UPDATE 2-U.S. regulators close four banks, total now 68
* Largest was a San Diego bank with $335.8 mln in assets
* City National Bank (CYN.N) enters agreement for assets
* Other failures were in Florida, Arizona, Minnesota (Updates with two additional banks)
WASHINGTON, May 7 (Reuters) - U.S. regulators on Friday shuttered four more small U.S. banks, adding to the tide of bank failures that is supposed to peak in the third quarter.
The Federal Deposit Insurance Corp said a total of 68 banks have so far failed this year. Community banks have been failing at a rapid pace, as their recovery has lagged behind the rebound for larger financial firms and the overall economy.
Many small banks are still struggling with large portfolios of troubled loans. Community banks tend to have larger concentrations of commercial real estate loans than regional banks. That segment of loans have taken longer to unravel than portfolios of loans tied to mortgages.
The largest of the failures on Friday was 1st Pacific Bank of California, in San Diego, with about $335.8 million in assets and $291.2 million in deposits.
City National Bank, Los Angeles (CYN.N) [CYNBA.UL] will assume 1st Pacific's deposits and agreed to buy its assets. The FDIC said it entered into a loss-share agreement with City National on $275.7 million of the assets.
The cost of the failure to the Deposit Insurance Fund will be $87.7 million, the FDIC estimated.
The FDIC said the other failures on Friday were:
* Bank of Bonifay in Bonifay, Florida, with about $242.9 million in total assets. First Federal Bank of Florida, Lake City, Florida, will assume Bank of Bonifay's $230.2 million in deposits, as well as about $78.1 million of its assets. The failure will cost the insurance fund about $78.7 million.
* Towne Bank of Arizona in Mesa, Arizona, with about $120.2 million in assets. Commerce Bank of Arizona in Tucson will assume the deposits and buy the assets. The FDIC said it entered into a loss-share agreement with Commerce Bank on $80.1 million of the assets. The failure will cost the insurance fund $41.8 million.
* Access Bank of Champlin, Minnesota, with about $32 million in assets. PrinsBank of Prinsburg, Minnesota, will assume the bank's deposits and almost all of its assets. The failure will cost the insurance fund $5.5 million.
The government insures customer deposits up to $250,000 per account.
Bank failures are expected to peak in the coming months, and the total of collapses this year is expected to exceed the 140 failures in 2009.
FDIC Chairman Sheila Bair said recently she sees encouraging signs in the recovery of community banks.
She said more small banks are raising significant amounts of fresh capital, helping some institutions avert failure.
Bair also said recently that auctions for failed banks are fetching better pricing, indicating that bidders see better values in troubled banks' loan portfolios and that the overall credit environment is improving.
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