Moisture Ants
Google Said: Moisture ants are attracted to damp environments and they'll nest indoors or outside. They use wet wood and soil to build nests that are called cartons. When building a nest outside, they prefer to live under rocks or in rotting logs. They've also been known to nest near the foundation of homes.

The top photo shows what I found after the first part of the siding removal. The builder used pegboard over the insulation before the exterior sheeting was put in.
The next one shows what is left of the stud that ran vertical. The bottom one shows a close up of what was left. Sawdust. That's the corner of the tub.
He'll be replacing the siding from the near edge of the second window to the front door. So far, they only ate one stud. We haven't opened it up any more. I got what was soft removed and was waiting to see who I hire to fix it. He's putting in a smaller window to keep water from leaking around it again. He'll seal it all up and coat the inside with a stuff that keeps it from further attack. I've got a bug guy coming to spray the area.

Work to be performed: Remove all deteriorated and damaged boards from area around bathroom window in front of residence. Repair all necessary framing Prime area with stain blocker oil primer Install insulation in all applicable areas Install new wall sheeting Install new window Install all necessary flashing around window Install siding moisture barrier Install new siding to match current on residence Paint siding to match color currently applied on residence Clean up and remove all job related debris. 

Materials are $770.15. Labor is $65 an hour, 24 hour estimate $1,560.
Total bid was $2,330.15.