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Bank Failures Likely to Continue

Despite an ongoing steady flow of bank closures, the number of undercapitalized banks continued to increase in the second quarter.



) -- Despite signs of improving credit quality in the banking industry the accelerated pace of bank failures is likely to continue.

Based on preliminary second-quarter regulatory data supplied by

SNL Financial

for roughly 98% of the nation's 7,800 banks and savings and loan associations, 158 were


, according to the regulatory guidelines that apply to most institutions. Click the link below to see the full list:

>>>Bank Watch List

The number of undercapitalized institutions is up slightly from last quarter, even though 41 banks have failed since the first-quarter list was pulled on May 11.

The list for the second quarter will likely grow once a complete set of data for the industry becomes available. It is also very important to point out that any capital raised by banking institutions during the third quarter of 2010 will not be reflected.

Most banks and thrifts need to maintain Tier 1 leverage, Tier 1 risk-based and total risk-based capital ratios of at least 5%, 6% and 10% to be considered well-capitalized under regulatory guidelines. Some trust banks carry lower capital requirements. The ratios need to be at least 4%, 4%, and 8% for most to be considered

adequately capitalized


Capitol Bancorp

Capitol Bancorp


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of Lansing, Mich. is the only bank-holding company with multiple subsidiaries on the list. The holding company had 64 separately-charted bank subsidiaries in 17 states at the end of 2009 and is aiming to reduce the number of subsidiaries to 26 this year through sales of some subsidiary banks and mergers. Last Tuesday, Capitol Bancorp announced that three Georgia subsidiary banks had been consolidated. On July 30, the company announced it had completed the sale of

Community Bank of Lincoln

, Neb.

On July 23 Capitol announced it was extending its offer to exchange its trust-preferred shares for common shares until Aug. 31. The offer is for two common shares for "each $10.00 liquidation amount of the trust preferred securities that Capitol accepts in the exchange offer." That would have worked out to less than 27 cents to the dollar as of Thursday's market close. Little wonder that only 6% of the trust-preferreds had been tendered under the exchange offer as of July 22.

Sterling Savings

The largest undercapitalized bank on the list remains

Sterling Savings Bank

of Spokane, Wash, which had $9.2 billion in total assets as of June 30 and is held by

Sterling Financial

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Sterling Financial continues to work on a deal to raise $720 million in common equity through a combination of an exchange of $303 million in preferred shares held by the U.S. Treasury for bailout money received via the Troubled Assets Relief Program, or TARP, for common shares, and issuance of common shares in equal amounts to private equity investors

Thomas H. Lee Partners


Warburg Pincus LLC


On August 2, another Sterling Financial subsidiary,

Golf Savings Bank

of Mountlake Terrace, Wash., was merged with Sterling Savings Bank. Golf Savings had $564 million in total assets as of June 30.

AnchorBank, FSB

The second-largest institution on the undercapitalized list is

AnchorBank, FSB

of Madison, Wis., with $4 billion in total assets as of June 30. The thrift is held by

Anchor BanCorp Wisconsin


, which owes $110 million in TARP money.

The holding company reported a second-quarter net loss to common shareholders of $12.2 million, or 73 cents a share, and said the capital ratios at AnchorBank, FSB had improved during the second quarter because of a continued reduction of the balance sheet through branch sales, branch closings and asset sales. Anchor's credit costs also declined during the quarter. Its provision for loan losses was $8.9 million, down from $20.2 million in the first quarter, and $19.4 million a year earlier.

On the holding company level, Anchor Bancorp reported a negative book value of $3.95 a share as of June 30. "Improving our capital position is our number one focus," said CEO Chris Bauer in a statement

Hanmi Bank

The third-largest bank on the undercapitalized list, with $2.9 billion in assets, is

Hanmi Bank

of Los Angeles, which is the main subsidiary of

Hanmi Financial

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The numbers for June 30 don't reflect the holding company's significant third-quarter capital raising activities. On July 27, Hanmi announced it had raised $120 million in common equity through a rights offering and a "best efforts public offering."

That capital raise wasn't sufficient to meet a "final order" from the California Department of Financial Institutions and a similar agreement with the Federal Reserve for the bank to increase its ratio of tangible stockholders equity to tangible assets to 9.0% by July 30.

Hanmi Financial entered into an agreement in May to sell about $210 million in common shares to

Woori Financial Holdings

, which is based in Seoul, South Korea. That capital raise is subject to approval by the regulators and Hamni said in its second-quarter 10-Q filing that the holding company couldn't provide "any assurance that the transactions contemplated by the securities purchase agreement with Woori will be consummated."


ShoreBank of Chicago

appeared to be on the

brink of failure

last week after


reported that the privately-held Chicago lender had been denied $75 million in federal bailout money.

A deal made in May with a group of investors including


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Bank of America

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Goldman Sachs

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JPMorgan Chase

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, and

Genderal Electric

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had promised ShoreBank a $145 million capital infusion contingent upon the receipt of the bailout money.

The investor money was placed in escrow, and there have been reports that the Aug. 6 deadline for the $145 million to be returned has been extended. The agreement has become a political hot potato because of ShoreBank's extensive political connections and on August 4,


reported that Neil Barofsky, the TARP inspector general, had agreed to investigate the circumstances that led to the May agreement.

>>>Bank Watch List

Ongoing Bank Failure Coverage

All bank and thrift failures since the beginning of 2008 are detailed in's

interactive bank failure map:

The bank failure map is color-coded, with the states having the greatest number of failures highlighted in red, and states with no failures in grey. By moving your mouse over a state you can see its combined 2008-2010 totals. Then click the state to open a detailed map pinpointing the locations and providing additional information for each bank failure.


Written by Philip van Doorn in Jupiter Fla.

Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.