8 More Bank Failures, Tally Hits 50 - Analyst Blog

U.S. regulators on Friday shuttered eight more banks in Florida, California, Massachusetts, Michigan and Washington, pushing up U.S. bank failures to 50 so far in 2010. This compares to a total number of bank failures of 140 in 2009, 25 in 2008 and only 3 in 2007.

Although the economy is showing signs of a gradual recovery with large financial institutions stabilizing, tumbling home prices, soaring loan defaults and rising unemployment continue to take their toll on small banks.

While we expect economic recovery to gain momentum soon, there remain lingering concerns in the banking industry. Failure of both residential and commercial real estate loans as a result of the credit crisis has primarily hurt banks. As the industry tolerates bad loans made during the credit explosion, the trouble in the banking system goes even deeper, increasing the possibility of more bank failures.

The failed banks are:

Sterling Heights, Michigan-based Lakeside Community Bank with $53 million in total assets and $52.3 million in total deposits.

Clermont, Florida-based AmericanFirst Bank with assets of $90.5 million and deposits of $81.9 million.

Palatka, North Florida-based First Federal Bank with $393.3 million in total assets and $324.2 million in total deposits.

Fort Pierce, Florida-based Riverside National Bank with assets of $3.42 billion and deposits of $2.76 billion.

Lowell, Massachusetts-based Butler Bank with $268 million in assets and $233.2 million in deposits.

Oakland, California-based Innovative Bank with assets of $268.9 million and deposits of $225.2 million.

San Rafael, California-based Tamalpais Bank with total assets of $628.9 million and deposits of $487.6 million.

Lynnwood, Washington-based City Bank with $1.13 billion in total assets and $1.02 billion in total deposits.

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

When a bank fails, FDIC reimburses customers for their deposits of up to $250,000 per account. The outbreak of bank failures has significantly stretched the regulator’s deposit insurance fund.

The eight failed banks together would cost the FDIC’s Deposit Insurance Fund about $984.8 million.

Lakeside Community Bank is expected to cost the deposit insurance fund about $11.3 million, AmericanFirst Bank will cost about $10.5 million, First Federal Bank will cost about $6.0 million, Riverside National Bank will cost about $491.8 million, Butler Bank will cost about $22.9 million, Innovative Bank will cost about $37.8 million, Tamalpais Bank will cost about $81.1 million and City Bank will cost about $323.4 million.

TD Bank Financial Group will acquire the deposits and nearly all the assets of the three Florida banks.

Los Angeles-based Center Bank will assume the assets and deposits of Innovative Bank.

San Francisco-based Union Bank is taking over the assets and deposits of Tamalpais Bank.

Coupeville, Washington-based Whidbey Island Bank is assuming the deposits and $704.1 million in assets of City Bank.

Bridgeport, Connecticut-based People’s United Bank, a wing of People’s United Financial Inc. (PBCT), has agreed to assume the assets and deposits of Butler Bank.

However, FDIC was not able to find a buyer for Lakeside Community Bank. First Michigan Bank in Troy, Mich., will acquire Lakeside Community Bank’s direct deposit operations for federal payments.

In the fourth quarter of 2009, the number of banks on the FDIC’s list of problem institutions grew to 702 from 552 in the third quarter. This is the highest since the savings and loan crisis in 1994.

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 JPMorgan 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).

We expect loan losses on the commercial real estate portfolio to remain high for banks that hold large amounts of high-risk loans.