First Quarter Arkansas Bank Income Up 30%

A reduction in real estate holdings and the monetary value of problem loans is the top reason why Arkansas bank income was up more than 30% during the first quarter of 2013.

The 126 financial institutions operating in Arkansas during the first quarter posted cumulative net income of $197 million, according to a May 29 report from the Federal Deposit Insurance Corp. (FDIC). The first quarter income was up 30.6% compared to 2012 first quarter income of $147 million, and well ahead of the $137 million tally for the first quarter of 2011.

However, the income gains among Arkansas banks narrowed during the quarter. Only 44.4% of the 126 reporting institutions posted income gains, down from 61.9% during the 2012 quarter and down from 59.06% in the 2011 quarter. Also, 10.32% of Arkansas banks reported losses in the quarter, a sizable increase compared to the 3.17% during the 2012 quarter and the 6.3% in the 2011 quarter.

Nationally, net income for all FDIC banks totaled $40.3 billion, up 15.8% compared to the first quarter of 2012.

“The primary reason for improvement in earnings is the reduction in loan loss provisions. Charged-off loans have declined this year as the economy has gradually improved and the real estate markets have improved,” said Sam T. Sicard, president and CEO of Fort Smith-based First Bank Corp.

The bank holding company operates several banks, including First National Bank of Fort Smith and First National Bank of Rogers.

LOAN DEMAND
Sicard said low interest rates and “relatively weak loan demand” have put negative pressure on the ability to generate interest income. But the weak demand may not be a persistent problem.

“Loan demand has strengthened somewhat in the (second) quarter, particularly in Northwest Arkansas where the increase in home sales has created a stronger demand for residential construction loans,” Sicard explained.

Real Estate Owned (REO), a key banking industry metric in the years following the real estate bubble, has improved for Arkansas banks. During the first quarter of 2013, REO totaled $740 million among the 126 reporting banks. The amount is down from $778 million and down almost 10% compared to the $820 million in the first quarter of 2011.

The picture was similar nationwide.

The amount of loans and leases held by all U.S. banks that were 90 days or more past due or in non-accrual status declined by $15.7 billion during the first quarter of 2013. The improvement was led by residential mortgage loans, where problem loan balances fell by $8.7 billion (5%), and troubled real estate construction and development loans declined by $2.2 billion (12.7%).

“At the end of March, non-current loan balances totaled $261.2 billion, the lowest level since year-end 2008,” noted the FDIC report.

ALL METRIC GAINS
Don Gibson, CEO of Legacy National Bank in Northwest Arkansas, said the first quarter of 2013 was better than 2012 in all metric areas.

“OREO continues to be resolved except for raw land. Loan demand is not robust but improving and should continue improving throughout the year. I do expect profitability to continue to improve with some volume increases and continue resolution of non-earning assets,” Gibson said.

Also reporting improvements is Little Rock-based Metropolitan National Bank, one of the harder hit banks in Arkansas when the Northwest Arkansas real estate market fell apart in 2008. The bank posted first quarter profits of roughly $622,000, reversing a $1 million loss in the prior-year period.

“Our recent profits are due to the bank shrinking non-performing assets by more than $46 million within the past six months,” said Lunsford Bridges, president and CEO of Metropolitan National Bank. “We anticipate Metropolitan’s trend of lowering problem assets and increasing core earnings to continue throughout 2013 and beyond.”

Like Sicard with First Bank Corp., Bridges is also seeing an increase in loan demand.

Jim Patridge, based in Fort Smith and president of the West/South Division of Tupelo-based BancorpSouth, said improvements in the housing market are helping boost profits. However, he said “continuing compression” of margins from the record low interest rates and a growing regulatory burden could be problematic for the banking sector.

Patridge said further reductions in REO and other improvements have continued into the second quarter.

NORTHWEST ARKANSAS GROWTH
Signature Bank, with primary operations in the healthy Northwest Arkansas economy, reported a first quarter profit of $288,000, which was more than expected by bank officials.

“Our real estate holdings are way down. We have just one home in Bentonville and three fairly large commercial pieces that are located in prime locations which are the majority of our non-performing assets,” said Gary Head, CEO of Signature Bank. “We are encouraged by what we are seeing in the residential market. Several new home builders we lend to can’t keep up with the demand. We lend on a spec house and it’s sold before completion given the tight supply.”

Head said loan demand is improving because of business expansions and increased investments in the residential rental market. He expects bank profits to improve throughout the year, saying “community banks are mirror images of the neighborhoods they serve and it’s good see to growth and business expansion across the entire region.”

Arkansas banking statistics from the FDIC report include:
• Total employees (full-time equivalent) during the first quarter of 2013 numbered 18,827, up from 18,001 in the first quarter of 2012 and more than the 17,591 during the 2011 quarter;
• Total asset value during the first quarter among the Arkansas banks was $62.45 billion, ahead of the $60.054 billion in the first quarter of 2012; and,
• Total deposits during the first quarter was $51.367 billion, up from the $49.367 billion in the 2012 quarter and well ahead of the $45.993 billion in the 2011 quarter.

Nationwide stats from the FDIC report include:
• The number of FDIC-insured institutions reporting financial results fell to 7,019 in the first quarter, down from 7,083 in fourth quarter 2012;
• Mergers absorbed 55 institutions during the quarter, and four institutions failed. (This is the smallest number of failures in a quarter since second quarter 2008.);
• For a seventh consecutive quarter, no new insured institutions were added;
• Except for charters created to absorb failed banks, there have been no new charters added since fourth quarter 2010;
• The number of insured institutions on the FDIC’s “Problem List” declined for an eighth consecutive quarter, from 651 to 612; and,
• The number of full-time equivalent employees at insured institutions fell from 2,110,276 to 2,102,839 during the quarter.