First Federal Bank of Kansas City has been growing at a decent clip the past few years, but it’s been doing it safely, making high-quality loans. With a loan portfolio of $555.7 million, the largest in the top five, it still only had a 0.35% problem-loan rate. Combining that relatively clean portfolio with a core-capital ratio of 14.78% makes this an incredibly strong bank. (Previous: Unranked in 2020)
The rankings were determined using six categories, in the following order of significance:
- Problem-loan ratio shows the percentage of loans in a bank’s portfolio that are 90 days past due or no longer accruing interest at the stated rate. The more problem loans a bank accrues, the weaker it becomes. This is the category first used to sort all the banks in each size group for comparison.
- Texas ratio measures the credit problems of a bank. It is determined by adding up the problem loans and dividing them by a bank’s equity capital and loan-loss reserves. The smaller the number, the better. If a bank has a Texas ratio that exceeds 100%, it’s in serious jeopardy of being shut down by regulators. We use the Texas ratio to separate banks with similar problem-loan ratios.
- Core-capital ratio measures the amount of reserves a bank sets aside. Banks are required to hold a minimum of 6.5% core capital in reserve to be considered well capitalized by regulators. The more core capital a bank has, the better it can handle problems, so this is a category that carries heft in the rankings.
- Equity capital is capital set aside that is free of debt and available to be used in the interest of the business. Equity capital gives a bank versatility to continue making loans and seeking growth, so the more a bank has, the stronger it becomes.
- Income is used to gauge a bank’s prospects for a strong future. A bank might have few problem loans and large capital reserves, yet still be losing money. So it isn’t going to be as strong in the long run as a bank that is profitable.
- Total loans and leases are used to help separate banks with similar numbers, giving more emphasis to the banks with larger portfolios. The more loans a bank has, the more impressive a low problem-loan ratio becomes.
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Dornbrook, James. “Kansas City’s Five Strongest Midsize Banks of 2020.” Bizjournals.com, 6 Apr. 2021, https://www.bizjournals.com/kansascity/news/2021/04/06/strongest-strong-banks-kansas-city-midsize.html.