January 2010 Archives

Regulators shut down six more banks on Friday, pushing the toll for January to 15.

The biggest bank to fail was First Regional Bank, of Los Angeles, which had $2.18 billion in assets. The Federal Deposit Insurance Corp. arranged for First Citizens Bank & Trust Co., of Raleigh, N.C., to take over First Regional's  eight branches and $1.87 billion in deposits.

First Citizens also acquired $2.17 billion of the failed bank's assets, with $2 billion of that amount subject to a loss-sharing agreement with the government.

First Regional had been operating for nearly a year under an FDIC cease-and-desist order that called for it to boost its capital levels and strengthen its management.

The other closed banks, in order of size, were Community Bank & Trust, of Cornelia, Ga,; Florida Community Bank, of Immokalee, Fla.; First National Bank of Georgia, of Carrolton, Ga.; American Marine Bank, of Bainbridge Island, Wash; and Marshall Bank N.A., of Hallock, Minn.

The FDIC lined up SCBT N.A., of Orangeburg, S.C., to take over Community Bank and Trust's 36 branches and $1.11 billion in deposits. SCBT, the holding company  for South Carolina Bank and Trust, also bought essentially all of the failed bank's $1.21 billion in assets, with $827.7 million of that covered by loss-sharing.

Premier American Bank N.A., of Miami, acquired Florida Community Bank's 11 branches and $795.5 million in deposits. It agreed to pay a premium of 0.4 percent for the deposits.

Premier American also took $499.1 million of Florida Community's assets. The FDIC entered into a loss-sharing deal on $305.4 million of that amount.

It retained roughly $376 million in assets for later disposition.

Community & Southern Bank, a newly chartered institution in Carrolton, Ga., took over the remains of First National Bank of Georgia. It got the failed bank's 11 branches and its $757.9 million in deposits, paying a 1.25 percent premium for that money.

It also took all of First National's $832.6 million in assets, with $607.4 million of that covered by a loss-sharing deal.

Columbia State Bank, of Tacoma, Wash, absorbed American Marine Bank's 11 branches and $308.5 million in deposits. It agreed to pay a 1 percent premium for the deposits.

It also bought all of American Marine's $373.2 million in assets, with $255.1 million subject to loss-sharing.  Columbia State acquired another failed bank last week, taking over Columbia River Bank in Oregon and its $1 billion in deposits.

United Valley Bank, of Cavalier, N.D., took over Marshall Bank's three branches, its $54.7 million in deposits and its $59.9 million in assets. United Valley paid a 7.35 percent premium for the deposits.

The FDIC also agreed to share losses with United Valley on $23.9 million of the failed bank's assets.

The agency said the six bank closings this week would cost its insurance fund an estimated $1.87 billion, with First Regional in Los Angeles accounting for $825.5 million of that total.

Shareholders of Independent Bank Corp. will vote tomorrow on a recapitalization plan that could give the U.S. government the biggest ownership stake in the company.

Independent Bank, based in Ionia, Mich., is seeking approval to increase its authorized common shares from 60 million to 500 million, and to exchange certain preferred securities for common shares.

The company got $72 million in public money through the Troubled Asset Relief Program in December 2008.

The recapitalization plan could greatly dilute the holdings of existing investors in the bank, which has posted five consecutive quarterly losses because of difficult economic conditions in its home state.

Independent Bank lost $17.3 million in the third quarter of 2009. It will release results for the fourth quarter and the full year next month.

Independent Bank is proposing to exchange as many as 180.2 million shares for four sets of trust preferred securities, which have a liquidation value of $90.1 million.

It also wants to give common shares to the Treasury Department to replace the preferred stock it issued when it received the TARP money.

Finally, the company hopes to raise as much as $150 million in new capital through the sale of additional common stock.

Independent Bank said in a filing related to the shareholder' meeting that if it does not lift its minimum capital ratios within the next three months or so, they might fall below the level necessary to remain "well-capitalized.'' It said that could lead state and federal regulators to impose restrictions that would adversely affect the company's financial condition and operating results.

Independent Bank said in another SEC filing Wednesday that its Mepco Finance Corp. subsidiary expects to take a charge of at least $12.4 million in the fourth quarter because of the "probable failure'' of its most significant counterparty.

Mepco, which buys receivables tied to installment payments for automobile warranties and service plans, also took a $6 million charge in the third quarter to reflect that partner's difficulties.

Mepco did not identify the other party. But media reports have linked it to US Fidelis, an extended warranty company in Missouri that has been charged with deceptive business practices by that state's attorney general and is the subject of a joint investigation by more than 40 states.

According to a story in the St. Louis Post-Dispatch, Mepco serviced most of US Fidelis' extended auto-service contracts. The article noted that Darain Atkinson, US Fidelis' founder and president, gave Mepco a second mortgage on the company's headquarters building in October, and pledged various other assets as collateral for as much as $50.2 million in financing.

US Fidelis has laid off most of its workers and stopped selling new extended-service contracts. Earlier this month, Mepco bought the company's headquarters at a foreclosure auction for $2.73 million.

1st Financial Services Corp., the North Carolina-based holding company for Mountain 1st Bank and Trust, is paying a premium for its new chief executive officer.

The company said in a Securities and Exchange Commission filing last week that it had hired Miichael G. Mayer, who most recently was president and CEO of Carolina Commerce Bank.

Mayer got a $50,000 signing bonus and a base salary of $300,000, which will rise by 10 percent annually over the course of his three-year contract.

Gregory L. Gibson, Mayer's immediate successor at 1^st Financial, got a salary of $173,250 in 2008 and $165,000 in 2007, according to the company's proxy statement for its 2009 annual meeting,

1^st Financial, which has headquarters in Hendersonville, received $16.4 million in taxpayer capital through the Troubled Asset Relief Program in November 2008.

Although Mayer's base salary is well below the $500,000 deductibility limit for executive compensation for TARP recipients, it is nevertheless a significant upgrade for a company that lost more than $7.8 million in the third quarter, dropping it into the red for the year.

1^st Financial has paid its required dividends to the Treasury, but it has not redeemed any of the preferred stock it issued to the government as part of its participation in TARP's Capital Purchase Program.

At Carolina Commerce Bank, Mayer successfully guided the company through a merger with a larger institution, Carolina Trust Bank.

1^st Financial's long-anticipated but failed attempt to merge with AB&T Financial Corp. may have played a role in Gibson's abrupt departure.

Last February, the two companies entered into a definitive agreement to merge. But AB&T--another TARP recipient--announced on Oct. 1 that it had decided to terminate the deal.

Gibson announced his resignation Oct. 27, citing personal reasons, and left the company four days later.

State and federal regulators shut down five banks on Friday, including two with more than $1 billion in assets.

The biggest institution to be declared insolvent was Charter Bank in Santa Fe, N.M., which was closed by the Office of Thrift Supervision. The Federal Deposit Insurance Corp. was appointed as receiver, and arranged for a newly formed subsidiary of Beal Bank to take over Charter's eight branches, its $851.5 million in deposits and nearly all of its $1.2 billion in assets.

The FDIC and Beal Bank, based in Plano, Tex., entered into a loss-sharing deal on $805.5 million of those assets.

The Office of Thrift Supervision had issued Charter a cease-and-desist in November, giving it until this month to raise new capital and correct other deficiencies.

The Oregon Division of Finance and Corporate Securities shut down Columbia River Bank, in The Dalles, Ore. The FDIC, as receiver, lined up Columbia State Bank -- an unrelated institution in Tacoma, Wash. -- to assume the failed institution's 21 branches, $1 billion in deposits and $1.1 billion in assets.

Columbia State Bank paid a 1 percent premium for the deposits. It also entered into a loss-sharing deal with the FDIC on $697.4 million of the acquired assets.

Columbia River Bank had been operating since last February under regulatory orders calling for it to boost its capital levels and take other steps to improve its soundness.

The other three banks that went under Friday were Evergreen Bank in Seattle, Premier American Bank in Miami and the Bank of Leeton, in Leeton, Mo.

Umpqua Bank, of Roseburg, Ore., took over Evergreen Bank's seven branches, along with its $439.4 million in deposits and $488.5 million in total assets. It agreed to pay a 1 percent premium for the deposits.

The FDIC and Umpqua will share losses on $379.5 million of Evergreen's assets.

A newly formed company took over Premier American's four branches, $326.3 million in deposits and $350.9 million in assets. The new company, called Premier American Bank N.A., is a subsidiary of Bond Street Holdings LLC, an entity set up last year to acquire banking franchises. Its officers include Daniel Healy, former chief financial officer of North Fork Bancorporation Inc., and Vincent Tese, former New York superintendent of banks.

The FDIC and the newly chartered bank will share in any losses on $300 million of the acquired assets.

Sunflower Bank N.A., of Salina, Kan., acquired Bank of Leeton's lone branch, and its $20.4 million in deposits. Sunflower paid a 0.59 percent premium for the deposits.

The FDIC retained Bank of Leeton's $20.1 million in assets for later disposition. It said that all five bank closings would cost its deposit insurance fund an estimated $531.7 million.

The latest failures bring the total so far this year to nine, compared with three in the same period of 2009.

The Treasury Department recently released its monthly lending report that tracks the annual and monthly loan activity of the 22 banks that got the most public money through the Troubled Asset Relief Program.

The study says that although the economy continues to strengthen, it is still properly classified as weak.  Results and forecasts are mixed, as financial conditions improved slightly in some quarters while the more troubling areas continued their entrenchment and even decline.

Consumer optimism improved in December, mortgage rates remained at attractive levels, and there even was a small gain in payroll jobs in November (which fell again in December).  Overall loan originations in November rose 17 percent from a year earlier, although the outstanding loan balances among the 22 institutions remained largely unchanged from October.

Total loan originations fell in four categories over the month of November:  home equity lines of credit, other consumer lending products, renewals of commercial real estate loans and new commercial real estate loans.

Originations also rose in four categories: mortgages, credit card loans, renewed commercial and industrial loans and new commercial and industrial loans. Although first mortgage originations posted a modest 4 percent gain in November, the annual boost in originations was an encouraging 91percent.

Much of this increase can be attributed to refinancing fueled by favorable rates.  New home purchase originations fell 5 percent in November. Home-equity lines and increases fell 15 percent, and were down 45 percent over the past year.  Banks claim that the pool of qualified homeowners has shrunk while the value of most homes has depreciated, causing the home equity line market to tighten.

Favorable interest rates themselves have done little to curb the historic tide of home foreclosures. In addition, loan originations to small businesses -- an important generator of jobs and income -- fell by 18 percent in November. 

The most troubling news came, as expected, in the area of commercial real estate.  New commitments for commercial real estate loans fell a full 20 percent between October and November 2009, and annual numbers showed a 51 percent decline.

The report partly faults the lack of new construction activity as well as developers' reluctance to invest in new projects while companies downsize, the surplus of office space grows, and the overall commercial vacancy rate escalates.  Most of the banks indicated they would further limit their exposure to commercial real estate loans, as they expect the high delinquency rate to continue and a weak market to persist.

Seasonality must be taken into account when reading the report, as November is traditionally a slow time for new home purchases and other areas of consumer lending.

The latest report arrives late in the wake of the Congressional Oversight Panel's annual summary, Taking Stock: What Has the Troubled Asset Relief Program Achieved?  The Panel's critique of the program is more or less seconded by the recent numbers.  As the latest report notes, many of the largest TARP recipients "continued to focus on preserving liquidity, strengthening their balance sheets, building cash reserves and paying down existing debt rather than taking on new debt."  

Such strategies may solidify the standing of the banks involved, but they do little to stimulate the economy in the way TARP intended.  Credit remains difficult for most people and businesses to obtain.  Small bank failures, small business collapses and home foreclosures remain at a record high, due at least in part to the practices of the largest TARP recipients.

On December 9,  Treasury Secretary Timothy F. Geithner appeared before congress to announce that TARP would be extended until October 3 of this year. He emphasized that TARP investment in 2010 would focus on curbing home foreclosures, propping up small banks, and aiding small businesses and consumers.  These were areas flagged in Taking Stock as insufficiently addressed by TARP but essential to continued financial recovery.

It would appear that the largest TARP banks were unwilling to take such risks at the grass- roots level and that a second wave of effort was therefore necessary.  The specifics of the latest Treasury lending report seem to bear this out.

Bailoutsleuth will continue to examine the Treasury's monthly lending reports to see that TARP funding is applied in its intended manner and that the proposed remedies evince signs of economic recovery. 

Regulators closed three banks Friday, the biggest of which was Barnes Banking Co. of Kaysville, Utah.

The Federal Deposit Insurance Corp. could not find a buyer, so it created a temporary bank that will operate until Feb. 12 so deposits can access their accounts and move their money to other institutions.

Zions First National Bank of Salt Lake City will provide operational support for the temporary bank.

Barnes Banking had $786.5 million in deposits and $827.8 million in  assets. It had been operating since May under a consent order with the Federal Reserve. That order called for it bolster its finances, improve its credit-review process and strengthen its management.

Illinois regulators closed Town Community Bank and Trust, in Antioch, and appointed the FDIC as receiver. The FDIC arranged for First American Bank, of Elk Grove Village, Ill., to take over the failed bank's lone branch, its $67.4 million in deposits and $67.6 million of its assets. First American and the FDIC entered into a loss-sharing deal on $56.2 million of those assets.

The third bank that went under Friday was St. Stephen State Bank in St. Stephen, Minn. The FDIC arranged for another Minnessota institution,  First State Bank of St. Joseph, to take over its two branches, $23.4 million in deposits and $24.7 million in assets.

First State Bank and the FDIC will share losses on $20.4 million of those assets.

The FDIC said the three bank closings would cost its insurance fund an estimated $296.3 million, with Barnes Banking accounting for $271.3 million of that total.

The total number of failures for the year to date is four.

Pacific City Financial Corp., which got $16.2 million in public money through the Troubled Asset Relief Program, plans to merge with North Asia Investment Corp., a shell company listed on the American Stock Exchange.

Pacific City Financial, which operates Pacific City Bank in Los Angeles, will be the surviving entity. It expects to be listed on the AMEX, according to a Securities and Exchange Commission filing.

Pacific City Financial, known as Pac City, was created in 2003 to address the banking needs of the Korean-American community.  The company says the merger should strengthen its ties with that community while tapping new resources within both Korean and American markets.

Pac City's executive management and board of directors will remain in place, with the addition of Thomas Chan-Soo Kang as the new chairman.

Kang is the current chief executive officer of NAIC, an acquisition company founded in 2007 and incorporated in the Cayman Islands. According to Pac City's press release on the merger, that company "has neither engaged in any operations nor generated any revenue to date."  Its sole purpose is to acquire or merge with other entities to create investment opportunities for its shareholders.

Pac City will issue as many as 18.5 million shares of its stock, representing 70.6 percent of the company, to NAIC shareholders. The deal will bring Pac City roughly $50 million in cash that NAIC has been holding since a stock offering in July 2008.

Pac City, which had $534 million in assets at the end of the third quarter, has faced many of the same challenges as other Southern California-based banks. 

Although the company turned a $721,000 profit in 2008, it had a net loss of $12.2 million through the first nine months of 2009.  According to an SEC filing, management expects a further loss of around $4 million in the fourth quarter, primarily because of provisions for bad loans.

Approximately 53 percent of Pac City's loan portfolio was tied to commercial real estate at the end of the third quarter, and another 23 percent was in commercial and industrial loans.

The bank's assets declined by more than $46 million in the first nine months of 2009, while deposits fell by $21 million.

Pac City has paid the required dividends to the Treasury on the preferred stock it issued in return for the TARP money. But unlike dozens of other recipients of the government aid, it has not repurchased any of the shares or warrants.

The deal is still subject to approval by the shareholders of both Pac City and NAIC.  It is also subject to the customary approvals of the SEC.

Boston Private Financial Holdings Inc. has repaid $50 million of the public money it received through the Troubled Asset Relief Program.

The company said Wednesday it got approval from the Treasury Department to start redeeming the full $154 million in preferred stock that it issued to the government when it received the TARP aid in November 2008.

Boston Private has four independently operated affiliate banks, in Boston, Los Angeles, San Francisco and Seattle. It also has a network of investment management and wealth advisory businesses.

Timothy L. Vaill, chairman and chief executive, said in a press release that Boston Private has taken steps in recent months to improve its capital position and bolster its balance sheet.

Although it is now in a position to repay all of the money it received through the TARP Capital Purchase Program, Vaill said, it decided "in an abundance of caution'' to retain a portion of the money.

"We will continue to assess the pace of the nation's economic recovery going forward and will seek approvals to repay additional amounts in 2010 when we feel the timing is appropriate,'' he said. "We continue to consider the CPP capital as a high-quality, relatively low-cost form of financial strength, and believe the repaying these fundsin states is prudent and in the best interests of our shareholders. We are pleased to have been able to use this capital to increase our lending and thus contribute to the improving economy as the program was originally intended.''

Banks that receive TARP money pay the government a 5 percent dividend for the first five years, and a 9 percent dividend thereafter.

First Midwest Bancorp Inc., which got $193 million in public money through the Troubled Asset Relief Program, has announced a stock offering to raise additional capital.

First Midwest said in a press release and a Securities and Exchange Commission filing that it intends to sell approximately $150 million in common stock through an underwriting team that includes Goldman Sachs & Co. and Keefe, Bruyette & Woods Inc.

The bank holding company, which has headquarters in itasca, Ill., said it would use the proceeds for general corporate purposes. The underwriters have an option to purchase additional shares amounting to 15 percent of the offering.

First Midwest also announced its earnings on Wednesday. It posted a bigger-than-expected loss of $37.5 million for the fourth quarter of 2009, compared with a loss of $26.9 million for the same period in 2008. The company cited higher loan loss provisions, attributable mainly to residential construction and land loans.

First Midwest lost $25.7 million for all of 2009, compared with a profit of $49.3 million in 2008.

The company said provisions for loan losses totaled $215.7 million in 2009, with $93 million of that coming in the fourth quarter. It set aside $70.2 million for loan losses in 2008.

First Midwest ended the year with $7.71 billion in total assets, down from $8.53 billion in 2008.

Regulators seized Horizon Bank in Bellingham, Wash., on Friday, making it the first bank failure of 2010.

The Federal Deposit Insurance Corp. arranged for Washington Federal Savings and Loan Association to take over Horizon's 18 branches, $1.1 billion in deposits and $1.3 billion in assets.

The FDIC and Washington Federal entered into a loss-sharing arrangement covering roughly $1 billion of the failed bank's assets.

Washington Federal is based in Seattle. It received $200 million in aid through the Treasury Department's Troubled Asset Relief Program in 2008, but repaid the money last May, citing "onerous additional restrictions'' imposed by Congress.

State and federal regulators issued a cease-and-desist order to Horizon in March, instructing the bank to raise capital, reduce certain types of lending, suspend stock dividends and take other actions to boost its financial strength.

On Dec. 3, the FDIC gave Horizon 30 days to either lift its capital ratios to acceptable levels or find a buyer or merger partner.

The FDIC said that the failure would cost its deposit insurance fund an estimated $539.1 million.

Colony Capital Acquisitions LLC won the bidding for a pool of $1.02 billion in assets assembled from the remains of 22 banks.

The Federal Deposit Insurance Corp. said Friday that Colony Capital Acquisitions was chosen to buy a 40 percent stake in a public-private partnership that will manage the assets. It said 20 other parties also submitted bids in the auction, held Dec. 17.

The FDIC said in the announcement that it would retain a 60 percent interest in the partnership, which holds roughly 1,200 commercial real estate loans.  About 70 percent of the loans are delinquent. The bulk of the properties covered by the loans are in Georgia, Florida, California and Nevada, the FDIC said.

Colony Capital Acquisitions agreed to pay $90.5 million for its stake in the partnership. The individual FDIC receiverships that put loans into the pool provided additional financing through $233 million in guaranteed notes.

Colony Capital Acquisitions will direct the limited liability corporation set up to hold the loans, and will provide for the management, servicing and disposition of the assets.

Colony Capital Acquisitions is a unit of Colony Capital LLC, which is based in Santa Monica, Calif., and specializes in buying real estate, non-performing loans and other distressed assets.

It closed on the FDIC deal Thursday.

The Federal Deposit Insurance Corp. has scheduled two more loan auctions, covering more than $65 million in assets.

The FDIC is offering 13 commercial and residential real estate participations, totaling $60.9 million, that originated with Security Real Estate Services of Macon, Ga. That company was part of Security Bank Corp., whose six subsidiary banks were seized in July.

Debt Exchange Inc., an FDIC contractor, is handling the auction. Each of the loan participations will be sold separately. The bid date for each is Jan. 12. Only FDIC-insured banks or their wholly owned subsidiaries may bid on the offering.

The 12 commercial loan participations in the auction cover real estate assets totaling $59.9 million. The collateral is located in Florida and Georgia. The residential participation is a single asset totaling $1 million.

The total pool of assets is composed of 27 percent seasoned performing loans and 73 percent non-performing loans.

The FDIC also is using Debt Exchange to sell assets from the failed Silverton Bank, of Atlanta. Bids are due Jan. 19 for a single commercial lease pool composed of 12 assets valued at $4.8 million.

Regulators shut down Silverton on May 1. The lease pool being auctioned consists of 78 percent seasoned performing assets and 22 percent non-performing assets.

BailoutSleuth will continue tracking these deals as part of our continuing coverage of the upheaval in the financial industry.