Kansas banks' earnings fall sharply

Kansas banks saw a steep decline in earnings in the fourth quarter of 2009, according to a report released Tuesday by the Federal Deposit Insurance Corp.

Earnings for the state's 323 banks — eight fewer than the year before — plummeted nearly 72 percent from a year earlier.

Pre-tax return on assets and return on equity — two measures of bank profitability and efficiency — also took a hit, according to the State Banking Performance Summary for Kansas.

The report reflects just what a tough year 2009 was for Kansas banks, which wrestled with the effects of recession — higher unemployment and an increase in bad loans — higher regulatory costs and a push by regulators to increase their capital.

"At least it's positive," Wichita State finance professor Rick LeCompte said of Kansas banks' net income, which was $104 million compared with $367 million in the fourth quarter of 2008.

The percentage of unprofitable institutions rose by 2 percent between the fourth quarters of 2009 and 2008, according to the report.

LeCompte said earnings were most certainly diluted in the quarter because banks had to pay higher assessments to the FDIC to replenish its Deposit Insurance Fund.

Kansas banks saw their performance measures slip in the quarter. Pre-tax return on assets was 0.18 percent compared with 0.84 percent in the previous year's fourth quarter.

Kansas banks' return on equity in the fourth quarter was 2.10 percent compared with 7.48 percent in 2008.

The lower earnings may also be a reflection of banks writing down bad loans.

"There's a strategic advantage in writing down your questionable assets when everybody else is writing them down," LeCompte said. "When the economy springs back, your gains will appear much larger.

"The recovery will be much more impressive if you get rid of your bad assets now."

According to the report, the ratio of banks' net charge-offs to loans and leases was 1.53 percent in the fourth quarter of 2009, up from 0.9 percent in the same quarter in 2008. In the fourth quarter of 2007, the net charge-offs ratio was 0.26 percent.

And Kansas banks continue to wrestle with problem loans. The ratio of past-due loans to total loans was 3.69 percent in the quarter compared to 2.34 percent in the same period a year ago.

While there are indications of a national economic recovery, FDIC Chairman Sheila Bair said in a news release that bank results traditionally lag an upswing in the economy "as the industry works through its problem assets."

Nationally, banks turned in earnings of $278 million compared with a $29.5 billion loss in the fourth quarter of 2008.

The industry's profitability and efficiency ratios nationally were lower than Kansas banks: a pre-tax ROA of 0.12 percent and an ROE of 0.85 percent.