Home Bancshares, Inc. Q2 FY2025 earnings call

Company Development: Since going public in June 2006, Home Bancshares has grown from $22 million in total assets, 5 employees, and one office to almost $23 billion in assets, 2,600 employees, and 217 banking offices in five states. Pretax income has grown from $400,000 to over $400 million after-tax. ### Core Bank Performance: Second quarter was a strong performance with strong revenue and stable core expense trends, adjusted return on assets of 2.02% and adjusted efficiency ratio of 42.01%. Reported net interest margin was 4.44%, core margin excluding event income was 4.43%. ### Loan Portfolio: Recovered a total of $3 million in Q2, on track to achieve expected $30 million in total recoveries over time. Solid loan growth split evenly between CCFG and the Community Bank. ### CCFG Update: Uptick in originations for Q2 led portfolio growth, closed approximately $500 million in new commitments for the quarter, year-to-date total over $800 million, portfolio grew by about $122 million during the quarter. ### Stock Buybacks and Dividends: Continued to buy back shares, introduced buyback yield, paid $0.20 per share for quarterly dividends. Over the last 8 years, bought back $520 million of stock. ### M&A Plans: Looking for about $450 million in income this year and $0.5 billion next year, presently looking at several opportunities and hope to announce before next quarter's report.

In the second quarter, non-GAAP earnings were $118.4 million or $0.60 earnings per share, with a return on assets of 2.08%. Non-GAAP return on tangible common equity (ROTCE) was 18.26% and GAAP ROTCE was 17.68%. Loan loss reserve remained strong at 1.86%. Tier 1 capital continued to build at 15.6%, leverage ratio at 13.4%, and total risk-based capital of 19.3%. For CCFG, in Q2, approximately $500 million in new commitments were closed, bringing the year-to-date total to just over $800 million. The portfolio grew by about $122 million during the quarter, taking the total over $1.8 billion.

Earnings Growth: First 6 months of 2025 had non-GAAP earnings up a little over 15% compared to last year. ### Income Targets: Hoping for about $450 million in income this year and $0.5 billion next year. ### M&A Timeline: Presently looking at several opportunities and aim to announce an acquisition before the next quarter's report. ### Quarter Expectation: Expect the third quarter to be about like the first and second quarters, with potential for extra income.

Interest Rate Risk: Concerns about rapid drop in interest rates which could screw up the situation. ### Litigation Risk: High expenses this quarter due to a lawsuit settlement that had been going on for several years, about $3.5 million. ### M&A Integration Risk: Risk associated with integrating acquired assets successfully, including potential dilution if not managed properly.

Q: First question comes from Stephen Scouten with Piper Sandler about loan growth.

A: Kevin Hester said they take what the market gives, in good markets and CCFG's group contributes, but competition is a challenge.

Q: Stephen Scouten asked about M&A size opportunities.

A: John Allison said looking for accretive deals in the $2 billion to $6 billion range in the US, not likely whole bank deals on subsidiary operations or loans currently.

Q: Matthew Olney with Stephens asked about deposit pricing and buyback appetite.

A: John Stephen Tipton said deposit pricing is negotiated well, and John Allison said they'll see about capital to work and consider special dividends.

Q: Brett Rabatin with Hovde Group asked about loan volumes, margin impact of Fed cut.

A: Kevin Hester said pipeline is still strong, John Stephen Tipton said asset sensitive and can lower deposit rates if Fed cuts.

Q: Jon Arfstrom with RBC asked about margin and mortgage banking.

A: John Stephen Tipton said core NIM in June was 4.47%, Kevin Hester said mortgage banking up and down without rate drops.

Q: Catherine Mealor with KBW asked about credit recoveries and buyback.

A: Kevin Hester said recoveries are about $1.5 million a quarter, John Allison said they'll continue buybacks unless need money for acquisition.

Q: Michael Rose with Raymond James asked about hiring plans.

A: John Allison said they don't do hiring plans of lenders as it's not their style.

Q: Brian Martin with Janney Montgomery asked about M&A sizing, margin impact of sub debt, etc.

A: John Allison said M&A in $2 - $6 billion range, John Stephen Tipton said sub debt benefits NIM, and Brian S. Davis talked about expense reconciling.