Commercial real estate brought down failed banks in February

Of the nonperforming loans on the balance sheets of the 12 banks that failed in February, 72% were for commercial real estate, according to analytics firm Trepp. There have been 23 bank failures in 2011, but Federal Deposit Insurance Corp. Chairman Sheila Bair said closings this year will not surpass the 157 shuttered in 2010. That was an 18-year high, which Bair said will prove to be the peak coming out of the financial crisis. Analysts at Trepp estimate that there should still be more than 100 failed institutions by the end of 2011, however. Most of the February failures occurred in Georgia, California and Florida. And while most of the firms will be smaller community banks, the overwhelming amount of problem loans are in commercial real estate, not residential. For the 12 that failed in February, CRE loans made up $230 million of the collective $320 million in nonperforming loans. Roughly 37% were construction loans and 35% were commercial mortgages. “The residential real estate loan category was a distant second, with $65 million in nonperforming loans,” Trepp said. “That was 20% of the total nonperforming balance.” The FDIC recently reported that its Problem List of banks reached 884 institutions, and the regulator is still at work pulling the deposit insurance fund out of negative territory. It stood at a $7.4 billion deficit at the end of the fourth quarter, up from a negative $8 billion. The contingent loss reserve, which covers the cost of expected failures shrank to $17.7 billion from $21.3 billion the year before. Still, Bair said in the report that the DIF will return to positive territory this year. Write to Jon Prior. Follow him on Twitter: @JonAPrior