The biggest banking failure of 2013 occurred today in Texas as regulators closed the First National Bank, Edinburg, Texas, The failed bank becomes the 22nd banking failure of the year and the first in Texas.
First National Bank, with $3.1 billion in total assets, is the largest bank failure since May 14, 2010 when Midwest Bank and Trust Company, Elmwood, IL, with $3.2 billion in assets failed. The assets of failed First National Bank exceed the combined assets of all previous 21 banking failures in 2013 and the $637.5 million loss on the closing of First National Bank exceeds the total losses of $512 million on all previous banking failures of 2013.
Total assets of the 22 banks that have failed during 2013 amount to $5.92 billion and losses to the FDIC for all 22 bank failures totals$1.15 billion.
To protect depositors, the FDIC entered into a purchase and assumption agreement with PlainsCapital Bank, Dallas, Texas, which will assume all deposits of First National Bank. The holding company for PlainsCapital Bank is Hilltop Holdings Inc. which has almost 4,000 employees and $7.3 billion in assets. All 51 former branches of First National Bank will reopen as branches of PlainsCapital Bank and all depositors of the failed bank will automatically become depositors of the acquiring bank. FDIC insurance coverage will continue uninterrupted up to the applicable limits.
Over the weekend depositors of First National Bank can access their money through the use of ATMs, checking accounts and debit cards.
Established in 1934 by local community businessmen, First National Bank prospered and grew until the financial crisis and poor lending policies resulted in large numbers of defaulted loans which depleted the bank’s capital. At June 30, 2013 First National Bank had $418 million in non-current loans and real estate owned resulting in a Texas Ratio of almost 200%. Historically, a bank with a Texas Ratio of over 100% almost always winds up failing.
At June 30, 2013, First National Bank had total assets of $3.1 billion and total deposits of $2.3 billion.
PlainsCapital Bank agreed to purchase $2.7 billion of First National Bank’s assets with the remaining balance of $400 million to be retained by the FDIC for future disposition. The FDIC and PlainsCapital Bank entered into a loss-share transaction under which the FDIC will reimburse PlainsCapital for 80% of losses incurred on $1.8 billion of the asset pool acquired. The FDIC maintains that the use of a loss-share agreement minimizes losses by keeping assets in the private sector. PlainsCapital Bank projects that the acquisition of First National Bank will be immediately accretive to earnings.
First National Bank becomes the 22nd banking failure of 2013 and the first in Texas. The cost to the FDIC Deposit Insurance Fund for the failure of First National Bank is $637.5 million.