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News & Our Thinking

Argent in the News

Why smaller St. Louis banks lag peers nationally

17 March 2017

(St. Louis Business Journal) 

“St. Louis lags for at least three reasons, said bank analyst Eddie Vigil at Argent Capital Management: First, St. Louis tends to be less volatile — the bad times, such as the recession, are less severe, and the good times are less robust. Second, we have more banks than most places, and each of them has back-office costs and other expenses, reducing efficiency and leading to lower net interest margins. Finally, economic growth is slow in St. Louis. “If we aren’t growing like other regions, we won’t have the loan growth they have, and what loan growth we have is spread over more institutions,” he said.”

March 16, 2017 (Greg Edwards)

St. Louis community banks are once again slipping behind banks of similar size nationally on key financial measurements.

Nonperforming assets — bad loans and foreclosed property banks hold on their books — at the 72 St. Louis banks with less than $10 billion in assets made up 1.37 percent of total assets as of Dec. 31 but only 1.24 percent at similarly sized banks nationally, the Federal Reserve Bank of St. Louis reported.

The average Texas ratio, a measurement of riskiness, also lagged at 7.96 percent here, compared with 7.72 percent nationally. Similarly, the return on average assets at the local banks was 0.85 percent, compared with 1.04 percent at the U.S. banks generally, and the average net interest margin here was 3.16 percent, not quite as good as the U.S. average of 3.61 percent.

The St. Louis banks started out 2016 with gains on their U.S. peers, outperforming them in nonperforming assets and Texas ratio through the first quarter, though they still trailed in return on average assets and net interest margin.

Note that the banks under $10 billion in assets do not include Scottrade Bank, which has total assets of about $17 billion and is being bought by TD Ameritrade, and Stifel Bank & Trust, which, like Scottrade, does business with its brokerage clients all over the U.S.

St. Louis lags for at least three reasons, said bank analyst Eddie Vigil at Argent Capital Management: First, St. Louis tends to be less volatile — the bad times, such as the recession, are less severe, and the good times are less robust. Second, we have more banks than most places, and each of them has back-office costs and other expenses, reducing efficiency and leading to lower net interest margins. Finally, economic growth is slow in St. Louis. “If we aren’t growing like other regions, we won’t have the loan growth they have, and what loan growth we have is spread over more institutions,” he said.

The number of banks based in St. Louis has been shrinking as a result of mergers and acquisitions (see chart). “I think we’re going in the right direction,” Vigil said.

Separately, bank regulators have been watching commercial real estate lending especially closely to make sure it is not disproportionate to a bank’s capital. Commercial real estate loans as a percentage of total loans rose to 43.40 percent at the end of 2016 from 37.71 percent at the end of 2015, according to the latest St. Louis Fed report.