Bank loan deferrals continue to decline
As many U.S. banks prepare to present financial conferences this month, they are releasing presentations with updated financial data that show loan deferral rates declined between the end of the second quarter on June 30 and at the end of August. When the coronavirus pandemic hit the economy in March, many banks allowed customers to ignore loan payments for a few months; payments were then due at the end of the suspension period or deferred until the end of the loan.
Lower deferral rates shouldn’t come as a huge surprise given the economy is doing much better, but it’s good news for banks nonetheless as loan deferrals have made it incredibly difficult for investors to analyze. bank stocks. Let’s take a look at some of the banks that have released information.
Updated deferral information
Although I only review a handful of banks, the group represents a wide range of community and regional institutions. Banks go for assets of $ 4.3 billion First Internet bank (NASDAQ: INBK), which operates in several regions of the country, with assets of $ 17 billion Independent financial group (NASDAQ: IBTX) based in Texas. As you can see in the table below, some banks have really reduced carryovers in just a few months.
|Bank||Loan deferrals 6/30||Loan deferrals 8/31|
|Central Pacific Financial Corp. (NYSE: CPF)||11.6%||9%|
|First Internet bank||18.6%||1.6%|
|Hawaiian premiere (NASDAQ: FHB)||22%||6.3% *|
|German American Bancorp (NASDAQ: GABC)||10.4%||2.9%|
|Independent banking group||6%||4%|
|ServisFirst Bancshares (NASDAQ: SFBS)||3.7%||0.7%|
Some banks, such as German American, First Internet, and First Hawaiian, have seen their deferral rates drop significantly. First Internet said in its presentation that it saw a huge drop in August in deferrals on single tenant loans, which are loans to landlords who lease real estate to single tenants for an extended period of time. Between July 17 and August 28, First Internet saw the total volume of single-tenant loan deferrals drop from over $ 276 million to just under $ 28 million. First Internet also saw sharp declines in the deferral rates of its healthcare financing portfolio and small business loans between June and August. The remaining deferred borrowers are expected to resume their payments this month, the bank said in its presentation.
First Hawaiian first saw 14% of its deferred commercial loans become criticized assets, which doesn’t necessarily mean the loan is past due, but that there is a risk of default. But between June 30 and July 21, the Bank has seen 95% of its remaining deferred commercial borrowers either resume making payments or tell the bank that they will resume making payments after the deferral period has passed. Meanwhile, the US-Germans saw sharp declines in deferrals in most loan categories, including residential mortgages, commercial and industrial buildings, and commercial real estate.
Which categories are still seeing high carryovers?
Unsurprisingly, the hospitality industry is a category struggling with high deferral rates. German American still had over 33% of its accommodation and hotel portfolio on hold as of August 31; Independent Bank Group held more than 26% of its hotel portfolio during its second deferral period; and ServisFirst Bancshares had more than 15% of its portfolio of hotels and motels carried over as of August 31.
Again, that’s probably not a huge surprise, given that Americans travel less and stay in hotels less due to concerns about the coronavirus. According to the hotel occupancy tracker STR, the hotel occupancy rate in the United States reached just over 48% for the week ending August 29, down from 22% in April, but still down by nearly by 28% compared to the same week in 2019. Other categories with higher deferral rates are other usual suspects, including retail businesses and restaurants, and it varies a bit from bank to bank. ‘other.
Continue to watch the reports
While it is good news that carryovers tend to go down at a number of banks, it is still important for investors to carefully monitor remaining carryovers. Depending on what happens with the government intervention and the coronavirus, a number of them could still turn into criticized assets, which could force banks to replenish reserves, depending on how much they have booked. for postponements.
On the flip side, if the United States has seen the worst of the coronavirus – hit wood – more deferred loans could turn back into healthy borrowers. This would remove some of the mystery for investors and hopefully allow bank stocks to recover.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.