Home BancShares(HOMB) - 2022 Q4 - Annual Report

Financial Performance - Total assets increased to $22.88 billion in 2022 from $18.05 billion in 2021, representing a growth of 26.5%[1] - Total deposits rose to $17.94 billion in 2022, up from $14.26 billion in 2021, marking a 25.5% increase[1] - Total revenue for 2022 was $933.79 million, a 31.4% increase from $710.54 million in 2021[1] - Net income for 2022 was $305.26 million, a decrease of 4.3% compared to $319.02 million in 2021[1] - Basic earnings per share decreased to $1.57 in 2022 from $1.94 in 2021, a decline of 19.1%[204] - The efficiency ratio for 2022 was 49.53%, compared to 40.81% in 2021, indicating a decrease in operational efficiency[214] - The return on average assets was 1.35% in 2022, down from 1.83% in 2021[214] - The allowance for credit losses increased to $289.67 million in 2022 from $236.71 million in 2021, reflecting a rise in credit risk provisions[206] - Net income decreased by $13.8 million, or 4.3%, to $305.3 million for the year ended December 31, 2022, compared to $319.0 million in 2021[216] Acquisitions and Growth Strategy - The acquisition of Happy Bancshares, Inc. was completed for approximately $962.5 million, including 42.4 million shares of common stock valued at $958.8 million[26] - The company aims to continue expanding its presence in Texas, Arkansas, Florida, and Alabama through strategic acquisitions[33] - The company has acquired a total of 23 banks since 1999, with 18 of those acquisitions occurring since 2010, including the acquisition of Happy Bancshares in Q2 2022[173] - The company’s growth strategy includes acquisitions and de novo branching, which are subject to regulatory approval and associated risks[168] Loan Portfolio - As of December 31, 2022, the total loan portfolio amounted to $14,409,480,000, with real estate loans comprising 72.4% of the portfolio[38] - Non-farm/non-residential real estate loans totaled $5,632,063,000, representing 39.1% of the loan portfolio[38] - Construction and land development loans were $2,135,266,000, accounting for 14.8% of the total loan portfolio[39] - Residential real estate loans, including 1-4 family and multifamily properties, totaled $2,326,603,000, which is 16.1% of the portfolio[38] - Consumer loans amounted to $1,149,896,000, making up 8.0% of the total loan portfolio[38] - Commercial and industrial loans totaled $2,349,263,000, representing 16.3% of the loan portfolio[38] - Agricultural loans were $285,235,000, accounting for 2.0% of the total loan portfolio[38] - Approximately 72.5% of the total loan portfolio was secured by real estate, with commercial real estate loans totaling $5.98 billion, or 41.5% of total loans[153] - The company had a total of $6.46 billion, or 44.8% of total loans, committed to borrowers whose total debt exceeds the established in-house lending limit of $40 million[159] Regulatory Environment - The company is subject to additional supervision and regulation due to its bank subsidiary's total assets exceeding $10 billion[61] - The Dodd-Frank Act and EGRRCPA provisions govern the practices and oversight of financial institutions, impacting the company's operations[63] - The company is required to conduct annual company-run stress tests due to its average total consolidated assets exceeding $10 billion[80] - The company continues to utilize its risk committee to oversee enterprise-wide risk management practices despite no longer being required to maintain one[81] - The bank subsidiary is required to maintain adequate capital levels above regulatory guidelines, affecting its ability to pay dividends[86] - The CFPB supervises depository institutions with total assets of $10 billion or greater, focusing on consumer risks and compliance with federal consumer financial laws[105] - Companies with total assets exceeding $10 billion are subject to increased regulatory requirements, including a deposit assessment rate between 2.5 to 42 basis points based on performance metrics[139] - The Federal Reserve Board mandates that a bank holding company should not maintain cash dividends that could pressure the capital of its bank subsidiary[84] Risk Factors - Economic downturns have historically adversely affected the banking industry, particularly community banks, leading to increased delinquencies and foreclosures[141] - The COVID-19 pandemic has resulted in credit losses and increased allowance for credit losses in loan portfolios, affecting overall financial performance[143] - Changes in interest rates can significantly affect profitability, with potential adverse impacts on loan demand and borrower repayment capabilities[148] - The company may face increased loan loss reserves due to economic downturns, which could negatively impact operating results[152] - The company has faced risks related to fraud and compliance failures, particularly in loan origination and transactions, which could adversely impact its loan portfolio performance[184] Employee and Community Engagement - The company had 2,774 full-time equivalent employees as of December 31, 2022, with expectations for slight increases in staffing levels for 2023[54] - As of December 31, 2022, 70% of the company's employees were women, and 26% identified as a person of color[56] - 60% of the company's leadership positions were held by women as of December 31, 2022[56] Investment and Securities - The company owned $4.04 billion of available-for-sale investment securities as of December 31, 2022, which may be adversely affected by market conditions[163] - The company owned $1.29 billion of held-to-maturity investment securities, which are reported at historical cost adjusted for amortization[164] Compliance and Legal Matters - The company redeemed all outstanding trust preferred securities during the second and third quarters of 2022, resulting in no longer holding any such securities[72] - The bank subsidiary must comply with various federal and state consumer protection laws, which can result in significant liabilities if violated[104] - The company recorded $10.0 million in income from a lawsuit settlement, net of legal expenses[216] Technological and Operational Challenges - The company relies heavily on third-party service providers for core banking services, and any disruption in these services could materially impact its operations[183] - The company has experienced technological changes and may have fewer resources than competitors to invest in technological improvements, affecting its future success[178]