The remainder of 2021 promises to be quite an active year for Arkansas' top financial institutions, with all three expressing optimism that economic recovery is starting, although some anxieties persist related to the pandemic.
Banks are operating in what Simmons First Financial Corp. Chief Executive Officer George Makris calls an "artificial economy" -- the past four quarters operating under the pandemic do not provide a solid foundation for future forecasting and there remains uncertainty of when a full economic recovery will take hold.
Arkansas bankers and financial institutions across the nation are grappling with a disruption in their normal operating patterns caused directly by the pandemic -- too many deposits and not enough loans. The challenge is eroding earnings power and clouds solid projections for future growth opportunities.
You wouldn't think bankers would gripe about deposits. After all, customers putting money in banks is the stockpile of cash that institutions use to lend money for new cars, houses, business expansions and commercial real estate projects.
That alone is not a problem. Combined with declining loans, banks are earning less money from the interest gap between deposit costs and loan payments.
Two of Arkansas' public banks -- Home BancShares Inc. and Simmons First National Corp. -- reported first quarter earnings reflecting bloated deposits and shrinking loans. Bankers call it "excess liquidity" in the market, creating a drag on earnings as net interest margins drop. Bank OZK registered a slight increase in loans for the quarter ended March 31.
Excess liquidity is a challenge across the sector nationwide. Three federal stimulus payments during the pandemic have left consumers flush with cash and they're stashing it in banks. Loans are dropping as banks tighten their lending standards and consumers and businesses are cautious about extending credit.
The commercial loan sector, which often pays the highest interest rates on loans, has softened during the pandemic, further eroding margins for banks.
Earlier this month, the Federal Reserve reported that the nation's 25 largest banks reduced their loan-to-deposit ratio to 53.9%, the lowest in the 36 years that the data have been collected.
Together, loan holdings fell by 8% in the past year through March, the Fed data show. Total loans dropped by $447 billion to $5.45 trillion and total deposits increased 16% to $10.13 trillion.
In Arkansas, Home BancShares saw deposits increase by nearly $2 billion or 17% year over year while loans declined by $442 million in the first quarter. At Simmons, deposits also were up by a nearly 17% jump while loans declined by $2 billion.
Bank OZK reversed the trend as loans and deposits increased in the first quarter. Loans were up 2.7% to $18.7 billion. Deposits reached $21.3 billion, up 13% from $18.8 billion a year ago.
In their first quarter reports, Arkansas lenders noted loan pipelines are filling up though they are far below historic levels. Economic activity is predicted to gain traction as vaccinations increase and more businesses return to full operations. Banks should be in a prime position as the year progresses to lend money to willing borrowers.
Right now, however, the past four quarters offer little to gauge future performance -- and that means lenders will remain cautious through the current quarter, at least.
"We are functioning in an artificial economy right now," Simmons' Makris told financial analysts last week. "To be able to predict and to project based on the last few quarters is an effort in futility."
BLACK BUSINESS SUPPORT
The Arkansas Community Foundation is seeking Black-led or Black-focused nonprofits to apply for the organization's Building Black Communities Fund.
The initiative offers grants up to $25,000 for programs that support Black residents and communities in the Little Rock area, which includes Pulaski, Saline, Perry, Grant, Faulkner and Lonoke counties.
Facebook provides financial support and the program is a partnership with the Arkansas Black Philanthropy Collaborative.
The Arkansas Community Foundation is one of 20 community groups in the United States selected to participate in the program. More information is available at arcf.org.
CALLING ON ARKANSANS
The Winthrop Rockefeller Institute is inviting Arkansans in 11 south and southwest Arkansas counties to form citizen teams of 5-7 people to participate in the group's 2022 Uncommon Communities program.
Participants learn how to build and sustain support for communitywide initiatives, connect with a broad network of people, gain access to technical expertise and practice turning a problem into an opportunity for community growth and revitalization.
Teams identify their unique strengths and broad-based challenges, generate inclusive solutions, prioritize strategies and develop projects to thrive in their local communities.
The initiative covers Columbia, Dallas, Hempstead, Howard, Lafayette, Little River, Miller, Nevada, Ouachita, Sevier and Union counties.
The program begins in August and its goal is to help residents develop skills and build the structure necessary to strengthen their communities.
More information is available at Rockefellerinstitute.org.
DIVERSITY RECOGNITION
The University of Arkansas for Medical Sciences has been ranked 7th nationally by Forbes magazine on its annual list of Best Employers for Diversity.
The rankings are based on independent surveys of more than 50,000 people in workplaces of more than 1,000 employees. They include direct and indirect recommendations and consider diversity in executive leadership and institutional efforts to promote diversity in the workplace.
"I have always said that at UAMS our diversity is our superpower, enabling us to do great things," UAMS Chancellor Dr. Cam Patterson said in a statement. "Diversity and inclusion are part of our core values at UAMS and inform all parts of our mission to research, educate and provide care."
The list also ranked: J.B. Hunt at 347; Walmart at 361; and ArcBest at 498.
The survey evaluated general diversity each employer's approach to gender and ethnic diversity, LGBTQ representation and accommodation of employees with disabilities.
Column ideas or recommendations? Thoughts or musings that need pursuing? Contact me at amoreau@adgnewsroom.com or at 501-378-3567.