After a two-week lull, last Friday Federal regulators shuttered
Ailey, Georgia-based Montgomery Bank & Trust, taking the number
of failed U.S. banks thus far in 2012 to 32. This follows 92 bank
failures in 2011, 157 in 2010, 140 in 2009 and 25 in 2008.
The failed bank had total assets of $173.6 million and total
deposits of $164.4 million as of March 31, 2012.
While the financials of a few large banks are stabilizing on the
back of an economic recovery and increasing dependence on
noninterest revenue sources, the industry is still on shaky ground.
The sector presents a picture similar to that of 2011, with nagging
issues like depressed home prices, 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 Acquirer
Moultrie, Georgia-based Ameris Bank has agreed to assume all the
deposits and approximately $12.4 million in assets of Montgomery
Bank & Trust. The FDIC will hold the residual for later
disposition.
Impact on FDIC Fund
This bank failure represent further dent in the deposit insurance
fund (DIF), meant for protecting customer accounts.
The FDIC insures deposits in 7,309 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 long spate of bank failures have
kept it under pressure. However, as of March 31, 2012, the fund was
in surplus for the fourth straight quarter.
Also, the balance increased to $15.3 billion as of March 31, 2012
from $11.8 billion at the end of 2011. The continued improvement in
net worth of the fund is attributable to a moderate pace of bank
failures and rising assessment revenue.
The failure of Montgomery Bank & Trust will cost the FDIC about
$75.2 million. From 2012 through 2016, bank failures are estimated
to cost the FDIC about $12 billion.
Shrinking Problem Bank List
The number of banks on FDIC's list of problem institutions saw a
sharp decline for the fourth straight quarter to 772 in the
January-March period from 813 in the preceding sequential period.
Increasing loan losses on commercial real estate could trigger many
more bank failures in upcoming years. However, considering the
moderate pace of bank failures, the 2012 number is not expected to
exceed the 2011 tally.
Consolidation to Continue
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 the 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
).
BB&T CORP (BBT): Free Stock Analysis Report
JPMORGAN CHASE (JPM): Free Stock Analysis
Report
US BANCORP (USB): Free Stock Analysis Report
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