Twin Bank Failures, Tally Hits 92 - Analyst Blog

After a three-week lull, U.S. regulators were back in action last Friday, shuttering two more banks in Florida and Arizona. These closures have pushed the number of failed U.S. banks to 92 so far in 2011, following 157 in 2010, 140 in 2009 and 25 in 2008.

While the financials of a few large banks have been stabilizing on the back of an economic recovery, the industry is still on shaky ground. Nagging issues like depressed home prices along with still-high loan defaults and unemployment levels continue to trouble such institutions.

Lingering economic uncertainly and its effects also continue to weigh on many banks. The need to absorb bad loans offered during the credit explosion has made these banks susceptible to severe problems.

Further, the repeated risk-taking of bailed-out banks is a further threat to the system. Risky loans and uncertainty in global markets aggravated the risk of bank failures even further.

The failed banks are:

  • Crestview, Florida-based Premier Community Bank of the Emerald Coast, with total assets of about $126.0 millionand total deposits of about $112.1 millionas of September 30, 2011.
  • Phoenix, Arizona-based Western National Bank, with about $162.9 millionin total assets and $144.5 millionin total deposits as of September 30, 2011.

These bank failures represent another jolt to the deposit insurance fund (DIF), meant for protecting customer accounts.

The Federal Deposit Insurance Corporation (FDIC) insures deposits in 7,437 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 over the last few quarters, the ongoing bank failures have kept it under pressure. However, as of September 30, 2011, the fund was in surplus for the second straight quarter.

Also, the balance increased to $7.8 billion from $3.9 billion at the end of the prior quarter. The improvement in fund balance was aided by a moderate pace of bank failures and assessment revenue.

The failure of Premier Community Bank of the Emerald Coast is expected to deal a blow of about $31.2 millionto the FDIC, while Western National Bankwill cost about $37.6 million.

Panama City, Florida-based Summit Bank, National Association has agreed to assume all the deposits and assets of Premier Community Bank of the Emerald Coast. The FDIC and Summit Bank, National Association agreed to share losses on $98.0 million of Premier Community Bank's assets.

Seattle, Washington-based Washington Federal Inc. ( WFSL ) has agreed to assume all the deposits and assets of Western National Bank.

The number of banks on FDIC's list of problem institutions saw a sharp decline for the second straight quarter to 844 in the July-September period from 865 in the preceding sequential period. This represents the second quarterly drop since 2006.

Increasing loan losses on commercial real estate could trigger hundreds of bank failures in the upcoming years. However, considering the course of failure so far this year, the FDIC does not expect the number of bank failures in 2011 to exceed the 2010 tally. From 2011 through 2015, bank failures are estimated to cost the FDIC about $19 billion.

With so many bank failures, consolidation has become the industry trend. 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 ).

BB&T CORP ( BBT ): Free Stock Analysis Report

JPMORGAN CHASE ( JPM ): Free Stock Analysis Report

US BANCORP ( USB ): Free Stock Analysis Report

WASH FEDL INC ( WFSL ): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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