Bank Shutdowns Continue

Three more banks were shuttered by U.S. regulators on Friday. This brings the total number of failed federally insured banks during this year to 72, compared to 25 in 2008 and 3 in 2007.

In the first quarter of 2009, the number of banks on the Federal Deposit Insurance Corporation’s (FDIC) list of problem institutions jumped to 305. This is the maximum number since the savings and loan crisis in 1994.

Out of the 3 banks, 2 were Florida based and the other one was Oregon based. The FDIC has appointed receivers of the banks. According to the FDIC, the cost to the deposit insurance fund from the failure of the three banks will be around $185 million.

The First State Bank, of Sarasota, Fla. and the Community National Bank of Sarasota County of Venice, Fla. were sold to Stearns Bank of St. Cloud, Minnesota. The Community First Bank of Prineville, Oregon was sold to Home Federal Bancorp of Nampa, Idaho.

Total assets and deposits of First State Bank, Community National Bank and Community First Bank were $463 million and $387 million, $97 million and $93 million, and $209 million and $182 million, respectively.

The largest acquirers of failed U.S. banks during 2008 and 2009 include JPMorgan Chase (JPM), Wells Fargo & Company (WFC), Zions Bancorp (ZION), BB&T Corp. (BBT) and Fifth Third Bancorp (FITB).

The failed banks are victims of recession and rising loan losses. As a result of the ongoing market turmoil, these institutions experienced massive capital erosion stemming from losses due to significant exposure in collateralized mortgage obligations (CMOs), commercial real estate loans and other commercial and industrial loans.

The current year has been difficult for consumers to pay off debt as a result of high unemployment rate, falling home prices and declining personal wealth.

Though current signals indicate that the economy may stabilize losses on home mortgages in the near-term, we expect loan losses on commercial real estate portfolio to remain high for banks that hold large amounts of high-risk loans.

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