Only three banks failed in March. But within those failed institutions, commercial real estate loans represent 55% of the nonperforming mortgages, analytics firm Trepp said Wednesday. The pace of bank failures is slowing, moving to the lowest level on record since December of 2008. However, Trepp said of the bad debts at The Bank of Commerce in Illinois, Legacy Bank in Wisconsin and First National Bank of Davis in Oklahoma — commercial real estate loans made up $44 million of the $80 million in nonperforming loans. When breaking down nonperforming loans by category, commercial mortgages made up 34% of the loans, while construction and land loans represented 21% of the nonperforming loan pool, according to Trepp. The residential real estate loan category represented 36% of the nonperforming loan balance. The remaining nonperforming loans were tied to commercial and industrial loans. Twenty six banks failed when looking at the entire first quarter, which is the lowest quarterly count on record since 2Q of 2009. However, the number of banks under watch remains high. Trepp said in its analysis that "after accounting for the 1Q failures, there are 173 banks that have been on the watch list for 6 or more quarters, including 68 that have been on the watch list for 8 or more quarters." Trepp concluded that "the ideal situation would be to get performance and balance sheet issues under control quickly, so they can come off the list under their own power. The fact that time on the watch list has stretched out for many banks is not a positive sign for them. Instead, we think it indicates that many of their problems are difficult to get under control and likely contributes to the likelihood of eventual failure." Write to Kerri Panchuk.