More Bank Failures, Tally Hits 37 - Analyst Blog

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.

As a result, U.S. regulators on Friday shuttered seven more banks in Alabama, Georgia, Minnesota, Ohio and Utah. This brings the total number of bank failures to 37 so far in 2010, compared to 140 in 2009, 25 in 2008 and 3 in 2007.

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:

Draper, Utah-based Advanta Bank Corp. with $1.6 billion in total assets and $1.5 billion in total deposits.

Ellijay, Georgia-based Appalachian Community Bank with $1 billion in assets and about $917.6 million in deposits.

Hiawassee, Georgia-based Bank of Hiawassee with about $377.8 million in assets and $339.6 million in deposits.

Fort Deposit, Alabama-based First Lowndes Bank with $137.2 million in assets and $131.1 million in deposits.

Duluth, Georgia-based Century Security Bank with $96.5 million in assets and $94 million in deposits.

Parma, Ohio-based American National Bank with $70.3 million in assets and $66.8 million in deposits.

Aurora, Minnesota-based State Bank of Aurora with $28.2 million in assets and $27.8 million in 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. However, the FDIC has about $66 billion in cash and securities available in reserve to cover losses arising from bank failures. Also, the FDIC has access to the Treasury Department’s credit line of up to $500 billion.

The seven failed banks together would cost the FDIC’s Deposit Insurance Fund about $1.28 billion.

The Advanta Bank is expected to cost the deposit insurance fund about $635.6 million, Appalachian Community Bank will cost about $419.3 million, Bank of Hiawassee will cost about $137.7 million, First Lowndes Bank will cost about $38.3 million, Century Security Bank will cost about $29.9 million, American National Bank will cost about $17.1 million and State Bank of Aurora will cost the insurance fund about $4.2 million.

Luverne, Alabama-based First Citizens Bank will assume the deposits and assets of First Lowndes Bank.

Carrollton, Georgia-based Community & Southern Bank will assume the deposits and assets of Appalachian Community Bank.

Citizens South Bank of Gastonia, N.C., will assume the deposits and assets of Bank of Hiawassee.

Thomaston, Georgia-based Bank of Upson has agreed to assume the assets and deposits of Century Security Bank.

Ashland, Wisconsin-based Northern State Bank has agreed to assume the deposits and assets of State Bank of Aurora.

Wilmington, Ohio-based National Bank and Trust Co. will assume the assets and deposits of American National Bank. However, the FDIC was unable to find a buyer for Advanta Bank.

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).