Bank Failures Now Up to 157 in 2010 - Analyst Blog

The ongoing economic volatility took its toll on a few more banks last week. On Friday, six more banks were shuttered by U.S. regulators. Out of the six failed banks, three were based in Georgia and one each in Florida, Arkansas and Minnesota. This brings the total number of bank failures to 157, compared to 140 in 2009, 25 in 2008 and just 3 in 2007.

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. Failure of both residential and commercial real estate loans due to the credit crisis has primarily hurt banks.

With the industry absorbing bad loans offered during the credit explosion, the banking system has been exposed to greater problems. This is further increasing the possibility of bank failures.

The failed banks are:

• Dawsonville, Georgia-based Chestatee State Bank, with total assets of about $244.4 million and total deposits of about $240.5 millionas of September 30, 2010.

• McCaysville, Georgia-based Appalachian Community Bank, F.S.B., with about $68.2 million in total assets and $76.4 million in total deposits as of September 30, 2010.

• Atlanta, Georgia-based United Americas Bank, National Association, with total assets of about $242.3 million and total deposits of about $193.8 millionas of September 30, 2010.

• Coral Gables, Florida-based The Bank of Miami, National Association, with total assets of about $448.2 million and total deposits of about $374.2 million as of September 30, 2010.

• Batesville, Arkansas-based First Southern Bank, with total assets of about $191.8 million and total deposits of about $155.8 million as of September 30, 2010.

• Lino Lakes, Minnesota-based Community National Bank, with total assets of about $31.6 million and total deposits of about $28.8 millionas 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 and 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 Chestatee State Bank is expected to cost the FDIC about $75.3 million, Appalachian Community Bank, F.S.B. will cost about $26.0 million, United Americas Bank, National Association will cost about $75.8 million, The Bank of Miami, National Association will cost about $64.0 million, First Southern Bank will cost about $22.8 million and Community National Bank will cost about $3.7 million.

Little Rock, Arkansas-based Bank of the Ozarkshas agreed to assume the assets and deposits of Chestatee State Bank. The FDIC and Bank of the Ozarks have agreed to share losses on $195.3 million of Chestatee State Bank's assets.

Madisonville, Tennessee-based Peoples Bank of East Tennessee has agreed to assume the assets and deposits of Appalachian Community Bank. The FDIC and Peoples Bank of East Tennessee have agreed to share losses on $46.4 million of Appalachian Community Bank, F.S.B.'s assets.

Macon, Georgia-based State Bank and Trust Company has agreed to assume the assets and deposits of United Americas Bank, National Association. The FDIC and State Bank and Trust Company have agreed to share losses on $195.8 million of United Americas Bank, N.A.'s assets.

Boca Raton, Florida-based 1^st United Bank has agreed to assume the assets and deposits of The Bank of Miami, National Association. The FDIC and 1^st United Bank have agreed to share losses on $313.5 million of The Bank of Miami, N.A.'s assets.

Poplar Bluff, Missouri-based Southern Bank has agreed to assume the assets and deposits of First Southern Bank. Southern Bank paid the FDIC a premium of 0.25% to assume all of the deposits of First Southern Bank.

Manchester, Iowa-based Farmers & Merchants Savings Bank has agreed to assume the assets and deposits of Community National Bank. Farmers & Merchants Savings Bank did not pay the FDIC a premium for the deposits of Community National Bank.

In the third quarter of 2010, the number of banks on the 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.

Banks that feature on the problem list are most likely to crash, though some may survive and pull out of the crisis. As of now, only less than a quarter of the banks on FDIC's problem list have actually failed. This ratio, however, is likely to change. While the list is increasing gradually, bank failures are snowballing.

Increasing loan losses on commercial real estate are expected to lead to hundreds of bank failures in the next few years. The FDIC expects bank failures to cost about $52 billion over the next four 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).