Bank Stocks Are Bad, but Big Failures Unlikely

Associated's nonperforming assets ratio was 0.82% as of Dec. 31 -- pretty nifty in this market -- and only a slight increase from 0.70% a year earlier. Loan loss reserves covered 128.66% of nonperformers, making it quite unlikely for the company's capital position to be threatened by problem loans in the near-term. The institution could always slow its expansion or tweak its dividend policy a bit, if it wants to build up capital.

Fifth Third Bank of Grand Rapids, Mich., held by Fifth Third Bancorp, reported a risk-based capital ratio of just 10.14%. But its leverage ratio was 10.57%, rather high for a $53 billion institution.

Fifth Third Bancorp has several bank charters, with the largest being Fifth Third Bank of Cincinnati, with $61.5 billion in total assets.

Getting back to Fifth Third of Grand Rapids, the institution's capital ratios dropped over the past year because it paid out dividends to the holding company amounting to 81% of its net income, while growing its balance sheet by 10%. The increase in nonperforming loans also contributed to a decline in the risk-based capital ratio.

Fifth Third of Grand Rapids reported nonperforming assets of 1.57% of total assets as of Dec. 31, compared to 0.62% a year earlier. Loan loss reserves covered 67.15% of nonperformers at year end, a reasonable level. Depending on how much nonperformers climb over the next quarter or two, we may see some shifting of assets among Fifth Third's charters to make sure all the institutions remain well capitalized, or maybe a reduction in dividends paid to the holding company.

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