Greetings, ladies and gentlemen. Welcome to the Home BancShares, Inc. Second Quarter 2024 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. 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 2024. At this time, all participants are in listen-only mode and this conference call is being recorded. 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 second quarter conference call. With me for today's discussion is our Chairman, John Allison; Stephen Tipton, Chief Executive Officer of Centennial Bank; Kevin Hester, President and Chief Lending Officer; Brian Davis, our Chief Financial Officer; Tracy French, Chairman of Centennial Bank; Chris Poulton, President of CCFG; and John Marshall, President of Shore Premier Finance. To open our discussion on the quarter today, we will begin with some remarks from our Chairman, John Allison.

Thank you, Donna. Welcome to the 18th year as a public company and the 26th year for us as a financial institution. This conference call is number 72 for those of you that have been with us since the beginning of the year, and I still look forward to presenting our quarterly results. I'm certainly more comfortable today than I was in June of '06, when we first reported our quarterly numbers. I could not sleep that night. I was so nervous; I had my notes around, but I just had worn them out. We just returned from a two-week trip with Stephens, telling our story all over the country. If you remember those times, not many IPOs were getting done. As a matter of fact, the Company scheduled in front of us had pulled out, and the one behind us had pulled out. I was laughed at, yelled at, and even called a one-trick pony by a Dallas firm. We traveled for two weeks and raised about $50 million, and I was not sure we were going to get it done. One of the best investment banking firms that was in our syndicate sold the retail arm and dropped out of the bank space just prior to the offering day. It was a terrible time, a terrible time to bring an IPO. However, we met many wonderful people, and some are still major shareholders of our company, from $2 billion to $23 billion. What a ride! So, let's go with the report. So far, so good for '24. As we said in the first quarter, there has been a nice start to '24, and Home's top-tier performance continues through the second quarter. Last quarter, I said to improve profitability. We simply need to reduce expenses and increase revenue. Easier said than done. So, here's what happened. On the expense side, we improved our efficiency ratio from 44.43% last quarter to an adjusted ratio of 42.59% for the second quarter of '24. Add to that, a strong profitable loan growth in both first and second quarters allowed us to continue on with what is a great start to '24 in spite of the economic environment. Loans grew in the second quarter by nearly $270 million, while the margin was a strong 4.27%, up 14 basis points from the first quarter '24. Non-interest expense for the first quarter of '24 was $111,496,000, and the same quarter last year, expenses were $116,282,000. We made marked improvements of over $5 million after adjusting for what you'll hear me repeat several times today. We had not expected to have another letter of invoice from the Fed for $2,260,000 for an additional payment for the FDIC insurance fund. I think we're done with that now. After pulling out the FDIC insurance bond of $2,260,000, actual expenses for the quarter were $110,925,000, a slight improvement from the first quarter of $571,000, but from the first quarter, $5.3 million better. That's $20 million a year in savings if we can continue to do that. Diluted earnings per share were reported at $101,530,000 or $0.51 a share, sporting an ROA of 1.79. When adjusted for the additional $2,260 million for the FDIC insurance fund, the Company actually earned $103,916,000 or $0.52 a share, and that supports an ROA of 1.83. Adjusted earnings for the second quarter actually beat the adjusted earnings for the second quarter of '23. I'm pleased with that. Having a balance sheet that supports superior profitability during this high interest rate environment that runs almost side by side with 2023 is very pleasing to our management team. With analysts projecting all bank earnings to be down 5% to 10% this year, being able to run a top-tier ROA allows Home's management to pull lots of handles for our shareholders, including dividends and stock repurchases. Quarterly dividends of $36 million, or annual dividends of $144 million, plus we repurchased $1.4 million for $32.5 million during the second quarter, and we repurchased $1,026,000 for $24 million during the first quarter. For a total of $56.5 million and almost 2.5 million shares. It was actually 2,426,000 shares. That's a 1% reduction in shares outstanding in the first six months of the year. As I said, there's an advantage to being able to run a 180 ROI because there are many panels that can be pulled to benefit our shareholders. That brings the total outstanding average number of shares for future quarters to below 200 million. Over the past several years, we have repurchased many millions of shares and retired the stock while still improving our tangible common equity in the last 12 months by $1.21 a share or 11.1%. We always try to do what's in the best interest of shareholders. Some Wall Street talk suggests that all reasonable banks are in trouble and may blow up. I want to assure the investment community that Home is not one of those bad banks we're talking about. Due to the mistakes that most banks made, many of the banks are compelled to sell. They can't earn their way out. They can't earn enough money to earn their way out of trouble. So, they sell at some reduced price or they bring in additional capital, but the dilution to shareholders is extremely painful, as we've seen in some deals recently where the dilution was as much as 50%. They probably would have been better off selling to a good bank and writing their bank stock up. Home has a strong capital base and continues to build month by month and quarter by quarter, having the ability to earn more than $100 million quarterly, while maintaining almost $300 million of loan loss reserve. Couple that with a huge capital account and stable margins, and I now present to you Home BancShares. We truly are a reasonable bank, and many regional banks are in trouble. It's our goal to separate ourselves from the pack while maintaining a fortress balance sheet and continuing to be a top-tier performer, while remaining patient because patient capital is smart capital. I don't think the bank crisis is over. We've just been kicking the can down the road. Not much has changed for a lot of these banks, except for more of the same. They have improved the loan-to-deposit ratio slightly, maybe by either allowing securities to roll off and/or loans to roll off or chasing high-priced CDs to improve their loan-to-deposit ratio. Either way, the odds of a quick fix are not likely. They may be able to improve their earnings slightly, but not enough to earn themselves out of the problem quick enough. Another dark cloud is coming to show up in February and March of '25. That's when the end of the bank saving Fed program called Bank Term Funding Program, or BTFP, expires, and the problem banks will have to pay back the money on the securities that the program allowed the Fed to loan at face value, which is much higher than the market value. How are banks going to make up the shortfall instead of rates going down? There is a chance that CD rates may go higher. That would not be positive politically for the Biden administration. Odds are against it. But in reality, it's certainly a possibility. If bank liquidity is in question and a bank must have liquidity or fail, they'll pay whatever they have to pay for the money. That's exactly what happened to the savings and loans in the '80s. There hasn't been sufficient time between the inception of the Fed lending program in March '25 when the program ends. That's why I call it kicking the can down the road. Many banks have negative tangible common equity, and many have less than 3%. I hope I'm wrong, but it could be a bloodbath if the Fed does not extend. Stay tuned. We're back to carefully looking for an acquisition that makes sense for our shareholders. We're also looking to March '25 because we think there will be opportunities that arise as the BTFP comes to an end. I'm sure one thing that banks will not be able to do, and that is to borrow $100 on something that's worth $50, like securities have turned into. Bingo, that's the problem forces the bank to recognize loss on securities. If they have to sell the securities and couple that with not being able to earn themselves out of the problem, this could get very serious, and many of them may be interested in talking to good banks. At Home, we provide safety and security for our deposits, customers, and shareholders. I just have a couple of additional comments here. It's nice to see the bank stocks running, and everybody is getting a little kick in the back. We sold our building that housed GoldStar Trust in Canyon, Texas, for a nice profit, and the GoldStar team moved into our large Amarillo facility. We also leased an additional 60,000 square feet in our headquarters building. You remember that's 240,000 square feet; that was kind of an albatross around our neck. But as GoldStar moved in, we leased 60,000 square feet and maybe have an opportunity to lease more. So, it looks like we're turning a 240,000 square foot albatross into maybe a profit center over time. In conclusion, as I said earlier, the first two quarters were a very nice start to '24, with over $200 million in income and revenue of over $500 million, and improving earnings per share that brings over 40% of the revenue to the after-tax bottom line. Good job for everyone. I had the privilege of visiting with Arkansas State University Head Football Coach, Butch Jones, and sharing stories with each other about respective businesses, and he shared a quote that I have seen come true so often: If you lower your standards, you'll lose the winners; if you raise your standards, you'll lose losers. He had many more quotes, and I'll share those over the years, but that one just stuck with me. Patient strategy, conservative management, unwavering discipline, good efficiency, hard work, smart investments, strong capital, defensive reserve allocation, good asset quality, and strong liquidity have led our company to be one of the strongest banks in the nation. As I've said, we've been thrown in the regional bank basket, but all banks are not created equal. We'll continue to try to separate ourselves from the pack, and in closing, as I've said, there is no place like Home.

Thank you, Johnny. Congratulations on a great quarter, and thank you for sharing all that information with us. Our next report today comes from Stephen Tipton.

Thanks, Donna. As Johnny mentioned, Home BancShares and Centennial Bank had another great quarter, highlighted by continued loan and deposit growth, expanding net interest margin, and solid expense control. I'll start my comments with the net interest margin, as Johnny has already touched on. The reported NIM expanded by 14 basis points in Q2 to 4.27%, all while continuing to maintain healthy excess cash balances that we discussed in detail on the first quarter earnings call. Excluding event income noted in the press release, the net interest margin was 4.23% for the quarter, an increase of 12 basis points from Q1, and exited the quarter in June at 4.27%. The yield on loans, excluding event income, improved 15 basis points to 7.49% in Q2 and outpaced the increase in total deposit costs by 10 basis points. During the quarter, total deposit costs increased 5 basis points to 2.27% and exited the quarter at 2.30%. Our bankers have done an extraordinary job managing this interest rate environment and the seemingly endless advertising across our footprint for high-rate CDs and money market accounts. The pace of the increase in interest-bearing deposit costs has been cut in half each of the past two quarters. We continue to negotiate pricing with core customers as we have been, but are encouraged to see the pace of increases on the deposit side continue to moderate. On asset repricing, we have over $550 million in loans maturing in the second half of this year at a weighted average rate of 5.99%. And over the next 18 months, a little over $2 billion maturing with a weighted average rate of 6.5%. Switching to liquidity and funding, deposits continue to be a key focus. Now with three consecutive quarters of deposit growth behind us despite what is typically a seasonally tough quarter with tax payments and municipal outflows, our presidents and lending staff are analyzing customer balance sheets and mining for additional opportunities on the deposit side. Total deposits increased $90 million for the quarter. The deposit mix movement was similar to prior quarters as CDs continue to be in focus for the consumer. Non-interest-bearing balances continue to be fairly stable and account for 24% of total deposits. Alternative funding sources remain extremely strong with broker deposits comprising only 2.2% of total liabilities, and the loan-to-deposit ratio still standing well below historical levels at 87% as of June 30. On the asset side, period loan balances increased $268 million, highlighted by over $200 million in growth from the community bank regions along with solid growth from CCFG and Shore Premier. On loan originations, we saw a volume of $1.19 billion in Q2, with a little less than half of that funded at quarter end. Yields on originations remained strong with an average coupon of 9.20% in Q2. Payoff volume was slightly lower from Q1 at a total of $508 million, although we expect that to increase in the back half of 2024, particularly from CCFG. Closing with the previously mentioned strength of our company, all capital ratios remain extremely strong with a tangible common equity ratio of 11.23%, a leverage ratio of 12.3%, and a total risk-based capital ratio of 18%. Couple that with the reserve coverage of 2% on loans at over 340% coverage on non-performing loans, we are in a strong position to capitalize on future opportunities. I want to thank all of our Centennial and Happy State bankers for their dedication and efforts in the first half of this year to produce such impressive results. And with that, Donna, I'll turn it back over to you.

Thank you, Stephen. And now, Kevin Hester will provide some color on the lending portfolio.

Thanks, Donna, and good afternoon, everyone. As Johnny mentioned, our ending loan balances grew by nearly $270 million in the second quarter, making it the fourth consecutive quarter of loan growth for Home. While loan growth is not the first or even the second most important aspect of our strategy, it is impactful when it occurs, especially when we can string several quarters together like we have recently. Our consistent conservative approach to credit, paired with our forward-looking management during the rising interest rate cycle have combined to facilitate this growth. We also benefit from a large portion of our banking activities occurring in the great economies of Florida and Texas. This was not by accident and is an often-overlooked reason for our success. Asset quality remains a strength for Home as well. Two occurrences are in play here, one continuing and one new. The continuing trend is that the majority of any new asset quality issues are tending to be from the acquired Happy portfolio. This is not totally unexpected given that, as we said before, we knew that their leverage was higher and that they had relatively higher levels of asset quality issues than our legacy portfolio. Notably though, we also experienced a significant level of their problem assets identified during early due diligence were resolved before closing. As a current example of this trend, we foreclosed on an incomplete multifamily project north of Dallas in the second quarter, increasing OREO by approximately $11 million. While poorly underwritten and originated at 80% loan to cost by the leader of the defectors just before acquisition, we still anticipate a reasonable outcome. We are less than 90 days from completion with the original contractor who is also a customer and have two serious LOIs that would result in no worse than a small loss upon achieving the CEO. This outcome is due to the excellent work of our special assets group and is underlined by the continued growth and strength in the overall DFW metro geography. The new occurrence I mentioned appears to reflect the shift in regulatory tone, which resulted in different outcomes on a small number of previously reviewed relationships compared to the last review cycle. This includes the memory care facilities, which we have discussed in the past, which were placed on non-accrual this quarter. They continue to pay as agreed, and while they are actually showing recent increases in occupancy, this hasn't yet translated to positive cash flow. As for the numbers, NPLs and NPAs increased 3 basis points and 7 basis points, respectively, due to the memory care non-accrual and the addition to OREO, but criticized and classified loans dropped by $68 million. Early-stage past dues are still low at 0.60%. Overall, even with the noise around the occurrences as noted above, asset quality is strong and not something that keeps me awake at night. Donna, that's all I have, and I'll turn it back to you.

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

Oh, really don't. It's been a great first six months this year, and I'm very pleased with it. I think everybody is pleased; congratulations to everybody. Hard work pays off. And we'll still continue to work to separate ourselves from the pack. So, with that, if nobody else has a comment, we'll go to Q&A.

Our first question today is from the line of Stephen Scouten of Piper Sandler. Please go ahead. Your line is open.

I guess, I'd love to start with loan growth. Really nice number there, especially in light of what we're seeing for the industry as a whole, which I think is a bit weaker growth this quarter. So just kind of wondering what dynamics kind of led to that? I know Stephen said paydowns were a little lighter this quarter, but have you been able to pick off business from other folks stepping away from the market and getting a little more aggressive or just kind of good blocking and tackling?

Stephen, this is Kevin. I believe we saw strong production from the Community Bank footprint. We discussed last quarter that there were great opportunities in our community bank markets, and I think that translated into growth. Stephen mentioned the lower paydowns, and I expect that to pick up a bit in the third quarter, possibly even the fourth quarter, especially for CCFG. The pipeline is a bit lighter now compared to last quarter, but it remains healthy. We have numerous opportunities that we are exploring in our markets. There could still be positive developments that are not currently reflected in the pipeline.

Okay. Sounds good. Thinking about mergers and acquisitions, there have been some capital raises that are somewhat difficult to understand. I'm curious why those banks might not sell, based on your comments, John. For you all, does the math still not add up in relation to the trades you've observed and how you envision this playing out for your team?

I guess I can say that they can't fix poor decisions. Many banks are running themselves into trouble again. It makes no sense to me. I looked into it and considered making a move, but ultimately I stayed out of it. I don’t understand the choices some of these people are making. They caused damage before and seem to be doing it again. It’s quite astonishing to me. I don’t agree with what they’ve done and how they’re handling things. Good luck to them; diluting shareholders by 40% to 50% is a significant setback, and recovering from that is surprising. I really don’t have answers. They’ve surrendered control of their companies to others, and if we do the same here, it gives someone else power over us. That doesn’t seem like a wise decision. I believe you might agree that some of the moves we’re seeing aren’t the best approach. All banks tend to rise and fall together. If they merge with a bank like Home, and I think they’re missing a two- or three-point improvement, Home will likely achieve that. It seems straightforward, and I don’t get why they don’t see it. If they believe they have some special advantage that will allow them to perform better than Home and other leading banks, I don’t think that’s realistic.

And it just sounds like maybe for you guys, M&A is more of a potential 25 event, if you see turmoil shake out first from the BCFP and so forth. And in February, March, and then see where we go from there. And maybe at that point, we've had some rate cuts, and the math's a little bit more palatable. Is that the right way to think about it?

I believe that's the best perspective to adopt. We're interested and exploring some options, but we’re being cautious. We have Worcester capital, which is performing well, and our income appears to be on the rise. Although we faced challenges last year and had to wind down some investments in the second quarter, we received significant returns from some of them. In terms of core income, this quarter might be one of the best in the history of the corporation, potentially ranking second or first. We’ve matched last year’s income at this time, and I’m optimistic about the ongoing positive trends in our daily reports. I check these reports regularly, and I’m pleased with what I see. Kevin and his lending team have consistently provided us with valuable loans, and we have numerous opportunities to evaluate. We could pursue more, but our conservative approach is crucial. I don’t want to be constrained by a deal when genuine opportunities arise. I want to avoid acquiring any issues if another bank mishandles its operations, as that would affect Home BancShares. I’d like to minimize any adverse impact on our current favorable position, where we’re generating solid profits and seeing potential growth. Last year, I mentioned that we were in an advantageous position, and now we’re even better off than in the first quarter. I believe we’ll also improve in the third quarter compared to the second. This positive trend should continue as long as Kevin’s team and our retail staff manage funding costs effectively and Kevin secures loans, which should result in strong numbers for Home.

Yes, absolutely. Great quarter. Shareholders should be happy, and I'm sure your wife is still happy too.

We will discuss the dividend at the Board meeting on Friday. I'm feeling quite positive about it.

Our next question today is from the line of Brett Rabatin of Hovde Group. Brett, please go ahead. Your line is open.

Good afternoon, everyone. I wanted to start by mentioning that Johnny, your goal for this year was to achieve $100 million per quarter and $400 million overall, despite some doubts from others about reaching that target. Given this quarter's results, I hope it's not too much to suggest raising that goal. With some loan repricing expected in the second half of the year and a slowdown in the increase of your funding costs, it seems like you might consider adjusting that target higher. What are your thoughts on the full-year expectations and your approach to this?

The key point here is that we have $111 million in quarterly expenses, and we've managed to maintain that level. I believe we can keep it steady moving forward. While there are aspects beyond our control, everything has been going well so far. I'm very proud of our team for the significant expense reductions we've achieved. I understand the concerns about profitability. Our retail team is effectively managing our cost of funds, which remains stable. Recently, one of my directors remarked on the renewed energy in the team, and I feel that excitement too. The Company is progressing positively. I am optimistic about maintaining the momentum we experienced in the first two quarters as we move into the third and fourth quarters. We have some promising developments in the pipeline. Chris has around $300 million in paydowns expected this quarter, and we are also actively bringing in new business. It's encouraging to see the legacy operations performing well over the last two quarters. Chris is focused on getting paid, which I appreciate. While I recognize the conversation around increased profitability, I want to be cautious. At the beginning of the year, I was skeptical when it was suggested that our income might decline compared to last year. I firmly believe that we will not experience reduced income. It's been a personal challenge for me, and I’m proud of our team's remarkable performance so far.

Yes, definitely. The other thing was just you went through the asset quality stuff, guys. And I know the past six months, you've kind of been dealing with some cleanup, if you want to call it that, in the Texas markets. Are we essentially through with that, and whatever else comes from here would be something you haven't seen yet? Or any color on the Texas cleanup from here and what might be left to do?

This is Kevin. I'm not going to say that we're completely through. I think there could be one or two things that we're going to continue to deal with. It's just tough when you've doubled interest expense or interest rates over a period of time; you've got some folks that are just going to struggle through it. I don't see anything that I think I went through the scenario that we added this quarter, and to be able to work through that and come out with a very, very small loss on a situation like that, it's a pretty good deal. That's kind of the step we're working through. It's not big problems; it's just distractions, things you got to work through and work out.

We have another multifamily project that has come up, and we are currently working on it as well. I haven't personally seen this new project yet, but I did see the first one and I'm confident you'll be satisfied with it. I think we will be able to manage this project successfully. This one is new construction, while the previous one involved an older apartment unit that was refurbished, and I'm unsure about its status. We'll need to evaluate that since it came to our attention recently and wasn't on our radar before. However, we are skilled at managing our credits, and like with the multifamily unit north of Dallas, we don’t rush into things and came out without losses. When the project is completed, it will be completed. If necessary, we can hold onto it and lease it until it's fully occupied, and we have several interested parties, essentially without any losses. I'm feeling quite optimistic about this. We take problematic credits seriously and need to understand their origins, why the loans were made, and whether they pose a risk to our loan loss service and reserve. Discovering a loan that we never originated is significant, but we have already addressed many of these issues, and Kevin's team is doing excellent work. I'm not anxious about it; with reserves of $300 million, I sleep well at night.

Yes, I bet. If I could sneak in one last one, just back on the loan growth topic. Given this quarter and last quarter, just kind of looking at the trend you mentioned the payoff, would it be fair to say that you guys can grow mid-single digit this year? Or any color on the pipeline relative to where it was prior to 2Q?

You talk about the rest of the year? Are you asking for the rest of the year?

Right.

I think mid-single digits will be a bit difficult due to the paydowns we're experiencing, possibly resulting in lower single digits. Growth will depend on originations, as much of our activity is in construction. The bookings for the third quarter will not start funding until likely the first quarter of next year as they work through their equity. Therefore, it will rely on some aspects that fund upfront.

We're working on some stuff that funds pretty quickly. I was just going to say on the Texas asset quality, a lot of that smaller things. It's a lot of it, but it's small things and most of those, if I look back, were on banks that Happy State acquired. So, it wasn't a lot of credits that they made. So that part, it just takes a little bit of effort on that. And I go back here on the loan growth; we're seeing good opportunities. South Florida is really seeing some good opportunities. North Florida and Arkansas are staying steady, and Central Texas is certainly getting some opportunity. I think John and I are going out to meet a new customer they brought in just last week on that aspect. In my final comment to you, Brett, was thanks for raising the bar.

Our next question today is from the line of Jon Arfstrom of RBC. Please go ahead, Jon. Your line is open.

Thanks. Good afternoon. Can you talk a little bit more about the deposit gathering strategy? You referenced a couple of times the retail bank and their successes. Just kind of what's the strategy there? And how are you growing deposits?

We've never run a CD ahead, and we're planning to strengthen that because we're seeing 6% and rates in the 550s and 570s, which are cheaper for banks to borrow. My point is that many banks are struggling and need to secure funds, especially as they prepare to repay the Fed program in February and March. I'm uncertain where they'll find the necessary money since the Federal Home Loan Bank won't own something valued at $0.50 for $1. We've chosen to focus on one customer at a time, and the ads run by Home BancShares suggest that we can pay all uninsured depositors, which I am very proud of. We will not place ourselves in a position where we can't meet that obligation, which I believe is extremely important. We're generating substantial profits, and we may be one of the safest financial institutions in the country due to our deposit base. Our retail staff knows these customers personally; it's their money, and they communicate directly with them. We emphasize that we won’t offer the highest rates in town and that we are not in trouble like many other banks. They are aware that their money is secure at Home BancShares, and we can pay every uninsured depositor. I think Stephen and Tracy have taken a path to manage things prudently and directly.

Yes, just going to say. I mean it's working existing relationships that we have both on the deposit and loan side. We had a municipal relationship up in North Arkansas here recently that took some additional deposits in. We actually were able to reprice rate down somewhat as well. And then we have an association banking division that we've had for some time now, and visiting with our president there over the last couple of weeks. I think there's a path to some pretty significant growth over the next year, 1.5 years, as some of the other bigger banks shy away from some portion of that business. So, and then like I mentioned on the loan side, it's just we've got an opportunity as we work through new loan opportunities and see borrowers that have liquidity at other institutions to capitalize on that at the time that we're making the loan.

Okay. Good. And then yes, and I guess it ties a little bit in dust tie into the margin. I guess you had a great margin quarter, and I asked you about this last quarter, and you delivered on it. But how do you feel about margin sustainability and maybe the margin trajectory from here?

I don't expect the margin to decrease. I believe margins may have expanded slightly. I don't see a reason for a change unless we decide to adjust the rates we charge. At some point, we might offer lower rates to attract more business, potentially with a prepayment penalty. This is a strategy we've discussed, but we haven't acted on it yet. Considering the upcoming changes in February and March, along with the end of the Fed program, it's a factor we need to think about. That's why some CDs are now over six percent, as people are trying to secure cash to pay off the Fed, which is only creating more challenges. However, there could be opportunities on the M&A side where we can make some trades.

Our next question today is from the line of Catherine Mealor of KBW. Catherine, please go ahead. Your line is open.

I wanted to follow up on the margin question. Stephen, you provided some insights on fixed-rate repricing in the latter half of the year, but we observed a significant increase in loan yield this quarter. Was this increase primarily natural, or were there any one-time factors that may have influenced it? Also, what rate of increase in loan yields would be reasonable to expect in the coming quarters?

We had one relationship in the quarter that repriced, which was around $175 million, adjusting by approximately 300 basis points. This was something we had anticipated for the past year, and it provided a bit of a boost this quarter. Looking at a monthly basis over the last four months, we've observed core loan yields increasing by about 6 to 7 basis points per month consistently. Even in parts of last year, we saw similar trends. Loans that are paying off or coming off at lower yields, while new originations are coming in at rates around nine percent or more. I think, to Johnny's point, our ability to keep pace with loan yield increases will mostly depend on what happens with deposit costs.

Great. Regarding average earning asset balances, do you still expect a modest reduction in the securities portfolio? Also, with liquidity levels remaining very high, what are your plans to maintain that elevated position for the rest of this year, assuming plans are in place for the BTFP early next year? I'm curious about excess liquidity balances.

Yes, that's the plan today. We're sitting on $900 plus million in cash or so today. And with the BTFP program ending in March, we plan to carry this level of cash through to that point to retire it. And on the securities portfolio, we've really kind of been in a mode of letting it run down some and use this to either fund loans or kind of replace a deposit loss potentially that we had in the past. There'll be a point where for pledging purposes and things we'll need to be mindful of that, but it probably still has some room to come in.

We are actively monitoring the market. If we find an opportunity that aligns with our strategy, we will consider purchasing securities. We are evaluating different options, but I cannot predict the rates related to a potential deal with Citizen Group. A reputable bank may acquire some of that if the terms are favorable. We're analyzing the situation and will keep communication open.

Okay. Great. But still modest. Is there a size or kind of percentage of average earning assets you wouldn't want that to go below?

Right now, we're just planning on letting it kind of run down. We may make some CRA purchases here and there, but pledging.

Yes, we are planning on letting it run down. We may occasionally make some CRA purchases if something gets out of balance and we can secure good rates on it.

Our next question today is from the line of Matt Olney of Stephens. Please go ahead. Your line is now open.

I wanted to follow up on Jon and Catherine's question on the margin. We were to kind of walk through the margin into next year, and we were to see some lower interest rates. I'm curious kind of what you think the banks' reaction would be to lower rates. And looking at the entity and disclosures, it looks like the bank is still asset-sensitive, but I know these are just models. So just kind of looking for some color on what the margin could look like at the fact were cut a few times next year?

Matt, it's Stephen. Yes. I think from a modeling standpoint, I think we show down 4% or 5% in a down 100 rate scenario. That's what the model shows. I mean the conversations we've had around here just are around how aggressive we can be from a deposit beta standpoint. We've got, call it, $5 billion, give or take, in variable rate loans that adjust within a quarter's time, but we've got $11-plus billion in interest-bearing checking and savings and $1.7 billion in CDs that will reprice over time. So I think some of that's a function of how aggressive we can get, what happens in the market, and how other banks may follow potentially on the deposit pricing out there, what ads and those types of things that we're able to leverage. But I was talking about one of our regional presidents this morning, and he was looking at his maturing CD portfolio over the next couple of months, and I think he has some room even right now absent any rate increase to be able to lower some of those CDs as they come through. So, I think it predicates a lot on that. And then we've got a decent-size book of index deposits, municipal deposits that are tied to generally tied to the 13-week T-bill that will move when there's some conviction around interest rates.

Having said, we're going to try to maintain margin or increase it. Get me a but with, Matt. I'll.

I believe it. I wouldn't doubt it. I guess just changing gears going back to the stock repurchase program. You mentioned it was active in 2Q, and now the stock has gone quite a bit above kind of those average levels in 2Q. Curious kind of what the appetite is at these current levels of the buyback. And given the M&A thoughts you mentioned before about some kind of a fertile market in the next year, should we assume that capital levels just continue to build here in the back half of the year?

Yes, I think that's correct. However, we are always active in the market regarding stock purchases, although there may be instances where larger blocks come available. Our commitment to buying stock remains strong. I understand Brian Davis's concerns about dilution, and he mentioned that we often say we won't dilute but then make purchases that could lead to dilution. I believe our Board will likely consider a dividend increase tomorrow, which I think is timely. We received inquiries last time about why we didn't implement an increase because we were uncertain about this year's conditions. The economy has felt a bit unpredictable, but things seem to be stabilizing for us, and our performance is robust. I believe we will be fine for the foreseeable future. As for interest rates, some have asked what my preference is; I am content with the current situation and hope nothing changes, as it is encouraging to see our progress. Each day, our reports show improvements compared to the same day last month, which is gratifying.

Our next question today is from the line of Brian Martin of Janney Montgomery. Please go ahead. Your line is now open.

Say, just maybe one question on the expenses. It sounds like they're at a pretty good level. But Johnny, you mentioned some potential, maybe, I don't want to say pressure, but some things out of your control. I mean, I guess the expenses given what you've done, I guess the outlook is maybe there's kind of sustainable around this level? Are there other things to think about as far as that drifting a bit higher?

Well, we made a pretty good cut here we still are not where we were before that. We run a right of 42 this month adjusted what you adjust for that $2 million adjustment. That's pretty good. Can we improve that? We can if we have to. I think we need to hang in this 111 is my number. So hopefully, we can hang into that 111. If we see it going up over that, we'll try to make corrections.

Got it, that's helpful. So, regarding the payoffs, are you indicating that CFG will have some payoffs in the second half? Is there an estimated number for the third quarter?

Brian, this is Kevin. I'm going to let Chris cover that, if that's okay.

Yes, Sure.

That's kind of my number for the third quarter. I mean, some of that might slip to the fourth quarter. We already had a little bit of that this month and such. So, I think that's a third-quarter number. Again, some might slip to the fourth quarter, and then they'll have a little bit more in the fourth quarter. We didn't have a lot so far this year because we didn't have a lot scheduled to. But I think Johnny mentioned earlier, I like payoff, and we make the loan with the intention to get repaid. So, when that happens, we tend not to celebrate when we make the loan. We tend to celebrate when we get paid off.

Okay. It's good to hear. Johnny, regarding your point about potentially lowering loan yields, are you experiencing any pushback currently? I think you mentioned the yield was 9.25 on new originations. Are you facing any resistance on that? If you start seeing some payoffs, will that help increase volume? I understand that some of this might be related to M&A opportunities, which could delay things a bit. Is that the case here with some payoffs coming in, as you try to maintain origination?

This is Kevin. Yes, we do face some pushback on registers. We encourage our team to do their best, and as a result, they will encounter challenges. Regarding lowering rates, that's not something we are actively pursuing. What Johnny meant is that if a strong credit opportunity arises that necessitates lowering our rate to secure it, we have the option to do so if we decide. This isn't something we typically do, and we wouldn't engage in it frequently. However, in certain situations, like when pursuing a desirable customer or dealing with non-CRE matters that don't affect our concentration levels, we certainly have the capability to adjust our rates.

Got you. Okay. All right. Yes. I just want to make sure I understand. It seems like there's an opportunity, at least on the M&A side, and we'll see how the loan volumes hold up here, but it sounds like the originations and opportunities are still there. So, there will be time to consider that. That's all I had, guys. The other questions were answered.

Thank you very much. Appreciate it.

With no further questions in the queue at this time, I would like to hand the call back to John Allison to conclude.

Okay, back to me. Thank you. It was a great quarter, and Home is running very smoothly right now. So, I want to thank everybody for their efforts and what they've done, and we'll talk to you here in the next quarter. I hope the next quarter is as good or better than the one we just completed. Thank you very much.

This concludes today's conference call. Thank you all for joining. You may now disconnect your lines.