Home Bancshares, Inc. (Conway, AR) Stock

Home Bancshares, Inc. (Conway, AR) operates as the bank holding company for Centennial Bank that a broad range of commercial and retail banking and related financial services to businesses, real estate developers and investors, individuals, and municipalities.

The company acquires, organizes and invests in community banks that serve attractive markets. The company's community banking team is built around experienced bankers with strong local relationships. The company owns Centennial Commercial Finance Group (Centennial CFG) to build out a national lending platform focused on commercial real estate, as well as commercial and industrial loans. Centennial CFG operates out of its New York City branch office and loan production offices in Los Angeles, California, Dallas, Texas and Miami, Florida. The company owns Shore Premier Finance (SPF), a marine-lending division of Union Bank & Trust of Richmond, Virginia, and owns the SPF division of Centennial Bank to build out a lending platform focusing on commercial and consumer marine loans.

Strategy

The company's principal acquisition focus in the near term will be to continue to expand its presence in Texas, Arkansas, Florida and Alabama and into other contiguous markets, although it may seek to expand into other areas if attractive financial opportunities in other market areas arise. The company's current branch network provides it with the capacity to grow within its existing market areas.

Lending Activities

The company originates loans primarily secured by single and multi-family real estate, residential construction and commercial buildings. In addition, the company makes loans to small and medium-sized commercial businesses, as well as to consumers for a variety of purposes.

Real Estate - Non-farm/Non-residential: Non-farm/non-residential real estate loans consist primarily of loans secured by income-producing properties, such as shopping/retail centers, hotel/motel properties, office buildings, and industrial/warehouse properties. Commercial lending on income-producing properties typically involves higher loan principal amounts, and the repayment of these loans is dependent, in large part, on sufficient income from the properties collateralizing the loans to cover operating expenses and debt service. This category of loans also includes specialized properties, such as churches, marinas, and nursing homes. Additionally, the company makes commercial mortgage loans to entities to operate in these types of properties, and the repayment of these loans is dependent, in large part, on the cash flow generated by these entities in the operations of the business. Often, a secondary source of repayment will include the sale of the subject collateral. When this is the case, it is generally the company's practice to obtain an independent appraisal of this collateral within the Interagency Appraisal and Evaluation Guidelines.

Real Estate - Construction/Land Development: This category of loans includes loans to residential and commercial developers to purchase raw land and to develop this land into residential and commercial land developments. In addition, this category includes construction loans for all of the types of real estate loans, including both commercial and residential. These loans are generally secured by a first lien on the real estate being purchased or developed. Often, the primary source of repayment will be the sale of the subject collateral. When this is the case, it is generally the company's practice to obtain an independent appraisal of this collateral within the Interagency Appraisal and Evaluation Guidelines.

Real Estate - Residential: The company's residential mortgage loan program primarily originates loans to individuals for the purchase of residential property. Residential mortgage loans to individuals retained in the company's loan portfolio primarily consisted of approximately 50.1% owner occupied 1-4 family properties and approximately 40.9% non-owner occupied 1-4 family properties (rental) as of December 31, 2023 with the remaining 9.0% relating to condos and mobile homes. The primary source of repayment for these loans is generally the income and/or assets of the individual to whom the loan is made. Often, a secondary source of repayment will include the sale of the subject collateral. When this is the case, it is generally the company's practice to obtain an independent appraisal of this collateral within the Interagency Appraisal and Evaluation Guidelines.

Consumer: While the company's focus is on service to small and medium-sized businesses, it also makes a variety of loans to individuals for personal, family and household purposes, including secured and unsecured installment and term loans originated by its bank, the primary portion of which consists of loans to finance USCG registered high-end sail and power boats through its SPF division. The primary source of repayment for these loans is generally the income and/or assets of the individual to whom the loan is made. The performance of consumer loans will be affected by the local and regional economies, as well as the rates of personal bankruptcies, job loss, divorce and other individual-specific characteristics. When secured, the company may independently assess the value of the collateral using a third-party valuation source.

Commercial and Industrial: The company's commercial and industrial loan portfolio primarily consisted of 7.3% unsecured loans, 32.3% inventory/accounts receivable financing, 8.7% equipment/vehicle financing and 51.7% other, including letters of credit at less than 1%, as of December 31, 2023. This category includes loans to smaller business ventures, credit lines for working capital and short-term inventory financing, for example. These loans are typically secured by the assets of the business and are supplemented by personal guaranties of the principals and often mortgages on the principals' primary residences. The primary source of repayment may be conversion of the assets into cash flow, as in inventory and accounts receivable, or may be cash flow generated by operations, as in equipment/vehicle financing. Assessing the value of inventory can involve many factors, including but not limited to, type, age, condition, level of conversion and marketability, and can involve applying a discount factor or obtaining an independent valuation, based on the assessment of the above factors. Assessing the value of accounts receivable can involve many factors, including but not limited to, concentration, aging, and industry, and can involve applying a discount factor or obtaining an independent valuation, based on the assessment of the above factors. Assessing the value of equipment/vehicles may involve a third-party valuation source, where applicable.

Agricultural Loans: Agricultural loans include loans for financing agricultural production, including loans to businesses or individuals engaged in the production of timber, poultry, livestock or crops and are not categorized as part of real estate loans. The company's agricultural loans are generally secured by farm machinery, livestock, crops, vehicles or other agricultural-related collateral. A portion of the company's portfolio of agricultural loans consists of loans to individuals which would normally be characterized as consumer loans except for the fact that the individual borrowers are primarily engaged in the production of timber, poultry, livestock or crops.

Deposits and Other Sources of Funds

The company's principal source of funds for loans and investing in securities is core deposits. The company offers a wide range of deposit services, including checking, savings, money market accounts and certificates of deposit. The company obtains most of its deposits from individuals and small businesses, and municipalities in its market areas. The company offers for core deposits are competitive with those offered by other financial institutions in its market areas. Additionally, the company's policy also permits the acceptance of brokered deposits. Secondary sources of funding include advances from the Federal Home Loan Bank of Dallas, the Federal Reserve Bank Discount Window, Federal Reserve Bank Term Funding Program (BTFP) and other borrowings. These secondary sources enable the company to borrow funds at rates and terms which, at times, are more beneficial to it.

Other Banking Services

Given customer demand for increased convenience and account access, the company offers a range of products and services, including 24-hour internet banking, mobile banking and voice response information, cash management, overdraft protection, direct deposit, safe deposit boxes, United States savings bonds and automatic account transfers. The company earns fees for most of these services. The company also receives ATM transaction fees from transactions performed by its customers participating in a shared network of automated teller machines and a debit card system that its customers can use throughout the United States, as well as in other countries.

Trust and Investment Services

Through Centennial Bank and its trust operating subsidiary, GoldStar Trust Company, the company provides trust, wealth management and custodial services to customers throughout its footprint from offices in Arkansas and Texas. The company offers a wide variety of trust and estate planning products and services, including serving as trustee for personal trusts, testamentary trusts, life insurance trusts, special needs trusts, charitable trusts, 401(k) retirement plans, profit sharing plans and pension plans. In addition, the company offers administrative services, such as estate administration and settlement, guardianship and conservator administration, investment management, farm and property management, section 1031 like-kind exchanges and Coverdell Education Savings Accounts. The company also offers managed and self-directed IRAs. Centennial Bank also contracts with Ameriprise Financial Services, LLC (Ameriprise), a registered broker-dealer and investment adviser, to offer and sell various securities and other financial products to customers through associates who are employed by both Centennial Bank and Ameriprise.

GoldStar Trust Company is a limited services trust company with a focus on providing alternative asset custodial services for assets not generally held by traditional brokerage and investment firms. Other products and services provided include trustee services, escrow and paying agent services. All accounts under management of GoldStar Trust Company are self-directed accounts in which the investment instruction is provided by the end client or their third party financial advisor.

Insurance

Centennial Insurance Agency, Inc. is an independent insurance agency, and purchased by Centennial Bank in 2000. Centennial Insurance Agency writes policies for commercial and personal lines of business, including insurance for property, casualty, life, health and employee benefits. It is subject to regulation by the Arkansas Insurance Department. The offices of Centennial Insurance Agency are located in Jacksonville, Cabot and Conway, Arkansas.

Cook Insurance Agency, Inc. is an independent insurance agency, and acquired by Centennial Bank during the company's FDIC-assisted acquisition of Gulf State Community Bank. Cook Insurance Agency writes policies for commercial and personal lines of business, including life insurance. It is subject to regulation by the Florida Insurance Department. The offices of Cook Insurance Agency are located in Apalachicola and Crawfordville, Florida.

Insurance

Centennial Insurance Agency, Inc. is an independent insurance agency, and purchased by Centennial Bank. Centennial Insurance Agency writes policies for commercial and personal lines of business, including insurance for property, casualty, life, health and employee benefits. It is subject to regulation by the Arkansas Insurance Department. The offices of Centennial Insurance Agency are located in Jacksonville, Cabot and Conway, Arkansas.

Cook Insurance Agency, Inc. is an independent insurance agency and acquired by Centennial Bank during the company's FDIC-assisted acquisition of Gulf State Community Bank. Cook Insurance Agency writes policies for commercial and personal lines of business, including life insurance. It is subject to regulation by the Florida Insurance Department. The offices of Cook Insurance Agency are located in Apalachicola and Crawfordville, Florida.

Investment Portfolio

As of December 31, 2023, the company's investment portfolio included U.S. government-sponsored enterprises; U.S. government-sponsored mortgage-backed securities; private mortgage-backed securities; non-government-sponsored asset backed securities; state and political subdivisions; and other securities.

Strategy

The execution of the company's community banking strategy has allowed it to rapidly build its network of banking operations through acquisitions.

Supervision and Regulation

The company is a bank holding company registered under the federal Bank Holding Company Act of 1956 (the 'Bank Holding Company Act'), and the company and its subsidiaries are subject to supervision, regulation and examination by the Federal Reserve Board.

Under the Dodd-Frank Act, the company is required to act as a source of financial strength for its bank subsidiary and to commit resources to support the bank.

Regulation YY also requires the company, as a publicly-traded bank holding company with $10 billion or more in total consolidated assets, to have a global risk management framework commensurate with their structure, risk profile, complexity, activities, and size.

The company's bank subsidiary, Centennial Bank, is chartered as an Arkansas state bank and is a member of the Federal Reserve System, making it primarily subject to regulation and supervision by both the Federal Reserve Board and the Arkansas State Bank Department.

Various consumer laws and regulations also affect the operations of the company's bank subsidiary. Further, because its bank subsidiary has total assets of over $10 billion, it is subject to supervision and regulation by the CFPB, which is responsible for implementing, examining and enforcing compliance with federal consumer protection laws.

Centennial Bank's deposit accounts are insured up to applicable limits by the FDIC's Deposit Insurance Fund (DIF).

The company's bank subsidiary received a 'satisfactory' CRA rating from the Federal Reserve Bank during its last exam as published in its bank's CRA Public Evaluation.

The Federal Home Loan Bank (FHLB) system, of which the company's bank subsidiary is a member, consists of regional FHLBs governed and regulated by the Federal Housing Finance Agency, or FHFA.

The company's bank subsidiary is subject to the rules and regulations of FHA, VA, FNMA, FHLMC and GNMA with respect to originating, processing, selling and servicing mortgage loans and the issuance and sale of mortgage-backed securities.

The company's bank subsidiary is subject to a number of federal and state consumer protection laws that extensively govern its relationship with its customers. These laws include the Equal Credit Opportunity Act, the Fair Credit Reporting Act, the Truth in Lending Act, the Truth in Savings Act, the Electronic Funds Transfer Act, the Expedited Funds Availability Act, the Home Mortgage Disclosure Act, the Fair Housing Act, the Real Estate Settlement Procedures Act, the Fair Debt Collection Practices Act, the Service Members Civil Relief Act and these laws' respective state-law counterparts, as well as state usury laws and laws regarding unfair and deceptive acts and practices.

Under Regulation Y, the company's bank holding company and bank subsidiary are prohibited, subject to some exceptions, from extending credit to or offering any other service, or fixing or varying the consideration for such extension of credit or service, on the condition that the customer obtain some additional service from the institution or its affiliates or not obtain services of a competitor of the institution.

The company and its bank subsidiary are subject to Section 23A of the Federal Reserve Act. Affiliate transactions are also subject to Section 23B of the Federal Reserve Act which generally requires that certain other transactions between the bank and its affiliates be on terms substantially the same, or at least as favorable to the bank, as those prevailing at that time for comparable transactions with or involving other non-affiliated persons.

The company and its subsidiary have established policies and procedures to assure its compliance with all privacy provisions of the Gramm-Leach-Bliley Act.

The company is also subject to various regulatory guidance as updated from time to time and implemented by the Federal Financial Institutions Examinations Council (the 'FFIEC'), an interagency body of the FDIC, the OCC, the Federal Reserve, the National Credit Union Administration and various state regulatory authorities.

The company's bank subsidiary is subject to the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the 'USA PATRIOT Act'), the Bank Secrecy Act (BSA), and rules and regulations of the Office of Foreign Assets Control (the 'OFAC').

As part of the company's bank subsidiary's anti-money laundering (AML) program, the company is required to designate a BSA officer, maintain a BSA/AML training program, maintain internal controls to effectuate the BSA/AML program, implement independent testing of the BSA/AML program, and comply with the Financial Crimes Enforcement Network's 'Customer Due Diligence for Financial Institutions Rule' (the 'CDD Rule').

The company's bank subsidiary is subject to regulation and examination by the Arkansas State Bank Department.

In response to the COVID-19 pandemic, the Coronavirus Aid, Relief and Economic Security Act (CARES Act) was signed into law in 2020 to provide national emergency economic relief measures. The CARES Act's programs were implemented through rules and guidance adopted by federal departments and agencies, including the U.S. Department of Treasury, the Federal Reserve, and other federal bank regulatory authorities, including those with direct supervisory jurisdiction over the company and its bank subsidiary.

The company's bank subsidiary participated in the Paycheck Protection Program as a lender. These loans were eligible to be forgiven if certain conditions were satisfied and were fully guaranteed by the Small Business Administration (SBA).

History

Home Bancshares, Inc. (Conway, AR) was founded in 1998.