KBRA Affirms Ratings for Home BancShares, Inc.

KBRA affirms the senior unsecured debt rating of BBB+, the subordinated debt rating of BBB, and the short-term debt rating of K2 for Conway, Arkansas-based Home BancShares, Inc. (NYSE: HOMB) (“the company”). In addition, KBRA affirms the deposit and senior unsecured debt ratings of A-, the subordinated debt rating of BBB+, and the short-term deposit and debt ratings of K2 for its subsidiary, Centennial Bank. The Outlook for all long-term ratings is Stable.

Key Credit Considerations

HOMB’s ratings are primarily supported by its level of loss absorbing capacity that is among the strongest in KBRA’s rated universe – a characteristic that has proved beneficial to the company in periods past and should again prove valuable if and when an economic slowdown results in credit quality normalization. In this regard, when evaluating a bank’s three primary lines of defense again credit losses (earnings, loan loss reserves, and capital), HOMB compares more favorably than peers in every facet. The company’s core capital ratios (4Q23 CET1 and TCE ratios of 14.2% and 11.1%, respectively) are notably higher than rating category medians, and are further reinforced by a LLR of 2%+ that is the second highest such metric of all KBRA’s publicly rated, publicly traded banks. Furthermore, HOMB’s strong earnings profile provides another layer of protection against potential credit losses. Given these factors, KBRA believes HOMB to be well positioned to absorb any anticipated or unanticipated credit losses in its loan portfolio that has comparatively larger exposure to perceived riskier verticals such as C&D, large dollar CRE, and consumer lending.

HOMB consistently records some of the highest reported ROA figures in its rating category (average ROA of 1.7% over the last six years), powered by solid loan yields, negligible credit costs, and a low efficiency ratio that typically tracks near 40%. Additionally, the company’s fee income, which has traditionally comprised a lower percentage of total revenues than peers’, has benefited from the addition of a materially larger wealth management and trust business that was added with HOMB’s 2Q22 acquisition of Happy Bancshares, Inc. With respect to 2023 earnings performance specifically (FY23 ROA of 1.8%), HOMB’s NIM held up better than most, declining a mere 4 bps from 4Q22 to 4Q23 to 4.17%. HOMB’s ratings are also supported by an experienced and capable management team that has successfully executed on the company's long term growth strategy - one that has balanced organic growth with, at times, frequent M&A activity. With respect to the latter, since 2008, HOMB has acquired and successfully integrated a total of 16 banks in Arkansas, Florida, Alabama, and Texas, 8 of which were FDIC assisted transactions following the GFC.

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Methodologies