CoStar - It appears that commercial real estate adversity at U.S. banks has reached the high-water mark and is abating. According to the Federal Deposit Insurance Corp. (FDIC), second quarter numbers show 90-plus day delinquencies leveling and eventually set to decline because 30-89 day delinquencies are declining. Also, net charge-offs are leveling or declining. The only CRE distress levels still rising at banks is the amount of foreclosed assets, the total of which now stands at $29.77 billion, up from $7.4 billion two years ago.
Also, the banking industry's quarterly earnings of $21.6 billion are up dramatically from the year-ago loss of $4.4 billion and represent the highest quarterly earnings since third quarter 2007. Almost two out of three institutions (65.5%) reported higher year-over-year quarterly net income. And while the proportion of institutions reporting quarterly net losses remained high at 20%, it was down from more than 29% a year earlier. "This is the best quarterly profit for the banking sector in almost three years," said FDIC chairman Sheila C. Bair. "Nearly two out of every three banks are reporting better year-over-year earnings. As long as economic conditions remain supportive, most institutions should maintain profitability and increase their capacity to lend."
Reductions in loan-loss provisions underscored improvement in asset quality indicators during second quarter 2010. Insured institutions added $40.3 billion in provisions to their loan-loss allowances in the second quarter. While still high by historic standards, this is the smallest total since the industry set aside $37.2 billion in first quarter 2008 and is $27.1 billion (40.2%) less than the industry's provisions in second quarter 2009. Fewer than half of all institutions (41.3%) reported year-over-year reductions in quarterly loss provisions. Only 40% of community banks (institutions with less than $1 billion in assets) reported year-over-year declines. Reductions were more prevalent among larger institutions. More than half (56.2%) of institutions with assets greater than $1 billion had lower provisions in the second quarter. The amount of loans and leases that were noncurrent (90 days or more past due or in nonaccrual status) declined by $19.6 billion (4.8%) during the second quarter. This is the first quarterly decline in noncurrent loans since first quarter 2006. Noncurrent levels declined in most major loan categories during the quarter. The sole exception was nonfarm nonresidential real estate loans, where noncurrents increased by $547 million (1.2%). However, that was the smallest quarterly increase in three years. The largest reduction in noncurrent loans in the quarter occurred in real estate construction and development loans, where noncurrents fell by $5.9 billion (8.3%). This is the third consecutive quarter that noncurrent C&D loans have declined. Multifamily delinquencies also declined.
Total loan-loss reserves of insured institutions fell for the first time since fourth quarter 2006, declining by $11.8 billion (4.5%), as net charge-offs of $49 billion exceeded loss provisions of $40.3 billion. The number of institutions on the FDIC's "Problem List" rose from 775 to 829. However, the total assets of "problem" institutions declined from $431 billion to $403 billion. Also, while the number of "problem" institutions is the highest since March 31, 1993, when there were 928, it is the smallest net increase since the first quarter of 2009. Forty-five insured institutions with combined assets of $47.3 billion failed during second quarter 2010. For 2010 through the end of the second quarter, 86 insured institutions with combined assets of $69.4 billion failed, resulting in an estimated current cost to the DIF of $16.8 billion. "Without question, the industry still faces challenges. Earnings remain low by historical standards, and the numbers of unprofitable institutions, problem banks and failures remain high," FDIC chairman Bair added. "But the banking sector is gaining strength. Earnings have grown, and most asset quality indicators are moving in the right direction."
The U.S. thrift industry also reported a profit in the second quarter ($1.49 billion), the fourth consecutive quarterly profit for the industry. "The thrift industry has clearly improved from the height of the recession but has certainly not recovered in full," noted OTS acting director John E. Bowman. "The performance of the industry reflects the state of the overall economy and the stresses from high unemployment, weakness in the housing market and the spread of weakness to the commercial real estate market."
Tuesday
Plans OK'd for Brunswick County housing development - Despite traffic concerns, South Cape project gets a thumbs up
Star News - A new gated community off N.C. 133 earned the approval of the Brunswick County Planning Board Monday evening. It's a major development at a time when the economy has greatly slowed construction projects in the area. It's also connected to a company that has ongoing legal issues with its yet-to-be-completed subdivisions elsewhere in the county – and it lies right in the path of the proposed Cape Fear Skyway. The development, known as South Cape, is slated to contain 290 single-family homes, 144 multi-family units and 81 townhomes, according to documents filed with the county. It would include about 400 acres on either side of N.C. 133 near Mallory Creek. After an extensive presentation, several board members raised concerns about the effect a new development would have on N.C. 133, which they described as already stressed. The board also discussed at length whether the development's streets should be made to connect with future surrounding neighborhoods. But the only additional requirement applied before approval was that an archaeological survey be conducted on the area before land is cleared. The property, which abuts the Cape Fear River, is owned by BLT Trust, with William E. Saunders Jr., as trustee. The trust is an affiliate of The Coastal Companies, an umbrella unit for several subdivisions in Brunswick County in different stages of completion. Its CEO is Mark Saunders, the son of William Saunders, TCC attorney Elaine Jordan said.
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