Regulators close two more banks; 55 failures so far this year

Regulators on Friday shut down small banks in Georgia and South Dakota, boosting to 55 the number of federally insured banks to fail this year.

The Federal Deposit Insurance Corp. was appointed receiver of the two banks: First Piedmont Bank, based in Winder, Ga., which had about $115 million in assets and $109 million in deposits as of July 6; and BankFirst, based in Sioux Falls, S.D., with around $275 million in assets and $254 million in deposits as of April 30.

The FDIC said all of First Piedmont's deposits will be assumed by First American Bank and Trust of Athens, Ga., which also agreed to buy about $111 million of its assets. Alerus Financial, based in Grand Forks, N.D., agreed to assume all of the deposits of BankFirst as well as $72 million in assets.

First Piedmont's two offices will reopen Monday as First American branches.

BankFirst's two offices also will reopen Monday. Alerus will operate the Sioux Falls office as a branch of First Dakota National Bank of Yankton, S.D. BankFirst's office in Minneapolis will be operated as a branch of Alerus.

With First Piedmont, 15 Georgia banks have failed since the beginning of 2008, more than in any other state. Most of the failures have involved banks in the Atlanta area, where the collapse of the real estate market brought economic dislocation.

Until Friday, however, no federally insured bank had been closed in South Dakota since 1992, when First Federal Savings Bank of South Dakota, based in Rapid City, was shut down during the savings and loan crisis.

The 55 bank failures nationwide this year compare with 25 last year and three in 2007.

The FDIC estimates that the cost to the deposit insurance fund from the failure of First Piedmont Bank will be $29 million. The cost to the fund from BankFirst's failure is estimated at $91 million.

As the economy has soured — with unemployment rising, home prices tumbling and loan defaults soaring — bank failures have cascaded and sapped billions out of the deposit insurance fund. It now stands at its lowest level since 1993, $13 billion as of the first quarter.

While losses on home mortgages may be leveling off, delinquencies on commercial real estate loans remain a hot spot of potential trouble, FDIC officials say. If the recession deepens, defaults on the high-risk loans could spike. Many regional banks hold large numbers of them.

The Treasury Department has launched a program in which financial firms will buy as much as $40 billion worth of banks' soured, mortgage-linked investments. That amount is far below the potential $1 trillion in assets that the government originally hoped to take off the banks' books through the program and another that would have targeted bad loans.

The problem assets helped spark the financial crisis as they lost value and banks became unable to sell them. They have been weighing down banks' balance sheets — one reason the industry has had trouble providing the credit necessary to support an economic recovery.

The number of banks on the FDIC's list of problem institutions leaped to 305 in the first quarter — the highest number since 1994 during the savings and loan crisis — from 252 in the fourth quarter. The FDIC expects U.S. bank failures to cost the insurance fund around $70 billion through 2013.

The closing in May of struggling Florida thrift BankUnited FSB is expected to cost the insurance fund $4.9 billion, the second-largest hit since the financial crisis began. The costliest was the July 2008 seizure of big California lender IndyMac Bank, on which the insurance fund is estimated to have lost $10.7 billion.

The largest U.S. bank failure ever also came last year: Seattle-based thrift Washington Mutual fell in September, with about $307 billion in assets. It was acquired by JPMorgan Chase for $1.9 billion in a deal brokered by the FDIC.