Arkansas bankers are wading into the numbers to gauge the health of their loan portfolios after extending an opening round of financial grace to customers.
Banks are analyzing the aftermath of absorbing second-quarter deferments on billions of dollars of loans to borrowers stressed by the COVID-tainted economy.
“By and large our [deferral] requests have significantly slowed down during the past 30-60 days,” said Gary Hudson, president and CEO of Stuttgart’s Farmers & Merchants Bank. “Many of our interest-only borrowers are back on schedule.”
About 6% of the bank’s $1 billion loan portfolio is in some form of deferment after the opening wave of requests.
Hotels remain a sector drawing continued attention for First Community Bank of Batesville, which is carrying $256 million in deferred commercial loans.
Of that total, about $200 million represent borrowers who aren’t paying principal or interest while $56 million is owed by customers making interest-only payments, according to information provided by the bank.
“We did that for 90 days and are now collecting data on all those loans and people’s ability to pay at the end of the moratorium,” said Dale Cole, chairman and CEO of First Community. “We are seeing a few that will need an extension, typically hotels.”
The bank also extended deferments on residential loans totaling $8.2 million. All told, about 20.5% of First Community’s $1.2 billion loan portfolio received deferments.
“Our moratoriums generally covered the period of April-June, and our customers are beginning to resume making their payments this month,” Cole said.
Heading through the June 30 reporting period, Centennial Bank recorded a 25% deferral rate in its $11 billion loan portfolio.
“We’re getting to go through the ‘scenic waves’ of deferments,” said Tracy French, president and CEO of Centennial. “The good news is we’re anticipating a lot of those will go back to principal and interest payments. The first 30-40 days put everyone in uh-oh mode, but everyone has been adjusting and managing.”
French said the bank’s Florida and Arkansas-dominated footprint has no particular hot spots for deferments and no lending sector is more strongly affected than another.
“It’s spotty throughout,” he said of the distribution of the loan deferments. “We’re feeling pretty optimistic. Businesses have adjusted and managed the process. So far so good.”
Home BancShares Inc., the parent company of Centennial Bank, disclosed on Thursday that deferrals totaled about $3.1 billion or 27% of the bank’s loan portfolio as of June 30.
Simmons First National Corp., the holding company for Simmons Bank of Pine Bluff, is days away from releasing more current numbers with the close of the June 30 quarter.
The same goes for Little Rock’s Bank OZK. As of March 31, the bank provided payment deferrals on 2,689 loans totaling $594 million. That represents 3.1% of its commercial real estate-heavy portfolio.
The $14 billion loan portfolio of Simmons Bank reflected a 22% deferral rate in early May.
“Most of those had an original 90-day period, and we’re starting to review,” said George Makris, chairman and CEO of Simmons First National Corp. “I’ll tell you that I’m cautiously optimistic about most of our borrowers.
“The biggest surprise for us when we went into lockdown mode was we expected one of the industries to be hardest hit to be restaurants. That’s been a very pleasant surprise.
“They’ve adjusted very well, with delivery service, drive-through and curb service helping overcome the loss of dine-in business.”
Hotel loans across the bank’s seven-state market in Arkansas, Missouri, Tennessee, Texas, Oklahoma, Kansas and Illinois are looking less ominous.
“Occupancy rates are rising, and we can see light at the end of the tunnel for most of them,” Makris said. “We’re probably two-three months early to have a really good feel for how it is affecting our borrowers, but we’re moving in the right direction.”
Chris Gosnell, president and CEO of Farmers Bank & Trust of Magnolia, echoed the concerns of many bankers regarding hotel loans as the domino effect of pandemic shutdowns began to unfold.
However, as government restrictions were eased, he too has seen the hospitality business demonstrate better-than-expected recovery.
“Starting about June, it’s climbed back and shown a pretty good increase,” Gosnell said of hotel bookings. “Overall, about 20% of our [$1.3 billion] loan portfolio was set up on payment deferral. A lot of those loans don’t indicate an issue but rather borrower uncertainty.
“We can extend for another 90 days, which we have in a few instances. We’ve seen a lot of people take the PPP money but not have to use it.”
Like other lenders, Farmers Bank & Trust encountered a surge of digital business as closed bank lobbies pushed customers toward technology, online and otherwise. Gosnell was especially surprised by the burgeoning use of interactive teller machines, the new generation of ATMs with added video capabilities to enhance communication between bank customers and staffers.
“That’s picked up more than I thought it ever would, and debit card usage is up more than I could imagine,” Gosnell said.
Rodney Bechdoldt, senior vice president and executive director of mortgage loan servicing at Fayetteville’s Arvest Bank, said the requests for homeowner relief range from partial forbearance to temporary suspension of all payments.
“We’ve seen about 3.5% of our residential portfolio set up on forbearance,” Bechdoldt said. “In our footprint, it’s definitely less than the industry average, which is more than 8%.
“We’re offering to suspend full monthly payments of principal and interest as well as insurance and property taxes. We’re making the insurance and property tax payments for customers if need be. We’re not charging any late fees and protecting their credit as well.”
All told, the portfolio of $2 billion home loans originated and serviced by Arvest is linked with 78,000 customers across its footprint in Arkansas, Oklahoma, Missouri and Kansas.
“The biggest item we’ve seen is education, making sure our customers know and understand what options are available,” Bechdoldt said. “Even if they don’t need help now, we want them to know what their options are during a time of heightened anxiety. I feel like we’ve done a good job of getting the word out. We begin our follow-up outreach 45 days before the forbearance period is up to see how they’re doing.”
Bankers Express Confidence in Loans
Feedback gathered by Little Rock’s Stephens Inc. indicates that bankers expect that 60%-80% of the first wave of loan deferrals from the COVID-19 crisis won’t require additional accommodations.
A June 25-30 survey of bank management around the nation by Stephens Bank Research provided a forecast of second-quarter results as well as future expectations.
The lender outlooks gathered were divided into five regions, with Arkansas positioned in the southwest region along with Mississippi, Louisiana, Texas and Oklahoma.
About 38% of all respondents anticipated that 40% of the first batch of loan deferrals would be extended beyond 90 days. For 34% of lenders, the continuation of loan modifications for the March-April group of borrowers was ballparked at 20%.
In the southwest, the numbers were flip-flopped with 37% indicating that 20% of loan deferrals would need more time, and 33% of bankers forecasting that 40% of deferred loans would require relief beyond 90 days.
The survey included outlooks for loan loss reserves, areas of concern and pruning bank branches.
Forty-four percent of the 100 community and regional banks that responded expected to tally higher provisions for loan losses in the second quarter, while 29% expected lower provisions. Among southwest banks surveyed, 65% anticipated building higher loan loss reserves.
The most concerning sector for loan exposure in the short run is hotels at 45%, followed by restaurants at 26%. In the southwest, hotels generated a higher concern at 52%, followed by commercial real estate associated with retail projects at 22%.
In the long term, banks are most worried about loans in two commercial real estate sectors: retail, 35%, and office, 25%. In the southwest, those numbers were closely mirrored: retail at 35% and office, 26%.
Lenders also were queried about how the COVID-induced boost in digital banking would impact their branch networks: During the next three years, what percent of your bank branches will be reduced?
Overall, 34% forecast a 0-3% reduction. In the southwest, 52% anticipated cutting their branches by 0-3%.
For perspective, Stephens pointed out that the number of branches nationwide was pared by 4.3% during the past three years.