Why one $80.7 million payment matters to Home BancShares
A repayment on a troubled Texas credit is larger than the entire increase in problem loans last quarter. The remaining balance awaits a second collateral sale.
Home BancShares has received $80.7 million on a troubled Texas lending relationship that accounted for nearly half of its nonperforming loans at the end of September. The payment removes a large part of one concentrated credit problem.
The borrower sold some of the assets securing the loans, and the bank applied the proceeds to principal. The relationship's carrying balance fell from $92.1 million to $11.4 million. That remaining amount stays on nonaccrual status, meaning the bank is not recognizing regular interest income on it.
Research by Ticker Byline shows that the payment exceeds the entire $15.5 million increase in the bank's nonperforming loans during the third quarter. Problem loans had risen from $185.3 million in June to $200.8 million in September.
Home BancShares is the parent of Centennial Bank. Our Home BancShares company profile tracks its credit quality, earnings and financial position.
A concentrated problem starts to unwind
The Texas relationship represented 45.9% of all nonperforming loans at September 30. A repayment of this size therefore has a much greater effect on credit quality than its size relative to the bank's $16.91 billion loan book might suggest.
Using September's balances, Home BancShares estimates that the payment reduces its nonperforming-loan ratio by 0.48 percentage point. That ratio was 1.19% at quarter-end.
The company said the receipt completes the first phase of the resolution it discussed on its October earnings call. It expects the borrower to sell the remaining collateral during the fourth quarter and use the proceeds to repay the balance.
A second sale could also recover part of an amount written off in late 2024, according to the bank. The first payment has reduced outstanding principal; any recovery of that earlier write-off belongs to the remaining stage.
Earnings and credit quality tell different parts of the story
Home BancShares reported third-quarter net income of $129.5 million, up from $123.6 million a year earlier. Net interest income, the difference between interest earned and funding costs, increased to $242.0 million from $226.2 million.
The bank booked no credit-loss expense during the quarter. Its loan-loss allowance stood at $326.2 million, while nonperforming loans had increased. The new receipt addresses a large existing exposure after that reporting date.
The next milestone is completion of the remaining collateral sale. That would finish the principal cleanup and establish whether the bank also recovers any of the older write-off.