Report points to brighter days for banks in the state and Southwest region

Arkansas’ three state-owned banks reported lower first-quarter profits, but Stephens Inc.’s banking research team offers a broader perspective on the region’s banks’ future growth prospects, forecasting that rising interest rates and organic loan growth should drive future earnings.

Overall, for banks in the South West region, the investment banking firm reports that lenders achieved core loan growth of 14.5%, well above analysts’ forecasts. Stephens by 6.1%. None of the Arkansas banks – Bank OZK, Home BancShares Inc. or Simmons First National Corp. – has reached this level of growth.

Indeed, only OZK posted a slight increase while Home and Simmons both saw declines in total loans.

For the region as a whole, Stephens predicts continued loan growth through 2023, with a double-digit jump this year. “We expect loan growth to remain robust in the South West, as our median organic growth forecast calls for 11% in 2022,” predicts the banking analyst team.

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 from Simmons First National Corp. of Pine Bluff did not participate in the sessions.

OZK Bank reported a 13.7% decline in net income in the first quarter, although the bank noted that its Real Estate Specialty Group (RESG) achieved another record quarter of commercial real estate, construction and renovation lending. land development. The Stephens report highlighted the bank’s progress in the RESG division, noting that loan funding reached $1.7 billion, an upward trend from the previous four-quarter average of $1.5 billion. dollars and that there remains a “strong pipeline” in the future.

At the bank, multi-family and office loans are both up, Stephens reports, although mixed-use home loans are down 24%. The report also notes that OZK’s New York market grew 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 down 29.1% as loans fell to $10 billion from $10.8 billion in the first quarter of 2021.

Nonetheless, Stephens’ analysis notes that Conway Bank is in a strong position to grow with a dump truck full of cash – $3.5 billion in overnight liquidity. This means it can be used quickly and spent however the bank wants: investing in securities or moving the money into lending opportunities would be the main areas to consider. Stephens said the cash pile represents a “coil spring” that could boost earnings per share.

The bank “has been the most patient” in the region so far in deploying liquidity and is in a prime position to benefit from its moderation.

Looking ahead, 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 banks in the South West region.

The banking team forecasts growth of 43% next year and 4% in 2023 for Home BancShares, which expanded into Texas starting this quarter with its purchase of Happy Bancshares Inc. of Amarillo. Home is gaining properties in the begging and high-growth markets of Austin and Dallas-Fort Worth.

Similarly, 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 integrated into Pine Bluff Bank also starting this quarter. . Stephens projects organic loan growth of 27% for Simmons next year, followed by 7% growth in 2023.

OZK has no acquisition to rely on to drive loan growth. Stephens’ analysis predicts a 7% increase in lending in 2022 and another 8% increase in 2023.

NATIONAL LOAN OUTLOOK

Loan officers at banks across the country report that business lending activity remained stable and unchanged during the first quarter of the year. In the previous four quarters – all of 2021 – banks have 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: Lenders eased terms for multi-family residential properties and demand from those borrowers increased, according to a report released last week by the Federal Reserve Board, which surveyed top loan officers.

For consumer loans, banks said they eased standards across most categories of residential real estate loans and home equity lines of credit in the first quarter. At the same time, lenders reported weaker demand for all types of residential real estate loans, but stronger demand for lines of credit.

Banks also said they were offering less restrictive terms for credit cards and car 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 for all parties involved,” said Vice President and General Manager Drew Nadzam.

With the merger, Sunstar Arkansas now has 94 employees working from 12 locations across the state.

Sunstar is the 32nd largest P&C insurance agency in the United States as ranked by industry trade magazine, Insurance Journal. In addition to Arkansas and Tennessee, the company has offices in Alabama, Georgia, Kansas and Missouri.

CANNABIS TRAINING

The Little Rock Regional Chamber of Commerce is hosting a “Power Up Little Rock” session tomorrow from noon to 1 p.m. to discuss cannabis and employer regulation.

Medical marijuana has been legal in Arkansas since 2016 and can lead to complex issues in the workplace. A three-member panel will discuss the nuances of pre-employment drug testing, drug use and workplace drug testing, including how employers can establish an appropriate framework for dealing with employees suspected of work under the influence of marijuana.

The discussion will examine how companies can train and prepare front-line managers and supervisors so they can enforce and implement policies consistent 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 Friday Firm.

Individual tickets are $50 and tables are $500. The event will take place at the Clinton Presidential Library, 1200 President Clinton Ave.

The Power Up series highlights economic development trends and key issues in the central Arkansas region and the state.

Ideas for columns or recommendations? Any thoughts or daydreams that need to be pursued? Contact me at [email protected] or 501-378-3567.

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