Analysts cut earnings outlook for two Arkansas banks and raise it for one

Growth prospects for two of Arkansas’ largest banks, which recently expanded operations in Texas, may not be as promising as first hoped.

Last week, banking analysts at Stephens Inc. lowered earnings forecasts for Conway and Simmons First National Corp.’s Home BancShares Inc. from Little Rock for the next two years. In April, both banks completed acquisitions that created new opportunities across Texas, including access to some of the nation’s fastest growing markets. The revised forecasts were impacted by forecasts of declining net interest income at both banks.

However, the report provided good news for Little Rock-based bank OZK, which received a boost in earnings forecasts.

Texas provides a target-rich environment for Home BancShares and Simmons First, both of which have struggled with declining credit volumes for 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 Amarillo-based Happy Bancshares Inc. Conway Bank touted the “triple active transaction” that would immediately increase profitability.

The $961.9 million deal gives Home access to major markets in the Texas panhandle — Amarillo and Lubbock — while adding booming areas like Austin and Dallas.

In revised guidance for all Southwest banks, Stephens forecasts a slight decline in operating earnings per share for Home BancShares this year and next. The investment firm now forecasts that the Conway lender will post earnings per share of $1.77 this year, compared to $1.80 per share. And 2023 guidance is $1.98 per share, down $2.

Forecasts assume higher noninterest income from happy bancshares offset by “more modest” net interest income, Stephens reported. The update also noted that the integration of the Happy Bancshares transaction will likely remain Home’s most immediate focus. Additionally, the Stephens team did not account for changes from liquidity deployments, although it would not be surprising if the bank disclosed in its earnings releases that it had made such investments in securities.

Bank officials hinted at that possibility when reporting the first-quarter results. At the time, Chairman John Alison pointed out that the lender was pretty flush with $3.5 billion in cash and was poised to deploy it over the next two years. If interest rates rise, Home could use the cash for income-boosting security investments.

Stephens’ revised guidance was much stricter for Simmons First, which expanded in Texas with the $581 million acquisition of Conroe-based Spirit of Texas Bancshares Inc. Stephens cut its forecast for operating earnings per share for the next two years by 4%, down 10 cents each year.

New forecasts call for earnings per share of $2.30 versus $2.40 this year. Earnings in 2023 are forecast at $2.26 per share, down from $2.36. “Our updated estimates are based on more conservative assumptions, which resulted in a lower NII,” the report said, referring to net interest income.

The addition of Spirit of Texas Bancshares expands Simmons’ presence in a key market and in East Texas. The bank has served the greater Dallas-Fort Worth area for several years and is now adding Austin, College Station, Houston and San Antonio, among others.

Regarding bank OZK of Little Rock, Stephens is raising his forecasts for 2022 and 2023, citing a bank filing that shows the lender has expanded its share buyback program more than previously expected. Based on the filing, OZK appears to have purchased 2.6 million shares in April; that’s up from an expected purchase of 2 million shares for the entire three-month period.

“Therefore,” write the analysts, “we are raising our buyback forecast and now expect 2.8 million shares to be bought back” by the end of June. That prompted Stephens’ team to grow operating earnings per share from $4.18 to $4.20 this year and from $4.27 to $4.30 in 2023.

Overall, Stephens forecasts average operating earnings per share this year to fall 2% from previous forecasts for the 15 banks the company has reviewed in the Southwest region. Stephens estimated a similar 1% decline in median earnings per share in 2023.

The second quarter, ending June 30, will be the first three-month period in which both Home Bancshares and Simmons First will 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 their second-quarter results.

WINDSTREAM GOES NATIONWIDE

Windstream Holdings Inc. provides wholesale 400 Gigabit services coast-to-coast. Communications company Little Rock offers four routes nationwide with hubs in Ashburn, Virginia, Atlanta, Seattle and Chicago.

“The bandwidth requirements of enterprise and hyperscale customers are growing and evolving rapidly as the transition to cloud services and cloud computing accelerates, and Windstream Wholesale is expanding our long-haul network to ensure we serve their needs,” said Joe Scattareggia, Chief Revenue Officer of Windstream Wholesale. “We are taking a phased approach that gives our customers time to plan as we continue to invest and enable 400G services across our core long-haul network.”

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

The company is accepting orders for the third phase of its 400G expansion beginning in Q3 2022.

SBA PROMOTES PROSPERITY

Small businesses nationwide account for about 47% of the United States workforce and they are a prime opportunity for minorities and women to create wealth.

To further these efforts, the US Small Business Administration is hosting a virtual event titled “Path to Prosperity: Incentivizing Small Business to Build a Path Forward” on Wednesday from 1:30 p.m. to 6:60 p.m.

Small business owners and entrepreneurs, especially minorities and women, are encouraged to attend the event, which focuses on businesses based in the Southern United States. Community lending partners such as financial institutions and non-profit organizations can also participate in small business growth.

Topics include tips on how business owners and entrepreneurs can access capital and build relationships with lenders; developing a healthcare business; and the fundamentals of public procurement.

Federal Deposit Insurance Corp Speakers and the US Department of Agriculture will also participate and provide insight into how business owners in underserved and underserved communities can build credit relationships with key financial institutions.

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