Regulators Close Banks in Georgia, Texas

Haven Trust Bank and Sanderson State Bank fail, but the FDIC arranges for other banks to acquire their deposits.
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The Federal Deposit Insurance Corporation announced late Friday the failure of two more banks, bringing the total number of U.S. bank and thrift failures during 2008 to 25.

Georgia regulators closed

Haven Trust Bank

of Duluth, Ga., and

BB&T Corp

(BBT) - Get Report

acquired its four branches and all of its deposits.

Meanwhile, the Texas Department of Banking shut down

Sanderson State Bank

of Sanderson, Texas, and the bank's single office and all deposits were taken over by

The Pecos County State Bank

of Fort Stockton, Texas.

The good news for depositors is that the FDIC, following its recent pattern, arranged for other institutions to assume all of the failed banks' deposits, including uninsured balances.

Haven Trust Bank

Haven Trust Bank is the fifth Georgia bank to fail during 2008. Like other shuttered institutions in that state, Haven Trust had a high concentration of commercial and residential real estate loans in the Atlanta metropolitan area. The bank had $572 million in total assets when it was closed and was assigned a D- (Weak) financial strength rating by Ratings

back in June, after loan quality sank in the first quarter. Haven also slipped below well-capitalized status at the end of the first quarter, since its risk-based capital ratio was 9.93%, just under the 10% regulatory threshold for a well-capitalized bank.

At the end of the third quarter, Haven's nonperforming assets, consisting of loans past due 90 days or in nonaccrual status, along with repossessed real estate, comprised 12.37% of total assets. Through the third quarter, net loan charge-offs were at a 5% annual pace to average loans, and were bound to increase. After a $12.5 million net loss for the third quarter, Haven was considered undercapitalized per regulatory guidelines, with a leverage ratio of 4.42% and a risk-based capital ratio of 6.16%.

Nice Deal for BB&T

BB&T acquired Haven's $515 million in deposits, along with $55 million in assets, including four offices. This was a great way for $137 billion-asset BB&T to expand its deposit-gathering footprint in Georgia, since BB&T wasn't forced to purchase Haven's troubled real estate loan portfolio.

Winston-Salem, NC-based BB&T already has enough residential construction exposure in Georgia, with $1.5 billion outstanding as of Sept. 30, and 8.42% in nonaccrual status, meaning the company doesn't expect repayment of principal or interest. Gross charge-offs for BB&T's residential construction portfolio in Georgia for the first three quarters reached an annualized pace of 3.98%.

BB&T has received a $3.1 billion capital infusion from the U.S. Treasury, through the Troubled Assets Relief Program (TARP).

More deals of this type are expected, since most of the large regional players have received approval for TARP money, and because there have been several other similar deals for small failed institutions this year, including the acquisition of the insured deposits of First Priority Bank of Bradenton, Fla., by


(STI) - Get Report

, the assumption of all deposits of Integrity Bank of Alpharetta, Ga. by

Regions Financial

(RF) - Get Report



(FITB) - Get Report

takeover of all deposits of Freedom Bank, of Bradenton, Fla.

An example of a large regional bank taking over smaller failed institutions (although much larger than the failed ones mentioned above) is

U.S. Bancorp's

(USB) - Get Report

acquisition of all the deposits

of Downey Savings of Newport Beach, Calif., and PFF Bank & Trust of Pomona, Calif., on Nov. 21.

Sanderson State Bank

The other institution to fail Friday, Sanderson State Bank, had $37 million in total assets has been rated a D+ (weak) since March. The rating was still based on June 30 financials, since the Sept. 30 call report data for the industry was only finalized last week.

As of Sept. 30, the institution's nonperforming assets ratio had shot up to 7.65% from 4.31% in June. Most of the problem assets were nonaccruing residential construction loans. In its announcement of the failure of Sanderson State Bank, the Texas Department of Banking cited the problem loans and an over-reliance on brokered deposits, which led to a liquidity problem for the institution.

Sanderson's depositors will see their branch reopen as a branch of Pecos County State Bank, which has consistently received a B (Good) financial strength rating from Ratings

. Pecos County had $116 million in total assets as of Sept. 30 and was strongly capitalized, with a leverage ratio of 8.47% and a risk-based capital ratio of 23.17%. It had a reasonably varied loan portfolio and good asset quality, with a nonperforming assets ratio of 0.32%. The only blemish on the asset quality was that net loan charge-offs for the first three quarters were at an annualized pace of 1.28% of average loans.

Free Bank and Thrift Ratings

The FDIC announced that its list of problem banks and savings and loan institutions grew to 171 at the end of the third quarter from 117 at the end of the second quarter. Total assets for banks on the list were $116 billion as of Sept. 30.

While depositors can take some comfort from the FDIC's temporary increase in deposit insurance limits, the $250,000 basic coverage limit for individuals is scheduled to revert to $100,000 at the end of 2009. Similarly, the waiver of the coverage limit for non-interest paying checking accounts will also end at that time. Under these circumstances, a year might seem to pass by very quickly.

It is also important to consider that you or someone you know may be affiliated with a business or municipal depositor (such as a school district) that keeps large uninsured balances in a local institution. Knowing how slowly wheels can turn in large organizations, it's better to take a few seconds now to make sure that large amounts of somebody else's money are parked in a safe place, especially when the FDIC insurance $100,000 limit on noninterest-paying checking accounts returns.

Independent, objective and conservative Financial Strength Ratings on each of the nation's 8,600 banks and savings and loans are available at no charge on the

Banks & Thrifts Screener

. In addition, the Financial Strength Ratings for 4,000 life, health, annuity, and property/casualty insurers are available on the

Insurers & HMOs Screener


It never hurts to check out your institution's rating, and ask some questions if the rating is below a C- (Fair Financial Strength).

Philip W. van Doorn joined Ratings., Inc., in February 2007. He is the senior analyst responsible for assigning financial strength ratings to banks and savings and loan institutions. He also comments on industry and regulatory trends. Mr. van Doorn has fifteen years experience, having served as a loan operations officer at Riverside National Bank in Fort Pierce, Florida, 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.