Banking Failures On Track To Exceed 2009 Total As 4 More Banks Fail

4 Banking Failures In 4 States Brings Year’s Total To 72

Four banks in four different states failed today, bringing the year’s total of banking failures to 72.  Regulators closed three relatively small banks in Georgia, Michigan and Missouri and one multi-billion dollar bank in Illinois, resulting in total losses to the Federal Deposit Insurance Corporation (FDIC) Deposit Insurance Fund (DIF) of $301.7 million.

The 72 failed banking institutions in 2010 to date had total assets of $65.9 billion and resulted in total losses to the DIF of $16.5 billion.  For all of 2009 there were 140 banking failures resulting in losses to the FDIC of $37.4 billion.   Average losses to the FDIC on the failed banks for 2010 are $229 million per bank, slightly lower that the average loss per failed bank of $267 million in 2009.

Despite the apparent recovery across the banking industry during the past year, this year’s banking failures exceed last year’s closings and at the present rate, could approach 200 bank closings, the most since 179 banking failures in 1992.  One indication of the severity of the present banking crisis can be seen by comparing losses on failed banks in 1992 vs 2009-2010.   Although 179 banks failed during 1992, the average loss to the FDIC per bank closing was only $38.6 million and total losses on all failed banks amounted to only $6.91 billion.

FDIC Manages To Sell All 4 Failed Banks With Generous Loss Protection To Buyers

The vast majority of recent banking failures were resolved by the FDIC and an acquiring bank entering into a purchase and assumption agreement, whereby the acquiring bank assumes the deposits and assets of the failed bank.  In protect depositors and arrange a speedy resolution of a failed bank, the FDIC has agreed in most banking failures to enter into a loss-share transaction with the acquiring bank.  The loss-share transaction typically involves the FDIC agreeing to absorb a large percentage of losses that an acquiring bank may experience on the purchase of a failed bank’s assets.  All four of this week’s banking failures were purchase and assumption agreements with the FDIC agreeing to limit losses to the buyers with a concurrent loss-share agreement.

Sensitive to the publicity relating to private investors reaping billions in profits on the purchase of failed banks (see One West Makes Billions on Failed Bank Purchases), the FDIC has attempted to recapture future profits on a failed bank by acquiring a value appreciation instrument from the purchasers of failed banks.  If the acquisition of a failed bank results in significant gains for the purchaser, the value appreciation instrument allows the FDIC to share in the gains.  In addition, the FDIC has recently decreased the loss-share agreements on failed bank assets from 90% to 85%.

The value appreciation instrument is a reasonable compromise since without the assurance of potential profits for purchasers of failed banks, the FDIC would likely have to wind down many failed banks via payouts to depositors, which in many cases would result in greater losses.  This week’s largest banking failure of Midwest Bank and Trust Co of Illinois involved the FDIC acquiring a value appreciation instrument as additional consideration by the purchaser to the FDIC.

The week’s banking failures are listed below.

Satilla Community Bank, Saint Marys, GA – Banking Failure #69

Satilla Community Bank, Saint Marys, Georgia, was closed today by the Georgia Department of Banking and Finance, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with Ameris Bank, Moultrie, Georgia, to assume all of the deposits of Satilla Community Bank.

As of March 31, 2010, Satilla Community Bank had approximately $135.7 million in total assets and $134.0 million in total deposits. Ameris Bank will pay the FDIC a premium of 0.19 percent to assume all of the deposits of Satilla Community Bank. In addition to assuming all of the deposits of the failed bank, Ameris Bank agreed to purchase essentially all of the assets.The FDIC and Ameris Bank entered into a loss-share transaction on $101.0 million of Satilla Community Bank’s assets.

The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $31.3 million. Satilla Community Bank is the 69th FDIC-insured institution to fail in the nation this year, and the eighth in Georgia

New Liberty Bank, Plymouth, MI – Banking Failure #70

New Liberty Bank, Plymouth, Michigan, was closed today by the Michigan Office of Financial and Insurance Regulation, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with Bank of Ann Arbor, Ann Arbor, Michigan, to assume all of the deposits of New Liberty Bank.

As of March 31, 2010, New Liberty Bank had approximately $109.1 million in total assets and $101.8 million in total deposits. Bank of Ann Arbor did not pay the FDIC a premium for the deposits of New Liberty Bank. In addition to assuming all of the deposits of the failed bank, Bank of Ann Arbor agreed to purchase essentially all of the assets.  The FDIC and Bank of Ann Arbor entered into a loss-share transaction on $95.2 million of New Liberty Bank’s assets.

The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $25.0 million.  New Liberty Bank is the 70th FDIC-insured institution to fail in the nation this year, and the third in Michigan.

Southwest Community Bank, Springfield, MO – Banking Failure #71

Southwest Community Bank, Springfield, Missouri, was closed today by the Missouri Division of Finance, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with Simmons First National Bank, Pine Bluff, Arkansas, to assume all of the deposits of Southwest Community Bank.

As of March 31, 2010, Southwest Community Bank had approximately $96.6 million in total assets and $102.5 million in total deposits. Simmons First National Bank will pay the FDIC a premium of 0.50 percent to assume all of the deposits of Southwest Community Bank. In addition to assuming all of the deposits of the failed bank, Simmons First National Bank agreed to purchase essentially all of the assets.  The FDIC and Simmons First National Bank entered into a loss-share transaction on $66.8 million of Southwest Community Bank’s assets.

The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $29.0 million.  Southwest Community Bank is the 71st FDIC-insured institution to fail in the nation this year, and the fourth in Missouri.

Midwest Bank and Trust Company, Elmwood, IL – Banking Failure #72

Midwest Bank and Trust Company, Elmwood Park, Illinois, was closed today by the Illinois Department of Financial Professional Regulation – Division of Banking, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with Firstmerit Bank, National Association, Akron, Ohio, to assume all of the deposits of Midwest Bank and Trust Company.

As of March 31, 2010, Midwest Bank and Trust Company had approximately $3.17 billion in total assets and $2.42 billion in total deposits. Firstmerit Bank, National Association will pay the FDIC a premium of 0.4 percent to assume all of the deposits of Midwest Bank and Trust Company. In addition to assuming all of the deposits of the failed bank, Firstmerit Bank, National Association agreed to purchase essentially all of the assets.  The FDIC and Firstmerit Bank, National Association entered into a loss-share transaction on $2.27 billion of Midwest Bank and Trust Company’s assets.

As part of this transaction, the FDIC will acquire a value appreciation instrument. This instrument serves as additional consideration for the transaction.

The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $216.4 million. Midwest Bank and Trust Company is the 72nd FDIC-insured institution to fail in the nation this year, and the eleventh in Illinois.

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