Commercial real estate exposure was the main driver behind problem loans for the seven banks that failed in January, according to new data from Trepp LLC.
Commercial real estate loans comprised $363.5 million (74.5%) of the total $487.7 million in nonperforming loans at the failed banks. Commercial mortgages made up $24.6 million (51.9%) of the total, while construction and land loans comprised $14.9 million (31.5%) of the total nonperforming pool.
Nonperforming commercial and industrial loans were a secondary source of distress, contributing $80 million, or 16.4% of the nonperforming loan total. The residential real estate loan category was a tertiary source of distress, with $36.1 million in nonperforming loans, or 7.4% of the total nonperforming balance. Other loans, including consumer loans, comprised only $8.1 million (1.7%) of the nonperforming total.
The failures showed a geographic bias, with five of the seven occurring in the Southeast – two banks in Tennessee and Florida, respectively, and one in Georgia. The other failed banks were in Minnesota and Pennsylvania.
Trepp warns that January's numbers are just a preview of things to come.
"We expect closures to extend through 2012 and possibly beyond," according to a statement issued by Trepp. "Much will depend on the strength of the economy, in general, and real estate market conditions, in particular. As of the fourth quarter of 2011, there were 226 banks on the Trepp Watchlist that are deemed to be at high risk of failure. Six of these failed during January, leaving 220 still on the list."