As the performance of large and small banks in the Southeast diverged, a geographic split also took place. Georgia and Florida stood apart from the rest of the region during 2010. Those two states accounted for 97 of the Southeast's 103 bank failures from 2007 through 2010. Problem real estate loans—again, tied mainly to housing—explain most of the trouble. To cite a single but representative case: from 2004 to 2006, a south Florida bank that later failed more than doubled its commercial real estate loans. The bank made most of these loans to finance home construction and land acquisition for subdivisions, according to a June 2010 Federal Reserve Inspector General report. Meanwhile, the number of building permits issued in the bank's four-county market area dropped by 79 percent from 2005 to 2007. That scenario is all too common in Florida and Georgia.
Beyond failures, troubles in the two biggest states colored the wider performance of southeastern banks. More than 43 percent of banks lost money in 2010, according to data compiled by the Atlanta Fed. More than half of the community banks in both Florida and Georgia were unprofitable. In no other state in the region did more than 20 percent of community banks lose money.
That is not to say that performance was especially strong in the other states. In fact, profitability measures region-wide remained below prerecession levels. Through the first three quarters, only Louisiana's community banks recorded a state-wide median return on average assets above 1 percent, often considered a benchmark for healthy earnings, and Louisiana's median fell below 1 percent in the fourth quarter. Across the region, the median return on average assets for community banks was 0.15 percent during the fourth quarter, compared to the national median of 0.66 percent.