Integrity Bank was the first Georgia bank to fail this year, and industry watchers say it will not be the last.

The Atlanta area, battered by the real estate crash, is home to more troubled banks and thrifts than any other metropolitan market in the country, including such trouble spots as Naples, Fla., and Miami, according to new reports.

"I would say there are four or five Georgia banks that are likely to be shut down by regulators in the next two to three months," Matthew Anderson, a partner with the market research firm Foresight Analytics LLC, said in an e-mail to American Banker.

Most of Georgia's troubled institutions have been stung by loans to developers stuck with homes they cannot sell or lots they cannot develop — and the chances of the real estate market recovering anytime soon are slim.

According to one analysis, from Metrostudy, the Atlanta area has so many partially developed lots that in some counties it could be a dozen years before they are fully built out.

Another report, released Monday by the investment bank Janney Montgomery Scott LLC, said that when Integrity failed on Aug. 29 it had nearly $670 million of construction and development loans that the Federal Deposit Insurance Corp. "will eventually dump on the market, driving down real estate values in the already depressed metro Atlanta market."

Kevin Reynolds, who wrote the Janney report with another analyst at the firm, Douglas Rainwater, said in an interview, "I believe there will be more bank and/or thrift failures in the Atlanta area in the next year."

The latest of the 11 U.S. to fail this year was Silver State Bank in Las Vegas, which was shut down last week. On June 30 there were 117 banks on the FDIC's "problem list," and several have failed since then.

The FDIC does not disclose the names of banks on its problem list, but Foresight, of Oakland, Calif., compiled its own list of banks that it sees as either undercapitalized or in danger of becoming so. Of the 101 problem banks on its list, 27 are in Georgia, mostly clustered around the Atlanta area. Mr. Anderson said that most if not all of the 27 Georgia banks on his company's list got in trouble because they made far too many residential construction loans in the Atlanta market. Florida has 13 troubled banks on the Foresight list, California has 11, and Illinois 10.

Janney deems banks and thrifts to be troubled if their problem assets exceed 50% of tangible equity, plus reserves. Citing June 30 data, it said there are 45 at-risk banks and thrifts in the Atlanta area, more than in all of Florida, another state punished by the mortgage meltdown.

The Miami area had the second-most at-risk banks on Janney's list, 10.

Many of the troubled banks, the firm said, are start-ups that opened at the height of the real estate bubble and effectively operated as "wholesale funded residential construction loan production offices," the report said.

At June 30, Georgia had 48 banks that were less than three years old, according to the FDIC's State Profiles report, released Tuesday. Only Florida and California had more new banks.

The report also showed that Georgia-based banks had, on average, 177% of their capital tied up in construction and development loans. Regulators recommend that banks commit no more than 100% of their capital to C&D loans. Among the more aggressive Georgia start-ups is Alpha Bank and Trust in Alpharetta, which was founded in 2006 and already has $383 million of assets. At June 30 more than 75% of its $305 million of loans were for construction and development.

Many of its loans soured as the real estate market weakened, however, and now the bank is seeking to raise more capital to deal with mounting loan losses. At June 30 its total risk-based capital ratio was 6.96%, below what is considered adequately capitalized, and more than 18% of its loans were nonperforming.

Alpha's president and CEO, Johnny R. Myers, who was hired in June, wrote in an e-mail last week that the bank was "raising additional capital through a private placement memorandum." He also said it is "amending" its business plan "to have a more diverse loan portfolio."

Brad Hunter, the chief economist for Metrostudy, a market research company in Houston, said Atlanta's housing market has historically had a high inventory of vacant houses relative to other large markets because of its steady population growth. But the current 7.5-month supply — the projected time to sell all 18,000 finished vacant homes in Atlanta based on current sales figures — is more than double its average inventory supply.

The eye-popping figure, however, is Atlanta's supply of vacant developed lots, which has risen to an inventory of 88.2 months, or just over seven years, from the market's normal 30-month level. (A vacant developed lot development is one with water, sewage, and roads in place but no houses.)

By comparison, Orlando, another struggling market, has a 78.5-month supply of vacant developed lots, up from 37.5 a year ago.

Some Atlanta counties are far worse than others. Newton County has a 142-month supply of vacant developed lots and Henry County has a 153-month supply.

Jay Torbert, the chief financial officer at the $1.2 billion-asset PAB Bankshares Inc. in Valdosta, Ga., and its bank subsidiary The Park Avenue Bank, said a drop in demand for housing has forced his company to scale back its lending and focus on "taking care of the problems that we have and making sure we're well capitalized."

PAB's profit fell 55% in the second quarter, to $1.5 million, as its nonperforming assets soared to $59.4 million, or 4.86% of total loans.

Though the company is considered well capitalized, it recently suspended its dividend payments to ensure it stays that way.

Mr. Torbert said it could be three or four years before the market returns to normal, so it is imperative for PAB to diversify.

"One of the challenges for us and I'd guess for other banks in that region is to find a way to reinvent ourselves to do basic community banking and not have such an overreliance on residential construction," he said.

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