A new survey of bankers by Stephens Inc. shows that the hotel sector remains the top concern for lenders while office commercial real estate is emerging as a potential problem spot.
The survey also reveals the banking sector is a seller's market related to merger and acquisition activity -- more financial institutions are in the market to purchase with fewer ready to sell.
Stephens' report on the survey results was issued late Thursday and is comparable to a similar survey the investment banking firm conducted in December.
The biggest change over the past few months highlighted office space as an "emerging area of risk" for lenders, the report said.
Nevertheless, hotel loans are by far remain the most troubled asset class for banks. In the December survey, 38% of lenders said they were most concerned about hotel lending. That remained constant in the most recent survey.
However, office real estate leaped over retail real estate loans as the second-highest area of concern. Only 18% of bankers surveyed in December cited office space as a concern – that jumped to 27% in results released Thursday.
Concern over retail loans dropped to 20% from 29% in December. Stephens cited the reopening of the economy as lessening worries over retail loans.
Stephens' findings track a report from The Associated Press on Thursday that said office space vacancies rose to 18.2% in the first quarter from 17%, while average rent fell 1.8%. The report cited a study from Moody's Analytics.
Before the pandemic, office vacancies had been trending around 15% to 16% nationally, Moody's found.
Stephens said 119 bank executives across the nation responded to the survey, which was conducted in March. The firm provides financial analysis for 117 banks in the U.S.
Arkansas' three largest banks – Bank OZK, Home BancShares Inc. and Simmons First National Corp. – all have indicated they are interested in purchasing other financial institutions this year.
According to the Stephens report, sellers are in the driver's seat when it comes to potential merger and acquisition activity activity.
About 80% of the executives surveyed said they were potential buyers of other institutions while only 4% were interested in selling their banks. The Stephens team concluded: "we would characterize the current environment as a 'seller's market,' and as a result, we wouldn't be surprised to see pricing become more competitive."
Stephens also is projecting that stock buyback programs will lose traction for the remainder of the year as bank stock prices rise.
In the survey, 32% respondents said their share repurchase programs were active in the first quarter. However, "if current valuations hold, we wouldn't be surprised to see this figure decline throughout the year in favor of other capital management strategies such as organic growth, higher dividends and M&A," the Stephens report said.
Arkansas banks enjoyed a nice price bump in the first quarter ended March 31. Shares of Home Bancshares were up 39%, Simmons rose 37% and shares of Bank OZK climbed 31%.