FDIC: Arkansas, U.S. banks see strong 3Q profits as robust economic growth, improved credit quality
December 6-12, 2021
By Wesley Brown
Arkansas banks and other financial institutions across the U.S. saw brisk improvement in the third quarter profits as robust Gross Domestic Product growth of 6.7% continues to lift all sectors of the U.S. economy, according to the Federal Deposit Insurance Corp.’s (FDIC) quarterly banking profile report on Nov. 30.
For the period ended Sept. 30, the nation’s 4,914 FDIC-insured commercial banks and savings institutions reported aggregate net income of $69.5 billion in third quarter 2021, an increase of $18.4 billion (35.9%) from a year ago. This increase was driven by further economic growth and improved credit conditions, which led to a third consecutive quarter of aggregate negative provision expense, said FDIC Chairman Elena McWilliams.
“With strong capital and liquidity levels to support lending and protect against potential losses, the banking industry continued to support the country’s needs for financial services while navigating the challenges presented by the pandemic,” said McWilliams.
Nationwide, two-thirds or 66.5% of all U.S. banks reported annual improvements in quarterly net income, and the share of profitable institutions increased slightly year over year to 95.9%. However, net income declined $875.5 million to 1.2% from second quarter 2021, driven by an increase in provision expense from second quarter 2021, up $5.5 billion to negative $5.2 billion.
The banking industry reported an aggregate return on average assets ratio of 1.21%, up 24 basis points from a year ago but down 3 basis points from second quarter 2021.
The net interest margin (NIM) improved to 2.56% in the third quarter, up 6 basis points from the recent record low in the previous quarter but down 12 basis points from the previous year. Quarterly NIM expansion was accompanied by an increase in net interest income of $5.2 billion (4%) from the prior quarter.
The yield on earning assets rose 5 points from the previous quarter’s record low to 2.73% while average funding costs declined 1 basis point from the previous quarter to a new record low of 0.17%. Improvements in net interest income were widespread, as nearly three-quarters of banks (72.1%) reported higher net interest income compared with a year ago.
Community banks, which have assets of less than $10 billion, reported annual net income growth of $1.4 billion, supported by an increase in net interest income and a decline in provision expense. Provision expenses declined $1.4 billion (83.5 percent) from a year ago and increased $219.2 million (427.9 percent) from the previous quarter. Higher commercial and industrial (C&I) loan income, reflecting, in part, increased fee income from the payoff and forgiveness of Paycheck Protection Program (PPP) loans, helped lift net interest income $2.2 billion (11.7 percent) from the same quarter a year ago.
The net interest margin for community banks expanded 3 basis points from the year-ago quarter to 3.31 percent, as the continued reduction in average funding costs outpaced the decline in earning asset yields. Nearly two-thirds (65.8%) of the 4,450 FDIC-insured community banks reported higher quarterly net income.
Overall, Arkansas-based community and regional banks and savings institutions together posted net income of $1.712 billion for the three-month period ended Sept. 30, up 71.2% from $999 million a year ago.
The state’s largest bank by assets, Bank OZK, reported third quarter profits of $130.3 million, a 19% increase from $109.3 million a year ago. Company Chairman and CEO George Gleason credited the bank’s record net interest growth and Bank OZK’s real estate specialties group for posting the highest level of loans since 2017.
“Our strong capital and liquidity, disciplined credit culture and outstanding team have us well positioned for the future,” said Gleason.
Simmons First National Corp. of Pine Bluff also reported net income of $80.6 million for the third quarter of 2021 compared to net income of $65.9 million for the third quarter of 2020, an increase of $14.7 million or 22%. Like Bank OZK, Simmons also saw strong loan production of $1.5 billion in the quarter and said it was “well-capitalized” for future growth.
On Oct. 29, the publicly trade Pine Bluff-based regional bank announced plans to acquire Spirit of Texas Bancshares Inc., in a cash-and-stock deal valued at $581 million. The deal would make Simmons First the largest bank by asset size in the Natural State and continue the Arkansas regional bank’s expansion into key Texas metropolitan markets amid a national slowdown in banking deals during the COVID-19 pandemic.
Simmons officials said the Spirit deal culminates an eventful year for the Arkansas regional bank. In June, Simmons First National Corporation, the parent company of Simmons Bank, announced the acquisitions of Tennessee-based Landmark Community Bank and Triumph Bancshares, Inc., the parent company of Triumph Bank. After closing those deals in October, Simmons Bank is now the 8th largest bank in Tennessee and 7th largest bank in Memphis based on market share data recently released by the FDIC.
“Simmons once again delivered solid results in the quarter reflecting our ability to execute basic blocking and tackling fundamentals,” said Simmons Chairman and CEO George Makris Jr. “Our ability to build upon this positive momentum, coupled with our outstanding capital position and steadfast attention to maintaining a strong credit culture, give us reason to be cautiously optimistic as we enter the final quarter of the year and look forward to 2022.”
As of Sept. 30, Arkansas’ Big Four regional banks, which include Bank OZK, Simmons First, Conway-based Home Bancshares and privately held Arvest Bank in Bentonville, hold more than 65% or $100 billion of the state’s total banking assets.
For the three-month period ended Sept. 30, Altogether, Arkansas’ 84 banks and savings institutions have total assets of nearly $141.5 billion, a 7.9% gain from $131.1 billion a year ago. The 73 Arkansas larger community banks with assets of more than $100 million held the lion’s share of those third-quarter profits at $140.7 billion compared to only $798 million for the 11 smaller local banks below the $100 million asset threshold.
In other key metrics, deposits at Arkansas banks eclipsed the total amount of loans and leases. Loans held at the end of the second quarter totaled $83.1 billion, down 5.7% from $88.1 million a year ago. Deposits rose 9.2% to $115.5 billion in the third quarter amid higher consumer savings rates and income in the past year.
As Arkansas’ unemployment rate fell to a tidy 3.7% in October, third-quarter FDIC data shows Arkansas banks continue to hire new workers despite fewer bank branches. Altogether, there were 23,550 full-time employees at Arkansas banks at the end of the third quarter, up 82 from the previous year.
Nationally, total loan and lease balances increased $62.7 billion or 0.6% from the previous quarter. Several portfolios contributed meaningfully to the industry’s growth, including 1-4 family residential mortgages, consumer loans, nonfarm nonresidential commercial real estate loans (CRE) and loans to nondepository banks.
Annually, total loan and lease balances increased $10 billion as growth in loans to nondepository institutions, consumer loans, and nonfarm nonresidential CRE loan balances help offset declines in corporate and institutional (C&I) loans. The decline in C&I balances was driven by Paycheck Protection Program loan forgiveness and repayment.
Community banks also reported a 0.2% decline in loan balances from the previous quarter, and a 1.1% decline from the prior year. Declines in C&I loan balances resulting from payoffs and forgiveness of PPP loans drove the change.
Loans 90 days or more past due or in nonaccrual status also continued to decline, down $6.9 billion or 6.3% from the second quarter 2021. The noncurrent rate for total loans declined 7 basis points from the previous quarter to 0.94 percent. Net charge-offs also continued to decline, down $7.4 billion, or 58.4% from a year ago. The total net charge-off rate dropped 27 basis points to 0.19 percent—the lowest level on record.
The FDIC’s Deposit Insurance Fund (DIF) balance was $121.9 billion as of September 30, up $1.4 billion from the end of the second quarter. The reserve ratio remained at 1.27 percent, due to modest growth in the DIF balance and insured deposits. Three new banks opened, 39 institutions merged with other FDIC-insured institutions, one bank ceased operations, and no banks failed in third quarter 2021.
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For the period ended Sept. 30, the nation’s 4,914 FDIC-insured commercial banks and savings institutions reported aggregate net income of $69.5 billion in third quarter 2021, an increase of $18.4 billion from a year ago.
