Home BancShares 2Q earnings down a penny from a year ago, bank officials note volatile interest rates

Conway-based Home BancShares Inc. on Thursday (July 18) reported that second quarter earnings were slightly down from a year ago as company officials grumbled about the nation’s “turbulent interest rate environment.”

For the period ended June 30, Home BancShares reported net income of $72.1 million, or 43 cents per share, compared to year ago results of $76 million, or 44 cents a year ago. However, second quarter revenues rose 6.3% to $204.4 million compared to $194.2 million in the same period of 2018. Wall Street had expected the Arkansas regional bank to post first quarter earnings of 43 cents per share on revenue of nearly $167 million, according to Thomson Reuters.

A year ago, Home BancShares’ posted record second quarter profits largely on the strength of nearly a billion dollars in loan originations following the Arkansas financial concern’s historic deal to purchase Stonegate Bank of Florida in late 2017 and the follow-up deal to purchase high-end power boat financier Shore Premier Finance in Richmond, Va. for $400 million.

Company Chairman Johnny Allison said the Conway regional banking group, which has 77 branches in Arkansas, 76 branches in Florida, 5 branches in Alabama and one branch in New York City, has benefitted from a strong trend of post-acquisition stability and growth in all areas of operations.

“We continue to produce solid results with a positive growth trend,” he said.

Added Centennial Bank President and CEO Tracy French: “Loan production was very strong during the second quarter. We saw loan production of over $1 billion dollars at an average interest rate of 6.1% and were able to increase the yield on the loan portfolio by 3 basis points.”

Among other key highlights in the second quarter, Home BancShares’ total loans receivable were $11.05 billion in the second quarter, nearly even with $11.07 billion at the end of fiscal 2018. Total deposits were $11.35 billion in the three month period, up 4.1% from $10.9 billion in the comparable period. Total assets remained flat at $15.35 billion.

Net interest income on a fully taxable equivalent basis increased $1.5 million, or 1.04%, to $142.3 million for the three-month period ended June 30, 2019. This increase in net interest income was the result of a $1.8 million increase in interest income, officials said, which was partially offset by a $283,000 increase in interest expense. The $1.8 million increase in interest income was primarily the result of a $2.0 million increase in loan interest income.

Home BancShares also experienced approximately $74.2 million in organic loan growth, including $146.1 million from the bank’s CFG commercial real estate lending arm which had total loans of $1.67 billion. Centennial Community Banking experienced approximately $77.8 million in organic loan decline, while Shore Premier Finance experienced $5.8 million of organic loan growth and had loans of $442.1 million at the close of the second quarter.

Home BancShares’ stockholders’ equity was $2.421 billion in the second quarter, compared to $2.35 billion at year’s end, an increase of $71.5 million. The increase in stockholders’ equity is primarily associated with the $101.8 million spike in retained earnings as well the $28.6 million increase in comprehensive income. Those gains were partially offset by the repurchase of $64.4 million of common stock during 2019.

Earlier on Wednesday as many of the nation’s largest banks began releasing quarterly earnings reports on Wall Street, financial conglomerate Bank of America warned that its net interest income could fall if the Federal Reserve decides to cut interest rates again in 2019. Net interest income is the main growth vehicle for most U.S. banks, which has seen strong post-recession growth.

In a conference call on Wednesday, Bank of America CFO Paul Donofrio said that the bank’s growth in net interest income could slide from 6% to 2% if the Fed cuts interest rates twice.

“From here, if we were to assume stable rates, we think our NII (net interest income) for 2019 would now be up approximately 2% compared to 2018,” Donofrio said. “If rates follow the forward curve, and the Fed funds rate were indeed to be cut twice this year starting this month, we think it would likely shave another 1% off NII growth for 2019.”

For the period ended March 31, the Federal Deposit Insurance Corporation (FDIC) reported aggregate net income of $60.7 billion in the first quarter of 2019, up $4.9 billion or 8.7% from a year ago, according to the FDIC’s quarterly banking industry report card. Of the 5,362 insured institutions that posted financial results, 62.3% reported year-over-year growth in quarterly earnings and only four percent of banks were unprofitable, the report shows.

Following Wall Street’s opening bell on Thursday, Home BancShares’ shares were trading up six cents at $18.90 on the Nasdaq stock exchange. The bank’s shares have traded in the range of $15.35 as a low and $24.56 as a high over the past 52 weeks.