Five financial institutions that failed Friday are expected to cost more than $600 million. The assets and deposits of three of the failed firms were acquired by banks with similar names as the deceased institutions. The process of a bank failure was described in recent testimony before Congress.
In testimony last week before the House Committee on Financial Services, Mitchell L. Glassman, director of the division of resolutions and receiverships for the Federal Deposit Insurance Corporation, told legislatures about the failed-bank process at the agency. He said that last year’s 140 FDIC-insured failures had more than $171 billion in assets and noted that recovery in the banking industry usually lags other sectors.
Glassman explained that the resolution process normally begins when a bank regulator warns the FDIC of the impending failure of an institution. The failing institution’s chief executive officer is then contacted to workout the logistics of the seizure provide obtain loan and deposit data. The assets of the institution are analyzed, and resolution options are determined. An information package is assembled for potential bidders.
The bidding companies are determined based on their condition, market and strategy. Before they can participate in the bidding process, un-chartered private investors must first obtain clearance from a chartering authority, satisfy any holding company requirements and be in the process of obtaining deposit insurance. In addition to online data about the failing bank, the bidding institution can perform on-site due diligence.
The bid deadline is generally one week prior to the scheduled bank closing. Once the least-costly bid is identified, unsuccessful bidders are notified and the applicable bank regulator approves the transaction.
Glassman noted that while it can be painful to shareholders, creditors and other stakeholders — its process of quick and early reallocation of resources is the least painful for the FDIC.
Late Friday, the Florida Office of Financial Regulation seized nine-year-old Premier American Bank in Miami and named the FDIC receiver. Premier American Bank, National Association, agreed to assume all of Premier’s $326 million in deposits as of Sept. 30, 2009, at par and acquire all of its $351 million in assets — including $35 million in home loans, $128 million in commercial mortgages and $94 million in construction-and-land-development loans. Factoring in a $300 million loss-sharing agreement, the Deposit Insurance Fund is expected to be depleted by $85 million as a result of the 73-employee institution’s failure.
A cease-and-desist order was issued by the FDIC against Premier American on May 18, 2009.
The Missouri Division of Finance closed Bank of Leeton and named FDIC receiver, as is done with all federally insured bank failures. The 104-year-old bank, which was hit with an FDIC cease-and-desist order in February 2009, was unsuccessful in finding a new buyer. Its board of directors voted to turn the bank over to Missouri. The division blamed Bank of Leeton’s failure on aggressive risk selection by management, which led to more loan losses than the bank could support.
Sunflower Bank, National Association, assumed all of the Leeton, Mo., bank’s $20 million in deposits for an 0.59 percent premium. There was no buyer for the assets, which included $4 million in home loans, $5 million in commercial real estate loans and $2 million in construction-and-land-development loans. The FDIC expects the failure of the 11-employee bank to cost $8 million.
Charter Bank of Santa Fe, N.M., was closed by the Office of Thrift Supervision, which said the thrift was “in an unsafe and unsound condition with significant asset quality problems and capital deficiencies.” The OTS issued a cease-and-desist order against Charter in November 2009.
Charter Bank in Albuquerque, N.M., agreed to assume all of its namesake’s $851 million in deposits as of Sept. 30, 2009, at par and acquire all of its $1.2 billion in assets. Given an $806 million loss-sharing arrangement, the FDIC expects the failure to cost $202 million.
A little further west, in Seattle, Evergreen Bank was closed by the Washington Department of Financial Institutions, which noted that capital had been depleted by large loan losses — especially with its real estate construction-and-development portfolio. Total assets at Evergreen — which faced an FDIC cease-and-desist order in October — were $489 million as of Sept. 30.
Umpqua Bank agreed to assume all of Evergreen’s $439 million in deposits for a 1 percent premium. It also agreed to acquire all of the assets with the FDIC sharing in losses on $380 million of the assets — bringing projected losses to $173 million.
Friday’s fifth failure was further down the Pacific Coast, in Salem, Ore., where the Oregon Department of Consumer and Business Services seized 322-employee Columbia River Bank. In late 2008, Columbia River closed its mortgage unit. It faced an FDIC cease-and-desist order in February 2009.
Columbia State Bank agreed to assume the 33-year-old failed bank’s $1.0 billion in deposits as of Sept. 30 for a 1 percent premium and acquire all of its $1.1 billion in assets — including $66 million in one- to four-unit residential loans, $238 million in commercial mortgages and $182 million in construction-and-land-development assets.
A $697 loss-sharing agreement is expected to bring FDIC losses to $173 million.
Columbia River was the ninth federally insured institution to fail during 2010. MortgageDaily.com has tracked the closing of 11 mortgage-related firms so far this year.
