U.S. Bank Failures Inch to 72 - Analyst Blog

On Friday, four more banks were shuttered by U.S. regulators. The failed banks were based in Georgia, Illinois, Michigan and Missouri. This brings the total number of bank failures to 72 so far in 2010, compared to 140 in 2009, 25 in 2008 and 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 a high unemployment rate continue to take their toll on small banks.

While we expect the 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:

Saint Marys, Georgia-based Satilla Community Bank with total assets of $135.7 million and deposits of $134.0 million.

Plymouth, Michigan-based New Liberty Bank with about $101.8 million in deposits and $109.1 million in assets.

Springfield, Missouri-based Southwest Community Bank with about $102.5 million in deposits and $96.6 million in assets.

Elmwood Park, Illinois-based Midwest Bank and Trust Company with total assets of $3.17 billion and deposits of $2.42 billion.

These bank failures will deal another blow to the Federal Deposit Insurance Corporation’s (FDIC) fund meant for protecting customer deposits, 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 four failed banks together would cost the FDIC’s Deposit Insurance Fund about $301.7 million.

Satilla Community Bank is expected to cost the deposit insurance fund about $31.3 million, New Liberty Bank will cost about $25.0 million, Southwest Community Bank will cost about $29.0 million and Midwest Bank and Trust Company will cost about $216.4 million.

Moultrie, Georgia-based Ameris Bank will assume the deposits and nearly all the assets of Satilla Community Bank.

Ann Arbor, Michigan-based Bank of Ann Arbor will acquire the deposits and nearly all the assets of New Liberty Bank.

Pine Bluff, Arkansas-based Simmons First National Bank agreed to buy all the assets and deposits of Southwest Community Bank.

Akron, Ohio-based Firstmerit Bank, National Association will assume all the deposits and assets of Midwest Bank and Trust Company.

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 the early 1990’s.

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).