KBRA Affirms Ratings for Home BancShares, Inc.

29 Mar 2024   |   New York


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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Further information on key credit considerations, sensitivity analyses that consider what factors can affect these credit ratings and how they could lead to an upgrade or a downgrade, and ESG factors (where they are a key driver behind the change to the credit rating or rating outlook) can be found in the full rating report referenced above.

A description of all substantially material sources that were used to prepare the credit rating and information on the methodology(ies) (inclusive of any material models and sensitivity analyses of the relevant key rating assumptions, as applicable) used in determining the credit rating is available in the Information Disclosure Form(s) located here.

Information on the meaning of each rating category can be located here.

Further disclosures relating to this rating action are available in the Information Disclosure Form(s) referenced above. Additional information regarding KBRA policies, methodologies, rating scales and disclosures are available at www.kbra.com.

About KBRA

Kroll Bond Rating Agency, LLC (KBRA) is a full-service credit rating agency registered with the U.S. Securities and Exchange Commission as an NRSRO. Kroll Bond Rating Agency Europe Limited is registered as a CRA with the European Securities and Markets Authority. Kroll Bond Rating Agency UK Limited is registered as a CRA with the UK Financial Conduct Authority. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized by the National Association of Insurance Commissioners as a Credit Rating Provider.

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