As the Treasury Department works feverishly to stabilize the U.S. financial system, regulators were busy Friday, Oct. 10, seizing two more banks in emergency actions that are estimated to cost between $45 million and $54 million.
Main Street Bank, a $98 million in assets institution based in Northville, Mich., and Meridian Bank, a $39 million in assets institution headquartered in Eldred, Ill., were the 14th and 15th institutions, respectively, to be shut by banking regulators in 2008.
The failures of Main Street Bank and Meridian Bank mark the first two institutions to be seized in the fourth quarter, after nine institutions were shuttered in the third quarter at an estimated cost of between $5.7 billion and $10 billion, according to the Federal Deposit Insurance Corp.
Regulators shut two institutions in the second quarter at an estimated cost of $216 million and two more institutions in the first quarter at an expense of nearly $6 million, according to the FDIC, which insures deposits up to a newly increased amount of $250,000.
The deposit insurance amount was raised from $100,000 through the end of 2009 with the recent passage of the $700 billion federal bailout package officially known as the Emergency Economic Stabilization Act of 2008.
Wachovia Bank, a $782 billion in assets institution based in North Carolina, avoided also being shuttered by regulators in the third quarter only when the North Carolina-based organization was able to reach a deal to be acquired. At first Citigroup, which operates the $1.3 trillion in assets Citibank institution, was the announced suitor, but Wells Fargo Bank ultimately was the highest bidder for the Wachovia franchise.
The bank failures have been scattered throughout the United States. California, Nevada, and Missouri lead the nation in failed institutions with two banks each. Florida, Arkansas, Minnesota, Kansas, Georgia, West Virginia, Washington state, and of course Michigan and Illinois each have had one institution shuttered this year.
At the time of the seizure, Main Street Bank was a four-year-old institution operating two locations in the Greater Detroit area, which has been devastated by job loss and plummeting real estate values.
Main Street reported a loss of -$6.5 million through June 30, a dramatic drop from an already disappointed first quarter when the bank lost nearly -$3.2 million on March 31, according to the FDIC.
Main Street’s losses were tied primarily to the bank’s excessive noncurrent loans to loans ratio of 9.32 percent on June 30, and 11.11 percent on March 31. Real estate-related loans accounted for the super majority of the noncurrent loans.
In anticipation of the seizure, regulators worked out a deal whereby all of Main Street Bank’s deposits were assumed by nearby Monroe Bank & Trust, a 103-year-old institution with assets of $1.5 billion and 25 locations with the headquarters in Monroe, Mich.
Monroe Bank has also agreed to purchase at least $17 million of Main Street’s assets. For the next 90 days, Monroe Bank has an option to purchase an additional $1.1 million in “premises and fixed assets” from the FDIC, which is acting as Main Street’s receive. Anything not purchased by Monroe Bank will be disposed of in the future by the FDIC.
“The FDIC estimates that the cost to its Deposit Insurance Fund will be between $33 million and $39 million,” according to an FDIC statement. “Monroe Bank & Trusts' acquisition of all deposits was the ‘least costly’ resolution for the FDIC's Deposit Insurance Fund compared to all alternatives because the expected losses to uninsured depositors were fully covered by the premium paid for the failed bank's franchise.”
Main Street Bank is the first Michigan bank to fail since March 2002 when New Century Bank in Shelby Township was seized by regulators
Five hundred miles away in western Illinois, regulators seized the 98-year-old Meridian Bank and its five branch locations to market the 15th institution to fail this year.
In the lead up to the seizure, Meridian had lost -$843,000 on June 30, and an additional -$706,000 on March 31, according to the latest FDIC data.
Meridian’s noncurrent loans to loans ratio has remained steady at an above average 6.42 percent in the first two quarters of the year. In addition to nonperforming real estate loans, Meridian also had a growing list of troubled commercial and industrial loans, which together combined to spell the end of the nearly century old institution.
In a preemptive maneuver, regulators worked out a deal whereby Meridian’s $36.9 million deposits would all be assumed by National Bank, a 63-year-old institution with $212 million in assets and 10 locations based in Hillsboro, Ill.
National Bank has also agreed to purchase about $7.6 million worth of assets from the failed Meridian Bank.
“The FDIC estimates that the cost to its Deposit Insurance Fund will be between $13 million and $14.5 million. National Banks' acquisition of all deposits was the ‘least costly’ resolution for the FDIC's Deposit Insurance Fund compared to all alternatives,” according to an FDIC statement.
Meridian Bank is the first Illinois bank to be seized by regulators since June 2002 when Universal Federal Savings Bank in Chicago was taken over.
In the first 10 days of the fourth quarter, regulators are on pace to shut an institution once every five days. In the third quarter, regulators seized a bank once every 10 calendar days.
Prior to the seizure of Main Street and Meridian banks, the last institutions to be shut by regulators was Washington Mutual Bank on Sept. 25.
A week earlier on Sept. 19, regulators shut down Ameribank Inc., a 102-year-old community bank based in West Virginia with links to Florida.Prior to the Ameribank’s closure, Silver State Bank in the Las Vegas suburb of Henderson was the last institution to be shut, that occurring on Sept. 5.
Silver State Bank was the second Nevada institution to fail this year. In July, banking regulators shut down the First National Bank of Nevada in Reno, which along with the First Heritage Bank in Newport Beach, Calif., was owned by First National Bank Holding Co. in Scottsdale, Ariz.
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.
Before regulators shuttered Ameribank and Silver State Bank, the focus of examiners was on Greater Atlanta-based Integrity Bank, a $1.1 billion in assets institution that was shut on Aug. 29.Working down the list of failed lenders, regulators seized Columbian Bank and Trust Co., a $752 million in assets institution based in Topeka, Kansas, on Aug. 22.
Three weeks earlier on Aug. 1, regulators shut First Priority Bank of Bradenton, a six branch institution with $261 million in assets located on the state’s west coast.
First Priority’s closing marked the first Florida institution to be closed by regulators in more than four years.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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