The economy may be showing signs of life, but the banking industry remains in critical condition. In fact, the struggling industry is on track to surpass last year's 140 bank closures this year, with the Federal Deposit Insurance Corp. reporting 96 closures as of the end of last week. At this same time last year, the FDIC had logged approximately 70 closures.
Banking closures are a lagging indicator, says independent banking analyst Bert Ely. In other words, banks are still feeling the aftereffects of bad loans and the mortgage crisis even though the economy has turned up. "There are still a lot of problems in the banking system," Ely says.
He believes a recovery is coming, projecting that closures will peak this year, then recede next year. The FDIC also found some indications of better times ahead. For one thing, the industry logged the highest first-quarter profit since 2008, the FDIC reports. Banks brought in $18 billion in profit for the first quarter, a $12 billion improvement from the first quarter of last year. The gain is a result of banks steadily building capital to improve balance sheets, including attracting outside investors.
More good news? The FDIC's Deposit Insurance Fund balance has improved slightly from the last quarter of 2009, sitting at negative $20.7 billion at the end of the first quarter.
'Problem' banks in the hundreds
But the industry is hardly out of the woods yet. The FDIC lists 775 banks as "problem" institutions, defined as banks that may be in jeopardy of failing, compared to only 48 in 2006, prior to the housing plunge. Most problem banks don't end up shutting down, the FDIC notes. Still, the higher number could signal more failures to come.
Florida, which has been hit hard by the housing market crash, has been home to 16 closures this year, the highest number in the country. Illinois isn't far behind with 12 failed banks. And earlier this month, Mississippi had its first bank closure in the past 10 years.
This week, the FDIC reported six bank closings, including three in Florida. The most recent closure was Mainstreet Savings Bank in Hastings, Mich., which reported $97.4 million in total assets and $63.7 million in total deposits. Commercial Bank in Alma, Mich has agreed to take over all of Mainstreet's deposits.
Ideal Federal Savings Bank, a 90-year-old family-owned bank in Baltimore, Md., fared worse when it was shuttered by the FDIC earlier this month. The bank specialized in providing mortgages to minority home buyers, and no other bank is taking over its assets.
"The community has changed," wrote Baltimore resident Maxine Wood in a letter to The Baltimore Sun. "In this age of electronic banking and ATM's, banking needs can be readily met. Yet, there are needs within the community Ideal Savings Bank served that may well go unmet."
Investing Like Warren Buffett
Learn from one of the world's best investors.View Course »