Bank Failures Pass 100 for the Year

Regulators shut down 7 more banks in FL, WI, GA, MN and IL; total failed banks in '09 reach 106

Though there are some early signs of economic recovery, bank failures continue and the pace has picked up sharply this year. With the failure of 7 more banks on Friday, the tally has surpassed 100 this year. This takes the total number to 106, compared to 25 in 2008 and 3 in 2007.

As the industry has to tolerate bad loans that were made during the credit explosion, the trouble in the banking system goes even deeper, increasing the possibility of more failures. However, the regulators are trying to avoid panic by seizing banks slowly. Also, the slow seizing could be a strategy as it is hard to get buyers for so many failed banks.

Out of the seven failed banks, three were based in Florida – Partners Bank in Naples with $65.5 million in assets, Hillcrest Bank in Naples with $83 million in assets and Flagship National Bank in Bradenton with $190 million in assets. The other four were American United Bank of Lawrenceville, Georgia with $111 million in assets; Bank of Elmwood in Racine, Wisconsin with $327.4 million in assets; Riverview Community Bank in Otsego, Minnesota with $108 million in assets and First Dupage Bank in Westmont, Illinois with $279 million in assets.

Failure of these institutions represents another impact on the Federal Deposit Insurance Corporation’s (FDIC) fund for protecting customer accounts, as it has been appointed receiver for these banks. The failure of these banks is expected to cost the deposit insurance fund an estimated $356.6 million.

The FDIC insures deposits at 8,195 institutions with roughly $13.5 trillion in assets. When a bank fails, it reimburses customers for deposits of up to $250,000 per account. The outbreak of financial institutions failing has significantly stretched the regulator’s deposit insurance fund. At June 30, 2009, the fund corpus fell to $10.4 billion, the lowest since 1993, from $13.0 billion in the prior quarter.

Fort Lauderdale-based Stonegate Bank will assume control of all Partners Bank's $64.9 million in deposits. It will also take over Hillcrest Bank's $84 million in deposits.

Moultrie-based Ameris Bank will take control of American United's $101 million in deposits. The FDIC and Ameris Bank entered into a loss-share transaction for $92 million of American United's assets.

Lake City-based First Federal Bank will take over all of Flagship National Bank's $175 million in deposits. Bank of Elmwood's $273.2 million in deposits will be assumed by Oak Creek-based Tri City National Bank. Stillwater-based Central Bank will take control of Riverview Community Bank's $80 million in deposits. The FDIC and Central Bank entered into a loss-share transaction on $75 million of Riverview's assets.

First Dupage Bank's $254 million in deposits will be assumed by First Midwest Bank of Itasca. The FDIC and First Midwest Bank entered into a loss-share transaction on approximately $247 million of First Dupage Bank's assets.

In order to replenish the declining fund, the FDIC board recently proposed that the U.S. banks should pay fees for three years in advance. Also, the regulators are considering requesting the healthy banks to bail out the government as soon as it is necessary to replenish the deposit insurance fund, which has slipped to 0.22% of insured deposits, below the mandated minimum of 1.15%.

In the second quarter of 2009, the number of banks on the FDIC's list of problem institutions grew to 416 from 305 in the first quarter. This is the highest since the savings and loan crisis in 1994. Bank failures have cost the FDIC's fund that insures deposits an estimated $25 billion this year. Increasing loan losses on commercial real estate are expected to cause hundreds more bank failures in the next few years. The FDIC anticipates the bank failures to cost about $100 billion over the next four years.



The failure of Washington Mutual last year was the largest in U.S. history. It was acquired by JP Morgan Chase (JPM - Analyst Report). The other major acquirers of failed institutions since 2008 include Fifth Third Bancorp (FITB - Analyst Report), U.S. Bancorp (USB - Analyst Report), Zions Bancorp (ZION - Analyst Report), SunTrust Banks (STI - Analyst Report), PNC Financial (PNC - Analyst Report), BB&T Corporation (BBT - Analyst Report) and Regions Financial (RF - Analyst Report).



The failed banks are victims of recession and rising loan losses. As a result of the ongoing market turmoil, these institutions experienced massive capital erosion stemming from losses due to a significant exposure to collateralized mortgage obligations, commercial real estate loans and other commercial and industrial loans. All these factors were responsible for a drag on profitability and write-downs.



According to the FDIC, the U.S. banks overall lost $3.7 billion in the second quarter of 2009, compared to a profit of $7.6 billion in the prior quarter. Though current signals indicate that the economy may stabilize, we expect loan losses on commercial real estate portfolio to remain high for banks that hold large amounts of high-risk loans.

Read the full analyst report on JPM

Read the full analyst report on FITB

Read the full analyst report on USB

Read the full analyst report on ZION

Read the full analyst report on STT

Read the full analyst report on PNC

Read the full analyst report on BBT

Read the full analyst report on RF