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Community Banks Still Under Stress

Written by: Richard Suttmeier 09/07/12 - 7:30 AM EDT
Tickers in this article: SNV FRAF FBNC VCBI UCBI

NEW YORK (TheStreet) -- The FDIC Quarterly Banking Profile for the second quarter of 2012 shows that efforts to unwind toxic assets has shown slow but steady progress over the past 12 quarters. Even so, the exposures to toxic assets remain high by historical standards among the country's community banks and much deleveraging needs to be done to end the "Great Credit Crunch".

On Tuesday, I set the stage in my story, The Banking System's Slow, Stressful Recovery. Then Thursday morning, we posted 'Too Big to Fail' Money Center Banks Still Face Stress analyzing the continued exposures to mortgages on the books of banks, home equity loans, other real estate loans and notional amount of derivatives.

My third installment based on FDIC covers the stresses that community banks still face in 2012: nonfarm, nonresidential real estate loans, construction and development loans, with the sum of these called commercial real estate loans.

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Overexposures to C&D and CRE Loans: There are 7,246 FDIC-Insured financial institutions in the banking system, down from 8,534 at the end of 2007, when the "Great Credit Crunch" began. The decline of FDIC-insured financial institutions thus totaled 1,288, down 15.1%, and "only" 454 were closed by the FDIC via their failure procedures. The remaining either dropped their banking licenses or merged with another institution.

  • Four-hundred and two (5.55%) are overexposed to construction and development loans, down from 467 in Q1 2012.
  • Another 1,455 banks (20.00%) are overexposed to overall CRE loans including nonfarm, nonresidential real estate loans up from 1,438 in Q1 2012. This means that 1,857 banks (25.63%) are overexposed to commercial real estate loans.
  • Seven hundred and twelve banks (9.83%) have their CRE loan commitments 100% funded, which make them "Zombie Banks," down from 736 in Q1 2012.
  • Another 2,694 banks (37.18%) have their CRE commitments between 80% and 100% funded when a healthy pipeline is around 60% funded. This implies that some community banks continue to keep loans current when they are not by debiting a loan commitment line and crediting a missed payment. This also means that 3406 banks (47.01%) still feel the stress of the "Great Credit Crunch".