Home BancShares, Inc. Announces Third Quarter Earnings of $27.4 Million and Third Quarter Organic Loan Growth of $208.3 Million

CONWAY, Ark., Oct. 16, 2014 (GLOBE NEWSWIRE) -- Home BancShares, Inc. (Nasdaq:HOMB), parent company of Centennial Bank, today announced a quarterly profit of $27.4 million, or $0.41 diluted earnings per share for the third quarter of 2014 compared to $18.4 million or $0.33 diluted earnings per share for the same quarter in 2013. The Company increased its third quarter earnings by $9.0 million or 49.1% for the three months ended September 30, 2014 compared to the same period of the previous year. Excluding the $3.8 million of merger expenses associated with the recently completed acquisition of Florida Traditions Bank (Traditions), diluted earnings per share for the third quarter of 2014 was $0.45 per share.

On July 17, 2014, the Company completed its acquisition of Traditions. As of acquisition date, Traditions had $297.6 million in total assets, $241.6 million in loans after $8.5 million of loan discounts, and $267.3 million in deposits. From June 30, 2014 to September 30, 2014, the Company had $449.9 million growth in non-covered loans. Excluding the loans acquired from Traditions, the Company produced $208.3 million of organic non-covered loan growth.

Because acquisitions are growth and capital management strategies, earnings excluding amortization of intangibles after-tax are useful in evaluating the Company. Diluted earnings per share excluding intangible amortization for the third quarter of 2014 was $0.42 compared to $0.33 diluted earnings per share excluding intangible amortization for the same period in 2013.

"I am eager to report the Company has achieved $208.3 million in organic non-covered loan growth since the second quarter 2014," said John Allison, Chairman. "At this point, we know there is still an ongoing need for organic loan growth and are diligently pursuing the opportunities set before us. Additionally, on September 26, 2014, we completed the systems conversion of Traditions and now can speed up the process of improving the financial metrics to maximize returns to our shareholders."

Randy Sims, Chief Executive Officer, added, "We are pleased to report our diluted earnings per share improved eight cents, during the quarter just ended when compared to the third quarter of 2013. Excluding merger expenses, we have again, for the fourteenth consecutive quarter, reported the most profitable quarter in the Company's history with a diluted earnings per share excluding merger expenses of $0.45 per share. We were also happy to be reporting a 41.88% core efficiency ratio and 1.69% return on average assets excluding merger expenses for the third quarter of 2014."

Operating Highlights

Each quarter we perform credit impairment tests on the loans acquired in our FDIC loss sharing and non-loss sharing acquisitions. During our third quarter 2014 impairment testing, there were non-loss sharing pools evaluated by the Company which were determined to have a material projected credit improvement. As a result of this improvement, the Company will recognize approximately $4.7 million as an adjustment to yield over the weighted average life of the loans ($1.1 million was recognized during the third quarter of 2014).

Net interest income for the third quarter of 2014 increased 69.6% to $78.6 million from $46.4 million during the third quarter of 2013. For the third quarter of 2014, the effective yield on non-covered loans and covered loans was 5.84% and 17.23%, respectively. Net interest margin, on a fully taxable equivalent basis, was 5.26% for the quarter just ended. The pools which have been determined to have material projected credit improvement as a result of the quarterly impairment testing and the acquisition of Liberty and Traditions have significantly changed the mix and metrics on the net interest margin since December 31, 2012. Although there have been many changes since 2012, the Company continues to remain focused on expanding its net interest margin through opportunities such as improved pricing on interest-bearing deposits.

The Company experienced a $4.2 million increase in the provision for loan losses for non-covered loans during the third quarter of 2014 versus 2013. This expected increase is not an indication of a decline in asset quality, but primarily a reflection of the migration of the Liberty loans (and to a lesser extent Traditions loans) from purchased-loan accounting treatment to originated-loan accounting treatment. Based upon current accounting guidance the allowance for loan losses is not carried over in an acquisition. As a result, virtually none of the Liberty footprint loans had any allocation of the allowance for loan losses at year end. This is the result of all loans acquired on October 24, 2013 from Liberty being recorded at fair value in accordance with the fair value methodology prescribed in ASC Topic 820. However, as the acquired Liberty loans payoff or renew and the Liberty footprint originates new loan production, it is necessary to establish an allowance which represents an amount that, in management's judgment, will be adequate to absorb credit losses.

The Company reported $10.8 million of non-interest income for the third quarter of 2014, compared to $9.3 million for the third quarter of 2013. The most important components of the third quarter non-interest income were $6.3 million from service charges on deposits accounts, $6.0 million from other service charges and fees, $1.9 million from mortgage lending income, $984,000 from insurance commissions, $888,000 from other income, $529,000 from gain on sale of OREO, $306,000 from trust fees, and $183,000 from gain on sale of SBA loans offset by the $6.9 million of net amortization on the FDIC indemnification asset and $35,000 loss on sale of premises and equipment.

The Company is currently in negotiations with the FDIC regarding the remaining loss share agreements associated with the Key West Bank loan portfolio acquired on March 26, 2010. At this point, the Company has not reached an agreement with the FDIC to buyout the Key West Bank loss share. As a result, during the third quarter, the Company began accreting the credit improvement ($186,000) and amortized the indemnification asset ($1.1 million) and recorded a true-up expense ($41,000) similar to the other impairment tests we have completed in the past. Therefore, it created a negative third quarter 2014 financial impact to earnings for the Company of approximately $1.0 million on a pre-tax basis.

Non-interest expense for the third quarter of 2014 was $42.8 million compared to $26.7 million for the third quarter of 2013. These increases are primarily associated with the acquisitions of Liberty during the fourth quarter of 2013 and Traditions during the third quarter of 2014. For the third quarter of 2014, our core efficiency ratio was 41.88% which is improved from the 44.76% reported for third quarter of 2013. 

Financial Condition

Total non-covered loans were $4.58 billion at September 30, 2014 compared to $4.19 billion at December 31, 2013. Total covered loans were $251.0 million at September 30, 2014 compared to $282.5 million at December 31, 2013.  Total deposits were $5.28 billion at September 30, 2014 compared to $5.39 billion at December 31, 2013.  Total assets were $7.20 billion at September 30, 2014 compared to $6.81 billion at December 31, 2013. 

Non-performing non-covered loans were $41.0 million as of September 30, 2014, of which $16.3 million were located in Florida. Non-performing non-covered loans as a percent of total non-covered loans were 0.90% as of September 30, 2014 compared to 0.91% as of December 31, 2013.  Non-performing non-covered assets were $60.4 million as of September 30, 2014, of which $20.7 million were located in Florida. Non-performing non-covered assets as a percent of total non-covered assets were 0.88% as of September 30, 2014 compared to 1.07% as of December 31, 2013. 

The Company's allowance for loan losses for non-covered loans was $50.7 million at September 30, 2014, or 1.11% of total non-covered loans, compared to $39.0 million, or 0.93% of total non-covered loans, at December 31, 2013. As of September 30, 2014 and December 31, 2013, the allowance for loan losses for non-covered loans plus discount for credit losses on non-covered loans acquired to total non-covered loans plus discount for credit losses on non-covered loans acquired was 4.20% and 4.89%, respectively. As of September 30, 2014 and December 31, 2013, the Company's allowance for loan losses for non-covered loans was 124% and 102% of its total non-performing non-covered loans, respectively.

Stockholders' equity was $958.7 million at September 30, 2014 compared to $841.0 million at December 31, 2013, an increase of $117.7 million. Book value per common share was $14.42 at September 30, 2014 compared to $12.92 at December 31, 2013.  Tangible book value per common share was $9.39 at September 30, 2014 compared to $7.94 December 31, 2013. 

Branches

During the third quarter of 2014, the Company opened one de novo branch in Naples, Florida and acquired eight branches through the acquisition of Traditions. In an effort to achieve efficiencies primarily from the recent acquisitions, the Company closed or merged two Arkansas locations during the third quarter of 2014. The Company has 82 branches in Arkansas, 59 branches in Florida and 7 branches in Alabama.

Conference Call

Management will conduct a conference call to review this information at 1:00 p.m. CT (2:00 ET) on Thursday, October 16, 2014. Interested parties can listen to this 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: 10052237, which will be available until October 24, 2014 at 8:00 a.m. CT (9:00 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.

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, including, but not limited to, economic conditions, credit quality, interest rates, loan demand, the ability to successfully integrate new acquisitions and changes in the assumptions used in making the forward-looking statements, could cause actual results to differ materially from those contemplated by the forward-looking statements. 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, 2013 filed with the Securities and Exchange Commission.

Home BancShares, Inc. is a bank holding company, headquartered in Conway, Arkansas. Our 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 locations in Arkansas, Florida and South Alabama. The Company's common stock is traded through the NASDAQ Global Select Market under the symbol "HOMB."