Recent bank closings reflect old trends

Introduction

The abandoned cranes and empty Caterpillars say it all: U.S. commercial real estate development is crawling or at a standstill. The paralyzed commercial real estate market has already killed off many small and medium-sized banks around the country, and the Federal Deposit Insurance Corp. says the number of troubled banks rose to 829 in the last quarter, the highest in years.

Florida, California, Illinois, Georgia and Minnesota have the dubious distinction of leading the nation in the most banks shuttered during the last couple of years. We decided to take a closer look at a sample of banks from those states and why they went under.

Following is a profile of one bank from each of those five states, chosen at random from the FDIC’s list of failed banks.

Horizon Bank in Bradenton, Fla., closed its doors on Sept. 10 and was the 119th U.S. institution to fail this year. Bank of the Ozarks in Little Rock, Ark., assumed Horizon’s deposits. Horizon, which had $187.8 million in assets, was shut after huge losses in real estate loans that ran the gamut from acquisition, construction, development and commercial real estate. The failed bank is estimated to cost the FDIC’s deposit insurance fund $58.9 million.

ShoreBank in Chicago, was shut on August 20. Urban Partnership Bank, also in the Windy City, assumed the bank’s assets. As of June 30, the bank had about $2.16 billion in total assets. With a special focus on providing loans and services to small businesses in Chicago, Detroit and Cleveland, ShoreBank was shut due to problems in its residential rehabilitation and condo conversion loans provided in many low-income communities. Located near the Chicago home of President Barack Obama, ShoreBank rose to prominence as it sought to give loans to low-income communities and philanthropic causes. The FDIC’s deposit insurance fund is expected to take $367.7 million hit.

Crescent Bank and Trust Co. in Jasper, Ga., closed its doors on July 23. Renasant Bank of Tupelo, Miss., took over the bank’s deposits. As of March 31, the bank had about $1 billion in total assets. The troubled real-estate market was almost wholly to blame, as Crescent had losses in loans involving acquisition, development, construction and commercial real estate. The FDIC estimates the cost to the deposit insurance fund will be $242.4 million.

1st American State Bank of Minnesota of Hancock, Minn., closed on Feb. 5 and its deposits were assumed by Community Development Bank, FSB, of Ogema, Minn. The small bank, which had just $18.2 million in assets, suffered losses in both its loan and lease portfolios largely due to real estate: purchased commercial real-estate, construction, development and industrial loans and leases all led to the bank’s demise. The cost to the FDIC’s deposit insurance fund was estimated at $3.1 million.

San Joaquin Bank in Bakersfield, Calif., closed on Oct. 16, 2009. The bank’s deposits were assumed by Citizens Business Bank of Ontario, Calif. The bank had had total assets of $775 million but saw its capital depleted by loans to buy and develop real estate as well as for construction. The FDIC estimated the deposit insurance fund would take a $103 million hit.

To check out your own bank’s financial health based on quarterly FDIC data, visit American University’s Investigative Reporting Workshop BankTracker database here. It calculates a “troubled asset ratio” for each U.S. bank by comparing its problem loans and assets against core capital and reserves for loan losses.