NWA banking sector posts higher profits (updated)

Roughly three out of four community banks across Northwest Arkansas posted their best earnings in three years through June 30. The quarterly financial filings of 16 banks, either locally based or having a large percentage of business in Benton and Washington counties, were recently analyzed by The City Wire and those results are the basis for this report.

Profit totaled $99.4 million among the 16 banks through the first half of 2012. Cumulative net income rose 9.7% from $90.62 million pocketed in the prior-year period.

Two institutions — Chambers and Bank of Fayetteville — each erased hefty losses from a year ago and 12 of the 16 banks reported higher year-over-year profits:
First Security Bank
Jan.-June 2012: $48.73 million
Jan.-June 2011: $40.89 million

Liberty Bank
Jan.-June 2012: $11.58 million
Jan.-June 2011: $8.550 million

Chambers Bank
Jan.-June 2012: $5.17 million
Jan.-June 2011: –$2.65 million

Simmons First
Jan.-June 2012: $7.79 million
Jan.-June 2011: $5.87 million

First Western
Jan.-June 2012: $1.24 million
Jan.-June 2011: $512,000

Bank of Fayetteville
Jan.-June 2012: $1.02 million
Jan.-June 2011:  –$703,000

First State (Lonoke)
Jan.-June 2012: $591,000
Jan.-June 2011: $400,000

Legacy National
Jan.-June 2012: $485,000
Jan.-June 2011: $172,000

Parkway Bank
Jan.-June 2012: $435,000
Jan.-June 2011:  $259,000

Bank of Gravett
Jan.-June 2012: $320,000
Jan.-June 2011: $77,000

Signature Bank
Jan.-June 2012: $280,000
Jan.-June 2011: $196,000

Pinnacle Bank
Jan.-June 2012: $253,000
Jan.-June 2011: $199,000

“The profits are nice but no where near those from the boom years and I am not sure we’ll ever see that level again. There is still some negative pull on the world and national economies but sentiment here at home has been pretty positive,” said Bank of Fayetteville CEO Mary Beth Brooks.

She said loan demand has picked up somewhat in recent months and reports a surprise in consumer loan demand for new cars, boats and other larger ticket items. Brooks expects the local banking sector to post respectable profits in 2012, and says the Bank of Fayetteville should do its part in making that happen.

Community banks are often viewed as a barometer as it measures the health and economic soundness of small businesses and consumers — two very important sectors in predicting economic growth.

Two other banks among those analyzed — Arvest and First State Bank NWA — saw their net earnings slip from a year ago.

Arvest
Jan.-June 2012: $25.58 million
Jan.-June 2011: $41.99 million

First State Bank NWA
Jan.-June 2012: $566,000
Jan.-June 2011: $697,000

Arvest spokesman Jason Kincy said the earnings decline is directly linked to a contact dispute the bank has with one of its mortgage servicing agents. He said On June 29,  the bank amended its March 31, 2012  call report  due to adjustments related to mortgage activities conducted through its mortgage subsidiaries. Kincy said the net effect of the first quarter amendment on both earnings and capital is a reduction of $19.755 million. Arvest 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. 

Kincy said Arvest is experiencing stronger core earnings in all areas of the bank.

Lastly, two banks continue to post losses in 2012, albeit less red ink than recorded in the same period last year.

Metropolitan National
Jan.-June 2012: –$1.46 million
Jan.-June 2012: –$3.78 million

Decatur State Bank
Jan.-June 2012: –$3.07 million
Jan.-June 2012: –$4.72 million

Both of these banks are under regulatory orders to raise more capital and shore up their balance sheets. Decatur State Bank was sold to Mathias Bancshares in April for an undisclosed amount.The deal is pending, according to the Arkansas State Bank Department ,and expected to close in this quarter. Mathias also owns First State Bank NWA and provides needed capital for Decatur State.

Metropolitan continues to operate out of compliance with two regulatory orders it has been under since 2008. The bank is short some $35 million in capital to reach the guidelines it agreed to with regulators as recent as April.

The underlying capital at Metropolitan National totaled $66 million at the end of June, which includes $25 million in TARP money that has not been repaid.

Analysts said Metropolitan National has made great strides in reducing its non-performing loans, which are its biggest deterrent to profitability. At the end of June Metropolitan still faced $68.56 million in delinquent loans. One year ago, the delinquencies totaled $125 million.

Metropolitan CEO Lunsford Bridges recently said, “Metropolitan National Bank’s financial ratios and level of non-performing assets continue to show significant improvement over the previous twelve months. We have taken an aggressive approach to addressing the issues that have negatively impacted our bank.”

LOAN DEMAND
The 16 banks had a cumulative $14.67 billion in loans and leases on their balance sheets at the end of June. Total loans declined 12.5% from $16.67 billion a year ago.

A closer look indicates more than one third, or six of the banks reporting grew their loan portfolios from a year ago. These banks range from the largest to one of the smallest institutions operating in the region.

Arvest grew loans in part though a bank acquisition in Kansas City in addition to its mortgage division that hit $1.2 billion in loans in the first half of this year.

Todd White, a senior loan production manager for Arvest Mortgage, estimates 65% of the business written this year was refinance and 35% new home purchase. White said the trend has slowly been moving toward a 50-50 balance in the past quarter, as more new buyers are coming into the market taking advantage of rock-bottom interest rates.

“I would say in the last two months we are up to about 40% of the business being new purchase. And the applications are closer to 50-50, but some of those are just preapproval stage.”

Mortgage loan volume at Arvest is rose 125% during the first two quarters of 2012 over the same time period in 2011. Mortgage refinance accounts for roughly 68% of that total.

Parkway Bank in Rogers — one of the smaller institutions at $121 million in assets — also saw modest loan grown in the year-over-year period.

“The majority of our loan demand has come from a few homebuilders in Fayetteville, Rogers and Bentonville. We are lending directly to them for home construction and the properties are selling pretty quickly,” said Parkway CEO Bob Taylor.

He said loan demand was strong through the first six months, but has slowed just a bit in the third quarter and he doesn’t expect much of an uptick ahead of the November general elections.

Liberty Bank, First Security Bank, Legacy National and First Western also reported slightly larger loan portfolios than a year ago.

NATIONAL PERSPECTIVE
The local banking sector fared a little better than the national report recently released by the Federal Deposit Insurance Corp.

Almost two-thirds of all institutions (62.7%) reported improvements in their net income from a year ago, according the FDIC’s national report. Also, the share of institutions reporting net losses for the quarter fell to 10.9%  from 15.7% a year earlier.

"The banking industry continued to make gradual but steady progress toward recovery in the second quarter," FDIC Acting Chairman Martin Gruenberg said in the release. "Levels of troubled assets and troubled institutions remain high, but they are continuing to improve. After declining in the first quarter, loan balances once again expanded in the second quarter — extending a positive trend that began in 2011”

Gruenberg added that most institutions are profitable and continuing to post stronger results. He said all of these trends are consistent with the moderate pace of economic growth that has occurred over the past year.

The number of "problem" institutions fell for the fifth quarter in a row, according to the FDIC. The number of "problem" institutions declined from 772 to 732. This is the smallest number of "problem" banks since year-end 2009.

There were 15 bank failures during the second quarter, nine more have failed so far in the third quarter bringing to the total year to date to 40. At this point last year there had been 68 failures.

In the Northwest Arkansas bank group roughly 60% of the institutions are operating under some type of regulatory order issued by the state of one of three federal agencies.

(Link here for a report on the Fort Smith metro banking community.)