Bond Street’s Premier American Bank purchased Englewood, Florida-based Peninsula Bank, according to a statement on the Federal Deposit Insurance Corp.’s website. Yesterday’s three failures cost the agency’s deposit-insurance fund $284.6 million.

“The FDIC’s preference is for an orderly resolution of institutions that are in trouble,” said Walter J. Mix III, a managing director at Emeryville, California-based LECG LLC, a financial services advisory company, and a former commissioner of the California Department of Financial Institutions, according to an article in Businessweek. “With the emerging commercial real estate problems and the continuing home loan problems there will be many more banks that fail.”

The FDIC has now closed 86 banks this year and is on pace to exceed last year’s total of 140, which was the most bank closings since 1992 as lenders across the country buckle under the weight of soured real-estate loans. The failures will drain $60 billion over the next three-and-a-half years from the FDIC’s fund, the agency said June 22. The fund dipped into deficit in the third quarter.

The Peninsula acquisition is the third this year for Bond Street, a Naples, Florida-based investment firm that was the first to use a regulatory shelf charter, which gave it advance approval to purchase failed lenders. Bond Street bought two banks in January.

Premier American

Premier American picked up $580.1 million in deposits, and added 13 branches to its existing network of 15 offices. The FDIC shared losses on $437.6 million of the failed bank’s assets.

Regulators also closed First National Bank of Savannah, Georgia, and sold its deposits and some of the assets to Savannah Bank, the FDIC said. The lender paid the agency a 0.11 percent premium to acquire $231.9 million in deposits.

High Desert State Bank of Albuquerque, New Mexico, was also closed by regulators and sold to Artesia, New Mexico-based First American Bank.

There were 775 banks with $431 billion in assets on the FDIC’s confidential list of problem lenders at the end of the first quarter, an increase from 702 banks with $402.8 billion at the end of last year, the agency said in its quarterly banking report.

A spate of recent banking takeovers and investments suggests that stronger financial institutions and private investment firms see value in the detritus of American banking.  According to an article in the New York Times, that is good news for the F.D.I.C., which has had to shoulder the cost of failures through its deposit insurance fund, causing the fund to sink into the red.

“We are seeing light at the end of the tunnel,” Sheila C. Bair, the head of the F.D.I.C., said in a recent interview.

Now that some troubled banks are being taken over by private investors, rather than closed by the government, the pressure on the F.D.I.C. is beginning to ease. On Thursday, the agency, which administers the fund protecting savers’ deposits, is expected to announce that it lowered the amount of money it set aside to cover future losses by more than $3 billion during the first quarter — the first reduction since the second quarter of 2007.

The news is not all good, of course. Seventy-two banks have collapsed this year, and banking analysts worry that more failures will follow, particularly among small and midsize lenders exposed to troubled commercial real estate.

But with the economy stabilizing, banks that otherwise might have fallen are regaining their footing. The nation’s biggest banks — the ones considered too big to fail — have roared back in terms of profitability thanks to ultralow interest rates. Analysts say the growth of both troubled consumer and corporate loans has begun to trail off.

“We have been out of the recession long enough that it is starting to filter into the banking system,” Ms. Bair said. Not long ago, analysts predicted that the financial crisis and recession might claim 1,000 of the nation’s 8,100 lenders. Now, they foresee perhaps 500 or 750 failures.

“For the U.S. commercial banking industry, the worst is over,” said Gerard Cassidy, a financial services analyst at RBC Capital.

One reason that troubled banks are surviving is that other banks, as well as investors who specialize in companies in distress, are swooping in, looking to buy lenders inexpensively. More buyers are showing up at F.D.I.C. auctions, and to avoid a bidding frenzy, some are doing deals with little or no government help.

On Monday, for instance, TD Bank of Canada announced that it would buy the South Financial Group. Private investors recently have plowed money into other troubled institutions, like Synovus Financial, Sterling Financial and Pacific Capital Bancorp.

Now that the economy is improving, investors are growing more confident that problem loans are at or near their peak. That confidence has been reflected in banking stocks, which have soared 111 percent from their low in March 2009, as measured by the KBW bank index.

In April, Thomas H. Lee Partners spent $134.7 million for a minority stake in Sterling Financial, a lender based in Spokane, Wash., that has been hobbled by bad real estate loans.

More recently, Gerald J. Ford, the billionaire investor who made a fortune during the savings and loan crisis, invested $500 million for a 91 percent stake in Pacific Capital Bancorp of Santa Barbara, Calif. The bank had been trading at around $4. Mr. Ford paid 20 cents a share.

When it bought three banks in April, TD Bank agreed to swallow a bigger share of their future losses than is typical in an F.D.I.C.-assisted deal. On Monday, TD paid a mere 20 cents a share for South Financial. Although the F.D.I.C did not provide any aid, TD did get some federal help. The Treasury Department agreed to sell $347 million of South Financial preferred shares and warrants for a bargain-basement price of $130.6 million.

“Without a doubt, there is more confidence than a few months ago,” said Bharat B. Masrani, the head of TD Bank’s United States operations. “There is more transparency and confidence in the ultimate losses of these institutions.”

Andrew Williams, a Treasury spokesman, said that it had agreed to the discount, as in previous deals, to “minimize or eliminate our chances of incurring further losses” on its investment in the bank.

Of course, such unassisted deals may still be the exception for at least the remainder of the year. The F.D.I.C. is expected to add to its list of problem banks — now 702 — when it releases its quarterly report on Thursday. The agency does not disclose which banks it considers troubled, nor does inclusion on the list mean that a bank is in imminent danger of failure.

Most of the banks on the list are tiny community lenders, largely in the Southeast and Midwest, that would be more attractive if they were bundled together rather than sold as stand-alone entities. Many of the potential buyers for these banks — particularly other lenders that are still trying to shore up their finances — need government help to pursue deals.

“We are not in any danger of running out of failed banks,” said Wilbur L. Ross, a prominent bank investor. “The only question is how much investor demand there will be.”

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:

Saint Marys, Georgia-based Satilla Community Bank with total assets of $135.7 million and deposits of $134.0 million.

Plymouth, Michigan-based New Liberty Bank with about $101.8 million in deposits and $109.1 million in assets.

Springfield, Missouri-based Southwest Community Bank with about $102.5 million in deposits and $96.6 million in assets.

Elmwood Park, Illinois-based Midwest Bank and Trust Company with total assets of $3.17 billion and deposits of $2.42 billion.

These bank failures will deal another blow to the Federal Deposit Insurance Corporation’s (FDIC) fund meant for protecting customer deposits, 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 $301.7 million.

Satilla Community Bank is expected to cost the deposit insurance fund about $31.3 million, New Liberty Bank will cost about $25.0 million, Southwest Community Bank will cost about $29.0 million and Midwest Bank and Trust Company will cost about $216.4 million.

Moultrie, Georgia-based Ameris Bank will assume the deposits and nearly all the assets of Satilla Community Bank.

Ann Arbor, Michigan-based Bank of Ann Arbor will acquire the deposits and nearly all the assets of New Liberty Bank.

Pine Bluff, Arkansas-based Simmons First National Bank agreed to buy all the assets and deposits of Southwest Community Bank.

Akron, Ohio-based Firstmerit Bank, National Association will assume all the deposits and assets of Midwest Bank and Trust Company.

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 -Analyst Report). The other major acquirers of failed institutions since 2008 include Fifth Third Bancorp (FITB - Analyst Report),U.S. Bancorp (USB - Analyst Report),Zions Bancorp (ZION -Analyst Report), SunTrust Banks (STI - Analyst Report), PNC Financial (PNC - Analyst Report), BB&T Corporation (BBT-Analyst Report) and Regions Financial (RF - Analyst Report).

We expect loan losses on the commercial real estate portfolio to remain high for banks that hold large amounts of high-risk loans.

The group seeking to form a national bank charter in Jacksonville already has about $528 million in cash, and includes former top executives from Bank of America Corp., an adviser to GMAC LLC and NASA, a managing director at Morgan Stanley and a retired partner of Goldman Sachs & Co., according to the application filed with the Office of the Comptroller of the Currency, a national banking regulator.

According to an article in the Jacksonville Business Journal, the bank holding company, called North American Financial Holdings Inc., could eventually create a multibillion-dollar bank under the proposed name of NAFH National Bank, by acquiring multiple failed banks throughout the Southeast, analysts said.

“This group is experienced in building big banks and there are big bucks behind this group,” said Tony Plath, finance professor at the University of North Carolina at Charlotte.

The proposed board of directors and top executives of the company are mostly former Bank of America heavy-hitters such as Eugene Taylor, whose 38 years at the company included his most recent positions as vice chairman of Bank of America and president of Global Corporate and Investment Banking, and Bruce Singletary, who was senior risk manager of commercial banking for Bank of America’s Florida Bank during his 31 years with the company.

Taylor will be the chairman and CEO of the bank and company, and Singletary will be the chief risk officer, according to its application. Christopher Marshall, who will be the chief financial officer, was a senior adviser to GMAC LLC’s CEO in helping the company restructure, including leading the efforts to cut $1 billion in expenses to get the auto lender giant back on its feet. Marshall was also an adviser in banking sector investments for The Blackstone Group LP, chief financial officer for Fifth Third Bancorp and, before spending five years with Bank of America, he was an adviser to NASA and the chief financial officer of AlliedSignal Technical Services Corp.

None of the principals could be reached for comment.

While there have been reports of former bankers forming groups to buy failed banks, Plath said he had not seen a group of this caliber yet.

“This is far more horsepower than what you would typically see,” Plath said.

As of Dec. 22, the company had $528 million in cash capital. The application stated NAFH National Bank would form “to acquire certain assets and assume certain liabilities of one or more failed depository institutions.”

With half a billion in capital, “they could purchase a pretty good size bank or several smaller banks,” said Stan Smith, finance professor at the University of Central Florida. Smith said that amount of capital could allow them to buy a bank with $2 billion to $5 billion in assets.

The fact that NAFH is seeking a national charter with the Office of the Comptroller of the Currency means that it will be easier for the bank to branch out throughout the Southeast, Plath said. “This is a super regional franchise” that will “likely be in the tens of billions of dollars.”

The portions of the applications made public based on a Freedom of Information Act Request by The Business Journal do not indicate where the bank’s target markets are or where the holding company will be based. However, the Comptroller’s Web site, which listed the application, stated that the proposed corporate and mailing addresses were in Jacksonville at the time it was filed in January.

Analysts said it is likely the acquisitions will start in Florida and Georgia, where banking was historically lucrative and costly. But now those states carry a majority of the failed banks selling for cents on the dollar since the Federal Deposit Insurance Corp. typically covers most of the loan loss.

“Florida banking, for the long term, is going to be an excellent outlook,” said Linda Charity, director of the Division of Financial Institutions at the Florida Office of Financial Regulation.

Charity said she is seeing more interest in forming banks throughout the state. There is also a pending application with her office by a group of national bank veterans and former regulators to form a bank in Ponte Vedra called Bank of the Southeast, which will form to buy failed banks.

Another group primarily of veteran bankers who formed a private equity group, Bond Street Holdings LLC, raised $440 million last year. Bond Street, which bought two failed banks in Florida in January, was among the first private equity groups to acquire failed banks in this recession.

Charity said she is also seeing more experienced groups flush with cash seeking to acquire a failed bank or support a distressed one.

“A year ago people were kicking tires, but there was not enough backing,” she said. “Now, it’s a different time.”

Last May, three New York private equity firms including Fortress Investment Group LLC, where Eugene Taylor was an adviser, had an initial agreement to inject up to $150 million in equity into Boca Raton-based First Southern Bank, owned by First Southern Bancorp Inc. Had the deal gone through, Taylor would have been chairman and CEO of First Southern. But the bank announced in February that it raised $400 million in capital through 25 institutional investors, naming a different former bank president as chairman and CEO.

North American Financial Holdings must get the green light from three regulators before it can begin: the Office of the Comptroller of the Currency to form a national bank, the FDIC to insure deposits and the Federal Reserve to become a bank holding company. The application filed with the Office of the Comptroller is called a shelf charter, which means the regulators will not approve it until the company bids on a failed bank and it’s approved by the regulators.

It is clear that this kind of group and capital backing “puts them in a nice competitive position,” said Jack Greeley, a banking attorney at Smith MacKinnon PA in Orlando. “It’s done in a way that makes a regulatory-approved deal.”

Former executives join another bank holding company

PONTE VEDRA BEACH — A group of prominent retired bankers, including a former Freddie Mac CEO and a national bank regulator, are seeking to form a bank in Ponte Vedra Beach to acquire failed or distressed banks.

The group, headed by the Office of Thrift Supervision’s former Southeast regional director, John E. Ryan, filed to form Bank of the Southeast with the Florida Office of Financial Regulation’s Division of Financial Institutions in February, according to the application. Ryan will serve as chairman of the board and David M. Moffett will be president and CEO of both the bank and its holding company, Bancorp of the Southeast LLC. Moffett was CEO and director of Freddie Mac from late 2008 to March 2009 and has been a director of eBay Inc. since July 2007.

The proposed board of directors also includes some veteran Florida bankers such as Robert Helms, retired president and CEO of Wachovia Bank of Florida, and the former chairman, president and CEO of SunTrust Bank in Florida, George W. Koehn.

The state bank regulator did not publicly release a specific business plan or capital amount, stating it would not be required from the group “until they are in a position to actually acquire a failed or failing bank.”

Park Avenue Bank had $520.1 million in assets and $494.5 million in deposits as of Dec. 31.

The FDIC said the bank’s deposits will be assumed by Valley National Bank, based in Wayne, N.J. Valley National agreed to pay a small premium to assume all of the deposits. It also agreed to purchase essentially all of Park Avenue Bank’s assets.

Park Avenue Bank’s four branches will reopen beginning Saturday as offices of Valley National Bank.

It was the second New York bank to be shuttered this week. On Thursday, the FDIC closed LibertyPointe Bank, which catered largely to the Orthodox Jewish community in Manhattan and Brooklyn. Valley National is also taking on LibertyPointe’s assets and deposits.

Old Southern Bank had $315.6 million in assets and $319.7 million in deposits, as of Dec. 31. Centennial Bank in Conway, Ark. agreed to acquire the deposits for a premium and purchase virtually all of Old Southern’s assets.

The seven branches of Old Southern will be reopened Monday as branches of Centennial Bank.

Statewide Bank had $243.2 million in assets and $208.8 million in deposits, as of Dec. 31. Home Bank in Lafayette, La. is assuming Statewide Bank’s deposits, but will not pay a premium. Home Bank is also purchasing nearly all of Statewide Bank’s assets.

Statewide Bank’s six branches are reopening Saturday as branches of Home Bank.

The pace of bank seizures this year is likely to accelerate in coming months, FDIC officials have said.

As the economy has weakened, bank failures have mounted, sapping billions of dollars out of the deposit insurance fund. It fell into the red last year, hitting a $20.9 billion deficit as of Dec. 31.

Park Avenue Bank’s failure is expected to cost the FDIC’s insurance fund $50.7 million. Old Southern Bank’s failure will cost the fund $94.6 million, while Statewide Bank’s failure will cost the fund $38.1 million.

The number of banks on the FDIC’s confidential “problem” list jumped to 702 in the fourth quarter from 552 three months earlier, even as the industry squeezed out a small profit. Banks earned $914 million, compared with a $37.8 billion loss in the fourth quarter of 2008, at the height of the financial crisis. Still, nearly one in every three banks reported a net loss for the latest quarter.

Last year, 140 banks failed. That was the highest annual tally since the height of the savings and loan crisis in 1992. Last year’s bank closures cost the insurance fund more than $30 billion. There were 25 bank failures in 2008 and just three in 2007.

The FDIC expects the cost of resolving failed banks to grow to about $100 billion over the next four years.

The agency mandated last year that banks prepay about $45 billion in premiums, for 2010 through 2012, to replenish the insurance fund.

Depositors’ money – insured up to $250,000 per account – is not at risk, with the FDIC backed by the government. Apart from the fund, the FDIC has about $66 billion in cash and securities available in reserve to cover losses at failed banks.

Sheila C. Bair said the F.D.I.C. expected bank failures to peak in 2010, and “we think that we have the cash we need” to cover losses.

With bank failures running at their highest level in nearly two decades, the F.D.I.C. is racing to keep up with rising losses to its insurance fund, which safeguards savers’ deposits. On Tuesday, the agency announced that it had placed 702 lenders on its list of “problem” banks, the highest number since 1993.

Not all of those banks are destined to founder, and F.D.I.C. officials said Tuesday that they expected failures to peak this year. But they also warned that the fund might have to cover $20 billion in additional losses by 2013 — a bill that could be even greater if the economy worsens.

F.D.I.C. officials say the fund has ample resources to cope with its projected losses.

“We think that we have the cash we need,” Sheila C. Bair, the F.D.I.C. chairwoman, said in an interview on Tuesday. She said it was unlikely the F.D.I.C. would need to tap its emergency credit line with the Treasury Department, although she did not rule out such an action.

Despite resurgent profits and pay at the giants of American finance, many of the nation’s 8,000 banks remain under stress, according to a quarterly report the F.D.I.C. released Tuesday.

About 140 banks failed in 2009, and Ms. Bair said she expected even more than that to go under this year. The F.D.I.C. does not disclose which banks it considers at risk.

Bad credit card, mortgage and corporate loans escalated in the final months of 2009 — the 12th consecutive quarterly increase — albeit at a slower pace. During the fourth quarter, the banking industry as a whole turned a mere $914 million profit. “We’ve gone from the eye of the hurricane to cleaning up after the hurricane,” said Frederick Cannon, a banking analyst at Keefe, Bruyette & Woods in New York.

Still, with so many banks failing, the federal deposit insurance fund has been severely depleted. At the end of 2009, it carried a negative balance of $20.9 billion.

The insurance fund is in better shape than such numbers might suggest, however. Officials estimate that bank failures would drain about $100 billion from the fund from 2009 through 2013. But of that amount, a total of roughly $80 billion in losses were recognized last year or projected for 2010. By that math, the agency is expecting an additional $20 billion of losses over the next three years.

After slipping into the red last fall, the F.D.I.C. moved swiftly to refill its coffers. The agency imposed a special assessment on banks that gave it an immediate $5.6 billion cash infusion. That assessment was in addition to the ordinary payments that banks make to the F.D.I.C. fund.

In September, the F.D.I.C. ordered banks to prepay quarterly assessments that would have otherwise been due through 2012. That provided an additional $46 billion to restore the fund to normal. For accounting purposes, the agency will add that money to the fund in small doses over the next 13 quarters, which explains the current negative balance.

Together, these moves buy time for the agency to determine its next steps in the event its losses worsen. In such a case, banks might be called on to chip in more money, either through new special assessments, prepaid fees or premium increases. F.D.I.C. officials said no such plans were in the works.

“The good news is that the industry will power through this,” said Bert Ely, a longtime banking industry consultant in Washington. The fund has “taken a lot of hits along the way, but I still don’t expect the taxpayer to ride to the rescue.”

To protect the fund, the F.D.I.C. also has found creative ways to bring in more money. On Tuesday, Ms. Bair said that the agency would soon issue bonds backed by the assets of failed banks and guaranteed by the government. The program aims to attract nontraditional buyers of bank assets, like insurance companies, pension funds and mutual funds.

“We would like to test the market to see if we can get better pricing,” Ms. Bair said. “We may or may not succeed, but we thought we should try it.”

The F.D.I.C. has also tried to entice private equity firms and other investment groups to bid for insolvent banks, with mixed success. The agency is betting that more potential buyers will ultimately result in higher prices.

Friday’s failures are expected to cost the Federal Deposit Insurance Corp.’s insurance fund a total of $1.9 billion.

According to a story in TheStreet, all six failed institutions had been previously assigned E-minus (Very Weak) financial strength ratings by TheStreet.com Ratings, and all were included in TheStreet.com’s list of undercapitalized banks and thrifts.

The Office of the Comptroller of the Currency shut down First National Bank of Georgia of Carrollton, Ga., a subsidiary of WGNB(WGNB.PK Quote). The FDIC was appointed receiver and sold the failed bank’s $758 million in deposits for a 1.25% premium to Community & Southern Bank, also of Carrollton, Ga.

Community & Southern also acquired the failed bank’s $833 million in assets, with the FDIC agreeing to share in losses on $607 and estimating that the cost to its insurance fund would be $260.4 million. First National Bank of Georgia’s 11 offices were set to reopen Saturday as Community & Southern branches.

State regulators took over another Georgia bank, Community Bank and Trust of Cornelia. The FDIC was appointed receiver and arranged for SCBT NA of Orangeburg, S.C. to take over the failed bank’s $1.1 billion in deposits and $1.2 billion in assets for no premium. SCBT NA is a subsidiary of SCBT Financial (SCBT Quote).

The FDIC agreed to share in losses on $828 million of the acquired assets, and estimated the failure of Community Bank and Trust would cost the deposit insurance fund $354.5 million.

The failed Bank’s 36 branches were scheduled to reopen during normal business hours as SCBT branches, although they will continue to operate under the Community Bank and Trust name.

Elsewhere, the Florida Office of Financial Regulation closed Florida Community Bank of Immokale, Fla., a subsidiary of Florida Community Banks(FLRB Quote). The FDIC was appointed receiver and sold the failed institution’s deposits to Premier American Bank NA of Miami for a small premium.

Premier American Bank NA was organized last week to take over thefailed Premier American Bank. The new Premier American’s holding company, Bond Street Holdings of New York, was granted a “shelf charter” by the OCC back in October.

Florida Community Bank had total assets of $876 million, and Premier American agreed to acquire $499 million of the failed bank’s assets, with the FDIC agreeing to share in losses on $305 million and estimating $352.6 million in costs to the deposit insurance fund.

Florida Community’s 11 branches were scheduled to reopen Saturday as branches of Premier American.

Meanwhile, the OCC shuttered Marshall Bank NA of Hallock, Minn. and appointed the FDIC receiver. The FDIC sold the failed bank’s $55 million in deposits for a 7.5% premium to United Valley Bank of Cavalier, N.D. United Valley also took over the failed bank’s total assets of $60 million, with the FDIC sharing in losses on $24 million and estimating $4.1 million in costs to its insurance fund.

Marshall’s three branches were set to reopen as United Valley branches on Monday.

California Regulators closed First Regional Bank of Los Angeles, a subsidiary of First Regional Bancorp(FRGB Quote). The FDIC was appointed receiver and arranged for First-Citizens Bank & Trust of Raleigh, N.C. to assume the failed bank’s $1.9 billion in deposits and nearly all of its $2.2 billion in total assets, with the FDIC agreeing to share in losses on $2 billion of the acquired assets.

First-Citizens is a subsidiary of First-Citizens Bancshares(FCNCA Quote). This is the second major acquisition of a failed California bank by First Citizens, after it took over Temecula Valley Bank in July.

First Regional’s eight offices were scheduled to reopen Monday as branches of First-Citizens. The FDIC estimated the cost of the failure to its deposit insurance fund would be $825.5 million.

Lastly, the Washington Department of Financial Institutions closedAmerican Marine Bank of Bainbridge Island, Wash., and appointed the FDIC receiver. The FDIC sold the failed bank’s $309 million in deposits for a 1% premium to Columbia State Bank of Tacoma, Wash., a subsidiary of Columbia Banking System(COLB Quote).

Columbia State Bank also took over the failed bank’s $373 million in total assets, with the FDIC agreeing to share in losses on $255 million and estimating the cost to its insurance fund would be $58.9 million.

This was Columbia State Bank’s second acquisition in two weeks, after taking over the failed Columbia River Bank of The Dalles, Ore.

American Marine’s 11 branches were set to reopen Saturday as branches of Columbia State Bank.

Ongoing Bank Failure Coverage

Georgia leads all states with 32 bank or thrift failures from the beginning of 2008 through Friday, followed by Illinois and California with 23 each and Florida with 18.

Large holding companies acquiring failed institutions during the current crisis have included J.P. Morgan Chase, which acquired Washington Mutual, the largest-ever bank or thrift to fail in the U.S; U.S. Bancorp; SunTrust Banks; Regions Financial; Fifth Third Bancorp; Zions Bancorp; and PNC Financial; and BB&T.

The FDIC’s temporary increase of agency’s basic limit on individual deposit insurance coverage to $250,000 from $100,000 has been extended through 2013. While the agency also temporarily waived all deposit insurance limits for business transaction accounts (checking accounts), the insurance limit on these accounts are scheduled to go back to $100,000 on June 30.

It will be more important than ever for business and municipal entities such as school districts to carefully monitor the health of their banks. It’s very easy to have more than $100,000 of somebody else’s money flowing through a business account.

“Losses from commercial real estate will be quite high by historic standards,” said Eugene Ludwig, former Comptroller of the Currency who is now chairman of Promontory Financial Group, a Washington-based consulting firm to financial institutions. “Hundreds of banks will fail or will be resolved over the course of the cycle”, based on a story in BusinessWeek.

Federal Reserve Governor Elizabeth Duke said in a Jan. 4 speech that credit conditions in commercial real estate “are particularly strained.” Fed Governor Daniel Tarullo cited commercial real estate as one of the “key trouble spots” in congressional testimony in October after the Fed stepped up a review of banks’ exposure to such loans.

The failure of loans backing malls, hotels and apartments may impede the U.S. recovery as small- and medium-sized banks reduce lending and conserve capital to absorb losses, analysts said. Tight credit could slow the cycle of investment and hiring that is critical for sustained growth, they said.

Fed Chairman Ben S. Bernanke, in a Dec. 7 speech, cited tight credit among “formidable headwinds” likely to hinder growth. Total loans and leases by banks in the U.S. fell to $6.79 trillion in November from $7.23 trillion in the same month a year earlier, according to Fed data.

More Than Doubled

The default rate on commercial mortgages held by U.S. banks more than doubled to 3.4 percent in the third quarter, according to Real Estate Econometrics LLC, a property research firm in New York. Default rates in the first three quarters of 2009 have been the highest since 1993, according to the firm.

Losses on the debt will “place continued pressure on banks’ earnings” because collateral values have fallen, Jon Greenlee, associate director of the Fed’s bank supervision division, said in Nov. 2 testimony to the domestic policy subcommittee of the House Committee on Oversight and Government Reform.

Banks and investors held about $3.5 trillion of commercial real estate debt in June 2009, with about $1.7 trillion of that total on the books of banks and thrifts, according to Fed data. About $500 billion of the loans will mature each year over the next few years, Fed officials say.

Regional banks are almost four times more concentrated in commercial property loans than the nation’s biggest lenders, according to data compiled by Bloomberg on bailout recipients.

Vulnerability of Banks

Investors have recognized the comparative vulnerability of smaller banks. The KBW Regional Banking Index, which includes shares of Old National Bancorp of Evansville, Indiana and Glacier Bancorp Inc. of Kalispell, Montana, fell 24 percent last year compared with a 3.6 percent decline for the KBW Bank Index, which includes shares of JPMorgan Chase & Co. and Citigroup Inc.

“The strong get stronger and the weak get weaker,” said Joel Conn, president of Lakeshore Capital LLC in Birmingham, Alabama, which specializes in financial stocks. “It is very difficult to come up with a scenario where earnings get anywhere back to normal for small banks with large commercial real estate exposures.”

Fed officials stepped up reviews of commercial real estate loans at banks last year. The Fed is focusing on banks smaller than the 19 largest lenders examined in May. Those institutions held assets exceeding $100 billion.

Defaults among prime borrowers for residential mortgages will probably accelerate this year, according to Robert Shiller and Karl Case, the economists who created the S&P/Case-Shiller Home Price Index.

Hold to Plans

Still, the Fed will probably hold to its plans to finish the purchase of $1.43 trillion in mortgage-backed securities and housing-finance debt by March 31, barring a reversal in the economy or big rise in mortgage rates, Fed watchers said.

“Clearly, the market would react quite negatively if the Fed said, ‘We are changing our mind,’” said Stephen Stanley, chief economist at RBS Securities Inc. in Stamford, Connecticut, and a former Richmond Fed researcher.

Bernanke has said the purchases have helped lower mortgage rates and stabilize the economy. The Fed, which began in September to slow down the purchases, still has about $139 billion of mortgage-backed securities left to buy out of $1.25 trillion, and $15 billion of federal agency debt out of $175 billion.

Chris Rupkey, chief financial economist at Bank of Tokyo- Mitsubishi UFJ, Ltd. in New York, said Fed officials will monitor mortgage rates and the difference in yields between mortgage-backed securities and Treasuries.

‘Opposite Direction’

“They will not extend it without seeing a bad outcome,” Rupkey said. “Everything seems to be moving in the opposite direction” of increasing purchases of the securities, he said.

St. Louis Fed President James Bullard said in November that the central bank should retain the flexibility to respond to any weakening in the economy by extending beyond March its authority to buy mortgage-backed securities and agency bonds.

Mortgage rates in the U.S. rose last week to 5.14 percent, the highest since August, Freddie Mac said Dec. 31. That’s still close to the record low of 4.71 percent reached in the week ended Dec. 3 and the average 5.04 percent for 2009. Rates averaged 6.05 percent in 2008 and 6.34 percent in 2007.

An increase in rates to 6 percent may prompt the Fed to reconsider ending purchases of mortgage-backed securities, Rupkey said.

(1) It is costing the FDIC a great deal more than it has historically to protect depositors in the failed banks.

(2) In other words, these banks are in much worse shape financially than they have been historically by the time the FDIC gets around to closing them.

(3) The fair market value of the assets held by these banks is turning out to be dramatically lower than the value at which they are being carried on the banks’ balance sheets. This most likely reflects unrealistic valuations assigned by bank management in the wake of the Financial Accounting Standards Board (“FASB”) having suspended fair value accounting rules this year.

(4) The acquiring banks have so little confidence in the value of the assets they are purchasing that they are requiring the FDIC to enter into loss sharing agreements with respect to the vast majority of these assets. Another explanation for this may be that the FDIC prefers to share downside risk rather than accept the amounts the acquiring banks are willing to pay for these assets absent the loss sharing.

The largest of the banks closed this week, Solutions Bank of Overland Park, Kansas, is another example of a bank that on paper appeared to be very well capitalized. It claimed to have assets of $511.1 million against deposits of $421.3 million. Yet the FDIC’s estimate of the cost to close it is $122.1 million, about 29% of deposits. This implies the FDIC and the acquiring bank concluded the fair market value of Solution Bank’s assets was about $299.2 million, only 58.5% of the value claimed.

The acquiring bank purchased essentially all of the assets of Solutions Bank, but the FDIC had to enter into a loss sharing agreement with respect to $411.3 million of these assets. This implies the acquiring bank was only confident in the value of about $99.8 million – approximately 19.5%.

An emerging concern is that the magnitude of the loss sharing agreements the FDIC is entering into is substantially increasing the risk that its cost of closing these banks will be far more than originally projected. For example, there was an article posted on JSMineset yesterday reporting that the closing of Colonial Bankgroup, Inc., was likely going to cost the FDIC $5.8 billion – more than twice its original estimate of $2.8 billion. The FDIC is not specifying the precise terms of the loss sharing agreements it is entering into with acquiring banks. Depending on the terms, the FDIC’s downside risk may be significantly more than 50%.

The second largest of the banks closed this week, Republic Federal Bank of Miami, Florida, on paper had assets of $433 million against deposits of $352.7 million. Yet the estimated cost to the FDIC in this case is $122.6 million – about 34.8% of deposits. Percentage-wise, this is one of the costliest closings so far.

This implies that the FDIC and the acquiring bank valued Republic Federal’s assets at about $230.1 million – only about 53% of the value claimed. In this case the acquiring bank was only willing to purchase $267.1 million of Republic Federal’s claimed assets of $433 million, and it required that the FDIC enter into a loss-sharing agreement with respect to $210.4 million. This indicates the acquiring bank had confidence in the value of only $56.7 million of Republic Federal’s purported assets – about 13.1%.

The third bank, Valley Capital Bank, N.A. of Mesa, Arizona, was relatively small, and its closing illustrates a phenomenon seen several times recently. It is the only one of the three that appeared insolvent on paper. It had stated assets of $40.3 million against deposits of $41.3 million. Yet the FDIC’s estimated cost of closing it was only $7.4 million – about 17.9% of deposits. This is the least costly percentage-wise of the three.

This provides additional evidence that banks that appear on paper to be the healthiest may in fact be in far worse shape than banks that appear weaker. Once again, the problem appears to stem from the FASB’s suspension of fair value accounting requirements this year with respect to banks’ least liquid assets.

This gives bank management far too much leeway to value assets at levels far beyond what they could fetch in the open market, resulting in banks’ balance sheets becoming increasingly less reliable indicators of their true financial health.

Courtesy: www.jsmineset.com

The nation’s tally of 2009 bank casualties hit 130 Friday when regulators shuttered a large Ohio bank, an Illinois bank, a Virginia bank and three small Georgia banks – according to a CNN Money story .

The largest bank to fail was AmTrust Bank in Cleveland.

Regulators also closed Benchmark Bank in Aurora, Ill., and Greater Atlantic Bank in Reston, Va.

The Buckhead Community Bank in Atlanta, Ga., First Security National Bank in Norcross, Ga., The Tattnall Bank in Reidsville, Ga., were also closed.

Customers of all the six failed banks are protected, however. The Federal Deposit Insurance Corp., which has insured bank deposits since the Great Depression, currently covers customer accounts up to $250,000.

AmTrust Bank. The Office of Thrift Supervision closed AmTrust Bank because it “was in an unsafe and unsound condition because of substantial loan losses, deteriorating asset quality, and insufficient capital.”

The agency said the failed bank’s core capital declined 68% in the 12-month period ending Sept. 30, and a high level of AmTrust’s asset problems were due to residential and land acquisition, development, and construction lending in Florida, California, Arizona and Nevada.

AmTrust operated under the agency’s approved risk reduction plan since the start of 2009, but the bank was unable to comply with the minimum capital requirements, the OTS said.

The agency said attempts to find an investor to recapitalize the bank, which was first established in 1889 as The Ohio Savings and Loan Company, were unsuccessful.

New York Community Bank in Westbury, N.Y., will assume AmTrust Bank’s $8 billion in deposits and purchase $9 billion of the failed bank’s $12 billion in assets, according to the FDIC.

The 66 branches of AmTrust Bank located throughout Ohio, Florida and Arizona employ 1,728 workers and will reopen as branches of New York Community Bank.

Benchmark Bank. MB Financial Bank, National Association, in Chicago will assume Benchmark Bank’s $181 million in deposits and will purchase “essentially all” of the bank’s $170 million in assets, according to the FDIC. MB Financial Bank, National Association entered into a loss-share agreement with the FDIC on $139 million of the failed bank’s assets.

The five branches of Benchmark Bank will reopen as branches of MB Financail Bank, National Association.

Greater Atlantic Bank. Sonabank in McLean, Va., will assume Greater Atlantic Bank’s $179 million in deposits, and will purchase “essentially all” of the bank’s $203 million in assets, the FDIC said. Sonabank entered a loss-share agreement with the FDIC on $145 million of the failed bank’s assets.

The four branches of Greater Atlantic Bank will reopen as branches of Sonabank.

Georgia banks. State Bank and Trust Company in Macon, Ga., will assume The Buckhead Community Bank’s $838 million in deposits and purchase “essentially all” of the bank’s $874 million in assets, according to the FDIC. State Bank and Trust Company also entered into a loss-share agreement with the FDIC on $692 million of the failed bank’s assets.

The Buckhead Community Bank will reopen as State Bank and Trust Company, as will its six branches in Georgia operating under the following names: The Sandy Springs Community Bank, The Midtown Community Bank, The Alpharetta Community Bank, the Cobb Community Bank, The Forsyth Community Bank and The Hall Community Bank.

State Bank and Trust Company will also assume First Security National Bank’s $123 million in deposits, according to the FDIC, and purchase approximate $118 million of the failed bank’s $128 million in assets, the FDIC said. State Bank and Trust Company also entered into a loss-share agreement with the FDIC on $82.4 million of First Security National Bank’s assets.

The four branches of First Security National Bank will reopen as branches of State Bank and Trust Company.

HeritageBank of the South in Albany, Ga., will assume The Tattnall Bank’s $47.3 million in deposits and purchase $48.5 million of the failed bank’s $49.6 million in assets.

The two branches of The Tattnall Bank will reopen as branches of HeritageBank of the South.

Customers of the failed banks can access their money over the weekend by writing checks or using ATMs or debit cards. Checks will continue to be processed, and borrowers should make mortgage and loan payments as usual.

The FDIC also said customers should continue to use their existing branch until they receive notice that the takeover has been completed.

FDIC’s fund. An average of 11 banks have failed per month this year, and the federal agency’s deposit insurance fund has slipped into the red for the first time since 1991.

At the end of the quarter on Sept. 30, the value of the fund was $8.2 billion in the hole, but the figure includes $21.7 billion the agency has accounted for future bank failures. Friday’s closures will cost the FDIC an estimated $2.384 billion.

0:00 /2:16FDIC fund on red alert

After recently approving a measure for banks to repay their insurance premiums over the next three years, however, the FDIC expects to raise $45 billion. The move expects to send the fund back in black in 2012.

The bank failure count for 2009 is still far from 1989′s record high of 534 bank closures which took place during the savings and loan crisis, when the insurance fund also carried a negative balance.

The tally is nearly five times the number that failed in 2008, and the highest tally since 1992 when 181 banks failed.

Last week, the FDIC announced that 552 banks are at risk of going under, the highest level since 1993, when the agency had red-flagged 575 banks.

But history has shown just 13% of the so-called “problem” banks have failed on average.