Does Your Bank Have Enough Capital?

A total of 17 banks reported being undercapitalized as of June 30, based on preliminary FDIC data.

This excludes First Priority Bank of Bradenton, Fla., and First National Bank of Nevada, both of which were recently shut down by regulators.

Before presenting the list of undercapitalized banks, it is important to point out a few things.

The list is based on preliminary data. Most banks have filed their call reports, which our data provider, Highline Financial, Inc., obtains from the FDIC. The set of data was not yet finalized when we downloaded it on Aug. 11, and there were at least 100 banks that had not filed yet. This data is often updated by banks before it is finalized.

The list includes only banks. The Office of Thrift Supervision does not make preliminary data available for the over 800 S&Ls supervised by the agency.

The data are for the banks themselves, not holding companies. This is particularly important, as we saw when BankAtlanic Bancorp(BBX Quote) sued analyst Richard Bove and his employer, Ladenburg Thalmann (LTS Quote). The holding company accused Bove of mixing holding company data with thrift data in his "Who is Next?" report.

To be considered well-capitalized under regulatory guidelines, a bank needs to maintain a leverage ratio of at least 5% and a risk-based capital ratio of at least 10%. These ratios need to be at least 4% and 8% for a bank to be considered adequately capitalized. Looking again at the two failed banks mentioned above, the capital ratios were 0.70% and 1.72% for First Priority Bank and 5.07% and 6.78% for First National Bank of Nevada.

All of the banks on this list failed to meet one of the thresholds for an adequately capitalized institution.

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Main Street Bankof Northville, Mich., had the lowest leverage ratio on the list, at 2.28%, and a risk-based capital ratio of just 4.20%. The $112 million institution was organized in 2004, and achieved profitability in 2006. However, loan quality declined sharply through 2007, as nonaccrual mortgages and construction loans mounted.