NEW YORK (
) -- An analysis of the 100 largest U.S. bank holding companies by
highlights five with significant amounts of non-performing commercial real estate and related loans, although a closer look at the data reveals one of the banks is actually in fine shape.
There's been endless coverage on the potential blowup of the commercial real estate (CRE) market in the wake of the housing crisis, and for smaller banks the souring of CRE, construction & development, and multifamily mortgage loans is in full swing as evidenced by the continuing stream of community bank failures.
Lauren LaCapra discusses in her
, the largest domestic bank holding companies are much more diversified than community banks and took large writedowns of assets early on, leaving them with relatively small exposure to nonperforming CRE and related loan types.
Bank CRE Woes Won't Hit REITs
Bank of America
, non-accrual commercial real estate loans, construction & development, and multifamily mortgages together comprised just 0.41% of total assets as of March 31 according to data supplied by
from the company's Federal Reserve filing.
A loan is placed in non-accrual status when the lender determines that principal or interest are unlikely to be collected.
the ratio of non-accrual loans of these three types to total assets was 0.61%. For
, the ratio was just 0.17%, while for
, the ratio was a miniscule 0.13%.
Starting with the 100 largest U.S. bank holding companies that file quarterly reports with the Federal Reserve, these are the five publicly-traded names with the highest percentage of total assets in non-accrual commercial real estate, commercial construction & land development, and multifamily mortgage loans.
of Columbus, Ga. had nonperforming commercial real estate, construction & land development and multifamily mortgages comprising 4% of total assets as of March 31. The company's total nonperforming assets ratio was 6.5%, however this ratio would drop to 4.01% if government-guaranteed balances were excluded.
At first glance it might appear the company is "behind the pace" of loan losses, since reserves covered just 3.9% of total loans as of March 31, while the first-quarter ratio of net charge-offs to average loans was 5%. However, the company's loan losses declined over the past two quarters, and Synovus's provision for loan losses slightly exceeded net charge-offs in the first quarter.
With significant capital raising hopefully completed and credit costs declining, some analysts are predicting the company will return to profitability during 2011. Please see
for much more detail on Synovus's financial condition, activities and analyst coverage.
of San Juan, Puerto Rico, had a ratio of non-accrual CRE and related loans to total assets of 4.2% and a total nonperforming assets ratio of 8% according to
If we exclude government-guaranteed balances from nonaccrual loans, the total nonperforming assets ratio would drop to 4.20%.
Popular's loan loss reserves covered 5.51% of total loans as of March 31, and the company's net charge-off ratio for the first quarter was 3.84%, making reserves appear quite adequate.
Not reflected in the numbers is Popular's acquisition of $9.4 billion in assets from the failed
on April 30. Supporting this large acquisition was a preferred equity raise of $1.15 billion that was completed April 13. All of the new preferred shares were subsequently converted to common.
Another unresolved situation for Popular is the company's planned sale of its Evertec subsidiary, from which the company expects to gain at least $700 million.
Assuming the Evertec sale is completed, as planned, this year, Popular may well be finished raising common equity during this credit cycle. With dilution off the table, many analysts find the shares attractive right now for a play on Puerto Rico's economic recovery, which is clearly trailing the recovery on the mainland.
which is also headquartered in San Juan, Puerto Rico, had non-accrual CRE and related loans comprising 4.8% of assets as of March 31. The total nonperforming assets ratio was 10%, dropping to 9.26% if government-guaranteed balances were excluded.
First BanCorp was, by some measures, the cheapest stock discussed earlier this week as part of
But many investors are betting against it.
said First BanCorp's ratio of short interest to shares outstanding stood at 31.74% as of May 28, making it "the company in the sector with the highest amount of short interest at the close of the period."
While First BanCorp's ratios would make it appear well capitalized as of March 31, a June 2 consent order from the FDIC and Puerto Rico regulators requires the company to submit a plan to keep main subsidiary
FirstBank Puerto Rico's
Tier 1 leverage and total risk-based capital ratios above 8% and 12%. A June 4 agreement with the Federal Reserve also requires a capital plan from the holding company.
The company plans to raise $500 million in common equity and is seeking to convert the $400 million in preferred shares held by the government for bailout money provided to First BanCorp through the Troubled Assets Relief Program into common shares.
Clearly the shorts have no confidence in the First BanCorp's prospects, however, it could take quite some time (from the shorts' perspective) for story to play out.
of Lafayette, La. is the strongest holding company of the five being discussed here.
The company's ratio of non-accrual CRE and related loans to total assets was 5.4% -- the second-highest among the group -- and its nonperforming assets ratio was 8.7% as of March 31. However, after removing government-guaranteed balances, including FDIC loss-sharing guarantees on loans acquired from four failed banks over the previous two years, nonperformers comprised just 1.03% of total assets.
Loan losses have been minimal, as the net charge-off ratio for the first quarter was 0.35%. During 2009, the charge-off ratio was 0.72%.
It would seem that IBERIABANK's biggest headwind is the oil spill playing out in the Gulf. This week's agreement by
to place $20 billion in escrow over the next four years to reimburse people and businesses suffering from the catastrophic damage to much of the Gulf Coast was a very positive development for all parties, including BP and President Obama. But it remains to be seen how quickly affected business can get relief and what the disaster will mean for lenders.
According to the company's announcement on June 8, IBERIABANK had virtually no exposure to the fishing and seafood industries and no exposure to "seasonal beach tourist businesses." Out of the company's total loan portfolio, it said 3% were concentrated in energy or energy transportation businesses, and only about 1% would be directly affected by the oil spill.
FIG Partners analyst Christopher Marinac, who is quite bullish on IBERIABANKs' shares, termed the oil spill exposure "a mere 1.7% of total net loans (i.e., net of FDIC loss sharing arrangements)," and said it isn't clear yet how much additional reserving will be necessary.
IBERIABANK's strong capital ratios are a very positive sign heading into the aftermath of the oil spill.
Marinac has an "Outperform" rating on the shares, with a price target of $78 based on a "normalized earnings" estimate of $5.00 a share by late 2011. That estimate is on the high side among analysts. Peyton Green of Sterne Agee has a neutral rating on the shares and projects normalized earnings for 2012 of $4.47 a share.
Among the largest 100 U.S. bank holding companies,
, headquartered in Spokane, Wash., had the highest asset concentration in non-accrual commercial real estate, commercial construction & land development and multifamily mortgage loans as of March 31.
Sterling is the only company among the five listed here that was undercapitalized per ordinary regulatory guidelines, as of March 31. The company's Tier 1 leverage ratio was 2.60% and its total risk-based capital ratio was 6.88%. To be considered
, most banks need these ratios to be at least 5% and 10% respectively.
Sterling Financial's main subsidiary is
Sterling Savings Bank
, which was included in
of undercapitalized banks and thrifts.
And earlier this week,
Dan Freed reported about complications to
Written by Philip van Doorn in Jupiter, Fla.
Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.