Bank Failures Rise to 7 - Analyst Blog

Last Friday, U.S. regulators shuttered four more banks in North Carolina, South Carolina, Georgia and Colorado, pushing up the failed U.S. banks figure to 7 so far in 2011. These were preceded by 157 bank failures in 2010, 140 in 2009 and 25 in 2008.

While the bigger banks benefited greatly from the various programs launched by the government, many smaller banks continue to struggle. Tumbling home prices, soaring loan defaults and a high unemployment rate continue to cast a shadow on such institutions.

With the industry absorbing bad loans offered during the credit explosion, the banking system is exposed to some severe problems. This is aggravating the risk of bank failures even further.

The failed banks are:

• McDonough, Georgia-based Enterprise Banking Company, with total assets of about $100.9 million and total deposits of about $95.5 million as of September 30, 2010.

• Easley, South Carolina-based Community South Bank and Trust, with about $440.6 million in total assets and $402.4 million in total deposits as of September 30, 2010.

• Asheville, North Carolina-based The Bank of Asheville, with total assets of about $195.1 million and total deposits of about $188.3 million as as of September 30, 2010.

• Denver, Colorado-based United Western Bank, with total assets of about $2.05 billion and total deposits of about $1.65 billion as of September 30, 2010.

These bank failures represent another blow to the Federal Deposit Insurance Corporation (FDIC) fund meant for protecting customer accounts, as it has been appointed receiver for these banks.

The FDIC insures deposits in 7,760 banks and savings associations in the country as well as promotes the safety and soundness of these institutions. When a bank collapses, the FDIC reimburses deposits of up to $250,000 per account.

Though the FDIC has managed to shore up its deposit insurance fund during the last few quarters, the outbreak of bank failures has tested its limits. As of September 30, 2010, the fund remained in the red with a deficit of $8 billion despite adding $7.2 billion during the quarter.

The failure of Enterprise Banking Company is expected to be dearer by about $39.6 million for FDIC, while Community South Bank and Trust will cost about $46.3 million.The other two banks, The Bank of Asheville and United Western Bank will cost FDIC about $56.2 million and $56.2 million, respectively.

The FDIC created the Deposit Insurance National Bank of McDonough (DINB) to provide Enterprise Banking Company's depositors access to their insured deposits. DINB will remain open until January 28, 2011.

Easley, South Carolina-based Certus Bank, National Association has agreed to assume the assets and deposits of Community South Bank and Trust. The FDIC and Certus Bank, N.A.have agreed to share losses on $211.3 million of Community South Bank and Trust's assets.

Troy, North Carolina-based First Bank has agreed to assume the assets and deposits of The Bank of Asheville. The FDIC and First Bank have agreed to share losses on $166.3 million of The Bank of Asheville's assets.

Raleigh, North Carolina-based First-Citizens Bank & Trust Company has agreed to assume the assets and deposits of United Western Bank. The FDIC and First-Citizens Bank & Trust Company have agreed to share losses on $1.11 billion of United Western Bank's assets.

In the third quarter of 2010, the number of banks on FDIC's list of problem institutions grew to 860 from 829 in the previous quarter and 552 in the year-ago quarter. This is the highest since the savings and loan crisis in the early 1990s.

Increasing loan losses on commercial real estate are expected to lead to hundreds of bank failures in the next few years. Going by the current rate of bank failures, the FDIC is likely to feel a $52 billion pinch over the next three years.

The failure of Washington Mutual in 2008 was the largest in the U.S. banking history. It was acquired by JPMorgan Chase & Co. (JPM). The other major acquirers of failed institutions since 2008 include U.S. Bancorp (USB) and BB&T Corporation (BBT).