Haven Trust Bank Fails

Haven Trust Bank of Duluth, Georgia, was the second bank to be seized by the Federal Deposit Insurance Corporation (FDIC) on Friday. My post on the first bank is here

Haven Trust bank had total assets of $572 million and total deposits of $515 million as of December 8, 2008. BB & T assumed the operations of the bank.

Haven Trust Bank was relatively new, and was formed in 2000, to ride the wave of real estate prosperity that engulfed the Southeast in the early part of this decade.

Its capital ratios were much lower than Sanderson State Bank, which was the other bank taken over by the FDIC on Friday:

Haven Trust Bank Capital Ratios (9/30/2008)

Equity capital to assets - 4.44%
Core capital (leverage) ratio - 4.42%
Tier 1 risk-based capital ratio - 4.90%
Total risk-based capital ratio - 6.16%

The bank had $437 million in real estate loans, with $260 million in Commercial Real Estate, and $133 million in the toxic construction and land development category.

Sanderson State Bank of Texas Goes Down

We had a doubleheader by the Federal Deposit Insurance Corporation (FDIC) as they seized two banks on Friday evening. The first was the Sanderson State Bank of Texas.

This bank was taken over by the Pecos County Bank. Sanderson State Bank was a small bank and had total assets of $37 million and total deposits of $27.9 million at December 3, 2008.

Sanderson State Bank was first established in 1907, and had only one branch. It was able to survive the Panic of 1907, and the Great Depression in the 1930's, but not the most recent calamity to strike our economy.

The interesting thing to note was how quickly the situation deteriorated for Sanderson State Bank. At 9/30/2008, the bank had a Tier 1 risk-based capital ratio of 12.55%, and a Total risk-based capital ratio of 13.80%.

Ninety percent of its loans were real estate and maybe it was one concentrated loan that did them in. A sad end to a 100 year old bank.

FDIC Triple Header - The Community Bank of Loganville, Georgia

The third bank closed by the FDIC yesterday. From the press release of the FDIC:

"The Community Bank, Loganville, Georgia, was closed today by the Georgia Department of Banking and Finance, and the Federal Deposit Insurance Corporation (FDIC) was named receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with Bank of Essex, to assume all of the deposits of The Community Bank."

"The Community Bank's four branches will open on Monday, November 24, 2008 as Bank of Essex. Depositors of the failed bank will automatically become depositors of Bank of Essex. Deposits will continue to be insured by the FDIC, so there is no need for customers to change their banking relationship to retain their deposit insurance coverage."

"The Community Bank had total assets of $681.0 million and total deposits of $611.4 million. Bank of Essex purchased approximately $84.4 million of The Community Bank's assets, and did pay the FDIC a premium of $3.2 million for the right to assume the failed bank's deposits. The FDIC will retain the remaining assets for later disposition."

"The transaction is the least costly resolution option, and the FDIC estimates that the cost to its Deposit Insurance Fund will be between $200 million and $240 million. The Community Bank is the twentieth FDIC-insured institution to be closed nationwide, and the third in Georgia, this year."

FDIC Triple Header - Downey Savings and PFF Bank

The FDIC did a triple header Friday night with three banks going down. From the FDIC press release:

"U.S. Bank, National Association, Minneapolis, MN, acquired the banking operations, including all the deposits, of Downey Savings and Loan Association, F.A., Newport Beach, CA, and PFF Bank & Trust, Pomona, CA, in a transaction facilitated by the Federal Deposit Insurance Corporation."

"The combined 213 branches of the two organizations will reopen as branches of U.S. Bank under their normal business hours, including those with Saturday hours. Depositors will automatically become depositors of U.S. Bank. Deposits will continue to be insured by the FDIC, so there is no need for customers to change their banking relationship to retain their deposit insurance coverage."

"Customers of both banks should continue to use their existing branches until U.S. Bank can fully integrate the deposit records of the organizations. Over the weekend, depositors can access their money by writing checks or using ATM or debit cards.
As of September 30, 2008, Downey Savings had total assets of $12.8 billion and total deposits of $9.7 billion. PFF Bank had total assets of $3.7 billion and total deposits of $2.4 billion. Besides assuming all the deposits from the two California banks, U.S. Bank will purchase virtually all their assets. The FDIC will retain any remaining assets for later disposition."

"The FDIC and U.S. Bank entered into a loss share transaction. U.S. Bank will assume the first $1.6 billion of losses on the asset pools covered under the loss share agreement, equal to the net asset position at close. The FDIC will then share in any further losses. Under the agreement, U.S. Bank will implement a loan modification program similar to the one the FDIC announced in August stemming from the failure of IndyMac Bank, F.S.B., Pasadena, CA."

FDIC Seizes Security Pacific Bank

Security Pacific Bank of Los Angeles, California was closed by the FDIC last Friday. The agency had a busy weekend as this was the second bank seized by the government on Friday. Pacific Western Bank assumed the deposits of the failed bank.

Final Stats (9/30/08):

Tier 1 leverage ratio - 3.14%
Tier 1 risk-based capital ratio - 3.71%
Total risk-based capital ratio - 5.00%

Noncurrent loans to loans - 19.94% at 6/30/2008.

News reports say that the bank was done in by loans to Homebuilders in the Inland Empire area of California.

Franklin Bank, S.S.B., Houston, Texas Closed By The FDIC

Franklin Bank, S.S.B., Houston, Texas was closed by the FDIC on Friday.

Prosperity Bank of El Campo, Texas, assumed all of the deposits of Franklin Bank. Franklin Bank had total assets of $5.1 billion and total deposits of $3.7 billion. The bank was relatively new and was founded in 1987 as the Bowie State Bank.

It looks like Construction, land development, and other land loans did them in. The bank had $1.2 billion of these loans at 9/30/08, and $400 million were 30 days past due or in non accrual status.

Final stats on the failed bank:

Tier 1 leverage ratio - 2.11%
Tier 1 risk-based capital ratio - 3.37%
Total risk-based capital ratio - 5.11%

Noncurrent loans to loans - 11.06% (6/30/2008)

Capital ratios as of 9/30/2008.

Just to demonstrate how quickly capital can erode. The bank had a total risk-based capital ratio of 10.16% at 6/30/08.

Bank Death Watch - Freedom Bank of Bradenton, Florida

The Freedom Bank of Bradenton, Florida failed last Friday. Its deposits were taken over by Fifth Third Bank. The bank was publicly traded on the OTC bulletin board under the symbol FBBF.

The bank started the year with $25 million in Equity capital, but by the end of the third quarter, capital was only $10 million. The capital ratios in the last call report (9/30/2008) were fairly gruesome:

Tier One Leverage - 2.0%.
Tier 1 risk-based capital ratio - 2.2%.
Total risk-based capital ratio - 3.45%.

The bank had $211 million in loans outstanding at 9/30/08, most of which were Real Estate loans.

Construction and Land Development - $176 million.
Commercial and Industrial - $32 million.

Noncurrent loans to loans - 15.49% (as of 6/30/2008)

In July, a private equity fund called Community Bank Investors of America LP, agreed to invest $5 million in the bank subject to it raising more capital elsewhere. I can't find any record of the fund completing the deal.

Alpha Bank & Trust - Another Bank Failure

The Alpha Bank & Trust, of Alpharetta, GA was closed by the FDIC today. The deposits were assumed by Stearns Bank, of St. Cloud, Minnesota.

Press Release

Final Stats

Assets in nonaccrual status - 15.39%
Noncurrent loans to loans - 18.36%
Noncurrent assets plus other real estate owned to assets - 19.78%
Construction and land development loans - 61.02%
Core (Retail) deposits - 77.40%

Equity capital to assets - 5.20%
Core capital (leverage) ratio - 5.27%
Tier 1 risk-based capital ratio - 5.67%
Total risk-based capital ratio - 6.96%

(All data as of 6/30/08)

Bank Death Watch

It's Friday afternoon which means it's time for the Federal Deposit Insurance Corporation (FDIC) to take over another bank. I keep refreshing the page at the FDIC site. I admit it's a little morbid, but what the heck.

FDIC Home Page

Silver State Bank - Postmortem

Here are some final stats on the bank seized Friday by the Federal Deposit Insurance Corporation (FDIC) as of 6/30/08.

Equity capital to assets - 6.87%
Core capital (leverage) ratio - 6.56%
Tier 1 risk-based capital ratio - 7.57%
Total risk-based capital ratio - 8.86%

Noncurrent loans to loans - 15.38% (Total noncurrent loans and leases, Loans and leases 90 days or more past due plus loans in nonaccrual status, as a percent of gross loans and leases.

Time deposits of $100,000 or more - 21.23%

Another One Bites The Dust

Silver State Bank of Henderson, NV was seized early this evening by the Federal Deposit Insurance Corporation (FDIC).

The Nevada State Bank, of Las Vegas, has assumed the insured deposits of Silver State Bank.

Silver State Bank had total assets of $2.0 billion and total deposits of $1.7 billion. Nevada State Bank agreed to purchase the insured deposits for a premium of 1.3%.

From the web site of the seized bank:

Silver State Bancorp, through its wholly-owned subsidiary, Silver State Bank, currently operates thirteen full service branches in southern Nevada and four full service branches in the Phoenix/Scottsdale market area. Silver State Bank also operates loan production offices located in Nevada, California, Washington, Oregon, Utah, Colorado and Florida.

Silver State Bancorp is headquartered in Henderson, Nevada and listed on the Nasdaq Global Market under the symbol SSBX.

First Integrity Bank

First Integrity Bank of Staples, MN failed late Friday, and its assets were sold to another bank. First Integrity was originally established in 1920, as Staples State Bank, and apparently survived the Great Depression of the 1930's.

Do not confuse this bank with Integrity Bancshares Inc., of Alpharetta, GA, which now trades on the Pink Sheets at $0.35, under the symbol ITYC.PK ITYC used to sell at $12.50 in May and voluntarily delisted from NASDAQ in May.

Anyway, here are the final stats for First Integrity Bank of Minnesota:

Assets in nonaccrual status - 9.34%.
Tier 1 risk-based capital ratio -(-0.38%). This was 5.23% three months earlier.
Total risk-based capital ratio - (-0.38%). This was 6.55% three months earlier.
All real estate loans - 33.99% (pct of total assets)

Press Release One and Two.

My previous posts on the failure of Hume Bank and ANB Financial.

Thrift Industry Quarterly Report

The Office of Thrift Supervision (OTS) released its first quarter report on the 1,276 thrifts that it supervises. The report showed the effects of the deteriorating credit cycle on bank balance sheets. We have written previously on this quarterly report here, and it is important in monitoring the state of the industry.

All data is as of 3/31/2008.

1) Average capital ratios are still strong, some even increased from the end of 2007. There are still outliers on the ratio scale but it is encouraging to see overall strength:

Total Risk Based Capital Ratio - 14.6%
Tier One Risk Based Capital Ratio - 12.5%
Equity Capital Ratio - 9.1%
Tier One Core Capital Ratio - 8.5%

2) The industry has reserved 2.01% of its assets, or $7.6 billion for the coming storm of losses.

3) Troubled assets are now 2.06% of assets. This category includes noncurrent (90 days or more past due), nonaccrual status loans and other real estate owned (OREO). This has not yet peaked and will continue to increase during 2008.

4) The total percent of non current loans continues to rise, reaching 1.78% of assets. The most problems are coming in the category of Construction and Land loans where 6% of all loans are non current. However, this is only 3.5% of all loans held by thrifts. Unfortunately, 1-4 Family loans represent 49.4% of all loans held by thrifts, and delinquencies here are at 2.85% and rising.

5) There are another 1.33 percent of total loans past due by 30 to 89 days. Many of these loans will eventually filter into the non current and OREO categories.

6) Another "bright" spot, if you can use that term, is that the number of banks on the OTS watch list is only at 12. For a bank to qualify for this list it must have a CAMELS rating of 4 or 5. The CAMELS rating is a ratings system that examines capital adequacy, asset quality, management, earnings, liquidity, and sensitivity to market risk. In 1992, the number of banks on this watch list was 203, or 11% of all thrifts.

Read the Full Report by clicking below:

Press Release

Chart Package

Games Banks Play - Number One

Over the next couple of years, many banks will fail and be taken over by the government or larger institutions. This will be an agonizing process that some banks will try to avoid at any cost. I will explain in a multi part series what to watch out for:

Delaying recognition of non accrual loans - Banks are required to put loans into non accrual status when full repayment of interest and principal is not expected, or when loans become 90 days or more delinquent. Some institutions will convince themselves that repayment of interest and principal is still possible and delay putting these loans into non performing status. Some loans should be put in non accrual much earlier than 90 days based on observations and facts that the banks recognize.

Obviously, it is hard to detect these shenanigans, but one should be aware anyway.

Hume Bank Bites the Dust

The Federal Deposit Insurance Corporation (FDIC) announced very quietly the failure of a bank in Missouri:

Hume Bank Fails

As I have said before, this will be the first of many failures over the next year. The Hume Bank was founded in 1909, and survived the Great Depression, but apparently not the “Great Deleveraging.”

So let’s look at Hume and see where they went wrong. Hume is a small bank and its failure will not directly affect the financial system, except to the extent that it may go down in history as one of the first banks to fail this cycle. All the data is as of 12/31/2007.

Hume had only one branch and $13 million in deposits.

Total loans and leases 90 days or more past due plus loans in nonaccrual status, as a percent of gross loans and leases, was 6.99%.

The bank had total charge offs as a percent of loans at 1.28%.

Hume had total equity capital of $2.7 million.

Hume had total net loans of $13.6 million, with half of them in Real Estate. One interesting point about the loan portfolio is that the bank had $2.5 million in loans for “farmland,” and $ 4 million in “farm loans.” I would assume that these loans would be in great shape due to the bubble prices beginning to form for many agricultural commodities, and the strong increase in prices for farm land the last few years.

Here are the capital ratios for Hume Bank

Equity capital to assets - 14.96%
Core capital (leverage) ratio - 7.63%
Tier 1 risk-based capital ratio - 10.28%
Total risk-based capital ratio - 11.57%

All these ratios are well in excess of regulatory limits for being well capitalized. In fact, the terrifying thing is that Hume had a larger capital cushion than Citicorp, which reported the following ratios at year-end:

Tier 1 Capital - 7.12%
Total Capital (Tier 1 and Tier 2) - 10.70%
Leverage - 4.03%

So what killed Hume Bank? It’s hard to say. The FDIC press release did not go into too much detail. If I had to guess, I would say that it was a large loan that went bad, and may have wiped out much of its capital of $2.7 million. After deducting $1.4 million in good will, Hume only had $1.3 million in tier one capital, not much of a cushion.

On sad fact is that at the time of closing, Hume Bank had approximately $1.1 million in 33 deposit accounts that exceeded the federal deposit insurance limit. Those depositors need to get in line now with other unsecured creditors of the bank.

The Next Shoe to Drop?

Bank failures are at a historical low, with only three in 2007, and none in 2005 and 2006. The chart below shows bank failures as calculated by the Federal Deposit Insurance Corporation (FDIC) since 1934. I couldn't get the years to appear on the horizontal axis, but the chart starts in 1934 at the right and ends at the far left. I know that it is in reverse order chronologically, but blame Google Docs for that not me.

The large bulge is from the banking crisis in the late 1980's and early 90's, and the smaller bulge is from the Great Depression. many banks failed prior to 1934, but since the FDIC was created in that year, that is all the data they have.