Thrift Industry Quarterly Report

The Office of Thrift Supervision (OTS) released its first quarter report on the 1,276 thrifts that it supervises. The report showed the effects of the deteriorating credit cycle on bank balance sheets. We have written previously on this quarterly report here, and it is important in monitoring the state of the industry.

All data is as of 3/31/2008.

1) Average capital ratios are still strong, some even increased from the end of 2007. There are still outliers on the ratio scale but it is encouraging to see overall strength:

Total Risk Based Capital Ratio - 14.6%
Tier One Risk Based Capital Ratio - 12.5%
Equity Capital Ratio - 9.1%
Tier One Core Capital Ratio - 8.5%

2) The industry has reserved 2.01% of its assets, or $7.6 billion for the coming storm of losses.

3) Troubled assets are now 2.06% of assets. This category includes noncurrent (90 days or more past due), nonaccrual status loans and other real estate owned (OREO). This has not yet peaked and will continue to increase during 2008.

4) The total percent of non current loans continues to rise, reaching 1.78% of assets. The most problems are coming in the category of Construction and Land loans where 6% of all loans are non current. However, this is only 3.5% of all loans held by thrifts. Unfortunately, 1-4 Family loans represent 49.4% of all loans held by thrifts, and delinquencies here are at 2.85% and rising.

5) There are another 1.33 percent of total loans past due by 30 to 89 days. Many of these loans will eventually filter into the non current and OREO categories.

6) Another "bright" spot, if you can use that term, is that the number of banks on the OTS watch list is only at 12. For a bank to qualify for this list it must have a CAMELS rating of 4 or 5. The CAMELS rating is a ratings system that examines capital adequacy, asset quality, management, earnings, liquidity, and sensitivity to market risk. In 1992, the number of banks on this watch list was 203, or 11% of all thrifts.

Read the Full Report by clicking below:

Press Release

Chart Package

Thrift Industry Update

The headlines making the rounds off of this report is the $5.2 billion collective loss that the thrift industry took in the fourth quarter of 2007. However, there is a lot of data in this report and I would urge everyone to read the entire thing. Here are some things I would like to point out:

1) The Office of Thrift Supervision (OTS) made money last year!! A miracle for a government agency and it probably did not include the government overhead, but refreshing to know that the OTS made $24 million last year. (Page 4)

2) The year end equity capital ratio was at 9.46%, the second highest ever. (Page 6) Compare that to the 3.17% in the middle of the Savings and Loan crisis in the 1980's.

3) Return on Average Assets was still positive for the full year at 0.19%, despite the fourth quarter write off. (Page 8)

4) Loan loss reserves as a percent of average assets are at the highest level ever - 1.35% - so the industry is at least prepared for what is coming. Will it be enough? Time will solve that mystery. (Page 11)

5) Other Capital Ratios still look sound at year end. (Page 14)

6) Page 17 is a scary one, detailing non current loans for the last five quarters. take at look at the chart for 1-4 family loans, which is 49% of assets for the industry. Also, construction and development non current loans are also rising sharply.

7) Page 18 is another scary one. Although there are only 11 problem thrifts at year end, look how bad it could get - there were 200 problem thrifts in 1991.

Fourth Quarter Thrift Report

Dugan Speech

John C. Dugan is the Comptroller of the Currency, and yesterday he gave a speech to the Florida Bankers Association. The Office of the Comptroller of the Currency (OCC) is but one of five regulators of banks in the United States. The five are:

The Office of the Comptroller of the Currency (charters, regulates, and supervises all national banks. It also supervises the federal branches and agencies of foreign banks)

Federal Reserve Board (state chartered banks that are members of the Federal Reserve System and bank holding companies)

Federal Deposit Insurance Corporation (insured state banks that are not members of the Federal Reserve System)

Office of Thrift Supervision (savings and loans)

National Credit Union Administration (credit unions)

Dugan mentioned some interesting information regarding banks and the risks they face.

1) The ratio of commercial real estate loans to capital has nearly doubled in the past six years, to 285 percent.

2) Over a third of the nation’s community banks have commercial real estate concentrations exceeding 300 percent of their capital, and almost 30 percent have construction and development loans exceeding 100 percent of capital.

3) Over 60 percent of Florida banks have CRE loans exceeding 300 percent of capital, and more than half have C&D loans exceeding 100 percent of capital.

4) Indeed, during the past year national community banks have experienced a significant increase in nonperforming C&D loans. As of Sept 30, these loans amounted to 1.96 percent of total C&D loans, a rate that was more than twice that of a year earlier.

5) In Florida, that trend is even more pronounced. While nonperforming loans a year ago were 40 basis points less than the national average, the figure has increased to 3.34 percent of total C&D loans. That’s 70 percent greater than the national average and an almost eight-fold increase in one year.

6) Thus far overall nonperforming CRE loans, even in the area of residential construction and development lending, are a long way from approaching historical peaks.

It should be a fun year for the Banking Industry.

Thrift Capital Ratios

During the last significant recession in the early 1990's the thrift industry was ground zero for everything that was going wrong with the economy at the time, with hundreds of bank failures, etc. This time the problems seems to stem from the "smart money" bankers who have overextended themselves without regard to risk.

The Sept 2007 aggregate thrift financial report shows capital ratios actually getting stronger in September 2007, as measured on a year over year basis.



The full report is here.

Thrift Report

The Office of Thrift Supervision (OTS) just released its third quarter report on the state of the thrift industry. While the market and the media have been focused on the travails of the large cap banks and brokers, the thrift industry is just as important to our financial system as it has $1.57 trillion in assets and originated 30% of all mortgages in the most recent quarter. The full report is available here:

Thrift Industry

Highlights include:

1) Loan loss provisions increased to 0.92 percent of average assets in the third quarter, an increase from 0.22 percent in the third quarter one year ago and from 0.38 percent in the prior quarter.

2) Troubled assets (noncurrent loans and repossessed assets) were 1.19 percent of assets, up from 0.95 percent in the prior quarter and 0.64 percent a year ago.

Loan loss provisions as a percent of average assets are now at the highest level as far back as the report goes (1991).

Although these metrics are high, it can get a lot worse. If you look at page 11 of this report, entitled troubled assets, you can look at the peak back in the early 1990's.

Also, as the report notes, if you exclude the top ten thrifts who are active in originating loans for sale, the industry return on assets would have been much higher.