Home BancShares, Inc. Announces 2017 Earnings

CONWAY, Ark., Jan. 18, 2018 (GLOBE NEWSWIRE) -- Home BancShares, Inc. (NASDAQ:HOMB), parent company of Centennial Bank, today announced net income for the year ended December 31, 2017 of $135.1 million.  Diluted earnings per share for the year ended 2017 was $0.89 per share.  For the fourth quarter of 2017, the Company recorded a profit of $23.3 million.  Diluted earnings per share for the fourth quarter of 2017 was $0.13 per share.    

In addition to merger expenses and acquisition gain from the 2017 acquisitions, the Company’s annual earnings were significantly impacted by Hurricane Irma and the recently enacted “Tax Cuts and Jobs Act” (the “TCJA”).  Excluding the $36.9 million one-time TCJA charge, $33.4 million of hurricane expense, and $25.7 million of merger expenses associated with the 2017 acquisitions offset by $3.8 million of one-time non-taxable gain on acquisition, 2017 annual after-tax earnings excluding non-fundamental items were $204.8 million, an increase of 15.7% from 2016 annual after-tax earnings excluding non-fundamental items of $177.0 million.

Excluding the $36.9 million one-time TCJA charge, after-tax earnings excluding non-fundamental items for the fourth quarter of 2017 were $60.2 million, an increase of 30.6% from the fourth quarter 2016 after-tax earnings excluding non-fundamental items of $46.1 million. 

“Looking back on the last year, we were active in growing and navigating the Company as we crossed over the $10 billion threshold,” said John Allison, Home’s Chairman.  “Home added $3.46 billion in total assets through the completion of three acquisitions and issued $300 million of subordinated debt in an underwritten public offering.  While we experienced challenges through the year that largely impacted our earnings, including Hurricane Irma and the tax reform bill, we achieved milestone earnings excluding non-fundamental items of over $200 million for 2017 and over $60 million for the fourth quarter.  In 2018, we are well-positioned to continue to execute on opportunities to grow our Company with the focus of improving overall shareholder value.”

Tracy French, Centennial Bank President and Chief Executive Officer added, “We have been hard at work in 2017 managing the growth associated with our 2017 acquisitions.  Once we convert the Stonegate core operating systems on February 9, 2018, the Company will be well-positioned to realize the anticipated cost savings, thereby rewarding our shareholders.  Our team is focused on this important task and is working to recognize these enhancements as quickly as possible.”

“Excluding the impact of the tax rate change, we are proud to report outstanding fourth quarter of 2017 earnings of $60.2 million, or $0.35 diluted earnings per share,” said Randy Sims, Home BancShares, Inc. President and Chief Executive Officer.  “The Company was also able to maintain a sub-40 core efficiency ratio, reporting 37.35% for the fourth quarter of 2017, despite adding over $3 billion in assets through its 2017 acquisitions.  With these excellent results, our shareholders can remain confident that our strong metrics will continue to provide them with solid returns.”

Operating Highlights

Accretion yield increased approximately $5.2 million from $7.2 million for the third quarter of 2017 to $12.4 million for fourth quarter of 2017.  Each quarter we perform credit impairment tests on the credit impaired loans acquired in our acquisitions.  During our fourth quarter 2017 impairment testing, several pools were determined to have a projected credit improvement.  This projected credit improvement combined with the added accretion income from the acquisition of Stonegate Bank (“Stonegate”) offset by the expected decline in accretion income from the maturing and reduction of pay-offs in the previously acquired loan portfolios, resulted in a net increase of recognized accretion income when compared to the third quarter of 2017.  The net increase of recognized accretion income when compared to the third quarter of 2017 is primarily due to $5.4 million of accretion income added during the fourth quarter of 2017 as a result of the Stonegate acquisition offset by a slight decline in legacy accretion income during the fourth quarter of 2017. 

Net interest margin, on a fully taxable equivalent basis, was 4.47% for the quarter just ended compared to 4.75% for the same quarter in 2016 and compared to 4.40% for the third quarter of 2017.  The net interest margin, excluding accretion yield, decreased when comparing the third quarter of 2017 to the fourth quarter of 2017 at 4.07% and 4.01%, respectively. 

During the fourth quarter of 2017, the Company recorded a provision for loan loss of $4.9 million compared to $1.7 million in the fourth quarter of 2016.  The Company was able to reduce fourth quarter 2016 provision for loan losses as a result of a significant loan recovery from a borrower which was charged-off in 2010.  The Company estimates that the fourth quarter 2016 provision for loan losses was reduced by $4.5 million as a result of this loan recovery.  For the fourth quarter of 2017, net charge-offs were $6.3 million compared to net recoveries of $1.9 million for the fourth quarter of 2016.

The Company reported $27.3 million of non-interest income for the fourth quarter of 2017, compared to $23.8 million for the fourth quarter of 2016.  The most important components of the fourth quarter non-interest income were $10.1 million from other service charges and fees, $6.6 million from service charges on deposits accounts, $3.6 million from mortgage lending income, $2.9 million from other income and $1.2 million gain on securities, net.  

Non-interest expense for the fourth quarter of 2017 was $63.2 million compared to $47.5 million for the fourth quarter of 2016, an increase of $15.7 million.  This increase is primarily the result of an increase in the costs associated with asset growth from the three acquisitions during 2017 combined with approximately $723,000 of growth in quarterly non-interest expense related to the Centennial Commercial Finance Group (“Centennial CFG”).  For the fourth quarter of 2017, our core efficiency ratio was 37.35% which increased from the 35.97% reported for fourth quarter of 2016. 

Financial Condition

Total loans receivable were $10.33 billion at December 31, 2017 compared to $7.39 billion at December 31, 2016.  Total deposits were $10.39 billion at December 31, 2017 compared to $6.94 billion at December 31, 2016.  Total assets were $14.45 billion at December 31, 2017 compared to $9.81 billion at December 31, 2016.

During 2017, the Company acquired $2.82 billion of loans, net of purchase accounting discounts. As of December 31, 2017, the Company produced approximately $125.2 million of organic loan growth since December 31, 2016.  Centennial CFG produced $295.5 million of net organic loan growth during 2017 while the legacy and Stonegate footprints experienced significant net payoffs during 2017, resulting in a decline of $153.9 million and $16.5 million, respectively.

From September 30, 2017 to December 31, 2017, the Company experienced organic loan growth of approximately $45.0 million.  During the fourth quarter of 2017, Centennial CFG produced $181.8 million of organic loan growth, while the legacy and Stonegate footprints experienced significant net payoffs resulting in a decline of $113.2 million and $23.6 million, respectively.  Centennial CFG had loans of $1.40 billion at December 31, 2017.

Non-performing loans at December 31, 2017 were $15.5 million, $28.2 million, $929,000 and zero in the Arkansas, Florida, Alabama and Centennial CFG markets, respectively, for a total of $44.7 million.  Non-performing loans as a percent of total loans were 0.43% as of December 31, 2017 compared to 0.85% as of December 31, 2016.  Non-performing assets at December 31, 2017 were $25.6 million, $36.4 million, $1.6 million and zero in the Arkansas, Florida and Alabama and Centennial CFG markets, respectively, for a total of $63.6 million.  Non-performing assets as a percent of total assets were 0.44% as of December 31, 2017 compared to 0.81% as of December 31, 2016.  

The Company’s allowance for loan losses was $110.3 million at December 31, 2017, or 1.07% of total loans, compared to $80.0 million, or 1.08% of total loans, at December 31, 2016.  These changes are primarily the result of the $32.9 million storm-related provision for loan loss recorded during the third quarter of 2017 offset by acquiring $2.82 billion of loans during 2017 which do not have an associated allowance for loan losses as a result of purchase accounting.  As of December 31, 2017 and 2016, the Company’s allowance for loan losses was 247% and 127% of its total non-performing loans, respectively.

Stockholders’ equity was $2.20 billion at December 31, 2017 compared to $1.33 billion at December 31, 2016, an increase of $876.8 million.  The increase in stockholders’ equity is primarily associated with the $77.5 million and $742.3 million of common stock issued to the Giant Holdings, Inc. (“GHI”) and Stonegate shareholders, respectively, plus the $74.7 million increase in retained earnings offset by $3.8 million of comprehensive loss and the repurchase of $20.8 million of our common stock during 2017.  Book value per common share was $12.70 at December 31, 2017 compared to $9.45 at December 31, 2016 for an annualized increase of 34.4%.  

Branches

During the fourth quarter of 2017, the Company closed a branch location in Daphne, Alabama and a branch location in Naples, Florida.  The Company currently has 76 branches in Arkansas, 89 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, January 18, 2018.  We encourage all participants to pre-register for the conference call using the following link:  http://dpregister.com/10115147.  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: 10115147, which will be available until January 28, 2018 at 10:59 p.m. CT (11:59 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 earnings excluding non-fundamental items, return on average assets excluding intangible amortization, return on average assets excluding non-fundamental items, return on average common equity excluding intangible amortization, core efficiency ratio, non-GAAP net interest margin, tangible book value per common share, and the tangible common equity to tangible assets ratio, 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 non-fundamental items or non-recurring 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 core 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: the effects of future local, regional, national and international economic conditions, including inflation or a decrease in commercial real estate and residential housing values; changes in the level of nonperforming assets and charge-offs, and credit risk generally; the risks of changes in interest rates or the level and composition of deposits, loan demand and the values of loan collateral, securities and interest-sensitive assets and liabilities; the effect of any mergers, acquisitions or other transactions to which we or our bank subsidiary may from time to time be a party, including our ability to successfully integrate any businesses that we acquire; the risk that expected cost savings and other benefits from acquisitions may not be fully realized or may take longer to realize than expected; the possibility that an acquisition does not close when expected or at all because required regulatory, shareholder or other approvals and other conditions to closing are not received or satisfied on a timely basis or at all; the reaction to a proposed acquisition transaction of the respective companies’ customers, employees and counterparties; diversion of management time on acquisition-related issues; the ability to enter into and/or close additional acquisitions; the availability of and access to capital on terms acceptable to us; increased regulatory requirements and supervision that will apply as a result of our exceeding $10 billion in total assets; legislation and regulation affecting the financial services industry as a whole, and the Company and its subsidiaries in particular, including the effects resulting from the reforms enacted by the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) and the adoption of regulations by regulatory bodies under the Dodd-Frank Act; governmental monetary and fiscal policies, as well as legislative and regulatory changes, including as a result of initiatives of the newly elected administration of President Donald J. Trump; the effects of terrorism and efforts to combat it; political instability; the ability to keep pace with technological changes, including changes regarding cybersecurity;       an increase in the incidence or severity of fraud, illegal payments, security breaches or other illegal acts impacting our bank subsidiary or our customers; the effects of competition from other commercial banks, thrifts, mortgage banking firms, consumer finance companies, credit unions, securities brokerage firms, insurance companies, money market and other mutual funds and other financial institutions operating in our market area and elsewhere, including institutions operating regionally, nationally and internationally, together with competitors offering banking products and services by mail, telephone and the Internet; the effect of changes in accounting policies and practices and auditing requirements, as may be adopted by the regulatory agencies, as well as the Public Company Accounting Oversight Board, the Financial Accounting Standards Board, and other accounting standard setters; higher defaults on our loan portfolio than we expect; and the failure of assumptions underlying the establishment of our allowance for loan losses or changes in our estimate of the adequacy of the allowance for loan losses.  Additional information on factors that might affect Home BancShares, Inc.'s financial results is included in its Annual Report on Form 10-K for the year ended December 31, 2016 filed with the Securities and Exchange Commission (the “SEC”) on February 28, 2017. 

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.”