Area?s Top 10 ROE Banks Switch Positions

The top 10 banks by return on equity in the Northwest Arkansas Business Journal’s annual list of private banks (here (PDF)) changed somewhat from year-end 2004 to 2005.

Only private banks chartered in the state and doing business in the six-county market — Benton, Carroll, Crawford, Madison, Sebastian and Washington counties — were included.

Priority Bank, an Ozark-based thrift, opened an office in Fayetteville in late 2005. The bank, which had only one office before, has been the state leader in ROE for three years running from 2002 through 2004.

According to the Federal Deposit Insurance Corp., the bank generated ROE just over 57 percent in calendar 2004. But Priority Bank is organized as a subchapter “S” corporation, meaning ROE and return-on-assets ratios are effectively pretax.

(Click here (PDF) for a chart of the top banks by ROE.)

Adjusted for equivalency by Bauer Financial, Priority Bank still had a 50.21 percent ROE in 2004.

In 2005 however, the bank spent money purchasing a building from First State Bank of Northwest Arkansas and renovating it. Priority’s ROE dropped to an adjusted 22.46 percent for 2005, still taking the lead in the six-county market.

Bentonville-chartered ANB Financial N.A. saw a drop in its ROE from 22.85 percent in 2004 to 17.94 percent in 2005.

The bank’s return on assets dropped significantly too, from a market-topping 1.82 percent in 2004, to 1.43 percent. The bank dropped to the No. 8 slot on the Business Journal’s annual list ranked by ROA.

Dan Dykema, chairman and CEO of ANB, said one reason is because the bank is growing, and it had to increase its loan-loss allowance.

The allowance is required by the Federal Deposit Insurance Corp. to be adequate to off-set losses on bad loans. ANB’s grew 71 percent from $5.2 million in 2004 to $8.9 million at the end of 2005.

ANB opened a loan production office in St. George, Utah, in January 2005 and was working late last year on an office in Jackson, Wyo. This is an investments in infrastructure and people, Dykema said.

He pointed out the bank’s assets grew by about 53 percent from 2004 to 2005, to a year-end $966 million. As of April 14, ANB’s assets were “approaching $1.1 billion,” he said.

According to the Federal Reserve Bank of St. Louis, the average ROE in the U.S. as of Dec. 31 was 13.26 percent. For banks in the 8th District, which includes Arkansas and portions of six other states (Illinois, Indiana, Kentucky, Mississippi, Missouri and Tennessee), the average ROE was 12.70 percent.

For banks just in Arkansas, the average was 11.53 percent.

The average for private banks on the Business Journal’s list was 95.6 percent. However, startup banks Legacy National Bank and Signature Bank of Arkansas both posted negative ROE numbers. So, excluding those banks and their numbers, the six-county average was 10.91 percent.