Six local banks among those with the largest market share in the Fort Smith metro area combined to earn $463.450 million in 2011. This marked a year-over-year improvement for five of the six banks from 2010, according to year-end financial reports filed with the Federal Deposit Insurance Corp.
As a sector, the same six banks posted a combined net loss of $156.021 million in 2010. The local banks mirrored the ongoing recovery at work on the national scene throughout 2011.
The local banks are instep with a national trend according to FDIC Acting Chairman Martin J. Gruenberg. He said 2011 represented the second full year of improving performance by the country’s banking system. For the full year, income at all banks insured by the FDIC totaled $119.5 billion, up 39.8% compared to 2010. Only 15.5% of U.S. banks reported a loss in 2011, down from 22.1% in 2010.
Overall, he said banks reported higher positive aggregate earnings while the numbers of “problem'” banks and failures declined by 1.08%. Loan balances also increased in the final three quarters of the year.
Gruenberg also noted that insured institutions of all sizes continued to make substantial progress in improving their profitability.
Arvest, Regions and BancorpSouth benefit from serving multiple markets outside the state and each posted better results in 2011.
Smaller community banks such as Farmers Bank and Citizens Bank & Trust each recorded higher net income in 2011 on improved loan quality and fewer charge-offs than in the prior year.
First National Bank of Fort Smith reported slimmer year-over-year profits linked to $10.6 million in delinquent loans charged-off last year, much higher than the $2.9 million charged off in 2010. First National earned $11.628 million in 2011, down 2.39% from a year ago.
Despite First National’s lower 2011 net income, the bank still boasted one of the highest return on assets among the six banks surveyed. Return on assets (ROA) is the metric used to determine a bank’s profitability relative to its asset size. First National posted an ROA of 1.07%, slightly above the 1% industry benchmark.
Citizens Bank & Trust is the deemed the most profitable among the six with an ROA of 1.38% in 2011. This bank earned $5.053 million in 2011,up 6.98% from the prior year.
The other four banks while, profitable, did not achieve ROAs above 1% last year. The average ROA among federally insured banks across the country rose to 0.76% from 0.64% a year ago.
Looking ahead to 2012, local bankers remain somewhat concerned about ongoing job losses in the Fort Smith market and the effects that may have on loan demand and credit quality.
“Although 2011 was a better year for most banks, I believe we all must be concerned with the impact of layoffs and the effect they will have on our region, said Craig Rivaldo, President and CEO for Arvest Bank in the Fort Smith area.
With the layoffs come a reduction in consumer spending which will have a ripple effect to the retailers. Rivaldo said.
“I have concern about the general welfare of our working community. This potential increase in unemployment could have a negative impact to the local banks in the areas of increased ‘past due’ loans which have a direct impact to earnings,” he added.
Saundra Lockhart, vice president of marketing for BancorpSouth, said loan demand has been weak in the Fort Smith market, but consumer loan performance has been consistently good.
Rivaldo said mortgage loan demand has been strong as a result of record low interest rates. He said refinance activity has been the majority of that demand uptick.
“Arvest Bank has been able to improve many of our consumer customers personal cash flow by lowering their monthly payments through refinance options,” Rivaldo said.
Bankers say heightened regulatory oversight from the Financial Reform Bill (Dodd/Frank) continue to present headwinds for banks and the recovering economy.
“Many business owners are sitting on cash and not wanting to spend for new equipment or building upgrades because of the uncertainty in the economy and the uncertainty about increases in taxes that could overwhelm their business,” Rivaldo said.
He said the ongoing uncertainty is a setback to hiring and another hurdle for the recovering economy to clear.