Analysts are watching consumer spending, jobs and unemployment, as well as COVID-19 control to gauge the year financial institutions were founded. An influential observer always keeps his eyes on potential mergers and acquisitions.

In the foreground, the control of the pandemic. Last year’s volatility and inevitable industry setbacks led to a spike in unemployment, although the numbers are improving. Consumer spending has helped boost the economy primarily due to congressional stimulus relief.

Matt Olney, CFA, research analyst for financial institutions at Stephens Inc., said there’s a lot to digest, but most eyes are on efforts to control the coronavirus.

“The current assumptions, I think, are that the vaccine is rolling out, and it’s rolling out within the initial expectation of a few months ago,” he said. “I also think herd immunity will play a big role in the confidence we have in terms of travel and economic activity.”

Olney is particularly impressed with the strength of the banking sector, which has primarily overseen PPPs [Paycheck Protection Program] distribution of loans, carried out in 2020 despite the difficult conditions.

“Balance sheets, which we focus on in terms of bank strength, balance sheets are huge,” he said. “Capital is strong, the provision for loan loss reserves through 2020 was quite acceptable, but they have been very strong over the past year. I would say at this point we have very strong reserves…I think the local banks here in Arkansas, and even in the area, are all very strong.

According to the latest data from the Federal Deposit Insurance Corp. (FDIC), Arkansas’ 86 federally insured lenders reported cumulative net income of $999 million in the third quarter of 2020, down 18% from a year ago. Banks increased their combined assets to $131.14 billion, up 17% year-over-year. Deposits reached $105.82 billion.

While banks look relatively good on paper, they face significant challenges heading into 2021, especially for growth. Olney said a variety of factors will influence this year’s performance.

“I think the expectation of additional stimulus, additional support from the government, I think that’s one thing we’re looking for for the new administration to continue to support the economy and the parts of the economy that are under it. most need. I think additional inflationary pressures are expected with this stimulus package. And with that, we’ve seen some yield curve steepening over the past few weeks. With the yield curve steepening, I think that’s positive for the banking industry,” Olney said.

Low interest rates will put pressure on banks to generate interest income. The confirmation of branch managers in the financial sector will also influence the regulatory hurdles of financial institutions, he said.

Olney also thinks that 2021 could lead to a series of mergers and acquisitions (M&As) in the banking sector.

“I think one of the most exciting things we think we’ll see in 2021 is mergers and acquisitions,” Olney said. “We took a slight pause in 2020 just to make sure bank balance sheets were in good shape, but now that we’ve confirmed that bank balance sheets are indeed strong, I think you’re going to see a number of acquisitions – peer-to-peer mergers. I think that will rebound very strongly in 2021, and that makes it exciting from an investor perspective.”

Don’t look for that activity in early 2021, Olney says, but expect some M&A activity in the industry in the second half of the year.

“I think there are some interesting banking combinations that we could see as a result, and I think six months from now we’ll be talking about even more of that,” he said.

You can watch his full interview in the video below.