BY JIM FREER
Special Correspondent

More than 20 Florida-based banks are expected to fail in 2010 as a result of troubled loans secured by real estate in one of the hardest hit housing markets in the nation, according to a CondoVultures.com survey of industry experts. 

In the first two months of 2010, regulators have already closed three Florida banks, leaving at least an additional 17 institutions to be shuttered during the remaining 10 months of the year, industry experts who asked not be identified said.

In the last two years, the number of Florida-based banks declined from 307 in 2008 to 286 in 2009, due primarily to 14 failures, even before the 2010 failures, according to Federal Deposit Insurance Corp. data.

A driving factor behind the looming Florida failues is a stepped up effort by regulators operating from the newly opened satellite office of the FDIC launched in September 2009 in Jacksonville for bank seizures and asset sales.

The temporary office is projected to employ 500 people who will “manage receiverships and to liquidate assets from failed financial institutions primarily located in the eastern states.” 

Industry watchers said the closings would focus on those banks that account for a big part of the Florida banking indsutry's non-current loan problems and growing inventory of bank-owned properties, also known as Real Estate Owned (REO). 

Florida banks owned $1.7 billion in commercial and residential real estate in 2009, up from $1.1 billion 2008, and $303 million in 2007. A year earlier in 2006, Florida banks owned a combined $62 million in real estate throughout the state, according to a CondoVultures.com analysis of FDIC data.

Residential real estate owned by Florida bank reached $458 million in 2009, up from $432 million in 2008 and $144 million in 2007. A year earlier in 2006, Florida banks owned $20 million worth of residential real estate, according to the report.

Florida is not the only state experiencing problems in its banking industry.

Nationally, the FDIC reported another significant increase in banks on its “Problem List," jumping from 552 on Sept. 30, 2009 to 702 on Dec. 31, 2009, according to the data.

Banking laws prohibit the FDIC from releasing the names on that list.

The agency’s defines “Problem Banks” as those with CAMELS ratings of 4 or 5,  the two lowest scores in grading banks on safety and soundness.

CAMELS is the acronym for a series of balance sheet, income statement and operational standards that the FDIC and other regulators use to evaluate banks.

The “C” is for capital, and many bankers regard it as the most important part of the evaluation. Low levels of capital are often a primary reason for regulators taking over banks.

One important determination is that a bank is “adequately capitalized” if its ratio of capital to risk-based assets is eight percent or higher.

On Feb. 23, the FDIC reported that the negative balance of its Bank Insurance Fund increased from $8.2 billion on Sept. 30, 2009 to $20.9 billion on Dec. 31, 2009. The FDIC ended the year with a $44 billion contingent loss reserve, to cover estimated losses on expected bank failures, according to the data.

The FDIC fund would have been in even worse condition if not for the $46 billion in prepayments on insurance premiums that it received from banks at the end of 2009. This covered the estimated premiums that banks would have paid on a quarterly basis from 2010 through 2012.

Some analysts expect that the FDIC might need to borrow from the nation's Treasury Department to help pay for costs of closing failed banks, including losses on some loans it assumes in those takeovers.


Jim Freer is a special correspondent for CondoVultures.com. He is a veteran banking reporter and a consultant to the finance industry in South Florida. 

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