Home BancShares Q3 2026 Earnings Call Transcript

Home BancShares (NYSE:HOMB) reported third-quarter financial results on Thursday. The transcript from the company’s third-quarter earnings call has been provided below.

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Summary

Full Transcript

Donna, Investor Relations

Stability, strength and shareholder value creation. All banks are not created equal in management, profitability, margin and among many other categories. And we certainly work hard at Home to set ourselves apart. We are proud to announce another record-setting quarter here at Home and our team is prepared to provide more details about our performance.

Our first speaker today will be our Chairman, John Allison.

John Allison, Chairman

Welcome, everyone. It’s another strong quarter for Home BancShares, led by record earnings of $129.1 million, or $0.65 a share, for the first nine months of 2026. We remain on a strong path towards my goal—our goal—of $500 million. Or does it sound better to say a half a billion? I never thought I’d be saying that, but we’re on the path for that. For the first nine months of 2026 we produced $380 million adjusted earnings, keeping us on a strong path towards our goal of $500 million.

Really, the real difference between the earnings and the adjusted earnings is primarily Mountain Commerce—the merger expense of $12 or $13 million. During the quarter, we paid our new dividend of $0.23 a share. I know y’all are happy with that. I would think that’s a 9.5% increase. And my wife is extremely happy. As y’all remember, she’s a dividend hawk for every one increase. In the last quarter we repurchased 1,300,000 shares for approximately $39.3 million, creating a shareholder buyback yield of 0.69% in the third quarter; second quarter we created a shareholder buyback yield of 0.77% and the first quarter of 0.25%. So total through three quarters: additional shareholder return of 1.71% for the three quarters. We repurchased 3.3 million shares, approximately $94.4 million, with plans to continue stock repurchases during the fourth quarter. Couple that with a new dividend yield of approximately 3%. It is our goal to return as much capital to our shareholders as prudent to do so.

I understand the importance of shareholders because they are the ones who we work for. Being a founder, chairman, owner, operator and largest individual shareholder, I understand the alignment firsthand—management is invested in alongside our shareholders—and we remain committed to sharing the rewards of the company performance with them. That more than confirms the passion and drive to share the rewards with all our shareholders. Home’s earnings power and balance sheet flexibility was shining brightly in the third quarter with record profitability, strong stock repurchases, margin expansion, increased dividend, consistent ROI, strong PPNR, tangible book per share growth, low efficiency ratio. It’ll be interesting to see as time goes on in this quarter how we compare to the rest of the industry. We’re proud of the fact that we’ve been named by many companies for outstanding peer-leading performance awards year in and year out. And as we forge forward on our goal of a half a billion dollars in profit, as I said in the second quarter, Mountain Commerce transaction is performing very well and making a continued contribution to the total company.

Based on what I’ve seen, I’d do that transaction again. We expect additional benefits as we complete the back-office integration during the fourth quarter. Congratulations on a good job to our new Tennessee partners. I’m proud of the work you’re doing. Again, the big surprise like the second quarter was the third quarter average loan growth balances—outstanding. What appeared to be a large down quarter like last quarter turned out to be only down $28 million on average balances from last quarter.

That’s a result of keeping many of the loans that pay off coming late in the quarter. Our funding strategy also continued to benefit earnings. Borrowing expenses during the quarter declined by $2.3 million. Decrease in interest expense on deposits was $1.2 million of that, and decrease of $1.1 million in interest expense on Federal Home Loan borrowings and other borrowings as we reduced total borrowings by $200 million during the quarter. Many banks may think their AOCI pain is over because they restructured the balance sheet.

It took hundreds of millions of dollars, in some cases billions of dollars, in losses attempting to repair the damage inflicted by their decisions. The story appears to be repeating itself again as rates continue to climb. Home avoided taking excessive duration risk, maintained balance sheet flexibility and protected shareholder capital. Our disciplined decision not to build a large long-duration securities portfolio has proven to be the right one.

Higher rates still affected our AOCI during the quarter, but impact remained manageable relative to our size. If you remember, we’ve not bought securities in years to speak of. A key point that differentiates Home BancShares from most banks—as evidenced by the increase in margin for the quarter—is the balance sheet is structured to increase the margin as rates increase. Donna said all banks are not created equally, and they’re not created equally, but when rates go up, bank stocks usually go down when it’s actually positive for Home BancShares.

As you can see for the quarter, we built this balance sheet to perform through different economic and interest rate environments, and that discipline continues to benefit our shareholders through today. Those pushing public banks to buy low-rate, long-term securities several years ago are now the ones pushing for growth—grow, grow, grow. “Johnny, open up that loan machine.” I really bet that few, if any, of them have ever run a bank. Being one of the most profitable and safest banks in the country, year in and year out, has worked for our shareholders.

We will stay the course as we have in the past. I’d rather be known as one of the safest and most profitable banks in the United States than one with problems, losing millions of hard-earned money of the shareholders. We will grow when opportunities meet our standards for credit quality, pricing and shareholder returns. We will stay the course, and you can bank on that. Regarding our large non-performing loan we’ve been discussing for several quarters, our longstanding guidance has been we have no additional loss in the large Texas C&I relationship and, in fact, we expect recoveries over time.

There’s been a lot of positive movement in this credit over the last 90 days. Eighty percent of the assets of the company are under a signed asset purchase agreement that we expect to close tomorrow, next week, three weeks from now—but soon. And the remaining 20% have a preliminary agreement with only one contingency that will be resolved once the first part is sold and completed. So when the 80% is sold, we understand the other 20% will come right after that.

We expect these transactions to close this quarter. The scheduled proceeds from these two sale transactions would result in a recovery of over the current carrying balance. Remaining balances owed and the proceeds would be between the personal guarantors and Home BancShares. Profitability, as I said earlier, of our company—we had a 166 PPNR, and I think Stephen’s going to cover most of those. We came out with a pretty good efficiency ratio of 40.84% for the quarter and a 2.11% ROA, and that’s without the Mountain Commerce conversion.

Our non-performing ticked up a little bit, but that’s not concerning to us at that. I think Chris had a little one that popped up $11 or $12 million, and he’s around to discuss it if anybody wants to ask a question. I’d like to say a special thanks to our team for continuing to produce better numbers almost every quarter in our 26-year life. We’re honored to be a continuing top performer year in and year out. Donna, I think that’s all the news I have because all the news I have was good, and I have no bad news.

Donna, Investor Relations

Okay, well no bad news is good news, so thank you, Johnny. Our next report comes from Steven Tipton.

Steven Tipton

Thanks, Donna. As Johnny mentioned, the third quarter of 2026 was another strong performance for Home and Centennial Bank. Adjusted earnings were $129.1 million, an increase of $1 million from last quarter. Performance metrics are again top tier with a 2.11% return on assets and a 16.54% return on tangible common equity, which is on a TCE ratio of 13.48%. The reported net interest margin was 4.53%, an increase of 2 basis points from Q2. The core margin excluding event income was 4.50%, up 3 basis points from the prior quarter and up 4 basis points year over year.

The overall loan yield excluding event income averaged 6.91% and exited the quarter at 6.90% while interest-bearing deposit costs averaged 2.37%. Total deposit costs were 1.83% in Q3 and exited the quarter at 1.81%. Switching to the balance sheet, legacy deposit balances declined in Q3 by $358 million as a result of a decline in municipal deposit balances, quarterly tax payments in September, and the reduction of wholesale deposits from the MCB acquisition.

We continue to focus on core deposit relationships in this extremely competitive rate environment. Noninterest-bearing balances now stand at $4.21 billion and account for over 22% of total deposits. Loan production softened slightly in the third quarter to $850 million, reflective of our conservative approach to underwriting and discipline in pricing. Tennessee contributed nicely this quarter with almost $70 million in production. Payoff volume that we’ve discussed in the past materialized in Q3 with payoffs at $1.01 billion.

Our pipeline for unfunded commitments remains strong at over $3.8 billion. As Johnny mentioned, tangible book value per share grew $0.03 to $15.35 despite a $65 million increase in AOCI and the share repurchases, a testament to the earnings power and stability of our company. Capital levels remain extremely strong with Common Equity Tier 1 capital ending at 16.7% and total risk-based capital at 19.4% and reserve to total loans of 1.93%. We believe our balance sheet is well positioned to benefit from the recent move in rates and for what looks to be additional rate hikes in the future.

We have approximately $1.2 billion in fixed-rate loans maturing over the next 12 months at a weighted average rate of 5.72% along with $7 billion in variable-rate loans. Asset-liability modeling shows a nearly 6% increase in net interest income in an up 100 basis point scenario. We’re proud of the third quarter results here at Home and look forward to another record year as we round out 2026. With that said, I’ll turn it back to you, Donna.

Donna, Investor Relations

Thank you, Stephen. Kevin Hester will wrap up our prepared remarks with an update on lending.

Kevin Hester, Chief Lending Officer

Thanks, Donna. Loan balances ended the quarter much better than we anticipated. When we visited 90 days ago we had some payoffs late in the quarter but also held on to a few that we expected to pay off. Johnny says I’m not very good at forecasting loan balances, so I’ve got that going for me. I’m not sure if it’s correct or not, but for what it’s worth, this quarter looks better than the last. We continue to see sizable loan opportunities throughout our footprint, and we’re encouraged by the effort that’s given by our lenders.

Johnny commented on the large nonaccrual, and while we’d hoped it would be a third-quarter resolution, we’re very encouraged by the progress made recently and we believe that the proposed asset sales validate our underwriting and management of the credit. Overall asset quality remains solid and, while nonperforming loans increased 11 basis points quarter over quarter, that increase is due to one CCFG loan that we expect to be resolved in this quarter, and Chris is on the call to provide more color on that.

We remain focused on asset quality, profitability and growth, in that order. One thing I can confidently tell you from my 65 quarters leading the lending function of this company is that this is the only formula for long-term success in this industry. Donna, I’ll give it back to you.

Donna, Investor Relations

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

John Allison, Chairman

Well, I think Stephen kind of hit that thing about the quarter. We got an AOCI mark of $65 million, we paid our new dividend, increased dividend, and we bought back 1.3 million shares, and we still grew tangible book value slightly. We didn’t lose—tangible book didn’t go down. Banks sell on tangible book, and we still increased tangible book value per share. Very proud of that. And what that says is that Home has amazing earnings power. That’s what 2.11 ROA will do for you.

I really just want to thank the entire team for continuing to deliver outstanding results nearly every year. For our 26-year history, Home BancShares has built a consistent record of top-performing banks and the performance reflects the discipline and dedication of our employees across the company. This was another strong quarter for Home BancShares. We produced record earnings, meaningful capital to shareholders, maintained our balance sheet discipline, made encouraging progress on the large credit we’ve discussed.

We remain focused on finishing the year out strong and delivering long-term value for our shareholders. Past that, I think that’s enough for me.

Donna, Investor Relations

Okay, that sounds good. We will turn it over to Q and A.

OPERATOR

Thank you. 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 optimal sound quality if you are muted locally. Please remember to unmute your device. Please stand by while we compile the Q and A roster. Your first question is from the line of Steve Skulkin from Piper Sandler. Your line is now open. Please go ahead.

Donna, Investor Relations

Are you on, Stephen?

OPERATOR

As a reminder, please unmute your device.

John Allison, Chairman

He was going to be in kind of a rural area today. He may not be making connections. Move on. If he comes back, we’ll handle it. How about that? Let’s move on.

OPERATOR

Your next question is from the line of Woody Lay from KBW. Your line is now open. Please go ahead.

Woody Lay, Analyst at KBW

Hey, good afternoon.

John Allison, Chairman

Hey, welcome. Nice to have you. Hi, Woody.

Woody Lay, Analyst at KBW

I appreciate you all having me. I wanted to start on the net interest margin and, you know, higher rates would seem to be a benefit for you all. Was just curious with the hike in September, how you’ve seen the NIM progress from there and what incremental rate hike could mean for the NIM going forward.

Steven Tipton

Hey Woody, this is Stephen. Yeah, I guess first part of your question, you know, the core NIM excluding event income averaged 4.5 for the quarter. It was 4.55 in September. Obviously the rate hike came halfway through the month there, so I think there may be, you know, a little bit of incremental benefit for us and then just, you know, based on our ALCO modeling, like I said in the comments, I mean we show, I think it’s 5.6% increase to NI in a 100-basis-point scenario.

So that’s kind of what, you know, or the way we think about it today. I mean we’re certainly in a competitive environment on loans and deposits. But if we’re able to, you know, if we’re able to control that on the deposit side and get some lift out of these maturing loans over the next 12 months, you know, I think there’s a chance that it could potentially move a little higher from here.

Woody Lay, Analyst at KBW

Got it. That’s helpful. And then, you know, I was curious on the growth front, you know, based on your opening comments, it seems like you’re a little bit more optimistic on growth in the fourth quarter and was curious. Is it, you know, is that a reflection of, you know, competition slowing down? Is pricing becoming more rational? I guess just curious on your thoughts on maybe what’s driving that clear path to growth.

John Allison, Chairman

This Johnny. I’ll take a little of that and give it to Kevin after that. We lost about half a billion dollars of loans due to some unusual circumstances that we have that hit the company over the past 18 months. They’re gone now—those unusual circumstances are gone. But we’re back on the loan, we’re back on the loan wagon today. We’ve got lots of good stuff working and I think you’ll be pleased to see the loan growth out of Home BancShares. I’ll let Kevin speak to that he was referring, and then we’ll let Chris comment on it also.

Kevin Hester, Chief Lending Officer

Yeah, Woody, I don’t know. That may be saying that people are coming back to their senses with the 25 basis points that already occurred going up and the thought that there’s probably 75 more coming—that may be playing into where we’re at. We’re not 100% sure of that at this point, but there’s certainly some good opportunities that we’re looking at for this quarter. Good sizable opportunities. And it’s across the footprint. It’s not all in one place.

So we may look back in 90 days and say that, yeah, that is part of it, but I’m not 100% sure that’s the case yet.

Woody Lay, Analyst at KBW

Got it. All right, well, that’s all for me. Thanks for taking my questions.

John Allison, Chairman

One more comment from me. We’re seeing a lot of opportunities out there right now that really look good. I think you’ll see coming through. Chris, you want to comment on CCFG, what you’re seeing?

Chris

Sure. Thanks. Well, a little slow new origination-wise for us in the third quarter. I mean, I think we closed towards the end of the quarter other than two loans hadn’t closed and we probably had zero in the pipeline—you know, no soft quotes, no term sheets. But I view that as a good thing. Ultimately, the market was in transition and the market’s got to catch up with us sometimes a little bit on feeling sour about things. But really since the start of this quarter I think people are starting to accept the way things are going to look going forward, rate-wise and such.

And so we’ve seen a lot of pickup in the last couple of weeks—a lot of our existing clients, a lot of deals coming back our way that maybe went away for a little while, etc. But I think what we’re hearing in general is it’s pretty uncertain out there. And in uncertain times, you know, our certainty is a virtue. So I like what we’re seeing. Pipeline’s filling back up and hopefully it’ll continue that way, but feel good about things. It was a little bleak in the third quarter.

Woody Lay, Analyst at KBW

And then I guess actually just one quick follow-up. I mean, it sounds like pricing and spreads are a little bit incrementally positive. Just any sense on structurally, you know, I think last quarter you called out you’re seeing some irrational structure in the marketplace which was causing you to pull back. Are you still seeing any of that over the past quarter?

Chris

Yeah, I don’t think that that’s necessarily changed any. I could believe that maybe pricing discipline is coming back a little bit more than I do structure discipline at this point.

Woody Lay, Analyst at KBW

Got it. All right, well, thanks for taking my questions.

John Allison, Chairman

You got it. Thanks.

OPERATOR

Your next question is from the line of John Armstrong from RBC Capital Markets. Your line is now open. Please go ahead.

John Armstrong, Analyst at RBC Capital Markets

Hey, thanks. Good afternoon.

John Allison, Chairman

Good afternoon, Mr. Armstrong. Nice to have you with.

John Armstrong, Analyst at RBC Capital Markets

Thank you. Thank you. Kevin, just one quick one. On loan growth, you talked a little bit about late payoffs in the quarter. Can you help us kind of understand the size of that?

Kevin Hester, Chief Lending Officer

It was, I would say the latter part of the quarter was 300 or 400 million. And it’s, other than the one that Johnny was talking about, the majority of that was just projects. You know, we do a lot of construction, and projects reach the time where they either sell or they move to permanent financing. And that’s what we were seeing in the third quarter. There were a lot of projects that needed to move on because it was time.

John Allison, Chairman

One of those was—one of them that had unusual circumstances was a 100% great credit, $170 million credit that we lost over unusual circumstances. Hopefully that’s not repeatable.

John Armstrong, Analyst at RBC Capital Markets

Yeah. Okay. I know we tease you guys on the loan growth projections, but it sounds pretty good from my point of view.

John Allison, Chairman

It’s better. It’s much better. It’s much better. I’m telling you, we’re looking at some good opportunities.

John Armstrong, Analyst at RBC Capital Markets

Okay. Just two quick ones on credit. Chrissy, anything to note on the CFG non-performance—sounds like that’s going to be resolved—but anything on that? And then can you guys remind us of the size of the Texas resolutions and what kind of a step down we could see in the Texas non-accruals?

John Allison, Chairman

Thanks. Chris, go ahead and take the first part and I’ll take the second.

Chris

Okay. Yeah. The one loan that popped up is a little less than $15 million—a pre-development loan to, it was a previous customer and they had developed and done fine on that. So we did a pre-development loan for them a couple years ago. It’s an L.A. loan entitled for residential, which L.A. needs. It was adjacent to the Eaton fire area, so kind of northeast L.A. So they had asked for some accommodation on that right after the fires. We gave them that, gave them a little extension for that.

But we’ve kind of gotten to the end of that and we really needed to exercise our rights under the loan agreement to try to get resolution there. So we started a foreclosure action at that maturity. Since that time we’ve signed an LOI for the loan sale. We put that a little bit on hold right now. We are continuing to work that, but our borrower’s been in contact with us throughout. They’ve approached us in the last, again in the last week or so, with what they would need to do to reinstate that loan.

And so we’re going to give them kind of another five days or so here to come to us. We gave them a plan for reinstatement and the first stage of that’s over the next few days and then there’s about a 45-day period after that for them to fully do that. You know, that’s our preference—our preference is to work with our borrowers when they can come to the table. So we’re going to give them an opportunity, we’re going to try to give them an opportunity to do that.

Hopefully that’s the way that works. If it doesn’t, we’ll go forward with the LOI or we’ll go forward with foreclosure and sell the property. But our hope right now is the borrower will be able to do what they’ve said they can do.

John Allison, Chairman

Good. And on the large C&I credit—you got any more questions on that one, John, or you?

John Armstrong, Analyst at RBC Capital Markets

Nope, no, just the Texas.

John Allison, Chairman

Okay. On the large C&I credit it’s a two-piece sale. Sale number one is the marine equipment and floating stock that brought 92% of appraisal. That’s the bid. It’s been purchased by a New York Stock Exchange company. The purchase agreement is signed. We’re waiting on approval from the Coast Guard on that. The employees have transferred over and the equipment will transfer over when we get approval from the Coast Guard. That should bring in in the $85 million range for us.

The second part of that is basically the fuel tanks and there is a $17.5 million bid on those. We should net about 16 out of that. So that brings us in $100–$102 million. Once that closes, the book balance—not the actual balance, but the book balance—we have is 91 million. So you’ll see about a $10 million recovery on the loan loss reserve, or whatever, when that closes. And the balance is what has been default interest that we have not recognized a penny of.

So it will be between the personal guarantors and Home BancShares is how we resolve whatever balances out. But you should see, should see, recoveries there. Once we got a hold of the credit we really underwrote the credit, and I have to congratulate our people on an outstanding job to get 92% of the appraisal. I would have told you it’d be gone by now, but sometime in the next couple of weeks I would expect it to happen. We’ll issue an 8-K when that happens.

And we’re buying a bottle—Steven’s buying a bottle—of 25-year-old WhistlePig, and Donna’s having a tent party in our parking lot. So we’re going to be drinking WhistlePig and having a tent party out front here when we get final resolution. And I think it’s close, close enough. I can smell the whiskey. John.

John Armstrong, Analyst at RBC Capital Markets

Man, I wish I could get an invitation but.

Donna, Investor Relations

John, expenses might be up a little bit in Q4.

John Allison, Chairman

All right, all right, all right.

John Armstrong, Analyst at RBC Capital Markets

Well, congratulations on that. Long time coming, but that’ll be a nice step down. So thank you very much for the answers on that.

OPERATOR

Your next question comes from the line of Brent Rabiton from StoneX Group. Your line is now open. Please go ahead.

Brent Rabiton, Analyst at StoneX Group

Hey, good afternoon everyone. Johnny, I wanted to ask. I know you were. Good afternoon. I wanted to ask. I know you were looking at a potential few transactions and, you know, I kind of heard that a lot of folks are saying, well, the AOCI marks have risen so much that that’s kind of changed, changed the math for the short term and so maybe M&A is tougher right now. But just wanted to hear if any of those three were looking like they might still be possible and just what you’re seeing out there.

And then, you know, I get a lot of feedback from people saying, hey, if Johnny wants a really good bank that’s going to add some good assets, he might need to bend his triple accretion laws just a little bit. So was just hoping to get some color on those things.

John Allison, Chairman

Well, we hadn’t broken yet. Right. One of these deals was just about two months dilutive—30 minutes or a cup of coffee dilutive. They’ve gone radio silent on me. I don’t know what happened. I don’t know what happened with that deal. I don’t know. It was something that had a high level of interest to us and it’s just gone quiet. So I don’t know where the banker is coming. I assume the banker will be back to us at some point in time. But that one just went quiet.

One of them we pulled out on—was two deals. One we pulled out on, and the banker’s gone quiet on me on this other one. So it’s something that I think would be good for them and good for us. I think it would be a nice transaction for Home to do and we spent a lot of time modeling it and playing with it, and we’re willing to bid up for it. So as it turned out, I called a banker yesterday and told him to call me and I hadn’t heard anything from him.

So it’s kind of disappointing. I don’t know if they used me as a stalking horse or what they did. But anyway, we’d like to have—we’d like to put a transact together and we’re ready to do that. So there we’ll—we’ll be working on—we’re always working on. There’s a lot of them out there right now, opportunities to do those transactions, and our currency still is holding up fairly well. We got knocked down a little bit here. All the banks got knocked down recently.

But I think we’ll be back and we’ll be able to do trades here before long. A little disappointing. I don’t—that’s a little disappointing that we didn’t—we hadn’t brought that one closer to fruition. But if it doesn’t work, it doesn’t work. There’s more out there, so we’ll move on. I wish I told you one of them we did due diligence on, and we got inside the loan book—we decided that wasn’t for us. So it was a tough deal to do anyway, and once we got in the loan book, we came out of it okay.

Brent Rabiton, Analyst at StoneX Group

Okay, that’s helpful. And second question is, what I’m gathering from the call is it sounds like there’s some budding optimism for loan growth and production, but I didn’t quite get it. Sounds like you also think that maybe the payoff challenge that you’ve had the past two quarters, is that dwindling down? And then I was just also kind of curious, as it relates to that, if Shore Premier was still seeing demand or how that business would go with higher diesel prices and whatnot.

Kevin Hester, Chief Lending Officer

Hey, Brent, this is Kevin. I’ll take the payoff. It could be close to last quarter as far as the payoff number goes. We’ll see how that plays out. I mean, you had some rollover into this quarter that we thought were going to happen last quarter. So that always happens when you’re looking at folks that are selling properties or going and getting permanent financing. You know, it’s hard to pinpoint exactly when that’s going to happen. So there’s still a little bit of—however, from my aspect, I’m seeing better opportunities than I’ve seen in a while.

So I think we can overcome those payoffs. And I’m not sure—they have to have come down substantially because we’ve taken so many so far this year. So hopefully we won’t continue to see the big bites in the payoffs. So, Chris, you got anything big payoffs coming?

Chris

I wouldn’t say we have elevated. I mean, we always have—we always have payoffs. If I don’t get payoffs, I get nervous.

Brent Rabiton, Analyst at StoneX Group

Okay, great. Appreciate all the color, guys. I’m sorry, Johnny.

John Allison, Chairman

I said I’m ready for positive loan growth. That’s what I’m ready for.

Brent Rabiton, Analyst at StoneX Group

Sounds good to me. Thanks, guys.

OPERATOR

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

Matt Olney, Analyst at Stephens

Hey, thanks, guys. Just a few follow-ups here on the margin and deposit competition. Great to see deposit costs move lower in the third quarter, especially with some of your peers moving higher. Curious just about depositor behavior following the Fed hike a few weeks ago—kind of what you’re seeing more recently—and if the Fed continues to hike, kind of what your expectations are on depositor behavior.

Steven Tipton

Hey, Matt, this is Stephen. You know, first part, competition is fierce in all of our markets—Texas, Arkansas, Alabama, Florida. You know, you’ve got different competitors in a lot of those markets, but you’re seeing—I got a text earlier this week, in one of our markets somebody was advertising 4.5% on a 12-month CD. So you see some of that stuff advertised. We’ve taken the same approach that we always have—negotiating one-off and selling the strength and stability of the company—and we’ll get our shots along the way there.

On depositor behavior from an interest rate standpoint, I may be a little more aggressive on this last rate hike in terms of expectations of what we pass along. We model, I think, 40% beta on checking and savings accounts and 100% on CDs. That’s what we’re working with our group on trying to achieve. Overall, some of the improvement in deposit rates for the quarter was some of the outflows that we had on the municipal side. Most of those are tied to T-bills and index, so that’s some of our higher-cost funding that drew down some in the quarter.

Matt Olney, Analyst at Stephens

Okay, appreciate that, Steven. And then I guess another follow-up: Stephen, you mentioned the variable-rate loans around $7 billion. Just want to make sure that’s an all-in number—is that CCFG and the community bank? And just remind me, within that $7 billion, the repricing timing as far as how quickly, how often those reprice.

Steven Tipton

Sure. Yeah, that does include CCFG. That’s what is set to or can adjust in Q3 or Q4. So the longer-term stuff I’ll call adjustable-rate that we have out there, but what we consider variable—inside of, call it, six months or less—and some of that’s daily, some of it’s monthly, some of it’s quarterly. About half of the seven—$3.5 billion—is tied to Wall Street Journal Prime, and then $3.3 billion or so is tied to SOFR, and then we’ve got some other indices for the balance of it.

Matt Olney, Analyst at Stephens

Got it. Okay, guys, thanks for your help. That’s all for me.

Steven Tipton

Thanks, man.

John Allison, Chairman

Thanks, man.

OPERATOR

Your next question is from the line of Michael Rose from Raymond James. Your line is now open. Please go ahead.

Michael Rose, Analyst at Raymond James

Hey, good afternoon, guys. Thanks for taking my questions. Just wanted to go back to Mountain Commerce. I think the systems conversion is coming up here next month. Any changes to cost-savings expectations or any of the deal-related math, Stephen?

Steven Tipton

No, no. We’re set for November 6th, or the weekend of. We’ve already probably achieved a little of the cost savings along the way since 4/1. But, you know, come November 6th or the week after, we’ll begin to see the realization of some of those from, be it staffing or DP and other types of opportunities there. So no change, and still estimate was, I think, a little over $5 million on an annualized basis is what we had targeted.

Michael Rose, Analyst at Raymond James

Appreciate that. Maybe separately, Johnny, you I think previously talked about repurchasing all the shares that you issued related to Mountain Commerce. Is that kind of still the plan? You definitely sounded a little more optimistic on buybacks, particularly given the sell-off we generally had in bank stocks since the middle of August. Thanks.

John Allison, Chairman

That’s the plan. You know, we’re in about, what, 3.3 million so far and we put about just short of 6, I think, in—

Steven Tipton

That we bought 400,000 shares, quarter to date so far.

John Allison, Chairman

Yeah, quarter to date we bought 400. So that’s 3.7. So yeah, we’re still in there and hopefully we pick up a million or so this quarter. So we’ll just keep on. Maybe we won’t quite get it all done maybe by the end of the year, but maybe by the first half of next year we’ll have it all bought back, you know.

Michael Rose, Analyst at Raymond James

All right, that’s helpful. And then.

John Allison, Chairman

Do you think the shareholder yield’s important, Michael?

Michael Rose, Analyst at Raymond James

Do I? Yeah, I mean, I think you guys have a lot of capital and deploying that capital through different buybacks and opportunistic M&A I think is what we all want to hear and see you guys do—what you’ve done historically. So keep it up.

John Allison, Chairman

Thank you.

Michael Rose, Analyst at Raymond James

Maybe one last, just one for me on the environment. Any areas in credit that, you know, are kind of piquing your interest at this point? You know, we’ve heard some scuttle around, you know, some of the restaurant groups and maybe some leisure and hospitality. Just anything you’re watching a little bit more closely here.

John Allison, Chairman

I don’t. We don’t. Not really. We don’t. I don’t see any. If you’re looking for a segment or a problem somewhere out there, I don’t know if there’s any widespread problems. Some of the Texas credits created that we… We’ve been spent the last… people fuss at us about growth. We’ve been busy cleaning up that Texas stuff three years and, you know, all we got left maybe is a few hotels that give us a little problem. But overall asset quality, other than, you know, we don’t have any problems.

We have these asset quality meetings and Texas takes two hours and Florida takes 10 minutes and Arkansas takes 10 minutes and, you know, you just don’t have any problems in those markets. So anyway, we’re continuing to work on those and… but I don’t see any segments anywhere. I don’t… you know, we resolve this, our big credit in Texas, which we think will resolve soon, and our non-performing reserve… non-performer jumped over 300%. So I think you can expect that coming pretty quick.

So asset quality overall, pretty good.

UNKNOWN Analyst

All right, that’s great to hear. I’ll step back, and thinking of Tracy today. Sorry for you guys. I think we’re all missing him today. So thanks again, guys. Appreciate it.

John Allison, Chairman

Thank you.

OPERATOR

Your next question is from the line of Dave Rochester from Cantor. Your line is now open. Please go ahead.

Dave Rochester, Analyst at Cantor Fitzgerald

Hey, good afternoon, guys. Back on the deposit discussion, given that, you know, the incremental aggressiveness you guys had mentioned on the depositor front, are you guys thinking about a return to deposit growth in 4Q? Are you confident in that? And do you think you can fund the loan growth you’re expecting with deposit growth next quarter?

Steven Tipton

Hey, Dave, it’s Stephen. Certainly be the goal. You know, we’re talking about the competitive environment, you know, some seasonality and, you know, in the last quarter we would expect to see some of the municipal balances return there. You know, we’re talking at loan committees constantly about opportunities to get deposits with loan opportunities that come across, and in order to help fund that. You know, separate and apart from that, I mean, you know, we’ve got 4.9 billion in capacity with the Federal Home Loan Bank.

You know, we’ve got, you know, a good cash position today. We’ve got a securities portfolio that comes off about 30 million a month. So, you know, not concerned from a liquidity standpoint. I think, you know, historically the approach has been to use some of those avenues and take our time and pick our spots as opposed to, you know, being out here having to run CD ads to raise funding. So.

Dave Rochester, Analyst at Cantor Fitzgerald

Yeah, appreciate that. And then can you just give an update on where the spot price for deposits is at the quarter end and where you guys are seeing new money post the hike?

Steven Tipton

Yeah, so total deposit cost ended at their average .183 for the quarter, .181 for September. You know, I see our CD and money market negotiations every day. You know, our folks are doing a good job. You know, we may have to pay 4% here or there with a customer just because, you know, the bank down the street’s running an ad at 4.20% for seven or eight months. But, you know, our folks do a good job in negotiating, you know, down into the low and mid 3s.

So I guess, you know, mid-3s is kind of where to think about, you know, opportunities today.

Dave Rochester, Analyst at Cantor Fitzgerald

Okay. And then just switching gears to the fee side of things. There was a little bit of volatility in trust fees this quarter. Was just wondering what the driver of that was and how should we think about that line, you know, rebounding going into 4Q next year?

Steven Tipton

Yeah, some of it seasonality in terms of when our annual trust fees are charged. Q3 is generally a little bit of a light quarter there for trust. Then mortgage and CCFG fee income were a little bit light this quarter as well.

Dave Rochester, Analyst at Cantor Fitzgerald

So you feel pretty good about that bouncing back next quarter.

Steven Tipton

Yeah, I mean, I think if you look over the last six quarters, we’ve averaged about $50 million, just shy, in non-interest income and would expect to see us migrate back closer to that number.

Dave Rochester, Analyst at Cantor Fitzgerald

Yeah. Okay.

John Allison, Chairman

I think you heard me say this. The good news is we got customers that do real business, not just transactions. The bad news is that they make a lot of money and they pay a lot of tax. So we get hammered on the quarters, but it comes back.

Dave Rochester, Analyst at Cantor Fitzgerald

Good. All right, maybe one last one on expenses. You know, some good expense control this quarter you guys showed. Is this a good run rate to kind of finish out the year? And what are your thoughts on expense growth next year?

John Allison, Chairman

We haven’t done our budget for next year. Yeah, I guess that’s coming pretty quick, isn’t it? Brian, you may be working on it now, right?

Brian

We kind of waiting for Mountain Commerce to get converted.

John Allison, Chairman

Okay. Okay. So we don’t have next year’s. If you’ve got… If I’m running, it’ll be less than it is this year. But Stephen’s smiling, though.

Steven Tipton

Yeah, I mean, you’ve got some inflationary pressure, but, you know, we’ve also had some things set up throughout the year where we’re… whether it’s physical space leases that we’ve been able to kind of work space down. We’ll begin to see some of that benefit in Q4. You know, some of the lower-performing segments that we have, we’re taking a look at what opportunities may be there for cost savings. You’ve got the Mountain Commerce cost savings that we’ll get some of in Q4.

So some of that should offset just inflationary pressures this quarter and next year.

Dave Rochester, Analyst at Cantor Fitzgerald

Okay, so maybe a flattish kind of number, making this the run rate this quarter good for next quarter for Q4.

Steven Tipton

That’s probably fair.

Dave Rochester, Analyst at Cantor Fitzgerald

All right, appreciate it, guys. Yeah. Yep, sounds good. Thanks for all the color.

OPERATOR

Your next question comes from the line of Ed Najarian from Hovde Group. Your line is now open. Please go ahead.

Ed Najarian, Analyst at Hovde Group

Good afternoon, guys. My questions have mostly been asked and answered. Just a real quick one. How do you think about the sort of the juxtaposition around deposit pricing? You know, on the one hand it’s great to keep deposit pricing low, creates that wide NIM, you know, and great returns, and love that you’re giving back tons of capital to shareholders and keep buying back stock. But do you feel like you’re going to have to raise deposit rates kind of along, you know, some reasonable deposit beta with the increase in the Fed funds rate?

Are you going to continue to try to really keep them restrained and not raise them much as we continue to get rate increases here? I guess the real question is how should we think about deposit beta with you guys around Fed funds rate increases?

John Allison, Chairman

If we’re forced to raise rates? If we’re forced, we will. And I don’t know what we ended up… I don’t remember what our deposit beta was. As rates run up to the 60s… Do you remember what our cost of funds got up to? Two-something. A little over two, 2.42-something.

Steven Tipton

Environment on total cost… Yeah, I mean, we’ve already passed, you know, when the Fed hiked 25, what, a month ago. You know, we’ve got a product that is kind of loosely indexed to fed funds that, you know, those customers have that expectation. We passed 25, you know, on to them there. We’ve got some negotiated products that our folks know who they’ve got to deal with and pass, you know, whether it’s 40% of that on or, you know, 100% of the rate increase on, depending on a customer-by-customer basis.

So, you know, we handled that, you know, two days after the Fed raised rates and, you know, things will kind of settle in from there until the next rate hike.

Ed Najarian, Analyst at Hovde Group

Okay, all right, that’s helpful. Thanks. Good quarter, guys. Appreciate it.

Steven Tipton

Thank you.

OPERATOR

Your next question comes from the line of Brian Martin from Breen Capital. Your line is now open. Please go ahead.