Fort Smith banking sector shows mixed 2015 profits, bankers see modest 2016 growth

Four of the five banks with the largest market share in the Fort Smith metro saw financial gains in 2015, but the cumulative earnings of the five banks fell almost 10% compared to 2014.

It was a better-than-average year for the majority of the 104 banking institutions conducting business in the Natural State. The cumulative total profit for the Arkansas banking sector equaled $887 million in 2015. Profit rose 9.91% from the $807 million earned during 2014, according to a recent report from the Federal Deposit Insurance Corp. While the cumulative sector increased not all banks showed year-over-year gains.

Banks with assets below $100 million, the 27 smallest financial institutions in Arkansas, earned $12 million last year, down from $18 million reported in the prior-year period. The remaining 77 banks earned profits of $875 million, up 8.42% year-over-year, according to the FDIC data.

FORT SMITH AREA NUMBERS
Looking at the Fort Smith metro area Talk Business & Politics examined five banks with the largest share of local deposits for a snapshot look at the health of the local banking sector for 2015. The banks include: Arvest, Armstrong Bank, BancorpSouth, Citizens Bank & Trust and First National Bank of Fort Smith.

Together the five banks earned total net income for 2015 of $238.39 million, down 9.5% from the $263.43 million reported in 2014. The reason for the lower profit levels can be explained by the decline in Arvest earnings. Arvest reported net income of $66.336 million in 2015, down 36.92% from $105.166 million earned in 2014. However, the bank managed to decrease non-current loans by more than $43 million from 2014, and the bank recaptured $7.4 million from loan loss reserves during the year. At the same time Arvest sold $32.6 million worth of repossessed real estate from its books last year, leaving the bank with $23.647 million of real estate inventory. On the surface the bank’s lending operations appear to be solid.

Arvest Bank does not break out specific market results, but Rodney Shepard, president for the Fort Smith market, reports overall growth during 2015.

“Low mortgage rates throughout 2015 gave us a nice boost, especially in purchase money loans, and we are seeing similar results so far this year,” Shepard said. “In fact, we may see a little more growth activity in mortgage lending in 2016 as consumers continue to take advantage of attractive borrowing rates, both for new purchase and refinancing mortgages.”

Shepard also said Arvest Fort Smith saw increased deposit activity in terms of savings accounts, which was was validated by the results of the bank’s Consumer Sentiment Survey last fall.

“It’s good to know people are saving more, and we will be ready to help them when they are ready to put those savings to work for whatever needs they may have,” Shepard added.

Factoring out Arvest Bank figures, the other four banks earned net income of $171.957 million last year, up 8.64% from $158.272 million in 2014.

First National Bank of Fort Smith said roughly 75% of its assets are tied to the Fort Smith market, with roughly 25% being in Northwest Arkansas. The bank had total assets of $1.216 billion, compared to $1.182 billion in the prior year. Net income profits rose 5.95% to $16.595 million last year, according to the bank’s FDIC filings.

The bank benefited from $1.231 million in reversed credit losses during 2015 and the movement of more than $4.6 million of repossessed real estate off its books. The bank’s total loan growth was flat at $761 million, roughly the same number reported at the end of 2014.

“We are expecting slow but steady growth in loans, deposits, and new accounts in the Fort Smith Region this year. Loan demand in the Fort Smith region remains moderate,” said Sam T. Sicard, president and CEO at First National Bank.

He said First National continues to see steady growth in the number of customers it serves, primarily through increases in checking and savings accounts.

“We attribute this to the steady increase in jobs in the Fort Smith Region, to our dedicated bankers cho continue to build and expand relationships, and to our attractive product offering such as our @First Checking account that offers monetary rewards when our customers utilize their First National debit cards,” Sicard added.

First National Bank also commands the largest share of deposits in the market with roughly 21% of total deposits in the metro area as of June 30, 2015, the most recent report filed with the FDIC.

Van Buren-based Citizens Bank & Trust – owned by the bank holding company that owns First National Bank of Fort Smith – also reported solid growth in 2015. Citizens earned $6.191 million in net income last year, growing profits 9.36% over the prior-year period. The bank benefited from moving more than $154,000 of repossessed real estate from its books in the past year. The bank’s total loans increased 1% to $216 million in 2015. At the same time the number of non-current loans increased by more than $668,000 year-over-year.

BASED ELSEWHERE
The remaining two banks in this report do business in the Fort Smith metro, but are based outside of Arkansas and their data includes several other large metro areas. Like Arvest, they do not break out individual metro statistics. Their results are included in the report because they rank among the top five banks with the highest local deposit marketshare.

Muskogee-based Armstrong Bank acquired Benefit Bank in 2015. Armstrong earned $17.165 million in net income last year. Profits rose 5.1% from $16.332 million in reported in 2014. The bank’s non-current loans grew to $15.78 million in 2015, more than triple the $4.89 million in 2014. Despite the bank’s rising loan delinquencies, return on assets remain high at 2.15%. This profitability metric demonstrates a bank’s ability to earn profits relative to asset size. The industry benchmark is 1%. The bank also helped profits by reducing repossessed real estate holdings to $1.41 million from $2.65 million in the prior year.

Tupelo, Miss.,-based BancorpSouth is publicly traded and has several branch operations in the Fort Smith metro. With assets of $13.535 billion in 2015, the bank grew net income to $132 million. Profits rose 9.44% from $120.61 million in the prior year. The bank’s fourth quarter earnings report indicated that a class action lawsuit settlement of $16.5 million dinged the fourth quarter revenue results, but it didn’t hinder annual overall growth.

REGULATORY COSTS
Banks of all sizes continue to feel the impact of higher expenses directly related to regulatory oversight imposed with the Dodd Frank legislation enacted in 2010. This regulation is expected to again offset earnings in 2016, according to a national survey of community banks conducted in late 2015 in conjunction with Federal Reserve Bank of St. Louis and the 21st Century Community Banking report.

The report found the cost of regulatory compliance for U.S. community banks is an estimated $4.5 billion annually, or 22% of  net income. Respondents to the 2015 survey reported regulatory compliance accounted for 11% of personnel expenses, 16% of data processing expenses, 20% of legal expenses, 38% of accounting and auditing expenses, and 48% of consulting expenses.