State regulators closed Heritage Community Bank of Glenwood, Ill. and Security Savings Bank of Henderson, Nev. Friday, bringing the total number of U.S. banking institutions closed during 2009 to 16. The Federal Deposit Insurance Corp. was appointed receiver and arranged for other institutions to acquire all of the failed banks' deposits, including uninsured balances and CD deposits made through brokers. Both failed institutions were included in TheStreet.com's updated list of undercapitalized banks, which is the second list in our recent article focusing on undercapitalized savings and loans. Please see TheStreet.com's Bank Failure Map for an interactive summary of all previous bank and S&L failures during 2008 and 2009. The FDIC also announced amendments to the restoration plan for its deposit insurance fund, including an extra 20-basis point assessment on deposits, in addition to deposit insurance premiums already being collected. The assessments will be charged on Sept. 30. When the FDIC released its Quarterly Banking Profile Thursday, it announced that its deposit insurance fund totaled $18.9 billion as of Dec. 31, a decline of $15.7 billion during the fourth quarter, as the agency handled twelve bank failures. The agency also announced a combined net loss of $26.2 billion for the bank and S&L industry during the fourth quarter of 2008.
While the Illinois Department of Financial Professional Regulation had not yet issued a press release Friday night on the failure of Heritage Community Bank, the institution was significantly undercapitalized per regulatory guidelines, with a tier 1 leverage ratio of 2.04% and a total risk-based capital ratio of 3.29% as of Dec. 31. These ratios need to be at least 5% and 10%, respectively, for an institution to be considered well-capitalized. TheStreet.com Ratings had assigned Heritage Community Bank an E (Very Weak) financial strength rating in September, downgrading the institution from the D- (Weak) rating assigned in December 2007. Heritage Community reported net losses of $21 million during 2008 as loan losses mounted, primarily in the institution's construction loan portfolio. The FDIC estimated that the cost to its insurance fund would be $41.6 million. As part of its agreement with MB Financial, the FDIC agreed to "share in the losses on approximately $181 million in assets covered under the agreement."
TheStreet.com Ratings had assigned Security Savings Bank an E (Very Weak) financial strength rating in December, based on Sep. 30 data, when the institution was still considered well-capitalized. This was a downgrade from an E+ rating the previous quarter. Before that, the institution had received a D- (Weak) rating in December 2007. Like so many failed banks in states at the forefront of the real estate boom-and-bust cycle, Security Savings was overwhelmed by loan losses concentrated in its construction lending portfolio. The FDIC retained approximately $127 million of the failed bank's remaining assets for later disposition and estimated the cost to its insurance fund would be $59.1 million.