Trepp: Bank Failures on the Rise Again
After two straight months of single-digit bank closures nationwide, there were 13 more banks that shut down in July, according to Trepp LLC.
So far in 2011, there have been 61 bank failures. Trepp is projecting that approximately 100 banks will close in 2011, much lower than the 157 banks shut down by the Federal Deposit Insurance Corp. last year and the 140 closed in 2009.
Defaults on commercial real estate loans continue to play a large role in the failure of FDIC-insured institutions, with $797 million of the total $1.03 billion in nonperforming loans at the closed banks. Construction and land loans made up $480 million of this total, while commercial mortgages represented $317 million of the nonperforming loans.
Residential real estate nonperforming loans consisted of $161 million of the overall nonperforming balance.
The Southeast had the most bank failures in July with seven, followed by the West with four and the Midwest with two, Trepp said. For the entire year, Georgia has the highest amount of bank closures with 16.
All 13 banks that closed in July were on Trepp's “watch list” for imminent bank failure with the highest rating score of 10 for the last four to 11 quarters.
Integra Bank National Association in Indiana was the largest bank failure, with $2.2 billion in assets. The banks losses represent approximately one-third of the total $6.3 billion in failed assets for July.
Trepp reported that the highest loss rate was for Colorado Capital Bank with an estimated loss to the Deposit Insurance Fund of $284 million, or 39.6%, of the total assets.
Other bank failures throughout the country include BankMeridian, Virginia Business Bank, Bank of Choice, LandMark Bank of Florida, Southshore Community Bank, Summit Bank, First Peoples Bank, High Trust Bank, One Georgia Bank, Signature Bank and First Chicago Bank & Trust.
Trepp said only six of the 13 failures involved loss sharing by the FDIC, with 47% of the assets acquired covered by loss sharing. This proportion is down tremendously from 60% in June, 73% in May and 67% in April.
Overall loss severity eased in July with the estimated costs to resolve the failed banks falling to 19% of the nonperforming assets, compared to 25% in June and 26% in May.
“The reduction in loss-sharing transactions and the inclusion of value appreciation sharing in two of the deals are indicators that acquiring banks are gaining confidence and that the FDIC seems able to extract better terms from buyers,” Trepp said. “Still, loss sharing was correlated with loss severity, so loss sharing was still needed with the failed banks that had the highest expected losses.”
Trepp is a New York-based firm that tracks the performance of commercial mortgage-backed securities.