State regulators shut down Freedom Bank of Georgia of Commerce, Ga. Friday, bringing to 17 the number of U.S. banks and savings and loans closed during 2009. The Federal Deposit Insurance Corp. was appointed receiver, and it arranged for Northeast Georgia Bank of Lavonia, Ga. to assume all of the failed institution's deposits and most of its assets. Freedom Bank's four offices were set to reopen Monday as branches of Northeast Georgia Bank. TheStreet.com had included Freedom Bank in its updated list of undercapitalized banks (the second list in a recent article on undercapitalized savings and loans). Please see TheStreet.com's Bank Failure Map for an interactive summary of all bank and S&L failures during 2008 and 2009. The American Banker reported Thursday that the FDIC would backtrack on the restoration plan for its deposit insurance fund, reducing a planned Sept. 30 special assessment on deposits to 10 basis points from 20 basis points.
The institution's nonperforming loans spiked in December 2007, and loan quality continued to slide through 2008. Mounting loan charge-offs led to net losses of $9 million for 2008, leaving Freedom Bank significantly undercapitalized under regulatory guidelines. As of Dec. 31, its tier 1 leverage ratio was 2.73% and its total risk-based capital ratio was 4.72%. These ratios need to be at least 5% and 10%, respectively, for an institution to be considered well-capitalized. While the Georgia Department of Banking and Finance didn't issue a press release Friday discussing Freedom Bank, it had become clear that without a significant injection of new capital -- something that's becoming increasingly difficult for community banks to secure in the current environment -- the bank would be unable to survive. The FDIC agreed to share losses on about $97 million of the assets acquired by Northeast Georgia Bank and estimated the cost to its deposit insurance fund would be $36.3 million.
If your personal bank account balances don't exceed the insurance limits, you might assume there's no need to be concerned about potential bank failures. Yet you or someone you know are probably associated with a businesss, organization or government entity (such as school district) that has large deposits in a local bank. In the current environment, it's a very good idea to look into the health of your bank. The FDIC's basic individual deposit insurance limit has been temporarily increased to $250,000, and the agency has waived its limit on insurance covering non-interest-bearing business checking accounts. But these measures are set to expire on Dec. 31. Considering that the agency's insurance fund is dwindling and that Congress could drag its feet, there's no guarantee that these temporary measures won't expire at the end of the year. There's another concern for CD depositors, even those with balances that are less than FDIC insurance limits. Sometimes when a bank or thrift fails, the acquiring bank doesn't pick up the failed institution's CD deposits. When this happens, depositors must wait for their brokers to collect their balances (which are no longer earning interest) from the FDIC. These depositors must then shop around for other CDs, possibly at lower rates than the ones their brokers had locked in previously. TheStreet.com Ratings issues independent and very conservative financial strength ratings on each of the nation's 8,500 banks and savings and loans. They 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.