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Oregon Regulators Close Small Bank

Philip van Doorn

The Oregon Department of Consumer and Business Services closed Silver Falls Bank of Silverton, Ore. Friday, bringing the total number of U.S. banks and savings and loans closed during 2009 to fourteen.

The Federal Deposit Insurance Corp. was appointed receiver. It arranged for Citizens Bank of Corvallis, Ore. to acquire all of the failed bank's deposits.

Please see TheStreet.com's new Bank Failure Map for an interactive summary of all previous bank and S&L failures during 2008 and 2009.

Silver Falls Bank

In a press release announcing the failure of Silver Falls Bank, the Oregon Department of Consumer and Business Services cited the institution's heavy concentration of nonperforming commercial construction loans and its critically low level of capital. David Tatman, the regulator's Finance & Corporate Securities administrator, said that despite a recent stock offering, "Silver Falls Bank management was not able to address these significant problems in a timely manner."

Since the institution lacked a significant capital cushion before the real estate crisis came to a head, mounting losses from provisions for loan loss reserves left Silver Falls Bank significantly undercapitalized as of Dec. 31, with a tier 1 leverage ratio of 2.05% and a risk-based capital ratio of 3.87%, according to preliminary call report data provided by Highline Financial.

These ratios need to be at least 5% and 10%, respectively, for an institution to be considered well-capitalized, and Silver Falls Bank slipped below the well-capitalized designation in the first quarter of 2008.

Silver Falls Bank was included in TheStreet.com's list of undercapitalized banks published Feb. 6. An updated list of undercapitalized banks was included in Friday's analysis of undercapitalized thrifts.

TheStreet.com Ratings had assigned Silver Falls Bank an E (Very Weak) financial strength rating in January, a downgrade from the D- (Weak) rating assigned last June. As of Dec. 31, the institution's problem loans reached a critical level, as nonperforming assets made up 26.57% of total assets.

Silver Falls Bank had total assets of about $131 million and deposits of $116 million. All deposits, including any uninsured balances and brokered deposits, were assumed by Citizens Bank, along with $13 million in assets. The failed bank's three offices were set to reopen Monday as Citizens' branches.

The FDIC estimated that the cost to its insurance fund on the remaining $118 million in assets would be $50 million.

Ratings

The failure of Silver Falls Bank turned out well for depositors, since the FDIC was able to find a bank willing to acquire all deposits, including uninsured balances and CD deposits made through brokers.

However, in several recent failures, uninsured deposits were not acquired, leading to losses for some depositors. In some cases, retail deposits were acquired but brokered CD deposits were not, leaving depositors waiting for their brokers to provide the FDIC with the information required so the agency can return the money to the brokers. These depositors may also face the prospect of getting a much lower rate on their next CD deposit, especially if they had locked in much-higher rates through their brokers a few months back.

TheStreet.com Ratings issues independent and very conservative financial strength ratings on each of the nation's 8,500 banks and savings and loans. These are available at no charge on the Banks & Thrifts Screener. In addition, the Financial Strength Ratings for 4,000 life, health, annuity and property/casualty insurers are available on the Insurers & HMOs Screener.

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