Arkansas banks see 25% jump in first quarter net income, post growth in assets and loans

The 104 banks in Arkansas posted cumulative net income of $248 million in the first quarter, up 25% compared to $198 million in the same period of 2015, according to the Federal Deposit Insurance Corporation (FDIC).

The net income growth was brighter than that reported on the national scene as banks heavily involved in energy loans in Texas, Oklahoma and North Dakota reported higher than usual losses in the quarter.

“The U.S. banking industry reported mixed results for the first quarter. By many measures, the industry had a positive quarter. However, noncurrent loans to the oil and gas industry rose sharply and net interest margins remained low by historical standards,” said FDIC Chairman Martin Gruenberg.

He said the first quarter results reflect an evolving economic environment, and despite higher revenue and expanded loan activity, margins remain compressed in many markets which is hindering profitability.

ARKANSAS BANK CONDITIONS
Consolidation in the financial sector continues to reduce the number of active bank filings amid ongoing charter consolidations through mergers and acquisitions. There were three less Arkansas banks in the first quarter than a year ago and 14 fewer than two years ago.

The Arkansas banks also reported steady growth in total assets compared to a year ago. There were $78.372 billion in assets spread among the 104 banks, up 14.2% from the $68.613 billion in assets reported a year ago. The banks also made more loans and handled more deposits than in the previous two years.

Loans held at the end of the first quarter totaled $51.517 billion, up 14.42% from a year ago. Deposits rose 12.69% to $63.63 billion in the first quarter amid higher consumer savings rates and businesses sitting on cash.

While Arkansas banks grew assets, they also helped their balance sheets by shedding more repossessed property held on their books as “other real estate owned.” The banks had $293 million in foreclosures real estate on their books at the end for the first quarter, $90 million less than they held a year ago.

At the same time the banks saw their net loan losses improve a bit from a year ago as fewer borrowers were delinquent and lapsing into foreclosure. The state banking sector had nonperforming assets equal to 1.12% of their total loans, down from 1.4% a year ago. Charge-offs were flat year-over-year.

The net interest margin for the sector in the first quarter widened a bit to 3.95%, from 3.91% a year ago, but is down from 4.01% two years ago.

REGULATIONS, BANK STRENGTH
Arkansas banks employed 20,226 workers in the quarter, compared to 18,992 in year-ago period despite the fewer number of banks. Bankers have told Talk Business & Politics they have added staff in the past two years to handle more responsibilities and paperwork related to increased federal regulatory requirements.

Regulations are costing U.S. community banks an estimated $4.5 billion annually, or 22% of their net income, noted a report conducted in late 2015 in conjunction with the Federal Reserve Bank of St. Louis and the 21st Century Community Banking survey. Last year banks reported that regulatory compliance accounted for 11% of personnel expenses, 16% of data processing expenses, 20% of legal expenses, 38% of accounting and auditing expenses, and 48% of consulting expenses.

Tim Yeager, banking and finance professor at the University of Arkansas, said banks across the state are in much better financial shape than they were before the meltdown in 2008. He said many banks have been required to increase capital equity in order to handle losses should they occur.

In the first quarter bank equity rose to $9.672 billion from $8.444 billion a year ago, and $7.494 billion in the same period of 2014. Looking at 2016, Yeager said the overall economy has some momentum behind it and banks, particularly those with loan operations in high growth areas of the state, are poised to see improved loan demand that should fuel higher earnings.

“I think banks will increase their balance sheets and book more loans this year than last. Those higher loans should drive continued profits as long as losses remain low,” he said.

SMALL AND BIG BANK RESULTS
The FDIC report divided the banks into those with less than $100 million in assets and those with more. There are 27 banks with assets less than $100 million and together they earned $3 million in the quarter, down from $4 million a year ago. After several quarters of shrinking the balance sheet the small banks grew assets in the first quarter to $1.788 billion, up from $1.747 billion a year ago. Loans totaled $977 million in the quarter, up from $914 million a year ago.

The small banks had $29 million in repossessed real estate on their books in the quarter, down slightly from $27 million a year ago. Total deposits held among the 27 banks was $1.523 billion in the quarter, rising from $1.473 billion a year ago.

There were 77 banks in Arkansas with assets over $100 million and those banks grew their earnings in the first quarter to $245 million, up 26.2% from the year-ago period. These banks grew their total assets to $76.584 billion, up 14.5% from the prior year. The banks made $50.54 billion in loans in the quarter, a gain of 21% from the $41.715 billion made a year ago. Deposits grew to $62.108 billion, compared to $54.987 billion in the prior year period.

Lastly the larger banks moved more than $98 million of repossessed real estate from their balance sheets in the quarter leaving them with $264 million in real estate on the books.