Northwest Arkansas bank profits dip amid competition, regulatory costs

The local economy is showing signs of strength but area bankers said the competition for new loans is as fierce as ever as they also continue to face regulatory-related expenses that pressure margins and reduce profits.

Fifteen banks either based in Northwest Arkansas or with a substantial percentage of deposits in Benton and Washington counties cumulatively have pocketed $131.453 million in the first half of 2014. Profits are 5.153% lower than they reported in the same period last year, according to financial reports filed with the Federal Deposit Insurance Corporation. Half of the 15 banks reported less profits from a year ago.

The banks polled in this report rate the local economy between a B and B- through the first half of this year and they expect similar results in the bank half.

REGULATORY ANGST
This local banking sector includes the largest, midsize and small community banks, all of which expressed concerns about higher regulatory costs to comply with the Dodd Frank legislation. Don Gibson, CEO of Legacy Bank in Springdale, said they have added a full-time compliance professional to try and create a safe haven in the midst of burdensome regulation. 

“I recently attended training in Memphis. The very first slide of the training showed the number of pages in the Dodd Frank legislation against all other banking acts. Content wise, Dodd Frank has volumes of requirements that will end up costing consumers more in the long run,” Gibson said.

He said capital requirements will likely force more consolidation among the smallest of banks because of the mark-to-market requirements of tier 1 and tier 11 capital reserves. In addition, Gibson said the method future loss rates are to be calculated with Dodd Frank compliance requires more capital.

Legacy National Bank reported net income of $981,000 through the first half of this year, up 5% from a year ago.

Bob Taylor, CEO of Parkway Bank in Rogers, said his small bank has added two new people to help with compliance issues and they are also outsourcing some of the added workload. 

“I think we as bankers have a done a poor job educating the pubic at large about the looming costs of implementing Dodd Frank legislation, which was intended to protect consumers from banks,” Taylor said, adding that community banks don’t typically abuse consumer rights.

“We need them and they need us and this added regulation is costing everyone more and could mean less services for consumers in the end,” Taylor said.

Parkway Bank reported $449,000 in net profits through two quarter of 2014, down slightly compared to $474,000 in same period last year. 

LOAN DEMAND, PERFORMANCE
The bankers said loan demand in the local market is improving, but there is not enough quality deals to go around. That said, a few of the bankers shared local projects they were proud to be financing. Mary Beth Brooks, CEO of the Bank of Fayetteville, said they are handling financing for the new Whole Foods store under construction in Fayetteville.

“We are really proud of that and the new jobs this project will add to the local community,” Brooks noted in an email.

Brooks added that the Bank of Fayetteville has pulled through the recovery and is doing well.

“Our numbers look good and are regulators are happy. It’s a good place to be,” she said.

Bank of Fayetteville had net profits of $1.254 million in the first half of 2014, down about 31% compared to the same period in 2013.

Taylor said Parkway Bank is financing two large commercial projects for the local retail vendor community from the ground up.

Gary Head, CEO of Signature Bank, recently told The City Wire he was excited to finance a manufacturer’s move from Asia to Northwest Arkansas. Creative Things has put 64 people to work with plans to add 40 more manufacturing jobs in Lowell in the next six months.

Signature Bank was one of seven in the 15 to show a net income gain in the first half of 2014 compared to the same period in 2013. The bank recorded $1.031 million in net income through the first of half of this year, up 92% from the same period in 2013. 

While increasing profits was not an easy feat, the 15 banks did report better overall loan performance compared to a year ago. The cumulative loans reported as non-accrual through half of this year totaled $184.201 million, down 39% from $305.892 million in the same period of 2013.

Real estate still held as non-performing assets among the 15 banks totaled $257.98 million at the end of June, down from $283.46 million in the year-ago period.

CONSUMER ASSESSMENT
Consumer spending comprises nearly 70% of the nation’s gross domestic product so any change in behavior is of interest to bankers and those depending heavily on consumers and their desire to spend.

Craig Rivaldo, president of Arvest Bank in Benton County, said local mortgage activity for home purchases remains strong, but there has been a slowing with some refinances.

“Our consumer and commercial loan activity has been good and our wealth management division has had a great year thus far,” Rivaldo said.

For the bank as a whole, Arvest profits were down in the first half of the year to $56.644 million, compared to $69.646 million earned in the same period of 2013. 

The local bankers canvassed for this report said they do sense tightening in consumer sentiment, which is perhaps linked to uncertainties in health care costs and stagnate wages in many employment sectors.

The Arvest Consumer Sentiment Survey also found Arkansas consumers planning to save more in the coming months, more so than consumers polled in Missouri and Oklahoma.

Banker consensus is that interest rates will begin to move higher in 2015, which they fear will have a negative impact of their operating margins and hinder borrowing.

“With a large portion of our mortgage activity in purchases versus refinance, I believe the mortgage activity will be affected slightly by higher rates. But, consumers moving into Northwest Arkansas should continue to buy houses. That said, I believe higher rates could have an adverse impact on commercial and retail activity,” Rivaldo said.

Gibson said higher rates by the second half of 2015 will limit a consumer’s ability to sell their property and move up, even if their home values continue rising modestly.

BANK NUMBERS – JAN.-JUNE 2014
Arvest Bank 
2014: $56.644 million
2013: $59.646 million
Return on Assets: 0.78%

First Security Bank
2014: $49.246 million
2013: $50.314 million
Return on Assets: 2.23%

Signature Bank
2014: $1.031 million
2013: $536,000
Return on Assets: 0.43%

Bank of Fayetteville
2014: $1.254 million
2013: $1.814 million
Return on Assets: 0.75%

Legacy National Bank
2014: $981,000
2013: $933,000
Return on Assets: 0.71%

Simmons First National
2014: $15.046 million
2013: $7.423 million
Return on Assets: 0.86%

Chambers Bank
2014: $2.149 million
2013: $3.383 million
Return on Assets: 0.56%

Pinnacle Bank
2014: $264,000
2013: $77,000
Return on Assets: 0.56%

First Bank
2014: $1.485 million
2013: $1.212 million
Return on Assets: 0.95%

Decatur State Bank
2014: $-444,000
2013: $-464,000
Return on Assets: -0.65%

Today’s Bank
2014: $1.194 million
2013: $675,000
Return on Assets: 2.36%

Bank of Gravett
2014: $659,000
2013: $139,000
Return on Assets: 1.06%

United Bank
2014: $816,000
2013: $955,000
Return on Assets: 1.18%

Parkway Bank
2014: $449,000
2013: $474,000
Return on Assets: 0.72%

First Western Bank
2014: $679,000
2013: $750,000
Return on Assets: 0.44%