Area banks lending more than they have

There is a chart (in the print edition of the Times) that shows how 15 banks are well over there limit in loan percentage of capital...

I believe all of this is cause for concern in bay area development as well as financial stability in general. You can't keep lending what you don't have.

Banks to FDIC: Don't overreact
As federal regulators express concerns over record levels of construction loans, area community banks say tighter standards could restrict credit availability.

By KRIS HUNDLEY, Times Staff Writer
Published April 8, 2006

Federal regulators may be increasingly anxious about the record level of construction loans in Florida community banks' portfolios. But bankers in the Tampa Bay area have a different concern: that regulators might overreact to the situation and end up creating a credit crunch.

"To some degree, there's a herd mentality among bankers," said Gregory Bryant, president of Bay Cities Bank in Tampa. "We fear that if banks who have been meeting certain standards are held to a higher standard, it could have a definite impact on the availability of commercial loans."

This week, the Federal Deposit Insurance Corp. said that for the first time in history, more than 50 percent of Florida's community banks held construction and development loans exceeding 100 percent of the bank's capital. Capital is generally 10 percent of a financial institution's assets. A community bank typically has assets of $1-billion or less.

In the Tampa Bay area, 14 community banks boast a volume of construction and development loans larger than the size of their capital base.

Though the FDIC has no restrictions on how heavily concentrated a bank can be in a single loan category, overexposure in any area raises flags. And when the overexposure is in commercial construction and development loans - often for residential development - signs of a housing market slowdown only heighten regulators' fears.

For Floridians, the FDIC's message is not intended to alarm but to suggest customers stay informed on the health of the financial institution where they do business.

The vast majority of Florida banks reported strong profits last year. With short-term interest rates rising, customers are seeing higher returns on certificates of deposit.

But a bank's heavy reliance on real estate loans may prove problematic should property values flatten or sales stall. Customers whose accounts exceed the FDIC-insured maximum of $100,000 would be hard hit if a severe real estate bust threatened a bank's viability.

Miami banking expert Ken Thomas thinks there's little chance the situation will lead to bank failures.

"Banks are so well capitalized now," he said, adding that Florida has not had a bank failure in more than a year. "They are more profitable, have better lending standards and regulators are doing a better job of watching what's going on. It's the best of times for Florida banks."

Still, bankers and regulators will meet in Miami this month to discuss how or if the industry's overseers should respond. If comments from executives at Tampa Bay area institutions with heavy real estate exposure are any indication, bankers think the less interference the better.

"The proof is in the pudding," said Neil Savage, chairman of Synovus Bank of Tampa Bay, which had a ratio of construction loans to capital of about 200 percent as of Dec. 31. "It's the underwriting that determines whether these loans have a good outcome and our credit quality has been at the top of the list."

Savage said Synovus has not been a heavy residential lender. First Commercial Bank of Tampa Bay, by contrast, has a heavy concentration of single-family construction loans. But Albert Salem Jr., president and chief executive of the Tampa bank, said he was quite comfortable with First Commercial's construction loan-to-capital ratio of more than 250 percent.

"We certainly dealt with this very adequately," he said. "Most of those loans are for homes that were presold before they came out of the ground."

Nor does a housing slowdown trouble Salem.

"We're pretty well pleased with that," he said. "It will help us because fewer starts mean fewer requests for loans. And that will help this perceived exposure to having more construction loans."

Bay Cities Bank had the highest ratio of construction loans to capital among the 30 community banks in the Tampa Bay area: 309.8 percent as of year's end. But Bryant, Bay Cities' president, said that figure is misleading. The bank, founded in 1999 by veteran Florida banker Bronson Thayer and who remains its chairman and CEO, received an additional $3-million in capital from its holding company this year, reducing the ratio.

Bryant said Bay Cities' construction loans are mostly for commercial, rather than single-family projects, and require substantial equity from the borrower and strong levels of preleasing or sales.

"Banks don't want to get caught up in the mentality that real estate in Florida will never decline and there needs to be disciplined underwriting," he said.

"But it's much safer for banks to make real estate loans which are secured by an asset than unsecured loans. And I don't think the regulators want banks to make more loans secured by less desirable collateral."

--Kris Hundley can be reached at [email protected] or 727 892-2996.
[Last modified April 8, 2006, 00:32:10]