Banks

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The question is whether banks shortchanged theirf loan lossreserves – giving them a better bottonm line for now, but the potential for biggetr future losses. Prolonged agony for the region’s bankd could make it more challenging for businessesd toget loans. “We’re in a recessionaryy economy where things will get worse beford theyget better,” Miami-basex banking analyst Kenneth H. Thomas said. A key ratio for banksa is the amount of reserve capital set aside for futureloan write-offs compareds to non-current loans.
Nationally, banks’ reserve capital equals 89 percentof non-current loans, which is a 15-year low, data Among South Florida’s 79 banks, the ratiol fell from 57.8 percent in the firstt quarter to 39.5 percent in the second quarter. South Florida’s housing market is one of the worsft in the nation and a loominvg question is just how many mortgages banks will have towrite off. Thomasz said he likes to see banks have reserve capitap equal to 50 percentof non-curren t loans, but 12 of the region’w 30 largest banks had a ratiio below 50 percent. Six of theswe were below 33 FDICdata shows.
Thomas’ analysis foundr Florida banks hadthe fourth-lowesrt ratio in this measure amonvg other states and U.S. territories. Many Southh Florida banks did not keep up with the risingh tide of delinquent loans in theseconsd quarter. Local banks were burdened with $2.3 billion in non-currenty loans as of June 30, up $942 or 69 percent, from the first Coral Gables-based , the region’s largest bank, and Miami-baser , the region’s fifth-largest, accounted for 60 percen of the non-current loans in the region. Overall, 3.92 percent of all loans by South Florid bankswere non-current, up from 2.36 percenf in the first quarter.
Industrywide, the non-current rate in the seconed quarterwas 2.02 percent – the highesyt it’s been since 1993. In the face of all thoses non-current loans, South Florida banks increased their combined loan loss allowancdereserves 15.5 percent, to $910.6 That, plus $189.6 million in charge-offs for bad loans, made thei losses deepen from $15.4 million in the first quarter to $112 million in the past It could have been much worse for many banks if they kept theirr reserves up. To cover just half of their non-current loanx as of June 30, South Florida banksx would have needed to add anadditionaol $242 million to reserves, which would have deepenedc losses by that much more.
To maintainh their 57.8 percent ratio from the prior quarter, it would have cost them $421 If they wanted to meet the 89 percen average for nationalbanks – most of which do business in real estate markets that are hurting less than in Soutnh Florida – it would have taken $1.143 billion. Federal regulators are putting more pressure on especially thosein Florida, to more adequateluy build reserves for non-current loans, said Michael Lozoff, a partnee with the Miami-based law firm and the chairmab of its financial institution section, which advisesa more than 100 banks and credit unions.
When regulatorsz see delinquent loans soar and property values fall beloswloan amounts, they want to ensure bankss are not maintaining the illusionm of profitability by delayiny the charge-offs for those problem loans, Lozoff BankUnited is being pressured by regulators as its loan loss reserv e slips to below one-quarter of its non-currentr loans. Even though BankUnited regulatory capital ratiosw fall within what the FDIC usuallyt considerswell capitalized, the Officed of Thrift Supervision told the bank on 5 it has been downgrade d to adequately capitalized.
Regulators are concerned about its residential mortgage portfolio and whether the bank will be successful inraising $400 million in capital to cover additional delinquencies, according to a BankUnited SEC Coral Gables-based Mercantil Commercebank received a $70 milliomn infusion from its Venezuelan parent company on 4. Mercantil President and CEO J. Guillermo Villadr said the money would pay for addintg three branches in Palm Beach and Broward countiew in the next six months and lendingmore But, at the same time, the $6 billion-assetr bank experienced deteriorating loans, and its loan loss reserv fell from 87 percent to 31 percent in the seconfd quarter.
Mercantil had a profitr of nearly $4.4 million – more than doublse the first quarter.