Valley Community Bank in Illinois closed by regulators

Feb 25 (Reuters) - Regulators closed one bank in the U.S. on Friday, bringing to 23 the total number of bank failures in 2011.

In 2010 157 banks failed following 140 failures in 2009.

The bulk of the failures increasingly have been been smaller institutions, those with less than $1 billion in assets, as large banks have recovered more quickly from the 2007-2009 financial crisis.

The FDIC announced the closure on Friday of Valley Community Bank, St. Charles, Illinois, which had about $123.8 million in assets and $124.2 million in deposits as of December 31. First State Bank, Mendota, Illinois will assume the deposits and has agreed to purchase essentially all of the assets.

Banks that failed in 2010 had total assets of $92 billion, compared with $169.7 billion the previous year.

FDIC Chairman Sheila Bair has said the agency expects the number of failures to drop in 2011.

In the FDIC's most recent quarterly report, released on Feb. 23, the agency said the number of banks on the "problem list" grew to 884 from 860.

Most of these institutions will not fail but the list provides an indication of how many banks are struggling.

Earlier this week, however, Bair said the outlook for the industry as a whole is improving including for small institutions.

In its quarterly update, the FDIC reported that banks had combined earnings of $21.7 billion in the fourth quarter of 2010, marking their fourth profitable quarter in a row.

But statistics showed lending continued to contract, down 0.2 percent or $13.6 billion for the quarter, and Bair warned it would have to pick up for the industry to take the next step in its recovery from the 2007-2009 financial crisis.

Washington Mutual, which had $307 billion in assets when it was seized in September 2008, remains the largest bank to fail during the financial crisis. (Reporting by Richard Cowan; Editing by Carol Bishopric)