Home BancShares, Inc. ($HOMB)

Greetings, ladies and gentlemen. Welcome to the Home BancShares Inc. First 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. [Operator Instructions]. The company has asked me to remind everyone to refer to their cautionary note regarding the forward-looking statements. You'll find this note on Page 3 of their Form 10-K filed with the SEC in February 2026. [Operator Instructions], and this conference is being recorded. [Operator Instructions]. It is now my pleasure to turn the call over to Donna Townsell, Director of Investor Relations.

Thank you. Good afternoon, and welcome to our 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 Scott Walter of Shore Premier Finance. Our first quarter set a strong tone for 2026. And Results demonstrate sound expense control, consistent operating performance and attractive returns, including record-setting metrics of book value per share of $22.15, tangible book value per share of $14.87, which is $1.72 per share increase year-over-year for a 13% increase, by the way, CET1 at 16.7%, leverage of 14.3% and and Tier 1 capital of 16.7%. In today's economic environment, that is a meaningful accomplishment and our team is pleased to walk through the quarter's results with you. Our opening remarks today will be from our Chairman, John Allison.

Thank you, and welcome to Home BancShares First Quarter '26 Earnings Report to shareholders. Thank you for joining us today and I think the headline and the quotes pretty much summarize the first quarter. I want to thank our team for getting us off to a great start in '26. For those of you who are not already home banks or shareholders that are interested in a better understanding of home, I think it's important that you look at the strength of the balance sheet. Couple that with the monthly and quarterly consistent level of performance over the last several years is primarily showcased by the last 9 quarters. The prior year has reminded us of the highest interest rate cycle in the early age. We're then almost all banks struggle because of poor balance sheet management. and the same story has been even more visible today, i.e., lack of liquidity by investing in the long-term securities trying to stretch for yield. I'm proud at [indiscernible] didn't suffer those problems during that time and was reporting record earnings while others were struggling. S&P Global just ranked Home's performance for 2025 as #2 of all banks in the U.S. over $10 billion. We're honored by this elite ranking by one of the world's best and most respected experts. We were barely edged out to the #1 position last year. Maybe we'll get it soon. We're happy to have completed the merger with our acquisition of Mountain Commerce and look forward to a successful combination due to a back-office computer upgrade that was already in progress before Mountain Commerce, we will not be able to start converting Mountain Commerce until November. As a result, the maximum anticipated savings will not be realized until probably the end of '26. Once accomplished, we believe our new partners can soon begin helping us to continue the outstanding performance of Home BancShares that is known in the U.S. and worldwide. Always proud of our reputation, always known as one of the strongest, safest, most conservative and best performing banks in the world. We'll continue to try to make our shareholders proud and happy to be part of this outstanding company. We know who we work for, and that is our shareholders. If you loan money, we all know problems can and will arise from time to time that has to be worked through. We had a $110 million Texas credit that we decided to not perform this quarter. This is the same credit we've been talking about for 1.5 years or 2 years. The credit remain current until this quarter. It has been one we've been monitoring intensely for about 8 months. We've entered into a short term for BC agreement with multiple deadlines and requirements. We are advised by legal counsel not to discuss in that. I can say we're either going to get paid off or will liquidate the existing canal. We do not anticipate any additional loss, but it plans were to result in some wells home strength puts us in a position to deal with whatever comes. Because of the conservative balance sheet, we're turning right at $300 million in loan loss reserves, one of the highest reserve percentages in the world. Couple that with the strong -- couple the strong reserves with a consistent quarterly pretax pre-provision net revenue of $100 million to $150 million to $160 million and we're confident of our ability with whatever happens and do not expect this loan to have any major impact on earnings, if any, at all. It is our belief that there is more sufficient assets and personal guarantees property resolved issue. I'm pleased with the results comparing Q1 to Q1 last year. The first quarter only had 90 days. And we had -- if we had the two [indiscernible] dates in the normal quarter, plus just a little touch of win. I think I said last year, we had the window back 2x or 3x. We had no win this time. This quarter got 0 win, Brian, you didn't -- you always come up with wind, you didn't come up with any juice this time.

Well, we did have that FDIC assessment, but we got a reduction.

Well, we had to write off the balance [indiscernible]. That's evident in the noninterest income category being the lowest since December '24. Maybe next quarter will be the best. On M&A, I want to congratulate the Trump administration and the Fed along with the Arkansas State Bank Department for the fast approval process. The speed of the approval may possibly get time for another deal this year. we're certainly in the market and looking for another good fit. We continue to repurchase stock as the volatility of uncertain levels with a war Canada, it makes it uncertain it provided the opportunity for us to purchase more recently. That is before we were in the blackout period. However, we did file our normal 10b5 for this time. If the volatility continues, we will be very active on the repurchase side. I think we have essentially bought back, if not all, of the shares issued in the Happy Bank transaction, I will endeavor to do the same for Mountain Commerce Bank transaction. particularly if volatility continues to create opportunities. The repurchases will take some time, but once MCB is converted on our system, the additional share reduction should have a positive impact on earnings. We're being very careful on the loan side because of the uncertainty of the law, the consumers, business, asset class and what this cycle may ultimately evolve into. Talking ahead at all said rates are coming down, but we have cautioned that there is possibly -- that possibly they will go back up before they come down. inflation is not dead. Let me say that again, inflation is not dead. And Jamie Dimon would say that's a major cockroach in the mix. The question is how high and how long do they remain high. It depends on how the rest of the Fed is going to be with the escalating interest rates to try to get a handle on inflation. Remember the late '70s in the early '80s, 21%. It's not going to be that high, but it has to be correct. Chris Poulton, who runs our New York office has a great sign. He said the year of the lender is followed by the year of the collector. I think our early Texas experience confirms some of Chris' statements. I think it's a time to be very terrible. The normal structure of some asset classes that worked in the past may not work today. It is our job to watch and hopefully recognize in advance these loans that we think may be infected with [indiscernible] cockroaches. You will hear from Chris Poulton today about his attitude on private credit and the changes made because of it is call on private credit was outstanding. The good news, market pricing on acquisition deals are more in line with the correct value and slowed the ensign dilution at least for a while. One of the CEOs that did fairly [indiscernible] I use the term here, maybe it's a Johnny word, dilutionary. It may have been dilutionary, actually, the trade was so silly. He did a trade sometime back, came up to me at a bank conference and said, I'm here to get my b*** shoot out, and I proceeded to do just that. Then I gave you a hug and we discussed the pros and cons and the impact of the damage done to long-term loyal shareholders and ag that dilution is not the friend of a shareholder. Enough said. With all the attention that diluted transactions are getting maybe the publicity and management embarrassment has slowed the shareholder damage, at least I certainly hope so. I hope it's finally the start of a sea change that forces management to do the right thing for the shareholders. Done a great quarter. I'm pleased with the strong continuation of homes earnings. And again, I'm going to hand it back to you, and let's go [indiscernible], Chris, you don't mind, let's go to Chris first, let him comment and [indiscernible] forward and then we'll go to Stephen and Kevin and Brian, and back to you to wrap up.

Okay. Sounds good. Thank you, Johnny. So up next, we have a report on CCFG from Chris Poulton.

All right. Thank you, Donna. Today, I'll provide a brief update on TCF's first quarter. And then as Johnny said, we'll share some perspectives on the private credit market. During Q1, we grew the portfolio to approximately $2.1 billion. This represents a roughly $60 million increase, supported by $370 million in new loan production. Loan productions remain steady and its numbers in line with prior year levels. Payoffs for the quarter totaled just under $200 million, which is also consistent with historical averages. We do expect slightly higher payoffs. So I do think our pipeline should allow us to replace those balances either this quarter or the next. Over the past several years, I've discussed declining balances in our corporate lending portfolio. This is an appropriate time maybe to provide some additional context and particularly in light of recent news around private credit. CCFG's long participated in the private corporate credit market. Our exposure has varied over time but we've maintained a consistent presence and have long-term experience in this space. Our private credit balances peak to just under $500 million at the end of 2022. And today, outstandings are $87 million. That's a reduction of over 80% in the past 3 years. So why do we make the choice to reduce our private credit exposure? While beginning in 2023, we observed several trends that influenced this decision. First, we saw a new bank entrants as some banks look to reduce their reliance on commercial real estate, many chose to lend into the growing private credit space through participations in structured facilities. This led to broad yield compression across the private credit markets and as often happens, some loosening of credit structures and underwriting standards. At the same time, we saw significant equity inflows from individual investors or retail investors into the enter vehicles. We've seen this movie a few times before, and we haven't always enjoyed the ending. We've maintained we have historically maintained an intentional focus on the shorter duration position typically under 3 years. And as a result, we were able to actively exit credit facilities as they reach the end of their reinvestment period. In total, we exited 8 corporate lending facilities through repayment during this time. Our remaining exposure is limited to a few facilities, primarily within AA-rated structures. Our attachment points approximately 58% of par value of the underlying loans, which provides 40% sponsor equity support beneath our senior position. While market dislocation often creates opportunity, we believe it's still early in the cycle. And as a result, we are remaining cautious and at present, our bias towards further reductions while continuing to monitor this closely. With that, Donna, I'll turn it back to you.

A great call, Chris.

Yes, thank you for keeping your eye on the ball with Private Credit, Chris. Next, we will hear a few words from Stephen Tipton.

Thanks, Donna. Chris, we appreciate your approach and discipline over the last 11 years with us. As Johnny mentioned, the first quarter of 2026 was a good start to the year with $118.2 million in net income a 2.09% return on assets and 16.56% return on tangible common equity. Q1 earnings were in line with the prior quarter despite 2 fewer days and were up $3 million or 2.6% from the first quarter of 2025. The reported net interest margin was 4.51%, down 10 basis points from Q4 and as there was 0 event income in Q1 and up 7 basis points from the same period a year ago. The core margin, having no event income was 4.51% versus 4.56% in Q4. The overall loan yield declined by 15 basis points to 7.08% while interest-bearing deposit costs declined by 12 basis points to 2.35%. The Total deposit costs were 1.83% in Q1 and exited the quarter at 1.82%. Deposit balances increased $258 million, driven by all of our Florida regions. I would expect some headwinds in Q2 from tax payments, but we are pleased to start the year strong. A highlight from the quarter was that noninterest-bearing balances grew by $126 million to almost $4 billion and now account for 22.5% of total deposits. As we typically see in Q1, loan production softened coming off of a very strong fourth quarter. We had total loan production of $917 million, with over half of that coming from the community bank footprint. Switching to capital. We repurchased 507,000 shares of stock during the quarter for a total of $13.9 million. And as Johnny said, we will continue to be active with our share repurchase plan. Capital levels continue to build with common equity Tier 1 capital ending at 16.7% and total risk-based capital at 19.5%. Lastly, we're thrilled to have the Mountain Commerce employees, customers and shareholders on board and look forward to growing the Tennessee franchise for Home. With that said, I'll turn it back over to you, Donna.

Thank you, Stephen. And to close out our prepared remarks, Kevin Hester has a lending report.

Thanks, Donna. Given our strong showing in 2025, it could be easy to look at this quarter as boring. I think that shows the high bar that we've set for ourselves because any quarter that posts a return on assets of 2.09%, maintain solid asset quality and as an earnings beat over the same quarter a year ago is not an easy task and should be inspiring. As I anticipated last quarter, ending loan balances dropped by a little over $50 million, but it happened very late in the quarter, which resulted in average loan balances actually being up $174 million on a linked-quarter basis. I see this downward trend continuing in the legacy bank into the second quarter because Q2 and Q3 projected payoffs are very high. The MCB acquisition will, however, add over $1.4 billion in loans to the balance sheet. Based on my meetings with their lenders, I expect them to settle into our credit culture quickly and be accretive to loan production in short order. Johnny mentioned the nonaccrual of the Texas C&I credit that we've been wrestling with since 2024. And this increased nonaccrual balances significantly, but we have made recent progress with the executed forbearance agreement which leads us to a couple of ways to exit this credit during the next quarter or 2. We are continuing to work with the small same set of issues that we've been dealing with for a while now. we took our medicine in 4Q '24, but maximizing the exit sometimes takes more time and effort than you would like. It's wonderful to have the level of capital and reserves that we have, which allows you to work to maximize the recovery on this limited set of problems. To that end, criticized assets were flat on a linked quarter basis and early stage past dues were below 50 basis points. Even with the large increase, the reserve coverage of nonperforming loans is still over 160%. As a point of reference, our loan loss reserve would cover 15 years of our historical charge-offs if you use the last 5 years of average charge-offs as a base and that base includes the large 4Q 24 Texas cleanup quarter. There's nothing wrong with the workman-like quarter where you meet expectations. I expect that a majority of banks would trade results with us. On that note, Donna, I'll send it back to you.

Thank you, Ken. Thank you for that report. Before we go to Q&A, does anyone have any additional comments?

We think about deposits, we had a good deposit growth and then tax time come up I think I said the same plan last year. It's good to have real customers.

That's right. And we do have real customers.

As evidenced by the tax checks we're seeing go out right now. That's right. I mean that's going bad, right? But they are our customers. They're not transactions. They are relationships. So I'm proud of that. We'll take a little up and down during this Kevin. I mean, Stephen, you agree with that?

I agree 100%.

I'm pretty pleased overall. Brian, you've got any comments on the quarter?

I'm pleased with the quarter. there's not really any noise to it, so it's just kind of good core earnings.

That's really it. We just kind of rolled on from what we've been doing. I think we've said in the past, we -- we need more assets, and that's what Mountain commerce has done for us, and we consistent -- our earnings has been consistent quarter after quarter through this process. And we do need more assets, right? So we'll get this under wraps and Stephen and Bill to get the savings out of Mountain Commerce. We'll see that come to the bottom line, and maybe we'll have another deal before then. So I'm going to let you have it. I didn't -- by the way, I need to know what Donna takes a pen away from me, gives me a rubber ball to speak with. So that way, I don't make any noise. So she stole my pen and he gave me a rubber ball. So thanks, Donna for looking out for me.

My pleasure. And with that, I think we'll go to Q&A.

[Operator Instructions]. First question comes from Stephen Scouten with Piper Sandler.

Good afternoon, everyone. Appreciate the time. I guess, Johnny, maybe if you can talk a little bit more about how the progress is going to acquire even more assets on top of Mountain Commerce. I mean, Mike, you said that your returns are phenomenal. So it just feels like you need to be able to multiply that on a larger balance sheet. So what have conversations been like? And how aggressive would you be? And not within that, would you ever think about loosening -- this might be a crazy question for you, loosening the triple accretive mantra to get a deal done?

As we hold pretty tight to our philosophy around here. My fear is they'll say, well, he lied. like I hear the market said, he lied, he broke the diluted a deal. So I just don't believe it. I'm the largest individual shareholder, and I'm not interested in diluting myself. So I think I hurt our shareholders and we do you know my philosophy on that. we stretch as much as we can on the trade. But people have joined this company because we don't dilute. And if I diluted now, I think it would be kind of in -- as I'm getting older in my career, I think people say, we got week wages but I haven't as of yet and I think it's known we tell it when we're talking to another perspective seller, we say we don't love. We need -- you need to understand we're not going to be your highest price. But if you're going to sell a stock tomorrow, it doesn't matter. You do a deal and the buyer dilutes the halo himself. If you sell the stock tomorrow, it doesn't matter, just get out and get gone. But if you're going to be if you're going to ride with them for a while, it makes lots of sense not to do to do the deal. So if you want to hold the stock and keep it for a period of time, I think I think our buyers appreciate the fact over the years that we haven't diluted. So I know there's another deal out there right now, they're biting at one and -- but I'm not going to bid up on it. We'll bid it to the maximum. We can bid it. And then we'll -- if we don't get it, we don't -- a lot of it depends on the seller, what the seller wants to do. Don't want to stay, and they want to be part of it. and then when we go to the house. So I think that has -- they don't go the house at the biggest best price to sell the stock tomorrow, get gone. Otherwise, I think you want to be in it for a period of time, then you have a good partner that's not going to lose you. I know I ran it a little bit, Stephen, but anyway.

No. That's helpful. And just in terms of the pipeline convert, it does. In terms of the pipeline of competitions, what does that mean we haven't seen as many deals here in the first part of the deal and get announced. I mean are sellers just kind of not interesting because the environment is pretty good? Or is it just been the volatility in the stocks? What are you kind of seeing in terms of conversations?

Well, there's conversations going on. I mean not only with us, but there's other conversations going on. And bankers have called us and said, hey, what about this and what about that. And a well, we're not ready right now. Doesn't get Mountain Commerce kind of get our arms around it, and then we'll be ready to go. But we're having convicted I mean at my conference recently, we ran into a couple of people, I said, we have to talk some time and they followed up since then just the conversation in a bar. I said, [indiscernible] it sometime. And that brought about a banker end of the deal to talk to us about these two possible options. So I think the conversations are going on. I actually think that people are embarrassed to delist the and shareholders right now. I think they're embarrassed because they've all been called down for the dilution, and we see what's happened to the market prices of this -- the bank stocks. I mean, we went from 22.5x projected earnings to 11x earnings, right, or 1.5x earnings. So where the money going to bank stock. We ran out my contention is we ran all the good investors out, we just beat them up and look to lose. So I want to get back to the old days where we're 21.5x earnings and everybody was happy to everybody made lots of money. So Anyway, it's just a different world now, and I think it's directly a result of the dilution.

Yes. Makes sense. No. Yes, valuations are crazy. We got to start calling you Home Bank, ai.com or something like that. I guess one other question I have is around is around loan yields. There was like a pretty big move in the loan yields this quarter. I don't know if you could give some color on how much of that was kind of core decline in loan yields or where the new loan yields are coming on at versus maybe how much of the NPA affected those reported loan yields quarter-over-quarter?

Stephen, this is Stephen. Yes. So first, on the impact from the nonaccrual, we don't have any of that in our margin for the quarter had we had it on the books. The impact was about 5 basis points to the loan yield, and it was about 4 basis points to NIM. So the $451 million that we reported had it been on the books and on nonaccrual on accrual it would be -- we would have been 4.55% versus 4.56%. So a little color there. Some of the other decline in loan yield is really just a function of variable rate resets from the Fed moves last year that occurred January 1 and other certain frequencies. So we would have been -- if you normalize for the for the nonaccrual, we would have been down 10 or 11 basis points and we've kind of asked what occurred on the deposit side. Production yields I think we averaged 7.2, 7.25% for the first quarter of this year. I think we're right at 6.99% or 7% the UniBank footprint. So north of prime and getting our fair share.

We now turn to Dave Rochester with Cantor Fitzgerald.

I just wanted to talk about the loan trend real quick. It sounded like you mentioned paydown activity being a little bit elevated possibly in 2Q and 3Q. I was just wondering how you guys are thinking about the organic load trend? I know you got the deal closed this quarter, so that will bump things up a bit. Just trying to understand the underlying organic trend there. And then what part of the book are you seeing those pay downs? And is it kind of more of the same -- is there anything new? And is there any difference across the different geographic regions that you have?

Dave, this is Kevin. I'll answer that. It's going to be a little bit of a long answer because I'm going to give you some color on how we see the pipeline process. Our pipeline process is probably more -- we have more visibility into the payoffs than we do the new loans that are coming on. We know because of CCFG's portfolio being a 2- to 3-year turn. And a lot of what we're doing on the large side is construction deals, and we know when those are finishing. So we probably have a 4- to 6-month lead time on a payoff where we might have 30 to 45 days to put it on a pipeline for a new credit because we don't put new credits on the pipeline until they're fully approved. And for Chris' group, CCFG, they may close it in 15 -- no longer than 30 days. And in the Community Bank footprint might take 4, 5 is probably closer to 30. So our -- I would say our pipeline process is more highly skewed towards knowing our payoffs. That said, we do see second and third quarter payoffs being higher than they have been in the last couple of quarters. Will we have some production that will offset that? It's possible. but it's going to come in, in the next 45 to 90 days, and it's not on our pipeline yet because it hadn't gotten fully approved. Second piece of that is that MCB is not yet in our pipeline process. So I really don't have a good feel for what they might contribute in second and third quarter. I'll know that probably in the next week to 2 weeks, I'll have a good handle on that. So the short answer is -- it feels a little soft second quarter. And could we outrun it, we could, but we're going to have to get the production in here and get it on the books.

Okay. Appreciate all the detail there. Yes, go ahead, sorry.

John, it seems like when we forecast big payoffs, we have loan growth and when we forecast loan growth, we have big payoffs. So you've heard my comment teeth think he got him and get flu. So as Kevin said, we never know what our customers are doing we never know. We've got a lot of big projects coming on stream that will find up over a period of time. But you just never know I mean I've talked to one of our big customers, FPL business. He said, I bought another FPL and that's again. So that's about a $50 million loan. So you just never know. I didn't know he's working on the memo. So that's good and bad.

I can tell you that deal is done on the pipeline. I'm looking at it. That deal is done on the pipeline. That's the point. We don't have as good a visibility into the new loans as the runway is not as long as it is for.

Yes. Yes. Makes sense. Appreciate that. Maybe just switching to the margin. What do you guys think is going to be the rough margin impact from the close of the deal? And then if we don't get any more rate cuts or rate hikes or whatever, if we have a stable Fed funds going through the end of the year, how do you think that margin kind of trends from there after this 2Q change from the deal?

Dave, this is Steve. So we're still in the process of finalizing the purchase accounting marks. I do expect a little pressure on the margin. We obviously added it to NII and EPS, but expect a little pressure at least initially on the margin. talked earlier about where we landed for the quarter at 451 and how you think about the nonaccrual, we were at $49 for March. So still kind of fairly in line with where we were for the quarter and maybe it ticks down slightly within CB and then we hope to build on it from there. So he's talked to Bill today, and they -- their story over the last year or so has been the ability to reprice deposits at maturity as they come through here, and that appears to be what's taking place over the next days and really over the course of the year as we're able to -- some of the wholesale deposits either reprice or go away.

Appreciate that. Maybe 1 last one, just back on M&A. I know you're open to deals in all your markets, but I was just curious if you're prioritizing any of those markets now with Tennessee in the mix? Is there any focus, specific focus in any particular markets?

[indiscernible] Florida and always Florida and always -- and now Tennessee. So we would -- you're going [indiscernible] those markets.

We now turn to Brett Rebatin with [indiscernible]. Your line is open. Please go ahead.

Hey, good afternoon, everyone. Wanted to start on expenses, and you guys managed to keep expense growth pretty limited last year, like 3% growth. And I know Mountain Commerce will create a little bit of noise. But I was just wondering if there's anything that you've got grant spend money on, either as a result of that deal or just as you're getting bigger, and then just any thoughts on maybe core growth this year relative to '25?

Brett, this is Stephen. Core expenses were about $115 for the quarter. we'll have some normal raises throughout the year, just with merit increases, contracts here and there, but that's a decent base today. Mountain Commerce probably adds $7 million, $7.5 million a quarter to that number right now until we get to the latter part of the year and get their conversion in and begin to recognize the majority of those cost saves. There will be some cost saves along the way throughout the year, but the majority will come middle of fourth quarter.

Okay. And then, John, just thematically, I know you're interested in M&A, and you've historically, you got a term for people that hire lenders from other banks. But wanted to see in Tennessee, there are markets in the Southeast where everyone is talking more about disruption due to a big deal or 2. And just wanted to see if you might let Bill hire some folks on the lender side in Tennessee? Or if that was still just not a part of the equation in terms of how you think about it?

Well, that's not the way I think about it, but they may think differently about it, and we really haven't discussed it. But we're headed over next week. There enough ways to lead their customers and shareholders and have a little talk about Home BancShares and Mountain Commerce and the partnership together. So I'll visit I'll catch up with you a little later to see what Bill's thoughts are on -- I don't know if he's had anything [indiscernible].

I'm not aware of any teams that he's talking to, not saying it wouldn't be out of the realm of possibility in that Nashville or Knoxville market. But to Johnny's point, it's not been the way that we generally try to do that. But if it's due to disruption, that's a little different. Different premise than just going in and taking away folks that are at a place that they've been happy at for some period of time. I get the disruption concept. And there could be something there. But we'll see.

Okay. And then if I could sneak in one last one, just around the pipeline. I understand that it's easier to see the payoff activity coming versus the pipeline building. But just wanted to see if any of the pipeline if you want to call it, trepidation, it's just driving any competitive pressures. It seems like some banks are being fairly more competitive here recently on rate. I know you guys are pretty strict on rate or is the competitive landscape having any impact on what you guys are looking to do in the back half of the year?

Yes. I mean I think some markets are harder than others for that. And I think it is not the same players in every market. It's different players in different markets. But there is some rate pressure. There's even some underwriting and structure pressure that people have given into a little bit over the course of '25 and early '26. So that's always a challenge. We always have to fight that because we're pretty consistent in what we do.

We now turn to Catherine Mealor with KBW.

I had a follow-up on just deposit costs. I know you mentioned the 182 exit deposit rate, which is as similar to where you were for the average in the quarter. Just curious as you think or were for the rest of the year. I mean if we don't have any more rate cuts, do you feel like deposit costs will start to increase as we move through the year, especially maybe once we get past second quarter and gross improve. Or how are you thinking about kind of incremental deposit costs coming on.

Catherine, this is Steve. I mean it certainly with MCB, I mentioned what they have coming through the maturity pipeline and certainly expect theirs to come down on the legacy home portfolio. We have some deposits that are tied to the T-Bill that -- or short-term T-bill, 91-day T-Bill which trickled up a little bit in the first quarter and kind of put some pressure on the other changes that we're able to do. CDs will continue to mature that we'll try to reprice down. So I'm still optimistic that we can inch out a basis point or as we go throughout the year. But I'll couch all that with competition, like Kevin talked about on the loan side, I mean, we're seeing -- yes, you're still seeing banks offer 4% for CDs and 37 to 40 money market. So we'll defend our customer base both here and in Tennessee.

On the end to 4% might be cheaper if Frank do what I think they're going to do. So I look silly when you see people going out the -- we're seeing -- I mean, we're still seeing some [indiscernible] so I mean if you think about that, a ridiculous that look it might turn out to be we obviously hadn't stopped inflation. It depends on what Trump does and how [indiscernible] the Fed is, if they're too aggressive, I mean, they have to be as aggressive low inflation, it may take 200 basis points to stop it. And they quarter lower significantly, I think that would be a huge start.

Mean John, you've been buying on the rate trade. Yes. And you've been right, I feel like on your -- the way you've been looking at rates for the past couple of years. So is there anything that you're doing in your balance sheet just to prepare for the risk of higher rates?

Not really. We're just careful with our pricing. That's all. We're just careful with our pricing I was mad at myself last cycle. I said what was going to happen, and then I didn't bet it. And I was I ran into a friend I heard you, Johnny, and I bet it. I went out and bought $4 million worth of money cheap, and he said I still got it. It's good for you. He said, I did it because what you said. And I said, well, I didn't bet so have -- that is a good thought maybe to take a look at stretching out there a little bit. We -- I mean, this is almost Kevin, it's almost a detail of the 70s and the 80s, and we got this war out, and we've got all and we know what that does. And we saw producer price index by a 4%, what they annualized 4%. We haven't seen those numbers in a while. It could get could get a little crazy here a little bit. I don't have an answer. I don't have that answer yet. So hopefully, it will come to us.

And then my follow-up is, anything on the credit side that you're seeing? I know -- I appreciate that you don't want to talk about the credit, the $92 million credit that moved to NPA this quarter until you get it resolved. But maybe just outside of that, are you seeing any other trends or any kind of weakness across the book to be aware of?

No. I mean I said criticized assets, which includes all of our [indiscernible] and below. Those were flat quarter-over-quarter and early-stage past dues are as low as they've been 50 basis points. So we're -- as I said in the remarks, we're working with the same set of issues that we've been working with for the last few quarters. And I think I've said a couple of quarters ago that small group may get worse before it gets better, and that's what happens when you have to put it on nonaccrual and start working it out. So we've already taken what we believe is our maximum loss, and we would expect to recover some to all of that depending on the way it resolves and which path of resolution it goes through. But we at least have some talking about the larger credit now, we at least have a good visibility into how that happens, and it could happen as early as this quarter or next. So we at least feel good about that. And it is the same set of problems. I'm not seeing anything of any materiality that we're that concerned about. So

It's -- I don't think we'll lose any money on this deal. I like the guarantors. I like the assets, the assets in this in-demand assets, not scrap assets for real value assets and actually the assets are being leased as we speak. So there's I think we had sold some of these assets in the past. On a 70-30 basis, we got 70% and the customer got 30, and we sold those assets, and they paid down just perfectly. So assuming the rest of them bring the same value, we're going to take 100% of the proceeds from this point forward. So -- but you'll -- if we get the -- get the sales schedule. So I think I'm pretty happy with that to. I don't think we'll have -- I don't think we're going to have problems or if there's any whole left in this deal. These people are have honored everything they've ever said to us that they would do, and they're some very wealthy families. So I think we'll be fine. I think they're honorable people and will maybe just $10 million left, they put them on a $10 million 10-year note or something. So whatever time I think fell on the one of the...

And is the price in oil as the price and oil had any impact? Sorry, go ahead, John.

If anything, it might help, quite honestly.

Yes. Well, that's what I was thinking actually. So I was -- yes, I know you have to value the assets. That's great.

We now turn to Michael Rose with Raymond James. Please go ahead.

Just two follow-ups. First, just on the large Texas loan. Was there any interest reversal this quarter? And if so, like do you have the math as to kind of what the impact on the margin might have been this quarter?

Michael, this is Stephen. Yes. So the 451 margin doesn't have any -- doesn't have any accrual in that number. So it was about $1.6 million impact for the quarter, which is about 5 basis points to the loan yield and about 4 basis points to NIM. So if we had, had it on accrual for the whole quarter, $451 million would have been 4.55% compared to $456 last quarter. So that's kind of the math around it.

Okay, really helpful. And then just as it relates to the scheduled payoffs that you guys have talked about. Can you kind of quantify what the -- at least with the scheduled payoffs and paydowns are kind of expected to be over the next quarter or 2?

They look to me like the second quarter looks like close to $1 billion and third quarter could approach that, and those are both that includes kind of abnormal paydowns and principal paydowns too. So that's what you'd have to do to stay to stay even in each of those quarters.

Yes. And just for some context, payoffs in Q1 were about $650 million, but they were $950 million $750 million to $800 million in the quarter prior to that. So that's -- it's a big -- it sounds like a big number, but that's what we run in that range. quarter in and out just depending on seasonality.

And that doesn't include none of that even what I'm quoting doesn't include MCB because they're not in my pipeline, yes.

Got it. And then do you have a sense for -- are there any loans with MCB that you've identified that maybe don't fit your standards that you may kind of plan to run off over a period of time. Just trying to kind of appreciate the puts and takes on loan growth as we move forward. So I appreciate all the color.

No, I'm not aware of anything. I looked at every loan that we looked at in due diligence, I don't remember anything necessarily that I would say that I would run off. I think we have a credit culture the way we look at things, and theirs is pretty close to ours. They're maybe a little bit higher leverage in some areas. We'll work on that over time as we can. And they're going to have opportunities that with us that they haven't had because they've not been willing to do much construction. So any decisions we make to go a different direction than what they've been doing, I think, will be more than offset by the opportunities that they have to do things they haven't done before. So I look at them as being a positive, as I said in my comments, pretty early. I would expect them to hit the ground running pretty early on. We've already had a couple of pipeline discussions over 3 or 4 credits, so as of last week.

I told Bill, I said, Bill, nobody cares what you [indiscernible] this quarter. I said just you just get ready for the future. If you say you need to write down, run it down, get rid of it, get it going and get it out here. So I think we're coming in with a pretty clean chip coming in is not door.

We now turn to Jon Arfstrom with RBC.

Just a couple of things to follow up on. Johnny, did you say in your prepared comments that you think deal pricing has moderated somewhat. Did I hear you correctly? That said pricing Deal pricing, acquisition deal pricing.

Yes. I think it's lightened up a little bit. I think it's -- I don't see the urgency out there that I did see. However, people are talking they're continuing to talk and they're continuing to want to do something. And some of them want to do to do it with home. So I think -- it's out there. It's just a matter if we're ready to do that, right? It's just a matter of we're ready to make the move yet. And we're probably getting to ready to look at something else. But we're not going to be able to convert it about the same time we convert the Mountain Commerce in November. So the answer to that is yes and no. I haven't pushed hard, but we've been pushed a little bit ourselves. We've had people calling us outside of bankers calling us directly outside investment bankers and so we met you your company 2 or 3 years ago and we were thinking about doing something we wanted to talk to you all. That happened with a couple of couple of one Florida and on Tennessee came at. So will we do that? We'll have opportunity. We're going over to [indiscernible] and his team over our food talk to bill when we get over. So we get open to Tennessee and see where we where we're going, where we like -- there's a [indiscernible] outdoor there are out there. So we'll see how they work at.

Okay. I guess, is somewhat related, but how do you feel about being more aggressive on the repurchase plan? Do you have like an optimal capital level in your mind? Or are you just kind of warehousing this capital for future acquisitions because it's obviously 13% TCE and CET1 of '17, that's -- those are high levels.

I don't know if we spend it as fast as we're making that's a pretty good position to be in. But we're -- I mean we made $118 million, pretty nice, right, pretty sweet then I don't -- we got so much capital right now that we really like our position and -- but I'm ready to buy stock. I mean I'm looking at it today. We can't buy the day Tomorrow, we can't today. So it gives us an opportunity, and it's about -- I want to buy back all of my on commerce. It's about 5.5 million shares. I want to buy that back. I think we bought essentially all the [indiscernible] so I want to buy all the mine in the commerce back and just kind of go out there. We can do it pretty quick with the capital position we're in and wouldn't take us long to get that done. I'll have to buy it. I know it's a little dilutive to us, but I like to buy the stock.

So it's not an either or in your mind, you can do both. Yes. Yes, that's good. not either or you can do both, I guess, is what you're saying, right?

That's correct. That's correct.

Appreciate it.

We now turn to Matt Olney with Stephens.

Just sticking with M&A. You mentioned some potential bank targets in Florida and Tennessee. Can you just speak to the appetite of doing M&A in footprint in existing markets versus expanding into new markets. Is the bar set higher if you were to expand the franchise into new markets? Just trying to appreciate how you think about doing M&A and existing footprint versus something outside the existing footprint?

Well, there's no comparison to me, there's a for deal out there that we can do -- we can -- we have management from West Florida in Pensacola. We have management all over the state of Florida. We can just add it to someone. You've heard me talk about porting Will's guys buckets. I mean they're great managers. I mean the performance of our Florida operations out well, our operations are outstanding. But those guys know what to do and how to do it. And it just makes it simpler and easier. We go -- we made the big move to Tennessee because we like Male and his team, and we made that move. So I think we need to grow there. We need to build a muscle up Tennessee because I think there's opportunities in a little disruption over there. And I think it will give us an opportunity to pick up and build some muscle in that state as we've done in Florida. I think it's an opportunity for us. So the reason being you just get more consolidation savings. That's really the key. If you think about closing branches and doing a deal where you can close some branches, those are big savings. So we'll continue to focus more on where we are than outside of that. When we look outside of that 1 of those deals that I'm talking about your banker is calling me about is outside of that. And I really like the operator and we like the guy. We like this company. We like what he does. They don't have the growth that Florida has got, but he runs a good clean operation. So somewhat said, why would you go there? And because it's simple and it's clean and they do a good job running their company. So it kind of bills mass. So that's outside of where we prepay operate today. the EBITDA it runs it and you don't have to hold his hand. So that's really what you're looking for. We look for somebody if you're going outside the market, you better get somebody like fail that knows what they're doing, it's how to run on.

Yes. Okay. I appreciate the commentary. And then just as a follow-up, if Chris is still on the line, I got a question about private credit. And Chris, you had some good insightful comments about private credit and kind of what you had there a few years ago versus what you have today. I want to dig more into the views you have today and kind of your outlook here. I think you said that the current bias was for further reduction of the remaining private credit exposure that you have. I was hoping you could expand on this? And how do you see the private credit market playing out the next few years? And also curious, when do you expect to see some opportunity here for growth for CCFG?

Yes. Thanks, Matt. Yes, probably two things there. One, right now, the uncertainty here is what's the underlying -- what do these underlying loans look like and where do they go? It feels early because I think you're going to see a little bit of a false bottom where there's a little bit of maybe some price expansion or there's a little bit of some markdowns in these notes everybody goes, oh, okay, that's it. And then there's always say the third shoe to drop, right? So right now, we're not seeing a lot of capitulation on the price side, and there should be, but we're also not seeing any activity. Nobody is pricing a new facility today if they don't have to. So I think we'd want to see -- one of the things we look at a lot in ours is we'll have these loans been marked appropriately, right? What's happening to the underlying credit? Have you had an EBITDA expansion or not, has the loan been marked, et cetera. We'd like to see a little more of that before I think we get comfortable. I mean we've certainly had people come to us and say, I'd like to get out of some of our positions, my risk guys are getting on to me, what would the price be? And I think right now our answer is price doesn't fix credit, and so an extra 50 basis points isn't going to save me when I need the credit support. So I think right now, we're just biased towards that's big of this crediting out. This may turn into nothing, right? I mean they turn out all these things are fine. AI doesn't destroy the world and all these software companies are fine. I just don't think you should take that risk today. So we'd want to see a little bit more capitulation I think, before we before we would do that. But we -- as I said, we've been in this market for 10-plus years. So I think people that came into the market, quite frankly, need to take some losses before I feel comfortable, right? It seems like that's how you get disciplined. Is you get new entrants in and they thought they were getting something very risk-free and they priced it that way, and then it turned out not to be and then everybody gets religion again. So we'll look for that. And when we see signs for that, we might consider expansion again. We're still set up that we have facilities that will roll off. And right now, it's facility rolls off, we probably just wouldn't replace it. We wouldn't go into the next one or we just take the payoff and move on. That's on the C&I side. Real estate, we're we continue to see good pipeline growth. We are going to have elevated payoffs, but one of those is just a credit we've had that I've been saying, we've been 2 weeks from payoff for 6 months, and I think it's paying off today, we'll find out, not a worry for us on the credit. They've just been in the sale process, and it just dragged on a little bit. But we like the credit. I'd like it to stay longer, but I get nervous when things stay a little too long, right? Steps supposed to move. We're in the moving business. And so -- but we continue to see great opportunities. I think our pipeline is pretty strong. It might take me more than a quarter to replace what comes off, but it won't take a lot more than that, I don't think.

We will now turn to Brian Martin with Brian Capital. Please go ahead.

Just maybe one follow-up. Chris, you're still there. Just on your outlook for the year. I know you talked about a payoff last quarter. It felt like that maybe got pushed back a little bit. But just your kind of outlook for growth is still kind of mid-single-digit type of growth this year kind of with the puts and takes of the payoffs and the pipeline you've got?

I think that's right. That's what I'd like to see. I think if we don't have that, I'd be a little disappointed. We really look at it on more like a rolling basis, right? So which I know it's harder for you because you look at it on a calendar basis. But I'd say from here over the next rolling 12 months, will we grow, I think so based on what we see, we booked quite a bit last year. We had really good production last year, not all of that's funded. So we would expect some of that to roll through. And I do like where we are right now on pipeline. I'd say there are Kevin talked about a little bit, we're in constant contact with our customers. Most of our business is repeat business, whether it's somebody barred from me 3 years ago or some of the board from me last year. So we're really always kind of early on in discussions with our customers about what they're buying, what they're planning, what they're doing. Some of that moves around and then I was talking to somebody last week, they called me up, they said, "I've got this thing. We may be buying it, we'd want to move quick, et cetera, would you be -- where would you be? We told them he said that sounds great and they called me yesterday and said I think we're going to pass on that. And so I would have told you last week, there might be a pretty interesting deal there, and today, there isn't, but they may call me back on Monday and say it's back on. So we're flexible. And because we're flexible, we get a lot of looks at things. And so generally speaking, on a rolling kind of 3, 4 quarters basis, I can usually say, yes, I think we're probably going to expand.

Okay. Perfectly. That's helpful. And maybe just a couple of follow-ups for me. Johnny, I think you talked about the M&A just not to beat a dead horse, but just any change now that you've got in Mountain Commerce in terms of sizing? A lot of people are asking, do you look at something smaller, bigger it just what's available? Just any context on kind of what your preference would be in terms of moving forward with M&A?

Well, somewhere in the size or larger than maybe motors will be nice. But we would probably do a smaller deal. If it fits bill, if it's in a market where Bill is not see, we'd probably step down and do a small return. [indiscernible] pretty good so we're in 4 or 5 locations. So we got ready to grow in that state.

Got you. Okay. That's helpful. And maybe just, Stephen, just on the margin, I think you talked about the opportunity on the cost of deposits at Mountain Commerce has still got some room, maybe not as much room on legacy. But on the asset side, what's the opportunity for what's remaining to be repriced this year for home? And then, I guess, any impact of consequence from Mountain Commerce in terms of that repricing on the asset side?

No, I don't think any impact necessarily from Mountain Commerce. I would say what we're seeing here most recently on what's maturing as we go given where competition is at is essentially trying to kind of blend in with overall were maturing from to keep it on the books. So the benefit that I think maybe banks thought was there a year ago, you're certainly with what we're seeing loan pricing competition in other areas just kind of hold on to what you got.

Got you. Okay. And just maybe in terms of -- you gave the -- I think someone gave the payoffs, and it was, I guess, but in terms of the production, I think you said it was around $900 million this quarter. I guess what -- just the recent quarter, has production been similar at that level? Or is that moved around a little bit.

It's a little light for yes, the $917 for this quarter, we were to a little over $2 billion in Q4, but seasonally, usually are at the end of the year. But prior quarters in that, we've been a little north of $1 billion.

Okay. So this.

Not funding day so that's a good fair portion of that is construction, and that's not going to fund until 6 months from now when it start funding generally. So that's a little hard to pencil out on time.

Okay. I hear you. And maybe just the last couple for me. I think just in terms of the credit quality, I mean, I guess the one credit, the Texas one you've talked about, but the other couple of credits that are out there, I think the Dallas-Fort Worth one, the Boat 1, I guess, I guess is there -- those are still just being worked through and no real update in terms of how the timing may proceed there? Just trying to get a read on when you see some of the improvement that you expect here kind of flowing through the numbers as we go through the remainder of the year?

[indiscernible] battle loans credits every day down both. We're going to a jury I mean.

For trial in June. We have not. It's been a year. We've had. We have the vote. We have the vote. We have the most -- it's not a question of where it is. We actually have the vote.

We can I mean absolutely, they're just -- it keeps going to judge then they got a new gene, now got a new judge, third judge we're going before the judge in a trial now. I mean it's $5 million both old on the boat. It's a $7 million, $8 million, $9 million, maybe $3 million to we get it sold, maybe stem I've never said anything like that deal at all. It's just been frustrating. So the apartments in Dallas that we're as on the west, we keep -- we'll get it sold eventually at some point in time. We've had 5 or 6, 7 buyers on it. We'll get it sold at some point in time. But it's -- I mean, we have [indiscernible]. Yes, it's got a -- there's no loss in that for us. I mean, we -- and Kevin like a couple of million dollars on it a while back. So there's no loss on that. So just a matter of getting it out of there versus the destruction problems and why you can't.

Yes. We got to get -- it's in a receiver and the receivers got to correct some safety issues before we may find somebody to take it where it's at. We're working and we talk to people all the time and work through all the leads we got. But realistically, we may me to work through the issues that need to be completed before you find somebody that really -- there's an opportunity there if somebody wants to jump in and do it if you find the right person, then we'll get it sold and moved. But -- and like I said, some of the challenges just have to work through.

But there's no loss at all. We've written that down, down, down.

Okay. And just the outlook on charge-offs. I mean, it sounds like that's a pretty de minimis number, a pretty low number here, given what's happened with these credits are just something you're working through, you've kind of absorbed the impact. So the charge-off outlook, at least near term, is still pretty benign in terms of the portfolio today?

I would agree with that.

Maybe the last one for Brian. Go ahead, John. I'm sorry. any more.

I don't anticipate any more losses on the bid credit or the apartment credit. That's really the ones we're working through. So I don't anticipate they're marked and written down and if there was -- I mean, it's $100 million credit, if there was some loss in it, I'd be shocked. But -- and I've been fooling before, but I think we're fine. It'd just be a bump in a row for us because -- I mean, [indiscernible]. I don't know maybe it's nothing. I don't -- if I thought there was a loss in my if I thought the loss I take it. I would have immediately written it down, but we haven't -- no need to write it down at this point in time.

Years of charge-offs in our we've got 15 years' worth of charge-offs in -- did you hear us.

We've got 15 years charge-offs in reserve right now I mean we have a pretty good history of not having a lot of charge-offs as we've had for the year. We had the Texas cleanup, which is probably the biggest one. That includes that

In that [indiscernible] level.

Got you. And maybe just the last one for me, Brian. I think you talked about the fee income being just kind of some of the noise in the last couple of quarters. This quarter seemed pretty clean around $44 million. Any -- is that kind of a decent level to think about as we go forward? And then I know you talked about a couple of maybe you get some wind at your back, but at least a baseline that seems pretty clean with absent all kind of the noise that's kind of flowed through there in recent quarters.

Yes. I mean you're right because over the last 4 quarters, we've had somewhere between $4 million and $5 million every quarter that's dropped down in this other income line item. And it's a whole variety of different events ranging from $5.7 million in the third quarter of last year to $3.9 million in the first quarter of last year. But this quarter, we didn't have any of that.

Okay. So it's a good baseline to work off and then expectation is hopefully that you see it trend upwards. So Okay. Perfect. Congrats on the quarter.

We have no further questions. I'll hand back to Mr. Allison for any final comments.

Yes. Thanks for a long day, a lot of questions, a lot of interest. Thank you for your support. We'll continue to do our part. And hopefully, we'll continue to run the 2% ROAs and see they beat us up a little bit on the shop today. They've kind of hammered us on they kind of have us on the stock. So I don't think we deserve to be off 3%. But it's an opportunity [indiscernible] So you bet. It's a great opportunity to buy. So timing would be good for us. And that's it, unless anybody has anything else. Everybody else got anything? Thank you very much. Talk to you in 90 days.

Ladies and gentlemen, today's call has now concluded. We'd like to thank you for your participation. You may now disconnect your lines.