132 Bank Failures So Far in 2010 - Analyst Blog

Bank failures continue unabated as the U.S. regulators closed down three more banks on Friday. Out of the three failed banks, two were based in Missouri and one in Kansas. This brings the total number of bank failures to 132 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 weak. Tumbling home prices, soaring loan defaults and a high unemployment rate continue to take their toll 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 made during the credit explosion, the trouble in the banking system has worsened, increasing the possibility of more bank failures. Economic threats emanating from the impact of tighter regulations under the new financial reform law and weak economic growth data further add to the concerns.   The failed banks are:

• Jefferson City, Missouri-based Premier Bank, with total assets of about $1.18 billion and total deposits of about $1.03 billion as of June 30, 2010.

• Chesterfield, Missouri-based WestBridge Bank and Trust Company, with about $91.5 million in total assets and $72.5 million in total deposits as of June 30, 2010.

• Olathe, Kansas-based Security Savings Bank, F.S.B., with about $508.4 million in total assets and $397.0 million in total deposits as of June 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 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 Premier Bank is expected to cost the FDIC about $406.9 million, WestBridge Bank and Trust Company will cost about $18.7 million and Security Savings Bank, F.S.B. will cost about $82.2 million.

Columbia, Missouri-based Providence Bank has assumed the assets and deposits of Premier Bank. The FDIC and Providence Bank have agreed to share losses on $408.7 million of Premier Bank’s assets.

Effingham, Illinois-based Midland States Bank has assumed all of the assets and deposits of WestBridge Bank and Trust Company. The FDIC and Midland States Bank have agreed to share losses on $72.6 million of WestBridge Bank and Trust Company’s assets.

Pine Bluff, Arkansas-based Simmons First National Bank has assumed the assets and deposits of Security Savings Bank, F.S.B. The FDIC and Simmons First National Bank have agreed to share losses on $334.2 million of Security Savings Bank, F.S.B.’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 cause hundreds more bank failures in the next few years. The FDIC expects bank failures to cost about $60 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 Fifth Third Bancorp (FITB), U.S. Bancorp (USB), Zions Bancorp (ZION), SunTrust Banks Inc. (STI), PNC Financial Services Group Inc. (PNC), BB&T Corporation (BBT) and Regions Financial Corp. (RF).