Q1 2010 CRE OREO and Non-Performing Loans

Commercial real estate problems at US banks soared by 10.6% in the first quarter of 2010 over Q4 2009.

Commercial real estate loans being reported as 30-89 days late increased 16.3% indicating that the trouble in the commercial real estate sector is increasing rather than abating. Reports for 90 Day Late Loans but still accruing increased by 8.5%. Non-accrual commercial real estate loans, a loans last stop on the way to foreclosure, increased 8.9% Commercial OREO balances, commercial real estate acquired by a bank through the foreclosure process increased 14.1%.

The pace at which banks took back commercial real estate through foreclosure kept pace with the prior quarter with REO accounting for about 12.7% of the total pot in Q4 2009 and about 13.1% in the most recent report.

Overall (late, non performing loans, and REO) commercial real estate problems at US banks marched up 11% from $62.2B to $69.1B from Q4 2009 to Q1 2010.The pace of trouble was up with a total increase of 11.03% over the previous quarterly change which was 10.88% which was a slower pace than the 14.6% from the prior quarter.

The 50 Banks with the Top Commercial Real Estate REO Balances made up 40% of all commercial REO held at US banks while the top 50 banks with commercial non-accrual own 45% of those problems.

While the pace of problem loans and REO remains more or less the same the balances continue to grow. This growth in troubled balances shows a failure to act on the part of lenders struggling to workout their CRE loans and avoid write-downs.

With pressure continuing to build it seems highly likely that the commercial real estate market will have to see more distressed deals hitting the market.

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Top 50 US Banks CRE REO Report

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.

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 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.