U.S. Bank Failures Rise to 73 - Analyst Blog

U.S. regulators on Friday shuttered St. Paul, Minnesota-based Pinehurst Bank, pushing up U.S. bank failures to 73 so far in 2010. This compares to 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 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 tolerated bad loans made during the credit explosion, the trouble in the banking system goes even deeper, increasing the possibility of more bank failures.   Pinehurst Bank had total assets of about $61.2 million and total deposits of about $58.3 million as of March 31, 2010.

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

When a bank fails, the 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 Pinehurst Bank would cost the FDIC’s Deposit Insurance Fund about $6.0 million.

La Crosse, Wisconsin-based Coulee Bank will assume all the assets and deposits of the failed bank. Coulee Bank will pay the FDIC a premium of 1.33% to assume all of the deposits of Pinehurst Bank.

In the first quarter of 2010, the number of banks on the FDIC’s list of problem institutions grew to 775 from 702 in the fourth quarter of 2009. This is the highest since the savings and loan crisis in the early 1990’s. 
Following the dreadful phase of the economic downturn, the banking industry’s profits soared during the first quarter of 2010. However, this was primarily led by the big banks, while small banks remained strained by deteriorating credit conditions.

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).  