- First Southern National Bank , a GA based bank, was closed down by the FDIC on 19-Aug-11. There have been 20 bank failures in the country so far in this quarter, and 3 in the state of GA.
- Bankvega safety score (on a scale of 1 to 100) for this bank was 1 for the most recent quarter before its actual failure. Thus, this bank was ranked in the riskiest bucket among all commercial banks in the country.
- Over the past six quarters, the bank has experienced a remarkable detrioration in its safety ranking. As evident from this graph, the bank’s safety ranking experienced a considerable decline three quarters ago.
- Further analysis indicates that the the bank’s poor growth rate was a major contributor to its downfall.
- Post-failure Recovery: The bank’s post-failure asset value is estimated to be about 80.11% of its book value at the time of failure. Thus, the bank’s assets are expected to recover a significant portion of their pre-failure value in coming months.
- Further analysis indicates that the bank’s large cash balance is a key contributor to its higher than average recoveray rate.
Posts Tagged ‘Failure’
First Southern National Bank: Another failure in state of Georgia
Saturday, September 3rd, 2011Colorado Capital Bank: First Failure of the quarter in Colorado
Saturday, July 9th, 2011- Colorado Capital Bank , a CO based bank, was closed down by the FDIC on 8-Jul-11. There have been 24 bank failures in the country so far in this quarter, and 1 in the state of CO.
- Bankvega safety score (on a scale of 1 to 100) for this bank was 1 for the most recent quarter before its actual failure. Thus, this bank was ranked in the riskiest bucket among all commercial banks in the country.
- Over the past six quarters, the bank has experienced a remarkable detrioration in its safety ranking. As evident from this graph, the bank’s safety ranking experienced a considerable decline three quarters ago.
- Further analysis indicates that the the bank’s poor capital position was a major contributor to its failure.
- Post-failure Recovery: The bank’s post-failure asset value is estimated to be about 80.61% of its book value at the time of failure. Thus, the bank’s assets are expected to recover a significant portion of their pre-failure value in coming months.
- Further analysis indicates that the bank’s large cash balance is a key contributor to its higher than average recoveray rate.
Legacy Bank, Wisconsin: Poor Asset Quality leads to Failure
Monday, March 14th, 2011On Friday, March 11, 2011, Legacy Bank, Milwaukee, WI was closed by the State of Wisconsin Department of Financial Institutions, Division of Banking, and the Federal Deposit Insurance Corporation (FDIC) was named Receiver. The FDIC entered into a purchase and assumption agreement with Seaway Bank and Trust Company, Chicago, Illinois, to assume all of the deposits of Legacy Bank.
Safety Ranking
BankVega safety ranking for legacy bank was 1 for the last three quarters – 2010Q4 to 2010Q2. In the same period the safety index for its peer banks (similar sized banks with a similar mix in assets and deposits) in the country was 39. Thus we had placed this bank in the category of riskiest banks in the country with the highest probability of failure for the last three quarters.
Our latest Reports for this bank can be accessed here
Profile Report Safety Report Key Financial Numbers
Recovery Rate
Our estimates suggest that this bank will be able to recover about 83.91 % of its asset in post-failure auctions. In our opinion this is a relatively average recovery rate as compared to similar bank failures in the past.
Key Performance Indicators
Asset Quality: About 25.49 % of its asset exposure comes from residential mortgages. Other real estate exposure (i.e., non residential mortgage related) account for 52.79 % of total assets. BankVega Asset Quality Index has been 1 for this bank for the last three quarters. Further, Asset Quality Index the bank has been in single digits since 2008Q3 while that for its national peer banks has been around 45 during this entire period. We conclude that this bank was a high mortgage exposure bank and it was also operating with an excessive level of adversely classified assets and delinquent loans for a very long time. This is the primary reason for its failure.
Earnings: Poor asset quality has manifested itself in its poor income levels as well. The bank has shown accumulated losses of $16 million over the last two quarters. BankVega Earnings Index was 2 for this bank for 2010Q3, Q4 while that for similar banks in the country was 49.
Capital: Continued losses eroded the equity capital of the bank. BankVega Capital Index for Legacy Bank was 1 for both 2010Q4 and 2010Q3 and 3 for 2010Q2. This shows that the bank was inadequately capitalized as compared to other banks in country (average Capital Index 44 during the last three quarters) and this was a key factor in its poor safety rankings during this period.
Liquidity: The Bank has maintained sufficient liquidity throughout the period of its decline. Liquidity index at 23 which is reasonably close to 37 for its peer banks in the country. However as mentioned previously on this blog, liquidity by itself is not a substitute for strong financial fundamentals. A large amount of loans that this bank had made turned bad and it did not have the capital protection to cover its losses. This resulted in its bankruptcy.
Valley Community Bank, Illinois: Expected Failure
Saturday, February 26th, 2011On Friday, February 25, 2011, Valley Community Bank, St. Charles, IL was closed by the Illinois Department of Banking & Financial Regulation – Division of Banking and the Federal Deposit Insurance Corporation (FDIC) was named Receiver. the FDIC entered into a purchase and assumption agreement with First State Bank, Mendota, Illinois, to assume all of the deposits of Valley Community Bank. This takes the number of bank failures in the first two months of 2011 to 23.
Safety Ranking
BankVega safety ranking for Valley Community Bank has been 1 since 2009Q4. This shows that the bank has been in poor financial condition since a long time. Comparatively, average Safety score for national peer banks (similar sized banks with similar mix in assets and deposits) has been around 40. This shows that the bank ranked poorly in terms of safety compared to similar banks in the country. In our opinion this bank always had a very high probability of going bankrupt and this is the reason we included this bank in our list of banks most likely to fail in 2010.
Enforcement Orders
Our negative outlook on the bank’s future was also shared by FDIC and it issued a Consent Order (FDIC-09-214b) on April 29, 2010 under which it directed the bank to immediately increase its Tier 1 capital and Total risk-based capital ratio to minimum level of 9% and 13% respectively and reduce its exposure in Assets which are delinquent or classified as “Substandard”.
However not satisfied with the management’s inability to return the bank to a safe and sound condition and still concerned with the bank’s deteriorating condition the FDIC issued the bank SUPERVISORY PROMPT CORRECTIVE ACTION DIRECTIVE (FDIC-10-637pcas) on Sep 8, 2010 which directed the bank to take strong actions to recapitalize the bank. This shows that our opinion of the bank’s financial distress was also shared by FDIC.
Recovery Rate
Our estimates suggest that this bank will be able to recover about 83.36 % of its asset in post-failure auctions. In our opinion this is a relatively lower recovery rate as compared to similar bank failures in the past.
Key Performance Indicators
Asset Quality: BankVega Asset Quality Index for Valley Community bank has been 1 since 2009 Q2 (last six quarters). This is an indicator of the excessive concentration of problematic, delinquent loans in the bank’s asset portfolio. FDIC had made a similar observation on the bank’s asset quality. This also gives us the most probable cause for the bank’s failure.
Earnings: Poor Asset Quality resulted in declining profitability for this bank. The Bank sustained losses in the last 8 quarters. This trend in losses is reflected in our Earnings index for this bank. During 2009Q2 – 2010 Q3, Earnings Index ranged from 5 to 7 while corresponding values for its national peers were 51.
Capital: BankVega Capital Index was 1 for 2010Q3, Q2 and less than 4 from 2010Q1 to 2009Q3. This is very poor in comparison to the average index value of 45 for similar banks in the country. FDIC has remarked in its Enforcement Orders that Valley Community Bank was “significantly undercapitalized” and this is also reflected by our Capital Index for the bank.
Liquidity: Liquidity was not an immediate concern for the bank. This can be seen by the trend in BankVega Liquidity Index for this bank. We see that Liquidity index for this bank was 45 which is comparable to that of its national peer banks (48). The same trend is observed for its previous quarters as well.
Our negative outlook on the bank’s future reflected in our safety rankings for the bank was based on a deep down analysis of the bank’s key financial indicators. The bank had a high proportion of classified loans which turned bad. It was undercapitalized and hence could not write off its continuing losses against its equity capital resulting in its bankruptcy.
Charter Oak Bank, California: Sudden decline
Saturday, February 19th, 2011On Friday, February 18, 2011, Charter Oak Bank, Napa, CA was closed by the California Department of Financial Institutions, and the Federal Deposit Insurance Corporation (FDIC) was named Receiver. The FDIC entered into a purchase and assumption agreement with Bank of Marin, Novato, California, to assume all of the deposits of Charter Oak Bank
Safety Ranking
BankVega safety ranking for the bank was 2, which means based on our analysis the bank had a high probability of failure. Further, analyzing the trend in the bank’s safety ranking, we observe that the safety score for this bank has actually plummeted sharply in two quarters. The bank’s decline has been quick and sudden – BankVega safety ranking for Charter Oak Bank fell from 65 for 2009Q3 to just 5 in 2010Q2. Before the drop, the bank enjoyed a safety ranking much higher than its national peer banks (banks of similar size with a similar mix in assets and deposits). Its safety scores were always 20-30 points above the national average. The significant drop in safety ranking therefore put the bank under the category of riskiest banks in the country from a very healthy financial position.
Our latest reports for this bank can be found here
Profile Report Safety Report Key Financial Numbers
Recovery Rate
Our estimates suggest that this bank will be able to recover about 78.4% of its asset in post-failure auctions. In our opinion this is a relatively poor recovery rate as compared to similar bank failures in the past.
Enforcement Order
FDIC also took a note of the bank’s deteriorating condition, the management’s inability to return the bank to a safe and sound condition and denoted the bank as an undercapitalized depository institution. Therefore the FDIC issued the bank SUPERVISORY PROMPT CORRECTIVE ACTION DIRECTIVE (FDIC-10-749pcas) on Sep 30, 2010 which directed the bank to take strong actions to recapitalize the bank. This shows that our opinion of the bank’s financial distress was also shared by FDIC.
Key Performance Indicators
Asset Quality: Mortgages constitute 58% of its total assets. Due to very high proportion of Nonperforming loans in the asset portfolio, BankVega Asset Quality Index was 5 for 2010Q3 for the bank while corresponding value for national peer banks was 43.
Earnings: Poor Asset Quality has resulted in poor profitability for this bank. The Bank declared accumulated losses to the tune of $16 million in the last two quarters. This trend in losses is also reflected in our Earnings index for this bank during this period. Earnings Index was 0 for the bank in the last two quarters compared to Earnings Index of 45 for similar banks in the country.
Capital: FDIC had noted the bank to be undercapitalized and hence unsafe. This is also proved by BankVega Capital Index values of 1, 2 for 2010Q3 and 2010Q2 respectively for Charter Oak Bank. Compared to this national peer banks had a capital Index of 46 for these quarters. However, Capital Index for this bank was 29 for 2010Q1 and 67 for 2009Q3 (42 for peers) which shows that the decline in the bank’s financial health has been sudden and very recent.
Liquidity: The bank historically maintained very low levels of liquidity and therefore put itself into risk of sudden withdrawal of funds by depositors or drawdown by their borrowers. In the last four years BankVega Liquidity Index for the bank has been in single digits while corresponding values for national peer banks have been around 35.