California banks reported a modest reduction in multifamily problems in the final quarter of 2009 over Q3 2009, but still reported nearly 80% more trouble overall than the same quarter in 2008. The final figures for the end of 2009 topped $1 Billion, up 80% from a year earlier. This figure includes multifamily loans that were reported as 30 days late, loans 90 days late, non-accrual, and multifamily REO.

Eleven banks in California reported multifamily loans that were 90 days late for a total of $87,686,000 in late loans, a more than 10-fold jump from the previous quarter. Most of this came from one bank, City National Bank in Los Angeles.

City National Bank has since amended their report having transferred a large portion of this debt to non-accrual status and at the same time booked in just under $30 Million in multifamily REO. The bank’s portfolio is struggling with a non-performing rate that tops 50%, an exceptionally high number. It’s important to note that City National Bank, with total assets topping $20 Billion is reporting more than adequate capital even while it deals with north of $600 Million in troubled real estate.

Only 27 California banks reported multifamily REO. First Regional Bank based in Los Angeles led the pack with more than $23 Million in multifamily REO  and a portfolio with 21% of loans non-current. First Regional reported low capital ratios and was subsequently closed by the FDIC on January 29th, 2010.

East West Bank in Pasadena had the second highest REO figures in California, for the asset class, with $13.3 Million and more than $34 Million in troubled multi-family loans in the pipeline. East West reports healthy capital ratios.

While it is encouraging to see that some banks are starting to take their medicine, it’s plain to see from the numbers that many lenders are refusing to take serious action on their non-performing notes. While California banks reported $81 Million in MF REO, late and non-accrual loans total more than 10X that, or $925 Million.

As 2010 plays out, a lineup of additional banks are set to fail. Many of those that survive will still have to shed massive amounts of distressed real estate. As we can see from the most recent FDIC (Federal Deposit Insurance Corporation) offering (banks closed a year ago) there is a significant lag time in bringing the failed bank’s assets to market.

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.

Construction loans continue to be a huge problem for banks. In fact construction loan problems at US banks top $85 Billion in the most recent report. Construction loans make up about 30% of the total problem loan and bank owned property balances with banks nationally.

While you might expect to see lenders from Florida, Nevada and California on the list, the banks on this top ten are mostly national lenders, with a few big exceptions. Many local and regional banks went heavy into construction loans during the boom as it because more difficult to compete with larger lenders for residential loans and the CMBS market for commercial mortgages.

Only one of the lenders that made this top ten list is reporting low capital adequacy. Construction loan default rates are high across the country. Many banks are reporting non-current percentages in the high teens. Corus Bank which was recently shut down by the FDIC reported construction loans as 71% non-current.

Nationally banks reported $13,467,709,000 in construction REO and $64,844,478,000 in non-accrual. These numbers point to banks taking back large amounts of troubled construction projects over the next few quarters. Banks will be looking for services to sell these non-performing notes or else hiring firms to assess, recover, manage, repair and liquidate these assets over the next 12-24 months.
Please login or register for FREE State and US Data or Monthly Member - Full Access to view this content.
Logged in members can access the distressed loan and REO details of the banks listed above as well as more than 8,000 other lenders nation wide.