FDIC-insured bank failure totals continue to rise around the US, with the latest two bank failures coming in Nevada and Washington, with Carson River Community Bank and Rainier Pacific Bank.
Carson River Community Bank, Carson City, Nevada
On Friday, February 26, 2010, Carson River Community Bank, the first bank institution to be closed in Nevada this year, shuttered its doors via the actions of the Nevada Department of Business and Industry and the Federal Deposit Insurance Corporation (FDIC). Heritage Bank of Nevada, located in Reno has assumed ownership of the approximate $38 million in deposits of Carson River Community Bank, and its single branch location.
Carson River Community Bank had approximately $51 million in total assets and $50 million in total deposits by December 31, 2009. Heritage Bank of Nevada did not pay the FDIC a premium to assume all of the deposits of Carson River Community Bank. The FDIC estimates the cost to the Deposit Insurance Fund (DIF) will be $7.9 million. Carson River Community Bank is the 21st FDIC-insured institution to fail in the nation this year.
Distressed Pro’s BankProspector shows that Carson River Community Bank reported capital adequacy of 2% with nonaccrual assets of $7 million, an OREO balance of approximately $2 million, and non-current distressed totals over 19%. Carson River’s failure stemmed largely from its almost 50% non-current portfolio of construction loans, totaling approximately $4.4 million.
Rainier Pacific Bank, Tacoma, Washington
The FDIC and the Washington Department of Financial Institution moved forward with closing Rainier Pacific Bank of Tacoma, Washington, the fourth FDIC-insured banking institution to be closed in 2010. Umpqua Bank of Roseburg, Oregon has assumed all deposits and clients of the failed bank and its 14 branch locations.
Umpqua Bank will pay the FDIC a premium of 1.04 percent to assume all of the deposits of Rainier Pacific Bank. Rainier Pacific held approximately $717.8 million in total assets and $446.2 million in total deposits by December 31, 2009. The FDIC estimates that the cost to the DIF will be $95.2 million. Rainier Pacific Bank is the 22nd FDIC-insured institution to fail in the nation this year, and the fourth in Washington.
Bank Prospector shows that Rainier Pacific carried capital adequacy and leverage ratios of 2% – 3%. As with Carson River, Rainier was crippled by construction loan nonaccrual totals over $15 million, OREO levels higher than $11 million, and non-current construction loan portfolio totals of 33%.
The search for US bank failures grew a little easier this past week when the Federal Deposit Insurance Corporation (FDIC) moved forward in closing an additional 4 institutions. The latest US FDIC-insured institutions to fail, which brings the 2010 failed bank count to 20, include:
- Marco Community Bank – its sole branch has been reopened as a branch of Mutual of Omaha Bank.
- La Coste National Bank – its sole branch will reopen on Monday as a branch of Community National Bank.
- George Washington Savings Bank – its 4 branches will reopen as branches of FirstMerit Bank, N.A.
- La Jolla Bank, FSB – its 10 branches have been reopened as branches of OneWest Bank, FSB.
Marco Community Bank of Marco Island, Florida
This is the 17th FDIC-insured institution to fail in the nation this year, and the third in Florida. Marco Community Bank had approximately $119.6 million in total assets and $117.1 million in total deposits by December 31, 2009. Mutual of Omaha Bank will pay the FDIC a premium of 1.5 percent to assume all of the deposits of Marco Community Bank.
The FDIC and Mutual of Omaha Bank are in the process of sorting out the loss-share transaction on $104.8 million of Marco Community Bank’s assets. The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) for this transaction will be $38.1 million.
By using BankProspector to look inside the distressed assets of this failed bank, we can see that Marco Community Bank carried leverage and adequacy ratios of 1% and 2% respectively, and had over $7 million in non-accrual and almost $4 million in OREO. The majority of Marco Community Bank’s issues rested in construction and residential loan types, with almost 30% of its construction portfolio noncurrent.
La Coste National Bank of La Coste, Texas
As the first Texas bank failure of 2010, and the 18th in the country, La Coste National Bank had approximately $53.9 million in total assets and $49.3 million in total deposits by December 31, 2009. Community National Bank will pay the FDIC a premium of 0.51 percent to assume all of its deposits.
The Federal Deposit Insurance Corporation estimates that the cost to the DIF on this bank failure will reach $3.7 million.
La Coste National Bank carried an 8% leverage ratio and capital adequacy ratios over 20%. The failure of this bank may not be real estate related. It appears they were heavy in securities as compared to the their cash and had very little cash on hand. With being only a $50 million bank, things could have gone south very fast with less than $5 million on hand in cash reserves.
George Washington Savings Bank of Orland Park, Illinois
This founding-father bank is the 19th FDIC-insured institution to fail in the nation this year, and the second in Illinois. George Washington Savings Bank had approximately $412.8 million in total assets and $395.3 million in total deposits by December 31,2009. FirstMerit Bank, N.A. will pay the FDIC a premium of 0.31 percent to assume all of the deposits of George Washington Savings Bank.
The FDIC and FirstMerit Bank, N.A. are finalizing the loss-share transaction on $324.2 million of George Washington Savings Bank’s assets, with approximately $141.4 million hitting the DIF.
BankProspector shows distressed asset non-accrual totals at George Washington Savings Bank at over $100 million, OREO levels approaching $20 million, and noncurrent portfolio levels at approximately 41%. While the institution held non-accrual balances across all four (4) loans types that we currently track, the majority of the bank’s distress was in construction and residential.
La Jolla Bank, FSB of La Jolla, California
Only the second bank failure in California in 2010, but the 20th in the nation, La Jolla Bank, FSB had approximately $3.6 billion in total assets and $2.8 billion in total deposits by December 31, 2009. The FDIC and OneWest Bank, FSB entered into a loss-share transaction on $3.31 billion of La Jolla Bank, FSB’s assets. OneWest Bank, FSB did not pay the FDIC a premium for the deposits of La Jolla Bank, FSB. The FDIC estimates that the cost to the DIF will be $882.3 million.
BankProspector allows us to peer below the surface of La Jolla Bank, FSB to determine that significant issues in the institution’s distressed construction loans and residential loan portfolio caused its downfall, where 50% and 16% of assets were noncurrent respectively. Leverage and capital adequacy ratios were all below 2%, and of the latest 4 US bank failures, La Jolla is by far the largest to go down with almost $750 million in distressed asset totals.
US banks reported an increase in distressed mortgage and REO volume of nearly 10% over the previous quarter. Troubled real estate and distressed whole loans with banks now top $352 Billion, up from a little more than $320 Billion in the previous quarter.
Residential Real Estate Problems
As expected, residential real estate continued to be the dominant problem facing the nation’s banks in terms of dollar volume of distressed assets. For the first time, distressed loans and residential REO topped $200 Billion, up from $179.6 Billion in the previous quarter. Probably the most disturbing part of this trend is that the biggest increase came in the 90+ Day Late category, which jumped 22% in a single quarter. This suggests that problems are accelerating rather than abating.
Lenders only increased their residential REO balances by 1.6%, while non-accrual jumped 7.7%. Clearly there is a significant backup in processing foreclosures. It’s hard to see a way that this continued surge won’t result in a significant increase in available residential REO, and ultimately, lower home prices. It is important to point out that these figures are based on whole loan totals and not MBS, which encompasses the majority of residential mortgages. It would be reasonable, however, to assume that portfolio and securitized mortgages are experiencing similar trends.
Troubled Multifamily Property
Distressed multifamily balances continue to make up only a small fraction of the sea of bad loans and REO, but this past quarter the asset type saw the biggest increase in problems out of the four asset types that we track. Non-performing multifamily loan balances surged 23.3% last quarter while multifamily REO balances ballooned by 21.2%. So while distressed multifamily opportunities are rapidly increasing, the asset type still only comprises 3% of all real estate portfolio problems for America’s banks, 1,158 banks are reporting non-performing multifamily loans while 655 report multifamily REO. As of Q4 2009 banks are showing only $11.13 Billion in troubled multifamily loans, up from $9.19 Billion in the previous quarter.
Commercial Real Estate Distress
Banks started to book commercial real estate into REO at an increased pace at the end of 2009. Commercial REO balances jumped nearly 21% from the previous quarter. Non-performing (non-accrual) commercial real estate loans bumped up 15.4% while 90 Day Late loans dipped 7%, indicating that some lenders may be moving to take their CRE knocks sooner rather than later. A counter point to this is the fact that while banks are holding a little more than $7 Billion in commercial REO, their non-accrual CRE loans stand at $37.7 Billion, representing more than a 5-fold increase. Expect to see some of this move through the pipeline over the course of the year.
Construction Loans and Failed Projects
Construction loans make up 25% of our bank’s problems with a total bill of $89 Billion. This number only increased .4%. Construction REO jumped 14.4%, but late and non-accrual construction loans dropped .3% and 17.8% respectively. You could say, it would seem, that the one bright spot is that construction loan problems are abating. I’m hesitant to declare that, however, due to the fact that banks continue to whistle past the graveyard with non-performing construction loans.
Banks have made almost no progress in 3 quarters in reducing the level of construction loan non-accrual. Construction loans are usually fairly short term loans and banks haven’t been making them for a while, this accounts for the dwindling numbers. Not making construction loans is a double-edged sword, however, because while banks aren’t lending they have huge volumes of failed construction projects for sale. If developers can’t borrow, how can they buy?
Construction has been the leading cause of bank failures over the last 6 months. Expect to see many more who are failing to take meaningful action towards recovery on these projects. A lot of the bad construction loans are broken or failed condo projects, busted sub-divisions and the like. Well positioned developers could see a flood of opportunity this year.
Look for individual state and asset type reports over the next two weeks as we dive into BankProspector and pull out the data. Join our email newsletter, sign up for a Free State and US Bank Data account, or, start working on your own and sign up for BankProspector to access the distressed real estate data for each US bank directly.
