Home Bancshares (Conway, AR) - Earnings Call - Q2 2025

Executive Summary

• HOMB delivered record net income of $118.4M and diluted EPS of $0.60; net revenue rose to $271.0M, with core efficiency ratio improving to 42.01%.
• Results beat Wall Street: EPS $0.60 vs $0.567 consensus (+$0.03) and revenue $266.8M–$271.0M vs $262.6M consensus (+$4.2M–$8.4M); beat driven by higher loan income and stable deposit costs*.
• Management guided that Q3 should look similar to Q1–Q2; core NIM trended up to 4.47% in June, and sub-debt payoff should add ~5–6 bps to core NIM starting late Q3.
• Capital return remains active: 1.0M shares repurchased in Q2 (0.49% buyback yield) and dividend raised to $0.20; Board subsequently declared another $0.20 dividend for Q3.

What Went Well and What Went Wrong

• What Went Well

  • Record EPS ($0.60), net income ($118.4M), and book/tangible book per share; ROTCE 18.26% with adjusted ROTCE 17.68%.
  • Core margin stability/uptick: NIM 4.44% (flat Q/Q), core margin 4.43% in Q2 and 4.47% in June; ROA 2.08% with adjusted ROA 2.02%.
  • Organic loan growth: +$228.5M total, split community bank +$106.8M and CCFG +$121.7M; CCFG portfolio at $1.83B.

• What Went Wrong

  • Non-performing metrics ticked up: NPLs to total loans 0.63% (from 0.60%) and NPAs to total assets 0.60% (from 0.56%) due in part to a large yacht non-accrual in Shore Premier Finance.
  • Elevated legal costs: $3.3M legal claims expense in Q2 related to a settlement; management noted reported expenses included one-timers and sees normalized run-rate ~$111–$112M next quarter.
  • Competition pressuring loan/deposit pricing; some peers “loaned into rate cuts,” elevating payoffs and requiring disciplined pricing across footprint.

Transcript

Speaker 2

Greetings ladies and gentlemen. Welcome to the Home BancShares Inc. second 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, then entertain questions. Please note that if you would like to ask a question during the question and answer session, please press Star then one on your touchtone phone. If you decide you want to withdraw your question, please press Star then two to remove yourself from the list. The company has asked me to remind everyone to refer to their cautionary note regarding the 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 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 J. Townsell, Director of Investor Relations.

Speaker 1

Thank you. Good afternoon and welcome to our second quarter conference call. With me for today's discussion is our Chairman John W. Allison, John Stephen Tipton, Chief Executive Officer of Centennial Bank, Kevin D. Hester, President and Chief Lending Officer Brian S. Davis, our Chief Financial Officer Christopher C. Poulton, President of Centennial Commercial Finance Group, and Scott Walter of Shore Premier Finance. Opening remarks today will be from our Chairman John W. Allison.

Speaker 3

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 2006. I have to say that we've come a long way since June of 2006 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 Inc.'s 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 banks. For that, Buddy thanks 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 back sales I recall to number 64 in total asset size U.S. wide. With our $5.9 billion New York Stock Exchange market cap, our company ranks number 35 in the U.S. 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 $119.4 million or $0.60 earnings per share producing a return on assets of 2.08% versus last quarter $115.2 million in earnings producing a 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 return on tangible common equity was 18.26% and 17.68%.

GAAP return on tangible common equity loan 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 cashable common equity. That performance displays the earnings power of your company. We continue to add more strength to our already fortressed balance sheet. As we say, strength is no accident and you never know when you're going to use it. 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. That's 2 million shares so far this year. We introduced for the first time the buyback yield. That's an incremental increase in value for each individual shareholder based on the reduction in the number of shares. In addition to that, paying $0.20 per share for quarterly dividends to reward our shareholders. Over the last eight years, we have bought back $520 million of our stock, approximately 22 million shares at an average value of $22.60, while at the same time continuing 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. That certainly is a record income for this company.

Last year at this time, I think we were around $201 million in non-GAAP and $203 million in GAAP. 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 income, and next year I kind of had targeted half a billion. That just rings the bell with me. They used the term $500 million. Half a billion. Kind of rings a bell for 2026. 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 a positive direction.

The intention is to hopefully have an announcement before the next quarter's report. Back to you, Ms. Dunmond.

Speaker 1

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

Speaker 3

Thanks, Donna.

Speaker 6

As Johnny mentioned, the second quarter was another strong performance by Home BancShares Inc. 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 the prior quarter, even with the 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. We were 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. 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, Alabama, and Florida. In our other business lines, the trust, wealth management, and mortgage divisions continue to improve and show meaningful additions to the bottom line. I'd like to thank our Regional Division Presidents and all of our bankers on another great quarter. With that, I'll turn it back over to you.

Speaker 1

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

Speaker 3

Thanks, Donna.

Speaker 4

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 total recoveries over time. One large non-accrual loan from that group remains very close to being resolved in a positive manner. 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 non-performing loans 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 Centennial Commercial Finance Group and the community bank complete the results.

Speaker 3

Of another impressive quarter.

Speaker 0

Donna, I'll give it back to you.

Speaker 1

Thank you, Kevin. Chris Poulton will provide an update on Centennial Commercial Finance Group.

Speaker 0

Thank you, Donna. Good afternoon. Uptick in originations for Q2 led to portfolio growth for CCFG 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 us in plus territory for year to date as well. Our unfunded commitments are approximately $1 billion, which has been fairly consistent over the past year. As we look forward, we may see an uptick in payoffs during Q3, but ultimately we expect the portfolio to be stable to up over time. Donna, that concludes my brief update from CCFG.

Speaker 1

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

Speaker 3

I feel like we need to have a Slurpee. We haven't had a Slurpee. We've had two record quarters back to back.

Speaker 6

And.

Speaker 3

Who was it?

Speaker 1

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

Speaker 3

GoFundMe and Slurpee. Who did that?

Speaker 1

I believe that was Michael Edward Rose.

Speaker 3

I believe it was Michael Edward Rose.

Speaker 1

Challenge extended.

Speaker 3

It was a great, great start to the year. The first six months are outstanding, so I'm pretty pleased with what's going on. I suspect that the third quarter will be about like the first and second quarters. We've kind of had to wind our back, had a little extra income in both the first and the second quarters.

Speaker 5

We got a shot at having.

Speaker 3

Some extra income in the third quarter here too. Hopefully we'll continue to keep it strong till we find something else. We need to find something that makes sense, transport that's in our marketplace or close to our marketplace. We can be added to the EPS of this company. Anyway, we're working on that and I guess we're ready for Q&A.

Speaker 2

Thank you for our Q and A. If you would like to ask a question, please press Star followed by one on your telephone keypad. If you would like to withdraw your question, please press Star followed by two. When preparing to ask your question, please ensure your device is unmuted locally. First question comes from Stephen Kendall Scouten with Piper Sandler. Your line is open. Please go ahead.

Speaker 3

Hey, good afternoon everyone.

Speaker 4

I wanted to start around loan growth. Another really nice quarter, both Centennial Commercial Finance Group here.

Speaker 3

The community bank.

Speaker 0

Year to date, this is, it seems like the best organic loan growth you guys have had, really.

Speaker 3

As long as I can remember.

Speaker 4

I'm just wondering what you're.

Speaker 0

Seeing from your customer base, if there's.

Speaker 4

Been in kind of an increase in.

Speaker 0

Aggressiveness to drive that new loan growth or really what might be driving the success there.

Speaker 4

Hey Stephen, this is Kevin.

Speaker 3

I mean, Johnny says we take.

Speaker 4

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. That's made it a challenge really across our footprint. All of our presidents are talking about that. That's a challenge. We just had some, 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, while we're in those markets.

Speaker 3

We had loan committee yesterday, and we had almost $100 million project, a couple of $30 million projects. It was a pretty good loan committee. If there weren't many loans, it was a lot of big loans yesterday we've been working on for some time. They just come into fruition, so we're seeing that. 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. The real truth is anybody give it away. I'm not sure this is over yet. I mean, if I think we're banking on Trump and Powell having a drink together or something and Lord Wright. That may happen, it may not happen. What we don't need to happen, that happened if we take rates.

President Trump, who I'm, 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. 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 could really kind of screw things up.

Speaker 0

Yep, makes sense. Maybe going to the M&A.

Speaker 4

A side of things, obviously we've seen some more deals in Texas as of late. You noted earlier that you guys are looking at a few things currently.

Speaker 0

I'm curious if you could give.

Speaker 4

Give us an idea of what size.

Speaker 3

Opportunities you might be targeting here in the near term.

Speaker 0

Would there be anything that.

Speaker 3

You all would pursue right now, similar.

Speaker 0

To CCFG or Marine, where.

Speaker 4

You're acquiring loan assets versus a whole bank deal?

Speaker 3

Probably not on the whole bank deal. We're really looking for a whole bank. Probably not on the subsidiary operation or loans. We're probably not. Not that we wouldn't do it, we just hadn't seen it. If we saw it, Kevin, look at it and let us know. We are pursuing a couple of banks that 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 can't run, call it GAAP or non-GAAP 2.02% to 2.08% ROA. You can't ask for much more than that out of your people. We've about milked all we can get out of this turnip. It's time to find something else for us to buy and we're on the path. It just has to be accretive, creative accretive. Makes sense.

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. Or we're one of. We're not the only one. There's more than us. I don't know if that answers your question or not. It does. You kind of led to my last question, just with the way the math works today with, with.

Speaker 4

The marks and the interest rate.

Speaker 0

Marks, do you think you can?

Speaker 3

Get a triple accretive deal still at this time, or do you have to.

Speaker 0

You know, take a de minimis amount of dilution to get something across the finish line?

Speaker 3

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. Nobody got any appreciation out of that trade. You go back and look at those serial diluters five and 10 years back. I just started looking one day at those that beat us on some bids.

Speaker 5

Back in those days.

Speaker 3

Actually, this one is at the same price it was 10 years ago. It was $1.50 down. Bank stocks 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.

Speaker 6

And.

Speaker 3

I mean, would I do six month dilution? Maybe if it's the right deal that was EPS accretive, maybe. To go out and dilute myself, I mean, some of these people bought some of these deals that we turned down. We saw some of those deals and we turned down, and we saw Veritex. Veritex, Veritex, Veritex, Veritex got a nice deal with a good company. That's a nice trade for them. I congratulated them on that trade. We were not on that track. 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 at how we got outbid on these deals five, six, seven, eight years ago and the stock's less today than it was then, that are still paying the same dividend, then nobody got anything. You know, that's the problem.

Do a 4 year earn back to tangible.

Speaker 4

Yeah, I think I know the deal.

Speaker 0

You're talking about in Florida right there.

Speaker 3

I think I remember the one you're talking about there. I think that's why your stock trades where it does, Johnny. I appreciate all the thanks for the time. Thank you for appreciating our patience and our holding power.

Speaker 2

We now turn to Matt Olney with Stephens. Your line is open. Please go.

Speaker 5

Hey guys, thanks for taking the question. Probably for Tipton. Want to ask about deposit pricing in the footprint.

Speaker 0

Saw some good results in 2Q.

Speaker 5

Just curious what you're seeing as far as deposit pricing. Any incremental pressure you saw during the course of 2Q, and some of your peers have talked about seeing potentially some higher deposit cost in the.

Speaker 0

Third quarter or at least until the.

Speaker 5

Fed makes its next move. Just curious what you're seeing with respect to deposit cost competition in the footprint.

Speaker 6

Yeah. Hey, good afternoon. About the same as we talked about in the first quarter. 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. Our folks negotiate against those well, and we're able to price them slightly lower than what some of the competition's doing. We've got a decent amount, about $1.1 billion 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.

Speaker 5

Okay, appreciate that, Steven. I guess the other question is more for Johnny. Johnny, you mentioned that buyback yield in the press release and the prepared remarks. Just curious about your thoughts on the buyback and the million share pace that you mentioned in 1Q 2Q, just trying to appreciate if you still have a similar appetite for that pace even at these current valuations.

Speaker 3

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, having the, we've continued to buy the stock back. It has been dilutive to us to buy it back as we know we've had.

Speaker 2

We have.

Speaker 3

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, I was seriously considered and still am seriously considered a special dividend to our shareholders. Let's see what we get bought in the next 30 days here and maybe we'll have. We got about how much cash at the holding company right now?

Speaker 0

About $400 million.

Speaker 3

$400 million. That is a comfortable side of it.

Speaker 5

Anyway.

Speaker 3

We've got a few things we got to pay off.

Speaker 0

140 million.

Speaker 3

$140 million. I thought that paid off July 1st. It pays off July 31st. Right, right. We got $140 million on to pay off happy sub-debt, and we'll pay that off when that comes up. We'll probably sit for a little bit. Actually, we've got so much capital at Home BancShares Inc. we'll reward our shareholders, and we might do that anyway. Certainly, a thought that's on our mind is to do something with that.

Speaker 2

Perfect.

Speaker 5

Okay, thanks, guys. Great quarter.

Speaker 3

Thank you very much.

Speaker 2

Our next question comes from Brett D. Rabatin with Hovde Group. Your line is open. Please go ahead.

Speaker 3

Excuse me.

Speaker 6

Hey, guys.

Speaker 3

Good afternoon. Wanted to, I guess, first, Johnny, you.

Speaker 0

Mentioned $450 million this year and $500 million next year.

Speaker 3

You know, are those just kind of round numbers?

Speaker 0

Because that would imply a bit of.

Speaker 5

Net income atrophy in the back half of this year.

Speaker 3

We're $233 million today. We ought to. That's just about what we're running, right? We're running about $110, $115, $120 million a quarter. 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's the reach. I mean, we may not get $450 million this year. Maybe $440 million or may get $460 million, depends on what happens between now and the end of the year. I think $500 million is realistic if we can get some assets under tow. If we can get our hands on some assets, that's the key. 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. Donna said, yeah, but you do. You know, we'll ask for it, but it's not realistic.

Speaker 0

Yeah, is that $450, is that on reported or the core earnings?

Speaker 3

Be reported earnings? Yeah, shareholders.

Speaker 0

Okay.

Speaker 6

It'll be better than that, Brett. I think that was just a round number.

Speaker 5

Okay.

Speaker 3

Did you hear that? I like what he said. First time I heard him, he voted for the $420 million budget and I voted against him. Stand back.

Speaker 0

It sounds like the loans, you know, loan volumes are still strong but you're expecting some payoffs in 3Q. Any color on the pipeline, you know, relative to 1Q and then just what the production was this quarter.

Speaker 4

Hey Brett, this is Kevin. The pipeline is still pretty strong. You are right. We had a couple of things that we thought would probably pay off in the second quarter, moved into third quarter. Last quarter I was saying we had an uphill climb because of what we saw coming. Payoffs a little bit pushed to third quarter, but production is good. I think $1 billion last quarter. Pipeline is still, you know, still like it was.

Speaker 2

Okay.

Speaker 0

Maybe just last one around.

Speaker 5

The margin, you know, and if the.

Speaker 0

Fed does cut in September, perhaps, how do you guys think about the impact to your margin?

Speaker 6

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

Speaker 3

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. Actual expenses when you take the one-timers out, according to Stephen, is $111,500,000. I did the numbers myself, and that's pretty close when you take the one-timers out. Don't think expenses have run off the rails. They haven't run off the rails. We'll do a better job next quarter, but that was something that had been brewing we've been dealing with for years. We dealt with it on the expense side, but we also had an offsetting income item there. We sold a Fintech operation out of Happy Bank that brought us about $3.5 million in pre-tax income.

Anyway, the expenses will be back around the $111 million, $112 million mark for the next quarter. Should be.

Speaker 2

Okay.

Speaker 0

Good to hear. Congrats on the quarter and hope things cool off a little bit in Arkansas.

Speaker 3

They're not going to cool off here.

Speaker 2

Too hot.

Speaker 3

Kevin told us while we looked in 10-day advanced weather, the low is today 96 or something. Right, Kevin? That's correct.

Speaker 2

We now turn to John Glenn Arfstrom with RBC. Your line is open. Please go ahead.

Speaker 3

Hey thanks.

Speaker 0

Good afternoon, everyone.

Speaker 2

Hi John.

Speaker 0

Hey Stephen, maybe for you just to clean up on the margin. In your prepared comments, you talked about being optimistic about the June margin. Can you give us a little bit more detail on that? It seems to indicate you think it's going to step up, just curious your thoughts on that.

Speaker 6

Yeah, yeah, so thanks, John. The core NIM excluding event income in June was 4.47, 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.

Speaker 0

Okay, very helpful on that. Just a couple more smaller ones. Can you talk a little bit about the mortgage banking outlook? I know it's a small line item, but maybe it's symbolic of a little better activity in some of your footprints and some of your footprints on housing. Can you talk about that a little bit?

Speaker 4

Hey John, this is Kevin. 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. This is Stephen.

Speaker 3

I would say we're committed.

Speaker 0

I'm sorry, John.

Speaker 6

I was going to say we're committed to the space. We brought a team in the DFW area on board kind of late first quarter.

Speaker 3

Of this year, they had a good.

Speaker 6

Second quarter and are profitable already. I think we'll continue to be in that space and continue to try to grow it the right way.

Speaker 2

Okay. Okay.

Speaker 0

A small one on Shore Premier Finance. I know you mentioned the yacht. Is there anything else in there? Is that really substantially all of the change in non-accrual loans?

Speaker 4

Yeah, that was the change for this quarter. That has 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 we think we're in good shape once we're able to do something with it. Right now it's sitting in our possession and working through the legal process.

Speaker 3

It's a $9 million yacht with less than $5 million payoff on it. It's just a matter of getting your hands. When you get your hands on it, get it sold. There's not a loss. There's not a loss in this. All right, maybe if it brings $5 million, we got legal fees, maybe some. There should not be a loss. Let me say that just the process we anticipate to take it, the process just continues on. I think we're about to get. The process is about over.

Speaker 6

Right?

Speaker 3

The sheriff arrests it, takes it, puts it in. The judge gives them X number of days to pay us off and they don't get us paid off. We get the boat. We're at the point of getting the boat.

Speaker 6

I think.

Speaker 3

Kevin, we're close.

Speaker 6

It's close.

Speaker 3

Okay.

Speaker 6

Okay.

Speaker 3

All right.

Speaker 0

Thanks a lot, Ms. Judd.

Speaker 3

Thank you.

Speaker 2

We now turn to Catherine Fitzhugh Summerson Mealor with KBW. Your line is open. Please go ahead.

Speaker 1

Thanks. Good afternoon.

Speaker 0

Hi, Katherine.

Speaker 6

How are you?

Speaker 1

Most of my questions, I am great. You had a really nice quarter and most of my questions were asked and answered, but one follow-up is just on credit. You mentioned you still have about $30 million leftover of charge-offs just from the Texas cleanup a few quarters ago. Any update on the cadence of that $30 million, of how we should see that come through over time?

Speaker 4

Yeah, just to make sure to be clear there, what I was mentioning was the $30 million recoveries that we think that we.

Speaker 1

I meant recoveries. Excuse me, yes, I misspoke.

Speaker 6

Yeah.

Speaker 3

That largely.

Speaker 4

Largely, it's $1.5 million a quarter.

Speaker 3

There's.

Speaker 4

are a couple of chunks in there we could get. If one works out this quarter, we could get $1.5 million on top of that. From a recurring standpoint, it's $1.5 million a quarter on one of the loans that we charged off.

Speaker 1

Okay, great. Maybe just one more back on the buyback. I mean, you've been really active in lieu of not having any M&A in the past few quarters. Is it fair to assume that that pulls back if you do announce the deal that you're looking at this quarter? That we probably pull back on the buyback for a period of time, just depending on what that looks like. Do you think you're, you're outside of when you're not able to buy back stock just with a deal pending, you're just going to be continually buying back stock, kind of alongside M&A.

Speaker 3

We have not quit buying back stock and we probably won't quit if we run into, if we see. I don't see the capital restraints keeping us from doing what we need to do, even if we buy $4 billion, $5 billion, $6 billion, $7 billion worth of assets. 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 executive meeting every day and we cover all those items. To say we're going to put mine back, I wouldn't say that. To say we're going to buy a million, I can't say that. I'm sure we'll continue to buy back stock. I have this non dilution idea that I don't want to dilute.

We don't dilute, and then we turn around by the stock market, we actually dilute ourselves buying a stock back. I wonder sometimes if that was the right thing for us to do. 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 started adding it to our chart. It does add incremental check to our shareholders. I said to Donna, I said, did you feel that kick last quarter? She said no. I said, if I did a big stock dividend, would you feel that kick? She said, yeah, I would. The answer is we'll probably continue to buy back stock unless we need money for an acquisition.

Speaker 1

That makes sense, especially given your capital. If you're saying you're looking at deals, did you say you're looking at adding $400 million to $700 million in assets? That's just as small given your capital levels. Certainly, you'll have plenty of capital still unless you do multiple deals, right?

Speaker 3

Oh, did I say billion? I didn't say, did I say million? I'm sorry, billion. Four to $600 billion. Oh, my goodness.

Speaker 1

Okay, good.

Speaker 3

billion to $6 billion.

Speaker 2

Sorry.

Speaker 3

I mean, we'd buy. We'd buy $400 million worth. It was a good enough trade for us. It takes a lot of work.

Speaker 1

You're also not the kind that would issue cash with an acquisition, right? It's always stock for stock, given your currency.

Speaker 3

Cash in an acquisition, would you do cash? We haven't done it. It gets dilutive, right? Gets really dilutive, right? Our dollar bill's worth $2.25. You know, it sure works better to use your currency and do a trade. We 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?

Speaker 0

Yeah, it does.

Speaker 1

Great. Thank you so much. Great quarter. Looking to see what you've got for us over the next few months.

Speaker 3

Thank you for Statistics 4.

Speaker 2

As another reminder, if you'd like to ask a question, please press star one on the telephone keypad now. We now turn to Michael Edward Rose with Raymond James. Your line is open. Please go ahead. Hey, thanks.

Speaker 0

Good afternoon, everyone. Just a question on, you know, hiring. We've seen a lot of banks disclose, you know, hiring plans, some formal, some informal. Just wanted to get a sense from you guys what the hiring plans were for you. If you plan to accelerate, then, you know, I know the expense run rate will come down next quarter, what you said earlier, but, you know, is there an opportunity here? Is it a little too rich for what you guys are looking at at this point?

Speaker 6

Thanks.

Speaker 3

Saying hiring plan. We don't. We don't.

Speaker 0

Yes, hiring of lenders is what I was referring to.

Speaker 3

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. Some of them. I don't know how you face those CEOs, Michael. I walk in, 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. 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.

Speaker 0

All right, then maybe just one more separately. Maybe for Chris. Obviously devastating, what happened out in California. You guys have an office out there. There's going to be some rebuilding. How much of an opportunity is that for you all? Is that something that we should consider as we're thinking about growth potential over the next couple years? Thanks. Yeah, thanks, Michael. I think it remains to be seen in terms of what kind of opportunity it 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. All right, thanks for taking my questions. Yep.

Speaker 2

We now turn to Brian Joseph Martin with Janney Montgomery. Your line is open. Please go ahead.

Speaker 5

Hey, good afternoon.

Speaker 3

Good afternoon.

Speaker 5

Maybe. Hey, John.

Speaker 3

Maybe just one.

Speaker 5

Back on the M&A, I think last quarter you talked about maybe preferring some smaller deals as opposed to bigger deals. Depending on what's available and what you're looking at, I mean, any change in your outlook or just thoughts on the sizing of things you're looking at near term here, what they look like or geographically. Any little bit more color on that?

Speaker 6

No.

Speaker 3

They're in the $2 billion to $6 billion range, and they're in our footprint or outside. Does that help you?

Speaker 4

Yeah.

Speaker 5

Is $2 to $6 billion in the U.S., and your preference in terms of multiple, multiple deals versus one deal, is it any preference there still in terms of how you're thinking about that?

Speaker 3

It doesn't matter.

Speaker 4

You know.

Speaker 3

That's probably what will happen. We'll sign up a deal, and then there'll be another one pop right behind it. If it is a good deal and it works, we'll go ahead with it, providing regulators will do that. I assume they will.

Speaker 5

Gotcha. Okay, that's fine. How about just one for Stephen on the margin?

Speaker 6

Steven?

Speaker 5

I think it sounds like the margin, you know, I guess where it exited versus where it's at today. It's up a little bit this quarter to date. On top of that, you've also got the sub-debt coming off, I guess. Just the benefit, I mean, is your expectation then, I guess, what's the impact of that sub-debt on the margin as you get into 3Q?

Speaker 6

Sure. Brian and I were talking before the call. It's about five or six basis points that it will benefit the core NIM when it goes away. Again, it's going to go away end of this month or first of August. You'll have 2/3 of the benefit this quarter and then the full benefit in Q4. You know, absent that, I still say, you know, pleased with where June ended. If we can hold in this 4.45% 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.

Speaker 4

We'll see where that goes.

Speaker 6

Very pleased with.

Speaker 3

I think we have just short of $1 billion, root price, between now and the end of the year. Stephen? $800 million.

Speaker 6

Yeah, we got it.

Speaker 5

A little less than.

Speaker 6

$800 million in loans, fixed rate loans that mature in the second half of this year. Those are coming off at 5.46%. There'll be an opportunity to get those up some. We've got about $1.1 billion next year that's at 5.99%. Who knows what happens with interest rates between now and then. Certainly in the second half of this year I think there's an opportunity to get a little extra yield on what's maturing.

Speaker 5

Gotcha. Okay, that's perfect. I was going to ask on the loan yield, so that's something you addressed. Just on the, I think Johnny said or, yeah, I think Johnny on the expense number, you know, the core number just in reconciling to that $111 million. I guess when you get down kind of that level this quarter, Stephen, what outside of the $3.3 million, you know, if you're $116 million in reported expenses, absent the $3.3 million, you know, what else comes out of that to kind of get down to that $111 million-ish type of number? It's more core.

Speaker 6

Yeah, we had $1.3 million, a little over $1.3 million in legal expenses related to our West Texas lawsuit. 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. Assuming we get that settled in the near future, I would expect those legal expenses to go away. That kind of gets you down into the $111.5 million range.

Speaker 3

One thing we do need to add.

Speaker 0

Back to the number is that we had that special assessment reduction. That was our FDIC number was down $1.5 million.

Speaker 6

Yeah.

Speaker 5

If you look at, if you.

Speaker 6

Look at where salary expenses landed for Q2. They were a little elevated just from fee income, particularly at Centennial Commercial Finance Group incentive comp. Kind of same on mortgage. Mortgage had a good quarter. 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.

Speaker 5

Okay. The extra that's in there is in the salary line, and that's how to think about that.

Speaker 0

Get to the core number.

Speaker 4

Yep.

Speaker 5

Okay. Stephen, I think last quarter, and maybe Kevin talked about this, but the payoffs versus originations, you guys had expected some payoffs. It sounds like those are going to roll into the next quarter. What were the payoffs and the originations this quarter?

Speaker 6

Payoffs this quarter were $756 million. You're right, there are a handful of those that we expected to occur in Q2 that may slide into early Q3. $755 million. They were about $650 million last quarter. Origination, Kevin mentioned origination volume was about $1.1 billion. Typically, about half of that's funded at quarter end.

Speaker 5

Gotcha.

Speaker 2

Okay.

Speaker 5

Maybe just one for Kevin on the credit quality. It sounds like the expectation was that the credit, I guess there was maybe one large credit I thought was going to come off or maybe a couple that were going to come off this quarter. Is that the one you're referring to? At least when we think about third quarter, what the improvement that was expected this quarter.

Speaker 0

Would you.

Speaker 5

Are you suggesting that that's likely in? I thought it was in the $10 million or $12 million range, that maybe we see that type of improvement in non-performing loans in the third quarter here, or just some benefit there?

Speaker 4

Yeah, you're on point. It is around 12, and I really was hoping to be able to announce that we had it moved in second quarter, but it looks like it'll be third quarter. 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'll see how that goes. If that takes off, it'll generate activity with somebody coming in, wanting to buy it. We're making progress.

Speaker 5

Gotcha. Okay. The reserve level drifted down a little bit this quarter. This level is where you're comfortable for now, and it just kind of hangs around where it's at. Is that how you're thinking about it, given the current credit outlook?

Speaker 3

Yeah, we're comfortable. We're comfortable with, extremely comfortable with reserve. We had an opportunity.

Speaker 4

will build it.

Speaker 3

We'll build it at some point in time. I still like a 2% reserve. I just like it, you know, I just always run a 2% reserve. If I get a chance to build it to 2%, I'll take it to 2%. I just sleep better at night. You should, too. I sleep pretty good, if it makes sense, to 1.89%.

Speaker 5

All right, I congratulate you on the quarter and thanks for taking the questions, guys.

Speaker 0

You bet.

Speaker 4

Thank you.

Speaker 3

Appreciate your support.

Speaker 2

This concludes our Q&A. I'll now hand back to Mr. Allison for any final remarks.

Speaker 3

Good quarter. Thanks everybody for your participation. I hope you enjoyed the earnings release. I guess next quarter will be 77. Is that right, Donna? Next one will be 77.

Speaker 5

So.

Speaker 3

Bunny, Bunny's in here with us. You got anything to say to the folks? No, just fantastic quarter. That's what I would say. I can say, on behalf of all the other board members, we're very, very, very proud of this group sitting in this room today and all that.

Speaker 6

You've done.

Speaker 3

Thank you. Appreciate it. Brian?

Speaker 0

Yes, sir?

Speaker 3

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?

Speaker 6

No.

Speaker 0

Good.

Speaker 4

Quarter.

Speaker 0

Kevin, I'm good, sir.

Speaker 3

Donna.

Speaker 1

Not here.

Speaker 3

Not here. All right, we're going to be gone. See you and talk to you in 90 days.

Speaker 4

Thank you.

Speaker 2

Ladies and gentlemen, today's call has now concluded. We'd like to thank you for your participation. You may now disconnect your lines.