Profits at Kansas banks sink in 3rd quarter

Profits dropped dramatically and past-due loans increased at Kansas banks and thrifts in the third quarter, according to a report this week by the Federal Deposit Insurance Corp.

The State Banking Performance Summary said net income — compared with third quarter 2008 — dropped nearly 78 percent to $85 million for the state's banks and 30 percent to $37 million for thrifts.

At the same time, the percentage of past-due loans to total loans at banks rose to 4.05 percent in third quarter 2009 compared with 1.78 percent in the same period a year ago. Past-due loans at thrifts were 1.48 percent versus 0.54 percent in third quarter 2008.

The numbers, said a bank consultant, are indicative of a economy in recession, higher fees on banks and thrifts to bolster the FDIC's deposit insurance fund and efforts by the industry to "sort out" its problem loans.

"A lot of the risk is getting flushed out of the system," said Chuck Marshall, manager of the financial institutions group at accounting and consulting firm Kennedy and Coe.

The report also said the percentage of unprofitable institutions was the highest it has been in the past three years.

The percentage of unprofitable banks was 18.46 percent in the third quarter compared to 12.05 percent in 2008 and 3.83 percent in 2007.

For thrifts, the percentage of unprofitable institutions was 31.25 percent, compared with 23.53 percent in 2008 and 17.65 percent in 2007.

Marshall said it's not just bad or problem loans that are affecting banks' and thrifts' profitability. The special assessment levied on them by the FDIC earlier this year as well as a requirement to pre-pay three years' worth of deposit insurance fees are having a big effect on profits.

He said one of his clients paid $12,000 in FDIC insurance fees last year. This year, between the special assessment and the prepaid fees, the bank is looking at $500,000 in fees.

"And that's just a lot of money," Marshall said.

Chuck Stones, president of the Kansas Bankers Association, said the FDIC's numbers didn't surprise him and demonstrated that more restrictive lending regulations are hurting both banks and the communities who rely on them for loans.

"For those earnings reports to go up we've got to have the ability to lend and right now we're being cramped by our examiners," Stones said. "It's hard to make good loans now."