The banking sector in Arkansas is competitive, ranging from publicly traded, multi-state financial institutions to family-owned community banks. A new report from Bank Street Partners ranked the top 50 Arkansas banks in six key metrics including loan quality and return on equity which get to core of a bank’s earning potential.
Based on 12 months of data ending June 30, the report pegged Conway-based Centennial Bank as the top overall ranking bank. In garnering this overall top ranking Centennial – the primary subsidiary of Home Bancshares – had to perform well in each of the six metrics examined: Total assets; net interest margin; non interest margin overhead costs; asset quality and return on average equity.
The cumulative score compiled by Centennial was 13.6, 1.5 points better than Little Rock-based Bank of the Ozark with 15. (The lower the score the better in this report). Following are the top 10 banks in the overall ratings.
1. Centennial, Conway
2. Bank of the Ozarks, Little Rock
3. Riverside Bank, Sparkman
4. First Financial Bank, El Dorado
5. First National Bank, Fort Smith
6. First State Bank, Russellville
7. Citizens Bank & Trust, Van Buren
8. Bear State Bank, Little Rock
9. Peoples Bank, Sheridan
10. First National Bank, Paragould
Following are the five banks with the worst scores.
46: Bank of England, England
47: First Delta Bank, Marked Tree
48. Merchants and Farmers, Dumas
49. Southern Bancorp, Arkadelphia
50. Relyance Bank, Pine Bluff
Bank of the Ozark was the largest bank in the state according to assets, unseating Arvest Bank. Bank of the Ozarks had assets of $20.068 billion as of June 30, with $16.241 billion in total deposits. Fayetteville-based Arvest has been the state’s largest bank for several years but now is in second place with total assets of $17.298 billion, and deposits of $14.984 billion to end the second quarter. The next three largest banks in the state in terms of assets were:
• Centennial: Assets of $10.861 billion, deposits of $52.061 billion;
• Simmons First: Assets of $8.567 billion, deposits of $6.809 billion; and
• First Security: Assets of $5.478 billion, deposits of $3.922 billion.
There were just three banks with less than $200 million in assets and deposits.
• Heartland Bank of Little Rock, $199.19 million in assets and $187 million in deposits
• First National Bank of Lawrence County, $198.70 million in assets and $176 million in deposits
• First Bank of North Arkansas, Berryville, $190 million in assets and $168 million in deposits
A bank’s profits are only as good as the loans it carries on its books and the asset quality index in this report was calculated by adding the number of all past due loans from 30 days through repossession in addition to charge-offs and then comparing each to the average loans on the books to come up with a ratio. Loans guaranteed by the U.S. government were excluded from the totals.
Following are the five banks with the best asset quality ratios.
1. First State Bank, Russellville – 0.31%
2. Piggott State Bank, Piggott – 0.44%
3. Helena National, Helena – 0.47%
4. People’s Bank, Sheridan – 0.48%
5. Riverside Bank, Sparkman – 0.59%
The state’s largest banks ranked as follows on asset quality.
8. Bank of the Ozarks, Little Rock – 0.83%
11. First Security Bank, Searcy – 1.19%
18. Centennial, Conway – 1.48%
43. Simmons First, Pine Bluff – 2.43%
44. Arvest, Fayetteville – 2.48%
Following are the five banks with the worst asset quality ratio.
46. Warren Bank & Trust – 2.58%
47. Generations Bank – 2.59%
48. RiverBank, Pocahontas – 2.78%
49. DeWitt Bank & Trust, De Witt, 2.81%
50. Farmers & Merchants, Stuttgart (parent of The Bank of Fayetteville) – 2.85%
BEST NET INTEREST MARGIN
Net interest margins are also key to bank profitability and just two banks out of the 50 managed to keep their margins on loans above 5% over the past 12 months ending June 30. Today’s Bank of Northwest Arkansas has a very small asset base but it managed to garner the biggest interest spread at 5.24%.
First National Bank of North Arkansas in Berryville also has a net interest margin at 5.16% over the past year. Like Today’s Bank the Berryville bank has less than $200 million in total assets making it one of the state’s smallest financial institutions.
Bank of the Ozarks, the state’s biggest bank, ranked third with a net interest margin of 4.91%. Centennial Bank was also in the top 10 at 4.66%. Simmons ranked No. 34 with a net interest margin of 4.03%. Arvest did not make the top 50 group in this metric which means its net interest margin came in below 3.86%.
This non-interest income metric was also examined by the Bank Street analysts. It can be a healthy income stream for banks to offset lower loan margins. The Bank of England was the clear winner in terms of non-interest income which was 36.97% of the bank’s average assets as of June 30. The bank sold some assets, collected ample service fees and generated total non-interest income of $118 million in the past year.
Following are the other four banks in the top five for non-interest income relative to assets.
2. Bank of Little Rock, 6.17%
3. Stone Bank of Mountain View, 3.63%
4. First Arkansas Bank and Trust of Jacksonville, 3.32%
5. First Financial Bank of El Dorado, 3.04%
Bank Street analysts also looked as total overhead among the top 50 banks and compared those costs to average assets. The banks with the lowest overhead include very small banks with just one location to Bank of the Ozark’s 242 locations. This metric looks at personnel expenses and location costs. Following are the top five banks in this category.
1. Petit Jean State Bank, Morrilton – 1.60%
2. Logan County Bank, Scranton – 1.63%
3. Bank of the Ozarks, Little Rock – 1.64%
4. Capital Bank, Little Rock – 1.66%
5. Bodcaw Bank, Stamps – 1.73%
First Security ranked No. 6 at 1.75%, while Centennial Bank ranked 8th at 1.87%. Simmons First, nor Arvest made the top 50 in terms of efficient overhead costs which puts their overhead costs at more than 2.86% of assets.
RETURN ON EQUITY
Perhaps the most important metric for bank managers and investors is return on equity. The metric indicates how effectively bank management is using shareholder equity to generate profits. The average ROE as of the first quarter was 9.15%. The higher the number the better indication for profitability by the company. Any ROE of 15% or higher is good, and above 20% is excellent. Return on assets is also a metric used to determine profitability and efficient use of assets to generate profits. The benchmark for banks in this metric to hit is 1%, anything higher is a positive sign for profitability.
At 19.02% Central Bank in Little Rock achieved the highest return on average assets through June 30, and at the same time reported a stellar return on assets of 2.51%, one of the highest in the state. Central Bank achieved an ROE more than 2.5 times better than banks placing at the bottom of the top 50 list.
The Bank of England, with roughly $333 million in assets, achieved an ROE of 18.41% and its return on assets was 2.59%, the best in the state through the past 12 months ending June 30. Ranking in the third spot was the First Financial Bank of El Dorado which has $909 million in assets. The bank posted ROE of 17.11% with an ROA of 2.17%, each representing strong earnings potential over the past 12 months.
Riverside Bank of Sparkman and Centennial Bank of Conway rounded out the top five. Riverside had an ROE of 16.41% and an ROA of 1.44%. Centennial’s return on equity was 14.38% with return on assets of 1.97%, making it the top ranking publicly traded bank among its Arkansas peers.
Bank of the Ozarks ranked 12th with a return on equity of 11.88% and return on assets of 1.94%. Simmons Bank, also publicly traded, ranked 27th in this metric with an return on equity of 9.61% and return on assets of 1.3%. Bear State came in at No. 29 with an ROE of 9.36% and return on assets of 1.13%.
Arvest Bank, though not publicly traded, is one of the state’s largest financial institutions and it was ranked at No. 44 with ROE and ROA readings of 7.83% and 0.78%, respectively.
Link here for the PDF of the Bank Street Partners report on Arkansas banks.