USB US Bancorp

Last Friday, U.S. regulators shuttered The First National Bank of Florida, taking the number of failed banks thus far in 2011 to 71. This follows 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 obligatory for such banks to absorb bad loans offered during the credit explosion, making these susceptible to severe problems. The uncertain environment is aggravating the risk of bank failures even further.

Located at Milton, The First National Bank of Florida had total assets of about $296.8 million and total deposits of about $280.1 million as of June 30, 2011.

This failure represents another blow to the deposit insurance fund (DIF), meant for protecting customer accounts.

The Federal Deposit Insurance Corporation (FDIC) insures deposits in 7,513 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 increase its deposit insurance fund over the last few quarters, the ongoing bank failures have kept it under pressure. However, as of June 30, 2011, the fund recovered to post a surplus of $3.9 billion, substantially better than the deficit of $1.0 billion in the prior quarter. The positive fund balance seen for the first time in two years was aided by a moderate pace of bank failures and assessment revenue.

The failure of The First National Bank of Florida is expected to deal a blow of about $46.9 million to the FDIC.

West Point, Georgia-based CharterBank has agreed to assume the assets and deposits of The First National Bank of Florida. The FDIC and CharterBank have agreed to share losses on $216.3 million of The First National Bank of Florida's assets.

The number of banks on FDIC’s list of problem institutions fell sharply to 865 in the second quarter from 888 in the preceding quarter. This represents the first sequential drop since 2006.

Increasing loan losses on commercial real estate could trigger hundreds of bank failures in the coming years. However, considering the failure trail so far this year, the FDIC does not expect the number of bank failures in 2011 to exceed the 2010 tally.

With so many bank failures, consolidation has become the industry fashion. For almost all the failed banks, the FDIC enters into a 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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