Initial findings of our most recent analysis show thathundreds of banks are grappling with commercial mortgage defaultsmatching or exceeding the profile of the last two year’sCRE-related bank failures.

Sam Chandan PhD with MarkGaudette

The count of US bank failures rose to eighty-three this pastFriday when the Federal Deposit Insurance Corporation (FDIC)announced that the Nevada FinancialInstitutions Division had closed Nevada Security Bank (NSB). Actingas receiver, the FDIC has facilitated the prompt transfer of NevadaSecurity’s deposits to Oregon’s Umpqua Bank. NSB's branches willopen this Monday morning as part of the Umpqua Bank network. TheFDIC’s loss sharing agreement with Umpqua Bank will cost theDeposit Insurance Fund an estimated $80.9 million.

In its last quarterly filing, reflecting bank assets andliabilities as of March 31, 2010, Nevada Security Bank reportedhaving net loans and leases of $330 million. Of that total, almosttwo-thirds, $204 million, was in commercial real estate. Commercialreal estate, multifamily, and construction loans combined totaled$275 million, just over 83 percent of the bank's lending balancesheet. NSB's concentration in commercial real estate was compoundedby the deterioration in the performance of the underlyingmortgages. The default rate on its commercial real estate loans was10.6 percent in the first quarter, more than double the nationalaverage. Similarly, the default rate on its construction loans was25.8 percent.