Although the economy is showing signs of a gradual recovery, 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 three more banks in New York, Florida, and Louisiana. This brings the total number of bank failures to 30 so far in 2010, compared to 140 in 2009, 25 in 2008 and 3 in 2007.
These failures on Friday follow the failure of New York-based LibertyPointe Bank just the day before. LibertyPointe Bank had approximately $209.7 million in total assets and $209.5 million in total deposits as of Dec 31, 2009. Wayne, New Jersey-based Valley National Bank assumed all of the deposits of the failed bank. The FDIC and Valley National Bank have entered into a loss-share agreement for LibertyPointe Bank’s assets.
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 on Friday were: New York-based Park Avenue Bank with $520.1 million in assets and $494.5 million in deposits, Orlando, Florida-based Old Southern Bank with $315.6 million in assets and $319.7 million in deposits and Covington, Louisiana-based Statewide Bank with $243.2 million in assets and $208.8 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 failure of Park Avenue Bank is expected to cost the deposit insurance fund about $50.7 million, Old Southern Bank will cost about $94.6 million and Statewide Bank’s failure will cost about $38.1 million.
Like LibertyPointe, Park Avenue Bank’s deposits will also be assumed by Valley National Bank. Conway, Arkansas-based Centennial Bank will assume the deposits of Old Southern Bank and Lafayette, Louisiana-based Home Bank will assume the deposits of Statewide 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 (ZIONS), 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.
Read the full analyst report on “JPM”
Read the full analyst report on “FITB”
Read the full analyst report on “USB”
Read the full analyst report on “ZION”
Read the full analyst report on “STI”
Read the full analyst report on “PNC”
Read the full analyst report on “BBT”
Read the full analyst report on “RF”
Zacks Investment Research