This week BankRegData.com reviews the Banking Industry 3rd Quarter 2011 performance for Asset Quality, Loans, Restructures and REO.
Using the Texas Ratio as a measure of risk we see that (collectively) banks continue to improve:
A review by Asset Size shows some risk in the largest banks (where GAAP issues mitigate some of the concerns) and mid-size Community Banks between $250 and $999 Million.
Unadjusted Nonperforming Loans continue to drop and are at 4.21% of Total Loans. In terms of dollars, NPLs at $309.67 Billion are now 24.47% below the 2010 Q1 peak:
The Adjusted NPL numbers are dropping slightly quicker – more on that shortly.
Quarter over Quarter Nonperforming Loan Amount by Loan Portfolio:
Loan Portfolio 2011 Q2 NPLs 2011 Q3 NPLs Perc 1-4 Family First Liens 164,776,843,000 163,714,410,000 -0.64 Commercial Real Estate 42,932,509,000 41,413,630,000 -3.54 Construction & Development 41,271,304,000 37,104,926,000 -10.10 Commercial & Industrial 20,726,674,000 19,155,646,000 -7.58 Individuals: Credit Cards 11,734,692,000 11,364,623,000 -3.15 Home Equity Loans 10,839,062,000 10,794,738,000 -0.41 Multifamily Residential RE 7,192,201,000 6,300,504,000 -12.40 Individuals: Other Loans 6,127,949,000 6,028,381,000 -1.62 1-4 Family Junior Liens 4,415,987,000 4,255,540,000 -3.63 Farmland Loans 1,988,939,000 1,950,132,000 -1.95 Individuals: Auto Loans 813,860,000 829,942,000 1.98 Farm Loans 701,215,000 651,363,000 -7.11 Lease Financing 578,112,000 518,420,000 -10.33
Of the 13 largest Loan Portfolio types, every one experienced a drop with the exception of Individuals: Auto Loans which rose 1.98%.
A couple of thoughts regarding Construction & Development NPLs:
- Even with a 10.10% drop in NPLs, Construction & Development loans still have a 14.57% NPL rate.
- At $254 Billion C&D lending is back to 2003 Q1 levels and $377 Billion (59.69%) off the 2008 Q1 high.
- In 2003 Q1 C&D made up 4.88% of all loans outstanding – today it is 3.46%.
- Is this due to a lack of demand or the fact that banks won’t go near Constuction loans?
- It’s hard to picture an expanding economy without an increase in Construction & Develoment loans.
One concern is that while there is good news with Charge Offs at $31.66 Billion (lowest quarter since 2008 Q3), Adjusted NPLs to Charge Offs has climbed to $7.09. Basically, there are $7.09 of Adjusted NPLs for every $1 of Charge Offs – banks are delaying Charge Offs relative to the NPLs earlier in the cycle.
Restructured Debt inexorably climbs higher (and higher):
Restructured Loans to Total Loans is at 2.63%. All reported loan types experienced increases in the rate:
- 1-4 Family Residential at 4.52%
- Comerical Real Estate at 2.08%
- Commercial & Industrial at 0.76%
- Construction & Development at 5.93%
Once again, Construction & Development loans continue to be a problem area – especially with a 52.96% NPL rate on the restructured portion.
Other Real Estate Owned continues to slowly drop:
OREO is being liquidated and slowly coming down. Collectively, banks took a -$1,135,148,000 hit to Non Interest Income, however, they continue to offset it with Gains from Loan Sales.
OREO levels compared to Peak/Previous High by OREO Type:
OREO Type Peak/Prev Hi 2011 Q3 NPLs Perc Construction & Development 18,431,459,000 17,009,496,000 -7.71 All 1-4 Family Residential 14,760,089,000 11,900,266,000 -19.38 Commercial Real Estate 10,736,542,000 10,902,281,000 1.54 Multifamily Residential 2,888,647,000 2,543,852,000 -11.94 Farmland Loans 406,672,000 404,179,000 -0.61 Foreign Offices 240,468,000 156,261,000 -35.02 Foreclosed GNMA 7,598,111,000 7,575,182,000 -0.30
Ahh, yes, there is that pesky Construction & Development issue once again. Comparatively, the smaller community banks have worked through a higher portion of their Construction NPLs and charged them off to REO. The problem is that they are just sitting on the balance sheet – slightly more difficult to get rid of thatpartially built apartment building.
Looking at 1-4 Family Residential is a mixed bag. All 1-4 Family Residential has come down 19.38%, however, Foreclosed GNMA is still very high. The bigger problem for Housing is that banks are just not charging it off at the same clip – the inventory is being held out of REO. Once again, we look to the NPL to CO ratio which shows 37.34 for 1-4 Family Residential. That’s $37.34 of NPLs for $1 of Charge Offs – which is an 11 quarter high and the highest since the 46.00 put up in 2008 Q4
when the largest banks delayed charge offs to hit year end numbers.
And on that cheery note, I’ll end this much-too-long missive and wish you a Merry Christmas. If you have any questions or suggestions feel free to contact me.
BankRegData.com: The fundamentals are improving for MGIC; That’s why I’m long.
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