Sunday, Apr 22, 2018
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Bad loans set year's record at U.S. banks

U.S. banks last year charged off a record $38.8 billion worth of bad loans, after counting recoveries from previous charge-offs - a 55 percent increase from 2000 and $1 billion more than the previous record, set in 1991 during the savings-and-loan crisis.

Many banks in northwest Ohio and southeast Michigan produced significant increases in their provisions for bad loans as well as in loan charge-offs, or loans written off minus recovered money.

For example, Rurban Financial Corp. in Defiance, which operates State Bank & Trust, jumped its loan loss provisions by more than 300 percent last year compared with the year before; KeyCorp, a Cleveland company that operates KeyBank in Toledo and elsewhere, boosted its loan-loss reserves by 1,000 percent to $1.35 billion.

Five bank holding companies based in this region added $54.6 million to their loan-loss reserves last year, up 61 percent from the year before, and had net charge-offs of $38.8 million last year, up 57 percent from 2000.

The five are Rurban; Sky Financial Group, Bowling Green; MBT Financial Corp., Monroe; First Defiance Financial Corp.; and Exchange Bancshares, Inc., Luckey

But area bankers say the worst is over, and credit quality is improving. Some say that, even though credit may be a bit tighter than it was, they plan to increase lending this year.

Loan delinquencies “did go up and peak, or we hope they peaked,” said Kenneth Nagel, executive vice president of lending for Sky's Mid Am region. Delinquency of all types of loans averaged 0.99 percent at the end of March, up from 0.8 percent a year earlier.

“That's not drastic, but it is an increase,” he said. “It peaked around December or early January.”

The main cause, he said, was layoffs at the end of last year as the economy slumped.

John Szuch, chairman and chief executive officer of Fifth Third Bank (Northwestern Ohio), noted that last year marked an increase in the number of companies on the credit-watch list as well as a rise in loan delinquencies and loan charge-offs throughout the Midwest.

“Credit quality is at a lower level than through most of the 1990s, and it has affected banks' strength somewhat but not as great as [in some downturns] I saw earlier in my career,” he said.

Still, loan losses were even more pronounced last year among the five big bank holding companies operating in the region than for the locally based firms.

Loan-loss reserves jumped 277 percent to $2.6 billion last year, and net loan charge-offs increased 72 percent to $1.6 billion last year for KeyCorp, National City Corp., and Charter One Financial, Inc., all in Cleveland; Fifth Third Bancorp, Inc., of Cincinnati; and Huntington Bancshares, Inc., of Columbus.

Key accounted for a big chunk of the totals, adding $1.35 billion to its loan-loss reserves, including $723 million in the fourth quarter alone, and it took $673 million in charge-offs for the year.

Martin Weiss, chairman of Weiss Ratings, Inc., bank monitoring firm in Palm Beach Gardens, Fla., called the national increase in bad loans alarming.

By contrast to last year's nearly $39 billion charge-offs, totals had dropped to just over $14 billion a year in 1994 and 1995. The surge is widespread, with 4,146 banks and thrifts, or more than 43 percent of the industry, showing increases in charge-offs last year.

Topping the list were such giants as Bank of America, Charlotte, N.C., $3.5 billion, up 73 percent; Citibank, New York, $2.7 billion, up 73 percent; US Bank, Cincinnati, $1.7 billion, up 756 percent; and Bank One, Chicago, $1.2 billion, up 212 percent.

He said he expects more charge-offs this year because bank loans more than 90 days past due or deemed in default by banks have been increasing. Such loans jumped 28 percent to $62.5 billion last year, according to the Weiss firm. Nonperforming assets also include foreclosed properties.

Most banks doing business locally had increases in nonperforming assets, but most still kept the percentage under 1 percent of assets in their most recent quarterly report.

Even though credit quality has slipped somewhat, most banks had a good 2001, with the industry posting record profit of $87.5 billion, up nearly 7 percent, the Weiss firm said. Profitability and higher loan charge-offs appeared to carry into the new year.

Reasons for the charge-offs vary widely. Both National City and KeyBank got out of the auto-leasing business because lower used-car prices hurt their results, and Huntington warned investors in its most recent annual report that it could suffer some losses in its $3 billion leased-car portfolio.

Locally, Rurban recently restated its 2001 earnings to cut its profit to $2.3 million from an earlier projection of $4.1 million, partly blaming “severe weaknesses in several commercial loans.” Rurban boosted its loan-loss provision to $8.7 million, four times the level of the previous year.

Exchange Bancshares' annual report noted that the bank is still working its way through loans inherited when Exchange took over troubled Towne Bancorp nearly four years ago. However, last year, Exchange managed to recover more assets from previous writeoffs than it needed to charge off. MBT Financial also began taking its lumps in 1999, writing off several large commercial and industrial loans.

Sky's Mr. Nagel said loan delinquencies have been dropping each month since the first of the year, and he expects things to be back to normal by midyear. Even so, “we're looking at loans much closer. In good times, it doesn't seem much can go wrong. But [in bad times] you have to tighten.”

Mr. Weiss said he was also concerned that loan-loss reserves at U.S. banks are dropping, down to 129 percent of nonperforming loans as of Sept. 30, 2001, the lowest level in eight years.

Locally, Sky and First Defiance have ratios above 200 percent, while MBT, Rurban, and Exchange are under 100 percent.



Local bank


Sky Financial$34.6 mil$22.3 mil 55%
MBT Financial $7.4 mil $6.3 mil 17%
First Defiance $3.9 mil $3.1 mil 26%
Rurban Financial $8.7 mil $2.1 mil314%
Exchange $15,000 $75,000-80%

banks in area

National City$605 mil$287 mil111%
Key$1.35 bil$121 mil1,015%
Fifth Third$236 mil$138 mil 71%
Charter One$101 mil $54 mil 86%
Huntington$309 mil $91 mil241%


Local bank


Sky Financial$24.4 mil$15.7 mil 55%
MBT Financial $5 mil $5.6 mil-11%
First Defiance $2.8 mil $2 mil 40%
Rurban Financial $6.7 mil $1.1 mil509%
Large banks

in area

National City

$463 mil$286 mil 62%
Key$673 mil$414 mil 63%
Fifth Third

$227 mil$109 mil109%
Charter One $69 mil $51 mil 35%
Huntington$189 mil $83 mil128%

Figures are as of March 31, except MBT and Rurban, which are year-end 2001.

For Exchange, recoveries exceeded charge-offs.

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