Community banks in the South have gotten healthier this year as a whole, but many of them have seen a slowdown in lending, according to a quarterly analysis by the Office of the Comptroller of the Currency.
The OCC's analysis of community banks in nine Southern states shows improvement driven by the housing rebound and, particularly in Texas and Oklahoma, by the booming energy economy. But the loan growth among Southern banks has been mixed, and, though banks have been reducing their bad loans, problem assets in most of the region remain much higher than national levels, the OCC said.
Roughly 80% of the 511 community banks the OCC analyzed received a 1 or 2, the highest exam scores, on the regulator's Uniform Financial Institution Rating System, it said. The share of "problem banks" in the OCC's Southern region continued to decline from a peak of 25%, but at 20% remains high by historical standards. The number of institutions under enforcement actions has declined since 2012.
"The financial condition of community financial institutions continues to improve and most of the metrics we track of key financial areas are positive for the institutions we supervise," Gil Barker, deputy comptroller for the OCC's Southern district, said in a news release. "Most banks with asset quality issues are having success reducing problem assets, which has resulted in a significant decrease in the number of problem banks and a reduction in enforcement actions in 2012 and 2013."
The average return on average assets for the region was 0.76%, the same as at the end of the 2012, but there were wide variations among subregions. Lenders in the western part of the region, encompassing Texas and Oklahoma, had ROAAs of 0.87%; those in the central region (Arkansas, Louisiana, Mississippi and Tennessee) recorded 0.73%; and the eastern region (Alabama, Florida and Georgia) recorded just 0.48%.
The net interest margin for the entire Southern region narrowed by 48 basis points from the same period last year, to 3.69%. The OCC attributed this decline to low loan demand caused by rising interest rates, and it expects the tightening to continue.
While lenders in Texas and Oklahoma have ridden a boom in oil and gas exploration to 5% loan growth, the rest of the Southern region had little or no growth year over year. Thirty-eight percent of the banks surveyed in the Southern region recorded a decline in loan demand, with an average decline of 7%.
Most banks surveyed had "ample" liquidity, the OCC said. Capital ratios improved slightly from the same period in 2012; the average Tier 1 leverage ratio was 10.6% and average total risk-based capital was 19.6%.