6 Banking Failures Highlight Horrendous Loan Portfolios

Six More Banking Failures Bring Year’s Total To 15

Regulators closed six banks today in Florida, Minnesota, California, Washington and two in Georgia.  The six failed banks had total assets of $5.5  billion and total deposits of $4.9 billion.  The total cost to the FDIC Deposit Insurance Fund for the six failed banks is estimated at $1.9 billion or 33% of total assets.  The cost to the FDIC Deposit Insurance Fund for the 15 banking failures to date in 2010 now totals $3.23 billion.

The FDIC, as receiver, entered into purchase and assumption agreements with other banks to acquire the assets and deposits of all 6 of the failed institutions.  As has been the case with almost all recent banking failures, the acquiring banks entered into loss-share transactions with the FDIC which will limit potential losses on the acquired loan portfolios of the failed banks.

The horrendous loan quality of the failed banks is highlighted by the huge losses the FDIC is incurring on the failed banks assets.  Losses on the four largest failed banks this week range from 30 to 40% of the failed banks loan portfolios.   Regulators have routinely classified most failed banks as being critically undercapitalized and engaging in unsafe and unsound practices – regulatory verbiage to describe banks that made exceptionally poor lending decisions which resulted in huge loan losses and failure.

As in the previous week, two of the failed banks, First National of Georgia and Florida Community Bank, were acquired by newly chartered banks backed by private capital.   As the FDIC has struggled to find healthy banks suitable or capable of acquiring failed banks, it has allowed private investor groups to acquire failed banks.

Many analysts are predicting that banking failures in 2010 will exceed last year’s total of  140 institutions as loan defaults continue to climb amid rising unemployment and a weak economy.  As of September 30, 2009, the latest FDIC Quarterly Banking Profile revealed that there are 552 problem banks, the most since the fourth quarter of 1993 when there were 575 institutions on the list.

The six failed banks for January 29, 2010 are as follows:

First National Bank of Georgia – Number 10

Failed First National’s deposits and assets were purchased by Community & Southern Bank, Carrollton, GA, a newly chartered institution.  Community & Southern’s President, Patrick Frawley, stated that  “Following our recently completed capital raise, we are poised to pursue additional opportunities to help with the recovery of the banking system as we strive to create one of the strongest, healthiest, and most well-managed banks in the State of Georgia.  This is an excellent example of a successful private-public partnership that will save jobs and provide much needed stability to First National Bank customers”.

At the time of closing, First National had $832.6 million in assets and $757.9 million in deposits.  The FDIC entered into a loss-share transaction with Community & Southern on $607.4 million of failed First National’s assets.  The cost to the FDIC Deposit Insurance Fund is estimated at $260.4 million or 31% of total assets.

Florida Community Bank – Number 11

The FDIC entered into a purchase and assumption agreement with Premier American Bank to acquire all of the deposits of failed Florida Community.  At the time of closing Florida Community had $875.5 million in assets and $795.5 million in deposits.  Premier American is purchasing only $499 million of the failed banks assets, leaving the FDIC to dispose of the remaining $376.5 million in assets at a later date.   In addition, the FDIC has limited potential losses on Premier American’s purchase of $499 million in assets through a loss-share transaction with Premier American.

Premier American is a recently chartered bank backed by private capital that was established for the purpose of investing in failed banks.  Last week Premier American had acquired its first failed bank.

The failure of Florida Community will cost the FDIC an estimated $352.6 million, a horrendous 40% of the failed bank’s assets.

Marshall Bank, Hallock, Minnesota – Number 12

The FDIC entered into a purchase and assumption agreement with United Valley Bank, Cavalier, North Dakota to assume all of the deposits and assets of tiny Marshall Bank.   At closing Marshall Bank had $60 million in assets and $55 million in deposits.  The cost to the FDIC to close Marshall Bank is estimated at $4.1 million

Community Bank and Trust, Cornelia, Georgia  – Number 13

The FDIC entered into a purchase and assumption agreement with SCBT, N.A., Orangeburg, South Carolina, to assume all deposits and purchase all assets of the failed bank.  Community Bank, at the time of closing, had $1.21 billion in assets and $1.11 billion in deposits.  The FDIC and SCBT entered into a loss-share transaction on $827.7 million of the failed banks assets.

The cost to the FDIC to close Community Bank is estimated at $354.5 million or 29% of assets.

First Regional Bank, Los Angeles, CA – Number 14

The FDIC entered into a purchase and assumption agreement with First-Citizens Bank & Trust Co, Raleigh, North Carolina, to assume all deposits and virtually all of the assets of the failed bank.   At the time of closing, First Regional had $2.18 billion in assets and $1.87 billion in deposits.   The FDIC and First-Citizens entered into a loss-share transaction on $2 billion of First Regional’s assets.

The loss to the FDIC is estimated at $825.5 million or 38% of First Regional’s assets.

American Marine Bank, Bainbridge Island, Washington – Number 15

American Marine was taken over by Columbia State Bank, Tacoma, Washington under a purchase and assumption agreement with the FDIC.   All of American Marine’s deposits and assets were acquired by Columbia State Bank.  At the time of closing, American Marine had $373.2 million in assets and $308.5 in deposits.    The FDIC and Columbia Bank entered into a loss-share transaction on $255 million of the failed bank’s assets.

The cost of closing American Marine  Bank is estimated at $58.9 million.  American Marine is the third banking failure in Washington this year.


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