HOMB - NYSE

Greetings, ladies and gentlemen. Welcome to the Home Bancshares, Inc. 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. [Operator Instructions] 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. [Operator Instructions] This conference is being recorded. [Operator Instructions] It is now my pleasure to turn the call over to Donna Townsell, 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 Poulton, 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 Third Quarter 2025 Home Bancshares Earnings 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 3 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 million, record EPS of $0.63. Revenue of $277.7 million. Pre-tax pre-provision net revenue of $162.8 million. P5NR 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 going down. Our margin kicked up 12 basis points to 4.56%, and that's the best it's been in 12 months. ROTCE continues to remain in the 18, high teens at 18.28%. Just some balance sheet strength highlights. Common equity to assets is 18.56%. We continue to grow that. Tangible equity to tangible assets, 13.08%. That continues to grow. And loans had a record level of $15.18 billion (sic) [ $15.29 billion ] for the quarter. Total stockholders' equity is $4.09 billion. More good news, the Texas lawsuit has been settled, and we 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 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 Bancshares is not growing fast enough. And we don't really argue at that point, but I have to disagree with that discussion point because timing and discipline matter. 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 3 years, dealing with multiple distinct unusual problems that arose in the Happy acquisition that led us to filing a 91-page lawsuit, coupled with Happy's asset quality problems, by the way it's still a work in progress. AOCI, loss of Happy private information defection and loss of personnel. Don't get me wrong. We have some great people at Happy, and Happy's 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 merger with Home in a tax-free exchange, Happy shareholders exchanged their private nonliquid 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 the Home and investing the proceeds into another privately held stupid nonliquid investment. There may be where that 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 in 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. What you can see from the charts, we're back producing top-tier best-in-class numbers once again. We would have been there a couple of years ago had the annoyances of these unusual situations not come up. More good news, during the first quarter 2025 for all banks over $10 billion, Home ranked #2 in the nation in return on assets. During the second quarter of 2025 for all banks over $10 billion, Home ranked #1 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 peer-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 3 quarters, Home has earned $357.2 million with 1 quarter left to go. Add a couple of acquisitions and a little growth, and I think the number is achievable and maybe a little better. Last year, at this time, we had 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 an account and repositioning. They were paying the piper, 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 worth piece, $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 businesspeople. Great market. We're wishing Michael Rodriguez, our team leader and his team in San Antonio market much success. Strength is no accident. That's our slogan. Another reason Home has been hesitant on acquisitions is the hesitancy to take on bank's AOCI 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 the management made huge mistakes of investing the 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, 5 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 the 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 Bank, 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 the while the bank -- excuse me, regardless while the bank is trying to recuperate by whatever methods, they are losing years of earnings power. Either way, if they decide to ride 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 Filters guy quote, "You can pay me now or 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 stacking up capital as their ship leaves you at the port. Last option is to find a partner that you -- that likes your operations, 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 we've just done, CMA, Comerica, who was acquired, and the stock shot at $11.77 in 1 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 fight another day. But regardless, it's not an easy fix. And if they don't want to ride, they sell the 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. Company is humming along pretty good. And I told you last quarter that I hope 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, John. I'm sure when you get a deal, it will be the right deal. So patience is a virtue, right? Our next report today comes from Stephen 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 $0.61. 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 2 basis points in the overall loan yield and a decline in interest-bearing deposit costs of 2 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 of 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 NPLs, NPAs, past dues and total criticized loans. As you know, there's always good and bad as we work through problem loans. On the good side, I'm pleased to announce that we have the DFW apartment nonaccrual 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 charged 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 8 times in the last 9 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. Frothiness 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 will 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 noninterest 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 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 commitments. 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 $1 billion in new loans, which is a bit ahead of pace for us as we generally do not hit that mark until Q4. I 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. It's -- 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, so...

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

Thank you, Donna. [Operator Instructions] The first question we have on the phone line comes from Dave Rochester with Cantor Fitzgerald.

John, you highlighted that you guys -- 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 NIM sensitivity on that next cut?

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 loan. So I think they're on top of that. We react in a hurry. When there's a rate cut, Stephen, 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 on how management looks at it. And our -- we have about 13, 15 -- about 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 we're going to make immediately. It's already preprogrammed. 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, Dave, this is Stephen. I appreciate what Johnny said and agree. I mean 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 job is to react to that and try to get rates down to offset the loan side.

I appreciate that color. 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 on Home Bancshares. We don't run them. We just run strength ads. 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. We paid -- this quarter, we paid off sub debt, it was $140 million. We had tax time that came up. So deposits are down a little bit, plus we had a little loan growth of about $100 million. So some of those factors impacted. Brian, you got a comment?

We did the $140 million, and then we did another $22 million.

Yes. We bought that opportunity to buy a piece of our sub debt back, and we bought that back for at a discount. We like that move. 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. Stephen, you got a comment on that?

Yes. 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 opened 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. So...

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?

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

No. I mean I haven't seen it. We've talked about the -- being able to offer deferments to individuals that are hurt by it. We certainly can and we'll 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 see anything, we'll call you. Dave, is that fair?

Yes. Sounds good. Appreciate it, guys.

Your next question comes from Jon Arfstrom with RBC.

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 obviously, you put up a great quarter, but your stock is off. How are you feeling about credit right now? And maybe what you're seeing on your own credit trends, and then I know that you guys kicked the tires on a lot of other banks, but what you're seeing broadly and some of the other banks you look at?

Well, interestingly enough, we have an asset quality meeting monthly. And in 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 in the Florida book or the Arkansas book. But we have -- 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. We had the -- I wrote down the -- and I write down, John, what I think the loss is on that loan. If I think it's $1 million to put down $1 million or $5 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 have 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 eye on. But outside of that, everything is 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've got a 10% deposit. So hopefully, that gets done and gets out of the bank. So overall, I could be -- that 1 deal in Texas, I'm pretty happy camper. So I can't say we're the exception. I can't say we're the exception. I think Jamie Dimon said, there's cockroaches out there, and there's always is cockroaches, but maybe -- I'm sure there are some cockroaches that we hadn't seen. But I was amazed at the last asset quality meeting, how many dollars I wrote. I used to write from $15 million to $30 million that's possibly -- don't get it 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 happened. But last time, I think I was less than $5 million, Jon. Kevin, you got any comment?

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 and 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.

Yes. I remember back, Jon, when we didn't -- we had high leverage, and they pitched us the key. So it's being in a position with low leverage, it's pretty sweet.

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 support it and you're seeing the kind of loan demand 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 right?

I don't know that it's that we're more willing. I think the pipeline is supporting it, particularly right now. I don't know that it's necessarily a willingness more than we're finding the right deals. We've got people in the right places, in good markets that have kind of hit their niche. The hard thing to project is that we have a lot of -- we do a lot of construction. So that means there's a lot of churn in our community bank construction book, and Chris' book is meant to churn over a 3- to 4-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.

Yes. It looks like we just missed -- we let the greased pig get away from us in the second quarter. Chris did on a big loan. Looks like that loan is probably going to close. So Chris, do you want to comment on when do you think that might close?

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

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

We now have at Brett Rabatin with Hovde Group.

Johnny, I wanted to start, M&A hasn't really been addressed fully. And I think everybody knows you're not looking for assets. Can you maybe just talk about your experience here in the past quarter? What's been the impediment? Is it pricing? Is it a culture of a seller, just a 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 a LOI. We'll be moving forward on that. It's someone we like and runs a good business. We've got to do 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, so that's purely -- you won't 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 -- you're not going to get anything else out of me other than that. So...

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

I mean we had Happy math to deal with, and we've got that behind us pretty well. And we just don't move until -- I mean it is cranky. 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 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. In the past 2 quarters, I think it felt like your profitability topped out in this quarter. It moved up again. Are we at the peak, do you think, in terms of ROA, ROE, ROTE just given the efficiency ratio? Or any thoughts on profitability and how you see it may be 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 we didn't need to have. So we got to work on that. And I don't think we're done. No, I don't think we're done. You get the expense back to $111 million, you see what happens, right? So that's more money for us. We kind of had to wind or 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 and the wind on our back. We've had some income. We got some this month too -- this quarter, hadn't we, Brian, some...

Yes. I mean we had several things. We had a $2 million recovery, we had $1.75 million gain on our lawsuit, and we had $1.9 million gain on our sub debt paydown.

Yes. We'll probably have some more recoveries on that lawsuit. I'd probably put it in reserve. So just to build on that reserve. We built it a little bit this time. Went from 1.86% to 1.87%. 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.

We now have Stephen Scouten with Piper Sandler on the line.

Johnny, I kind of want to challenge you that maybe you can't get expenses down to $111 million just so you're getting principal wrong, get them back there. But do you think there really is $2 million, $3 million to cut [indiscernible] you continue with the bank?

Do I think there's $2 million or $3 million mark that we could gather if we -- is what you're saying?

Expenses that you could cut. I think you were at $13 million, $14 million on expenses is phenomenal still?

Hi, Stephen, this is Stephen. Yes, there's a handful of kind of onetime items in this quarter from an expense standpoint. And then 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. So 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 be 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 -- obviously, we've seen a few rate cuts here. Prospectively, we're going to get a few more. But 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 ran 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. Yes. No, look, I think lower rate environments generally will be beneficial to us because I think people have sat 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 the 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. Yes, in general, I mean I think demand for us has been good. We don't really chase growth, but if it comes our way, we'll take it. And I do think, in general, you see a 100-point decline from where we were. You ought to see a few more deals pencil out a little better.

Got it. Yes. That makes sense. And maybe just last thing for me. I mean I know I think Arfstrom said it earlier, but it's been kind of a bloodbath out here today, but your stock is outperforming by I don't know, 200 basis points, which probably doesn't feel that way, but it's a great relative to everyone else. How do you think about using that stock in M&A transaction versus 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?

I think it depends on the stock price. But we'll be in the market. Let me say this, Home will be in the market come tomorrow when we're clear. So we'll be in the market buying stock. So when there's opportunities -- when you look at Home, we were second in the nation in ROA in the first quarter -- first and the second quarter, and we outperformed the first and second quarter, and they take us down 3%. It will take us through the rest of the market ought to be down 10%. So it will come back. Home will come back. Home will bounce back. This is -- and all the banks will bounce back at some point in time. But right now, we're all trading. They're pulling the baby out of the bathwater, and we just have to -- as painful as it is, when you come off of a -- you see the performance of the company for the quarter and you come off that and you get your ass kicked like this, it's a little frustrating. But it is what it is, and there's a lot of people that are in a lot worse shape than Home Bancshares' today. So 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. And the good news is when you run a 2.12% or $2.17 ROA, 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 up pretty strong. So these people running a 0.7% or 1% ROA, they don't have the ability to do what Homes doing. Home has the ability running at 2% ROA to pull every capital handle out there. So we can make the decision of which one we will report or we can pull them on. Don't you agree with that, Stephen?

Absolutely. You guys have a chance to buy it more cheaper. So to your point, congrats on a great quarter and I like the new chart, too. I like seeing those nice up into the right lines, keep up the good work.

We now have Matt Olney with Stephens, Inc.

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 if that $111 million goal could be something we could see in the fourth quarter? Or could we get -- need a few quarters to get there?

I'll let Stephen answer that.

Yes, this is Steve, Matt. There wasn't much I'm going to say, $100,000 or so in legal expense related to that suit in the quarter. We had a handful of other kind of onetime items, some donations. We did a nice donation to the City of Kerrville 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 would be in Q4.

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 $500,000 donation. We feel good about that.

Yes, 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 Bancshares versus what a series of small deals would look like?

You buy anything from $25 billion down and anything from $1 billion up. So I could sound okay. The attorneys are fussing me. So I know this question was coming. Somewhere between $0 and $25 billion, that makes you feel good. I'm not going to go there and we're going to buy stock. As soon as we get open, we're going to buy stock. They said, you 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. So we think he's done a good job, and we think he'll be a great partner. And with the strength of having Home Bancshares balance sheet backing him, I think he'll do what he needs to do. That's probably more than our peers. They're telling me to pronounce this rightly.

Everybody's got a different calling. Their fingers crossed is...

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

Thanks.

We now have Catherine Mealor with KBW.

My last question is just circling back to the margin. And I just wondered if you could remind us the percentage of loans that are floating rate that will reprice immediately. And then to kind of follow up on the deposit side. I know Stephen, you talked about $1.1 billion of CDs repricing 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 where you think that will 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 Journal Prime and the rest is tied to SOFR between Chris' book and the community bank portfolio. So that's what's moving this quarter or next, that we would consider truly variable. And then on the CD side, we've got -- it's on my notes here. We've got about -- that's on the fixed rate side. Give me a second. We've got -- over the next 3 quarters, our book -- our CD book, which is relatively small, is also relative short, so $1.8 billion or so in total size. We've got about $1.350 billion that matures over the next 3 quarters, and it's at an average rate of 3.67%. So it starts a little bit higher and tails off over the next 3 quarters. But we still have to negotiate a deal with competition. We've got peers in market -- around our markets that are still north of 4%, which is frustrating, but our group has 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 3 quarters, we'll see just kind of relative to what competition is doing. But I would say broadly, our folks are negotiating down in the mid-3s 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 was -- 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 the year.

Got it. So that's mostly been in this -- definitely in this margin.

Stephen had some comment for you.

On the $140 million we paid off at the very end of July, 1st of August. So there's 2/3 benefit this quarter.

We now have Brian Martin with Janney.

Stephen, maybe just one just on the margin. Just -- it sounded like earlier when you talked about 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, as Johnny said, maybe asset sensitive. I guess in general, your expectation, if we do see the rate declines that the margin is still relatively stable kind of where it's been, absent, kind of the movement within that event income line. I know that's a little bit -- moves around a little bit in the quarter, but just kind of the core ex that event income, if we do get a couple of cuts, it sounds like it's relative stable plus or minus a few basis points is still the way to think about the outlook?

Yes. I mean yes, that's been our message over the last year or so as you've seen rates come down a little bit. I mean we screen in an ALCO model that our NII goes down 5% or whatever, but that assumes a 40% beta on deposits. And like I said, Johnny has 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 the daily run rate that we monitor has held in pretty good over the last month since the Fed cut rates. So...

Okay. And just -- it reminds me, Steve, I guess maybe you said earlier, what's left on the -- and kind of in terms of fixed asset repricing in the next couple of quarters or the next 12 months, I guess, what -- maybe what you haven't hit your hands in terms of what opportunity you there have?

Yes. We've got -- so Q4, we have $478 million in loans -- in fixed rate loans that mature at an average rate of $6.17. So there should be some lift potentially on those. Again, it kind of depends on what competition does. And I think as we said before, we'll defend our balance sheet with competition. And then there's about $1.25 billion next year in 2026 that matures at an average rate of 5.5% basically. So betting on that rate environment, yes, some of that could come up potentially.

Got you. Okay. And then just the last couple. It sounds like that near term, there's still -- it sounds like there's opportunity on the expense side that we're going lower, not higher than at this point, all else equal. That sounds fair. And then on the fee income side, Brian, I guess, is there -- it sounds like there's an extra $2 million in the fees this quarter that, I guess, after next quarter, fourth quarter, it's not sustainable. Like I don't know, the amount of the settlement that you expect in 4Q versus this quarter, it sounds like there's a bit more in the 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, in other income, there's about $5.7 million of kind of what I'll call event income and $1.9 million -- I mean $1.75 million of that is from the lawsuit. And so we'll have another round of gain from the lawsuit on that for next quarter.

Right. So all else equal, the $1.75 million doesn't recur after, I'll say beginning 1Q next year. You're going to have something more in the fourth quarter. It sounds like it's more than the amount this quarter. But after that kind of -- that line item specifically normalizes to $0?

It could carry into the -- it could have. You go take it.

I think we're going to get it all this.

I think you get it all. I don't know if some of it might bleed over in the first quarter.

Yes. And Stephen, the margin still has a little bit of a tailwind on -- from the sub debt -- the full quarter benefit of the sub debt as you go into fourth quarter, could this kind of start? Is that still correct?

Yes, that's fair. I said the timing of when we paid the Happy $140 million off was 1/3 of the way to the quarter already. So Q4 will obviously be a full quarter.

Yes. Got you. Okay. Yes, I think -- and maybe just the only other item was in terms of just the loan -- Kevin, maybe talked about this, just the loan pipeline, and maybe one for you, Stephen, just on the -- it sounds like you talked about the origination activity in the quarter. I assume payoffs were pretty significant in the quarter. Maybe just comment where the payoffs were this quarter? And then just it sounds like just to confirm, Kevin, that the loan pipelines are still pretty healthy primarily, I'm guessing, in Florida and Texas, but maybe if you could just comment a little bit on that.

Brian, this is Steve. I'll give you the numbers real quick and then let Kevin give you color there. So payoffs were between $750 million and $800 million for the quarter, so nothing necessarily out of line with where we've been running. The $1.3 billion 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 color there on payoffs. Kevin?

Yes. Those payoffs were more really weighted towards the end of the quarter. So we had a little higher quarter that we were looking at, and it actually ended up because of some stuff as Johnny said, moved into fourth quarter and the payoffs that hit in the third quarter. You'll see with us each quarter, it's a little bit different. You heard Chris' 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 it's a 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.

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

Yes. It's just -- that's where the activity is. I mean Arkansas does well, too, and they're showing growth as well. It's just there's just not as many opportunities as there are in the other 2 states.

Yes. Okay. And last one for me, Johnny, just on M&A was just -- in the past, you've talked about the opportunities that you may consider given that maybe they're a little bit, it's not quite the performance that you guys are up to just so you can 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 I don't know, call it fixed or upper, but something that you can improve the profitability on. Is that relative to your profitability?

Well, this is from -- AOCI problem is the only thing we have. It's a good management team, good operation, 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 -- this one's not -- only from the fact we're sharing our balance sheet with them is to help them with their liquidity and their AOCI. So we'll clean that up. We'll fix that on day 1. You'll see them coming out. I think you'll see them coming out pretty strong when we get our arms around it. It's not a broken company with the -- only from that aspect they got in AOCI has 95% of all the banks did throughout the country. So that's not -- they all got that problem. So some people -- as I said in my opening remarks, some people take their hint 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 could hope somebody has got strong capital at home, and we got the ability to spread that over them and 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.

Thank you. Our final question comes from Michael Rose with Raymond James.

Maybe just going back to John's comments in his question. As I think about you guys and John, I think you've mentioned this over the years, 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 record numbers of -- in some cases, record numbers of loan officers and producers. Maybe now is not the time to grow. As spreads are going to be under kind of increasing pressure, you do see some softening of some of the economic data at least. There's probably some debate there, and now you've got credit concerns creeping in. Is maybe now not the time to chase loan growth? And then 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. So maybe if you can just kind of address that more broadly, not so much from an expectation point of view, but really is now the right time to actually want to accelerate loan growth here?

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 a part of our real plan to go out and find teams of people and bring over lots of teams outside of the whole bank. Whole bank has been our M&A strategy for really our life. And then we've been through 2 long court cases that had -- 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 thing in all of this is our culture. What does our lending culture look like? And we have one and we follow it pretty closely. And so 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 you -- that we can go in and fix because we do a pretty good job of that over the course of our lifetime. So 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, it results in growth, we'll do that.

Thank you. I can confirm that does conclude 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 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 the new acquisition or 2, they'll report. They'll come in and short 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 is off 3%. But as Stephen Scouten said, he said you're better than most people. So I guess we're one of the best of the worst today. So anyway, I do appreciate everyone's support, and Home will continue to do the right thing month after month and quarter after quarter, and we'll be standing when others may not. So anyway, thanks, everyone, for your support. We'll talk to you in 90 days. Donna, you got any comments wrapping up. Stephen? 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.

Yes. Donna, do you have any comments. Brian?

No, all 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 we got to go back to work. Thanks.