A $112 million combined quarterly loss for all South Florida-chartered banks might seem bleak, but may understate potential problems.
The question is whether banks shortchanged their loan loss reserves – giving them a better bottom line for now, but the potential for bigger future losses. Prolonged agony for the region’s banks could make it more challenging for businesses to get loans.
“We’re in a recessionary economy where things will get worse before they get better,” Miami-based banking analyst Kenneth H. Thomas said.
A key ratio for banks is the amount of reserve capital set aside for future loan write-offs compared to non-current loans.
Nationally, banks’ reserve capital equals 89 percent of non-current loans, which is a 15-year low, Federal Deposit Insurance Corp. data shows.
Among South Florida’s 79 banks, the ratio fell from 57.8 percent in the first quarter to 39.5 percent in the second quarter.
Unfortunately, South Florida’s housing market is one of the worst in the nation and a looming question is just how many mortgages banks will have to write off.
Thomas said he likes to see banks have reserve capital equal to 50 percent of non-current loans, but 12 of the region’s 30 largest banks had a ratio below 50 percent. Six of these were below 33 percent, FDIC data shows.
Thomas’ analysis found Florida banks had the fourth-lowest ratio in this measure among other states and U.S. territories.
Many South Florida banks did not keep up with the rising tide of delinquent loans in the second quarter.
Local banks were burdened with $2.3 billion in non-current loans as of June 30, up $942 million, or 69 percent, from the first quarter. Coral Gables-based BankUnited, the region’s largest bank, and Miami-based Ocean Bank, the region’s fifth-largest, accounted for 60 percent of the non-current loans in the region.
Overall, 3.92 percent of all loans by South Florida banks were non-current, up from 2.36 percent in the first quarter. Industrywide, the non-current rate in the second quarter was 2.02 percent – the highest it’s been since 1993.
In the face of all those non-current loans, South Florida banks increased their combined loan loss allowance reserves 15.5 percent, to $910.6 million. That, plus $189.6 million in charge-offs for bad loans, made their losses deepen from $15.4 million in the first quarter to $112 million in the past quarter.
It could have been much worse for many banks if they kept their reserves up.
To cover just half of their non-current loans as of June 30, South Florida banks would have needed to add an additional $242 million to reserves, which would have deepened losses by that much more bad credit payday loans. To maintain their 57.8 percent ratio from the prior quarter, it would have cost them $421 million. If they wanted to meet the 89 percent average for national banks – most of which do business in real estate markets that are hurting less than in South Florida – it would have taken $1.14 billion.
Federal regulators are putting more pressure on banks, especially those in Florida, to more adequately build reserves for non-current loans, said Michael Lozoff, a partner with the Miami-based law firm Adorno & Yoss and the chairman of its financial institution section, which advises more than 100 banks and credit unions. When regulators see delinquent loans soar and property values fall below loan amounts, they want to ensure banks are not maintaining the illusion of profitability by delaying the charge-offs for those problem loans, Lozoff said.
BankUnited is being pressured by regulators as its loan loss reserve slips to below one-quarter of its non-current loans.
Even though BankUnited regulatory capital ratios fall within what the FDIC usually considers well capitalized, the Office of Thrift Supervision told the bank on Sept. 5 it has been downgraded to adequately capitalized. Regulators are concerned about its residential mortgage portfolio and whether the bank will be successful in raising $400 million in capital to cover additional delinquencies, according to a BankUnited SEC filing.
Coral Gables-based Mercantil Commercebank received a $70 million infusion from its Venezuelan parent company on Sept. 4. Mercantil President and CEO J. Guillermo Villar said the money would pay for adding three branches in Palm Beach and Broward counties in the next six months and lending more money.
But, at the same time, the $6 billion-asset bank experienced deteriorating loans, and its loan loss reserve fell from 87 percent to 31 percent in the second quarter. Mercantil had a profit of nearly $4.4 million – more than double the first quarter.
« Ike – Builder sentiment rises from record low »
No comments yet.
Sorry, the comment form is closed at this time.
Powered by WordPress -- XHTML 1.0