Home BancShares' NIM Outlook, M&A Shifts and Expense Plans Don't Match

Date of Call: Jan 15, 2026

Financials Results

• Revenue: $282.1 million in Q4 2025, with full year revenue of $1,090,000 million
• EPS: $0.60 adjusted diluted EPS in Q4 2025, up 20% over 2024, with full year EPS of $2.41
• Operating Margin: Adjusted efficiency ratio of 39.53% in Q4 and 41.29% for full year 2025, with net interest margin of 4.61%

Guidance:

• Loan growth expectations for 2026: Expect continued growth, but paydowns may moderate near-term growth; future funding and new volume may offset paydowns.
• Net interest margin: Aim to keep it flat or slightly up; core margin was 4.56% in Q4, with some room for adjustment based on loan portfolio and CD rates.
• Expense run rate: Targeting ~1% standalone growth in 2026, with MCB acquisition adding to run rate later in the year; merger expenses already factored into Q4.
• M&A: Open to further opportunities, particularly in Tennessee, Texas, or Florida, contingent on the right trade that does not dilute shareholders.
• Capital and buybacks: Continue repurchasing stock; aim to buy back Mountain Commerce shares over time; capital levels remain strong.

Business Commentary:

Record Financial Performance:

• Home Bancshares reported net profit of $118 million for Q4 2025, marking an 18% increase over 2024. The company's full-year net profit was a record $475 million, reflecting an 18.2% increase over the previous year.
• This growth was attributed to strong revenue generation and effective management of net interest margin and efficiency ratio.

Net Interest Margin and Efficiency Ratio:

• The reported net interest margin improved to 4.61% in Q4 2025, up five basis points from Q3 and 22 basis points from the same period a year ago. The company also reported an adjusted efficiency ratio of 39.53% for Q4.
• The improvement in net interest margin was due to a decline in interest-bearing deposit costs, while the efficiency ratio benefited from strong revenue and controlled expenses.

Loan Growth and Asset Quality:

• Home Bancshares achieved Q4 loan growth of $400 million, contributing to a total loan growth of $922 million or 6.24% for the year. Asset quality remained strong with a sequential decline in criticized assets.
• The growth was driven by strong loan production, particularly in the community bank footprint and Florida. The focus on credit culture and loan underwriting contributed to maintaining asset quality.

Capital and Shareholder Returns:

• The company ended the year with common equity tier one capital at 16.3% and total risk-based capital at 19.1%. Home Bancshares also reported earnings of $2.41 EPS, a 20% increase over 2024.
• The capital growth and increased shareholder returns were a result of strong profitability and strategic capital management, including share repurchases.

Strategic Acquisition:

• Home Bancshares announced the acquisition of Mountain Commerce Bank, anticipating a quick regulatory process and integration. The merger is described as triple accretive.
• The acquisition is aimed at expanding the company's presence in Tennessee and leveraging the strengths of both institutions for mutual growth and shareholder benefits.

Sentiment Analysis:

Overall Tone: Positive

• Chairman John Allison called it "one of the most successful years in our 26-year history" and stated, "The numbers really speak for themselves. They’re the best numbers we’ve ever produced." Management highlighted strong loan growth, high capital levels, and a successful acquisition, expressing excitement about future opportunities and a positive outlook for 2026.

Q&A:

• Question from John Armstrong (RBC): What do you attribute the strong loan growth in the quarter to, and are pipelines changing?
  Response: Growth driven by a few large, non-construction loans funding fully, some timing of loan closings/payoffs, and strong pipelines; no major changes noted.

• Question from Stephen Scouten (Piper Sandler): Are you lending more significantly in energy, and what about larger loans flagged in the quarter?
  Response: One larger energy loan was upsized but not indicative of a new market focus; it was a good opportunity with a strong operator.

• Question from Stephen Scouten (Piper Sandler): Can deposit growth fund loan opportunities, and what's the loan-to-deposit ratio target?
  Response: Target ratio in the mid-90s%; deposit growth expected from brand strength and market expansion, particularly in Florida and Tennessee.

• Question from Matt Olney (Stephens): What are you seeing in loan pricing and competitive pressures?
  Response: Seeing some "silly" competitive offers (e.g., prime minus 75 with no floor); community bank originations are holding good yield despite rate drops.

• Question from Matt Olney (Stephens): What are the puts and takes on the net interest margin for 2026?
  Response: Hope to keep margin flat; some room to raise rates on maturing fixed-rate loans (~$1.2B), but competition is a factor.

• Question from David Rochester (Cantor Fitzgerald): What drove the multifamily loan growth, and should we expect more focus?
  Response: Growth driven by clients purchasing distressed/expiring multifamily loans; more may come, but depends on client appetite and market conditions.

• Question from Catherine Mealor (KBW): How should we think about initial balance sheet changes for Mountain Commerce and timing of M&A?
  Response: Minimal immediate impact on net interest margin; funding adjustments will be gradual; open to further M&A in Tennessee, Texas, or Florida, likely in 2026.

• Question from Brett Rabatin (Hovde Group): Does market sentiment against buyer stocks affect M&A appetite?
  Response: No impact; will continue M&A if the right opportunity arises that doesn't dilute shareholders; also continue stock buybacks.

• Question from Michael Rose (Raymond James): What are the long-term aspirations in Tennessee?
  Response: Aim to grow organically and through M&A in Tennessee, leveraging founder's knowledge and market relationships; open to opportunities there.

• Question from Brian Martin (Janney Montgomery Scott): What's the expected net loan growth for 2026?
  Response: Expecting mid-single-digit growth; paydowns are elevated but opportunities exist, especially in non-bank lending.

Contradiction Point 1

Net Interest Margin (NIM) and Net Interest Income (NII) Outlook

Contradiction on NIM trend and responsiveness to rate changes.

What are the current trends in loan pricing and competitive dynamics, and what key factors are influencing the net interest margin through 2026? - Matt Olney (Stephens)

2025Q4: For the margin, the goal is to keep it flat or slightly up... competition will be a factor. The core margin excluding event income was 4.56% in Q4. - Kevin Hester(President and Chief Lending Officer) and John Allison(CEO)

How do you expect net interest margin (NIM) and net interest income (NII) trends to evolve with recent rate cuts, and what is NIM's sensitivity to the next cut? - David Rochester (Cantor Fitzgerald)

2025Q3: The management team reacts quickly to rate changes. The company has a history of maintaining margin despite rate fluctuations due to this responsiveness. The NIM improved to 4.56% in Q3, up 12 bps from Q2 and 28 bps from a year ago. - John Allison(CEO) and John Tipton(CEO of Centennial Bank)

Contradiction Point 2

Strategic Focus on Loan Growth and M&A

Contradiction on willingness and strategy regarding balance sheet growth.

What drove the multifamily loan growth this quarter, and will this remain a focus in 2026? How are you approaching expenses for 2026? - David Rochester (Cantor Fitzgerald)

2025Q4: The pipeline is strong and supports growth. The company is not necessarily more willing to grow, but the pipeline is producing the right deals. - Kevin Hester(President and Chief Lending Officer) and Christopher Poulton(President of CCFG)

Is the loan growth pipeline improving, and are you more willing to expand the balance sheet? - Jon Arfstrom (RBC)

2025Q3: The company is active in construction lending, which involves regular turnover. - Kevin Hester(President and Chief Lending Officer)

Contradiction Point 3

M&A Strategy and Deal Characteristics

Shift from exclusively accretive, non-dilutive deals to openness to potentially dilutive transactions.

How soon after closing the Tennessee deal would you consider further M&A? - Catherine Mealor (KBW)

2025Q4: The company is open to opportunities and could do another deal in 2026, ideally closing the current one in April or May. - John Allison(CEO)

Is a triple accretive deal achievable without dilution at current valuations? - Stephen Scouten (Piper Sandler)

2025Q2: The company has no intention of diluting its shareholders. It prefers deals that are EPS accretive without dilution... - John Allison(CEO)

Contradiction Point 4

Expense Run Rate

Contradiction on core operating expense levels and management focus.

What drove the significant multifamily loan growth this quarter, and will it remain a focus in 2026? How are you planning expenses for 2026? - David Rochester (Cantor Fitzgerald)

2025Q4: The Q4 standalone run rate was just under $114 million (excluding $500k in merger expense). The 2026 budget projects about 1% standalone growth... - Chris Poulton and Kevin Hester

Will expenses decrease after excluding the one-time Texas lawsuit cost, or will they align with natural growth? - Catherine Mealor (KBW)

2025Q1: Core operating expenses were $111 million in Q1. After removing the $2 million Texas lawsuit expense, the underlying run-rate is around $109-$110 million. Management is focused on maintaining this level, and the expense control is viewed as strong. - John Allison(CEO)