Ohio Bank Fails

Less than a week after the failure of NetBank, federal regulators on Thursday announced the failure of an Ohio institution that also leaves some large depositors in limbo.

The Ohio Superintendent of Financial Institutions and the Federal Deposit Insurance Corp. announced the $86.7 million Miami Valley Bank's closing and the transfer of its insured deposits to The Citizens Banking Co., of Sandusky, Ohio. TheStreet.com Ratings provided advance notice of Miami Valley Bank's weak condition, as its rating was downgraded to an E- (very weak financial strength) in June 2007.

As with last week's failure of NetBank (which is formerly a unit of NetBank Inc.(NTBK)), Miami Valley customers with deposits exceeding FDIC insurance limits are on the hook. At the time it was closed down, Miami Valley Bank had about $14 million in uninsured deposits in 269 accounts.

This time, however, the scenario may be more painful than the NetBank's closing. While NetBank's depositors received an immediate payout of 50 cents on the dollar for uninsured deposits, Miami Valley's depositors have received nothing so far.

David Barr, the FDIC's assistant Director for Public Affairs, said that the quick sale of half of NetBank's assets enabled the agency to make the 50% payments immediately. None of Miami Valley Bank's assets have been sold yet.

A Rapid Fall

After showing a steady rise in nonperforming assets, which comprised 3.27% of total assets as of Dec. 31, 2006, things really got out of hand in the first quarter. Nonperformers shot up to 12.80% of total assets, an amazingly high figure for a very small bank specializing in residential mortgage lending. Miami Valley Bank lost $6 million in the first quarter of 2007, as it transferred money to reserves to cover losses on problem loans. This reduced the bank's capital from $13.2 million to $8.4 million, making it undercapitalized per regulator guidelines.