Friday, July 30, 2010

This Week in Bank Failures

Banks’ earnings reports might not be showing any particular trend, but more deals are getting done in the banking business, and that’s a trend that could eventually reduce the pace of bank failures.

The FDIC continues to have successes in its auctions of portfolios of distressed mortgages. The investment money involved will help the FDIC’s cash position in the short run. Banks are also finding easier access to the same pool of capital. Today, Capitol Bancorp Limited improved its capital position by completing the sale of Community Bank of Lincoln to a group of investors. This is a deal worth a few million dollars, which is new investment money flowing into the banking sector.

With banks’ earnings all over the map this quarter, we can expect a flurry of bank closings over the next few weeks. The first bank to fail at closing time tonight was NorthWest Bank and Trust, with two locations in Acworth and Marietta, Georgia. The bank had been operating just since 2004 on the edge of the Atlanta metro area — hardly a favorable scenario for a new bank. State Bank is taking over the deposits, of about $159 million, and purchasing the assets. State Bank has acquired one fifth of the failed Georgia banks in the current cycle.

Two small banks failed in the Florida panhandle. Coastal Community Bank, with $363 million in deposits, and Bayside Savings Bank with $52 million. Arkansas-based Centennial Bank is taking over the deposits and purchasing the assets.

Two midsized banks failed on the West Coast: LibertyBank, with $718 million in deposits and 15 locations in Oregon, and The Cowlitz Bank, with $514 million in deposits and 9 locations in Washington and Oregon, all along Interstate 5, some operating under the name Bay Bank.

Heritage Bank is assuming the deposits and purchasing 62 percent of the assets of The Cowlitz Bank. It is paying a 1 percent premium for the deposits. Similarly, Home Federal Bank is purchasing 55 percent of the assets of LibertyBank, and assuming that failed bank’s deposits with a 1 percent premium.

Both banks had lent too heavily in residential construction and real estate development, and had sought for the past two years to reduce their exposure in that niche.