The pace of bank failures has accelerated markedly with the shuttering of five more banks by U.S. regulators last Friday. Out of the five failed banks, two were based in Maryland and and one each in Minnesota, South Carolina and California. This brings the total number of bank failures to 22 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 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:
- Cambridge, Maryland-based Bank of the Eastern Shore, with total assets of about $166.7 million and total deposits of about $154.5 millionas of December 31, 2011.
- Gaithersburg, Maryland-based HarVest Bank of Maryland, with about $164.3 million in total assets and $145.5 million in total deposits as of December 31, 2011.
- Maple Grove, Minnesota-based Inter Savings Bank, fsb D/B/A InterBank,with about $481.6 million in total assets and $473.0 million in total deposits as of December 31, 2011.
- Pawleys Island, South Carolina-based Plantation Federal Bank, with about $486.4 million in total assets and $440.5 million in total deposits as of December 31, 2011.
- Palm Desert, California-based Palm Desert National Bank, with about $125.8 million in total assets and $122.8 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 7,359 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. However, as of December 31, 2011, the fund was in surplus for the third straight quarter.
Also, the balance increased to $9.2 billion from $7.8 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 Bank of the Eastern Shore is expected to be most expensive for the FDIC at about $41.8 million, while HarVest Bank of Maryland will cost about $17.2 million. The other three banks -- Inter Savings Bank, Plantation Federal Bank and Palm Desert National Bank -- will cost the FDIC about $117.5 million, $76.0 million and $20.1 million, respectively.
The FDIC did not get an acquirer for Bank of the Eastern Shore. As a result, it created the Deposit Insurance National Bank of Eastern Shore (:DINB) to protect the depositors by allowing them access to their insured deposits and time to open accounts at other insured institutions until May 25, 2012. Also, as a receiver, the FDIC will retain all the assets of Bank of the Eastern Shore for later disposition.
McLean, Virginia-based Sonabank has agreed to assume all the deposits and assets of HarVest Bank of Maryland.
Reeds Spring, Missouri-based Great Southern Bank has agreed to assume all the deposits and assets of Inter Savings Bank, fsb. The FDIC and the acquirer agreed to share losses on $413.0 million of InterBank, fsb's assets.
Charleston, South Carolina-based First Federal Bank has agreed to assume all the deposits and assets of Plantation Federal Bank. The FDIC and the acquirer agreed to share losses on $221.7 million of Plantation Federal Bank's assets.
Costa Mesa-based Pacific Premier Bank has agreed to assume all the deposits and assets of Palm Desert National Bank.
The number of banks on FDIC’s list of problem institutions saw a sharp decline for the third straight quarter to 813 in the October-December period from 844 in the preceding sequential period. As of the end of 2010, there were 884 banks on the problem list.
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 2012 number 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 (the largest bank failure in U.S. history), it was acquired by JPMorgan Chase & Co. (JPM). Other major acquirers of failed institutions since 2008 include U.S. Bancorp (USB) and BB&T Corporation (BBT).
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