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Two Banks from Michigan and Pennsylvania Closed by Regulators

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Two small banks in Michigan and Pennsylvania failed today. The two bank closures came early this evening, and it appeared we were headed to a very busy Friday. However, it turned out that only these two banks failed. This brings the total number of bank failures for this year to 151.

Paramount Bank was the Michigan bank that failed, and its closure was typical. Another bank assumed all deposits except certain brokered deposits.

Earthstar Bank was the Pennsylvania bank that failed, and its closure had something that I haven't seen in any other bank failure. The assuming bank did not agree to assume certain out-of-state CDs. All other deposits, including brokered deposits, were assumed. Here is what the FDIC Q&A Guide stated:

As an All-Deposits Transfer transaction, the total of all deposit accounts, excluding certain out-of-state certificates of deposits (CD) have been assumed by Polonia Bank. If you have an excluded CD, your CD will automatically be closed, and the FDIC will mail your insurance check, except encumbered CD’s, on Monday, December 13, 2010. You will not be assessed an early withdrawal penalty.

Since these out-of-state CDs are not being assumed by Polonia Bank, the FDIC will be closing the CDs and sending checks. I assume they will limit the checks to the insured amounts. Any deposits above the FDIC limits would be lost. However, no one appears to have uninsured balances in their CDs. According to the FDIC Q&A Guide:

No one lost any money on deposit as a result of the closure of this institution.

One thing unique about Earthstar Bank was that it did market CDs nationwide with online applications. Back in 2008 I did some blog posts on this bank and its hot CDs. I guess the assuming bank is considering these out-of-state CDs like brokered CDs in the sense the out-of-state depositors don't really have any relationship with the bank.

There were no credit union liquidations this week. The total number of credit union liquidations this year remains at 18.

Below is a summary of today's bank failures:

150th Bank Failure of 2010 (5th in Michigan)

  • FDIC Press Release
  • Closed Bank: Paramount Bank, Farmington Hills, MI
  • Size: 4 branches, $252.7 million in assets, $213.6 million in deposits
  • Acquiring Bank: Level One Bank, Farmington Hills, MI
  • Possible Uninsured Deposits: All deposit accounts, excluding the Cede & Co deposits, have been assumed by Level One Bank
  • Rate Changes: Current rates will be reviewed by the acquiring institution and may be lowered
  • Estimated Cost to Deposit Insurance Fund: $90.2 million
  • Enforcement Action: Federal Reserve 10/23/08 written agreement, Federal Reserve 8/9/09 PCA
  • Financial Ratings: 1 star (lowest) at Bankrate.com, 0 star at BauerFinancial, 1 out of 5 with a Texas Ratio of 202.69% at DepositAccounts.com

151st Bank Failure of 2010 (2nd in Pennsylvania)

  • FDIC Press Release
  • Closed Bank: Earthstar Bank, Southampton, PA
  • Size: 4 branches, $112.6 million in assets, $104.5 million in deposits
  • Acquiring Bank: Polonia Bank, Huntingdon Valley, PA
  • Possible Uninsured Deposits: all deposit accounts, excluding certain out-of-state certificates of deposits (CD) have been assumed by Polonia Bank
  • Rate Changes: Current rates will be reviewed by the acquiring institution and may be lowered
  • Estimated Cost to Deposit Insurance Fund: $22.9 million
  • Enforcement Action: FDIC 4/29/10 C&D Order
  • Financial Ratings: 1 star (lowest) at Bankrate.com, 0 star at BauerFinancial, 1 out of 5 with a Texas Ratio of 203.97% at DepositAccounts.com

The above DepositAccounts.com and BauerFinancial ratings are based on 9/30/2010 data. Bankrate ratings are based on 6/30/2010 data.

References:


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Comments
Comment #1 by cactus posted on
cactus
When a bank or CU buys another bank or CU, they are really purchasing the bank's or CU's customer base.

Those out-of-state rate-chasing customers aren't going to take out mortgages or car loans, or buy annuities, or insurance, or whatever. And given the high rates used to sell those CDs, those semi-customers are useless to the acquiring bank.

1