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Analysts pare earnings outlook at two Arkansas banks, raise it for one

by Andrew Moreau | June 12, 2022 at 1:59 a.m.

Growth projections for two of Arkansas' largest banks that recently expanded operations in Texas may not be as promising as first hoped.

Last week, banking analysts with Stephens Inc. lowered earnings projections over the next two years for Home BancShares Inc. of Conway and Simmons First National Corp. of Little Rock. In April, both banks closed acquisitions that created new opportunities across Texas, including giving them access to some of the nation's top-growth markets. The revised forecasts were influenced by projections for net interest income declines at both banks.

The report, however, delivered good news for Bank OZK of Little Rock, which got a boost in earnings projections.

Texas provides a target-rich environment for Home BancShares and Simmons First, both of which have struggled with declining loan volumes over several quarters.

Home Bancshares, which operates as Centennial Bank in its markets, jumped across the border into Texas for the first time with the purchase of Happy Bancshares Inc. of Amarillo. The Conway bank touted the "triple-accretive transaction" that would boost earnings power immediately.

The $961.9 million deal gives Home access to large markets in the Texas panhandle -- Amarillo and Lubbock -- while also adding booming areas such Austin and Dallas.

In the revised forecast for all Southwest banks, Stephens is projecting a slight decline in operating earnings per share this year and next for Home BancShares. The investment firm is now predicting the Conway lender will produce earnings per share of $1.77 this year, down from $1.80 per share. And the 2023 forecast is for $1.98 per share, a dip from $2.

The projections assume higher non-interest income from Happy Bancshares that will be offset by "more moderate" net interest income, Stephens reported. The update also noted that integrating the Happy Bancshares transaction likely will remain Home's most immediate focus. In addition, the Stephens team did not include any changes from liquidity deployment though it wouldn't be surprising if the bank revealed in its earnings announcements that it had made such investments in securities.

Bank officials hinted at that possibility when announcing first-quarter results. At the time, Chairman John Alison pointed out the lender was pretty flush with $3.5 billion in cash it was ready to deploy over the next two years. With rising interest rates, Home could use the cash for securities investments that would boost earnings power.

Stephens' revised projections were much more severe for Simmons First, which expanded in Texas with the $581 million acquisition of Spirit of Texas Bancshares Inc. of Conroe. Stephens dropped its forecasts of operating earnings per share for the next two years by 4%, representing a 10-cent decline in each year.

New projections predict earnings per share of $2.30 this year, down from $2.40. Earnings in 2023 are forecast at $2.26 per share, a drop from $2.36. "Our updated estimates are driven by more conservative assumptions that resulted in lower NII," the report said referencing net interest income.

Adding Spirit of Texas Bancshares expands Simmons' presence in a key market and in east Texas. The bank has been operating in the Dallas-Fort Worth metro area for several years and now adds Austin, College Station, Houston and San Antonio, among others.

Turning to Bank OZK of Little Rock, Stephens is raising its projections for 2022 and 2023, citing a bank filing that indicates the lender has increased its share-repurchase program more than previously expected. OZK, based on the filing, seems to have purchased 2.6 million shares of stock in April; that's up from an expected purchase of 2 million shares for the entire three-month period.

"Therefore," the analysts wrote, "we are increasing our buyback forecast and are now assuming 2.8 million shares repurchased" by the end of June. That moved the Stephens team to increase operating earnings per share from $4.18 to $4.20 this year and to $4.30 from $4.27 in 2023.

Overall, Stephens is projecting median operating earnings per share will decline by 2% this year from previous forecasts for the 15 banks the firm reviewed in the Southwest region. Stephens estimated a similar 1% median earnings per share decline in 2023.

The second quarter, which closes June 30, will be the first three-month period when both Home Bancshares and Simmons First include the recently added Texas operations in earnings.

Stay tuned, there's more to come. Stephens says it will update its forecasts in mid-July before the Arkansas big three report second-quarter earnings.

WINDSTREAM GOES NATIONWIDE

Windstream Holdings Inc. is offering 400 gigabit services to wholesale customers from coast to coast. The Little Rock communications company offers four routes across the country with hubs in Ashburn, Va., Atlanta, Seattle and Chicago.

"The bandwidth demands facing large enterprise and hyperscale customers are expanding and evolving rapidly as the transition to cloud services and cloud computing accelerates, and Windstream wholesale is enhancing our long-haul network to ensure we meet their needs," said Joe Scattareggia, chief revenue officer of Windstream Wholesale. "We are cascading a phased approach that gives our customers time to plan as we continue to invest and enable 400G services across our entire core long-haul network."

Even more, later this year the company said it will add two network routes from Chicago, another from Atlanta and one from McAllen, Texas.

The company will begin accepting orders for the third phase of its 400G expansion starting in the third quarter of 2022.

SBA PROMOTES PROSPERITY

Small businesses across the nation account for about 47% of those employed in the United States and they are a prime opportunity for minorities and women to create wealth.

To further those efforts, the U.S. Small Business Administration is holding a virtual event Wednesday from 1:30-6:60 p.m. titled "Path to Prosperity: Incentivizing Small Business to Build a Path Forward."

Small business owners and entrepreneurs, especially minorities and women, are encouraged to participate in the event, which will focus on companies based in the southern United States. Community lending partners such as financial institutions and non-profits also can participate in growing small businesses.

Topics include tips on how business owners and entrepreneurs can access capital and build relationships with lenders; developing a business in health care; and the basics of government contracting.

Presenters from the Federal Deposit Insurance Corp. and the U.S. Department of Agriculture also will participate, providing insight on how business owners in underbanked and underserved communities can establish lending relationships with key financial institutions.

Column ideas or recommendations? Thoughts or musings that need pursuing? Contact me at amoreau@adgnewsroom.com or at (501) 378-3567.

Print Headline: Analysts pare earnings outlook at two Arkansas banks, raise it for one

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