Zacks_Analysts' Blog : Big Chicago Bank Fails, 118 So Far - Analyst Blog

The ongoing economic volatility took its toll on a few more banks last week. Eight more banks, including ShoreBank, a big community bank based in Chicago, were shuttered by the U.S. regulators on Friday. This takes the total number of bank failures to 118 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, small banks continue to be impacted by tumbling home prices, soaring loan defaults and a high unemployment rate.



 
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 emanating from the European debt crisis and the impact of tighter regulations of the new financial reform law further add to the concerns.



ShoreBank had approximately $2.16 billion in total assets and $1.54 billion in total deposits as of June 30, 2010.  



Chicago, Illinois-based Urban Partnership Bank will assume all of the deposits and nearly all assets of ShoreBank by paying a 0.50% premium to the Federal Deposit Insurance Corporation (FDIC). The FDIC and Urban Partnership Bank entered into a loss-share transaction on $1.41 billion of ShoreBank's assets. The failure of ShoreBank will cost the deposit insurance fund about $367.7 million.



The other failed banks are:

• Sonoma, California-based Sonoma Valley Bank, with total assets of $337.1 million and total deposits of $255.5 million. San Rafael, California-based Westamerica Bank, a wholly-owned subsidiary of Westamerica Bancorporation (WABC), will assume all of the deposits of the failed bank. The failure of Sonoma Valley Bank is expected to cost the deposit insurance fund about $10.1 million.


• Solvang, California-based Los Padres Bank, with total assets of $870.4 million and total deposits of $770.7 million. San Diego, California-based Pacific Western Bank will assume all of the deposits of the failed bank. The failure of Los Padres Bank is expected to cost the deposit insurance fund about $8.7 million.


• Chico, California-based Butte Community Bank, with total assets of $498.8 million and total deposits of $471.3 million. El Centro, California-based Rabobank, National Association will assume all of the deposits and essentially all the assets of the failed bank. The failure of Butte Community Bank is expected to cost the deposit insurance fund about $17.4 million.


• Stockton, California-based Pacific State Bank, with total assets of $312.1 million and total deposits of $278.8 million. El Centro, California-based Rabobank, National Association will assume all of the deposits and essentially all the assets of the failed bank. The failure of Pacific State Bank is expected to cost the deposit insurance fund about $32.6 million.


• Martinsville, Virginia-based Imperial Savings and Loan Association, with total assets of $9.4 million and total deposits of $10.1 million. Martinsville, Virginia-based River Community Bank, National Association will assume all of the deposits of the failed bank. The failure of Imperial Savings and Loan Association is expected to cost the deposit insurance fund about $3.5 million.


• Ocala, Florida-based Independent National Bank, with total assets of $156.2 million and total deposits of $141.9 million. Winter Haven, Florida-based CenterState Bank of Florida will assume all of the deposits and essentially all the assets of the failed bank. The failure of Independent National Bank is expected to cost the deposit insurance fund about $23.2 million.


• Bartow, Florida-based Community National Bank At Bartow, with total assets of $67.9 million and total deposits of $63.7 million. Winter Haven, Florida-based CenterState Bank of Florida will assume all of the deposits and essentially all the assets of the failed bank. The failure of Community National Bank At Bartow is expected to cost the deposit insurance fund about $10.3 million.

The FDIC insures deposits in 7,932 banks and savings associations in the country and promotes the safety and soundness of these institutions.

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 was $20.7 billion.



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 1990s.

Increasing loan losses on commercial real estate are expected to cause hundreds more bank failures in the next few years. The FDIC expects 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 & Co. (JPM). The other major acquirers of failed institutions since 2008 include Fifth Third Bancorp (FITB), U.S. Bancorp  (USB), Zions Bancorp (ZION), SunTrust Banks Inc. (STI), PNC Financial Services Group Inc. (PNC), BB&T Corporation (BBT) and Regions Financial Corp. (RF).
Read the full analyst report on "WABC"
Read the full analyst report on "JPM"
Read the full analyst report on "FITB"
Read the full analyst report on "USB"
Read the full analyst report on "ZION"
Read the full analyst report on "STI"
Read the full analyst report on "PNC"
Read the full analyst report on "BBT"
Read the full analyst report on "RF"
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