More Bank Failures, Tally Hits 28

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After a two-week let-up, U.S. regulators were back in action last Friday, shuttering four more banks -- one each in Illinois, North Carolina, South Carolina and Oklahoma. These closures have pushed the total number of bank failures to 28 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 continue to stabilize on the back of an economic recovery and increasing dependence on noninterest revenue sources, the industry is still on shaky ground. The sector presents a picture similar to that of 2011, with nagging issues like depressed home prices along with still-high loan defaults and unemployment levels troubling such institutions.

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

The Failed Banks

  • Kingfisher, Oklahoma-based First Capital Bank, with total assets of about $46.1 million and total deposits of $44.8 million as of March 31, 2012.
  • Charleston, South Carolina-based Carolina Federal Savings Bank, with about $54.4 million in total assets and $53.1 million in total deposits as of March 31, 2012.
  • Shabbona, Illinois-based Farmers and Traders State Bank, with about $43.1 million in total assets and $42.3 million in total deposits as of March 31, 2012.
  • Whiteville, North Carolina-based Waccamaw Bank, with about $533.1 million in total assets and $472.7 million in total deposits as of March 31, 2012. 

The Acquirers

Edmond, Oklahoma-based F & M Bank has agreed to assume all the deposits and $40.7 million assets of First Capital Bank. Remaining assets will be retained by the Federal Deposit Insurance Corporation (:FDIC) for later disposition. F & M Bank will pay a 7.65% premium to assume the deposits.

Thomasville, North Carolina-based Bank of North Carolina has agreed to assume all the deposits and $41.0 million assets of Carolina Federal Savings Bank. Remaining assets will be retained by the FDIC for later disposition.

Mendota, Illinois-based First State Bank has agreed to assume all the deposits and assets of Farmers and Traders State Bank.

Bluefield, Virginia-based First Community Bank has agreed to assume all the deposits and $515.3 million assets of Waccamaw Bank. Remaining assets will be retained by the FDIC for later disposition.

Impact on FDIC Fund

These bank failures represent another dent in the deposit insurance fund (:DIF), meant for protecting customer accounts.

The FDIC insures deposits in 7,309 banks and savings associations in the country as well as promotes their safety and soundness. 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 March 31, 2012, the fund was in surplus for the fourth straight quarter.

Also, the balance increased to $15.3 billion as of March 31, 2012 from $11.8 billion at the end of 2011. The continued improvement in net worth of the fundis attributable to a moderate pace of bank failures and rising assessment revenue.

The failure of Waccamaw Bank is expected to be most expensive for the FDIC at about $51.1 million, while Carolina Federal Savings Bankwill cost about $15.2 million. The other two banks -- Farmers and Traders State Bankand First Capital Bank-- will cost the FDIC about $8.9 million and $5.6 million, respectively.

From 2012 through 2016, bank failures are estimated to cost the FDIC about $12 billion.

Problem Bank List Continues to Shrink

The number of banks on FDIC’s list of problem institutions saw a sharp decline for the fourth straight quarter to 772 in the January-March period from 813 in the preceding sequential period.

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 2012 number is not expected to exceed the 2011 tally.

Consolidation to Continue

With so many bank failures, consolidation has become the industry trend. For most of the failed banks, the FDIC enters into a purchase agreement with healthy institutions.

When Washington Mutual collapsed in 2008 (the largest bank failure in the U.S. history), it was acquired by JPMorgan Chase & Co. (JPM). Other major acquirers of failed institutions since 2008 include U.S. Bancorp (USB) and BB&T Corporation (BBT).

Read the Full Research Report on JPM

Read the Full Research Report on BBT

Read the Full Research Report on USB

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