Regulators shut down 5 more banks in Florida, Missouri, New Mexico, Oregon and Washington; pushing up U.S. bank failures to 9 so far in 2010.
Though the economy is showing signs of gradual recovery, bank failures continue unabated as U.S. regulators on Friday closed down five more banks in Florida, Missouri, New Mexico, Oregon and Washington. This takes the total number of bank failures to 9 in 2010, compared to 140 in 2009, 25 in 2008 and 3 in 2007.
While the economy is showing signs of recovery, there are lingering concerns about the banking industry. As the industry tolerates bad loans that were made during the credit explosion, the trouble in the banking system goes even deeper, increasing the possibility of more bank failures.
The failed banks were –Santa Fe, New Mexico-based Charter Bank with $1.2 billion in assets and $851.5 million in deposits, Evergreen Bank, based in Seattle with $488.5 million in assets and $439.4 million in deposits, Miami-based Premier American Bank, with $350.9 million in assets and $326.3 million in deposits; Missouri-based Bank of Leeton with $20.1 million in assets and $20.4 million in deposits and Dalles, Oregon-based Columbia River Bank with $1.1 billion in assets and $1 billion in deposits.
These bank failures will deal another blow to the Federal Deposit Insurance Corporation’s (FDIC) fund for protecting customer accounts, as it has been appointed receiver for these banks. 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 bank failures has significantly stretched the regulator’s deposit insurance fund. However, the FDIC has access to the Treasury Department credit line of up to $500 billion.
The failure of Charter Bank is expected to cost the deposit insurance fund about $201.9 million, Columbia River Bank is expected to cost about $172.5 million, Premier American Bank is expected to cost about $85 million, Evergreen Bank is expected to cost about $64.2 million and Bank of Leeton is estimated to cost about $8.1 million.
Tacoma, Washington-based Columbia State Bank will assume the deposits and assets of Columbia River Bank. The FDIC has agreed to share losses with Columbia State Bank on $697.4 million of Columbia River Bank’s loans and other assets. Plano, Texas-based Beal Financial Corp. agreed to buy the deposits and assets of Charter Bank. FDIC will share losses with Beal Financial on $805.5 million of the Charter Bank’s loans and other assets. Roseburg, Oregon-based Umpqua Bank will assume the deposits and assets of Evergreen Bank. The FDIC will share losses with Umpqua Bank on $379.5 million of Evergreen Bank’s loans and other assets. Sunflower Bank, based in Salina, Kan., will assume the deposits of Bank of Leeton.
Bank failures started this year with the failure of Bellingham, Washington-based Horizon Bank. Washington Federal Inc. (WFSL) will assume all of the deposits of Horizon Bank. Increasing loan losses on commercial real estate are expected to cause hundreds more bank failures in the next few years. The FDIC anticipates bank failures to cost about $100 billion over the next three years. The failure of Washington Mutual in 2008 was the largest in U.S. banking history. It was acquired by JP Morgan Chase (JPM). The other major acquirers of failed institutions since 2008 include Fifth Third Bancorp (FITB), U.S. Bancorp (USB), Zions Bancorp (ZION), SunTrust Banks (STI), PNC Financial (PNC), BB&T Corporation (BBT) and Regions Financial (RF). 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.
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