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Regulators Close Two Banks

Depositors with uninsured balances at one institution incur losses.

With the holidays behind us, state and federal regulators have resumed closing banks, and the Federal Deposit Insurance Corp.'s recent streak of avoiding losses to depositors with uninsured balances has come to an end.

The Office of the Comptroller of the Currency closed

National Bank of Commerce

of Berkeley, Ill. late Friday, and the Federal Deposit Insurance Corporation was named receiver. All of the failed institution's deposits were acquired by

Republic Bank of Chicago

of Oak Brook, Ill.

Meanwhile, the Washington Department of Financial Institutions shuttered the

Bank of Clark County

of Vancouver, Wash. The FDIC was named receiver and announced that insured deposits were acquired by

Umpqua Bank

of Roseburg, Ore., which is held by

Umpqua Holdings

(UMPQ) - Get Umpqua Holdings Corporation Report


National Bank of Commerce

During the first half of 2008, National Bank of Commerce appeared to be weathering the economic storm well. It remained profitable, suffered hardly any loan losses and exceeded regulatory requirements for a well-capitalized institution. As of June 30 it had a leverage ratio of 7.79% and a risk-based capital ratio of 12.70%. These ratios need to be at least 5% and 10%, respectively, for a bank or thrift to be considered well-capitalized under regulatory guidelines.

However, in the third quarter, the institution reported a net loss of $56 million, the result of $57 million in realized securities losses. These losses more than wiped out the bank's capital, which totaled $41 million as of June 30.

While regulators didn't state the reason for the bank's closing, the losses apparently were on preferred shares of

Fannie Mae



Freddie Mac


, which were wiped out when the Treasury Department placed the mortgage giants in receivership.

TheStreet Recommends Ratings downgraded National Bank of Commerce's financial strength rating to an E- (Very Weak) on Jan. 6, based on Sept. 30, 2008 financial results. The updated ratings were set to be published on

on Jan. 20.

The bank had $431 million in total assets as of Jan. 7. The FDIC announced that Republic Bank of Chicago would assume all of the failed banks deposits, including uninsured balances. Republic also agreed to take on $367 million in assets at a discount of $44.9 million. National Bank of Commerce's two offices were set to reopen Saturday as branches of Republic Bank.

The estimated loss to the FDIC's insurance fund was $97.1 million. The FDIC stated that the arrangement with Republic Bank, including its acquisition of uninsured deposits, was the "least costly" resolution.

The least costly resolution of Friday's other bank failure was very costly for depositors with uninsured balances.

Bank of Clark County

Washington regulators cited "inadequate capital and liquidity" for their closing of Bank of Clark County. The failed institution had total assets of $447 million and total deposits of $367 million.

Umpqua bank assumed the insured deposits, with Bank of Clark County's two offices set to reopen as Umpqua branches Tuesday.

There were $39.3 million in uninsured deposits in 138 accounts.

When a bank or thrift fails and uninsured deposits are not assumed by another institution, depositors can lose all of their uninsured balances, but they usually recover a portion from the FDIC. Any funds recovered are called "dividends." The FDIC often announces an "advance dividend" or immediate payment to depositors of a portion of their uninsured balances. In its press release, the FDIC made no mention of an advance dividend for Bank of Clark County's depositors.

Although the institution's Sept. 30 numbers showed a weakening situation, Bank of Clark County broke even for the quarter and was still well-capitalized, with a leverage ratio of 9.67% and a risk-based capital ratio of 10.74%. Loan quality was weakening, with nonperforming assets comprising 4.16% of total assets as of Sept. 30, and loan losses were increasing. Ratings downgraded Bank of Clark County's financial strength rating to D (Weak) in June 2008.

Bank reports are not yet available for the fourth quarter of 2008, and most won't be until mid-February at the earliest, but Bank of Clark County must have suffered significant further deterioration in the fourth quarter. In a statement, the Washington Department of Financial Institutions said, "This unfortunate event is the result of a combination of significant deterioration in loan portfolios and the overall economic instability we are experiencing today in our country."

The FDIC estimated the loss to its deposit insurance fund would range between $120 million and $145 million.

Free Bank and Thrift Ratings

While the FDIC temporarily has increased its basic individual deposit insurance limit to $250,000 and waived limits on non-interest-bearing business checking accounts, these changes are set to expire at the end of 2009. Chances are that you or someone you know are associated with a business or municipal entity, such a school district, that keeps large amounts of somebody else's money on deposit in a local bank or savings and loan.

It's always a good idea to monitor the health of your depositor institution, and the end of 2009 will be here soon enough. The failure of Bank of Clark County shows that despite the temporary increase in deposit insurance limits and the best efforts of the FDIC, depositors can still lose a lot of money when an institution fails. Ratings publishes independent, conservative financial strength ratings each for the nation's approximately 8,500 banks and thrifts. You can look up your institution's rating, free of charge, using the

Banks and Thrifts Screener


Please click


for a look at the strongest banks and thrifts, based on Sept. 30, 2008 financial reports.

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.