Bank Watch: Community Bank CRE Lending Conditions Deteriorate

Commercial real estate lending conditions for the nation's community banks worsened again in the third quarter of 2009 compared to the second quarter of the year, according to the Commercial Real Estate Lending Index from Banc Investment Group (BIG). The BIG CRE Index dropped to 63.67 in the third quarter from 71.24 in the second quarter of 2009, a 10.6% decline. The Index declined 11.6% in the second quarter from the first quarter of 2009. Conditions in the industrial sector posted the largest decline, falling 21.2%. Lending conditions in the retail sector dropped 7.7%, the office sector 7.1%, and multifamily 9%. BIG's data and market analysis indicate a difficult lending environment for the fourth quarter of 2009 and into the first quarter of 2010. "CRE lending conditions for community banks worsened across the board in the third quarter, although the rate of decline slowed somewhat," said Chris Nichols, president and CEO of Banc Investment Group, the capital markets subsidiary of Pacific Coast Bankers' Bancshares. "The index results from the third quarter indicate that bankers will face tough challenges in managing their balance sheet in coming quarters and need to be pro-active in addressing problem loans." The retail sector of the index fell to 60.89 in the third quarter from 65.99 in the prior quarter, down 7.73%. Lending conditions benefitted from a modest improvement in retail sales (less gas and autos). The industrial sector of the index fell to 43.97 in the third quarter from 55.84 in the prior quarter, down 21.27%. The decrease was tempered compared to the decline between the first and second quarter as industrial production turned positive for every month in the third quarter. The multifamily sector of the index fell at an accelerated pace of 9.06% to 76.74 in the third quarter from 84.39 in the prior quarter. The office sector of the index fell to 73.07 in the third quarter, down 7.19 % from 78.73 in the prior quarter. State Bank of Long Island Cutting is Losses on Nonperforming Loans State Bancorp Inc., the Jericho, NY-based parent company of State Bank of Long Island, is in the final stages of liquidating certain non-performing and higher risk legacy loans. The holding company said it anticipates that this strategy will result in the final disposition of many of its most difficult loans including the majority of its non-performing loans which totaled $35 million at Sept. 30. About $10.5 million of that amount was related to CRE income producing properties, including multifamily loans. Last month, State Bancorp closed a $20 million bulk loan sale that resulted in a loss of $11 million. It is anticipated that the combined 2009 fourth quarter full impact of this troubled loan liquidation strategy (including the $20 million sale) will result in the disposition of approximately $55 million original principal balance loans and an expected aggregate pre-tax charge of approximately $17 million. The bank holding company also was to retire its outstanding 8.25% subordinated notes with an aggregate principal balance of $10 million issued in 2006 and due to mature in 2013. In exchange for the subordinated debt and accrued interest, the company will issue 1.67 million shares of its common stock in a privately negotiated transaction with four major institutional investors at an effective price of $6.50 per share. The investors participating in the exchange are Endicott Management Co., Sandler O'Neill Asset Management, PRB Investors LP, and funds affiliated with Northaven Management Inc. "Over the past several months we have been investigating alternatives to accelerate the financial repositioning of our balance sheet in an effort to create clearer earnings visibility for 2010 and beyond," said Thomas M. O'Brien president and CEO of State Bancorp. "In this analysis, it became clear that certain weak legacy credits and high cost debt stood in the way of realizing the company's potential. Accepting the fact that an immediate disposition of poorly performing loans would carry a high cost, we modeled the cost-benefit outcomes of these initiatives. The costs, while not insignificant in the short term, are quickly eclipsed by the transformative impact of a large scale liquidation and subordinated debt retirement. These conclusions were consistently validated throughout our deliberate analytical approach." "While some of these actions will result in a significant fourth quarter 2009 charge to earnings, together they represent important strategic steps toward reducing balance sheet risk and will position the company to concentrate its resources for long term profitability," O'Brien added. State Bank of Long Island has 17 branches in Nassau, Suffolk, Queens and Manhattan. Feds Shut Down $11 Billion AmTrust New York Community Bancorp Inc., through its savings bank subsidiary, New York Community, has acquired all the deposits and certain assets of AmTrust Bank from the Federal Deposit Insurance Corp. (FDIC). New York Community Bank received assets of approximately $11 billion, including performing single-family mortgage and consumer loans of approximately $6 billion which are subject to a loss-share agreement with the FDIC; cash of approximately $4 billion; and securities of approximately $1 billion; and assumed certain liabilities approximating $11 billion, including deposits of approximately $8 billion and wholesale borrowings of approximately $3 billion. Under the terms of the agreement, New York Community Bank did not acquire any of AmTrust Bank's non-performing loans serviced or any other real estate owned, construction, land, or development loans, private-label securities, or mortgage servicing rights; nor did it acquire any of the assets or assume any of the obligations of the holding company. AmTrust Bank was not heavily involved in commercial real estate lending and had just a little less than $16 million of nonperforming CRE-related assets on its books. The deal expands New York Community Bank's franchise from 212 branches to 278 branches, including 29 in Ohio, 25 in Florida, and 12 in Arizona. New York Community Bancorp said it will seek to take advantage of favorable market conditions to raise additional common equity capital to support its growth. The FDIC and New York Community Bank entered into a loss-share transaction on approximately $6 billion of AmTrust Bank's assets. New York Community Bank will share in the losses on the asset pools covered under the loss-share agreement. Dearborn Bancorp Receives Nasdaq Noncompliance Notice Dearborn Bancorp Inc., the holding company for Fidelity Bank in Dearborn, MI, received a letter from The Nasdaq Stock Market notifying the company that it failed to comply with Nasdaq's minimum bid price requirements for continued listing. Dearborn Bancorp has 180 calendar days to regain compliance or face delisting. Dearborn Bancorp Inc. is a registered bank holding company. Its sole banking subsidiary is Fidelity Bank. The Bank operates 17 offices in Wayne, Oakland, Macomb and Washtenaw counties in Michigan. Dearborn Bancorp with total assets of slightly more than $1 billion reported a net loss of $55.4 million for the first nine months of the year and said it has substantially curtailed new lending. At the end of September, Fidelity Bank had about $26 million in nonperforming loans on its books related to multifamily and income producing commercial real estate. Download this story and all of the stories in the Watch List Newsletter here. The Adobe pdf version also includes all of this week’s leads of distressed properties and loans of concern, lease cancellations applied for in bankruptcy proceedings, local and national facility closures & layoffs, and lists of loans approaching their maturity date. Plus the pdf version contains bonus news items not found in these columns or the CoStar Group web news pages. 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