For the sixth time in the past seven years, family owned First Security Bank of Searcy has the best return on assets (ROA) of the privately owned banks doing business in Northwest Arkansas and the Fort Smith metro, according to an annual list compiled by the Northwest Arkansas Business Journal.
The Business Journal tracks data available from the Federal Deposit Insurance Corp. and compiles a list of all banks doing business in the six-county market area (Benton, Carroll, Crawford, Madison, Sebastian and Washington) based on which bank has the best ROA. (Link here for the digital issue of the Northwest Arkansas Business Journal. See the bank list on page 12.)
Any given bank — community banks in particular — may use any number of ratios to measure good performance, but the ROA ratio is arguably the most popular metric used to determine its profitability. As defined by the FDIC, it shows the percentage of how profitable a company’s assets are in generating revenue. The higher the ROA, the more money the company is earning in its assets.
“The ROA ratio allows you to compare across a wider pool of banks, large and small,” said Randy Dennis, president of DD&F Consulting Group in Little Rock. DD&F specializes in providing expansionary, risk management and strategic consulting services to financial institutions. “It’s the most common [metric] to use to determine which banks are performing well.”
According to the FDIC, 97 Arkansas-chartered banks had a collective ROA of 1.34% at the end of 2017. Eight of the 27 private banks on the Business Journal’s list were above that mark. Two of the 13 public banks with operations in the region were at or above that mark.
First Security has been owned since 1977 by the Reynie Rutledge family and has assets of more than $5 billion. The bank’s ROA ratio is annually one of the best in Arkansas, and Dennis had a simple explanation why.
“It’s just a really well-run community bank,” he said. “They run a very tight ship, and they don’t waste a lot of money on expense lines. They’re very conservative. And, they have a very low efficiency ratio, which means they’re very efficient in what they do.”
Dennis said aside from ROA, the first thing he looks for on a bank’s balance sheet to determine success is, of course, net income. By that standard, First Security Bank also ranked near the top among private banks with $124.98 million last year. Only Fayetteville-chartered Arvest Bank — the state’s second-largest lender with $16.75 billion in assets — had a more profitable year among banks on the Business Journal’s private banks list, with net income of $144.15 million.
Arvest, though, ranks No. 18 in ROA ratio at 0.85%. Dennis said that’s partly a byproduct of the bank’s business model and size. In terms of assets, branches (266) and employees (5,747), Arvest is the largest privately-owned bank in the state. And although all Arvest branches are technically part of the same Fayetteville charter, the company maintains 16 separate community banks in Arkansas, Missouri and Oklahoma, each with its own executive team and advisory board.
“They have an infrastructure in communities that you don’t see in big banks,” Dennis said. “They spend money on more people.”
Dennis added that’s not meant to imply multistate public banks like Arkansas-based Bank of the Ozarks, Centennial Bank and Simmons Bank aren’t strong community banks, too, with good branching networks.
“George Gleason, Johnny Allison and George Makris understand good community banking,” he said.
Little Rock-based Central Bank, which has three branches, one of them in Bentonville, showed the greatest improvement in its ROA ratio last year among private banks on the Business Journal list. According to the FDIC, the bank’s ROA was 0.72% in 2016, and 1.41% in 2017.