Home BancShares' record quarter owes more to vanished costs than to a growing bank

Home BancShares, the Arkansas company that owns Centennial Bank, reported record net income of $129.5 million for the September 2026 quarter. The record is real, but it says less about the bank than it seems. On the company's own adjusted measure, which strips out merger costs and other items it treats as non-recurring, profit rose 0.8% from the quarter before, and adjusted pre-provision profit, what the bank earns before setting money aside for bad loans, fell.

The step up is easy to trace. Profit before tax rose $12.5 million from the quarter before, calculated from the filed income statements. That earlier quarter had carried $12.7 million of costs for the Mountain Commerce acquisition and a $5.2 million provision for loan losses; last quarter carried neither. Those two absences alone are worth more than the whole increase. Non-interest income went the other way, falling by about $7.0 million, while net interest income, the spread between what loans earn and what deposits and borrowings cost, barely moved.

Underneath, the bank got smaller. Loans fell $216.6 million in the quarter, as the community-banking footprint shrank and only the Centennial CFG lending arm grew, and deposits fell too. Repayments did much of the damage: management said borrowers paid off $1.01 billion of loans, close to the pace it had warned of in April. Spread income held up because funding got slightly cheaper, with interest expense falling by more than interest income, which lifted the net interest margin by two basis points, or two hundredths of a percentage point.

The part a holder most needs to watch sits in the bad-loan book. Non-accrual loans, on which the bank has stopped booking interest because it doubts full repayment, more than doubled in the three months after the end of 2025, when one large Texas commercial borrower was moved into the category, and kept edging up to $195.8 million by the end of last quarter. The allowance for loan losses has not grown with them. It covered non-performing loans about 350% at the end of 2025 and about 162% now, and in the latest quarter the allowance itself was slightly lower. Even so, the bank booked no provision last quarter, and management said it expects none this quarter either.

That stance rests on the one Texas credit. Management has said since April that it expects no additional loss on the relationship, and the chairman repeated in July that no loss was coming. This time he described two sales of the borrower's assets: 80% are under a signed purchase agreement and the rest under a preliminary one. He went further, telling analysts: "So you'll see about a $10 million recovery or the loan loss or whatever when that closes." The timing has stretched. In April management expected the credit to be resolved within a quarter or two; on this call it said it had hoped to resolve it last quarter, which did not happen. Until the sales close, the terms are management's account of agreements still in progress.

There are solid reasons to think the bank can absorb a disappointment. Net charge-offs, loans actually written off after recoveries, were 0.05% of average loans last quarter. Common equity tier 1 capital, the regulators' core measure of loss-absorbing capital, was 16.7% of risk-weighted assets. The fall in cover came from problem loans more than doubling, while the reserve rose only because $31.3 million of allowance came with the Mountain Commerce loans.

So the record tells a holder mainly that the one-off costs of the quarter before are gone. What will shape the coming quarters is whether the Texas sales close on the terms the chairman described. If they do, the largest single problem loan leaves the books and a zero provision looks well founded. If they slip again, the bank carries a thinner cushion against its bad loans while guiding to no new money set aside for them.