FDIC: U.S. quarterly banking profits up 25%, Arkansas bank profits up 26%

Commercial banks and savings institutions in Arkansas and the U.S. posted healthy profits of more than $60.2 billion in the second quarter, up more than 25% from a year ago on robust loan performance and lower taxes, according to the FDIC’s latest banking profile.

For the period ended June 30, the Federal Deposit Insurance Corporation (FDIC) reported aggregate net income of $60.2 billion in the second quarter of 2018, up $12.1 billion from $48.1 billion in the second quarter of 2017. Of the 5,542 insured institutions that posted financial results, more than 70% reported year-over-year growth in quarterly earnings, according to FDIC officials.

During the second quarter, 5,111 insured institutions identified as community banks reported $6.5 billion in net income, an increase of $1.1 billion or 21.1% from a year earlier. Higher net operating revenue and a lower effective tax rate boosted second-quarter net income, said newly appointed FDIC Chairman Jelena McWilliams.

“The banking industry once again reported positive results for the quarter. It is worth noting that the current economic expansion is the second longest on record, and the nation’s banks are stronger as a result,” said McWilliams. “The competition to attract loan customers will be intense, and it will remain important for banks to maintain their underwriting discipline and credit standards. Prudent management of credit risk in this economic environment will continue to be an FDIC priority.”

ARKANSAS BANKS
In Arkansas, the 95 FDIC-insurance banking institutions were even more profitable than the rest of the nation, reporting second quarter net income of $831 million, up a strong 36.2% from $610 million in the same period of 2017. Altogether, those Arkansas banks and saving institution have total assets of $106.5 billion, a 15.3% gain from $92.4 billion a year ago.

The FDIC’s quarterly profile for Arkansas is no surprise given that the state’s three publicly traded banking groups – Little Rock-based Bank OZK, Pine Bluff-based Simmons First National and Conway-based Home Bancshares – all posted record or near-record second quarter earnings results nearly a month ago. Together with privately held Arvest Bank of Fayetteville, those four banks financial holdings’ make up more than half of the state’s banking assets, FDIC data shows.

The former Bank of the Ozarks, which has changed its name to Bank OZK as part of a strategic rebranding and growth initiative, posted second quarter net income of $114.8 million, or 89 cents per share, up 26.8% from $90.5 million, or 73 cents per share, in the same period a year ago. The Little Rock-based banking group total loan portfolio jumped 10.4% to $16.8 billion during the quarter, helping to boost total deposits and assets to $17.9 billion and $20.1 billion, respectively.

To coordinate its zenith growth, Bank OZK began construction in late 2017 on the new 247,000-square foot headquarters at a 44-acre site on State Highway 10 in west Little Rock. According to company officials, some 500 employees are expected to move into the building when construction is completed in late 2019 or early 2020, with capacity to accommodate 800 to 900 employees.

Bank OZK’s publicly held rivals in central Arkansas also saw solid profit gains and growth in the first half of 2018. For example, Simmons First of Pine Bluff and Home Bancshares in Conway both posted record second quarter earnings following key acquisitions in 2017. Simmons posted record second quarter profits of $53.6 million, a whopping 132% ahead of last year as acquisitions in Oklahoma and Texas expanded the bank’s operations into seven states. As of today, Simmons deposits and asset base has nearly doubled from a year ago to $12 billion and $16.2 billion, respectively.

Just behind Simmons as the state’s fourth-largest bank, Home Bancshares reported record second quarter net income of $76 million. In the past year, the financial concern leapfrogged in growth following the purchase of South Florida’s Stonegate Bank and the recently acquired specialty lender Shore Premier Finance, which has carved out a niche in the high-end sail and power boats business. Today, Home Bancshares’ total deposits and assets ended the second quarter at $10.74 billion and $14.92 billion, respectively.

As noted in the FDIC report, Congress’ year-end tax cut provided the Conway banking group with a $55 million windfall that Home Bancshares board used to buy back about 800,000 shares of company stock. Like its other publicly-traded Arkansas rivals, Home Bancshares saw strong loan growth in the second quarter with a lending portfolio of nearly $11 billion following the Stonegate deal in Sept. 2017.

And although privately-held Arvest does not release a quarterly earnings report, it has remained competitive with the other three publicly-held banks following a key acquisition of Arkansas’ smallest publicly-held bank in the second quarter. In early April, the Federal Reserve Board announced its approval of Arvest’s $391 million deal to acquire Little Rock’s Bear State Financial Inc. under the Bank Holding Company Act of 1956. Following the merger, Arvest’s total asset value climbed to nearly $20 billion, just behind Bank of the Ozarks as the state’s largest bank holding company.

FDIC data further shows that Arkansas banks are continuing to add new employees as their profits grow. Over the last year, the total number of employees working for Arkansas banks jumped from 21,077 to 22,038, a healthy gain of 961 workers in this sector.

TAX CUTS, ‘FAILED’ BANK LIST
In her prepared remarks concerning the healthy second quarter report for the nation’s banking industry, McWilliams said a little more than half of the dollar increase in profits were attributed to the $1.9 trillion tax reform package passed by Congress in December 2017.

“Assuming the effective tax rate for the banking industry prior to the new tax law, we estimate that quarterly net income would have been $53.8 billion dollars, or 11.7% percent higher than second quarter 2017,” said McWilliams, who was nominated by President Donald Trump as FDIC chair in November 2017 and confirmed by the Senate in May.

McWilliams also highlighted the fact that the agency’s infamous “problem bank” list continues to decline post-recession, falling from 92 to 82 banks during the quarter, the lowest number since the fourth quarter of 2007. Total assets of problem banks declined from $56.4 billion in the first quarter to $54.4 billion, officials said.

Other notable bank activity during the quarter included merger transactions that absorbed 64 institutions, two new charters were opened, and no banks failed. The percent of unprofitable banks in the second quarter declined to 3.8% from 4.3% a year ago.

Congress created the FDIC  in 1933 to restore public confidence in the nation’s banking system, today insuring deposits at 5,542 at the end of June. The Deposit Insurance Fund (DIF) balance also rose by $2.5 billion to $97.6 billion in the second quarter, mostly driven by assessment income, said federal banking regulators.