Friday, December 17, 2010

This Week in Bank Failures

The FDIC said, in releasing its budget for next year, that it was over the hump when it comes to the current bank failure episode. If so, here is an example of why: Bank of Montreal is buying out Marshall & Ilsley (M&I), a Wisconsin-based regional bank that had seen its stock decline 83 percent from its peak in 2004. M&I had been losing $1 billion per year for the last three years and had a TARP loan it was unable to repay. Large banks in the United States generally have been struggling to find a new niche after the Wall Street bailout provided a series of competitive advantages to the 10 or 20 largest banks, and several large regional banks have been bought out by foreign interests. This, of course, is better for the banks’ customers and for the FDIC (and especially for the stockholders) than if the banks were to fail. The pace of buyouts of troubled banks is likely to pick up if executives and investors believe the prospects for banks is improving in the short run. As more troubled banks are bought out, the FDIC has less work to do.

If bank failures are slowing down, it was not evident tonight. There were six bank failures, perhaps the last ones of the year, resulting in a total of 157 bank failures for 2010. All six were small, though, each with between $28 million and $241 million in deposits.

In Florida, The Bank of Miami failed, with three offices in Miami and Coral Gables. Another South Florida bank, 1st United Bank, is taking over the deposits and purchasing the assets.

There were three small bank failures tonight in northern Georgia:

  • United Americas Bank, with two locations north of Atlanta. Local bank State Bank & Trust is taking over the deposits and purchasing the assets.
  • Appalachian Community Bank, FSB, with three offices in McCaysville, Georgia, Murphy, North Carolina, and Ducktown, Tennessee, in the area of the southern Appalachian Mountains where those three states meet. This closing does not affect other banks and locations that may have similar names. Another bank that already has a small presence in the area, Peoples Bank of East Tennessee, is taking over the deposits and purchasing the assets.
  • Chestatee State Bank, four locations in the Dawsonville, Georgia, area. Arkansas-based Bank of the Ozarks is taking over the deposits and purchasing the assets.

In Arkansas, First Southern Bank failed. It had locations in the towns of Batesville and Searcy. Missouri-based Southern Bank is taking over the deposits and purchasing 80 percent of the assets (and putting a tarp over the word “First” in the bank signs).

The future of First Southern Bank was in question after the bank became suspicious last month about $22 million in bonds it held, eventually determining that the bonds were fakes — a catastrophic event for a bank that had a total of $19 million in capital. Last week, questions were directed toward the bank’s majority shareholder, who apparently sold the bonds to the bank and may also have improperly used money borrowed for another purpose to buy additional stock in the bank during a recent stock offering. The majority shareholder is missing, and his home has fallen into foreclosure. Meanwhile, other banks nearby are double-checking their own bond holdings.

A small bank in Lino Lakes, Minnesota, Community National Bank, failed. Iowa-based Farmers & Merchants Savings Bank is taking over the deposits and purchasing the assets.

All the branches of tonight’s failed banks will remain open, becoming branches of the successor banks.

Also tonight, the NCUA took control of AEA Federal Credit Union in Yuma, Arizona. The credit union has 49,000 members. It will continue operating under NCUA control.