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Home BancShares, Inc. Announces Record Net Income of $66.5 Million for 2013

1/16/2014
Conway, AR – Home BancShares, Inc. (NASDAQ GS: HOMB), parent company of Centennial Bank, today announced record net income for the year ended December 31, 2013 of $66.5 million compared to $63.0 million for the year ended 2012. Diluted earnings per share for the year ended 2013 was $1.14 per share compared to $1.11 per share for 2012. Excluding the $18.4 million of 2013 merger expenses associated with the recently completed acquisition of Liberty Bancshares, Inc. (Liberty), diluted earnings per share for the year ended 2013 was $1.33 per share. Excluding the net total expense of $2.0 million for merger expenses and gain on acquisition associated with the three acquisitions completed during 2012, diluted earnings per share for the year ended 2012 was $1.13 per share. Excluding merger expenses and acquisition gain, this represents an increase of $0.20 per share or 17.7% for the year ended 2013 when compared to the previous year.
 
For the fourth quarter of 2013, the Company recorded quarterly net income of $13.0 million, or $0.19 diluted earnings per common share, compared to $16.9 million of net income, or $0.30 diluted earnings per common share for the same quarter in 2012. Excluding the $17.3 million of fourth quarter 2013 merger expenses associated with the Liberty Bancshares, Inc. acquisition, diluted earnings per share for the fourth quarter 2013 was $0.37 per share. Excluding the net total income of $36,000 for merger expenses and gain on acquisition associated with the two acquisitions completed during the fourth quarter of 2012, diluted earnings per share for the fourth quarter 2012 was $0.30 per share. Excluding merger expenses and acquisition gain, this represents an increase of $0.07 per share or 23.3% for the fourth quarter 2013 when compared to the fourth quarter of the previous year.
 
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 fourth quarter of 2013 was $0.21 compared to $0.31 diluted earnings per share excluding intangible amortization (split adjusted) for the same period in 2012.
 
“During the fourth quarter we made a game-changing purchase with the Liberty acquisition. It was a historical accomplishment for Home BancShares to be able to complete Arkansas’s largest ever in-state bank acquisition plus convert the core operating systems in the same quarter. This impressive execution has the Company in position to realize the anticipated cost savings, thereby rewarding our shareholders,” said John Allison, Chairman. “Our team is focused on this important task and is working to recognize these enhancements as quickly as possible. I am looking forward to watching our team succeed in this process. As a result, I believe there is a bright future for us during 2014.”
 
“We have been able to achieve many successes throughout the year that positioned us to be ready to handle the acquisition of Liberty,” said Randy Sims, Chief Executive Officer. “As for the financial results, we are proud of the record profit reported for 2013. It was a truly remarkable financial performance year with the Company reporting net income of $66.5 million and diluted earnings per share of $1.14 per share or net income of $77.7 million and diluted earnings per share of $1.33 excluding merger expenses. During the year we have been focused on our efficiency ratio and net interest margin. These efforts have paid off as we are pleased to report an impressive 45.49% core efficiency ratio and 5.19% net interest margin for the year.”
 
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 fourth quarter 2013 impairment testing, eight FDIC loss sharing pools evaluated by the Company were determined to have a material projected credit improvement. As a result of this improvement, the Company will recognize approximately $14.1 million as an adjustment to yield over the weighted average life of the loans ($1.8 million was recognized during the fourth quarter of 2013). Improvements in credit quality decrease the basis in the related indemnification asset and increase our FDIC true-up liability. This positive event will reduce the indemnification asset by approximately $8.4 million ($1.3 was recognized for the fourth quarter of 2013) and increase our FDIC true-up liability by $1.3 million ($46,000 was recognized for the fourth quarter of 2013). The $8.4 million will be amortized over the weighted average life of the shared-loss agreement.
 
This amortization will be shown as a reduction to FDIC indemnification non-interest income. The $1.3 million will be expensed over the remaining true-up measurement date as other non-interest expense.
 
Additionally, during our fourth quarter 2013 impairment testing, five FDIC loss sharing pools evaluated by the Company were determined to have material projected credit deterioration. As a result of the deterioration, the Company recognized $3.9 million in the allowance for loan losses for covered loans. Since these losses will be under loss share with the FDIC, the Company was able to establish an additional $3.1 million of indemnification asset. The financial impact of this impairment testing was $891,000 of provision for loan losses for covered loans.
 
Net interest income for the fourth quarter of 2013 increased 62.4% to $67.1 million from $41.3 million during the fourth quarter of 2012. For the fourth quarter of 2013, the effective yield on non-covered loans and covered loans was 6.00% and 12.93%, respectively. Net interest margin, on a fully taxable equivalent basis, was 5.09% for the quarter just ended compared to 4.86% in the fourth quarter of 2012, an increase of 23 basis points. The pools which have been determined to have material projected credit improvement as a result of the quarterly impairment testing during 2013 and the acquisition of Liberty have significantly changed the mix and metrics on the net interest margin over the year. Although there have been many changes throughout the year, the Company continues to remain focused on expanding its net interest margin through opportunities such as improved pricing on interest-bearing deposits.
 
The Company reported $12.2 million of non-interest income for the fourth quarter of 2013, compared to $16.2 million for the fourth quarter of 2012. Excluding gain on acquisitions, non-interest income for the fourth quarter of 2013 was $12.2 million compared to $11.0 million for the fourth quarter of 2012. The most important components of the fourth quarter non-interest income were $6.0 million from service charges on deposits accounts, $5.4 million from other service charges and fees, $1.5 million from mortgage lending income, $840,000 from other income, $778,000 from insurance commissions, and $347,000 from gain on sale of OREO offset by the $2.9 million of net amortization on the FDIC indemnification asset.
 
Non-interest expense for the fourth quarter of 2013 was $54.9 million compared to $29.6 million for the fourth quarter of 2012. Excluding merger expenses, non-interest expense for the fourth quarter of 2013 was $37.6 million compared to $24.4 million for the fourth quarter of 2012. These increases are primarily associated with the acquisition of Liberty during the fourth quarter of 2013. Excluding merger expenses, non-interest expense only increased 53.9% when compared to 60.6% in asset growth. For the fourth quarter of 2013, our core efficiency ratio was 45.22% which is comparable to the 44.40% reported for fourth quarter of 2012. On December 6, 2013, the Company completed the integration of Liberty’s operating systems. As a result, during 2014 the Company anticipates it will be able to continue achieving cost savings from the Liberty transaction.
 
Financial Condition
 
Total non-covered loans were $4.19 billion at December 31, 2013 compared to $2.33 billion at December 31, 2012. Total covered loans were $282.5 million at December 31, 2013 compared to $384.9 million at December 31, 2012. Total deposits were $5.39 billion at December 31, 2013 compared to $3.48 billion at December 31, 2012. Total assets were $6.81 billion at December 31, 2013 compared to $4.24 billion at December 31, 2012. All of these increases are primarily related to the acquisition of Liberty during the fourth quarter of 2013.
 
Non-performing non-covered loans were $38.3 million as of December 31, 2013, of which $20.3 million were located in Florida. Non-performing non-covered loans as a percent of total non-covered loans were 0.91% as of December 31, 2013 compared to 1.17% as of December 31, 2012. Non-performing non-covered assets were $68.4 million as of December 31, 2013, of which $24.9 million were located in Florida. Non-performing non-covered assets as a percent of total non-covered assets were 1.07% as of December 31, 2013 compared to 1.30% as of December 31, 2012.
 
The Company’s allowance for loan losses for non-covered loans was $39.0 million at December 31, 2013, or 0.93% of total non-covered loans, compared to $45.2 million, or 1.94% of total non-covered loans, at December 31, 2012. As of December 31, 2013 and 2012, 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 4.89% and 5.26%, respectively. As of December 31, 2013 and 2012, the Company’s allowance for loan losses for non-covered loans was 102% and 166% of its total non-performing non-covered loans, respectively.
 
Stockholders’ equity was $841.0 million at December 31, 2013 compared to $515.5 million at December 31, 2012, an increase of $325.5 million. During the fourth quarter of 2013, the Company issued $290.1 million of common stock to the shareholders of Liberty. Book value per common share was $12.92 at December 31, 2013 compared to $9.17 (split adjusted) at December 31, 2012. Tangible book value per common share was $7.94 at December 31, 2013 compared to $7.99 and $7.43 (split adjusted) at September 30, 2013 and December 31, 2012, respectively. Excluding the decline of accumulated other comprehensive income (i.e. UGL on investments) in equity and the quarterly dividend on the common stock the December 31, 2013 tangible book value would have increased by $0.07 from the amount reported as of September 30, 2013.
 
Branches
 
During the fourth quarter of 2013, the Company acquired 46 Arkansas locations as a result of Liberty. In an effort to achieve efficiencies from this transaction, the Company subsequently closed or merged 4 locations. Also during the fourth quarter of 2013, the Company closed one branch in Panama City, Florida. The Company currently has no plans for additional de novo branch locations. During the first quarter of 2014, the Company has plans to close one branch in Panacea, Florida. The Company currently has 88 branches in Arkansas, 53 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, January 16, 2014. Interested parties can listen to this call by calling 1-888-317-6016 and asking for the Home BancShares conference call. A replay of the call will be available by calling 1-877-344-7529, Passcode: 10038852, which will be available until January 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, 2012 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."
 
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FOR MORE INFORMATION CONTACT:
 
Brian S. Davis
Chief Accounting Officer &
Investor Relations Officer
Home BancShares, Inc.
(501) 328-4770

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