Working from home has lenders paying attention to the bottom line

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The evolution of work from home, which has picked up speed over the past decade, is now a coronavirus-fueled revolution.

Many workplaces remain closed and employees do their business from home. Other companies have reduced working hours and medical facilities are reducing patient visits and increasing telemedicine consultations.

Remote work is likely to last for years, maybe even decades.

The changes have the potential to affect lending practices and change the long-term financial condition of banks.

Last week, Home BancShares Inc. offered details on how the movement and the ongoing pandemic are affecting their office loan portfolio.

According to the report, the bank, which operates as Centennial Bank and has 77 branches in Arkansas, 78 branches in Florida, five branches in Alabama, and one branch in New York City, has no major concerns in the near future.

“After looking at this, I’m less worried about the office portfolio than I would have planned,” said Kevin Hester, chief lending officer, bank analysts on a September 15 conference call.

The call was the latest in a series of public “fireside chats” that bank management held to examine different segments of its loan portfolio.

[CORONAVIRUS: Click here for our complete coverage » arkansasonline.com/coronavirus]

Office lending was the last sector announced prior to the bank’s third quarter close on September 30th.

Executives are confident that the office loan portfolio is in good shape. “Overall, I have to say that we are extremely pleased with the quality of the assets we have seen,” said President and Chief Executive Officer Johnny Allison on the conference call.

Office loans make up the third largest segment in the bank’s commercial real estate portfolio, with 363 loans valued at $ 635 million. By comparison, office loans were the largest segment of the commercial real estate portfolio a year ago, valued at $ 800 million.

The largest office loan is $ 66 million, and there are only a dozen loans greater than $ 10 million. The average loan balance is $ 7.1 million.

“Overall, that’s a pretty weak portfolio,” said Hester.

Of the $ 635 million in office loans, 40% or $ 263 million is in Florida and 43% of that in the Fort Lauderdale area alone.

About 20% of the loans, or $ 131 million, are in Arkansas; 7% in California; and 6% in Alabama. Missouri, Texas, and Georgia all make up about 5%. A dozen other states together have 11%.

The office portfolio is 9 million square feet averaging about $ 70 per square foot. About 55% of the square meters are classified as class B, while 36% are classified as class A.

In general, Class A room represents newer and higher quality buildings, while Class B is a step down to a slightly older building.

The weighted average occupancy of Home BancShares’ office portfolio is 84%. In the US, the average office occupancy rate at the end of the second quarter was 88%, according to Colliers International, which has two offices in Arkansas.

The vast majority of the bank’s loans are in central business districts or suburbs, with only $ 11 million in rural areas. Only 3% of the entire office portfolio is secured by properties with more than 10 floors.

This means that most offices are low-rise buildings, which are considered to be less risky than high-rise towers.

Hester noted that the government and medical sectors are the two largest types of tenants and “not expected” to endanger the trend to work from home. These two sectors of the economy have 161 of the bank’s 363 office loans.

More importantly, nearly half of those loans – 46% – will mature in 2024 or later, which would give the economy and the bank plenty of time to tackle a post-coronavirus recovery.

In the context of the pandemic, Home BancShares reported on Tuesday’s conference call that total loan deferrals were reduced by 70% to $ 943 million, which is 8% of all loans.

The bank did not disclose its hotel loans, which account for about half of the forbearance, but Hester said the sector still “poses the greatest risk for the future.”

FORWARD CARRIAGE

Little Rock’s Venture Center continues to attract international attention for its leadership and support in the financial technology sector.

The entrepreneur support organization won the grand prize in the Best Fintech Accelerator / Incubator category at the second annual Finovate Awards last week.

The Venture Center prevailed against four other finalists and was selected by an international jury from the financial technology industry.

In addition, two Venture Center alumni who recently participated in the ThinkTech Accelerator program received critical recognition for their work with community banks.

Finzly of Charlotte, NC won the grand prize in the “Best Payment Solutions for Business” category and Teslar Software of Springdale won the “Best Fintech Partnership” category.

“Congratulations to the Venture Center for this hard-earned and well-deserved recognition,” Arkansas Governor Asa Hutchinson said in a press release. “The Venture Center has supported and developed many impressive companies and entrepreneurs in a short period of time. The success of the center strengthens Arkansas’ reputation as a leader in financial technology and information technology.”

Finovate is a highly regarded international conference and competition showcasing innovative banking and finance technologies.

Wayne Miller, Executive Director of the Venture Center, noted the importance of important partnerships the company has formed with Fidelity National Information Services Inc., the Independent Community Bankers of America, and the State of Arkansas, all of which provide the Venture Center with significant annual financial backing .

“Together, we’re showing the world that Little Rock, Arkansas continues to build on its prestigious fintech history,” said Miller upon announcing the awards. “Formerly known as the birthplace of fintech, Little Rock is now the epicenter of fintech innovation.”

GET ABC FIT

ABC Financial Services Inc. of Sherwood has acquired a Canadian company that offers mobile fitness products. Financial terms were not disclosed.

The Vancouver-based company offers a mobile app and software that enables fitness trainers and fitness companies to extend their reach beyond their physical spaces, better connect with members, and digitize exercise programs.

The acquisition “enables us to create a complete fitness experience,” said Bill Davis, chief executive officer of ABC Financial, in a press release. “The gym is central to a holistic fitness experience as it provides all of the equipment, guidance, and community that many people benefit from. And now ABC can expand the fitness club beyond the walls of the gym with Trainerize to include all aspects of fitness. “

ABC said it would take all Trainerize staff into its operation. ABC Financial provides software, billing, and membership services for more than 7,000 North American fitness centers.

Ideas or Recommendations column? Thoughts or Thoughts to Follow? Contact me at [email protected] or at (501) 378-3567.


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