June 21 (Bloomberg) — Banks in North Carolina, Georgia and Kansas with combined assets of $1.5 billion were seized by regulators last week, costing the U.S. insurance fund $363 million and pushing this year’s tally of failures to 40.
Southern Community Bank of Fayetteville, Georgia, and 111- year-old Cooperative Bank in Wilmington, North Carolina, were closed June 19 by state officials, and the Office of the Comptroller of the Currency shut First National Bank of Anthony, Kansas. The Federal Deposit Insurance Corp. was named receiver.
Southern Community’s $307 million in deposits were bought by United Community Bank of Blairsville, Georgia, and most of Cooperative’s $774 million in deposits went to First Bank in Troy, North Carolina, the FDIC said. Bank of Kansas in South Hutchinson acquired First Bank’s $142.5 million in deposits. The acquiring banks are assuming a combined $1.47 billion in assets, mostly loans, and signed agreements with the FDIC to share more than 80 percent losses with the government.
“The loss-sharing arrangement is projected to maximize returns on the assets covered by keeping them in the private sector,” the FDIC said in each statement. “The agreement also is expected to minimize disruptions for loan customers.”
Regulators this year have closed the most banks since 1993 as a loss of 6 million jobs since the recession began contributes to mounting home foreclosures and loan delinquencies. The U.S. economy contracted at a 5.7 percent annual pace in the first quarter. More than a quarter of all states have unemployment rates higher than 10 percent, the Labor Department said last week.
Assessment Fee
The regulator estimates the seizures will cost the deposit insurance fund $363 million, led by $217 million for Cooperative Bank. The reserve in the first quarter fell 25 percent from the previous year, to $13 billion — the lowest since September 1993. The FDIC in May imposed an emergency fee to raise $5.6 billion to rebuild the fund, with more assessments possible.
Cooperative Bank, the biggest of the three to fail June 19, was considered undercapitalized after an FDIC review last year and had entered agreements with federal and state regulators, including an April 24 accord with the Federal Reserve Bank of Atlanta, on capital and management.
The bank halted or slowed writing loans held for investment in the fourth quarter to comply with orders to improve capital ratios, according to a May 20 statement from the company.
Southern Community in October said it overhauled operations and raised capital in an attempt to survive, after receiving an order from the FDIC, according to a regulatory filing in November. The bank replaced Chief Executive Officer Gary McGaha with Dave Coxon and raised $2 million to weather additional loan losses, the statement said.
‘Substantial Dissipation’
First National Bank had “substantial dissipation” of assets, earnings and losses depleted most capital, and “no reasonable prospect” of becoming adequately capitalized without federal assistance, the OCC said in a statement.
Southern Community’s five offices opened yesterday as branches of United Community, and Cooperative’s 24 branches will open tomorrow as part of First Bank. Six offices of First National will open under normal business hours as branches of Bank of Kansas, the FDIC said.
As many as 1,000 U.S. banks could fail in the next three to five years on losses related to commercial real estate loans, RBC Capital Markets analysts said in February. The FDIC estimates U.S. bank failures through 2013 may cost $70 billion.
The FDIC classified 305 banks as “problem” institutions in the first quarter, a 21 percent jump from the fourth quarter and the highest since 1993, the agency said May 27. The agency doesn’t identify problem lenders.
The FDIC insures deposits at more than 8,220 institutions with $13.5 trillion in assets.
To contact the reporters on this story: Margaret Chadbourn in Washington at [email protected]; Ari Levy in San Francisco at [email protected].
Last Updated: June 21, 2009 00:01 EDT
By Margaret Chadbourn and Ari Levy
Source: Bloomberg