the guy. We like this guy. We think he's done a good job, and we think he'll be a great partner. With the strength of having home bank shares balance sheet backing him, I think he'll do what he needs to do. That's probably more than I should determine. Everybody's got their finger crossed.

Well, we'll keep an eye on the home bank news the next few weeks. Hopefully we'll see something good. Thanks for all the comments, guys. Great quarter.

Thanks.

We now have Catherine Melour with KBW. Thanks. Good afternoon.

Good afternoon. How are you?

I'm great. All right. My last question is just circling back to the margin. And I just wanted to see if you could remind us the percentage of loans that are floating rate that will reprice immediately. And then my kind of follow-up on the deposit side, I know, Steven, you talked about $1.1 billion of CDSR pricing in the second half of the year. Just if you could give us a little bit of data around where that's coming off and coming back on or where you think that'll happen. I know rates are moving all around.

Sure. So on the variable rate side, it's about $6.3 billion or so. There's about $3.5 billion that's tied to Wall Street General Prime. and the rest is tied to SOFR between Chris's book and the community bank portfolio. So that's what's moving this quarter and next that we would consider truly variable. And then on the CD side, we've got, let me find my notes here. We've got about, that's on the fixed rate side, give me just a second. We've got Over the next three quarters, our CD book, which is relatively small, is also relatively short, so a billion eight or so in total size. We've got about a billion 350 that matures over the next three quarters, and it's an average rate of 367. So it starts a little bit higher and tails off over the next three quarters, but we've We still have to negotiate, deal with competition. We've got peers in market and around our markets that are still north of four, which is frustrating. But our group's done a fantastic job in negotiating those with customers that want to negotiate and able to retain the vast majority of what we have. And whether we can pick up some yield on what's coming off over the next three quarters, we'll see just kind of relative to what competition's doing. Yeah, I would say broadly our folks are negotiating down in the mid threes and lower today.

Okay, great. That's perfect. And this is a really nitty question, but the sub debt that you paid off this quarter, when in the quarter was that? Is some of that reflected in this quarter's margin or will that be more fully reflected next quarter?

We paid it off in July. It was the happy sub debt that we got that was 140 million. And then we bought back $20 million of our sub debt in September. The $140 million went out at the end of July.

Got it. So that's mostly in this margin. Got it. Okay. Thanks so much.

Great quarter. Stephen had some comment for you. No, I should go clear.

On the $140 million, we paid off at the very end of July, 1st of August. So there's, you know, two thirds benefit this quarter.

Okay, that's great. Thank you.

Thanks.

Thank you. We now have Brian Martin with Johnny. You may proceed with your question.

Hey, good afternoon, guys. Hey, Brian. Steven, maybe just one, just on the margin. It sounded like earlier when you talked about, you know, the question about rates being down. It didn't sound like there was a big concern that the margin was going to fall significantly, despite being, you know, as Johnny said, maybe asset sensitive. I guess, in general, your expectation, we do see the rate declines that, you know, the margin is still relatively stable, kind of where it's been, you know, absent kind of the movement within that event income line. I know that's a little bit, moves around a little bit in the quarters, but just kind of the core event income. If we do get a couple cuts, it sounds like it's, Timm Johnson, You know, relatively stable plus or minus a few basis points is still the way to think about the outlook.

Timm Johnson, yeah I mean that's yeah that's been our message over the last year so it's you've seen right to come down a little bit, I mean you know we screen in an alcohol model that are. Timm Johnson, That are in and I and I goes down 5% or whatever, but you know that assumes. a 40% beta on deposits. And, you know, like I said, Johnny's always said it doesn't give management credit for what our team does. So like I said earlier, the presidents have done a great job thus far addressing deposit rates and, you know, the daily run rate that we monitor has held in pretty good over the last month since the Fed cut rates.

Okay. And just in reminding, Steve, I guess maybe you said earlier, what's left TAB, Mark McIntyre, On this and kind of terms of fixed asset repricing you know, in the in the next couple quarters, the next 12 months, I guess, what maybe what you haven't hit your hand terms of what.

TAB, Mark McIntyre, What yeah we've got so Q4 we have 478 million and loans and fixed rate loans that mature at an average rate of 6.17 so there should be some. lift potentially on those again kind of depends on what competition does and I think we've said before we'll we'll defend our our balance sheet with uh with competition and then there's there's about a billion and a quarter next year in 2026 that matures at an average rate of five and a half basically okay so go over a room yeah some of that could come up potentially gotcha

TAB, Mark McIntyre, Okay, and then just the last couple of times, like the that near term there's still sounds like this opportunity expense side that you know we're we're going lower not not higher than at this point, you know i'll sequel that that sounds fair. TAB, Mark McIntyre, And then, on the fee income side Brian I guess is is there, it sounds like there's an extra $2 million in in the in the fees this quarter that. I guess after next quarter, fourth quarter, it's not sustainable. I don't know the amount of the settlement that you expect in 4Q versus this quarter. Sounds like there's a bit more in fourth quarter that is coming. And then do the fees kind of back off the run rate they're at now, given that gain is kind of a 3Q and 4Q event?

Well, another income, there's about $5.7 million of kind of what I'll call an income.

uh 1.9 i mean 1.75 of that is from the lawsuit and so we'll have another round of uh gain from the lawsuit on that for next quarter right so all else equal the 1.75 doesn't recur after you know let's say beginning one queue next year you're going to have something more in the fourth quarter it sounds like it's more than the the amount this quarter uh but after that that kind of norm that line item specifically normalize it to zero?

It could carry into the, you could have, you know, like, okay, I think we're going to get it all this way. You'll get it all. Okay. I didn't know if some of my laid over in the first quarter.

Okay. That's it. All right. Yeah, that's that. And, and, and Steven, the, the margin still has a little bit of a tailwind on, you know, from the, from the sub debt, you know, the full quarter benefit of the sub debt. as you go into fourth quarter, you know, to just kind of start. Is that still correct?

Yeah, that's fair. Like I said, the timing of when we paid the happy 140 off was, you know, a third of the way to the quarter already. So Q4 will obviously be a full quarter.

Yeah. So gotcha. Okay. Yeah, I think and maybe just the TAB, Mark McIntyre, The only other the only item was in terms of just alone Kevin if you talked about this just alone pipeline and maybe one for you Stephen just done that it sounds like you talked about the origination activity in the quarter I assume payoffs were pretty significant in the quarter. TAB, Mark McIntyre, Maybe just kind of where the where the payoffs were this quarter and then just sounds like just to confirm Kevin that the loan pipelines are still pretty healthy and primarily i'm guessing in. in Florida and in Texas, but maybe if you just comment a little bit on that.

Hey, Brian, Steve, I'll give you the numbers real quick and then let Kevin give you the color there. So payoffs were between $750 and $800 million for the quarter, so nothing necessarily out of line with where we've been running. The billion three that I mentioned on production was our origination volume, which generally about half of that or so is funded at quarter end because of some of the construction-type projects that we do. So that's covered there on payoffs, Kevin.

Yeah, those payoffs were more heavily weighted towards the end of the quarter. So we had a little higher quarter that we were looking at than it actually ended up because of some stuff that, as Johnny said, moved into fourth quarter and then the payoffs that hit in the third quarter. You'll see with us each quarter, it's a little bit different. You heard Chris's comments. His third quarter, their book was a little bit down. We got the growth from the community bank market. This quarter, it probably will shape up the opposite. If the deal that he has closes next week, it's probably going to be flipped the other direction. So the good news is we have different levers that get pulled at different times. Certainly Florida and Texas are the markets where there's a lot more activity. And we're plugged into some good areas that tend to see that. And I think that's showing in the pipeline. So we'll continue to play into that.

Gotcha. And the community bank pipelines or the markets, Kevin, Texas and Florida is still where there's maybe a bit more activity than elsewhere?

Yeah, it's just where the, that's where the activity is. I mean, you know, Arkansas does, does well too, and they, they're showing growth as well. It's just, they're just not as many opportunities as there are in the other two states.

Yeah. Okay. And last one for me, Johnny, just on M&A is, was just in the past, you've talked about the opportunities that you may consider, you know, given, uh, that maybe they're a little bit, you know, not, not quite the performance that you guys are up to just so you can, you know, kind of buy something and fix it or get the return on it. Is that still kind of the opportunities you're looking at in terms of M&A, kind of a, I don't want to call it fixer-upper, but, you know, something that you can improve the profitability on? Is that relative to your profitability?

Well, this is from an AMCI problem is the only thing we have. This is a good management team, a good good operation and they're a good company. So I just think we give them the opportunity with our balance sheet to do some things they haven't been able to do. So I think that's a big plus. It's not a, this one's not a, only from the fact we're sharing our balance sheet with them is to help them with their liquidity and their ALCI. So we'll clean that up. We'll fix that on day one. You'll see them coming out. Like you'll see them coming out pretty strong when we get our arms around it. So it's not a broken company. Only from the aspect they got into ALCI. Has 95% of all banks good throughout the country. So that's not a problem. They all got that problem. So some people, as I said in my opening remarks, some people take their hit and move on down the road. Some people hope that rates come down. Everybody does different things. And when you, I said in my prepared remarks, you can hook with somebody that's got strong capital like home and we got the ability to spread that over them and help them, help them with their problem and fix it overnight. So that's what we suspect to do and that's what we'll probably do.

James Meeker- gotcha Okay, I appreciate the the color and look forward to hearing from you guys. James Meeker- Thanks. Okay.

Thank you, our final question comes from Michael rose with Raymond James please go ahead.

Hey good afternoon everyone thanks for taking my questions, maybe just going back to john's comments. And his question. You know, as I think about you guys and Johnny, I think you've mentioned this, you know, over the years, you know, you can't push a rope as it relates to loan growth. You have a lot of banks out there that are actively trying to hire, you know, record numbers of, in some cases, record numbers of loan officers and producers. You know, maybe now is not the time to grow is, you know, spreads are going to be under, you know, kind of increasing pressure. You do see some, some softening of the, of some of the economic data, at least we, you know, there's, there's probably some debate there. And now you've got credit concerns creeping in, you know, is maybe now not the time to chase loan growth. And then, you know, just following up on that. One other thing that I think you guys haven't talked a lot about over the years is just hiring plans where a lot of other banks have, you know, so, so maybe if you can just kind of address that more broadly, um, not so much from an expectation point of view, but really is now the right time to actually want to accelerate loan growth here? Thanks.

Hey, Michael, this is Kevin. I'll take the last one first. So I think Johnny mentioned on the last call that it's not been our history to go out and look for. It's not been part of our real plan to go out and find teams of people and bring over lots of teams outside of a whole bank. Whole bank has been our our M&A strategy for really our life. And then we've been through two long court cases that were part of that. It's kind of that same mentality. So it's just not something that we've done a lot of. Would we do it in certain circumstances? Sure, we would. We'll do it. We'll do it the right way. And it has to fit our culture. And I think that's probably the bigger The bigger thing in all of this is our culture. What does our lending culture look like? We have one and we follow it pretty closely. To the degree that a group fits that, we'll bring them in. It's not our main strategy. Our strategy has been whole bank. It tends to be things that we can go in and fix because we do a pretty good job of that over the course of our lifetime. I think that's why you haven't seen that particular part from us. Is it the time to grow? We're in some pretty good markets that I think will withstand any weakness that comes into the market. I like our Texas and Florida markets for staying above that. So we continue to follow our lending strategy and our policy. And if it underwrites well and we like it, we like the people that we do business with, If it results in growth, we'll do that.

All right, great. That's all I had. Thanks for taking my questions.

Thank you. Appreciate it.

Thank you. I can confirm that does complete the question and answer session. And I'd like to hand it back to Mr. Allison for some final closing comments.

Well, thank you. Thanks everyone for joining today. It's as hard as this entire bunch worked for the last 90 days. It's not a good day to release earnings, you know, where the world, where people are beating up bank stocks, but home continues to perform as you've seen year after year, quarter after quarter, and we'll continue to do that. We'll continue to perform at a high level and hopefully with a new acquisition or two, they'll report, they'll come in and shortly, it won't be long, they'll get to that high level themselves and we'll be kicking out some additional income. So I couldn't be more pleased, I'm not pleased with the stock price going down today. As I said, they throw the baby out with the bathwater. When you report the best ROA in the nation, I would suspect we probably got it, or one of the best, and your stock's off 3%, but as steven scout said he said you're better than most people so i i guess we're i guess we're one of the best of the worst today so anyway i i do appreciate everyone's support and uh home will continue to do the right thing month after month and quarter after quarter and we'll we'll be we'll be standing when others might not so anyway thank you everyone for your support we'll talk to you in 90 days donna you got any comments wrapping up steven anybody got it brian Kevin, you got a comment on the quarter?

No, great quarter. I mean, I think we've hit all the highlights, and we'll keep trying to do better.

Yep. Donnie, you got any comments? Brian? No, I'm good. You good? Kevin, you got anything else? I'm good. All right, well, we appreciate it. Thank you very much. We've got a board meeting Friday, and then we'll be back to work. Our people can rest all day Saturday and Sunday, because Monday we've got to go back to work. All right.

thank you all for attending the home bank shares fiscal third quarter earning school today's call has now concluded thank you all for your participation and you may now disconnect