Banks under shadow of interest uncertainty, ebbing confidence
Growing public anxiety over banks’ ability to survive hangs over the next two financial-reporting quarters for lenders, who remain challenged by soaring interest rates and the threat that more rate increases could be coming. It’s an unsettling environment for all parties.
Public opinion of banks is at the lowest point since 2018, with customers and investors troubled by recent failures and reports of a commercial real estate doom loop that threatens America’s banks, a cycle where loan losses mount because customers can’t afford the higher rates, leading banks to cut lending, which would lower property valuations and generate even more losses.
American Banker reports in an annual reputation study that nearly every bank of the 40 surveyed saw their reputation nosedive with negative scores from customers. Consumer unease has stuck around since spring, when a Gallup poll found that nearly half of Americans surveyed were worried about the safety of their money.
The Federal Deposit Insurance Corp. is moving to reverse public perceptions, launching a campaign last week to reinforce awareness that individual bank accounts are protected up to $250,000, even with the complete financial collapse of an institution.
More than 99% of deposit accounts in the U.S. today are under this deposit insurance coverage limit and are fully protected by the FDIC, the agency announced.
“Evidence suggests many people may be confused whether their funds are protected by deposit insurance,” FDIC Chairman Martin J. Gruenberg said in making the announcement. “In light of concerns raised by the bank failures earlier this year, this is an important moment for the FDIC to reach out to the public and ensure that more consumers understand deposit insurance and how it protects their money.”
The Know Your Risk, Protect Your Money campaign features a piggy bank placed in potentially risky situations.
Banks begin releasing earnings this week, including third-quarter results scheduled to be reported Thursday by Home BancShares Inc. of Conway and Bank OZK of Little Rock. Simmons First National Bank of Pine Bluff – the only other publicly traded lender in Arkansas – is scheduled to release results Oct. 24.
Banks across the nation have had about 18 months to adjust to the rapid rate increases the Federal Reserve Bank started in March 2022. The Fed since then has approved 11 spikes to dampen inflation.
Banking experts at Stephens Inc. have issued several industry notes in the past few weeks reviewing the earnings projections for regional banks, the most recent delivered Wednesday, which
cited a Fed survey of southwest banks that had a bleak outlook.
“The Fed updated survey points a cautionary outlook for Southwest banks with slower loan demand, higher non-performing loans and slower business activity,” Stephens analysts reported. “Frankly, we struggled to identify many positive takeaways from a set of respondents that is historically optimistic.”
In the report projecting earnings for banks in the Southwest, the Stephens team noted no median earnings per share (EPS) revisions for the regional lenders for the remainder of this year and through 2024.
For Home BancShares, the report predicts loan growth of just 1% next year, below the 3% expected by other industry analysts, though the Stephens team is more bullish about growth fueled by merger-and-acquisition (M&A) activity. “More than most of its SW peers, we feel HOMB’s growth strategy will be driven by M&A given its strong capital and historical success with acquisitions,” the report said.
Stephens also disagrees with consensus projections that net interest income at OZK will fall in the upcoming third-quarter report. Conversely, Stephens’ analysts project a slight uptick of just under 1%. And the Little Rock experts project EPS of $1.46 vs. consensus of $1.42. That reverses next year: Stephens forecasts EPS growth that is 4% below consensus.
For Simmons, Stephens is predicting the Pine Bluff bank will perform better in the third quarter and next year than the consensus of industry analysts. Though both project drops in net interest margin, Stephens predicts the drop won’t be as large as other analysts expect.
TRADE SUCCESS REWARDED
Five Arkansas companies were recognized for their standout performance in global trade at an awards ceremony this week sponsored by the state District Export Council (DEC).
The Governor’s Award for Excellence in Global Trade honored Progressive Trail Design of Bentonville, Cobalt Aero Services of Hot Springs, Amfuel of Magnolia, Calico Trailer Manufacturing of Quitman and Modern Chemical of Jacksonville.
“Arkansas businesses help power our global economy. From multinational aerospace contractors to small family farmers, Arkansans are connected to a web of commerce that stretches all across the world,” Gov. Sarah Sanders said in announcing the awards.
DEC began handing out the awards in 2009 in collaboration with the Arkansas Economic Development Commission, the U.S. Commercial Service and the Arkansas World Trade Center. Awards recognize companies of all sizes for excellence in selling products in international markets.
This year’s recipients do business in countries that include Portugal, Jordan, the United Kingdom, Spain, South Korea, Iceland, Egypt and Singapore.
AI TRAINING
Small-business operators can participate in three upcoming webinars to learn how artificial intelligence can improve sales and marketing outreach.
The series, scheduled weekly beginning Thursday, will teach small business owners how they can best utilize ChatGPT and other AI tools to leverage their online presence to increase sales even with the smallest of marketing budgets.
Sessions are offered at no charge and each webinar is from 2-3:30 p.m. and is presented by the Arkansas Small Business and Technology Development Center and Arkansas Business Navigator.
The webinars outline the benefits of harnessing artificial intelligence for small business marketing. AI has emerged as a game-changer, revolutionizing the way businesses connect with customers and drive growth.