Wichita-area banks saw improvement in 2011

Last year proved to be a better year than 2010 for Wichita banks and thrifts.

An Eagle analysis of 2011 data reported to the Federal Deposit Insurance Corp. by the area’s 10 biggest locally based banks shows that they all recorded a profit. And most throttled back the amount of money they had been setting aside for loan losses.

But only half saw gains in profits from the year before, presenting a mixed bag for growth among the group of banks, which have assets ranging from $122 million to more than $4 billion.

If any conclusion can be made from the data, said one analyst, it’s that the overall environment has improved for metropolitan-area financial institutions.

“I’m greatly encouraged by the strong earnings of all the banks in Wichita,” said Chuck Marshall, manager of the financial institutions group at accounting and consulting firm Kennedy and Coe. “There’s no question in my mind that the banking industry in Wichita is stronger than in the last two or three years.”

The 10 banks that were selected had headquarters 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.

The Eagle looked at the banks’ and thrifts’ pre-tax return on assets, profit growth and the amount of money they had set aside for loan losses, both at the end of 2011 and 2010. Five banks — Intrust, Emprise, Equity, Legacy and Midland National Bank — saw their pre-tax ROA increase between 2010 and 2011. Four others — Southwest National Bank, Rose Hill Bank, First Bank of Newton and Valley State Bank — had lower pre-tax ROA in the same period. And Fidelity Bank’s pre-tax ROA was unchanged.

Rose Hill’s data for 2011 was not complete, reflecting only two months of bank data. That’s because accounting rules require that when a bank is acquired by a new company, the data it reports reflects only the time under which a bank operated under new ownership. Great Bend-based American State Banchshares acquired Rose Hill Bank from Rocky Waitt in November 2011.

‘Knock on wood’

Return on assets is a key measure of profitability. It shows how much money a bank earns for each $100 it has in assets. The Eagle looked at pre-tax ROA as of Dec. 31 to put banks that pay income taxes on a level playing field with those whose income taxes are passed through to shareholders.

Among the group of 10 with the highest pre-tax ROA was Southwest National Bank, at 2.29 percent. A $421.5 million-asset bank, Southwest – even in the throes of the recession and financial crisis – maintained an ROA above 2 percent.

“We haven’t experienced the losses that some other banks have experienced, knock on wood,” said Trish Minard, Southwest’s CEO. “It all comes down to our customers. Our customers do well, and we do well.”

The bank with the lowest pre-tax ROA in the group was Midland National Bank with 0.24 percent. For Midland, which in 2010 posted a $399,000 loss, that was a significant turnaround from a pre-tax ROA the year before of –0.30 percent.

Ron Lang, president of the $132.2 million-asset bank based in Newton, said the bank worked its way through that loss in 2011 and in doing so had to set less money aside in its loan loss provision.

“As the economy has recovered it requires less allowance” for loan losses, he said. Still, “The economy hasn’t fully recovered yet.”

The 1 percent goal

According to the FDIC, the average pre-tax ROA for Kansas banks and thrifts with assets of less than $100 million was 0.87 percent in 2011. For Kansas institutions with more than $100 million in assets it was 0.94 percent.

Rick LeCompte, a Wichita State University finance professor and commercial banking expert, said the 1.00 percent ROA measure – long considered to be the benchmark for a good-performing bank – remains a “legitimate” target.

“I still think someone making a 1 percent return, you’re looking pretty good,” he said. “We’re not going to see 3 or 4 percent (ROA) for a while.”

LeCompte said it probably has been tougher for all banks to maintain average or higher ROAs in the past few years because of temporary, higher regulatory assessments, the costs of implementing new regulations such as Dodd-Frank and lingering, historically low interest rates.

“That’s probably going to cost them a lot of money,” he said of new regulations.

With loan demand still muted, banks that increased their profits year-over-year did so in part from a slowly improving economy and getting bad loans off the books.

Charlie Chandler, chairman and CEO of Intrust, said his bank’s nearly 28 percent gain in net income — from $33.9 million in 2010 to $43.3 million in 2011 — was partly the result of a “significant” reduction in its provision for loan losses. The $4.07 billion-asset bank reduced its provision from $35 million to $15 million in 2011.

What he said will really move profits higher – and ROA, too – is a return to pre-recession demand for loans and an increase in interest rates.

“We have not seen the loan demand we would like to,” Chandler said. Until both move higher, “We are not projecting any dramatic increases in our earnings growth.”

“While I won’t tell you the economy is good … it’s better,” he said.