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3 Arkansas Banks Start 2023 With Varied Profitability

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3 Arkansas Banks Start 2023 With Varied Profitability
Encore Bank’s 4,547-SF office in the Bailey South redevelopment in downtown Winston-Salem, North Carolina, is its newest full-service branch. ( Encore Bank)

The three Arkansas banks that recorded year-end losses produced mixed results during the first quarter of 2023.

Little Rock’s Encore Bank jumped into the black in a big way, registering net income of more than $2 million for the three months ending March 31. That’s the largest quarterly profit for the former Capital Bank since it rebranded four years ago under new leadership and an expanded investment group.

Total assets at Encore, known as the fastest organically growing bank in the country, more than doubled during the past 12 months

The leap from $1.8 billion in the first quarter last year to more than $3.8 billion this year was accompanied by Encore Bancshares Inc.’s third capital raise since 2019.

Meanwhile, the interest rate turbulence Bank of England and Bank of Little Rock encountered in 2022 continued to buffet their balance sheets. Both lenders recorded first-quarter losses while cutting staff amid a residential mortgage market still in flux from a rising prime rate.

Led by CEO Chris Roberts, Encore has grown its boutique branch network beyond Arkansas since its 2019 makeover. Its loan pipeline is now spread across 20 markets in eight states.

“We’re focused on earnings and building scale in each of those markets,” Roberts said earlier this year in an interview with Arkansas Business.

First-quarter numbers from 2022 and 2023 show the shift from opening and staffing offices to cranking up loan volume. Interest income mushroomed from $14.5 million a year ago to more than $41 million in 2023. That flipped the profit picture from a $216,000 loss during the first quarter of 2022 to this year’s $2 million record setter.

The earnings boost showed loan production catching up to the in-creased overhead that supported Encore’s expanding footprint. Total interest income ballooned from $14.5 million during the first quarter a year ago to nearly $41.3 million in 2023.

During the first quarter of 2022, Encore spent $8.5 million in salaries and benefits on 246 staffers. This year, revenue was more than adequate to cover the bank’s nearly $11.5 million quarterly payroll with a headcount that had climbed to 313.

Encore opened two full-service branches in North Carolina during the first quarter. The Charlotte office came online in January followed by Winston-Salem in March, according to the Federal Deposit Insurance Corp.

In 2022, the bank added full-service operations in four markets in three states: Fort Worth, Texas; Tampa, Florida; Charleston, South Carolina; and Plano, Texas.

Five loan production offices await transformation into full-service branches while a sixth in Arlington, Texas, is no longer listed on Encore’s website.

Two LPOs are in Colorado (Denver and Boulder) with the other three in Nashville, Tennessee; Raleigh, North Carolina; and Greenville, South Carolina.

Encore Bancshares raised more than $171.8 million between May and December to support the growth of its namesake bank. That 2022 effort followed private placement stock offerings of $50 million in 2019 and $90 million in 2021.

The capital war chest helped propel Encore’s climb up the charts among its peers. At year’s end, the bank ranked No. 297 in the nation and No. 6 in the state in total assets.

Rising Rates & Falling Volume

While Encore’s commercial lending continues to ramp up revenue, a declining residential mortgage market continues to hamper profitability at Bank of England and Bank of Little Rock.

Originating and selling home loans are important components for the business models at both lenders. That line item suffered as the Federal Reserve raised the prime interest rate nine times during March 2022-23. A 10th bump earlier this month isn’t likely to sweeten second-quarter results.

3 Arkansas Banks Start 2023 With Varied Profitability
<p>Dollars in thousands. Source: Federal Deposit Insurance Corp.</p> ()

In the first quarter of 2022, Bank of England reported more than $33.7 million in loan sale gains. A year later, that number fell to $18.8 million.

During that same period, the $450 million-asset lender cut its staff by 320. That resulted in a drop in its first-quarter salaries and benefits from $34.1 million last year to $20.2 million in 2023.

Despite reducing its headcount from 1,254 to 934, the bank started this year with a $2.2 million loss.

As Bank of England was trimming its employee roster by 25%, Bank of Little Rock was making even deeper cuts.

During the past 12 months, Bank of Little Rock reduced its staff by nearly 45% in an effort to return to profitability. The $282 million-asset lender recorded a $341,000 loss for the first quarter even after a hefty staff cut from 129 to 70.

That nearly slashed Bank of Little Rock’s first-quarter payroll in half from $3 million in 2022 to $1.6 million in this year. During that same period, the bank’s quarterly loan sale gains plummeted from nearly $3.2 million to $674,000.

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