As traders fret about how a downturn in business actual property might harm the U.S. banking sector, a number of small and midsize lenders with substantial publicity to CRE say to not fear.
Banks whose business actual property portfolios have come beneath the microscope embody Cullen/Frost Bankers in San Antonio, Florida-based BankUnited, Financial institution OZK in Arkansas, Seattle-based WaFd Inc. and Brookline Bancorp in Boston.
In any respect 5 of these banks, which vary in measurement from roughly $10 billion-$50 billion of property, executives sought throughout current earnings calls to reassure analysts about their business actual property books, at the same time as excessive rates of interest and distant work
The executives’ efforts had been typically profitable. The share costs of all 5 banks have risen over the past 5 buying and selling days — although some elevated solely barely.
The biggest of the bunch, the $49 billion-asset Cullen/Frost, reported an increase in charge-offs in the course of the fourth quarter. However CEO Phil Inexperienced stated Thursday that business actual property loans, which make up 36% of the financial institution’s $18.8 billion e-book, weren’t the supply.
“We noticed a rise in drawback loans this quarter,” he stated in the course of the firm’s earnings name, “however it actually wasn’t from business actual property in any respect.”
Practically half of the Texas financial institution’s CRE transactions are labeled as investor actual property — a class that features workplace, multifamily and industrial properties — whereas the remainder are principally owner-operated properties. The largest publicity danger on paper pertains to multifamily building, reasonably than workplace properties, which have been a
He stated that Cullen/Frost, the holding firm for Frost Financial institution, really had three paydowns of workplace properties that totaled $95 million.
In the course of the fourth quarter at Cullen/Frost, credit score high quality remained above historic ranges, however charge-offs nonetheless rose 12 months over 12 months to $11 million from $3.8 million. Inexperienced stated he expects additional normalization in 2024.
Cullen/Frost is hitching its wagon to the relationships it has constructed with debtors, in addition to the underwriting choices it has made, Inexperienced stated within the interview, which occurred after the corporate’s fourth-quarter earnings name.
“The explanation I do not fear about that’s due to the kinds of properties, the places, the standard of the initiatives and, most significantly, the standard of the relationships that we’ve got,” Inexperienced stated.
“It isn’t one thing I am actually fearful about. The reason being not due to something we’re doing now. You’ll be able to’t do very a lot now. It is about what you have completed over the previous few years as you develop your portfolio.”
Analysts at Wedbush Securities, which have a impartial ranking on Cullen/Frost’s inventory, wrote in a analysis word that optimistic indicators for the corporate embody an elevated stage of mortgage loss reserves. Whereas Cullen/Frost’s inventory worth fell by 1.8% on Friday, it was nonetheless up by 0.4% for the week.
At Miami Lakes, Florida-based BankUnited, Chairman and CEO Rajinder Singh stated Friday that the extent of nonperforming loans, together with CRE loans, is so low “will probably be more durable to drive them down additional.”
Fourth-quarter internet charge-offs had been simply 0.09% of common loans, which beat analysts’ expectations.
Some credit score normalization seems headed BankUnited’s manner, however the pattern will begin off a really low base. Whereas criticized business loans rose by 15% quarter over quarter to $1.14 billion, nonperforming loans declined by $10 million in the course of the three months ending Dec. 31, ending final 12 months at 0.52% of complete loans.
“Total on credit score,” Singh stated in the course of the firm’s quarterly earnings name, “I am sleeping very nicely at night time.”
BankUnited’s workplace constructing loans are anchored in rising South Florida markets, in addition to in Manhattan. In its Manhattan portfolio, the $35.8 billion-asset firm is reporting a 96% occupancy charge. “We do not see a lot in the way in which of loss content material,” Chief Working Officer Tom Cornish stated on the convention name.
Shares in BankUnited fell by 0.6% on Friday, however had been up 0.5% for the week.
Much like Financial institution United, the $11.4 billion-asset Brookline Bancorp reported linked-quarter declines in each complete and CRE nonperforming loans. The latter class ended 2023 at $19.6 million, down 7% from Sept. 30. Web charge-offs of $7.1 million amounted to an annualized 0.30% of complete loans, down from 0.47% on September 30.
Laurie Havener Hunsicker, an analyst who covers Brookline for Seaport Analysis Companions, raised her worth goal for the corporate’s shares by $2 to $14, largely on the power of its credit score high quality efficiency.
“Credit score prices proceed to normalize, however have been higher than our expectations,” Hunsicker wrote Friday in a analysis word.
Shares in Brookline, which reported its quarterly earnings on Wednesday, had been up 5.5% this week.
At Financial institution OZK in Little Rock, Arkansas, nonperforming loans totaled $61 million, or 0.23% of complete non-purchased loans on Dec. 31. Financial institution OZK’s nationwide CRE lending unit reported full-year internet charge-offs of $5 million, amounting to 3 foundation factors of its $16.9 billion portfolio.
Credit score high quality on the $34.2 billion-asset financial institution is “comparatively benign and restricted to a handful of transactions,” Chairman and CEO George Gleason stated throughout a Jan. 19 earnings name.
Shares in Financial institution OZK are up 6.4% because it launched its earnings report final week.
On the $22.6 billion-asset WaFd Inc., holding firm for Washington Federal Financial institution, the ratio of nonperforming loans to complete loans was 0.26% for the fourth quarter. Shares in WaFd are up by about 1.5% because it launched its quarterly earnings report on Jan. 16.
On the time, CEO Brent Beardall sounded optimistic about prospects for continued robust credit score efficiency in 2024. He cited a current decline in long-term rates of interest, which ought to make it simpler for business actual property debtors to make their funds.
“A lot has been speculated concerning the potential downturn of the business actual property market, and we do not know with certainty how or if that may happen, but we do know that this decline in long-term charges narrows the refinance hole for debtors and thus lowers credit score danger for banks,” Beardall stated in a press launch earlier this month.