We shared with you in June that we were diligently working on the release of a significant redesign and development of our BankProspector application, a version 2.0 if you will, and to keep our members and fans updated on that progress, here’s an update on the situation.

We are continuing to work towards the launch and roll out of BankProspector version 2.0, admittedly, taking the new application live has taken longer than we had first anticipated.  The most notable reason for the delay is a portion of our development team, located offshore, has experienced two (2) natural disasters (yes, there were actually two), stalling communication and progress intermittently.

We’re back on track now, we’ve established a clear timeline to deliver on the exciting changes we’ve had in store, and we can sense that the excitement is building in the market, from the emails and different requests that we receive daily about the launch and the unique features and functionality that we are putting in place.

We’re targeting early August 2010 to begin rolling out BankProspector version 2.0 to our current members and early adopter list.  Stay connected with us and get notified about updates as they become available.  Thank you for your patience and support during this process, and we look forward to sharing version 2.0 with you soon!

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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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You may have noticed that we are currently closed to new subscribers – we’ve received more than a few emails asking what’s going on, so here’s the scoop.

Next week (fingers crossed) we’ll begin to roll out BankProspector 2.0. This is not a minor upgrade to the existing system, this is a ground up rebuild. We’re currently behind schedule partially due to unforeseen circumstances and partially due to the fact that as the first public facing application for this live data, we’ve had to work through some trial and error with regards to source.

All that said, we are going to roll out a trial version of BankProspector 2.0 to existing paid members and those on the list first. After both this internal and external beta period, we will open version 2.0 to new subscribers.

The data that is in BankProspector today is not as fresh as it needs to be. Part of the reason we’re excited about bringing you 2.0 is that the only way you could have more up to date bank data is if you were actually sitting in the bank – we’re truly excited about the advancements being put in place.

Once again we want to apologize to our paying members and fans for the delay and again say to you that we promise to make it up to you during the roll out with bonuses and gifts. Thanks again for your understanding.

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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.

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.