Dedicated to Deposits: Deals, Data, and Discussion

22nd and 23rd Bank Failure of 2009

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Two banks failed today. The first failure was Cape Fear Bank in North Carolina, and the second one was New Frontier Bank in Colorado. The New Frontier Bank closure was actually a little more fearful. The FDIC wasn't able to find a buyer. However, instead of closing the bank immediately, the FDIC created a bank that will only exist for 30 days. During this time, customers will be able to access insured deposits in their checking and savings accounts. This is intended to give customers time to find a new bank. For customers with CDs or IRA CDs, the FDIC will be mailing checks of the insured deposits. According to the FDIC FAQ, checks will be mailed on Monday, April 13. All interest on insured deposits accrued through today (4/10/09) will be paid.

The closure of Cape Fear Bank was the less fearful closure since the FDIC found a buyer who agreed to assume all deposits, including deposits above the FDIC limits. No one lost any money on their deposits. The only issue of concern for depositors will be the potential loss of a high rate on a CD. According to the FAQ #6, the new bank has not decided yet if it'll honor the original CD rates. The depositors are free to withdraw funds without an early withdrawal penalty.

The following is a summary of the closures:

22nd Bank Failure of 2009 in North Carolina
  • FDIC Press Release
  • Closed Bank: Cape Fear Bank
  • Location: Wilmington, NC
  • Size: 8 branches, $492 million assets, $403 million deposits
  • Possible Uninsured Deposits: All deposits transferred
  • Acquiring Bank: First Federal Savings and Loan Association of Charleston
  • Estimated Cost to Deposit Insurance Fund: $131 million
  • Financial Ratings: 2 stars (problematic) at BauerFinancial, 1 star (lowest) at Bankrate.com

23rd Bank Failure of 2009 in Colorado
  • FDIC Press Release
  • Closed Bank: New Frontier Bank
  • Location: Greeley, CO
  • Size: 3 branches, $2.0 billion assets, $1.5 billion deposits
  • Possible Uninsured Deposits: $4 million
  • Acquiring Bank: None
  • Estimated Cost to Deposit Insurance Fund: $670 million
  • Financial Ratings: 2 stars (problematic) at BauerFinancial, 2 stars (below peer group) at Bankrate.com
Both BauerFinancial and Bankrate were a little off on their ratings. BauerFinancial had a 2-star rating (0 is the worst, 5 is the best) for both of the failed banks. Bankrate had a 1-star rating for Cape Fear Bank and a 2-star rating for New Frontier Bank (1 is the worst, 5 is the best). BauerFinancial ratings are based on 12/31/08 data. Bankrate is even more behind with its ratings which are based on 9/30/08 data.

I've posted on New Frontier many times last year. They had a long record of high-yield CDs. In addition, they were offering a reward checking account. The reward checking account started off in early 2008 with a 6.26% APY. It's interesting to note that the yield plummeted last February to 1.25% APY. I wonder if regulators had something to do with this. Often regulators will restrict problem banks from offering rates too much above market rates.

References:
Thanks to the readers who emailed me news of these closures.


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