Florida Mortgage Lender Blog & Real Estate News

Small banks facing severe loan losses and in need of capital continue to operate, indicating a reluctance on behalf of regulators to shut them down.

Maybe the so-called "zombie" banks didn't die after all.

As recently as two months ago, many on Wall Street speculated that the nation's largest financial institutions -- banks like Citigroup (C, Fortune 500) and Bank of America (BAC, Fortune 500) -- were only operating as a result of extensive aid from the U.S. government.

Now, many experts wonder how so many small regional and community lenders that are capital starved and overwhelmed by escalating loan losses are able to stay in business.

In metropolitan Atlanta and the state of Florida, for example, more than 50 banks reported non-performing asset levels of 10% or more of total assets as of the end of March, according to the Raleigh, N.C.-based investment bank Carson Medlin.

Non-performing assets are loans that are not collecting interest or principal payments. In more normal economic times, non-performing asset levels remain below 1%.

Up to this point, small lenders, which serve as the primary source of credit for large parts of the country, were considered a picture of health in the banking industry. Most avoided the toxic mortgage products that ruined so many of their big bank peers.

Experts note that the majority of the 8,000 small banks are still thriving. But the outlook for this corner of the nation's banking industry has been tempered in recent weeks as small lenders endure rising losses, partly as a result of exposure to areas like commercial real estate and small business loans.

Next Wednesday, Wall Street will get a clearer sense of what kind of shape the industry is in when the Federal Deposit Insurance Corp. publishes its first-quarter assessment of the industry. One closely-watched part of that report is the agency's so-called "problem bank" list.

As of the end of 2008, that number stood at 252 institutions and it is expected to have climbed even higher during the first three months of 2009.

So far this year, the government has closed 34 banks, including the FDIC's takeover and subsequent sale of Florida-based lender BankUnited (BKUNA) late Thursday to a group of private equity investors. complete story

Source: CNNMoney.com - David Ellis

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