Friday, April 18, 2008; Posted: 01:56 PM
The increase in past-due loans is a reflection of not only the worsening housing market but also challenges from the economic slowdown as even some solid companies are hard-pressed to keep loan payments up to date, banking analysts say.
At the end of 2006, a report from BauerFinancial showed that 15 of 61 South Florida banks had a ratio of nonperforming loans to all loans of 1 percent or more.
But one year later, 33 of the banks topped 1 percent or more in this key measure of a bank's financial health.
Seventeen banks had a ratio of 2 percent or more and 13 banks had a ratio of 3 percent or higher. One year earlier, five banks had ratios of 2 percent or more and three banks were above 3 percent.
"Until we see that bottom on the real estate market, we are probably not going to see an uptick in the banking segment," said Karen Dorway, president of BauerFinancial.
The firm is a bank rating agency in Coral Gables that prepared the report for The Miami Herald using data the banks report to federal regulators.
"I don't see it as a crisis situation," said Dorway. "It is obviously troublesome for our local economy."
None of these numbers mean that local banks might not survive or that customers have to worry about deposits, which are federally insured up to $100,000.
But they are part of a panorama where financial woes from collapsing housing prices have spread to the banking sector and to the rest of the economy.
On the positive side, South Florida banks are not burdened with the massive write-downs taken by some global banks because of their exposure to subprime mortgage instruments.
Numerous local bank executives said the community banks didn't invest in such subprime instruments.
Many local banks also entered the current down cycle well-capitalized, which helped cushion them against bad loans.
Executives at the local banks with the highest ratios of problem loans say they have either cleared up the delinquent loans or are working them out.
Regulators have increased scrutiny of banks in South Florida and across the state because of their concentration in real estate lending.
At the end of January, John C. Dugan, the comptroller of the currency, told a meeting of the Florida Bankers Association in Miami that regulators were focused on any possible problems and urged bankers to address their credit troubles promptly.
"For those of you in stressed markets, it will almost certainly require you to downgrade more of your assets, increase loan loss provisions, and reassess the adequacy of bank capital," Dugan said.
BauerFinancial's Dorway said that the good news in South Florida is that bankers are taking an aggressive approach in marking their loans as non-accrual or non-performing.
South Florida banks with a ratio of 5 percent or above include Terrabank, Union Credit Bank and Ocean Bank, all headquartered in Miami.
Union Credit President and Chief Executive Fernando Capablanca said that the one non-performing loan that had raised a red flag and caused the bank's ratio to rise to 5.3 percent is now up to date.
The borrower paid up on December 31, but it was too late to change the year-end numbers filed with regulators, Capablanca said.
BauerFinancial used numbers as of December 31; March 31 numbers will not be available for several weeks.
Alfonso Macedo, president and chief executive of Ocean Bank, said the bank was aggressively working out its problem loans and was well-capitalized to confront the problems.
"We have identified our major problems," Macedo said. "We are prepared to handle whatever comes."
At Terrabank, President and Chief Executive Antonio Uribe said the bank had already collected $35 million in problem loans and was being very strict about classifying loans as non-performing.
Despite the high number of non-performing loans, only one loan has gone to court for a foreclosure judgment, he said.
"We have had to write off less than $2 million over the last two years, which reflects the work that we've done in collecting," Uribe said.
Miami banking analyst Kenneth Thomas said he expects the problems in the banking sector to continue because he believes the economy is already in recession, which is formally defined as two consecutive quarters of economic contraction.
"This recession will end around the end of this year, when the rebates kick in, and then I see another recession coming in 2009 until 2010," Thomas said.
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