story by Kim Souza
ksouza@thecitywire.com
Community Bankers across the Natural State enjoyed a profitable 2014 accruing net income of $810 million among the 109 institutions. Profits rose from $707 million a year ago, according the Federal Deposit Insurance Corporation.
The FDIC splits the banks into two categories — those with less than $100 million in assets and those above $100 million. There were 28 banks in the state in the small bank category and together their net income totaled $18 million as of Dec. 31, 2014, up from $15 million in the year-ago period.
Small banks saw their deposits shrink to $1.551 billion, down from $1.803 billion. Assets also decreased 12% to $1.677 billion among the 28 small banks last year. Analysts have said the small banking segment is having the toughest time handing the increased costs associated with burdensome Dodd-Frank regulation.
Most of the smallest banks are the last of dying breed, with family-owned and mostly rural banks having toughest times covering regulatory costs, according to Gaines Dittrich, a banking analyst and founder of Joplin, Mo.-based Dittrich & Associates. He told The City Wire in 2014 that there would be more consolidations fueled by the higher compliance costs related to Dodd-Frank.
SMALL SURVIVORS
Smaller banks in Northwest Arkansas appear to be carving out a niche market amid an onslaught of competition from larger banks and non-banks entities introducing financial products.
Just barely over the $100 million level, Today’s Bank is one of the more profitable institutions in the region and state. With $102.66 million in assets the bank reported net income of $2.63 million last year, producing a return on asset ratio of 2.56%. The bank’s performance improved from $1.109 million in profits in 2013 with a ROA of 1.15%. Today’s Bank President Larry Olson said 2014 was a strong year, but he doesn’t expect to repeat performance in 2015.
“While we expect to have a decent 2015, it probably will not be as strong as last year. Reason being, we are expanding into the Springdale market this year, and will have additional fixed asset and staffing costs associated with that,” he told The City Wire.
Based in rural Huntsville, Today’s Bank had it’s largest branch in Fayetteville but broke ground on a new branch in Springdale this week that will be the fifth location for the bank that operates two branches in Huntsville and two in Fayetteville.
“The general business market continues to pick up speed. We are experiencing solid deposit and loan growth opportunities. It seems small businesses are now more willing to expand and/or make capital expenditures, which create financing demand,” Olson said. “I believe the small businessmen/women have been waiting on the sidelines for the last few years trying to get a sense of where the economy is going; but now feel better about the economy and think it is a safer time to make some strategic moves — notwithstanding the seemingly continued gridlock coming out of Washington.”
Parkway Bank of Rogers is happy with its profits. President Bob Taylor told The City Wire that profits are improving along with the overall economy. The bank reported net income of $718,000 for 2014. In 2013, the bank showed net income of $1.476 million. Taylor said tax liabilities from previous years hurt the bottom line in 2014, but the good thing is that profits are already stronger year-over-year in the first two months of 2015.
Credit losses for the bank decreased to 61,000 last year, which was down from $465,000 in 2013. Non-performing loans were reduced to $578,000, down from $1.370 million in 2013. Taylor said loan demand is decent and deposits are up. The bank has grown its assets to $123.537 million, the largest it’s been in five years.
“We are forecasting growth this year building gradually on the momentum that began a couple of years back. The major reason profits are improving for the banking sector is that less money is being set aside for loan loss reserves. The lending climate is very competitive. We are boutique bank offering 4 to 5 products and we don’t try and compete with the larger banks. We are finishing up on a couple of vendor-related projects in Bentonville and are finding the construction lending market pretty good right now,” Taylor said.
Parkway Bank has one branch in Bentonville and two branches in Southern Arkansas in Monticello and Portland. Taylor said deposit growth is strong in southern Arkansas and loan demand is better in Northwest Arkansas. About 70% of the bank’s deposits are in the southern branches and about 65% to 70% of the loans made by the bank are for projects in Northwest Arkansas, Taylor said.
LARGER BANKS
The majority of banks in Arkansas (81) are larger than $100 million in assets. This group had net income of $792 million as of Dec. 31, 2014, rising 14.6% from the $691 million reported in the year-ago period.
"The banking industry continued to improve at the end of the year," FDIC Chairman Martin Gruenberg said in a statement. "Community banks across the country performed especially well during the fourth quarter. Their earnings were up 28% from the previous year, their net interest margin and rate of loan growth were appreciably higher than the industry, and they increased their small loans to businesses."
The largest bank based in Arkansas is Arvest, though the bank also does business in neighboring states. Arvest reported net income of $108.982 million for 2014. Profits declined 14% from $126.873 million reported in 2013. The bank’s return on assets was 0.74% to end 2014, down from 0.92% in 2013. That said, credit losses were trimmed to $15.28 million, down from $28.22 million in the prior year. Non-performing loans were also reduced to $125.85 million, down from $214.215 million in 2013. Arvest had assets of $14.75 billion at the end of 2014, up from $13.8 billion to end 2013.
Mike Jacimore, sales manager for Arvest Bank’s Fort Smith and River Valley market which runs from Russellville to Sallisaw, Okla., told The City Wire that loan growth in that large region is up from a year ago.
“Mortgage loans and business loans are growing in this market as our deposits are also picking up thanks to a better economy,” he said.
He said there has been compressed margins for some time given the low interest rate environment and he expects more of the same this year as long as rates stay down.
“Consumers savings are picking up some and at the same time we are saw personal consumer loan demand higher in January and February to start this year compared to the prior year.” Jacimore said. “The lower fuel prices have been a positive for consumer attitudes so far this year.”
Fort Smith-based First National Bank Corp. operates in Fort Smith and Northwest Arkansas. This large bank grew its assets to $1.182 billion, up from $1.052 billion to end 2013. The bank reported net income of $15.665 million, down slightly from $16.786 million reported in 2013. Credit losses rose to $586,000 in 2014, which rose more than 100% from 2013.
The bank still commands a respectable return on assets of 1.32%, as 1% is the benchmark for banks in normal economic climates. First National Fort Smith President Sam Sicard said loan demand is improving, but he still believes the bank’s customers are somewhat cautious.
“It does appear that savings have improved due to the drop in gas prices. The latest national reports indicate the savings rate has improved over the last few months. Total deposits at First National Bank of Fort Smith have also increased over the last few months,” Sicard said.
He said banks have become more profitable over the past couple of years thanks to a stronger economy and the reduction in loan loss provisions. However, margins remain tough to expand, and that will likely be the story in 2015.
“I believe margins will continue to be compressed in 2015 due to the large number of willing lenders and with borrowers being more cautious than they were before the Great Recession,” Sicard said.
IN THE MIDDLE
Community banks with assets between roughly $300 million and $500 million fared well last year and those bankers in Northwest Arkansas are optimistic that 2015 will be better. Signature Bank and Legacy Bank formed ahead of the Great Recession, with each heavily investing in commercial real estate before the bust in 2008. Each bank has returned to profitability and shook off enforcement actions from their regulators. Signature Bank remains under a “memorandum of understanding” after having the stricter Consent Order removed by the FDIC in December.
Springdale-based Legacy National Bank reported net income of $2.087 million for 2014, up slightly from $2.028 million in 2013. The bank grew assets to $296 million, a gain of 11.3% from the prior year. The bank reduced its credit losses by 81% year-over-year and its real estate owned amounted to $5.239 million at the end of 2014, down from $7.395 million at the end of 2013.
Legacy CEO Don Gibson said the bank budgeted higher profits for 2015 and they are off to a good start being slightly ahead of budget for January and February. He also mentioned tighter margins from low interests, something he expects will continue through most, if not all of 2015. Gibson said the bank has seen its compliance costs more than double in the past year to comply with Dodd-Frank regulations.
“Increased capital requirements will be an issue if (Dodd-Frank is) not backed off which is a negative for the consumer because available monies for lending will be pulled back into capital,” Gibson said.
Fayetteville-based Signature reported $2.306 million in net profits for 2014, a 120% improvement over the $1.044 million reported in 2013. The bank showed assets of $488.9 million at the end of 2014, down slightly from the $490 million reported at the end of 2013. This bank continues to work through its troubled loan portfolio from a few years ago. Credit losses were $3.4 million, down slightly from the $3.7 million reported in 2013.
Signature still holds $17.927 million in real estate, a large amount for the bank, and it’s an amount that is relatively flat with a year ago. Signature Bank President Gary Head told The City Wire that an improving Northwest Arkansas will help reduce the real estate holdings. He said since the December financial reports the bank has moved more of that property off the books.
“We had several lots in West Fork on our books for five years with no offers, but now they are selling,” Head said.
He expects 2015 to be better than 2014 for Signature Bank as loan losses are reduced.
“Our 109-year-old bank in Brinkley had a tough time last year with farm losses. It was the worst year in some 45 years of farming according to one customer,” Head shared. “We are standing by those farmers as they work to restore their profits in 2015.”
He likes the prospects in Northwest Arkansas as all the major employers are doing well. Head said the fierce banking competition in Northwest Arkansas is good for businesses and consumers in this market.
“Homebuilding, single and multifamily still have some room to run in this market because there is hardly a house to rent and apartment occupancies remain low as the University of Arkansas continues to grow,” Head said.