HOMB - HOMB's Safe Harbor: Patience Liquidity Asset Quality Capital Reserves and Net Interest Margin Result in Record Setting Quarterly Revenue

CONWAY, Ark., July 21, 2022 (GLOBE NEWSWIRE) -- Home BancShares, Inc. (NYSE: HOMB) (“Home” or the “Company”), parent company of Centennial Bank, released quarterly earnings today.

Highlights of the Second Quarter of 2022:

⁽¹⁾ Calculation of this metric and the reconciliation to GAAP are included in the schedules accompanying this release.

“Patience is not just the ability to wait; it’s what you do while you’re waiting. We have remained disciplined and implemented our defensive initiatives: not making low rate loans, not deploying all of our cash in low rate securities, paying off debt and managing our loan to deposit ratio, among other things. As it appears, the pendulum is about to swing back toward defensive stocks from growth stocks, and when it does, HOMB is sitting in the catbird seat,” said John Allison, Chairman.

“It was a very busy quarter, and I’m very pleased with the operating results. We are much farther ahead than I thought we would be after only one full quarter of the combined company. We expected a $100 million run rate for Happy by the second or third quarter of 2023, so this moves the ball down the field even quicker than we had hoped,” said Tracy French, Centennial Bank President and Chief Executive Officer.

Operating Highlights

Net income for the three-month period ended June 30, 2022 was $16.0 million, or $0.08 earnings per share. Net income for the six-month period ended June 30, 2022 was $80.9 million, or 0.44 earnings per share. However, when adjusting for merger related and other non-fundamental items, net income, as adjusted, (non-GAAP) was $97.0 million ⁽¹⁾ , or $0.47 earnings per share ⁽¹⁾ , and $158.6 million ⁽¹⁾ , or $0.86 earnings per share ⁽¹⁾ , for the three-month and six-month periods ended June 30, 2022, respectively.

During the second quarter of 2022, the Company completed its previously announced acquisition of Happy Bancshares, Inc. (“Happy”). As a result of the acquisition of Happy, which we completed on April 1, 2022, the Company recorded a $45.2 million provision for credit losses on loans for the CECL “double count,” an $11.4 million provision for credit losses on unfunded commitments, a $2.0 million provision for credit losses on investment securities held-to-maturity and incurred $48.7 million in merger expenses. The summation of these items reduced earnings by $107.3 million and earnings per share by $0.39 per share for the three-month period ended June 30, 2022.

Our net interest margin was 3.64% for the three-month period ended June 30, 2022 compared to 3.21% for the three-month period ended March 31, 2022. The yield on loans was 5.27% and 5.29% for the three months ended June 30, 2022 and March 31, 2022, respectively, as average loans increased from $9.94 billion to $13.84 billion. Additionally, the rate on interest bearing deposits increased to 0.31% as of June 30, 2022 from 0.19% as of March 31, 2022, as average balances increased from $10.22 billion to $13.80 billion.

During the second quarter of 2022, there was $602,000 of event interest income compared to event interest income of $1.4 million for the first quarter of 2022. The reduction in event income reduced the net interest margin by one basis point for the three-month period ended June 30, 2022.

Purchase accounting accretion on acquired loans was $5.2 million and $3.1 million and average purchase accounting loan discounts were $48.4 million and $25.4 million for the three-month periods ended June 30, 2022 and March 31, 2022, respectively. The increase in accretion income increased the net interest margin by 4 basis points for the three-month period ended June 30, 2022.

Net interest income on a fully taxable equivalent basis was $201.2 million for the three-month period ended June 30, 2022 and $132.9 million for the three-month period ended March 31, 2022. This increase in net interest income for the three-month period ended June 30, 2022 was the result of a $72.8 million increase in interest income partially offset by a $4.5 million increase in interest expense. The $72.8 million increase in interest income was primarily the result of a $52.3 million increase in loan interest income and a $15.6 million increase in investment income resulting from the acquisition of Happy during the quarter as well as the rising interest rate environment. The $4.5 million increase in interest expense was due to a $5.8 million increase in interest expense on deposits, which was partially offset by a $1.4 decrease in interest expense on subordinated debentures. The increase in interest expense on deposits is a result of the acquisition of Happy during the quarter as well as the rising rate environment. The decrease in interest expense on subordinated debentures is primarily the result of the Company paying off $300.0 million of subordinated debentures with a 5.265% rate on April 15, 2022 and issuing $300.0 million of new subordinated debt with a rate of 3.125% on January 18, 2022. In addition, the Company redeemed $78.9 million of trust preferred securities (“TRUPS”) during the quarter. The reduction in subordinated debt and the related interest expense was accretive to the net interest margin by 3 basis points.

The Company reported $44.6 million of non-interest income for the second quarter of 2022. The most important components of the second quarter non-interest income were $12.5 million from other service charges and fees, $10.1 million from service charges on deposit accounts, $6.0 million in mortgage lending income, $7.7 million from other income, $3.9 million from dividends from FHLB, FRB, FNBB and other, $4.3 million from trust fees, $1.1 million increase in cash value of life insurance, and $658,000 from insurance commissions. These amounts were partially offset by a $1.8 million loss from the fair value adjustment for marketable securities. The $3.9 million from dividends from FHLB, FRB, FNBB and other includes $1.4 million in special dividends. The $7.7 million in other income includes $2.4 million in recoveries on historic losses of loans acquired that were written off prior to acquisition.

Non-interest expense for the second quarter of 2022 was $165.5 million. The most important components of the second quarter non-interest expense were $65.8 million from salaries and employee benefits, $48.7 million in merger and acquisition expenses, $26.6 million in other expense, $14.3 million in occupancy and equipment expenses and $10.1 million in data processing expenses. Included within non-interest expense was $2.1 million in TRUPS redemption fees. For the second quarter of 2022, our efficiency ratio was 66.31%; however, our efficiency ratio, as adjusted (non-GAAP) was 46.02% ⁽¹⁾ _.

Financial Condition

Total loans receivable were $13.92 billion at June 30, 2022 compared to $10.05 billion at March 31, 2022. Total deposits were $19.58 billion at June 30, 2022 compared to $14.58 billion at March 31, 2022. Total assets were $24.25 billion at June 30, 2022 compared to $18.62 billion at March 31, 2022.

During the second quarter of 2022, the Company experienced approximately $3.87 billion in loan growth. During the quarter we acquired $3.65 billion of loans, net of purchase accounting discounts, from Happy. Centennial CFG experienced $273.0 million of organic loan growth and had loans of $2.42 billion at June 30, 2022. Our legacy footprint experienced $20.1 million in organic loan growth and $74.6 million in PPP loan decline during the quarter.

Non-performing loans to total loans was 0.44% at both June 30, 2022 and March 31, 2022, respectively. Non-performing assets to total assets was 0.25% at both June 30, 2022 and March 31, 2022, respectively. Net charge-offs were $2.5 million and $1.9 million for the three months ended June 30, 2022 and March 31, 2022, respectively.

Non-performing loans at June 30, 2022 were $15.0 million, $33.3 million, $5.5 million, $813,000, $1.3 million and $4.7 million in the Arkansas, Florida, Texas, Alabama, Shore Premier Finance and Centennial CFG markets, respectively, for a total of $60.6 million. Non-performing assets at June 30, 2022 were $15.0 million, $33.6 million, $5.7 million, $813,000, $1.3 million and $4.7 million in the Arkansas, Florida, Texas, Alabama, Shore Premier Finance and Centennial CFG markets, respectively, for a total of $61.1 million.

The Company’s allowance for credit losses on loans was $294.3 million at June 30, 2022, or 2.11% of total loans, compared to the allowance for credit losses of $234.8 million, or 2.34% of total loans, at March 31, 2022. The increase in the allowance was primarily due to the Company recording a $16.8 million allowance on purchase credit deteriorated loans and a $45.2 million provision for credit losses on acquired loans as part of the Happy acquisition which was partially offset by $2.5 million in net charge-offs for the quarter ended June 30, 2022. The Company’s allowance for credit losses on loans to total loans, excluding PPP loans (non-GAAP), was 2.12% ⁽¹⁾ and 2.35% ⁽¹⁾ at June 30, 2022 and March 31, 2022, respectively. As of June 30, 2022 and March 31, 2022, the Company’s allowance for credit losses on loans was 485.57% and 525.50% of its total non-performing loans, respectively.

Stockholders’ equity was $3.50 billion at June 30, 2022 compared to $2.69 billion at March 31, 2022, an increase of approximately $811.9 million. The increase in stockholders’ equity is primarily associated with the $961.3 million of common stock, net of issuance costs, issued to the Happy shareholders which was partially offset by a $111.3 million increase in accumulated other comprehensive loss, net stock repurchases and share-based compensation activity of $20.1 million and an $18.0 million decrease in retained earnings. Book value per common share was $17.04 at June 30, 2022 compared to $16.41 at March 31, 2022. Tangible book value per common share (non-GAAP) was $9.92 ⁽¹⁾ at June 30, 2022 compared to $10.32 ⁽¹⁾ at March 31, 2022.

(1) Calculation of this metric and the reconciliation to GAAP are included in the schedules accompanying this release.

Branches

The Company currently has 76 branches in Arkansas, 78 branches in Florida, 62 branches in Texas, 5 branches in Alabama and one branch in New York City.

Conference Call

Management will conduct a conference call to review this information at 1:00 p.m. CT (2:00 ET) on Thursday, July 21, 2022. We strongly encourage all participants to pre-register for the conference call webcast or the live call using one of the following links. First, participants can pre-register for the conference call webcast using the following link: https://events.q4inc.com/attendee/373803075 . Participants who pre-register will be given a unique webcast link to gain immediate access to the conference call webcast. Second, participants can pre-register for the live call using the following link: https://ige.netroadshow.com/registration/q4inc/11147/home-bancshares-inc-2nd-quarter-earnings-call/ . Participants who pre-register will be given the phone number and unique access codes to gain immediate access to the live call. Participants may pre-register now, or at any time prior to the call, and will immediately receive simple instructions via email. The Home BancShares conference call will also be automatically scheduled as an event in your Outlook calendar.

Those without internet access or unable to pre-register may dial in and listen to the live call by calling 1-844-200-6205, Passcode: 478807. A replay of the call will be available by calling 1-866-813-9403, Passcode: 165968, which will be available until July 28, 2022, at 10:59 p.m. CT (11:59 p.m. ET). Internet access to the call will be available live or in recorded version on the Company's website at www.homebancshares.com.

About Home BancShares

Home BancShares, Inc. is a bank holding company, headquartered in Conway, Arkansas. Its wholly-owned subsidiary, Centennial Bank, provides a broad range of commercial and retail banking plus related financial services to businesses, real estate developers, investors, individuals and municipalities. Centennial Bank has branch locations in Arkansas, Florida, Texas, South Alabama and New York City. The Company’s common stock is traded through the New York Stock Exchange under the symbol “HOMB.” The Company was founded in 1998. Visit www.homebancshares.com or www.my100bank.com for more information.

Non-GAAP Financial Measures

This press release contains financial information determined by methods other than in accordance with generally accepted accounting principles (GAAP). The Company’s management uses these non-GAAP financial measures--including net income (earnings), as adjusted; pre-tax, pre-provision, net income (PPNR); pre-tax, pre-provision, profit percentage; pre-tax, pre-provision, profit percentage, as adjusted; diluted earnings per common share, as adjusted; return on average assets, as adjusted; return on average assets excluding intangible amortization; return on average assets, as adjusted, excluding intangible amortization; return on average assets excluding excess liquidity; return on average assets, as adjusted, excluding excess liquidity; return on average common equity, as adjusted; return on average tangible common equity; return on average tangible common equity, as adjusted; return on average tangible common equity excluding intangible amortization; return on average tangible common equity, as adjusted, excluding intangible amortization; efficiency ratio, as adjusted; allowance for credit losses to total loans, excluding PPP loans; tangible book value per common share and tangible common equity to tangible assets--to provide meaningful supplemental information regarding our performance. These measures typically adjust GAAP performance measures to include the tax benefit associated with revenue items that are tax-exempt, as well as adjust income available to common shareholders for certain significant items or transactions (including the effect of the PPP loans) that management believes are not indicative of the Company’s primary business operating results. Since the presentation of these GAAP performance measures and their impact differ between companies, management believes presentations of these non-GAAP financial measures provide useful supplemental information that is essential to a proper understanding of the operating results of the Company’s business. These non-GAAP disclosures should not be viewed as a substitute for operating results determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies. Where non-GAAP financial measures are used, the comparable GAAP financial measure, as well as the reconciliation to the comparable GAAP financial measure, can be found in the tables of this release.

General

This release may contain forward-looking statements regarding the Company’s plans, expectations, goals and outlook for the future. Statements in this press release that are not historical facts should be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not guarantees of future events, performance or results. When we use words like “may,” “plan,” “propose,” “contemplate,” “anticipate,” “believe,” “intend,” “continue,” “expect,” “project,” “predict,” “estimate,” “could,” “should,” “would,” and similar expressions, you should consider them as identifying forward-looking statements, although we may use other phrasing. Forward-looking statements of this type speak only as of the date of this news release. By nature, forward-looking statements involve inherent risk and uncertainties. Various factors could cause actual results to differ materially from those contemplated by the forward-looking statements. These factors include, but are not limited to, the following: economic conditions, credit quality, interest rates, loan demand, real estate values and unemployment; disruptions, uncertainties and related effects on our business and operations as a result of the ongoing coronavirus (COVID-19) pandemic and measures that have been or may be implemented or imposed in response to the pandemic, including the impact on, among other things, credit quality and liquidity; the risk that the benefits from the acquisition of Happy may not be fully realized or may take longer to realize than expected, including as a result of changes in general economic and market conditions, ongoing or future effects of the COVID-19 pandemic, interest and exchange rates, monetary policy, laws and regulations and their enforcement, and the degree of competition in the geographic and business areas in which Home and Happy operate; the ability to promptly and effectively integrate the businesses of Home and Happy; the reaction to the transaction of the companies’ customers, employees and counterparties; diversion of management time on acquisition-related issues; the effect of any future mergers, acquisitions or other transactions to which we or our bank subsidiary may from time to time be a party, including as a result of one or more of the factors described above as they would relate to such transaction; the ability to identify, enter into and/or close additional acquisitions; legislative and regulatory changes and risks and expenses associated with current and future legislation and regulations, including those in response to the COVID-19 pandemic; technological changes and cybersecurity risks; the effects of changes in accounting policies and practices; changes in governmental monetary and fiscal policies; political instability; competition from other financial institutions; potential claims, expenses and other adverse effects related to current or future litigation, regulatory examinations or other government actions; changes in the assumptions used in making the forward-looking statements; and other factors described in reports we file with the Securities and Exchange Commission (the “SEC”), including those factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on February 24, 2022.

FOR MORE INFORMATION CONTACT:
Donna Townsell
Director of Investor Relations
Home BancShares, Inc.
(501) 328-4625