California's 1st Centennial Bank Fails

California regulators shut down 1st Centennial Bank of Redlands, Calif. Friday and named the Federal Deposit Insurance Corporation receiver. It is the third failure of a U.S. bank this year.

In a press release, the California Department of Financial Institutions didn't specify why it closed 1st Centennial. However, based on the bank's poor loan quality, continuing losses and low level of capital, TheStreet.com Ratings had assigned it an E (Very Weak) financial strength rating in September 2008, a downgrade from D- (Weak) in the previous quarter.

1st Centennial had $803 million in total assets and $677 in total deposits as of Jan. 9. The FDIC announced that the failed bank's six branches and insured retail deposits were acquired by First California Bank, of Westlake Village, a unit of First California Financial Group(FCAL Quote).

This left approximately $12.8 million in uninsured deposits, a figure the FDIC said was likely to be revised. As we saw last week with the failure of Bank of Clark County of Vancouver, Wash., depositors face major risks as the banking crisis continues to unfold, despite the temporary increase of deposit insurance limits.

The FDIC also said that 1st Centennial had $362 million in brokered deposits that weren't part of its transaction with First California Bank.

When a bank or savings and loan with brokered deposits fails, the FDIC asks the brokers to complete paperwork listing their customers and deposit amounts. Since brokered CDs are registered with a bank or S&L only in the name of the broker, the FDIC needs the brokers to provide detailed customer account information when an institution fails. The FDIC then cross-checks the information with other broker lists and the bank's retail deposits to make sure that a customer's total deposits with the failed institution don't exceed insurance limits. This process takes time, meaning it can take customers with brokered deposits a few weeks to get their money back.