Home Bancshares Inc Q1 FY2025 Earnings Call

Greetings, ladies and gentlemen. Welcome to the Home BancShares, Inc. First 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. 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. At this time, all participants are in a listen-only mode and this conference is being recorded. It is now my pleasure to turn the call over to Donna Townsell, Director of Investor Relations. Please go ahead.

Thank you. Good afternoon, and welcome to our first 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 John Marshall, President of Shore Premier Finance. Opening remarks today will be from our Chairman, John Allison.

Good afternoon. First, I want to honor a special friend of the Home BancShares family, and a director of our company, Pat Hickman. We have lost a good friend and a strong leader. Pat was an invaluable member of our Board of Directors and personally, he shared my experiences while building our organizations. He was a confidant with a bright personality and a man of faith who cared for all of us on the Board. Someone humorously noted that Pat, as he enters heaven, would likely be sharing details about our new CD special. That’s the Pat Hickman I will remember. We will miss you, my friend, and I wish peace to your wife Nancy and your loving family. Thank you for joining us at the beginning of 2025. Our first quarter earnings are out, and as highlighted, Home’s strength is deliberate. When you combine our strength with industry-leading performance metrics, you see the results we achieved, which could be the best first quarter in the entire banking industry. Our conservative approach, which includes maintaining strong capital, ample loan loss reserves, excellent liquidity, high asset quality, and strong operational efficiencies, has resulted in an almost perfect quarter for the company. The positive news is that we delivered an exceptional quarter while setting six new performance records. The unfortunate news is that this achievement comes amid uncertain economic conditions, and I hope this stellar quarter doesn’t go unnoticed. We maintain a commitment to passion, drive, and discipline that distinguishes our performance, making us one of the most profitable institutions worldwide. Our objective is to reward our shareholders and ensure they take pride in being part of Home BancShares. We are relieved to have the significant Texas situation behind us, nearing resolution of a lawsuit from a couple of years ago, which may eliminate the significant costs we've incurred quarterly. Coupled with robust loan growth and stable margins, it appears we may have finally made a significant leap in our earnings. Management must remain vigilant in these volatile times, requiring us to have a clear focus both internally and externally and be ready to adapt our strategies as needed. Ultimately, protecting our core remains our top priority, as my wife wisely said. As I mentioned last quarter, banking is not about sales. Now, let's discuss the highlights and their significance. Stephen will comment on margins, Kevin will discuss loans, and Chris Poulton will address CCFG. Moving on to the numbers, earnings surpassed expectations at $115.2 million, translating to a record $0.58 per share. This marks a significant increase from the $100 million range we had been seeing in recent quarters. Our reported core earnings were $111.9 million or $0.56 per share. It’s worth noting that the cost associated with the Texas lawsuit this quarter was $2 million after tax, which we hope will not recur next quarter. Without this expense, core earnings would have been $114 million or $0.57 per share. We excluded gains from our equity investments from core earnings since they are not guaranteed to be recurring. However, these investments have been profitable, providing opportunities we might have otherwise missed. In terms of revenue, we exceeded expectations, growing it faster than interest expenses, reporting $260.1 million. This is a slight increase from the fourth quarter of '24 and an even more significant rise from the first quarter of '24. With declining rates, we’re pleased to continue on our plan to surpass our $1 billion run rate from '24. Margins saw a strong improvement, rising to 4.44% from 4.39% in the previous quarter and 4.13% a year ago. The net interest spread improved by 11 basis points from December '24, now at 3.69% for the first quarter of '25, while the yield on loans decreased to 7.38% from 7.49%. Our loan performance was robust, with the community footprint increasing by $291.5 million, despite a $103 million decline in CCFG, resulting in a net loan growth of $187.6 million. As of March 31, we reached a record level of loans at $14.950 billion, and we've tipped over $15 billion this month. On deposits, we experienced strong growth, increasing by over $395 million in Q1, raising our total to $17.5 billion from $17.1 billion at year-end, which led to a decrease in our loan-to-deposit ratio to 85.24%. The rise in interest-bearing deposits dropped to 2.67% from 2.80% at year-end. As I mentioned last quarter, our ability to pay out all uninsured deposits has been crucial. In uncertain times, people seek safety, and Home has gained a well-deserved reputation for ensuring all depositors are covered. Pretax net income for the quarter was an impressive 56.58%. I can’t express how challenging it is to achieve such a high percentage of our revenue reaching the pretax bottom line. Regarding asset quality, our nonperforming loans improved to 0.60% from 0.67%, and nonperforming assets improved to 0.56% from 0.63%. Reserve coverage grew to 312% from 278% at the end of the year, and nonperforming loans dropped by $13 million. As of March 31, '25, nonperforming loans stood at $89.6 million and nonperforming assets at $129.4 million, down from 98.9 million and 142.4 million in December. Our capital ratios are solid, with CET1 at 15.4%, leverage at 13.3%, and total risk-based at 19.1%. Tangible book value rose to $13.15 from $11.79 a year ago, an increase of $1.86. We reached a new record with book value surpassing the $4 billion mark for the first time in the company's history. Return on tangible common equity for the quarter was a strong $18.39. We are actively buying back stock, having filed a 10b-5 during our quiet period. We bought around 1 million shares in the last quarter, and we plan to remain active in the second quarter. This situation will pass, and I believe we will be proud of our actions at these levels. In conclusion, Home’s robust balance sheet, combined with consistent strong earnings, indicates we are potentially on the verge of a breakout supported by strong margins, conservative growth, high loan quality, significant capital, attentive management, and cost control, all contributing to our leading performance in the industry. It feels great to be among the best, and we relish victory. We’ve noted a comment about us stating Home’s strength is no accident, and we will incorporate that into our advertising efforts. Thanks to the entire team at Home BancShares for their exceptional efforts in what I view as a perfect quarter. I know you take pride in these results, and now I'll turn it back to you to continue the discussion.

Thank you, Johnny. Congratulations on a fantastic quarter. Our next report today will come from Stephen Tipton.

Thanks, Donna. When we talked last quarter, we mentioned that we would be pleased that the margin could remain fairly stable. I'm very proud to report that the core margin continued to expand in Q1. For the quarter, excluding event income, the net interest margin was 4.42% versus 4.36% in Q4 or an increase of 6 basis points. March ended slightly lower than the quarterly average, primarily due to the continued build of liquidity from the increase in deposits. This liquidity will allow us to continue to work on negotiated deposit pricing in an effort to bring those costs down. We are excited about the deposit growth we saw in the quarter at nearly $400 million, highlighted by strong growth from all of the Florida regions and an increase in overall core noninterest-bearing balances. Congrats to all of our bankers as 2025 looks to be off to a great start. 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. As Johnny mentioned, all asset quality metrics improved in the first quarter with no new material concerns noted. The anticipated recoveries from the fourth quarter cleanup were in process with nearly $7 million recovered from the fourth quarter charges. 90 days ago, I indicated that I expected total recoveries on the cleanup to exceed $30 million over time, and I still believe that is the case. As expected, the NPAs were reduced in the first quarter, and I anticipate further reduction in Q2. All of that and solid loan growth driven by the community banking markets. As Johnny said, an almost perfect quarter. Donna, back to you.

Thank you, Kevin. And now Chris Poulton will provide an update on CCFG.

Thank you, Donna. This quarter, we celebrated our 10th Anniversary at Home BancShares. For those that may be looking to mark the anniversary, I'll tell you that the traditional gift is aluminum or tin. I'll be honest with you, I was a little disappointed when I discovered that. Over the past 10 years, CCFG has funded over $15 billion of loans and has grown the portfolio over $1.7 billion, representing a cumulative average growth rate of over 10%. We think of that as a pretty good start. I'll talk today specifically about our commercial and industrial loan book. It was noted earlier that the CCFG portfolio declined approximately $100 million in the first quarter. This decline as well as last quarter's decline occurred exclusively in the C&I portfolio. Historically, we had two types of credits in our commercial portfolio. The first, single credit broadly syndicated and middle market loan and the second, structured facilities secured by portfolios of middle-market corporate loans. As of this quarter, we've effectively exited the single credit broadly syndicated and middle market loans. At its peak, this portfolio was over $200 million, and today, it stands at less than $10 million with just four credits remaining. In addition, over the past year, we exited debt maturity or refinance several structured facilities as we rotated out of prior facilities and chose to take a pause on new commitments pending the election and potential rate volatility and tariff impacts. Going forward, as we search for an equilibrium point in C&I book, we expect to add back to the structured portfolio. Historically, C&I has represented approximately 20% of the total portfolio. Today, it stands at less than 10%. Over this prior year, we've created capacity to selectively add back to this book. Meanwhile, our commercial real estate book, which represents the core of our loan book was stable to up over the quarter and up about 5% over the past year. The new loan pipeline remains active. Over the past 12 months, we originated just over $1 billion in new loans, and I would expect to meet or exceed that total in 2025. These past 10 years have been the most rewarding in my career, and I wanted to just take a moment to thank everyone that has supported the growth of this business over the years. I'm pleased we've been able to build a foundation for continued growth and success, hopefully, in the years ahead. Donna, I'll hand the call back to you.

Thank you, Chris, and congratulations on your 10-year anniversary. It's been a pleasure. Johnny, before we go to Q&A, do you have any additional comments?

Well, I just want to say that I think we're going to send Chris a roll of tin foil or something. We'll get a big roll.

Yeah, I appreciate that.

I didn't realize it was tin. Thank you. I don't have anything else to add. The numbers speak for themselves. Let's move straight to Q&A. Everyone can ask whatever they want. It was a great quarter, and a great job by everyone. Thanks.

The first question we have comes from Michael Rose with Raymond James. Please go ahead.

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

Hey, Michael, this is Kevin.

Michael, this is John. No, just because Michael had mentioned the boat loans specifically. Michael, what we've seen, I guess, in the first quarter is elevated volume compared to 1Q of '24 and been a large part of that because one of our European manufacturers, a significant relationship of ours has been offering to subsidize the pricing, and so that has tended to elevate the production volume, and that has largely masked, I guess, some of the uncertainty around the tariffs. But, Kevin, do you want to speak in general?

Yeah, Michael, from a community bank footprint, I think what you stated is what we're hearing from a lot of people too. I mean there's some uncertainty, obviously, over what's happened last month, and that may keep some projects that may be kind of in the development stage and the planning stage. It may slow some of those down. I mean, still a lot of good things happening in our core markets. So, I'm hopeful that, that will be short term, but still a lot of activity and a lot of good things happening.

Very helpful. Could you please provide insight into the factors affecting margin for Stephen? How much opportunity is there for pull forward or repricing on the deposit or liability side? It's encouraging to see loan yields remain well above 7%, even though they decreased quarter over quarter. Can you update us on the new production yields and how we should consider the margin in the near term? If growth continues, that would certainly be beneficial. Thank you.

Sure. Hey, Michael. Yeah. So, several questions there. I guess production in Q1 was a little over $800 million. Weighted average coupon was 7.75%. So still hanging in there fine, north of prime. On the deposit side, just here recently over the last couple of weeks have kind of tried to reignite a little effort on negotiated checking, savings, those kinds of things. A lot of that is going to obviously depend on competition. You had a call earlier this week with our presidents and you're still hearing banks offering 4.5%. So we have to compete there and protect the franchise and we'll do that. But there's probably some opportunity on checking and savings to try to clip a little off here and there depending on what happens with the Fed. And then on the CD portfolio, we've got $600 million maturing this quarter. We've got about $400 million next quarter. Out of $1.8 billion that we have, I think, 85% or more matures within 12 months. So we're pretty short on the CD portfolio, and we should see 10, 15, 20 basis points potentially come down as those come through. So yeah, I think margin overall, I think same message as we have for quite some time now would be pleased to see it kind of hold in the range that it's in. Cash in March was up with the deposit build and that weighs on the metric itself, but that's come back in a little bit here lately just with tax payments going out over the last couple of weeks.

Very helpful. Maybe just finally, last one for me. Johnny, I think you mentioned this in the outset, the credit cleanup around Happy being just about done. You had a net recovery this quarter. Anything you're seeing out there both in your core markets and also in Texas that gives you any sort of pause? And are there any industries or verticals that you're putting a little bit more eyes on at this point, just given the tariff uncertainty?

Hey, Michael, this is Kevin again. Not from a general sense. I mean, we ask that question in every presentation, we're asking our lenders about that individually, because it affects even within an industry, people differently. So, I mean we're just dealing with that from a one-off individual perspective, but certainly talk about that in every size of the legal.

Okay. Great.

Really early yet to know. I mean, you haven't really seen where they're going to land and what's going to get hit and what's not. So it's a little early. We're ahead of the discussions, but there's no definitive answers.

That's pretty well put. Thank you, Michael. Appreciate the support.

Yeah, it’s difficult. Yeah, thanks guys and Chris, congrats on 10 years. I got a Slurpee coupon coming your way. Thanks guys.

Appreciate that.

Thank you. We have the next question from Catherine Mealor with KBW. Please go ahead when you’re ready.

Thanks, good afternoon.

Good afternoon, Catherine.

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

$111 million is our figure, and if you remove the $2 million in expenses from this quarter, you would arrive at $110 or $109 million, very close to $111 million. Our management team is diligently working to maintain that amount. I didn't address this quarter's elevated legal expenses because we have been tied up with depositions related to the lawsuit throughout the month. There seems to be progress toward a resolution, though not everyone has signed off yet, but we are making strides in that direction. The $111 million is a solid figure, consistent with what we reported last year, and we are still operating with it this year. I'm quite satisfied with Stephen's management on the expense side and wouldn't expect it to decrease much further than that.

Yeah. No, it's been a really good expense control. And then maybe my follow-up on the margin was just on loan yields. Can you just kind of give us a sense as to where new loan production is coming on? We talked a lot this kind of quarter about competition being a little bit more intense this quarter. Just kind of curious how we should think about the pace of loan yields over the next couple of quarters?

Hey, Catherine, this is Stephen. I'll make the comment there, and, Kevin, add anything if you want to. Just in general, I think I mentioned earlier, coupon in Q1 production was at 7.75%. That's 7.60% or so kind of from the community bank group, so a little north of prime and then mid 8s for Chris' portfolio. We're hearing from our lenders, competition is quoting some things in the 6s, and we may have to deal with that at some point. But as you all know, we're disciplined in our approach and think we can kind of hold the line where we're at. Kevin?

No, that's good. I would agree with that.

Okay. Great. Now, regarding the margin, if we enter a scenario where we start to see rate cuts, John, I would appreciate your perspective on whether you believe we will experience those cuts. As we potentially move into an environment with more rate cuts this year, could you remind us about the sensitivity of the margin and how you anticipate the direction of your margin will change with those cuts? Thanks.

From our ALCO perspective, we anticipate a decline of about 6% in a down 100% scenario. Our ALCO model is meant to represent a specific point in time. We have factored in three rate cuts in our 2025 budget, which actually shows some growth throughout the year based on our budget projections. This will be influenced by competition and our strategies to protect the franchise. Overall, I am satisfied with our current position around 4.40%.

Great. Thank you. Great quarter.

Thank you, Catherine.

Thank you. We have Jon Arfstrom with RBC now.

Thanks, good afternoon.

Hi, Jon.

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

If we found the right deal, we’d pursue it. We have a payoff coming up, Brian, do you want to discuss what we are approaching?

Sure. We probably will pay off some sub debt. Sub debt that we acquired from Happy. It will be about $140 million. It's currently about 5.5%. But unfortunately, it pops to 9.7% on July 1. So our plan is to try to get Board approval later this afternoon to pay that off on July 31. That will lower our risk-based capital ratio is about 76 basis points once we do that.

Yeah, it’s about 9.5%. So we're not going to pay that. So we'll pay it off. We got the cash to pay off. We’ll just pay it off.

Yeah. And we've got almost $582 million in cash at the holding company. So we're good there. And we're very strong on capital, so I’m good with paying it down.

It is clear that our capital count is increasing significantly. I believe Jamie Dimon expressed this well by stating that having ample liquidity and substantial capital during uncertain times is beneficial. I am confident in our position and appreciate our ability to cover all insured depositors. I also find value in having Worcester Capital. The future remains uncertain, and while I understand the intentions behind certain actions, their effectiveness is uncertain. Regardless, we will all face these challenges together until a resolution is found. We will emerge from this situation in strong shape and be prepared to act decisively.

Okay. Fair enough. So pay down debt and maybe pick away at the buyback is the near-term message. Is that fair?

Yes, we will keep buying. We have always filed the 10b-5. We acquired about 480,000 shares this time and around 1 million last quarter. In total, we picked up about 454,000 shares. I expect if the prices remain low, we will continue to buy and accumulate more shares. I didn't think we would have this opportunity again, but it's turning out to be a good one. So, we plan to keep buying for a while.

Okay. Good. Chris Poulton, on your comments, are you essentially calling the bottom? Are you saying that you mentioned a couple of runoff categories that it feels like you've exhausted that. Are you essentially saying your portfolio could be at a bottom in terms of size?

I think that's quite reasonable. I'd like it to be that way. As I mentioned, the entire decline in our portfolio has been on the Commercial and Industrial side. We have control over that, and we can enter and exit that segment as needed. I wanted to maintain some flexibility as we entered this year in the commercial sector because we didn't see many strong opportunities in the second half of last year. We anticipated there would be more prospects, and we just made our first commitment this month. So, we waited until now to make a new commitment for the facility. I believe we'll see some returns from the Commercial Real Estate book, and I think our pipeline is robust enough to replenish that. I would like us to grow a bit more than where we are right now. We're down around 1.7%, and we still believe that 2% is a reasonable target, which I think we will achieve. However, we're not rushing to get there.

Yeah. Okay. Good. And then, Kevin, can you highlight any particularly strong areas in core loan growth within the community bank footprint at this point?

Our Southeast Florida and Dallas metro groups are experiencing a lot of positive developments. The payoffs in the second quarter appear to be quite high, which might pose some challenges as we progress through the quarter. However, it's still early, and I believe our pipeline will reveal additional opportunities. Overall, the payoffs are definitely on the higher side.

Okay. Fair enough. Just one comment on tin and aluminum. I see John Marshall does not have any foreclosed assets, but about $5 million in nonperformers. So, Johnny, maybe there's an alumacraft in there for Poulton?

Thanks, Jon. That's helpful.

All right. That’s all I have.

That’s funny. Thank you.

Thank you. We now have Brett Rabatin with Hovde Group.

Hey, good afternoon, everyone. I wanted to start back on the recoveries. And I think, Johnny, you mentioned you still expect clean-up to have $30 million of recoveries over time. Can you talk a little bit about that? You obviously had some this quarter. Can you talk about the timing of that? And then just thinking about do you think you can substantiate a 2% reserve if you end up back there? And just any thoughts on your provisioning needs net of the recoveries you're expecting?

Hey, Brett, this is Kevin. I'll take the first part of that question. I'll let him talk about provision. But a large, large portion of those recoveries are the monthly payments on the large charge-off that we took, and we expect those to continue now. You could have an event somewhere down the road in a sale or something like that could accelerate that. But as of right now, that's $1.5 million a quarter, and we expect that to continue for as long as they continue to pay it, which we expect to happen. So that's the large part of the $30 million. Most of the other stuff is maybe one other piece, there's may be one other piece that hasn't occurred yet that I'm hoping will happen in second quarter. I think it probably can. Other than that, I mean, all of it has happened other than the monthly payments.

Okay. And any thoughts, Johnny? I know it's you've had a 2% reserve in the past and you're reserve is still way above almost everyone else. Do you want to grow that in some certain time? Or do you think that that's kind of as high as you can get it, just given the dynamics?

I'm not in a hurry, but I prefer a 2% reserve, which I will reiterate. It has always performed well through good times, bad times, recessions, financial crises, and varying interest rates. The 2% reserve consistently works. I didn't expect the loan growth to be this strong in the first quarter; it was impressive. We are seeing a recovery that should push things back up, and it has balanced out quite well with the loans. We are currently at 1.86% and still at that level, so I'm not rushing to change it. However, if the opportunity arises to return to 2% at some point, I believe maintaining higher reserves is a wise and conservative strategy for managing the company. We will act when we can, but I won't allow the reserve to decrease from its current level. We are seeing consistent recovery each month, and while there may be minor charge-offs, we recovered $7 million last month despite a couple of million charged off, resulting in around $4.5 million or $5 million. This amount corresponds to approximately $190 million in loan growth.

Yeah. Okay. And then just back on the M&A topic. I assume you're going to tell me that everyone is just kind of in a wait and see mode. And if no one has to do something, they're just going to wait and see how the environment plays out before proceeding. But I was just curious on your thoughts on the environment and what you're hearing from folks and what do you think your outlook might be for M&A? I know it's hard to gauge with the uncertainty.

Well, we just saw Cadence get that deal done in 60 days. How long has it been since we saw a deal get done in 60 days? It's been the last Trump administration. So it is a positive for banks, certainly is a positive for banks. And French Hill, Head of the Financial Services Committee, first banker in 100 years to head that. That's a plus for the banking industry. You got a real banker of running financial services. So I think that's a plus. I think Trump is going to deregulate as much as he can. I think it's our opportunity. It's a window. I don't know if it's perfect timing with all of the tough stuff going on. But we're not on a trade right now. But we're not off a trade. So, we're open to what makes sense. And we'll do a trade. I mean, I'm excited. I think you can close a deal in 60 days. That really gets pretty exciting. So from that perspective, I'm more inclined to do something. We're not really on something right now. We were on one last quarter. And due to the Texas cleanup, having to get all that out of the bank, we didn't want to go forward with that. So anyway, that one could come back at some point in time and it may or may not come back at some point in time. But we're open. I just spoke at Commerce Capital. They had a big event in Texas. And we spoke there in front of about 120 bankers. So I told them our door was open if any of them were interested in coming to come on and we'll visit. So we're not excluding the M&A deal. When you run a 2% ROA as we did for the quarter, we can't get much better than that, can we? We just can't. You can't get much better than that. So it's time to bring some assets in. And we don't need to get stupid with a price. We need to buy it worth the money. I told the guys in Texas recently at this last conference, I said, think about it. We all work about the same number of hours. I don't think they work as many as we do. But anyway, I said, and you're doing a 1% or 0.9%. And I said, we're doing a 2%. So think about that. And you want to sell your bank, what should I pay you for it? I'll pay you for what it's worth, right? Think about it, think through that. You can't come beating your chest, I want two times book because next year we're going to do 1.8%. I said, well, then wait until next year to sell it, right, if you're going to do that good next year. So just the conversation around was we're open, but it has to work for both parties. And if we found the right trade, we'll certainly do it. Does that make you understand where we're coming from?

Yeah, yeah, that math you just talked about on the exchange ratio seems to be lost a lot of the times. There seems to be maybe some pride in just the absolute number at announcement, which to your point doesn't really make any sense. But that's helpful, Johnny. I guess you said something interesting. Obviously even in your press release, banking boils down to revenue and expenses, right? And you all’s expenses are about as low as it seems like you can get them. And you're talking about needing more assets to build revenues. But apart from M&A, are there any other levers you feel like you can pull to kind of pick up revenue levels more so than they are? Are there any other lines of business or anything else that's on the radar to grow revenues disproportionately?

I wish I could tell you that we have a clear answer right now, but we're going to continue our efforts until we find a trading partner. We're sticking to our current strategy, and I anticipate that the next quarter will resemble this one. So far, our run rate is $1.3 million higher compared to the same time last quarter. We're already above last year’s figures by $1.3 million this quarter. I expect our performance to mirror last quarter's. We made a sale, and an investment we had generated millions of dollars, which you'll notice in our upcoming reports. We also had another decent deal, and it seems we might have settled our tax lawsuit, though I'm unsure when we'll receive those proceeds—they could arrive next quarter. I regret to say that we have a life insurance policy for Mr. Hickman Pat, which I would rather not have but it's another source of income coming in. Overall, we’re starting next quarter strong with a $1.3 million increase in our run rate, which gives me a positive outlook. We just need to find someone who wants to engage with us as a partner, whether they wish to stay long-term or move on. We are ready either way.

Good afternoon, guys. I don't know if you’d let Tracy hang around for one last quarter, but I hope you guys are chewing some nasty cigars in his honor, maybe. If he's not there, but he's missed.

He's sitting at the end of the table with one in his mouth right now.

There you go. Everyone should have one to honor him, as this might be his last earnings call. It's been a great run. I have one last question about M&A. What do you think we need to get things moving in terms of deal flow? Do we still require lower rates, or are interest rate marks preventing deals from being finalized? Do we just need higher stock prices? I think we all expected to see more deals happen by now under this administration. I'm curious about what you believe we need to see to kickstart this process a bit more.

I saw Kevin saying this, and we need, when you said lower, that'll improve some people. That'll make them want to come out. It was about as broad as it is long. When you think about it, we're just a tick below 2 times tangible book. We're right at 2 times tangible book. And we were at 2.5 or 2.6. It's all relative. Somebody said, well, I'm going to wait until I can get 1.6 or 1.7. Well, when they get 1.6, I'm probably back to 2.5 or 2.6. So it kind of floats back and forth. Just educating the sellers to me more than anything else is what we need to do. As you heard me say, these people have got themselves in trouble with their securities book. It's hard to make a deal with those people because the mark is so deep into their book. But it's all relative. It's based on what we pay for them today and how long it takes for them to heal up. Maybe they don't heal up for a couple of years, so maybe they don't sell for a couple of years. But it all floats about the same. When Trump went in, we got the Trump bump and huge raise of all bank, raised the level of all bank stocks. Well, the tariffs come in and they're going back down. So we're back where we were prior to the Trump bump. So I think it's just a matter of educating the seller because if the seller is willing to make a deal at a 0.9, then he benefits from that, and it's accretive to the company, and he gets to ride our stock. He gets to ride a really good quality stock that pays a dividend every quarter. It's just an education process to me.

Yeah, yeah, that math you just talked about on the exchange ratio seems to be lost a lot of the times. There seems to be maybe some pride in just the absolute number at announcement, which to your point doesn't really make any sense. But that's helpful, Johnny. I guess you said something interesting. Obviously even in your press release, banking boils down to revenue and expenses, right? And you all’s expenses are about as low as it seems like you can get them. And you're talking about needing more assets to build revenues. But apart from M&A, are there any other levers you feel like you can pull to kind of pick up revenue levels more so than they are? Are there any other lines of business or anything else that's on the radar to grow revenues disproportionately?

I wish I could say that the answer is yes. However, we will continue our efforts until we can find someone interested in a trade with us. We plan to maintain our current approach, and I anticipate the next quarter will resemble this one. Currently, our run rate is $1.3 million higher than on the same day last quarter. We are already $1.3 million ahead this quarter compared to the same day last quarter. I expect our performance to be similar to last quarter. We made a sale where Happy liquidated an investment we weren't even aware we had, resulting in millions of dollars, which you will see reflected soon. We also had another promising deal, and it seems we may have resolved the tax lawsuit; while I don't know when those proceeds will arrive, they could come in next quarter. Unfortunately, we do have a life insurance policy for Mr. Hickman Pat. I would have preferred having him around instead of the money. So, we’re off to a solid start for next quarter, with the run rate up by $1.3 million to date. This indicates my thoughts, and I feel positive about it. We just need to find someone who wants to partner with us or to move on, depending on their preference. We are ready.

Yeah, now that makes a lot of sense. I appreciate the call. Everything else kind of I had has already been asked. So a fantastic quarter yet again. Appreciate the time.

Hey, Stephen, thank you. We appreciate you a lot. You have a great reputation as an analyst. Good job.

Thank you. We have another question on the line from Brian Martin with Janney Montgomery. Please go ahead when you are ready.

Hey guys.

Hi, Brian.

Kevin, could you provide an update on the NPA resolution? Last quarter, you mentioned your expectations for how NPAs might trend as you address the credits. Can you remind us of your outlook for NPAs in the upcoming quarters as you work through these credits?

I'm optimistic that we can move around 12 more this quarter. After that, we need to focus on the credits and NPAs related to the Florida member care credits, which are showing improvement. One of the three is now generating cash flow and has been for two months based on principal and interest payments. The other two are close, but we will likely need about six months of similar activity before we can move them out. In the best-case scenario, one of those could occur in the third quarter, possibly extending into the fourth quarter. Additionally, reaching the $12 million I mentioned earlier is crucial for moving anything larger, as the remaining items are relatively small.

Okay. And that the memory care one that could go later in the year, third or fourth quarter, how big is that one?

The one of the three is about $6 million. The second one that's close is $8 million or $9-ish million somewhere in there.

Okay. So you could still see a good chunk. Both of those could go in the second half of the year or later in the year, if that's possible?

Possible. Yes. possible if the current trends continue.

Got you. I wasn't sure if you mentioned the community bank loan pipeline today, Kevin, or if I missed it in your opening remarks. Can you provide some insights on how you're feeling about it given the ongoing uncertainty and how you're approaching it? I know you mentioned some payoffs.

I think the production pipeline is in good shape, though I wouldn't say it's as strong as it was during the latter half of the last quarter. The challenge will be the payoffs in the second quarter if they materialize. This presents a headwind. I'm not saying it's unattainable, but we will need some developments that aren't currently in the pipeline. There are factors that could come into play, but we'll have to see how things unfold.

Brian, I think this tariff deals kind of shook everybody up a little bit. We'll see how that goes. And I think it has got everybody's attention a little bit.

I believe as we move forward another quarter, we may gain more clarity and a better understanding of how the pipeline is developing. For Stephen, could you remind us of the margin situation? I’m not sure if you mentioned where we ended the quarter, but I believe some liquidity came in. Could you clarify where we finished the month and what our starting point for the margin will be as we enter the second quarter? Additionally, regarding the margin pressure, is the primary risk to maintaining it currently related to competition?

Yeah. Hey, Brian, yes, I would agree with that last statement. We'll see how rational everybody is over the next quarter and the second half of the year. But it sounds like it's still pretty aggressive on both sides of the balance sheet. So, as mentioned, the margin, excluding event income for the quarter was $442 million, same number there for March was $438 million. That had $200 million or $300 million more in average cash balances in March than we had in February. So, that's driving that number down some. But like I said, in that 4.4% range, plus or minus a couple is where we feel like we can operate.

Got you. Okay, I think that's all from me. So congrats on a great start to ‘25 and we'll look forward to seeing a similar quarter in 2Q.

Thank you, Brian.

Yeah, thank you. I think kind of wrapping up now, Donna, if that's all right. It was a great quarter. I expect this quarter to be as good or better than last quarter. I don't see any reason. Last week, Donna and I have run into you at many conferences, and you said, what do you want to happen? I said nothing. We just want to leave it like it is. We got the Home BancShares is what we call humming right now and it's humming about as good as it's ever hummed. So we're pretty pleased on this end and we'll talk to you in 90 days and hopefully we'll have as good or better news and maybe a deal by then. So thank you very much for your support.

Thank you all for joining the Home BancShares, Inc. conference call. Today's call has now concluded. Thank you for your participation and you may now disconnect.