Sunrise Bank, GA, Closed As Regulators Zero In On Capitol Bancorp

Regulators closed the second bank of the day controlled by Capitol Bancorp, the troubled holding company that holds 11 different banks in nine different states.  Sunrise Bank, Valdosta, GA, was closed by state regulators while earlier in the day, regulators closed Pisgah Community Bank, N.C., also owned by Capitol Bancorp.

The FDIC, acting as receiver, sold the failed bank to Synovus Bank, Columbus, Georgia, which will assume all deposits.

At December 31, 2012, Capitol operated nine state chartered banks, one federal savings bank and one national bank that have combined total assets of $1.6 billion.  All of the 11 banks controlled by Capitol Bancorp are on the unofficial Problem Bank List and eight are operating under Prompt Corrective Action notices.

Capitol Bancorp is a uniquely structured affiliation of community banks. Local banks controlled by Capitol Bancorp have local authority to make loans.  The parent company provides administrative and operational support services which, in the view of the parent company, allows each banking unit to perform more efficiently.

Unfortunately, Capitol’s theories on running banks did not work in the really world and many of its banks faced huge losses as loan defaults soared during the financial collapse and ensuing recession.

Capitol Bancorp has been attempting to either recapitalize or sell the various banks it controls without success.  Given the seriously undercapitalized condition of the banks owned by Capitol Bancorp, buyers are hard to find.  Serious buyers are more likely to wait until the banks are closed by regulators when FDIC assisted financing on favorable terms would be available.  On August 9, 2012, Capitol Bancorp filed for reorganization under Chapter 11.  Investors seem to be taking a dim view on a potential recovery by Capitol Bancorp and the stock has fallen from the $50 range in 2008 to a mere nine cents per share at today’s closing price.

 

In December, Capitol announced the planned sale  and subsequent recapitalization of Sunrise Bank of Albuquerque but the transaction has been delayed due to the lack of regulatory approval.  If regulators had closed the insolvent Sunrise Bank, it could have triggered a $10 million cross guaranty liability against the other banks owned by Capitol which could have lead to a complete collapse of the company.  The FDIC has allowed Capitol Bancorp to stay in business by issuing 16 different waivers on cross guarantee liabilities on previous sales of banks controlled by Capitol.

The FDIC seems to have given Capitol Bancorp an extreme amount of latitude considering the dire financial condition that the company is in and the lack of success in disposing of its banking units.  Unless Capitol Bancorp can pull off a miracle, it seems likely that regulators will eventually be forced to close the other banks owned by Capitol Bancorp as they did today with Pisgah Community Bank.

All three branches of Sunrise Bank will reopen as branches of Synovus Bank and depositors will have uninterrupted FDIC deposit insurance up to the applicable limits.  Over the weekend, depositors of Sunrise will have access to their money through the use of ATMs, checking accounts and debit cards.

At March 31, 2012, Sunrise Bank had total assets of $60.8 million and total deposits of $57.8 million.  Due to the very poor quality of the asset pool held by Sunrise Bank, Synovus agreed to purchase only $13.2 million of the failed bank’s assets.  The FDIC is stuck with the remaining balance of loans which will be disposed of at a later date.

The failure of Sunrise Bank will cost the FDIC Deposit Insurance Fund $17.3 million.  Sunrise Bank becomes the 12th banking failure of the year and the third in Georgia.