Business, Foreclosures, Real Estate

Days of reckoning for Georgia banks

From the Wall Street Journal:

Wall Street is bracing for regional and small banks to fess up to large losses from their mounting volume of soured construction loans made primarily to home builders.

According to the Federal Deposit Insurance Corp., $45.4 billion of the $631.8 billion in construction loans outstanding at the end of the first quarter were delinquent. When banks announce second-quarter results in coming weeks, they are expected to report sharp increases in loans that builders can’t repay. Banks are also facing intensifying pressure from federal and state regulators to deal with the problem loans on their books.

That will put additional pressure on an already stressed financial system. Banks have begun to dump bad construction and land loans at discounts, curtail new lending and halt construction projects that are under way to preserve capital. Some analysts even see a wave of bank failures as a possibility.

“Across the industry, the second quarter is going to be a tough quarter,” says Keith Maio, chief executive of the National Bank of Arizona, a unit of Zions Bancorp, which lent heavily to home builders and developers. “It’s going to continue to be tough until the real-estate market hits a bottom.”

With that anticipated bottom in the real estate market realistically at least a year away, things are going to get very tough indeed for the smaller regional banks.

In Georgia, those smaller regional banks are already in a world of hurt. According to the AJC, nearly one dollar out of every five on Georgia banks’ books was used to bankroll homebuilders and real estate developers. In fact, Georgia tops the nation in of loans to real estate developers and builders.

Now that housing prices are in free fall, those loans are coming back to hurt the banks in a big, big way, and the FDIC is keeping a close eye on Georgia’s financial institutions.

With sizeable exposure to construction loans, First Georgia Community Bank in Jackson, Home Town Bank of Villa Rica, Integrity Bank in Alpharetta and the Bank of North Georgia, also of Alpharetta are all at particular risk to any continuing deterioration of loan quality.

 

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