Home BancShares(HOMB) - 2020 Q2 - Quarterly Report

Part I: Financial Information Financial Statements H1 2020 financial statements show $16.90 billion in assets, with net income sharply down to $63.3 million due to credit loss provisions Consolidated Balance Sheet Highlights (Unaudited) | (In thousands) | June 30, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Total Assets | $16,895,406 | $15,032,047 | | Cash and cash equivalents | $1,215,656 | $490,601 | | Loans receivable, net | $11,717,403 | $10,767,588 | | Allowance for credit losses | ($238,340) | ($102,122) | | Total Liabilities | $14,403,260 | $12,520,516 | | Total deposits | $13,177,936 | $11,278,383 | | Total Stockholders' Equity | $2,492,146 | $2,511,531 | Consolidated Income Statement Highlights (Unaudited) | (In thousands) | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $148,667 | $140,987 | $288,392 | $280,457 | | Total Credit Loss Expense | $11,441 | $1,325 | $98,264 | $1,325 | | Net Income | $62,827 | $72,164 | $63,334 | $143,514 | | Diluted EPS | $0.38 | $0.43 | $0.38 | $0.85 | - The company adopted the new credit loss standard, ASC 326 (CECL), on January 1, 2020, resulting in a one-time cumulative-effect adjustment increasing the allowance for credit losses by $44.0 million, which reduced retained earnings by $32.5 million, net of tax[38][39] - On February 29, 2020, the company completed the acquisition of LH-Finance for approximately $421.2 million in cash, adding $407.4 million in total loans and resulting in $14.6 million of goodwill[48][49] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes H1 2020 net income decline to COVID-19 and CECL, citing increased credit loss provisions and PPP loan origination - The COVID-19 pandemic led to a significant increase in the provision for credit losses, with $83.1 million related to COVID-19, $842 thousand on investment securities, and $17.0 million for unfunded commitments for the six months ended June 30, 2020[201] - As of June 30, 2020, loan deferrals totaled $3.18 billion, with approximately 70% of $2.04 billion in maturing deferrals returning to full payments by July 24, 2020[192] - The company originated 8,687 Paycheck Protection Program (PPP) loans totaling $848.6 million as of June 30, 2020, with an average loan size of $98 thousand[193] Key Performance Ratios | Ratio | Q2 2020 | Q2 2019 | H1 2020 | H1 2019 | | :--- | :--- | :--- | :--- | :--- | | Annualized net interest margin – FTE | 4.11% | 4.28% | 4.17% | 4.29% | | Efficiency ratio | 44.93% | 39.93% | 45.85% | 40.47% | | Annualized return on average assets | 1.55% | 1.92% | 0.81% | 1.92% | | Annualized return on average common equity | 10.27% | 12.18% | 5.16% | 12.26% | Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate volatility, with an asset-sensitive position and improved liquidity to 16.2% Net Interest Income Sensitivity Analysis (as of June 30, 2020) | Interest Rate Scenario | Percentage Change from Base | | :--- | :--- | | Up 200 basis points | 10.01% | | Up 100 basis points | 5.22% | | Down 100 basis points | (3.05)% | | Down 200 basis points | (6.50)% | - The company's one-year cumulative repricing gap was 17.2% of total earning assets as of June 30, 2020, indicating an asset-sensitive position amplified by $848.6 million in short-term PPP loans and significant deposit inflows[423] - The liquidity ratio improved to 16.2% at June 30, 2020, from 13.7% at December 31, 2019, reflecting increased liquidity in response to the COVID-19 pandemic[404][405] Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes to internal controls over financial reporting during the quarter - Management concluded that disclosure controls and procedures were effective as of June 30, 2020[429] - No material changes to internal control over financial reporting were identified during the second quarter of 2020[430] Part II: Other Information Legal Proceedings The company reports no material pending legal proceedings beyond ordinary routine litigation incidental to its business - There are no material pending legal proceedings, other than ordinary routine litigation incidental to the business[432] Risk Factors A new material risk factor was added concerning the COVID-19 pandemic, detailing potential for increased credit losses and asset impairment - A new material risk factor was added concerning the COVID-19 pandemic, which has negatively impacted the U.S. and global economy[433][434] - The pandemic could continue to cause increased credit losses, volatility in collateral valuations, and potential impairment of goodwill and other financial assets[434] - The company faces increased risk from governmental and regulatory scrutiny related to its participation in programs like the CARES Act Paycheck Protection Program[435] Unregistered Sales of Equity Securities and Use of Proceeds The company did not repurchase any common stock during the three months ended June 30, 2020, under its existing program - The company did not purchase any of its common stock during the three months ended June 30, 2020[438] Exhibits This section lists all exhibits filed with the Form 10-Q, including articles of incorporation, bylaws, and officer certifications