Heading into second-quarter earnings announcements, lenders nationwide remain concerned about the lingering effects of the pandemic, but a survey issued this week by Stephens Inc. showed that banks in the Arkansas region are optimistic about economic recovery.
In the longer term, lenders nationwide are most concerned about commercial real estate loans, especially borrowers in the retail and office space sectors, according to the report.
Along those lines, bankers expected to have higher expenses for loan loss provisions in the second quarter compared with the first three months of the year, with the southwest region that includes Arkansas leading the way.
The region was a "notable outlier," the survey found, with 65% of banks anticipating higher expenses to cover potential loan losses related to the coronavirus. By comparison, 44% of all banks surveyed said they expect loss provisions to increase when second-quarter earnings are announced later this month.
Banks set aside provisions to account for uncollected loans. In essence, the expense provision allows a peek into how banks expect loans to perform.
On the positive side, the 100 bankers who responded to the survey indicated loan deferments should continue to drop in the coming months. The survey was conducted June 25-30, the last days of the second quarter.
"We're encouraged that most respondents expect a considerable portion of the initial 90-day deferred loans will not require additional forbearance," the Stephens banking team said in the Monday report.
Bankers in the southwest and west regions were "relatively more optimistic than other regions" that deferments would decline.
The snapshot of the southwest region also notes that bankers expect a U-shaped recovery effort to occur and that the region's rebound would outperform the rest of the nation. The greatest concern in the region centered on hotels in the short term and restaurants in the long term.
Stephens breaks the nation into six regions. The five-state southwest region is composed of Arkansas, Louisiana, Mississippi, Oklahoma and Texas.
In May, Stephens reported that the level of loan deferments for southwest banks had increased from 15% to 19% of loan balances since first-quarter earnings release dates in mid-April.
At the time, Home BancShares Inc. of Conway had the third-highest percentage of deferrals in the region at 25% of its total loans, according to the report.
Simmons First National Corp. of Pine Bluff was close behind at 22%. Bank OZK of Little Rock reported that just 3% of the bank's loans had been modified. Deferments typically are granted for 90-day periods.
All three banks are scheduled to announce second-quarter earnings later this month. The three publicly held Arkansas banks operate in multiple states and have substantial stakes in the success of the hospitality, restaurant and retail sectors, all of which have been ravaged by forced closures to prevent the spread of covid-19.
As a privately held institution, Arvest Bank does not publicly report earnings or loan deferments. However, Brad Crain, president of the bank's Benton County operations, said requests for deferments are declining.
"As many areas of the economy have started to open back up, we have begun to see a slight decrease in the number of commercial loans requiring special assistance such as deferments and modifications," Crain said Tuesday.
"As with everything related to this pandemic and its impact, it is very difficult to predict what will happen over the next month or quarter, but we will continue to work with our clients to help them as much as possible."
Stephens reported that banks nationwide are most concerned about loans in the hotel and restaurant sectors.
Crain noted that communicating with customers now could alleviate problems in the future. Arvest, he said, is "facilitating industry-specific panels where customers can share best practices for getting through this pandemic with each other. They can ask us banking and finance questions, and we can hear how our customers are managing."
The bank held a meeting with a restaurant-ownership group last week and is planning more sessions with other sector-specific groups.