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FDIC Data: Arkansas Banks Continue to Fare Well

The Federal Deposit Insurance Corporation (FDIC) released new statistics on the nation’s banking system this morning.  The FDIC press release quoted acting Chairman Martin J. Gruenberg saying that the report indicated “gradual but steady progress toward recovery.”  In addition to a sharp increase in net earnings, key statistics from the second quarter report included expanding loan balances, lower levels of troubled assets, and improving profitability.

Nationwide, net earnings were up more than 20% compared to the second quarter of 2011.  Earnings of Arkansas banks were up only 3.6% from the previous year, but that comparison is based on relatively stronger earnings among Arkansas banks last year.  Focusing on the most recent quarter-to-quarter change, Arkansas banks saw a 18.4% increase, compared to a slight decline nationwide.

Source: FDIC

Growth in total loans and leases in Arkansas kept pace with the nationwide average:  Compared to a year ago, loans were up 2.7% nationwide and up 2.5% in Arkansas.

One indication of a healthier banking sector is the ongoing decline in troubled assets.  As shown in the figure below, non-current loans and leases (as a share of the total) continued to decline in 2012:Q2.  As noted in a previous post, much of the run-up in non-current loans during 2010 and early 2011 was driven by Arkansas banks absorbing failing out-of-state institutions.  These troubled assets are carried on the books as non-performing, even though arrangements with the FDIC partially indemnify the losses associated with the takeovers.  More recently, the share of non-current loans at Arkansas banks has fallen sharply over the past four quarters, and is nearly a full percentage point lower than the national average.

Source: FDIC

Perhaps the best measure of comparative performance is bank profitability.  As shown in the figure below, the return on assets at Arkansas banks remained positive throughout the recession and early recovery, while average returns nationwide were negative during 2009.  In the most recent quarter, the national average return on assets was 0.99%.  Among Arkansas institutions, the average return was 1.04%.  In four of the past five quarters, Arkansas return-on-assets was above the benchmark level of 1.0%.

Source: FDIC

FDIC Banking Data – 2011:Q4

End-of-year banking data released by the FDIC yesterday showed that Arkansas banks generally continue to do better than the national average.  As covered in the Democrat-Gazette and The City Wire (here and here), the main story of the year in Arkansas banking was a decline in nonperforming loans and net charge-offs.   As shown in the figure below, the share of loans and leases classified as non-current at all Arkansas banks had been rising up through the second quarter of 2011, but declined in the second half of the year.

Source: FDIC

The high level of non-current loans in early 2011 is somewhat misleading.  Many of the assets acquired by Arkansas banks in the process of absorbing troubled out-of-state institutions are carried on the books as non-performing, even though arrangements with the FDIC partially indemnify the losses associated with the takeovers.  As shown in the second chart, below, the ratio of net charge-offs to loans and leases fell sharply in 2011, reflecting the reduced need to set aside funds to cover actual booked losses.

Source: FDIC

With troubled assets becoming somewhat less problematic, Arkansas banks reported improved profitability for the year.  As shown in the next chart, Arkansas banks managed to earn positive returns throughout the recession, even as the nation’s banks showed average losses in 2009.  In 2011, the rate of return on assets for Arkansas banks moved above the benchmark 1.0% rate, continuing to outpace the national average.

Source: FDIC

Many individual institutions in Arkansas continue to experience problems [see, for example, this analysis in The City Wire].  Nevertheless, even the proportion of Arkansas banks experiencing net losses is lower than the corresponding nationwide proportion.  At the end of 2009, nearly one-third of the nations banks were unprofitable, while the proportion of Arkansas banks with negative profits was less than 20%.  By the end of 2011, the share of unprofitable institutions nationwide had fallen to just over 15%, with the share in Arkansas falling to nearly 10%.

Source: FDIC