NEW YORK ( TheStreet) -- Most of California largest banks saw continued improvement in profitability during the first quarter, although 38 Golden State institutions were still losing money. Following the pattern being seen for other key states in the boom-and-bust cycle for the housing market -- including Florida, Georgia and Illinois -- most of California's banks saw continued improvement in asset quality and profitability during the first quarter, with over 85% of the state's 258 institutions now in the black, according to regulatory data provided by Thomson Reuters Bank Insight. Since the current wave of bank failures began during 2008, 39 California banks and savings and loan associations have failed, trailing only Georgia, with 78 failures, Florida, with 61 and Illinois with 50. But only four institutions in the state have failed so far this year. The most recent California bank to fail was Palm Desert National Bank, which was closed by the Office of the Comptroller of the Currency on April 27, and sold by the Federal Deposit Insurance Corp. to Premier Pacific Bancorp ( PPBI) of Costa Mesa, Calif. Please see TheStreet's Bank Watch List for a full listing of all the banks and thrifts across the country that were undercapitalized as of March 31, per normal regulatory guidelines. Since the Watch List is based solely on capital ratios, we take a different approach on our quarterly coverage of banks in key states, by looking at overall credit quality to identify troubled institutions.
Nonperforming assets (NPA) include nonaccrual loans, loans past due 90 days or more and repossessed assets. Government-guaranteed loan balances are excluded. The ratio of net charge-offs to average loans is annualized. The total risk-based capital ratios needs to be at least 8% for most institutions to be considered adequately capitalized by regulators and 10% for most to be considered well-capitalized. The only bank on the list that was undercapitalized was Palm Desert National Bank. The list also includes financial strength ratings provided by Weiss Ratings. Weiss Ratings uses a very conservative ratings model, placing the greatest weight on capital strength, credit quality and earnings stability to assign ratings ranging from A-plus (Excellent) to E-minus (Very Weak).
California Banks with Weakest Asset QualityThe following list includes all banks in the state with nonperforming assets comprising more than 15% of total assets as of March 31:
Excluding the failed Palm Desert National Bank, the California institution with the weakest overall asset quality s of March 31 was Delta National Bank of Manteca, which had $99.4 million in total assets and a nonperforming assets ratio of 23.20%.
While the main banking subsidiaries of Bank of America ( JPM), Wells Fargo ( WFC) and JPMorgan Chase ( JPM) dominate deposit gathering in the state, with a market share of over 50% between them ,the largest bank actually chartered in California ( Wells Fargo Bank, NA is technically headquartered in Sioux Falls, S.D.) is Union Bank, NA, with total assets of $91.6 billion as of March 31. Union Bank, NA is held by Mitsubishi UFJ Financial Group ( MTU). The bank earned $165.6 million in the first quarter, with a return on average assets (ROA) of 0.70%, improving from 0.61% in the fourth quarter, but declining from 1.23% in the first quarter of 2011, with the bank's earnings were boosted by a $129.5 million transfer from loan loss reserves. During the most recent quarter, Union Bank, NA set aside $8.8 million for loan loss reserves. Interested in more on Mitsubishi UFJ Financial Group? See TheStreet Ratings' report card for this stock. The second-largest bank headquartered in California is Bank of the West, which is a subsidiary of BNP Paribas SA ( BNP), and had $62.3 billion in total assets as of March 31. Bank of the West's first-quarter ROA was 0.82%, improving from 0.69% the previous quarter and 0.64% a year earlier. The bank's net interest margin -- the difference between its average yield on loans and investments and its average cost for deposits and wholesale borrowings -- declined to 3.02% during the first quarter, from 3.13% in the fourth quarter and 3.32% a year earlier, following the industry trend in the prolonged low-rate environment. The third-largest California bank is First Republic Bank ( FRC) of San Francisco, which was acquired by Bank of America as part of the purchase of Merrill Lynch in January 2009, and then sold in July 2010 to an investor group that included Colony Financial ( CLNY) and General Atlantic LLC and was led by First Republic's original management team. First Republic completed a public offering in December of 2010.
Largest California BanksHere are the 10 largest banks headquartered in California along with key metrics as March 31:
First Republic has been a strong earnings performer, with ROA ranging from 1.31% to 1.57% over the past year, with a net interest margin above 4%. The bank's shares closed at $30.11 Friday, down 2% year-to-date, following a 5% return during 2011.The shares trade for 1.6 times tangible book value and 10 times the consensus 2013 earnings estimate of $2.89 a share, among analysts polled by Thomson Reuters. The consensus 2012 EPS estimate is $2.77. Bank of America Merrill Lynch analyst Erika Penala on May 23 reiterated her "Buy" rating for First Republic Bank, with a price target of $36, saying the stock offers investors "high quality, superior loan growth and a defensive balance sheet," while forecasting "best in class annual organic loan growth" of "18% in 2012; 17% in 2013; and 12% in 2014." Interested in more on First Republic Bank? See TheStreet Ratings' report card for this stock.
The list is sorted by rating, and then alphabetically by institution name. The largest California institution on Weiss's "recommended list" for California is the privately held Farmers & Merchants Bank of Long Beach, with $4.8 billion in total assets as of March 31. While the bank's nonperforming assets ratio was rather high at 4.53% as of March 31, Farmers & Merchants has been a good earnings performer, with ROA ranging from 1.42% to 1.58% over the past few quarters. The bank is also very strongly capitalized, with a total risk-based capital ratio of 29.00% as of March 31. The second-largest bank in the state with a rating of B+ or higher from Weiss Ratings, is Farmers & Merchants Bank of Central California, headquartered in Lodi, which is held by Farmer & Merchants Bancorp ( FMCB). Weiss rates Farmers & Merchants of Central California an "A-minus (Excellent)," and the bank has stellar asset quality, with very strong capital ratios, and ROA ranging from 0.95% to 1.37% over the past year. The third-largest California bank with a "recommended" rating from Weiss Ratings is Bank of New York Mellon Trust Co., NA of Los Angeles, which is a relatively small subsidiary of Bank of New York Mellon, with $1.9 billion in total assets as of March 31. Bank of New York Mellon Trust Co. provides trust services across the United States, and makes an outsized contribution to the parent company, with first-quarter earnings of $34.6 million. The bank's ROA has ranged between is a solid contributor to the parent company's bottom line, with $36.9 million in fourth-quarter net income, with ROA ranging from 7.02% to 9.72% over the past five quarters, and returns on average equity ranging from 8.45% to 12.60%, according to Thomson Reuters Bank Insight. Interested in more on Bank of New York Mellon? See TheStreet Ratings' report card for this stock.
The bank failure map is color-coded, with the states having the greatest number of failures highlighted in dark gray, and states with no failures in light green. By moving your mouse over a state you can see its combined 2008-2011 totals. Then click the state to open a detailed map pinpointing the locations and providing additional information for each bank failure. -- Written by Philip van Doorn in Jupiter, Fla. To contact the writer, click here: Philip van Doorn. To follow the writer on Twitter, go to http://twitter.com/PhilipvanDoorn.
Strongest California Banks and ThriftsBased on fourth-quarter financial reports, 11 California institutions were assigned "recommended" ratings of B-plus or above by Weiss Ratings: