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Small banks, high yields: Peoples Bank of Paragould reports best ROA in state.

COMMUNITIES SUCH AS Paragould, Dierks and Des Arc aren't normally the places to look for the top banks in Arkansas.

But based on return on average assets, three of the top four banks in Arkansas are located in those towns.

Traditionally, Arkansas Business' quarterly ranking of the top banks in the state rates them by total assets. This quarter, however, the banks have been ranked by ROA for 1992.

A detailed formula is used to determine ROA. But, in simple terms, ROA is calculated by dividing net income by average assets. An ROA over 1 percent is considered good.

Peoples Bank of Paragould leads the list with an ROA of 6.52 percent last year. Central Bank & Trust of Little Rock is second with an ROA of 3.62 percent.

Only one bank, First Security Bank of Searcy, is among the largest banks in total assets and has one of the highest ROAs. First Security ranks 21st in total assets with $219.8 million and 10th in ROA with 2.09 percent.

"My experience has been that the smaller banks have the higher ROAs," says Frank Anderson, a banking analyst with Stephens Inc. "Banc One |Corp. of Columbus, Ohio~, which always has the highest ROA in the industry among the major banks, falls in the 1.5 percent range, and that is a phenomenal number."

Charles F. Luter, chairman of the board, and Bob J. Downing, president and chief executive officer, bought First Savings Association in 1991 from the Resolution Trust Corp. and formed Peoples Bank of Paragould.

Their holding company, Spring River Bancshares Inc., also owns Peoples Bank of Imboden. Luter is also chairman of the board of Tyronza Bancshares Inc., which owns First Delta Bank in Marked Tree.

"We bought |First Savings~ and did a good job of evaluating the loans we were buying," Downing says. "We've been pretty fortunate in collecting some of the bad loans. To do that, you've got to be hard and you've got to be easy, too. You have to survey each situation and give them a chance to pay."

Downing, 65, had no banking background until he joined Luter to acquire the Paragould and Imboden banks. Downing says he has been in business all his life, including stints as a gasoline distributor, farmer and contractor.

"I wrote the |Federal Deposit Insurance Corp.~ in Memphis and told them when the bank in Imboden went broke, I wanted to bid on it," says Downing, who lives in Imboden. "In a little town, you know what's going on.

"If a guy had a note due, say for $100,000, and he couldn't make the payment on it, they'd loan him the money to make the payment and extend it for a year."

Conservatism Required

Larry Mashburn is the CEO at two banks with the highest ROAs, First National Bank of Howard County and First National Bank of De Queen. First National Security Co. of De Queen, with John H. Hendrix as chairman of the board, owns those two banks, as well as the Bank of Ashdown, Citizens National Bank of Nashville and the Bank of Waldron.

"We consider ourselves a fairly conservative organization," Mashburn says. "We have a goal to exceed an ROA of 1.5 |percent~ in all our banks. In fact, our holding company averaged 2.02 |percent~ return on assets last year. We've always exceeded our peer group for the last five years."

Mashburn says Arkansas banks must be conservative because of the state's usury law.

"But we don't turn loans down because of the usury law," he says. "In fact, we make quite a few loans below the maximum amount, and that's generated because of competition."

Anderson says he was shocked when he came to Arkansas five years ago from Texas and discovered how well the banks performed with the usury law.

"Very few of them lose money," Anderson says. "They are forced to operate efficiently because they are capped on the amount of interest. They are forced to do a better job of lending because they can't afford losses when they are only charging 8 percent."

Of the five largest banks in Arkansas based on total assets, only three had ROAs above 1 percent. First Commercial Bank of Little Rock, which had the most assets last year, had an ROA of 1.39 percent. Twin City Bank of North Little Rock had an ROA of 1.29 percent. Simmons First National Bank of Pine Bluff had an ROA of 1.27 percent.

Little Rock's Worthen National Bank of Arkansas had an ROA of 0.89 percent. Union National Bank of Little Rock had an ROA of 0.55 percent.
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Title Annotation:return on assets; Arkansas
Author:Smith, David (American novelist)
Publication:Arkansas Business
Article Type:Industry Overview
Date:May 31, 1993
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