Alabama Banks’ Regulatory Capital Levels Higher Than National Average
by Gary Kennedy

As we anticipate the release of second quarter results for banks throughout Alabama, it is a good time to review the first quarter and prepare ourselves for what we should expect in the coming months.

Profitability, as measured by quarterly annualized ROAA was up in the first quarter over year-end numbers. We aren’t sure whether to expect this to continue in the second quarter as the reality of this recession continues to play out in the loan portfolios across the state. Those profitability numbers are buoyed by banks in Huntsville and Tuscaloosa, while banks in Mobile, as a group, posted their second straight quarter of negative earnings. Montgomery and Birmingham banks as a whole reported slightly lower earnings than in the prior quarter. Alabama banks as a whole posted earnings slightly below the nations’ banks for the second straight quarter.

The primary culprit in these less-than-par earnings is loans to bank customers that are not making current payments. One measure of those loans is non-performing loans and loans past due 90 days or more. While the national average of nonperforming loans and 90 days past due as a percent of assets is approximately 1.4%, Alabama comes in at almost 1.5%. Birmingham and Montgomery both post ratios in excess of 2% with the Magic City reporting above 2.45% or approximately 75% greater than the national average. Tuscaloosa and non-metro markets in Alabama both report less than the national average.

While Alabama banks are experiencing difficulty, their level of capital is holding up well. Banks in Alabama continue to report capital in excess of the national average, supported by banks in Mobile, Tuscaloosa and non-metro areas.

What Will The Numbers Reveal?
What should we expect when we begin to see second quarter earnings? Probably a lack of earnings. The second quarter is expected to be a quarter where many banks’ profitability will reflect the continued economic slump resulting in further loan deterioration, limited capacity to earn from other investment vehicles and increases in expenses resulting from an increase in FDIC insurance costs borne by the banks that just begins to impact the financial statements this quarter.

Gary Kennedy is Director of Merger and Advisory Services for Sheshunoff & Co. Investment Banking. With over 17 years in the financial services industry including Senior Manager of Mergers and Acquisitions for SouthTrust Corporation. Gary holds a bachelor’s degree in Accounting from the University of South Alabama, is a registered inactive CPA with the state of Alabama, and is a registered representative with the NASD.