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Tuesday, September 02, 2014, 2:58 a.m.
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State banks lauded on shedding idle loans

By David Smith

This article was published June 15, 2014 at 2:44 a.m.

Arkansas banks by the numbers

Arkansas-based big bank chart

Arkansas banks are doing a better job reducing the number of nonperforming loans than banks in neighboring states, a vice president with the Federal Reserve Bank of St. Louis says.

A nonperforming loan is one that is more than 90 days past due.

"Generally Arkansas banks recovered relatively quickly from some of the real estate issues, so its nonperforming loan levels are pretty decent right now," said Julie Stackhouse, senior vice president with the St. Louis bank.

Nonperforming loans at Arkansas' 118 banks totaled $770 million in the first quarter this year, down about 25 percent from the first quarter last year. The banks' nonperforming loans calculated as a percentage of total loans was 1.77 percent in the first quarter, down from 2.39 percent in the first quarter last year.

Some banks are still carrying nonperforming loans that are covered in part by the Federal Deposit Insurance Corp., Stackhouse said. Primarily, those are associated with loans made by failed banks that have been acquired by Arkansas banks, such as Arvest Bank of Fayetteville, Bank of the Ozarks of Little Rock, Centennial Bank of Conway and Simmons First National Bank of Pine Bluff.

"By and large, Arkansas banks are doing well," Stackhouse said.

That is most visible when considering the banks' net income as a percentage of their assets, better known as the banks' return on assets, she said.

Arkansas banks had a return on assets of 1.19 percent in the first quarter, considerably better than the 1.01 percent average of all banks nationally. A 1 percent return on assets is considered good for banks in this low interest rate environment, Stackhouse said.

"So there is a real good story in terms of the overall performance of Arkansas banks," Stackhouse said. "First of all, Arkansas [banks'] nonperforming loans continue to come down. Second, the earnings performance is really solid at this point. And third, we're seeing a little bit of loan growth, particularly some loan growth in construction and land development loans, and in commercial and industrial loans."

Arkansas banks' overall loans in the first quarter improved about 4 percent to slightly more than $38 billion. Construction and land development loans were almost $4 billion in the first quarter, up 6.8 percent from a year earlier. Commercial and industrial loans totaled $4.7 billion in the first quarter, a 7.1 percent improvement compared with the same period of 2013.

Northwest Arkansas banks are making a good recovery from the recession, when several banks were affected by the major downturn in the real estate market in that region of the state, Stackhouse said.

The reason Arkansas banks have done relatively well since the recession is because bankers in the state generally are financially conservative, said Candace Franks, commissioner of the Arkansas State Bank Department.

"Arkansas bankers know their customers and are generally focused on their communities," Franks said.

As financial measurements of the state's banks improve, the number of banks based in Arkansas continues to shrink. In March 2000, there were 205 banks based in the state, and now there are 118, a 42 percent decline, according to the FDIC.

At least nine more will disappear later this year, including five Simmons banks that are being folded into the main Simmons First National headquarters in Pine Bluff. That will drop the total to 109 banks, a loss of 47 percent -- almost half -- of the state's banks since 2000.

The acquisitions in the past year illustrate banks with plenty of capital and management willing to take advantage of opportunities, Franks said. Those purchases include Home BancShares of Conway buying Liberty Bancshares of Jonesboro, Bank of the Ozarks buying Summit Bank of Arkadelphia, and Simmons First National buying Metropolitan National Bank of Little Rock, Delta Trust & Bank of Little Rock and banks in Tennessee and Missouri.

"I think we'll continue to see a lot of consolidation," Franks said. "Whether the perception is correct or not, I think some bankers feel like achieving a certain size is better for their institution, so they look for merger partners."

Some banks are selling because the ownership is getting older, Franks said.

"I think we'll also see that continue to a degree," Franks said.

Nationally, the number of banks has dropped by a third to 6,730 since March 2000.

"It is definitely a trend," Stackhouse said. "The real crux of [the decline] is mergers and acquisitions. We've always had quite a few mergers and acquisitions prior to the [recession] but some of that was buffered by the fact that when you lost a [bank] there was often a new [bank] that served to offset some of the decline in headquartered offices."

Arkansas had a handful of banks that were founded in the late 1990s and early 2000s, such as Centennial Bank in Conway, Liberty Bank in Jonesboro, Summit Bank in Arkadelphia, Legacy National Bank in Springdale and Petit Jean State Bank in Morrilton.

No new banks have sprung up in Arkansas in recent years.

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