Bank failures continue unabated as the U.S. regulators closed down six more banks last Friday. Out of the six failed banks, two were based in Georgia, two in Alabama and one each in Minnesota and Mississippi. This brings the number of U.S. bank failures to 34 so far in 2011, preceded by 157 in 2010, 140 in 2009 and 25 in 2008.
While the financials of bigger banks have been stabilizing on the back of the economic recovery, many smaller banks are still struggling to survive. Such institutions continue to be eclipsed by home prices, loan defaults and unemployment levels, all of which are still to show marked improvements.
The lingering effects of the financial crisis are still forcing many banks to absorb bad loans offered during the credit explosion, making them vulnerable to some severe problems. This 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 600 institutions.
The failed banks are:
- Cartersville, Georgia-based Bartow County Bank, with total assets of about $330.2 million and total deposits of about $304.1 million as of December 31, 2010
- East Ellijay, Georgia-based New Horizons Bank, with about $110.7 million in total assets and $106.1 million in total deposits as of December 31, 2010
- Birmingham, Alabama-based Nexity Bank, with about $793.7 million in total assets and $637.8 million in total deposits as of December 31, 2010
- Birmingham, Alabama-based Superior Bank, with about $3.0 billion in total assets and $2.7 billion in total deposits as of December 31, 2010
- Rosemount, Minnesota-based Rosemount National Bank, with about $37.6 million in total assets and $36.6 million in total deposits as of December 31, 2010
- Carthage, Mississippi-based Heritage Banking Group, with about $224.0 million in total assets and $196.2 million in total deposits as of December 31, 2010
These bank failures represent another jolt 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 be in the black later this year.
The failure of Bartow County Bank is expected to be dearer by about $69.5 million for the FDIC, while New Horizons Bank will cost about $30.9 million. The other four banks, Nexity Bank, Superior Bank, Rosemount National Bankand Heritage Banking Group will cost the FDIC about $175.4 million, $259.6 million, $3.6 million and $49.1 million, respectively.
Hoschton, Georgia-based Hamilton State Bank has agreed to assume the entire deposits and assets of Bartow County Bank. The FDIC and Hamilton State Bankhave agreed to share losses on $247.5 million of Bartow County Bank’s assets.
Gastonia, North Carolina-based Citizens South Bank has agreed to assume all deposits and assets of New Horizons Bank. The FDIC and Citizens South Bank have agreed to share losses on $84.7 million of New Horizons Bank’s assets.
Birmingham, Alabama-based AloStar Bank of Commerce has agreed to assume all deposits and assets of Nexity Bank. The FDIC and AloStar Bank of Commerce have agreed to share losses on $384.2 million of Nexity Bank’s assets.
Birmingham, Alabama-based Superior Bank, N.A, a subsidiary of Community Bancorp LLC, has agreed to assume the entire deposits and assets of Superior Bank. The FDIC and Superior Bank, N.A. have agreed to share losses on $1.84 billion of Superior Bank’s assets.
Stillwater, Minnesota-based Central Bank has agreed to assume all deposits and assets of Rosemount National Bank.
Jackson, Mississippi-based Trustmark National Bank has agreed to assume the entire deposits and assets of Heritage Banking Group. The FDIC and Trustmark National Bank have agreed to share losses on $156.4 million of Heritage Banking Group’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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