U.S., Arkansas third quarter bank income improves, but down year-over-year

The 5,033 FDIC-insured U.S. commercial banks and savings institutions reported a cumulative net income of $51.2 billion in the third quarter, ending Sept. 30. While net income was down 10.7% from a year ago it was much better than the first half of 2020 as COVID-19 forced many closures and stymied economic growth into the summer.

The 86 banks in Arkansas reported a cumulative net income of $999 million in the third quarter, down 18% from a year ago. The banks grew their combined assets to $131.144 billion, up 17% year-over-year. Deposits rose to $105.82 billion, up 18.5% and loans increased to $88.146 billion all while banks cleared their balance sheets of $58 million in non-performing real estate compared to the year-ago period.

Arkansas banks are healthy with an average return on assets of 1.07%, despite a compressed yield margin of 36 basis points and slightly higher charge-offs. FDIC reports 66.28% of the banks in Arkansas reported earnings gains in the quarter, down from 70.29% a year ago.

The 12 smallest banks in the state (under $100 million in assets) held their net income steady at $7 million cumulatively in the quarter. But they shrunk assets and deposits to try and preserve a higher net margin of 3.82% compared to 3.68% for the state as a whole. The small-bank cohort also had a higher return on assets ratio of 1.22% than the state average. The number of small banks also declined by 5 from the year-ago period as rural banks in DeWitt, Marked Tree, Mountain Home, Prescott and Wynne were sold over the past year.

The 86 banks employed 23,468 people at the end of the third quarter, up from 23,099 employees a year ago.

Following are the bank numbers and deposit totals for Arkansas’ four largest metro areas.
• Central Arkansas (Little Rock-North Little Rock-Conway)
Institutions: 38
Deposits: $28.424 billion

• Northwest Arkansas
Institutions: 35
Deposits: $13.622 billion

• Fort Smith
Institutions: 20
Deposits: $5.297 billion

• Jonesboro
Institutions: 23
Deposits: $3.797 billion

NATIONAL TRENDS
“Modest improvements in the economy and higher consumer spending supported stronger earnings results for the banking industry in the third quarter. However, economic uncertainties and pressure on revenue from unprecedented net interest margin compression continued to weigh on the banking industry. Nonetheless, the industry remains well positioned to accommodate loan demand and support the economy,” said FDIC Chairwoman Jelena McWilliams.

McWilliams said community banks continued to outperform the industry with a 10% gain in annual net income and solid loan growth. Community banks continued to report an annual increase in provisions, further net interest margin compression, and a modest increase in non-performing loans.

She said the low interest rate environment, flat yield curve and continued economic uncertainty related to the trajectory of the COVID-19 pandemic will likely exert downward pressure on revenue and challenge the banking industry over the near-term.

A bright spot in the data is that the industry is well capitalized with ample liquidity and has been able to weather the economic effects of the pandemic, McWilliams said. There was one new bank opening in the third quarter and 33 others were absorbed through mergers, and no banks failed. There are five fewer banks in Arkansas 2020, all of which were sales of small rural banks.