Banks Strain as Capital Drains

The data are for the banks themselves, not holding companies.

These banks were considered significantly or critically undercapitalized as of Sept. 30. The list is sorted by ascending leverage ratio:

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Of 13 banks that reported being significantly or critically undercapitalized as of Sept. 30, five have already failed. These institutions are in bold on the table.

Meridian Bank of Elred, Illinois, was shuttered on Oct. 10.

Alpha Bank and Trust was closed by Georgia regulators on Oct. 24.

Freedom Bank of Bradenton, Florida, failed on Halloween, with its branches taken over by Fifth Third Bank of Grand Rapids, Mich. (held by Fifth Third Bancorp (FITB Quote).

Franklin Bank, SSB of Houston, and Security Pacific Bank of Los Angeles, were shut down by state regulators last Friday. Franklin's branches were taken over by Prosperity Bank of El Campo, Texas (held by Prosperity Bancshares (PRSP Quote)), and Security Pacific's branches went to Pacific Western Bank of San Diego, a subsidiary of PacWest Bancorp (PACW Quote).

Moving on to the eight banks remaining on the list, four posted large securities losses during the quarter, causing them to slip from well-capitalized status. While the call reports don't list the specific issues the banks lost money on, it's clear that most losses sprang from the government takeover of Fannie Mae and Freddie Mac. We confirmed this for two of the institutions, from an earnings release and an executive interview.

TheStreet.com contacted all eight remaining institutions on the list, but only one responded in time for this article.

National Bank of Commerce of Berkeley, Ill., reported $57 million in securities losses during the third quarter, which wiped out most of the $459 million institution's capital. Total equity capital was just $5.7 million as of Sept. 30, down from $41 million at the end of the second quarter. With deductions for deferred tax assets and disallowed goodwill, the bank's tier 1 capital was negative $39 million. National Bank of Commerce's loan quality hasn't been a problem, as the institution reported nonperforming assets comprising 0.95% of total assets as of Sept. 30, with no loan charge-offs year to date.