U.S Bank Failures Hit 42 - Analyst Blog

U.S. regulators on Friday shuttered Myrtle Beach, South Carolina-based Beach First National Bank, pushing up U.S. bank failures to 42 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.

Beach First National Bank had total assets of about $585.1 million and total deposits of about $516.0 million as of Dec 31, 2009. Among the FDIC-insured banks, this is the first failure in South Carolina since 1999.

The recent failure represents another impact on the Federal Deposit Insurance Corporation’s (FDIC) fund meant for protecting customer accounts, as it has been appointed receiver for the bank.

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 failure of Beach First National Bank is expected to cost the federal deposit insurance fund (DIF) about $130.3 million.

Thomasville, North Carolina-based Bank of North Carolina will assume all of the deposits and assets of Beach First National Bank. The FDIC entered into a loss sharing agreement with Bank of North Carolina for $497.9 million of Beach First National Bank’s loans and other assets.

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).