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VOL. 124 | NO. 225 | Monday, November 16, 2009


Loan Losses Still Up at Area Banks

By Andy Meek

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ASSETS: Renasant Bank was one of several local financial institutions that increased their loan loss provisions in the third quarter, although Renasant’s chairman and CEO also recently told analysts there were plenty of bright spots elsewhere in the bank’s Q3 results. – PHOTO COURTESY OF THE MABUS AGENCY

With a few exceptions, most major regional and community banks with a presence in the Memphis market are socking away more money these days to cover troubled parts of their loan portfolios.

The degrees to which they’re piling up those cushions vary widely, with the figure more than doubling at banks like Cadence and Renasant when comparing the just-ended third quarter to the same period last year. And the trend is important to watch, because when provisions for loan losses are on the rise it eats into a bank’s earnings, which in turn postpones the return of stability to the industry.

The reality of continued instability in the industry is no doubt crystal clear to anyone whose credit card lines have been slashed recently or who’s been turned down for a bank loan. When banks are circling the wagons, it should go without saying, no one is playing the role of the Good Samaritan.

Covering exposures

Heavy exposure to real estate and construction loans, in particular, remain the banking equivalent of Kryptonite. In its third-quarter earnings report, Starkville, Miss.-based Cadence Bank said it “significantly increased our allowance for loan losses” during the first nine months of this year.

Those loan types were part of the reason.

From July through September, the bank set aside almost $10 million more in loan loss provisions than it did during the same period last year, nearly doubling the $11.7 million provision in Q3 2008 to $20.7 million this year. Cadence, which is especially concerned about weakness in its Middle Tennessee bank market, attributed the stockpiling to a rise in real estate construction and development loans that are in default or close to it.

Cadence set aside an even larger buffer in the second quarter of this year, designating a loan loss provision of $23 million, compared to just $3.3 million in Q2 2008.

In a recent regulatory filing, Cadence officials said the bank looks at several factors to determine what its loan loss reserves will be. Those factors include the amount borrowers are able to repay, current trends surrounding problem loans, economic conditions at the local, regional and national level and the results of regulatory examinations. Sometimes, consultants provide advice that will get factored in to the mix.

During the bank’s third-quarter earnings conference call with analysts, Cadence chairman and CEO Lewis Mallory said the loan loss provision is higher than the bank wants it to be. From a general operating standpoint, he also said the bank realizes the scope of the task confronting it.

“We’re continuing our moratorium on residential construction, acquisition and development, raw land and lot inventory loans to builders,” Mallory said. “We are having our loan officers focus more of their time on managing and reviewing existing loans, such as stress testing, clearing exceptions and collections. This is more feasible now than in the past, particularly given the lack of new loan volume that we’re experiencing.”


Mallory’s bank is nowhere near the only one in that boat. Trustmark, another Mississippi-based bank with a handful of branches in the Memphis area, saw its loan loss provision inch up to $15.7 million in the third quarter, compared to $14.47 million during the same period last year.

Renasant’s loan loss provision doubled from about $3 million in Q3 2008 to $7.3 million during the same period this year. The Tupelo-based bank attributed the increase to “continuing credit deterioration in 2009.”

Renasant chairman and CEO Robinson McGraw told analysts during his bank’s third-quarter earnings presentation the bank is pleased with the overall Q3 results, which included a boost in Renasant’s net interest income.

“Some time ago, we implemented a plan to change the mix of the company’s loan portfolio by moving away from residential construction and land development lending and certain types of non-owner-occupied commercial real estate loans,” McGraw said. “Our relationship managers, along with our credit officers and loan review team, continue to aggressively analyze our entire loan portfolio.”

The bigger banking brethren of these community players are facing the same challenge, albeit on a larger scale.

Atlanta-based SunTrust saw its loan loss provisions for the quarter balloon 125.1 percent. In the quarter that ended Sept. 30, SunTrust set aside a provision of $1.1 billion, up from $503 million in the same quarter in 2008. SunTrust, one of the largest players in the Memphis market, has said its mortgage loan modification program is helping put a dent in the bank’s delinquency and other problem loan trends.

Alabama-based Regions Financial Corp. saw its Q3 loan loss provisions go from $417 million in Q3 2008 to more than $1 billion this year.

Memphis-based First Horizon National Corp., the parent company of First Tennessee Bank, saw its provision for loan losses drop $155 million when compared with Q3 2008, falling from $340 million last year to $185.5 million in the third quarter of this year. The company attributed that positive news to stabilizing asset quality and a shrinking national construction portfolio.

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