Real Estate Pain on Tap for Smaller Banks

While the loan loss reserve ratio of 2.55% kept National Bank of Arizona well ahead of its 1.59% annualized year-to-date charge-off ratio as of Sept. 30, the pace of charge-offs for the third quarter alone was 2.44%. Since CRE and CCL comprised 60% of total assets as of Sept. 30, it seems reasonable to expect greater stress in the portfolio over the next few quarters and a significant capital infusion from the holding company.

Zions Bancorp expressed similar concerns when it filed its 2008 Fall Investor Conference presentation with the Securities and Exchange Commission Tuesday. In the presentation, the holding company said it expected further increases in nonperforming assets and net losses for the next several quarters.

The holding company recently received a $1.4 billion capital infusion through the Treasury's Troubled Assets Relief Program, or TARP.

R-G Premier Bank

R-G Premier Bank (held by R&G Financial Corp.) is similar to Westernbank Puerto Rico (a subsidiary of W Holding Co.(WHI Quote)), in that the San Juan, Puerto Rico bank had low charge-offs through the first three quarters, even though nonperforming loans doubled over the past year.

R-G's ratio of nonperforming CRE and CCL to total assets was 2.81% and its total nonperforming assets ratio was 7.19% as of Sept. 30. The annualized ratio of net charge-offs to average loans for the first three quarters was 0.38%. Loan loss reserves covered 1.91% of total loans.

Because charge-offs and net losses have remained relatively low, while the bank reduced its balance sheet by 7%, R-G has remained well capitalized, with ratios increasing over the past year.