FDIC Losses Total $1Billion On 3 Bank Failures

Banking Failures Hit 123 As Of November 13, 2009

Regulators closed three additional banks today in Florida and California.  The three failed banks had a total of 36 branches with total assets of $3.6 billion.  The total cost to the FDIC Deposit Insurance Fund for the three failed banks is estimated at $986.4 million.   The FDIC entered into purchase and assumption agreements with acquiring banks for all three failed banks.

FDIC Provides Generous Terms To Purchasers of Failed Banks

The terms of the purchase and assumption agreements for the two biggest banking failures this week seem to indicate that the FDIC is finding it necessary to offer more generous terms in order to attract bids on failed banks.  The FDIC accepted a discount of 1.5% for the assumption of  $2.7 billion in deposits of failed banks Century Bank and Orion Bank.  This discount to the acquiring banks for assuming the deposits of the failed banks cost the FDIC $41 million.  In the past, the acquiring bank would often pay a small premium for the deposits of a failed bank.   In addition to the deposit discount, the FDIC also provided generous loss protection to the acquiring banks by entering into a loss-share transaction on the purchase of failed bank assets (see Loss-Share Transactions – Is The FDIC Postponing Losses on Bank Failures?).

Regulators Reluctant To Close Zombie Banks

The failure of Century Bank this week (see below) reveals the reluctance and glacial pace by regulators in closing banks that are far beyond the point of financial recovery.   The loss to the FDIC on the closure of Century Bank amounts to $344 million or a staggering 47% of the failed bank’s assets.  Century Bank had a huge troubled asset ratio of 453%.  The majority of banks closed this year by regulators had a troubled asset ratio of approximately 100%.   In the last banking crisis, a banking institution with a troubled asset ratio of over 10% was considered beyond recovery and usually closed by regulators.

Any banking institution that needs to write down the value of its assets by almost 50% should have been closed much sooner – half of Century Bank’s assets were worthless yet it remained open until today.   The FDIC does not have the cash to simply close failed banks and pay off depositors, but finding purchasers for failed banks is also becoming more difficult and costly.

Failed Banks for November 13, 2009

Century Bank FSB, Sarasota, Florida – Number 121

Century Bank, Federal Savings Bank, Sarasota, Florida, was closed today by the Office of Thrift Supervision, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with IBERIABANK, Lafayette, Louisiana, to assume all of the deposits of Century Bank, FSB.

As of October 31, 2009, Century Bank, FSB had total assets of $728 million and total deposits of approximately $631 million. The FDIC accepted a 1.5 percent discount on the deposits of the failed bank from IBERIABANK. In addition to assuming all of the deposits of the failed bank, IBERIABANK agreed to purchase $706 million of the failed bank’s assets. The FDIC retained the remaining assets for later disposition.

The FDIC and IBERIABANK entered into a loss-share transaction on approximately $656 million of Century Bank, FSB’s assets.

Century Bank had eleven branches and is the tenth banking failure in Florida this year.  The cost to the FDIC to close Century Bank is $344 million.

Orion Bank, Naples, Florida – Number 122

Orion Bank, Naples, Florida, was closed today by the Florida Office of Financial 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 IBERIABANK, Lafayette, Louisiana, to assume all of the deposits of Orion Bank.

As of October 31, 2009, Orion Bank had total assets of $2.7 billion and total deposits of approximately $2.1 billion. The FDIC accepted a 1.5 percent discount from IBERIABANK on the deposits of the failed bank. In addition to assuming all of the deposits of the failed bank, IBERIABANK agreed to purchase $2.4 billion of the failed bank’s assets. The FDIC retained the remaining assets for later disposition.

The FDIC and IBERIABANK entered into a loss-share transaction on approximately $1.9 billion of Orion Bank’s assets.

Orion Bank had 23 branches and is the eleventh banking failure in Florida this year.   The cost of the failed bank to the FDIC DIF fund is $615 million.

Pacific Coast National Bank, San Clemente, California – Number 123

Pacific Coast National Bank, San Clemente, California, was closed today by the Office of the Comptroller of the Currency, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with Sunwest Bank, Tustin, California, to assume all of the deposits of Pacific Coast National Bank.

As of August 31, 2009, Pacific Coast National Bank had total assets of $134.4 million and total deposits of approximately $130.9 million. Sunwest Bank did not pay a premium to assume all of the deposits of Pacific Coast National Bank. In addition to assuming all of the deposits of the failed bank, Sunwest Bank agreed to purchase essentially all of the assets.

Pacific Coast had two branches and is the fifteenth banking failure in California this year.  The cost to the FDIC DIF fund for closing Pacific Coast is $27.4 million.