Bank takeovers pick up steam

February 23rd, 2009 at 11:40am Alex Gary

The FDIC seized Silver Falls Bank of Silverton, Ore., Friday, already the 14th bank taken over this year.

Last year there were 25 banks seized by the feds, the most in the decade, but based on the activity so far this year that number will be far surpassed as the waves of failed loans continue to wash out once mighty institutions.

So far this year, it has been almost entirely small banks being wiped out. Only two of the 14 banks taken over had more than $1 billion in assets and those two were California banks with miniscule market shares.

I looked up the most recent data available on all 14 banks — Sept. 30 — and most were in shaky but OK shape as of Sept. 30, 2007, and were just overwhelmed over the next 12 months.

Silver Falls turned a $1.5 million profit in third quarter 2007, but in third quarter 2008 the bank lost $3 million. It’s loss allowance to non current loans plummeted from 141 percent to 20.6 percent and assets and real estate owned to overall assets soared from 0.81 percent to 16.5 percent. That final stats means that the $24.3 million of the banks $147 million in assets was stuff it had foreclosed on.

Corn Belt Bank and Trust of Pittsfield was one of four taken over on Feb. 13. It swung from a $3.1 million profit to an $18.1 million loss in a year. It’s loss allowance and non current loan levels were OK as of Sept. 30, it was just running out of money. Corn Belt’s total risk-based capital ratio as of Sept. 30, 2008, compared to 10.27 percent as of Sept. 30, 2007. Regulators like to see banks at 10 percent for that category.

Corn Belt was the second Illinois bank seized this year. National Bank of Commerce of Berkeley was shut down on Jan. 16. Its third quarter 2007 profit of $4.5 million fell to a $53 million loss in third quarter 2008. The biggest red flag on National Bank’s condition was in its deposits.

When the public loses faith and begins pulling money out a bank is forced to borrow deposits or CDs from other institutions to keep capital levels up so it isn’t taken over by the FDIC. Doing so does help a bank’s cash reserves but it has to pay interest on the deals, hurting profitability. In September, 2007, $53 million of National Bank’s $323.9 million in deposits were “brokered” or 16.4 percent. As of September 2008, National Bank’s brokered deposits had grown to $187 million out of $422 million, or 44.3 percent.

Entry Filed under: Uncategorized