Nearly one out of every six dollars that banks currently have out in construction and development (C&D) loans--16.63%--are at least 90 days past due as of Sept. 30, and another 2.23% are 30 to 90 days in arrears, the latest Federal Deposit Insurance Corp. (FDIC) Quarterly Banking Profile shows.
Those numbers are marginally better than the 16.87% of C&D loans that were noncurrent on June 30 and the 2.36% that were 30-90 days overdue. But they remain up to eight times larger than the past-due rates for other types of real estate loans and loans to individuals.
The troubles that banks have had with construction and development loans helps explain why C&D loan volume has shrunk 28.2% over the past year, from $493.04 billion as of Sept. 30, 2009, to $385.83 billion at the end of this year's third quarter.
So far this year, banks have charged off 5.28% of their C&D loans outstanding, according to the FDIC's latest quarterly report of banking conditions, released Nov. 23. That's up from 5.14% as of the end of the second quarter, a sign that banks appear to have charged off about all the C&D loans they're going to handle. On June 30, the total number of C&D loans outstanding was $383.3 billion, or roughly $30 billion more--another indication that banks have been reducing their C&D activity.
In contrast, the value of C&D-related real estate that banks have taken ownership of has risen from $18 billion on June 30 to $18.45 billion on Sept. 30.
The number of banks that the FDIC has put on its list of problem institutions rose by 31 from the second quarter to total 860 as of Sept. 30. That's the highest level since the first quarter of 1993 and comes despite the fact that net income for the 7,760 insured banks reporting jumped to $14.5 billion in this year's third quarter from $2 billion in the year-earlier period.
There are slight differences in the percentage of noncurrent C&D loans depending on the bank's size and region. FDIC-insured institutions with fewer than $100 million in assets have labeled just 10.33% of their C&D loans as being more than 90 days overdue, while banks with more than $10 billion in assets had 18.03% of their C&D loans noncurrent. By region, the rates ranged from 11.03% for the Dallas region (Arkansas, Colorado, Louisiana, Mississippi, New Mexico, Oklahoma, Tennessee, and Texas) to 21.76% for the San Francisco region (Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon, Utah, Washington, Wyoming, and the Pacific Island territories).