Regulators shut banks in Nebraska, Mississippi and Illinois; 81 bank failures so far in 2010

Regulators shut banks in Neb., Miss., Ill.

WASHINGTON — Regulators on Friday shut down a Nebraska bank that has struggled under the weight of soured loans and drawn scrutiny from federal authorities since early last year. Two small banks in Illinois and Mississippi were also shuttered, boosting the number of U.S. bank failures this year to 81.

The Federal Deposit Insurance Corp. took over TierOne Bank, based in Lincoln, Neb., with about $2.8 billion in assets. Great Western Bank, based in Sioux Falls, S.D., agreed to acquire the assets and deposits of the failed bank. In addition, the FDIC and Great Western Bank agreed to share losses on $1.9 billion of TierOne Bank’s loans and other assets.

The failure of TierOne Bank is expected to cost the deposit insurance fund $297.8 million.

Just Friday, TierOne said it had agreed to a new set of rules imposed by the federal Office of Thrift Supervision, giving it an additional six weeks to shore up its capital position. The thrift agency had said TierOne “engaged in unsafe or unsound banking practices,” carrying too many bad loans on its books and lacking sufficient capital as a cushion against losses.

The bank had negative earnings in 10 of the last 11 quarters.

TierOne suffered from high concentrations of construction, land and commercial real estate loans in markets hit by the real estate bust, including California, Florida and Nevada, according to the thrift regulators.

The bank, established in 1907, had 59 branches in Nebraska, nine in Iowa and one in Kansas.

The FDIC also seized First National Bank, based in Rosedale, Miss., with $60.4 million in assets, and Arcola Homestead Savings Bank in Arcola, Ill., with about $17 million in assets.

Jefferson Bank, based in Fayette, Miss., agreed to acquire the assets and deposits of First National Bank. The FDIC and Jefferson Bank agreed to share losses on $43.5 million of the failed bank’s loans and other assets.

The FDIC was unable to find a buyer for Arcola Homestead Savings Bank, and it approved the payout of the institution’s insured deposits. The agency said it will mail checks to depositors for their insured funds on Monday.

The failure of First National Bank is expected to cost the deposit insurance fund $12.6 million; that of Arcola Homestead is expected to cost $3.2 million.

The closure of Arcola Homestead brought to 12 the number of bank failures this year in Illinois, a state with one of the highest concentrations of bank collapses and where the meltdown in the real estate market brought an avalanche of soured mortgage loans. California, Florida and Georgia also are high on the list of states with concentrated bank failures.

With 81 closures nationwide so far this year, the pace of bank failures is more than double that of 2009, which was already a brisk year for shutdowns. By this time last year, regulators had closed 37 banks. The pace has accelerated as banks’ losses mount on loans made for commercial property and development.

The number of bank failures is expected to peak this year and to be slightly higher than the 140 that fell in 2009. That was the highest annual tally since 1992, at the height of the savings and loan crisis. The 2009 failures cost the insurance fund more than $30 billion. Twenty-five banks failed in 2008, the year the financial crisis struck with force, and only three succumbed in 2007.

As losses have mounted on loans made for commercial property and development, the growing bank failures have sapped billions of dollars out of the deposit insurance fund. It fell into the red last year, and its deficit stood at $20.7 billion as of March 31.

The number of banks on the FDIC’s confidential “problem” list jumped to 775 in the first quarter from 702 three months earlier, even as the industry as a whole had its best quarter in two years.

A majority of institutions posted profit gains in the January-March quarter. But many small and midsized banks are likely to continue to suffer distress in the coming months and years, especially from soured loans for office buildings and development projects.

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.