USB US Bancorp

After a week’s lull, U.S. regulators were back in action last Friday, shuttering two more banks in Georgiaand Minnesota. This brings the total number of bank failures to 11 so far in 2012, following 92 in 2011, 157 in 2010, 140 in 2009 and 25 in 2008.

While the financials of a few large banks continue to stabilize on the back of an economic recovery, the industry is still on shaky ground. The sector presents a picture similar to that of 2011, with nagging issues like depressed home prices along with still-high loan defaults and unemployment levels troubling such institutions.

The lingering economic uncertainty and its effects also weigh on many banks. The need to absorb bad loans offered during the credit explosion has made these banks susceptible to severe problems.

The failed banks are:

• Ellaville, Georgia-based Central Bank of Georgia, with total assets of about $278.9 million and total deposits of about $266.6 million as of December 31, 2011.
• Little Falls, Minnesota-based Home Savings of America, with about $434.1 million in total assets and $432.2 million in total deposits as of December 31, 2011. 

These bank failures represent another jolt to the deposit insurance fund (DIF), meant for protecting customer accounts.

The Federal Deposit Insurance Corporation (FDIC) insures deposits in 7,437 banks and savings associations in the country as well as promotes their safety and soundness. When a bank fails, the agency reimburses customer deposits of up to $250,000 per account.

Though the FDIC has managed to shore up its deposit insurance fund over the last few quarters, the ongoing bank failures have kept it under pressure. During 2008 to 2010, bank failures dent the fund by $76.8 billion in total.However, as of September 30, 2011, the fund was in surplus for the second straight quarter.

Also, the balance increased to $7.8 billion from $3.9 billion at the end of the prior quarter. The improvement in fund balance was aided by a moderate pace of bank failures and assessment revenue.

The failure of Central Bank of Georgia is expected to deal a blow of about $67.5 millionto the deposit insurance fund, while Home Savings of America will cost about $38.8 million.

Moultrie, Georgia-based Ameris Bank has agreed to assume all the deposits and assets of Central Bank of Georgia. Also, the FDIC and the acquirer agreed to share losses on $192.8 million of Central Bank of Georgia's assets.

The FDIC did not get an acquirer for Home Savings of America. As a result, the FDIC approved the payout of the insured deposits of the failed bank. Also, as a receiver, the FDIC will retain all the assets from Home Savings of America for later disposition.

The number of banks on FDIC’s list of problem institutions saw a sharp decline for the second straight quarter to 844 in the July-September period from 865 in the preceding sequential period. This represents the second quarterly drop since 2006.

Increasing loan losses on commercial real estate could trigger many more bank failures in the upcoming years. However, considering the moderate pace of bank failures, the number in 2012 is not expected to exceed the 2011 tally. From 2011 through 2015, bank failures are estimated to cost the FDIC about $19 billion.

With so many bank failures, consolidation has become the industry trend. For most of the failed banks, the FDIC enters into a purchase agreement with healthy institutions.

When Washington Mutual collapsed in 2008 (branded as the largest bank failure in the U.S. history), it was acquired by JPMorgan Chase & Co. (JPM). The other major acquirers of failed institutions since 2008 include U.S. Bancorp (USB) and BB&T Corporation (BBT).

 
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