Southeast Banks Battle War, Weak Economy.(THE NEW AMERICA)(INDUSTRY TRENDS)

Byline: KIRK SHINKLE

As a group, regional banks based in the Southeast are doing pretty well on Wall Street, ranking No. 14 in stock performance out of the 197 industry groups IBD tracks. That's partly because the region continues to enjoy population and commercial growth, which opens up more business for banks. Still, war and economic weakness have created several challenges that might spell trouble. Credit quality is an issue for many banks. So is commercial lending, which remains weak despite low interest rates. Commercial borrowing is also off. "(Commercial borrowers) recognize the need for investment in their business, and the price of loans is certainly cheap," said analyst Kevin Reynolds of Morgan Keegan. "But if they can (borrow) today with the uncertainty out there -- or wait three to six months -- they'll wait." On the plus side, southeastern banks continue to benefit from the region's strong housing market, which has boosted consumer and home lending.

The refinancing market is also strong, though it might be primed for a slowdown.

The Mortgage Bankers Association of America recently predicted that refinancing and loan originations would slow during the second half of the year.

That's a familiar refrain to those who work in the industry.

"I've been saying we've seen the last refinancing boom for about three refinancing booms now," said George Gleason, chief executive of Little Rock, Ark.-based Bank of the Ozarks Inc. "I don't think any of us predicted we'd have rates as low as they've become last year. But this can't go on forever."

Deposit growth -- a big focus for many regional banks -- can't be sustained forever, either. Folks tend to put their money in bank accounts when the stock market is shaky.