Arkansas third-quarter bank income up 8.9%

The 126 FDIC-insured banks in Arkansas reported a combined $502 million in net income during the third quarter of 2012, up from $461 million in the same period of 2011, and well ahead of the $342 million in the 2010 period.

Banking figures released Thursday (Dec. 20) by the Federal Deposit Insurance Corp., also show that the banks in Arkansas supported 18,098 full-time equivalent jobs, a gain over the 17,686 in 2011, and up slightly over the 17,899 in 2010.

The report also showed that Arkansas banks continue to have trouble reducing their real estate owned (REO) provisions, which ballooned when the housing market fell and banks became owners of property, unfinished subdivisions and homes.

REO was $776 million among the 126 banks as of Sept. 30, down from $808 million in the 2011 period, but above the $721 million in 2010.

However, the Arkansas banking sector is in better financial shape. The closely watched return on assets (ROA) was 1.12 as of Sept. 30, up from 1.08 in the 2011 period and well above the 0.81 in 2010. Also, the percent of unprofitable banks fell from 10.24% in 2011 to 8.73% in 2012. The percentage was 10.69 in 2010.

The percentage of Arkansas banks reporting earning gains as of Sept. 30 was 65.08, better than the 61.42 in the 2011 period.

Nationwide, banks insured by the FDIC saw their earnings rise to $37.6 billion, up 6.6% compared to the third quarter of 2011. The FDIC reported that the earnings were the highest since the third quarter of 2006.

“More than half of all institutions (57.5 percent) reported higher earnings than a year ago, and only 10.5 percent reported negative net income for the quarter. This is the lowest proportion of unprofitable institutions in more than five years (since second quarter 2007),” the FDIC noted in its report (large PDF file).

A majority of the nationwide earnings gains came from non-interest income, which was $4.2 billion, or 7%, higher than the third quarter of 2011.

And, nationwide, banks are reducing losses related to REO. Losses on sales of REO during the quarter totaled $932 million, or 81.8% lower than the 2011 period.

Following are other highlights of the FDIC report.
• For the ninth quarter in a row, net charge-offs (NCOs) were lower than a year earlier. Banks charged off $22.3 billion (net) during the quarter, $4.4 billion (16.5%) less than in third quarter 2011.

• The largest NCO declines occurred in credit cards (down $2.8 billion, or 30.4%), and in real estate construction loans (down $1.4 billion, or 61%).

• Charge-offs declined in all major loan categories except 1-4 family residential real estate loans, where NCOs were $1.3 billion (15.5%) higher than a year earlier. This increase was the result of new accounting and reporting guidelines applicable to national banks and federal savings associations concerning the reporting of restructured loans.

• The number of insured institutions reporting financial results declined from 7,245 to 7,181 in the quarter. Mergers absorbed 49 insured institutions, and 12 institutions failed. This is the smallest number of failures in a quarter since fourth quarter 2008.

• For a fifth consecutive quarter, no new charters were added. The last time a start-up bank opened was in fourth quarter 2010.

• The number of institutions on the FDIC’s “Problem List” fell from 732 to 694, while assets of “problem” banks declined from $282.4 billion to $262.2 billion. This is the smallest number of “problem” institutions since third quarter 2009.

• The number of full-time equivalent employees at insured financial institutions declined by 2,352 (0.1 percent) from the previous quarter.