Wednesday, September 03, 2008

FDIC: Construction & Development Loans

by Calculated Risk on 9/03/2008 11:46:00 AM

Related to the WaPo article this morning on BB&T, here are three key graphs concerning C&D loans (construction and development) based on the FDIC Q2 Quarterly Banking Profile:

FDIC, Excessive C&D Concentration Click on graph for larger image in new window.

The first graph shows the number of FDIC insured institutions with construction loans exceeding total capital.

Not all of these institutions will fail (most estimates of number of bank failures are in the 100 to 200 range over the next couple of years), and not all failures will be because of C&D loans, but this gives an idea of the number of institutions with excessive exposure to C&D loans.

FDIC, C&D Concentration by Asset Size The second graph shows the concentration of C&D loans by institution asset size.

This suggests that many of the bank failures from C&D losses will be in the $1 to $10 billion range. Integrity Bank of Alpharetta, Georgia (failed last week) was at the low end of this range. First National Bank of Nevada (failed a few weeks ago) had $3.4 billion in assets.

FDIC, C&D Concentration Noncurrent Rate The third graph shows the noncurrent rate for C&D loans. The rate is rising quickly, although still below the level of the early '90s (related to overbuilding of CRE and the S&L crisis).

Put together, these graphs suggest many more bank failures as the C&D noncurrent rate continues to rise. Other banks will fail because of bad residential loans (like IndyMac), and some institutions from bad CRE loans, but most bank failures will probably be C&D related.