Three New York banks that were nearly crushed by the nation's real estate recession are coming back to life.
Greater New York Savings Bank, North Fork Bancorp., and Poughkeepsie Savings Bank are churning out profits and winning praise from analysts who once left them for dead.
"All three kind of reflected how a community bank could go wrong," said Frank J. Barkocy, senior vice president of Advest Inc. "The turnaround has been dramatic in all three cases. They basically bit the bullet and streamlined."
Added Kevin Timmons, a bank analyst with First Albany Corp., "At the time that those banks were at the very trough of their problem . . . it was really difficult to see how those banks could come out of it."
Their recovery was driven by the sharp drop in interest rates, which poured money back into the real estate markets to stabilize them. At the same time, their net interest margins improved, securities portfolios regained value, and the banks found they could tap the capital markets.
But more important, what made these institutions different from the ones that failed was their high capital levels and their early determination to recover.
"There was a recognition that there was a severe problem that we had to face, and face aggressively," said Gerard C. Keegan, chairman and chief executive of the Greater in Manhattan. "You've got to take some painful steps to address the problem. I think North Fork and we did that, and I think Poughkeepsie did that too."
In Greater's case, the $2.6 billion-asset thrift struggled in the early 1990s after focusing on commercial real estate loans to the complete neglect of the residential market.
The Greater's commercial real estate portfolio had ballooned to $1.1 billion. But with the collapse of the real estate market, nonperforming assets surged to $309 million, or more than 10.5% of the thrift's assets.
"We had a significant position in commercial real estate probably at the worst time we could have that," Mr. Keegan said.
In 1991 the thrift was stung by a $57.9 million loss, which was followed by a $13.7 million profit in 1992. But the thrift again struggled in 1993, losing $14.7 million.
It also fell under a Federal Deposit Insurance Corp. cease and desist order as its capital ratio fell to 4.42% and its stock price slipped below $1.
Under new management led by Mr. Keegan, Greater raised capital by selling a branch and issuing $50 million in preferred stock to private investors in 1993, while simultaneously working through its nonperformers.
Now, the thrift's capital ratio has climbed to 6.98% at Sept. 30. And Greater has reported net income for the first nine months of 1994 of $9.4 million.
Nonperforming assets are down to $152 million for the nine months, or 6% of all assets.
The cease and desist order was replaced by a memorandum of understanding in June 1994 and thrift officials expect that to be removed shortly.
"This bank has come a tremendous way in the last two years," Mr. Keegan said. "We have some distance to go, but we've made some significant progress."
North Fork, too, is a story of a dramatic turnaround.
The Mattituck, N.Y.-based bank, with $2.8 billion in assets, experienced tremendous growth in the 1970s and 1980s and possessed a portfolio that reflected the booming Long Island economy.
That meant many of its loans were in commercial real estate.
When Long Island's real estate values plummeted by as much as 60%, North Fork's income plunged. In 1991, the once-stellar earner lost $30 million and recorded nearly $200 million in nonperforming assets.
Instead of going through complex foreclosure proceedings, North Fork officials persuaded borrowers to let them take title to property. Then the bank hired real estate brokers to sell the property and turned to a team of five workout experts from Texas to resolve the rest of the bad portfolio.
"We geared up very dramatically and very quickly, and, thank God, were able to turn the corner," said North Fork chairman and chief executive John Adam Kanas.
North Fork will report a 1.50% return on average assets and a 16% return on average equity for 1994, while nonperforming assets are down to $45 million. And the company is once again making acquisitions, buying Metro Bancshares in early 1994 and negotiating for Bank of Great Neck.
Mr. Kanas attributed much of North Fork's survival to its high capital level. The bank's Tier 1 ratio never dropped below 5% and is now at about 8.5% at the end of 1994.
The bank also didn't wait for the real estate market to recover, preferring instead to sell off property and take the losses early.
"There was a tremendous esprit de corps in the company that just wouldn't say die," Mr. Kanas said. "The staff just dug in its heels and did whatever was necessary to get us out."
While the woes of the Greater and North Fork remained localized, the $725 million-asset Poughkeepsie's troubles stemmed from an aggressive geographic expansion beyond its traditional mid-Hudson Valley market.
Poughkeepsie used its excess capital to buy banks in North and South Carolina and West Virginia, and started a mortgage banking operation in Tampa, Fla. The company also aggressively expanded its commercial real estate lending operations throughout its growing market.
When real estate values began falling in 1989, Poughkeepsie reported an $18.8 million loss that year, the first of several years of losses.
To raise capital, the thrift sold its North Carolina and West Virginia institutions in 1991 and its South Carolina subsidiary in 1992, along with the mortgage banking operation.
Then in July 1992, with its capital ratio just above the 2% mark and regulators imposing strict requirements, the institution brought in new management experienced in commercial real estate, led by chairman and president Joseph B. Tockarshewsky.
A year later, the thrift raised nearly $20 million from a public offering and pushing its capital ratio above regulatory requirements. It is now at about 7%.
At the same time, Poughkeepsie worked through its foreclosed real estate, reaping about 70 cents on the dollar for each property.
Nonperforming assets, which were at a high of $110 million in June 1992, have been cut to $32.4 million at Sept. 30, 1994. The thrift earned $3.4 million in the first nine months of 1994.
Poughkeepsie has also hired new residential mortgage and commercial lending teams and opened mortgage offices throughout the mid-Hudson Valley north of New York City. Now, its local mortgage servicing portfolio amounts to about $115 million.
"We've come a long way in a fairly short period of time," Mr. Tockarshewsky said. "We have basically succeeded in our goal of returning the bank to being a bank in the mid-Hudson region."
