Savannah Duncan
Though bank failures spiked from two in May to seven in June, the pace has declined overall on a year-over-year basis, according to Trepp LLC. In the first half of 2012, 31 banks closed, compared to 48 this time last year. The pace of closures in the first half of the year was 5.5 banks per month, compared to 7.7 banks in the first half of 2011.
“Assuming that economic and real estate market conditions continue to improve, bank failures have reached their peak for this cycle and are declining,” says Matthew Anderson, managing director of New York City-based Trepp.
Of the seven banks that failed in June, five were located in the Southeast, including Tennessee, Georgia, Florida, North Carolina and South Carolina. Additionally, two banks stalled in Georgia in late July after the Trepp report was released. The closures bring the total number of bank failures in Georgia to 82.
One bank also failed in both Illinois, which ranks third for failures with 50 closures, and Oklahoma, which has only had five total closures.
Commercial real estate loans continue to be the problem for troubled banks, comprising $141.6 million, or 76.4 percent, of the total $185.3 million in nonperforming loans at the failed banks. Of the $141.6 million, commercial mortgages accounted for $78 million and construction and land loans totaled $63.6 million.
There were 858 banks on the Trepp Watchlist as of the first quarter, with 211 of those deemed to be at high risk. “The banks that failed [in June] were all on the Trepp Watchlist, and had been on the Watchlist for quite a long time,“ Anderson says. “They were all pegged at a very high risk of failure by Trepp.”
Georgia remains the state with the most at-risk banks with 39. Other states with a large amount of high-risk banks include Florida (30), Illinois (24), Minnesota (11) and North Carolina (10).
“The Watchlist and high risk counts have been coming down gradually, mainly as a result of failures,” he adds. “With the more moderate pace of failures in 2012, risky banks are staying on our Watchlist for longer periods before ultimately failing. With a significant number of banks still at high risk of failing, we believe that closures will continue into next year, albeit at a more moderate pace.”
At the current pace, 62 banks are anticipated to fail this year. “The FDIC's Acting Chairman Martin Gruenberg said in April that they expected approximately 50 to 60 failures in 2012,” Anderson says. “That would fit the pace so far this year, and is down from the last few years. The number peaked in 2010 at 157, falling to 92 last year.”
In spite of what seems to be an improving outlook, Anderson says there is still concern about what kind of impact a second recession would have. “Our modeling has indicated that a double dip recession would create additional stresses on banks, including banks that are already in a weakened state, and would spur a new wave of failures.”
— Savannah Duncan