Three Banks Fail Friday

• ByPhilip van Doorn, TheStreet.com Ratings Bank Analyst
• On 11:30 am EDT, Saturday August 29, 2009

WASHINGTON (TheStreet) -- Regulators shut down two banks and one thrift Friday, bringing the total number of failed U.S. banking institutions during 2009 to 84.

The Office of Thrift Supervision shuttered Bradford Bank of Baltimore. The Federal Deposit Insurance Corp. was appointed receiver and sold all of the institution's deposits and branches to Manufacturers & Traders Trust of Buffalo, N.Y., the main subsidiary of M&T Bank Corp.. Allied Irish Banks holds a significant stake in M&T Bank Corp.

Minnesota regulators closed Mainstreet Bank of Forest Lake, Minn. and appointed the FDIC receiver. The FDIC was appointed receiver and sold the failed bank's deposits and branches to Central Bank of Stillwater, Minn.

The California Department of Financial Institutions took over Affinity Bank of Ventura, Calif. The FDIC was appointed receiver and sold all of Affinity's deposits and branches to Pacific Western Bank of San Diego. Pacific Western is held by PacWest Bancorp.

All three failed institutions were included in TheStreet.com's list of 116 undercapitalized banks and thrifts, based on second-quarter data.

Of the 89 institutions on a previous list published TheStreet.com in late May, 38 have failed. That list also included the three institutions that failed Friday.

All previous bank failures since the beginning of 2008 are detailed on TheStreet.com's interactive Bank Failure Map.

Georgia continues to lead all states with 23 bank or thrift failures during 2008 and 2009, followed by Illinois and California with 14 each, Florida with eight and Nevada with five.

Large bank holding companies that have acquired failed institutions during 2008 and 2009 include J.P. Morgan Chase , which acquired Washington Mutual, the largest-ever bank or thrift to fail in the U.S.; SunTrust Banks ; Regions Financial ; Fifth Third Bancorp ; U.S. Bancorp ; Zions Bancorp ; PNC Financial ; and BB&T Corp .

Bradford Bank

TheStreet.com Ratings had assigned Bradford Bank an E-minus (Very Weak) financial strength rating back in December, which was a downgrade from a D-minus (Weak) the previous quarter. The thrift had been operating under a regulatory cease-and-desist order since September, which required it to raise capital and cease commercial and real estate development lending.

On July 24, the OTS issued another order, giving Bradford Bank 30 days to finalize a deal to merge with another institution, be acquired or sell most of its assets. This followed six straight quarters of net losses that left Bradford Bank critically undercapitalized as of June 30, with a Tier 1 leverage ratio of 0.99% and a total risk-based capital ratio of 2.80%. These ratios need to be at least 5% and 10%, respectively, for most banks and thrifts to be considered well capitalized under regulatory capital guidelines. The ratios need to be 4% and 8%, respectively, for most institutions to be considered adequately capitalized.

Bradford Bank had $452 million in total assets and $383 million in deposits. Manufacturers & Traders Trust Co. purchased nearly all of the failed institution's assets, and the FDIC agreed to share losses on $338 million of the assets.

Bradford's nine offices were scheduled to reopen Saturday as branches of Manufacturers & Traders. The FDIC estimated the cost to its insurance fund would be $97 million.

Mainstreet Bank

Mainstreet Bank had been assigned an E-minus rating by TheStreet.com Ratings in March, a downgrade from an E-plus rating the previous quarter.

A $17 million second-quarter loss left Mainstreet Bank insolvent as of June 30, with a Tier 1 capital ratio of negative 0.99%. The bank's ratio of nonperforming assets to total assets was 16.75%, even after $19 million in net charge-offs during the second quarter. Most of the bank's problem assets were commercial and residential construction loans.

When Mainstreet Bank was shut down it had $459 million in total assets and $434 million in total deposits. In addition to all of the retail deposits, Central Bank acquired most of the failed institution's assets. The FDIC agreed to share in losses on $268 million of the acquired assets.

Mainstreet's eight branches were set to reopen Saturday as branches of Central Bank. The FDIC estimated the cost to its insurance fund would be $95 million.

Affinity Bank

TheStreet.com Ratings had assigned Affinity Bank an E-minus financial strength rating in March, a downgrade from a D-minus the previous quarter.

Affinity was critically undercapitalized at the end of the second quarter, as a $37 million net loss (mainly from charge-offs of soured residential construction loans) left it with a Tier 1 leverage ratio of just 1.49%.

The Bank missed an Aug. 20 deadline imposed by regulators in April to increase Tier 1 capital to 8% of total assets.

Affinity Bank had roughly $1 billion in total assets and $922 million in deposits. Pacific Western Bank acquired essentially all of the assets, with the FDIC agreeing to share in losses on $934 million of the assets.

Affinity had 10 offices. Its branches in San Francisco and San Mateo were scheduled to reopen Saturday, and the other offices were scheduled to reopen Monday as branches of Pacific Western Bank.

The FDIC estimated the cost to its insurance fund would be $254 million.

Free Financial Strength Ratings

While depositors didn't lose any money in Friday's three failures, there have been seven failed institutions this year for which the FDIC was unable to find another institution to acquire deposits. Depositors with total balances exceeding FDIC insurance limits have lost money in five of those failures.

The FDIC's temporary increase of the basic individual deposit insurance limit to $250,000 has been extended through 2013, but the agency announced Wednesday that the waiver of all limits on deposit insurance for non-interest-bearing transaction accounts (business checking accounts) will end on June 30, 2010.

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.

Back in October 2007 when NetBank failed, TheStreet.com reported on a business that lost $500,000 because money had been wired into its checking account right before the failure. These were operating funds that came in from customers and were owed to vendors.

For depositors shopping for high-rate CDs through brokers, it is also important to consider the health of a bank or thrift, since attractive CD rates that are locked in can be lost when an institution fails. Depositors of three of the institutions that failed Friday face this inconvenience.

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.

TheStreet.com Ratings also provides award-winning stock ratings, which are available on the Stock Ratings Screener.

TheStreet.com Ratings was recently ranked the No. 1 independent stock selector during the market meltdown by BNY ConvergEx Group's BNY Jaywalk.

-- Written by Philip van Doorn in Jupiter Fla.

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