Community Bank of the Ozarks, Sunrise Beach, MO, was closed today by the Missouri Division of Finance, which named the FDIC as receiver.
Community Bank of the Ozarks, which describes itself as a “strong, independent community bank” on its website, was buried under an avalanche of defaulted loans. At September 30, 2012, the Bank had an astronomical troubled asset ratio of 726% compared to a national median of 11%. The troubled asset ratio is derived by dividing total troubled assets by the total of Tier 1 capital plus loan loss reserves.
Historically, once the troubled asset ratio exceeds 100%, the likelihood of bank failure is almost certain. While the ultimate fate of Community Bank of the Ozarks was clear, what is not clear is why regulators took so long to close this troubled bank.
Founded in 1988, Community Bank was relatively small with only $42.8 million in total assets and $41.9 million in deposits. To protect depositors, the FDIC entered into a purchase and assumption agreement with Bank of Sullivan, Sullivan, MO, under which Bank of Sullivan will assume all deposits of the failed bank.
Both branches of Community Bank of the Ozarks will reopen on Saturday as branches of Bank of Sullivan and all deposits will continue to be insured by the FDIC up to the applicable limits. Over the weekend, depositors will have access to their money through the use of checking accounts, debit cards and ATM facilities.
In addition to assuming all deposits, Bank of Sullivan also purchased all the assets of failed Community Bank. The FDIC entered into a loss-share transaction with Bank of Sullivan, which covers $37.3 million of Community Bank of the Ozark’s assets. Under the loss share agreement, the FDIC will cover a portion of the losses to be incurred on the asset pool acquired by Bank of Sullivan. The FDIC maintains that the use of loss-share transactions ultimately reduces total losses on a failed bank’s assets by keeping them in the private sector and minimizing disruption to loan customers.
Bank of Sullivan was founded in 1895, has total assets of $284 million at September 30, 2012 and has been profitable the past two years. Community Bank of the Ozarks was the first acquisition of a failed bank by Bank of Sullivan.
The loss to the FDIC Deposit Insurance Fund for the failure of Community Bank of the Ozarks is $10.4 million. Community Bank of the Ozarks is the nation’s 51st bank failure of the year and the 4th in Missouri.