Fort Smith banking sector shows mixed results

Banks across the Natural State are returning to profitability, but several in the Fort Smith market have recently begun to lag behind, according to financial filings with the Federal Deposit Insurance Corp.

The six largest banks in terms of deposit market share in the Fort Smith area posted mixed results through the first half of 2012. Arvest, BancorpSouth, Citizens Bank & Trust, Farmers Bank, First National Bank and Regions, together posted net profits of $743.29 million, up 61.8% from the year-ago period.

The two largest non-Arkansas-based regional banks, BancorpSouth and Regions, each posted triple-digit returns for the six months ending June 30, over the same period last year. The other four banks saw slimmer profits from a year ago.

“Demand in all sectors continues to remain flat and this is true for both the loan and deposits,” said Saundra Lockhart, vice president-marketing for BancorpSouth.

Analyst John Dominick says banks with multiple state and regional lending exposure beyond western and northwest Arkansas and the commercial real estate sector are recovering quicker than smaller, less diversified institutions. Dominick is a banking professor at the University of Arkansas

One exception among the six is Arvest Bank, a regional lending institution with more than a decade in the Fort Smith market.

Arvest posted net profits of $25.589 million in the first half of 2012, that is substantially less than the $41.999 million earned a year ago, but the bank says it’s experiencing stronger core earnings in all areas of the bank.

Spokesman Jason Kincy said the decline in earnings relates to an amended call report on June 29 to reflect a dispute the bank has with a mortgage servicing agent, which has temporarily suspended an income item on the bank’s balance sheet and reduced net earnings.

Arvest said the call report amendment reduced earnings and capital by $19.755 million. The bank is in the process of seeking judicial relief and believes the advances involved are recoverable under the provisions of the contract. Any future collections from reimbursements will be treated as income at that time. 

In the local Fort Smith market, Arvest spokesman Craig Rivaldo said loan demand has been better the first six months of 2012 than any similar period over the last four years. He says the bank’s consumer loan promotions have driven more volume in that sector.

“Of course, home loan interest rates hitting record lows, have had tremendous impact to mortgage lending volume. We have seen some record production months in the mortgage lending area and commercial lending demand has been steady,” Rivaldo noted in an e-mail.

Another large player in the Fort Smith market, First National Bank CEO Sam T. Sicard, is relatively bullish on the overall economy citing a recent uptick in loan demand since the end of the second quarter. Through June 30, First National Bank posted net profits of $6.541 million, down from $7.419 million in the year ago period.

Sicard said net profits in the first half of 2012 were slightly below levels of 2011 because the bank made a larger provision to future loan losses related primarily to some real estate exposure it has in Northwest Arkansas.

Roughly 80% of the bank’s loans are in the Fort Smith market, and he said while demand for larger projects is somewhat tepid, they have been able to lend to locally-based customers for a few large projects outside the immediate region.

“I think this is a related to the better national economy, more than locally.” Sicard said.

Through June 30 First National had total loans of $760 million, down about 3.6% from a year ago. Since then, Sicard said the bank has made up some ground and loans are even with last year.

Bankers say the job losses in the Fort Smith market have had somewhat of muted effect on bank profitability given they were stretched out over several years.

Neither Sicard nor Rivaldo have seen loan demand suffer because of the tepid job market, but they continue to watch for any increase in “past due” loans and potential “charge-offs” related to this economic factor.

SMALLER BANKS
The two smaller banks analyzed in this report, Farmers and Citizens Bank and Trust, each posted less profits related to higher charge-offs than a year ago.

Farmers Bank had net income of $537,000 in the first half of 2012, down 9.74% from a year ago. Charge-offs related to loans gone bad escalated to $638,000, this compared to $19,000 in the same time period of 2011. Non-accrual loans also rose to more than $3 million at the end of June, versus $4,500 a year ago.

Citizens Bank & Trust posted net income of $2.132 million, down 15.66% from 2011. Again, the culprit was hefty charge-offs of $1.42 million in 2012, compared to $364,000 the year before.

At the end of June, Citizens reported non-accrual loans of $12 million, slightly more than the $11.7 million on the books in 2011.

The banks in the Fort Smith market on the whole have maintained higher levels of profitability than banks in northwest Arkansas over the past few years, and still have a higher average return on assets than their northern neighbors.

The ROA, or benchmark used to measure profitability, is 1.08% in the cumulative Fort Smith market for the first half of 2012. The industry standard is a minimum 1%. The northwest Arkansas market fell below the benchmark in recent years at 0.36% in June, but is now moving in the right direction, according to Tim Yeager, economist and Arkansas Bankers Chair at the University of Arkansas.

The FDIC reported the cumulative ROA across U.S. banks rose to 0.99% in June, from 0.85% a year ago.

LARGER REGIONALS
Region’s Bank and BancorpSouth each posted stellar results through the first half of 2012. Net income rose at Region’s Bank by 241% with net profits of $660.513 million through June 30.

The bank’s profitability was helped by a 50% reduction in charge-offs and $1 billion less in non-accrual loans versus a year ago.

BancorpSouth had similar results with net income of $48.491 million, rising 173% from the year-ago period. Charge-off shrunk by $50 million and non-accrual loans declined 27% or some $90 million.

While these larger banks are pocketing more money, they are lending less. Total loans between the two banks shrunk by some $5 billion from a year ago, according to their financial reports.

(Link here for the report on the Northwest Arkansas banking sector.)