Home Bancshares, Inc. Q1 FY2025 earnings call

• Tribute to Pat Hickman, a director and friend who passed away. - Highlighted strong quarterly performance including earnings beat, revenue growth, margin improvement, loan and deposit growth, improved asset quality, and strong capital ratios. - Mentioned the Texas cleanup is mostly done and a $2 million after-tax expense from the Texas lawsuit in Q1, expected to be non-recurring in Q2. - CCFG celebrated 10th anniversary, exited single credit and middle market loans, with commercial real estate book stable and new loan pipeline active.

Earnings were $115.2 million, a record $0.58 per share, with core earnings at $111.9 million ($0.56 per share). Revenue was $260.1 million, up from prior quarters. Net interest margin was 4.44% in Q1, an improvement from 4.39% in Q4 '24 and 4.13% in Q1 '24. Net interest spread improved to 3.69% from 3.58% in December '24. Loans saw community footprint increase $291.5 million, while CCFG declined $103 million, resulting in net loan growth of $187.6 million. Loans were at a record $14.950 billion at March 31, 2025. Deposits increased over $395 million to $17.5 billion. Asset quality improved with nonperforming loans at 0.60% (down from 0.67%) and nonperforming assets at 0.56% (down from 0.63%). Reserve coverage was 312% (up from 278% at year-end). Capital ratios were strong: CET1 at 15.4%, leverage at 13.3%, and total risk base at 19.1%. Tangible book value increased to $13.15 from $11.79 a year ago. Over 1 million shares were purchased in the quarter for stock buyback.

Management expects the next quarter to be as good or better than the first quarter. The run rate as of the same day in Q2 is $1.3 million higher than Q1. They anticipate continued strong performance similar to Q1.

• Uncertain economic times affecting borrower sentiment. - Tariff uncertainty impacting certain industries and projects. - Competition affecting deposit pricing and margin. - Potential impact of interest rate cuts on margin sensitivity.

Q: Hey, good afternoon, guys. Thanks for taking my questions. Really solid quarter kind of all around. But I wanted to get a sense from you guys. Obviously, this quarter's growth was strong. But just in general, what you're hearing from your customers, I think, an increasing number of banks are just citing some tepidness from borrowers. And I specifically wanted to ask about the boat lending and if there's been any drop-off in demand there and maybe just where pipelines are. Just a general color on what your borrowers, what you're hearing and seeing from your borrowers just given some of the uncertainty out there?

A: Hey, Michael, this is Kevin. Go ahead, John. Talk about [indiscernible] and I'll talk in general. Yeah. No, just because Michael had mentioned the boat loans specifically. Michael, what we've seen, I guess, in the first quarter is elevated volume compared to 1Q of '24 and been a large part of that because one of our European manufacturers, a significant relationship of ours has been offering to subsidize the pricing, and so that has tended to elevate the production volume, and that has largely masked, I guess, some of the uncertainty around the tariffs. But, Kevin, do you want to speak in general? Yeah, Michael, from a community bank footprint, I think what you stated is what we're hearing from a lot of people too. I mean there's some uncertainty, obviously, over what's happened last month, and that may keep some projects that maybe are kind of in the development stage and the planning stage. It may slow some of those down. I mean, still a lot of good things happening in our core markets. So, I'm hopeful that, that will be short term, but still a lot of activity and a lot of good things happening.

Q: Thanks, good afternoon. Johnny, you mentioned about expenses, and there were still about $2 million in elevated legal expenses that had to do with the Texas lawsuit, and that would hopefully not be recurring next quarter. So do you think excluding now, we actually see expenses come down from this level? Or that just kind of pays for natural growth over the next couple of quarters?

A: $111 million is our number and you pull the $2 million out of expenses this quarter, you'll be at $110 million, $109 million. So you're right at $111 million. So our management team is working hard to keep that. And I'm not going to -- I didn't fuss that in this quarter because we had elevated legal expenses. We're in the middle of depositions on that lawsuit, they went on all month long. Anyway, that -- maybe that it appears that there's a resolution that's come to that, and maybe everybody will continue. We have -- everybody hasn't signed off, but we're working towards that. So -- the $111 million is a good number. I think that's the number we had last year and we're still operating with it this year. So I'm pretty pleased with Stephen's management on the expense side. Don't count any coming down any farther than that.

Q: Thanks, good afternoon. Jon, what are you thinking on the buyback and capital preferences from here? You would still you still prefer kind of looking around for M&A? Or do you think at this point, you'd rather be buying back stock?

A: If we found the right deal, we’d do one. We've got -- we have a payoff coming up, looks like, Brian, do you want to talk about what we are coming at? Sure. We probably will pay off some sub debt. Sub debt that we acquired from Happy. It will be about $140 million. It's currently about 5.5%. But unfortunately, it pops to 9.7% on July 1. So our plan is to try to get Board approval later this afternoon to pay that off on the July 31. That will lower our risk-based capital ratio is about 76 basis points once we do that. Yeah, it [Technical Difficulty] about 9.5%. So we're not going to pay that. So we'll pay it off. We got the cash to pay if off. We’ll just pay it off. Yeah. And we've got almost $582 million in cash at the holding company. So we're good there. And we're very strong on capital, so I’m good with paying it down. It is getting -- capital count is getting large. I think Jamie Dimon said it best. There's nothing wrong with having good liquidity and lots of capital in these kind of uncertain times. So, I like our position. I like the fact that we can pay out all the insured depositors. I like having Worchester Capital. We don't know what's going to happen. We don't know where this is going. I understand what he's trying to do. I don't know if it works. But anyway, we're going to all be in this for a little bit until it gets resolved one way or the other. This be in good shape, we come out the other side and ready to deploy. Okay. Fair enough. So pay down debt and maybe pick away at the buyback is the near-term message. Is that fair? Yeah, we'll continue to buy. I wish -- we've always filed the 10b-5. We picked up about 480,000 shares this 10b-5. About 1 million last quarter and this quarter. So we picked up about 454,000 shares. And I assume we'll probably buy another -- if they stay down here, we'll continue to buy. We'll just continue to stack it up. We -- I didn't think we get another bite at the apple here, but we're getting a pretty nice bite at the apple. So I think we'll just keep buying for a while.