For all the fear about deposit losses and for all the fretting about a looming recession, many small and midsize banks are generally upbeat about their prospects for the remainder of 2023.
Credit quality remains
This could create two camps — banks that pull back in the wake of recent industry challenges and in anticipation of a recession, and others that forge ahead, capitalizing on competitors' reticence and lending momentum in sturdy industries and markets.
The $46 billion-asset BOK Financial, for one, projected at the start of the year it would grow its total loan portfolio by 6% to 8% in 2023. It still
"We remain optimistic,"
The bank's footprint spans Texas, Colorado, Arizona and neighboring states. Its territory includes high-growth markets such as Phoenix, Denver and Dallas. These cities' populations — and economies — are growing and diversifying as people and businesses flee high-cost areas of the West Coast, Kymes said.
At the same time, some competitors are distracted by deposit costs and nervous about lending amid national economic uncertainty. "We think this is an opportunity to grow our market share," Kymes said.
BOK's loan portfolio stretches over health care, energy, real estate, retail and wholesale. It also operates niche lines. It lends to Native American tribes, state and local government entities, foundations and not-for-profit organizations, educational services and specialty trade contractors.
Kymes said BOK was not immune to fallout from the recent failures, which were hastened by runs on deposits. These runs created fresh worry throughout the banking sector that resulted in industrywide deposit declines and higher funding costs. BOK's deposits declined by about 5% during the first quarter.
However, Kymes said deposits have stabilized. The bank's loan-to-deposit ratio of 70% leaves ample room to fund growth. Capital levels are robust and credit losses are historically low. BOK also is in the market to hire talent away from competitors that are hunkering down.
This "paints a very positive picture" and undergirds the bank's loan growth outlook, Kymes added.
During quarterly earnings calls, other executives cited high interest rates that are curbing borrower demand and fallout from the recent banking crisis that has begun to galvanize the industry to tighten lending standards.
Still, the economy continues to generate job growth, fueling consumer spending and supporting business expansions. This, in turn, is creating enough loan demand to support steady activity or even growth for banks in a position to capitalize.
OceanFirst Chairman and CEO Christopher Maher said his $13.6 billion-asset bank expects to maintain loan levels this year and could generate growth, though he did not set a target number. The Red Bank, New Jersey, bank's loans grew about 1% during the first quarter.
"Yes, the industry has seen some challenges, but loan demand is still out there," Maher said in an interview. "And yes, there is the potential for an economic slowdown and some sectors could experience some pain. But I don't think you're going to see a broad recession."
Shan Hanes, president and CEO of the $139 million-asset Heartland Tri-State Bank in Elkhart, Kansas, provided a similar assessment. He said higher interest rates do give would-be borrowers pause, and this is bound to result in some further easing of loan demand this year. But local businesses continue to hire and selectively borrow to invest in their own growth, he said.
The bank failures in March, Hanes said, "got everybody's attention." But within a few weeks, most bank customers understood that challenges faced by the likes of Silicon Valley Bank were unique and not indicative of broader troubles across the sector, he said.
"I think for most of us, it's become a nonevent," Hanes said. "This year most likely won't be as good as 2022, but we're open for business and generally positive."
