A spate of bank failures swept across the sector last Friday, with U.S. regulators closing down five more banks. Out of these failed banks, two were based in Florida, two in Georgia and one in Michigan. This brings the number of U.S. bank failures to 39 so far in 2011, after 157 in 2010, 140 in 2009 and 25 in 2008.
While the financials of bigger banks have been stabilizing on the back of an economic recovery, many smaller banks are still struggling to survive. Nagging issues like rock-bottom home prices along with still-high loan defaults and unemployment levels continue to trouble such institutions.
Many banks continue to shoulder the lingering effects of the financial crisis. It becomes a prerequisite for such banks to absorb bad loans offered during the credit explosion, making them susceptible to some severe problems. This vicious layout is aggravating the risk of bank failures even further. Moreover, out of the total $245 billion handed out to banks, more than $20 billion is still due from about 550 institutions.
The failed banks are:
- Winter Park, Florida-based First National Bank of Central Florida, with total assets of about $352.0 million and total deposits of about $312.1 million as of December 31, 2010
- Brooksville, Florida-based Cortez Community Bank, with about $70.9 million in total assets and $61.4 million in total deposits as of December 31, 2010
- Dallas, Georgia-based First Choice Community Bank, with about $308.5 million in total assets and $310.0 million in total deposits as of December 31, 2010
- Valdosta, Georgia-based The Park Avenue Bank, with about $953.3 million in total assets and $827.7 million in total deposits as of December 31, 2010
- Mount Clemens, Michigan-based Community Central Bank, with about $476.3 million in total assets and $385.4 million in total deposits as of December 31, 2010
The bank failures represent another blow to the deposit insurance fund (DIF) meant for protecting customer accounts, as it has been appointed receiver for the banks.
The Federal Deposit Insurance Corporation (FDIC) insures deposits in 7,657 banks and savings associations in the country as well as promotes the safety and soundness of these institutions. When a bank fails, the agency reimburses customers deposits of up to $250,000 per account.
Though the FDIC has managed to shore up its DIF over the past few quarters, the outbreak of bank failures has tested its limits. As of December 31, 2010, the fund remained in the red with a deficit of $7.4 billion, slightly better than the deficit of $8.0 billion in the prior quarter. The agency expects the fund to swing back later this year.
The failure of First National Bank of Central Florida is expected to be dearer by about $42.9 million for the FDIC, while Cortez Community Bank will cost about $18.6 million. The other three banks, First Choice Community Bank, The Park Avenue Bank and Community Central Bank will dent the FDIC by about $92.4 million, $306.1 million and $183.2 million, respectively.
Miami, Florida-based Premier American Bank, National Association has agreed to assume the entire deposits and assets of both First National Bank of Central Florida and Cortez Community Bank.The FDIC and Premier American Bank, N.A.agreed to share losses on $270.0 millionof First National Bank’s assets and $51.3 million of Cortez Community Bank’s assets.
Little Rock, Arkansas-based Bank of the Ozarks has agreed to assume the entire deposits and assets of both First Choice Community Bank and The Park Avenue Bank. The FDIC and Bank of the Ozarks have agreed to share losses on $260.7 million of First Choice Community Bank’s assets and $514.1 million of The Park Avenue Bank’s assets.
Troy, Michigan-based Talmer Bank & Trust has agreed to assume all the deposits and assets of Community Central Bank. The FDIC and Talmer Bank & Trust will share losses on $362.4 million of Community Central Bank’s assets.
The number of banks on FDIC’s list of problem institutions increased to 884 in the fourth quarter of 2010 from 860 in the previous quarter. This is the highest number since the savings and loan crisis in the early 1990s.
Increasing loan losses on commercial real estate could trigger hundreds of bank failures in the coming years. Going by the current rate of bank insolvencies, the DIF is likely to feel a $52 billion dent by 2014. However, the pace of bank failures has been slow so far this year.
With so many bank failures, consolidation has become the industry norm. 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).
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