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Bank Construction/Land Development Loans Coming Back

Jul. 31, 2013 2:35 PM ET
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Internet, Long/Short Equity, Portfolio Strategy, Banks

Seeking Alpha Analyst Since 2009

Christopher "Kit" Menkin is of editor LeasingNews.org (http://www.leasingnews.org/), an internet trade publication for the finance/leasing industry. He has 46 years experience in the finance/leasing industry as well as being a founder of a commercial regional bank and serving on several company board of directors. He was a syndicated business columnist in news from Silicon Valley, California, for 12 commercial newspapers in the 1970's and early 1980's. Prior to getting into the financial business, he was a West Coast News Producer for ABC-TV News, Managing Editor KGO-TV News, San Francisco, California, and news editor at KFRC News, San Francisco, California. His three times a week news edition posted at www.leasingnews.org is read by over 175,000 in the trade and by related entities each month.

SNL Financial Reports "Depends on the Market"


In reporting bank failures in "Bank Beat" the highest charge-offs have not been in commercial loans or leasing or even consumer loans, but construction and land development lending, followed by nonfarm-nonresidential loans, somewhat related.

While non-current loans have been highest in first and second mortgages, and residential real estate mortgages tied to syndications have been serious, residential construction and land development appear most in charge offs.

SNL Financial reports: Aggregate residential C&D loans were at $36.1 billion in the first quarter, down from $177.3 billion in 2007, while nonresidential C&D loans were at $150.8 billion, down from $370.1 billion in 2007. Residential C&D loans accounted for almost one-third of total C&D loans in 2007 but now account for less than one-fifth.

SNL Financial reports:

But whether C&D lending remains on the decline or is starting a reversal depends on the market. Charles Valade, chief lending officer at West Springfield, Mass.-based United Financial Bancorp Inc., told SNL that in certain parts of Connecticut - especially south of Hartford - the company is starting to see demand pickup on the residential side. United Financial had a C&D portfolio of $80.4 million at the first quarter of 2013, which was almost double from $41.7 million a year ago because of the New England Bancshares Inc. acquisition. The company's C&D delinquency rate of 3.54% was improved from 5.35% one year ago. C&D currently accounts for 4.36% of United's total loans.

But even with the improvement, the Connecticut region is probably a little bit behind the western and central parts of Massachusetts. He said the entire region bounced back quicker and stronger, aided in part because it did not have as many problems and issues as other parts of the country. "In terms of our portfolio, we're encouraged by what we see happening with the developers we have and the new projects that we're looking at in terms of the movement of units," he said.

Camden, Maine-based Camden National Corp. President and CEO Gregory Dufour told SNL that, overall, the company has seen some improvement in construction and land development in the Maine market, but the sector has not returned to pre-recession levels. Camden's C&D portfolio of $28.5 million at the first quarter was down from $29.6 million a year ago. The company's C&D delinquency rate of 1.70% was improved form 2.47% one year ago, and C&D currently accounts for 1.81% of its total loans.

Demand varies from market to market, he said. Camden is experiencing an increase in commercial development in the Portland, Maine area and to a lesser extent in Maine's smaller markets, he said. "On the residential side, development also varies by market with the more populated areas seeing some moderate size projects being started and in other areas projects are more on an individual basis," Dufour said.

SNL Financial reports:

Quincy, Calif.-based Plumas Bancorp President and CEO Andrew Ryback recently singled out C&D loans as a lending line the bank is trying to get away from. In a press release about second-quarter results, Ryback said the bank has been able to diversify its loan portfolio and move balances away from "higher risk" construction and land development loans. He said the balances have been reduced from more than $73 million, or 20% of Plumas' loan portfolio at December 31, 2008, to $12 million, or less than 4% of its loan portfolio at June 30, 2013. "During this same period our auto lending, commercial real estate and government-guaranteed lending product lines have become key revenue and profit generators," he said.

United's Valade said the commercial and land development portion of its portfolio is performing very well, and recent developments in its markets add further optimism. CSX Corporation recently moved its dry goods operations out of Austin Texas to Worcester and spent $125 million. Also, a new cancer research facility was built at the University of Massachusetts for $550 million. "And it goes on and on in terms of the money being spent," he said. "So we're pretty encouraged by what's happening in our market place."

Full SNL Financial Article:


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