Dedicated to Deposits: Deals, Data, and Discussion

Regulators Close Six Banks: Three in Florida, Two in South Carolina and One in Michigan

POSTED ON BY

The FDIC and other regulators were busy today with six bank closures. Three were in Florida, two in South Carolina and one in Michigan. That brings the total number of bank failures this year to 96.

The FDIC was able to find buyers for all six failed banks, and all deposits (except some brokered deposits) were assumed by the acquiring banks including deposits above the FDIC limit. One interesting acquisition was done by a newly chartered bank, NAFH National Bank, which is a bank subsidiary of North American Financial Holdings, Inc. NAFH National Bank acquired three of the six failed banks. According to this BusinessWeek article:

North American is one of two groups backed by private investors that have purchased failed banks through the FDIC’s resolution process this year.

Last week we had another newly chartered bank from a private equity firm acquire the deposits and assets of a failed bank.

Another interesting thing to note is the closure at Woodlands Bank in South Carolina. The failed bank was acquired by Bank of the Ozarks in Arkansas. Bank of the Ozarks included on its website a Q&A for Woodlands Bank customers, and in this Q&A, it stated that "[r]ates on certain CD accounts and IRA accounts will be adjusted to current market rates." This has been common at many banks that have acquired the deposits of a failed bank. The depositors are free to withdraw their money without early withdrawal penalties. The problem is that they may lose their high interest rate that they had locked in when rates were much higher in previous years.

This had me thinking of a better approach. How about adjusting it to the market rates that existed when the CD was opened? The intent of allowing acquiring banks to lower rates was to prevent them from having to meet obligations from failed banks that offered above-market CD rates to attract deposits. For example, two years ago, a 4% 5-year CD may have been inline with market rates. The weak bank may have offered 5% 5-year CDs to attract deposits. The market rate may now be 2%. In my opinion, the acquiring should at least be required to offer the 4% rate instead of the 2% rate until existing CDs mature. Forcing CD rates down to current market rates isn't fair in my opinion. In today's low-rate environment, it can cost savers a considerable amount of interest.

There were no credit union liquidations this week. So far this year there have been 10 credit union liquidations.

Below is a summary of today's bank failures:

91st Bank Failure of 2010 (2nd in SC)

  • FDIC Press Release, OTS Press Release
  • Closed Bank: Woodlands Bank, Bluffton, SC
  • Size: 8 branches, $376.2 million in assets, $355.3 million in deposits
  • Acquiring Bank: Bank of the Ozarks, Little Rock, AR
  • Possible Uninsured Deposits: Bank of the Ozarks to assume all of the deposits (excluding the Cede & Co brokered deposits)
  • Rate Changes: Rates on certain CD accounts and IRA accounts will be adjusted to current market rates (per bank's Q&A)
  • Estimated Cost to Deposit Insurance Fund: $115.0 million
  • Enforcement Action: OTS 7/16/09 C&D Order, OTS 3/11/10 Prompt Corrective Action
  • Financial Ratings: 1 star (lowest) at Bankrate.com, 0 star (lowest) at BauerFinancial

92nd Bank Failure of 2010 (15th in FL)

  • FDIC Press Release
  • Closed Bank: Metro Bank of Dade County, Miami, FL
  • Size: 6 branches, $442.3 million in assets, $391.3 million in deposits
  • Acquiring Bank: NAFH National Bank, Miami, FL (newly-chartered bank subsidiary of North American Financial Holdings, Inc., Charlotte, NC)
  • Possible Uninsured Deposits: NAFH National Bank to assume all the deposits (excluding the Cede & Co deposits)
  • Rate Changes: Current rates will be reviewed by the acquiring institution and may be lowered
  • Estimated Cost to Deposit Insurance Fund: $67.6 million
  • Enforcement Action: Federal Reserve 8/20/09 Formal Agreement, Federal Reserve 6/15/10 Prompt Corrective Action
  • Financial Ratings: 1 star (lowest) at Bankrate.com, 0 star (lowest) at BauerFinancial

93rd Bank Failure of 2010 (16th in FL)

  • FDIC Press Release, OTS Press Release
  • Closed Bank: Turnberry Bank, Aventura, FL
  • Size: 4 branches, $263.9 million in assets, $196.9 million in deposits
  • Acquiring Bank: NAFH National Bank, Miami, FL (newly-chartered bank subsidiary of North American Financial Holdings, Inc., Charlotte, NC)
  • Possible Uninsured Deposits: NAFH National Bank to assume all the deposits
  • Rate Changes: Current rates will be reviewed by the acquiring institution and may be lowered
  • Estimated Cost to Deposit Insurance Fund: $34.4 million
  • Enforcement Action: OTS 4/8/10 C&D Order, OTS 6/11/10 Prompt Corrective Action
  • Financial Ratings: 1 star (lowest) at Bankrate.com, 0 star (lowest) at BauerFinancial

94th Bank Failure of 2010 (3rd in SC)

  • FDIC Press Release, OCC Press Release
  • Closed Bank: First National Bank of the South, Spartanburg, SC
  • Size: 13 branches, $682.0 million in assets, $610.1 million in deposits
  • Acquiring Bank: NAFH National Bank, Miami, FL (newly-chartered bank subsidiary of North American Financial Holdings, Inc., Charlotte, NC)
  • Possible Uninsured Deposits: NAFH National Bank to assume all the deposits (excluding the Cede & Co deposits)
  • Rate Changes: Current rates will be reviewed by the acquiring institution and may be lowered
  • Estimated Cost to Deposit Insurance Fund: $74.9 million
  • Enforcement Action: OCC 4/27/09 Consent Order
  • Financial Ratings: 1 star (lowest) at Bankrate.com, 0 star (lowest) at BauerFinancial

95th Bank Failure of 2010 (17th in FL)

  • FDIC Press Release, OTS Press Release
  • Closed Bank: Olde Cypress Community Bank, Clewiston, FL
  • Size: 4 branches, $168.7 million in assets, $162.4 million in deposits
  • Acquiring Bank: CenterState Bank of Florida, N.A., Winter Haven, FL
  • Possible Uninsured Deposits: CenterState Bank of Florida, N.A. to assume all of the deposits (excluding the Cede & Co deposits)
  • Rate Changes: Some deposit rates may change (bank's Q&A)
  • Estimated Cost to Deposit Insurance Fund: $31.5 million
  • Enforcement Action: OTS 10/09/09 Supervisory Agreement, OTS 6/24/10 Prompt Corrective Action
  • Financial Ratings: 1 star (lowest) at Bankrate.com, 0 star (lowest) at BauerFinancial

96th Bank Failure of 2010 (4th in MI)

  • FDIC Press Release, OTS Press Release
  • Closed Bank: Mainstreet Savings Bank, FSB, Hastings, MI
  • Size: 2 branches, $97.4 million in assets, $63.7 million in deposits
  • Acquiring Bank: Commercial Bank, Alma, MI
  • Possible Uninsured Deposits: Commercial Bank to assume all of the deposits
  • Rate Changes: Current rates will be reviewed by the acquiring institution and may be lowered
  • Estimated Cost to Deposit Insurance Fund: $11.4 million
  • Enforcement Action: OTS 5/29/09 C&D Order, OTS 12/31/09 Prompt Corrective Action
  • Financial Ratings: 1 star (lowest) at Bankrate.com, 0 star (lowest) at BauerFinancial

The above Bankrate ratings are based on 12/31/09 data. The BauerFinancial ratings are based on 3/31/10 data.

References:


Related Posts

Comments
11 comments.
Comment #1 by CraigPD posted on
CraigPD
"In my opinion, the acquiring should at least be required to offer the 4% rate instead of the 2% rate until existing CDs mature. Forcing CD rates down to current market rates isn't fair in my opinion. In today's low-rate environment, it can cost savers a considerable amount of interest."

A genuinely reasonable and equitable idea, Ken.  But saver-friendly processes are not the purview of the FDIC and in fact an extremely low priority of recently enacted banking "reform" legislation.  The saver has been the scapegoat to reinflate the sacrosanct banking sector for nearly two years and I don't see anything changing that trend. particularly at this point in what may be a prolonged and painful decline in the normal business cycle.

4
Comment #2 by Anonymous posted on
Anonymous
Good idea.  I would like that myself.  But then I think the Regulators would have a harder time finding other banks to acquire the failed banks.

4
Comment #3 by SWEET MO;LLY MALONE (anonymous) posted on
SWEET MO;LLY MALONE
KEEP UP THE GOOD WORK FLORIDA AT 17.708 PERCENT

2
Comment #4 by across the pond (anonymous) posted on
across the pond
why bother to vote if  you cannot register a thumbs down the feature should be remover it serves no purpose and makes no dollars and cents

3
Comment #5 by IL Saver (anonymous) posted on
IL Saver
To presume that the government, even under the guise of "consumer protection", will do what is fair or equitable, whether in banking or otherwise, is a fairy tale.  Mr. Obama, Ms. Pelosi, Mr. Reid and Barney Frank know better than any of us, about what is good for this country.

1
Comment #6 by Horace (anonymous) posted on
Horace
Low savings rates??  I've given up savings.   I'm buying BP Oil stock. It's already going up.  I've never

heard of a large oil company failing since 1929.

1
Comment #7 by Anonymous posted on
Anonymous
I have to strongly disagree with your proposal for adjusting CD rates. This is another form of protecting weaker, risker banks from failure at the expense of the stronger banks that made more responsible decisions in running their business.

 

The above market interest rate of 5% signals that the bank is making risker choices with you money and is more likely to fail which might cause you to have to find a CD with much lower rates, in this case 2%, when it does. That is the risk you have to bear, by choosing a bank that makes risker decisions. If you choose the bank with the market rate of 4% which is presumably making less risky choices with your money you have a better chance of keeping that rate until the maturity of the CD.

 

Your scheme only provides more incentive for banks to be more reckless with their investment of your money. Depositors will have less incentive in evaluating the financial strength of a bank, knowing that they can get above market rates from a risker or less well run instituion since they are guaranteed the the market rate of the less risker or more well run instituions if it fails.

 

The FDIC guarantess already distort the choice between more and less risky banks as it is.

3
Comment #8 by Anonymous posted on
Anonymous
I feel I must agree with poster #7, even as a saver who might be adversely affected by such a policy.  The FDIC itself already eliminates the moral hazard of depositing up to $250,000 in a shaky bank by insuring those deposits.  Now, I do think the FDIC is a good thing in that most depositors don't have the time or knowledge to evaluate the stability of every bank with which they might do business. It is important for the public to have confidence in the banking system and the security of the funds they have chosen to entrust to that system (up to the FDIC limits).

However, someone knowledgeable enough to chase higher CD rates also ought to understand the reasons why a bank might be offering above-market rates and accept that there is a risk that a shaky bank offering high rates might fail -- meaning the potential loss of that guaranteed rate, even if the principal and accrued interest are protected by FDIC insurance.  I opened one of WaMu's 5% CD's the day before they were taken over by JP Morgan Chase fully understanding that WaMu's prospects were unclear and that I might have to find somewhere else to place my funds (though perhaps my decision was tempered by the relatively modest 13-month term as well).

We make risk-reward decisions every time we decide to put money in a CD or a saving account.  Do we lock in a rate for a fixed period (possibly foregoing higher returns if rates do increase) or do we keep the money in a savings account, accepting lower yields today in the hope that we will enjoy higher yields in the future.

1
Comment #9 by CraigPD posted on
CraigPD
I respectfully disagree with #7 and #8.

 A healthy, too-big-to-fail bank that assumes control of a failed institution (e.g. JP MorganChase v WAMU - 2008), with the benefit of strength in status has ready access to 0-.25% Fed discount funds to make money at virtually no expense.  In your example the assuming, well-capitalized bank executed a reasonable, less risky business model, offering median to lower return rates to attract and retain customer deposits to not only ensure solvency but maintain higher profitability. If for whatever reason their well-being should threaten the "financial system" they are effectively backstopped by the treasury at taxpayer expense. In practice this implicit subsidy includes annulling or modifying existing depository (contractual) agreements as if it were a bankruptcy when assuming other failed bank operations. 

In bankruptcy a reimbursement rate for asset liquidation is determined by a judge and secured creditors receive an apportioned share of distributed proceeds,, a comparatively transparent process. Not so in bank assumption. Liabilities (i.e. interest income expense) can be written to zero with prevailing rates only casually acting as a buffer, nothing forcibly prescribed or regulated, deals arranged behind closed doors that allow them to establish at whim a new arbitrary and compulsory "value". Only to the extent that a bank reduces rates on assumed loans (ex-write-offs and FDIC reimbursements) at prevailing market levels should they be permitted to reduce deposit payout rates, producing a balanced, publicly auditable accounting of their action. Depositor, debtor and taxpayer interests are effectively ignored at the benefit of these banks, which is procedurally corrupt and a perversion of free market process.

1