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BANKING-
March 2004 Kicking Assets
This was down from the all-time high figure of 292 banking companies that operated in Kentucky in 1999, according to the Federal Deposit Insurance Corporation (FDIC). The lower figure is more an illustration of smaller banking companies being acquired by national and regional banks, rather than banks actually going out of business. In fact, 10 new banking companies were incorporated in the Commonwealth last year. This was down from the 20 institutions founded during the economic “boom year” of 1999. In their report issued to the FDIC, 13 Kentucky banks stated that they were unprofitable in 2003. This was, fortunately, a sharp decline from 22 institutions in 2002, or 21 money-losing banks in the healthier economic year of 1999. This equates to 5.3 percent of all Kentucky banks being unprofitable last year, as opposed to 8.7 percent in 2002 and 7.2 percent in 1999. In other words, the state’s banks were regrouping and re-prioritizing with noticeable results. The total assets of Kentucky’s banking institutions for 2003, according to the FDIC, had declined during the economic downturn in the middle of that year, to just shy of $51 billion. This was also a sharp decline from the mid-2002 figure of just under $57.8 billion. The quality of the assets held by Kentucky banks also served as an accurate reflection of economic conditions throughout the region. The median numbers for past-due and nonaccrual for assets of banks in the state for 2003 was 2.33 percent. This was comparable to 2002 and 2001 FDIC figures. However, in 1999, a median number of just 1.89 percent of assets fell into the past-due and nonaccrual category. In 2003, a total of 34 Kentucky institutions had a past-due and nonaccrual figure greater than five percent. In 1999, there were just 19 Kentucky banks with more than five percent of their assets in that unhealthy category. In terms of liquidity, the median percentage ratio of loans to deposits was 79.79 percent among Kentucky banks in 2003. This marked a sharp decline from the 86.02 percent figure of 2000. Having a greater amount of cash on-hand has always been effective in asset protection during lean times in the banking industry. As far as banking markets, 175 Kentucky banks do business in areas that fall within the state’s rural areas – areas where there is no MSA (metropolitan statistical area) designation. Some 24 Kentucky banks are located in the Lexington MSA; 16 are in the Louisville – Southern Indiana MSA; 15 are in the Northern Kentucky – Cincinnati MSA; three banking companies each in the Owensboro and Hopkinsville MSAs; and two banking companies are located in the Henderson – Evansville MSA. With assets approaching the $2.5 billion mark, Community Trust Bancorp of Pikeville is, for the second straight year, the largest banking company headquartered in the Bluegrass State. Louisville-based Republic Bancorp, with more than $2.02 billion in assets, holds the second-place slot. Both have demonstrated aggressive growth and a love of corporate independence. Community Trust’s CEO, Jean Hale, has the distinction of being one of the very few female bank holding company presidents in Kentucky. Her leadership talents go a long way toward explaining her company’s growth. Economic decline, then recovery Banks had to deal with assets affected by the modest job losses throughout Kentucky, especially in the manufacturing, trade, transportation, utilities and state and federal government sectors. Despite this, increased employment occurred in education, healthcare and local government. According to the FDIC, the relatively weak labor market in 2003 affected household finances most dramatically. Continued employment losses contributed to a 14 percent year-over-year increase in third-quarter personal bankruptcy filings, noticeably higher than the 9.5 percent increase recorded in the third-quarter of 2002. Also affecting assets, real personal income growth in Kentucky slowed to 1.4 percent in the second quarter 2003, from 2.4 percent a year earlier. However, thanks largely to the stability and growth of the automotive and healthcare industries, Kentucky was one of only two states in its FDIC-recognized Midwestern region that reported income growth that was 0.3 to 2.1 percentage points higher than other states. Mortgage sales continued to be a big moneymaker for banks in the Commonwealth last year. Thanks to continuing low interest rates, Kentucky’s housing market remained active in 2003. Home resales posted a record high in the third quarter. According to FDIC economic predictions, Kentucky’s housing market activity may slow since demand for new homes has not kept pace with supply in major metropolitan areas. A decrease in the appreciation of residential properties is also expected. For banks in the Bluegrass State, return on assets (ROA), a measure of profitability among community institutions, declined to 0.94 percent in the three months ending in June, 2003. This was the lowest aggregate level seen since December, 2001. This falloff in profitability stemmed from a continued decrease in interest margins driven by a faster decline in yield on earning assets than a decrease in the cost of funds. Net interest income fell to 3.57 percent of average assets, 25 basis points lower than a year ago. One area that proved to be a moneymaker for banks is also perceived to be a nuisance by their customers – and that’s service charges. Non-interest sources of income such as service charges on deposits and other non-interest income saw modest increases in the past year, but these gains were not sufficient to maintain ROA at prior year levels. Kentucky’s community banks did not benefit from the volume of realized gains on securities that banks in other states recognized. As of June 30, 2003, securities gains for Kentucky institutions only totaled 0.06 percent of average assets, compared with 0.26 percent for all banks in the FDIC’s Chicago region (of which Kentucky is a part). Although commercial real estate loan growth tapered off in 2003, loans backed by commercial real estate have been the only loan category to show continual growth over the last decade. Loans backed by commercial real estate traditionally yield higher returns, so this will probably continue to be an increasingly important source of profits for Kentucky banks. On the down side of the loan portfolio, delinquency rates are modestly high and rising for Kentucky banks. However, all appearances indicate that loan committees are adjusting their standards accordingly. Overall, banking in Kentucky remains a very competitive sector. In all probability, the FDIC will report that the economic upturn that began in the fourth quarter of 2003 has picked up steam in early 2004. Modest job growth numbers are likely to improve, having a ripple effect on household finances and greater assets.
The Lane Report's Banker's Dozen--Largest banks and bank-holding companies doing business in Kentucky The Lane Report's Banker's Dozen--Largest bank-holding companies domociled in Kentucky Claude Hammond is a staff writer for The Lane Report.
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is copyright 2004, Lane Communications Group The Lane Report is a trademark of Lane Communications Group. All other trademarks are the property of their respective owners. |
All you need to do to get an idea of how Kentucky’s banking industry is doing is to look at the number of such institutions that operate in the Commonwealth. As of the end of the 2003 fiscal year last June, some 246 banking companies operated within Kentucky borders.