Real Estate Loans Continue to Drive Bank Failures

by devteam October 12th, 2011 | Share

Six banks were closed by the Federal DepositrnInsurance Corporation (FDIC) in September for a total of 74 in the year to daternaccording to information released today by Trepp, LLC which provides CMBS and commercial mortgagerninformation, to the financial services industry.  This was a slight improvement over Augustrnwhen seven banks failed.</p

At therncurrent pace the Corporation will close 100 banks in 2011.  This projected level of bank failures, anrnaverage of 8.2 per month, will be well below the 160 banks the FDIC closed duernto insolvency in 2010 or the 139 that failed in 2009.</p

Accordingrnto Trepp, loans tied to real estate were virtually the sole source of thernfailures.  Commercial real estate loans (CRE)rnaccounted for $365 million (82 percent) of the $445 million in nonperformingrnloans at the failed banks.  Within thatrncategory $199 million or 45 percent of the total were commercial mortgages andrn$166 million or 37 percent were land and construction loans.   </p

Residentialrnreal estate loans were a distant second as the causative factor, with $61rnmillion nonperforming loans or 14 percent of the total nonperforming balance.  Commercial and industrial loans (C&I)rnaccounted for $18 million or 4 percent of the nonperforming total and consumerrnand other loans represented $2 million or less than 1 percent of the total.</p

Georgia was home to two of the newly failed banks.  That brings the total year-to-date failuresrnin the state to 19.  More banks havernfailed in Georgia than in any other state; 71 since the current round of bankrnfailures started at the end of 2007.  Thernother September closings were in Florida, Virginia, California, and Texas.  The second largest number of bank failuresrnhas been in Florida with 11 so far this year and 56 since the start of thernrecession.  Between 2000 and the end ofrn2007 there were a total of 27 banks closed by the FDIC because ofrninsolvency.  Since the beginning of 2008rnover 400 banks have failed.</p

The loss severity was higher in September; thernestimated cost to resolve the failed banks was 23 percent of the failed bank’srnassets compared to 20 percent in August. rnThe loss severity numbers ranged from 13 percent for Citizens Bank ofrnNorthern California to 29 percent for Patriot Bank of Georgia.</p

Trepp maintains a watch list of trouble banks andrnreports that the institutions that failed in September had been on that list forrnsix to 12 quarters with a median tenure of 10.5 quarters.  The median for all banks that have failedrnthus far in 2011 is now 7 quarters compared to 5 in 2010. </p

There are still 238 banks on the Trepp watch list.  These banks are generally small with anrnaverage asset size of $310 million.  Onlyrn12 of the highest risk banks have total assets in excess of $1 billion. Georgiarnand Florida seem likely to remain at the top of the bank failure list with anrnadditional 46 banks in Georgia and 36 in Florida currently in an endangeredrnstatus.  Illinois has 25 troubled banks,rnMinnesotta16, North Carolina 13, and Tennessee 10.

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About the Author


Steven A Feinberg (@CPAsteve) of Appletree Business Services LLC, is a PASBA member accountant located in Londonderry, New Hampshire.

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