According to an executive at Arvest Bank — one of the largest banks in the state with nearly $26 billion in assets — the economy and its impact on businesses and consumers is a critical concern that deserves attention heading into a new year.
“I don’t expect a full economic recovery until late 2023 or mid-2024,” said Brad Crane, president and CEO of Arvest Benton County, the largest of the company’s 14 locally operated markets in Arkansas, Kansas, Missouri and Oklahoma. “So, for sure, the economic recovery will remain uncertain and it will affect the decisions that businesses and individuals make.”
Crane said that while Northwest Arkansas — one of the fastest growing and dynamic regions in the country — feels “somewhat sheltered” from the overall macroeconomics, banks must maintain strong credit quality standards.
“Operating from a position of strength provides an opportunity for growth while competitors may look inward to stabilize,” he said. In addition, our conversations with our business clients are always based on consultations. But in times of uncertainty, we tend to customer conversations to make sure they know we’re on hand for advice and strategy, and that we’re really positioning themselves against potential economic hurdles.”
Other Arkansas bank executives, offering their forecasts for the coming year, expressed Crane’s optimism. Heather Albright is President of the Arkansas Market for Bank of America (BofA), the second largest bank in the country with $2.4 trillion in assets. Bank of America has 15 financial centers, one private Bank of America branch, five offices of Merrill Lynch, and 260 employees in Arkansas. In addition, the bank holds $6.7 billion in FDIC deposits, provided $938 million in loans to commercial businesses, and provided $154 million in credit to small businesses in the state.
Albright said that despite the city’s expected economic downtown, she expects consumers and businesses to remain resilient.
“It remains to be seen how deep and how long the recession could be,” she said. “But if both groups use prudent spending and cost-cutting, they can both continue their growth strategies and remain in sound financial shape.”
She said the effects of the economic downturn could cause companies’ budgets to shrink, so the private sector needs to work closely with community organizations to ensure that vulnerable members of society get what they need.
“Bank of America will continue to work with local leaders and organizations to address critical issues and gaps across Arkansas,” she said. We will continue to provide capital and resources to help meet basic needs, remove barriers to economic success and help build a more sustainable society.
Albright also sounded optimistic when pointing to a recent publication from the Institute of Bank of America, which said that the American consumer has proven resilient throughout 2022. And while 2023 is likely to be significantly more challenging if the job market deteriorates, consumers are starting the year in the dark. Good general financial health.
Median household savings and trial balances remain well above pre-pandemic levels of 2019 across all income levels. [levels]I explained. “While there are growing signs that these ‘reserves’ are being drawn on – likely due to rising inflation and rising housing costs – they should be available for some time.”
It said most consumers are spending less on credit than on debit cards compared to 2019 levels.
“Only those with incomes over $100,000 appear to be spending proportionately more on credit cards, although that is likely a result of higher spending rather than higher credit card debt,” she said.
Randy Scott is the President and CEO of Farmers Bank and Trust Co, a $342 million asset lender in Blytheville. He is also the Chairman of the Board of Directors of the Arkansas Bankers Association. He echoed Albright’s comments about the financial health of consumers due to inflationary pressures.
“[Inflation] It has affected some of our customers’ financial statements and their ability to pay. So far, defaults have been minimal. However, we note the disappearance of cash reserves and the slowdown in loan demand. Our lenders are trying to avoid any deterioration in the financial conditions of our borrowers and certain industries that might be affected.”
Scott said that despite inflationary concerns and a rapidly rising rate environment, community banks remain very strong with few asset quality issues.
“We hope that interest rates and inflation will stabilize in 2023 and that the banking industry will show few negative effects,” he said. “I expect bank profits to decline in 2023 as interest rate spreads tighten and potential increases in loan loss reserves.”
Scott said that repricing interest rates is the biggest concern for loans and deposits.
“With the Federal Reserve increasing interest rates by 400 basis points in 2022 alone, this has created a challenge for banks,” he said. Liquidity became an issue with non-banks competing for our deposits. Consumers find attractive rates outside of community banks and with financial institutions out of the state.”
Crane said many clients are worried about the economy and inflation and are asking questions about when interest rates will rise. He expects a continued decline in conventional mortgages for the first quarter of the year, and consumers may seek to release the equity they own in their homes in 2023.
“The volume of our mortgages and lines of credit is growing, and we believe customers will be looking for this fixed-rate option in the near term,” he said.
Leveraging technology for various reasons will continue to be a trend for bankers in 2023.
“We continue to look for ways to be more efficient with technology to compensate for the limited workforce,” Scott said. “During 2020, COVID has helped accelerate our industry to deliver more services electronically. We have learned that we can do more with fewer employees by leveraging technology.”
Crane said the rapid expansion of online and mobile banking has not eliminated the importance of in-branch banking or call center service. It has increased customer expectations for seamless integration across all service lines.
“Customers’ digital expectations and their changing needs and expectations for services have the potential to have the greatest impact on our customers’ satisfaction and overall growth,” he said. “We have seen significant shifts in how customers interact with the bank and want to obtain their services.”
Editor’s note: The State of the State series reports twice yearly on key economic sectors in Arkansas. The series publishes stories to start the year and stories in July/August to provide a broad mid-year update on the state’s economy. Link here For the state page and previous stories.