HOMB - Home BancShares Inc. Third Quarter Results Reveal Book Value Tangible Book Credit Quality and Net Interest Margin as Pillars of Strength

CONWAY, Ark., Oct. 17, 2019 (GLOBE NEWSWIRE) -- Home BancShares, Inc. (NASDAQ GS: HOMB), parent company of Centennial Bank, announced third quarter earnings today that once again included a solid net interest margin at 4.32%, up from 4.28% in the second quarter.

Highlights of the Third Quarter of 2019:

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

“Book value per common share was $14.80 at September 30, 2019 compared to $13.44 at September 30, 2018, an annual increase of 10.1%, and tangible book value per common share (non-GAAP) was $8.83 at September 30, 2019 compared to $7.68 at September 30, 2018, an annual increase of 15.0%,” said John Allison, Chairman. “We made the strategic decision to participate in a stock repurchase program, although it is dilutive to tangible book,” Allison continued. “If we had not bought back stock, our year over year increase in tangible book value would have been 20.2%. These are numbers I am very proud of,” added Allison.

“Our Net Interest Margin has held the course in 2019, at 4.32% for the third quarter as compared to 4.28% in the second quarter and 4.30% in the first quarter,” said Tracy French, Centennial Bank President and Chief Executive Officer. “I think this speaks to the discipline within this company and is a performance metric we are very proud of,” French added.

“Asset quality has been another strong pillar for Centennial Bank,” said Randy Sims, Home BancShares, Inc. Chief Executive Officer. “Our non-performing assets to total assets was 0.45% in the third quarter as compared to 0.51% in the second quarter, which is a very reassuring position,” Sims added.

Operating Highlights

Our net interest margin was 4.32% for the three-month period ended September 30, 2019 compared to 4.28% for the three-month period ended June 30, 2019. The yield on loans was 6.08% and 6.06% for the three months ended September 30, 2019 and June 30, 2019, respectively, as average loans decreased from $11.00 billion to $10.94 billion. Additionally, the rate on interest bearing deposits decreased to 1.36% as of September 30, 2019 from 1.38% as of June 30, 2019, with average balances of $8.64 billion and $8.62 billion, respectively. 

From the second quarter of 2019 to the third quarter of 2019, we experienced a $373,000 increase in investment premium amortization resulting from increased prepayment speeds on investment securities due to the declining interest rate environment. This increased investment premium amortization negatively impacted the net interest margin for the quarter ended September 30, 2019 by 1.1 basis points.

During 2018, the Company recognized $7.2 million of interest income from large payoff events including minimum interest, default interest, acceleration of deferred origination fees and acceleration of other discounts. The Company’s interest income events of approximately $1.0 million, $2.1 million, $4.0 million and $100,000 were recognized during the first, second, third and fourth quarters of 2018, respectively. These interest income events impacted the Company’s net interest margin by 3, 6, 12 and 0 basis points for the first, second, third and fourth quarters of 2018, respectively. The first six months of 2019 do not include any additional interest income for payoff events. However, during the third quarter of 2019, we had several interest income events primarily related to large payoffs.  These events totaled $2.8 million of interest income and increased the net interest margin by 8.4 basis points for the third quarter of 2019.

For the three months ended September 30, 2019 and June 30, 2019, we recognized $8.5 million and $9.2 million, respectively, in total net accretion for acquired loans and deposits. The $778,000 decline in accretion income decreased the net interest margin by 2.3 basis points for the third quarter of 2019.

Purchase accounting accretion on acquired loans was $8.4 million and $9.2 million and average purchase accounting loan discounts were $112.6 million and $122.2 million for the three-month periods ended September 30, 2019 and June 30, 2019, respectively. Net amortization of time deposit premiums was $30,000 per quarter and net average remaining CD premiums were $297,000 and $327,000 for the three-month periods ended September 30, 2019 and June 30, 2019, respectively.

Net interest income on a fully taxable equivalent basis increased $1.9 million, or 1.35%, to $144.2 million for the three-month period ended September 30, 2019, from $142.3 million for the three-month period ended June 30, 2019. This increase in net interest income for the three-month period ended September 30, 2019 was the result of a $723,000 increase in interest income as well as a $1.2 million decrease in interest expense. The $723,000 increase in interest income was primarily the result of a $1.6 million increase in loan interest income which was partially offset by a $560,000 decrease in income on deposits with other banks and a $345,000 decrease in investment income primarily due to increased investment premium amortization. The $1.2 million decrease in interest expense was primarily the result of a $1.0 million decrease in interest expense on FHLB borrowed funds as a result of the average balance of FHLB and other borrowings decreasing by $183.8 million or 19.71%. Interest expense on deposits decreased by $143,000 for the three-month period ended September 30, 2019. This decrease was the result of a $1.0 million decrease in interest expense on savings and interest-bearing transaction accounts which was partially offset by an $879,000 increase in interest expense on time deposits.

During the third quarter of 2019, no provision for loan loss was recorded. The Company continues to see strong asset quality. Non-performing loans to total loans was 0.54% as of September 30, 2019 compared to 0.57% as of June 30, 2019, an improvement of 4.25%. Non-performing assets to total assets improved by 10.38% from 0.51% as of June 30, 2019 to 0.45% as of September 30, 2019. For the third quarter of 2019, net charge-offs were $1.8 million compared to net charge-offs of $1.6 million for the second quarter of 2019.

The Company reported $24.7 million of non-interest income for the third quarter of 2019, compared to $23.1 million for the second quarter of 2019. The most important components of the third quarter non-interest income were $8.7 million from other service charges and fees, $6.5 million from service charges on deposits accounts, $4.6 million from mortgage lending income, $1.5 million from other income and $1.1 million from dividends from FHLB, FRB, FNBB & other equity investments.

Non-interest expense for the third quarter of 2019 was $67.8 million compared to $67.6 million for the second quarter of 2019. The most important components of the third quarter non-interest expense were $39.9 million from salaries and employee benefits, $14.7 million in other expense and $9.0 million in occupancy and equipment expenses. For the third quarter of 2019, our efficiency ratio improved to 39.16% compared to 39.93% reported for the second quarter of 2019. 

Non-interest expense for the third quarter of 2019 included a $2.3 million FDIC small bank assessment credit. Small banks (total consolidated assets of less than $10 billion) were awarded FDIC assessment credits for the portion of their assessments that contributed to the growth in the reserve ratio from 1.15 percent to 1.35 percent, to be applied when the reserve ratio is at least 1.38 percent. The assessment regulations provide that after the reserve ratio reaches 1.38 percent the FDIC will automatically apply small bank credits to reduce the banks’ regular deposit insurance assessments. Centennial Bank was classified as a small bank until January 1, 2018. During the third quarter, the Company was notified that the Deposit Insurance Fund (DIF) reserve ratio as of June 30, 2019 was 1.40 percent. As a result, the Company recorded its FDIC small bank assessment credit in the amount of $2.3 million during the third quarter of 2019.

During the third quarter of 2019, the State of Florida reduced its corporate income tax rate from 5.50% to 4.458% for the tax years January 1, 2019 through December 31, 2021. Because of this reduction, our third quarter income taxes were reduced by $763,000 of which $497,000 was related to the first six months of 2019.

Also, during the third quarter of 2019, the Company made a strategic decision to surrender $47.5 million of its underperforming separate account bank owned life insurance (“BOLI”). When a BOLI contract is surrendered, the gains within the policy become taxable and a 10% IRS penalty is levied on the gain. As a result of the BOLI decision, the Company recorded a $3.7 million tax expense related to this transaction.

Financial Condition

Total loans receivable were $10.77 billion at September 30, 2019 compared to $11.07 billion at December 31, 2018. Total deposits were $11.05 billion at September 30, 2019 compared to $10.90 billion at December 31, 2018. Total assets were $14.90 billion at September 30, 2019 compared to $15.30 billion at December 31, 2018.

During the third quarter 2019, the Company experienced approximately $281.2 million in organic loan decline. Centennial CFG experienced $170.9 million of organic loan decline and had loans of $1.50 billion at September 30, 2019. Our legacy footprint experienced $110.3 million in organic loan decline during the quarter.  

Non-performing loans at September 30, 2019 were $19.2 million, $37.0 million, $494,000, $1.9 million and zero in the Arkansas, Florida, Alabama, Shore Premier Finance and Centennial CFG markets, respectively, for a total of $58.6 million. Non-performing assets at September 30, 2019 were $23.1 million, $42.2 million, $528,000, $1.9 million and zero in the Arkansas, Florida, Alabama, Shore Premier Finance and Centennial CFG markets, respectively, for a total of $67.7 million. 

The Company’s allowance for loan losses was $104.3 million at September 30, 2019, or 0.97% of total loans, compared to $108.8 million, or 0.98% of total loans, at December 31, 2018. As of September 30, 2019, and December 31, 2018, the Company’s allowance for loan losses was 178.0% and 169.4% of its total non-performing loans, respectively.

Stockholders’ equity was $2.47 billion at September 30, 2019 compared to $2.35 billion at December 31, 2018, an increase of approximately $120.0 million. The increase in stockholders’ equity is primarily associated with the $152.8 million increase in retained earnings and the $33.7 million increase in comprehensive income which were partially offset by the repurchase of $75.4 million of our common stock during 2019.  Book value per common share was $14.80 at September 30, 2019 compared to $13.76 at December 31, 2018.  Tangible book value per common share (non-GAAP) was $8.83 at September 30, 2019 compared to $7.90 at December 31, 2018, an annualized increase of 15.7%. 

Branches

The Company currently has 77 branches in Arkansas, 76 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, October 17, 2019.  We encourage all participants to pre-register for the conference call using the following link: http://dpregister.com/10134963.  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: 10134963, which will be available until October 24, 2019 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.  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 contains 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, the ability to successfully integrate new acquisitions, increased regulatory requirements as a result of our exceeding $10 billion in total assets, legislative and regulatory changes, 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, 2018 filed with the SEC on February 26, 2019.

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