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.

It’s good to see deal flow out there even if it has to come from a private auction held by the FDIC. The Starwood / Corus Bank deal has been widely reported on over the last few weeks.

Barry Sternlicht’s Starwood Capital Group has a relatively straightforward game plan for the distressed condo assets of Corus Bank that he is set to buy in a closely watched federal auction: wait until the market recovers.

The deal, announced Tuesday evening by the Federal Deposit Insurance Corp., hands Starwood and its investor partners the Corus portfolio of 112 construction loans, more than two-thirds of which are in default or are in foreclosure. Starwood will have to decide how to deal with the troubled projects and their developers as well as those headed for default.

What’s more interesting to me is the huge volume of opportunity that is coming through the 3,800 banks that are reporting distressed construction projects, broken condo deals, and abandoned commercial real estate developments. The BankProspector shows that there are nearly 3,800 banks in the U.S. that are struggling with or otherwise processing defaulting or defaulted construction projects. Most of these are failed subdivisions, partially sold “broken condo” deals and the like, but more frequently now we’re hearing about lenders pulling the plug on spec commercial developments that are failing to attract tenants.

Corus Bank had the second highest reported amount of nonaccrual construction loans in the U.S. as of the most recent (Q2 2009) reporting. Bank of America as you might expect was number one. Some of the list players that fall in the top ten banks with defaulting construction loans however is surprising.

Many lenders are reporting construction default rates in the mid teens. Corus Bank last reported non-current construction loans at 71%…wow. Corus Bank was headquartered in Chicago, Illinois but with its far flung condo deals became very much a national lender.