Bank profit recovery shows progress in 2012

The community banking sector across Northwest Arkansas held on to 14.5% more profits in 2012 than in the prior year. The group surveyed by The City Wire includes 17 banks either locally-based or those having a large presence in Benton and Washington counties.

The banking group posted cumulative net income of $328.274 million last year, a $41.78 million improvement over 2011, according to the call reports filed with the Federal Deposit Insurance Corp at year-end.

As a group earnings improved as loan losses subsided among the vast majority of the banks reporting. Just two banks out the 17 surveyed posted net losses for the year as a result of provisions set aside to offset rising loan delinquencies.

“Banks turned the corner a few quarters ago for the most part and are starting to see higher profits on the bottomline. As real estate losses shrink, banks are seeing higher quality credit on their balance sheets which means there are fewer loan loss provisions needed and that’s having a positive impact on the net income,” said Tim Yeager, Arkansas Bankers Chair at the University of Arkansas.

Yeager said local banks are also benefiting from modest loan growth as the economy shows glimpses of strength. He expects growth in 2013 to remain slow but said bankers can still make money in this climate if they aren’t having to write down real estate values.

As the local real estate market has improved, Yeager said, bankers have been able to sell some off properties at higher prices and help the quality of the balance sheets.

Six of the banks surveyed have assets in excess of $1 billion and comprise the larger bank group whose results are discussed below. The mid-size and smaller bank results will be reviewed over the next two days in separate stories.

The larger bank group – Arvest Bank, First Security, Bank of the Ozarks, Liberty Bank, Simmons First National and Metropolitan National – posted cumulative net income of $315.711 million during 2012.

Profits rose 4.93% for this group as a whole with clear winners and losers in this category.

SIMMONS FIRST NATIONAL
In terms of better year-over-year profits Simmons First National Bank led the group posting a 39.6% improvement from a year ago. Pine Bluff-based Simmons First National pocketed $17.244 million for the full year with a return on assets of 0.92%.

Simmons trimmed net charge-offs during 2012 to $3.615 million, down from $5.681 million a year earlier. The bank also made $6 million less in provisions to loan loss reserves during 2012.

The bank also benefited $735,000 in net profits from the Oct. 19 purchase and assumption agreement with the FDIC buying $180 million in assets and assuming substantially all of the deposits and other liabilities of Excel Bank of Sedalia, Mo.

"There are many positives with our earnings announcement. The net income growth is a major accomplishment," CEO J. Thomas May noted recently in during the company’s earnings call. "This was the second consecutive quarter of organic loan growth. While not enough to call a trend, we believe it is very positive in that the growth is coming throughout our markets in Arkansas, Kansas and Missouri. Needless to say, the economy remains in a slow recovery, which makes this growth even more significant,"

LIBERTY BANK
Liberty Bank also posted strong 2012 results with net income growth of nearly 24% from the prior year. Liberty’s net income rose to $23.354 million, up from $18.840 million in 2011. The positive earnings bumped up the bank’s return on assets 0.84%, nearer to the 1% industry benchmark.

“We are quite pleased with the 2012 results and we have budgeted for another good year in 2013,” said Howard Hamilton, regional president and chief operating officer for Liberty Bank.

He said interest rate margins were better in the first half of 2012 and the overhanging Dodd Frank regulations did not have as negative of an impact on earnings as originally thought and budgeted for.

“We have had to add more staff – two full-time employees – and the training is constant. We are continually rotating staff through the training for the ongoing changes,” Hamilton said.

Liberty Bank’s bottomline also benefited from lower net losses and non-performing loans, which dropped by more than $30 million in the year-over-year period.

Roughly 20% of Liberty’s total $1.8 billion in loans are in the Northwest Arkansas market according to Hamilton.

He agreed real estate prices are starting to show improvement and loan demand is on the slight upswing, both positive signs for 2013.

ARVEST
The largest bank in the region with more than $13 billion in assets, Arvest showed a net income of $98.097 million in 2012. Net profits rose 17.8% from the prior year. The bank’s return on assets were 0.75% last year, slightly below the industry bench mark 1%.

Arvest posted its largest year in history for the bank’s mortgage lending division. The bank originated more than 17,000 mortgage loans – refinance loans and purchase money loans – totaling $2.56 billion in 2012 compared to $1.58 billion in 2011, a 62% increase.

The bank set aside $42 million in loan loss provisions, down from $77.67 million in the prior year. Net charge-offs fell by $20 million to $50.89 million at the end of 2012, according to the FDIC call reports.

FIRST SECURITY
Few banks in Northwest Arkansas boast a return on assets as high as First Security. At 2.39% the Searcy-based bank continues to set the bar high among its competitors in terms of profitability.

The industry benchmark for ROA is 1%, and year-in and year-out First Security is above 2%. In 2012, the bank posted net income of $98.372 million, up 12.18% from the prior year.

With $4.12 billion in assets the bank had just $12.2 million in non-accrual loans with another $7.6 million past due. Distressed loans were down from $23 million during 2012.

Jim Taylor, president over the Northwest Arkansas market, said the local market recovery is underway. He describes a “U” shaped recovery and puts most banks moving up from the bottom curve along the lower right-hand leg.

“I see slow growth continuing amid more regulation for the banking industry coming out of Dodd Frank,” Taylor said.

He said most banks are in better shape today with respect to capital and balance sheet health, but looming regulation with increased reporting, documents and disclosure are an issue of concern going forward.

BANK OF OZARKS
Bank of the Ozarks, like Simmons and Arvest, have been on a mission to expand their footprint outside of Arkansas in recent years.

But Bank of the Ozarks still maintains a clear presence in Northwest Arkansas and regional president Ross Mallioux says the longer term outlook here is bright.

“We see things improving, the compass needle is pointing in the right direction after a fairly lengthy correction,” Mallioux said.

He said real estate prices are improving but the values are not rising equally across the board.

“For the most part housing has rebounded but commercial is the laggard,” Mallioux said.

Bank of the Ozarks posted net income of $80.589 million in 2012. Net profits fell from $103.51 million 2011, but the bank’s return on assets remains high at 2.14%, against the 1% industry benchmark.

George Gleason, chairman and CEO, said in the company’s recent earnings call, “The quarter just ended was an excellent conclusion to an excellent year. On the last day of the year, we closed our first traditional acquisition since 2003. This was our eighth acquisition, including FDIC-assisted transactions, in the past three years. Our fourth quarter loan and lease growth, even excluding loans acquired in acquisitions, was one of our best ever. For the full year of 2012, our loans and leases, excluding loans acquired in acquisitions, grew $235 million. Our strong organic loan and lease growth, combined with our excellent net interest margin, good efficiency ratio and favorable asset quality, made for a great finish to 2012 and position us well for the future.”    

The bank has just over $4 billion in assets and last month acquired the First National Bank of Shelby, N.C., a transaction that occurred in 2013.

For 2012 Bank of the Ozarks had net charge-offs of $11.74 million, nearly even with the prior year. The bank reduced its non-performing loans by $76 million in the year-over-year period. At the end of 2012 the bank had $146 million in non-accrual loans and another $46.2 million in past due loans.

METROPOLITAN NATIONAL
Little Rock-based Metropolitan National Bank posted a net loss of $1.942 million in 2012, while the loss further eroded bank’s equity capital, the results were far better than the $4.818 million loss booked in 2011.

The bank has suffered heavy losses during the past four years relating primarily to real estate loans made in Northwest Arkansas between 2006 and 2008.

Bank management made good progress whittling down risky exposure in 2012 as non-accrual and past due loans totaled $36 million at year-end. This is down from $84 million at the end of 2011.

Metropolitan charged-off $2.826 million last year, down sharply from the $10.34 million in net losses recorded in 2011.

Lunsford Bridges, CEO of the bank, said the past year was positive for Metropolitan.

“We reduced the bank’s losses by more than 50% and decreased total non-performing assets by $81 million, a 44% reduction from the prior year. Our year to date loss is consistent with our strategy to reduce non-performing assets without reducing capital levels,” Bridges added.

He said the bank has managed to improve its core capital ratios.

Despite that improvement, the bank remains out of compliance with the capital guidelines mandated by regulators in 2008 and restated again in 2012.

“The continued recovery of the real estate market in Arkansas, the dedication of bank staff and loyalty of our customers have certainly aided in the significant improvement in the financial position of Metropolitan. Our team is excited about serving our customers in 2013 and enhancing the value of our relationships,” Bridges said.

BANK EARNINGS
ARVEST  $13.15 billion in assets
2012: $98.097 million
2011  $83.281 million
17.8%

FIRST SECURITY  $4.12 billion in assets
2012: $98.372 million
2011: $87.686 million
12.18%

BANK OF OZARKS  $4 billion in assets
2012: $80.589 million
2011: $103.519 million
-22.15%

LIBERTY BANK  $2.79 billion in assets
2012: $23.354 million
2011: $18.840 million
23.95%

SIMMONS FIRST NATIONAL  $1.87 billion in assets
2012: $17.244 million
2011: $12.348 million
39.6%

METROPOLITAN NATIONAL $1.01 billion in assets
2012: $-1.942 million
2011: $-4.818 million