Commercial banks and savings institutions insured in Arkansas and the U.S. saw a hefty boost in fourth quarter profits largely due to lower tax expenses related to the $1.8 trillion U.S. corporate tax cut package passed by Congress more than a year ago.
For the period ended Dec 31, the Federal Deposit Insurance Corporation (FDIC) reported aggregate net income of $59.1 billion in the fourth quarter of 2018, up $33.8 billion, or a strong $133.4% from the same period a year ago, according to the FDIC’s year-end banking industry report card posted Thursday (Feb. 21). Of the 5,406 insured institutions that posted financial results, more than 70% reported year-over-year growth in quarterly earnings, according to FDIC officials.
Lower income tax expenses, coupled with higher net operating revenue boosted quarterly net income, U.S. banking officials said. After adjusting fourth quarters 2017 and 2018 to reflect the average effective tax rate prior to the 2017 Tax Cut and Jobs Act, quarterly net income would have been $50.3 billion in fourth quarter 2018, an increase of only 18.5% from a year ago.
For the year, the U.S. banking industry reported full-year 2018 net income of $236.7 billion, up $72.4 billion or 44.1% from 2017. Adjusted for tax reform effects in the same manner as the fourth quarter results, full-year 2018 would have been $207.9 billion, an increase of 13.6% from 2017.
“Growth in net income was attributable to higher net operating revenue and a lower effective tax rate. Loan balances expanded, net interest margins improved, and the number of ‘problem banks’ continued to decline. Community banks also had a strong quarter, with annual loan growth and a net interest margin that exceeded the overall industry,” FDIC Chairman Jelena McWilliams noted in the report. “Low-interest rates and an increasingly competitive lending environment have led some institutions to reach for yield, and the recent flattening of the yield curve may present new challenges in lending and funding. Therefore, banks must maintain prudent management of these risks in order to support lending through this economic cycle.”
Arkansas’ 93 FDIC-insurance banks and financial institutions together posted net income of $1.62 billion for the three-month period ended Dec. 31, up 29.6% from the $1.25 billion a year ago. Altogether, those Arkansas banks and saving institution have total assets of $107.6 billion, a 10.1% gain from $97.7 billion a year ago.
The 73 Arkansas banks with assets of more than $100 million saw the largest share of those fourth quarter profits at $1.61 billion compared to only $15 million for the 20 community banks with below the $100 million asses threshold.
The FDIC’s quarterly profile for Arkansas in the fourth quarter and 2018 is no surprise as the state’s banking sector expands customer reach into central, northeast and northwest Arkansas markets that have experienced economic and population growth.
For example, First National Bank of Fort Smith hired former Arvest Bank Vice President Tanya Mims as president of its Fayetteville market. The Fort Smith bank group now has six branches in Benton and Washington counties: Rogers (2), Bentonville, Centerton, Lowell and Fayetteville. As of Sept. 30, the Fort Smith community bank held $1.3 billion in assets after entering the Northwest Arkansas market in 2004.
Springdale-based Legacy National Bank also announced earlier in the summer a plan to acquire the Bank of Gravett for an undisclosed price. The combined bank will have total assets of more than $543 million and will solidify the lender as one of the four largest in the region in terms of deposit market share. With $504 million in deposits, it would be behind only Bank of America, First Security Bank and Arvest Bank.
In Northeast Arkansas, privately-held First Paragould Bankshares Inc. (FNB), has been one of the state’s fastest-growing financial institutions in Arkansas for several years. As of September 2018, First Paragould Bankshares had $1.6 billion in assets and $1.27 billion in deposits. It has offices in Paragould, Jonesboro, Corning, Piggott, Heber Springs, Little Rock, North Little Rock, Fayetteville, Springdale, Rogers and Bentonville. In April 2018, FNB announced a deal to acquire the once-troubled Onebanc of Little Rock. According to company officials, the addition of Onebanc will grow FNB to 20 locations and a total asset size of over $1.5 billion. FNB now operates six locations in the Little Rock and North Little Rock markets with assets totaling $274 million and has a combined 14 offices in 10 Arkansas cities.
ARKANSAS’ BIG BANKS
Still, the state’s four largest regional banking groups together still hold more than half of the state’s banking assets, FDIC data shows. Arkansas’ three publicly traded banks – Little Rock-based Bank OZK, Pine Bluff-based Simmons First National and Conway-based Home Bancshares – all closed out the fourth quarter and 2018 with year-over-year improvements in net income.
Privately held Arvest Bank of Fayetteville, the state’s second-largest bank behind Bank OZK in terms of assets, continues to refocus its operations following the notable $391 million all-cash acquisition of Bear State Financial Inc. in April. In December, Arvest announced several key executive promotions to improve the bank’s relations with its customers and employees.
Rodney Shepard, formerly president and CEO of Arvest Bank’s Fort Smith and River Valley market, was named the company’s chief customer experience officer (CXO). Laura Andress, executive director of group human resources, took over the role of chief people officer (CPO). Arvest Bank also created a new operations role for Matt Machen as regional executive of enhanced banking services. Machen was previously president and CEO of Bear State.
FDIC data further shows that Arkansas banks are continuing to add new workers to payrolls with 22,562 full-time employees at the end of 2018, up 732 from the previous year. Most of those new hires, some 22,213 Arkansans, work at regional and local community banks with over $100 million in assets.
OTHER U.S. BANK BENCHMARKS
One of the highlights of the year-end results was that the FDIC’s “Problem Bank List” declined from 71 to 60 nationwide during the fourth quarter, the lowest number of problem banks since first quarter 2007. Total assets of problem banks declined from $53.3 billion in the third quarter to $48.5 billion. During the fourth quarter, merger transactions absorbed 70 banks, two new charters were added, and no failures occurred.
Other key fourth quarter and yearly benchmarks for the nation’s banking industry showed that net income for community banks jumped 65.1% from a year ago. The 4,979 insured institutions identified as community banks reported net income of $6.8 billion in the fourth quarter, up $2.7 billion from a year ago. Excluding the benefits of a lower effective tax rate, estimated fourth quarter net income would have increased by 11.2%.
Total loan and lease balances increased 2.1%t from third quarter 2018, reflecting fourth-quarter growth in all major loan categories. Commercial and industrial loans grew by $80.7 billion, or 3.9%, from the third quarter, and credit card balances, reflecting a seasonal increase in balances, rose by $47.2 billion or 5.5%.
Over the past 12 months, total loan and lease balances increased by 4.4%, a slight increase from the 4 % annual growth rate reported in the third quarter of 2018. Commercial and industrial loans registered the largest dollar increase from a year ago, up $156.2 billion, or 7.8%.
The Deposit Insurance Fund (DIF) balance rose by $2.4 billion from the end of the third quarter to $102.6 billion. The increase was mainly driven by assessment income, unrealized gains, and interest income on securities held by the DIF. The DIF reserve ratio remained unchanged from the third quarter at 1.36% as insured deposits also rose.