NEW YORK CITY — Eleven banks in the United States failed in October, according to Trepp’s October 2011 U.S. Bank Failure Report. In September, six banks failed and seven banks failed in August. This brings to total failures so far for 2011 to 85 banks.
The highest number of failed banks occurred in Georgia with three banks: Community Capital Bank, Decatur First Bank and Piedmont Community Bank. Illinois had two bank failures, All American Bank and Country Bank. Colorado, however, had the largest failure with the Community Banks of Colorado, which accounted for nearly 40 percent of total failed bank assets in October. Other states with failed banks include Florida, New Jersey, North Carolina, Missouri and Minnesota.
“It is notable that the pace picked up versus the prior two months, but not really a surprise,” says Matthew Anderson, managing director of New York-based Trepp. “During the last couple quarters there appears to be some seasonality to the pace of failures, with the number/pace increasing in the month after quarter-end, then subsiding somewhat in the next two months, before increasing again in the next month after quarter-end.”
Anderson continues, “The reason seems to be related to quarterly reporting. All FDIC-insured institutions have to file quarterly reports on their condition. For the banks that are under orders to raise capital/improve their balance sheet, the quarterly report serves as a comprehensive update on the banks' condition.”
Trepp’s report states that commercial real estate loans comprised $401 million of the total $617 million in nonperforming loans at failed banks, or 65.1 percent. Of the $617 million, $254 million came from construction and land loans and commercial mortgages accounted for $147 million.
Anderson says Trepp still has more than 200 banks on the Trepp Watchlist, most of which he anticipates will ultimately fail. For the eleven banks that failed in October, the median length on the Watchlist was 11 quarters. Only Country Bank in Illinois was on the list for less than 10 quarters. Timing of bank failures depends on a variety of factors, including overall economic conditions, adds Anderson.
Looking ahead, Anderson says he anticipates bank failures in 2012 to taper off a bit to between 50 and 100, provided economic growth continues at a moderate level, and that bank closures will continue into 2013, barring a surge in economic growth.
“If there is a double-dip recession, then the number and pace of failures will rise again,” says Anderson. “Many banks (especially larger banks) have bolstered their balance sheets by raising equity capital at some point from 2009 to 2011. But many banks are still struggling to raise capital. A double-dip recession would hit these banks with additional losses that they could not absorb without raising more capital.”
— Savannah Duncan