Thrifts may be down but don't count them out. Several analysts have called last month's decision by the Federal Reserve to raise minimum Tier 1 common equity requirements for banks to 7% a death knell for thrifts. Still, some bankers and other industry observers believe thrifts can survive, albeit in an altered form bearing scant resemblance to the classic savings and loan.
"A lot of our peers have moved in the direction of being a commercial bank," says Peter Boger, the chairman, president and chief executive of Ridgewood Savings Bank in Queens.
"I don't see that happening any time soon here," adds Boger, whose $4.8-billion-asset institution is the largest mutual thrift in New York. "The thrift is alive and well at Ridgewood."
The financial crisis and ensuing regulatory changes have led many thrifts to abandon the business model of the traditional savings and loan, says Frederick Cannon, the chief equity strategist at Keefe, Bruyette & Woods.
The last recession transformed residential mortgages, once the bread and butter for thrifts, into a higher-risk asset class.
At March 31, the median ratio of residential mortgages to total loans at the 20-biggest thrifts was 61%, according to KBW. That compares to 78% in 2006.
The declines are also apparent at some of the biggest thrifts.
Flagstar Bancorp in Troy, Mich., reduced its ratio of residential mortgages to 72% at March 31, from 90% in 2006.
At Investors Bancorp the ratio fell to 58% at the end of the first quarter, down from 90% in 2006. The $11-billion-asset Short Hills, N.J., company on Monday said it would buy Marathon National Bank, which has 13 branches around New York.
The Fed's decision to adopt international capital standards promulgated by the Basel Committee on Banking Supervision will push even more thrifts to abandon the old thrift model, Cannon says. Maintaining high leverage allowed thrifts to post profits in spite of low margins and negligible fee income, he says.
Banks have until 2019 to comply with the Fed's new capital requirement.
Still, many smaller thrifts have stuck to their guns and continued to focus on one-to-four family residential real estate loans, says Douglas Faucette, a banking lawyer at Locke Lord. And the stricter capital standards won't cause these small thrifts to blink an eye, he says.
"If you look at the financials of community thrifts, they could care less about Basel," Faucette says. "The whole concept of additional and supplemental capital is foreign to them. They've always been overcapitalized."
Ridgewood generates less than 10% of its revenue from noninterest income, Boger says. That's because it has continued to collect deposits and make loans in its local communities, and most are residential loans, he says. More than two-thirds of its loan book in the first quarter consisted of one-to-four family residential loans.
"Yes, there is some pressure on smaller thrifts, but the traditional model is still doing nicely," Boger says.
