As Arkansas' banks began reporting final results for 2022 last week, the look ahead into 2023 indicates wary investors and economic challenges for the industry.
That's the prediction from the banking analysis team at Stephens Inc. in a recent snapshot of the sector.
Looming over last 0year's banking activity was the continued spike in interest rates -- seven times in all -- leading to an emphasis for investors seeking value for their dollars. That all is projected to change this year, with the Fed saying it will slow the rate increases as inflation dampens.
Over the year, the federal funds rate -- the bedrock that influences what banks and others can charge -- climbed from essentially 0% when the year opened to a range of 4.25% to 4.5%. The last increase in December was only a half-point, down from the 0.75 percentage point from most previous increases.
Fed officials say they will target a range of 5% to 5.25% by year's end.
Last year, lenders benefited from margin expansion and low credit losses, with the rise in interest rates leading to a rotation from growth to value, the Stephens analysts noted in their Jan. 4 report.
"The end of the Federal Reserve tightening cycle and looming fears about a turn in the credit cycle create a more challenging backdrop for bank stock investing in 2023," the analysts noted. "These underlying crosscurrents suggest that balance sheet strength, the ability to fund loan growth, interest rate positioning, and regional economic trends will play more of a factor in individual bank performance going forward."
This year will bring other factors into play to evaluate bank performance, according to the Stephens team.
"While our attention has been on differentiated loan growth in prior years, we believe deposit flows, deposit betas, and liquidity management will determine net interest income winners and losers in 2023," the analysts reported.
Overall, Stephens is projecting modest growth this year for the banking sector.
"Within the Stephens Bank Universe, consisting of 108 banks, we are forecasting median [earnings per share] growth of 8% in 2023 vs. 5% in 2022," the team reported.
In a separate industry-related survey, the Stephens team noted investors are a bit wary heading into the year.
"We found that investor responses regarding positioning towards the banking sector suggested pessimism on the group heading into 2023," Stephens reports.
Bankers are strapping in for a choppy ride.
In discussing earnings a week ago, JP Morgan Chase, the nation's largest bank, warned of a potential recession and economic downturn this year. The World Bank last week also cautioned about potential economic woes, noting the global economy will come "perilously close" to a recession this year.
ROSE LAW STARTS NEW GROUP
Little Rock's Rose Law Firm, a full-service business law firm, has created a new business strategy and corporate development firm, in partnership with Little Rock attorney Chad Causey and former state Rep. Joe Jett.
Causey will serve as principal of Rose Group Advisors and Jett will lead business strategies and corporate development. Rose Group Advisors will assist existing and new clients with navigating policies, laws and regulations affecting businesses in Arkansas and Washington, D.C.
The pair bring years of combined experience on complex issues ranging from agriculture to aerospace.
"Both Joe and Chad bring a unique blend of knowledge and experience that I know will be valuable to Rose Group Advisors," said David Mitchell, managing member of the firm.
Causey has more than 20 years of experience working on federal and state issues, including a decade working for the U.S. Congress on two farm bills and numerous appropriations measures.
Jett specializes in the complex relationship between state and federal regulation on operating, maintaining and owning aircraft in Arkansas.
Other members of Rose Law Firm who will be involved with Rose Group Advisors include Russell Bailey, Michael Goswami, Steve Joiner and Paul Parnell.
SIMMONS' LEADER GETS FED POST
George Makris Jr., executive chairman of Simmons First National Corp. of Pine Bluff, has been appointed to serve on the Federal Advisory Council of the Federal Reserve Bank of St. Louis for a one-year term that ends Dec. 31, 2023.
The appointment was announced by the board of directors of the Federal Reserve Bank of St. Louis.
The Federal Advisory Council consists of one representative from each of the 12 Federal Reserve districts. Council members meet at least four times per year with the Federal Reserve Board of Governors in Washington, D.C., on economic and banking developments.
NEW CFO FOR ELECTRIC CO-OPS
Brandon J. Lohse has been named chief financial officer for the Electric Cooperatives of Arkansas.
"Brandon's experience, enthusiasm and unique skill set will significantly contribute to Arkansas' electric cooperatives achieving even greater success for our members," said Buddy Hasten, president and chief executive officer of the Electric Cooperatives of Arkansas.
Lohse most recently served as the director of investor relations for ONE Gas of Tulsa.
"I'm thrilled to join the Electric Cooperatives of Arkansas at this exciting time," he said. "Arkansas Electric Cooperative Corporation is one of the most financially sound generation and transmission cooperatives in the nation and Arkansas Electric Cooperatives, Inc.'s (AECI) growth is phenomenal," Lohse said.
The cooperative includes 17 electric distribution cooperatives in the state, serving about 600,000 homes.
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