This Economy: Slippage in financial health of local banks

It's hard to imagine the region's economy returning to good health before the banks do.

So how were they doing at the end of the first quarter?

According to one widely watched measure of banks' financial condition, the health of local banks, in aggregate, deteriorated slightly in the first quarter, but showed signs of leveling off.

The gauge, known as the "Texas ratio" because it was developed in the 1980s during the collapse there caused by the energy bust, climbed locally to 19.6 percent on March 31 from 18.6 percent at the end of last year.

The ratio, which compares the level of bad loans to the amount of capital and other reserves a bank has available to absorb losses, was 12 percent locally at the end of last year's first quarter. Nationally, the ratio was 24 percent this year, up from 20 percent a year ago, an Inquirer analysis of Federal Deposit Insurance Corp. data found.

Jason O'Donnell, a senior research analyst at Boenning & Scattergood Inc., of West Conshohocken, said he thought banks' credit problems were close to plateauing. "The question for the industry is: How long do we plateau?"

That's a crucial question for the economy, which remains vulnerable, as shown by last week's downward revision of first-quarter gross domestic product and by recent stock market convulsions caused by Europe's woes.

As long as banks are focused on limiting losses from problem assets - and under intense pressure from regulators to be extraordinarily careful when they put capital at risk - their ability to make new loans to businesses that can create jobs is limited.

Ted Peters, chief executive officer of Bryn Mawr Bank Corp., said that even though the Philadelphia region had been fortunate in terms of escaping the sort of bank losses and closures experienced in Georgia, Florida, Illinois, and Arizona, regulators were demanding higher levels of capital.

Bryn Mawr, which by all measures seems to be in a strong position financially, raised $23.6 million from the sale of common stock this month because its capital ratios will fall slightly when it completes the purchase of First Keystone Financial Inc. in July.

In all, 10 local banks have raised a total of $1.3 billion in capital from private investors since the beginning of 2009, according financial-data provider SNL Financial L.L.C. Most of that money was raised specificially to pay back federal bailout money.

Though most local banks continue to struggle with higher levels of problem loans relative to overall loans, some have seen the tide turn. At Firstrust Bank, of Conshohocken, problem loans fell to 2.5 percent in the first quarter from 2.95 percent Dec. 31 and 3.23 percent at September's end. WSFS Financial Corp., of Wilmington, showed a similar trajectory.

Deeper in the overall numbers, one analyst saw good news for the economy.

"The early-stage delinquencies," meaning loans that are less than 90 days' behind on payments, "seem to be reasonable at this point," said Matthew Jozwiak, vice president at Griffin Financial Group L.L.C., of Reading. "That tells you that the pipeline is not building."


Contact staff writer Harold Brubaker at 215-854-4651 or hbrubaker@phillynews.com.