Operator
Greetings, ladies and gentlemen. Welcome to the Home Bank Shares Incorporated second quarter 2026 earnings call. The purpose of this call is to discuss the information and data provided in the quarterly earnings release issued after the market closed yesterday. The company presenters will begin with prepared remarks, then entertain questions. Please note, if you would like to ask a question during the question and answer session, please press star then 1 on a touch-tone phone. If you decide you want to withdraw your question, please press star then 2 to remove yourself from the list. 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 2026. At this time, all participants are in a listen-only mode and this conference is being recorded. If you need operator assistance during the conference, please press star, then zero. It is now my pleasure to turn the call over to Donna Townsill, 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, Chris Poulton, President of CCFG, and Scott Walter of Shore Premier Finance. Home Bank Shares reported another solid quarter, generating a record net income as adjusted of $128 million while significantly expanding our balance sheet and maintaining strong profitability. Loan growth, stable margins, and improving book value, underscoring the strength of our franchise. Most importantly, we accomplished all of this while maintaining strong credit discipline and preserving the profitability that has long differentiated our company.
Our team is prepared to provide you with more details about the quarter with our opening remarks today coming from our Chairman John Allison well thanks Donna it's been another quarter come and go second quarter of 26 was sure full of records for the record but sure lots of records for the record but excuse me there were a couple of items that I think we should talk about number one is our merger with our friends with Mountain Commerce it's evident that some of our merger earnings came through a little earlier a little stronger than we anticipated as we felt some of the earnings impact in the first quarter. We got to like that because this trade was non-diluted and therein lies the benefit of a non-diluted trade. A successful merger is where the two companies should be creating more value together than either company can achieve separately. In our view, the meaning of that is one plus one should equal three not 1.75 with our deal being a three both groups immediately start sharing the benefits of their union in this merger mountain commerce and home bank shareholders will equally enjoy the ride together perhaps the biggest surprise of the quarter though was the surprising long growth for the legacy footprint we were forecasting a negative 600 million dollars in loans and actually had a plus $26 million. That's a $626 million swing on the loan side. As a result, we will no longer forecast next quarter's loan growth. Obviously, we don't do a very good job of that. The problem is that our customers are really a group of outstanding loyal entrepreneurs that are constantly looking for opportunities that we only learn about most of the time when need a funding request many of them do a deal on the spot commit to do a deal on monday and say we'll close on thursday with cash the good news is we know their limits and they know our limits the second quarter performance speaks for itself during the quarter we incurred approximately 12.7 million of merger related expenses excluding these expenses the earnings were and you're to get to hear it again, EPS is 64 cents and earnings of 128.1 million after times. That's an 8.4 percent increase from last quarter and almost 12 percent from 6 30 to 25. In addition, revenue 295 million at 10.6 percent from the prior quarter to 266.7. Adjusted pre-tax pre-provision net revenue reached a company record of 171 million dollars when you adjust for the efficiency ratio it came out 40.46 good job by both teams mountain commerce and home bank shares on the expense side and it adjusted our way of 2.09 stable margin of 4.51 same as last quarter up six basis points from 630 to 25, and I said good job for MCB and home on the expense side. On a justice basis, these performance numbers are some of the best our company has ever run. I want to thank all our associates for an amazing quarter, and that includes our new partners, Bill Edwards, and his outstanding Tennessee team. We have completed the conversion of our legacy company in June and I think it went as smooth and as good as it could be expected. Now on to Mountain Commerce. We stepped up stock repurchases during the quarter. From first quarter we repurchased 500,000 shares and this quarter we repurchased 1.5 million. I said our goal was to repurchase over a short period of time the shares that we issued in the Mountain Commerce transaction and we're already approaching the halfway mark on mna we're looking at some other opportunities but with the non-performing loan that we told you about last quarter our stock took a drop even though it was a two percent plus roa and again repeating is one of the top most profitable banks in america in the top 10. we've been on a group we've been on a good opportunity but because our stock was temporarily depressed and we hold our standards high because we do not dilute our shareholders our bid was not acceptable to that opportunity we'll hope to revisit that company soon as our stock is recovered as to the large non-performer there has been significant movement from last quarter's report but we stand by our comments that we expect no further loss the loan was non-performed and no income was recognized in this quarter for the alone, or this would have even been a stronger quarter. While work remains, we're encouraged by the progress that has been done this quarter. I have to say here that Kevin Hester, David Carter, and Matt Cook, I want to thank a special thank for them. They spent a lot of time on this non-performer. They took the bull by the horns and protected the shareholders and home bank shares, and thank you guys for a great job. That's a solid testament to the quality commitment standards of our people my cook now taking over the leadership a while back took over the leadership of the dallas region that region now reflects the credit culture of homes operating and underwriting standards it's certainly nice to have those loan problems for the most part behind us now but there's some work to be done however we think we see the light at the end of the tunnel in our environment where industry loan growth remains challenging exceptional loan growth should always be examined carefully growth generally comes from a combination of pricing structure terms or credit standards and when there is robust standout extraordinary loan growth in an environment that does not support that kind of loan growth one should look closely at the right structure and terms it's extremely important that your team from the top down to the junior lender must have lending experience and not only lending experience but quality lending experience with skin in the game at home that starts with me at the top as an asset quality hawk who's spending my sixth decade in the lending process we believe in quality lending i have been involved in over 50 m&a deals happy was certainly the most difficult but even with all the problems associated with the acquisition we have worked our way through those problems with a good partnership of happy and home employees together. We opened a new branch in Rockwell, Texas, led by Kane Pierce. We're excited about that. Glad to be in Rockwell, and this is a new branch, not a replacement. New events included hiring our first in-house counsel, Mr. Jeff Campbell, who will fill the role of corporate counsel. We want to welcome Jeff to the family and look forward to working with him. Donna, I just want to make a quick recap of the quarter, if you'll allow me to do that. And I want to leave this with the investment community. Record adjusted income, record revenue, loan growth from a negative $600 and a $626 million swing, stepped up repurchases from $500,000 to $1.5 million, PPNR, a record $171 million, an adjusted efficiency ratio of 40.46, a stable margin of 451, and Mountain Commerce already being a contributor, sooner than expected. That has gone well. Continued confidence in homes credit culture. So when you look at the adjusted earnings, the profitability metrics, the efficiency ratio, the stable margin, elevated share repurchase, and strong balance sheet growth, I believe Holmes' second quarter once again produced one of the strongest banking performances in America. You know, Your Honor, I rest my case. Back to you, Ms. Donna.
Okay. Well, thank you, Johnny. It was another amazing quarter. And our next report will come from Stephen Tipton.
As Johnny mentioned, the second quarter of 2026 was a strong showing with the inclusion of Mountain Commerce Bank in Tennessee and a little organic loan growth from Legacy Centennial Bank. Adjusted earnings, particularly excluding merger expenses, were $128.1 million, dollars, producing a 2.09 percent return on assets, the same as last quarter, and a 16.82 percent return on tangible common equity, which is on a TCE ratio of 13.22 percent. The reported net interest margin was 4.51 percent, in line with Q1, all while adding $1.5 billion in loans and deposits from Tennessee. The core margin excluding event income was 4.47 percent and in line with where we got it to on the call in April. The overall loan yield excluding event income averaged 6.96 percent and exited the quarter at 6.99 percent, while interest-bearing deposit costs averaged 2.38% and exited the quarter the same at 2.38. Total deposit costs were 1.85% in Q2 and exited the quarter at 1.84%. Strong non-interest income was a highlight for the quarter at over $53 million. Higher loan recovery income, fee income at CCFG, and increases from our SBIC investments were the primary drivers and got us back to levels we saw in quarters two, three, and four of 2025. Switching to the balance sheet, legacy deposit balances declined in Q2 by $179 million as a result of tax payments and seasonal outflow in April. Worth noting, deposit balances increased by eighty six million dollars in May and over two hundred million dollars in June to end the quarter at nineteen point one billion loan production rebounded in the second quarter to just over 1.4 billion with nearly 1 billion of that production coming from the community bank footprint switching to capital we repurchase 1.5 million shares of stock during the quarter for a total of 40.4 million dollars as of june 30th we have over 15 million shares remaining available for repurchase under our current authorization and nearly 450 million dollars in cash at the parent company tangible book value per share grew 45 cents to 15 dollars and 32 cents or an annualized increase of 12.1 percent capital levels remain extremely strong with common equity tier one capital ending at 16.4 percent and total risk-based capital at 19 percent and reserves total loans of 1.92 percent we're proud of the second quarter results here at home particularly with the inclusion of our partners at Mountain Commerce and look forward to the second half of 2026. With that said I'll turn it back over to you Don.
Thank you Stephen and to close out our prepared remarks Kevin Hester has the lending report.
Thanks Donna. As Johnny noted we found a way to post marginal organic growth and loans in the second quarter which looked very difficult when we talked 90 days ago. This included flipping what was an anticipated large payoff early in the quarter into a hold with even a slight increase which put us on a good path for the rest of the quarter. In last quarter's remarks, I mentioned that Q3 payoffs appeared high as well, and that is still the case. In fact, the gap is higher now than it was 90 days ago. Johnny joked about us not being very good at forecasting, and we discussed on the last call some of the reasons why early projections can be skewed toward declines. That said, we have work to do in order to post loan growth in this quarter. Regarding Johnny's comments about loan growth in general we are seeing loan rates from the competitors creep lower and lower while probabilities for the next fed interest rate move are up rather than down we will continue to maximize loan opportunities while trying to protect our strong nim so that we can continue to post best-in-class profitability asset quality remains solid with an eight basis point drop in non-performing loans and a four basis point drop in non-performing assets. Early stage past dues remained under 50 basis points, and loan loss reserve coverage of non-performing loans improved to 177 percent. As others have said, we began the quarter with the Mountain Commerce Bank acquisition, and from a lending perspective, the combination has gone very smoothly.
The similarity of their markets and their lending philosophy to ours will result in a shorter learning curve and earlier meaningful contribution on that note Donna I'll send it back to you thank you Kevin Johnny unless you have additional comments I think we're ready for Q&A well I do want to talk about loans a little bit on Wednesday's loan committee we approved about 350 million dollars worth of loans so you know that's our primarily the hits coming from our South Florida group that really have a lot of things going on. JC and David and their teams are doing an outstanding job in Florida. So there's $350 million worth of just, you'd think, I knew those were coming. I didn't know they were coming this quarter. So one of them we've been working on for several years, and it's going to be the best and most fabulous project ever built in Miami, Florida. us so we're excited about being in that loop with with that team of people and it's a fantastic facility that's being constructed and it is one of our customers so we just have more they have lots probably the second they said the second half they're going to bring even more so that's pretty exciting from that aspect some of this is construction so they put their money in first but it is loan growth that's coming down the pack for us before long so anyway you never know from one day or the other, one, you know, as I said, our FBO guy bought another FBO thing. We didn't know he was on that transaction. Kevin just visited with another one. And so anyway, we're working on it. It's hard to, as I said, it's like catching a grease pig in a ditch, you know, you think you got him and he gets away from you. So maybe we'll catch him, maybe we'll catch him this quarter. So that's all I got to say, Donna, I'm ready for Q&A if the rest does.
Okay, operator, we'll turn it back over to you.
Operator
We will now begin the question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of John Arfstrom with RBC Capital Markets. Your line is now open. Please go ahead.
Good afternoon. Good afternoon, John. You guys just gave us a bunch of information on loan growth or not loan growth, so I'm a little bit confused on it. But what does your gut tell you today on it? Kevin you talked about you know maybe more paydowns expected in Q3 than you expected in Q2 so maybe the indication is down but then Johnny you're talking about a bigger pipeline so I know you said it's hard to predict but what does you got tell you for for loan balances in the near term well we have probably more going on in the Florida market right now than we've ever had going on in that market.
It is quite explosive. We have been working on some of the projects. We had basically billions of dollars worth of opportunities that are going to come our way. It may be the next 60 days. It may be six months, but they're coming. Those projects are coming from our long-term customers in that market, so it's just hard to tell when they pull the trigger. But overall, I'm pretty optimistic. You know, we were going to be down $600 million. We ended up moving up $26 million. And that happened just all of a sudden. It came in, and it's kind of surprising. So, you know, we're not very good at projecting future loan growth. It seems like when I say we're going to have it, we don't. When we say we're not going to have it, we do. So I'm pretty much, I think it's going to be to keep it at where it is. I think we've got to work hard, but I don't think it's a problem with that. We had our lenders conference in Florida recently, and I told the group, I said, we're down, projected to be down X number of dollars. I need y'all to step up. So I don't know if they just reached in their pocket and brought some stuff that they were going to bring next quarter in. But it all came in pretty fast, pretty quick, including the $100 million piece of credit, another $40 million piece of credit. some really good customer credit. We don't sacrifice quality and margin for long growth, so we're not going to do that and we didn't in this cycle. Kevin, you got any comment? No, it's all fair.
Payoffs are where they are and we outran them this quarter and we'll continue to try to do that. Will that happen every quarter? We don't know until it happens. So the answer is, you're still confused. Yeah, you're still confused. Still confused, right? We did our job.
I'll probably hold it flat in the model. That's my guess. Chris Poulton, I think last quarter he also talked about maybe some paydowns in Q2 and Q3. Those balances are a little bit lower. But any help on what you've seen in the pipeline there and kind of expectations for activity in your business?
Chris, well, we did get the paydowns this quarter that we had anticipated, and yet we were still kind of flat, which means we had good production. I think we've originated $800 million, $900 million so far this year. I think that still looks pretty good for us as we continue. It's a pretty good number run rate for us. So I think like Johnny said, you know, things, we work on some things, they go away. Sometimes we let them go away and, and sometimes they come back. We're seeing a number of things come back our way. We say, if you love somebody, set them free. You know, we let them go and test out the market and come back. And sometimes we can work a transaction out. I'll be making a West coast swing, I think next week and have a whole bunch of things lined up that were things we probably worked on several months ago that now they want to sit down and talk.
So I feel good about there being opportunities out there.
You know, like Johnny said, will they come in in the next couple of weeks or the next couple of months? I think we'll see. I don't see anything different now than I did before about our opportunity to be able to get, you know, get transactions that are on our, on our terms. You know, if we're patient, I just think it's always about the impatient here.
It's hard to predict long growth when you're, when your goal was in long growth okay all right i'll step back thanks guys your next question comes from the line of brett rebatton with stone x group your line is now open please go ahead hey guys good afternoon um wanted to start hey uh wanted to start on the margin and just it sounds like you're you're being able to you know everyone's concerned about competition and funding costs moving higher but it sounds like you're you're being able to grow core deposits so wanted to see if if all those were sticky and then just if you can hold the loan yields and not see too much matriculation on the deposit side would seem like the margin at least on a core basis could could hold up pretty well but wanted to get some additional color on how you guys see see things playing out. And then, you know, obviously, you've typically been a little bit asset sensitive, you know, if we get a rate hike, you know, what does that mean for you?
Hey, Brett, it's Steven. I can take the last first. Yeah, we, I guess our alcohol bottle shows almost a 6% increase in an up 100 basis point environment. So, you know, the Fed did move quarter or a half. I think it's a net positive for us. On the deposit side, our folks have done a great job in negotiating rates on money markets and CDs. We're seeing competition in the four plus percent range and I think most recently half of our CD materials automatically renew at our lower rates and the other half they've negotiated in about the 3.5% range so they've done a good job there working relationships to keep what we have and then through loan committees and our presidents have folks out pushing opportunities for deposit growth. I mean, you know, at 451 reported and, you know, 447 without an income, I think, you know, we keep it in that range, we would be pleased.
Okay. That's helpful. And then just around the, you know, you had really strong growth in fees, particularly service fees, trust and mortgage, you know, Were any of those, do you think, impacted by any seasonal factors, or can those levels be sustained? And, you know, any thoughts on just if the outlook there is for growth, or if maybe those numbers were a little bit high for 2Q?
Hey, Brett, this is Steven again. Yeah, you know, as I mentioned in my comments, there were a handful of items that were, you know, up in Q2 from Q1. I think on the call last quarter, we talked about non-interest income was about as low as it could be at $44 million adjusted for the marketable securities, we were about $52.5. Some of that's wealth management, like you said, trust, financial services, alignment with Ameriprise. They're kind of hitting their stride and both of those areas are doing well, so some of that should continue. The loan recoveries, some of Chris's fee income and CTSG that comes when payoffs are a little higher, some of that's going to bounce around. I think our view is if you look at the last five quarters, it averages about $50 million over the past five quarters. And that's kind of where we would expect that.
Yeah, well, last quarter was kind of, the first quarter was kind of an anomaly. We normally have much more income there. We just didn't get it. We didn't get the kick that we normally get. That happens maybe one quarter out of four annually, and sometimes not. But that was just – revenue was down as a result of that. We didn't get – we got no kick, just nothing. But 50 is a good number, somewhere in that number, give or take 50.
Okay, great. Appreciate all the color. Congrats on the quarter.
Operator
Your next question comes from the line of Michael Rose with Raymond James. Your line is now open. Please go ahead.
Hey, good afternoon, guys. Thanks for taking my questions. Johnny, just as it relates to Mountain Commerce, you said that I think in the press release too that it's contributing earlier and stronger than what you expected.
Can you just give some greater color there on what you mean, maybe just in terms of expense savings revenue synergies or just any other color broadly you have on on what would qualify that that statement from your view thanks as we're going through the quarters first month second month and third month together i could see that i could feel i could feel the income by looking at the income statement that we're getting extra income from somewhere and it had to be coming from there basically so some some of it was improvement at home but but a lot of it was coming from them. I really didn't expect that. I guess I was shocked by the fact I didn't expect that kick that quick. We convert in November, and that's about a five and a half, six million dollar savings to the company that we'll pick up at that point in time. So I just wasn't, I think I wasn't prepared for it that quick, and I saw the numbers and the revenue numbers and all of it coming together and just was extremely pleased with what I was seeing on the data reports. I I mean, if you remember, we get a daily P&L statement here, and you begin to see it, and you think, where did that come from? How did that happen? And it was just all positive. That's basically it, Michael. So I felt it over the quarter, day by day as we operate.
No, certainly appreciate that color. It's obviously a good deal for you guys. Maybe just going back to loan growth, I know we've already kind of talked about it a fair amount. But you do have pretty good momentum here, as you mentioned, 350 million recently approved loans. You know, I guess, do you think with Mountain Commerce in the fold and maybe, you know, some bridging into some higher growth economies, you know, now that Dallas is back in a bigger way and, you know, what's going on in Texas?
I mean, could we think about structurally better loan growth from home than we've seen in recent years or is this the competitive environment particularly given that some of those markets are are more competition just just going to be harder i i can i can agree with uh that that that we could have better long growth i i i don't want to talk about other what other people are doing because it sounds like i'm throwing stones but we're seeing some ridiculous stuff being done by some people in the marketplace And it's just really frustrating. We're not going to do that. We got tons of capital. It's a powerful earnings machine. And we're going to continue to do what's right. And we're not going to get off into chasing rainbows. So we've never done that. We're not going to start doing it now. But I mean, we're seeing structure in terms that, I mean, they're just ridiculous. We're seeing that. So we're not going to do that. We're going to continue to, as I said, keep the quality, the margin and stability. We're going to price that over loan growth. So could we get long? It might get long growth. Hell, it's nothing to long growth. You can get all you want. Give it away, change the terms of the structure, and you can load the wagon. You can just absolutely load the wagon. And, you know, that doesn't mean that it's going to long term be good. You can look at the asset quality of home over the past, since we've been public, basically, and look at the quality of what we produce. And we'll continue to do that. We're not going to change. We're not going to run off into the sun. I got people pushing me to lower our standards and go do that, and they can do that after I'm gone. After I retire, I go to the house. They can do that, but they're not going to do it while I'm gone. Totally understand, Johnny. What was it we had here before with Michael? The quarter was so good, I told him before. He should have had Slurpees this quarter with Michael. He should have brought a Slurpee.
I'll wind it up for you next quarter. how about that absolutely just one follow-up on that just in the absence of loan growth just assuming that the competition does remain intense intense here in the near term you know how should we think about the the pace of buybacks is kind of what you did this quarter what we should kind of contemplate or is there room to maybe even move that higher um just given what's out there and how profitable you guys are we do what we say we're going to do we said we're going to buy back the number of shares we issued and amount of commerce so you probably you know we'll look for opportunities they gave us a great opportunity last quarter that's when we stepped up
and bought a buck because they took us down and gave us i think our average 25 bucks or something steven 26 so that was a great opportunity for us so if if in fact we get an opportunity will be extremely aggressive but it is our intention to buy that back because it is our intention to do another m&a deal on the hills of mountain commerce all right makes sense i'll step back thanks guys all right thank you appreciate it your next call comes from the line of steven scoutin with piper sandler your line is now open please go ahead
can you guys hear me sorry about that um appreciate it guys i'm curious just following up on those m&a comments johnny kind of what you guys are um what you're seeing in the market right now kind of you know with bank stocks up kind of across the board if that's making it the conversations more palatable or if you know sellers expectations just continue to go higher because you know the group trades up so just kind of wondering how those dynamics are playing out the conversations you're having well you know it's a racing time raises all ships or whatever they say rising time raises all ships well we're seeing that in the marketplace right now
with it's pretty good space bank space a pretty good place to be you know because if if we the last bill when our stock was down and we bet on and i understand that they wanted a better trade I mean, had they taken that, they'd be up 25% today, you know, so it's all basically the same. It's how many of their shares for our shares and what that trade means. And we're not seeing a lot of M&A out there right now. People are looking at their balance sheet and they're thinking about, is this a diluted, diluted, diluted transaction? So we're not seeing a lot of that. And we're not certainly not going to do that. And I'm having people say, well, Johnny, with your currency right now, you could go buy this and that and this and that if you just take a little dilution. Well, we don't dilute. That's what the world would like for us to do. And then they could say, well, hell, they diluted that last deal. So anyway, we don't do that. We'll continue to do what we're doing. I think there's opportunities out there in the marketplace. But the deals either work or they don't work, as I've said in the past. They're either creative, creative, creative, or they, you know, our stocks back up close to two times tangible book now. So that gives us the ability to move up and make somebody happy if they want a better price. You know, it could be, you know, you trade with somebody last month and they get the stock and it's up, I don't know, 30% since then. So, you know, it just depends. Timing means so much, as you know. Timing is the key to where their stock is, where our stock is, and if it works or it doesn't work. and what does hold tight you know we hold tight on it's it's worked for this company for the last 25 years to hold tight on underwriting and hold tight on acquisitions to do the right thing so I think we could see a stock market turnaround here before too long we got things are not as strong as they have been but I don't think it'll be bank stocks I don't think it'll be home I kind of went around the horn there but I don't know if I answered anything that you asked or not yeah no that's that's yeah that's helpful context for sure i appreciate that um and kind of maybe
thinking about expenses for a minute i feel like you know last year into the beginning this year you were kind of pinging around a 113 114 million a quarter kind of range that you were you were hoping to hold everyone to what's kind of the number in your mind today johnny where where you'd like expenses to to stabilize and what you guys think you can achieve there well I think yeah somewhere in that range is fair we we got uh uh you know what do we have 12 million what do we come out of it if you take the 12 seven out it's about 122 seven which I think is kind of last quarter where we said you know with mountain commerce their current expense
run rate where we would where we would land and then you know once we get converted in November we will get a good portion of those cost savings out at that time. So we'll see a little benefit from that in Q4 and then obviously all of that next year.
I mean we think about how efficient home operated and then you add Mt. Commerce how efficient Bill operated his group and then we're going to get some additional savings.
We'll get some income and we should get some additional savings coming up here pretty quick so i i'm optimistic we can we can hang in that in that range in 120. got it that's great and then maybe just one last clarifying question back on the previous conversation around loan growth and payoffs and whatnot i think you know on on last quarter's call you got to talk about thinking there could be maybe a billion dollars in payoffs kind of curious where you actually ended up seeing that number come in if it was it sounds like maybe it was slightly better than what you're projecting there and then this is you think about third quarter and beyond if if if it's north of that billion a quarter number or just kind of framing
that you know payoff dynamic conversation up a little bit hey this is kevin um last quarter's number was a billion dollars a little bit over a billion dollars um this quarter could be there it's a little early but it's there it it could be scheduled for that okay so so that magnitude is kind of the same.
And then if you're doing a billion forward production, it just kind of depends on how it all funds up and the timing of everything of when and if you can see loan growth. Is that the right way to think about it, Ken?
I think it's exactly the way. This is the toughest time in the bank space is rates are going down or going up. It's better for us if they go up. But when they start down, when the rates start down, then people try to jump ahead of a loan rate and go in and cut the rate point and a half or so and cut a deal with somebody and tie it up and that's this is the toughest going up is a lot easier than going down so this is a battle to take one customer at a time and you fight the battle and this is in our history third or fourth time we've we've fought that battle and we'll continue to fight the battle this time, but it's not necessarily all right. I mean, the structure of some of these deals and the loan to cost or loan to value ratios have kind of gone out of whack. It reminds me of around late 2000, 2004, 2005, you know, 2004, 2005, when people were doing stupid stuff. So we're seeing some of that in the marketplace. And that'll come home to haunt people, I believe. We're just not going to play the game. We don't have to. We've got a good machine that's generating really good, solid income. And the difference between a record month and not a record month is how much risk we want to take. And we're not big risk takers.
Makes sense. That's a really helpful caller. And congrats on another great quarter. Appreciate it, everyone.
Thank you very much. We appreciate it.
Operator
Your next call comes from the line of Matthew Olney with Stevens. Your line is now open. Please go ahead.
Hey, thanks, guys. I guess going back to the discussion around the competition for loans, Kevin, you mentioned pricing is getting tighter. Any more numbers you can put behind this in the market? And then for Home Bank, any color on just the production yields you guys have seen more recently?
I'll let Steven cover the yields. he had those uh in his we were talking about those before the meeting i think he's got those written down i'll let him cover those but um i mean we are seeing some things in in the fives the high fives the mid fives and as johnny said it's not just rate it is rate and structure in the same deals i mean you know we you can kind of get by with giving rate or you can give a little structure you get your rate and get your risk covered we're seeing it both ways and that's the challenge is that you you give rate and structure away like i said it's easy to grow if you're willing to do that that's that's simple anybody can do that we were we were at about 63 quarters 675 676 on production in the second quarter okay great
thanks thanks for that and then i guess maybe similar question uh chris polton i know your Your borrowing base is very unique and differs a lot from what Kevin was talking about. But curious what you're seeing on the competitive side as far as pricing and structure as well.
We don't see much on structure because I think the deals tend to be a little bit more bespoke. And so, you know, we do see, you know, we see price over the last couple of years. We've seen price probably come down, you know, 50 basis points or so overall. um i think in the market uh sometimes it comes down a little more we see price i would say a lot more in two areas one construction every once in a while you get some folks step in and just get really aggressive on construction again not necessarily on a lot higher leverage um and on recourse side but you do see uh you know every once in a while somebody will step up and get pretty aggressive on price for a few months and they generally do that and then they they fill up and they go away for a little while um and then on uh the facilities side as well um i think that's where we probably see most of the structure um these were i think folks that are getting into that facility space might underestimate how much structure they're going to need um but uh otherwise i think it's just it's just a normal kind of thing where every once in a while somebody's got got to put some money out and it's burn a hole in their pocket and they get aggressive yeah okay all right guys that's all from me thank you for the color thanks matt your next call comes from the line of brian martin with breen capital your line is now open please go ahead hey good afternoon everyone Hey, good.
Thanks, Johnny. Maybe just one last one on the expenses, Stephen. I think you talked about, you know, the conversion in November and kind of the pace kind of holding where it's at today.
I mean, if we think about 27 and you get the savings post-conversion, I mean, is it best to look at, you know, that run rate where you're ending the year, similar to what we look like going into 27, or given that you've got, you know, inflation, obviously, but you're going to get the savings coming out in the fourth quarter so maybe not much change in the run rate from 4q heading into 1q is that a fair way to think about it or is that is that not the right way no i think that's fine uh you know again we're in a fit you know call it half a million dollars a month give or take um you know post conversion with mcb and bill's done a great job with bill and kevin both and, you know, have seen some cost savings opportunities along the way already, but the bulk of that, you know, comes out November, December, and then we'll have our typical, you know, kind of beginning of the year, you know, merit raises and those kinds of things.
gotcha okay just remind me the savings you expect uh from the uh from the transaction in terms of uh you know i guess what dollars or i guess however you frame up the you know the savings you're anticipating coming from the mountain college we've all 20 which is about okay and that is and the bulk of that comes in the fourth quarter or post fourth quarter correct okay got you thanks steven and then maybe johnny just on the m a i mean it sounded like there was a trade you guys were on, now you're off it, maybe come back to it. But just in terms of then the kind of your comments about the conversations maybe being a little bit less today. I mean, it sounds like not putting words in your mouth that maybe there's nothing imminent, but your discussions are ongoing. And maybe if that's accurate, you can confirm that. And then just if in terms of sizing or geography, kind of where you're, any change in terms of where the interest is?
I'm not going to do that. I'm not going to do sizing or geography, but I like the people and I like the company and I like their geography so I'm going to go back and revisit that. I've sent them the information for the call and I actually I called them afterwards I said I couldn't get there because I was eluding myself because they had my stock down to 170 or something some number so I said it wouldn't work for me so he said that didn't work for us and I said understand but uh we're going to go back and revisit that if they're interested and see if we can put something together that that makes some sense so it's it's another nice nice trade appears to me you know good little bike and uh uh similar mountain commerce to me in lots of respect not the same geographic area but yeah i got you yeah where they operate their business so they're There's good operators, you know, there's run a good number.
Yeah, okay, that's helpful. And then maybe just one on non-performings or just credit quality. I know you mentioned some improvement there, all the hard work that Kevin and team had done. So can you just frame up, you know, kind of the outlook or how you're thinking about, you know, the pace of NPAs and charge-offs as you look in the coming, maybe just the pace of NPAs or just how you see some of the improvement unfolding here in the next, you know, 12 months or 12 months, however you want to frame it up just to see a path of improvement.
I don't see any difference. We stand by what we said before there's no longer no more on the larger one there's no loss coming we're not going to take any loss so we stand by that and outside of that you know we cleaned up a little stuff this quarter and we just tend to pack at it a little bit if there's one or two that sticks their head up but we we're mostly through that I'm not I'm not looking for anything any different on the charge-offs. It may be better from here on than what it has been, but where it is or a little better is what I think. There's nothing coming that anybody's concerned about. It's good. It's actually good. It's actually good right now.
Okay, and just in terms of how much improvement in non-performing is given the lifting you've already done. I mean, what could we see over the next six to 12 months? I mean, could we see a significant decline in non-performings, or is it more of a slow grind, I guess, however you frame it up?
That's really up to the other side of the fence sometimes. You know, it's not, we can see that, but we're not walking away. So, you know, we expect to collect everything that we have out there and we're not going to accept anything different. I really don't see any changes. It might get better from here, quite honestly, the charge-offs. We had, I don't know, five million this quarter?
Closer to six, but we had almost three million of that was specific reserves on loans that we charged off. We had matched up to specifics. If you take that out, then it was really just a normal quarter.
We're actually, it's really marked improvement in asset quality here. There's no, no, you should have no concerns about asset quality.
Okay. Yeah, and remind me the size of the largest credit that you talked about last quarter. Where does that stand today or what level is that at?
It's at, it's where it was. It's a little less than 100 million.
It's still where it was but that's one that we're we have seen some movement on and if reasonable heads stay together we'll wrap that up and if they don't then we'll fight the battle so there you go gotcha okay and the last one for me sorry was the just on the margin stephen can you just frame up like i know you said that your hope is to see the margin you know maintained it's you know kind of current core level if you will but just the the puts and takes what could take that you know better or worse and And then just maybe the opportunities you have on the Mountain Commerce book in terms of loans and deposit, where there's opportunities to pick up there.
Yeah, there's certainly opportunity on the deposit side with Tennessee. They've got about $300 million in CDs that mature in the second half of the year that yield there. Yeah, as we've always said, I would say competition is probably. We've got a billion and a quarter in CDs that mature in the second half of this year, in the mid-threes. Like I said earlier, we've done a good job and been kind of in or below that range on where we were new, but competition forces that higher, that's probably what you've done a great job of.
Okay, so not much pressure on the asset side, I guess. I mean, you talked about the loan yields and kind of what you're seeing in the market, So maybe it's just you're not going to push forward with some of those loans at those rates, it sounds like. Yeah. Okay. All right. I think that's it for me, guys. Thanks, and congrats on a great quarter. Thank you very much.
Operator
Your next question comes from the line of Catherine Mueller with KBW. Your line is now open. Please go ahead. Thanks, everyone. Good afternoon.
Two last questions, just mini-model questions. Maybe first on fees. These were a big beat relative to our expectations, and I think you mentioned there was a bully gain and higher SBIC investment income. Can you quantify maybe how much that increase was in SBIC and how we should think about a normalized run rate going into next quarter?
Yeah, that increase was about uh 2.4 million for those uh equity investments that we have okay great and then anything else in the sea line that you felt like was artificially elevated well we did have our uh purchase accounting accretion go up two and a half million dollars and 1.5 million of that was just related to mountain commerce the rest of it It would have been from older stuff paying off. Got it.
So do you think that PAA comes down from the $3.6 million?
Well, if the payoffs stop, you know, you know, Mount Commerce would be the same next quarter. I guess it's over this quarter. The other, if we get the payoffs, you know, that's the key. About $900,000, that was payoffs, early payoffs on loans that we generated the income.
It does happen periodically. they might happen next quarter too yeah you can't you never know usually there's always something paying off so yeah no but that's that's helpful just about 900 000 of it was for early payoff not just your scheduled paa accretion correct okay that's great that's helpful okay great that's all i got everything else was asked and answered thanks great quarter thank you very much appreciate appreciate it was a great quarter for us thank you we have reached the end of the q a session i will now turn the call back to mr allison for closing remarks uh thanks everyone for your
participation today uh thanks for supporting home bank shares we uh we we work it's if we work at it we're a little even though we had a two percent roa and one of the top 10 in the nation the first quarter we felt like we didn't do a very good job but so we work hard at it and we'll continue to work hard at it as you know and uh hopefully hopefully things will settle down in the marketplace and and we'll have more loans and generate more income and that's our game is to continue to grow the company over a period of time through both growth organic growth and m a and we hope to hope to be able to tell you about another deal before long so thanks thanks everyone we look forward to visit with you in the future.
Operator
This concludes today's call. Thank you for attending. You may now disconnect.
