MARCH 4-10, 2024 SPRINGFIELD BUSINESS JOURNAL · 9 BANKING & FINANCE KATELYN EGGER Uncertain economic factors keep banking industry cautious by Mike Cullinan · mcullinan@sbj.net While banking officials say the industry has largely been on stable ground since last year’s high-profile bank failures in California and New York, the uncertainty of factors such as higher interest rates and the presidential election will continue to keep banks on a conservative path. After Santa Clara, California-based SVB Financial Group (Nasdaq: SIVB), dba Silicon Valley Bank, and New York-based Signature Bank collapsed and subsequently were taken over by the federal government last March, the industry was a bit on edge, said Jackson Hataway, Missouri Bankers Association president and CEO. “A lot of them were looking at things really conservatively after those bank failures with interest rates going up and all the commotion out there. Are we going to recession? Is it going to be a hard landing, a soft landing?” he said of the Federal Reserve’s attempts to curb inflation. “Everybody just kind of buckled down. Deposits got pricier, so you had to kind of control your lending carefully to make sure you weren’t lending above and beyond what your deposits could support.” According to the Federal Deposit Insurance Corp.’s. most recent quarterly report, banks and savings institutions insured by the agency had net income of $68.4 billion in third-quarter 2023, down $2.4 billion, or 3.4%, from the prior quarter. Lower noninterest income and higher realized losses on securities drove down the net income, according to the report. While the FDIC hadn’t released its fourth-quarter report as of press time, several area banks with Springfield branches did so in late January, showing mixed results. Jefferson City-based Hawthorn Bancshares Inc. (Nasdaq: HWBK), Pine Bluff, Arkansas-based Simmons First National Corp. (Nasdaq: SFNC), Kansas City-based UMB Financial Corp. (Nasdaq: UMBF) and Springfield-based Great Southern Bancorp Inc. (Nasdaq: GSBC) all reported a quarterly drop in profits, ranging 29%-388%. However, Moline, Illinois-based QCR Holdings Inc. (Nasdaq: QCRH), the publicly traded parent company of Springfield-based Guaranty Bank, reported fourth-quarter and fullyear profits that officials say were the best in company history. Net income rose 14.6% to $113.6 million during 2023, compared with profits of $99.1 million in 2022. Challenging environment Despite a strong 2023 at Guaranty Bank, CEO Monte McNew said all banks continue to be challenged by the current interest rate environment. At its most recent meeting in February, the Fed kept interest rates unchanged amid improving consumer confidence and a declining inflation rate. The federal funds target rate has remained at 5.25% to 5.5% since last summer, following 11 rate increases that began in March 2022. “With those rates going up, it makes deposits far more competitive than they’ve been in many years,” McNew said. “That competition is coupled with a lot of the cash from post-COVID that has kind of dried up or been used. That means you have less cash out there and rates in a raising environment where it’s really difficult and competitive to get those deposits. The loans are a little slower to move because oftentimes those rates are fixed for a long period of time.” Jeff Jones, the finance, economics and risk management department head at Missouri State University, said the higher interest rates mean a dampening of lending activity at financial institutions. “Banks are not making as many loans, and so there’s less profit to be had. The other piece of that is not only is there less loan activity, but now in competing for available deposits, banks are having to pay higher rates,” he said. “Even though they may be able to charge higher rates on loans, they’re also having to pay more for deposits to fund Foggy Conditions See FOGGY on page 14 Jackson Hataway: Bank merger and acquisition activity should remain slow in 2024. Jeff Jones: Interest rate cuts from the Fed might not come this year.
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