Late and non-performing construction loans as well as construction REO jumped again. But before I get into that we have two announcements.

First, we are now reporting distressed construction loans and construction reo different than we have in any prior quarter. We’re doing this for two reasons. The first is that our goal is to bring you the most accurate bank data possible. We’re now separating 1-4 Family late and non-performing residential construction loans from all other construction related loans. We think that this is going to give a more accurate portrayal of what’s happening in both sectors.

The second reason is that BankProspector 2.0 will be reporting the distressed construction data in this same way and we though we’d start speaking the same language right off the bat. Which brings me to my second announcement.

We’re late. We’ve been working hard around the clock (literally) to get BankProspector 2.0 to launch but we’re no there yet. We’re behind schedule and we’re here to admit it. The challenge is that we’re working to bring you something that will really knock your socks off and the fact is that we’re playing with huge amounts of bank and other data. So a big thank you to existing members bearing with us and please rest assured that we’re going to make it up to you with bonuses and the like as soon as we release. We expect a BETA release, dare I say, very shortly. Now back to business.

Non-Performing Construction Loans and REO

Excluding residential, construction loan and REO trouble bumped up a little more than 6% in Q1 from Q4′09. With banks handling just over $74.1B in late loans and REO.

With distressed residential construction factored in, the total actually drops about .9% (a little less than $1MM) to $95.7B from $96.6B. The biggest difference coming in the non-accrual column which, it would seem, makes it safe to say that banks are pulling the trigger on lingering non-performing loans. Though, with all the bank closures forced by bad construction loans I wonder if some of this wasn’t just moved right off of the reporting table and into receivership. Surely some of this is due to write-downs and we’ll be able to quantify that in BankProspector 2.0. If someone can answer the question about receivership we’d love to hear from you in the comments.

Construction REO accounts for about 18% of the totals discussed above at $17.6B. What I’m hearing on the street and so are many of my colleagues is that a lot of lenders are trying to finish up their projects and pursue retail pricing. This is going to be a very hard road and likely fruitless for most of them. Of course every project and location is different but generally speaking there is an abundance of inventory and banks I’ve found don’t make great contractors.

As you can see in the chart at the top of this page the non-accrual construction (in red) continues to grow which means there’s still a lot more opportunity in the pipeline for investors and still a lot of pain ahead for lenders.

Learn More about how BankProspector 2.0 helps you find banks with with distressed assets, non-performing loans, and REO. Click Here.

As we drive deeper into the second quarter of 2010, 57 banks have been closed throughout the United State during the calendar year by the Federal Deposit Insurance Corporation (FDIC) and the office of the comptroller of the currency. Assessing the US bank failure situation vis-à-vis 2009, considered the worst year for bank failures in decades, failures are almost twice that of 2009 – at this time in April 2009, 29 banks had shuttered their doors, Horizon Bank of Bellingham, WA was the 29th FDIC-insured institution to fail in 2009.

If we look at the hot spots of the situation, Illinois has the most failed banks in 2010, with a total of ten (10) institutions that have gone under this year alone. Florida is a close second with nine (9) bank failures in 2010. According to our research, bank failures have in significant part been due to construction and multifamily distressed assets.

Yesterday, the FDIC announced a torrent of bank closures in Illinois, which caused the state’s bank failure rate to spike to 10. The latest list of bank failures include Wheatland Bank, Peotone Bank and Trust Company, Lincoln Park Savings Bank, New Century Bank, Citizens Bank and Trust Company of Chicago, Broadway Bank, and Amcore Bank National Association. The FDIC is on pace to shatter the failed bank count of 140 set in 2009.

What do Boca Raton, FL, Normal, IL, Germantown, MD, and Ogden, UT have in common? They are home to the latest four banks to shutter their doors in 2010, bringing the total failed bank count this year to 26. With over 700 banks on the FDIC’s watch list, 2010 could prove to be the year of extreme bank failure across the US.

Sun American Bank, Boca Raton, Florida

The FDIC, in conjunction with the Florida Office of Financial Regulation, closed Sun American Bank on March 5, 2010. At the same time, First-Citizens Bank & Trust Company and the FDIC entered into a loss-share transaction on $433.0 million of Sun American Bank’s assets assuming all of the deposits of the failed bank.

Sun American Bank had approximately $535.7 million in total assets and $443.5 million in total deposits by December 31, 2009, and the 12 branches of Sun American Bank will be reopened as branches of First-Citizens Bank & Trust Company.

The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) for this individual closure will be $103.8 million. Sun American Bank is the 23rd FDIC-insured institution to fail in the nation this year, and the fourth in Florida.

Distressed Pro’s BankProspector shows weak capital adequacy ratios at Sun American, $63 million in non-accrual distressed asset totals and over $10 million in OREO. The bulk of the institution’s distress was centered in commercial and construction loan asset types.

Bank of Illinois, Normal, Illinois

Recently, the Bank of Illinois was closed by the FDIC and the Illinois Department of Financial Professional Regulation – Division of Banking. This failure represents the third FDIC-insured banking institution to close in Illinois and the 24th to fail in the nation this year. Heartland Bank and Trust Company of Bloomington, Illinois has assumed all of the deposits of Bank of Illinois, approximately $211.7 million in total assets and $198.5 million in total deposits. The 2 branches of Bank of Illinois have reopened as branches of Heartland Bank and Trust Company.

Bank of Illinois was burdened by distress in their construction and residential loan portfolios, and was carrying OREO balances over $1 million in both multifamily and commercial asset types.

Waterfield Bank, Germantown, Maryland

Waterfield Bank of Germantown, MD is the first bank to fail in Maryland this year. Unique to Waterfield Bank is the fact that the failed institution had a solo branch location and namely took deposits from customers via the Internet and 38 affinity groups.

Waterfield Bank had $155.6 million in assets and $156.4 million in deposits by December 31, 2009. At the time of closing, the amount of deposits exceeding FDIC insurance limits totaled approximately $407,000. Depositors with more than $250,000 at Waterfield Bank should call the FDIC at (800) 830-4735 to make an appointment to discuss the status of their funds.

Waterfield Bank was troubled with negative capital adequacy ratios, and distress mainly in their construction and residential loan portfolios, where 23% and 16% was non-current respectively.

Centennial Bank, Ogden, Utah

Centennial Bank of Ogden, UT was closed on March 5, 2010 by the FDIC in conjunction with the Utah Department of Financial Institutions. Zions First National Bank of Salt Lake City accepted the failed bank’s direct deposits from the federal government

The FDIC was unable to find another financial institution to take over the banking operations of Centennial Bank and brokered deposits will be wired once brokers provide the FDIC with the necessary documents to determine if any of their clients exceed the insurance limits. Customers who placed money with brokers should contact them directly for more information about the status of their funds.

The failed bank is the 26th FDIC-insured institution to fail this year and the second in Utah. It had approximately $215.2 million in total assets and $205.1 million in total deposits by December 31, 2009 and approximately $1.8 million in uninsured funds by the time of closing.

The cost of the failure to its DIF is estimated to be $96.3 million. BankProspector shows that Centennial Bank was burdened with significant construction loan portfolio distress, capital adequacy ratios between 1% and 3%, and OREO balances over $35 million.

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%.

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.

In the wake of another US bank failure in early February 2010, the two branches of 1st American State Bank of Hancock Minnesota have reopened as branches of Community Development Bank, FSB, under the watchful eye of the Federal Deposit Insurance Corporation (FDIC) and the Minnesota Department of Commerce. BankProspector provides Distressed Pro members with clear insight that failure was caused by a heavy distressed construction loan portfolio.

1st American State Bank of Minnesota had approximately $18.2 million in total assets and $16.3 million in total deposits. The FDIC and Community Development Bank, FSB of Ogema, MN entered into a loss-share transaction of $11.7 million to move the failed bank and its assets to Community Development Bank. Despite regulators shutting down 1st American, as we have seen with the previous 15 bank failures of 2010, the failed institution’s assets are being enveloped by another (FDIC-insured) institution, and customers are inconvenienced by the event, but are largely not impacted.

1st American State Bank of Minnesota shouldered heavy amounts of distressed construction loans across their portfolio, as well as commercial loans, to the point where 65% and 40% were noncurrent respectively. Nonaccrual levels of the same stood at approximately $636,000 and $776,000, with OREO levels of $407,000 and $283,000 across construction and commercial loan types.

1st American is the 16th FDIC-insured institution to fail in the nation this year, and the 3rd Minnesota bank failure. If you watch list bank failures, you know that MN now holds the highest 2010 single state number of failures across the country at 3. There were 140 banks that failed in 2009, the highest count since 1992, and with 15 FDIC-insured banks being shut down in January 2010 alone, the country is on pace to surpass the 2009 failure count – it should be noted however, the pace of bank failure has slowed in early February. The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) of the 1st American closing will be approximately $3.1 million.

The First National Bank of Georgia, located in Carrolton, GA, which had approximately $832.6 million in total assets and $757.9 million in total deposits was closed in late January 2010 by the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation (FDIC). Following the bank’s failure, depositors from its eleven branches became customers of Community & Southern Bank.

Community & Southern Bank paid the FDIC a 1.25 percent premium to assume all of the deposits of the failed Bank. The loss–share transaction between the FDIC and Community & Southern Bank is estimated to be worth approximately $607.4 million. The failure of First National Bank of Georgia represents the first bank failure in Georgia thus far in 2010. The cost to the Deposit Insurance Fund (DIF) is estimated at $260.4 million.

Distressed Pro’s BankProspector shows that First National Bank reported capital adequacy of 1% with nonaccrual real estate loans of $92 million, and an OREO balance of over $42 million. First National Bank of Georgia carried noncurrent distressed real estate loans at approximately 50% and 24% in their construction and multifamily loan portfolios respectively.

Florida Community Bank was the 11th FDIC-insured institution to fail in the nation this year, and the second in Florida. Florida Community Bank was closed by the State of Florida Office of Financial Regulation, and the Federal Deposit Insurance Corporation (FDIC) on Friday, January 29, 2010.

The 11 branches of Florida Community Bank reopened as branches of Premier American Bank, N.A., but under the name Florida Community Bank.

Premier American Bank, N.A. agreed to pay the FDIC a premium of 0.4 percent to assume the deposits of Florida Community Bank, which had approximately $875.5 million in total assets and $795.5 million in total deposits. The amount of the loss-share transaction between the FDIC and Premier American Bank, N.A., is pegged at approximately $305.4 million.

Florida Community Bank of Immokalee, Florida Fails

BankProspector shows that Florida Community Bank became heavily burdened by construction loans, to the point that more than 50% of their portfolio was noncurrent. OREO levels across construction and commercial loan types had past levels of $75 million.

It was recently announced that United Valley Bank will pay the Federal Deposit Insure Corporation (FDIC) a premium of 7.35% to assume all deposits of Marshall Bank, National Association after the Hallock, MN institution failed in late January.

United Valley Bank signed an agreement to purchase essentially all of the failed bank’s assets, and the 3 branches of Marshall Bank, N.A. will be opening as branches of United Valley Bank.

The institution carried capital adequacy and leverage ratios under 6%, however, Marshall Bank was hampered by construction lending, with approximately 58% of their portfolio noncurrent. The FDIC estimates the cost to the Deposit Insurance Fund (DIF) will be $4.1 million. Marshall Bank, National Association is the second institution in Minnesota to fail during 2010.

In late January, the Federal Deposit Insurance Corporation (FDIC), and California Department of Financial Institutions closed First Regional Bank of Los Angeles, CA. The 8 California branches of First Regional Bank will be transferred to First-Citizens Bank & Trust Company.

First Regional Bank, which recorded approximately $2.18 billion in total assets and $1.87 billion in total deposits by September 30, 2009. First-Citizens Bank & Trust Company agreed to purchase approximately $2.17 billion of First Regional Bank’s assets, while the FDIC retained the remaining assets for later disposition.

First Regional Bank is the first institution to fail in California in 2010 and the 14th FDIC-insured institution to fail in the nation.

Bank Prospector shows First Regional Bank had carried a leverage ratio of 6%, a nonaccrual balance of approximately $300 million, OREO of approximately $73 million, and noncurrent distressed totals of 17.13% of their portfolio. First Regional Bank collapsed under heavy pressure from construction multifamily, and residential loans, with approximately 45% of their residential loans being noncurrent. BankProspector captures ten (10) separate bank contacts that work at First Regional Bank.