All three public banks in Arkansas reported a hit on profits in the first quarter, but the banking research team at Stephens Inc. is offering a broader perspective on future growth prospects for the region's banks, projecting that rising interest rates and organic loan growth should boost earnings going forward.
Overall, for banks in the Southwest region, the investment banking firm reports that the lenders achieved core loan growth of 14.5%, well above Stephens analysts' projections of 6.1%. Not one of the Arkansas banks – Bank OZK, Home BancShares Inc. or Simmons First National Corp. – achieved that level of growth.
Indeed, only OZK showed a slight increase while Home and Simmons both recorded total loan declines.
For the region as a whole, Stephens is forecasting continued loan growth through 2023, with a double-digit jump this year. "We expect loan growth to remain robust in the Southwest as our median organic growth forecast assumes 11% in 2022," the team of banking analysts predicts.
The report follows one-on-one sessions with bank management teams at the Gulf South Bank Conference in New Orleans earlier this month. Stephens' analysts met with key executives from Bank OZK of Little Rock and Home Bancshares Inc. of Conway. Executives with Simmons First National Corp. of Pine Bluff did not participate in the sessions.
Bank OZK reported a 13.7% net-income decline in the first quarter though the bank noted its real estate specialties group (RESG) achieved another record quarter of commercial real estate, construction and land-development loans. The Stephens report highlighted the bank's progress in the RESG division, noting that loan fundings reached $1.7 billion, trending up from the previous four quarters average of $1.5 billion and has a "strong pipeline remaining" going forward.
At the bank, multifamily and office lending are both increasing, Stephens reports, though mixed-use property loans were down by 24%. The report also noted that OZK's New York City market was up 18% in the last quarter, an encouraging sign given that the office is one of the bank's largest and most important lending areas.
In the first quarter, Home BancShares reported net income fell 29.1% as loans dropped to $10 billion from $10.8 billion in the first quarter of 2021.
Nevertheless, the Stephens analysis notes the Conway bank is in a strong position to grow with a dump truck full of cash on hand -- $3.5 billion worth in overnight liquidity. That means it can be used quickly and spent however the bank chooses: investing in securities or moving the money into lending opportunities would be the prime areas for consideration. Stephens said the cash pile represents a "coiled spring" that could lift earnings per share.
So far, the bank "has been the most patient" in the region in deploying cash and sits in a prime position to benefit from its restraint.
Looking forward, Stephens projects median organic loan growth -- excluding Paycheck Protection Program loans, mortgage warehousing and any mergers or acquisitions – of 11% in 2022 and another 8% increase in 2023 for all Southwest region banks.
The banking team is projecting 43% growth next year and 4% growth in 2023 for Home BancShares, which expanded into Texas beginning this quarter with its purchase of Happy Bancshares Inc. of Amarillo. Home gains properties in the panhandle and the high-growth markets of Austin and Dallas-Fort Worth.
Likewise, Simmons will get a boost this year with its acquisition of Spirit of Texas Bancshares Inc., which closed in April and whose earnings and loans will be folded into the Pine Bluff bank also beginning this quarter. Stephens predicts 27% organic loan growth for Simmons next year, followed by 7% growth in 2023.
OZK doesn't have an acquisition to rely on to boost loan growth. The Stephens analysis forecasts loan increases of 7% in 2022 and another 8% increase in 2023.
NATIONAL LENDING OUTLOOK
Chief loan officers at banks across the nation report that lending activity to businesses remained steady and unchanged over the first quarter of the year. Over the previous four quarters -- the entire year of 2021 -- banks eased lending standards to encourage borrowing in the commercial and industrial sector.
The banks also reported "unchanged standard and demand" for most commercial real estate loans. There was one exception: The lenders eased terms for multifamily residential properties and demand from those borrowers increased, according to a report last week from the Federal Reserve Board, which surveyed top lending officers.
For consumer loans, banks said they eased standards across most categories of residential real estate loans and home equity lines of credit over the first quarter. At the same time, the lenders reported weaker demand for all types of residential real estate loans but stronger demand for lines of credit.
The banks also said they were offering less restrictive terms for credit card and auto loans.
INSURANCE MERGER
Sunstar Insurance Group of Memphis is merging with Evins Insurance Group of Jonesboro for the company's ninth expansion in five years.
Evins will combine operations in Arkansas with the Sunstar team in Jonesboro and Mark Miller Insurance in Paragould. "This partnership is a win-win-win for all involved," Vice President and General Manager Drew Nadzam said.
With the merger, Sunstar Arkansas now has 94 employees working from 12 locations across the state.
Sunstar is the 32nd largest property and casualty insurance agency in the U.S. as ranked by the industry trade magazine, Insurance Journal. Besides Arkansas and Tennessee, the company has offices in Alabama, Georgia, Kansas and Missouri.
CANNABIS TRAINING
The Little Rock Regional Chamber of Commerce is holding a "Power Up Little Rock" session tomorrow from noon-1 p.m. to discuss cannabis and employer regulations.
Medical marijuana has been legal in Arkansas since 2016 and can bring complex issues to the workplace. A three-member panel will discuss the nuances of pre-employment drug screening, workplace drug use and testing, including how employers can establish a proper framework to deal with employees who are suspected of working under the influence of marijuana.
The discussion will examine how businesses can train and prepare frontline managers and supervisors so they can enforce and implement policies that align with state law.
Panelists include Sabrina Bergen, senior vice president of strategic engagement at the American Bankers Association, and Little Rock attorneys Erika Gee of Wright Lindsey Jennings and Michael Moore of the Friday Firm.
Individual tickets are $50 and tables cost $500. The event will be held at the Clinton Presidential Library, 1200 President Clinton Ave.
The Power Up series highlights economic development trends and key issues within the Central Arkansas region and the state.
Column ideas or recommendations? Thoughts or musings that need pursuing? Contact me at amoreau@adgnewsroom.com or at 501-378-3567.