Dedicated to Deposits: Deals, Data, and Discussion

Five Banks Closed Today - Two in GA, Two in CA and One in MN

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The FDIC was busy today with five bank closures. That's the most banks closed in one day since the beginning of this financial crisis. Two were in Georgia, one in Minnesota and two in California. There now have been 9 bank closures this year in Georgia which is more than any other state.

For four of the five closures, the FDIC was able to find buyers to take over the operations of the failed bank. The FDIC wasn't able to find a buyer for one Georgia Bank, Community Bank of West Georgia. Consequently, the FDIC will be mailing checks to all of the depositors. Any deposits above the FDIC limits will be lost. According to the FDIC, the bank had around $1.1 million in deposits that exceeded the insurance limits. Depositors who had over $250K in accounts may be okay if they had different ownership categories (see post). However, they'll have to go through some uncertainty until they talk to a FDIC claims agent. According to the FDIC, those depositors should "set up an appointment to discuss their deposits." This is one downside of using revocable trust accounts or other methods to extend your insurance coverage.

The FDIC was able to find buyers for the other four banks, and those buyers agreed to assume all regular deposits, including those over the FDIC limits. The only exception is that for two of the banks, some or all brokered deposits will not be transferred to the new bank.

For all four cases, the acquiring banks will be reviewing rates, and they may decide to offer lower rates on existing CDs. Depositors will be allowed to make penalty-free withdrawals. If you stay under the FDIC limits, this is the main risk when a bank fails. You won't lose your money, but you may lose your CD rate lock which is a significant issue in interest rate environments like we have today.

There was also some activity at the NCUA this week. The NCUA announced that it's merging Eastern Financial Florida Credit Union into Space Coast Credit Union. In April the NCUA placed Eastern Financial into conservatorship (see post). It appears that no credit union members lost any uninsured deposits. The only cases that I've seen of uninsured deposits being at risk is when the NCUA has closed a credit union and sends checks to the members. This happened to several credit unions last year, but all were tiny.

Below is a summary of today's bank closures:

41st Bank Failure of 2009 (8th in GA)
  • FDIC Press Release
  • Closed Bank: Community Bank of West Georgia
  • Location: Villa Rica, GA
  • Size: 1 office, $199.4 million in assets, $182.5 million deposits
  • Possible Uninsured Deposits: $1.1 million
  • Acquiring Bank: None
  • Estimated Cost to Deposit Insurance Fund: $85 million
  • Financial Ratings: 0 star (lowest) at BauerFinancial, 1 star (lowest) at Bankrate.com
42nd Bank Failure of 2009 (9th in GA)
  • FDIC Press Release
  • Closed Bank: Neighborhood Community Bank
  • Location: Newnan, GA
  • Size: 4 offices, $221.6 million assets, $191.3 million deposits
  • Possible Uninsured Deposits: All deposits transferred
  • Acquiring Bank: CharterBank, West Point, GA
  • Estimated Cost to Deposit Insurance Fund: $66.7 million
  • Financial Ratings: 0 star (lowest) at BauerFinancial, 1 star (lowest) at Bankrate.com
43rd Bank Failure of 2009 (1st in MN)
  • FDIC Press Release
  • Closed Bank: Horizon Bank
  • Location: Pine City, MN
  • Size: 2 offices, $87.6 million assets, $69.4 million deposits
  • Possible Uninsured Deposits: All deposits transferred, except some brokered deposits
  • Acquiring Bank: Stearns Bank, N.A., St. Cloud, MN
  • Estimated Cost to Deposit Insurance Fund: $33.5 million
  • Financial Ratings: 0 star (lowest) at BauerFinancial, 1 star (lowest) at Bankrate.com
44th Bank Failure of 2009 (5th in CA)
  • FDIC Press Release
  • Closed Bank: MetroPacific Bank
  • Location: Irvine, CA
  • Size: 1 office, $80 million assets, $73 million deposits
  • Possible Uninsured Deposits: All deposits transferred, except brokered deposits
  • Acquiring Bank: Sunwest Bank, Tustin, CA
  • Estimated Cost to Deposit Insurance Fund: $29 million
  • Financial Ratings: 0 star (lowest) at BauerFinancial, 1 star (lowest) at Bankrate.com
45th Bank Failure of 2009 (6th in CA)
  • FDIC Press Release
  • Closed Bank: Mirae Bank
  • Location: Los Angeles, CA
  • Size: 5 offices, $456 million assets, $362 million deposits
  • Possible Uninsured Deposits: All deposits transferred
  • Acquiring Bank: Wilshire State Bank, Los Angeles, CA
  • Estimated Cost to Deposit Insurance Fund: $50 million
  • Financial Ratings: 0 star (lowest) at BauerFinancial, 1 star (lowest) at Bankrate.com
References:
Thanks to the readers who emailed me news of these closures.

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Comments
10 comments.
Comment #1 by Anonymous posted on
Anonymous
BankingGuy, above you wrote that depositors of the Community Bank of West Georgia
having revocable trust accounts were not paid immediately by the FDIC but were asked to set up an appointment to discuss their deposits - as you pointed out, a definite downside to using this method since it probably means a delay in payment.

Do you happen to know - in most closures where at least some of the deposits are initially identified as possibly uninsured - do simple jointly-owned accounts (with no associated revocable trust accounts) which have over $250K also have to go through this waiting period, simply because they have deposits greater than the single-owner FDIC limit? In other words, does the FDIC's "first pass" at identifying insured deposits at a bank only cover those which are under the single-owner limit? With more and more banks closing, this might be a concern for some of your readers with joint accounts - not that they won't get their money back, but when.

1
Comment #2 by Banking Guy (anonymous) posted on
Banking Guy
That's a good question. It'll be interesting to know if anyone has had such a delay for joint accounts.

Like revocable trust accounts, joint accounts do have criteria that must be be met for the account to qualify for extended coverage (see this FDIC page). There should be fewer complications with joint accounts, but the FDIC may still have to review the accounts with the owners.

1
Comment #3 by Anonymous posted on
Anonymous
All accounts opened as or by:
Joint, Trust, Partnership, POD, Durable Power of Attorney and multiple owners are treated by FDIC as not compliant, until and unless proven by the current bank records and the owners of such accounts.
There is always a delay in payments and there are no exceptions to this rule. I have clients that I represented in the past and had to deal with FDIC all the time concerning the ownerships of such accounts. If SS# does not matches any of the names or there is IRS claim against any of the owners, there will be extremely long delays and even a litigation may be in order to sort out the distribution of the funds in the accounts. Delays of 60 to 90 days are common, but could be 6 to 12 months if the accounts were declared fraudulent by FDIC and it takes only a small error to trigger investigation and be declared as such.

1
Comment #4 by Anonymous posted on
Anonymous
Guess they didn't get the "green shoots" memo.

1
Comment #5 by Anonymous posted on
Anonymous
I have a question about the bank rating agencies. All of the ratings I have seen for the failed banks this year were the lowest possible 0 star (lowest) at BauerFinancial, 1 star (lowest) at Bankrate.com.

When were these banks downgraded? 1 year ago? 1 month ago? The day after they failed?

1
Comment #6 by Banking Guy (anonymous) posted on
Banking Guy
Unfortunately, I don't have the history of these ratings. The ratings are based on financial data that's released by the FDIC around 2 months after the end of each quarter. BauerFinancial is a little ahead of Bankrate. For the ratings above, Bauer's ratings are based on 3/31/09 data and Bankrate is based on 12/31/08 data.

1
Comment #7 by Anonymous posted on
Anonymous
All ratings are misleading and can not be trusted, because in order to be rated the companies must pay a fee to the rating agencies.
The more you pay the better rating will be posted. Those are the facts, the rating agencies don't want us to know that.
Wamu had 4 stars, Wachovia had 5 stars days before they were closed and sold to other banks, credit agencies pretended they did not know anything for failures not disclosed prior to rating.
Who will disclose a fraud to a rating agency?
The answer (to all who wander about the ratings) is:
Misleading and not a actual rating but make believe rating.

1
Comment #8 by Anonymous posted on
Anonymous
With regard to the small credit unions that were liquidated with the NCUA sending a check to depositors, I wonder whether any depositors who were over the limit lost any money? I have not seen this reported anywhere.

1
Comment #9 by Anonymous posted on
Anonymous
Are you saying that the ratings agencies only provide a snapshot of banks' financial health for the last quarter?

If so, it might be good to start encouraging them to provide a readily accessible history of their ratings, not only to better judge the long term management of the banks, but also to assess the performance of the ratings agencies themselves. The ratings agencies certainly failed to do their part in preventing the current economic woes and we need to find ways to get them to properly to their jobs in the future. More transparency couldn't hurt.

1