USB US Bancorp

After a week’s pause, U.S. regulators were back in action, shuttering two more banks in Georgia and Florida. These pushed the number of failed U.S. banks to 47 so far in 2011. Looking back, there were 157 bank failures in 2010, 140 in 2009 and 25 in 2008.

While the financials of bigger banks have been stabilizing on the back of an economic recovery, many smaller banks are still struggling to survive. Nagging issues like rock-bottom home prices along with still-high loan defaults and unemployment levels continue to trouble such institutions.

Lingering effects of the financial crisis continue to weigh on many banks. It becomes a prerequisite for such banks to absorb bad loans offered during the credit explosion, making them susceptible to some severe problems. The uncertain environment is aggravating the risk of bank failures even further.

The failed banks are:

• Jackson, Georgia-based McIntosh State Bank, with total assets of about $339.9 million and total deposits of about $324.4 million as of March 31, 2011.
• Tampa, Florida-based First Commercial Bank of Tampa Bay, with about $98.6 million in total assets and $92.6 million in total deposits as of March 31, 2011.

These bank failures represent another jolt to the deposit insurance fund (DIF) meant for protecting customer accounts, as it has been appointed receiver for the banks.

The Federal Deposit Insurance Corporation (FDIC) insures deposits in 7,575 banks and savings associations in the country as well as promotes the safety and soundness of these institutions. When a bank fails, the agency reimburses customer 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 ongoing bank failures have kept it under pressure. As of March 31, 2011, the fund remained in the red with a deficit of $1.0 billion, though substantially better than the deficit of $7.4 billion in the prior quarter.

As the deficit significantly narrowed during the quarter and the fund is almost close to break-even, the agency expects it to swing back to profits in the next quarter itself.

The failure of McIntosh State Bank is expected to deal a blow of about $80.0 million to the FDIC, while First Commercial Bank of Tampa Bay will cost about $28.5 million.

Hoschton, Georgia-based Hamilton State Bank has agreed to assume the entire deposits and assets of McIntosh State Bank. The FDIC and Hamilton State Bank have agreed to share losses on $242.1 million of McIntosh State Bank's assets.

Fort Lauderdale, Florida-based Stonegate Bank has agreed to assume all of the deposits and assets of First Commercial Bank of Tampa Bay. Stonegate Bank will pay a premium of 0.50% to the FDIC for this acquisition.

The number of banks on FDIC’s list of problem institutions saw a marginal increase to 888 in the first quarter from 884 in the previous. This is the highest number since 928 problem institutions cropped up way back in March 31, 1993, due to the then savings and loan crisis.

Increasing loan losses on commercial real estate could trigger hundreds of bank failures in the coming years. Going by the current rate of bank insolvencies, the DIF is likely to feel a $52 billion dent by 2014. However, considering the fail trail so far this year, the FDIC does not expect the number of bank failures in 2011 to surpass the 2010 tally.

With so many bank failures, consolidation has become the industry fashion. For almost all of the failed banks, the FDIC enters into purchase agreement with healthy institutions.

When Washington Mutual collapsed in 2008 (branded as the largest bank failure in the U.S. 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).

 
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