‘We will work with the situation and be vigilant.’
Staff writer
An article in the Business section of Sunday’s Wichita Eagle included Peabody State Bank in a list of banks in Sedgwick, Sumner, Butler, and Harvey counties that lost money in 2008. That list was created from year-end data gathered by the Federal Deposit Insurance Corporation.
Peabody State Bank has a branch in Benton, in Butler County.
The Eagle story used a ratio called “return on assets” to determine which banks earned or lost money in 2008. The ratio shows the income of the bank compared to the total assets of the bank.
Shreves Avery, president of Peabody State Bank explained the situation.
“Our bank always strives for an after-tax income of one percent or 1.00,” Avery said. “A negative 4.62 pretax ROA means we lost a lot of money in 2008.”
Avery said, however, that the information in the Eagle story had been available in the bank lobby since the fall of 2008.
“We provide information to our customers in the form of a quarterly Statement of Condition which is available in the bank lobby to anyone,” he said. “The losses were registered in the reports dated Sept. 30 and Dec. 31, 2008.
“We also provide a more detailed Annual Report which includes a one-page narrative regarding the performance of the bank for the past year.”
Avery said a loss of that magnitude is obviously an indication of a problem and the question is whether that problem has been resolved or is ongoing.
“This is a one-time event,” he said. “In the Eagle article you can see that for 2007 we were not in the minus column.”
Avery noted that half a million dollars of loss occurred because the bank had invested in “Fannie Mae” and “Freddie Mac” preferred certificates that had been on the regulators’ recommended list. The investments were believed to be safe.
“When Fannie and Freddie went down, our preferred shares went with them,” he said.
Several years ago, due to insufficient local loan demand, PSB began purchasing loan participations from Brooke Capital, a Kansas corporation that financed insurance agencies. Brooke had been very successful and had a network of about 150 banks across the Midwest.
In 2006, Brooke changed their method of operation and began to borrow directly from the banks using agency loans as collateral. When the financial markets collapsed, the banks discovered Brooke had significantly reduced their underwriting guidelines and the underlying loans were mostly “junk.”
Peabody State Bank wrote off those loans, totaling a million dollars, in the third and fourth quarters of 2008. Avery said that Brooke Capital is currently under investigation by the FBI for fraud.
“Some 20 years ago our bank weathered the farm crisis when 75 percent of our loans were to farmers and any bank with that many farm loans was predicted by the FDIC to fail,” Avery said. “After that scare we began to diversify our loans and build the bank’s capital.”
Avery reminds customers that all deposits are FDIC insured and the amount of that insurance recently increased to $250,000.
He encourages Peabody State Bank customers to talk with an officer if they have concerns or pickup an annual report or Statement of Condition the next time they are in the bank lobby.
“What happened in 2008 took a chunk of capital, but our remaining loans, which are local loans, are in excellent condition,” he added. “Bottom line, even with our reduced capital we are still rated as ‘well capitalized’ by the FDIC. We plan to work with the situation and be vigilant.”