How safe is your bank?

What a difference a year makes.

At midyear 2007, Century Bank of Sarasota had earned $8 million and boasted a healthy "31/2-star" rating from industry analyst BauerFinancial Inc.

Fast forward to midyear 2008: Century has lost $12.1 million, bad loans have soared, and industry analysts rank it among the nation's shakiest banks.

Century reported $36.2 million in non-earning loans in the second quarter, or nearly 6 percent of its earning assets.

"This thing just exploded in six to nine months," said bank President John O'Neill. "Eighteen months ago, we had less than 1 percent in delinquencies."

Century is hardly alone.

Twelve of the region's 16 established banks -- those at least two years old -- lost money through the first half of 2008.

The biggest loser was First Priority Bank of Bradenton, so weakened by losses that state and federal regulators stepped in on Aug. 1 and closed it.

It was the first bank failure in Florida in more than four years, but likely not the last.

That was the warning from Shelia Bair, chairman of the Federal Deposit Insurance Corp., during her visit to Sarasota this month.

"We will certainly see more banks fail," she said.

Thirteen banks have failed so far this year, compared with just three in 2007 and already the most since 1994.

The latest failure, Washington Mutual on Thursday, was also the biggest in history. WaMu's $307 billion in assets eclipsed the $40 billion failure of Continental Illinois in 1984 and the $32 billion IndyMac demise in July.

The FDIC's secret "problem list" of troubled banks grew from 90 to 117 institutions, the most since mid-2003.

Assets of those problem banks swelled from $26 billion to $78 billion, with $32 billion of the increase coming from the failed IndyMac Bank of California.

"As for the outlook, more banks will come on the list as credit problems worsen," Bair told local bankers.

Bair and others are quick to note that the vast majority of banks remain well-capitalized. No one is projecting a return to the S&L crisis of the late 1980s and early 1990s -- when 1,918 banks failed in a five-year span -- but most are certain that things will get worse before they get better.

The recent financial meltdown has claimed others, including giant investment bank Lehman Brothers, insurance titan AIG, leading stockbroker Merrill Lynch, and Fannie Mae and Freddie Mac, the nation's largest mortgage companies.

"The United States' financial system is in crisis," said Lutz-based bank analyst Richard Bove of Ladenburg Thalmann & Co.

The U.S. is ready to commit billions to bail out that system. The bailout could include taking over some bad loans from ailing Florida banks.

In the long term, Bove says, the new financial system will be built around a commercial bank model. Investment banks Goldman Sachs and Morgan Stanley just converted to bank holding companies. Such major banks as Wells Fargo, U.S. Bancorp, J.P. Morgan Chase and BB&T are trading at or near 52-week highs.

"However, it is sad to note that it will take years to resolve the problems that have surfaced in the past months," Bove said. "The United States' economy will not perform at capacity levels for some time. This will impact the functioning of the financial system, which in turn will impact the economy."

Zero stars

Two local banks, Freedom Bank of Bradenton and Community National Bank of Venice, received BauerFinancial's lowest rating of "zero" stars.

Both banks have high percentages of problem loans -- 13.57 percent of Freedom's loans and 9.79 percent of Community's are nonperforming.

Freedom has eaten through much of its capital and is looking to raise up to $20 million. It has a $5 million commitment from an equity fund, but only if it can find $15 million more from other investors.

Analysts say struggling banks face big hurdles to find fresh capital in the slumping economy.

Banking regulators have ordered both Freedom and Community to clean up their acts.

Cape Coral-based Riverside Bank of the Gulf Coast, which has offices in Nokomis and Venice, also was rated a "zero" due to loan problems and shrinking capital.

Bauer graded eight Florida banks at "zero," a high percentage of the 66 nationwide that got the rock-bottom rating.

Bauer dropped ratings on many banks in the second quarter, said President Karen Dorway. More than 400 are on Bauer's problem list -- two stars or lower -- compared with about 300 just three months earlier.

"It seems to be primarily driven by nonperforming loans, which is no surprise," Dorway said. "Construction loans seem to be particularly impacted."

Century was rated a "one-star" by Bauer. O'Neill said its capital position remains strong and well within regulatory guidelines. The bank, owned by a wealthy East Coast investor, can quickly raise more capital if needed, he said.

All nine of the newer banks -- less than two years old -- in Sarasota, Manatee and Charlotte have lost money so far this year, which is to be expected. Several will soon move out of their "start-up" status.

Florida's 275 commercial banks lost a combined $79 million in the second quarter. After a $75 million profit in the first quarter, those banks are now $4 million in the red through the first half of 2008.

A little less than half those banks were unprofitable this year, double the number from last year. Smaller community banks struggled even more -- 68 percent of those with assets under $100 million were losing money this year.

The real estate slump is a major factor. Florida banks reported noncurrent loans were 3.34 percent of total loans, up from less than 1 percent a year earlier. Those are loans that no longer earn money for the lenders.

Florida's 35 thrifts lost $109 million in the second quarter, dragging their year-to-date losses to $147 million.

A little more than half of Florida's thrifts are unprofitable -- 90 percent of those under $100 million in assets are losing money. Banks set aside $50.2 billion in the quarter in their provisions for loan losses, more than four times the $11.4 billion one year earlier.

During her Sarasota speech, FDIC's Bair urged Florida bankers to keep shoring up their reserves to cover future loan losses, telling them it is "absolutely critical" that that they get their balance sheets in order.

"You must simply accept that the credit downturn is far from over," she said. "It's a tough slog, but there's no easy way out."