Home Bancshares (HOMB) Q2 2025 earnings call transcript

It is now my pleasure to turn the call over to Donna Townsville, 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 Walker of Shored Premier Finance. Opening remarks today will be from our Chairman John Allison.

Thank you. Welcome everyone. I want to thank you for joining today. Today is the 76th quarter that we've had the privilege to report to our shareholders since going public in June of 06. I have to say that we've come a long way since June of 06, and even a longer way from the day in 1998 when my co-founder, Buddy Adcock, and myself made our original purchase of the $22 million Holly Grove Bank in Holly Grove, Arkansas. We've come from $22 million in total assets then to almost $23 billion now. From five employees then to $2,600 now. And from one small office in Holly Grove, Arkansas to 217 banking offices in five states. From a pre-tax income of $400,000 then to an after-tax income of over $400 million now.

And from our purchase price of $4.5 million in 1998 to today's New York Stock Exchange market cap of just short of $6 billion, I have to say that HOME BANCSHARES' story is certainly one for the record books. Many of you have been with us and enjoyed this amazing ride through the years, and we're extremely appreciative of your long-term loyalty to what has turned into one of America's best and most profitable bunks. For that money, thank you, and I thank you, and our 2,600 associates thank you. We have moved from one of the smallest, it was about 10,000 BANCSHARES as I recall, to number 64 in total asset size, USY. But with our $5.9 billion New York Stock Exchange market cap, our company ranks number 35 in the US in market value.

I said on the conference call last quarter that the second quarter would look a lot like the first quarter, and we were right on the button. However, this quarter was a little better with record earnings of 118.4 million or 60 cents earnings per share, producing a return on assets of 2.08 versus last quarter 115.2 million in earnings producing and return on assets of 2.07. Pretty consistent, I'd say, in the quarter. Those were non-GAAP numbers, but I'll take them. The non-GAAP ROTCE return on tangible common equity was 18.26 and 17.68 GAAP return on tangible common equity. Low loss reserve remains strong at 186. Tier 1 capital continues to build at 15.6%, leverage ratio at 13.4, total risk-based capital of 19.3.

Over the past 12 months, we have grown tangible common equity by $1.36, or 11.25%, from $1,208 to $1,344, while at the same time the company bought back over 3 million shares, equaling about $86 million worth of our common stock, and paid out about $150 million in dividends to our shareholders, all while continuing to grow tangible common equity. That performance displays the earnings power of your company. We continue to add more strength to our already fortress balance sheet, and as we say, strength is no accident. And you never know when you're going to use it, and it's comforting to know that you have it. We've continued to be aggressive on stock buybacks, buying 1 million shares for both the first and the second quarter, and that's 2 million shares so far this year.

And we introduce for the first time the buyback yield. That's an incremental increase value for each individual shareholder based on the reduction in the number of shares. In addition to that, paying 20 cents per share for quarterly dividends to reward our shareholders. Over the last eight years, we have bought back $520 million of our stock of approximately 22 million shares and an average value of $22.60, while at the same time continue to grow tangible common equity. Donna, it is what it is. So far, so good. Nice start to 2025 with already $233.6 million in non-GAAP earnings, and that certainly is a record income for this country. Last year at this time, I think we were around 201 in non-GAAP and 203 in GAAP.

So for the first six months so far this year, we're up a little over 15%. I certainly can't ask for much more of these assets. We need to find something to buy that will be additive to our income. I was looking this year for about $450 million in the income, and next year I kind of had targeted a half a billion. That just rings the bell with me. I used the term $500 million, half a billion kind of rings the bell for 26.

But we need to acquire some more assets to get that done. We are presently looking at several opportunities, and we will pick the best of the lot to keep the forward progress moving in the positive direction. The intention is to hopefully have an announcement before the next quarter's report. Back to you, Ms. Domen.

Okay, well thank you very much for a great report and congratulations on a strong quarter. Our next report today will come from Steven Tipton.

Thanks Donna. As Johnny mentioned, the second quarter was another strong performance by HOME and Centennial Bank. Highlighted by strong revenue and stable core expense trends, We were able to produce an adjusted return on assets of 2.02% and an adjusted efficiency ratio of 42.01%. The reported net interest margin came in at 4.44% in line with prior quarter, even with a lower level of event income. The core margin, excluding event income, was 4.43% versus 4.42% in Q1 and is up 20 basis points from the same period one year ago. I'm encouraged to see the trajectory of the margin in June as we enter the second half of the year. Deposits ended slightly lower in Q2, down $53 million as a result of seasonal tax payments that occurred in April, but we are pleased to see balances grow in both May and June.

As we observed the deposit activity early in the quarter, we hated to see the money go out, but we are comforted to know that we have core customers that are doing well, making money, and operating in dynamic, growing states like Arkansas, Texas, and Texas. We will now turn it back over to you.

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

Thanks, Donna. We continue to achieve recoveries from the charges taken in the fourth quarter cleanup. This quarter, we recovered a total of $2 million, and we remain on track to achieve the expected $30 million in total recoveries over time. One large non-accrual loan from that group remains very close to being resolved in a positive manner, but that resolution will have to wait another quarter. In addition, the multifamily construction in the north part of the DFW Metroplex is complete, and we will begin leasing activities this month.

Asset quality metrics were mixed, but none of the changes were material in either direction. The slight increase in NPLs was primarily due to a large yacht for which we are in the middle of the arrest process. We have possession of the vessel, which is in very good condition. We expect a full payoff on this loan once we exit the arrest process. Solid loan growth split evenly between CCFG and the Community Bank complete the results of another impressive quarter. Donna, I'll give it back to you.

Thank you, Kevin. And now Chris Polson will provide an update on CCFG.

Thank you, Donna, and good afternoon. An uptick in originations for Q2 led to portfolio growth for CCFP. For the quarter, we closed approximately $500 million in new commitments, which brought our year-to-date total just over $800 million, which compares favorably to prior years. The portfolio grew by about $122 million during the quarter, taking our total over $1.8 billion and putting up in plus territory for year-to-date as well. Our unfunded commitments, approximately a billion dollars, which has been fairly consistent over the past year. As we look forward, we may see an uptick in playoffs during Q3, but ultimately we expect the portfolio to be stable to up over time. Donna, that concludes my brief update from CCFG.

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

Well, I feel like we need to have a slurpee. I haven't had a slurpee in a while. We've had two record quarters back to back.

I agree.

Let's see if anybody in the crowd wants to send us a GoFundMe this time. GoFundMe and Slurpee.

Who did that? I believe that was Michael Rose. I believe it was Michael Rose. Challenge extended.

Well, it was a great start to the year. The first six months are outstanding, so I'm pretty I will be pleased with what is going on. I expect that the third quarter will be about like the first and second quarters. We have kind of had the wind our back, had a little extra income in both the first and the second quarters and we got a shot at having some extra income in the third quarter here too. Hopefully, we'll continue to keep it strong until we find something else. We need to find something that makes sense for us that's in our marketplace or close to our marketplace. We can be added to the EPS of this company.

So anyway, we're working on that, and I guess we're ready for Q&A.

Johnny says we take what the market gives us. I wouldn't say that we're more aggressive. I would say that we've got some markets in which there's still some really good things happening, and our folks are hitting on all cylinders in some of those markets.

It is tough. We've got some competition that I think has loaned into the rate cuts that have not occurred yet and tried to reach out and maybe lock some of that in for a little bit. So that's made it a challenge really across our footprint. All of our presidents are talking about that. So that's a challenge. But we just have some, you know, we're in a lot of really good markets and including what Chris does with his group. We just got a lot of good markets to loan in and that's why we're here, why we're in those markets. We had a loan committee yesterday and we had almost a $100 million project, a couple of $30 million projects.

It was a pretty good loan committee. If there wasn't many loans, it was a lot of big loans yesterday. We've been working on for some time and they just come to fruition. So we're seeing that, but the rest of the market may force us down at some point in time because they're already writing it. They didn't chase us on the way up, but they're leading on the way down. So I mean, the real truth is anybody can give it away. So I'm not sure this is over yet. I mean, I think we're banking on Trump and Powell having a drink together or something and lowering rates. So that may happen, it may not happen. But what we don't need to happen that happened, if we take breaks, President Trump, who as you know I'm a huge supporter of, talked about going back to 1% money.

If we do that again, we'll have inflation again running rapid. So that's the scary part of that. We don't need, we need a slow premeditated drop in interest rates. We don't need a quick drop in them. That would, that could really kind of screw things up.

Well, probably not on the whole bank deal. We are looking for a whole bank. Probably not on the subsidiary operation. We wouldn't do it, we just hadn't seen it. So if we saw it, Kevin, look at it and let us know. We are pursuing a couple of banks to give us an opportunity to grow. We've seen a couple, we're going to talk about a couple next week, and then I'm going to see one next week. We're trying to find something, you know, you can't, you run it, call it GAP or non-GAP, 202 to 208 ROA, you can't ask for much more than that out of you people. So we've about milked all we can get out of this turnip, so it's time to find something else for us to buy.

And we're on the path. It just has to be a creative, creative, creative to make sense. And if somebody out there wants to join a company that's growing and making lots of money and got a strong financial statement, we're the one. So we're one of, we're not the only one, there's more than us. But I don't know if that answers your question or not.

We haven't taken dilution before. It's interesting you say that. I went back and looked at these serial acquirers recently. If you go back and look at some of those, one of them I looked back, they outbid me 10 years ago, and the stock's the same price today that it was 10 years ago, and the dividend's the same price. They're paying the same dividend that they did 10 years ago. The people that, I mean, they bought the bank, but they didn't do anything. I mean, nobody got any appreciation out of that trade. So you go back and look at those serial diluters five and ten years back, and I just started looking one day at those that beat us on some bids back in those days.

Actually, this one is at the same price it was 10 years ago. It was a buck and a half down, but bank stops have risen a little bit lately. So, we're not going to get into that game. I don't know what people are thinking when they dilute themselves into infinity. We have no intention to do that. We're not going to do that. I mean, would I do six month dilution? Maybe if it's the right deal that was EPS accretive, maybe, but to go out and dilute myself. I mean, some of these people bought some of these deals that we turned down. I mean, we saw some of those deals and we turned down and we saw Veritech got a nice deal with a good company.

That's a nice trade for them. I congratulated them on that trade. So we didn't, we were not on that train, but we were on one of the others that got done recently. I don't know, you get me off on that. When I look back how we got outbid on these deals five, six, seven, eight years ago, and the stocks left today than it was then that are still paying the same dividend, then nobody got anything. You know, that's the problem. Do a four-year earn back to tangible.

Thank you for appreciating our patience and our holding power.

Yeah, good afternoon. About the same as we talked about in the first quarter. I mean, you kind of got some of the same guys running the same specials here that they have been for the last six months or so. You know, our folks negotiate against those well, and we're able to price them slightly lower than what some of the competitions do. Stephen, we've got a decent amount, about a billion one or so in CDs that mature in the second half of this year, and hoping that we can, optimistic that we can get those down just a little bit from where they're maturing at.

Well, that's a good question. We'll see if we can put some money to work here in the next 30 days, some capital to work. We've continued to buy the stock back. It has been diluted to us to buy it back, as we know. I think your group is running the numbers on that, and also DDNF is running those numbers on that on the buyback yield and give us a better understanding of where we need to be. As of right, we talked about a special dividend to all our shareholders. We actually were looking at how it was seriously considered, and still am seriously considered a special dividend to our shareholders. But let's see what we get bought in the next 30 days here.

And we maybe we'll have, we got about how much cash at the holding company right now?

About 400 million.

400 million. Well that's a comfortable size. Anyway, we've got a few things we've got to pay off. $140 million. $140 million. I thought that paid off July 1, it pays off July 31st, right?

Right.

So we got $140 million to pay off happy sub-debt, and we'll pay that off when that comes up. So we'll probably sit for a little bit, but actually we've got so much capital as it's going to reward our shareholders, and we may do that anyway. It's certainly a thought that's on our mind to do, is to do something with that.

Thank you very much.

Well, we're at $233 million today. That's just about what we're running, right? We're running about $110, $115, $120 million a quarter. So, that's annualized that. That's about where that is. I don't think that's a reach. I think next year is the reach. I think next year is the reach. I mean, we may not get $450 this year. It may be $440 or we may get $460. It depends on what happens between now and the end of the year. But I think $500 million is realistic if we can get some assets under TOT. If we can get our hands on some assets, that's the key. We can't, you know, I guess I said, I was at a bank conference recently and I said, I can't ask our people for any more than a 2% ROI.

And Donna said, yeah, but you do. So, you know, we'll ask for it, but it's not realistic.

It will be reported on this. Yeah. It will be better than that, Brad. I think that was just a round number.

I like what he said. That's the first time I heard him say, he voted for the $420 million budget and I voted against him.

It's a little bit pushed to third quarter. But, you know, production is good. I think a billion won last quarter. Pipeline is still, you know, still like it was.

Hey, Brett, this is Steven. I think the main thought process we communicated in the past. I mean, we still scream to be a little asset sensitive, but I think in the first 25 or 50, whatever it is, down scenario, that gives us certainly some cover to lower deposit rates. You know, we've seen a little bit of sensitivity around, you know, 4% or 3% in some of the, in some of our deposit book and going below there. And so I think, you know, if you see the Fed make a move at some point, it'll, that'll give us the, you know, that'll give us the news and the ability to be able to lower that and hopefully be able to offset, you know, what occurs on the loan side from the variable rates.

You didn't ask this question, but I have to get it out. Our expenses were high this quarter, and they were high because of a lawsuit settlement that we had that had been going on for several years. It was about $3.5 million. Actually, expenses, when you take the one-timers out, according to Stephen, is $111,500,000, and I did the numbers myself, and that's pretty close when you take the one-timers out. So the expenses, don't think the expenses have run off the rails. They haven't run off the rails. So we'll do a better job next week. But that was something that we've been dealing with for years. We dealt with it. And on the expense side, we actually had something offsetting income item there.

We sold a FinTech operation out of Happy Bank that brought us about $3.5 million in pre-tax income in. So anyway, the expenses will be back around the 111-112 mark for the next quarter, should be.

They're not going to cool off here too hot. Kevin told us, we looked at 10-day advanced weather, I'm sure the low is today 96 or something, right Kevin?

Correct.

Hi, John.

Yeah, thanks John. The core NIM excluding event income in June was $447, so it was up a handful of basis points from where the quarter averaged. Some of that was loan yields were up a couple of basis points, deposit costs were flat, and then the investment portfolios performed a little better as of late.

Hey, John, this is Kevin. Yeah, I mean, I think it's been up and down. We'll have a good month of locks and then the next month will not be good. I don't know that there's going to be, until there are some rate drops that get the mortgage rates down below where they are today, I don't know that we're going to see any kind of real positive multi-month trend there.

Steven, I would say we're committed to...

I'm sorry, John.

I was going to say we're committed to the space. We brought a team in DFW area on board kind of late first quarter of this year. They had a good second quarter and are profitable already. So, I mean, I think we'll continue to be in that space and continue to try to grow it the right way.

Yeah, that was the change for this quarter, and that's been on our radar for a solid six months. The arrest process takes quite a while. It takes longer than I would hope, even when it's here in the U. S. And so we think we're in good shape once we're able to do something with it, but right now it's sitting in our possession and working through the legal process. It's a $9 million yacht with less than $5 million pay off on it. So it's just a matter of getting your hands, when you get your hands on it, get it sold.

I will say that the process is about over. The sheriff's office is about to get the The sheriff arrests it, takes it, puts it in, then the judge gives them x number of days to pay us off, and if they don't get us paid off, then we get the vote.

So we're at the point of getting the vote, I think, Kevin.

We're close. It's close.

Hi, Kathryn. How are you?

Yeah, just to make sure to be clear there, what I was mentioning was the 30 million recoveries that we think that we would get over time. I misspoke. Largely, it's a million and a half a quarter. There's a couple of chunks in there. You know, we could get, if one works out this quarter, we could get a million and a half on top of that, but from a recurring standpoint, it's a million and a half a quarter on one of the loans that we charged off.

We have not quit buying back stock, and we probably won't quit if we run into it. I don't see the capital restraints keeping us from doing what we need to do, even if we buy $4, $5, $6, $7 million worth of assets. So I would, we actually, Steve and I talk about it nearly three or four times a week, whether we want to do it or don't want to do it where we are. We have a 10-10 meeting, executive meeting every day, and we cover all those items. So to say we're going to quit buying back, I wouldn't say that. But to say we're going to buy a million, I can't say that. But I'm sure if we'll continue to buy back stock.

You know, I just have this non-dilution idea that I don't want to dilute. We don't dilute, and then we turn around by the stop-back, and we actually dilute ourselves by the stop-back. And I wondered sometimes if that was the right thing for us to do, and we have a couple of companies running that analysis for us as we speak and going to make presentations to us. I want to see that. I really wasn't familiar with the buyback yield. We've seen the buyback yield now. We've started adding it to our chart. It does add incremental kick to our shareholders. But I said to Donna, I said, did you feel that kick last quarter? And she said, no. And I said, well, if I did a big stock dividend, would you feel that kick?

And she said, yeah, I would. So the answer is we'll probably continue to buy back stock unless we need money for an acquisition.

Billion. Did I say million? I'm sorry. Billion. Four to six hundred billion. Oh my goodness. Okay. Four hundred six billion. I mean, we'd buy four hundred million dollars if it was good enough trade for us. It takes a lot of work.

Well, we haven't. It's diluted, right? It's really diluted. Our dollar bill is worth two and a quarter. So, you know, it sure works better to use your currency and do a trade. But we can throw some cash in the deal. We used to throw cash in about every deal we did. We put 10 or 20% cash in. We're not afraid to do that. It does creep right up on the dilution. It gets there pretty quick, doesn't it, Brian?

Yeah, it does.

Thank you. Appreciate your support.

You said hiring plans?

We don't do that. That's not our style. I think that's chicken shit. Pardon my expression. I really do. I don't like that. We've had, I don't know, over the years, seven or eight teams in here, people wanting to walk out of their company. I don't know how you face those CEOs, Michael. We just had them here in our office one time, and I went to a meeting in Dallas, and I walked right into the CEO of the company they were leaving. And just something that bothers me, you take a young loan officer, you bring him up through the ranks, and you help him build his book and his portfolio, and then someone offers him another $200,000 and a bonus, and they walk out the door.

That's not our style. We don't do that. Not to say we won't hire somebody from another company, but that's just not our style. We don't do that. We don't plan on doing it. That's not going to be a focus for us.

Yeah, thanks, Michael. I think it remains to be seen in terms of what kind of opportunities can be. It's a long-term opportunity if it's an opportunity. I think I read the other day I was talking to somebody. They've issued 50 building permits total since then. I find it very hard to believe California will start rebuilding in the near term.

Yep.

No. They're in the $2 to $6 billion range, and they're in our footprint or outside. Does that help you?

It doesn't matter. That's probably what will happen. We'll sign a deal and there will be another one pop right behind it. But if it is a good deal and it works, we'll go ahead with it. Providing regulators will ask us to do that. I assume they will.

Sure.

So, Brian and I were talking before the call. It's about five or six basis points that it will benefit from them.

When it goes away, again, it's going to go away into this month or 1st of August. So, you'll have two-thirds of the benefit this quarter and then the full benefit in Q4. But absent that, I still say pleased with where June ended, but if we can hold in this 445 range and then layer a little benefit from the sub debt, I think we'd be pleased for that in Q3. We talked a little earlier about what you're seeing on loan pricing and some of those things, and we'll see where that goes.

I think we have just short of a billion dollars reprice between now and the end of the year, Stephen.

Yeah, we got a little less than 800 million in loans, fixed rate loans, that mature in the second half of this year. Those are coming off at 546, so there will be an opportunity to get those up some. We've got about a billion one next year that's at 599. So who knows what happens with interest rates between now and then. But certainly in the second half of this year, I think there's an opportunity to get a little extra yield on what's maturing.

Yeah, we had a million three, a little over a million three in legal expenses related to our West Texas lawsuit, and you talked a little bit about that last quarter. I think we had one fairly large invoice in April that was from the prior month. Those invoices have gone down to a nominal number now. So assuming we get that settled in the near future, I would expect those legal expenses go away. And that kind of gets you down into the 111.5 range.

One thing we do need to add back to the number is that we had that special assessment reduction. And so our FDIC number was down $1.5 million.

Yeah, and if you look at where salary expenses landed for Q2, they were a little elevated just from fee income, I will say that we have a lot of time, particularly in CGFG incentive comp and then same on mortgage. Mortgage had a good quarter. So I'm holistically saying that incentive comp was up a similar number to what we had offset from the FDIC credit. Those cancel each other out, there's about $4.5 million that I would not expect to reoccur.

Yes.

Yeah, payoffs this quarter were $756 million, and you're right, there are a handful of those that we expected to occur in Q2 that may slide into early Q3. So, 755, they were about 650 last quarter. And then origination, Kevin mentioned origination volume was about a billion one. Typically about half of that's funded at quarter end.

Gotcha.

Yeah, you're on your own point. That is around 12, and I really was hoping to be able to announce that we had it moved in the second quarter, but it looks like it'll be third quarter. And then we got another one in Oreo that, you know, I don't think it's quite time yet, but we will be, we'll start leasing the apartments this quarter. We will see how that takes off well, then it will generate activity with somebody coming in wanting to buy it. We are making progress.

Yeah, we're comfortable. We're comfortable with, extremely comfortable with reserves. We have an opportunity to build it, we'll build it at some point in time. So I still like a 2% reserve. I just like it, you know, I just always run a 2% reserve. And if I get a chance to build it to 2%, I'll take it to 2%. I just sleep better at night than you should too. I sleep pretty good at 186 to 185.

You bet. Thank you for such your support.

Good quarter. Thanks everybody for your participation. I hope you enjoyed the earnings release. I guess next quarter will be 77. Is that right, Jonathan? Next one will be 77. Bunny? Bunny's in here with us. You got anything to say to the folks? No, just a fantastic quarter. That's what I would say. I can say by behalf of all of the board members, we're very, very, very proud of this group sitting in this room today and all that you've done. Thank you. Appreciate it. Brian?

Yes, sir.

Got anything that you want to say or anything we left out you think we need to cover?

No, I think we pretty much covered it all.

Stephen, anything else?

No, good quarter.

Kevin?

I'm good, sir.

Donna?

Not here.

Not here?

Not here.

All right. Well, we're going to be gone. We'll see you and talk to you in 90 days. Thank you.