More Bank Failures, Tally Hits 149 - Analyst Blog

The ongoing economic volatility took its toll on three more banks last week. The banks shuttered by the U.S. regulators last Friday were based in Florida, Pennsylvania and Wisconsin.This brings the total number of bank failures to 149 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 their 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 failed banks are:

•    Carrabelle, Florida-based Gulf State Community Bank, with total assets of about $112.1 million and total deposits of about $112.2 million as of September 30, 2010

•    Bala Cynwyd, Pennsylvania-based Allegiance Bank of North America, with about $106.6 million in total assets and $92.0 million in total deposits as of September 30, 2010
 
•    Burlington, Wisconsin-based First Banking Center, with about $750.7 million in total assets and $664.8 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 these banks.

The FDIC insures 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 has tested its limits. As of June 30, 2010, the fund remained in the red, with a deficit of $15.2 billion.

The failed Gulf State Community Bank is expected to cost the FDIC about $42.7 million, Allegiance Bank of North America will cost about $14.2 million and First Banking Center will cost about $142.6 million.

Conway, Arkansas-based Centennial Bank has agreed to assume the assets and deposits of Gulf State Community Bank. The FDIC and Centennial Bank have agreed to share losses on $84.4 million of Gulf State Community Bank's assets.

Wyomissing, Pennsylvania-based VIST Bank has agreed to assume the assets and deposits of Allegiance Bank of North America. The FDIC and VIST Bank have agreed to share losses on $86.2 million of Allegiance Bank of North America's assets.

Troy, Michigan-based First Michigan Bank has agreed to assume the assets and deposits of First Banking Center. The FDIC and First Michigan Bank have agreed to share losses on $515.6 million of First Banking Center'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; the pace of banks failing is faster than the pace of problem banks entering the list.

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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