Updated from 10:21 a.m. EDT

Regulators shut down two banks Friday, bringing the total number of bank and thrift failures during 2009 to 23. For the third time in less than a month, the FDIC apparently was unable to find a buyer for one of the failed institutions.

The Colorado State Bank Commissioner shut down New Frontier Bank of Greeley, Colo. and named the FDIC receiver. The FDIC created the Deposit Insurance National Bank of Greeley, which was to operate for about 30 days and allow New Frontier's retail savings and checking depositors to move their insured balances to other institutions. The rest of New Frontier's deposits were to be returned directly to depositors or, in some cases, to brokers.

Meanwhile, The North Carolina Commissioner of Banks shut down Cape Fear Bank of Wilmington, N.C. and appointed the Federal Deposit Insurance Corp. receiver. The FDIC then arranged for First Federal Savings and Loan Association of Charleston (held by First Financial Holdings ( FFCH)) to acquire all the deposits of the failed institution and most of its assets. Cape Fear Bank's holding company was Cape Fear Bank Corp. ( CAPE).

New Frontier Bank

New Frontier Bank had total assets of $2.0 billion and total deposits of roughly $1.5 billion. The FDIC apparently didn't find another institution willing to acquire New Frontier's deposits. Instead, it created a Deposit Insurance Bank to allow savings and checking depositors to move their insured funds to other institutions over the next 30 days. Deposit Insurance National Bank of Greeley will be administered by Bank of the West of San Francisco, and checks written against New Frontier accounts will continue to be paid until the Deposit Insurance Bank closes. Deposits transferred to the Deposit Insurance Bank totaled about $150 million. The remaining CD and IRA deposits will be returned by check directly to the depositors, or, for brokered CDs, to the brokers.

The FDIC said that approximately $4 million in deposits were in accounts that might have exceeded deposit insurance limits.

Although Colorado Bank Commissioner Fred Joseph's press release on New Frontier provided no reason for the closing, the FDIC had issued a cease and desist order to the institution on Dec. 2, requiring it to stop violations of regulations and law, as well as "unsafe and unsound" practices. The order required the institution to submit plans for raising capital and improving oversight of operations and required the removal of New Frontier's president and chief lending officer.

According to published reports, the bank was making real estate loans that were far too large for an institution of its size.

TheStreet.com Ratings had assigned New Frontier a D-minus rating based on Dec. 31, 2008 financial information, downgrading the rating from D-plus the previous quarter.

Cape Fear Bank

Cape Fear Bank had total assets of about $492 million and total deposits of $403 million. The FDIC entered into a loss-sharing agreement with First Federal S&LA of Charleston, whereby First Federal acquired all of Cape Fear Bank's deposits and $395 million in assets, with the FDIC sharing losses on certain asset pools. The agency didn't spell out what percentage of losses it would absorb.

Cape Fear's eight offices were set to reopen Monday as branches of First Federal.

While state regulators didn't issue a press release Friday on the bank failure, on Feb. 26 Cape Fear's holding company announced it had received a cease and desist order resulting from an October 2008 FDIC examination of the bank. The order required the bank to increase its capital levels and the holding company's board to "increase its participation in the affairs of the bank." Both of these stipulations are pretty standard for regulatory orders issued to troubled community banks.

TheStreet.com Ratings had assigned Cape Fear Bank an E-minus (Very Weak) rating in March, based on Dec. 31, 2008 financial information. The institution's capital ratios had slipped below what is normally considered well-capitalized in the third quarter of 2008. At the end of the year, Cape Fear's tier 1 leverage ratio was 5.66% and its total risk-based capital ratio was 8.01%, barely above the 8% required for an institution to be considered adequately capitalized under ordinary regulatory requirements.

Cape Fear Bank's losses mounted through 2008, as the institution was overwhelmed by losses in its construction loan portfolio.

Free Bank and S&L Ratings

While the FDIC has been able to find buyers for all deposits for most of the failed bank and thrifts during 2008 and 2009, there have been three failures in the past month in which the agency couldn't line up a buyer. In these situations, depositors with uninsured balances face potentially heavy losses.

Nearly all of New Frontier Bank's deposits were insured. The FDIC has temporarily increased the basic deposit insurance limit on individual accounts to $250,000 and waived all limits on insurance coverage for non-interest-bearing checking accounts. But these changes, which have done so much to mitigate the risk of runs on deposits, are set to expire at the end of 2009.

It is also apparent that even in a crisis environment, the regulatory supervision process can be rather slow, as it took regulators four months to issue a cease and desist order to Cape Fear Bank after what must have been a pretty ugly examination.

Another thing to consider is that even if your personal deposits are under FDIC insurance limits, you or someone you know are probably associated with a business, organization or government entity (such as a school district) with large deposits of somebody else's money in a local bank. In this environment, it is a very good idea to look into the health of your bank.

TheStreet.com Ratings issues independent and very conservative financial strength ratings on each of the nation's 8,500 banks and savings and loans which 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.

As originally published, this article contained an error. The original article erroneously reported that approximately $150 million, or 10%, of New Frontier Bank's deposits were uninsured. In fact, the FDIC said that approximately $4 million of the bank's deposits were in accounts that might have exceeded deposit insurance limits. This error has been corrected. TheStreet.com regrets the mistake.

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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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