Delta Trust and Bank CEO French Hill said small community banks will struggle in the next few years as loan loss reserves correct, a refinancing boom ends, and portions of the Dodd-Frank financial overhaul measure fully kick in.

Hill, appearing on this week’s Talk Business television program, said the most recent analysis of Arkansas bank income being up 30% over last year is part of a market correction.

“Some of the dramatic improvement in bank earnings is a release of loan loss reserves in the big, publicly-traded banks because their asset quality ratios have improved,” Hill said.

“They’ve been able to increase deposit rates and keep pace with their refinance on the asset side, where people want lower loan rates. That train is coming to the station and everyone is going to get off of it, on both points,” he said. “I think net earnings growth in the years ahead for someone not in a growing market is going to be challenging.”

Hill said Dodd-Frank regulatory requirements place too many restrictions on local lenders and appraisers, for instance, and that the financial overhaul law intended to reform big banks is having unintended consequences on smaller ones.

“The deal in Washington was that if you were a bank over $10 billion you wouldn’t have a separate examination by the Consumer Finance Bureau, but they never said you were exempt from the rules of the Consumer Finance Bureau. So to me, it was an absolute disaster,” Hill said.

Hill, who is this year’s chairman of the Little Rock Regional Chamber of Commerce, had more to say about the central Arkansas economy, the current lending environment, and a couple of major regional economic expansions.

Watch his full interview in the video below.

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Roby Brock
Roby Brock is the Editor-in-Chief and Host of Talk Business & Politics. He can be reached by e-mail at Roby@TalkBusiness.net. Follow him on Twitter: @RobyBrock.