Insured depositary institutions continued to improve during the third quarter of 2012, while at the same time the number and percentage of “problems institutions” declined, according to the FDIC’s latest quarterly banking profile. The quarterly report for the quarter ending September 30, 2012, which the agency released on December 4, 2012, can be found here. The FDIC’s December 4, 2012 press release about the report can be found here.


According to the report, reduced expenses from loan losses and rising noninterest income helped the insured institutions’ earnings reach $37.6 billion in the third quarter, the highest quarterly earnings posted since the third quarter of 2006. The FDIC’s press release quotes FDIC Chairman Martin Gruenberg as saying that “this was another quarter of gradual bur steady recovery for FDIC-insured institutions.”


The FDIC also reported a decline in the number of “problem institutions” during the quarter, from 732 at the end of the second quarter of 2012 to 694 at the end of the third quarter. (A “problem institution” is an insured depositary institution that is ranked either a “4” or a “5” on the agency’s 1-to-5 scale of risk and supervisory concern. The agency does not release the names of the banks on its “problem” list.) The quarterly decline represented the sixth consecutive quarter that the number of “problem” banks has fallen, and it is the first time in three years that there have been fewer than 700 banks on the list.


The number of reporting institutions declined during the quarter, from 7245 at the end of the second quarter 2012 to 7181 at the end of the third quarter. The 694 problem institutions at the end of the third quarter 2012represented 9.66% of all reporting institutions, whereas the 714 problem banks at the end of the second quarter 2012 represented 10.10% of all reporting institutions. By way of comparison, at the end of the third quarter of 2011, there were 844 problem institutions, representing 11.35% of the 7436 institutions reporting as of September 30, 2011. At year end 2010, there were 884 problem institutions, representing 11.39% of all reporting institutions at the time.


The assets of the “problem banks” as of the end of the third quarter 2012 stood at $262.2 billion, down from $282.2 billion as of the end of the second quarter 2012. The problem institutions as of the end of the third quarter of 2011 represented assets of $339 billion. At the end of 2009, the 702 problem institutions at that time represented assets of $402 million.


Twelve institutions failed during the third quarter of 2012, the smallest number of failures in a quarter since the fourth quarter of 2008, when there were also 12. There were a total of 43 bank failures in 2012 through September 30, 2012. There have been seven more bank failures since that date, brining the 2012 YTD total as of December 4, 2012 to 50. Through December 4, 2011, there had been 90 YTD bank failures. At this point it appears that there will be fewer bank failures this year than during any year since 2008, when there were 25. Since January 1, 2008, there have been a total of 457 bank failures. The high water mark for bank failures was in 2012, when there were 157 – the highest annual number of bank failures since 18 years prior.


Still Another Failed Bank Lawsuit in Georgia: While the bank failure wave finally seems to be winding down, the follow-on litigation is still just ramping up. With the third year anniversaries of bank failures that occurred during the period with the most bank closures approaching, the FDIC clearly seems to be ramping up its failed bank litigation. On December 3, 2012, the FDIC filed yet another lawsuit against the former directors and officers of a failed Georgia bank. The FDIC’s complaint, filed in the Northern District of Georgia in its capacity as receiver for the failed First Security National Bank (FNSB) of Norcross, Georgia, can be found here.


FNSB failed on December 4, 2009, so the FDIC really went down to the three year statute of limitations wire on its FNSB filing. The FDIC’s complaint names seven former directors and officers as defendants. The FDIC asserts claims for both negligence and gross negligence, citing the defendants’ “numerous, repeated, and obvious breaches and violations of the Bank’s loan policy and procedures, underwriting requirements, banking regulations and sound bank practices” as “exemplified” by 17 loans made between December 20, 2995 and February 19, 2008, for which the agency seeks damages of no “less than $7.596 million.”


This latest complaint is the 41st that the FDIC has filed against the former directors and officers of a failed bank as part of the current bank failure wave. It is also the 13th the agency has filed involving a failed Georgia bank, meaning that over 31% of all failed bank D&O lawsuits have targeted failed Georgia banks. While Georgia has had more bank failures during the current bank failure wave than any other state, its approximately 80 bank failures represents only about 17.5 percent of all bank failures, meaning that the FDIC is pursuing a disproportionally high number of lawsuits in connection with failed Georgia banks, as I noted in greater detail in a recent post (here).  


Special thanks to a loyal reader for providing me with a copy of the FSNB complaint.