Conway bank gets praises in review

High hotel loan rate earns notice

Home BancShares Inc. has received a glowing review that says the Conway bank “remains one of the top credit underwriters in the region” despite the economic havoc that covid-19 has created.

Banking analysts at Stephens Inc. met with Home BancShares’ top executives and four borrowers on June 18 to review the bank’s hotel loan portfolio, which includes $1.3 billion in loans, or about 11% of the bank’s total book.

Of the hotel loans, $906 million is in completed properties with another $427 million dedicated to hotel construction. Hotel loans have been made in more than 20 states, with Florida the largest at $480 million, including construction, followed by Arkansas at $144 million.

Home BancShares Chairman and Chief Executive Officer John Allison said the report highlights the hardiness of the portfolio and the quality of the bank’s customers.

“This really shows the strength of the underwriting at Home BancShares,” Allison said Tuesday. “It demonstrates the quality of the assets we have on the books.”

Overall, Stephens banking team led by analyst Matt Olney noted that the Arkansas bank’s “hotel portfolio is composed of seasoned operators that are well positioned in terms of leverage and experience to rebound post Covid-19.”

Home BancShares, which operates as Centennial Bank, has approved pandemic-driven deferrals for 85% of the $144 million in hotel loans it has in Arkansas, Stephens reported.

About 65% of the bank’s total hotel loans nationwide have been deferred, according to the analysis.

Yet the bank is well situated to remain profitable as the pandemic lingers, the report said. “Should the ongoing economic malaise continue longer than consensus expectations, then we’re comforted by the bank’s strong reserve ratio … and core profitability,” the analysts’ note said.

The report reset a stock price target of $18 per share, up from $16. A year ago Home’s stock was trading at just under $19 and was in the $20 range before the coronavirus outbreak. The stock reached a low of $10.19 on March 23; it closed at $15.45 on Tuesday, down 45 cents as the Dow Jones Industrial Average gained 131.14 points.

Revenues, profitability and employment in the leisure and hospitality industry all have been decimated in the virus economy as business and recreational travel dropped and hotels shuttered. In April alone, the worst month for job losses, the hospitality sector lost 7.7 million jobs, or 47% of total positions.

“Revenues fell by over 90%, and labor costs were cut by two-thirds,” Blair Allen of Beechwood Hospitality and a Centennial Bank of Little Rock advisory board member is quoted in the report.

“Since that time, hotels have seen a steady improvement. Revenue in May was double April’s revenue, and occupancies have improved every week,” Allen added. “June is pacing to outperform May.”

Beechwood Hospitality develops and manages multiple hotels in Arkansas and other locations for the Hilton, Intercontinental Hotels Group, Marriott, Ramada and Wyndham chains among others.

The Arkansas hotel industry will likely “experience a longer road until full recovery in the range of 9-12 months,” the Stephens banking team wrote in the report.

That economic lag means loan deferments in Arkansas and adjacent states will linger for a few months as well, according to the report, which said deferrals will “remain flat to slightly up in these regions.”

Florida, however, is “experiencing the strongest and fastest rebound” in Home BancShares’ territory, the report said.

Deferrals there could “come down significantly as the first wave of deferrals expires in late June/July and do not require an extension,” the report said.

Allison said Tuesday that economic recovery in Florida is building momentum. “Florida is booming and taking off like a rocket,” Allison added.

Home BancShares operates 77 branches in Arkansas, 78 branches in Florida, 5 branches in Alabama and one branch in New York City.