HOMB - Home BancShares Inc. Remains Profitable in First Quarter During Unprecedented Times

CONWAY, Ark., April 16, 2020 (GLOBE NEWSWIRE) -- Home BancShares, Inc. (NASDAQ GS: HOMB), parent company of Centennial Bank, released first quarter earnings today.

Highlights of the First Quarter of 2020:

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

“The earnings power of HOMB has really shone through this quarter,” said John Allison, Chairman. “After $95 million of noise, most of which were non-cash expenditures, to still be profitable is remarkable,” continued Allison.

“Banking is an essential business and no doubt a backbone to the American economy,” said Tracy French, Centennial Bank President and Chief Executive Officer. “It’s been amazing to watch our team of bankers push through thousands of loans totaling just under $1 billion dollars in about ten days to assist our customers through the Paycheck Protection Program,” French continued.

Operating Highlights

During the first quarter of 2020, the Coronavirus (“COVID-19”) pandemic has had a significant impact on global markets driven by supply chain and production disruptions, workforce restrictions, travel restrictions, retail closures, and reduced consumer spending and sentiment, amongst other factors.  The potential global and economic impacts of the coronavirus continue to evolve rapidly and HOMB is continuing to closely monitor the situation.

During the quarter, we had a lot of net income noise compared to previous quarters.  The most significant noise is related to COVID-19.  As a result of COVID-19, the Company recorded a $71.7 million provision for credit losses, a $7.8 million expense for the increase in our unfunded commitment reserve, an $842,000 provision for credit losses on investment securities, and a $5.8 million write-down for the fair value adjustment on marketable securities.  This was the first quarter under which the Company began accounting for credit losses under Accounting Standards Codification (ASC) 326, Financial Instruments – Credit Losses, which increased the loan provision by $5.0 million.  We incurred $10.0 million of expense as a result of our LH-Finance acquisition, which we completed on February 29, 2020, including $9.3 million for the provision for credit losses and $711,000 of acquisition expenses.  The acquired loan portfolio is now housed in our Shore Premier Finance division.  The Company also had $1.1 million of expense for outsourced special projects and $7.0 million of special dividend income from one of our equity investments.  The summation of all these items resulted in net additional expense of  $95.2 million, or $70.3 million after tax.  Excluding these items, our net earnings, as adjusted (non-GAAP), for the quarter ended March 31, 2020 were $70.8 million, or $0.43 diluted earnings per share, compared to $73.1 million, or $0.44 diluted earnings per share, for the quarter ended December 31, 2019.⁽¹⁾

The Company adopted ASC 326 (“CECL”) as of January 1, 2020.  The adoption of this standard increased the opening balance for the allowance for credit losses by $44.0 million.  The new CECL accounting standard requires that both a discount and an allowance for credit losses be recorded on loans during an acquisition.  This is commonly referred to as “double accounting.”  During the first quarter, we completed the acquisition of $406.2 million of loans from LH-Finance.  As a result, we recorded a $6.2 million loan discount and a $9.3 million increase in the allowance for credit losses for the double accounting for this acquisition.
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⁽¹⁾ Calculation of this metric and the reconciliation to GAAP are included in the schedules accompanying this release

During the first quarter of 2020, we recorded $86.8 million of total credit loss expense.  This expense is comprised of the following components – investment securities, CECL double accounting for LH-Finance, CECL loan provision and CECL COVID-19 loan provision.   We recorded $842,000 for credit losses on investments related to our sales tax bonds with lower coverage ratios.  The CECL double accounting for LH-Finance was $9.3 million.  The normal CECL loan provision was approximately $5.0 million and the CECL COVID-19 loan provision was approximately $71.7 million.   Our CECL provisioning model is significantly tied to projected unemployment rates.   As a result of COVID-19, the unemployment rate projections significantly increased from January 1 to the end of March 2020, which resulted in the $71.7 million provision related to COVID-19. 

Our net interest margin was 4.22% for the three-month period ended March 31, 2020 compared to 4.24% for the three-month period ended December 31, 2019. The yield on loans was 5.79% and 5.90% for the three months ended March 31, 2020 and December 31, 2019, respectively, as average loans increased from $10.87 billion to $11.01 billion. Additionally, the rate on interest bearing deposits decreased to 1.08% as of  March 31, 2020 from 1.21% as of December 31, 2019, with average balances of $8.99 billion and $8.82 billion, respectively.

From the fourth quarter of 2019 to the first quarter of 2020, we experienced a $672,000 decrease in investment premium amortization as a result of the change in prepayment speeds.  This decreased investment premium amortization positively impacted the net interest margin for the quarter ended March 31, 2020 by 2.0 basis points.

During the first quarter of 2020, event interest income was $558,000 compared to event interest income of $549,000 for the quarter ended December 31, 2019.

For the three months ended March 31, 2020 and December 31, 2019, we recognized $7.6 million and $9.1 million, respectively, in total net accretion for acquired loans and deposits. The $1.5 million reduction in accretion income decreased the net interest margin by 4.5 basis points for the first quarter of 2020.

Purchase accounting accretion on acquired loans was $7.6 million and $9.1 million and average purchase accounting loan discounts were $69.4 million and $91.9 million for the three-month periods ended March 31, 2020 and December 31, 2019, respectively. Net amortization of time deposit premiums was $30,000 per quarter and net average remaining CD premiums were $236,000 and $266,000 for the three-month periods ended March 31, 2020 and December 31, 2019, respectively.

Net interest income on a fully taxable equivalent basis decreased $153,000, or 0.11%, to $141.0 million for the three-month period ended March 31, 2020, from $141.1 million for the three-month period ended December 31, 2019. This decrease in net interest income for the three-month period ended March 31, 2020 was the result of a $3.1 million decrease in interest income, which was partially offset by a $2.9 million decrease in interest expense. The $3.1 million decrease in interest income was primarily the result of a $3.1 million decrease in loan interest income and a $126,000 net decrease in investment income partially offset by a $167,000 increase in income on deposits with other banks. The $2.9 million decrease in interest expense was primarily the result of a $2.6 million decrease in interest expense on deposits. This decrease was the result of a $1.6 million decrease in interest expense on savings and interest-bearing transaction accounts and a $1.0 million decrease in interest expense on time deposits. 

Non-performing loans to total loans was 0.53% as of March 31, 2020 compared to 0.50% as of December 31, 2019. Non-performing assets to total assets increased from 0.43% as of December 31, 2019 to 0.44% as of March 31, 2020. For the first quarter of 2020, net charge-offs were $3.5 million compared to net charge-offs of $2.2 million for the fourth quarter of 2019.

The Company reported $22.9 million of non-interest income for the first quarter of 2020, compared to $28.0 million for the fourth quarter of 2019. The most important components of the fourth quarter non-interest income were $7.8 million from dividends from FHLB, FRB, FNBB & other equity investments, $6.6 million from service charges on deposits accounts, $6.1 million from other service charges and fees, $3.2 million from other income and $2.6 million from mortgage lending income. Non-interest income for the first quarter of 2020 includes $7.0 million in dividends related to a special dividend from an equity investment and a $5.8 million adjustment for the decline in fair market value of a marketable securities.

Non-interest expense for the first quarter of 2020 was $78.2 million compared to $71.3 million for the fourth quarter of 2019. The most important components of the fourth quarter non-interest expense were $39.3 million from salaries and employee benefits, $25.7 million in other expense and $8.9 million in occupancy and equipment expenses. For the first quarter of 2020, our efficiency ratio was 46.82%. Non-interest expense for the first quarter of 2020 included $7.8 million in unfunded commitments expense due to the adoption of CECL, $1.1 million in other professional fees related to outsourced special projects, and $711,000 in merger and acquisition expense.  Non-interest expense for the fourth quarter of 2019 included $631,000 in other professional fees related to an outsourced special project.

Financial Condition

Total loans receivable were $11.38 billion at March 31, 2020 compared to $10.87 billion at December 31, 2019. Total deposits were $11.51 billion at March 31, 2020 compared to $11.28 billion at December 31, 2019. Total assets were $15.53 billion at March 31, 2020 compared to $15.03 billion at December 31, 2019.

During the first quarter 2020, the Company experienced approximately $109.0 million in organic loan growth. Centennial CFG experienced $167.9 million of organic loan growth and had loans of $1.76 billion at March 31, 2020. Our legacy footprint experienced $58.9 million in organic loan decline during the quarter.  

Non-performing loans at March 31, 2020 were $16.9 million, $39.5 million, $518,000, $3.0 million and zero in the Arkansas, Florida, Alabama, Shore Premier Finance and Centennial CFG markets, respectively, for a total of $59.9 million. Non-performing assets at March 31, 2020 were $20.6 million, $44.4 million, $552,000, $3.0 million and zero in the Arkansas, Florida, Alabama, Shore Premier Finance and Centennial CFG markets, respectively, for a total of $68.5 million. 

The Company’s allowance for credit losses was $228.9 million at March 31, 2020, or 2.01% of total loans, compared to the allowance for loan losses of $102.1 million, or 0.94% of total loans, at December 31, 2019. As of March 31, 2020, and December 31, 2019, the Company’s allowance for credit losses and allowance for loan losses was 369.7% and 186.2% of its total non-performing loans, respectively.  The increase in the allowance for credit losses at March 31, 2020, is primarily attributable to the Company’s adoption of CECL and the provision for credit losses recorded during the first quarter 2020 for the effects of COVID-19 and the loans acquired from LH-Finance.

Stockholders’ equity was $2.43 billion at March 31, 2020 compared to $2.51 billion at December 31, 2019, a decrease of approximately $81.3 million. The decrease in stockholders’ equity is primarily associated with the $65.1 million decrease in retained earnings and the repurchase of $23.9 million of our common stock during the first quarter of 2020 which were partially offset by the $4.8 million increase in accumulated other comprehensive income.  Book value per common share was $14.72 at March 31, 2020 compared to $15.10 at December 31, 2019.  Tangible book value per common share (non-GAAP) was $8.61 at March 31, 2020 compared to $9.12 at December 31, 2019, a decrease of 5.59%.⁽¹⁾
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⁽¹⁾ Calculation of this metric and the reconciliation to GAAP are included in the schedules accompanying this release

Branches

The Company currently has 77 branches in Arkansas, 78 branches in Florida, 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, April 16, 2020.  We encourage all participants to pre-register for the conference call using the following link:  http://dpregister.com/10140220.  Callers who pre-register will be given dial-in instructions and a unique PIN 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 1-877-508-9586 and asking for the Home BancShares conference call.  A replay of the call will be available by calling 1-877-344-7529, Passcode: 10140220, which will be available until April 23, 2020 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 under “Investor Relations” for 12 months.

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; diluted earnings per common share, as adjusted; return on average assets, as adjusted; return on average common equity, as adjusted; return on average tangible common equity; return on average tangible common equity, as adjusted; efficiency ratio, as adjusted, 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 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 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, disruptions and uncertainties in our business and operations as a result of the ongoing coronavirus pandemic, the ability to successfully integrate new acquisitions, legislative and regulatory changes and risks associated with current and future regulations, technological changes and cybersecurity risks, competition from other financial institutions, 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, 2019 filed with the SEC on February 26, 2020.

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, South Alabama and New York City. The Company’s common stock is traded through the NASDAQ Global Select Market under the symbol “HOMB.”

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