Banks in Northwest Arkansas slowly recovering, expert says

Foreclosures hit banks hard during recession, expert says

Northwest Arkansas banks are slowly recovering from the recession and effects from it that hurt the area's economy, said a vice president with the Federal Reserve Bank of St. Louis.

Eight banks are based in Benton and Washington counties and another 23 have branches in the area, according to Dec. 31 data from the Federal Reserve. Almost 180 bank branches have $8.1 billion in deposits in the two counties.

Thirteen banks were based in the two counties and 15 banks had branches when the recession began in 2007. Some of those disappeared because their parent company folded their charters into one location. Some were sold, and one bank failed, ANB Financial of Rogers.

The 28 banks in 2007 had 196 branches and $8.4 billion in deposits in the two counties.

"There are signs of recovery in the banks" based in Northwest Arkansas, said Julie Stackhouse, senior vice president with the St. Louis bank. "In some instances there are still some fairly high levels of foreclosed real estate on the books. But that is something you would expect to see after a downturn like we saw," she said.

Tim Yeager, associate professor of finance at the University of Arkansas, said it's a bit surprising there are now more banks in Northwest Arkansas than when the recession hit.

"I think it will be very difficult for banks here to sustain their profitability because there is a lot of competition," he said.

Increased competition could make the area prone to overbuilding as banks need to generate loans to increase assets, he said. Lax lending practices by banks looking to grow assets quickly was one of the causes of the recession that officially ran from December 2007 to June 2009.

Yeager said he doesn't expect today's banking growth to push lending standards that far, but it could be easier for developers to get loans here than they could elsewhere. The current market growth is also different because new entries into the market tend to be large banks opening one or two branches, he said.

"They are just putting small footprints here," he said, adding that the smaller presence would make it easier for them to leave the market if things don't work out.

Northwest Arkansas is experiencing economic growth, Stackhouse said.

"But depending on where those parcels of real estate are specifically located, the outcome for any bank could be varied," she said. "So, yes, we see progress, but the recovery is not complete."

The real estate market has improved tremendously in Northwest Arkansas, Stackhouse said.

"Of course, prime real estate is much easier to market than something that is not quite as well developed," she said. "As real estate conditions continue to improve in Northwest Arkansas, so will those banks. It's just a question of how fast."

Even at the height of the recession, Benton and Washington counties still had large population growth, said Craig Rivaldo, Arvest Bank's chief executive officer in Benton County. The region's estimated population passed 500,000 last year.

"Banks may see great potential here," Yeager said. "We could see another 20-year population growth run."

The recession and the economic downturn afterward was tough, Rivaldo said.

"No bank was immune to the downturn in the economy," he said. "That was pretty evident."

Arvest continued to make loans throughout the downturn, he said.

"And we didn't sell off any branches or close any branches" from 2008 to 2014, he said.

Arvest, the largest bank based in Arkansas with $14.9 billion in assets, took a conservative stance during the recession with its reserve for loan losses and built a large loan-loss reserve balance, Rivaldo said.

Banks are required to set aside a reserve for potential loan losses on every loan they make. If the quality of the loan is downgraded, the reserve for possible loan loss has to be increased.

"But now, with the economy rebounding, with the asset quality of loans improving and problem loans reduced, it has allowed Arvest to be in a position to have excess reserves," Rivaldo said.

With fewer loans defaulting, the large amount of loan-loss reserves helped improve earnings, he said.

Smaller, community banks are also feeling the effects of an improving economy. Today's Bank recently broke ground on a new branch in Springdale.

Larry Olson, president and CEO, said the bank has $104 million in assets. The bank is chartered in Huntsville, where it operates two branches. It also has two Fayetteville branches.

A Springdale branch is opening at the intersection of Interstate 49 and Sunset Avenue, in the Ozark Center Point Place. Olson said he expects the bank to open Aug. 1.

Olson said the new site was the perfect place to expand because the center is owned by Mathias Properties. Sam Mathias also owns the bank's holding company, Mathias Bancshares Inc. of Springdale.

Today's Bank is not a new to the market, but it does have a new name. The financial institution operated as First State Bank of Northwest Arkansas until making the name change early last year.

Many factors played into the decision to change names, including the original name being a mouthful, Olson said.

"And there were six other First State banks in the state and it was confusing to some," he said. "We wanted to make it a short, fresh name to re-brand the bank. We did our research and Today's Bank was no where else in the country."

He said the name change will also make it easier to break into other markets down the road. There are no plans now, but you always need to be ready to act, Olson said.

"You know the old saying: Acquire or be acquired," he said. "We don't intend to be acquired."

Information for this report was contributed by Christie Swanson of the Northwest Arkansas Democrat-Gazette.

NW News on 03/29/2015

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