Two Banks Fail; 2010 Total Reaches 151

WASHINGTON (TheStreet) -- State regulators shut down two banks Friday, bringing this year's total number of bank failures to 151.

Both of this week's failed banks were previously included in TheStreet's Bank Watch List of undercapitalized institutions, based on preliminary third-quarter regulatory data provided by SNL Financial.

Paramount Bank

The Michigan Office of Financial and Insurance Regulation shuttered Paramount Bank of Farmington Hills, Mich. and appointed the Federal Deposit Insurance Corp. as receiver. The failed bank had $257.2 million in total assets, which the FDIC sold to Level One Bank, which is also headquartered in Farmington Hills.

Paramount Bank had entered into an agreement with the Federal Reserve in October 2008, requiring the institution to submit a new capital plan to the regulator, as well as a liquidity plan, and improve its credit administration staff, policies and procedures. The bank was also required to accelerate the charging-off of problem loans.

Following net losses of $12.3 million during 2008 and $9.9 million in 2009, the bank was undercapitalized with a total risk-based capital ratio of 6.81% as of Dec. 31, 2009. This ratio needs to be at least 10% for most banks to be considered well-capitalized and 8% for most to be considered adequately capitalized by regulators. Following another $10.2 million in losses during the first three quarters of 2010, the total risk-based capital ratio was 2.49% and the bank was unable meet the requirements of a subsequent Aug. 3 order from the Fed to sell the bank or raise adequate capital within 60 days.

Paramount Bank's four branches were set to reopen Monday as branches of Level One Bank. The FDIC agreed to cover 80% of losses on $233.1 million in assets acquired by Level One Bank and estimated the cost to the deposit insurance fund would be $90.2 million.

Earthstar Bank

Pennsylvania regulators closed Earthstar Bank of Southampton, Pa., which had $112.6 million in assets and $104.5 million in deposits. The FDIC was appointed receiver and arranged for Polonia Bank of Huntington Valley, Pa. to assume all of the deposits and $77.1 million in assets from the failed institution, with the agency agreeing to cover 80% of losses on $45.8 million. Polonia Bank is the main subsidiary of Polonia Bancorp (PBCP).