(USB) U.S. Bank Failures Hit 7 So Far in 2012

Last Friday, four more banks were shuttered by U.S. regulators. The failed banks were based in Florida, Tennessee and Minnesota. This brings the total number of bank failures to 7 so far in 2012, following 92 in 2011, 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:

  • Florida-based First Guaranty Bank and Trust Company of Jacksonville, with total assets of about $377.9 million and total deposits of about $349.5 million as of September 30, 2011.
  • Franklin, Tennessee-based Tennessee Commerce Bank, with about $1.185 billion in total assets and $1.156 billionin total deposits as of September 30, 2011.
  • Forest Lake, Minnesota-based Patriot Bank Minnesota, with about $111.3 million in total assets and $108.3 million in total deposits as of September 30, 2011.
  • Knoxville, Tennessee-based BankEast, with about $272.6 millionin total assets and $268.8 million in 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 First Guaranty Bank and Trust Company of Jacksonville is expected to deal a blow of about $82.0 million to the FDIC, while Tennessee Commerce Bank,Patriot Bank Minnesota and Bank East will cost about $416.8 million, $32.6 millionand $75.6 million, respectively.

Winter Haven, Florida-based CenterState Bank of Florida, National Association has agreed to assume all the deposits and assets of First Guaranty Bank and Trust Company of Jacksonville. The FDIC and the acquirer agreed to share losses on $292.9 million of First Guaranty Bank and Trust Company of Jacksonville’s assets.

Louisville, Kentucky-based Republic Bank & Trust Company has agreed to assume all the deposits and $203.9 million assets of Tennessee Commerce Bank.

Savage, Minnesota-based First Resource Bank has agreed to assume all the deposits and assets of Patriot Bank Minnesota. The FDIC and the acquirer agreed to share losses on $79.4 million of Patriot Bank Minnesota’s assets.

Cincinnati, Ohio-based U.S. Bank National Association, a division of U.S. Bancorp (USB), has agreed to assume all the deposits and assets of BankEast.

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 many more bank failures in the upcoming years. However, considering the moderate pace of bank failures, the number in 2012 is not expected to exceed the 2011 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 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

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