Friday, August 20, 2010

This Week in Bank Failures

The lull in bank failures, with regulators closing just two small Chicago banks in the last two weekends, ended tonight. Eight banks failed in California, Florida, Virginia, and, again, in Chicago.

It was the bank in Chicago that provides the big story tonight. ShoreBank was closed, and its deposits transferred to a new bank, Urban Partnership Bank. Urban Partnership bank is also acquiring the loan portfolio of the failed bank.

ShoreBank had $1.5 billion in deposits and 15 locations. The bank had been limping along for more than a year, and there were reports since last month of a deal in the works, involving the bank’s interim management and a combination of charitable and Wall Street funding, and it appears that formula is what led to the creation of the new bank.

ShoreBank’s focus on loans for low-income housing might have protected it from the subprime mortgage crisis, but the bank made large numbers of loans for houses that were more suburban in character during the housing boom, and those loans got the bank into trouble. High unemployment then weakened its core business. Roughly $100 million in new capital from Wall Street earlier this year wasn’t enough to save the bank, which needed about $250 billion more to give itself a fresh start. The bank had applied for $75 million in TARP money, but would have needed to raise the rest of the money itself to qualify.

Instead, the FDIC will take a loss estimated at $368 million for the bank closing.

The four banks that failed in California tonight were, combined, slightly larger than ShoreBank in financial terms. The largest was Los Padres Bank, with 11 locations along the central California coast, along with 3 in Arizona, and $771 million in deposits. The bank had been operating under a cease-and-desist order since October, followed by a prompt corrective action order with a July deadline. It had sold its Kansas City operations at the end of last year to improve its balance sheet, and had been looking to make other deals to improve its financial condition. It reported losses of about $55 million in 2008–2009, but was breaking even so far this year.

Pacific Western Bank is acquiring the deposits and assets. Pacific Western already had 68 locations in southern California.

Farther north, Sonoma Valley Bank was closed. It had three locations and $255 million in assets. Westamerica Bank is acquiring the deposits and assets.

Two banks failed in the northern half of the Central Valley: Butte Community Bank, with 14 locations and $471 million in deposits, and Pacific State Bank, with 9 locations and $279 million in deposits.

Dutch-owned local competitor Rabobank is acquiring the deposits and assets of both failed banks, paying a 4.05 percent premium for the deposits of Butte Community Bank.

The two small Florida banks that failed tonight had $200 million in deposits and 5 locations between them. They were Independent National Bank and Community National Bank At Bartow. CenterState Bank of Florida is acquiring the deposits and assets.

A very small bank failed in Virginia. Imperial Savings and Loan Association, in Martinsville, had $10 million in deposits. River Community Bank is acquiring the deposits and assets.