Westside Community Bank, Washington, Closed By Regulators – First Bank Failure of 2013

Westside Community Bank, University Place, Washington, became the first bank closing of 2013.  Regulators from the Washington State Department of Financial Institutions closed the bank today and appointed the FDIC as receiver.  To protect depositors, the FDIC sold failed Westside Community Bank to Sunwest Bank, Irvine, CA.

Westside Community Bank was established in March 1995.  At the time of its closing, the Bank had two branches which will reopen on Monday as branches of Sunwest Bank.  All depositors of Westside will automatically become depositors of Sunwest with uninterrupted FDIC deposit insurance up to the applicable limits.  Over the weekend, customers of Westside can access their money through the use of checks, debit cards and ATMs.

The failure of Westside Community Bank resulted from huge default rates on their commercial real estate loan portfolio.  The Bank had an incredibly high troubled asset ratio of 962%.  The troubled asset ratio measures the total of nonperforming loans to the sum of a bank’s Tier 1 capital plus loan loss reserves.  Historically, once a bank exceeds a troubled asset ratio of 100%, collapse of the bank is almost guaranteed.

In September 2010, the Bank was issue a Consent Order for unsafe or unsound banking practices.  In June of 2012, regulators issued a Prompt Corrective Action (PCA) notice to Westside Community, demanding that the Bank immediately raise additional capital.  Small banks with a large percentage of troubled loans almost never find investors willing to put in additional capital due to the high risk involved.  In addition, a purchaser is better off waiting until after an institution fails since, at that point, the bank could be purchased at a substantial discount from the FDIC.

At September 30, 2012, Westside Community Bank had total assets of $97.7 million and total deposits of $96.5 million.  Sunwest Bank agreed to purchase all assets of the failed bank in addition to assuming all deposits.

Sunwest Bank was founded in 1970, is profitable and has $620 million in total assets.

The closing of Westside Community Bank will cost the FDIC Deposit Insurance Fund $20.3 million.  Westside Community Bank is the first bank failure of 2013.  The last banking failure in Washington occurred in August 2011 when the Bank of Whitman was closed by regulators.

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