NEW YORK ( TheStreet) -- While the Federal Deposit Insurance Corp. reported earnings improvement at more than half of U.S. banks and savings and loan associations last week, the ranks of troubled community banks continued to swell.

Based on a full set of first-quarter regulator data provided by SNL Financial for the nation's 7,900 banks and savings and loan associations, 161 were undercapitalized, according to the guidelines that apply to most institutions. Click the link below to see the full list:

>>>Bank Watch List

The list is sorted by state, city and name of the undercapitalized bank or thrift. The Watch List of 161 institutions is down slightly from 163 on a similar list published by TheStreet on Feb. 24, although 49 of the institutions on the previous list have already failed.

When the FDIC published its quarterly banking profile on Thursday, the agency also said that its "problem bank list" had grown to 775 from 702 at the end of the fourth quarter and 305 at the end of the first quarter of 2009. While the problem bank list is not made public, it presumably includes all the undercapitalized institutions as well as others threatened by high levels of nonperforming loans and securities.

Most banks and thrifts need to maintain Tier 1 leverage, Tier 1 risk-based and total risk-based capital ratios of at least 5%, 6% and 10% respectively to be considered "well-capitalized" under regulatory guidelines. Some trust banks carry lower capital requirements. The ratios need to be at least 4%, 4% and 8% respectively for most to be considered adequately capitalized.

Sterling Savings Bank of Spokane, Wash., is the largest bank on the watch list with $10 billion in total assets and is the main subsidiary of Sterling Financial ( STSA). The holding company had announced on May 6 that it had received approval from the U.S. Treasury Department to raise $555 million worth of common and preferred stock, including an investment of up to $170 million by Thomas H. Lee Partners, a Boston-based private equity firm. Then on Monday, Sterling Financial announced that Warburg Pincus Private Equity had agreed to invest $139 million while Thomas H. Lee Partners had agreed to lower its investment to the same amount, for a combined $278 million. If Sterling succeeds in raising the entire $555 million, the two investment groups would then have a combined 40% stake in Sterling, after regulatory approval.
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This is quite a positive development for Sterling, especially because it is so difficult for an operating bank to compete for investor money with the FDIC offering up failed institutions for very small premiums and agreeing to share in losses on acquired assets. The new investment is sufficient to move Sterling back to well capitalized status and is also great news for the Treasury, because Sterling still owes the government $303 million in bailout money received via the Troubled Assets Relief Program, or TARP.

Four of the banks on the list actually had negative capital levels as of March 31. One of these was Bank of Florida-Southwest of Naples, which is a subsidiary of Bank of Florida Corp. ( BOFL). Two other subsidiaries of the holding company are undercapitalized : Bank of Florida-Tampa Bay and Bank of Florida-Southeast of Fort Lauderdale.

Bank of Florida Corp. on May 18 amended its first-quarter results to recognize more impaired loans, saying that its net loss for the three months ended in March was $48.2 million, much wider than the $33.1 million loss it originally announced on May 3. The company also extended a rights offering that seeks to raise $72 million to June 28.

Capitol Bancorp ( CBC) of Lansing, Mich., is another publicly traded holding company with multiple undercapitalized bank subsidiaries on the Watch List, including Pisgah Community Bank of Ashville, N.C., Michigan Commerce Bank of Ann Arbor, Sunrise Bank of Arizona, Phoenix, Central Arizona Bank of Casa Grande and Bank of Las Vegas.

Capitol Bancorp had 64 separately charted bank subsidiaries in 17 states at the end of 2009 and plans to reduce the number of subsidiaries to 26 this year through sales and mergers. The company announced agreements with private investors to raise $7.5 million in common equity on April 26.

Other large undercapitalized subsidiaries of actively traded holding companies include AnchorBank FSB of Madison, Wis., which is held by Anchor BanCorp Wisconsin ( ABCW); Hanmi Bank of Los Angeles, a subsidiary of Hanmi Financial ( HAFC); and Bank of Hampton Roads of Norfolk, Va., which is a subsidiary of Hampton Roads Bankshares ( HMPR).

Hampton Roads on Monday announced plans to raise $255 million in new capital, including commitments of $73 million each, from Carlyle Group and Anchorage Advisors LLC. Each investor group will wind up controlling 23.1% of the company's shares, if Hampton Roads completes all of its planned capital-raising activities.

Privately held ShoreBank of Chicago was in dire shape as of March 31, with a Tier 1 leverage ratio of just 1.16% and nonperforming assets exceeding 14%, but the well-connected institution was reportedly rescued this week by a group of investors that included Goldman Sachs ( GS), Citigroup and General Electric's ( GE) GE Capital unit. According to the Financial Times, investors agreed to pour $150 million into the bank, which would then seek $70 million in capital from the federal government.

Ongoing Bank Failure Coverage

All previous bank and thrift failures since the beginning of 2008 are detailed in TheStreet.com's interactive bank failure map:
chart

The bank failure map is color-coded, with the states having the greatest number of failures highlighted in red, and states with no failures in gray. By moving your mouse over a state you can see its combined 2008-10 totals. Then click the state to open a detailed map pinpointing the locations and providing additional information for each bank failure.

Free Financial Strength Ratings

TheStreet.com's Banks & Thrifts Screener features independent and very conservative financial strength ratings provided each quarter by Weiss Ratings, for each of the nation's banks and savings and loans. The ratings are available at no charge.

-- Written by Philip van Doorn in Jupiter, Fla.

>>>Undercapitalized Bank List

Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.

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