OCC report: Midwest community banks post performance improvement

occ-seal-slideData released on Wednesday by the OCC showed that performance at community banks throughout the Midwest improved since last year, with the number of problem institutions falling from 106 to 84.

The agency’s second quarter risk analysis covers nine states in the OCC’s Central District, including Illinois, Indiana, Michigan, North Dakota, Ohio, Wisconsin, most of Kentucky and Minnesota and the eastern part of Missouri.

“The trends reflect continued improvement, and we expect further reductions in the number of problem banks,” OCC District Deputy Comptroller Bert Otto said. “Efforts to strengthen bank capitalization and profitability have been successful to date, though additional work remains. As a result of this progress, more of our banks are looking to increase lending activity in their communities. Many have been able to achieve growth in commercial loans as we’ve seen volume pick up there in recent quarters.”

Over the past two years, financial performance throughout most of the district has improved, though Chicago has lagged in its performance. Northeastern Illinois, however, has seen a drop-off in delinquencies, lower loan losses and improved capital levels, which have led examiners to mark fewer of the institutions as “problem” banks.

The risk analysis, however, revealed that rapidly growing portfolios are typically a concern for regulators, because of the strains on capital and risk management.

“Our examiners will closely monitor credit risk selection and underwriting at upcoming exams, particularly in those banks growing their commercial loans rapidly, to ensure standards aren’t being inappropriately compromised,” OCC Risk Committee Chairman and District Risk Officer John Meade said.

The analysis also showed that ROA for most banks remained flat year-over-year, 104 institutions had agricultural loan concentration exceeding 100 percent of capital and that the volume of OREO is stable but remains high, with over 80 percent of banks and thrifts in the district reporting OREO balances.

Combined, the banks and savings associations in the OCC’s Central District hold $192 billion in assets.

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