Thursday, December 13, 2018

Oklahoma banking industry continues record earnings pace in third quarter

Recently, the FDIC released its third quarter report showing FDIC-insured institutions reported aggregate net income in the amount of $62 billion, up $14 billion, or 29.3 percent, over last year at this point in the year. According to the agency, this increase in earnings came as a result of higher net operating revenue plus a lower effective tax rate.

According to the FDIC press release, 5,477 institutions insured by the agency – more than 70 percent – reported year-over-year growth in quarterly earnings. The percent of unprofitable banks in the third quarter declined to 3.5 percent from 4 percent a year ago.

“Oklahoma banks continued their upward performance and are well on the way to setting yet another earnings record,” OBA President and CEO Roger Beverage said. “It’s great to see this industry continuing on its path of helping Oklahomans and generating increasing revenue. That means the economy in Oklahoma is strong and should help more and more Oklahomans either continue to or enable them to prosper.

At right is the chart from the FDIC showing the graph of quarterly net income.

The FDIC also reported that the nation’s 5,044 insured community banks reported net income of $6.8 billion, which is up 21.6 percent over last year at this same time.

“This increase and upward earnings trend has come about in part as a result of the tax cuts by the Trump administration earlier in the year,” Beverage said. “It’s not the sole reason for the increase; bankers have worked hard to generate good loans and it’s showing up at the end of each quarter. Net operating income is up 7.6 percent and loan loss reserves have declined by 15.2 percent. That’s really good news, on both fronts.”

The graph at right shows the progress banks have made since the year 2000.

“This upward movement looks good,” Beverage said. “I’ll be anxious to see the fourth quarter results in February and see the extent to which this trend continues. I have no reason to believe that it won’t.”

The American Bankers Association’s chief economist, Jim Chessen, issued the following statement on behalf that association:

The industry demonstrated another solid and consistent performance in the third quarter. Lending rose in every major category, helping to spur strong economic growth throughout the country. A strong job market and a healthy business environment have sparked intense interest in borrowing among consumers as well as businesses seeking to expand. Asset quality was the strongest it’s been in more than a decade while bank capital levels hit record highs. We’re also seeing competition for deposits heating up as banks look to further expand the lending that drives our economy forward.

“Bank capital now totals just shy of $2 trillion, further positioning banks to support continued loan growth. With capital ratios at record highs, the overwhelming majority of America’s banks – 99.6 percent – are well-capitalized, far exceeding the highest regulatory standards.

“In the 10th year of the economic cycle, problem loans continued to decline as increased reserves, stronger asset quality and higher capital safeguard banks against fluctuations. Banks are always sensitive to credit and interest rate risk, and maintaining judicious underwriting standards remains a top priority. Institutions are carefully monitoring the likelihood of any potential Fed interest rate increases in the months ahead, and they are well prepared to manage the current rate outlook.

“The FDIC’s deposit insurance fund has completed its recapitalization to higher levels set by Congress two years earlier than expected. The banking industry fully funds the FDIC’s operations and its insurance fund, which it has built up to more than $100 billion. A strong banking industry, healthy deposit insurance fund and tailored regulations are the right combination to maintain safety and soundness and support the longest economic expansion in history.”