The southeastern part of the U.S., specifically Florida and Alabama, was especially hard-hit by the 2008 recession, and as a result, many banks saw loans sour as home prices fell and unemployment rose. Almost five years later, the region has begun to recover; let's look at what this means for the major banks in the area.
Eight times a year, the Federal Reserve releases data summarizing the most recent economic trends in the U.S. by district (there are 12). The Fed's take on employment, the housing market, and consumer spending in the region can give us insight into which banks are benefiting from economic activity there. Since I'm from the southeast, I took a look at the most recent data for the sixth district (link opens PDF), the Atlanta District, which includes my home state of Alabama.
The banks with heavy market share in this district include Regions Financial (NYSE:RF) -- which has at least 4% deposit market share in each state -- Wells Fargo (NYSE:WFC), Bank of America (NYSE:BAC), SunTrust Banks (NYSE:STI), and BB&T (NYSE:BBT):
All states in the district reported "modest" employment gains in almost all industries except government sectors; Mississippi was the only state that showed a small gain in state government jobs. However, Alabama, Louisiana, and Florida all currently have unemployment rates below the national average:
Housing and mortgages
The Fed's report noted that existing home sales, new home sales, and construction were all ahead of prior-year levels. Loan competition in the region was high, which led some banks to relax loan requirements and become more willing to take on loan risk. Most banks had expected a slowdown in mortgage growth because of the sharp rise in rates earlier this year, so even though banks in this district reported an increase in new purchase loan demand, it may not be enough to offset the falling number of customers refinancing their homes.
Bank of America, which has deposit market share of roughly 20% and 12% in Florida and Georgia, respectively, had good news about its mortgage underwriting business when it reported earnings on Wednesday. However, even with large market share in Florida, Georgia, and Alabama, Wells Fargo's numbers suffered a bit; it underwrote fewer mortgages last quarter than it did in the second quarter of 2012, though it is still the largest mortgage originator in the U.S. -- by far.
Consumer spending was mixed, but travel and tourism activity continued to be better than expected in these states. However, given the amount of coastline in the district, this could be due in part to spring and early summer vacations to the beach.
Speaking of the beach, SunTrust Banks, BB&T, and Regions Financial all have significant market share in Louisiana, Mississippi, Alabama, and Florida, which reported continued strong investments in regional oil and gas activity along the Gulf Coast.
But if the housing rebound continues to gain traction, mortgage juggernaut Wells Fargo, and Bank of America to a lesser extent, may be the biggest winners in the area regardless of gains made in other industries.
Abbie Redmon has no position in any stocks mentioned. The Motley Fool recommends Bank of America and Wells Fargo. The Motley Fool owns shares of Bank of America and Wells Fargo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.