FDIC: Area banks’ profitability slightly better in second quarter

Second-quarter 2013 data released Thursday by a federal bank regulator shows that the number of area banks with a high key financial performance measure edged up while the number of unprofitable banks fell by one.

Seventeen banks based in the Wichita area had pre-tax return on assets in the quarter ending June 30 higher than 1 percent, according to the Federal Deposit Insurance Corporation. That is up from 16 banks in the same period a year ago, according to the FDIC data.

Pre-tax return on assets shows how much money a bank earns before taxes for each $100 it has in assets.

The number of area banks with a pre-tax ROA of less than 1 percent was flat — 18 — compared with the second quarter of 2012.

A pre-tax ROA of 1 percent is considered by industry to be the benchmark of profitability.

Wichita State University finance professor Rick LeCompte said the ROA data indicates stabilization in the industry. And while the data doesn’t seem impressive, at least it indicates an economy and an industry that have improved.

“It’s not really moving but it’s certainly not in a bad situation … things look more normal,” he said.

Garden Plain State Bank had the highest pre-tax ROA for the second quarter of 2013, at 2.09 percent, according to the FDIC.

Pat Walden, president of Garden Plain State, said his bank has had three years of good performance, which he attributed to being a conservative bank “and not doing anything fancy.”

“The other thing is just asset quality,” he said. “If you have good loans, that helps. We’ve been fortunate in the last few years that we’ve not had any major problems” with loans.

Garden Plain bumped Southwest National Bank from the top spot in second-quarter 2012, which at the time had a pre-tax ROA of 2.17. Still, in this year’s second quarter, Southwest had a healthy 1.73 percent pre-tax ROA, the second-highest in the area.

Among the area’s four biggest locally based banks — those with assets of more than $1 billion — Emprise had the highest pre-tax ROA, 1.43 percent, followed by Fidelity Bank, at 1.38 percent.

Conway Bank had the lowest pre-tax ROA among the 35 banks based in the area, at -1.16 percent, according to the data. It was one of three banks with negative pre-tax ROA in the second quarter of 2013 — the other two were State Bank of Burrton and Towanda State Bank — compared with four in the second quarter last year.

According to a separate report from the FDIC also released Thursday, the average pre-tax ROA for Kansas banks in the second quarter of 2013 was 1.12 percent, up from 1.09 percent in the same quarter a year ago.

Nationally, the average pre-tax ROA of all banks in the period was 1.67 percent, up from 1.44 percent in the second quarter of 2012, according to FDIC data.

For the past three years, average ROA has been increasing despite a trend of narrowing net interest — or profit — margins for banks because of historic and persistent low interest rates.

Trish Minard, CEO of Southwest National, said she thinks banks in general have been able to shift more of the money they were putting in reserves for bad loans to the bottom line, which is driving ROA higher. Minard adds that banks can only do that for so long, however.

She’s cautiously optimistic that interest rates will start to move higher before the well of reserves runs dry.

“I think we’ll start to see rates edge upward,” Minard said. “My crystal ball is a little fuzzy so I’m not sure when.”

LeCompte, too, thinks lending rates are primed to increase. The announcement by the Federal Reserve that it would scale back its bond purchases signals that likelihood, he said.