Texas Ratios and Cease and Desist Orders

Back from a long Labor Day vacation and another 11 banks have closed in the past 3 weeks. But before I get into the details, Mike has asked about number 45 on my list, Earthstar Bank in Philadelphia.

Earthstar made my original list because of a cease and desist order they got from the FDIC on May 28, 2008. While the official FDIC watch list may be a secret, they do release a list of orders every month including “cease and desist” orders. These are generally released about 2 months after the fact, but they are available at www.fdic.gov. The FDIC cease and desist orders give an insight into not only the bank’s loan portfolio, but also the quality of the bank’s management and quality control.

Earthstar also has a high “Texas ratio.” It wasn’t so high when I started my list, but has continued to rise over the past three quarters. The Texas ratio is a comparison of their non-performing loans to their reserves expressed as a percentage. In the days of the savings and loan debacle, most banks that failed had Texas ratios of over 100 (percent). Earthstar had a Texas ratio of 197 according to their June 30th filing with the FDIC. That means that their non-performing loans were almost twice as much as their reserves. You can look both of these up at nuscho.com.

Now back to my regularly scheduled commentary.

On Friday, August 28th, three banks closed beginning with Bradford Bank in Baltimore. Bradford Bank was operating under two cease and desist orders dated 2-26-09 and its Texas ratio had risen to 631 by the end of the second quarter. Bradford Bank had nine branches and deposits of about $383 million. These have been taken over by Manufacturers and Traders Trust Company (M&T) of Buffalo, New York. The estimated cost to the insurance fund is $97 million or 25 cents on the dollar.

The next bank closed that day was Mainstreet Bank in Forest Lake, Minnesota. Mainstreet Bank was operating under a cease and desist order dated December 12, 2008 and had a Texas ratio that had risen to 692. It was number 51 on my list of banks most likely to fail in 2009. Mainstreet had eight branches and deposits of $434 million which were taken over by Central Bank of Stillwater, MN. The estimated cost to the FDIC insurance fund is $95 million or 22 cents on the dollar.

Two time zones later, Affinity Bank of Ventura, California closed. Affinity had been given a cease and desist order on April 22, 2009 and its Texas ratio had risen to 326. The ten branches and deposits of $922 million were taken over by Pacific Western Bank of San Diego. The estimated cost to the insurance fund is $254 million or 28 cents on the dollar.

Just before the Labor Day weekend, five more banks were closed. Many people, like me, were traveling and missed the news.

First Bank of Kansas City was a small bank. It only had one office and deposits of a mere $15 million. Great American Bank of DeSoto, Kansas has taken over operations. The closing is estimated to cost the FDIC $6 million or 40 cents per dollar. Its Texas ratio was 246.

InBank of Oak Forest, Illinois, had three branches. It too was closed on September 4th. InBank had deposits of $212 million which were taken over by MB Financial Bank of Chicago. You’ll read more about MB Financial Bank later. InBank’s Texas ratio stood at 203. The closing will cost the FDIC insurance fund $66 million or 31 cents per dollar.

Also in Illinois, Platinum Community Bank in Rolling Meadows had two offices. One was in Rolling Meadows. The other was in the offices of Taylor, Bean & Whitaker in Ocala, Florida. Taylor Bean & Whitaker owned the bank. Platinum Community Bank had a Texas ratio of 202, but that didn’t matter. What drove the closure was the fact that Taylor Bean filed for bankruptcy on August 24th. The building has been closed and the FDIC will be mailing checks to account holders who had $305 million on deposit. Federal direct deposits such as Social Security will be redirected to MB Financial Bank’s branch in Palatine, Illinois. The estimated cost to the insurance fund is $114.3 million or 37 cents on the dollar.

Vantus Bank of Sioux City, Iowa had 15 branches. These have now all been taken over by Great Southern Bank of Springfield, Missouri. I’m not sure the name Great Southern will sell well in Sioux City. The Missouri bank should consider setting up another name such as Great Plains State Bank. Vantus Bank had deposits of $368 million and a Texas ratio of 272. The estimated cost to the FDIC insurance fund to make the depositors whole is $168 million or 46 cents per dollar.

First State Bank, Flagstaff, Arizona also closed last week. First State had deposits of $95 million at 6 branches. That makes for some awfully small branches. The bank failed relatively quickly. It got a cease and desist order on May 1st which was announced by the FDIC on June 26th. Its Texas ratio was only 143 at the end of the second quarter. That puts it in the danger zone, but lately the FDIC has had worse banks to deal with. Sunwest Bank of Tustin, California has taken over operations. The estimated cost to the insurance fund is $47 million or 49 cents on the dollar.

Yesterday, three more banks closed.

The first was Corus Bank in Chicago. This was not unexpected. Corus was operating under special oversight of the Office of Thrift Supervision. Its Texas Ratio had skyrocketed to 809. It announced on July 31st, “As of June 30, 2009, Corus' subsidiary, Corus Bank N.A. (the "Bank") had preliminary Tier 1 capital of negative $157 million with a ratio of (2.1)%, and preliminary Tier 1 risk-based capital and total risk-based capital of negative $157 million with a ratio of (3.1)%, as reported in its June 30, 2009 Report of Condition and Income ("Call Report") filed on July 30, 2009. As of June 30, 2009, the Bank was considered "critically undercapitalized" under the regulatory framework for prompt corrective action ("PCA"). ” biz.yahoo.com By citing the “prompt corrective action” regulations, Corus was practically begging to be shut down. Corus was number 63 on my list. Deposits at the eleven Corus branches were $6.6 billion, and these go to MB Financial Bank. MB Financial will only be taking $3 billion of $7 billion in assets though, leaving the task to the FDIC to sell off the other $4 billion. The FDIC estimates the loss to the insurance fund will be $1.7 billion, which is 26 cents on the dollar. With the absorption of accounts from three Illinois banks in the past three weeks, MB Financial adds 14 branches to their 80+ branch network, and $6.8 billion to their $10 billion in deposits.

Brickwell Community Bank, in Woodbury, Minnesota was the second bank closed yesterday. Brickwell had $63 million in deposits at a single office that will be taken over by CorTrust Bank of Mitchell, South Dakota. Brickwell has been under a cease and desist order since March 3rd and had a Texas ratio of 567. The estimated cost to the insurance fund is $22 million or 35 cents on the dollar.

The last bank to close was Venture Bank of Lacey, Washington. Venture Bank had 18 branches and $903 million in deposits. The Texas ratio was… are you ready? 1,243. That means non-performing assets were over 12 times capital reserves. The bank was considered undercapitalized, which in this day of mark-to-hopes-and-dreams accounting, means woefully undercapitalized. They’ve had a Prompt Corrective Action directive since February 13th and haven’t been able to fulfill it. First-Citizens Bank and Trust of Raleigh, North Carolina will be taking over operations. The FDIC had to go 3,000 miles away to find a willing bank for this mess. The FDIC estimates that this will cost the insurance fund (the taxpayers now) $298 million or 33 cents per dollar on deposit.

I was in Washington state last week, and the place definitely seemed to have more banks than the depositors could support. In contrast, across the border at Royal Bank of Canada, the branches were always busy and I was fighting for a parking place.

So I cross off two more banks from my list, leaving 35 banks left on my current list of the 50 65 Banks Most Likely to Close in 2009. I started the list with 50 banks and added some during the first half of the year to grow the list to 65. While the banking environment continues to deteriorate, I don’t think I’ll be adding any more banks to the list this year. There are only 16 weeks left and it’s too hard to guess which ones will close this year and which will hold off until next year. So I think I’ll stand pat and hope for better than 50% on my predictions. (I’m at 46% so far and the year is only 69% complete.)

I may start next year with a list of the 100 banks most likely to fail in 2010.

Anyway, here’s the list with Mainstreet Bank and Corus Bank now crossed off.

65 Banks Most Likely to Close in 2009

1 Magnet Bank, Salt Lake City, UT
2 Citizens Community Bank, Ridgewood, NJ
3 FirstBank Financial Services, McDonough, GA
4 Westsound Bank, Bremerton, WA
5 Suburban Federal Savings Bank, Crofton, MD
6 America West Bank, Layton, UT
7 Silver Falls Bank, Silverton, OR
8 Ocala National Bank, Ocala, FL
9 Sun Security Bank, Ellington, MO
10 Eastern Savings Bank, FSB, Hunt Valley, MD
11 Alliance Bank, Culver City, CA
12 FirstCity Bank, Stockbridge, GA
13 Chestatee State Bank, Dawsonville, GA
14 First Security National Bank, Norcross, GA
15 Ocean Bank, Miami, FL
16 Family Bank and Trust Co., Palos Hills, IL
17 Southern Community Bank, Fayetteville, GA
18 BankCherokee, Saint Paul, MN
19 First Tuskegee Bank, Tuskegee, AL
20 Federal Trust Bank, Sanford, FL
21 Pinnacle Bank, Beaverton, OR
22 Lake Country Community Bank, Morristown, MN
23 Mesa Bank, Mesa, AZ
24 Bank of Wyoming, Thermopolis, WY
25 1st American State Bank of Minnesota, Hancock, MN
26 First State Bank of Altus, Altus, OK
27 EvaBank, Eva, AL
28 Strategic Capital Bank, Champaign, IL
29 Ebank, Atlanta, GA
30 Polk County Bank, Johnston, IA
31 Parkway Bank, Rogers, AR
32 Security Bank of Gwinnett County, Suwanee, GA
33 State Bank of Park Rapids, Park Rapids, MN
34 Herrin Security Bank, Herrin, IL
35 Omni National Bank, Atlanta, GA
36 Northpointe Bank, Grand Rapids, MI
37 Towne Bank of Arizona, Mesa, AZ
38 Timberland Bank, El Dorado, AR
39 Blue Ridge Savings Bank, Inc., Asheville, NC
40 First Piedmont Bank, Winder, GA
41 Select Bank, Grand Rapids, MI
42 Oxford Bank, Oxford, MI
43 Security Bank of North Metro, Woodstock, GA
44 MetroPacific Bank, Irvine, CA
45 Earthstar Bank, Southampton, PA
46 Neighborhood Community Bank, Newnan, GA
47 The Home Savings and Loan Company, Youngstown, OH
48 Heritage Community Bank, Glenwood, IL
49 Vineyard Bank, NA, Rancho Cucamonga, CA
50 Community Bank of Lemont, Lemont, IL
51 Mainstreet Bank, Forest Lake, MN
52 Mutual Bank, Harvey, IL
53 Freedom Bank of Georgia, Commerce, GA
54 Newton County Loan & Savings FSB, Goodland, IN
55 Riverside Bank, Cape Coral, FL
56 BankUnited, Coral Gables, FL
57 American Sterling Bank, Sugar Creek, MO
58 The Park Avenue Bank, New York, NY
59 First Commerce Community Bank, Douglasville, GA
60 Centennial Bank, Ogden, UT
61 Warren Bank, Warren, MI
62 Peoples First Community Bank, Panama City, FL
63 Corus Bank, Chicago, IL
64 Butler Bank, Lowell, MA
65 Republic Federal Bank, Miami, FL