Regulators have shut down 3 more banks in Florida, Arizona and Kansas; pushing up U.S. bank failures to 133 so far this year. U.S. regulators on Friday closed three more regional banks in Florida, Arizona and Kansas as the struggling economy continues to weigh heavily on banks. This takes the total number of bank failures to 133, compared to 25 in 2008 and 3 in 2007.
While the state of the economy is showing signs of recovery, there are lingering concerns related to the banking industry. As the industry tolerates bad loans that were made during the credit explosion, the trouble in the banking system goes even deeper, increasing the possibility of more bank failures.
The failed banks were — Republic Federal Bank, N.A. of Miami, Florida with total assets of $433.0 million and total deposits of approximately $352.7 million as of Sep 30, 2009, Valley Capital Bank, National Association of Mesa, Arizona with total assets of $40.3 million and total deposits of about $41.3 million and SolutionsBank of Overland Park, Kansas with total assets of $511.1 million and total deposits of about $421.3 million.
These bank failures will deal another blow to the Federal Deposit Insurance Corporation’s (FDIC) fund for protecting customer accounts, as it has been appointed receiver for these banks. The failure of Republic Federal Bank is expected to cost the deposit insurance fund about $122.6 million, Valley Capital Bank is expected to cost about $7.4 million, and SolutionsBank is expected to cost about $122.1 million.
The FDIC insures deposits at 8,195 institutions with roughly $13.5 trillion in assets. When a bank fails, it reimburses customers for deposits of up to $250,000 per account. The outbreak of bank failures has significantly stretched the regulator’s deposit insurance fund.
Boca Raton, Florida-based 1st United Bank has agreed to assume all the deposits and $267.1 million of the assets of Republic Federal Bank. 1st United Bank will pay the FDIC a premium of 1.2% to assume all of the deposits of the failed bank. Enterprise Bank & Trust of Clayton, Missouri, will assume all of the deposits of Valley Capital Bank. Enterprise Bank paid the FDIC a 2% premium to assume all of the deposits of Valley Capital Bank.
The FDIC also agreed to share losses on $29.8 million of Valley Capital’s assets with Enterprise Bank. Arvest Bank of Fayetteville, Arkansas, will assume all of the deposits of SolutionsBank. The FDIC agreed to share losses with Arvest Bank on $411.3 million of SolutionsBank’s assets. In the third quarter of 2009, the number of banks on the FDIC’s list of problem institutions grew to 552 from 416 in the second quarter. This is the highest since 1993.
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 four years. In order to replenish the depleting fund, the FDIC board recently mandated the U.S. banks to pay fees for three years in advance.
Also, the regulators are considering requesting the healthy banks to bail out the government as soon as it is necessary to refill the deposit insurance fund. The FDIC also has access to the Treasury Department credit line of up to $500 billion. The failure of Washington Mutual last year was the largest in U.S. banking history. It was acquired by JP Morgan 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). The failed banks are victims of recession and rising loan losses.
As a result of the ongoing market turmoil, these institutions have experienced massive capital erosion stemming from losses due to a significant exposure to collateralized mortgage obligations, commercial real estate loans and other commercial and industrial loans. All these factors were responsible for a drag on profitability and write-downs.
According to the FDIC, banks set aside $62.5 billion to cover deteriorating loans during the third quarter, down 7.1% from the prior quarter. Though current signals indicate that the economy may stabilize, we expect loan losses on 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
