The 10 biggest Kansas-based banks doing business in the Wichita area all made profits in 2013, but only four of them managed bigger profits than the year before.
That’s according to an Eagle analysis of data released Wednesday by the Federal Deposit Insurance Corp.
Bankers say the data show a slowly improving economy – but a tough environment for their business as they continue to wrestle with historically low interest rates and meager growth.
Intrust Bank’s nearly $27 million year-over-year gain in net income, for example, was a reflection of a stable banking environment but not much of a growth one.
“If you peel that number back, we had a pretty significant reduction in our provision for loan losses, driven by improvement in our credit quality,” said Jay Smith, president and chief operating officer of the $4.36 billion, Wichita-based bank. “That was the main driver (of profit growth). The other piece of the equation is the continued low interest rate environment, which continues to affect our interest margin. The pressure on the interest margin offset some of that improvement.”
According to the FDIC, the shifting of money from potential loan losses to earnings was a significant factor to banks’ profit gains in 2013.
“The improvement in earnings was mainly attributable to an $8.1 billion decline in loan-loss provisions,” the FDIC said in a news release Wednesday announcing the banking industry’s aggregate earnings in 2013.
The FDIC said in releasing its national analysis of banking industry performance that aggregate net income increased by $13.6 billion to $154.7 billion in 2013.
“The trend of slow but steady improvement that has been underway in the banking industry since 2009 continued to gain ground,” FDIC Chairman Martin Gruenberg said in the release. “Asset quality improved, loan balances were up, and there were fewer troubled institutions. However, challenges remain in the industry. Narrow margins, modest loan growth, and a decline in mortgage refinancing activity have made it difficult for banks to increase revenue and profitability.”
Intrust and the nine other banks reviewed by the Eagle have headquarters in Kansas and operate in the four-county metropolitan statistical area – Butler, Harvey, Sedgwick and Sumner counties – and had the most deposits in the area as of June 30, 2013.
The Eagle looked at the banks’ earnings and pre-tax return on assets for 2013 and 2012. Pre-tax return on assets is a key measure of profitability showing how much money a bank earns for each $100 it has in assets before taxes.
Besides Intrust, the three banks that increased net income in 2013 compared with 2012 were: Fidelity, Emprise and Equity, with profit increases between more than $500,000 to more than $13 million.
The six banks with drops in profit were: Capitol Federal Savings, Southwest National Bank, Legacy Bank, Rose Hill Bank, First Bank Newton and Midland National Bank. Their profit declines were in amounts between $24,000 to $2.7 million. The $2.7 million profit decline was at Topeka-based Capitol Federal, which still had net income of $69.4 million for 2013.
Colwich-based Legacy saw its profit fall year over year, from $2.46 million in 2012 to $2.44 million in 2013. That was despite what president Frank Suellentrop said was a 5 to 6 percent increase in total loans at his $273 million bank.
“Our income’s down just because our margins are shrinking,” Suellentrop said.
Suellentrop and other bank executives said the shrinking margins are the result of tepid loan demand, the Federal Reserve holding down the Feds Fund Rate to near zero and competition among banks to make loans.
“This record, protracted period of low interest rates is a very negative thing for people who save money and for banks,” said Roger Kepley, president of Rose Hill Bank. The $250 million, Rose Hill-based bank saw its profit shrink by $652,000 between 2012 and 2013, according to the FDIC data.
What bankers said they need to increase profits is a return of the Fed Funds Rate to 1 or 2 percent and an upswing in loan demand. That would at least return the industry to what the called a more “normalized” environment, which would help take pressure off the interest margin and maybe allow banks to grow in ways other than by acquiring or merging with a competitor.
Neither Kepley nor Suellentrop said they are optimistic that the Fed Funds Rate will move higher this year or next.
“Our forecast is this is where we’re at, and we’re in for the long haul,” Kepley said. “We’ll try to contain our expenses as best we can and be as efficient as we can.”