Problem Real Estate Loans Contribute To 9th US Bank Failure

Showing no sign of relenting from a strategy to shore up the financial industry, regulators seized their fifth bank since July 11th, and the ninth institution this year as the U.S. housing crisis spreads to the Great Plains.

The Columbian Bank and Trust Co., a $752 million in assets institution based in Topeka, Kansas, was shutdown Friday afternoon and placed into the receivership control of the Federal Deposit Insurance Corp.

“The cost to the FDIC's Deposit Insurance Fund is estimated to be $60 million,” according to an FDIC statement that announced the failure.

Founded in 1978, Columbian Bank operated eight locations throughout Kansas and one branch in Missouri with combined deposits of $596 million on March 31, which is the most recent data available from the FDIC.

Columbian Bank had loans of $633 million, of which $482 million was real estate related. The bank’s noncurrent loans to loans ratio spiked at the end of the first quarter of 2008 to 6.77 percent from 1.16 percent a year earlier.

The primary reason for the dramatic jump was the surge in noncurrent real estate loans that increased from 1.62 percent in March 2007 to 8.95 percent in March 2008, according to the FDIC data.

In advance of Friday’s seizure, banking regulators negotiated a purchase and assumption agreement for Columbian Bank’s deposits to be assumed by Citizens Bank and Trust in the northwestern Missouri city of Chillicothe.

Citizens Bank also plans to purchase nearly $86 million worth of Columbian Bank’s assets, according to the FDIC.

“The assets are comprised mainly of cash, cash equivalents and securities,” according to the FDIC statement. “The FDIC will retain the remaining assets for later disposition.”

Under the arrangement with regulators, the former Columbian Bank branches will be reopened Monday morning under the direction of the new suitor, Citizens Bank and Trust.

Founded in 1889, Citizens Bank has 21 locations in Missouri with assets of $1.03 billion and loans of $647 million at the end of the first quarter of 2008.
Columbian Bank is the first institution in Kansas to fail since April 1993 when Midland Bank of Kansas was shuttered.

For the year, California and Missouri lead the nation in failed institutions with two banks each. Florida, Nevada, Arkansas, Minnesota, and of course Kansas, have each had one institution shuttered this year.

A host of other banks are being closely monitored by industry watchers who anticipate further failures this year, especially in Sun Belt states where the housing crisis has hit hardest.

The last bank to be shut by regulators was in Florida about three weeks ago.

First Priority Bank of Bradenton, a six branch institution with $261 million in assets located on the state’s west coast, was shutdown on, Aug. 1, marking the first Florida institution to be closed by regulators in more than four years.

To see a Florida bank fail wasn’t a shock to many. Investors are closely watching the banking industry in Florida given the state’s rapidly deteriorating real estate market, which was a key lending focus for most institutions.

Deteriorating real estate markets on the West Coast of the United States has already prompted federal regulators to seize three banks in three states in the month of July.

Federal regulators shut down on July 25 two banks in three states with combined assets of $4.6 billion and 28 locations scattered around Arizona, California, and Nevada.

Regulators seized the First National Bank Holding Co. in Scottsdale, Ariz, the parent company of First Heritage Bank in Newport Beach, Calif., and the First National Bank of Nevada in Reno, Nev. The First National Bank of Arizona merged with the First National Bank of Nevada on June 30, only to be shutdown 25 days later.

The estimated cost of the failure of First National Bank of Nevada and First Heritage Bank is projected to be $862 million, according to the FDIC.

On July 11, federal regulators shut down IndyMac Bank, a $32 billion institution based in Pasadena, Calif. The estimate cost of that seizure is between $4 billion and $8 billion, according to the FDIC.

Before IndyMac, regulators seized Minnesota-based First Integrity Bank with $54.7 million in total assets and $50.3 million in total deposits on May 30; Arkansas-based ANB Financial with $2.1 billion in total assets and $1.8 billion in total deposits on May 9; Missouri-based Hume Bank with total assets of $18.7 million and total deposits of $13.6 million on March 7; and Missouri-based Douglas National Bank with $58.5 million in total assets and $53.8 million in total deposits on January 25, according to the FDIC.

Peter Zalewski is a principal with the consulting company Condo Vultures® LLC and a licensed real estate broker with Condo Vultures® Realty LLC. Peter can be reached at 305-865-5629 or by email at peter@condovultures.com. Be sure to check out Peter’s blog at CondoDump.com. Don't forget to sign up for our weekly Market Intelligence Report. Looking for a property at a deep discount? You are encouraged to take a peek at the Vultures Database™ .

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