Yesterday, the Federal Deposit Insurance Corp. issued its quarterly banking profile, and it showed an increasingly grim picture of the state of regional banks.

I have more analysis on which regional banks in particular may be hitting tough times, plus more info on the FDIC data. The FDIC tends not to name banks in its reports.

However, the FDIC report is important, because it shows the depth and breadth of the housing and credit bubble reaching into the corners of the country. It reports trend data on commercial and construction loans given in record amounts nationwide. When added to the subprime securitization mess, the paper Kryptonite now giving seizures to auditors, investors can get a more complete picture of what is happening.

As I noted in a blog yesterday, the central reason why earnings at these FDIC banks plunged 45.7% to $19.3 billion from the $35.6 billion reported in the first quarter in 2007 is because the regionals have increased the amounts booked in loan-loss reserves to stave off future crises. The amount chucked in to these cookie jar reserves in the first quarter was more than four times higher than last year's level.

Even more painful: Industry earnings for the fourth quarter of 2007 were previously reported as $5.8 billion, the FDIC notes, "but sizable restatements by a few institutions caused fourth quarter net income to decline to $646 million."

That figure is "the lowest quarterly net income for the industry since insured institutions posted an aggregate net loss in the fourth quarter of 1990," the FDIC says.

Meanwhile, the FDIC said the number of "problem" banks rose in the first quarter from 76 to 90, with combined assets of $26.3b (that's only about $3b on average each). Three U.S. banks have failed this year, versus three for the whole of last year and none in 2005 and 2006.

FDIC chairman Sheila Bair said she expected more bank failures but emphasised that the number of problem institutions remained well below the record levels of the savings and loan crisis of the 1980s and 1990s - when one in 10 banks were on the FDIC's problem list.

So far this year, just three more banks have failed, on top of the three that failed last year. The past quarter was the sixth straight quarter in which the number of problem banks has increased. The number of problem banks were at an all-time low of 47 in the third quarter of 2006.

Bair is worried that the number of problem banks may continue rising in the months ahead as credit quality problems grow.

One worrying trend on Bair's mind: the declining "coverage ratio", which compares bank reserves with the level of loans that are 90 days past due. This ratio fell for the eighth consecutive quarter, to 89 cents in reserves for every $1 of noncurrent loans, the lowest level since the first quarter of 1993.

Onto the regionals that one analyst says he is concerned about. Richard Suttmeier, founder of Global Market Consultants, is taking a hard look at "heavy concentrations" of construction and development (C&D) loans, notably those regional banks were he says C&D loans surpass 100% of their risk-based capital.

Meanwhile, C&D loans have increased 8.5% year over year to $632 billion, also up from $629b in the fourth quarter, strange as the increase is happening "while demand for new homes slump," he says. "Banks keep lending to open commitments betting on a second half recovery, which I don't see happening."

Suttmeier says there are 643 publicly traded community and regional banks (up from 467 in the prior quarter) that have loans at 100% of risk-based capital and above. He says when you add in nonfarm and non-residential real estate loans, there are 839 publicly traded banks (up from 631 in the previous quarter) at 300% and above. Suttmeier says that nonfarm and non-residential loans increased 9.2% year to year, to $989b, also up from $969b in the fourth quarter.

He adds that there are 902 publicly traded FDIC-insured financial institutions that are overexposed to C&D Loans, commercial real estate loans, or both.   

Here are four banks with $50 billion or more in assets that Suttmeier says are overexposed:




Construction Loans as Percentage of Risk-Based

Commercial Real Estate Loans as Percentage of
  Risk-based Capital

RF Regions Bank $139,765,596 138.3% 275.3%
BBT Branch Banking & Trust Co. $131,915,915 184.2% 318.5%
MI M&I Marshall & Ilsley Bank $57,089,224 161.0% 310.7%
FITB Fifth Third Bank $54,142,779 108.7% 234.8%

Suttmeier says:

RF - Traded to a 52-week low on Wednesday.

BBT - Bottomed on January 9that $25.92 trading up to $37.85 into May 2, which sets a trading range.

MI - Bottomed at $20.92 on January 22ndtrading up to $29.07 into February 2 setting a trading range.

FITB - Traded to a 52-week low on Wednesday.

Problem regionals to watch out for: Dallas-based Comerica (CMA), lots of loan loss provisions due to its sour real estate development loans, notably in California and Michigan.

As I've noted before, watch out of course for IndyMac (IMB). Wells Fargo (WFC), too, which has exposure to home equity loans in California, a state hit hard by the housing crisis. And as I've said, KeyCorp (KEY) is not out of the woods by any means, neither are Washington Mutual (WM) and Wachovia (WB).

FOOTNOTE: Adam Shapiro, Fox Business's Washington, DC correspondent, has been tracking bearish comments made by Eric Rosengren, president of the Federal Reserve Bank in Boston. Shapiro reports that last January Rosengren gave a very aggressive speech urging banks to "quickly" clean up their balance sheets so that the US economy could move through the housing correction faster, rather than drawing it out.

Shapiro reports, Rosengren is now concerned about the exposure of banks to second mortgages, home equity loans and home equity lines of credit (think Wells Fargo). Rosengren is pretty sharp, so I've put his quotes in bold type for emphasis--and thank you Adam, this is much much appreciated, excellent work:

"The rapid rise in delinquencies for home equity lines of and junior liens held at banks is occurring despite an unemployment rate of about 5 percent."

"Should the unemployment rate rise and housing prices continue to fall, financial stresses caused by the housing correction could well spread beyond the large banks involved in complex securitizations and the smaller banks with sizeable portfolios of constructions loans to a larger set of financial institutions."

"Problems could expand beyond securitized assets to have an impact on the nonsecuritized assets held by smaller banking institutions. It is possible that these institutions may not be able to tap additional capital quite as easily as larger institutions and if so they may be forced to constrain other lending to address any losses."

"Lenders and loan servicers continue to be reluctant to provide modifications in a wholesale manner."