Friday, October 23, 2009

This Week in Bank Failures

Tonight is the night when the bank failure tally was expected to pass 100 for the year. It did, and then some. The first report this afternoon, though, was of the NCUA (National Credit Union Administration) taking action on a troubled credit union.

The NCUA placed a Mississippi credit union, First Delta Federal Credit Union, into conservatorship this afternoon. This means the NCUA will take over management of the credit union in order to protect deposits. The credit union continues to operate while the NCUA takes steps to improve its management and operations.

Bank failures started early this evening, with three early failures in Florida and one in Georgia. These four small banks had deposits between $65 million and $175 million. The combined cost for the FDIC is estimated at $176 million. From largest to smallest, they are:

  • Flagship National Bank, with four offices in Bradenton and Sarasota. Its loan portfolio had been deteriorating rapidly for the last year. Assets and deposits were purchased by First Federal Bank of Florida.
  • American United Bank, with one office in Lawrenceville, Georgia, on the eastern edge of the Atlanta metro. It had been in business for four years. It was the 20th bank to fail in Georgia this year. The FDIC had issued a prompt corrective action order in August because of inadequate capital. Assets and deposits were purchased by Ameris Bank, a regional bank with offices in the southern end of Georgia and in three neighboring states.
  • Hillcrest Bank Florida, based in Naples, Florida. The bank had been in business for barely three years. Deposits and one third of the assets were purchased by Stonegate Bank, which is using the acquisition to extend its reach across the Florida peninsula to the Gulf Coast.
  • Partners Bank, also of Naples. It was founded in 2005 and had been seeking additional capital for most of its four-year history. Assets and deposits were purchased by Stonegate Bank.

More bank failures followed as the evening wore on. Illinois banking regulators closed First Dupage Bank in the Chicago suburb of Westmont. Founded in 1999, it had one office and $254 million in deposits.

First Midwest Bank is purchasing the assets and deposits, paying a slight premium for the deposits. First Midwest Bank already had a dozen locations across the outer suburbs of Chicago, including one in nearby Bolingbrook.

First Dupage Bank apparently lost more than $12 million last year in the financial collapse of a developer that had borrowed money for a condo project. Nothing was ever built, and the developer left the country and subsequently filed for bankruptcy. IndyMac Bank took a similar loss on the developer’s previous project, which is now tied up in court and may not be completed for a few more years.

The FDIC estimates costs of $59 million for the First Dupage Bank closing.

A short distance to the north, Wisconsin banking officials closed Bank of Elmwood, based in Racine, Wisconsin, a city on the coast of Lake Michigan midway between Chicago and Milwaukee. The bank had five offices and $273 million in deposits. The Fed had rejected the bank’s capital restoration plan and given it an August deadline to raise capital or find a buyer.

Bank of Elmwood had been operating since 1960. As of seven months ago, one eighth of its commercial real estate loans were delinquent, and more than one fourth of its real estate development loans were delinquent. The bank’s president in July traced the bank’s difficulties to the economic problems of the community, noting the 17 percent unemployment rate in Racine.

The deposits and assets are being purchased by Tri City National Bank, a Milwaukee metro bank that already had a presence in Racine County. The FDIC estimates its costs for this closing at $101 million.

One state to the west, Minnesota closed Riverview Community Bank, a small bank with offices in Otsego and Anoka. It had $80 million in deposits. Deposits and assets are being purchased by Central Bank. This is the third failed bank purchased by Central Bank in a three-month period. All three acquisitions were in areas where Central Bank already had offices. The FDIC estimates its costs at $20 million.

With these seven closings, there have been 106 bank failures so far this year. To mark the 100th bank closing, FDIC head Sheila Bair released a YouTube video, which appears to have been written and recorded in the second half of September. In it, she assures depositors that their money is safe, up to the deposit insurance limits, and that the FDIC has essentially unlimited financial resources, even if it is not eager to use them.

It’s worth remembering at this point that less than 2 percent of banks in the United States have failed so far, and there is no risk that the country, or any state or region in it, will run out of banks.