Souring commercial real estate loans are taking a disproportionate bite out of ailing mid-size bank balance sheets as more failures are set to come in 2010. Regulators shut down seven more banks last week in Illinois. The total cost to the Federal Deposit Insurance Corp. Deposit Insurance Fund (DIF): $974m. According to the analytics firm, Trepp, the latest moves by the FDIC indicate the agency is focusing its resources toward one problematic region at a time. In the week before the Illinois closings, three banks in Florida and two in California were shut down. According to Trepp partner, Foresight Analytics, the next region of interest could be Puerto Rico. There, seven banks made it to the Foresight watch list. To gauge how accurate that list can be, all but one of the seven Illinois bank failures last week were on the list. Through Q110, more than 2,100 banks reported quarterly financial reports, and 14 of them are considered undercapitalized, significantly undercapitalized or even critically undercapitalized. The common malady of each troubled balance sheet is toxic commercial loans. According to Trepp, these loans account for an average of 51% of the banks’ non-performing assets - a disproportionately high percentage. In all but two cases, the amount was above 35%. Deutsche Bank drills down further. According to its research, the four largest US banks – Bank of America, Wells Fargo, JPMorgan Chase and Citigroup – hold the lowest percentage of exposure to the climbing delinquency rate in CMBS and make up Group 1 in the graph below. Group 2 consists of banks with total assets exceeding $150bn. Group 3 has between $25bn and $150bn in assets. Group 4 has between $10bn and $25bn in assets. And Group 5, representing more than 7,000 of the nation’s smallest banks with less than $10bn in assets, has the highest percentage of exposure to these loans. More bank closings could be on the way. Failures in 2009 reached 140, an increase of almost 500% from 2008, according to research from Grant Thornton. At the end of 2009, the FDIC “Problem List” had grown to 702 insured institutions. Earlier in April, Trepp reported that problematic commercial loans spreading through commercial mortgage-backed securities (CMBS) would plague small and mid-sized banks more than the larger ones. The firm forecasts 200 of these banks will fail in 2010. Write to Jon Prior.