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FDIC: Kansas banking is safer

A Federal Deposit Insurance Corp. report released Tuesday shows a more efficient and safer banking industry in Kansas.

The FDIC's State Banking Performance Summary for the second quarter depicts an industry with a huge increase in earnings, greater capital — and lower lending.

"They're much less levered, so they're safer," said Rick LeCompte, a Wichita State University finance professor.

According to the report for the three-month period that ended June 30, Kansas banks and thrifts increased their total net income by 169 percent: $234 million in the second quarter compared with $87 million in the same quarter a year ago.

Return on assets and return on earnings, key measures of bank performance, were also higher than a year ago, the report said.

Banks and thrifts' cost of funding earning assets ratio was at its lowest point in three years, from 1.96 percent in second quarter 2009 to 1.17 percent.

Also positive, LeCompte said, was a net charge-off ratio that declined from 1.15 percent in second quarter 2009 to 0.55 percent.

And all three capital ratios were at their highest in the same period.

"It's clear the regulators have made an impact," he said.

LeCompte thinks the positive numbers for the quarter were also helped by fewer institutions in Kansas. The report said there were 324 banks and thrifts at the end of second quarter 2011, down from 337 in the same quarter last year. Most of the drop-off in banks and thrifts occurred among institutions with less than $100 million in assets, according to the report.

Regulators have "closed down quite a few losers," he said. "We've gotten rid of the baggage."

Kansas bank and thrift employment was 15,269 for the second quarter. That's down from 15,416 in second quarter 2010.

Perhaps the most troubling metric in the report was the net loans and leases to assets ratio, which at 54.5 percent was the lowest in three years. That ratio shows lending activity.

"They aren't lending like they were at one time," LeCompte said. "That's really not good for entrepreneurs."

The decreased lending activity could be a function of heightened regulatory scrutiny on banks, lower demand for loans, or both.

"People aren't taking the risk," LeCompte said. "They're waiting until they see a signal on the horizon that all is well."

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