Choppy waters predicted for banking sector, with a few exceptions

Economic pressures that have upended much of the banking sector this year likely won't let up soon though two of Arkansas' largest banks could be positioned to deliver promising results in coming quarters.

Banking analysts at Stephens Inc. issued several notes last month examining the sector and the analysts are predicting earnings challenges through 2024, noting that consensus forecasts on earnings per share have declined following third-quarter financial reports covering the three months ended Sept. 30. In the quarter, banks reported more pressure on deposit costs and net interest income that didn't meet Wall Street expectations.

Consensus 2024 earnings per share forecast for the industry declined 4% after the third-quarter financial releases.

Overall, one Stephens report cited Federal Reserve Bank data that showed loans and deposits declining in November. "If such trends hold through the last two months of the quarter, this would represent a slowdown" from the last quarter, the analysts wrote.

Loan growth is projected to remain sluggish and lenders are coming off a quarter that produced the slowest level of loan expansion -- 2% -- in eight quarters. Growth will remain challenging through the first quarter of 2024, Stephens said, estimating an average increase of 3% to 4%.

However, the Stephens team projects Bank OZK of Little Rock will be one of a few banks to produce "above peer level loan growth." OZK delivered 30% loan growth last quarter and bank officials said the current fourth quarter is projected to be OZK's best-ever for loan origination.

Yet down the road struggles could emerge for the bank, according to Stephens' report, which noted that industry observers are projecting financial woes for commercial real estate borrowers in metro markets, which "could drive headline risk for OZK shares" because of the bank's concentrated investments in the sector.

Net interest margins have been declining throughout 2023 and also are projected to fall again in the fourth quarter ending Dec. 31. Interest income should settle down by the second quarter of 2024, Stephens reported, but noted that Conway-based Home Bancshares Inc. would generate greater returns sooner because of its stability with non-interest bearing deposits.

Home Bancshares also stands out in the Nov. 17 report as a potential buyer of regional banks that operate in or near the lender's footprint, which primarily includes Arkansas, Florida and Texas. Federal regulators offer financial incentives for buyers of distressed banks and that could spark Home's interest as an "active bidder," the analysis said.

Simmons First National Corp., which saw a 1% decline in loan activity last quarter, likely will continue with "an incremental slowdown" into next year. Net interest margins for the Pine Bluff lender are projected to continue under pressure until the second half of next year, Stephens reported.

FOSTERING ECONOMIC OPPORTUNITIES

Two Arkansas organizations dedicated to enhancing economic and job opportunities announced last week they will work together to invest in growth-oriented technology ventures.

Arkansas Capital Corp., a leading nonprofit Community Development Financial Institution in Little Rock, is investing $100,000 in Cadron Capital Partners Fund II.

The fund's mission aligns with Arkansas Capital's commitment to economic development and empowerment, emphasizing the potential of technology-enabled ventures, the companies said.

"Our investment in Cadron Capital Partners Fund II reflects our unwavering commitment to supporting growth-oriented ventures that have the power to bring about positive change," said Sam Walls, Arkansas Capital's chief executive officer. "By backing entrepreneurs who are developing disruptive solutions to global challenges, we aim to contribute to a more inclusive and innovative future."

Cadron Capital supports ventures that demonstrate a commitment to innovation in products, processes and industries by empowering entrepreneurs emphasizing technology innovation. Cadron has been instrumental in supporting growth at Apptegy, a Little Rock technology company, and Teslar Software, a financial technology provider based in Northwest Arkansas.

Arkansas Capital and its partners have deployed more than $2.34 billion to small businesses and economic development projects.

LOW-COST LOAN SUPPORT

The U.S. Small Business Administration last week opened three offices in Arkansas to help improve access to loans and financial relief for individuals and companies recovering from recent storms in Faulkner, Lonoke and Poinsett counties.

Offices are open in Conway at 57 Acklin Gap Road; in Lonoke at 210 N. Center St.; and at 806 Liberty St. in Marked Tree. Loan officials and counselors are on hand to help with applications beginning at 8 a.m. Monday-Friday. Appointments are not required.

Businesses of all sizes and private nonprofit organizations may borrow up to $2 million to repair or replace damaged or destroyed property, machinery and equipment, inventory and other assets. The Small Business Administration can also lend additional funds to finance improvements to protect against future disasters.

Small businesses can apply for Economic Injury Disaster Loans to meet working capital needs caused by the disaster. Economic injury assistance is available regardless of whether the business suffered property damage.

Homeowners can borrow up to $500,000 to repair or replace damaged property. Homeowners and renters are eligible for up to $100,000 to repair or replace personal property, including vehicles. Small Business Administration loans, for businesses and homeowners, are offered at below-market rates.

Column ideas or recommendations? Thoughts or musings that need pursuing? Contact me at [email protected] or at (501) 378-3567.

Upcoming Events