The ongoing economic volatility took its toll on a few more banks last week. On Friday, five more were shuttered by U.S. regulators. These five banks were based in Florida, Georgia, Oregon and Washington. This brings the total number of bank failures to 108 so far in 2010, compared to 140 in 2009, 25 in 2008 and 3 in 2007.
Although the economy is showing signs of a gradual recovery with the stabilization of large financial institutions, tumbling home prices, soaring loan defaults and a high unemployment rate continue to impact small banks.
While we expect the overall economic recovery to gain momentum soon, there remain lingering concerns in the banking industry. Failure of both residential and commercial real estate loans as a result of the credit crisis has primarily hurt banks.
As the industry absorbs bad loans made during the credit explosion, the trouble in the banking system goes even deeper, increasing the possibility of more bank failures. Economic threats related to the European debt crisis further add to the concerns. The Federal Deposit Insurance Corporation (FDIC) expects bank failures to peak in the third quarter.
The failed banks are:
- Eugene, Oregon-based LibertyBank, with total assets of $768.2 million and total deposits of $718.5 million.
- Longview, Washington-based The Cowlitz Bank, with about $529.3 million in total assets and $513.9 million in total deposits.
- Panama City Beach, Florida-based Coastal Community Bank, with total assets of $372.9 million and total deposits of $363.2 million.
- Port Saint Joe, Florida-based Bayside Savings Bank, with total assets of $66.1 million and total deposits of $52.4 million.
- Acworth, Georgia-based NorthWest Bank & Trust, with total assets of $167.7 million and total deposits of $159.4 million.
These bank failures will deal another blow to FDIC’s fund meant for protecting customer deposits, as it has been appointed receiver for these banks.
When a bank fails, the FDIC reimburses customers for their deposits of up to $250,000 per account. However, the outbreak of bank failures has significantly stretched the regulator’s deposit insurance fund. As of March 31, 2010, the deficit of FDIC’s deposit insurance fund stood at $20.7 billion.
The five failed banks together would cost the FDIC about $334.7 million. LibertyBank is expected to cost the deposit insurance fund about $115.3 million, The Cowlitz Bank will cost about $68.9 million, Coastal Community Bank will cost about $94.5 million, Bayside Savings Bank will cost about $16.2 million and NorthWest Bank & Trust will cost about $39.8 million.
Nampa, Idaho-based Home Federal Bank will assume all of the deposits of LibertyBank.
Olympia, Washington-based Heritage Bank will assume all of the deposits of The Cowlitz Bank.
Conway, Arkansas-based Centennial Bank agreed to buy all the deposits and essentially all the assets of Coastal Community Bank and Bayside Savings Bank.
Macon, Georgia-based State Bank and Trust Company will assume all of the deposits of NorthWest Bank & Trust.
In the first quarter of 2010, the number of banks on the FDIC’s list of problem institutions grew to 775 from 702 in the fourth quarter of 2009. This is the highest since the savings and loan crisis in the early 1990’s.
Increasing loan losses on commercial real estate are expected to cause hundreds more bank failures in the next few years. The FDIC anticipates bank failures to cost about $60 billion over the next four years.
The failure of Washington Mutual in 2008 was the largest in U.S. banking history. It was acquired by JPMorgan Chase (JPM). The other major acquirers of failed institutions since 2008 include Fifth Third Bancorp (FITB), U.S. Bancorp (USB), Zions Bancorp (ZION), SunTrust Banks (STI), PNC Financial (PNC), BB&T Corporation (BBT) and Regions Financial (RF).