Banking Failures Hit 103 As Regulators Close Seven More Banks

July 23, 2010 – State and Federal regulators closed seven banks today as the banking industry continues to struggle with loan losses in a weak economy.   At the current pace, the number of bank failures in 2010 may reach 200, compared to a total of 140 banking failures in 2009.

In addition, the number of banks on the FDIC’s confidential Problem Bank List continues to increase.  As of March 31, 2010, there were 775 problem banks up from 702 at the end of  2009.  Total assets held by the troubled institutions is $431.2  billion, up from $402.8 billion at the end of 2009.

The historic low for the Problem Bank List was reached in the third quarter of 2006 with 47 banks.  The FDIC’s Problem Bank List of 775 banks is the largest number since June 30, 1993.

The banking industry has stabilized since 2008-2009 when many of the country’s largest banks were at risk of collapsing, Most of the recovery in the industry, however,  has occurred at the largest banks. Smaller banks continue to struggle with nonperforming loans and find it difficult to raise critically needed capital.  Of this year’s 103 banking failures, 81% of the failed banks had assets under $1 billion.

This week’s seven failed banks had a total of $2.2 billion in assets and the estimated cost to the FDIC’s Deposit Insurance Fund is $431 million.  Losses on the failure of 103 banks to date now exceeds $18 billion.

All of the failed banks were taken over by other banking institutions under purchase and assumption agreements with the FDIC acting as receiver.  The acquiring banks assumed all deposits and virtually all assets of the failed banks.  The FDIC entered into loss-share agreements on acquired assets with all of the acquiring banks.

Loss-share agreements are used by the FDIC to facilitate the sale of failed banks by limiting potential losses to the acquiring banks.  The use of loss-share agreements has been criticized by some analysts as being too generous to the acquiring banks and potentially putting the taxpayer at risk if losses on the failed bank assets exceed projections (see FDIC Loss-Share Guarantees Balloon To $177 Billion).

The week’s largest banking failure (Crescent Bank and Trust Company) occurred in Georgia where a total of 10 banks have failed this year, the second highest in the nation after Florida, where 18 banks have failed.  Besides Georgia, regulators also closed banking institutions in Florida, South Carolina, Kansas, Minnesota, Nevada and Oregon.

Sterling Bank, Lantana, Florida, was closed by the Florida Office of Financial Regulation.  IBERIABANK, Lafayette, Louisiana, agreed to assume all deposits and assets of Sterling Bank.  All six branches of Sterling will reopen Monday as branches of IBERIABANK.  Sterling Bank had $407.9 million in assets and $372.4 million in deposits.  Sterling Bank is the 97th banking failure this year and the 18th in Florida.  The loss on closing Sterling Bank is estimated at $45.5 million.

Crescent Bank and Trust Company, Jasper, Georgia was closed by the Georgia Department of Banking and Finance.  Renassant Bank, Tupelo, Mississippi, acquire all of the deposits and assets of Crescent Bank under a purchase and assumption agreement with the FDIC acting as receiver.  Crescent Bank had 11 branches with$1.01 billion in assets and $965.7 million in deposits.  Renassant Bank paid the FDIC a premium of 1% to acquire Crescent’s deposits.  Crescent is banking failure 98 for 2010 and is expected to cost the FDIC Deposit Insurance Fund (DIF) $242.4 million.

Williamsburg First National Bank, Kingstree, South Carolina, was closed by the Office of the Comptroller of the Currency and became the nation’s 99th banking failure.  Williamsburg was acquired by First Citizens Bank and Trust Company, Inc., Columbia, South Carolina.   Williamsburg, a five branch bank had $139.3 million in assets and $134.3 million in deposits.  Williamsburg Bank was the nation’s 99th banking failure and is expected to cost the FDIC DIF $8.8 million.

Thunder Bank, Sylvan Grove, Kansas, was closed by the Kansas Office of the State Bank Commissioner and became the nation’s 100th banking failure.  Thunder Bank was acquired by The Bennington State Bank, Salina, Kansas, which assumed all deposits and purchased all assets of Thunder Bank.  Thunder Bank was a small bank with only 2 branches and$32.6 million in assets and $28.5 million in deposits.  The closing of Thunder Bank is expected to cost the FDIC DIF $4.5 million.  Thunder Bank is the first bank failure in Kansas this year.

Community Security Bank, New Prague, Minnesota, a one branch bank, was closed today by the Minnesota Department of Commerce.  Roundbank, Waseca, MN, acquired Community Security and assumed all deposits and purchased all assets.   Community Security had $108.0 million in assets and $99.7 million in deposits. Community Security is bank failure number 101 and the seventh in Minnesota this year.  The cost to the FDIC DIF fund is estimated at $18.6 million.

SouthwestUSA Bank, Las Vegas, Nevada, was closed by the Nevada Financial Institutions Division, which appointed the FDIC as receiver.  The FDIC entered into a purchase and assumption agreement with Plaza Bank, Irvine, CA, to assume all deposits and purchase $137.3 million of the assets of SouthwestUSA with the FDIC retaining $76.7 million in assets for later disposal.  SouthwestUSA, a one branch bank, had $214.0 million in assets and $186.7 million in deposits.  SouthwestUSA was banking failure number 102 and the 4th bank to fail in Nevada this year.  The cost to the FDIC DIF is estimated at $74.1 million.

Home Valley Bank, Cave Junction, Oregon, was closed by the Oregon Department of Consumer and Business Services, which appointed the FDIC as receiver.   South Valley Bank & Trust, Klamath Falls, Oregon, agreed to acquire Home Valley and assumed all deposits and purchased all assets of the failed bank.  Home Valley, a five branch bank, had $251.8 million in assets and $229.6 million in deposits.  South Valley paid the FDIC a premium of 1.05% on the assumed deposits.  The loss to the FDIC DIF on closing Home Valley is estimated at $37.1 million.  Home Valley Bank is the nation’s 103rd banking failure for 2010 and the second in Oregon.