State regulators closed two small banks late Friday, bringing this year's total of failed U.S. institutions to 15. The good news was that depositors didn't lose a dime.

The Michigan Office of Financial and Insurance Regulation shut down Main Street Bank of Northville, Mich., and the Federal Deposit Insurance Corporation was named receiver. The FDIC announced that Monroe Bank and Trust of Monroe, Mich. acquired all of the failed institution's deposits.

The other failed institution was Meridian Bank of Eldred, Ill., whose deposits were all assumed by National Bank of Hillsboro, Ill.

Main Street Bank had total assets of $98 million as of Oct. 7 and had been assigned a financial strength rating of E- (very weak) by TheStreet.com Ratings back in March, based on year-end 2007 financial reports. The institution experienced a steady increase in nonperforming residential mortgages and construction loans and was considered significantly undercapitalized per regulatory guidelines as of June 30, 2008.

Main Street's leverage ratio was 2.28% as of June 30, and its risk-based capital ratio was 4.20%. These ratios need to be at least 5% and 10%, respectively, for a bank or savings & loan to be considered well-capitalized under regulatory guidelines.

The FDIC confirmed the $86 million in deposits assumed by Monroe Bank and Trust included uninsured balances. Both Main Street Bank branches were to reopen as Monroe branches Saturday morning.

The FDIC estimated the loss to its deposit insurance fund would be between $33 million and $39 million, quite a large amount, considering the size of the failed bank.

The other failed bank, Meridian, had total assets of $39 million as of Sept. 25 and had also been rated E- (very weak) by TheStreet.com Ratings. The rating was downgraded to E- back in June 2007 because of the institution's weak earnings, high level of nonperforming loans and relatively low level of capital and loan loss reserves.

Meridian was undercapitalized per regulatory guidelines, with leverage and risk-based capital ratios of 4.02% and 6.64%, respectively, as of June 30.

The FDIC confirmed that all $37 million in Meridian deposits, including uninsured balances, were acquired by National Bank. The failed bank's offices in the Illinois towns of Altamont, Carlyle, and Eldred were to reopen Saturday Morning, while another branch in Alton, Ill. was scheduled to reopen Tuesday. All will reopen as branches of National Bank.

The FDIC estimated the cost to its deposit insurance fund would range between $13 million and $14.5 million, another very large amount relative to the size of the failed bank.

Before Friday's failures, the previous bank to go under was Washington Mutual (on Sept. 25). Its deposits were assumed by JPMorgan Chase ( JPM).

Another huge failure was prevented when the FDIC on Sept. 29 helped arrange for Citigroup ( C) to acquire the banking subsidiaries of Wachovia ( WB) for about $2.2 billion. This came after Wells Fargo ( WFC) got cold feet when negotiating to acquire all of Wachovia. The FDIC also agreed to absorb any losses incurred by Citigroup on Wachovia's troubled loan portfolio beyond the first $42 billion.

This Citigroup deal was trumped by a subsequent offer from Wells Fargo of $15.1 billion to acquire all of Wachovia's operations, with no loss backstop from the FDIC. After some wrangling over the past week, Citigroup walked away from its attempt to acquire Wachovia's banking businesses, but continued to pursue a lawsuit against Wells Fargo, seeking $60 billion in damages for "bad faith breach of contract and tortious interference."

Bank and Thrift Ratings

TheStreet.com Ratings provides independent, objective and conservative financial strength ratings for all U.S. banks and thrifts. While your deposits may be under FDIC insurance limits, it is still a good idea to check out your institution's rating, and ask some questions if the rating is below a C- (Fair Financial Strength).

Another thing to consider is 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.

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.
Philip W. van Doorn joined TheStreet.com 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.

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