Although the economy is showing signs of a gradual recovery with large financial institutions stabilizing, tumbling home prices, soaring loan defaults and a high unemployment rate continue to take their toll on small banks.
While we expect the 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 tolerates bad loans made during the credit explosion, the trouble in the banking system goes even deeper, increasing the possibility of more bank failures.
The failed banks are:
Bonifay, Florida-based The Bank of Bonifay with total assets of $242.9 million and total deposits of $230.2 million.
Champlin, Minnesota-based Access Bank with $32.0 million in total assets and $32.0 million in total deposits.
Mesa, Arizona-based Towne Bank, a subsidiary of Towne Bancorp (TWNE: 0.00 N/A N/A), with $120.2 million in assets and $113.2 million in deposits.
San Diego, California-based 1st Pacific Bank with total assets of $335.8 million and deposits of $291.2 million.
These bank failures will deal another blow to the Federal Deposit Insurance Corporation's (FDIC) fund meant for protecting customer accounts, as it has been appointed receiver for these banks.
When a bank fails, FDIC reimburses customers for their deposits of up to $250,000 per account. The outbreak of bank failures has significantly stretched the regulator's deposit insurance fund.
However, the FDIC has about $66 billion in cash and securities available in reserve to cover losses arising from bank failures. Also, the FDIC has access to the Treasury Department's credit line of up to $500 billion.
The four failed banks together would cost the FDIC's Deposit Insurance Fund about $213.7 million.
The Bank of Bonifay is expected to cost the deposit insurance fund about $78.7 million, Access Bank will cost about $5.5 million, Towne Bank will cost about $41.8 million and 1st Pacific Bank will cost around $87.7 million.
Lake City Florida-based First Federal Bank will assume the assets and deposits of The Bank of Bonifay.
Prinsburg, Minnesota-based PrinsBank will buy the assets and deposits of Access Bank.
Tucson, Arizona-based Commerce Bank of Arizona agreed to buy all of the deposits and assets of Towne Bank.
Los Angeles, California based City National Bank, a subsidiary of City National (CYN: 59.6644 +1.9544 +3.39%), will assume all of the deposits and assets of 1st Pacific Bank.
In the fourth quarter of 2009, the number of banks on the FDIC's list of problem institutions grew to 702 from 552 in the third quarter. 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 $100 billion over the next three years.
The failure of Washington Mutual in 2008 was the largest in U.S. banking history. It was acquired by JPMorgan Chase (JPM: 42.045 +1.285 +3.15%). The other major acquirers of failed institutions since 2008 include Fifth Third Bancorp (FITB: 14.15 +0.84 +6.31%), U.S. Bancorp (USB: 26.16 +1.01 +4.02%), Zions Bancorp (ZION: 27.445 +1.8751 +7.33%), SunTrust Banks (STI: 28.70 +1.24 +4.52%), PNC Financial (PNC: 67.2725 +3.1325 +4.88%), BB&T Corporation (BBT: 33.54 +1.30 +4.03%) and Regions Financial (RF: 8.44 +0.45 +5.63%).
We expect loan losses on the commercial real estate portfolio to remain high for banks that hold large amounts of high-risk loans.
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