Eight Banks Fail – Florida Now Leads Nation In Banking Failures

8 Bank Failures – Loss To FDIC Insurance Fund Almost $1 Billion

Regulators closed eight more failed banks in 5 states today resulting in an  estimated cost to the FDIC Insurance Deposit Fund (DIF) of $984.7 million.  The eight failed banks for April 16, 2010 had total assets of $6.25  billion and total deposits of $5.18 billion.  The cost to the FDIC DIF for the 50 banking failures in 2010 now totals $7.63 billion.  Total assets of the 50 failed banks total almost $30 billion.

Two of this weeks banking failures, City Bank of Lynnwood, MA and Riverside National Bank of Florida had assets of over $1 billion.   There are now a total of 10 banking failures this year in which assets of the failed banks exceeded $1 billion.

The assets and deposits of 7 of the 8 failed banks were taken over by other institutions under purchase and assumption agreements with the FDIC.  The FDIC could not find a buyer for failed Lakeside Community Bank of Michigan and this bank will be liquidated and depositors paid off by the FDIC.   As has been the case with almost all recent banking failures, the FDIC entered into a loss-share agreement with the acquiring banks to protect them from losses on the purchase of the failed banks’ assets.

Florida Leads The Nation In Banking Failures

It is not surprising that Florida now leads the nation in banking failures.  During the real estate mania, Florida’s property values soared, fueled in large part by easy, no “questions asked” lending policies.   As property values crashed and delinquencies soared, many banks were unable to raise enough new capital to offset huge losses on real estate loans.  Regulators now have no choice but to close banks that are now unsafe and have little hope of surviving.

Three banks were closed in Florida on Friday, bringing the total number of banking failures in that State to 9 this year  and solidly pushing Florida into first place for the largest number of banking failures in 2010.  Florida now accounts for 18% of this year’s banking failures.  The failure this week of Riverside National Bank of Florida, with $3.4 billion in assets, is the second largest banking failure of 2010.

All three of the failed banks in Florida were taken over by Canada’s TD Bank Financial Group.   The three failed banks have a total of 69 branches and will dramatically increase TD Bank’s presence in Florida.    The largest failed bank taken over by TD Bank was Riverside National Bank with 58 branches, $3.42 billion in assets and $2.76 billion in deposits.  TD Bank also acquired  AmericanFirst Bank with assets of $90.5 million and deposits of $81.9 million and First Federal Bank of North Florida with assets of $393.3 million and deposits of $324.2 million.

The FDIC entered into a loss-share transaction on $2.2 billion of the three failed banks’ assets.  According to the FDIC, “initially, TD Bank and the FDIC will share in losses on assets on a 50%/50% basis”.   Unspecified is the amount of assets that losses will be shared on and what the loss share arrangement is after the “initial” loss share arrangement.   The FDIC has been justly subject to criticism as billions of dollars in profits have been quickly made by some acquirers of failed banks (see Insiders Reap Huge Profits and One West Makes Billions).

As a partial offset for sheltering the purchasers of failed banks from losses, the FDIC has initiated agreements whereby they would share in the gain on appreciation of the stock of the purchaser bank for a specified period of time.  Since the FDIC appears to be selling many of the failed banks with little credit risk to the purchaser, the FDIC is seeking to harvest some of the potentially large future profits that may be realized on failed bank sales.  In two of this weeks failed bank sales (City Bank and Innovative Bank), the FDIC acquired a value appreciation instrument which will allow the government to share in future gains on the failed banks’ assets.

Lakeside Community Bank, Sterling Heights, Michigan – Banking Failure #43

The FDIC was unable to find a buyer for Lakeside and will accordingly wind down the bank’s operations.  Checks to depositors for their insured funds will be mailed on April 19th.   Lakeside had $53 million in assets and $52.3 million in deposits.

The loss to the FDIC DIF fund is estimated at $11.2 million.  Lakeside is the first banking failure in Michigan this year.

AmericanFirst Bank, Clermont, FL – Banking Failure #44

First Federal Bank of North Florida, Palatka, FL – Banking Failure #45

Riverside National Bank of Florida, Fort Pierce, FL – Banking Failure #46

– see discussion on Florida bank failures above

Butler Bank, Lowell, MA – Banking Failure #47

Butler Bank was taken over by People’s United Bank, Bridgeport, CT.  Butler Bank had $268 million in assets and $233.2 million in deposits.   People’s purchased all of the failed banks assets and assumed all of the deposits.  The FDIC and People’s entered into a loss-share transaction of $206 million of the failed bank’s assets.

The loss to the FDIC on Butler Bank’s closing is $22.9 million.   Butler is the first banking failure in Massachusetts this year.

Innovative Bank, Oakland, CA – Banking Failure #48

Center Bank, Los Angeles, CA assumed all of the deposits and purchased essentially all of the assets of Innovative.   The failed bank had $269 million in assets and $225 million in deposits.   Center Bank and the FDIC entered into a loss-share transaction of $178 million of Innovative Bank’s assets.  The FDIC also acquired a value appreciation instrument from Center Bank, which serves as additional compensation for the transaction.

Innovative Bank is the third banking failure in California this year and is expected to cost the FDIC DIF fund $37.8 million in losses.

Tamalpais Bank, San Rafael, CA – Banking Failure #49

Union Bank, San Francisco assumed all of the deposits and purchased essentially all of the assets of Tamalpais.  The failed bank had $629 million in assets and $488 million in deposits.  Union Bank paid a 2% premium to the FDIC to assume the deposits.  The FDIC and Union agreed to a loss-share transaction covering $522 million of Tamalpais’s assets.

The loss to the FDIC DIF is $81 million.  Tamalpais is the fourth banking failure in California this year.

City Bank, Lynnwood, WA – Banking Failure #50

Whidbey Island Bank, Coupeville, WA assumed all of the deposits and purchased essentially all of the assets of City Bank.  The failed bank had $1.13 billion in assets and $1.02 billion in deposits.  Whidbey Bank paid a 1% premium to the FDIC to assume the deposits.  The FDIC and Whidbey agreed to a loss-share transaction covering $455 million of City Bank’s assets.  In addition, the FDIC received a value appreciation instrument as additional compensation for the transaction.

The cost to the FDIC DIF fund is estimated at $323 million.   City Bank is the fifth banking failure in Washington this year.

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