Archive for the ‘Banks’ Category

The share of community banks’ assets devoted to commercial real estate loans has drastically increased over the last 20 years. According to Columbus Business First, commercial real estate loans made up about 26.7% of all assets at community banks in 2011, up from 19.6% in 2000 and from 14.5% in 1990. This is significantly higher than larger banks, which have shrunk their portfolios to 8.8% in 2011, down from 9.9% in 2000 and 12.1% in 1990.

The study, conducted by the FDIC, shows how community banks have evolved over the past 20 years and now predominantly focuses on lending secured by commercial real estate, which helps them maintain their advantage in generating higher net income. The study found that the overall performance gap between community banks (up to $1 billion in assets) and non-community banks stems directly from lower interest income over the last five years.

To read the full article from Columbus Business First, click here.

Although the commercial real estate apocalypse that analysts feared would hit banks has yet to happen, problems associated with the industry are still alive. According to TheStreet.com, credit quality has started to improve for the CRE sector and with the housing market showing signs of a double dip, there are still more renters than buyers which bodes well for CRE vacancy rates and cashflows. The crisis banks once faced is now not as severe as before because most banks have shored up capital and shrunk their CRE exposure. Those still with high concentration in CRE however, are still at risk.

A double dip could have a detrimental effect to any progress that has been made in the CRE segment. To date, banks have been able to replenish capital with earnings and have cut down on provisioning, giving themselves the belief that they can provide for future losses. A double dip, however, would limit their further ability to earn their way out and may force them to once again increase provisions. Potential CRE losses are staggering with about $1.7 trillion worth of commercial mortgage debt coming to maturity between 2011 and 2015, half of which is expected to be, or close to being, underwater.

To read the full article from TheStreet.com and see specific examples of banks that are at risk, click here.

The rate of bank failures in the US has declined in recent quarters giving financial institutions more time to raise capital, but the banking sector is far from a complete recovery. A total of 26 banks, with assets upwards of $10 billion, failed in Q1 of 2011, the lowest total since Q2 of 2009. At that pace, failures would total 104 for 2011, down about 51% from 2010 and 35% from 2009. Still, the amount of banks grasping for air could skew the 2011 total upwards very quickly.

The thorn in the side of many of the bank failures occurring thus far in 2011 has been too much exposure to real estate. Among the three failed banks in March, commercial real estate loans comprised $44 million, or 55% of the nonperforming loans. Commercial mortgages made up 34% of that 55% total while construction and land loans comprised the additional 21%.