Five banks shut down by regulators on Friday

Mutual Bank was closed Friday by the Illinois Department of Financial Professional Regulation's division of banking, which appointed the Federal Deposit Insurance Corp. as receiver.

United Central Bank of Garland, Texas, is assuming Mutual's $1.6 billion in deposits and essentially all of its $1.6 billion in assets.

In addition, the FDIC and First United Central Bank entered into a loss-sharing agreement covering $1.3 billion of the assets of Mutual Bank. Its 12 branches will reopen Saturday as offices of United Central Bank.

The FDIC estimates that Mutual Bank’s failure will cost the deposit insurance fund $696 million.

Mutual Bank was the largest of five banks shut down Friday in the U.S. The others were in Florida, New Jersey, Ohio and Oklahoma. The FDIC was appointed receiver of all five banks.

The written agreement between First Mutual Bancorp of Illinois Inc. and the Federal Reserve Bank of Chicago, signed May 8, required First Mutual to show how it would boost its capital, which as of March 31 was below minimum levels required by regulators, according to filings with the Fed.

The agreement was the second regulatory action against the bank in recent months. In December the FDIC, along with state banking regulators, issued a “cease and desist” order requiring the bank to raise capital and recognize more loan losses.

First Mutual posted a $15-million loss in the first three months of 2009, after adding $17 million in the first quarter to its reserves for losses from bad loans. That followed a $68-million loss in 2008.

A whopping $496 million — or 37% — of the bank’s $1.35 billion in loans were at least 30 days past due as of March 31, according to the Fed filing. Seriously delinquent loans, those at least 90 days past due, totaled $247 million, or 18%.

The 69 bank failures nationwide this year compare with 25 last year and three in 2007.

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 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.