‘Continuing strength’ likely for bank industry in 2020

by Michael Tilley ([email protected]) 607 views 

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Here’s something you can bank on. Arkansas’ banking sector is certainly on more healthy footing going into 2020 than it was entering the previous decade, and two Arkansas bankers believe more growth is ahead in 2020.

There were 91 bank institutions in Arkansas as of Sept. 30, 2019, below the 130 at the end of 2010 — a clear sign of consolidation in the industry. Bank assets of all Arkansas banks as of Sept. 30 was $112.076 billion, up an impressive 92.5% from the $58.206 billion at the end of 2010.

“I see the banking industry, as a whole, continuing to fare well in 2020. Many areas are experiencing strength as a result of healthy economic conditions — business loans, mortgages, consumer loans and wealth management come to mind,” said Jim Cargill, president and CEO of Arvest Bank in central, northeast and southwest Arkansas.

The sentiment is the same from Sam Sicard, president and CEO of Fort Smith-based First Bank Corp., which has banking and insurance operations in the Fort Smith metro, Northwest Arkansas, and eastern Oklahoma. Sicard also believes lessons learned remain from the factors that caused the Great Recession in 2008.

“I do see continuing strength in the banking industry. The economy appears to be resilient with an underlying strength. While I do see modest overheating in a few sectors of the economy, overall, I do not see extreme hubris and overdevelopment that we saw a decade ago,” Sicard noted. “The monetary stimulus, fiscal stimulus and de-escalation of trade wars appear to be putting wind at the back of the economy, at least in the short run.”

A recent report from the U.S. Federal Reserve Bank’s Eighth District, which is based in St. Louis, best highlighted the health of Arkansas banks. In the third quarter of 2019, the average return on assets (ROA) for Arkansas banks was 1.49%, ranking the state’s lenders as the top performers among the seven states that make up the Eighth District. A bank’s ROA shows the percentage of how profitable a company’s assets are in generating revenue. The higher the ROA, the more money the company is earning on its assets. Arkansas banks were ahead of the Eighth District average of 1.36% and the national average of 1.33%.

Cargill and Sicard, like most bankers, remain on guard even during good times. Sicard believes a recession could be on the horizon but does not see it happening in 2020.

“The greatest risk to the banking industry is a recession, particularly a housing and real estate correction. However, with low rates and restrained new construction, I don’t foresee a recession next year. However, banks and developers tend to make mistakes when times are at their best, so any concerns I have are primarily in future years, not in 2020,” Sicard said.

Cargill said unexpected global and national hiccups are a threat in any year for the Arkansas banking industry. He also said changes in how people use financial services is a trend bankers have watched and in which they must continue to monitor and respond.

“The biggest national trend in banking is the continued expansion of alternate delivery channels. This shift in consumer preferences impacts all banks. In a state like Arkansas, the impact is less than it is in larger metropolitan areas, but it is certainly impacting banks here. For small banks, this shift to digital can be challenging as they often don’t have the resources to adapt quickly. For large, national banks, this can be a challenge in a state like Arkansas because they might be shifting so much emphasis to nontraditional channels that they get ahead of consumers in smaller communities, many of whom aren’t quite ready for these shifts,” Cargill said.

2020 also brings with it a presidential election cycle — an event that often causes the markets to be nervous.

“Candidly, whether it is a negative is dependent on who the Democrat nominee is. If the Democratic Party nominates someone who understands and respects capitalism and conveys that to the electorate, I don’t foresee the 2020 election being a negative,” Sicard said.

Cargill said elections can result in policy changes that may or may not be good for the industry.

“The industry is always mindful of potential new regulations that could disrupt our ability to provide proper and affordable financial services to consumers. As such, a concern in any election year is the chance for more and not-so-well-considered regulations to arise,” Cargill said.

The overall state economy and an improving state image are also good for the banking industry, Cargill argues.

“Whether it’s the timberlands, croplands, medical centers, entrepreneurial endeavors, trucking or manufacturing, across Arkansas, this is a very good time in our economic history. Our state is sought out by many to locate here to work and play and build in a quality way. We have always had so much to offer here in Arkansas, and the world has truly taken notice. This, of course, has a major impact on the current and future state of the Arkansas banking industry,” Cargill said.

Editor’s note: This article first appeared in Talk Business & Politics annual State of the State magazine.

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