U.S. Bank Failures Stretch to 146 - Analyst Blog

The ongoing economic volatility took its toll on three more banks last week. Out of the three banks shuttered by the U.S. regulators last Friday, two were based in Georgia and one in Arizona. This brings the total number of bank failures to 146 so far in 2010, compared to 140 in 2009, 25 in 2008 and just 3 in 2007.

While the bigger banks benefited greatly from the various programs launched by the government, many smaller banks are still struggling. Tumbling home prices, soaring loan defaults and a high unemployment rate continue to cast its shadow on such institutions. Failure of both residential and commercial real estate loans as a result of the credit crisis has primarily hurt banks.

With the industry absorbing bad loans offered during the credit explosion, the banking system has been exposed to greater problems, increasing the possibility of more bank failures. The tighter regulations under the new financial reform law and weak economic growth data further adds to the concern.

The failed banks are:

•    Tifton, Georgia-based Tifton Banking Company, with total assets of about $143.7 million and total deposits of about $141.6 millionas of September 30, 2010.

•    Vidalia, Georgia-based Darby Bank & Trust Co., with about $654.7 millionin total assets and $587.6 million in total deposits as of September 30, 2010.
 
•    Scottsdale, Arizona-based Copper Star Bank, with about $204.0 millionin total assets and $190.2 million in total deposits as of September 30, 2010.

These bank failures represent another blow to the Federal Deposit Insurance Corporation (FDIC) fund meant for protecting customer accounts, as it has been appointed receiver for the bank.

The FDIC insures the deposits in 7,830 banks and savings associations in the country and promotes the safety and soundness of these institutions. When a bank fails, the FDIC reimburses customers for deposits of up to $250,000 per account.

Though the FDIC managed to shore up its deposit insurance fund during the last couple of quarters, the outbreak of bank failures tested its limits. As of June 30, 2010, the fund remained in the red, with a deficit of $15.2 billion.

The failed Tifton Banking Company is expected to cost the FDIC about $24.6 million, Darby Bank & Trust Co.will cost about $136.2 million and Copper Star Bank will cost about $43.6 million.

Moultrie, Georgia-based Ameris Bank has agreed to assume the assets and deposits of the two failed Georgia banks.The FDIC and Ameris have agreed to share losses on $560.2 million of Tifton Banking Company and Darby Bank & Trust Co.'s assets.

St. Cloud, Minnesota-based Stearns Bank National Association has assumed the assets and deposits of Copper Star Bank. The FDIC and Stearns Bank have agreed to share losses on $165.2 million of Copper Star Bank's assets.
 
In the second quarter of 2010, the number of banks on the FDIC's list of problem institutions grew to 829 from 775 in the previous quarter and 416 in the year-ago quarter. This is the highest since the savings and loan crisis in the early 1990s.

Banks that feature on the problem list are most likely to fail, though some may still survive. As of now, only about 13% of banks on the FDIC's problem list have actually failed. What is interesting is that this percentage is likely to change; though the problem list is growing at a slower pace, bank failures are accelerating.

Increasing loan losses on commercial real estate are expected to lead to hundreds of more bank failures in the next few years. The FDIC expects bank failures to cost about $52 billion over the next four years.

The failure of Washington Mutual in 2008 was the largest in the U.S. banking history. It was acquired by JPMorgan Chase & Co. (JPM). The other major acquirers of failed institutions since 2008 include U.S. Bancorp (USB) and BB&T Corporation (BBT).

 
BB&T CORP (BBT): Free Stock Analysis Report
 
JPMORGAN CHASE (JPM): Free Stock Analysis Report
 
US BANCORP (USB): Free Stock Analysis Report
 
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